10-Q 1 c58517e10-q.txt QUARTERLY REPORT ENDED 9/30/00 1 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, 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 November 4, 2000 is 7,806,682 shares. 2 INDEX
Page Part I - Financial Information Number Item 1. Financial Statements Consolidated Statement of Operations - 3 three months ended September 30, 2000 and 1999 (Unaudited) Consolidated Balance Sheet - 4-5 September 30, 2000 (Unaudited) and June 30, 2000 Consolidated Statement of Cash Flows - 6 three months ended September 30, 2000 and 1999 (Unaudited) Notes to Consolidated Financial Statements 7-8 Item 2. Management's Discussion and Analysis of 9-11 Financial Condition and Results of Operations Part II - Other Information Item 6. Exhibits and Reports on Form 8-K 11 Signature 12
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ALLIED HEALTHCARE PRODUCTS, INC. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Three months ended September 30, ----------------------------------------- 2000 1999 ------------------- ------------------ Net sales $14,618,119 $16,067,519 Cost of sales 10,845,915 12,041,291 ------------------- ------------------ Gross profit 3,772,204 4,026,228 Selling, general and administrative expenses 3,792,915 4,642,783 Provision for product recall 0 300,000 ------------------- ------------------ Loss from operations (20,711) (916,555) Other expenses: Interest expense 400,746 439,143 Other, net 20,208 14,329 ------------------- ------------------ 420,954 453,472 ------------------- ------------------ Loss before benefit for income taxes (441,665) (1,370,027) Benefit for income taxes (95,125) (466,469) ------------------- ------------------ Net loss $ (346,540) $ (903,558) =================== ================== Basic and diluted loss per share $ (0.04) $ (0.12) =================== ================== Weighted average shares 7,806,682 7,806,682 =================== ==================
See accompanying Notes to Consolidated Financial Statements. 3 4 ALLIED HEALTHCARE PRODUCTS, INC. CONSOLIDATED BALANCE SHEET ASSETS
September 30, June 30, 2000 2000 ---------------- --------------- (Unaudited) Current assets: Cash $ 303,116 $ 568,197 Accounts receivable, net of allowance for doubtful accounts of $831,411 and $882,874 respectively 11,621,331 10,542,264 Inventories 16,670,505 16,742,178 Other current assets 630,732 358,407 ---------------- -------------- Total current assets 29,225,684 28,211,046 ---------------- -------------- Property, plant and equipment, net 11,547,588 12,176,616 Deferred income taxes 218,671 218,671 Goodwill, net 26,191,389 26,395,241 Other assets, net 184,420 210,503 ---------------- -------------- Total assets $67,367,752 $67,212,077 ================ ==============
See accompanying Notes to Consolidated Financial Statements. (CONTINUED) 4 5 ALLIED HEALTHCARE PRODUCTS, INC. CONSOLIDATED BALANCE SHEET (CONTINUED) LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, June 30, 2000 2000 ---------------- -------------- (Unaudited) Current liabilities: Accounts payable $ 4,408,464 $ 4,055,739 Current portion of long-term debt 1,037,387 1,016,611 Accrual for product recall 155,441 185,241 Other current liabilities 3,028,514 2,692,901 ---------------- -------------- Total current liabilities 8,629,806 7,950,492 ---------------- -------------- Long-term debt 12,878,881 13,055,980 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, and June 30, 2000, respectively 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 19,474,770 19,821,310 ---------------- -------------- Total stockholders' equity 45,859,065 46,205,605 ---------------- -------------- Total liabilities and stockholders' equity $67,367,752 $67,212,077 ================ ==============
See accompanying Notes to Consolidated Financial Statements. 5 6 ALLIED HEALTHCARE PRODUCTS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Three months ended September 30, ------------------------------------- 2000 1999 ------------- ------------- Cash flows from operating activities: Net loss $ (346,540) $ (903,558) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 884,827 884,825 Provision for product recall (29,800) 156,633 Decrease/(Increase) in accounts receivable, net (1,079,067) 1,419,680 Decrease/(Increase) in inventories 71,673 (888,940) Increase in income taxes receivable 0 (466,469) Decrease in other current assets (272,325) (355,629) Increase/(Decrease) in accounts payable 352,725 (607,572) Increase in accrued taxes 0 186,424 Increase in other current liabilities 335,613 173,274 ------------ ----------- Net cash used in operating activities (82,894) (401,332) ------------ ----------- Cash flows from investing activities: Capital expenditures, net (25,863) (85,851) ------------ ----------- Net cash used in investing activities (25,863) (85,851) ------------ ----------- Cash flows from financing activities: Payments of long-term debt (231,619) (224,160) Borrowings under revolving credit agreement 14,016,625 19,427,295 Payments under revolving credit agreement (13,941,330) (18,830,452) ------------ ----------- Net cash provided by (used in) financing activities (156,324) 372,683 ------------ ----------- Net decrease in cash and equivalents (265,081) (114,500) Cash and equivalents at beginning of period 568,197 587,457 ------------ ----------- Cash and equivalents at end of period $ 303,116 $ 472,957 ============ =========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 422,424 $ 465,754 Income taxes $ 0 $ 54,050
See accompanying Notes to Consolidated Financial Statements. 6 7 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 disclosures 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, 2000. Certain amounts in the fiscal 2000 financial statements have been reclassified to conform with the fiscal 2001 presentation. 2. Inventories Inventories are comprised as follows:
September 30, June 30, 2000 2000 (Unaudited) Work-in progress $ 1,171,353 $ 1,237,534 Component Parts 11,954,817 11,909,086 Finished Goods 3,544,335 3,595,558 -------------- --------------- $ 16,670,505 $ 16,742,178 ============== ===============
The above amounts are net of a reserve for obsolete and excess inventory of approximately $2.9 million at September 30, 2000 and June 30, 2000. 3. Oxygen Regulator Recall On February 4, 1999, Allied announced a voluntary trade-in program for 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. Based upon U. S. Food and Drug Administration ("FDA") recommendations that all manufacturers cease the use of aluminum in oxygen regulators, the Company introduced new brass regulators and also offered a trade-in program to existing users pursuant to which units with aluminum regulators could be exchanged for new units with brass regulators at a reduced price. In connection with this program, the Company recorded a charge of $1.5 million pre-tax in the second quarter of fiscal 1999. 7 8 An additional $.3 million charge was added to this regulator program in the first quarter of fiscal 2000. A reconciliation of activity with respect to the Company's regulator program for the three months ended September 30, 2000, is as follows: Balance, June 30, 2000 $185,241 Provision for recall 0 Costs incurred related to product retrofitting and replacement 29,800 -------- Balance, September 30, 2000 $155,441 ========
The Company has incurred various legal expenses related to other claims associated with the LSP oxygen regulators. Accordingly, the Company recorded a $0.5 million charge to operations during fiscal 2000 for amounts estimated to be payable by the company under its self-insurance retention for legal costs associated with defending these claims. These amounts are included along with other legal expenses of the Company as selling, general and administrative expenses. At September 30, 2000, the Company has a litigation cost accrual balance of $0.2 million for legal expense associated to the LSP regulator recall. 4. Commitments and Contingencies The Company is subject to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. In fiscal 2000, the FDA conducted an inspection of the Company's St. Louis facility and provided a written report citing FDA observations concerning Good Manufacturing Practices ("GMP") compliance and quality control issues. The Company has provided written responses to the FDA and is taking corrective action to mitigate any further FDA inquiry or action. The Company believes that its responses to date and its continuing attention to the matters raised by the FDA will avert any FDA action seeking to interrupt or suspend manufacturing, or to require any recall or modification of products. Based upon currently available information, the Company does not believe that the FDA investigation will have a material adverse impact on the Company's consolidated results of operations, financial position or cash flows. The Company has recognized the costs and associated liabilities only for those investigations, claims and legal proceedings for which, in its view, it is probable that liabilities have been incurred and the related amounts are estimable. Based upon information currently available, management believes that existing accrued liabilities are sufficient and that it is not reasonably possible at this time that any additional liabilities will result from the resolution of these matters that would have a material adverse effect on the Company's consolidated results of operations, financial position or cash flows. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion may contain statements that constitute "forward-looking statements" as that term is used in the Securities Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties as further discussed in the Company's 2000 Annual Report filed on Form 10-K. Actual results in future periods could differ significantly from results discussed in or anticipated by such forward looking statements. This discussion should be read in conjunction with the June 30, 2000 consolidated financial statements and accompanying notes thereto included in the Company's Form 10-K for the year ended June 30, 2000. RESULTS OF OPERATIONS Allied manufactures and markets medical gas equipment, respiratory care products, and emergency medical products. Allied had net sales of $14.6 million for the three months ended September 30, 2000, down $1.5 million, or 9.0%, from net sales of $16.1 million in the prior year same quarter. The $1.5 million decline in sales relates primarily to medical gas products and is attributable primarily to a strike by production workers at the Company's St. Louis Plant. Although the strike was settled on July 30, 2000 with a new three year contract, the Company did not return to adequate production and shipment levels until the end of the quarter. Overall backlog for unshipped orders at September 30, 2000, exceeded backlog at June 30, 2000 by approximately $1.6 million. Gross profit for the three months ended September 30, 2000 was $3.8 million, or 25.8% of net sales compared to $4.0 million, or 25.1% of net sales for the three months ended September 30, 1999. The increase in gross profit as a percent of sales is attributable to the oxygen regulator recall in the first quarter of FY 2000, cost reductions and a tighter control of operations. The Company will continue to review operations to improve efficiencies and lower manufacturing and product costs. Selling, General and Administrative expenses for the three months ended September 30, 2000 were $3.8 million, a net decrease of $0.8 million, or 18.3%, from $4.6 million for the three months ended September 30, 1999. The decrease was primarily due to cost reduction efforts that were not initiated until the second quarter of last year, primarily a 15% staff reduction. Expense in the prior year quarter also included a $.4 million charge for product liability litigation expenses. In the first quarter of fiscal 2000, the Company recorded a $.3 million additional charge for expenses related to the LSP oxygen regulators program. Please see Note 3 to Consolidated Financial Statements for additional information. 9 10 Loss from operations was $.02 million for the three months ended September 30, 2000 compared to a $.9 million loss for the three months ended September 30, 1999. Interest expense was $0.4 million in both comparable periods. Allied had a loss before benefit for income taxes in the first quarter of fiscal 2001 of $.4 million compared to a loss before benefit for income taxes of $1.4 million for the first quarter of fiscal 2000. The Company recorded a tax benefit of $0.1 million and $0.5 million for the three month periods ended September 30, 2000 and 1999, respectively. In fiscal 2001, the net loss for the first quarter was $0.3 million, or $0.04 per basic and diluted share compared to a net loss of $.9 million, or $0.12 per basic and diluted share, for the first quarter of fiscal 2000. The weighted average number of common shares outstanding used in the calculation of earnings per share for the first quarters of fiscal 2001 and fiscal 2000 was 7,806,682. LIQUIDITY AND CAPITAL RESOURCES We believe that available resources and anticipated cash flows from operations are sufficient to meet our operating requirements in the coming year. Working capital increased to $20.6 million at September 30, 2000 compared to $20.3 million at June 30, 2000. The small increase was primarily due to an increase in accounts receivable and other current assets offset by decreases in cash, accounts payable and other current liabilities. The Company maintains a $25 million revolving credit facility. At September 30, 2000, $8.5 million was outstanding against this facility and $3.5 million was available to borrow from the line based on collateral requirements. Inflation has not had a material effect on the Company's business or results of operations. 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. However, the Company intends to defend these claims in cooperation with its insurers. Based on the progression of certain cases the Company recorded a $0.5 million charge to operations during fiscal 2000 for 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 judgments resulting from these claims over its self-insured retention will be covered by the Company's product liability insurance. The Company is subject to various investigations, claims and legal proceedings covering 10 11 a wide range of matters that arise in the ordinary course of its business activities. In fiscal 2000, the FDA conducted an inspection of the Company's St. Louis facility and provided a written report citing FDA observations concerning Good Manufacturing Practices ("GMP") compliance and quality control issues. The Company has provided written responses to the FDA and is taking corrective action to mitigate any further FDA inquiry or action. The Company believes that its responses to date and its continuing attention to the matters raised by the FDA will avert any FDA action seeking to interrupt or suspend manufacturing, or to require any recall or modification of products. Based upon currently available information, the Company does not believe that the FDA investigation will have a material adverse impact on the Company's results of operations, financial position or cash flows. Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K Form 8-K dated as of July 31, 2000 (announcing the Company has reached an agreement on a new three-year contract with its employees who are members of District No. 9 International Association of Machinists and Aerospace Workers. Allied continued to ship products during the union work stoppage.) Form 8-K dated as of August 23, 2000 (announcing the appointment of Gregory C. Kowert as Vice President Finance, Chief Financial Officer and Secretary and the Company also announced that Thomas A. Jenuleson had resigned as Vice President Finance, Chief Financial Officer and Secretary.) Exhibits: (27) Financial Data Schedule 11 12 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 ------------------------------------------ 12