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 September 30, 1997
Transition report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Action of 1934
For the transition period from to
------------------- ---------------------
Commission File Number 0-19266
ALLIED HEALTHCARE PRODUCTS, INC.
1720 Sublette Avenue
St. Louis, Missouri 63110
314/771-2400
I.R.S. Employment I.D. 25-1370721
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 twelve months (or for such shorter periods that the
registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past ninety days.
Yes X No
------------ ------------
The number of shares of common stock outstanding at November 14, 1997 is
7,806,682 shares.
<PAGE>
INDEX
Page
Part I - Financial Information Number
Item 1. Financial Statements
Consolidated Statement
of Operations - three months 3
ended September 30, 1997
and 1996 (Unaudited)
Consolidated Balance Sheets -
September 30, 1997 (Unaudited) and 4 - 5
June 30, 1997
Consolidated Statetments of Cash
Flow - three months ended 6 - 7
September 30, 1997 and 1996 (Unaudited)
Consolidated Statement of Changes
in Stockholders' Equity for three months 8
ended September 30, 1997 (Unaudited)
Notes to Consolidated
Financial Statements 9 - 10
Item 2. Management's Discussion and
Analysis of Financial Condition 11 - 18
and Results of Operations
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three months ended
September 30,
------------ ------------
1997 1996
------------ ------------
Net sales $30,172,904 $29,133,723
Cost of sales 20,943,624 19,893,622
------------ ------------
Gross profit 9,229,280 9,240,101
Selling, general and
administrative expenses 7,252,587 8,377,834
------------ ------------
Income from operations 1,976,693 862,267
Other expenses:
Interest expense 1,859,819 1,115,430
Other, net 46,939 25,956
------------ ------------
1,906,758 1,141,386
------------ ------------
Income (loss) before provision
(benefit) for income taxes and
extraordinary loss 69,935 (279,119)
Provision (benefit) for income taxes 177,123 (101,850)
------------ ------------
Loss before extraordinary loss (107,188) (177,269)
Extraordinary loss on early
extinguishment of debt, net of
income tax benefit of $373,191 530,632 0
------------ ------------
Net Loss ($637,820) ($177,269)
============ ============
Loss per share:
Loss before extraordinary loss ($0.01) ($0.02)
Extraordinary loss ($0.07) ---
------------ ------------
Net Loss ($0.08) ($0.02)
============ ============
Weighted average shares 7,800,095 7,796,682
============ ============
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
Sept 30, June 30,
1997 1997
------------- -------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $879,083 $988,436
Accounts receivable, net of allowance for doubtful
accounts of $1,159,674 and $1,225,326, respectively 24,000,055 23,093,037
Inventories 24,524,459 26,052,991
Other current assets 1,496,699 1,544,811
------------- -------------
Total current assets 50,900,296 51,679,275
------------- -------------
Property, plant and equipment, net 20,154,812 20,848,870
Goodwill, net 50,402,329 50,763,511
Deferred income taxes-noncurrent 1,665,069 1,665,069
Other assets, net 1,054,915 1,386,291
------------- -------------
Total assets $124,177,421 $126,343,016
============= =============
</TABLE>
See accompanying Notes To Consolidated Financial Statements.
<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Sept 30, June 30,
1997 1997
------------- -------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $11,213,754 $14,048,235
Current portion of long-term debt 13,842,025 12,890,772
Other current liabilities 4,754,355 5,997,670
------------- -------------
Total current liabilities 29,810,134 32,936,677
------------- -------------
Long-term debt 35,571,318 34,041,300
Commitments and contingencies
Stockholders' equity:
Preferred stock; $.01 par value; 1,500,000 shares
authorized; no shares issued and outstanding;
including 200,000 authorized shares of Series A
preferred stock; $.01 par value, none of which
are issued and outstanding
Common stock; $.01 par value; 30,000,000 shares
authorized; 7,806,682 and 7,796,682 shares issued
and outstanding at September 30, 1997 and
June 30, 1997, respectively 101,102 101,002
Additional paid-in capital 47,014,621 46,945,971
Common stock in treasury, at cost (20,731,428) (20,731,428)
Retained earnings 32,411,674 33,049,494
------------- -------------
58,795,969 59,365,039
Total stockholders' equity ------------- -------------
$124,177,421 $126,343,016
Total liabilities and stockholders' equity ============= =============
</TABLE>
See accompanying Notes To Consolidated Financial Statements.
<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended
September 30,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($637,820) ($177,269)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization 1,339,043 1,241,126
Loss on refinancing of long-term debt 903,823 0
Decrease (increase) in accounts receivable, net (907,018) 1,475,224
Decrease in inventories 1,528,532 829,454
Decrease in income taxes receivable 0 1,724,352
Decrease (increase) in other current assets 48,112 (303,970)
Increase (decrease) in accounts payable (2,834,481) 511,896
Decrease in accrued income taxes (147,500) 0
Decrease in other current liabilities (1,095,815) (586,682)
------------- -------------
Net cash provided by (used in) operating activities (1,803,124) 4,714,131
------------- -------------
Cash flows from investing activities:
Capital expenditures, net (135,282) (983,176)
------------- -------------
Net cash used in investing activities (135,282) (983,176)
------------- -------------
</TABLE>
(CONTINUED)
<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Three Months ended
September 30,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of long-term debt 26,000,000 5,000,000
Payments of long-term debt (16,341,599) (1,124,438)
Borrowings under revolving credit agreement 40,502,205 4,000,000
Payments under revolving credit agreement (47,679,335) (10,500,000)
Issuance of common stock 68,750 0
Debt issuance costs (720,968) (449,125)
Dividends paid on common stock 0 (545,768)
------------- -------------
Net cash provided by (used in) financing activities 1,829,053 (3,619,331)
------------- -------------
Net increase (decrease) in cash and equivalents (109,353) 111,624
Cash and equivalents at beginning of period 988,436 1,489,133
------------- -------------
Cash and equivalents at end of period $879,083 $1,600,757
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $2,281,473 $1,149,750
Income taxes $2,118 $4,000
</TABLE>
See accompanying Notes To Consolidated Financial Statements.
<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Additional
Preferred Common paid-in Treasury Retained
stock stock capital stock earnings
---------- ---------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1997 $0 $101,002 $46,945,971 ($20,731,428) $33,049,494
Issuance of common stock 100 68,650
Net loss for the
Three Months ended
September 30, 1997 (637,820)
---------- ---------- ------------ ------------- ------------
Balance,
September 30, 1997 $0 $101,102 $47,014,621 ($20,731,428) $32,411,674
========== ========== ============ ============= ============
</TABLE>
See accompanying Notes To Consolidated Financial Statements.
<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Unaudited Financial Statements
The accompanying unaudited financial statements have been prepared in
accordance with the instructions for Form 10-Q and 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 only of normal recurring adjustments considered
necessary for a fair presentation, have been included. Operating results for any
quarter are not necessarily indicative of the results for any other quarter or
for the full year. These statements should be read in conjunction with the
financial statements and notes to the consolidated financial statements thereto
included in the Company's Form 10-K for the year ended June 30, 1997.
2. Inventories
Inventories are comprised as follows:
September 30, 1997 June 30, 1997
(Unaudited)
Work-in-progress $ 2,009,537 $ 2,726,585
Component Parts 15,558,400 18,679,482
Finished Goods 6,956,522 4,646,924
----------- ----------
$24,524,459 $26,052,991
----------- -----------
The above amounts are net of a reserve for obsolete and excess inventory of
approximately $1.7 million and $1.7 million at September 30, 1997 and June 30,
1997, respectively.
3. Debt Refinancing
On August 8, 1997, the Company refinanced its existing debt through a new
$46.0 million credit facility with Foothill Capital Corporation ("Foothill"), a
division of Norwest Bank. The Foothill credit facility, with a blended average
interest rate of 10.2%, is comprised of a $25.0 million three-year revolving
line of credit, three-year term loans of $10.0 million and $7.0 million,
respectively, and a $4.0 million loan maturing in February 1998. In conjunction
with the new financing agreement, Allied placed an additional $5.0 million in
subordinated debt financing, which matures in February 1998, with several
related parties to the Company. In addition, the Company issued 112,500 warrants
with an exercise price of $7.025 per share, 62,500 of which are being issued to
the holders of the subordinated debt and the balance to Foothill. In conjunction
with the debt refinancing, the Company recorded a $0.5 million, net of
<PAGE>
taxes, extraordinary expense to write off the unamortized loan costs of the
previous credit facility.
4. Subsequent Events
On October 31, 1997, subsequent to the end of the first quarter, the
Company sold the assets of Bear Medical Systems and its subsidiary BiCore
Monitoring Systems, to Thermo Electron Corporation for approximately $36.5
million, net of transaction costs, plus the assumption of certain liabilities.
Estimated net proceeds from the sale of approximately $25.0 million, after
taxes, were utilized to repay a significant portion of its term notes and to
repay all of its subordinated debt, 16.0 million of which had a coupon rate of
14.0% per annum.
On November 3, 1997, the Company repaid two term notes and significantly
reduced the outstanding balance of its revolving line of credit and on November
4, 1997, repaid its subordinated debt from proceeds obtained from the sale of
certain assets as discussed below.
The sale of these assets resulted in an estimated net gain for financial
reporting purposes of approximately $4.9 million, which will be recorded in the
Company's quarter ending December 31, 1997. Such estimated net gain is
preliminary in nature and may be subject to further revision upon finalization
of the accounting for the sale transaction. On a pro forma basis, excluding the
results of operations of the divested assets and including the effects of the
reduction in the Company's indebtedness as a result of application of the net
proceeds from the sale, net sales, income from operations, loss before
extraordinary item, and loss per share before extraordinary item would have been
$23.1 million, $0.9 million, ($0.4) million and ($0.04), respectively. Such pro
forma results do not include the net gain on the sale described above, and are
not intended to reflect what the Company's results of operations would actually
have been if the sale had occurred on July 1, 1997 or to project the Company's
results of operations for any future period.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results Results of Operations.
GENERAL
The following discussion summarizes the significant factors affecting the
consolidated operating results and financial condition of Allied Healthcare
Products, Inc. ("Allied" or the "Company") for the three months ended September
30, 1997 compared to the three months ended September 30, 1996. This discussion
should be read in conjunction with the June 30, 1997 consolidated financial
statements and accompanying notes thereto included in the Company's Form 10-K
for the year ended June 30, 1997.
Certain statements contained herein are forward-looking statements. Actual
results could differ materially from those anticipated as a result of various
factors, including cyclical and other industry downturns, the effects of federal
and state legislation on health care reform, including Medicare and Medicaid
financing, the ability to realize the full benefit of recent capital
expenditures or consolidation and rationalization activities, difficulties or
delays in the introduction of new products or disruptions in selling,
manufacturing and/or shipping efforts.
The Company recently refinanced its existing credit facility and sold the assets
of its ventilation products division as part of its ongoing efforts to improve
its operating results and capital structure. These financial and operating
initiatives are addressed below.
Debt Refinancing
On August 8, 1997, the Company refinanced its existing debt through a new $46.0
million credit facility with Foothill Capital Corporation ("Foothill"), a
division of Norwest Bank. The Foothill credit facility, with a blended average
interest rate of 10.2%, is comprised of a $25.0 million three-year revolving
line of credit, three-year term loans of $10.0 million and $7.0 million,
respectively, and a $4.0 million loan maturing in February 1998. In conjunction
with the new financing agreement, Allied placed an additional $5.0 million in
subordinated debt financing, which matures in February 1998, with several
related parties to the Company. In addition, the Company issued 112,500 warrants
at an exercise price of $7.025 per share, 62,500 of which were issued to the
holders of the subordinated debt and the balance to Foothill . The proceeds from
the new financing were used to replace the Company's outstanding debt with its
previous commercial bank syndicate, and to provide additional liquidity. The new
credit facility became necessary as the Company was unable to negotiate a
long-term agreement with its previous commercial bank syndicate and had been
required to pay fees in excess of $2.5 million from September 1996 to August
1997 to obtain waivers for technical covenant violations. The new credit
facility reduced the Company's interest expense in the first quarter of fiscal
1998 as compared to the previous quarter, provided additional liquidity, and
reflected technical covenants consistent with the Company's current financial
projections. In conjunction with the debt refinancing the Company recorded a
$0.5 million, net of taxes, extraordinary expense to write-off the unamortized
loan costs of the previous credit facility. On November 3, 1997, the Company
repaid two term notes and significantly reduced the outstanding balance of its
revolving line of credit and on November 4, 1997,repaid its subordinated debt
from proceeds obtained from the sale of certain assets as discussed below.
<PAGE>
Sale of Ventilation Products Operations
On October 31, 1997, subsequent to the end of the first quarter, the Company
sold the assets of Bear Medical Systems, Inc. ("Bear") and its subsidiary BiCore
Monitoring Systems, Inc. ("BiCore") to Thermo Electron Corporation for
approximately $37.5 million plus the assumption of certain liabilities. The sale
enabled the Company to eliminate a significant portion of its term notes and to
repay all of its subordinated debt, $16.0 million of which had a coupon rate of
14.0% per annum. As previously discussed, $9.0 million of the debt which was
repaid, would have matured in February 1998.
The sale also enables the Company to focus on its core businesses. Selling
efforts related to Bear and BiCore ventilation products required technical,
demonstration based selling efforts, a selling skill set different than those
required for the Company's core products. In addition, the high-tech nature of
the ventilation products required significant ongoing investments in research
and development. Such investments put pressure on the limited liquidity position
the Company experienced prior to the sale of these assets.
The sale of these assets resulted in an estimated net gain for financial
reporting purposes of approximately $3.8 million, which will be recorded in the
Company's quarter ending December 31, 1997. Such estimated net gain is
preliminary in nature and may be subject to further revision upon finalization
of the accounting for the sale transaction. On a pro forma basis, excluding the
results of operations of the divested assets and including the effects of the
reduction in the Company's indebtedness as a result of application of the net
proceeds from the sale, net sales, income from operations, loss before
extraordinary item and loss per share before extraordinary item would have been
$23.1 million, $0.9 million, ($0.3) million and ($0.04) per share. Such pro
forma results do not include the net gain on the sale described above, and are
not intended to reflect what the Company's results of operations would actually
have been if the sale had occurred on July 1, 1997, or to project the Company's
results of operations for any future period.
Financial Information
The following table sets forth, for the fiscal period indicated, the percentage
of net sales represented by certain items reflected in the Company's
consolidated statement of operations, which included the ventilation products
operations for both periods:
Three Months Ended
September 30,
1997 1996
---- ----
Net Sales 100.0% 100.0%
Cost of sales 69.4 68.3
------- -------
Gross profit 30.6 31.7
Total SG&A expenses 24.0 28.7
------- -------
Income from operations 6.6 3.0
Interest expense 6.3 3.9
------- -------
Income(loss)before provision
(benefit) for income taxes 0.3 (0.9)
Provision (benefit) for income taxes 0.6 (0.3)
------- -------
Net income (loss) before extraordinary item (0.3) (0.6)
Extraordinary loss (1.8) 0.0
------- -------
Net loss (0.6)% (2.1)%
-------------------------
<PAGE>
Results of Operations
Allied manufactures and markets medical gas equipment, respiratory therapy
equipment, and emergency medical products. Set forth below is certain
information with respect to amounts (dollars in thousands) and percentages of
net sales attributable to medical gas equipment, respiratory therapy equipment,
including ventilation products, and emergency medical products for the three
months ended September 30, 1997 compared to the three months ended September 30,
1996.
Three Months Ended Three Months Ended
September 30, 1997 September 30, 1996
% of % of
total total
Net net Net net
sales sales sales sales
----- ----- ----- -----
Medical Gas Equipment $12,136 40.2% $10,096 34.6%
Respiratory Therapy Equipment 15,058 49.9% 15,932 54.7%
Emergency Medical Products 2,979 9.9% 3,106 10.7%
-------- ------- -------- -------
Total $30,173 100.00% $29,134 100.00%
-------- ------- -------- -------
Three months ended September 30, 1997 compared to three months ended September
30, 1996.
Net sales for the three months ended September 30, 1997 of $30.2 million
increased $1.1 million, or 3.6%, compared to net sales of $29.1 million for the
three months ended September 30, 1996. Certain internal and external factors
that have adversely impacted the Company's operations in the latter part of
fiscal 1996 and throughout fiscal 1997 appear to be improving. Internal
operating improvements include efficiencies realized from a new computer system
in the Company's St. Louis facility, the new machining center, also in St.
Louis, and selling cost reductions resulting from sales force consolidations and
changes in selling strategies to the home healthcare market. The capital
expenditure project in the Company's Toledo, Ohio facility continues to be in
progress and has taken longer than management's expectations due to direct labor
constraints. Certain external issues continued to impact the Company's
operations during the first quarter of fiscal 1998. The impact of the
consolidation of health care providers appears to be slowing; however the cost
containment initiatives of health care providers continue to put pressures on
pricing. Finally, the possibility of changes in Medicaid and Medicare
reimbursement rates, has continued to impact sales. While the Company is unable
to predict when these issues will be resolved, management believes that, over a
long-term horizon, Allied is well positioned to capitalize on the need for its
respiratory products and meet the demands for these products caused by an aging
population, an increase in the occurrence of lung disease, and advances in
treatment of other respiratory illnesses in the home, hospital, and sub-acute
care facilities.
New orders, or the pace of incoming business, continued to improve as orders for
the three months ended September 30, 1997 of $31.0 million were $1.1 million, or
3.7%, over orders of $30.0 million for the prior year comparable period. This is
the fifth consecutive quarter in which new orders have exceeded the prior year
comparable period orders.
<PAGE>
Medical gas equipment sales in the first quarter of fiscal 1998 of $12.1 million
were $2.0 million, or 20.2%, over same period prior year sales of $10.1 million.
Medical gas construction sales, headwall sales, and medical gas suction and
regulation device sales all had double digit growth over the comparable period
prior year sales. It appears the impact of consolidation of health care
providers is slowing and their rationalization process for facility protocol and
inventory consolidation is nearing completion. Management, however, is unable to
predict when such consolidations will be complete or the ramifications thereof.
Orders for medical gas construction products exceeded the prior year's orders.
Both headwall orders, which are subject to frequent fluctuations from period to
period, and medical gas suction and regulation device orders, which were
adversely impacted by the UPS shipping strike in August 1997, were below the
prior year levels.
Respiratory therapy equipment sales in the first quarter of fiscal 1998 of $15.0
million were $0.9 million, or 5.5%, below the prior year same period sales of
$15.9 million. Sales to the home healthcare market declined by 16.0% as a result
of continued manufacturing inefficiencies in the Company's Toledo, Ohio facility
combined with competitive pressures relating to home use of durable respiratory
products. In addition, pricing pressures caused by the ongoing consolidation of
home health care dealers and continued concerns over potential reductions in
home oxygen therapy reimbursement rates continued to impact sales of home health
care products. While the Company is unable to predict when these latter two
macroeconomic factors will be resolved, until there is a resolution of these
issues, current customer patterns are likely to continue. The Company has
continued to experience capacity limitations at the Toledo facility due to
direct labor constraints, which are being addressed by the addition of a third
shift. The decline in home healthcare sales was partially offset by a 3.2%
increase in sales to the hospital market. Orders of respiratory therapy products
in the first quarter of fiscal 1998 of $16.4 million were $0.2 million, or 1.4%,
above orders in the prior year same period. Home healthcare orders declined 8.9%
while hospital orders increased 8.6% during these periods.
Emergency medical product sales in the first quarter of fiscal 1998 of $3.0
million were $0.1 million, or 4.1%, less than sales of $3.1 million in the
comparable prior year period. Orders for emergency medical products, however,
increased to $3.8 million in the first quarter of fiscal 1998, an increase of
$1.3 million, or 52.1%, over orders of $2.5 million in the comparable prior year
period. The Company was unable to ship at the level of customer demand due to
the UPS strike in August 1997 and partially due to certain manufacturing
constraints in the St. Louis facility. No significant orders have been canceled
as a result of the shipping delays.
The Company continued to increase its presence in world wide markets during the
first quarter of fiscal 1998. International sales, which are included in the
product line sales discussed above, increased $1.5 million, or 18.2%, to $9.6
million in the first quarter of fiscal 1998 compared to international sales of
$8.1 million in the comparable prior year period. Advances in medical protocol
in various countries throughout the world combined with the Company's strong
international dealer network has enabled the Company to respond to the increased
world wide demand for respiratory products. Approximately one fourth of the
Company's international sales have historically come from Pacific Rim countries.
A number of those countries have recently experienced volitility in their
currencies, as well as, a general decline relative to the United States
dollar.The Company, which principally sells its products in United States dollar
based terms, is unable to predict the impact, if any, on future net sales,
cancellation of accounts receivable or demand as a result of currency exchange
rates.
<PAGE>
Gross profit for the first quarter of fiscal 1998 of $9.2 million was unchanged
from the first quarter of fiscal 1997. Gross profit as a percentage of net sales
was 30.6% and 31.7% for the first quarter of fiscal 1998 and 1997, respectively.
The decline in gross margin as a percentage of net sales was attributable to the
increase in international sales, which have lower margins than domestic sales
due to the large quantity bid-based nature of these sales, pricing pressures
brought on by consolidations and cost containment initiatives of healthcare
providers, and the Company's planned reductions in inventories which led to
reduced manufacturing throughput resulting in lower per unit absorption of plant
overhead. Partially offsetting the margin decline was an improvement in the mix
of medical gas construction and regulation products combined with higher prices
on these products and the improvements in manufacturing efficiencies realized
from capital expenditure projects.
Selling, General and Administrative ("SG&A") expenses for the first quarter of
fiscal 1998 were $7.3 million, a decrease of $1.1 million, or 13.4%, from $8.4
million in the first quarter of fiscal 1997. The decline in SG&A expenses was
the result of the Company's initiatives to consolidate its sales and marketing
operations. Costs to train the Company's sales force and investments in product
literature which were incurred in the prior year did not repeat in the first
quarter of fiscal 1998. In addition, certain expenses related to the new
computer implementation did not repeat in the first quarter of fiscal 1998. As a
percentage of net sales, SG&A expenses decreased to 24.0% in the first quarter
of fiscal 1998 from 28.8% in the comparable prior year period as a result of the
combination of the increase in sales and the decrease in SG&A spending.
Income from operations in the first quarter of fiscal 1998 were $2.0 million, an
increase of $1.1 million, or 129.2%, over $0.9 million in the first quarter of
fiscal 1997. As a percentage of net sales, income from operations increased to
6.6% in the first quarter of fiscal 1998 from 3.0% in the comparable prior year
period.
Other expenses increased $0.8 million, or 67.1%, to $1.9 million in the first
quarter of fiscal 1998 from $1.1 million in the first quarter of fiscal 1997.
This increase is attributable to the increase in interest expense primarily
resulting from fees paid to the Company's previous bank group. On August 8, 1997
the Company entered into a $46.0 million credit facility with Foothill and
obtained $5.0 million in subordinated debt in a private placement. This
refinancing provided additional liquidity to the Company.
Allied had income before provision for taxes and extraordinary loss in the first
quarter of fiscal 1998 of $0.1 million. The company recorded a provision for
income taxes of $0.2 million, resulting in a net loss after taxes, but before
extraordinary loss, of $0.1 million. The provision for income taxes recorded in
the first quarter relates to the discrete period estimated effective tax rate
which was impacted by the anticipated reduction in certain tax credits caused by
the increased interest expense noted above, and the non-deductibility of certain
goodwill amortization. Results for the first quarter of fiscal 1997 were a loss
before taxes and extraordinary loss of $0.3 million, a tax benefit of $0.1
million and a net loss of $0.2 million.
Allied recorded an extraordinary loss on the early extinguishment of debt of
$0.5 million, which is net of a tax benefit of $0.4 million. The net loss for
the first quarter was $0.6 million, or $0.08 per share, consisting of $0.01 loss
from operations and a $0.07 loss per share for the extraordinary item. The net
loss for the three months ended September 30, 1996 was $0.2 million, or $0.02
per share. The weighted average number of common shares outstanding used
<PAGE>
in the calculation of earnings per share was 7,800,095 and 7,796,682 for the
first quarter of fiscal 1998 and fiscal 1997, respectively.
Financial Condition
The following table sets forth selected information concerning Allied's
financial condition:
Dollars in thousands September 30, 1997 June 30, 1997
- -------------------- ------------------ -------------
Cash $879 $988
Working Capital $21,090 $18,743
Total Debt $49,413 $46,932
Current Ratio 1.71:1 1.57:1
The Company's working capital was $21.1 million at September 30, 1997 compared
to $18.7 million at June 30, 1997. Inventories, other current assets, and
accounts payable all decreased during the first quarter of fiscal 1998 while
accounts receivable and the current portion of long term debt both increased
during this period. Accounts receivable increased to $24.0 million at September
30, 1997 from $23.1 million at June 30, 1997. The increase in accounts
receivable was due to increased sales and timing of intra-quarter sales as the
days sales outstanding for September 30, 1997 of 71 days, was unchanged from
June 30, 1997. Inventories decreased to $24.5 million at September 30, 1997 from
$26.1 million at June 30, 1997. Inventories as measured in Days on Hand ("DOH"),
were 130 DOH at September 30, 1997 compared to 128 DOH at June 30, 1997. The
company made modest improvements in the mix of its inventories by increasing the
safety stock levels of high volume products, for which customers require
shortened delivery times, and reducing the stocking status of lower volume
products. The Company plans to continue these inventory-related initiatives in
fiscal 1998. Accounts payable decreased to $11.2 million at September 30, 1997,
down $2.8 million from the June 30, 1997 balance of $14.0 million. The Company
experienced limited liquidity during fiscal 1997 due to a reduction in borrowing
availability related to principal payments made on its term loans combined with
the high level of fees paid to the Company's previous commercial bank group, as
previously discussed. Consequently, payments to vendors and other obligations
were extended, causing some disruption in vendor deliveries and services. The
Company's limited liquidity situation was alleviated with the completion of its
debt refinancing, on August 8, 1997 and was even further improved upon the
completion of the sale of its ventilation products operations subsequent to the
end of the first quarter. The Company is current on all its obligations and
disruptions of vendor deliveries and services have been eliminated. The current
portion of long term debt was $13.8 million at September 30, 1997 compared to
$12.9 million at June 30, 1997. Both periods include $4.0 million of term notes
and $5.0 million of subordinated debt which were due to mature on February 1,
1998, but were repaid on November 3, 1997 and November 4, 1997, respectively, in
conjunction with the sale of the ventilation products operations.
The net increase/(decrease) in cash for the three months ended September 30,
1997 and September 30, 1996 was ($0.1) million and $0.1 million respectively.
Net cash provided by (used by) operations was ($1.8) million and $4.7 million
for the same periods. Cash used by operations for the three months ended
September 30, 1997 consisted of a net loss of $0.6 million, which was offset by
the non-cash charges to operations of $1.3 million for depreciation and
amortization, as well as changes in working capital accounts which used $2.5
million, principally relating to the payments to vendors, which reduced accounts
payable by $2.8 million during the quarter. The cash used by operating
activities was funded by a net increase in aggregate debt of $2.5 million, which
was also utilized to pay for debt issuance costs of $0.7 million and capital
<PAGE>
expenditures of $0.1 million, which resulted in a net decrease in cash of $0.1
million, for the three months ended September 30, 1997. Cash provided by
operations for the comparable prior year period consisted of a net loss of $0.2
million which was offset by the non-cash charges of $1.2 million for
depreciation and amortization, as well as cash generated by changes in working
capital accounts, which included a tax refund of $1.8 million and an increase in
accounts payable of $0.5 million. The cash provided by operations was used to
repay debt by $2.6 million, debt issuance costs of $0.5 million, and capital
expenditures of $1.0 million for a net increase in cash of $0.1 million for the
three months end September 30, 1996. The adverse results of operations during
the latter half of fiscal 1996 and during fiscal 1997 impacted the Company's
liquidity and the availability of the Company to continue historical levels of
fixed payments. Accordingly, on August 21, 1996 the Company's Board of Directors
voted to suspend quarterly dividends effective immediately subsequent to the
payment of dividends for the fourth quarter of fiscal 1996. In addition, to
improve the liquidity of the Company and to reduce interest expense, on August
8, 1997 the Company refinanced its existing debt, which is discussed further
below.
At September 30, 1997 the Company had aggregate indebtedness of $49.4 million,
including $13.8 million of short-term debt and $35.6 million of long-term debt.
At June 30, 1997, the Company had aggregate indebtedness of $46.9 million,
including $12.9 million of short-term debt and $34.0 million of long-term debt.
Throughout fiscal 1996 the Company entered into a series of amendments and
waiver negotiations with its previous bank group. During fiscal 1997, the
Company paid fees of approximately $2.2 million for the September 1996 debt
amendment, to obtain waivers for technical covenant violations at December 31,
1996 and March 31, 1997 and for related matters and paid additional fees of $0.4
million in the first quarter of fiscal 1998. The Company was ultimately unable
to negotiate a long-term agreement with its commercial bank syndicate.
Accordingly, on August 8, 1997 the Company refinanced its existing debt through
a new $46.0 million credit facility with Foothill. The new credit facility, with
a blended average interest rate of 10.2%, was comprised of a $25.0 million
three-year revolving line of credit, three-year term loans of $10.0 million and
$7.0 million, respectively, and a $4.0 million term loan maturing in February
1998. In conjunction with the new financing agreement, Allied placed an
additional $5.0 million in subordinated debt financing, which matures in
February 1998, with several related parties to the Company. In addition, the
Company issued 112,500 warrants at an exercise price of $7.025 per share, 62,500
of which are being issued to the holders of the subordinated debt and the
balance to Foothill Capital Corporation. The proceeds from the new financing
were used to replace the Company's outstanding debt with the commercial bank
syndicate, and to provide additional liquidity. On October 31, 1997 the Company
completed the sale of its ventilation division assets, as previously discussed.
On November 3, 1997 the Company repaid two term notes and a significant portion
of its revolving credit facility to Foothill. On November 4, 1997 the Company
repaid its $5.0 million subordinated debt. Amendments to the Foothill credit
facility are expected to be completed in the fiscal 1998 second quarter to
reflect the impact of the significant reductions in outstanding debt. The
Company believes that cash flow from operations and available borrowings under
its credit facilities will be sufficient to finance fixed payments and planned
capital expenditures in fiscal 1998.
As of September 30, 1997, the Company had a backlog of $24.8 million compared to
a backlog of $23.9 million at June 30, 1997. The Company's backlog, a
significant portion of which is attributable to the Company's medical gas
equipment products, consists of firm customer purchase orders which may be
subject to cancellation by the customer subject to notification. The Company's
backlog increased in emergency medical products and respiratory therapy
<PAGE>
products in the first quarter of fiscal 1998 which increase was partially offset
by a decline in backlog for medical gas equipment products.
Inflation has not had a material effect on the Company's business or results of
operations.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - none
(b) Reports on Form 8-K - none
<PAGE>
SIGNATURE
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.
ALLIED HEALTHCARE PRODUCTS, INC.
Date: November 14, 1997 /s/ Barry F. Baker
--------------------------------------------
Barry F. Baker
Vice President - Finance and Chief Financial
Officer
(Principal Accounting and Financial Officer)
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<LEGEND>
ALLIED HEALTHCARE PRODUCTS, INC.
Financial Data Schedule for First qUARTER
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 879
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<RECEIVABLES> 25,160
<ALLOWANCES> 1,160
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<PP&E> 21,494
<DEPRECIATION> 1,339
<TOTAL-ASSETS> 124,177
<CURRENT-LIABILITIES> 29,810
<BONDS> 35,571
0
0
<COMMON> 101
<OTHER-SE> 58,695
<TOTAL-LIABILITY-AND-EQUITY> 124,177
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<CGS> 20,944
<TOTAL-COSTS> 20,944
<OTHER-EXPENSES> 7,299
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<INCOME-TAX> 177
<INCOME-CONTINUING> (107)
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<EXTRAORDINARY> 531
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<NET-INCOME> (638)
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