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 March 31, 2000
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
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 May 4, 2000 is
7,806,682 shares.
<PAGE>
INDEX
Part I - Financial Information Number
Item 1. Financial Statements
Consolidated Statement of Operations -
three months and nine months ended
March 31, 2000 and 1999 (Unaudited) 3
Consolidated Balance Sheet -
March 31, 2000 (Unaudited) and June 30, 1999 4-5
Consolidated Statement of Cash Flows -
Nine months ended March, 2000 and 1999 (Unaudited) 6
Consolidated Statement of Changes in
Stockholders' Equity - nine months ended March 31,
2000 (Unaudited) 7
Notes to Consolidated Financial Statements 8-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-24
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 25
Signature 26
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three months ended Nine months ended
March 31, March 31,
-------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net sales $16,728,743 $19,227,327 $49,554,573 $ 54,178,723
Cost of sales 12,102,813 14,287,294 36,277,507 41,409,419
------------ ------------ ------------ -------------
Gross profit 4,625,930 4,940,033 13,277,066 12,769,304
Selling, general and administrative expenses 3,783,939 4,601,409 12,692,270 14,202,800
Provision for product recall (77,000) 0 223,000 1,500,000
Provision for restructuring and consolidation 0 0 0 772,850
------------ ------------ ------------ -------------
Income/(Loss) from operations 918,991 338,624 361,796 (3,706,346)
Other expenses:
Interest expense 415,532 468,007 1,272,506 1,445,824
Other, net 16,967 49,451 47,702 73,442
------------ ------------ ------------ -------------
432,499 517,458 1,320,208 1,519,266
------------ ------------ ------------ -------------
Income/(Loss) before income taxes 486,492 (178,834) (958,412) (5,225,612)
Provision (Benefit) for income taxes 276,137 10,006 (138,740) (1,845,623)
------------ ------------ ------------ -------------
Net Income/(Loss) $ 210,355 ($188,840) ($819,672) ($3,379,989)
============ ============ ============ =============
Net Income/(Loss) Per Share:
Basic Net Income/(Loss) per share $ 0.03 ($0.02) ($0.10) ($0.43)
============ ============ ============ =============
Diluted Net Income/( Loss) per share $ 0.03 ($0.02) ($0.10) ($0.43)
============ ============ ============ =============
Weighted average common shares
outstanding- Basic 7,806,682 7,806,682 7,806,682 7,806,682
============ ============ ============ =============
Weighted average common shares &
common equivalent shares outstanding-Diluted 7,938,114 7,806,682 7,806,682 7,806,682
============ ============ ============ =============
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
March 31, June 30,
2000 1999
----------- -----------
(Unaudited)
Current Assets:
Cash $ 557,280 $ 587,456
Accounts receivable, net of allowance for doubtful
accounts of $935,750 and $939,928 respectively 11,280,916 12,601,165
Inventories 16,948,146 17,499,822
Income taxes receivable 1,599,648 1,635,866
Other current assets 171,787 138,361
----------- -----------
Total current assets 30,557,777 32,462,670
----------- -----------
Property, plant and equipment, net 12,515,742 14,287,037
Goodwill, net 26,599,094 27,210,653
Other assets, net 236,584 314,828
----------- -----------
Total assets $69,909,197 $74,275,188
=========== ===========
<PAGE>
CONTINUED
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDER EQUITY
March 31, June 30,
2000 1999
------------- -------------
Current liabilities:
Accounts payable $4,200,407 $5,434,303
Current portion of long-term debt 990,028 907,649
Accrual for product recall 438,601 594,725
Other current liabilities 2,788,190 2,906,636
------------- -------------
Total current liabilities 8,417,226 9,843,313
------------- -------------
Long-term debt 14,209,953 16,330,185
Deferred income tax liability-noncurrent 182,608 182,608
Commitments and contingencies 0 0
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 March 31,
2000 and June 30, 1999 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 20,715,115 21,534,787
------------- -------------
Total stockholders' equity 47,099,410 47,919,082
------------- -------------
Total liabilities and stockholders' equity $69,909,197 $74,275,188
============= =============
See accompanying Notes To Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine months ended
March 31,
---------------------------
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($819,672) ($3,379,989)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,654,476 2,974,934
Provision for restructuring and consolidation 0 225,742
Provision for product recall (156,124) 1,097,365
Decrease in accounts receivable, net 1,320,249 609,826
Decrease in inventories 551,676 (191,025)
(Increase) decrease in income taxes receivable 36,218 (969,603)
(Increase) decrease in other current assets (33,426) 223,323
(Decrease) increase in accounts payable (1,233,896) 844,580
Increase (decrease) in accrued income taxes 147,112 (942,036)
Decrease in other current liabilities (265,558) (816,592)
------------- -------------
Net cash provided by operating activities 2,201,055 (323,475)
------------- -------------
Cash flows from investing activities:
Capital expenditures, net (193,378) (992,340)
Proceeds on sale of Toledo, Ohio facilities 0 1,393,287
------------- -------------
Net cash provided by (used in) investing activities (193,378) 400,947
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 0 5,000,000
Payments of long-term debt (673,770) (7,117,798)
Borrowings under revolving credit agreement 52,932,053 66,598,886
Payments under revolving credit agreement (54,296,136) (65,224,586)
Debt issuance costs 0 (32,104)
------------- -------------
Net cash used in financing activities (2,037,853) (775,602)
------------- -------------
Net (decrease) in cash and equivalents (30,176) (698,130)
Cash and equivalents at beginning of period 587,456 1,194,813
------------- -------------
Cash and equivalents at end of period $ 557,280 $ 496,683
------------- -------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,390,029 $ 1,573,400
Income taxes $ 98,510 $ 91,938
See accompanying Notes To Consolidated Financial Statements.
</TABLE>
<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, 1999 $ 0 $101,102 $47,014,621 ($20,731,428) $21,534,787
Net loss for the
nine months ended
March 31, 2000 (819,672)
Balance,
March 31, 2000 $ 0 $101,102 $47,014,621 ($20,731,428) $20,715,115
============ ======== =========== ============= ===========
See accompanying Notes To Consolidated Financial Statements.
</TABLE>
<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, 1999.
2. Inventories
Inventories are comprised as follows:
March 31, 2000 June 30, 1999
(Unaudited)
Work-in progress $ 847,310 $ 779,027
Component Parts 11,264,005 13,848,272
Finished Goods 4,836,831 2,872,523
---------------- ---------------
$ 16,948,146 $ 17,499,822
================ ===============
The above amounts are net of a reserve for obsolete and excess inventory of
approximately $1.9 million at March 31, 2000 and June 30, 1999.
3. Litigation and Contingencies
The Company becomes, from time to time, a party to personal injury
litigation arising out of incidents involving the use of its products. More
specifically there have been lawsuits filed against the Company alleging that
its aluminum oxygen pressure regulator, marketed under its Life Support Products
label, has caused fires that have led to personal injury. The Company believes,
based on preliminary findings, that its products did not cause the fires.
However, the Company intends to defend these claims in cooperation with its
insurers. Based on the progression of certain cases the Company recorded a $0.4
million charge to operations in the first quarter of fiscal 2000 for cumulative
amounts estimated to be payable by the Company under its self-insurance
retention for legal costs associated with defending these claims. The Company
believes that any potential judgements resulting from these claims over its
self-insurance retention would be covered by the Company's product liability
insurance.
<PAGE>
4. Senior Management Change
On July 28, 1999 the Company's President, Chief Executive Officer and
Director Uma Nandan Aggarwal resigned. Subsequently on August 24, 1999 the
Company announced Earl R. Refsland as President, Chief Executive Officer and
Director of the Company. As a result of Mr. Aggarwal's resignation, the Company
recorded a $0.2 million charge to operations in the first quarter of fiscal year
2000 per terms of a mutually accepted departure agreement.
5. Sale of Headwall Products Division
On May 28, 1999, the Company sold the assets of Hospital Systems, Inc.
("HSI") to David Miller (former General Manager-Hospital Systems, Inc.) for $0.5
million. The net proceeds of $0.5 million were utilized to repay a portion of
the Company's revolving credit facility. The sale of HSI, located in Oakland,
California, resulted in a gain before taxes for financial reporting purposes of
$0.03 million.
Had the divestiture occurred on July 1, 1998, consolidated pro forma net
sales, net income, and income per share for the quarter ended March 31,1999
would have been $18.7 million, $.1 million and $.01, respectively. For the nine
month period ending March 31, 1999 pro forma net sales, net (loss), and (loss)
per share would have been $51.6 million, $(3.0) million and $(.39),
respectively.
6. LSP Oxygen Regulator Recall
On February 4, 1999, Allied announced a recall of aluminum oxygen
regulators marketed under its Life Support Products ("LSP") label. These
products are used to regulate pressure of bottled oxygen for administration to
patients under emergency situations. Following reports of regulator fires, the
Company instituted a recall in May 1997, under which it provided retrofit kits
to prevent contaminants from entering the regulators. While preliminary findings
led the Company to believe the Company's products did not cause those fires,
there was enough concern among the users that the Company, in cooperation with
the U. S. Food and Drug Administration ("FDA"), agreed to institute a voluntary
recall to replace aluminum components in the high pressure chamber of the
regulators with brass components. The FDA has recommended that all regulator
manufacturers cease use of aluminum in regulators. Accordingly, the Company has
now introduced new brass regulators and is also offering a trade-in program to
the existing users. As a result of the recall, the Company recorded a charge of
$1.5 million pre-tax, $.9 million after tax, or $0.12 per share in the second
quarter of fiscal 1999.
<PAGE>
The LSP brand of regulator is predominantly used by Emergency Medical
Services ("EMS") for the administration of oxygen in the emergency environment.
Even though the recall is focused on oxygen pressure regulators used in the EMS
market, other markets have been experiencing significant sales resistance to
regulators manufactured with aluminum bodies and brass components in the high
pressure chamber. As a result, the Company will transition the manufacturing of
aluminum bodied oxygen pressure regulators, marketed under the B&F brand name,
to one with an all-brass design. The new brass regulator has been tested and
meets the International Standards Organization ("ISO") E-4 Ignition Standard.
This is the only recognized standard for ignition resistance, which is
recognized by the Compressed Gas Association ("CGA") and ISO. Accordingly, the
Company recorded a $0.3 million addition to the provision for product recall in
the first quarter of fiscal year 2000 to write-down the value of remaining
aluminum regulator component inventories for all markets.
In the third quarter of fiscal 2000 the company reviewed its estimated
remaining liability associated with the aluminum oxygen regulator recall and
reduced its provision by $.077 million.
A reconciliation of activity with respect to the Company's product recall
is as follows:
Provision, June 30, 1999 $594,725
Addition to provision for write-down of inventories 300,000
Product costs for retrofitting and replacement (373,957)
Administrative costs incurred (5,167)
Third fiscal quarter reduction of provision (77,000)
----------
Ending Balance, March 31, 2000 $ 438,601
==========
7. B&F Consolidation Provision
On August 5, 1998 the Company's Board of Directors voted to close the
Toledo facility of its disposable products division and consolidate production
of the B&F line of home care products into its manufacturing facility in St.
Louis, Missouri. This move was announced on August 10, 1998. The move was
substantially completed during the second quarter of fiscal 1999. In connection
with the shutdown of the facility, Allied recorded a provision of approximately
$1.0 million pre-tax, $0.6 million after tax, or $0.07 per share, in the first
quarter of fiscal 1999 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. Subsequently, during the second quarter of
fiscal 1999, the company negotiated and received a $0.2 million cash payment
from the City of Toledo as partial reimbursement for closure costs.
Accordingly, Allied recorded this cash payment, in the second quarter of fiscal
1999, as a reduction to the aforementioned provision resulting in a net charge
of $0.8 million pre-tax, $0.5 million after tax, or $0.06 per share for the
fiscal year ended June 30, 1999.
<PAGE>
8. Workforce Reduction
In an effort to bring operating expenses in line with ongoing revenue
levels, the Company announced and instituted in October 1999 a 15% workforce
reduction estimated to result in $2.6 million in annualized savings.
Accordingly, the Company recorded a $0.2 million charge to operations in the
second quarter of fiscal 2000 for severance related expenses.
9. Debt Refinancing and Arrangement
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 $0.06 million, with a final payment of all principal and
interest remaining unpaid due at maturity on August 1, 2003. Interest is fixed
at 7.75% 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,
and for which the Company was in compliance at March 31, 2000.
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 (8.00% at June 30, 1999) 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 Wells Fargo Bank, National Association, or any successor
thereto, as its "base rate". This amendment also provides the Company with a
rate of LIBOR + 2.50%. Interest rates on the reference rate and LIBOR will drop
by 0.25% at the end of fiscal 2000 if the Company is profitable. In addition,
the fees charged to the Company were reduced along with certain debt covenants
for which the Company was in compliance at March 31,2000.
On March 3, 1999, the Company purchased the remaining $505,000 of its
outstanding Missouri Industrial Revenue Bonds. The bonds, which bore a variable
interest rate, had a final maturity date of April 1, 2001 and were repaid early
using borrowings from the Company's revolving credit facility.
On March 24, 1999, the Company's credit facility with LaSalle National Bank
was amended. The amendment provided for favorable changes to certain debt
covenants.
On June 28, 1999, the Company's credit facilities with Foothill Capital
Corporation were amended. The amendment provides for favorable interest rate
reduction, based upon annual profitability, for fiscal years 2001 and 2002. The
amendment also extended the maturity date to January 6, 2003 along with a
favorable change to certain debt covenants.
<PAGE>
On September 1, 1999 the Company's credit facility with LaSalle National
Bank (dated as of August 7,1998 and filed with the Securities and Exchange
Commission as Exhibit 10(24) to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1998) was amended. The amendment provides favorable
changes to certain debt covenants and is as follows:
The terms of Page 7, paragraph (n) of the Note requiring that the Company's
Tangible Net Worth at all times not be less than $21,000,000 are hereby waived
from this date provided the Company's Tangible Net Worth at the close of each
fiscal quarter beginning June 30, 1999 must not be less than the sum of (i)
$17,500,000 plus (ii) fifty percent (50%) of the Net Income (exclusive of any
losses) reflected in each audited income statement for each fiscal year
beginning June 30, 1999. For the purposes of this paragraph, the "Net Income"
shall mean, for any period of calculation, the Company's net income as
determined in accordance with GAAP but excluding any extraordinary gain and
losses, net of taxes.
10. Net Income ( Loss ) per Share
At March 31, 2000, options to purchase shares of common stock were
outstanding. Outstanding options potentially dilute earnings per share in the
future but have not been included in the nine month period ending March 31,
2000 computation of diluted net loss per share as the impact would have been
antidilutive for for the period.
Basic and diluted earnings per share were calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- -------------------------
March 31, March 31,
----------------------- -------------------------
2000 1999 2000 1999
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Basic
Weighted average shares outstanding 7,806,682 7,806,682 7,806,682 7,806,682
---------- ----------- ----------- ------------
Net earnings $ 210,355 $ (188,840) $ (819,672) $(3,379,989)
========== =========== =========== ============
Earnings per share - basic $ 0.03 $ (0.02) $ (0.10) $ (0.43)
========== =========== =========== ============
Diluted
Weighted average shares outstanding 7,806,682 7,806,682 7,806,682 7,806,682
---------- ----------- ----------- ------------
Additional dilutive shares principally from
the assumed exercise of outstanding
stock options 131,432 - - -
---------- ----------- ----------- ------------
7,938,114 7,806,682 7,806,682 7,806,682
---------- ----------- ----------- ------------
Net earnings 210,355 (188,840) (819,672) (3,379,989)
========== =========== =========== ============
Earnings per share - diluted $ 0.03 $ (0.02) $ (0.10) $ (0.43)
========== =========== =========== ============
</TABLE>
<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 month and nine month
periods ended March 31, 2000 compared to the three and nine month periods ended
March 31, 1999. This discussion should be read in conjunction with the June 30,
1999 consolidated financial statements and accompanying notes thereto included
in the Company's Form 10-K for the year ended June 30, 1999.
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, consolidation and rationalization activities, difficulties or delays
in the introduction of new products or disruptions in selling, manufacturing
and/or shipping efforts. The Company ships a significant percentage of its
products outside the U. S. and is thus subject to foreign economic fluctuations.
Specific transactions and events impacting fiscal 2000 and fiscal 1999
operating results, which make meaningful comparisons more difficult, are
summarized below.
<PAGE>
LITIGATION AND CONTINGENCIES
- ------------------------------
The Company becomes, from time to time, a party to personal injury
litigation arising out of incidents involving the use of its products. More
specifically there have been a number of lawsuits filed against the Company
alleging that its aluminum oxygen pressure regulator, marketed under its Life
Support Products label, has caused fires that have led to personal injury. The
Company believes, based on preliminary findings, that its products did not cause
the fires. Accordingly, the Company intends to defend these claims in
cooperation with its insurers. Based on the progression of certain cases the
Company recorded a $0.4 million charge to operations in the first quarter of
fiscal 2000 for cumulative amounts estimated to be payable by the Company under
its self-insurance retention for legal costs associated with defending these
claims. The Company believes that any potential judgements resulting from these
claims over its self-insurance retention would be covered by the Company's
product liability insurance.
SENIOR MANAGEMENT CHANGE
- --------------------------
On July 28, 1999 the Company's President, Chief Executive Officer and
Director Uma Nandan Aggarwal resigned. Subsequently on August 24, 1999 the
Company announced Earl R. Refsland as President, Chief Executive Officer and
Director of the Company. As a result of Mr. Aggarwal's resignation, the Company
recorded a $0.2 million charge to operations in the first quarter of fiscal year
2000 per terms of a mutually accepted departure agreement.
LSP OXYGEN REGULATOR RECALL
- ------------------------------
On February 4, 1999, Allied announced a recall of aluminum oxygen
regulators marketed under its Life Support Products label. These products are
used to regulate pressure of bottled oxygen for administration to patients under
emergency situations. Following reports of regulator fires, the Company
instituted a recall in May 1997, under which it provided retrofit kits to
prevent contaminants from entering the regulators. While preliminary findings
led the Company to believe the Company's products did not cause the fires, there
was enough concern among the users that the Company, in cooperation with the U.
S. Food and Drug Administration ("FDA"), agreed to institute a voluntary recall
to replace aluminum components in the high pressure chamber of the regulators
with brass components at pre-existing authorized service centers. The FDA has
recommended that all regulator manufacturers cease use of aluminum in
regulators. Accordingly, the Company has now introduced new brass regulators
and is also offering a trade in program to the existing users. The new brass
regulator has been tested and meets the International Standards Organization
("ISO") E-4 Ignition Standard. This is the only recognized standard for
ignition resistance, which is recognized by the Compressed Gas Association and
the ISO. Based on an estimated population of 100,000 regulators, the Company
estimates that the recall could cost as much as $2.7 million or more. However,
the Company is making every effort to mitigate these costs. A charge of $1.5
million pre-tax, $.9 million after tax, or $0.12 per share was recorded in the
second quarter of fiscal 1999 to cover these costs.
<PAGE>
The LSP brand of regulator is predominantly used by Emergency Medical
Services ("EMS") for the administration of oxygen in the emergency environment.
Even though the recall is focused on oxygen pressure regulators used in the EMS
market, other markets have been experiencing significant sales resistance to
regulators manufactured with aluminum bodies and brass components in the high
pressure chamber. As a result, the Company will transition the manufacturing of
aluminum bodied oxygen pressure regulators, marketed under the B&F brand name,
to one with an all-brass design. Accordingly, the Company recorded a $0.3
million addition to the provision for product recall in the first quarter of
fiscal year 2000 to write-down the value of remaining aluminum regulator
component inventories for all markets.
In the third quarter of fiscal 2000 the Company reviewed its estimated
liability associated with the aluminum oxygen regulator recall and accordingly
reduced its provision by $.077.
B&F CONSOLIDATION
- ------------------
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. In connection
with the shutdown of the facility, the Company recorded a one-time charge of
approximately $1.0 million ($0.6 million after taxes), or $.07 per share during
the first quarter of fiscal 1999. Subsequently, during the second quarter of
fiscal 1999, the company negotiated and received a $0.2 million cash payment
from the City of Toledo as partial reimbursement for relocation costs.
Accordingly, Allied recorded this cash payment as a reduction to the
aforementioned provision, in the second quarter of fiscal 1999, resulting in a
net charge of $0.8 million pre-tax, $0.5 million after tax, or $0.06 per share
for the fiscal year ended June 30, 1999. These costs were substantially paid
during the second quarter of fiscal 1999.
SALE OF HEADWALL PRODUCTS DIVISION
- --------------------------------------
On May 28, 1999, the Company sold the assets of Hospital Systems, Inc.
("HSI") to David Miller (former General Manager-Hospital Systems, Inc.) for $0.5
million. The net proceeds of $0.5 million were utilized to repay a portion of
the Company's revolving credit facility. The sale of HSI, located in Oakland,
California, resulted in a gain before taxes for financial reporting purposes of
$0.03 million.
Had the divestiture occurred on July 1, 1998, consolidated pro forma net
sales, net income, and income per share for the quarter ended March 31,1999
would have been $18.7 million, $.1 million and $.01, respectively. For the nine
month period ending March 31, 1999 pro forma net sales, net (loss), and (loss)
per share would have been $51.6 million, $(3.0) million and $(.39),
respectively.
<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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31 MARCH 31
----------------- ----------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 72.3 74.3 73.2 76.4
------ ------ ------ ------
Gross profit 27.7 25.7 26.8 23.6
Selling, general and administrative expenses 22.6 23.9 25.6 26.2
Provision for product recall (0.4) 0.0 0.5 2.8
Provision for restructuring and consolidation 0.0 0.0 0.0 1.4
------ ------ ------ ------
Income/(Loss) from operations 5.5 1.8 .7 (6.8)
Interest 2.5 2.4 2.6 2.7
Other expense .1 .3 .0 .1
------ ------ ------ ------
Income/Loss before benefit for income taxes 2.9 (0.9) (1.9) (9.6)
Income taxes 1.7 .1 (.2) (3.4)
------ ------ ------ ------
Net Income/(Loss) 1.2% (1.0)% (1.7)% (6.2)%
------ ------ ------ ------
</TABLE>
<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. Headwall products are included in medical gas
equipment for the three and six month periods ending March 31,1999. The
headwall products division was sold on May 28, 1999. Net sales of headwall
products for the three and nine month periods ended March 31,2000 were $.6
million and $2.6 million respectively.
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
% of % of
Total Total
Net Net Net Net
Sales Sales Sales Sales
--------- --------- --------- -------
Medical Gas Equipment $ 8,970 53.6% $10,850 56.4%
Respiratory Care Products 5,267 31.5% 5,681 29.5%
Emergency Medical Products 2,492 14.9% 2,696 14.1%
------- ------- ------- -------
Total $16,729 100.0% $19,227 100.0%
======= ======= ======= =======
NINE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
% of % of
Total Total
Net Net Net Net
Sales Sales Sales Sales
--------- --------- --------- --------
Medical Gas Equipment $ 26,661 53.8% $ 29,051 53.6%
Respiratory Care Products 14,693 29.6% 17,832 32.9%
Emergency Medical Products 8,201 16.6% 7,296 13.5%
--------- --------- --------- --------
Total $49,555 100.0% $54,179 100.0%
======= ======= ======= =======
THREE MONTHS ENDED MARCH 31,2000 COMPARED TO THREE MONTHS ENDED MARCH 31,1999.
- --------------------------------------------------------------------------------
Certain internal and external factors continue to impact the Company's
operations. Home health care product sales, mainly the B&F product line,
continue to be weak due to lingering effects of the shutdown and relocation of
production of the B&F product line to St. Louis. The Company continues its
efforts to improve stocking levels of the B&F product line through outsourcing
of labor intensive assembly operations. The Company believes that the ability
to meet customer demand in a timely manner is fundamental in improving customer
satisfaction, which will in turn result in an increase in incoming business.
Management's efforts are therefore focused on ways to improve on-time shipping
levels to the customer.
<PAGE>
Allied had net sales of $16.7 million for the three months ended March 31,
2000, down $2.5 million, or 13% from net sales of $19.2 million in the prior
year same quarter. The now divested headwall business had sales of $.6 million
in the three months ended March 31, 1999 indicating that the Company's base
business decreased sales by $1.9 million in the quarter ended March 31, 2000
compared to the prior year same period. Sales of all product lines are
suffering from the lingering manufacturing issues of the relocation of the B & F
product line to St. Louis. These issues are manifesting themselves in higher
than normal past due backlog and high shippable backlog due customers. The
Company's shippable backlog at March 31, 2000 totaled $1.9 million.
Medical Gas Equipment sales of $9.0 million in the third quarter of fiscal
2000 were $1.8 million lower than sales of $10.8 million in the prior year same
quarter. Excluding $.6 million of third quarter fiscal 1999 sales from the now
divested headwall products division, core medical gas product sales decreased
$1.2 million, or 11.1%, in the third quarter of fiscal 2000 compared to prior
year third quarter.
Respiratory care product sales in the third quarter of fiscal 2000 of $5.2
million were $.5 million, or 7.0%, less than sales of $5.7 million in the prior
year same quarter. This decline is primarily attributable to the B&F product
line due to the factors discussed above.
Emergency product sales decreased $0.2 million, or 7.4%, from $2.7 million
in the third quarter of fiscal 1999 to $2.5 million in the third quarter of
fiscal 2000. The third fiscal quarter of 1999 benefited form unusually high
shipments of brass oxygen regulators. The high regulator shipments were a result
of the introduction of a new brass regulator and a trade-in program instituted
due to the voluntary recall of aluminum oxygen regulators during fiscal 1999 as
previously discussed.
International sales, which are included in the product lines discussed
above, decreased $0.3 million or 9.4% from $3.2 million in the third quarter of
fiscal 1999 to $2.9 million in the third fiscal quarter of fiscal 2000. The
company continues to emphasize the importance of worldwide markets as advances
in medical protocol in various markets throughout the world lead to increased
demand.
Gross profit for the three months ended March 31, 2000 was $4.6 million, or
27.7%, of net sales compared to a gross profit of $4.9 million, or 25.7% of net
sales for the three months ended March 31, 1999. Gross profit as a percentage of
net sales for the now divested headwall products division was 14.3% for the
three-month period ending March 31, 1999. The increase in gross profit as a
percent of sales for the three month period ending March 31, 2000 is
attributable to lower manufacturing costs. The Company will continue to review
its operations to eliminate inefficiencies and also research opportunities for
lowering manufacturing and product costs.
Selling, General and Administrative ("SG&A") expenses for the three months
ended March 31, 2000 were $3.8 million, a net decrease of $.8 million, or 17.4%
from $4.6 million for the three months ended March 31, 2000. The decrease in
SG&A is largely attributable to the 15% salary work force reduction that was
instituted in the second quarter of fiscal 2000.
<PAGE>
Income from operations was $.9 million for the three months-ended March
31,2000 compared to $0.3 million for the three months ended March 31, 1999.
Interest expense for both the third quarter of fiscal 2000 was $.4 million
compared to $.5 million in the third fiscal quarter of 1999. Allied had a profit
before income taxes in the third quarter of fiscal 2000 of $.5 million compared
to a loss before benefit for income taxes of $0.2 million for the third quarter
of fiscal 1999. The Company recorded a provision for taxes of $.3 million in
the third quarter of fiscal 2000 compared to negligible taxes in the third
quarter of fiscal 1999.
For the third quarter of fiscal 2000, net income was $0.2 million, or $0.03
per basic and diluted share compared to a net loss of $.2 million for the third
quarter of fiscal 1999, or $.02 per basic and diluted share. The weighted
average number of common shares outstanding used in the calculation of earnings
per share for the third quarters of fiscal 2000 and fiscal 1999 was 7,806,682.
The LSP brand of oxygen regulator, which is subject to voluntary recall as
previously discussed, is substantially used by Emergency Medical Services
("EMS") for the administration of oxygen in the emergency environment. Even
though the recall is focused on oxygen pressure regulators used in the EMS
market, other markets have been experiencing significant sales resistance to
regulators manufactured with aluminum bodies and brass components in the high
pressure chamber. As a result, the Company will transition the manufacturing of
aluminum bodied oxygen pressure regulators, marketed under the B&F brand name,
to one with an all-brass design. Accordingly, the Company has reviewed its
provision to cover the cost associated with the oxygen regulator recall and has
recorded a $0.077 million reduction to the provision in the third quarter of
fiscal year 2000 to reflect its current estimate of costs associated with the
recall and write down of component inventories for aluminum oxygen regulators.
NINE MONTHS ENDED MARCH 31, 2000 COMPARED TO NINE MONTHS ENDED MARCH 31, 1999.
- --------------------------------------------------------------------------------
Allied had net sales of $49.6 million for the nine months ending March 31, 2000,
down $4.6 million, or 8.5%, from net sales of $54.2 million for the nine months
ending March 31,1999. The now divested headwall business had sales of $2.6
million in the nine month period ending March 31,1999 indicating that the
Company's core business had a sales decline of $2.0 million or 3.7% from the
prior year same period. Sales of all product lines are suffering from the
lingering manufacturing issues of the relocation of the B & F product line to
St. Louis. These issues are manifesting themselves in higher than normal past
due backlog and high shippable backlog due customers.
Medical gas product sales in the first nine months of fiscal 2000 of $26.7
million were $2.3 million lower than sales of $29.0 million in the prior year
same nine month period. Excluding $2.6 million of first nine months fiscal 1999
sales from the now divested headwall products division, core medical gas product
sales increased $.3 million, or 1.1%, in the first nine months of fiscal 2000
compared to prior year first nine months.
<PAGE>
Respiratory care product sales in the first nine months of fiscal 2000 of
$14.7 million were $3.1 million, or 17.4%, less than sales of $17.8 million in
the prior year same nine month period. The decline in home care sales is
mainly attributable to the B&F product line due to factors discussed above.
Emergency product sales increased $.9 million, or 12.3%, from $7.3 million
in the first nine months of fiscal 1999 to $8.2 million in the first nine months
of fiscal 2000, primarily due to increased shipments of brass oxygen regulators.
This increase in brass regulator shipments is a result of the introduction of a
new brass regulator and a trade-in program instituted due to the voluntary
recall of aluminum oxygen regulators during the second quarter of fiscal 1999 as
previously discussed.
International sales, which are included in the product lines discussed
above, decreased $0.4 million or 4.2% from $9.6 million in the first nine months
of fiscal 1999 to $9.2 million in the first nine months of fiscal 2000The
company continues to emphasize the importance of worldwide markets as advances
in medical protocol in various markets throughout the world lead to increased
demand.
Gross profit for the nine months ended March 31, 2000 was $13.3 million, or
26.8%, of net sales compared to a gross profit of $12.8 million, or 23.6% of net
sales for the nine months ended March 31,1999. The increase in gross profit as
a percent of sales is attributable to higher manufacturing efficiency and the
outsourcing of labor intensive assembly operations primarily in the production
of the B&F product line. In the second quarter of fiscal 1999, the B&F product
line was moved to St. Louis and caused a reduction of manufacturing throughput.
As previously discussed, the headwall products division was sold on May 28, 1999
and its results are included in the nine months ended March 31, 1999. The
Company will continue to review its operations to eliminate inefficiencies and
also research opportunities for lowering manufacturing and product costs.
Selling, General and Administrative ("SG&A") expenses for the nine months
ended March 31, 2000 were $12.7 million, a net decrease of $1.5 million, or
10.6% from $14.2 million for the nine months ended March 31,1999. In the second
quarter the Company recorded a $.2 million charge to operations for severance
and related expenses to cover the cost of the previously announced 15% work
force reduction estimated to yield $2.6 million annualized savings in payroll
and benefit costs.
SG&A expenses in the first nine months of fiscal 2000 were impacted by
certain unusual transactions. The Company recorded a $0.4 million charge to
SG&A expense in the first quarter of fiscal 2000 for cumulative amounts
estimated to be payable by the Company under its self-insurance retention for
legal costs associated with defending product liability litigation. In addition,
due to the resignation of the Company's President, Chief Executive Officer and
Director Uma Nandan Aggarwal on July 28, 1999, the Company recorded a $0.2
million charge to SG&A expense in the first quarter of fiscal year 2000 per
terms of a mutually accepted departure agreement. These unusual charges were
offset by certain SG&A expense savings that are a result of specific events
<PAGE>
which were discussed previously. The aforementioned SG&A expense savings
include: 1) administrative expense savings of $0.3 million due to the closing of
the Company's Toledo, Ohio facility, 2) $0.8 million in direct expenses
generated by the divested headwall products division in the first nine months of
fiscal 1999 and 3) $1.2 million in savings attributable to management's efforts
to reduce SG&A spending in the base business.
The LSP brand of oxygen regulator, which is subject to voluntary recall as
previously discussed, is primarily used by Emergency Medical Services ("EMS")
for the administration of oxygen in the emergency environment. Even though the
recall is focused on oxygen pressure regulators used in the EMS market, other
markets have been experiencing significant sales resistance to regulators
manufactured with aluminum bodies and brass components in the high pressure
chamber. As a result, the Company will transition the manufacturing of aluminum
bodied oxygen pressure regulators, marketed under the B&F brand name, to one
with an all-brass design. Accordingly, the Company recorded a $0.3 million
addition to the provision for product recall in the first quarter of fiscal year
2000 to write-down the value of remaining aluminum regulator component
inventories for all markets. In the third fiscal quarter, the Company reviewed
its provision to cover the cost associated with the oxygen regulator recall and
has recorded a $0.077 million reduction to the provision to reflect its current
estimate of costs associated with the recall and write down of component
inventories for aluminum oxygen regulators.
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. In connection
with the shutdown of the facility, the Company recorded a one-time charge of
approximately $1.0 million ($0.6 million after taxes), or $.07 per share during
the first quarter of fiscal 1999. Subsequently, during the second quarter of
fiscal 1999, the Company negotiated and received a $0.2 million cash payment
from the City of Toledo as partial reimbursement for relocation costs.
Accordingly, Allied recorded this cash payment as a reduction to the
aforementioned provision, in the second quarter of fiscal 1999, resulting in a
net charge of $0.8 million pre-tax, $0.5 million after tax, or $0.06 per share
for the fiscal year ended June 30,1999. These costs were substantially paid
during the second quarter of fiscal 1999.
Income from operations was $.6 million for the nine months ended March
31,2000 compared to a loss of $3.7 million for the nine months ended March 31,
1999. Interest expense for the nine months ended March 31, 2000 was $1.3
million compared to $1.4 million in the nine month period ending March 31,1999.
Allied had a loss before benefit for income taxes in the first nine months of
fiscal 2000 of $1.0 million compared to a loss before benefit for income taxes
of $5.2 million for the first nine months of fiscal 1999. The Company recorded
a tax benefit of $.1 million in the first nine months of fiscal 2000 compared to
a tax benefit of $1.8 million in the same nine month period of the prior year.
In fiscal 2000, the net loss for the first nine months was $.8 million, or
$0.10 per basic and diluted share compared to a net loss of $3.4 million for the
first nine months of fiscal 1999, or $0.43 per basic and diluted share. The
weighted average number of common shares outstanding used in the calculation of
earnings per share for fiscal 2000 and fiscal 1999 was 7,806,682.
<PAGE>
FINANCIAL CONDITION
- --------------------
The following table sets forth selected information concerning Allied's
financial condition:
Dollars in thousands: March 31, 2000 June 30, 1999
----------------------- ---------------- ---------------
Cash $ 557 $ 587
Working Capital $22,141 $22,619
Total Debt $15,200 $17,238
Current Ratio 3.63:1 3.30:1
The Company's working capital was $22.1 million at March 31, 2000 compared
to $22.6 million at June 30, 1999. Accounts receivable decreased to $11.3
million at March 31, 2000 from $12.6 million at June 30, 1999, primarily due to
decreased sales. Accounts receivable as measured in days sales outstanding
("DSO") are at 63 days up from 62 days at June 30, 1999. Inventories decreased
to $16.9 million from $17.5 million at June 30, 1999. Current liabilities
decreased $1.4 million primarily due to the accounts payable decrease of $1.2
million.
There was a minimal decrease in cash for the nine months ended March 31,
2000. Net cash provided by operations for the nine month period ending March
31, 2000 was $2.2 million. Cash provided by operating activities consisted of a
net loss of $.8 million, which was offset by non-cash charges to operations of
$2.7 million for depreciation and amortization, as well as changes in working
capital accounts which provided $.5 million. The change in working capital was
essentially comprised of reductions in accounts receivable of $1.3 million,
inventory of $.6 million combined with a decrease of accounts payable of $1.2
million and other current liabilities reduction of $.1 million.
The Company's cash balance decreased $.7 million for the nine month period
ending March 31,1999. Operating activities for the period ending March 31, 1999
consumed cash of $.3 million. Cash consumed consisted of a net loss of $3.4
million, which was partially offset by non-cash charges to operations of $3.0
million for depreciation and amortization. Changes in working capital accounts
used $1.3 million. The changes in working capital were comprised of reductions
in accounts receivable of $0.6 million and other current assets of $0.2 million,
and an increase in accounts payable of $0.8 million. These favorable working
capital adjustments were offset by an increase in inventories of $0.2 million, a
net change in deferred income tax accounts of $1.9 million and a reduction in
other current liabilities of $0.8 million. In addition, cash used by operating
activities was favorably impacted by the $1.1 million accrual for product
recall, as discussed previously, and by the $0.2 million non-cash portion of the
provision for restructuring and consolidation related to the relocation of the
B&F product line from Toledo, Ohio to St. Louis, Missouri.
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%.
<PAGE>
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 (7.75% at January 31, 1999)
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%.
On June 28, 1999, the Company's credit facilities with Foothill Capital
Corporation were amended. The amendment provides for favorable interest rate
reduction, based upon annual profitability, for fiscal years 2001 and 2002. The
amendment also extended the maturity date to January 6, 2003 along with a
favorable change to certain debt covenants.
On September 1, 1999 the Company's credit facility with LaSalle National
Bank was amended. The amendment provides favorable changes to certain debt
covenants.
Inflation has not had a material effect on the Company's business or results of
operations.
YEAR 2000
- ----------
All critical systems were year 2000 compliant at December 31, 1999.
The Company did not separately distinguish between costs incurred
specifically to assure year 2000 compliance and normal expenditures needed to
maintain or upgrade systems. The company believes that any such costs expended
were not material.
The Company is dependent on various third parties to conduct its business
operations. These third parties are customers and vendors of raw material and
components used in the production process. The Company's revenues are not
dependent upon any single or any few numbers of customers. The company employs
large number of vendors, without concentration of critical vendors. None of the
Company's products or components uses date sensitive technology. To date the
company has not experienced any costs or business interruptions due to year 2000
problems. The Company does not anticipate any Year 2000 problems will occur in
the future but it is maintaining its contingency planning and resources at an
appropriate level
<PAGE>
PART II. OTHER INFORMATION
------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule
(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.
/s/ Earl R. Refsland
-------------------------------------
Earl R. Refsland
President and Chief Executive Officer
-------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 557
<SECURITIES> 0
<RECEIVABLES> 12217
<ALLOWANCES> (936)
<INVENTORY> 16948
<CURRENT-ASSETS> 30558
<PP&E> 32966
<DEPRECIATION> (20451)
<TOTAL-ASSETS> 69909
<CURRENT-LIABILITIES> 8417
<BONDS> 15383
0
0
<COMMON> 101
<OTHER-SE> 46998
<TOTAL-LIABILITY-AND-EQUITY> 69909
<SALES> 16729
<TOTAL-REVENUES> 16729
<CGS> 12103
<TOTAL-COSTS> 12103
<OTHER-EXPENSES> 3724
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 416
<INCOME-PRETAX> 486
<INCOME-TAX> 276
<INCOME-CONTINUING> 210
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 210
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
