-----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, C3kwmXSTSIjTqWHnFm8zQisBpvEh1D5XC6fk/1OlKvvzdBYbqQtMKtHFO43alSwW W+NuI7tne9xG+PZ8746TYQ== 0000950132-99-000523.txt : 19990518 0000950132-99-000523.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950132-99-000523 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RESPIRONICS INC CENTRAL INDEX KEY: 0000780434 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 251304989 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16723 FILM NUMBER: 99625437 BUSINESS ADDRESS: STREET 1: 1501 ARDMORE BOULEVARD CITY: PITTSBURGH STATE: PA ZIP: 15221-4401 BUSINESS PHONE: 4127312100 MAIL ADDRESS: STREET 1: 1501 ARDMORE BOULEVARD CITY: PITTSBURGH STATE: PA ZIP: 15221-4401 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 1999 -------------- or [_] Transition Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to ------ ------ Commission File No. 000-16723 RESPIRONICS, INC. (Exact name of registrant as specified in its charter) Delaware 25-1304989 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 1501 Ardmore Boulevard Pittsburgh, Pennsylvania 15221 (Address of principal executive offices) (Zip Code) (Registrant's Telephone Number, including area code) 412-731-2100 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for at least the past 90 days. Yes X No . --- --- As of April 30, 1999, there were 30,584,364 shares of Common Stock of the registrant outstanding. INDEX RESPIRONICS, INC. PART I - FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements (Unaudited). Consolidated balance sheets -- March 31, 1999 and June 30, 1998. Consolidated statements of operations -- Three and nine months ended March 31, 1999 and 1998. Consolidated statements of cash flows -- Nine months ended March 31, 1999 and 1998. Notes to consolidated financial statements -- March 31, 1999. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition PART II - OTHER INFORMATION - --------------------------- Item 1. Legal Proceedings. Item 2. Changes in Securities. Item 3. Defaults Upon Senior Securities. Item 4. Submission of Matters to a Vote of Security Holders. Item 5. Other Information. Item 6. Exhibits and Reports on Form 8-K. SIGNATURES - ---------- CONSOLIDATED BALANCE SHEETS (UNAUDITED) RESPIRONICS, INC. AND SUBSIDIARIES
March 31 June 30 1999 1998 --------------------------------- ASSETS CURRENT ASSETS Cash and short-term investments $ 19,612,892 $ 14,874,753 Trade accounts receivable, less allowance for doubtful accounts of $9,268,000 and $8,246,000 112,085,824 90,985,120 Inventories 59,481,919 58,897,764 Prepaid expenses and other 16,586,282 14,977,842 Deferred income tax benefits 14,948,226 14,948,226 ------------- ------------- TOTAL CURRENT ASSETS 222,715,143 194,683,705 PROPERTY, PLANT AND EQUIPMENT Land 3,343,342 3,360,885 Building 12,405,493 13,564,623 Machinery and equipment 60,207,633 54,087,893 Furniture, office and computer equipment 35,616,584 27,170,001 Leasehold improvements 1,436,772 1,148,251 ------------- ------------- 113,009,824 99,331,653 Less allowances for depreciation and amortization 55,054,194 50,408,095 ------------- ------------- 57,955,630 48,923,558 Funds held in trust for construction of new facility 844,344 817,820 OTHER ASSETS 13,435,141 14,774,380 COST IN EXCESS OF NET ASSETS OF BUSINESS ACQUIRED 66,313,268 68,902,667 ------------- ------------- $ 361,263,526 $ 328,102,130 ============= =============
See notes to consolidated financial statements.
March 31 June 30 1999 1998 --------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 24,725,226 $ 20,966,011 Accrued expenses and other 34,986,241 33,048,316 Current portion of long-term obligations 958,976 3,119,617 ------------- ------------- TOTAL CURRENT LIABILITIES 60,670,443 57,133,944 LONG-TERM OBLIGATIONS 99,659,081 69,316,177 MINORITY INTEREST 773,630 812,116 COMMITMENTS SHAREHOLDERS' EQUITY Common Stock, $.01 par value; authorized 100,000,000 shares; issued and outstanding 32,978,047 shares at March 31, 1999 and 32,678,632 shares at June 30, 1998 329,780 326,786 Additional capital 108,118,099 105,376,608 Cumulative effect of foreign currency translations (1,890,486) (1,416,465) Retained earnings 119,577,986 97,648,469 Treasury stock (25,975,007) (1,095,505) ------------- ------------- TOTAL SHAREHOLDERS' EQUITY 200,160,372 200,839,893 ------------- ------------- $ 361,263,526 $ 328,102,130 ============= =============
See notes to consolidated financial statements. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) RESPIRONICS, INC. AND SUBSIDIARIES
Three months ended Nine months ended March 31 March 31 1999 1998 1999 1998 ------------------------------- ------------------------------- Net sales $ 90,882,059 $ 80,127,507 $ 267,490,880 $ 266,349,507 Cost of goods sold 46,577,974 41,899,865 138,193,374 136,006,865 ------------- ------------- ------------- ------------- 44,304,085 38,227,642 129,297,506 130,342,642 General and administrative expenses 10,844,007 9,653,659 31,929,197 27,826,466 Sales, marketing and commission expenses 14,624,638 16,046,023 45,152,804 49,729,365 Research and development expenses 3,989,291 4,815,363 12,923,191 15,126,363 Merger related costs -0- 37,502,626 -0- 37,502,626 Costs associated with an unsolicited offer to acquire Healthdyne Technologies, Inc. -0- -0- -0- 650,000 Interest expense 1,377,194 890,765 3,558,478 3,038,765 Other income (299,753) (386,819) (815,359) (1,245,819) ------------- ------------- ------------- ------------- 30,535,377 68,521,617 92,748,311 132,627,766 ------------- ------------- ------------- ------------- INCOME (LOSS) BEFORE INCOME TAXES 13,768,708 (30,293,975) 36,549,195 (2,285,124) Income taxes 5,507,484 (8,044,444) 14,619,678 3,157,555 ------------- ------------- ------------- ------------- NET INCOME (LOSS) 8,261,224 (22,249,531) 21,929,517 (5,442,679) ------------- ------------- ------------- ------------- Basic earnings (loss) per share $ 0.26 $ (0.69) $ 0.69 $ (0.17) ============= ============= ============= ============= Basic shares outstanding 31,423,061 32,417,850 31,866,880 31,933,484 Diluted earnings (loss) per share $ 0.26 $ (0.69) $ 0.68 $ (0.17) ============= ============= ============= ============= Diluted shares outstanding 31,869,297 32,417,850 32,335,152 31,933,484
See notes to consolidated financial statements CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) RESPIRONICS, INC. AND SUBSIDIARIES
Nine Months Ended March 31 1999 1998 ----------------------------- OPERATING ACTIVITIES Net income $ 21,929,517 $ (5,442,679) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,007,257 11,410,116 Changes in operating assets and liabilities: Increase in accounts receivable (21,100,704) (13,901,080) Increase in inventories (584,155) (11,044,407) Decrease in other operating assets and liabilities 2,819,342 14,347,093 ------------ ------------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 17,071,256 (4,630,957) INVESTING ACTIVITIES Purchase of property, plant and equipment (18,341,877) (14,631,821) ------------ ------------- NET CASH USED BY INVESTING ACTIVITIES (18,341,877) (14,631,821) FINANCING ACTIVITIES Net increase in borrowings 28,182,263 12,497,978 Issuance of common stock 2,744,485 6,883,732 Acquisition of treasury stock (24,879,502) (213,057) Decrease in minority interest (38,486) (34,811) ------------ ------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 6,008,760 19,133,842 ------------ ------------- INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 4,738,139 (128,936) Cash and short-term investments at beginning of period 14,874,753 18,630,657 ------------ ------------- CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 19,612,892 $ 18,501,721 ============ =============
See notes to consolidated financial statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) RESPIRONICS, INC. AND SUBSIDIARIES MARCH 31, 1999 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ended June 30, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 1998. NOTE B -- INVENTORIES The composition of inventory is as follows:
March 31, 1999 June 30, 1998 -------------- ------------- Raw materials $21,551,121 $18,540,521 Work in process 6,421,356 7,570,524 Finished goods 31,509,442 32,786,719 ----------- ----------- $59,481,919 $58,897,764 =========== ===========
NOTE C -- CONTINGENCIES As previously disclosed, the Company is party to actions filed in a federal District Court in January 1995 and June 1996 in which a competitor alleges that the Company's manufacture and sale in the United States of certain products infringes four of the competitor's patents. In its response to these actions, the Company has denied the allegations and has separately sought judgment that the claims under the patents are invalid or unenforceable and that the Company does not infringe upon the patents. The January 1995 and June 1996 actions have been consolidated, and discovery is currently underway. The Court has granted the Company's motions for summary judgment that the Company does not infringe two of the competitor's patents. The Company believes that none of its products infringe any of the patents in question in the event that any one or more of such patents should be held to be valid, and it intends to vigorously defend this position. NOTE D -- MERGER; POOLING OF INTERESTS ACCOUNTING In February 1998, the Company merged a wholly owned subsidiary with Healthdyne Technologies, Inc. ("Healthdyne") in a stock for stock merger by issuing approximately 12,000,000 shares of the Company's common stock in exchange for the outstanding shares of Healthdyne. The merger was accounted for as a pooling of interests. Accordingly, the consolidated financial statements include, for all periods presented, the combined financial results and financial position of the Company and Healthdyne. Healthdyne has since been renamed Respironics Georgia, Inc. CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES REFORM ACT OF 1995 The statements contained in this Quarterly Report on Form 10-Q, specifically those contained in Item 2 "Management's Discussion and Analysis of Results of Operations and Financial Condition", along with statements in other reports filed with the Securities and Exchange Commission, external documents and oral presentations which are not historical are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21B of the Securities and Exchange Act of 1934, as amended. These forward looking statements represent the Company's present expectations or beliefs concerning future events. The Company cautions that such statements are qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements. Results actually achieved may differ materially from expected results included in these statements. Those factors include the following: third party reimbursement; increasing price competition and other competitive factors in the sale of products; the United States Food and Drug Administration (the "FDA"), the Health Care Financing Administration ("HCFA"), the Durable Medical Equipment Regional Carriers ("DMERC's") and other government regulation; intellectual property and related litigation; foreign currency fluctuations, regulations and other factors affecting operations and sales outside the United States including potential future effects of the change in sovereignty of Hong Kong; and customer consolidation and concentration. Item 2. Management's Discussion and Analysis of Result of Operations and Financial Condition RESULTS OF OPERATIONS Net sales for the quarter ended March 31, 1999 were $90,882,000 representing a 13% increase from the $80,127,000 recorded for the quarter ended March 31, 1998. Sales for the nine months ended March 31, 1999 were $267,491,000, essentially equal to the $226,350,000 recorded in the year earlier period. Sales for the current quarter and nine month period were adversely impacted by a decrease in sales of the Company's non-invasive ventilatory support products for home use in the United States as compared to prior year levels. This sales decrease was due primarily to uncertainty in the market concerning government insurance coverage guidelines for the home use of these products in the United States and the corresponding reduction in purchases of these units by the Company's dealer customers pending resolution of the coverage guidelines. Government policy makers issued a draft coverage policy in July 1998 that was more restrictive than had been expected. The Company, along with trade and medical associations, other device manufacturers, and home care dealers, have filed formal comments as permitted with the policy makers indicating disagreement with the draft coverage policy. The Company now estimates that further guidance on the policy makers' position will be issued in mid-calendar year 1999. This guidance may be in the form of a draft proposal subject to further comment prior to becoming final. The Company believes that until these final guidelines are issued, sales of its noninvasive ventilatory support units for home use in the United States will continue to be negatively impacted as compared with periods prior to the uncertainty regarding government insurance coverage guidelines. If the final guidelines issued are either as restrictive as, or more restrictive than, the initial draft guidelines, the Company's sales of its noninvasive ventilatory support units for home use in the United States will continue to be negatively impacted. Sales in the current quarter and nine month period of the Company's other major product line, obstructive sleep apnea products, increased on a unit and dollar basis as compared to prior year totals. In addition, sales of the Company's non-invasive ventilatory support unit for hospital use and of its oxygen concentrator unit increased on a unit and dollar basis for the both the quarter and nine month period as compared to prior year totals, primarily because of new product introductions. The Company's gross profit was 49% of net sales for the quarter ended March 31, 1999 as compared to 48% of net sales for the quarter ended March 31, 1998 and was 48% of net sales for the nine months ended March 31, 1999 as compared to 49% for the nine months ended March 31, 1998. The gross profit percentage increase for the quarterly comparison was due primarily to sales mix, lower product cost for several major products, and higher total sales levels. These factors offset decreases in average selling prices for the Company's major products (which had been expected). The gross profit percentage decrease for the year to date comparison was due was due primarily to minimal growth in total sales levels and to sales mix. General and administrative expenses were $10,844,000 (12% of net sales) for the quarter ended March 31, 1999 as compared to $9,654,000 (12% of net sales) for the quarter ended March 31, 1998. General and administrative expenses were $31,929,000 (12% of net sales) for the nine months ended March 31, 1999 as compared to $27,826,000 (10% of net sales) for the year earlier period. The increase in the expenses for both periods was due primarily to increased information systems costs, allowances for doubtful accounts, and other administrative expenses. These increased expenses were partially offset by cost reductions that the Company achieved since the February 1998 merger with Healthdyne. Sales, marketing and commission expenses were $14,625,000 (16% of net sales) for the quarter ended March 31, 1999 as compared to $16,046,000 (20% of net sales) for the quarter ended March 31, 1998. Sales, marketing and commission expenses were $45,153,000 (17% of net sales) for the nine months ended March 31, 1999 as compared to $49,729,000 (19% of net sales) for the year earlier period. The decrease in these expenses was due primarily to the cost reductions that the Company achieved since the February 1998 merger with Healthdyne. Research and development expenses were $3,989,000 (4% of net sales) for the quarter ended March 31, 1999 as compared to $4,815,000 (6% of net sales) for the quarter ended March 31, 1998. Research and development expenses were $12,923,000 (5% of net sales) for the nine months ended March 31, 1999 as compared to $15,127,000 (6% of net sales) for the year earlier period. The decrease in these expenses was due primarily to the elimination of duplicate product development efforts following the merger with Healthdyne in February 1998. Significant product development efforts are ongoing, and new product launches in all of the Company's major product areas are planned, and in some cases have already taken place, in fiscal year 1999 with additional new product introductions scheduled for fiscal year 2000. During the quarter ended March 31, 1998, the Company incurred $37,500,000 in costs related to the merger with Healthdyne. The primary components of these costs were direct expenses of the transaction such as legal and investment banking fees, severance and other employment related costs, and asset write downs to reflect decisions made regarding product and operational standardization. During the nine months ended March 31, 1998, the Company incurred $650,000 in costs associated with an unsolicited offer by another company to acquire Healthdyne. The Company's effective income tax rate from operations (i.e. excluding the impact of the merger costs described above) was 40% for all periods presented. Because certain of the direct expenses of the Healthdyne merger such as investment banking and legal fees are not fully deductible for income tax purposes, the Company did not receive the full tax benefit of these costs. Accordingly, the income tax benefit recorded for the quarter ended March 31, 1998 represented only 27% of the pre-tax loss reported, and for the nine months ended March 31, 1998, income tax expense was recorded even though a pre-tax loss was reported. As a result of the factors described above, the Company's net income was $8,261,000 (9% of net sales) or $0.26 per diluted share for the quarter ended March 31, 1999 as compared to a net loss of $22,250,000 or $(0.69) per diluted share for the quarter ended March 31, 1998. Net income was $21,930,000 (8% of net sales) or $0.68 per diluted share for the nine months ended March 31, 1999 as compared to a net loss of $5,443,000 or $(0.17) per diluted share for the nine months ended March 31, 1998. Excluding the impact of the merger costs and the costs associated with the unsolicited offer to acquire Healthdyne, the Company's net income was $4,324,000 (5% of net sales) or $0.13 per diluted share for the quarter ended March 31, 1998 and $21,521,000 (8% of net sales) or $0.65 per diluted share for the nine months ended March 31, 1998. Earnings per share amounts for the three and nine month periods ended March 31, 1999 reflect the impact of shares repurchased under the Company's stock buyback program which is described below. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES The Company had working capital of $162,045,000 at March 31, 1999 and $137,550,000 at June 30, 1998. Net cash provided by operating activities was $17,071,000 for the nine months ended March 31, 1999 as compared to a net use of cash of $4,631,000 for the nine months ended March 31, 1998. The increase in net cash provided by operating activities for the current nine month period was due primarily to higher earnings and to a smaller increase in inventory in the current nine period than in the prior year's nine month period. Net cash used by investing activities was $18,342,000 for the nine months ended March 31, 1999 as compared to $14,632,000 for the nine months ended December 31, 1997. The majority of the cash used by investing activities for both periods represented capital expenditures, including the purchase of production equipment, computer and telecommunications equipment, and office equipment. The funding for the investment activities in the current period was provided by positive cash flows from operating activities and accumulated cash and short term investments and for the prior year nine month period was provided by accumulated cash and short term investments. Net cash provided by financing activities includes borrowings and repayments under the Company's various long-term obligations. In August 1998, the Company's Board of Directors authorized a stock buy-back of up to 1,000,000 shares of the Company's outstanding common stock. In October 1998, the Company's Board of Directors authorized an additional 1,000,000 shares under the buyback program. In March 1999, the Company's Board of Directors authorized an additional 1,000,000 shares under the buyback program. During the nine month period ended March 31, 1999, the Company repurchased 1,983,000 shares under the buyback program, resulting in a use of cash of $24,880,000. Through May 12, 1999, a total of 2,628,000 shares have been repurchased. Shares that are repurchased are added to treasury shares pending future use and reduce the number of shares outstanding. The Company believes that projected positive cash flow from operating activities, the availability of additional funds under its revolving credit facility and its accumulated cash and short-term investments will be sufficient to meet its current and presently anticipated future needs for the next 12 months for operating activities, investing activities, and financing activities. YEAR 2000 Year 2000 State of Readiness The Company is currently executing an overall Year 2000 compliance strategy utilizing the services of a Year 2000 consulting firm. A program management office is in place consisting of full time staff resources from both the Company and the consulting firm to address the four identified primary risk areas: core business information systems and technology; issues relative to the Company's products; issues relative to third party product and service providers; and issues relative to the Company's facilities. Year 2000 compliance of the Company's core business information systems and technology has been largely addressed with the recent implementation of Year 2000 compliant enterprise-wide resource planning ("ERP") software at each of the Company's major locations. A technical review of the Company's current and discontinued product lines addressing Year 2000 issues has been completed. One non-compliance was found and the correction originally implemented for the product that was non- conforming proved to be ineffective. The Company began providing a revised correction for this product to customers in March 1999. A strategy for dealing with customer inquiries regarding Year 2000 compliance of the Company's products has been implemented as well. A review of issues relating to third party product and service providers' Year 2000 compliance, (including defining inventory and vendor management processes, planning a third party compliance assessment process and identifying potential contingency planning and remediation strategies) has been completed. The assessment and remediation of non-compliant products and services is now being executed. The Company's current expectation is that issues relating to the third party product and suppliers' Year 2000 compliance will be resolved by September 1999. A preliminary review of issues relating to the Year 2000 compliance of the Company's facilities infrastructure has been completed and no major problems or significant risks are anticipated based on this preliminary review. A more detailed facilities review is being conducted and is anticipated to be completed by September 1999. Year 2000 Costs Total costs for the Company's Year 2000 compliance efforts are currently estimated to be approximately $11,000,000. The majority of these costs relate to the ERP system installations and upgrades and have been, and will be, capitalized and charged to expense over the estimated useful life of the associated software and hardware. The remaining costs have been, and will be, charged directly to expense. Additional costs could be incurred if significant remediation activities are required with third party suppliers (see below). Risks and Contingency Plans Based on the Year 2000 compliance work conducted to date and described above, the Company's most significant risk, and its reasonably likely worst case scenario relative to Year 2000 compliance, appears to be that upon completion of its review of its third party product and service providers' Year 2000 compliance, it determines that certain of its third party product and service suppliers may not be Year 2000 compliant. If such product and service suppliers in fact do not become Year 2000 compliant in a timely manner and these suppliers cannot provide the Company with products and services in a timely and cost effective manner, future operating results could be adversely affected. The Company believes that the vendor management process that is currently in place will identify these potential risks. Efforts to formalize contingency plans across the company are underway. The contingency planning scope of work will focus on third party products and service providers. In addition, contingency plans will be developed as needed in the event that risks arise other than those related to third party product and service providers. For products and services where the Company's needs are not unique or where a long term relationship with a supplier does not exist, a search for alternative suppliers who are Year 2000 compliant would be conducted and suppliers changed as needed prior to January 1, 2000. While the Company believes that raw materials and components for its products are readily available from a number of suppliers and believes that its service needs are not significantly unique from other companies, it is possible that for some of its suppliers who are identified as being non-compliant, certain remediation strategies with the supplier may be employed, at least initially, as an alternative to switching suppliers because of the operational difficulties that switching suppliers could cause. These remediation strategies include, but are not limited to, increasing purchases from the suppliers in question prior to January 1, 2000 to provide a safety stock if the supplier experiences difficulty and providing the Company's Year 2000 compliance resources to assist the supplier in becoming compliant. PART 2 OTHER INFORMATION Item 1: Legal Proceedings - ------- ----------------- Not applicable Item 2: Change in Securities - ------- -------------------- (a) Not applicable (b) Not applicable (c) Not applicable Item 3: Defaults Upon Senior Securities - ------- ------------------------------- (a) Not applicable (b) Not applicable Item 4: Submission of Matters to a Vote of Security Holders - ------- --------------------------------------------------- Not applicable Item 5: Other Information - ------- ----------------- Not applicable Item 6: Exhibits and Reports on Form 8-K - ------- -------------------------------- (a) Exhibits Exhibit 10.37 Amended and Restated Employment Agreement between the Company and Gerald E. McGinnis (b) Reports on Form 8-K On February 19, 1999, the Company filed a Form 8-K to report that James W. Liken and J. Paul Yokubinas had been elected to the Company's Board of Directors for terms extending through the annual meeting of shareholders of the Company in 2000 and 1999, respectively. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RESPIRONICS, INC. Date: May 14, 1999 /s/ Daniel J. Bevevino ------------------- --------------------------------------- Daniel J. Bevevino Vice President, and Chief Financial and Principal Accounting Officer Signing on behalf of the registrant and as Chief Financial and Accounting Officer EX-10.37 2 AMENDED AND RESTATED EMPLOYMENT AGREEMENT EXHIBIT 10.37 AMENDED AND RESTATED EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT, made as of April 1, 1999, by and between RESPIRONICS, INC., a Delaware corporation (the "Company"), and GERALD E. McGINNIS, of Export, PA ("Chairman"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company and Chairman entered into an Employment Agreement dated as of April 1, 1995 providing for the continued employment of Chairman as Chairman of the Board of Directors of the Company and the other matters therein set forth; WHEREAS, such Employment Agreement was amended on July 1, 1997 by Amendment No. 1, which amendment deleted the third sentence of Section 1.04; and WHEREAS, the Company and Chairman wish further to amend the Employment Agreement as hereinafter provided and to restate the same as so previously amended and as amended hereby (such restated Employment Agreement being hereinafter called the "Employment Agreement). NOW, THEREFORE, intending to be legally bound, the Company agrees to employ Chairman, and Chairman hereby agrees to be employed by the Company, upon the following terms and conditions: ARTICLE I EMPLOYMENT ---------- 1.01. Office. Chairman is hereby employed as Chairman of the Board ------ of Directors of the Company and in such other executive and managerial capacities as the Board of Directors of the Company may from time to time determine and in such capacity or capacities shall use his best energies or abilities in the performance of his duties hereunder and as prescribed in the By-Laws of the Company. Chairman shall not be required to devote more than approximately two-thirds of his working time to the performance of his duties hereunder. In addition to his duties of presiding at all meetings of shareholders and directors of the Company, Chairman shall: (a) take all steps which he feels are reasonably required in order to insure that the policies and directions of the Board are being carried out by the Company's management and to assist management in its efforts to do so, (b) together with the Company's President, fulfill the Company's civic and charitable responsibilities along lines from time to time approved by the Board, (c) serve as Chairman or Co-Chairman (if Co- Chairman with full administrative responsibilities) of the Company's Strategic Planning Committee and assist such Committee in developing and maintaining strategic plans for the Company's future, the development of its present and new products and strategies for continued operation and growth and (d) provide guidance and direction in new product development, as well as acquisition of new products and businesses manufacturing or distributing related or complimentary products. Chairman shall also perform such other duties and responsibilities as the Board of Directors may reasonably require. Chairman's duties as Chairman of the Board of Directors shall be subject only to the direction and control of the Board of Directors. 1.02. Term. Subject to the terms and provisions of Article II ---- hereof, the term (originally a three-year "evergreen" one) of the Employment Agreement shall expire on March 31, 2000. From and after April 1, 2000, the Employment Agreement shall continue until March 31, 2004 unless terminated by either party on not less than 12 months' notice given after April 1, 1999. As used herein "Term" shall mean the period ending March 31, 2000 or such later date as shall result from the operation of the preceding sentence. -2- 1.03. Base Salary. During the Term, compensation shall be paid to ----------- Chairman by the Company at the rate of $190,000 per annum (the "Base Salary"), payable biweekly. The Base Salary to be paid to Chairman may be adjusted upward or downward (but not below the Base Salary) by the Board of Directors of the Company at any time (but not less frequently than annually) based upon Chairman's contribution to the success of the Company and on such other factors as the Board of Directors of the Company shall deem appropriate. 1.04. Chairman Benefits. At all times during the Term, Chairman ----------------- shall have the right to participate in and receive benefits under and in accordance with the then-current provisions of all incentive, profit sharing, retirement, life, health and accident insurance, hospitalization and other incentive and benefit plans or programs (except for any such plan in which Chairman may not participate pursuant to the terms of such plan) which the Company may at any time or from time to time have in effect for executive employees of the Company or its subsidiaries, Chairman's participation to be on a basis commensurate with other executive employees considering their respective responsibilities and compensation. Chairman shall also be entitled to be reimbursed for all reasonable expenses incurred by him in the performance of his duties hereunder. This Agreement shall have no affect upon the Agreement Regarding Supplemental Retirement Benefits between the Company and Chairman, dated September 1, 1992, which Agreement shall continue in full force and effect in accordance with the terms thereof. In determining the amounts set aside for Chairman under all retirement and other similar benefit plans in which Chairman has been participating, the contributions to be made by the Company thereto shall continue to be made on the basis that Chairman is working full-time for the Company at a salary equal to 150% of his then Base Salary. 1.05. Principal Place of Business. The headquarters and principal --------------------------- place of business of the Company is located in Forest Hills, Pennsylvania. Chairman's principal place of business will be at his home in Export, PA or such other location within 25 miles of the Company's headquarters as Chairman may designate. During the winter, late fall and early spring Chairman also maintains -3- an office at his home in Marco Island, Florida. The Company will not maintain an office for Chairman at its headquarters but will reimburse Chairman for all reasonable out-of-pocket expenses in maintaining his office at his homes or such other location as he may direct. ARTICLE II TERMINATION ----------- 2.01. Illness, Incapacity. If, during the Term of Chairman's ------------------- employment hereunder, the Board of Directors of the Company shall determine that Chairman shall be prevented from effectively performing all his duties hereunder by reason of illness or disability and such failure so to perform shall have continued for a period of not less than three months, then the Company may, by written notice to Chairman, terminate Chairman's employment hereunder effective at any time after such three month period. Upon delivery to Chairman of such notice, together with payment of any salary accrued under Section 1.03 hereof, Chairman's employment and all obligations of the Company under Article I hereof shall forthwith terminate. The obligations of Chairman under Article IV hereof shall continue notwithstanding termination of Chairman's employment pursuant to this Section 2.01. 2.02. Death. If Chairman dies during the Term of his employment ----- hereunder, Chairman's employment hereunder shall terminate and all obligations of the Company hereunder, other than any obligations with respect to the payment of accrued and unpaid salary, shall terminate. 2.03. Company Termination. (a) For Cause. In the event that, in ------------------- --------- the reasonable judgment of the Board of Directors of the Company, Chairman shall have (a) been guilty of any act of dishonesty material with respect to the Company, (b) been convicted of a crime involving moral turpitude or (c) intentionally disregarded the provisions of this Agreement or the express instructions of the Board of Directors of the Company with respect to matters of policy continuing (in the case of clause (c)) for a period of not less than thirty (30) days after notice of such disregard, the Company may terminate this Agreement effective at such date as it shall specify in a written notice to Chairman. Any such termination by the -4- Company shall be deemed to be termination "for cause". Upon delivery to Chairman of such notice of termination, together with payment of any salary accrued under Section 1.03 hereof, Chairman's employment and all obligations of the Company under Article I hereof shall forthwith terminate. The obligations of Chairman under Article IV hereof shall continue notwithstanding termination of Chairman's employment pursuant to this Section 2.03(a). (b) Without Cause. Chairman's employment hereunder may be terminated ------------- at any time by the Company without cause if the Board of Directors of the Company, by resolution duly adopted by the Board, so determines. The obligations of Chairman under Article IV hereof shall continue notwithstanding termination of Chairman's employment pursuant to this Section 2.03(b). 2.04. Chairman Termination. Chairman agrees to give the Company -------------------- ninety (90) days prior written notice of the termination of his employment with the Company. Simultaneously with such notice, Chairman shall inform the Company in writing as to his employment plans following the termination of his employment with the Company. In the event Chairman has terminated his employment with the Company because, in his reasonable judgment, there has been: (a) a material downgrading in Chairman's duties, titles or responsibilities, (b) a change in the Company's principal office to a location not within 15 miles of its present location, (c) any significant and prolonged increase in the traveling requirements applicable to the discharge of Chairman's responsibilities or (d) any other significant material adverse change in working conditions, responsibilities or prestige, Chairman shall be entitled to the compensation provided for in Section 2.05 upon such termination. The obligations of Chairman under Article IV hereof shall continue notwithstanding termination of Chairman's employment pursuant to this Section 2.04. 2.05. Termination Payments - Discharge Without Cause. If the Company ---------------------------------------------- terminates Chairman's employment without cause pursuant to (S) 2.03(b), Chairman shall be paid for the balance of the Term the Base Salary then in effect, such payment to be made in a lump sum within sixty (60) days of termination. -5- 2.06. Termination Payments - After Change of Control. If Chairman or ---------------------------------------------- the Company (except pursuant to Section 2.03(a) terminates this Agreement during the Term upon or after the occurrence of a Business Combination not approved by a majority of Disinterested Directors then in office, as those terms are defined in Article Ninth of the Company's Certificate of Incorporation, Chairman shall be paid an amount equal to three times the Base Salary then in effect, such payment to be made in a lump sum within sixty (60) days of termination. ARTICLE III CHAIRMAN'S ACKNOWLEDGMENTS -------------------------- Chairman recognizes and acknowledges that: (a) in the course of Chairman's employment by the Company it will be necessary for Chairman to acquire information which could include, in whole or in part, information concerning the Company's sales, sales volume, sales methods, sales proposals, customers and prospective customers, identity of customers and prospective customers, identity of key purchasing personnel in the employ of customers and prospective customers, amount or kind of customer's purchases from the Company, the Company's sources of supply, the Company's computer programs, system documentation, special hardware, product hardware, related software development, the Company's manuals, formulae, processes, methods, machines, compositions, ideas, improvements, inventions or other confidential or proprietary information belonging to the Company or relating to the Company's affairs (collectively referred to herein as the "Confidential Information"); (b) the Confidential Information is the property of the Company; (c) the use, misappropriation or disclosure of the Confidential Information would constitute a breach of trust and could cause irreparable injury to the Company; and (d) it is essential to the protection of the Company's good will and to the maintenance of the Company's competitive position that the Confidential Information be kept secret and that Chairman not disclose the Confidential Information to others or use the Confidential Information to Chairman's own advantage or the advantage of others. For purposes of this Agreement, "Confidential Information" shall not include any information that is in the public domain, so long as such information is not in the public domain as a result of any action or inaction by Chairman which would constitute a violation of this Agreement or the Company's policies with respect to such information. -6- Chairman further recognizes and acknowledges that it is essential for the proper protection of the business of the Company that Chairman be restrained, but only to the extent hereinafter provided (a) from soliciting or inducing any employee of the Company to leave the employ of the Company, (b) from hiring or attempting to hire any employee of the Company, (c) from soliciting the trade of or trading with the customers and suppliers of the Company for any business purpose, and (d) from competing against the Company for a reasonable period following the termination of Chairman's employment with the Company. Chairman further recognizes and understands that his duties at the Company may include the preparation of materials, including written or graphic materials, and that any such materials conceived or written by him shall be done as "work made for hire" as defined and used in the Copyright Act of 1976, 17 USC (S) 1 et seq. In the event of publication of such materials, Chairman -- --- understands that since the work is a "work made for hire", the Company will solely retain and own all rights in said materials, including right of copyright, and that the Company may, at its discretion, on a case-by-case basis, grant Chairman by-line credit on such materials as the Company may deem appropriate. ARTICLE IV CHAIRMAN'S COVENANTS AND AGREEMENTS ----------------------------------- 4.01. Non-Disclosure of Confidential Information. Chairman agrees to ------------------------------------------ hold and safeguard the Confidential Information in trust for the Company, its successors and assigns and agrees that he shall not, without the prior written consent of the Company, misappropriate or disclose or make available to anyone for use outside the Company's organization at any time, either during his employment with the Company or subsequent to the termination of his employment with the Company for any reason, including without limitation termination by the Company for cause or without cause, any of the Confidential Information, whether or not developed by Chairman, except as required in the performance of Chairman's duties to the Company. -7- 4.02. Disclosure of Works and Inventions/Assignment of Patents and ------------------------------------------------------------ Other Rights. (a) Chairman shall disclose promptly to the Company or its - ------------ nominee any and all works, inventions, discoveries and improvements authored, conceived or made by Chairman during the period of employment and related to the business or activities of the Company, and hereby assigns and agrees to assign all his interest therein to the Company or its nominee. Whenever requested to do so by the Company, Chairman shall execute any and all applications, assignments or other instruments which the Company shall deem necessary to apply for and obtain Letters Patent or Copyrights of the United States or any foreign country or to otherwise protect the Company's interest therein. Such obligations shall continue beyond the termination of employment with respect to works, inventions, discoveries and improvements authored, conceived or made by Chairman during the period of employment, and shall be binding upon Chairman's assigns, executors, administrators and other legal representatives. (b) Chairman agrees that in the event of publication by Chairman of written or graphic materials in the course of performing his duties under this Agreement, the Company will retain and own all rights in said materials, including right of copyright. 4.03. Duties. Chairman agrees to be a loyal employee of the Company. ------ Chairman agrees to devote his best efforts to the performance of his duties for the Company, to give proper time and attention to furthering the Company's business, and to comply with all rules, regulations and instruments established or issued by the Company. Chairman shall devote such of his working time as shall be necessary for the performance of his duties hereunder, but he shall not be required to devote more than two-thirds of his working time thereto. Chairman further agrees that during the term of this Agreement, Chairman shall not, directly or indirectly, engage in any business which would detract from Chairman's ability to apply his best efforts to the performance of his duties hereunder. Chairman also agrees that he shall not usurp any corporate opportunities of the Company. 4.04. Return of Materials. Upon the termination of Chairman's ------------------- employment with the Company for any reason, including without limitation -8- termination by the Company for cause or without cause, Chairman shall promptly deliver to the Company all correspondence, drawings, blueprints, manuals, letters, notes, notebooks, reports, flow-charts, programs, proposals and any documents concerning the Company's customers or concerning products or processes used by the Company and, without limiting the foregoing, will promptly deliver to the Company any and all other documents or materials containing or constituting Confidential Information. 4.05. Restrictions on Competition. Chairman covenants and agrees --------------------------- that during the period of Chairman's employment hereunder plus a period of three years following the termination of Chairman's employment, including without limitation termination by the Company for cause or without cause, Chairman shall not, in the United States of America or in any other country of the world in which the Company has done business at any time during the last three years prior to termination of Chairman's employment with the Company, engage, directly or indirectly, whether as principal or as agent, officer, director, employee, consultant, shareholder, or otherwise, alone or in association with any other person, corporation or other entity, in any Competing Business. For purposes of this Agreement, the term "Competing Business" shall mean and include any person, corporation or other entity which develops, manufactures, sells or markets or attempts to develop, manufacture, sell or market any product or services which are the same as or similar to the products and services sold by the Company at any time and from time to time during the last three years prior to the termination of Chairman's employment hereunder; provided, however, that for -------- ------- purposes of determining what constitutes a Competing Business there shall not be included (x) any product or service of any entity which product or service Chairman determines is not material to the business or prospects of the Company and which product or service the Company's Board, having been requested to do so by Chairman, also so determines; or (y) any product or service of any entity so long as the Chairman and such entity can demonstrate to the reasonable satisfaction of the Company that Chairman is and will continue to be effectively isolate from and not participate in the development, manufacture, sale or marketing of such product or service, but only so long as Chairman is effectively so isolated and does not so participate. In the event the employment of Chairman terminates at the conclusion of the Term before -9- Chairman obtains the age of 65 and because the Company has elected not to further extend the Term pursuant to (S) 1.02, then the provisions of this (S) 4.05 and (S)'s 4.06 and 4.07 shall not be applicable after the conclusion of the Term unless the Company advises Chairman at least six months prior to conclusion of the Term that it will continue to pay the Base Salary in effect at conclusion of the Term for such two-year period or such shorter portion thereof as the Company may specify (which specification shall foreshorten such two-year period accordingly) and the Company pays such amounts during such two-year or shorter period. 4.06. Non-Solicitation of Customers and Suppliers. Chairman agrees ------------------------------------------- that during his employment with the Company he shall not, directly or indirectly, solicit the trade of, or trade with, any customer, prospective customer, supplier, or prospective supplier of the Company for any business purpose other than for the benefit of the Company. Chairman further agrees that for three years following termination of his employment with the Company, including without limitation termination by the Company for cause or without cause, Chairman shall not, directly or indirectly, solicit the trade of, or trade with, any customers or suppliers, or prospective customers or suppliers, of the Company. 4.07. Non-Solicitation of Employees. Chairman agrees that, during ----------------------------- his employment with the Company and for three years following termination of Chairman's employment with the Company, including without limitation termination by the Company for cause or without cause, Chairman shall not, directly or indirectly, solicit or induce, or attempt to solicit or induce, any employee of the Company to leave the Company for any reason whatsoever, or hire any employee of the Company. ARTICLE V CHAIRMAN'S REPRESENTATIONS AND WARRANTIES ----------------------------------------- 5.01. No Prior Agreements. Chairman represents and warrants that he ------------------- is not a party to or otherwise subject to or bound by the terms of any contract, agreement or understanding which in any manner would limit or otherwise affect his ability to perform his obligations hereunder, including without limitation any contract, agreement or understanding containing terms and provisions similar in -10- any manner to those contained in Article IV hereof. Chairman further represents and warrants that his employment with the Company will not require him to disclose or use any confidential information belonging to prior employers or other persons or entities. 5.02. Chairman's Abilities. Chairman represents that his experience -------------------- and capabilities are such that the provisions of Article IV will not prevent him from earning his livelihood, and acknowledges that it would cause the Company serious and irreparable injury and cost if Chairman were to use his ability and knowledge in competition with the Company or to otherwise breach the obligations contained in Article IV. 5.03. Remedies. In the event of a breach by Chairman of the terms of -------- this Agreement, the Company shall be entitled, if it shall so elect, to institute legal proceedings to obtain damages for any such breach, or to enforce the specific performance of this Agreement by Chairman and to enjoin Chairman from any further violation of this Agreement and to exercise such remedies cumulatively or in conjunction with all other rights and remedies provided by law. Chairman acknowledges, however, that the remedies at law for any breach by him of the provisions of this Agreement may be inadequate and that the Company shall be entitled to injunctive relief against him in the event of any breach. ARTICLE VI MISCELLANEOUS ------------- 6.01. Authorization to Modify Restrictions. It is the intention of ------------------------------------ the parties that the provisions of Article IV hereof shall be enforceable to the fullest extent permissible under applicable law, but that the unenforceability (or modification to conform to such law) of any provision or provisions hereof shall not render unenforceable, or impair, the remainder thereof. If any provision or provisions hereof shall be deemed invalid or unenforceable, either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provision or provisions and to alter the bounds thereof in order to render it valid and enforceable. -11- 6.02. Tolling Period. The non-competition, non-disclosure and non- -------------- solicitation obligations contained in Article IV hereof shall be extended by the length of time during which Chairman shall have been in breach of any of the provisions of such Article IV. 6.03. Entire Agreement. This Agreement represents the entire ---------------- agreement of the parties with respect to the employment of Chairman by the Company and may be amended only by a writing signed by each of them. 6.04. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the Commonwealth of Pennsylvania. 6.05. Consent to Jurisdiction; Venue. Chairman hereby irrevocably ------------------------------ submits to the personal jurisdiction of the United States District Court for the Western District of Pennsylvania or the Court of Common Pleas of Allegheny County, Pennsylvania in any action or proceeding arising out of or relating to this Agreement, and Chairman hereby irrevocably agrees that all claims in respect of any such action or proceeding may be heard and determined in either such court. Chairman hereby irrevocably waives any objection which he now or hereafter may have to the laying of venue of any action or proceeding arising out of or relating to this Agreement brought in the United States District Court for the Western District of Pennsylvania or the Court of Common Pleas of Allegheny County, Pennsylvania and any objection on the ground that any such action or proceeding in either of such Courts has been brought in an inconvenient forum. Nothing in this Section 6.05 shall affect the right of the Company to bring any action or proceeding against Chairman or his property in the courts of other jurisdictions where Chairman resides or has his principal place of business or where such property is located. -12- 6.06. Service of Process. Chairman hereby irrevocably consents to ------------------ the service of any summons and complaint and any other process which may be served in any action or proceeding arising out of or related to this Agreement brought in the United States District Court for the Western District of Pennsylvania or the Court of Common Pleas of Allegheny County by the mailing by certified or registered mail of copies of such process to Chairman at his address as set forth on the signature page hereof. 6.07. Remedies. If the Company finally prevails in a proceeding for -------- damages or injunctive relief, the Company, in addition to other relief, shall be entitled to reasonable attorneys' fees, costs and the expenses of litigation incurred by the Company in securing the relief granted by the Court. 6.08. Agreement Binding. The obligations of Chairman under this ----------------- Agreement shall continue after the termination of his employment with the Company for any reason, with or without cause, and shall be binding on his heirs, executors, legal representatives and assigns. This Agreement shall be binding upon and inure to the benefit of any successors or assigns of the Company. 6.09. Counterparts, Section Headings. This Agreement may be executed ------------------------------ in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. The section headings of this Agreement are for convenience of reference only and shall not affect the construction or interpretation of any of the provisions hereof. 6.10. Notices. All notices, requests, demands and other ------- communications hereunder shall be in writing and shall be deemed to have been duly given if (a) hand delivered or (b) mailed, registered mail, first class postage paid, return receipt requested, or (c) sent via overnight delivery service or courier, delivery acknowledgment requested, or (d) via any other delivery service with proof of delivery: -13- if to the Company: Respironics, Inc. 1001 Murry Ridge Drive Murrysville, PA 15668-8550 if to Chairman, at the address set forth below or to such other address or to such other person as either party hereto shall have last designated by notice to the other party. Chairman acknowledges that he has read and understands the foregoing provisions and that such provisions are reasonable and enforceable. IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be executed the day and year first above written. Witness: ____________________________ _____________________________________ Gerald E. McGinnis Address: 3585 Hills Church Road Export, PA 15632 Attest RESPIRONICS, INC. ____________________________ By:__________________________________ Secretary Title:_______________________________ [Corporate Seal] -14- EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RESPIRONICS, INC. FORM 10-Q FOR THE QUARTER ENDED 3/31/99 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS 9-MOS JUN-30-1999 JUN-30-1998 JUL-01-1998 JUL-01-1997 MAR-31-1999 MAR-31-1998 19,613 18,501 0 0 121,353 95,567 9,268 5,750 59,482 56,140 222,715 176,748 113,010 90,412 55,054 45,089 361,264 306,104 60,670 52,584 99,659 61,594 0 0 0 0 330 324 199,830 191,032 361,264 306,104 267,491 266,350 0 0 138,193 136,007 0 0 89,190 129,589 0 0 3,558 3,039 36,549 (2,285) 14,620 3,158 0 0 0 0 0 0 0 0 21,930 (5,442) 0.69 (0.17) 0.68 (0.17)
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