SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1998
Transition report pursuant to Section 13 or 15(d) of the Securities
- ---
Exchange Action of 1934
For the transition period from to _____________ to _____________
Commission File Number 0-19266
ALLIED HEALTHCARE PRODUCTS, INC.
1720 Sublette Avenue
St. Louis, Missouri 63110
314/771-2400
IRS Employment ID 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 4, 1998 is
7,806,682 shares.
<PAGE>
<TABLE>
<CAPTION>
INDEX
Page
Part I - Financial Information Number
<S> <C>
Item 1. Financial Statements
Consolidated Statement of Operations 3
three months ended September 30, 1998
and 1997 (Unaudited)
Consolidated Balance Sheets - 4-5
September 30, 1998 (Unaudited) and
June 30, 1998
Consolidated Statements of Cash Flow 6-7
three months ended September 30, 1998
and 1997 (Unaudited)
Consolidated Statement of Changes in 8
Stockholders' Equity for three months ended
September 30, 1998 (Unaudited)
Notes to Consolidated Financial Statements 9-11
Item 2. Management's Discussion and Analysis of 12-21
Financial Condition and Results of Operations
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 22
Signature 23
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three months ended
September 30,
---------------------------
1998 1997
------------- ------------
<S> <C> <C>
Net sales $ 17,859,103 $30,172,904
Cost of sales 13,452,490 20,943,624
Gross profit 4,406,613 9,229,280
Selling, general and administrative expenses 4,877,348 7,252,587
Provision for restructuring and consolidation 972,850 0
------------- ------------
Income (loss) from operations (1,443,585) 1,976,693
Other expenses:
Interest expense 533,664 1,859,819
Other, net 18,946 46,939
------------- ------------
552,610 1,906,758
------------- ------------
Income (loss) before provision
(benefit) for income taxes and
extraordinary loss (1,996,195) 69,935
Provision (benefit) for income taxes (716,938) 177,123
------------- ------------
Loss before extraordinary loss (1,279,257) (107,188)
Extraordinary loss on early
extinguishment of debt, net of
income tax benefit of $373,191 0 530,632
------------- ------------
Net Loss ($1,279,257) ($637,820)
============= ============
Basic and diluted loss per share:
Loss before extraordinary loss ($0.16) ($0.01)
Extraordinary loss --- (0.07)
------------- ------------
Net Loss ($0.16) ($0.08)
============= ============
Weighted average shares 7,806,682 7,800,095
============= ============
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
Sept. 30, June 30,
1998 1998
------------ -----------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 650,983 $ 1,194,813
Accounts receivable, net of allowance for doubtful
accounts of $1,087,896 and $1,035,833, respectively 12,965,716 14,227,314
Inventories 17,241,347 18,341,340
Other current assets 354,384 273,832
------------ -----------
Total current assets 31,212,430 34,037,299
------------ -----------
Property, plant and equipment, net 16,898,474 17,525,906
Goodwill, net 27,822,212 28,026,064
Other assets, net 530,582 590,933
------------ -----------
Total assets $ 76,463,698 $80,180,202
============ ===========
See accompanying Notes To Consolidated Financial Statements.
</TABLE>
(CONTINUED)
4
<PAGE>
<TABLE>
<CAPTION>
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Sept. 30, June 30,
1998 1998
------------- -------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 5,404,310 $ 5,807,349
Current portion of long-term debt 1,016,533 3,442,797
Accrual for restructuring and consolidation 614,008 0
Other current liabilities 2,468,524 3,479,215
------------- -------------
Total current liabilities 9,503,375 12,729,361
------------- -------------
Long-term debt 15,760,514 14,971,775
Deferred income tax liability-noncurrent 441,589 441,589
Commitments and contingencies
Stockholders' equity:
Preferred stock; $.01 par value; 1,500,000 shares
authorized; no shares issued and outstanding; which
includes Series A preferred stock; $.01 par value; 200,000
shares authorized; no shares issued and outstanding
Common stock; $.01 par value; 30,000,000 shares
authorized; 7,806,682 shares issued and outstanding
at September 30, 1998 and June 30, 1998 101,102 101,102
Additional paid-in capital 47,014,621 47,014,621
Common stock in treasury, at cost (20,731,428) (20,731,428)
Retained earnings 24,373,925 25,653,182
------------- -------------
Total stockholders' equity 50,758,220 52,037,477
------------- -------------
Total liabilities and stockholders' equity $ 76,463,698 $ 80,180,202
============= =============
See accompanying Notes To Consolidated Financial Statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three months ended
September 30,
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($1,279,257) ($637,820)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,038,334 1,339,043
Provision for restructuring and consolidation 827,738 0
Loss on refinancing of long-term debt 0 903,823
Decrease (increase) in accounts receivable, net 1,261,598 (907,018)
Decrease in inventories 1,099,993 1,528,532
(Increase) decrease in other current assets (80,552) 48,112
Decrease in accounts payable (403,039) (2,834,481)
Decrease in accrued income taxes (721,186) (147,500)
Decrease in other current liabilities (289,505) (1,095,815)
------------ -----------
Net cash provided by (used in) operating activities 1,454,124 (1,803,124)
------------ -----------
Cash flows from investing activities:
Capital expenditures, net (358,679) (135,282)
------------ -----------
Net cash used in investing activities (358,679) (135,282)
------------ -----------
</TABLE>
(CONTINUED)
6
<PAGE>
<TABLE>
<CAPTION>
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
Three months ended
September 30,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of long-term debt 5,000,000 26,000,000
Payments of long-term debt (6,008,240) (16,341,599)
Borrowings under revolving credit agreement 24,880,849 40,502,205
Payments under revolving credit agreement (25,510,134) (47,679,335)
Issuance of common stock 0 68,750
Debt issuance costs (1,750) (720,968)
------------- -------------
Net cash provided by (used in) financing activities (1,639,275) 1,829,053
------------- -------------
Net decrease in cash and equivalents (543,830) (109,353)
Cash and equivalents at beginning of period 1,194,813 988,436
------------- -------------
Cash and equivalents at end of period $ 650,983 $ 879,083
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 621,945 $ 2,281,473
Income taxes $ 8,941 $ 2,118
</TABLE>
See accompanying Notes To Consolidated Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
(UNAUDITED)
Additional
Preferred Common paid-in Treasury Retained
stock stock capital stock earnings
---------- -------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1998 $ 0 $101,102 $47,014,621 ($20,731,428) $25,653,182
Net loss for the
three months ended
September 30, 1998 (1,279,257)
---------- -------- ----------- ------------- ------------
Balance,
September 30, 1998 $ 0 $101,102 $47,014,621 ($20,731,428) $24,373,925
========== ======== =========== ============= ============
</TABLE>
See accompanying Notes To Consolidated Financial Statements.
8
<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
NOTE 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, 1998.
2. Inventories
Inventories are comprised as follows:
<TABLE>
<CAPTION>
September 30, 1998 June 30, 1998
(Unaudited)
<S> <C> <C>
Work-in progress $ 1,354,225 $ 2,424,041
Component Parts 13,667,546 14,820,526
Finished Goods 2,219,576 1,096,773
-------------------- --------------
$ 17,241,347 $ 18,341,340
==================== ==============
</TABLE>
The above amounts are net of a reserve for obsolete and excess inventory of
approximately $2.0 million and $2.2 million at September 30, 1998 and June 30,
1998, respectively.
9
<PAGE>
3. Debt Refinancing
On August 7, 1998, the Company borrowed approximately $5.0 million from
LaSalle National Bank. The borrowing was secured by a first security interest
in the Company's St. Louis facility. The loan requires monthly principal and
interest payments of $60,005, with a final payment of all principal and interest
remaining unpaid due at maturity on August 1, 2003. Interest is fixed at 7.75%
per annum. Proceeds from the borrowing were used to pay down existing debt,
which bore a higher interest rate. The loan agreement includes certain debt
covenants which the Company must comply with over the term of the loan.
On September 8, 1998, the Company's credit facilities with Foothill Capital
Corporation were amended. The Company's existing term loan was eliminated and
replaced with an amended revolving credit facility. As amended, the revolving
credit facility remains at $25.0 million. The interest rate on the facility has
been reduced from the floating reference rate (8.25% at October 23, 1998) plus
0.50% to the floating reference rate plus 0.25%. The reference rate, as defined
in the credit agreement, is the variable rate of interest, per annum, most
recently announced by Norwest Bank Minnesota, National Association, or any
successor thereto, as its "base rate".
This amendment also provides the Company with a rate of LIBOR + 2.5%.
Interest rates on the reference rate and LIBOR will drop by 0.25% at the end of
fiscal 1999 and 2000 if the company is profitable. In addition, the fees
charged to the company are also reduced.
4. B&F Relocation provision
On August 5, 1998 the Company's board of directors voted to close the
Toledo facility of its disposable products division (DPD) and relocate
production of the B&F line of home care products to its manufacturing facility
in St. Louis, Missouri. This move was announced on August 10, 1998. The move is
expected to be completed during the second quarter of fiscal 1999. In
connection with the shutdown of the facility, Allied has recorded a provision of
approximately $1.0 million pre-tax, $0.6 million after-tax, or $0.07 per share,
to cover the cost of closing the facility. The provision reflects costs of
certain fixed asset impairments, employee severance benefits and other related
exit costs. Significant portions of the pre-tax costs are expected to be paid
prior to January 1, 1999.
10
<PAGE>
Costs for the provision are categorized as follows:
<TABLE>
<CAPTION>
Fiscal
Year
1999
<S> <C>
Noncash asset impairments $213,730
Employee severance costs 400,289
Other exit costs 358,831
--------
$972,850
========
</TABLE>
A reconciliation of activity with respect to the Company's restructuring
and consolidation of the B&F product line is as follows:
<TABLE>
<CAPTION>
<S> <C>
Provision, first quarter of fiscal 1999 $ 972,850
Noncash asset impairments (213,730)
Cash payments associated with severance 0
Other exit costs incurred (145,112)
----------
ENDING BALANCE, SEPTEMBER 30,1998 $ 614,008
==========
</TABLE>
5. Sale of Bear Ventilation Products Division
On October 31, 1997, the Company sold the assets of Bear Medical Systems,
Inc. ("Bear") and its subsidiary BiCore Monitoring Systems, Inc. ("BiCore") to
Thermo-Electron Corporation for $36.6 million, plus the assumption of certain
liabilities. The net proceeds of $29.5 million, after expenses, including
federal and state taxes paid, were utilized to pay a significant portion of its
subordinated debt.
Had the divestiture occurred on July 1, 1997, consolidated pro forma net
sales, net loss, and loss per share for the three months ended September 30,
1997 would have been $23.0 million, $(0.9) million, and $(0.11), respectively.
Results for the ventilation products division are included in the Consolidated
Statement of Operations for the three months ended September 30, 1997.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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, 1998 compared to the three months ended September 30, 1997. This discussion
should be read in conjunction with the June 30, 1998 consolidated financial
statements and accompanying notes thereto included in the Company's form 10-K
for the year ended June 30, 1998.
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 healthcare 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 review of and comparability of year to year operating results is complicated
by the sale of the ventilation products division on October 31, 1997. The
fiscal 1997 results include ventilation products division for four months in the
year ended June 30, 1998, including the three months ended September 30, 1997.
The specific transactions and events impacting 1998 operating results, which
make meaningful comparisons more difficult, are summarized below.
SALE OF VENTILATION DIVISION ASSETS
- ---------------------------------------
The Company sold the assets of Bear Medical Systems, Inc. ("Bear") and its
subsidiary BiCore Monitoring Systems, Inc. ("BiCore"), collectively referred to
as the ventilation products division, to Thermo-Electron Corporation for $36.6
million plus the assumption of certain liabilities. The net proceeds of $29.5
million, after expenses including federal and state taxes, were utilized to
repay a significant portion of the Company's term notes and to repay all of its
subordinated debt, $15.8 million of which had a coupon rate of 14.0% per annum.
12
<PAGE>
DEBT REFINANCING
- -----------------
In August 1997, the Company refinanced its existing debt through a $46 million
credit facility with Foothill Capital Corporation. In conjunction with these
new credit facilities, Allied placed an additional $5.0 million in subordinated
debt with several related parties to the company. The Foothill Credit facility,
which was amended in November 1997 to reflect the effects of the sale of the
ventilation products division, and again in September 1998 to further reduce
interest rates, has allowed the Company to improve its liquidity and reduce
interest expense in comparison to prior years. In addition, on August 7, 1998,
the Company borrowed approximately $5.0 million from LaSalle National Bank. The
borrowing was secured by a security interest in the Company's St. Louis
facility. This loan further reduces the Company's borrowing interest rate and
increases liquidity.
GOODWILL WRITEDOWNS
- --------------------
During the second quarter of fiscal 1998, the Company reevaluated the carrying
value of its various businesses and recorded $9.8 million of non-recurring
charges to reflect the changes in business conditions resulting from the sale of
the ventilation products division and due to other changes in market conditions
which culminated during the second quarter of fiscal 1998. Goodwill writedowns,
which were determined pursuant to the Company's impairment policy, totaled $8.9
million. As a result of the carrying value of goodwill for certain businesses,
the Company reduced its annual amortization charges by $0.3 million or $0.04 per
share.
B&F RELOCATION
- ---------------
On August 10, 1998, the Company announced its intention to close the Toledo
facility of its disposable products division and relocate the B&F product line
of home care products to its St. Louis manufacturing facility. The Company
anticipates that the move will be completed in the second quarter of fiscal 1999
and that it will generate annual savings of nearly $1.0 million. In connection
with the shutdown of the facility, the Company has recorded a one-time charge of
approximately $1.0 million ($0.6 million after taxes), or $.07 per share during
the first quarter of 1999. Significant portions of the pre-tax costs of
approximately $1.0 million associated with the shutdown are expected to be paid
prior to January 1, 1999. The Company will continue to review its operations
for opportunities to improve efficiencies. See Note 4 in the Notes to the
Consolidated Financial Statements for additional information concerning the
details of the Company's restructuring provision, including a reconciliation of
the reserve relating thereto.
13
<PAGE>
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. Results of the ventilation products
division are included for the three months ended September 30, 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
------ -------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 75.3 69.4
------ -------
Gross profit 24.7 30.6
Total SG&A expenses 27.3 24.0
Provision for restructuring and consolidation 5.5 0.0
------ -------
Income (loss) from operations (8.1) 6.6
Interest and other expense 3.1 6.3
------ -------
Income (loss) before provision (benefit) for income taxes (11.2) 0.3
Provision (benefit) for income taxes (4.0) 0.6
------ -------
Loss before extraordinary item (7.2) (0.3)
Extraordinary loss 0.0 (1.8)
------ -------
Net loss (7.2)% (2.1)%
======= ======
</TABLE>
14
<PAGE>
RESULTS OF OPERATIONS
- -----------------------
Allied manufactures and markets medical gas equipment, respiratory care
products, 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 care products, and
emergency medical products. Ventilation products are included in respiratory
care products for the three months ended September 30, 1997. The ventilation
products division was sold on October 31, 1997.
Net sales for the ventilation products division for the three months ended
September, 30, 1997 were $7.1 million.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30,1997
<S> <C> <C> <C> <C>
% of % of
Total total
Net Net Net net
sales Sales Sales sales
------- ------ ------- ------
Medical Gas Equipment $ 8,852 49.6% $12,136 40.2%
Respiratory Care Products 6,614 37.0% 15,058 49.9%
Emergency Medical Products 2,393 13.4% 2,979 9.9%
------- ------ ------- ------
Total $17,859 100.0% $30,173 100.0%
======= ====== ======= ======
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
- --------------------------------------------------------------------------------
30, 1997.
- ---------
Allied had net sales of $17.9 million for three months ended September 30, 1998,
down $12.3 million or 40.7% from net sales of $30.2 million in the prior year
same quarter. $7.1 million of this decrease was attributable to the now
divested ventilation products division. Base business sales declined by $5.2
million or 22.5%. Certain internal and external factors have continued to
impact the Company's operations, including the impact of healthcare cost
containment and Medicare reimbursements, capacity constraints in the Company's
Toledo facility, economic problems in Asia and a reduction in sales of purchased
products for home care sales, especially aluminum cylinders, due to company's
emphasis on improved margins. Allied's previously announced decision to move
its B&F Medical operations from Toledo, which is currently underway and will be
completed during the second fiscal quarter of 1999, has impacted sales from that
operation. The Company experienced production problems at its St. Louis
facility during the first quarter of fiscal 1999 that were not resolved in time
and adversely impacted shipments by $1 million. These production problems are
now being resolved and should not have any lasting impact on the Company's
revenue levels. It should also be noted that the prior year same quarter
benefited from resumption of production at the Company's St. Louis facility
following a nineteen day work stoppage during June 1997.
15
<PAGE>
Medical gas equipment sales in the first quarter of fiscal 1999 of $8.9 million
were $3.2 million or 26.4% lower than sales of $12.1 million in the prior year
same quarter. Headwall sales declined from $1.4 million in the first quarter of
fiscal 1998 to $1.1 million in the first quarter of fiscal 1999 due to a lower
level of bookings last year. Medical gas construction sales declined from $5.1
million in the first quarter of fiscal 1998 to $3.5 million in the first quarter
of fiscal 1999, while medical gas suction and regulation device sales decreased
from $5.7 million in the first quarter of fiscal 1998 to $4.3 million in the
first quarter of fiscal 1999. Both segments experienced production problems and
the comparisons were affected by after strike benefits in the prior year same
quarter.
Respiratory care product sales in the first quarter of fiscal 1999 of $6.6
million were $8.5 million, or 56.2%, under sales of $15.1 million in the prior
year same quarter. $7.1 million of this decline was attributable to the sale of
the ventilation products division while $1.4 million of the decline relates to
remaining product lines, due to factors cited earlier being offset by higher
Respical calibrator sales. Home care sales declined 20.0% from $6.0 million to
$4.8 million due to factors indicated above.
Emergency product sales declined 19.6% from $3.0 million in the first quarter of
fiscal 1998 to $2.4 million in the first quarter of fiscal 1999, due to the
benefit of a large order in the prior year same quarter.
Orders for three months ended September 30, 1998 were $21.0 million, down $10.0
million from prior year same quarter. Excluding $8.7 million in orders from the
ventilation products division, base business orders declined $1.3 million or
6.0%. Most of this decrease can be traced to a large $0.9 million order for
emergency products last year that did not repeat this year. Emergency product
orders declined 26.3% from $3.8 million to $2.8 million. Total medical gas
equipment orders were $10.7 million or 1.0% lower than last year quarter's $10.8
million. Respiratory care product orders declined 2.4% from $7.7 million to
$7.5 million. Home care orders declined 16.4% from $6.1 million to $5.1 million
due to factors indicated above while respiratory care product orders for the
hospital market went up 50.0% from $1.6 million to $2.4 million primarily due to
orders for company's new Respical calibration device. Sequentially, orders
increased from $19.8 million in the fourth fiscal quarter of 1998 to $21.0
million or 6.1%. The Company's backlog now stands at $20.6 million, up 18.4%
from prior quarter level of $17.4 million.
International sales, which are included in the product lines discussed above
decreased $6.6 million, or 68.8%, to $3.0 million in the first quarter of fiscal
1999 from $9.6 million in the prior year same period. International sales
declined $4.7 million due to the sale of the ventilation products division,
while the base business international sales declined by $1.9 million, or 38.8%.
The continued devaluation of Asian currency, and economic uncertainty in other
areas, have reduced international sales and orders. The Company continues to
emphasize the importance of worldwide markets as advances in medical protocol in
various markets throughout the world will lead to increased demand for medical
products.
16
<PAGE>
Gross profit for the three months ended September 30, 1998 was $4.4 million, or
24.7% of net sales compared to a gross profit of $9.2 million, or 30.6% of net
sales for the three months ended September 30, 1997. The sale of the high
margin ventilation products division adversely impacted gross profit and the
gross margin in the first quarter of fiscal 1999. Results of the ventilation
products division are included for the three months ended September 30, 1997.
In addition, reduced manufacturing throughput and lower absorption of plant
overhead, a direct result of lower sales volume, has further reduced margins as
a percent to net sales. Pricing pressures brought on by consolidations and cost
containment continue to impact margins as a percent to net sales.
Selling, General and Administrative ("SG&A) expenses for the three months ended
September 30, 1998 were $4.9 million, a decrease of $2.4 million, or 32.9% from
$7.3 million for the three months ended September 30, 1997. Results for the
three months ended September 30, 1997 include the ventilation products division.
Of the $2.4 million decline, $1.7 million is directly attributable to the sale
of the ventilation products division, $0.1 million is attributable to a
reduction in goodwill amortization resulting from the writedown of goodwill in
fiscal 1998, and $0.6 million is attributable to spending reductions in the base
business SG&A.
On August 10, 1998 the Company announced its intention to close the Toledo
facility of its disposable products division and relocate the B&F product line
of home care products to its St. Louis manufacturing facility. The company
anticipates that the move will be completed in the second quarter of fiscal
1999. Accordingly, the Company has recorded a provision for restructuring of
$1.0 million in the first quarter of fiscal 1999. The provision reflects cost
of certain fixed asset impairments, employee severance benefits and other
related exit costs. See Note 4 in the Notes to the Consolidated Financial
Statements for additional information concerning the details of the Company's
restructuring provision, including a reconciliation of the reserve relating
thereto.
Loss from operations was $1.4 million for the three months ended September 30,
1998 compared to income from operations of $2.0 million for the three months
ended September 30, 1997.
Interest expense decreased $1.3 million or 71.3%, to $0.5 million for the three
months ended September 30, 1998 from $1.9 million in the prior year period.
Interest expense was significantly reduced due to the reduction of debt, from
the application of the proceeds from the sale of the ventilation products
division. At September 30, 1998, commercial debt was $16.8 million, a decrease
of 66.0% from the September 30, 1997 level of $49.4 million. On August 7, 1998
the Company borrowed $5.0 million from a financial institution at a fixed rate
of 7.75%, with proceeds used to pay down existing higher rate debt. On
September 8, 1998 the Company's credit facilities with Foothill Capital
Corporation were amended to further reduce interest rates. The new financial
agreements are discussed further below.
17
<PAGE>
Allied had a loss before provision for taxes in the first quarter of 1999 of
$2.0 million. The Company recorded a tax benefit of $0.7 million, resulting in
a net loss of $1.3 million. Result for the first quarter of 1998 were income
before provision for taxes and extraordinary loss of $0.1 million. In the first
quarter of 1998 the Company recorded a provision for income taxes of $0.2
million, caused by the non-deductibility of certain goodwill amortization. The
impact of goodwill amortization has been reduced in fiscal 1999 by the writedown
of goodwill in fiscal 1998.
In the first quarter of fiscal 1998, Allied recorded an extraordinary loss on
extinguishment of debt, of $0.5 million, net of a tax benefit of $0.4 million.
In fiscal 1999, the net loss for the first quarter was $1.3 million, or $0.16
per share. In fiscal 1998, the net loss for the first quarter was $0.6 million,
or $0.08 per share, consisting of $0.01 loss per share from operations and a
$0.07 loss per share for the extraordinary item. The weighted average number of
common shares outstanding used in the calculation of earnings per share was
7,806,682 and 7,800,095 for the first quarter of fiscal 1999 and fiscal 1998,
respectively.
FINANCIAL CONDITION
- --------------------
The following table sets forth selected information concerning Allied's
financial condition:
<TABLE>
<CAPTION>
Dollars in thousands: September 30, 1998 June 30, 1998
- --------------------- ------------------- --------------
<S> <C> <C>
Cash $ 651 $ 1,195
Working Capital $ 21,709 $ 21,308
Total Debt $ 16,777 $ 18,415
Current Ratio 3.28:1 2.67:1
</TABLE>
The Company's working capital was $21.7 million at September 30, 1998 compared
to $21.3 million at June 30, 1998. Cash, accounts receivable, inventories,
current portion of long-term debt, accounts payable, and other current
liabilities all decreased during the first quarter of fiscal 1999 while other
current assets increased slightly. Accounts receivable decreased to $13.0
million at September 30, 1998 from $14.2 million at June 30, 1998. The decrease
in Accounts receivable was due to decreased sales and continued improved
collections. Accounts receivable as measured in days outstanding ("DSO")
remained at 69 days during this period. Inventories decreased to $17.2 million
from $18.3 million at June 30, 1998. Inventories, as measured by Days on Hand
("DOH"), were 140 DOH at September 30, 1998 compared to 129 DOH at June 30,
1998, due to lower sales in the first quarter of fiscal 1999 than in the fourth
quarter of fiscal 1998. The Company continues to focus on improving the mix of
inventories and has been increasing stocking levels of high volume products
while simultaneously reducing stocking levels of low volume products.
18
<PAGE>
The net increase/ (decrease) in cash for the three months ended September 30,
1998 and September 30, 1997 was ($0.5) million and ($0.1) million, respectively.
Net cash (used by) / provided by operations was $1.5 million and ($1.8) million
for the same periods. Cash provided by operations for the three months ended
September 30, 1998 consisted of a net loss of $1.3 million, which was offset by
non-cash charges to operations of $1.0 million for depreciation and
amortization, as well as changes in working capital accounts which provided $1.7
million, principally from a reduction in accounts receivables of $ 1.3 million,
and inventory of $1.1 million. In addition, cash provided by operating
activities was increased by $0.8 million resulting from the accrual of
restructuring provision related to the relocation of the B&F product line from
Toledo, Ohio to St. Louis, Missouri. These were offset by decreases in accounts
payable of $0.4 million, accrued income taxes of $0.7 million, other current
liabilities of $0.3 million, and an increase of $0.1 million of other current
assets.
Cash provided by operations in the first quarter of fiscal 1999 was used to fund
$0.3 million in capital expenditures and to reduce commercial debt by $1.6
million.
Cash used by operations in the prior year same period 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 payables 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 used to pay for debt issuance cost of $0.7
million and capital 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.
On August 7, 1998, the Company obtained a $5.0 million mortgage loan on its
principal facility in St. Louis, Missouri from LaSalle National Bank. Under
terms of this agreement the Company will make monthly principal and interest
payments, with a balloon payment in 2003. Proceeds of the loan were used to
reduce the obligation under the revolving credit agreement with Foothill Capital
Corporation. The mortgage loan carries a fixed rate of interest of 7.75%,
compared to a current rate of 8.5% under the revolving credit agreement.
On September 8, 1998, the Company's credit facilities with Foothill Capital
Corporation were amended. The Company's existing term loan was eliminated and
replaced with an amended revolving credit facility. As amended, the revolving
credit facility remained at $25.0 million. The interest rate on the facility
has been reduced from the floating reference rate ( 8.25% at October 23, 1998)
plus 0.50% to the floating reference rate plus 0.25%. The reference rate as
defined in the credit agreement, is the variable rate of interest, per annum,
most recently announced by Norwest Bank Minnesota, National Association, or any
successor thereto, as its "base" rate. This amendment also provides the Company
with a rate of LIBOR +2.5%. Amounts outstanding under this revolving credit
facility, which expires on August 8, 2000, totaled $9.5 million at October 23,
1998. At October 23, 1998, $4.2 million was available under the revolving
facility for additional borrowings.
19
<PAGE>
The rates noted above will drop by 0.25% at the end of fiscal 1999 and 2000 if
the Company is profitable. In addition, the fees charged to the Company are
also reduced.
As of September 30, 1998 the Company had a backlog of $20.6 million compared to
a backlog of $17.4 million at June 30, 1998. The Company's backlog, a
significant portion of which is attributable to the Company's medical gas
equipment products, consist of firm customer purchase orders which may be
subject to cancellation by the customer.
Inflation has not had a material effect on the Company's business or results of
operations.
YEAR 2000
- ----------
The Company utilizes software and related computer technologies essential to its
operations. The Company has established a plan, utilizing internal resources to
assess the potential impact of the year 2000 on the Company's systems and
operations and to implement solutions to address this issue. In October 1996,
the Company converted its corporate offices and its manufacturing operation to a
new fully-integrated software system. The company plans to install the most
recent version of this software, which the vendor has certified as year 2000
compliant, by June 1999. The Company views this as a normal, scheduled upgrade
of software. It has not been necessary to upgrade the software at an earlier
date than anticipated to assure year 2000 compliance. New equipment is not
required to upgrade software to the new version, certified by the vendor to be
year 2000 compliant. The Company expects all critical systems will be year 2000
compliant by June 1999. Work on the upgrade is in process and the schedule for
upgrades is being met. The date methodology of the current version software is
not sensitive to year 2000 problems. If the software could not be installed,
the company does not anticipate a problem with year 2000 compliance. The cost
of upgrading to a year 2000 compliant version of the existing system is not
expected to be significant. As of October 23, 1998 the Company had expended no
funds specifically to assure year 2000 compliance. The Company does not expect
to expend funds specifically to assure year 2000 compliance.
The Company is dependent on various third parties to conduct its business
operations. These third parties are vendors of raw material and components used
in the production process. The Company does not anticipate that the failure of
mission critical third parties would have a material effect on the Company's
operations. None of the Company's products or components of Company products
use date sensitive technology. The Company employs a large number of vendors,
without concentration of critical vendors. The Company believes that vendors
could be replaced if they fail to meet the Company's demand for components.
However, there can be no assurance that the Company will not experience
unanticipated costs and/or business interruptions due to year 2000 problems in
its internal systems, or those of its vendors, and that such costs and/or
interruptions will not have a material adverse effect on the Company's
consolidated results of operations.
20
<PAGE>
PART II. OTHER INFORMATION
------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits-none
(b) Reports on Form 8-K - none
21
<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.
/s/ Uma Nandan Aggarwal
-----------------------------------------
Uma Nandan Aggarwal
President and Chief Executive Officer
22
<PAGE>
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<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 651
<SECURITIES> 0
<RECEIVABLES> 14054
<ALLOWANCES> (1088)
<INVENTORY> 17241
<CURRENT-ASSETS> 31212
<PP&E> 35833
<DEPRECIATION> (18935)
<TOTAL-ASSETS> 76464
<CURRENT-LIABILITIES> 9503
<BONDS> 16777
<COMMON> 0
0
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<TOTAL-LIABILITY-AND-EQUITY> 76464
<SALES> 17859
<TOTAL-REVENUES> 17859
<CGS> (13452)
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<INTEREST-EXPENSE> (534)
<INCOME-PRETAX> (1996)
<INCOME-TAX> (717)
<INCOME-CONTINUING> (1279)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1279)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> 0
</TABLE>
