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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _________________
Commission File Number 0-19266
_______________________________
ALLIED HEALTHCARE PRODUCTS, INC.
[EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER]
DELAWARE 25-1370721
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1720 SUBLETTE AVENUE
ST. LOUIS, MISSOURI 63110
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (314) 771-2400
____________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock
Preferred Stock
Preferred Stock Purchase Rights
(Title of class)
_______________________
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 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes. X No.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
As of September 22, 2000, the aggregate market value of the voting stock
held by non-affiliates (4,216,641 shares) of the Registrant was $12,122,843
(based on the closing price, on such date, of $2.875 per share).
As of September 22, 2000, there were 7,806,682 shares of common stock,
$0.01 par value (the "Common Stock"), outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement dated October 2, 2000 (portion) (Part III)
ALLIED HEALTHCARE PRODUCTS, INC.
INDEX TO FORM 10-K
Page
----
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . 9
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Stock and Related 10
Stockholder Matters
Item 6. Selected Financial Data . . . . . . . . . . . . . . . 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 12
Item 8. Financial Statements and Supplementary Data . . . . 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . 41
PART III
Item 10. Directors and Executive Officers of the Registrant . 42
Item 11. Executive Compensation . . . . . . . . . . . . . . . 42
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . 42
Item 13. Certain Relationships and Related Transactions 42
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . 42
PART I
ITEM 1. BUSINESS
GENERAL
Allied Healthcare Products, Inc. ("Allied" or the "Company") manufactures a
variety of respiratory products used in the health care industry in a wide range
of hospital and alternate site settings, including sub-acute care facilities,
home health care and emergency medical care. The Company's product lines include
respiratory care products, medical gas equipment and emergency medical products.
The Company believes that it maintains significant market shares in selected
product lines.
The Company's products are marketed under well-recognized and respected
brand names to hospitals, hospital equipment dealers, hospital construction
contractors, home health care dealers, emergency medical products dealers and
others. Allied's product lines include:
RESPIRATORY CARE PRODUCTS
- respiratory care/anesthesia products
- home respiratory care products
MEDICAL GAS EQUIPMENT
- medical gas system construction products
- medical gas system regulation devices
- disposable oxygen and specialty gas cylinders
- portable suction equipment
EMERGENCY MEDICAL PRODUCTS
- respiratory/resuscitation products
- trauma and patient handling products
SIGNIFICANT EVENTS
The following list includes significant events that are further discussed
in the Management Discussion and Analysis (MDA) section and in the Consolidated
Financial Statements in this Form 10-K:
- July 1999 resignation of President, Chief Executive Officer and
Director, Uma Nandan Aggarwal and subsequent announcement of his
successor in August 1999, Earl R. Refsland as President, Chief
Executive Officer and Director of the Company.
- A work stoppage initiated by District No. 9 of the International
Association of Machinists and Aerospace Workers at the Company's St.
Louis manufacturing location coincident with the expiration of the
labor contract at midnight on May 31, 2000.
- On June 2, 2000 the Company announced that it expected to be able to
ship products during a work stoppage initiated by District No. 9 of
the International Association of Machinists and Aerospace Workers.
- On July 31, 2000 the Company announced that it reached a new three
year agreement with District No. 9 of the International Association of
Machinists and Aerospace Workers.
- On August 23, 2000 the Company announced the appointment of Gregory C.
Kowert as Vice President Finance, Chief Financial Officer and
Secretary. The Company also announced that Thomas A. Jenuleson had
resigned as Vice President Finance, Chief Financial Officer and
Secretary.
The Company's principal executive offices are located at 1720 Sublette
Avenue, St. Louis, Missouri 63110, and its telephone number is (314) 771-2400.
1
MARKETS AND PRODUCTS
In fiscal 2000, respiratory care products, medical gas equipment and
emergency medical products represented approximately 29%, 54% and 17%,
respectively, of the Company's net sales. The Company operates in a single
industry segment and its principal products are described in the following
table:
PRINCIPAL
PRODUCT DESCRIPTION BRAND NAMES PRIMARY USERS
=============================== ======================================= ============== ===================
RESPIRATORY CARE PRODUCTS
Respiratory Care/Anesthesia Large volume compressors; ventilator Timeter Hospitals and sub-
Products calibrators; humidifiers and mist tents acute facilities
Home Respiratory Care O2 cylinders; pressure regulators; Timeter; B&F; Patients at home
Products nebulizers; portable large volume Schuco
compressors; portable suction
equipment and disposable respiratory
products
MEDICAL GAS EQUIPMENT
Construction Products In-wall medical gas system Chemetron; Hospitals and sub-
components; central suction pumps Oxequip acute facilities
and compressors and headwalls
Regulation Devices Flowmeters; vacuum regulators; Chemetron; Hospitals and sub-
pressure regulators and related Oxequip; acute facilities
products Timeter
Disposable Cylinders Disposable oxygen and gas cylinders Lif-O-Gen First aid providers
and specialty gas
distributors
Suction Equipment Portable suction equipment and Gomco; Allied; Hospitals; sub-
disposable suction canisters Schuco acute facilities and
home care
products
EMERGENCY MEDICAL PRODUCTS
Respiratory/Resuscitation Demand resuscitation valves; bag LSP; Omni- Emergency service
mask resuscitators; emergency Tech providers
transport ventilators and oxygen
regulators
Trauma and Patient Handling Spine immobilization products; LSP Emergency service
Products pneumatic anti-shock garments and providers
trauma burn kits
2
RESPIRATORY CARE PRODUCTS
MARKET. Respiratory care products are used in the treatment of acute and
chronic respiratory disorders such as asthma, emphysema, bronchitis and
pneumonia. Respiratory care products are used in both hospitals and alternate
care settings. Sales of respiratory care products are made through distribution
channels focusing on hospitals and other sub-acute facilities. Sales of home
respiratory care products are made through durable medical equipment dealers
through telemarketing, independent sales representatives, and by contract sales
with national chains.
RESPIRATORY CARE/ANESTHESIA PRODUCTS. The Company manufactures and sells a
broad range of products for use in respiratory care and anesthesia delivery.
These products include large volume air compressors, calibration equipment,
humidifiers, croup tents, equipment dryers, CO2 absorbent and a complete line of
respiratory disposable products such as oxygen tubing, face masks, cannulas and
ventilator circuits.
HOME RESPIRATORY CARE PRODUCTS. Home respiratory care products represent
one of Allied's potential growth areas. Allied's broad line of home respiratory
care products include aluminum oxygen cylinders, oxygen regulators, pneumatic
nebulizers, portable suction equipment and the full line of respiratory
disposable products.
MEDICAL GAS EQUIPMENT
MARKET. The market for the medical gas equipment consists of hospitals,
alternate care settings and surgery centers. The medical gas equipment group is
broken down into three separate categories: construction products, regulation
devices and suction equipment, and disposable cylinders.
CONSTRUCTION PRODUCTS. Allied's medical gas system construction products
consist of in-wall medical system components, central station pumps and
compressors, and headwalls. These products are typically installed during
construction or renovation of a health care facility and are built in as an
integral part of the facility's physical plant. Typically, the contractor for
the facility's construction or renovation purchases medical gas system
components from manufacturers and ensures that the design specifications of the
health care facility are met.
Allied's in-wall components, including outlets, manifolds, alarms, ceiling
columns and zone valves, serve a fundamental role in medical gas delivery
systems.
Central station pumps and compressors are individually engineered systems
consisting of compressors, reservoirs, valves and controls designed to drive a
hospital's medical gas and suction systems. Each system is designed
specifically for a given hospital or facility, which purchases pumps and
compressors from suppliers. The Company's sales of pumps and compressors are
driven, in large part, by its share of the in-wall components market.
The Company's construction products are sold primarily to hospitals,
alternate care settings and hospital construction contractors. The Company
believes that it holds a major share of the U.S. market for its construction
products, that these products are installed in more than three thousand
hospitals in the United States and that its installed base of equipment in this
market will continue to generate follow-on sales. The Company believes that most
hospitals and sub-acute care facility construction spending is for expansion or
renovation of existing facilities. Many hospital systems and individual
hospitals undertake major renovations to upgrade their operations to improve the
quality of care they provide, reduce costs and attract patients and personnel.
REGULATION DEVICES AND SUCTION EQUIPMENT. The Company's medical gas system
regulation products include flowmeters, vacuum regulators and pressure
regulators, as well as related adapters, fittings and hoses which measure,
regulate, monitor and help transfer medical gases from walled piping or
equipment to patients in hospital rooms, operating theaters or intensive care
areas. The Company's leadership position in the in-wall components market
provides a competitive advantage in marketing medical gas system regulation
devices that are compatible with those components.
3
Portable suction equipment is typically used when in-wall suction is not
available or when medical protocol specifically requires portable suction. The
Company also manufactures disposable suction canisters, which are clear
containers used to collect the fluids suctioned by in-wall or portable suction
systems. The containers have volume calibrations which allow the medical
practitioner to measure the volume of fluids suctioned.
The market for regulation devices and suction equipment is hospital and
sub-acute care facilities. Sales of these products are made through the same
distribution channel as our respiratory care products. The Company believes
that it holds a significant share of the U.S. market in both regulation devices
and suction equipment.
DISPOSABLE CYLINDERS. Disposable oxygen cylinders are designed to provide
oxygen for short periods of time in emergency situations. Since they are not
subjected to the same pressurization as standard containers, they are much
lighter and less expensive than standard gas cylinders. The Company markets
filled disposable oxygen cylinders through industrial safety distributors and
similar customers, principally to first aid providers, restaurants, industrial
plants and other customers that require oxygen for infrequent emergencies.
EMERGENCY MEDICAL PRODUCTS
MARKET. Emergency medical products are used in the treatment of
trauma-induced injuries. The Company's emergency medical products provide
patients resuscitation or ventilation during cardiopulmonary resuscitation or
respiratory distress as well as immobilization and treatment for burns. The
Company believes that the trauma care venue for health care services is
positioned for growth in light of the continuing trend towards providing health
care outside the traditional hospital setting. The Company also expects that
other countries will develop trauma care systems in the future, although no
assurance can be given that such systems will develop or that they will have a
favorable impact on the Company. Sales of emergency medical products are made
through specialized emergency medical products distributors to ambulance
companies, fire departments and emergency medical systems volunteer
organizations.
The emergency medical products are broken down into two account groups:
respiratory/resuscitator products and trauma patient handling products.
RESPIRATORY/RESUSCITATION PRODUCTS. The Company's
respiratory/resuscitation products include demand resuscitation valves, portable
resuscitation systems, bag masks and related products, emergency transport
ventilators, precision oxygen regulators, minilators, multilators and
humidifiers.
Demand resuscitation valves are designed to provide 100% oxygen to
breathing or non-breathing patients. In an emergency situation, they can be
used with a mask or tracheotomy tubes and operate from a standard regulated
oxygen system. The Company's portable resuscitation systems provide fast,
simple and effective means of ventilating a non-breathing patient during
cardiopulmonary resuscitation and 100% oxygen to breathing patients on demand
with minimal inspiratory effort. The Company also markets a full line of
disposable and reusable bag mask resuscitators, which are available in a variety
of adult and child-size configurations. Disposable mouth-to-mask resuscitation
systems have the added advantage of reducing the risk of transmission of
communicable diseases.
The Company's autovent transport ventilator can meet a variety of needs in
different applications ranging from typical emergency medical situations to more
sophisticated air and ground transport. Each autovent is accompanied by a
patient valve which provides effective ventilation during cardiopulmonary
resuscitation or respiratory distress. When administration of oxygen is
required at the scene of a disaster, in military field hospitals or in a
multiple-victim incident, Allied's minilators and multilators are capable of
providing oxygen to one or a large number of patients.
4
To complement the family of respiratory/resuscitation products, the Company
offers a full line of oxygen products accessories. This line of accessory
products includes reusable aspirators, tru-fit masks, disposable cuffed masks
and related accessories.
TRAUMA AND PATIENT HANDLING PRODUCTS. The Company's trauma and patient
handling products include spine immobilization products, pneumatic anti-shock
garments and trauma burn kits. Spine immobilization products include a
backboard that is designed for safe immobilization of injury victims and
provides a durable and cost effective means of emergency patient transportation
and extrication. The infant/pediatric immobilization board is durable and scaled
for children. The half back extractor/rescue vest is useful for both suspected
cervical/spinal injuries and for mountain and air rescues. The Company's
pneumatic anti-shock garments are used to treat victims experiencing hypovolemic
shock. Allied's trauma burn kits contain a comprehensive line of products for
the treatment of trauma and burns.
SALES AND MARKETING
Allied sells its products primarily to respiratory care/anesthesia product
distributors, hospital construction contractors, emergency medical equipment
dealers and directly to hospitals. The Company maintains a sales force of 37
sales professionals, all of whom are full-time employees of the Company.
The sales force includes 25 medical gas specialists, 5 emergency
specialists and 7 international sales representatives. In addition, a director
of corporate and national accounts is responsible for pursuing business with
large national group purchasing organizations, large homecare national chains
and OEM sales. Five product managers are responsible for the marketing
activities of these product lines.
The 25 medical gas specialists are responsible for sales of all Allied
products with the exception of emergency products within their territory. Sales
of products are accomplished through respiratory care/anesthesia distributors
for the regulation devices, suction equipment, respiratory care/anesthesia
products and disposable cylinders. The homecare products are sold primarily
through our own in house telemarketing and manufacturers representative groups
across the country. Construction products are sold direct to hospital
construction contractors and through distributors.
Emergency medical specialists are responsible for sales of
respiratory/resuscitation products, trauma and patient handling products. These
products are principally sold to ambulance companies, fire departments and
emergency medical systems volunteer organizations through specialized emergency
medical products distributors.
The Company's director of national accounts is responsible for marketing
Allied's products to national hospital groups, managed care organizations and
other health care providers, and to national chains of durable medical equipment
suppliers through sales efforts at the executive level. Generally, the national
account representatives secure a commitment from the purchaser to buy a
specified quantity of Allied's products over a defined time period at a
discounted price based on volume.
INTERNATIONAL
Allied's international business represents a potential growth area that the
Company has been pursuing. Allied's net sales to foreign markets totaled 19% of
the Company's net sales in fiscal 2000. International sales are made through a
network of doctors, agents and U.S. exporters who distribute the Company's
products throughout the world. Allied has market presence in Canada, Mexico,
Central and South America, Europe, the Middle East and the Far East.
MANUFACTURING
Allied's manufacturing processes include fabrication, electro-mechanical
assembly operations and plastics manufacturing. A significant part of Allied's
manufacturing operations involves electro-mechanical assembly of proprietary
products and the Company is vertically integrated in most elements of metal
machining and fabrication. Most of Allied's hourly employees are involved in
machining, metal fabrication, plastics manufacturing and product assembly.
5
Allied manufactures small metal components from bar stock in a machine shop
which includes automatic screw machines, horizontal lathes and drill presses and
five computer controlled machining centers. The Company makes larger metal
components from sheet metal using computerized punch presses, brake presses and
shears. In its plastics manufacturing processes, the Company utilizes both
extrusion and injection molding. The Company believes that its production
facilities and equipment are in good condition and sufficient to meet planned
increases in volume over the next few years and that conditions in local labor
markets should permit the implementation of additional shifts and days operated.
In August 1998, Allied announced the closing of its Toledo, Ohio facility
and subsequent consolidation of the production of its B&F disposable product
line into the St. Louis facility. This move was completed during the second
quarter of fiscal 1999. See further discussion of the closure of the Toledo
operation in the following MDA section of this Form 10-K.
RESEARCH AND DEVELOPMENT
Allied's research and development group is responsible for the development
of new products. This group is staffed with mechanical and electrical
engineers. During the 2000 fiscal year this group was split off from the
product support group to allow the group to focus on the introduction of new
products.
During fiscal 2000 the Company released several new products as a result of
research and development programs. These products include a new portable Gomco
suction pump that utilizes a rotary vacuum pump to provide high vacuum and flow
levels. A cost reduced Oxygen timer was released which will allow Allied to
compete more effectively in the marketplace. A smaller version of the Vacutron
suction regulator was also released for sale. The group also engaged in several
research projects, which have led to patent applications.
GOVERNMENT REGULATION
The Company's products and its manufacturing activities are subject to
extensive and rigorous government regulation by federal and state authorities in
the United States and other countries. In the United States, medical devices
for human use are subject to comprehensive review by the United States Food and
Drug Administration (the "FDA"). The Federal Food, Drug, and Cosmetic Act ("FDC
Act"), and other federal statutes and regulations, govern or influence the
research, testing, manufacture, safety, labeling, storage, record keeping,
approval, advertising and promotion of such products. Noncompliance with
applicable requirements can result in warning letters, fines, recall or seizure
of products, injunction, refusal to permit products to be imported into or
exported out of the United States, refusal of the government to clear or approve
marketing applications or to allow the Company to enter into government supply
contracts, or withdrawal of previously approved marketing applications and
criminal prosecution.
The Company is required to file a premarket notification in the form of a
premarket approval ("PMA") with the FDA before it begins marketing a new medical
device that offers new technology that is currently not on the market. The
Company also must file a premarket notification in the form of a 510(k) with the
FDA before it begins marketing a new medical device that utilizes existing
technology for devices that are currently on the market. The 510(k)-submission
process is also required when the Company makes a change or modifies an existing
device in a manner that could significantly affect the device's safety or
effectiveness.
Compliance with the regulatory approval process in order to market a new or
modified medical device can be uncertain, lengthy and, in some cases, expensive.
There can be no assurance that necessary regulatory approvals will be obtained
on a timely basis, or at all. Delays in receipt or failure to receive such
approvals, the loss of previously received approvals, or failure to comply with
existing or future regulatory requirements could have a material adverse effect
on the Company's business, financial condition and results of operations.
6
The Company manufactures and distributes a broad spectrum of respiratory
therapy equipment, emergency medical equipment and medical gas equipment. To
date, all of the Company's FDA clearances have been obtained through the
510(k)-clearance process. These determinations are very fact specific and the
FDA has stated that, initially, the manufacturer is best qualified to make these
determinations, which should be based on adequate supporting data and
documentation. The FDA however, may disagree with a manufacturer's
determination not to file a 510(k) and require the submission of a new 510(k)
notification for the changed or modified device. Where the FDA believes that
the change or modification raises significant new questions of safety or
effectiveness, the agency may require a manufacturer to cease distribution of
the device pending clearance of a new 510(k) notification. Certain of the
Company's medical devices have been changed or modified subsequent to 510(k)
marketing clearance of the original device by the FDA. Certain of the Company's
medical devices, which were first marketed prior to May 28, 1976, and therefore,
grandfathered and exempt from the 510(k) notification process, also have been
subsequently changed or modified. The Company believes that these changes or
modifications do not significantly affect the device's safety or effectiveness
or make a major change or modification in the device's intended uses and,
accordingly, that submission of new 510(k) notification to FDA is not required.
There can be no assurance, however, that FDA would agree with the Company's
determinations.
In addition, commercial distribution in certain foreign countries is
subject to additional regulatory requirements and receipt of approvals that vary
widely from country to country. The Company believes it is in compliance with
regulatory requirements of the countries in which it sells its products.
The Medical Device Reporting regulation requires that the Company provide
information to FDA on deaths or serious injuries alleged to have been associated
with the use of its devices, as well as product malfunctions that would likely
cause or contribute to death or serious injury if the malfunction were to recur.
The Medical Device Tracking regulation requires the Company to adopt a method of
device tracking of certain devices, such as ventilators, which are
life-supporting or life-sustaining devices used outside of a device user
facility of which are permanently implantable devices. The regulation requires
that the method adopted by the Company ensures that the tracked device can be
traced from the device manufacturer to the person for whom the device is
indicated (i.e., the patient). In addition, FDA prohibits a company from
promoting an approved device for unapproved applications and reviews a company's
labeling for accuracy. Labeling and promotional activities also are in certain
instances, subject to scrutiny by the Federal Trade Commission.
The Company's medical device manufacturing facilities are registered with
the FDA, and have received ISO 9001 Certification for the St. Louis facility
and certification per the Medical Device Directive (MDD - European) for certain
products in 1998. As such, the Company will be audited by FDA, ISO, and
European auditors for compliance with the Good Manufacturing Practices ("GMP"),
ISO and MDD regulations for medical devices. These regulations require the
Company to manufacture its products and maintain its products and documentation
in a prescribed manner with respect to design, manufacturing, testing and
control activities. The Company also is subject to the registration and
inspection requirements of state regulatory agencies.
In March through June 2000, the FDA conducted an inspection of the
Company's St. Louis facility and provided a written report, known as an "FDA
Form 483" or simply a "483," citing FDA observations concerning GMP compliance
and quality control issues [applicable to Demand Valves, Emergency Ventilators,
Circumcision Clamps, and Regulators]. The Company provided a written response
to the FDA and in August 2000, the FDA issued a warning letter and requested
that the Company clarify and supplement its responses to the 483 observations.
The Company has submitted to the FDA a written supplemental response and is in
the process of implementing actions to address the FDA concerns. 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.
There can be no assurance that any required FDA or other governmental
approval will be granted, or, if granted, will not be withdrawn. Governmental
regulation may prevent or substantially delay the marketing of the Company's
proposed products and cause the Company to undertake costly procedures. In
addition, the extent of potentially adverse government regulation that might
arise from future administrative action or legislation cannot be predicted. Any
failure to obtain, or delay in obtaining, such approvals could adversely affect
the Company's ability to market its proposed products.
7
Sales of medical devices outside the United States are subject to foreign
regulatory requirements that vary widely from country to country. Medical
products shipped to the European Community require CE certification. Whether or
not FDA approval has been obtained, approval of a device by a comparable
regulatory authority of a foreign country generally must be obtained prior to
the commencement of marketing in those countries. The time required to obtain
such approvals may be longer or shorter than that required for FDA approval. In
addition, FDA approval may be required under certain circumstances to export
certain medical devices.
The Company is also subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protections, fire hazard control and disposal of hazardous or
potentially hazardous substances.
THIRD PARTY REIMBURSEMENT
The cost of a majority of medical care in the United States is funded by
the U.S. Government through the Medicare and Medicaid programs and by private
insurance programs, such as corporate health insurance plans. Although the
Company does not receive payments for its products directly from these programs,
home respiratory care providers and durable medical equipment suppliers, who are
the primary customers for several of the Company's products, depend heavily on
payments from Medicare, Medicaid and private insurers as a major source of
revenues. In addition, sales of certain of the Company's products are affected
by the extent of hospital and health care facility construction and renovation
at any given time. The federal government indirectly funds a significant
percentage of such construction and renovations costs through Medicare and
Medicaid reimbursements. In recent years, governmentally imposed limits on
reimbursement of hospitals and other health care providers have impacted
spending for services, consumables and capital goods. In addition the Balanced
Budget Act of 1997 reduced reimbursements by 25% for oxygen and oxygen
equipment. A material decrease from current reimbursement levels or a material
change in the method or basis of reimbursing health care providers is likely to
adversely affect future sales of the Company's products.
PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY
The Company owns and maintains patents on several products that it believes
are useful to the business and provides the Company with an advantage over its
competitors. During fiscal 2000 the Company was granted one patent and applied
for two new patents.
The Company owns and maintains U.S. trademark registrations for Chemetron,
Gomco, Oxequip, Lif-O-Gen, Life Support Products, Timeter, Vacutron and Schuco,
its principal trademarks. Registrations for these trademarks are also owned and
maintained in countries where such products are sold and such registrations are
considered necessary to preserve the Company's proprietary rights therein.
COMPETITION
The Company has different competitors within each of its product lines.
Many of the Company's principal competitors are larger than Allied and the
Company believes that most of these competitors have greater financial and other
resources than the Company. The Company competes primarily on the basis of
price, quality and service. The Company believes that it is well positioned
with respect to product cost, brand recognition, product reliability, and
customer service to compete effectively in each of its markets.
8
EMPLOYEES
At June 30, 2000, the Company had 411 full-time employees and 111 temporary
full-time employees. Approximately 251 employees in the Company's principal
manufacturing facility located in St. Louis, Missouri, were covered by a
collective bargaining agreement that expired on May 31, 2000, and were
participating in a strike that was settled on July 31, 2000. The new agreement
expires May 31, 2003. Approximately 12 employees at the Company's facility in
Stuyvesant Falls, New York are also covered by a collective bargaining agreement
that will expire in 2001.
ENVIRONMENTAL AND SAFETY REGULATION
The Company is subject to federal, state and local environmental laws and
regulations that impose limitations on the discharge of pollutants into the
environment and establish standards for the treatment, storage and disposal of
toxic and hazardous wastes. The Company is also subject to the federal
Occupational Safety and Health Act and similar state statutes. From time to
time the Company has been involved in environmental proceedings involving clean
up of hazardous waste. There are no such material proceedings currently
pending. Costs of compliance with environmental, health and safety requirements
have not been material to the Company. The Company believes it is in material
compliance with all applicable environmental laws and regulations.
ITEM 2. PROPERTIES
The Company's headquarters are located in St. Louis, Missouri and the
Company maintains manufacturing facilities in Missouri and New York. Set forth
below is certain information with respect to the Company's manufacturing
facilities.
SQUARE FOOTAGE OWNED/
LOCATION (APPROXIMATE) LEASED ACTIVITIES/PRODUCTS
- -------------------------- --------------- ------ ---------------------------
St. Louis, Missouri 270,000 Owned Headquarters; medical gas
equipment; respiratory care
products; emergency
medical products
Stuyvesant Falls, New York 30,000 Owned CO2 absorbent
In addition, the Company owns a 16.8-acre parcel of undeveloped land in
Stuyvesant Falls, New York. As indicated elsewhere in this Form 10-K, Allied's
facility in Toledo was shut down and the operations consolidated into St. Louis
during the second quarter of fiscal 1999. Also as indicated in this Form 10-K,
the Company's headwall division in Oakland, California was sold in May 1999.
9
ITEM 3. LEGAL PROCEEDINGS
Product liability lawsuits are filed against the Company from time to time
for various injuries alleged to have resulted from defects in the manufacture
and/or design of the Company's products. Several such proceedings are currently
pending, which are not expected to have a material adverse effect on the
Company. The Company maintains comprehensive general liability insurance
coverage which it believes to be adequate for the continued operation of its
business, including coverage of product liability claims.
In addition, from time to time the Company's products may be subject to
product recalls in order to correct design or manufacturing flaws in such
products. The Company has voluntarily effectuated the recall of its aluminum
body regulators manufactured under the Life Supports Products, Inc. brand name
in cooperation with the U.S. Food and Drug Administration ("FDA") under Product
Recall No. Z-693/698-9 to conform with the industry wide recommendation to cease
use of aluminum parts in oxygen regulators. The recall is complete and final
review of the results thereof is presently being conducted by the FDA.
In March through June 2000, the FDA conducted an inspection of the
Company's St. Louis facility and provided a written report, know as an "FDA Form
483" or simply a "483," citing FDA observations concerning Good Manufacturing
Practices compliance ("GMP") and quality control issues [applicable to Demand
Valves, Emergency Ventilators, Circumcision Clamps, and Regulators]. The
Company provided a written response to the FDA and in August 2000, the FDA
issued a warning letter and requested that the Company clarify and supplement
its responses to the 483 observations. The Company has submitted to the FDA a
written supplemental response and is in the process of implementing actions to
address the FDA concerns. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Allied Healthcare Products, Inc. began trading on the NASDAQ National
market under the symbol AHPI on January 14, 1992, following its initial public
offering. As of September 22, 2000, there were 247 record owners of the
Company's Common Stock. The following tables summarize information with respect
to the high and low closing prices for the Company's Common Stock as listed on
the NASDAQ National market for each quarter of fiscal 2000 and 1999,
respectively. The Company currently does not pay any dividend on its Common
Stock.
COMMON STOCK INFORMATION
2000 HIGH LOW 1999 HIGH LOW
- ----------------------- -------- -------- ----------------- -------- --------
September quarter $2-15/16 $1-21/32 September quarter $4-13/16 $ 1-3/4
December quarter 2-15/16 2-1/8 December quarter 3 1-1/4
March quarter 3-5/8 2-1/2 March quarter 2 1-1/4
June quarter 3-49/64 3-1/16 June quarter 2-3/8 1-9/16
10
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share data)
Year ended June 30, 2000 1999 1998 1997 1996
=========================================================================================================
STATEMENT OF OPERATIONS DATA
Net sales $64,277 $72,799 $ 96,467 $118,118 $120,123
Cost of sales 48,055 55,864 69,110 82,365 80,550
Gross profit 16,222 16,935 27,357 35,753 39,573
Selling, general and administrative expenses 16,835 18,733 23,889 33,910 31,449
Provision for restructuring and consolidation (1) -- 758 -- -- --
Provision for product recall (2) (18) 1,500 -- -- --
Gain on sale of business (3) -- (27) (12,813) -- --
Non-recurring impairment losses (4) -- -- 9,778 -- --
Income (loss) from operations (595) (4,029) 6,503 1,843 8,124
Interest expense 1,664 1,926 4,152 7,606 4,474
Other, net 149 36 198 186 350
Income (loss) before provision (benefit) for
income taxes and extraordinary loss (2,408) (5,991) 2,153 (5,949) 3,300
Provision (benefit) for income taxes (5) (695) (1,873) 9,019 (1,428) 1,473
Income (loss) before extraordinary loss (1,713) (4,118) (6,866) (4,521) 1,827
Extraordinary loss on early extinguishment of debt,
Net of income tax benefit -- -- 530 -- --
Net income (loss) $(1,713) $(4,118) $ (7,396) $ (4,521) $ 1,827
Basic and diluted earnings (loss) per share (6) $ (0.22) $ (0.53) $ (0.95) $ (0.58) $ 0.25
Weighted average common shares outstanding 7,807 7,807 7,805 7,797 7,378
(In thousands)
June 30, 2000 1999 1998 1997 1996
=========================================================================================================
BALANCE SHEET DATA
Working capital $20,261 $22,619 $ 21,308 $ 18,743 $ 38,030
Total assets 67,212 74,275 80,180 126,343 136,760
Short-term debt 1,017 908 3,443 12,891 3,849
Long-term debt (net of current portion) 13,056 16,330 14,972 34,041 49,033
Stockholders' equity 46,206 47,919 52,037 59,365 63,886
(1) See Note 5 to the June 30, 2000 Consolidated Financial Statements for further discussion.
(2) See Note 3 to the June 30, 2000 Consolidated Financial Statements for further discussion.
(3) See Notes 4 & 6 to the June 30, 2000 Consolidated Financial Statements for further discussion.
(4) See Note 7 to the June 30, 2000 Consolidated Financial Statements for further discussion.
(5) See Note 10 to the June 30, 2000 Consolidated Financial Statements for further discussion of the
Company's effective tax rate.
(6) See Note 2 to the June 30, 2000 Consolidated Financial Statements for adoption of FAS 128.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion summarizes the significant factors affecting the
consolidated operating results and financial condition of the Company for the
three fiscal years ended June 30, 2000. This discussion should be read in
conjunction with the consolidated financial statements, notes to the
consolidated financial statements and selected consolidated financial data
included elsewhere herein.
Certain statements contained herein are forward-looking statements. Actual
results could differ materially from those anticipated as a result of various
factors, including cyclical and other industry downturns, the effects of federal
and state legislation on health care reform, including Medicare and Medicaid
financing, the inability 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 results of operations for fiscal 2000 were affected by several unusual
items, which are discussed further below. In the first quarter of fiscal 2000
the Company recorded a $0.4 million charge 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 for
severance costs. In the second quarter the Company recorded a $0.2 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. In the fourth quarter the
Company was affected by a labor strike at the Company's St. Louis facility that
was initiated on June 1, 2000 and settled on July 31, 2000. The strike adversely
affected shipments, revenue and income in the quarter. Past due backlog
increased and order shipments were missed. Additionally, in the fourth quarter
the Company took a $0.9 million charge to write off excess slow moving inventory
purchased in prior years, recorded a $0.2 million charge related to the
resolution of a vendor contract entered into in a prior year, and recorded an
additional $.1 million charge related to product liability legal expenses.
The results of operations for fiscal 1999 were affected by several
non-recurring or unusual items, which are discussed further below. During the
second quarter of fiscal 1999 the Company closed the Toledo, Ohio facility of
its disposable products division and consolidated production of the B&F line of
home care products into its manufacturing facility in St. Louis, Missouri. As a
result of this shutdown the Company recorded a $.8 million net provision, $.5
million after tax, for restructuring and consolidation. The Company also
recorded a $1.5 million provision, $.9 million after tax, in connection with a
product recall of aluminum oxygen regulators during the third quarter of fiscal
1999. Also, on May 28, 1999 the Company sold the assets of its headwall
products division for a gain of $.03 million before tax, with the proceeds being
used to pay down debt.
The results of operations for fiscal 1998 were also affected by several
non-recurring or unusual items. On October 31, 1997, the Company sold the
assets of its ventilation products division for a gain. The proceeds from this
sale were used to significantly pay down debt and to provide additional
liquidity. The Company also recorded several non-recurring or unusual charges
to operations in the second quarter of fiscal 1998. Such non-recurring items
reflect changes in business conditions resulting from the sale of the
ventilation products division and other changes in market conditions. In
addition, reserves for inventories and bad debts were increased throughout the
fiscal year. For further discussion of these non-recurring items please refer
to the "Notes to Consolidated Financial Statements" section of this Form 10-K.
The review of and comparability of year to year operating results is
complicated by the described sale of businesses during the yearly reporting
periods.
The specific transactions and events impacting 2000 and 1999 operating
results, which make meaningful comparisons to prior years more difficult, are
summarized as follows:
12
SENIOR MANAGEMENT CHANGE
On July 28, 1999 the Company's President, Chief Executive Officer and Director
Uma Nandan Aggarwal resigned. 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 voluntary 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 the voluntary recall in May 1997, under which it provided retrofit
kits to prevent contaminants from entering the regulators. The Company has also
been testing regulator design with the help of the National Aeronautical and
Space Administration's White Sands National Laboratories. While findings led
the Company to believe the Company's products did not cause those fires, there
is enough concern among the users that the Company, in cooperation with the U.
S. Food and Drug Administration ("FDA"), agreed to institute the 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
introduced new brass regulators. As a result of the recall, the Company
recorded a charge of $1.5 million pre-tax, $0.9 million after tax, or $0.12 per
share in the second quarter of fiscal 1999. As of June 30, 2000 the Company has
incurred $1.3 million for costs associated with the recall and has a remaining
accrual balance of $0.2 million for future expected costs which management
estimates to be appropriate.
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 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 impact on the Company's results of
operations or financial position.
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
its 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.
13
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.
SUBSEQUENT EVENTS
On July 31, 2000 the Company announced that it reached a new three year
agreement with District No. 9 of the International Association of Machinists and
Aerospace Workers.
On August 23, 2000 the Company announced 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.
FISCAL 2000 FOURTH QUARTER RESULTS OF OPERATIONS
Net sales for the three months ended June 30, 2000 were $14.7 million
compared to sales of $18.6 million for the three months ended June 30, 1999. The
net loss for the fourth quarter of fiscal 2000 was $0.9 million or $0.11 per
share compared to $0.7 million or $0.10 per share loss in fiscal 1999. The
Company continued to ship products during the strike initiated on June 1, 2000
by union workers at the Company's St. Louis facility. However, the strike had
an adverse affect on shipments, revenues and income in the fourth quarter of
fiscal 2000. See also the following "Fiscal 2000 Compared to Fiscal 1999"
section for a discussion of various other internal and external factors
affecting operations.
Sales of respiratory care products for the fourth quarter of fiscal 2000
were $4.3 million, a decrease of $1.2 million, compared to sales of $5.5 million
in the prior year same period. This decrease is primarily due to the strike and
continued weak sales to the home care market, which declined $0.7 million, or
19.4%, during the fourth quarter of fiscal 2000 versus the same period of fiscal
1999. Sales of home care products, mainly the company's B&F line, continue to
be lower due to sales lost in 1999 due to customer shipment disruptions caused
by the relocation of the Company's Toledo operations. The Company continues
efforts to improve efficiency and increase stocking levels of the B&F disposable
products and has the goal of increasing the sale of these products.
Sales of medical gas equipment for the fourth quarter of fiscal 2000 of
$7.8 million were $2.3 million lower than fiscal 1999 sales in the same period
of $10.1 million. This was primarily due to reduced hospital construction and
market share decline due to late product introductions. The strike in the fourth
quarter of fiscal 2000 was also a contributing factor. Additionally, the now
divested headwall products division had sales of $0.5 million in fiscal 1999 and
no comparable sales in fiscal 2000.
Sales of emergency medical products decreased $0.4 million to $2.6 million
in the fourth quarter of fiscal 2000 compared to the fourth quarter of fiscal
1999. This decrease was primarily due to the strike and higher than normal
sales of brass oxygen regulators in the fourth quarter of fiscal 1999 due to the
trade-in program instituted as a result of the aluminum oxygen regulator recall
of fiscal 1999.
14
Gross profit for the fourth quarter of fiscal 2000 was $2.9 million, or
20.0% of sales, compared to $4.2 million or 22.4% of net sales in the fourth
quarter of fiscal 1999. The decrease was primarily due to the strike and unusual
issues addressed during the fourth quarter that negatively impacted gross
profit. These included a $.9 million charge to write off excess slow moving
inventory purchased in prior years and a $.2 million charge related to the
settlement of a vendor contract entered into in a prior year.
Selling, General and Administrative ("SG&A") expenses were $4.1 million in
the fourth quarter of fiscal 2000, a decrease of $0.4 million from the fourth
quarter of fiscal 1999. Various cost containment initiatives over the past
fiscal year, including the 15% salary staff reduction implemented in the second
quarter of fiscal 2000 favorably impacted SG&A expense in the fourth quarter of
fiscal 2000.
The loss from operations for the fourth quarter of fiscal 2000 increased to
$1.0 million compared to $0.3 million in the prior year same period reflecting
the factors discussed above.
The Company incurred a loss before income taxes of $1.4 million in the
fourth quarter of fiscal 2000 compared to a loss of $0.8 million in the same
period for the prior year. The Company recorded a tax benefit of $0.6 million in
the fourth quarter of fiscal 2000 compared to a tax benefit of less than $0.1
million in the fourth quarter of fiscal 1999. For a further discussion of the
Company's income taxes see the "Notes to Consolidated Financial Statements"
section of this Form 10-K. Results of operations in the fourth quarter of
fiscal 2000 was a net loss of $0.9 million, or $0.11 per share, compared to a
net loss of $0.7 million, or $0.10 per share, in the fourth quarter of fiscal
1999.
RESULTS OF OPERATIONS
Allied manufactures and markets respiratory products, including respiratory
care products, medical gas equipment and emergency medical products. Set forth
below is certain information with respect to amounts and percentages of net
sales attributable to respiratory care products, medical gas equipment and
emergency medical products for the fiscal years ended June 30, 2000, 1999, and
1998.
Dollars in thousands
Year ended June 30, 2000
=====================
Net % of Total
Sales Net Sales
--------- ----------
Respiratory care products $ 19,042 29.6%
Medical gas equipment 34,485 53.7%
Emergency medical products 10,750 16.7%
--------- ----------
Total $ 64,277 100.0%
========= ==========
Year ended June 30, 1999
=====================
Net % of Total
Sales Net Sales
--------- ----------
Respiratory care products $ 23,273 32.0%
Medical gas equipment 39,194 53.8%
Emergency medical products 10,332 14.2%
--------- ----------
Total $ 72,799 100.0%
========= ==========
15
Year ended June 30, 1998
=====================
Net % of Total
Sales Net Sales
--------- ----------
Respiratory care products $ 40,105 41.6%
Medical gas equipment 45,033 46.7%
Emergency medical products 11,329 11.7%
--------- ----------
Total $ 96,467 100.0%
========= ==========
The following table sets forth, for the fiscal periods indicated, the
percentage of net sales represented by certain items reflected in the Company's
consolidated statement of operations.
Year ended June 30, 2000 1999 1998
=================================================== ====== ====== ======
Net sales 100.0% 100.0% 100.0%
Cost of sales 74.8 76.7 71.6
------ ------ ------
Gross profit 25.2 23.3 28.4
Selling, general and administrative expenses 26.1 25.7 24.8
Provision for restructuring and consolidation -- 1.0 --
Provision for product recall -- 2.1 --
Gain on sale of business -- -- (13.3)
Non-recurring impairment losses -- -- 10.2
------ ------ ------
Income (loss) from operations ( 0.9) (5.5) 6.7
Interest expense 2.6 2.6 4.3
Other, net 0.2 0.1 0.2
------ ------ ------
Income (loss) before provision (benefit) for
income taxes and extraordinary loss (3.7) (8.2) 2.2
Provision (benefit) for income taxes (1.0) (2.5) 9.3
------ ------ ------
Loss before extraordinary loss (2.7) (5.7) (7.1)
Extraordinary loss on early extinguishment of debt,
net of income tax benefit -- -- 0.6
------ ------ ------
Net loss (2.7)% (5.7)% (7.7)%
====== ====== ======
FISCAL 2000 COMPARED TO FISCAL 1999
Net sales for fiscal 2000 of $64.3 million were $8.5 million, or 11.7% less
than net sales of $72.8 million in fiscal 1999. Of the $8.5 million decline,
$3.2 million is related to the divested headwall products division. The
remaining $5.3 million decline in product sales was due to various internal and
external factors including:
- - There was a strike initiated on June 1, 2000 by union workers at the
Company's St. Louis facility. Although the Company continued to ship
product, shipments were at a reduced rated and the strike had an adverse
affect on shipments, revenues and income in the fourth quarter of fiscal
2000. The strike was settled on July 31, 2000.
- - Home care product sales, mainly the B&F line, continue to be lower due to
customer shipment disruptions caused by the relocation of the Company's
Toledo operations in 1999. The Company continues efforts to improve
efficiency and increase stocking levels of the B&F disposable products and
has the goal of increasing the sale of these products.
16
- - The hospital construction market showed a decline in fiscal 2000 due
primarily to reduced construction.
- - Certain external issues have continued to impact the Company's operations
in fiscal 2000. The emphasis on cost containment by health care providers
has resulted in significant consolidation in the health care environment
and pricing pressures for the past several years. Home care sales have also
been adversely affected by reductions in Medicare reimbursements.
While the Company is unable to predict when these issues will be resolved,
management believes that over a long-term horizon, Allied is well positioned to
capitalize on the demands for its products caused by an aging population, an
increase in the occurrence of lung disease, advances in treatment of other
respiratory illnesses in the home, hospital, and sub-acute care facilities and
upgrading of medical treatment around the world.
Respiratory care product sales in fiscal 2000 of $19.0 million were $4.3
million, or 18.5%, less than sales of $23.3 million in the prior year. This was
primarily due to lower home care product sales, mainly the B&F line, due to
customer shipment disruptions caused by the relocation of the Company's Toledo
operations in 1999. The Company continues efforts to improve efficiency and
increase stocking levels of the B&F disposable products and has the goal of
increasing the sale of these products. Other causes included the fourth quarter
fiscal 2000 strike by union workers at the Company's St. Louis plant and
continued pricing pressures caused by the consolidation of home health care
dealers.
Medical gas equipment sales of $34.5 million in fiscal 2000 were $4.7
million, or 12.0%, below prior year sales of $39.2 million. Of the decline, $3.2
million is related to the divested headwall products division. Medical gas
construction product sales are affected by large bid orders on new hospital
construction and renovation of medical facilities. Hospital consolidation and
budget constraints have resulted in decreased orders for these products. The
strike in the fourth quarter of fiscal 2000 and late product introductions were
also contributing factors.
Emergency medical product sales in fiscal 2000 of $10.8 million were $.5
million, or 4.9%, more than fiscal 1999 sales of $10.3 million.
International sales, which are included in the product lines discussed
above decreased $.8 million, or 6.1%, to $12.3 million in fiscal 2000 compared
to sales of $13.1 million in fiscal 1999. Export sales are affected by
international economic conditions and the relative value of foreign currencies.
Gross profit in fiscal 2000 was $16.2 million, or 25.2% of net sales,
compared to a gross profit of $16.9 million, or 23.3% of net sales in fiscal
1999. The increased percentage was due to the Company's successful steps to
reduce manufacturing overhead, focusing on selling higher margin products, and
modest price increases during fiscal 2000. Although the gross margin percentage
improved in fiscal 2000, the Company is continuing its efforts for further
improvements in manufacturing efficiency. The improvements in fiscal 2000 were
achieved despite the fourth quarter fiscal 2000 strike and continued pricing
pressures brought on by the consolidations and cost containment initiatives of
health care providers.
Selling, General and Administrative ("SG&A") expenses for fiscal 2000 were
$16.8 million, a decrease of $1.9 million over SG&A expenses of $18.7 million in
fiscal 1999. The decrease in fiscal 2000 SG&A costs can be attributed to cost
reduction efforts initiated during the second quarter, primarily the 15% salary
staff reduction. As a percentage of net sales, fiscal 2000 SG&A expenses were
26.1% compared to 25.7% in fiscal 1999. This increase was attributable to lower
sales in fiscal 2000, as discussed above.
As discussed in the preceding Overview section, financial results for
fiscal 2000 were impacted by certain unusual transactions and events which make
meaningful comparisons to prior years more difficult. These specific
transactions and events include the following items:
17
In the first quarter of fiscal 2000 the Company recorded a $0.4
million charge 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 for severance related costs.
In the second quarter of fiscal 2000 the Company recorded a $0.2
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.
In the fourth quarter of fiscal 2000 the Company was affected by a
labor strike at the Company's St. Louis facility that was initiated on June
1, 2000 and settled July 31, 2000. The strike adversely affected shipments,
revenue and income in the quarter. Also, in the fourth quarter, the Company
took a $0.9 million charge to write off excess slow moving inventory
purchased in prior years, recorded a $0.2 million charge related to the
settlement of a vendor contract entered into in a prior year, and recorded
an additional $.1 million charge related to product liability legal
expenses. .
Loss from operations in fiscal 2000 was $0.6 million compared to a loss
from operations of $4.0 million in fiscal 1999. Fiscal 2000 loss from
operations includes charges for the unusual items discussed above which have an
unfavorable impact of $1.9 million.
Interest expense decreased $0.2 million, or 10.5%, to $1.7 million in
fiscal 2000 from $1.9 million in fiscal 1999. Interest expense has been reduced
due to the reduction in debt.
The Company had a loss before taxes of $2.4 million in fiscal 2000,
compared to loss before taxes of $6.0 million in fiscal 1999. The Company
recorded an income tax benefit of $0.7 million in fiscal 2000 compared to a
benefit for income taxes of $1.9 million in fiscal 1999. For further discussion
of the Company's income tax calculation please refer to the "Notes to
Consolidated Financial Statements" section included in this Form 10-K.
Net loss in fiscal 2000 was $1.7 million, or $0.22 per diluted share, a
decrease of $2.4 million from the net loss of $4.1 million, or $0.53 per diluted
share, in fiscal 1999. Earnings per share amounts are diluted earnings per
share, which are substantially the same as basic earnings per share. The
weighted number of shares used in the calculation of the diluted per share loss
was 7,806,682 in both fiscal 2000 and fiscal 1999.
FISCAL 1999 COMPARED TO FISCAL 1998
Net sales for fiscal 1999 of $72.8 million were $23.7 million, or 24.5%
less than net sales of $96.5 million in fiscal 1998. Of the $23.7 million
decline, $10.4 million is attributable to fiscal 1998 sales generated by the
ventilation products division prior to its sale in October 1997, $2.7 million is
related to the headwall products division divested in May 1999, and $10.6
million relates to a decline in sales of core products. The decline in sales of
core products reflected various internal and external factors.
Home care product sales, mainly the B&F line, were negatively impacted due
to shipping delays caused by the closure and consolidation of the Company's
Toledo facility into St. Louis. As previously discussed, this facility was
closed during the second quarter of fiscal 1999 and consolidated into St. Louis.
The Company also experienced certain production and supply chain problems at its
St. Louis facility that caused delays in delivery times on various products.
Certain external issues have continued to impact the Company's operations
in fiscal 1999. The emphasis on cost containment by health care providers has
resulted in significant consolidation in the health care environment and pricing
pressures for the past several years. Home care sales have also been adversely
affected by reductions in Medicare reimbursements.
18
Medical gas equipment sales of $39.2 million in fiscal 1999 were $5.8
million, or 12.9%, below prior year sales of $45.0 million. Of the decline, $2.7
million is related to the now divested headwall products division. Medical gas
system construction sales and medical gas suction and regulation device sales
experienced decreases of 7.7% and 8.2%, respectively, in fiscal 1999 compared to
fiscal 1998. A $0.8 million decrease in aluminum oxygen cylinder sales
contributed to the $3.1 million decrease in base business medical gas equipment
sales. Medical gas construction product sales are affected by large bid orders
on new hospital construction and renovation of medical facilities. Hospital
consolidation has caused a decrease in large bid orders for these products.
Respiratory care product sales in fiscal 1999 of $23.3 million were $16.8
million, or 41.9%, less than sales of $40.1 million in the prior year. Of the
decline, $10.4 million was attributable to revenues generated by the ventilation
products division prior to its sale in October 1997 and $6.4 million relates to
the Company's base respiratory product lines. Sales to the home health care
market declined by 26.5%, primarily in the B&F disposable line, due to the
factors discussed above. In addition, pricing pressures caused by the
consolidation of home health care dealers and continued concern over potential
reductions in Medicare and Medicaid reimbursement rates continued to impact
sales of home health care products. Also contributing to the decrease in
respiratory care products is the loss of air compressor OEM business to Bear
Medical following its divestiture.
Emergency medical product sales in fiscal 1999 of $10.3 million were $1.0
million, or 8.7%, less than fiscal 1998 sales of $11.3 million. A decrease in
OEM sales of certain emergency products contributed to most of the decrease.
Business in this market is largely replacement driven and is expected to reflect
the demand for replacement orders in the short term.
International sales, which are included in the product lines discussed
above decreased $10.9 million, or 45.4%, to $13.1 million in fiscal 1999
compared to sales of $24.0 million in fiscal 1998. International sales declined
$6.9 million due to the sale of the ventilation products division, headwall
products sales decreased $1.0 million, while international sales of the base
business decreased by $3.0 million. Export sales to the European Community
were adversely affected by a delay in obtaining CE mark certification on certain
products.
Gross profit in fiscal 1999 was $16.9 million, or 23.3% of net sales,
compared to a gross profit of $27.4 million, or 28.4% of net sales, in fiscal
1998. Manufacturing inefficiencies and the inability to recognize cost savings,
in a timely manner, from the consolidation of the Toledo operations into St.
Louis impacted gross margins in fiscal 1999. The sale of the ventilation
products division adversely impacted gross profit as a percent of sales in
fiscal 1999, as ventilation products typically have a higher gross profit margin
than the Company's base business products. Continued pricing pressures brought
on by the consolidations and cost containment initiatives of health care
providers further served to reduce margins as a percent to net sales.
Selling, General and Administrative ("SG&A") expenses for fiscal 1999 were
$18.7 million, a decrease of $5.2 million over SG&A expenses of $23.9 million in
fiscal 1998. $2.4 million of the decease in SG&A expenses in fiscal 1999 is
attributable to direct expenses associated with the sale of the ventilation
products division. Another $0.6 million decrease is due to administrative cost
savings from the closing of the Toledo facility. The remainder of the decrease
in 1999 SG&A costs can be attributed to cost reduction efforts initiated during
fiscal 1999. As a percentage of net sales, fiscal 1999 SG&A expenses were 25.7%
compared to 24.8% in fiscal 1998. This increase was attributable to lower sales
in fiscal 1999, as discussed above.
As discussed in the preceding Overview section, financial results for
fiscal 1999 were impacted by certain non-recurring or unusual items and events
which make meaningful comparisons to prior years more difficult. These specific
transactions and events include the following items:
19
On August 5, 1998 the Company's Board of Directors voted to close its
Toledo, Ohio facility and consolidate production of the B&F line of home
care products into its manufacturing facility in St. Louis, Missouri. 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.
On February 4, 1999, Allied announced a voluntary recall of aluminum
oxygen regulators marketed under its Life Support Products label. 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 is 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, $0.9 million after tax, or $0.12 per share,
in the second quarter of fiscal 1999. As of June 30, 1999, the Company had
incurred $0.9 million for costs associated with the recall and had a
reserve balance of $0.6 million for future expected costs which management
estimates to be appropriate.
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 its 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.
Loss from operations in fiscal 1999 was $4.0 million compared to income
from operations of $6.5 million in fiscal 1998. Fiscal 1999 loss from
operations includes charges for the unusual items discussed above which have an
unfavorable impact of $2.2 million. Fiscal 1998 income from operations included
a $12.8 million gain on the sale of Bear Medical and $9.8 million of
non-recurring charges mainly for goodwill write-downs attributable to the
revaluation of the carrying value of various businesses. These fiscal 1998
non-recurring items had a favorable impact on operating income of $3.0 million.
Without the impact of the various unusual items for both fiscal 1999 and fiscal
1998, income from operations decreased $5.3 million. Fiscal 1998 operating
income also includes results from the operations of the ventilation products
division for four months prior to its sale in October 1997.
Interest expense decreased $2.3 million, or 53.6%, to $1.9 million in
fiscal 1999 from $4.2 million in fiscal 1998. Interest expense has been
significantly reduced due to the reduction in debt, which primarily reflected
application of the proceeds from the sale of the ventilation products division
in fiscal 1998.
The Company had a loss before taxes of $6.0 million, compared to income
before taxes and extraordinary loss of $2.2 million in fiscal 1998. The Company
recorded an income tax benefit of $1.9 million in fiscal 1999 compared to a
provision for income taxes of $9.0 million in fiscal 1998. As previously
discussed, the gain on the sale of the ventilation products division resulted in
a tax provision of $9.3 million in fiscal 1998. In addition, the non-recurring
charge of $9.8 million was principally goodwill, and therefore non-deductible
for income tax purposes. For further discussion of the Company's income tax
calculation please refer to the "Notes to Consolidated Financial Statements"
section included in this Form 10-K.
20
Net loss in fiscal 1999 was $4.1 million, or $0.53 per diluted share, a
decrease of $3.3 million from the net loss of $7.4 million, or $0.95 per diluted
share, in fiscal 1998. Net loss in fiscal 1998 included a $0.5 million
extraordinary loss on early extinguishment of debt. Earnings per share amounts
are diluted earnings per share, which are substantially the same as basic
earnings per share. The weighted number of shares used in the calculation of
the diluted per share loss was 7,806,682 in fiscal 1999 compared to 7,805,021 in
fiscal 1998.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information concerning Allied's
financial condition:
Dollars in thousands 2000 1999 1998
-------------------- ------- ------- -------
Cash $ 568 $ 587 $ 1,195
Working Capital $20,261 $22,619 $21,308
Total Debt $14,073 $17,238 $18,415
Current Ratio 3.55:1 3.30:1 2.67:1
The Company's working capital was $20.3 million at June 30, 2000 compared
to $22.6 million at June 30, 1999. The decrease in working capital is
attributable to the factors discussed below. Accounts receivable declined to
$10.5 million at June 30, 2000, down $2.1 million from $12.6 million at June 30,
1999. Accounts receivable as measured in days sales outstanding ("DSO")
increased to 68 DSO at June 30, 2000 from 62 DSO at June 30, 1999. Collection
efforts at the end of fiscal 2000 were hampered by the temporary reassignment of
the collection staff to production and shipping assignments during the work
stoppage by the union work force at the St. Louis production facility.
Inventories declined to $16.7 million at June 30, 2000 from $17.5 million at
June 30, 1999. The majority of this $.8 million decline is attributable to an
increase in the reserve for obsolete and slow moving inventory as previously
discussed. Income taxes receivable decreased $1.6 million from June 30, 1999 to
June 30, 2000. Accounts payable decreased to $4.1 million at June 30, 2000,
down $1.3 million from $5.4 million at June 30, 1999.
The Company's working capital was $22.6 million at June 30, 1999 compared
to $21.3 million at June 30, 1998. The increase in working capital was
primarily due to the decrease in the current portion of long term debt
attributable to debt refinancing discussed further below. Accounts receivable
declined to $12.6 million at June 30, 1999 down $1.6 million from $14.2 million
at June 30, 1998. Accounts receivable as measured in days sales outstanding
("DSO") decreased to 62 DSO from 69 DSO during fiscal 1999 as collection efforts
have improved the average time that is needed to collect from a customer.
Inventories declined to $17.5 million at June 30, 1999, or $0.8 million, from
$18.3 million at June 30, 1998. Of this decline, $0.4 million is related to the
core business while $0.4 million of decrease is due to the sale of the headwall
products division.
The net increase/(decrease) in cash for the fiscal years ended June 30,
2000, 1999, and 1998 was $0.0 million, $(0.6) million, and $0.2 million,
respectively. Net cash provided by (used by) operations was $3.4 million,
$(0.2) million, and $(5.2) million for the same periods.
Cash provided by operations for the fiscal year ended June 30, 2000
consisted of a net loss of $1.7 million, which was offset by $3.3 million in
non-cash charges to operations for amortization and depreciation. The provision
for product recall was reduced and used $0.4 million. Changes in working
capital and deferred tax accounts favorably impacted cash flow from operations
by $2.2 million. Cash flow was used to reduce debt by $3.2 million and make
capital expenditures of $0.3 million.
Cash used by operations for the fiscal year ended June 30, 1999 consisted
of a net loss of $4.1 million, which was offset by $3.8 million in non-cash
charges to operations for amortization and depreciation, restructuring and
consolidation of $0.2 million and product recall of $0.6 million. Changes in
working capital and deferred tax accounts unfavorably impacted cash flow from
operations by $0.7 million. Cash provided by investing activities, consisting
of $1.4 million from the proceeds on the sale of the Toledo, Ohio facilities and
$0.5 million of proceeds from the sale of the headwall products division, was
used to fund capital expenditures of $1.1 million and reduce debt.
21
At June 30, 2000 the Company had aggregate indebtedness of $14.1 million,
including $1.0 million of short-term debt and $13.1 million of long-term debt.
At June 30, 1999 the Company had aggregate indebtedness of $17.2 million,
including $0.9 million of short-term debt and $16.3 million of long-term debt.
On August 7, 1998, the Company obtained a $5.0 million mortgage loan on its
principal facility in St. Louis, Missouri with LaSalle National Bank. Under
terms of this agreement the Company makes 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 the then current rate of 9.0% under the revolving credit agreement.
The LaSalle credit facility was amended in the second quarter of fiscal 1999 and
the first quarter of fiscal 2000 resulting in changes to certain debt covenants.
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
was reduced from the floating reference rate (9.25% at June 30, 2000) 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 +2.5%. Amounts outstanding under this revolving credit facility, which
expires on January 6, 2003, totaled $8.4 million at June 30, 2000. At June 30,
2000, $5.5 million was available under the revolving facility for additional
borrowings based on working capital requirements under the terms of the
agreement.
Capital expenditures, net of capital leases, were $0.3 million, $1.1
million and $0.6 million in fiscal 2000, 1999, and 1998, respectively. The
Company believes that cash flow from operations and available borrowings under
its credit facilities will be sufficient to finance fixed payments and planned
capital expenditures in 2001.
Inflation has not had a material effect on the Company's business or
results of operations. The Company makes its foreign sales in dollars and,
accordingly, sales proceeds are not affected by exchange rate fluctuations,
although the effect on its customers does impact the pace of incoming orders.
SEASONALITY AND QUARTERLY RESULTS
In past fiscal years, the Company has experienced seasonal increases in net
sales during its second and third fiscal quarter (October 1 through March 31)
which, in turn, affected net income. Such seasonal variations were likely
attributable to an increase in hospital equipment purchases at the beginning of
each calendar year (which coincides with many hospitals' fiscal years) and an
increase in the severity of influenza during winter months.
The following table sets forth selected operating results for the eight
quarters ended June 30, 2000. The information for each of these quarters is
unaudited, but includes all normal recurring adjustments which the Company
considers necessary for a fair presentation thereof. These operating results,
however, are not necessarily indicative of results for any future period.
Further, operating results may fluctuate as a result of the timing of orders,
the Company's product and customer mix, the introduction of new products by the
Company and its competitors, and overall trends in the health care industry and
the economy. While these patterns have an impact on the Company's quarterly
operations, the Company is unable to predict the extent of this impact in any
particular period.
June 30, March 31, Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
Three months ended, 2000 2000 1999 1999 1999 1999 1998 1998
=================================================================================================================================
Net sales $ 14,722 $ 16,729 $ 16,758 $ 16,068 $ 18,621 $ 19,227 $ 17,092 $ 17,859
Gross profit 2,945 4,626 4,625 4,026 4,165 4,940 3,423 4,407
Income (loss) from operations (956) 919 359 (917) (323) 339 (2,601) (1,444)
Net income (loss) (894) 210 (126) (903) (738) (189) (1,912) (1,279)
Basic and diluted earnings (0.11) .03 (0.02) (0.12) (0.10) (0.02) (0.25) (0.16)
(loss) per share
Dollars in thousands, except per share data
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Allied Healthcare Products, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity, and of cash flows present fairly, in all material respects, the
financial position of Allied Healthcare Products, Inc. and its subsidiaries at
June 30, 2000 and 1999, and the results of their operations and their cash flows
for each of the three years in the period ended June 30, 2000, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
St. Louis, Missouri
August 9, 2000
23
CONSOLIDATED STATEMENT OF OPERATIONS
Year ended June 30, 2000 1999 1998
======================================================================================================
Net sales $64,276,643 $72,799,372 $ 96,466,860
Cost of sales 48,054,458 55,864,554 69,110,274
------------ ------------ -------------
Gross profit 16,222,185 16,934,818 27,356,586
Selling, general and administrative expenses 16,834,315 18,733,227 23,888,131
Provision for product recall (17,600) 1,500,000 --
Gain on sale of business -- (27,246) (12,812,927)
Provision for restructuring and consolidation -- 758,467 --
Non-recurring impairment losses -- -- 9,778,259
------------ ------------ -------------
Income (loss) from operations (594,530) (4,029,630) 6,503,123
------------ ------------ -------------
Other expenses:
Interest expense 1,664,477 1,925,757 4,151,986
Other, net 149,433 35,984 198,329
------------ ------------ -------------
1,813,910 1,961,741 4,350,315
------------ ------------ -------------
Income (loss) before provision (benefit) for
income taxes and extraordinary loss (2,408,440) (5,991,371) 2,152,808
Provision (benefit) for income taxes (694,963) (1,872,976) 9,018,488
------------ ------------ -------------
Loss before extraordinary loss (1,713,477) (4,118,395) (6,865,680)
Extraordinary loss on early extinguishment of debt,
net of income tax benefit of $373,191 -- -- 530,632
------------ ------------ -------------
Net loss $(1,713,477) $(4,118,395) $ (7,396,312)
============ ============ =============
Basic and diluted loss per share:
Loss before extraordinary loss $ (0.22) $ (0.53) $ (0.88)
Extraordinary loss -- -- (0.07)
------------ ------------ -------------
Loss per share $ (0.22) $ (0.53) $ (0.95)
============ ============ =============
See accompanying Notes to Consolidated Financial Statements
24
CONSOLIDATED BALANCE SHEET
June 30, 2000 1999
==========================================================================================
ASSETS
Current assets:
Cash $ 568,197 $ 587,457
Accounts receivable, net of allowance for doubtful
accounts of $882,874 and $834,883, respectively 10,542,264 12,601,165
Inventories 16,742,178 17,499,822
Income taxes receivable -- 1,635,866
Other current assets 358,407 138,360
------------- -------------
Total current assets 28,211,046 32,462,670
------------- -------------
Property, plant and equipment, net 12,176,616 14,287,037
Deferred income taxes 218,671 --
Goodwill, net 26,395,241 27,210,653
Other assets, net 210,503 314,828
------------- -------------
Total assets $ 67,212,077 $ 74,275,188
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,055,739 $ 5,434,303
Current portion of long-term debt 1,016,611 907,649
Accrual for product recall 185,241 594,725
Other accrued liabilities 2,692,901 2,906,636
------------- -------------
Total current liabilities 7,950,492 9,843,313
------------- -------------
Long-term debt 13,055,980 16,330,185
Deferred income taxes -- 182,608
Commitments and contingencies (Notes 9 and 15) -- --
Stockholders' equity:
Preferred stock; $.01 par value; 1,500,000 shares
authorized; no shares issued and outstanding -- --
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 June 30, 2000 and 1999 101,102 101,102
Additional paid-in capital 47,014,621 47,014,621
Retained earnings 19,821,310 21,534,787
Common stock in treasury, at cost (20,731,428) (20,731,428)
------------- -------------
Total stockholders' equity 46,205,605 47,919,082
------------- -------------
Total liabilities and stockholders' equity $ 67,212,077 $ 74,275,188
============= =============
See accompanying Notes to Consolidated Financial Statements
25
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Additional
Preferred Common paid-in Retained Treasury
Stock stock capital Earnings stock
===============================================================================================
Balance, June 30, 1997 $ -- $ 101,002 $46,945,971 $ 33,049,494 $(20,731,428)
Issuance of common stock -- 100 68,650 -- --
Net loss for the year ended
June 30, 1998 -- -- -- (7,396,312) --
----------- ----------- ----------- ------------ -------------
Balance, June 30, 1998 -- 101,102 47,014,621 25,653,182 (20,731,428)
Net loss for the year ended
June 30, 1999 -- -- -- (4,118,395) --
----------- ----------- ----------- ------------ ------------
Balance, June 30, 1999 - - 101,102 47,014,621 21,534,787 (20,731,428)
Net loss for the year ended
June 30, 2000
-- -- -- (1,713,477) --
----------- ----------- ----------- ------------ -------------
Balance, June 30, 2000 $ - - $ 101,102 $47,014,621 $ 19,821,310 $(20,731,428)
=========== =========== =========== ============ =============
See accompanying Notes to Consolidated Financial Statements
26
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended June 30, 2000 1999 1998
===================================================================================================================
Cash flows from operating activities:
Net loss $ (1,713,477) $ (4,118,395) $ (7,396,312)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities,
Excluding the effects of divestitures:
Depreciation and amortization 3,332,350 3,781,063 4,881,890
Provision for restructuring and consolidation -- 217,926 --
Provision for product recall (409,484) 594,725 --
Gain on sale of Hospital Systems, Inc. -- (27,246) --
Gain on sale of Bear Medical -- -- (12,812,927)
Loss on refinancing of long-term debt -- -- 903,823
Noncash portion of non-recurring impairment losses -- -- 9,496,452
Decrease in accounts receivable, net 2,058,901 1,626,149 2,887,344
Decrease in inventories 757,644 407,134 2,412,551
Decrease (increase) in income taxes receivable 1,635,866 (1,635,866) --
Decrease (increase) in other current assets (220,047) 133,307 696,056
Decrease in accounts payable (1,378,564) (373,046) (6,671,539)
Decrease in other accrued liabilities (213,735) (572,440) (1,688,283)
Increase (decrease) in deferred income taxes - noncurrent (401,279) (258,981) 2,106,658
------------- ------------- --------------
Net cash provided by (used in) operating activities 3,448,175 (225,670) (5,184,287)
Cash flows from investing activities:
Capital expenditures, net (298,040) (1,061,309) (644,080)
Proceeds on sale of Toledo, Ohio facilities -- 1,393,287 --
Proceeds on sale of Hospital Systems, Inc. - Net of disposal costs -- 495,178 --
Proceeds on sale of Bear Medical - Net of disposal costs -- -- 35,362,286
------------- ------------- --------------
Net cash provided by (used in) investing activities (298,040) 827,156 34,718,206
Cash flows from financing activities:
Proceeds from issuance of long-term debt -- 5,000,000 26,000,000
Payment of long-term debt (936,885) (7,411,458) (37,267,757)
Borrowings under revolving credit agreement 69,661,053 88,063,847 128,862,400
Payments under revolving credit agreement (71,893,563) (86,829,127) (146,033,153)
Proceeds from issuance of common stock -- -- 68,750
Debt issuance costs -- (32,104) (957,782)
------------- ------------- --------------
Net cash used in financing activities (3,169,395) (1,208,842) (29,327,542)
Net increase (decrease) in cash and equivalents (19,260) (607,356) 206,377
Cash and equivalents at beginning of period 587,457 1,194,813 988,436
------------- ------------- --------------
Cash and equivalents at end of period $ 568,197 $ 587,457 $ 1,194,813
============= ============= ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,662,150 $ 2,046,103 $ 5,256,981
Income taxes $ 252,869 $ 541,756 $ 5,380,817
See accompanying Notes to Consolidated Financial Statements
27
ALLIED HEALTHCARE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Allied Healthcare Products, Inc. (the "Company" or "Allied") is a
manufacturer of respiratory products used in the health care industry in a wide
range of hospital and alternate site settings, including post-acute care
facilities, home health care and trauma care. The Company's product lines
include respiratory care products, medical gas equipment and emergency medical
products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by Allied are described below.
The policies utilized by the Company in the preparation of the financial
statements conform to generally accepted accounting principles in the United
States, and require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions
and intercompany balances are eliminated.
REVENUE RECOGNITION
Revenue from the sale of the Company's products is recognized upon shipment
to the customer. Costs and related expenses to manufacture the Company's
products are recorded as cost of sales when the related revenue is recognized.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less when acquired
to be cash equivalents. Book cash overdrafts on the Company's disbursement
accounts totaling $1,290,277 and $1,247,188 at June 30, 2000 and 1999,
respectively, are included in accounts payable.
CONCENTRATIONS OF CREDIT RISK
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains reserves for
potential credit losses and historically such losses have been within
management's expectations. The Company's customers can be grouped into three
main categories: medical equipment distributors, construction contractors and
health care institutions. At June 30, 2000 the Company believes that it has no
significant concentration of credit risk.
INVENTORIES
Inventories are stated at the lower of cost, determined using the last-in,
first-out ("LIFO") method, or market. If the first-in, first-out ("FIFO")
method (which approximates replacement cost) had been used in determining cost,
inventories would have been $2,517,103 and $2,411,909 higher at June 30, 2000
and 1999, respectively. Inventories include the cost of materials, direct labor
and manufacturing overhead.
Inventory amounts are net of a reserve for obsolete and excess inventory of
$2,894,610 and $1,936,402 at June 30, 2000 and 1999, respectively.
28
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost and is depreciated using
the straight-line method over the estimated useful lives of the assets which
range from 3 to 36 years. Properties held under capital leases are recorded at
the present value of the non-cancelable lease payments over the term of the
lease and are amortized over the shorter of the lease term or the estimated
useful lives of the assets. Expenditures for repairs, maintenance and renewals
are charged to income as incurred. Expenditures which improve an asset or
extend its estimated useful life are capitalized. When properties are retired
or otherwise disposed of, the related cost and accumulated depreciation are
removed from the accounts and any gain or loss is included in income.
GOODWILL
The excess of the purchase price over the fair value of net assets acquired
in business combinations is capitalized and amortized on a straight-line basis
over the estimated period benefited, not to exceed 40 years. The amortization
period for all acquisitions to date ranges from 20 to 40 years. Amortization
expense for the years ended June 30, 2000, 1999 and 1998 was $815,411, $816,411,
and $1,077,959, respectively. Accumulated amortization at June 30, 2000 and
1999 was $7,131,098 and $6,315,687, respectively. The carrying value of
goodwill is assessed for recoverability by management based on an analysis of
future expected cash flows from the underlying operations of the Company. See
Note 7 regarding goodwill impairment and related non-recurring charges recorded
in the second quarter of the fiscal year ended June 30, 1998. Management
believes that there has been no further impairment at June 30, 2000 to the
remaining carrying value of goodwill.
OTHER ASSETS
Other assets are primarily comprised of debt issuance costs. Such costs
are being amortized on an effective interest method basis over the life of the
related obligations.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). Under
FAS 109, the deferred tax provision is determined using the liability method,
whereby deferred tax assets and liabilities are recognized based upon temporary
differences between the financial statement and income tax bases of assets and
liabilities using presently enacted tax rates.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred and are included in
selling, general and administrative expenses. Research and development expense
for the years ended June 30, 2000, 1999 and 1998 was $726,315, $1,315,593 and
$1,688,071, respectively.
EARNINGS PER SHARE
Basic earnings per share are based on the weighted average number of shares
of common stock outstanding during the year. Diluted earnings per share are
based on weighted averaged number of shares of common stock and common stock
equivalents outstanding during the year. The number of basic and diluted shares
outstanding for the years ended June 30, 2000, 1999 and 1998 was 7,806,682,
7,806,682, and 7,805,021 shares, respectively. Options under the Company's
employee's and director's stock option plans are not included as common stock
equivalents for earnings per share purposes since they did not have a material
dilutive effect.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128"), which
requires public entities to present both basic and diluted earnings per share
amounts on the face of their financial statements, replacing the former
calculations of primary and fully diluted earnings per share. The Company
adopted FAS 128 effective with its fiscal 1998 second quarter. All prior period
earnings per share amounts have been restated. The adoption of FAS 128 did not
have a material effect on current or previously reported earnings per common
share.
29
EMPLOYEE STOCK-BASED COMPENSATION
The Company accounts for employee stock options and variable stock awards
in accordance with Accounting Principles Board No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). Under APB 25, the Company applies the
intrinsic value method of accounting. For employee stock options accounted for
using the intrinsic value method, no compensation expense is recognized because
the options are granted with an exercise price equal to the market value of the
stock on the date of grant.
During fiscal 1996, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"), became effective for the
Company. FAS 123 prescribes the recognition of compensation expense based on
the fair value of options or stock awards determined on the date of grant.
However, FAS 123 allows companies to continue to apply the valuation methods set
forth in APB 25. For companies that continue to apply the valuation methods set
forth in APB 25, FAS 123 mandates certain pro forma disclosures as if the fair
value method had been utilized. See Note 12 for additional discussion.
3. LSP OXYGEN REGULATOR RECALL
On February 4, 1999, Allied announced a voluntary 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. The Company has also been
testing regulator design with the help of the National Aeronautical and Space
Administration's White Sands National Laboratories. While preliminary findings
led the Company to believe the Company's products did not cause those fires,
there is 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, $0.9 million after tax, or $0.12 per share in the second
quarter of fiscal 1999.
A reconciliation of activity with respect to the Company's product recall
is as follows:
2000 1999
--------- -----------
Balance, beginning of year $594,725 $ --
Provision for recall (17,600) 1,500,000
Costs incurred related to product retrofitting and
replacement 391,885 905,275
----------------------
Balance, end of year $185,241 $ 594,725
======================
The Company has incurred various legal expenses related to claims
associated with the LSP regulators recall. 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 June 30, 2000, the Company has a litigation cost accrual balance of
$0.2 million for legal expense associated to the LSP regulator recall.
30
4. 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
its 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.
5. 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.
6. 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"),
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 paid, were utilized to repay a significant portion of
its term notes and to repay all of its subordinated debt. The sale of the
ventilation products division resulted in a gain, before taxes, for financial
reporting purposes of $12.8 million. This gain, as a discrete item, resulted in
a tax provision of $9.3 million. The relatively higher effective tax rate on
this transaction resulted because approximately $12.7 million of goodwill
associated with these businesses was not deductible for income tax purposes.
7. GOODWILL IMPAIRMENT
In 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 product division and due to other changes in market conditions
discussed below, which culminated during the second quarter of fiscal 1998.
Goodwill writedowns, which were determined pursuant to the Company's
impairment policy as described in Note 2, approximating $8.9 million, were
comprised of the following:
$4.4 million associated with the partial goodwill writedown related to the
B&F disposable products business. Continuing weakness in financial results of
the business due to various continuing operational issues, market condition
changes in the home health care market including pressures on pricing, and
overall weakness in financial results of the national home health care chains
caused Allied to reevaluate and adjust the carrying value of this business.
$2.4 million associated with the writedown of goodwill for Allied's
headwall business.
$1.6 million associated with the writedown of Omni-Tech Medical, Inc.
goodwill. This transportation ventilator business is directly related to the
divested Bear ventilation products division and is not anticipated to contribute
to the ongoing operations of the Company.
31
$0.5 million associated with the write-down of goodwill for the Design
Principles Inc. backboard business. Increased costs have significantly eroded
the margins of this business necessitating a reevaluation of the carrying value
of its goodwill.
Management believes that there has been no further impairment at June 30,
2000 to the remaining carrying value of goodwill.
In addition to the non-cash goodwill write-downs, the other non-recurring items
include:
$0.5 million of consulting fees related to a cooperative purchasing study.
$0.4 million for the writedown of leasehold improvements and a reserve for
the remaining lease payments for B&F's Mt. Vernon, Ohio facility which was
closed as part of the Company's rationalization initiatives.
8. FINANCING
Long-term debt consisted of the following at June 30, 2000 and 1999:
2000 1999
------------ ------------
UNSUBORDINATED DEBT
Notes payable to bank or other financial lending institution,
collateralized by substantially all assets of the Company
Term loan - principal due in varying monthly
maturities ranging from $27,714 to $40,518
with remaining balance due August 1, 2003 $ 4,347,118 $ 4,714,669
Revolving credit facility - aggregate revolving commitment
of $25,000,000; principal due at maturity on January 6, 2003 8,398,907 10,618,532
Other 16,244 32,819
------------ ------------
12,762,269 15,366,020
------------ ------------
SUBORDINATED DEBT
Capital lease obligations 1,310,322 1,871,814
------------ ------------
14,072,591 17,237,834
Less-Current portion of long-term debt, including $603,297 and
523,523 of capital lease obligations at June 30, 2000 and June 30,
1999, respectively (1,016,611) (907,649)
------------ ------------
$13,055,980 $16,330,185
============ ============
On August 7, 1998, the Company borrowed approximately $5.0 million from
LaSalle National Bank. The borrowing was collateralized 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 LaSalle credit
facility was amended on March 24 and September 1, 1999 resulting in changes to
certain debt covenants for which the Company was in compliance at June 30, 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 was
reduced from the floating reference rate (9.25% at June 30, 2000) 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,
32
as its "base rate". This amendment also provides the Company with a rate of
LIBOR + 2.50%. In addition, the fees charged to the Company were reduced along
with 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 for which the
Company was in compliance at June 30, 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.
Aggregate maturities of long-term debt, excluding capital leases, for each
of the five fiscal years subsequent to June 30, 2000 are as follows:
Fiscal Revolving
Year Credit Facility Term Other Total
---------------- ---------- ---------- -----------
2001 $ -- $ 397,070 $ 16,244 $ 413,314
2002 -- 428,959 -- 428,959
2003 8,398,907 463,411 -- 8,862,318
2004 -- 3,057,678 -- 3,057,678
2005 -- -- -- --
---------------- ---------- ---------- -----------
8,398,907 $4,347,118 $ 16,244 $12,762,269
================ ========== ========== ===========
9. LEASE COMMITMENTS
The Company leases certain of its electronic data processing and
manufacturing equipment under non-cancelable lease agreements. These agreements
extend for a period of up to 60 months and contain purchase or renewal options
on a month-to-month basis. The leases are reflected in the consolidated
financial statements as capitalized leases in accordance with the requirements
of Statement of Financial Accounting Standards No. 13 ("FAS 13"), "Accounting
for Leases". In addition, the Company leases certain office equipment under
noncancelable operating leases. These leases are reflected in the consolidated
financial statements as operating leases in accordance with FAS 13.
Minimum lease payments under long-term capital leases and the operating
Leases at June 30, 2000 are as follows:
Capital Operating
Leases Leases
----------- -----------
2001 $ 737,250 $ 53,340
2002 779,851 53,340
2003 -- 53,340
2004 -- 44,450
2005 -- --
----------- -----------
Total minimum lease payments 1,517,101 $ 204,470
===========
Less amount representing interest (206,779)
-----------
Present value of net minimum lease payments, including current
portion of $603,297 $1,310,322
===========
33
Rental expense incurred on the operating leases in fiscal 2000, 1999, and
1998 totaled $333,505, $118,990 and $381,024, respectively.
10. INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
2000 1999 1998
---------- ------------ -----------
Current Payable:
Federal $ (49,915) $(1,497,541) $4,249,382
State -- -- 1,957,403
---------- ------------ -----------
Total Current (49,915) (1,497,541) 6,206,785
---------- ------------ -----------
Deferred:
Federal (561,137) (113,472) $2,451,228
State (83,911) (261,963) 360,475
---------- ------------ -----------
Total Deferred (645,048) (375,435) 2,811,703
---------- ------------ -----------
$(694,963) $(1,872,976) $9,018,488
========== ============ ===========
Income taxes were 28.9%, 31.3%, and 418.9% of pre-tax earnings (losses) in
2000, 1999, and 1998, respectively. A reconciliation of income taxes, with the
amounts computed at the statutory federal rate follows:
2000 1999 1998
---------- ------------ ------------
Computed tax at federal statutory rate $(818,869) $(2,037,066) $ 731,955
State income taxes, net of federal tax benefit (55,381) (172,876) 1,611,155
Non deductible goodwill 277,240 277,240 7,925,827
Other, net (97,953) 59,726 (1,250,449)
---------- ------------ ------------
Total $(694,963) $(1,872,976) $ 9,018,488
========== ============ ============
The increase in the dollar amount of reconciling items during fiscal year
1998 relates to the effect of the sale of the Bear ventilation products
division. The increase in the income tax provision was primarily attributable
to the non-deductible portion of goodwill associated with the sale, and the
effect of state income taxes associated with the transaction.
The deferred tax assets and deferred tax liabilities recorded on the
balance sheet as of June 30, 2000 and 1999 are as follows:
2000 1999
---- ----
Deferred Deferred Tax Deferred Deferred Tax
Tax Assets Liabilities Tax Assets Liabilities
-------------- ------------ -------------- ------------
Current:
Bad debts $ 344,321 $ -- $ 325,604 $ --
Accrued liabilities 208,515 -- 347,903 --
Inventory -- 561,714 -- 926,154
-------------- ------------ -------------- ------------
552,836 561,714 673,507 926,154
-------------- ------------ -------------- ------------
Non Current:
Depreciation -- (5,407) -- 52,629
Other property basis -- (97,665) -- 10,857
Intangible assets 530,163 -- 380,762 --
Net operating loss carryforward 264,274 -- 264,274 --
Other -- 353,447 -- 438,767
-------------- ------------ -------------- ------------
794,437 250,375 645,036 502,253
-------------- ------------ -------------- ------------
Valuation allowance (325,391) -- (325,391) --
-------------- ------------ -------------- ------------
Total deferred taxes $ 1,021,882 $ 812,089 $ 993,152 $1,428,407
============== ============ ============== ============
34
11. RETIREMENT PLAN
The Company offers a retirement savings plan under Section 401(k) of the
Internal Revenue Code to certain eligible salaried employees. Each employee may
elect to enter a written salary deferral agreement under which a portion of such
employee's pre-tax earnings may be contributed to the plan.
During the fiscal years ended June 30, 2000, 1999 and 1998, the Company
made contributions of $296,134, $359,087 and $464,227 respectively.
12. SHAREHOLDERS' EQUITY
The Company has established a 1991 Employee Non-Qualified Stock Option
Plan, a 1994 Employee Stock Option Plan, and a 1999 Incentive Stock Plan
("Employee Plans"). The Employee Plans provide for the granting of options to
the Company's executive officers and key employees to purchase shares of common
stock at prices equal to the fair market value of the stock on the date of
grant. Options to purchase up to 1,800,000 shares of common stock may be granted
under the Employee Plans. Options currently outstanding entitle the holders to
purchase common stock at prices ranging between $1.88 and $16.00, subject to
adjustment. Options generally become exercisable ratably over a four year period
or one-fourth of the shares covered thereby on each anniversary of the date of
grant, commencing on the first or second anniversary of the date granted, except
certain options granted under the 1994 Employee Stock Option Plan which become
exercisable when the fair market value of common stock exceeds required levels.
The right to exercise the options expires ten years from the date of grant, or
earlier if an option holder ceases to be employed by the Company.
In addition, the Company has established a 1991 Directors Non-Qualified
Stock Option Plan and a 1995 Directors Non-Qualified Stock Option Plan
("Directors Plans"). The Directors Plan provides for the granting of options to
the Company's Directors who are not employees of the Company to purchase shares
of common stock at prices equal to the fair market value of the stock on the
date of grant. Options to purchase up to 250,000 shares of common stock may be
granted under the Directors Plans. Options currently outstanding entitle the
holders to purchase common stock at prices ranging between $1.88 and $18.25,
subject to adjustment. Options shall become exercisable with respect to
one-fourth of the shares covered thereby on each anniversary of the date of
grant, commencing on the second anniversary of the date granted, except for
certain options granted under the 1995 Directors Non-Qualified Stock Option Plan
which become exercisable with respect to all of the shares covered thereby one
year after the grant date. The right to exercise the options expires ten
years from the date of grant, or earlier if an option holder ceases to be a
Director of the Company.
35
A summary of stock option transactions in 2000, 1999 and 1998,
respectively, pursuant to the Employee Plans and the Directors Plans follows:
Summary of Stock Options
------------------------
Average Shares Subject
Price To Option
-------- ---------------
June 30, 1997 $ 9.22 594,500
Options Granted 7.63 173,500
Options Exercised 6.88 (10,000)
Options Canceled 11.23 (132,550)
---------------
June 30, 1998 $ 8.39 625,450
---------------
Exercisable at June 30, 1998 160,138
===============
June 30, 1998 $ 8.39 625,450
Options Granted 1.97 54,000
Options Exercised -- --
Options Canceled 10.54 (149,700)
---------------
June 30, 1999 $ 7.13 529,750
---------------
Exercisable at June 30, 1999 148,500
===============
June 30, 1999 $ 7.13 529,750
Options Granted 2.00 567,500
Options Exercised --
Options Canceled 7.89 (329,500)
---------------
June 30, 2000 $ 3.47 767,750
---------------
Exercisable at June 30, 2000 227,000
===============
The following table provides additional information for options outstanding and
exercisable at June 30, 2000:
OPTIONS OUTSTANDING
Wtd. Avg. Wtd. Average
Range of Prices Number Remaining Life Exercise Price
- -------------------- ------- --------------- ----------------
$ 1.00-1.99 55,500 8.8 years $ 1.88
2.00 542,000 9.2 years 2.00
2.01-6.99 35,500 6.8 years 5.55
7.00-7.99 75,000 7.3 years 7.53
8.00-18.50 59,750 4.2 years 12.40
--------
$ 1.00-18.50 767,750 8.5 years $ 3.47
OPTIONS EXERCISABLE
Wtd. Avg.
Range of Prices Number Exercise Price
- -------------------- ------- ---------------
$ 1.00-1.99 500 $ 1.88
2.00 135,500 2.00
2.01-6.99 17,000 5.11
7.00-7.99 21,750 7.51
8.00-18.50 52,250 10.17
--------
$ 1.00-18.50 227,000 $ 4.63
36
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," requires companies to measure employee stock
compensation plans based on the fair value method of accounting. However, the
Statement allows the alternative of continued use of Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees," with pro-forma
disclosure of net income and earnings per share determined as if the fair value
based method had been applied in measuring compensation cost. The Company
adopted the new standard in the fiscal year ended June 30, 1997, and elected the
continued use of APB Opinion No. 25.
Had compensation expense for the Company's stock options been recognized
based on the fair value of the options on the grant date under the methodology
prescribed by FAS 123, the Company's net loss and loss per share for the years
ended June 30, 2000 and 1999 would have been impacted as shown in the following
table (in thousands, except per share):
2000 1999
---------- ----------
Reported net loss $ 1,713 $ 4,118
Pro forma net loss 1,918 4,374
Reported earnings per share (0.22) (0.53)
Pro forma earnings per share (0.25) (0.56)
The fair value of options granted, which is amortized to expense over the
option vesting period in determining the pro forma impact, has been estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions:
2000 1999
---------- ----------
Expected life of option 10 years 10 years
Risk-free interest rate 5.9% 5.2%
Expected volatility of
Allied stock 50% 37%
Expected dividend yield
On Allied stock 0% 0%
The weighted-average fair value of options granted during fiscal 2000 and 1999
determined using the Black-Scholes model is as follows:
2000 1999
---------- ----------
Fair value of options granted $ 1.38 $ 1.27
Number of options granted 567,500 54,000
---------- ----------
Total fair value of all
Options granted (in thousands) $ 780 $ 70
For FAS 123 disclosure purposes, the weighted average fair value of stock
options granted is required to be based on a theoretical option pricing model.
In actuality, because the Company's stock options are not traded on any
exchange, employees can receive no benefit and derive no value from holding
stock options under these plans without an increase in the market price of
Allied stock. Such an increase would benefit all stockholders.
In conjunction with a refinancing, 62,500 warrants were issued to the
holders of the subordinated notes payable and 50,000 warrants were issued to the
commercial lender providing the revolving credit facilities and the term loan
facilities. Each warrant entitles the holder to purchase one share of common
stock at $7.025 per share through August 7, 2002.
37
STOCKHOLDER RIGHTS PLAN
The Board of Directors adopted a Stockholder Rights Plan in 1996, that would
permit stockholders to purchase common stock at prices substantially below
market value under certain change-in-control scenarios.
13. EXPORT SALES
Export sales for the years ended June 30, 2000, 1999, and 1998 are
comprised as follows (in thousands):
2000 1999 1998
------- ------- -------
Europe $ 2,000 $ 2,500 $ 5,700
Canada 1,800 1,800 1,900
Latin America 3,800 3,400 5,900
Middle East 1,200 1,200 1,600
Far East 2,600 2,600 6,000
Other 900 1,600 2,900
------- ------- -------
$12,300 $13,100 $24,000
======= ======= =======
14. SUPPLEMENTAL BALANCE SHEET INFORMATION
June 30,
2000 1999
------------- -------------
INVENTORIES
Work in progress $ 1,237,534 $ 779,027
Component parts 11,209,463 13,848,272
Finished goods 4,295,181 2,872,523
------------- -------------
$ 16,742,178 $ 17,499,822
============= =============
PROPERTY, PLANT AND EQUIPMENT
Machinery and equipment $ 15,096,250 $ 14,905,236
Buildings 11,751,455 11,644,429
Land and land improvements 934,216 934,216
Property held under capital leases 4,518,761 4,518,761
------------- -------------
Total property, plant and equipment at cost 32,300,682 32,002,642
Less accumulated depreciation and amortization,
including $3,526,799 and $2,741,859, respectively,
related to property held under capital leases (20,124,066) (17,715,605)
------------- -------------
$ 12,176,616 $ 14,287,037
============= =============
OTHER ACCRUED LIABILITIES
Accrued compensation expense $ 756,328 $ 1,211,251
Accrued interest expense 101,142 98,669
Accrued income tax 1,247,546 985,711
Other 587,885 611,005
------------- -------------
$ 2,692,901 $ 2,906,636
============= =============
38
15. 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 impact on the Company's results of
operations or financial position.
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 or financial position.
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal 2000 and 1999 appears below
(all amounts in thousands except per share data):
Net Sales
---------
2000 1999
-------- --------
First Quarter $16,068 $17,859
Second Quarter 16,758 17,092
Third Quarter 16,729 19,227
Fourth Quarter 14,722 18,621
-------- --------
Total Year $64,277 $72,799
======== ========
Gross Profit
------------
2000 1999
-------- --------
First Quarter $ 4,026 $ 4,407
Second Quarter 4,625 3,423
Third Quarter 4,626 4,940
Fourth Quarter 2,945 4,165
-------- --------
Total Year $16,222 $16,935
======== ========
39
Net Income (Loss)
------------------
2000 1999
-------- --------
First Quarter $ (903) $(1,279)
Second Quarter (126) (1,912)
Third Quarter 210 (189)
Fourth Quarter (894) (738)
-------- --------
Total Year $(1,713) $(4,118)
======== ========
Earnings (Loss) Per Share
--------------------------
2000 1999
-------- --------
First Quarter $ (.12) $ (.16)
Second Quarter (.02) (.25)
Third Quarter .03 (.02)
Fourth Quarter (.11) (.10)
-------- --------
Total Year $ (.22) $ (.53)
======== ========
17. SEGMENT INFORMATION
The Company operates in one segment consisting of the manufacturing,
marketing and distribution of a variety of respiratory products used in the
health care industry to hospitals, hospital equipment dealers, hospital
construction contractors, home health care dealers and emergency medical product
dealers. The Company's product lines include respiratory care products, medical
gas equipment and emergency medical products. The Company does not have any one
single customer that represents more than 10 percent of total sales.
40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
41
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A definitive proxy statement is expected to be filed with the Securities
and Exchange Commission on or about October 3, 2000. The information required
by this item is set forth under the caption "Election of Directors" on pages 2
through 3, under the caption "Executive Officers" on page 11 and under the
caption Section 16(a) Beneficial Ownership Reporting Compliance on page 21 of
the definitive proxy statement, which information is incorporated herein by
reference thereto.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth under the caption
"Executive Compensation" on pages 12 through 13 of the definitive proxy
statement, which information is incorporated herein by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" on pages 7
through 8 of the definitive proxy statement, which information is incorporated
herein by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
1. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company and its
subsidiaries are included in response to Item 8:
Consolidated Statement of Operations for the years ended
June 30, 2000, 1999, and 1998
Consolidated Balance Sheet at June 30, 2000 and 1999
Consolidated Statement of Changes in Stockholders' Equity
for the years ended June 30, 2000, 1999 and 1998
Consolidated Statement of Cash Flows for the years ended June 30,
2000, 1999 and 1998
Notes to Consolidated Financial Statements
Report of Independent Accountants
2. FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants on Financial Statement Schedule
Valuation and Qualifying Accounts and Reserves for the Years
Ended June 30, 2000, 1999 and 1998
42
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
3. EXHIBITS
The exhibits listed on the accompanying Index to Exhibits are filed as part
of this Report.
4. REPORTS ON FORM 8-K
Form 8-K dated as of August 24, 1999 (announcing the appointment of Earl R.
Refsland as President, Chief Executive Officer and Director, and the
Company also announced that Uma Nandan Aggarwal had resigned as President,
Chief Executive Officer and Director)
Form 8-K dated as of June 5, 2000 (announcing a work stoppage by District
No. 9 International Association of Machinists and Aerospace Workers
effective midnight May 31, 2000. The work stoppage arose from a failure of
the Union and the Company to consent to the terms of an Agreement between
Allied Healthcare Products, Inc. Medical Products Division and District No.
9 International Association of Machinists and Aerospace Workers).
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.)
43
3.1 Amended and Restated Certificate of Incorporation of the Registrant (filed as
Exhibit 3(1) to the Company's Registration Statement on Form S-1, as
amended, Registration No. 33-40128, filed with the Commission on May 8,
1991 (the "Registration Statement") and incorporated herein by reference)
3.2 By-Laws of the Registrant (filed as Exhibit 3(2) to the Registration Statement
and incorporated herein by reference)
4.1 Certificate of Designations, Preferences and Rights of Series A Preferred Stock
of Allied Healthcare Products, Inc. dated August 21, 1996 (filed with the
Commission as Exhibit 4(1) to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1997 (the "1997 Form 10-K") and
incorporated herein by reference)
10.1 NCG Trademark License Agreement, dated April 16, 1982, between Liquid
Air Corporation and Allied Healthcare Products, Inc. (filed as Exhibit 10(24)
to the Registration Statement and incorporated herein by reference)
10.2 Allied Healthcare Products, Inc. 1991 Employee Non-Qualified Stock Option
Plan (filed as Exhibit 10(26) to the Registration Statement and incorporated
herein by reference)
10.3 Employee Stock Purchase Plan (filed as Exhibit 10(3) to the Company's
Annual Report on Form 10-K for the year ended June 30, 1998 (the "1998
Form 10-K") and incorporated by reference)
10.4 Allied Healthcare Products, Inc. 1994 Employee Stock Option Plan (filed with
the Commission as Exhibit 10(39) to the Company's Annual Report on Form
10-K for the year ended June 30, 1994 (the "1994 Form 10-K") and
incorporated herein by reference)
10.5 Allied Healthcare Products, Inc. 1995 Directors Non-Qualified Stock Option
Plan (filed with the Commission as Exhibit 10(25) to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1995 (the "1995 Form
10-K") and incorporated herein by reference)
10.6 Allied Healthcare Products, Inc. Amended 1994 Employee Stock Option Plan
(filed with the Commission as Exhibit 10(28) to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1996 (the "1996 Form 10-K")
and incorporated herein by reference)
10.7 Employment Agreement dated November 19, 1996 by and between Allied
Healthcare Products, Inc. and Uma N. Aggarwal (filed as Exhibit 10(1) to the
Company's Quarterly Report on Form 10-Q for the quarter ended December
31, 1996 and incorporated herein by reference)
10.8 Option Agreement dated November 19, 1996 by and between Allied
Healthcare Products, Inc. and Uma N. Aggarwal (filed as Exhibit 10(2) to the
Company's Quarterly Report on Form 10-Q for the quarter ended December
31, 1996 and incorporated herein by reference)
10.9 Option Agreement dated November 19, 1996 between Allied Healthcare
Products, Inc. and Uma N. Aggarwal (filed as Exhibit 10(3) to the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1996 and
incorporated herein by reference)
10.11 Loan and Security Agreement, dated as of August 7, 1997 by and among
Allied Healthcare Products, Inc., B&F Medical Products, Inc., Bear Medical
Systems, Inc., Hospital Systems, Inc., Life Support Products, Inc., and BiCore
Monitoring Systems, Inc., as Borrowers, and Foothill Capital Corporation
(filed with the Commission as Exhibit 10(31) to the Company's Annual Report
on Form 10-K for the fiscal year ended June 20, 1997 (the "1997 Form 10-K")
and incorporated herein by reference)
10.12 Warrant dated August 7, 1997 issued by Allied Healthcare Products, Inc. in
favor of Woodbourne Partners, L.P. (filed with the Commission as Exhibit
10(36) to the 1997 Form 10-K and incorporated herein by reference)
10.13 Warrant dated August 7, 1997 issued by Allied Healthcare Products, Inc. in
favor of Donald E. Nickelson (filed with the Commission as Exhibit 10(37) to
the 1997 Form 10-K and incorporated herein by reference)
10.14 Warrant dated August 7, 1997 issued by Allied Healthcare Products, Inc. in
favor of Dennis W. Sheehan (filed with the Commission as Exhibit 10(38) to
the 1997 form 10-K and incorporated herein by reference)
10.15 Agreement effective as of June 1, 1997 between Allied Healthcare Products,
Inc. and District No. 9 International Association of Machinists and Aerospace
Workers (filed with the Commission as Exhibit 10(39) to the 1997 Form 10-K
and incorporated herein by reference)
10.16 Asset Purchase Agreement by and between BM Acquisition Corp.,
ThermoElectron Corporation, Bear Medical Systems, Inc., BiCore Monitoring
Systems, Inc., Allied Healthcare Products AG, Bear Medical Systems Foreign
Sales Corporation and Allied Healthcare Products, Inc. (filed with the
Commission as Exhibit 2.1 to the Form 8-K filed on November 14, 1997 and
incorporated herein by reference)
10.17 Amendment Number One to Loan and Security Agreement dated as of March
3, 1998 among Allied Healthcare Products, Inc., B&F Medical Products, Inc.,
Hospital Systems, Inc. and Life Support Products, Inc. as Borrowers, and
Foothill Capital Corporation (filed with the Commission as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998 and incorporated herein by reference)
10.18 Loan and Security Agreement, dated as of August 7, 1998 by and between
Allied Healthcare Products, Inc. and LaSalle National Bank (filed with the
Commission as Exhibit 10(24) to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1998 (the "1998 Form 10-K") and
incorporated herein by reference)
10.19 Amendment Number Two to Loan and Security Agreement dated as of
September 10, 1998 among Allied Healthcare Products, Inc., B&F Medical
Products, Inc., Hospital Systems, Inc. and Life Support Products, Inc. as
Borrowers, and Foothill Capital Corporation (filed with the Commission as
Exhibit 10(25) to the 1998 Form 10-K and incorporated herein by reference)
10.20 Letter Agreement dated February 11, 1999 between Allied Healthcare
Products, Inc. and Gabriel S. Kohn (filed with the Commission as Exhibit
10(20) to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1999 (the "1999 Form 10-K") and incorporated herein by
reference)
10.21 Letter Agreement dated February 11, 1999 between Allied Healthcare
Products, Inc. and David A. Grabowski (filed with the Commission as Exhibit
10(21) to the 1999 Form 10-K and incorporated herein by reference)
10.22 Letter Agreement dated March 16, 1999 between Allied Healthcare Products,
Inc. and Thomas A. Jenuleson (filed with the Commission as Exhibit 10(22) to
the 1999 Form 10-K and incorporated herein by reference)
10.23 Amendment Number One to Amended and Restated Loan and Security
Agreement dated as of June 28, 1999 among Allied Healthcare Products, Inc.,
B&F Medical Products, Inc. and Life Support Products, Inc. as Borrowers, and
Foothill Capital Corporation (filed with the Commission as Exhibit 10(23) to
the 1999 Form 10-K and incorporated herein by reference)
10.24 Asset Purchase Agreement dated May 28, 1999 by and between Allied
Healthcare Products, Inc. and Hospital Systems, Inc. and David Miller (filed
with the Commission as Exhibit 10(24) to the 1999 Form 10-K and
incorporated herein by reference)
10.25 Employment Agreement dated August 24, 1999 by and between Allied
Healthcare Products, Inc. and Earl Refsland (filed with the Commission as
Exhibit 10(25) to the 1999 Form 10-K and incorporated herein by reference)
10.26 Allied Healthcare Products, Inc. 1999 Incentive Stock Plan (filed with the
Commission as Exhibit 10(26) to the 1999 Form 10-K and incorporated herein
by reference)
10.27 Letter of First Amendment to the $5,000,000 Promissory Note dated August 7,
1998 made by Allied Healthcare Products, Inc. to the order of LaSalle
National Bank
10.28 Letter of Second Amendment to the $5,000,000 Promissory Note dated August
7, 1998 made by Allied Healthcare Products, Inc. to the order of LaSalle Bank
National Association
10.29 Agreement between Allied Healthcare Products, Inc. Medical Products
Division and District No. 9 International Association of Machinists and
Aerospace Workers dated August 1, 2000 through May 31, 2003
10.30 Letter Agreement dated August 10, 2000 between Allied Healthcare Products,
Inc. and Gregory C. Kowert
21 Subsidiaries of the Registrant
23 Consent of PricewaterhouseCoopers, LLP
24 Powers of Attorney
27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By:
/s/ Earl R. Refsland
----------------------------------------
Earl R. Refsland
President and Chief Executive Officer
Dated : September 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on September 27, 2000.
SIGNATURES TITLE
* Chairman of the Board
- -----------------------------
John D. Weil
* President, Chief Executive Officer
and Director (principal Executive Officer)
- -----------------------------
Earl R. Refsland
* Director
- -----------------------------
William A. Peck
* Director
- -----------------------------
Brent D. Baird
*
- -----------------------------
James B. Hickey, Jr. Director
44
* By: /s/ Earl R. Refsland
-------------------------------
Earl R. Refsland
Attorney-in-Fact
- ------------------
* Such signature has been affixed pursuant to the following Power of Attorney.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Earl R. Refsland as his true and lawful
attorney-in fact and agent, each with full power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign the 2000 Annual
Report on Form 10-K of Allied Healthcare Products, Inc., and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite as fully to all intents and purposes as he might or could do in
person, and ratifying and confirming all that said attorney-in-fact and agent or
his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
45
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
Allied Healthcare Products, Inc.
Our audits of the consolidated financial statements referred to in our report
dated August 9, 2000, appearing in the 2000 Annual Report to Shareholders of
Allied Healthcare Products, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in item
14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material aspects, the information set forth therein when
read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
St. Louis, Missouri
August 9, 2000
S-1
ALLIED HEALTHCARE PRODUCTS, INC.
RULE 12-09 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
=============================================================================================================
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS OTHER ACCOUNTS - DEDUCTIONS - BALANCE AT END
DESCRIPTION PERIOD AND EXPENSES DESCRIBE DESCRIBE OF PERIOD
=============================================================================================================
FOR THE YEAR ENDED JUNE 30, 2000
Reserve For
Doubtful Accounts $ (834,883) $ (68,667) $ 20,676 (1) $ (882,874)
Inventory Allowance
For Obsolescence
And Excess Quantities $ (1,936,402) $ (1,200,000) $ 241,792 (5) $ (2,894,610)
--------------------------------------------------------------------------------------
FOR THE YEAR ENDED JUNE 30, 1999
Reserve For
Doubtful Accounts $ (1,035,833) $ (175,496) $ 376,446 (1) $ (834,883)
Inventory Allowance
For Obsolescence
And Excess Quantities $ (2,189,000) $ (200,000) $ 452,598 (2) $ (1,936,402)
=============================================================================================================
FOR THE YEAR ENDED JUNE 30, 1998
Reserve For
Doubtful Accounts $ (1,225,326) $ (264,165) $ 453,658 (3) $ (1,035,833)
Inventory Allowance
For Obsolescence
And Excess Quantities $ (1,689,000) $ (1,112,000) $ 612,000 (4) $ (2,189,000)
=============================================================================================================
(1) Decrease due to bad debt write-offs, bad debt recoveries and changes in estimate.
(2) Decrease due to inventory disposed of and changes in estimate. Additional decrease of $228,928 due
to the sale of Hospital Systems, Inc.
(3) Decrease due to bad debt write-offs, bad debt recoveries and changes in estimate. Additional
decrease of $129,814 due to the sale of Bear Medical Systems, Inc.
(4) Increase due to changes in estimate. Offsetting decrease of $612,000 due to the sale of Bear Medical
Systems, Inc.
(5) Decrease due to inventory disposed of and changes in estimate.
S-2