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                                                                    Exhibit 13.1

             HUDSON RESPIRATORY CARE INC. MANAGEMENT INCENTIVE PLAN

                                TABLE OF CONTENTS

Subject                                                                     Page

ELIGIBILITY ................................................................  2

PARTICIPANT STATUS CHANGES .................................................  2

PLAN OBJECTIVES ............................................................  3

PLAN EFFECTIVE DATE AND TERM ...............................................  3

PERFORMANCE MEASURES .......................................................  3

OPERATING TARGET ...........................................................  3

REVISIONS ..................................................................  4

AWARD CALCULATION ..........................................................  4

TIMING OF AWARD PAYMENT ....................................................  4

ADMINISTRATION .............................................................  4

Appendices

A. PLAN DEFINITIONS ........................................................  5

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                                                                    Exhibit 13.1

             HUDSON RESPIRATORY CARE INC. MANAGEMENT INCENTIVE PLAN

Eligibility

[ ]  Eligible positions for participation in the Hudson RCI Management Incentive
     Plan (MIP) are positions which have been identified and approved by the
     company President and Chief Executive Officer (CEO) as having substantial
     impact on the attainment of company profitability.

[ ]  Additional positions may not qualify nor may the ELIGIBLE BONUS PERCENTAGE
     be modified without express written approval of the CEO.

[ ]  The BONUS LEVEL of each participant will be established on the basis of
     competitive total compensation data for the position and is subject to
     approval by the CEO.

Participant Status Changes

[ ]  Eligible employees of Hudson RCI participate in the Management Incentive
     Plan (MIP) as follows:

     .    Newly Hired Participants
     .    Newly hired employees in eligible MIP positions, which are filled
          January 1 through September 30 of a plan year, will receive awards
          that are pro-rated for their term of participation.
     .    Employees in eligible positions filled October 1 through December 31
          of a plan year will participate in the following year.
     .    The CEO must approve participants in this plan.
     .    Participants must remain employees in good standing in order to
          receive award payments. Participants whose probationary status for
          performance issues continues for 180 days or more will not be eligible
          for an award payment. Participants placed on probationary status for a
          period which continues for more than 30 days but less than 180 days
          will receive awards which are prorated for their period of probation
          in the plan year where the probation occurs.

Transferred Participants (from one eligible position to another)

[ ]  First Quarter Transfer:
[ ]  The award for the full plan year will be based on performance in the new
     assignment and eligible bonus percentage.
[ ]  Second or Third Quarter Transfer:
[ ]  The award for the full plan year will be based on performance measured on a
     pro rata basis between old and new assignments and eligible bonus
     percentages.
[ ]  Fourth Quarter Transfer:
[ ]  The full plan year award will be based on performance in the old assignment
     and the old eligible bonus percentage.

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                                                                    Exhibit 13.1

             HUDSON RESPIRATORY CARE INC. MANAGEMENT INCENTIVE PLAN

Plan Objectives

[ ]  Communicate company annual financial targets to participants in positions
     designated as necessary to their attainment.
[ ]  Motivate participants to achieve and exceed those goals.
[ ]  Recognize and reward participants in a competitive and equitable manner for
     their contribution to the attainment of plan goals.
[ ]  Foster teamwork in striving to achieve the key operating objectives of the
     company.

Plan Effective Date and Term

[ ]  Effective date of Plan is January 1 of the plan year.
[ ]  The plan year is a calendar year.

Performance Measures

[ ]  Performance against objectives will be measured in one OPERATING TARGET:
     Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA)
     for the U.S. Restricted Group.
[ ]  The EBITDA target for MIP participants will be determined by the CEO.
[ ]  There will be no formal individual objectives by which MIP participants
     will be measured. However, each participant will be measured carefully for
     award eligibility on the basis of actual performance against the
     requirements and objectives of their position.

Operating Target

[ ]  Operating target will be weighted at 100% EBITDA to reflect the importance
     of participant contributions to profitability.
[ ]  Appraising corporate performance against this Operating Target (OT) will be
     the responsibility of the Chief Executive Officer with the assistance of
     the Hudson RCI Board of Directors Compensation Committee.
[ ]  Performance against OT is expressed as a percentage of the target achieved
     or surpassed.
[ ]  THRESHOLD for award payment is 95% of the goal for EBITDA and equals 50% of
     the eligible bonus.
[ ]  OPERATING TARGET AWARD CALCULATION will be made on an annualized basis
     after completion of the audited financial results for the plan year.

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                                                                    Exhibit 13.1

             HUDSON RESPIRATORY CARE INC. MANAGEMENT INCENTIVE PLAN

Revisions

[ ]  Revisions will be made to an OT only to recognize circumstances beyond the
     control of Plan participants.
[ ]  Such revisions will be rare in practice and only when circumstances beyond
     the control of Plan participants necessitate a review of the attainability
     of an OT in light of unanticipated or extraordinary events.
[ ]  Revisions to an OT will be made only with the approval of the Chief
     Executive Officer with the authorization of the Hudson RCI Board of
     Directors Compensation Committee. The Chief Financial Officer will be
     responsible for recommending a revision of an OT to the CEO as well as the
     Hudson RCI Board Compensation Committee for their consideration and
     approval or rejection.

Award Calculations

[ ]  The eligible bonus percentage will be expressed as a percent of ANNUAL BASE
     SALARY EARNINGS for a plan participant. For a new participant who is a
     newly hired employee, the percentage will be expressed as a percent of
     annual base salary in the first year of participation.
[ ]  OPERATING TARGET AWARD CALCULATION will be based upon generally accepted
     accounting principles.
[ ]  No percentages are to be rounded in the calculation of award results.
[ ]  OT results will be calculated after netting all projected bonus expense.

Timing of Award Payments

[ ]  Awards will be paid by March 31 of the year following the Plan year.
[ ]  All participants will be paid at the same time.

Administration

[ ]  All elements of this Plan, including but not limited to performance
     measures, participation eligibility, and participation levels, are subject
     to change at the discretion of the Compensation Committee of the Hudson RCI
     Board of Directors and the company President and CEO.
[ ]  The Plan Administrator is the Director of Human Resources in consultation
     with the CEO.

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                                                                    Exhibit 13.1

             HUDSON RESPIRATORY CARE INC. MANAGEMENT INCENTIVE PLAN

                                   APPENDIX A

                                PLAN DEFINITIONS

ELIGIBLE BONUS PERCENTAGE

Eligible bonus percentage is the percentage of base salary that a participant
receives at 100% attainment of the Operating Targets.

OPERATING TARGET(S)

Annual EBITDA performance measure common to all Plan participants.

EBITDA

Earnings before interest, taxes, depreciation and amortization.

ANNUAL BASE SALARY EARNINGS

Total annual earnings derived solely from base salary payments net of any
payments for bonuses, commissions, taxable moving expenses, and other variable
payments.

OPERATING TARGET AWARD PERCENTAGE

Percentage of target calculated by dividing actual attainment of EBITDA goal by
the budgeted EBITDA goal and multiplying the result of that calculation by the
bonus percentage and annual base salary earnings.

BONUS LEVEL

Bonus level is the award given to plan participants when the company achieves
100% of its operating targets. This award is expressed as a percent of base
salary and established as a bonus level for each participant. The responsible
senior management member communicates the participant bonus level to a plan
participant.

THRESHOLD

The minimum acceptable level of performance required for an award. The 200x
threshold is 95% attainment of operating targets and pays 50% of the eligible
bonus level.

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