SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended September 30, 2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No.: 1-11570
ALLIED HEALTHCARE INTERNATIONAL INC.
(Exact Name of Registrant as Specified in Its Charter)
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New York
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13-3098275 |
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(State or Other Jurisdiction of Incorporation
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(I.R.S. Employer Identification Number) |
or Organization) |
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245 Park Avenue |
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New York, New York
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10167
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(212) 750-0064 |
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(Address of Principal Executive
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(Zip Code)
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(Registrants telephone number, |
Offices)
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including area code) |
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered |
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Common Stock, $.01 par value
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The NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act:
(Title of Class)
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Exchange Act. Yes o No þ
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 reporting requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate web site, if any, every Interactive Date File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
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 or registrants 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. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated file or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company þ |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the
registrant as of March 31, 2009, the last business day of its most-recently completed second fiscal
quarter, was approximately $56,868,532, based on the closing sales price of $1.27 per share of
common stock of the registrant on such date, as reported by The NASDAQ Stock Market LLC. The
calculation of the number of shares held by non-affiliates is based on the assumption that the
affiliates of the registrant include only directors and executive officers of the registrant.
The number of shares of common stock of the registrant outstanding on November 30, 2009 was
45,136,229.
DOCUMENTS INCORPORATED BY REFERENCE:
None
ALLIED HEALTHCARE INTERNATIONAL INC.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended September 30, 2009
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements.
Forward-looking statements are identified by words such as believe, anticipate, expect,
intend, plan, will, may, should, could, think, estimate and predict, and other
similar expressions. In addition, any statements that refer to expectations, projections or other
characterizations of future events or circumstances are forward-looking statements.
We based these forward-looking statements on our current expectations and projections about
future events. Our actual results could differ materially from those discussed in, or implied by,
these forward-looking statements. Factors that could cause actual results to differ from those
implied by the forward-looking statements include:
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general economic and market conditions; |
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our ability to continue to recruit and retain flexible healthcare staff; |
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the H1N1 influenza virus may result in staff being unable to perform services due to
their own illness or due to the illness of patients and may reduce our revenues; |
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our ability to enter into contracts with local governmental social service
departments, National Health Service Trusts, hospitals, other healthcare facility
clients and private clients on terms attractive to us; |
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the general level of demand for healthcare and social care; |
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our dependence on the proper functioning of our information systems; |
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the effect of existing or future government regulation of the healthcare and social
care industry, and our ability to comply with these regulations; |
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the impact of medical malpractice and other claims asserted against us; |
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the effect of regulatory change that may apply to us and that may increase our costs
and reduce our revenue and profitability; |
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our ability to use our net operating loss carryforward to offset net income; |
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the effect that fluctuations in foreign currency exchange rates may have on our
dollar-denominated results of operations; and |
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the impairment of our goodwill, of which we have a substantial amount on our balance
sheet, may have the effect of decreasing our earnings or increasing our losses. |
Other factors that could cause actual results to differ from those implied by the
forward-looking statements in this Annual Report on Form 10-K are more fully described elsewhere in
this document, as well as changes in any of the following: the demand for our services, general
economic conditions, governmental regulation, the level of competition we face, customer strategies
and pricing and reimbursement policies.
Preliminary Notes
As used in this Annual Report on Form 10-K, the company, our company, we, us and
similar terms mean Allied Healthcare International Inc. and its subsidiaries.
Historical financial and other data originally denominated in pounds sterling have been
converted to dollars at the then applicable exchange rate.
PART I
Item 1. Business.
Our Company
We are a leading provider of flexible, or temporary, healthcare staffing services to the
healthcare and social care (often referred to as domiciliary care) industry in the United Kingdom,
as measured by revenues, market share and number of staff. We provide personal or basic care and
nursing services in the home, in nursing and care homes and in hospitals. As of September 30, 2009
we operated an integrated network of approximately 110 branches throughout most of the United
Kingdom. Our healthcare staff consists principally of homecare aides (known as carers in the
United Kingdom), nurses and nurses aides. We maintain a listing of approximately 11,000 homecare
aides, nurses and nurses aides. During fiscal 2009, we placed an average of 7,345 individuals each
week with our customers.
We were incorporated in New York in 1981. Our principal executive offices are located at 245
Park Avenue, New York, New York 10167, and our telephone number at that location is (212) 750-0064.
Our common stock trades on the NASDAQ Global Select Market under the symbol AHCI and on the
Alternative Investment Market of the London Stock Exchange under the symbol AIM: AHI.
Our Philosophy
We strive to maintain our vision, strategy and focus by:
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Assisting individuals in maintaining and improving their
quality of life by addressing a broad range of health and care needs. |
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Expanding our range of healthcare staffing services over the long-term. |
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Enhancing our service and quality levels to build upon our reputation for patient
satisfaction by concentrating on service and the professional development of our
employees. |
Our Business and Market
We provide a diverse range of flexible staffing services, principally consisting of homecare
aides, nurses aides and nurses, to our customers throughout most of the United Kingdom. As of
September 30, 2009, our mix of flexible staff was approximately 83% homecare aides, 12% nurses
aides and 5% nurses. We have a strong and comprehensive regional branch structure covering
approximately 90% of the U.K. population. Our branches are located
in England, Wales and Scotland. We do not have any branches or healthcare staffing customers
in Northern Ireland.
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The major purchasers of flexible healthcare staffing services in the United Kingdom are:
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Local governmental social service departments, which oversee social care. |
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The government-funded National Health Service (the NHS). The NHS oversees
healthcare in the local community through its Primary Care Trusts (PCTs). The NHS
operates its hospitals mainly through NHS Acute Trusts and Foundation Trusts (NHS
Hospitals). |
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Private individuals. |
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Independent hospitals and nursing and care homes in the United Kingdom. |
Our business provides personal or basic care and nursing services in the customers own homes,
public or private hospitals and nursing and care homes. Homecare staffing, which accounts for over
80% of our healthcare staffing services, is provided for individuals (normally elderly individuals)
who require domiciliary care, individuals with learning disabilities (such as severe and complex
communication needs, sensory loss and challenging behavior), and individuals of all ages who
require health-related services for continuing healthcare needs.
Homecare services are mainly provided by homecare aides who provide personal or basic care in
the home (known as social care or domiciliary care in the United Kingdom). Where the homecare
service includes a healthcare element, nursing support is provided. We believe that the homecare
services market will continue to grow due to the following:
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shift from residential care services to homecare services; |
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further tightening of the local governmental social service departments and the
NHS budgets over the next few years as the government addresses its financial
deficit. We anticipate this will provide an opportunity for us as private
sector-provided homecare is a lower-cost option than government-provided homecare; |
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local authorities reducing the number of suppliers; and |
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more specialist care services being provided in the home environment. |
We also supply nursing staff services to nursing homes and hospitals that account for our
remaining healthcare staffing services. This includes nurses aides who perform many of the
functions of homecare aides, mainly in the hospital setting, and nurses.
Our healthcare and social care business is well established and we believe that the current
market dynamics provides an opportunity for us. We believe that the lower costs of homecare
services, as compared to institutional care, to local governmental social service departments and
NHS Primary Care Trusts is a strong incentive to utilize our services. Our long-term business
strategy of expanding our homecare service line is intended to capitalize on the fact that we
believe that these entities will continue to utilize our homecare services to meet their home
healthcare needs.
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The U.K. healthcare and social care staffing market is highly fragmented, with no one company
possessing a dominant market share. This allows for opportunities for acquisition growth as well
as organic growth.
Our Business Strategy
Our strategy is to become the provider of choice to purchasers of healthcare staffing services
as well as the employer of choice to flexible healthcare workers and to expand our range of
healthcare staffing services over the long-term. The key elements in achieving these strategic
objectives are:
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Increase revenues on a per branch basis. We believe the increasing demand for
quality healthcare staffing with national coverage and diversity of services will
support organic growth in our branches and the development of new services. We intend
to foster continued same-branch revenue growth by leveraging our nationally recognized
brand name, competitive benefits package and leadership in providing temporary
healthcare staffing services. |
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Recruit and retain healthcare staff. We intend to continue to recruit and retain
high-quality staff to take advantage of the opportunities in the market place. We
intend to continue our recruitment efforts and to encourage loyalty from our healthcare
staff by matching their flexible working preferences (both with regards to scheduling
preferences and types of assignments desired) with our customers needs, maintaining
regular contact and promoting opportunities for training and development. In general,
the U.K. population is becoming increasingly diverse in its composition. We seek to
reflect that diversity and to attract, retain and develop staff that will put the
patient needs first and recognize the difference each staff member can make. |
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Expand our homecare service line. We intend to focus our marketing efforts on (1)
securing new contracts with local governmental social service departments to provide
homecare services to the elderly and to individuals with learning disabilities, (2)
growing our business from NHS Primary Care Trusts, especially services for individuals
requiring continuing healthcare at home, and (3) developing our business in response to
the government introduction of the personalization agenda and the right of the
individual to choose their supplier of choice via individual budgets and direct
payment. Under the personalization agenda, individual budgets and direct payment
service users become the commissioners of their own individual service requirements. |
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Provide a higher standard of quality care. We intend to continue our efforts to
enhance our service and quality levels as we believe that the achievement of these is
essential to our future business growth.
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Provide a higher standard of training. We continue to make significant investments
in the area of training. All our carers are required to take a training
course that lasts at least five days, as well as annual refresher courses. We also
encourage our carers to enhance their qualifications by attaining National
Vocational Qualifications. |
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Continue our investment and market penetration into specialist service lines. With
the appointment of our Clinical Services Director and a Head of Learning Disabilities,
we plan to expand our continuing care services and our learning disabilities services
across our branch network where demand exists and where we have the staff expertise to
provide these services. |
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Invest in technology and improved business processes. We are investing in a new
branch operating system, which is currently being rolled out across our branch network,
and improved business processes. Our aim is to find solutions to improve our business
flows and to eliminate paperwork from our business once we have a common information
systems platform in place. We believe this will contribute to our aim of maintaining
increases in selling, general and administrative expenses in our business below revenue
growth. |
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Further expand our strong presence in the U.K. healthcare staffing industry through
the strategic acquisition of other companies. In addition to organic growth, we intend
to grow our presence in the U.K. healthcare staffing services market through the
acquisition of other companies. |
We believe that focusing on these elements will ensure that we remain a leading provider of
homecare services in the U.K. and, in so doing, enhance shareholder value.
Our Operations
Our integrated branch network is spread throughout most of the United Kingdom. A typical
branch is overseen by a branch manager, who is responsible for all the activities in the branch,
including the achievement of its financial targets, developing local customer relations, recruiting
staff and ensuring compliance with regulatory standards. The branches are organized into
geographical regions that are overseen by our operations managers, who report to our operations
directors. Our branches serve as our direct contact with our customers and our healthcare staff.
Additionally, we employ regional commissioning managers who focus on developing and acquiring new
business opportunities by securing sales contracts with the local governmental social service
departments and NHS Primary Care Trusts.
We hold regular management meetings that are attended by our operations managers, operations
directors, related corporate office departments and representatives of senior management where the
financial and other performance of the branches is assessed and actions for improvement are agreed
upon.
We generally maintain centralized management control in the areas of payroll, accounts
receivable, contracts, pricing, regulatory matters, quality control, training and information
technology.
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Recruitment of Flexible Staff
Many healthcare workers are attracted to flexible staffing positions because of their desire
to tailor work schedules to personal and family needs, obtain varied and challenging work
experiences and acquire new skills. We believe that our ability to offer quality flexible staffing
assignments well-matched to individuals preferences assists in our attracting a large number of
flexible healthcare workers. Our flexible healthcare workers services are retained through a
standard written employment contact. Individual working schedules are agreed on an individual
basis and our staff is paid purely for hours worked.
Our branch managers are primarily responsible for recruiting staff. Branch managers recruit
on a local basis, with referrals from existing staff providing an important source of new staff.
From time to time, we may run internal financial promotions to encourage referrals from our staff.
We also formally recruit through local and national print advertising and online job boards and
organize recruitment events, including national recruitment days, at the branch level. Our website
also advertises local branch vacancies.
We impose a standardized recruitment process on our branches. Before they can place a
homecare aide, nurse or nurses aide, our branches must obtain, among other things, two professional
references and evidence of proper immunizations, as well as a police background check. Our
branches must also confirm that each nurse has been licensed by the appropriate governmental body
and that each nurses aide and homecare aide has received the training mandated by law for their
occupation.
Training and Retention of Flexible Staff
Our retention philosophy is based upon each branch maintaining personal contact with the
flexible staff on its register, including a structured campaign whereby current and former staff
are contacted periodically by each branch to assess their needs and to attempt to meet their
individual working preferences. We also conduct a formal annual review of all charge and pay rates
within the business and compare them to prevailing market rates to ensure that our pay rates are
competitive.
Quality Assurance
We invest heavily in quality assurance systems to ensure that our flexible healthcare staff
meet our internal quality assurance standards, as well as those mandated under the Care Standards
Act 2000. It is the branch managers responsibility to ensure that all flexible workers are
compliant with our internal quality assurance standards when they are booked on shifts.
We have a quality assurance audit team whose primary job responsibility is to visit each of
our branches on a periodic basis to assure that the branches adhere to our companys policies and
procedures. The quality assurance audit team is independent of our operations management. A
member of our quality assurance audit team visits each branch at least twice per year. During its
visits to our branches, the quality assurance audit team reviews employee files to confirm that
staff have proper levels of training for the jobs in which they are being placed by the branch and
that the documents required by our standardized recruitment process are in order. The quality
assurance audit team also confirms that nurses have been licensed with the appropriate U.K.
body. In addition, to minimize injury to our staff, the quality assurance audit team checks
customer files to confirm that all risk assessments, including health and safety checks for
customers facilities, have been made. Reviews of staff and customer files are done on a random
sample basis. In addition, our quality assurance audit team also visits some of our customers to
ensure that the quality of our services is meeting our standards. As part of this review, we have
started to survey our key local governmental social service department customers.
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Customers
We provide healthcare staffing services to four types of customers:
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Local governmental social service departments. Local governmental social service
departments retain us to provide social care staffing services, generally homecare
aides, to individuals in their homes. |
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Nursing homes, care homes and independent hospitals. We provide nurses and homecare
aides to nursing homes and homecare aides to care homes. Care homes, like nursing
homes, generally provide shelter and food for their residents, but, unlike nursing
homes, generally do not provide medical services to their residents. We also provide
nurses and nurses aides to independent hospitals in the private sector. |
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The NHS. We provide nurses, nurses aides and homecare aides to the NHS. We provide
staff or nursing and care services both to NHS Hospitals and NHS Primary Care Trusts. |
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Private patients. We provide both nurses and homecare aides to private patient
customers. These patients may include incapacitated individuals who require daily
attention or patients with long-term illnesses living at home. |
Types of Customer Contracts
We provide staff to our customers under a variety of arrangements, including the following
categories of contracts common to the healthcare staffing industry:
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Spot and framework contracts. These contracts, which are the most common type of
contracts in the U.K. healthcare staffing industry, are price-per-contract arrangements
for the provision of flexible staffing services, usually with local governmental social
services departments, NHS Primary Care Trusts and nursing and care homes. Spot and
framework contracts have the price and other terms agreed on a contract-by-contract
basis with no obligation to commit to any set volume of business. |
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Block contracts. These contracts are usually with local governmental social
services departments and involve the purchase of a quantity (or block) of flexible
staffing care services over a period of time. A block contract usually commits the
customer to purchase an agreed-upon volume of staffing services
over a specified period. These contracts may enable customers to negotiate lower
prices in return for agreeing to minimum volumes of business. |
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NHS Framework Agreement and Service Level Agreements. The NHS requires any
healthcare staffing company that provides temporary staff to certain NHS bodies to
enter into their Framework Agreement. The Framework Agreement sets out one national
pay structure for the supply of nurses of all specifications. The intent of these
agreements was that only those staffing companies that successfully tendered for
inclusion on the Framework Agreement (including meeting all of the specified quality
standards) would be eligible to provide temporary staff to NHS bodies in the region
covered by the Framework Agreement. Pursuant to the last Framework Agreement, which
expired in September 2009, we could supply all types of staff throughout the United
Kingdom, except in London, where the Framework Agreement authorized us to supply all
categories of staff other than mental health staff and midwives. |
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In fiscal 2009, the old Framework Agreements between the NHS and healthcare staffing
companies entered the formal re-tender stage. In July 2009, we were notified that
we had been successfully awarded, subject to contract completion, a new Framework
Agreement. Our new Framework Agreement, which came into operation in October 2009,
is at higher margins than our old Framework Agreement. We believe that the higher
charges under our new Framework Agreement will give us opportunities going forward
and we currently have plans to re-launch this service to provide healthcare staffing
services to hospitals in a few of our regional offices as well as our existing
London operation starting in fiscal 2010. However, we currently cannot determine
the impact of our new Framework Agreement on our consolidated financial position and
results of operations. |
Individual NHS Hospitals in England may select from the list of approved staffing
companies qualified under the Framework Agreement and enter into Service Level
Agreements.
In some instances, a number of NHS Hospitals have elected to opt out of the old
Framework Agreement and seek suppliers off framework for their temporary staffing
needs mainly because the old charge and pay rates were not sustainable in recruiting
sufficient staff to meet their requirements. The new framework agreements, with
their higher charge and pay rates, are intended to bring those NHS Hospitals back
onto using the framework rates. Whether this is achieved or not is still too early
to determine and if it is not, there is a risk that the Framework Agreement may not
be adhered to in certain areas. In the latter case, we will have to contract
directly with the purchaser at separately negotiated rates.
We typically provide in our written contracts that we will indemnify our customers against
liability that they may incur in the event that the members of our staff cause death, personal
injury or property damage in the performance of their services. We maintain liability insurance
designed to reimburse us in the event that claims of this type are made. See
Insurance below. In addition, in some of our written contracts, we agree to indemnify our
customers for the costs they incur if we are not able to provide them with the number of staff or
man-hours required during the term of the contract and the customer has to outsource its staffing
requirements to another entity.
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Marketing Activities
We market our flexible healthcare staffing services to key decision makers in local
governmental social service departments, the NHS, nursing and care homes and independent hospitals.
These decision makers can be procurement officers, contract officers or social workers.
Fundamental to our ability to obtain and retain staffing assignments is establishing and
maintaining a reputation for quality service and responsiveness to the needs of our customers and
their patients. Further, as a result of the governmental introduction of the individualized budget
and personalized agenda, we will need to increase our marketing to private individuals.
Competition
The U.K. flexible healthcare staffing services business is highly fragmented with numerous
small operators providing staff locally. The market at the local level is characterized by
relatively low barriers to entry. The barriers to entry at a U.K.-wide level are more significant,
as the establishment and growth of a flexible healthcare staffing services business is largely
dependent on access to capital.
The privately-owned competitors of our flexible staffing services business are mainly small,
locally-based companies serving a limited area or group of customers. These businesses compete
with our relevant branch covering the same local area, but do not otherwise compete for U.K.-wide
market share. In addition, a limited number of larger U.K.-based companies and charities compete
with us. Such companies include Nestor Healthcare Group plc, Care UK, Housing 21 (which includes
the Claimar Care Group), Mears Group plc, Supporta plc and Carewatch.
The nature of the U.K. marketplace is such that homecare aides and nurses can accept
placements with more than one flexible staffing services business.
Since 2000, the NHS has had its own internal agency, called NHS Professionals, which has
attempted to provide NHS Hospitals with high volume/low margin contracts for flexible healthcare
workers and to reduce the NHSs dependence on external agencies.
Payment for Staffing Services
In most cases, we contract directly with the governmental entity or private entity or
individual to whom we provide flexible staffing services. The party with whom we contract for the
supply of staff is responsible for paying us directly. In general, reimbursement is received
regularly and reliably from all governmental and private customers. We generally collect payments
from our customers within two months after services are rendered but we pay accounts payable and
employees currently.
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For the year ended September 30, 2009, our operations received approximately 75% of revenues
from customers that were U.K. governmental entities (primarily local governmental social service
departments and the NHS), compared to approximately 69% for the year ended September 30, 2008. The
remaining 25% and 31% of revenues received for fiscal 2009 and 2008, respectively, were derived
from services and products provided to privately-owned nursing homes, privately-owned care homes,
independent hospitals and private patients.
Trade Names
We operate our healthcare staffing services business in the United Kingdom principally under
the Allied Healthcare Group trade name.
Employees
As of October 2009, we employed approximately 1,015 individuals in our branch network, our
U.K. head office and our other offices. None of these employees are represented by a labor union.
In addition, we maintain a listing of approximately 11,000 homecare aides, nurses and nurses
aides who are available to staff our customer base on a temporary basis. During fiscal 2009, we
placed an average of 7,345 individuals each week with our customers. Six of these individuals are
represented by a labor union. We consider our relationship with our employees and staff to be
good.
Government Regulation
General
We are subject to regulation by the government of the United Kingdom via acts of Parliament
relating to healthcare provision and by the general health regulations of the Department of Health.
Healthcare Laws and Regulations
Our operations are subject to licensing and approval regulations from both governmental and
non-governmental bodies according to terms of service and operating procedures decided by the U.K.
government.
The Care Standards Act 2000 provides for the registration and regulatory structure for all
non-NHS healthcare services in England and Wales. It also provides for an arm of the National
Assembly for Wales to be the regulatory body for healthcare services in Wales (although this power
is now exercised by the Welsh Ministers). The Care Standards Act 2000 also made provision for a
General Social Care Council in England and a Care Council for Wales to be established as
non-departmental statutory bodies responsible to the Department of Health and National Assembly for
Wales, respectively, with the aim of increasing the protection of service users, their homecare
aides and the general public. The Regulation of Care (Scotland) Act 2001 also introduced
legislation relating to this area in Scotland and appointed the registration authority for
Scotland, the Scottish Commission for the Regulation of Care.
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The Care Standards Act 2000 is essentially an enabling Act that provides for regulations to be
made by secondary legislation. It provides that regulations can be made imposing any requirements
which the appropriate Minister thinks fit relating to establishments and agencies. Regulations
relating to registration of companies working in the healthcare sector are already in force (the
National Care Standards Commission (Registration) Regulations 2001). Specific regulations set out
in the Care Standards Act 2000 that may be introduced include provisions relating to the services
to be provided by suppliers of healthcare staff, the keeping of accounts, the keeping of records
and documents and arrangements to be made for dealing with complaints made by those seeking or
receiving any of the services provided by the suppliers of healthcare staff. A number of
regulations (including the Nurses Agencies Regulations 2002 and the Domiciliary Care Agencies
Regulations 2002) include provisions in these areas.
We are currently registered in England and Wales under the Care Standards Act 2000 and the
Nurses Agencies Regulations 2002 in relation to England, and the Nurses Agencies (Wales)
Regulations 2003 in relation to Wales, to carry on a business for the supply of nurses. These
require that a person who carries on a business for the supply of nurses must be the holder of a
certificate from the registration authority in the relevant jurisdiction certifying that the
business is registered to supply nurses. We are similarly registered in Scotland under the
Regulation of Care (Scotland) Act 2001. Any of our branches that supply homecare aides working in
individuals homes are authorized under the Care Standards Act 2000 and the Domiciliary Care
Agencies Regulations 2002 (in England), the Domiciliary Care Agencies (Wales) Regulations 2004 or
the Regulation of Care (Scotland) Act 2001.
In addition, the Health and Social Care Act 2008 established a new independent registration
and regulatory body for independent healthcare services and social care in England, called the Care
Quality Commission, which enforces registration of adult care agencies and establishments and
promotes improvements in the quality of healthcare and public health. Health and social care
providers, including NHS providers, are not only required to register with the new regulator in
order to provide services, but must also comply with the rules relating to management and staffing,
fitness of premises and the conduct of specified services. The Care Quality Commissions ambit
includes responsibility for assessing and reporting on the performance of both NHS and independent
healthcare organizations. This registration and regulatory structure is currently being reformed
pursuant to the Health and Social Care Act 2008. See Healthcare Reform below.
Contracts between suppliers of healthcare staff and NHS Hospitals for the provision of
services, as well as the performance by the parties of their obligations thereunder, are reviewed
by the Care Quality Commission. We are accredited by various U.K. social services agencies for the
supply of homecare aides within their jurisdiction.
We believe that we are in substantial compliance in all material respects with U.K. healthcare
laws and regulations applicable to our operations.
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Healthcare Reform
Our business is subject to extensive and complex laws and regulations in the United Kingdom.
These include, but are not limited to, laws and regulations relating to licensing,
conduct of operations, payment for services and referrals, treatment of staff, benefits
payable to temporary staffers and taxation. Moreover, many political, economic and regulatory
organizations are supporting fundamental change in the U.K. healthcare industry. A summary of the
material existing and proposed healthcare reforms that affect our business follows.
U.K. rules affecting our staff. All of our flexible healthcare workers are engaged
pursuant to standard written employment contracts under which we only pay the employees for work
actually performed. Employees in the United Kingdom are entitled to numerous statutory protections
and benefits. For examples, employees are protected from discrimination based on sex, race,
religion, national origin, disability, sexual orientation and age and once they have accrued one
years continuous service they are entitled to the right to not be unfairly dismissed. Our
employees are also entitled to receive the national minimum wage, and are subject to the provisions
of the Working Time Regulations 1998 (as amended), which governs hours of work, night work, breaks
and holidays.
We are subject to the Employment Agencies Act 1973 and Conduct of Employment Agencies and
Employment Business Regulations 2003 (the 2003 Regulations) and applicable case law as our
business is classified as an employment business. The 2003 Regulations govern the charging for
services to a work-seeker and also impose minimum obligations to ensure that the work-seeker and
the hirer are suitable. A breach of the 2003 Regulations (or the Employment Agencies Act 1973)
resulting in damage is actionable in the civil courts as well as giving potential liability to
prosecution and a fine. However, as the focus of the 2003 Regulations is to govern the actions of
employment agencies rather than employment businesses, our business falls outside the scope of
a number of the provisions of the 2003 Regulations.
In December 2008, the Temporary Agency Workers Directive (the Directive), which introduced
additional protection for agency workers who are employees of the agency provider, was published by
the European Union. The Directive gave member states until December 5, 2011 to implement its
provisions. The U.K. Government has announced its intention for the relevant U.K. legislation to
come into effect on October 1, 2011. Pursuant to this legislation, once agency workers have been
engaged on a job for a period of 12 weeks, they will be entitled to at least the basic working and
employment conditions to which they would have been entitled if they had been recruited directly by
the client.
Health and Social Care Act 2008. While the Health and Social Care Act 2008 was
enacted in July 2008 and is now effective, new provisions on registration of healthcare providers,
such as the procedure for the grant or refusal of registration, conditions for registration of
managers and guidance as to code of practice and compliance with requirements, are not expected to
be implemented in full until April 2010.
NHS Initiatives
Flexible staffing providers, such as our company, are subject to the risk that the NHS will
seek to regulate the price it pays for staff, reduce its use of staff or replace its use of staff
where possible with permanent employees.
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The NHS requires any healthcare staffing company that provides staffing services to NHS
Hospitals to enter into a Framework Agreement setting forth, among other things, types of staff to
be supplied, quality standards and maximum payment rates. The intent of these agreements was that
only those staffing companies that successfully tendered for inclusion on the Framework Agreement
(including meeting all of the specified quality standards) would be eligible to provide staff to
NHS bodies in the region covered by the Framework Agreement (unless a local NHS Hospital has
elected to opt out of the Framework Agreement and is operating off framework).
In fiscal 2009, the old Framework Agreements between the NHS and healthcare staffing companies
entered the formal re-tender stage. In July 2009, we were notified that we had been successfully
awarded, subject to contract completion, a new Framework Agreement. Our new Framework Agreement,
which came into operation in October 2009, is at higher margins than our old Framework Agreement.
We believe that the higher charges under our new Framework Agreement will give us opportunities
going forward and we currently have plans to re-launch this service to provide healthcare staffing
services to hospitals in a few of our regional offices as well as our existing London operation
starting in fiscal 2010. However, we currently cannot determine the impact of our new Framework
Agreement on our consolidated financial position and results of operations.
The Framework Agreements have reduced the cost of commissions paid to healthcare staffing
companies and the number of healthcare staffing companies supplying staff to NHS Hospitals.
Another initiative undertaken by the NHS is its creation of NHS Professionals. NHS
Professionals is an internal agency of the NHS that seeks to provide an efficient temporary
staffing service for NHS Hospitals and to reduce the dependence of the NHS on external agencies.
NHS Professionals seeks to coordinate nurse banks operated by NHS Hospitals with the intention of
maintaining quality standards and controlling costs across all NHS nurse banks.
The NHS Framework Agreements have impacted our financial results by reducing our margins from
this source of business. In addition, we have experienced reduced revenues from the NHS as a
result of the efforts of the NHS to source more of its work by using NHS Professionals.
The provision of homecare services to NHS Primary Care Trusts are normally subject to
individually-negotiated rates.
Insurance
We maintain general liability insurance, professional liability insurance, malpractice
liability insurance and excess liability coverage that provide coverage in the event that a claim
is brought against us alleging negligence, product liability or similar legal theories. Each of
these policies provides coverage on an occurrence basis and has certain exclusions from coverage.
Our insurance policies must be renewed annually.
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Available Information
We maintain a website at www.alliedhealthcare.com. The contents of our website are not part
of, nor are they incorporated by reference into, this Annual Report on Form 10-K.
We make available free of charge through our website our last three Annual Reports on Form
10-K, our last three quarterly reports on Form 10-Q and the current reports on Form 8-K that we
have filed since the beginning of fiscal 2009, as well as amendments to those reports, as soon as
reasonably practicable after they are filed with the Securities and Exchange Commission. We will
provide paper copies of our 10-Ks, 10-Qs and 8-Ks to any shareholder free of charge upon request.
Requests should be sent to us at 245 Park Avenue, New York, New York 10167, Attn.: Secretary.
Item 1A. Risk Factors.
Our business is subject to many risks that may negatively affect our business, financial
condition and/or results of operations.
Risks Relating To Our Business And Strategy
If we are unable to attract and retain healthcare staff at reasonable costs, it could increase our
operating costs and negatively impact our business.
We rely significantly on our ability to attract and retain homecare aides, nurses and nurses
aides who possess the skills, experience and, if required, licenses necessary to meet the
requirements of our customers. We compete for flexible healthcare staffing personnel with other
flexible healthcare staffing companies, with hospitals and healthcare facilities and with other
entry-level employment opportunities. Staff choose to work for a healthcare staffing company based
on the quantity, diversity and quality of assignments offered and on compensation packages and
other benefits. We must continually evaluate and upgrade our flexible staffing network to keep
pace with our customers needs and to remain competitive in our business. While the shortage of
homecare aides, nurses and nurses aides in most areas of the United Kingdom has become less of an
issue in the current worldwide economic downturn, we anticipate that over time as the economy
recovers a shortage will reoccur. We may be unable to continue to increase the number of
healthcare staff that we recruit, decreasing the potential for growth of our business. Our ability
to attract and retain healthcare staff depends on several factors, including our ability to provide
them with assignments that they view as attractive and to provide them with competitive benefits
and wages. We cannot assure that we will be successful in any of these areas. The cost of
attracting healthcare staff and providing them with attractive benefit packages may be higher than
we anticipate and, as a result, if we are unable to pass these costs on to our customers, our
profitability could decline. Moreover, if we are unable to attract and retain healthcare staff,
our ability to provide adequate services to our customers may decline and, as a result, we could
lose customers.
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We operate in a highly competitive market and our success depends on our ability to obtain and
retain customers.
The flexible healthcare staffing business is highly competitive. We compete in national,
regional and local markets in the United Kingdom with full-service staffing companies, specialized
flexible staffing agencies, NHS Professionals, hospitals, nursing homes and other home healthcare
businesses. There are relatively few barriers to entry in the markets we serve and, historically,
our industry has been highly fragmented. While we expect to continue to face competition from a
broad range of companies, the recent consolidation trend in our industry is likely to result in an
increase in the number of larger companies that are able to service regional or national markets.
We believe that the primary competitive factors in obtaining and retaining customers are
identifying appropriate healthcare staff for specific job requirements, providing staff in a timely
manner, pricing services competitively and effectively monitoring job performance. With the
government introduction of the personalized agenda, individual budgets and direct payments, another
competitive factor is the ability to transition from the business to business sales model (whereby
currently the local governmental social service department chooses the level and type of care and
support services the service user requires) to a business to consumer model (whereby the service
user chooses the level and type of care and support services they require).
Competition for customers may increase in the future and, as a result we may not be able to
remain competitive. To the extent competitors seek to gain or retain market share by reducing
prices or increasing marketing expenditures, we could lose revenues and our margins could decline,
which could harm our operating results. In addition, the development of alternative recruitment
channels and the introduction of the individualized budget and direct payments could lead our
hospital, healthcare facility and other customers to bypass our services, which would also cause
our revenues and margins to decline.
A change in treatment of flexible staff for U.K. tax, employment and benefits purposes could result
in increased costs.
In December 2008, the Directive, which introduced additional protection for agency workers who
are employees of the agency provider, was published by the European Union. The Directive gives
member states until December 5, 2011 to implement its provisions. The U.K. Government has
announced its intention for the relevant U.K. legislation to come into effect on October 1, 2011.
Pursuant to this legislation, once agency workers have been engaged on a job for a period of 12
weeks, they will be entitled to at least the basic working and employment conditions to which they
would have been entitled if they had been recruited directly by the client.
The implementation of the U.K. legislation in 2011 could adversely affect our business. The
requirement to give agency workers engaged for a period of more than 12 weeks at least the same
basic working and employment conditions as other employees of the client or the same basic working
and employment conditions that they would have received had they been recruited directly by the
client may make the use of agency workers less attractive to our hospital and institutional care
customers. It is not yet clear how an assessment of working and employment conditions can be
conducted where the client does not have any of its own employees providing
the same services or whether it is even applicable to homecare services, which constitutes the
majority of our business.
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Our branch structure could result in unforeseen costs and could adversely impact our business.
Our branches operate on a relatively autonomous basis in terms of the recruitment and
placement of staff and the marketing of customers. However, we generally maintain centralized
management control in the areas of payroll, accounts receivable, contracts, pricing, regulatory
matters, quality control and information technology. If we fail to exert proper centralized
management control, our local branches could engage in unauthorized activities, our management
initiatives may not be successfully implemented and our business, financial condition and results
of operations may be adversely affected.
The loss of key senior management personnel could adversely affect our ability to remain
competitive.
We rely heavily on our senior management team, led by Alexander (Sandy) Young, our chief
executive officer, and Paul Weston, our chief financial officer. We have entered into an
employment agreement with Mr. Young. Mr. Youngs employment agreement provides that it shall
continue until terminated by either party giving the other party no less than 12 months prior
written notice. In addition, the employment agreement automatically terminates on Mr. Youngs 65th
birthday. We have also entered into an employment agreement with Mr. Weston. Mr. Westons
employment does not have a fixed term, but provides that either party may terminate the agreement
upon six months written notice. The loss or unavailability for an extended period of time of
either Mr. Young or Mr. Weston could have a material adverse effect on our operations and
prospects.
We are dependent on the proper functioning of our information systems.
We are dependent on the proper functioning of our information systems in operating our
business. Our operations have an IT disaster recovery plan. However, they are still vulnerable to
fire, storm, flood, power loss, telecommunications failures, physical or software break-ins and
similar events. If critical information systems fail or are otherwise unavailable, these functions
would have to be accomplished manually, which could temporarily impact our ability to identify
business opportunities quickly, to maintain billing and clinical records reliably, to bill for
services efficiently and to maintain our accounting and financial reporting effectively.
In fiscal 2008, we approved the purchase of a new branch operating system supplied by
Coldharbour, a privately-owned U.K. company that supplies many of our competitors. This system is
currently being rolled out across our branch network with a targeted completion date in fiscal
2011. We anticipate incurring total expenditures, both contractual and non-contractual, relating
to software, hardware, hosting services and training costs, of approximately $6.7 million (at the
closing exchange rate at September 30, 2009), of which $2.9 million has been incurred and $3.8
million is expected to be incurred in fiscal 2010 and fiscal 2011.
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Our business is subject to certain risks inherent to international operations.
We operate in the United Kingdom. As a result, we are subject to a variety of risks,
including:
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potentially adverse tax consequences. |
These risks may materially and adversely affect our business results of operations or
financial condition.
Our business may be adversely affected by the current economic recession.
The United Kingdom and international economies are experiencing a significant recession. The
recession has been magnified by the tightening of the credit markets. Although our business was
not significantly affected during fiscal 2009 by the recession, there can be no assurance that our
business will not be affected by the consequences of the recession during fiscal 2010. The United
Kingdom and international markets may remain depressed for an indeterminate period of time. A
prolonged recession could affect our company adversely in a number of ways, including reducing our
revenue and profits, limiting our ability to obtain financing to expand operations and requiring us
to write down the value of our goodwill. Foreign currency fluctuations could be more severe during
a recession and could adversely affect our dollar-denominated results of operations. In addition,
a prolonged recession could disproportionately impact our stock price as investors seek a flight
to safety during this turbulent period.
Risks Relating To The Flexible Healthcare Staffing Market
Our ability to compete in the homecare services market depends on our ability to obtain assignments
from local governmental social service departments and NHS Primary Care Trusts.
The largest providers of homecare services in the United Kingdom are local governmental social
services departments and NHS Primary Care Trusts. Outsourcing of homecare by these bodies is the
principal source of revenue and growth in the homecare staffing market. Though figures vary widely
among local governments, homecare provided directly by the local governments typically is
significantly more expensive per hour of care than homecare outsourced to independent homecare
providers. While we believe there is potential for further outsourcing of homecare by local
governments and NHS Primary Care Trusts, this potential may be offset by tighter local governmental
and NHS Primary Care Trust budgets or by policy changes or legislation. Moreover, there can be no
assurance that we will be chosen by local governmental social service departments or NHS Primary
Care Trusts, or other providers of homecare services, to provide outsourced homecare services in
the future, or that we will be able
to recruit and retain homecare staff at hourly rates that local governments and NHS Primary
Care Trusts are willing to pay.
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Local governmental social service departments continue to outsource the majority of their homecare
service requirements.
Currently local authorities outsource the majority of the homecare service requirements under
a block or spot contract with private providers. New initiatives include local governmental social
service departments working to deliver on the governments concord on individual choice and
control, as a result of which the United Kingdom is seeing the introduction of individualized
budgets and direct payments for service users. Direct payments may allow some service users to
choose the level and type of care and support services they require and effectively moves the power
of the purchasing decision from the local governmental social service department to the individual.
Our ability to sell effectively to this new group of purchasers is affected by our ability to
access the contact details of all service users receiving direct funding from the local
governmental social service department. This information is secured under the data protection act
and is often inaccessible.
NHS Primary Care Trusts continue to use homecare as an alternative to residential or NHS Hospitals.
We anticipate that healthcare at home will continue to expand, but there can be no assurance
that this trend will continue, especially if legislation or NHS Primary Care Trust provision
preferences and allocated funding changes. If this trend does not continue, our revenues may be
adversely affected.
The introduction of the personalization agenda, individual budgets and direct payments could result
in the service user utilizing companies other than us to provide healthcare services.
The government introduction of the personalization agenda, individualized budgets and direct
payments, whereby the service user chooses the level and type of care and support services they
require instead of the local governmental social service departments, could result in the service
user utilizing companies other than us to provide healthcare services.
Demand for flexible staffing may fail to rise, remain at current levels or may decline for a
variety of reasons, including general economic conditions.
Although we anticipate that the market for flexible staffing in the healthcare sector will
continue to expand, there can be no assurance that growth will occur at all or continue at historic
rates or at the rate currently expected. Our growth could be adversely affected by changes in
legislation and the procurement method for homecare services that allows service users (the
individual receiving healthcare services) to choose his or her level and type of care.
In the last few years, U.K. case law on agency workers has indicated that in limited
circumstances agency workers could be deemed to be employees of the customer end-user.
Consequently, it is possible that some of the advantages to hospitals and other purchasers of using
temporary workers may be lost because of the risk that they will be deemed to be the employer of
such workers, and therefore they may decide to hire permanent staff rather than
temporary staff. However, current case law suggests that the circumstances in which an end
user can be found to be the employer of any agency worker is rare when that agency worker is an
employee of the agency provider. In addition, demand for flexible healthcare staffing services may
be significantly affected by the general level of economic activity and economic conditions in the
regions in which we operate.
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If demand for staffing in the healthcare sector generally declines or does not increase at the
rate we anticipate, our business, financial condition and results of operations may be materially
and adversely affected.
Fluctuations in patient occupancy at the hospitals, nursing homes and care homes of our customers
may adversely affect the demand for our services and therefore our financial performance.
Demand for our flexible healthcare staff is affected by the general level of patient occupancy
at the hospitals and nursing and care homes of our customers. When occupancy increases, our
employees are often added before full-time employees are hired. As occupancy decreases, healthcare
facility customers typically will reduce their use of temporary employees before undertaking
layoffs of their regular employees. In addition, we may experience more competitive pricing
pressure during periods of occupancy downturn. Occupancy at our healthcare customers facilities
also fluctuates due to the seasonality of some elective procedures. We are unable to predict the
level of patient occupancy at any particular time and its effect on our revenues and earnings.
We operate in a regulated industry and violations of laws or regulations may result in increased
costs or sanctions that could impact our financial performance. Moreover, recent and proposed
changes in U.K. regulations affecting flexible staffing companies may result in increased costs
that reduce our revenue and profitability.
Our business is subject to extensive and complex laws and regulations in the United Kingdom.
These include, but are not limited to, laws and regulations relating to licensing, conduct of
operations, payment for services and referrals, treatment of staff, benefits payable to temporary
staff and taxation. If we fail to comply with the laws and regulations that are applicable to our
business, we could suffer civil and/or criminal penalties or we could be required to stop operating
in one or more jurisdictions.
Our staff are entitled to the statutory minimum number of days paid holiday. In April 2009,
this was increased from 24 days to 28 days per year.
The provisions of the Pensions Act 2008 relating to personal accounts were enacted to address
the U.K. governments concerns that many U.K. workers are not saving enough for retirement. The
Pensions Act 2008 will require employers to automatically enroll all eligible jobholders, who are
not already in a qualifying workplace or personal pension plan, into either a qualifying workplace
or personal pension plan or a new type of savings arrangement, known as the personal accounts plan.
Automatic enrollment means that if jobholders do not wish to be a member of the plan offered to
them they must actively opt out of that arrangement.
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Upon the phase in of the legislation, employers will be required to contribute a minimum of 3%
of the jobholders qualifying earnings, which will be supplemented by contributions from the
jobholder so that, in total, the pension contribution for each jobholder should equal a minimum of
8% of the jobholders qualifying earnings. There will be limits set on the amount that employers
and jobholders can contribute in any one year. The personal accounts plan will be a new trust-based
occupational plan, which is independent of the U.K. government and run by a Trustee Corporation.
The current U.K. government plan is to introduce these new requirements in 2012. However, the
U.K. government may defer the 2012 date and it is expected that the legislation will be phased in
over a number of years. The extent to which we can recover this additional cost from our customers
is uncertain and could impact our profit margins.
We may not be able to pass along to our customers the costs of complying with these or other
legislative changes.
NHS reforms may have a substantial negative impact upon us.
Flexible staffing providers, such as our company, are subject to the risk that the NHS will
continue to regulate the price it pays for temporary staffing services, reduce its use of temporary
staffing services or replace its use of temporary staffing services where possible with permanent
employees.
One initiative undertaken by the NHS is the requirement that agencies wishing to supply the
NHS Hospitals with temporary staff enter into Framework Agreements. Any attempt to expand the
Framework Agreements to cover local governmental social service departments or a wider group of
customers, including NHS Primary Care Trusts, could have a material adverse impact on our
consolidated financial position or results of operations.
Recently-enacted changes in VAT could affect our revenues or profit margins.
In some of our supply of healthcare staffing services we have historically benefited from a
concession under U.K. law (the Staff Hire Concession) which allowed us to charge value-added tax
(VAT) only on the amount of commission charged to the purchaser of flexible staff. The Staff
Hire Concession expired on March 31, 2009. We have undertaken a review of our post-concession VAT
treatment and concluded that, other than permanent placement, our supplies are exempt from VAT on
the basis that we provide nursing and welfare services and not the supply of staff (which are not
exempt from VAT). However, if we are deemed to supply staff, there is, by concession, a further
exemption from VAT under U.K. law for the supply of nursing staff and nursing auxiliaries if
certain conditions are met (the Nursing Agencies Concession). Since the majority of our services
are now exempt from VAT, our overall costs have increased as we are not able to recover any VAT
that we incur on purchases from our suppliers (such as, for example, utilities) in respect of the
goods and services that they supply to us. In addition, effective January 1, 2010, the standard
rate of U.K. VAT will revert to 17.5%. (from its current rate of 15%), which will increase the
amount of any irrecoverable VAT. The foregoing reflects our advisors view of the law as it
currently stands, but there is a risk that this interpretation could be challenged by Her Majestys
Revenue and Customs (HMRC).
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If any of our services are deemed to be not exempt from VAT, then the costs paid by our
customers may increase, thereby potentially reducing our competitiveness, revenues and/or profit
margins. We have sent correspondences to HMRC to seek its concurrence with our VAT position. HMRC
is seeking clarification on our historical and post-concession VAT treatment before it can make a
conclusion on our VAT position. If HMRC ultimately does not concur with our VAT treatment, then a
VAT liability may be imposed on our company. At September 30, 2009, we have not recorded a
liability relating to this matter as we believe a VAT liability is not probable to occur.
Significant legal actions could subject us to substantial uninsured liabilities.
In recent years, healthcare providers have become subject to an increasing number of legal
actions alleging medical malpractice, negligent hiring, product liability or other legal theories.
Many of these actions involve large claims and significant defense costs. In addition, we may be
subject to civil or criminal claims arising from actions taken by our employees or staff, such as
misuse of proprietary information or theft of property. In some instances, we are required to
indemnify customers against some or all of these risks. A failure of any of our employees or
personnel to observe our policies and guidelines intended to reduce these risks, relevant customer
policies and guidelines or applicable laws, rules and regulations could result in negative
publicity, payment of fines or other damages. In addition, breaches of the Care Standards Act 2000
and associated regulations could result in the revocation of registration or the imposition of
conditions on that registration that could adversely effect the continuation of our business in the
United Kingdom. Litigation is costly and, even if we do prevail, the cost of such litigation could
adversely affect our consolidated financial statements.
In addition, in the course of our operations we may face possible claims by employees or
employee candidates of discrimination or harassment (including for actions our customers or their
employees may have taken), violations of health and safety regulations, workers compensation
claims, retroactive entitlement to benefits, unfair dismissal and other similar claims.
Our insurance may not be adequate to protect us from claims for which we may become liable.
To protect ourselves from the cost of claims alleging medical malpractice or other causes of
action, we maintain malpractice liability insurance and general liability insurance coverage in
amounts and with deductibles that we believe are appropriate for our operations. While we have
been able to obtain liability insurance in the past, this insurance varies in cost, is difficult to
obtain and may not be available in the future on terms acceptable to us, if it is available at all.
The failure to maintain insurance coverage or a successful claim not covered by or in excess of
our insurance coverage could have a material adverse effect on our business, financial position,
cash flows or results of operations. In addition, claims, regardless of their merit or eventual
outcome, may have a material adverse effect on our reputation.
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Risks Relating To Our Financial Condition
We have incurred substantial amounts of goodwill from our acquisitions, some or all of which we may
be required to write off, which could adversely affect our financial condition or results of
operations.
Goodwill represents the purchase price of an acquisition less the fair value of the net
tangible and intangible assets acquired. We have incurred substantial amounts of goodwill from our
acquisitions. Part of our strategy involves making additional acquisitions. Because businesses of
the type we target often do not have substantial tangible assets, we expect that our acquisition of
these businesses will cause us to continue to incur significant amounts of goodwill.
At September 30, 2009 we had goodwill of approximately $95.6 million, which equaled
approximately 55.3% of our total assets at that date.
All goodwill and intangible assets deemed to have indefinite lives are carried at cost and are
subject to an annual impairment test. We evaluate, on a regular basis, whether events or
circumstances have occurred that indicate all, or a portion, of the carrying amount of goodwill may
no longer be recoverable, in which case an impairment charge to our earnings would become
necessary. We completed our annual impairment test during the fourth quarter of fiscal 2009 and
determined that there was no impairment to our recorded goodwill balance. However, any future
determination requiring the write-off of a significant portion of the carrying value of our
goodwill could have a material adverse effect on our financial condition or results of operations.
Our ability to use our net operating loss carryforward in the future is limited.
As of September 30, 2009, we had a U.S. federal net operating loss carryforward of
approximately $72.0 million, expiring between 2018 and 2024. Our current operations are in the
United Kingdom. Under U.S. federal tax law, we can only offset our federal net operating loss
carryforward against U.S. taxable income, including income earned from operations in the United
States and certain other income, including dividends from our U.K. subsidiaries. As of September
30, 2009, we had recorded a full valuation allowance against the deferred tax asset created by the
U.S. federal net operating loss carryforward as we did not believe it was more likely than not that
such losses would be utilized prior to their expiration. Our public offering in July 2004 of
shares of our common stock caused an ownership change under Section 382 of the Internal Revenue
Code of 1986, as amended. Accordingly, Section 382 limits our ability to use our net operating
loss carryforward in the future. An inability to use a significant portion of our federal net
operating loss carryforward could have a material adverse effect on our financial condition or
results of operations.
Risks Relating To Our Common Stock
Future sales of our common stock by existing shareholders may lower the price of our common stock.
As of November 30, 2009, we had 45,136,229 shares of common stock outstanding.
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In addition, as of November 30, 2009, our officers, directors, employees and consultants own
options to acquire an aggregate of 2,831,334 shares of common stock under our 2002 Stock Option
Plan. We may issue additional options under our 2002 Stock Option Plan. The shares of common
stock to be issued upon exercise of the options granted under our 2002 Stock Option Plan have been
registered and may be freely sold when issued. We have also issued stock appreciation rights to
our chief executive officer that, if earned, will be paid in shares of our common stock. See Item
11Executive CompensationEmployment Agreements; Potential Payments Upon Termination or a
Change-in-Control for a description of these stock appreciation rights.
Sales of substantial amounts of common stock into the public market could lower the market
price of our common stock.
If provisions in our corporate documents and New York law delay or prevent a change in control of
our company, we may be unable to consummate a transaction that our shareholders consider favorable.
Our certificate of incorporation and bylaws may discourage, delay or prevent a merger or
acquisition involving us that our shareholders may consider favorable. For example, our
certificate of incorporation authorizes our board of directors to issue up to ten million shares of
blank check preferred stock. Without shareholder approval, the board of directors has the
authority to attach special rights, including voting and dividend rights, to these shares of
preferred stock. With these rights, preferred shareholders could make it more difficult for a
third party to acquire us. New York law may also discourage, delay or prevent someone from
acquiring or merging with us.
Under the employment agreement that we have entered into with Alexander (Sandy) Young, our
chief executive officer, we are required to give Mr. Young 12 months notice of the termination of
his employment, during which time Mr. Young would continue to be paid his salary. Under the
employment agreement with Paul Weston, our chief financial officer, we are required to pay him 12
months salary in the event he is terminated due to an acquisition. These provisions of the
employment agreements may have the effect of preventing or delaying a change of control of our
company, even if the change of control was favored by our shareholders.
Our shareholder rights plan may make it more difficult for a third-party to acquire us.
In April 2009, we adopted a shareholder rights plan pursuant to which each share of our
outstanding common stock is accompanied by one preferred share purchase right. The rights
generally will not become exercisable until a person or group acquires 20% or more of our common
stock in a transaction that is not approved in advance by our board of directors. In that event,
each right will entitle the holder, other than the unapproved acquirer and its affiliates, to buy
our common stock at 50% of its market value for the rights exercise price. Our board of directors
may redeem the rights for a nominal amount at any time prior to ten days after a person or group
announces that it has acquired 20% or more of our common stock. If not redeemed by the board, the
rights will expire on April 1, 2019, or, if not approved by the shareholders at the annual meeting
of shareholders in 2010, immediately following such meeting. Because the
rights may substantially dilute the stock ownership of a person or group attempting to take
over our company without the approval of our board of directors, the shareholder rights plan could
make it more difficult for a third party to acquire us (or 20% or more of our outstanding shares of
common stock) without first negotiating with our board of directors regarding such acquisition,
even if our shareholders might receive a price in excess of the then-current market price for their
shares.
- 23 -
Our stock price may be volatile.
In recent years, the stock market has experienced significant price and volume fluctuations
that are often unrelated to the operating performance of specific companies. Our market price may
fluctuate based on a number of factors, including:
|
|
|
our operating performance and the performance of other similar companies; |
|
|
|
news announcements relating to us, our industry or our competitors; |
|
|
|
changes in earnings estimates or recommendations by research analysts; |
|
|
|
changes in general economic conditions; |
|
|
|
the number of shares that are publicly traded; |
|
|
|
actions of our current shareholders; and |
|
|
|
other developments affecting us, our industry or our competitors. |
Item 1B. Unresolved Staff Comments.
We have not received, during the 180 days preceding the end of our 2009 fiscal year, any
written comments from the staff of the Securities and Exchange Commission regarding our periodic or
current reports under the Securities Exchange Act of 1934 that remain unresolved.
Item 2. Properties.
We lease 113 facilities in the United Kingdom, of which 22 are for a period of three months or
less. We lease our corporate headquarters in the United States. We believe that our existing
leases will be renegotiated as they expire or that alternative properties can be leased on
acceptable terms. We also believe that our present facilities are well maintained and are suitable
for continuing our existing operations. (See Contractual Cash
Obligations in Note 10 of Notes to
Consolidated Financial Statements for our fiscal year ended
September 30, 2009).
Item 3. Legal Proceedings.
We are involved in various other legal proceedings and claims incidental to our normal
business activities. We are vigorously defending our position in all such proceedings. We
believe that these matters should not have a material adverse impact on our consolidated
financial position, cash flows, or results of operations.
- 24 -
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of our security holders during the fourth quarter of our
fiscal year ended September 30, 2009.
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
Our common stock trades on the NASDAQ Global Select Market, a segment of the NASDAQ Global
Market, under the symbol AHCI. The following table sets forth, for the periods indicated, the
high and low intraday sales price of our common stock on the NASDAQ Global Select Market:
|
|
|
|
|
|
|
|
|
PERIOD |
|
HIGH |
|
|
LOW |
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2008: |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
3.20 |
|
|
$ |
1.86 |
|
Second Quarter |
|
|
2.49 |
|
|
|
1.36 |
|
Third Quarter |
|
|
2.20 |
|
|
|
1.36 |
|
Fourth Quarter |
|
|
2.90 |
|
|
|
1.68 |
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2009: |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
2.15 |
|
|
$ |
1.00 |
|
Second Quarter |
|
|
1.50 |
|
|
|
.94 |
|
Third Quarter |
|
|
2.48 |
|
|
|
1.21 |
|
Fourth Quarter |
|
|
2.90 |
|
|
|
1.92 |
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2010: |
|
|
|
|
|
|
|
|
First Quarter (through
November 30, 2009) |
|
$ |
3.40 |
|
|
$ |
2.27 |
|
Since December 30, 2005, our shares of common stock have also traded on the Alternative
Investment Market (AIM) of the London Stock Exchange under the symbol AIM: AHI. Our shares of
common stock are represented on CREST, the U.K. electronic settlement system, by depository shares.
Our shares of common stock are listed on AIM, while the depositary interests are transferred in
CREST to settle trades on AIM.
We have neither declared nor paid any dividends on our common stock and do not anticipate
paying dividends on our common stock in the foreseeable future. Any future payment of dividends
will be at the discretion of our board of directors and will depend upon, among other things, our
earnings, financial position, cash flows, capital requirements and other relevant considerations,
including the extent of our indebtedness and any contractual restrictions with respect to the
payment of dividends.
- 25 -
As
of November 30, 2009, there were approximately 155 holders of record of our common stock.
Holders of record do not include shareholders who hold their shares through one or more
intermediaries, such as banks, brokers or depositaries.
Equity Compensation Plan Information
For certain information concerning securities authorized for issuance under our equity
compensation plans, see Item 12Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder MattersEquity Compensation Plan Information.
Recent Repurchases of Equity Securities
During the fourth quarter of fiscal 2009, we did not repurchase any of our equity securities.
Our Comparative Performance
The graph below compares the performance of our common stock for the period from September 30,
2004 to September 30, 2009 with (1) the Center for Research in Security Prices (CRSP) Total
Returns Index for The NASDAQ Stock Market LLC (US Companies), and (2) the CRSP Total Returns Index
for NASDAQ Health Services Stocks (US and Foreign Companies). The CRSP Total Returns Index for The
NASDAQ Stock Market LLC (US Companies) measures the performance of all US companies listed on the
NASDAQ Global Market (formerly known as the NASDAQ National Market) and the NASDAQ Capital Market
(formerly known as the NASDAQ SmallCap Market). The CRSP Total Returns Index for NASDAQ Health
Services Stocks (US and Foreign Companies) measures the performance of all US and foreign companies
listed on NASDAQ whose Standard Industry Classification (SIC) Codes are 8000-8099.
The graph assumes that $100 was invested on September 30, 2004 in our common stock and each
group of companies whose securities comprise the various indices against which we are being
compared and that all dividends, if any, have been reinvested.
The graph was prepared for us by Zacks Investment Research, Inc.
- 26 -
The information contained in this section of this Annual Report on Form 10-K shall not be
deemed filed with the Securities and Exchange Commission nor shall it be deemed to be
incorporated by reference into any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that we specifically incorporate it by reference.
Notes:
|
|
|
A. |
|
The lines represent monthly index levels derived from compounded daily returns that include all dividends. |
|
B. |
|
The indexes are reweighted daily, using the market capitalization on the previous trading day. |
|
C. |
|
If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used. |
|
D. |
|
The index level for all series was set to $100 on September 30, 2004. |
Item 6. Selected Financial Data.
The following table sets forth our selected consolidated financial information. The financial
information for the years ended September 30, 2009, 2008 and 2007 and as of September 30, 2009 and
2008 is derived from audited financial statements that appear elsewhere in this Annual Report on
Form 10-K. The financial information for the years ended September 30, 2006 and 2005 and as of
September 30, 2007, 2006 and 2005 is derived from audited financial statements that do not appear
in this Annual Report on Form 10-K.
You should read the following information in conjunction with our financial statements and
notes thereto and the information set forth under Item 7 Managements Discussion and Analysis of
Financial Condition and Results of Operations.
- 27 -
All data in the following table is in thousands, except for per share data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Financial Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
249,810 |
|
|
$ |
298,577 |
|
|
$ |
277,795 |
|
|
$ |
280,205 |
|
|
$ |
342,031 |
|
Gross profit |
|
|
76,348 |
|
|
|
90,385 |
|
|
|
83,956 |
|
|
|
85,730 |
|
|
|
98,727 |
|
Selling, general and administrative expenses |
|
|
63,234 |
|
|
|
77,655 |
|
|
|
75,284 |
(2) |
|
|
71,103 |
|
|
|
73,050 |
(6) |
Impairment of goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,004 |
(4) |
|
|
|
|
Impairment of long-lived assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,038 |
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
13,114 |
|
|
|
12,730 |
|
|
|
8,672 |
|
|
|
(105,415 |
) |
|
|
25,677 |
|
Interest and other income (expense), net |
|
|
427 |
|
|
|
393 |
|
|
|
(3,273 |
)(3) |
|
|
(2,698 |
) |
|
|
(4,164 |
) |
|
Foreign exchange (loss) income |
|
|
(197 |
) |
|
|
(586 |
) |
|
|
285 |
|
|
|
73 |
|
|
|
(98 |
) |
Provision for (benefit from) income taxes |
|
|
3,408 |
|
|
|
3,751 |
|
|
|
2,068 |
|
|
|
(1,887 |
) |
|
|
6,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
9,936 |
|
|
|
8,786 |
|
|
|
3,616 |
|
|
|
(106,153 |
) |
|
|
14,969 |
|
Income (loss) from discontinued operations, net of
taxes(1) |
|
|
367 |
|
|
|
|
|
|
|
6,266 |
|
|
|
(17,618 |
) |
|
|
3,767 |
|
Gain on disposal of subsidiaries, net of taxes |
|
|
|
|
|
|
|
|
|
|
56,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
10,303 |
|
|
|
8,786 |
|
|
|
66,353 |
|
|
|
(123,771 |
) |
|
|
18,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share of common stock
from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.22 |
|
|
$ |
0.20 |
|
|
$ |
0.08 |
|
|
$ |
(2.36 |
) |
|
$ |
0.34 |
|
Discontinued operations |
|
|
0.01 |
|
|
|
|
|
|
|
1.40 |
|
|
|
(0.39 |
) |
|
|
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.23 |
|
|
$ |
0.20 |
|
|
$ |
1.48 |
|
|
$ |
(2.75 |
) |
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share of common stock
from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.22 |
|
|
$ |
0.19 |
|
|
$ |
0.08 |
|
|
$ |
(2.36 |
) |
|
$ |
0.33 |
|
Discontinued operations |
|
|
0.01 |
|
|
|
|
|
|
|
1.39 |
|
|
|
(0.39 |
) |
|
|
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.23 |
|
|
$ |
0.19 |
|
|
$ |
1.47 |
|
|
$ |
(2.75 |
) |
|
$ |
0.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
44,986 |
|
|
|
44,986 |
|
|
|
44,962 |
|
|
|
44,930 |
|
|
|
44,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
45,011 |
|
|
|
45,078 |
|
|
|
45,147 |
|
|
|
44,930 |
|
|
|
45,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
|
$ |
42,325 |
|
|
$ |
31,550 |
|
|
$ |
20,380 |
|
|
$ |
(1,165 |
) |
|
$ |
11,369 |
|
Accounts receivable, net |
|
|
19,594 |
|
|
|
17,774 |
|
|
|
21,490 |
|
|
|
26,813 |
|
|
|
31,382 |
|
Goodwill |
|
|
95,649 |
|
|
|
109,292 |
|
|
|
122,843 |
|
|
|
112,538 |
|
|
|
205,177 |
|
Total assets |
|
|
173,067 |
|
|
|
183,262 |
|
|
|
252,779 |
|
|
|
195,683 |
|
|
|
303,439 |
|
Total debt |
|
|
|
|
|
|
|
|
|
|
54,795 |
|
|
|
71,159 |
|
|
|
64,342 |
|
Total shareholders equity |
|
|
147,273 |
|
|
|
152,670 |
|
|
|
158,759 |
|
|
|
86,383 |
|
|
|
201,859 |
|
|
|
|
(1) |
|
See Note 3 of Notes to Consolidated Financial Statements for our fiscal year ended September
30, 2009 for a discussion and details of discontinued operations. |
|
(2) |
|
Includes $1.2 million of severance costs and related professional fees incurred upon the
resignation of our chairman and chief executive officer and $0.4 million related to the
issuance of new warrants and the extension of the expiration date on previously-issued
warrants. |
|
(3) |
|
Includes a $1.0 million charge related to the write-off and costs incurred on financing fees
and other income of $0.8 million related to interest rate swaps no longer being effective. |
|
(4) |
|
During our annual review of goodwill for impairment in the fourth quarter of fiscal 2006, we
determined there was an impairment of $110.0 million to our recorded goodwill balance by using
a combination of the market multiple, comparable transaction and discounted cash flow methods.
Based on a combination of factors, contributing to the impairment loss were the decrease in
profits due to the decline of revenues from the NHS, our companys market capitalization at
the time of testing as well as current and projected operating results. |
|
(5) |
|
Includes a charge of $9.0 million of software costs related to certain aspects of our
information system that were based on the Oracle platform that was too slow for the nature of
our business and therefore was not achieving full functionality. Also includes a charge of
$1.0 million relate to the write-off of other intangible assets. We reviewed the carrying
amount of our other intangibles and deemed certain assets to be impaired as of September 30,
2006 as a result of the decline in revenues from the NHS. |
|
(6) |
|
Includes a $1.1 million charge related to the reorganization of our U.K. subsidiaries, as
well as $1.0 million of costs associated with the launch of our new corporate logo. |
- 28 -
Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
General
The following discussion and analysis should be read in conjunction with the consolidated
financial statements included in this Annual Report on Form 10-K and in conjunction with the
description of our business included in this Annual Report on Form 10-K. It is intended to assist
the reader in understanding and evaluating our financial position. This
discussion contains, in addition to historical information, forward-looking statements that
involve risks and uncertainty. Our actual results could differ materially from the results
discussed in the forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in this Annual Report on Form 10-K under Forward-Looking
Statements.
We are a leading provider of flexible, or temporary, healthcare staffing services to the
healthcare and social care industry in the United Kingdom, as measured by revenues, market share
and number of staff. Our flexible healthcare staffing service provides personal or basic care and
nursing services in the customers own homes, public or private hospitals and nursing and care
homes. Homecare staffing, which accounts for over 80% of our healthcare staffing services, is
provided for individuals (normally elderly individuals) who require domiciliary care, individuals
with learning disabilities and individuals of all ages who require health-related services for
complex care needs. The main purchaser of our services for customers own homes is local
governmental social services departments, private individuals and National Health Services (the
NHS) Primary Care Trusts. We also supply nursing staff services to nursing homes and hospitals
that account for our remaining healthcare staffing services.
The services provided by us are provided by our integrated network of approximately 110
branches, which are located throughout most of the U.K. Our healthcare staff consists principally
of homecare aides (known as carers in the U.K.), nurses and nurses aides. Our management evaluates
operating results on a branch basis. All our branches are aggregated into one reportable segment
for financial reporting purposes.
For a discussion of recently-enacted changes in VAT that may affect us, see Item 1ARisk
FactorsRecently-enacted changes in VAT could affect our revenues or profit margins.
A further legislative change, which went into effect in April 2009, has increased the number
of holiday pay entitlement for our flexible healthcare staff from 24 to 28 days per annum.
We are aware of legislative changes which will go into effect in fiscal 2011 that would
disallow the U.K. tax deduction on intra-group interest expense. We are currently evaluating our
intra-group position and the likely impact of this change on our consolidated financial statements
and results of operations.
- 29 -
The provisions of the Pensions Act 2008 relating to personal accounts were enacted to address
the U.K. governments concerns that many U.K. workers are not saving enough for retirement. The
Pensions Act 2008 will require employers to automatically enroll all eligible jobholders, who are
not already in a qualifying workplace or personal pension plan, into either a qualifying workplace
or personal pension plan or a new type of savings arrangement, known as the personal accounts plan.
Automatic enrollment means that if jobholders do not wish to be a member of the plan offered to
them they must actively opt out of that arrangement. Upon the phase in of the legislation,
employers will be required to contribute a minimum of 3% of the jobholders qualifying earnings,
which will be supplemented by contributions from the jobholder so that, in total, the pension
contribution for each jobholder should equal a minimum of 8% of
the jobholders qualifying earnings. There will be limits set on the amount that employers
and jobholders can contribute in any one year. The personal accounts plan will be a new trust-based
occupational plan, which is independent of the U.K. government and run by a Trustee Corporation.
The current U.K. government plan is to introduce these new requirements in 2012. However, the U.K.
government may defer the 2012 date and it is expected that the legislation will be phased in over a
number of years. The extent to which we can recover this additional cost from our customers is
uncertain and could impact our profit margins.
Critical Accounting Policies
The preparation of our financial statements in accordance with accounting principles generally
accepted in the United States of America requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues, expenses and related disclosures in a given
reporting period. We believe the following accounting policies are critical areas affecting our
financial condition and results of operations where estimates are required.
Accounts Receivable
We are required to estimate the collectability of our accounts receivables, which requires a
considerable amount of judgment in assessing the ultimate realization of these receivables,
including the current credit-worthiness of each customer. Significant changes in required reserves
may occur in the future as we continue to expand our business and as conditions in the marketplace
change.
Our company maintains credit controls to ensure cash collection on a timely basis. The credit
terms agreed with our customers range from 7 days to a maximum of 30 days from invoice date. We
maintain a credit department which consists of approximately 20 personnel who are targeted to
collect outstanding receivables. We have established the following guidelines for the credit
department to use as well as for us to assess the credit departments performance:
|
|
|
to maintain average days sales outstanding (including unbilled accounts receivable)
to below 45 days; |
|
|
|
to limit our overdues (greater than 90 days) within agreed targets; and |
|
|
|
to limit bad debt write off in the year within agreed targets. |
- 30 -
We also apply a policy of withdrawing supply from customers who are significantly overdue.
Many private customers are contracted on a direct debit basis where we can collect payment direct
from customers bank accounts.
We have devised a provisioning methodology based on the customer profile and historical credit
risk across our U.K. business. Accounts receivable are written off when the credit control
department determines the amount is no longer collectible. In addition, we do not have a threshold
for account balance write-offs as our policy focuses on all balances, whatever the size.
Goodwill and Other Intangible Assets
We have significant amounts of goodwill and other intangible assets. The determination of
whether or not goodwill has become impaired involves a significant amount of judgment. Changes in
strategy and/or market conditions could significantly impact these judgments and require
adjustments to recorded amounts of goodwill. We have recorded goodwill and separately identifiable
intangible assets resulting from our acquisitions through September 30, 2009. Goodwill is tested
for impairment annually in the fourth quarter of each fiscal year. A more frequent evaluation is
performed if indicators of impairment are present. We completed the annual impairment test of
goodwill during the fourth quarter of fiscal 2009 and determined that there was no impairment to
our goodwill balance. The calculation of fair value used for an impairment test includes a number
of estimates and assumptions, including future income and cash flow projections, the identification
of appropriate market multiples and the choice of an appropriate discount rate. If we are required
to record an impairment charge in the future, it could have an adverse impact on our consolidated
financial position or results of operations.
Income Taxes
We account for income taxes using the liability method of accounting for income taxes. Under
this method, deferred income tax assets and liabilities reflect tax carryforwards and the net
effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting and income tax purposes, as determined under currently enacted tax rates.
Deferred tax assets are recorded if future realization is more likely than not. Deferred taxes are
recorded primarily for bad debts, federal and state net operating loss carryforwards, and
depreciation and amortization of intangibles, which are reported in different periods for income
tax purposes than for financial reporting purposes. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amounts expected to be realized. The determination
of whether or not valuation allowances are required to be recorded involves significant estimates
regarding the future profitability of our company, as well as potential tax strategies for the
utilization of net operating loss carryforwards.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not
that the tax position will be sustained on examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in the financial statements from
such a position are measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement. As of September 30, 2009, our company has
not recorded any unrecognized tax benefits, which remains unchanged from September 30, 2008.
- 31 -
Contingencies
We are involved in various legal proceedings and claims incidental to our normal business
activities. We are required to assess the likelihood of any adverse judgments or outcomes to these
matters as well as potential ranges of probable losses. A determination of the amount of reserves
required, if any, for these contingencies are made after careful analysis of each individual issue.
The required reserves may change in the future due to new developments
in each matter or changes in approach such as a change in settlement strategy in dealing with
these matters.
Revenue Recognition
Patient services are recognized when services are performed and substantiated by proper
documentation. For patient services, which are billed at fixed rates, revenue is mainly recognized
upon the completion of timesheets that also require the signature of the recipient of our services
and through electronic call monitoring.
We receive a majority of our revenue from local governmental social services departments and
the NHS. For the years ended September 30, 2009, 2008 and 2007, 75%, 69.0% and 63.5%,
respectively, of our net revenues were attributable to local governmental social service
departments and the NHS payor program.
Purchase Accounting
We account for our acquisitions as purchase business combinations. At acquisition,
preliminary values and useful lives are allocated based upon fair values that have been determined
for assets acquired and liabilities assumed and managements best estimates for values that have
not yet been finalized. We obtain a third-party valuation in order to complete our purchase price
allocations. Accordingly, final asset and liability fair values as well as useful lives may differ
from managements original estimates and could have an adverse impact on our consolidated financial
position or results of operations.
Results of Operations
Overview
We are one of the larger suppliers of homecare services in the U.K. Current trends in
homecare services that have contributed to the growth of this business include the increasing shift
from care in residential homes to care in the home, which in most cases is a lower cost option, a
move toward supplier consolidation by the local governmental authorities, an increase in the aging
population and additional opportunities as a result of the increase in demand for higher
sophisticated homecare service lines, such as continuing care and care for individuals with
learning disabilities.
- 32 -
Nursing homes results have been impacted by the general economic market as well as the
decision by one of our major customers to utilize, from April 2008, other service providers in
addition to our company. We have experienced a lesser demand for our services from nursing homes,
which we believe is a result of the economic recession, as nursing homes are trying to reduce their
costs as well as their own permanent staff working additional hours.
The NHS requires any healthcare staffing company that provides temporary staff to NHS
Hospitals in a region to enter into a Framework Agreement setting forth, among other things,
applicable quality standards and maximum payment rates. The NHS Framework Agreements have impacted
our financial results by reducing our margins from this source of business and making it very
difficult to recruit nurses to work on these contracts at the stipulated pay rates.
This has been somewhat offset by the increase in private hospital business which have higher
profit margins. Management currently believes that the biggest decline in hospital staffing
arising from the NHS Framework Agreements has occurred over our previous two fiscal years and such
decline has now stabilized although it does fluctuate between quarters.
In fiscal 2009, the old Framework Agreements between the NHS and healthcare staffing companies
entered the formal re-tender stage. In July 2009, we were notified that we had been successfully
awarded, subject to contract completion, a new Framework Agreement. Our new Framework Agreement,
which came into operation in October 2009, is at higher margins than our old Framework Agreement.
We believe that the higher charges under our new Framework Agreement will give us opportunities
going forward and we currently have plans to re-launch this service to provide healthcare staffing
services to hospitals in a few of our regional offices as well as our existing London operation
starting in fiscal 2010. However, we currently cannot determine the impact of our new Framework
Agreement on our consolidated financial position and results of operations.
In some instances, a number of NHS Hospitals have elected to opt out of the old Framework
Agreement and seek suppliers off framework for their temporary staffing needs mainly because the
old charge and pay rates were not sustainable in recruiting sufficient staff to meet their
requirements. The new framework agreements, with their higher charge and pay rates, are intended
to bring those NHS Hospitals back onto using the framework rates. Whether this is achieved or not
is still too early to determine and if it is not, there is a risk that the Framework Agreement may
not be adhered to in certain areas. In the latter case, we will have to contract directly with the
purchaser at separately negotiated rates.
- 33 -
Year Ended September 30, 2009 vs. Year Ended September 30, 2008
To provide an increased understanding of our companys business we are providing a breakdown
of our revenues, gross profits, selling, general and administrative (SG&A) costs and operating
income at constant exchange rates using the comparable prior period weighted average exchange rate.
As reflected in the reported numbers, recent fluctuations in foreign exchange rates have
significantly impacted our year ended September 30, 2009 results.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
Year ended September 30, 2009 |
|
|
Year ended September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
(Amounts in thousands) |
|
Revenue |
|
|
% |
|
|
Profit |
|
|
% |
|
|
Profit % |
|
|
Revenue |
|
|
% |
|
|
Profit |
|
|
% |
|
|
Profit % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homecare |
|
$ |
259,271 |
|
|
|
81.6 |
% |
|
$ |
80,337 |
|
|
|
82.7 |
% |
|
|
31.0 |
% |
|
$ |
225,460 |
|
|
|
75.5 |
% |
|
$ |
70,458 |
|
|
|
78.0 |
% |
|
|
31.3 |
% |
Nursing Homes |
|
|
32,890 |
|
|
|
10.4 |
% |
|
|
10,298 |
|
|
|
10.6 |
% |
|
|
31.3 |
% |
|
|
41,853 |
|
|
|
14.0 |
% |
|
|
12,602 |
|
|
|
13.9 |
% |
|
|
30.1 |
% |
Hospitals |
|
|
25,512 |
|
|
|
8.0 |
% |
|
|
6,454 |
|
|
|
6.7 |
% |
|
|
25.3 |
% |
|
|
31,264 |
|
|
|
10.5 |
% |
|
|
7,325 |
|
|
|
8.1 |
% |
|
|
23.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, at constant exchange
rates |
|
|
317,673 |
|
|
|
|
|
|
|
97,089 |
|
|
|
|
|
|
|
30.6 |
% |
|
|
298,577 |
|
|
|
|
|
|
|
90,385 |
|
|
|
|
|
|
|
30.3 |
% |
Effect of foreign exchange |
|
|
(67,863 |
) |
|
|
|
|
|
|
(20,741 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, as reported |
|
$ |
249,810 |
|
|
|
|
|
|
$ |
76,348 |
|
|
|
|
|
|
|
|
|
|
$ |
298,577 |
|
|
|
|
|
|
$ |
90,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A, at constant exchange
rates |
|
|
|
|
|
|
|
|
|
$ |
79,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
77,655 |
|
|
|
|
|
|
|
|
|
Effect of foreign exchange |
|
|
|
|
|
|
|
|
|
|
(16,353 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A, as reported |
|
|
|
|
|
|
|
|
|
$ |
63,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
77,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income, at constant
exchange rates |
|
|
|
|
|
|
|
|
|
$ |
17,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,730 |
|
|
|
|
|
|
|
|
|
Effect of foreign exchange |
|
|
|
|
|
|
|
|
|
|
(4,388 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income, as reported |
|
|
|
|
|
|
|
|
|
$ |
13,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to disclosing results of operations that are determined in accordance with
generally accepted accounting principles (GAAP), the chart above shows non-GAAP financial
measures that exclude the impact of foreign exchange on our current period results. Management
believes that the presentation of these non-GAAP measures provides useful information to investors
regarding our companys results of operations, as these non-GAAP measures allow investors to better
evaluate ongoing business performance. Investors should consider non-GAAP measures in addition to,
and not as a substitute for, financial measures prepared in accordance with GAAP. The chart also
provides a reconciliation of the non-GAAP measures with the most directly comparable GAAP measures.
Revenues
Total revenues for the year ended September 30, 2009, before the unfavorable impact of foreign
exchange rates, increased by $19.1 million, or 6.4%, to $317.7 million, compared with $298.6
million for the year ended September 30, 2008. Contributing to the increase in revenues was
homecare revenues which grew by 15.0% to $259.3 million. Nursing home revenues declined by 21.4%
to $32.9 million. Hospitals revenues decreased by 18.4% to $25.5 million. After the unfavorable
impact of currency exchange of $67.9 million, revenues decreased to $249.8 million.
Gross Profit
Gross profit, before the unfavorable impact of foreign exchange, increased 7.4% to $97.1
million for the year ended September 30, 2009 from $90.4 million for the year ended September 30,
2008. Changes in foreign exchange decreased gross profit by $20.8 million to $76.3 million for the
year ended September 30, 2009 compared to gross profit of $90.4 million for the year ended
September 30, 2008, a decrease of 15.5%. As a percentage of total revenue, gross profit for the
year ended September 30, 2009 was 30.6%, as compared to 30.3% for the comparable prior period
mainly due to our sales mix. We remain focused on supplying healthcare staffing services to our
higher-margin homecare customers.
- 34 -
Selling, General and Administrative Expenses
Total SG&A expenses for the year ended September 30, 2009, before the favorable impact of
foreign exchange, was $79.6 million compared to $77.7 million for the year ended September 30,
2008. While current period SG&A running costs of 25.3% of revenues are lower than the prior year
period of 26.0%, we are continuing to invest in certain areas of our business that includes such
items as continuing care, learning disabilities, IT systems, and business improvement projects to
ensure that we support future growth in revenues. At the same time, we maintain tight controls
over other areas of SG&A costs so as to maintain our objective of reducing SG&A costs as a percent
of revenues. The increase in SG&A costs is mainly related to the opening of new branches,
investment in specialized service lines which include continuing care and learning disabilities,
and costs associated with process improvements including the roll out of our new IT system. This
increase was partially offset by additional net receipts of currently available government grants
for training support of $0.6 million as compared to the prior year. We aim to ensure that we
maintain any growth in SG&A costs to a lower degree than
growth in our revenues. Changes in foreign exchange decreased the reported result by $16.4
million to $63.2 million compared to $77.7 million for the year ended September 30, 2008.
Interest Income
Total interest income for the year ended September 30, 2009 was $0.5 million compared to $0.9
million for the year ended September 30, 2008. Even though we had higher cash balances, interest
income was negatively impacted by the decrease in interest rates and changes in foreign exchange
($0.1 million).
Provision for Income Taxes
We recorded a provision for income taxes amounting to $3.4 million or 25.5% of income before
income taxes and discontinued operations for the year ended September 30, 2009, compared to a
provision of $3.8 million or 29.9% of income before income taxes and discontinued operations for
the year ended September 30, 2008. The difference in the effective tax rate between the year ended
September 30, 2009 and the year ended September 30, 2008 is mainly due to the utilization of loss
carry forwards in the U.S. for which no benefit had been previously recorded, permanent differences
and change in enacted rate in the U.K.
Discontinued Operations
In fiscal 2007, we disposed of two of our U.K. subsidiaries when we sold the shares of Allied
Respiratory Limited and Medigas Limited. These two subsidiaries constituted our respiratory
therapy division, which supplied medical-grade oxygen for use in respiratory therapy to pharmacies
in the U.K., oxygen concentrators to customers in Northern Ireland and oxygen services to customers
in the South East of England. We have accounted for our respiratory therapy segment as a
discontinued operation.
In the year ended September 30, 2009, discontinued operations resulted in income, net of tax,
of $0.4 million due to the reversal of accrued refunds payable and accrued patient electric usage
reimbursement as the warranty period under the sales agreement covering these costs has expired.
- 35 -
Net Income
As a result of the foregoing, we recorded net income of $10.3 million for the year ended
September 30, 2009 compared to net income of $8.8 million for the year ended September 30, 2008.
Year Ended September 30, 2008 vs. Year Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2008 |
|
|
Year Ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
(Dollars in thousands) |
|
Revenue |
|
|
% |
|
|
Profit |
|
|
% |
|
|
Profit % |
|
|
Revenue |
|
|
% |
|
|
Profit |
|
|
% |
|
|
Profit % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homecare |
|
$ |
225,014 |
|
|
|
75.5 |
% |
|
$ |
70,317 |
|
|
|
78.0 |
% |
|
|
31.2 |
% |
|
$ |
199,622 |
|
|
|
71.9 |
% |
|
$ |
64,008 |
|
|
|
76.3 |
% |
|
|
32.1 |
% |
Nursing Homes |
|
|
41,771 |
|
|
|
14.0 |
% |
|
|
12,577 |
|
|
|
13.9 |
% |
|
|
30.1 |
% |
|
|
40,347 |
|
|
|
14.5 |
% |
|
|
11,784 |
|
|
|
14.0 |
% |
|
|
29.2 |
% |
Hospital Staffing |
|
|
31,202 |
|
|
|
10.5 |
% |
|
|
7,312 |
|
|
|
8.1 |
% |
|
|
23.4 |
% |
|
|
37,826 |
|
|
|
13.6 |
% |
|
|
8,164 |
|
|
|
9.7 |
% |
|
|
21.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
297,987 |
|
|
|
|
|
|
$ |
90,206 |
|
|
|
|
|
|
|
30.3 |
% |
|
$ |
277,795 |
|
|
|
|
|
|
$ |
83,956 |
|
|
|
|
|
|
|
30.2 |
% |
Effect of foreign
exchange |
|
|
590 |
|
|
|
|
|
|
|
179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
298,577 |
|
|
|
|
|
|
$ |
90,385 |
|
|
|
|
|
|
|
|
|
|
$ |
277,795 |
|
|
|
|
|
|
$ |
83,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Like the chart under Year Ended September 30, 2009 vs. Year Ended September 30, 2008, the
chart above includes revenues, gross profits and gross profit percentages that are determined in
accordance with GAAP as well as non-GAAP financial measures that exclude the impact of foreign
exchange on our fiscal 2008 results. The chart also provides a reconciliation of the non-GAAP
measures with the most directly comparable GAAP measures.
Revenues
Total revenues for the year ended September 30, 2008, before the favorable impact of foreign
exchange rates, increased $20.2 million, or 7.3% to $298.0 million compared to $277.8 million for
the year ended September 30, 2007. Contributing to the increase in revenues was homecare revenues,
which grew by 12.7% to $225.0 million. Nursing home revenues achieved 3.5% growth in revenue
totaling $41.8 million. Due to the NHS Framework Agreements and NHS Professionals, as well as
overspending by NHS Hospitals, hospitals revenues declined 17.5% to $31.2 million. Changes in
foreign exchange increased the reported result by $0.6 million to $298.6 million compared to $277.8
million for the year ended September 30, 2007, an increase of $20.8 million or 7.5%.
Gross Profit
Gross profit, before the favorable impact of foreign exchange, increased 7.4% to $90.2 million
for the year ended September 30, 2008 from $84.0 million for the year ended September 30, 2007.
Changes in foreign exchange increased gross profit by $0.2 million to $90.4 million for the year
ended September 30, 2008 compared to $84.0 million for the year ended September 30, 2007, an
increase of 7.7%. As a percentage of total revenue, gross profit for the year ended September 30,
2008 was 30.3%, as compared to 30.2% for the comparable prior period. Gross profit margin for the
year ended September 30, 2008 improved slightly due to the change in the mix of the business as a
result of the overall growth in our homecare staffing services which typically operates at higher
margins.
- 36 -
Selling, General and Administrative Expenses
Total SG&A expenses increased by $2.4 million to $77.7 million for the year ended September
30, 2008 from $75.3 million for the year ended September 30, 2007, an increase of 3.1%. Changes in
foreign exchange of $0.1 million had an unfavorable effect on SG&A costs. The remaining increase in
SG&A costs was mainly due to additional branch costs of $5.0 million associated with the growth of
our companys business, and increased training and quality costs of $1.4 million from our
investment in recruitment and retention of our care workers. These increased costs were partially
offset by decreased IT costs of $1.4 million from infrastructure efficiencies in the fiscal year
ended September 30, 2008 and expenses incurred in the year ended September 30, 2007 related to
severance costs and related professional fees of $1.2 million incurred upon the resignation of the
chairman and chief executive officer, issuance of new warrants and modification to extend the
expiration date on warrants previously issued of $0.4
million and chief executive officer search fees and consultancy costs associated with
compliance under our senior credit facility of $0.7 million.
Interest Income
Total interest income for the year ended September 30, 2008 was $0.9 million compared to $0.1
million for the year ended September 30, 2007. The increase in interest income was mainly
attributable to additional cash on hand as a result of the sale of the respiratory therapy division
in fiscal 2007.
Interest Expense
Total interest expense for the year ended September 30, 2008 was $0.5 million compared to $4.2
million for the year ended September 30, 2007, which represents a decrease of $3.7 million. This
decrease was principally due to the prepayment and pay-off of amounts outstanding under our senior
credit facility and was partially offset by costs related to the suspension of the availability of
our invoice discount facility. As such, we recognized interest costs of $0.4 million for bank
fees.
Provision for Income Taxes
We recorded a provision for income taxes amounting to $3.8 million or 29.9% of income before
income taxes and discontinued operations for the year ended September 30, 2008, compared to a
provision of $2.1 million or 36.4% of income before income taxes and discontinued operations for
the year ended September 30, 2007. The difference in the effective tax rate between the year ended
September 30, 2008 and the year ended September 30, 2007 was mainly due to the utilization of loss
carry forwards and permanent differences.
- 37 -
Discontinued Operations
Discontinued operations resulted in income of $62.7 million for the year ended September 30,
2007. On September 30, 2007, we disposed of two of our U.K. subsidiaries when we sold all of the
issued and outstanding ordinary shares of Allied Respiratory Limited and Medigas Limited for £36.5
million ($74.7 million) in cash, of which £0.5 million ($1.0 million) was held back until certain
conditions are met. Of the escrowed amount, £0.4 million ($0.9 million) was released to us in
fiscal 2008 and the remaining £0.1 million ($0.1 million) was released to us in fiscal 2009. These
two subsidiaries constituted our respiratory therapy division, which supplied medical-grade oxygen
for use in respiratory therapy to pharmacies in the U.K., oxygen concentrators to customers in
Northern Ireland and oxygen services to customers in the South East of England. Included in the
$62.7 million in income from discontinued operations in fiscal 2007 was the gain of $56.5 million,
net of tax of $0, on the sale of our respiratory therapy division. Under U.K. tax legislation,
enacted in April 2002, disposals of shares by companies with substantial shareholdings does not
result in a taxable gain transaction.
We have accounted for our respiratory therapy division as a discontinued operation. Our
consolidated financial statements reflect the assets and liabilities of the discontinued operations
as separate line items and the operations of our respiratory therapy division for the prior period
are reported in discontinued operations on our statement of operations.
The following table presents the financial results for the discontinued operations for fiscal
2007 (dollars in thousands).
|
|
|
|
|
|
|
Year Ended |
|
|
|
September 30, |
|
|
|
2007 |
|
Revenues: |
|
|
|
|
Net respiratory, medical equipment and supplies |
|
$ |
28,699 |
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
Respiratory, medical equipment and supplies |
|
|
13,024 |
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
15,675 |
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
6,091 |
|
|
|
|
|
|
|
|
|
|
Operating income from discontinued operations |
|
|
9,584 |
|
|
|
|
|
|
Interest income |
|
|
2 |
|
Interest expense |
|
|
(1,570 |
)(a) |
|
|
|
|
|
|
|
|
|
Income from discontinued operations before income tax |
|
|
8,016 |
|
|
|
|
|
|
Gain on disposal of subsidiaries, net of tax |
|
|
56,471 |
(b) |
|
|
|
|
|
Provision for income taxes |
|
|
1,750 |
(c) |
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
$ |
62,737 |
|
|
|
|
|
|
|
|
(a) |
|
In fiscal 2007, interest expense was allocated to discontinued operations based on debt
that we specifically identified as being attributable to discontinued operations, as an allocation
based on net assets would not provide a meaningful result. We based our allocation on the amount
of capital expenditures directly related to our discontinued operations and then considered cash
borrowings necessary to maintain the operations of our then respiratory therapy division. |
- 38 -
|
|
|
(b) |
|
Translation adjustments that result when a foreign entitys financial statements are
translated into a parent companys or an investors reporting currency are separately reported in
the parent companys other comprehensive income. Foreign currency translation adjustments that are
accumulated in other comprehensive income are reclassified to income only when they are realized,
if the investment in the foreign entity is sold or is substantially or completed liquidated.
Accordingly, the foreign currency translation adjustments of the balance sheet related to the
respiratory therapy segment in the amount of approximately $1.6 million were reclassified into the
gain on disposal of subsidiaries. |
|
(c) |
|
Included in the provision for income taxes for the year end September 30, 2007 was the
reversal of $0.7 million of certain tax contingencies related to our fiscal 2003 discontinued
operations on the sale of two of our U.S. subsidiaries as the statute of limitations has expired. |
Net Income
As a result of the foregoing, we recorded net income of $8.8 million for the year ended
September 30, 2008 compared to net income of $66.4 million for the year ended September 30, 2007.
Liquidity and Capital Resources
General
For our fiscal year ended September 30, 2009, we generated $15.7 million from continuing
operating activities. Cash requirements for our fiscal year ended September 30, 2009 for capital
expenditures ($2.9 million) and for payments of acquisitions payable ($1.1 million) were met
through cash on hand.
We believe that the existing capital resources and those to be generated from operating
activities will be adequate to conduct our operations for the next 12 months.
Accounts Receivable
We maintain a cash management program that focuses on the reimbursement function, as growth in
accounts receivable has been the main operating use of cash historically. At September 30, 2009
and September 30, 2008, $19.6 million (11.3%) and $17.8 million (9.7%), respectively, of our total
assets consisted of accounts receivable. The increase in accounts receivable from 2008 to 2009 is
mainly due to the timing of invoicing as well as a higher volume of business.
Our goal is to maintain accounts receivable levels equal to or less than 45 days (including
unbilled accounts receivable), which would tend to mitigate the risk of negative cash flows from
operations by reducing the required investment in accounts receivable and thereby increasing cash
flows from operations. We maintain credit controls to ensure cash collection on a timely basis.
Days sales outstanding (DSOs), excluding unbilled accounts receivable, is a measure of the
average number of days taken by our company to collect its accounts receivable, calculated from the
date services are invoiced. The timing of our invoicing and cash collections as well as the
pattern of our weekly invoicing cycles causes fluctuations in our monthly DSOs. At September 30,
2009 and September 30, 2008, our average DSOs (excluding unbilled accounts receivable) were 25 and
21, respectively.
- 39 -
At September 30, 2009 gross receivables, excluding unapplied cash and surcharges, were $21.8
million, of which $16.6 million or 76.3% were represented by amounts due from U.K. governmental
bodies, either the local governmental social service departments (SSDs) or the NHS. At September
30, 2008 gross receivables, excluding unapplied cash and surcharges, were $21.5 million, of which
$15.2 million or 70.7% were represented by amounts due from U.K. governmental bodies. The
remaining accounts receivable balance is due from commercial payors (nursing homes and private
hospitals) and private payors.
The following table summarizes the accounts receivable aging by payor mix at September 30,
2009 and September 30, 2008 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-30 |
|
|
31-60 |
|
|
61-90 |
|
|
91-120 |
|
|
121 Days |
|
|
AR At |
|
At September 30, 2009 |
|
Days |
|
|
Days |
|
|
Days |
|
|
Days |
|
|
And Over |
|
|
9/30/2009 |
|
SSD |
|
$ |
9,138 |
|
|
$ |
769 |
|
|
$ |
484 |
|
|
$ |
181 |
|
|
$ |
359 |
|
|
$ |
10,931 |
|
NHS |
|
|
4,670 |
|
|
|
554 |
|
|
|
241 |
|
|
|
90 |
|
|
|
161 |
|
|
|
5,716 |
|
Commercial Payors |
|
|
2,200 |
|
|
|
262 |
|
|
|
64 |
|
|
|
33 |
|
|
|
32 |
|
|
|
2,591 |
|
Private Payors |
|
|
1,994 |
|
|
|
157 |
|
|
|
104 |
|
|
|
60 |
|
|
|
275 |
|
|
|
2,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross AR at 9/30/09 |
|
$ |
18,002 |
|
|
$ |
1,742 |
|
|
$ |
893 |
|
|
$ |
364 |
|
|
$ |
827 |
|
|
$ |
21,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Unapplied Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,124 |
) |
|
Less: Surcharges(A) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(271 |
) |
Less: Allowance For Doubtful
Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(839 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
19,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-30 |
|
|
31-60 |
|
|
61-90 |
|
|
91-120 |
|
|
121 Days |
|
|
AR At |
|
At September 30, 2008 |
|
Days |
|
|
Days |
|
|
Days |
|
|
Days |
|
|
And Over |
|
|
9/30/2008 |
|
SSD |
|
$ |
6,504 |
|
|
$ |
1,135 |
|
|
$ |
399 |
|
|
$ |
209 |
|
|
$ |
392 |
|
|
$ |
8,639 |
|
NHS |
|
|
4,732 |
|
|
|
774 |
|
|
|
505 |
|
|
|
186 |
|
|
|
387 |
|
|
|
6,584 |
|
Commercial Payors |
|
|
3,046 |
|
|
|
613 |
|
|
|
157 |
|
|
|
51 |
|
|
|
104 |
|
|
|
3,971 |
|
Private Payors |
|
|
1,396 |
|
|
|
261 |
|
|
|
158 |
|
|
|
67 |
|
|
|
466 |
|
|
|
2,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross AR at 9/30/08 |
|
$ |
15,678 |
|
|
$ |
2,783 |
|
|
$ |
1,219 |
|
|
$ |
513 |
|
|
$ |
1,349 |
|
|
$ |
21,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Unapplied Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,392 |
) |
|
Less: Surcharges(A) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(553 |
) |
Less: Allowance For Doubtful
Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(823 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Surcharges represent interest charges to customers on overdue accounts. The
surcharges are recognized in income only upon receipt of payment. |
Each fiscal year we undertake a review of our methodology and procedure for reserving for our
doubtful accounts. This process also takes into account our actual experience of write offs in the
period. The policy is then applied at each quarter end to arrive at a closing reserve for doubtful
accounts. See Critical Accounting PoliciesAccounts Receivable above for a description of our
methodology procedure.
- 40 -
Given the high percentage of U.K. governmental debt, the large number of customer accounts
with low-value debt within the remainder of the accounts receivable ledger and the methodology for
making provisions for doubtful accounts, we believe our provisioning method is prudent and
appropriate to our business.
We provide homecare aides and nurses on the basis of terms (payment due within 7 to 30 days of
invoice) and prices (rate per hour or fraction of an hour) agreed to in advance with our customers.
The work is either logged by electronic call monitoring or time sheets are signed by clients for
the work performed and then invoices are generated based on agreed billing rates. Consequently,
there is no process for approval of invoices. Our credit control policies currently achieve an
average collection of approximately 25 days from submission of invoices.
As our current operations are in the United Kingdom and the majority of accounts receivable
are from U.K. governmental bodies for which payment terms and prices are agreed in advance, we have
not recorded any contractual allowances.
Borrowings
General
At September 30, 2009, we had no outstanding borrowings.
In the fourth quarter of fiscal 2004, our U.K. subsidiary, Allied Healthcare Group Holdings
Limited (Allied Holdings), obtained a senior credit facility, which was amended in the first
quarter of fiscal 2007 to provide for additional facilities. The facility consisted of a term loan
A, revolving loan B1, invoice discounting facility B2 and revolving loan C. In the first quarter
of fiscal 2008, Allied Holdings prepaid the amounts outstanding under the term loan A and the term
loan B1 facilities from the proceeds of sale of our respiratory therapy division in fiscal 2007.
Allied Holdings also cancelled term loan A, term loan B1 and revolving loan C in the first quarter
of fiscal 2008. Allied Holdings had retained the £7.5 million ($12.4) invoice discounting facility
B2. In the second quarter of fiscal 2008, we agreed with the banks to suspend the availability of
our invoice discount facility and to have the right to reinstate availability upon nine weeks
notice. As we did not anticipate reinstating the invoice discount facility we recognized interest
costs of $0.4 million for bank fees in the third quarter of fiscal 2008. In the third quarter of
fiscal 2009, we cancelled the invoice discounting facility B2, thus terminating the senior credit
facility.
Guarantees
The senior credit facility was secured by a first priority lien on the assets of Allied
Holdings and certain of its subsidiaries. Together with Allied Holdings and certain of its
subsidiaries, our company had guaranteed the debt and other obligations of certain wholly-owned
U.K. subsidiaries under the senior credit facility. In conjunction with the amendment to the
senior credit facility, we granted the lenders a security interest in substantially all of our
assets to secure the payment of our guarantee. At September 30, 2009 and September 30, 2008, there
were no amounts outstanding under the senior credit facility. In the third quarter of fiscal 2009
we terminated the senior credit facility and the liens and guarantees under such facility have
since been released.
- 41 -
Financial Instrument
See Item 7AQuantitative and Qualitative Disclosures About Market RiskInterest Rate Risk.
Commitments
Employment Agreements
See Item 11Executive CompensationEmployment Agreements; Potential Payments Upon Termination
or Change-in-Control.
Operating Leases
We have entered into various operating lease agreements for office space and equipment.
Certain of these leases provide for renewal options.
Contractual Cash Obligations
As described under Borrowings and CommitmentsOperating Leases above, the following table
summarizes our contractual cash obligations as of September 30, 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Lease |
|
|
Total Other |
|
|
Total |
|
Fiscal |
|
Obligations |
|
|
Obligations |
|
|
Obligations |
|
2010 |
|
$ |
2,378 |
|
|
$ |
721 |
|
|
$ |
3,099 |
|
2011 |
|
|
1,472 |
|
|
|
958 |
|
|
|
2,430 |
|
2012 |
|
|
858 |
|
|
|
718 |
|
|
|
1,576 |
|
2013 |
|
|
300 |
|
|
|
207 |
|
|
|
507 |
|
2014 |
|
|
120 |
|
|
|
|
|
|
|
120 |
|
Thereafter |
|
|
69 |
|
|
|
|
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,197 |
|
|
$ |
2,604 |
|
|
$ |
7,801 |
|
|
|
|
|
|
|
|
|
|
|
Lease obligations reflect future minimum rental commitments required under operating lease
agreements as of September 30, 2009. Certain of these leases provide for renewal options. Other
obligations represent our contractual commitment for a new branch operating system and investment
bank fees associated with our capital resources review. We anticipate incurring total expenditures
for our new branch operating system, both contractual and non-contractual, including software,
hardware, hosting services and training costs, of approximately $6.7 million (at the closing
exchange rate at September 30, 2009), of which $2.9 million was incurred in fiscal 2008 and fiscal
2009 and $3.8 million is expected to be incurred in fiscal 2010 and fiscal 2011. We anticipate
that funding will come from our existing cash and cash provided by operating activities.
- 42 -
Miscellaneous
Treasury Shares
In January 2001, we initiated a stock repurchase program, whereby we may purchase up to
approximately $1.0 million of our outstanding shares of common stock in open-market transactions or
in privately-negotiated transactions. In May 2003, we initiated a second stock repurchase program,
pursuant to which we may purchase up to an additional $3.0 million of our outstanding shares of
common stock in open-market transactions or in privately-negotiated transactions. As of September
30, 2009, we had acquired 407,700 shares of our common stock for an aggregate purchase price of
$1.3 million pursuant to our stock repurchase programs, which are reflected as treasury stock in
our consolidated balance sheet at September 30, 2009. In addition, as of September 30, 2009, we
had acquired 177,055 shares of our companys common stock for an aggregate value of $1.0 million
from certain of our former executive officers. Such
shares were acquired in fiscal 2004 and delivered to us as payment on promissory notes issued
by us to them.
Disposition
On September 30, 2007, we sold all of the shares of Allied Respiratory Limited to Air Liquide
Limited. Allied Respiratory Limited and its subsidiary, Medigas Limited, constituted the
respiratory therapy division of our company. The consideration for the sale was denominated in
sterling and consisted of £36.5 million ($74.7 million), of which £0.5 million ($1.0 million) was
held back until certain conditions are met. Of the escrowed amount, £0.4 million ($0.9 million)
was released to us in fiscal 2008 and the remaining £0.1 million ($0.1 million) was released to us
in fiscal 2009.
We have accounted for our respiratory therapy division as a discontinued operation. Our
consolidated financial statements reflect the assets and liabilities of the discontinued operations
as separate line items and the operations of our respiratory therapy division for prior periods are
reported in discontinued operations in our statement of operations.
See Note 3 of Notes to Consolidated Financial Statements for our fiscal year ended September
30, 2009 for a discussion and details of discontinued operations, including an analysis of the pro
forma effects on our financial statements of the discontinued operations.
Litigation
See Item 3Legal Proceedings.
Contingencies
See Note 10 of Notes to Consolidated Financial Statements for our fiscal year ended September
30, 2009 for a discussion of contingencies.
Impact of Recent Accounting Standards
See Recent Accounting Pronouncements in Note 2 of Notes to Consolidated Financial Statements
for our fiscal year ended September 30, 2009.
- 43 -
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Foreign Currency Exchange
We face exposure to adverse movements in foreign currency exchange rates. These exposures may
change over time as business practices evolve and could have a material adverse impact on our
consolidated financial results. Currently, we do not hedge foreign currency exchange rate
exposures.
The translation of the operating results of our U.K. operations is impacted by fluctuations in
foreign currency exchange rates. For the fiscal 2009 year as compared to the fiscal 2008
average rate, the translation of our U.K. financial statements into U.S. dollars resulted in
decreased revenues of $67.9 million, decreased operating income of $4.4 million and decreased
income from continuing operations of $2.4 million. We estimate that a 10% change in the exchange
rate between the British pound and the U.S. dollar would have a $25.0 million, $1.6 million and
$0.9 million impact on reported revenues, operating income and income from continuing operations,
respectively.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relate primarily to our cash
equivalents. Our cash equivalents include highly liquid short-term investments purchased with
initial maturities of 90 days or less.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements and required financial statement schedules of our
company begin on page F-i of this Annual Report on Form 10-K and are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
We have not changed our independent accountants in the last two fiscal years.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures.
Our companys management, with the participation of our chief executive officer and our chief
financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of
September 30, 2009.
Under the rules of the Securities and Exchange Commission, disclosure controls and
procedures are defined as controls and other procedures that are designed to ensure that
information required to be disclosed in the reports that we file or submit under the Securities
Exchange Act of 1934, including this Annual Report on Form 10-K, is recorded, processed, summarized
and reported within the time periods specified in the rules of the Securities and Exchange
Commission. Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by us, in reports that we
file or submit under the Securities Exchange Act of 1934, is accumulated and communicated to our
management, including our chief executive officer and chief financial officer, as appropriate to
allow timely decisions regarding required disclosure.
- 44 -
Based on such evaluation, our chief executive officer and our chief financial officer have
concluded that, as of September 30, 2009, our disclosure controls and procedures were effective
to ensure that the information we are required to disclose in reports that we file or submit
to the Securities and Exchange Commission is recorded, processed, summarized and reported within
the time periods specified under the rules and forms of the Securities and Exchange Commission.
Report of Management on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting for the company. Under the rules of the Securities and Exchange Commission,
internal control over financial reporting procedures is defined as a process designed to provide
reasonable assurance regarding the reliability of our financial reporting and the preparation of
financial statements for external purposes in accordance with accounting principles generally
accepted in the United States of America.
Internal control over financial reporting includes maintaining records, that in reasonable
detail, accurately and fairly reflect our transactions and our dispositions of assets; provide
reasonable assurance that transactions are recorded as necessary for preparation of our financial
statements in accordance with accounting principles generally accepted in the United States of
America; provide reasonable assurance that receipts and expenditures of company assets are made
only in accordance with management authorization; and provide reasonable assurance regarding the
prevention or the timely detection of the unauthorized acquisition, use or disposition of company
assets that could have a material effect on our financial statements. Because of its inherent
limitations, internal control over financial reporting may not provide absolute assurance that a
misstatement of our financial statements would be prevented or detected.
Management conducted an evaluation of the effectiveness of our internal control over financial
reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal ControlIntegrated Framework. Based on this evaluation, management
concluded that the companys internal control over financial reporting was effective as of
September 30, 2009.
Eisner LLP, our auditor, has audited our financial statements, which are included in this
Annual Report on Form 10-K, and, as part of its audit, has issued its report, set forth at page F-2
of our financial statements, on the effectiveness of our internal control over financial reporting
as of September 30, 2009. Such report is incorporated herein by reference.
Changes in Internal Control Over Financial Reporting.
There have not been any changes in our internal control over financial reporting during the
quarter ended September 30, 2009 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
- 45 -
Item 9B. Other Information.
There was no information that we were required to disclose in a Current Report on Form 8-K
during the fourth quarter of fiscal 2009 that was not so disclosed.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Our Directors and Officers
The following table sets forth certain information concerning the directors and officers of
our company:
|
|
|
|
|
|
|
Name |
|
Age |
|
Positions with our Company |
Alexander (Sandy) Young
|
|
|
55 |
|
|
Chief Executive Officer and Director |
Paul Weston
|
|
|
45 |
|
|
Chief Financial Officer |
Leslie J. Levinson
|
|
|
54 |
|
|
Secretary |
Sophia Corona
|
|
|
46 |
|
|
Director |
G. Richard Green
|
|
|
70 |
|
|
Director |
Mark Hanley
|
|
|
48 |
|
|
Director |
Wayne Palladino
|
|
|
51 |
|
|
Director |
Jeffrey S. Peris
|
|
|
63 |
|
|
Non-Executive Chairman of the Board |
Ann Thornburg
|
|
|
60 |
|
|
Director |
Certain biographical information regarding each director and officer is set forth below:
Alexander (Sandy) Young has served as chief executive officer and a director of our company
since January 2008. From 2004 until joining our company, Mr. Young was the managing director of
electronic security at Chubb Electronic Security (Chubb), a subsidiary of United Technologies
Corporation, a U.S.-based conglomerate. Prior to working at Chubb, Mr. Young worked for 27 years
at Rentokil Initial, UK, a U.K.-based conglomerate, and its predecessors, rising from branch
management to regional managing director for Northern Europe.
Paul Weston assumed the office of chief financial officer of our company in October 2008.
From May 2008 until September 2008, Mr. Weston served as our companys chief financial officer
designate and, from 2004 until September 2008, Mr. Weston served as the companys financial
director in the United Kingdom, with responsibility for all of our U.K. operating subsidiaries. In
addition, from June 2006 until July 2006, Mr. Weston served as interim chief financial officer of
our company. From 2001 to 2004, Mr. Weston was group financial controller at SSL plc, a global
manufacturer and distributor of healthcare and consumer products, and prior to that he spent seven
years in various corporate finance positions for the European operations of Fruit of the Loom, a
textile manufacturer. Mr. Weston qualified with the Institute of Chartered Accountants (ACA) in
England and Wales in 1990.
- 46 -
Leslie J. Levinson has served as secretary of our company since September 1999 and had
previously served in such capacity from October 1990 until July 1997. Since April 2009, he has
been a partner in the law firm of Edwards Angell Palmer & Dodge LLP, which firm serves as counsel
to our company. From March 2007 until April 2009, he was a partner in WolfBlock
LLP, which firm served as counsel to our company. From 2002 until March 2007 he was a partner
in Brown Raysman Millstein Felder & Steiner LLP and its successor, Thelen Reid Brown Raysman &
Steiner LLP, which firm served as counsel to our company, and from 1991 until 2002 he was a partner
in the law firm of Baer Marks & Upham LLP, which firm served as counsel to our company.
Sophia Corona has been a director of our company since November 2006. Since February 2007,
she has been employed by Creditex Group Inc., an inter-dealer broker that provides market
participants with an electronic credit derivatives trading platform, where she currently serves as
chief financial officer. From April 2006 until February 2007, Ms. Corona was a financial advisor
to privately-owned companies. From October 2001 until March 2006, she was the chief financial
officer of Bigfoot Interactive, Inc (now known as Epsilon Interactive, Inc.), a provider of e-mail
communications and marketing services, which was acquired by Alliance Data Systems Corporation, a
New York Stock Exchange-listed company that is a provider of transaction services, credit services
and marketing services, in September 2005. From 2000 until 2001, Ms. Corona was the vice president
of business development for Visual Radio, LLC, a technology incubation fund that she co-founded in
1996 and in which she was employed as the chief financial officer from 1996 until 1998. From 1998
until 2000, she was a senior vice president with Prism Communications Services, Inc., a
telecommunications provider.
G. Richard Green has been a director of our company since August 1998. Mr. Green has been the
chairman since 1987 and a director since 1964 of J.H. & F.W. Green Ltd., a conglomerate based in
the United Kingdom. Since 1964, Mr. Green has held various positions at J.H. & F.W. Green Ltd. and
several of its subsidiaries.
Mark Hanley has been a director of our company since January 2009. Mr. Hanley previously
served as a member of the board of directors of our company from November 2005 until April 2007.
Since February 2007, Mr. Hanley has served as the president and chief executive officer of Clinical
Research Advantage Inc., a pharmaceutical clinical trials company. From August 2005 until February
2007, he was a consultant to companies in the healthcare industry. From 2000 to August 2005, Mr.
Hanley was president and chief executive of O2 Science Acquisition Corporation, a provider of
respiratory services. From 1998 to 1999, he was a senior vice president, sales and marketing, of
Coram Healthcare Corporation, which provides specialized home infusion therapies and services in
the United States and Canada. From 1995 to 1997, Mr. Hanley was an executive director/director of
business development of Transworld Healthcare (UK) Limited, a subsidiary of the company now known
as Allied Healthcare Holdings Limited. From 1987 to 1995, he held various positions with Apria
Healthcare Group, Inc., a California-based home healthcare company.
Wayne Palladino has been a director of our company since September 2003. Mr. Palladino has
worked at Pzena Investment Management LLC, an asset management firm, since June 2002, where he
currently serves as head of client service. From May 2007 until April 2009, he was the chief
financial officer of Pzena Investment Management LLC. From August 2000 until June 2002, he was
senior vice president and chief financial officer of Lillian Vernon Corporation, a catalog
retailer. Mr. Palladino was a vice president of our company from February 1991 until September
1996, senior vice president of our company from September
1996 until August 2000 and chief financial officer of our company from February 1991 until
August 2000.
- 47 -
Jeffrey S. Peris has been a director of our company since May 1998 and the non-executive
chairman of the board of our company since June 2009. From April 2009 until June 2009, he served
as the interim non-executive chairman of the board of our company. Since May 2006, Dr. Peris has
served as an executive advisor to leading established global and new business entities. Dr. Peris
served as the corporate vice president of human resources and chief learning officer of Wyeth
(formerly American Home Products Corporation), a global pharmaceutical company, from 2001 until
2006. Dr. Peris was a corporate vice president of Knoll Pharmaceutical (Abbott Laboratories),
where he was responsible for human resources, public affairs and investor relations, from 1998
until 2001. Dr. Peris was a management consultant to various Fortune 100 companies from 1997 until
1998. From 1972 until 1997, Dr. Peris was employed by Merck Co., Inc., a leading global
pharmaceutical company, where he served in senior executive officer roles in research and
development, clinical drug development, global marketing and corporate human resources. He was
also a member of Mercks world-renowned Research Management Council.
Ann Thornburg has been a director of our company since November 2006. From October 1982 until
September 2006, Ms. Thornburg was a partner at PricewaterhouseCoopers LLP, an auditing firm. At
PricewaterhouseCoopers LLP, she served in a variety of client service and management roles,
including acting as audit partner for major health care clients. From 2001 until 2005, Ms.
Thornburg was a member of the U.S. Board of Partners and Principals of PricewaterhouseCoopers LLP.
Since July 2007 she has been a member of the faculty of the Kennedy School of Government at Harvard
University.
All directors of our company are elected by the shareholders for a one-year term and hold
office until their successors are elected and qualified or until their earlier death, resignation
or removal. Officers are chosen by and serve at the discretion of the board of directors, subject
to any applicable employment contracts. There are no family relationships among our directors and
officers.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 and the rules thereunder promulgated by
the Securities and Exchange Commission require the reporting of transactions in our equity
securities by our directors and certain of our officers and by shareholders who beneficially own
more than 10% of our common stock (collectively, the Reporting Persons). Section 16(a) and the
rules thereunder require the Reporting Persons to report initial statements of ownership of our
equity securities on Form 3 and changes in ownership of our equity securities on Form 4 or Form 5.
Based on a review of these reports filed by the Reporting Persons and written representations from
our directors and our executive officers that no Forms 5 were required to be filed by them in
respect of our fiscal year ended September 30, 2009, we believe that no Reporting Person failed to
file a Section 16 report on a timely basis during our fiscal year ended September 30, 2009, other
than Washington & Congress Capital Partners LP, a former beneficial owner of more than 10% of our
common stock, which filed a Form 4 reporting one transaction in our common stock late.
- 48 -
Code of Conduct
In September 2003, our board of directors adopted a Code of Conduct that applies to all of our
directors, officers and employees, including our chief executive officer and our chief financial
officer. As required by the regulations of the Securities and Exchange Commission, the Code of
Conduct is designed to deter wrongdoing and to promote:
(1) honest and ethical conduct, including the ethical handling of actual or apparent conflicts
of interest between personal and professional relationships;
(2) full, fair, accurate, timely, and understandable disclosure in reports and documents that
we file with, or submit to, the Securities and Exchange Commission and in other public
communications made by us;
(3) compliance with applicable governmental laws, rules and regulations;
(4) the prompt internal reporting of violations of the Code of Conduct to the Audit Committee;
and
(5) accountability for adherence to the Code of Conduct.
A copy of our Code of Conduct is filed as an exhibit to this Annual Report on Form
10-K. A copy of our Code of Conduct is also available on our website at
www.alliedhealthcare.com under Investors.
In May 2009, our board of directors adopted a Supplemental Code of Conduct that applies to all
of our directors, officers and executive managers, including our chief executive officer and our
chief financial officer. The Supplemental Code of Conduct, like the Code of Conduct, is designed
to deter wrongdoing and to promote the behavior described in the regulations of the Securities and
Exchange Commission. Unlike the Code of Conduct, the Supplemental Code of Conduct does not apply
to all employees. A copy of the Supplemental Code of Conduct is filed as an exhibit to this Annual
Report on Form 10-K.
Board Committees
Our board of directors has four standing committees: an Audit Committee, a Compensation
Committee, a Nominating and Corporate Governance Committee and a Strategic Investment Committee.
In addition, our board of directors on occasion will appoint ad hoc committees of directors for
discrete purposes. The members of each committee are appointed by the board of directors.
Audit Committee. The Audit Committee assists our board of directors in monitoring (1) the
integrity of our financial statements, (2) the independence and qualifications of our independent
auditors, and (3) the performance of our independent auditors and our internal audit functions.
The charter for the Audit Committee was adopted by our board of directors in May 2007. A copy of
the charter of the Audit Committee is available on our website at www.alliedhealthcare.com under
Investors.
- 49 -
The Audit Committee consists of Ms. Corona, Mr. Palladino and Ms. Thornburg. Ms. Thornburg
serves as chair of the Audit Committee. Each member of the Audit Committee is an independent
director, as such term is defined in the rules of The NASDAQ Stock Market LLC. The board of
directors has determined that Ann Thornburg is an audit committee financial expert, as such term
is defined in the regulations promulgated by the Securities and Exchange Commission.
Compensation Committee. See Item 11Executive CompensationCompensation Discussion and
AnalysisThe Compensation Committee.
Nominating and Corporate Governance Committee. The purposes of the Nominating and Corporate
Governance Committee are to (1) identify individuals qualified to become members of our board of
directors, (2) recommend to the board a slate of director nominees to be elected by shareholders,
(3) recommend to the board director candidates to be elected by the board to fill any vacancies,
(4) recommend directors for appointment to board committees, (5) review and recommend changes to
the corporate governance documents of our company and (6) oversee the annual evaluation of the
board and the committees thereof and conduct the annual performance evaluation of our chairman.
The Nominating and Corporate Governance Committee is also charged with considering any other
corporate governance issues that arise from time to time and developing appropriate recommendations
for the board. It is authorized to conduct investigations into or studies of matters within the
committees scope of responsibilities. A copy of the charter of the Nominating and Corporate
Governance Committee is available on our website at www.alliedhealthcare.com under Investors.
Our Nominating and Corporate Governance Committee consists of Sophia Corona, G. Richard Green,
Jeffrey S. Peris and Ann Thornburg. Ms. Thornburg serves as chair of the Nominating and Corporate
Governance Committee. All of the members of the Nominating and Corporate Governance Committee are
independent directors, as such term is defined in the rules of The NASDAQ Stock Market LLC.
Strategic Investment Committee. In June 2009, our board established a Strategic Investment
Committee and adopted a charter for the committee. A copy of the charter of the Strategic
Investment Committee is available on our website at www.alliedhealthcare.com under Investors.
The Strategic Investment Committee charter provides that the committee shall be composed of three
members, a majority of whom must be independent directors under the rules of The NASDAQ Stock
Market LLC. Our Strategic Investment Committee consists of Sophia Corona, Wayne Palladino and
Alexander (Sandy) Young. Ms. Corona and Mr. Palladino serve as co-chairs of the Strategic
Investment Committee.
The purposes of the Strategic Investment Committee are to assist our board of directors in
fulfilling its responsibilities to oversee the strategic investment management of our company, to
focus the attention of our board on long-range investment objectives for our company and to review
and assess strategies to implement such long-range investment objectives.
- 50 -
Director Nominations
Director nominees are recommended to the full board by our Nominating and Corporate Governance
Committee. The Nominating and Corporate Governance Committee charter provides that, in
recommending the selection of a nominee for director, the Nominating and Corporate Governance
Committee shall do so based on such nominees business experience and skills, leadership ability,
independence, judgment, integrity and ability to commit sufficient time and attention to the
activities of our board, as well as the absence of any potential conflicts of interest with our
companys interests and such other considerations as the Nominating and Corporate Governance
Committee shall deem appropriate. In addition, the Nominating and Corporate Governance Committee
charter provides that the Nominating and Corporate Governance Committee shall, in considering
whether to recommend a nominee for director, consider all requirements of applicable laws and
regulations, as well as our charter documents, with regard to director qualifications.
The Nominating and Corporate Governance Committee charter provides that the Nominating and
Corporate Governance Committee shall establish specific minimum qualifications that must be met by
any nominee to be selected or recommended by the Nominating and Corporate Governance Committee and
the specific qualities or skills that the Nominating and Corporate Governance Committee may
determine from time to time to be necessary for one or more of our directors to possess. The
Nominating and Corporate Governance Committee has determined that, in selecting or recommending a
nominee, it shall consider, at a minimum, (i) whether the nominee has demonstrated, by significant
accomplishment in his or her field, an ability to make a meaningful contribution to the board of
directors oversight of the business and affairs of the company, (ii) the nominees reputation for
honesty and ethical conduct in his or her personal and professional activities, and (iii) whether
the nominee has any material personal, financial or professional interest in a competitor of the
company. In order for the Nominating and Corporate Governance Committee to maintain flexibility in
choosing appropriate board candidates, the Nominating and Corporate Governance Committee will not
require that nominees meet any other specific or minimum requirements. When evaluating potential
director candidates, the Nominating and Corporate Governance Committee will consider, in addition
to the minimum requirements set forth above and in addition to those contained in the charter of
the Nominating and Corporate Governance Committee, such matters as it deems appropriate, including
the candidates independence under the rules of The NASDAQ Stock Market LLC. All nominees are
expected to be able to commit the time and effort necessary to fulfill their duties and
responsibilities as a director.
The Nominating and Corporate Governance Committee does not have a formal policy with regard to
the consideration of director nominees submitted by a shareholder. The Nominating and Corporate
Governance Committee does not believe that a formal policy is appropriate or necessary given the
size and qualifications of the board and the fact that only one shareholder nomination has been
made in the last ten years. The Nominating and Corporate Governance Committee intends to review
periodically whether a formal policy with regard to shareholder nominations should be adopted.
- 51 -
The Nominating and Corporate Governance Committee will consider proposed nominees whose names
are submitted by shareholders. Proposals made by shareholders for nominees at an
annual meeting of shareholders must be received by us at our principal executive offices, 245
Park Avenue, New York, New York 10167 (Attn.: Secretary), no later than 120 days prior to the
anniversary of the mailing of our proxy statement for use in the previous years annual meeting of
shareholders. However, if we change our annual meeting date by more than 30 days from the date of
the previous annual meeting, the proposal must be received by us at our principal executive offices
no later than the close of business on the 10th day following the day on which notice of the date
of the upcoming annual meeting is publicly disclosed. Any shareholder proposal to consider a
director nominee must include all information relating to the proposed director nominee that would
be required to be disclosed in a proxy statement relating to the solicitation of proxies for the
election of directors pursuant to Section 14 of the Securities Exchange Act of 1934 and the rules
and regulations thereunder. Shareholders nominees will be evaluated in the same manner as nominees
submitted by directors, officers and large shareholders.
Communications with the Board
Shareholders may communicate with our board of directors by sending a letter to our principal
executive offices, 245 Park Avenue, New York, New York 10167 (Attn.: Secretary). Our corporate
secretary will forward the correspondence to our chairman or, if the correspondence is directed to
a specific director, such director, unless the correspondence is unduly hostile, threatening or
illegal, or unless it does not reasonably relate to our company or our business or is otherwise
inappropriate. Notwithstanding the foregoing, our corporate secretary may determine to forward any
such correspondence, even if addressed to a specific director, to the entire board.
Item 11. Executive Compensation.
Compensation Discussion and Analysis
General
This Compensation Discussion and Analysis addresses the compensation of our named executive
officers. Our named executive officers consist of all individuals who served as our principal
executive officer and our principal financial officer during fiscal 2009, as well as each of the
other most-highly compensated executive officers of our company whose total annual compensation
exceeded $100,000 in fiscal 2009. These individuals are listed in the following table:
|
|
|
Name |
|
Title |
|
|
|
Alexander (Sandy) Young
|
|
Chief Executive Officer(1) |
|
|
|
Paul Weston
|
|
Chief Financial Officer (2) |
|
|
|
(1) |
|
Mr. Young became our chief executive office in January 2008. |
|
(2) |
|
From 2004 until September 2008, Mr. Weston was our companys financial director
in the United Kingdom. In May 2008, Mr. Weston was appointed the chief financial
officer designate of our company and in October 2008 he became the chief financial
officer of our company. |
- 52 -
The Compensation Committee
Our Compensation Committee reviews and approves overall policy with respect to compensation
matters for our executive officers, including compensation plans and employment agreements. The
charter for our Compensation Committee was revised and restated by our board of directors in June
2009. A copy of the charter of the Compensation Committee is available on our website at
www.alliedhealthcare.com under Investors.
Our Compensation Committee consists of Sophia Corona, Mark Hanley and Jeffrey S. Peris. Dr.
Peris serves as chairman of the Compensation Committee.
The charter of the Compensation Committee requires that each member of the Compensation
Committee satisfy the definition of independent director, as that term is defined in the rules of
The NASDAQ Stock Market LLC. Members of the Compensation Committee are appointed by the full
board, which makes the determination that a director is an independent director, as defined in
the NASDAQ rules.
Other than the requirement that they be independent, the charter of the Compensation Committee
does not require that members of the Compensation Committee have any special qualifications.
However, in appointing Dr. Peris to the Compensation Committee, and as its chairman, the board
considered the fact that he has spent over 20 years overseeing human resources at leading global
pharmaceutical companies, during which time he was involved in the hiring, compensation, retention
and termination of employees of all levels, including senior corporate and divisional executives.
Likewise, in appointing Mr. Hanley to the Compensation Committee, the board considered the fact
that he served as the president and chief executive officer of two health care service companies
and, in such capacities, has been involved in various aspects of executive compensation.
Policy
Our Compensation Committee believes that the compensation for the executive officers of our
company should be designed with the objective of attracting, motivating and retaining talented
individuals who contribute to the success of our company. The Compensation Committee has used the
components of compensation discussed below in an effort to reward executive officers whose
performance is essential to our companys success, both in the near-term and over the long-term,
and to encourage their continued service with our company. Our Compensation Committee also reviews
individual contributions to our company and the financial performance of our company in determining
the compensation to recommend to the board.
Our compensation program is comprised of three elements: (a) base salary; (b) short-term
incentive awards in the form of cash bonuses; and (c) a long-term incentive program, which consists
principally of stock-based awards in which participants receive an economic benefit only if the
trading price of our common stock increases or, in certain cases, if certain specified financial
goals set forth in the awards are met by our company.
- 53 -
Base Salary. The Compensation Committee strives to set a fair and competitive base
salary for each of the executive officers of our company. The Compensation Committee
generally reviews the base salaries of our executive officers on an annual basis, but may do
so more frequently (for example, upon a change in position or responsibilities). In
considering adjustments to base salary, various factors are considered, including company
performance, the executives individual performance, scope of responsibility and changes in
that scope (including as a result of promotions), tenure, prior experience and competitive
market practice.
Bonus. The Compensation Committee may award, or recommend that the full board
award, cash bonuses to executive officers that are tied to individual contributions to our
company and the financial performance of our company. We do not have a written bonus plan
in place; rather, individual awards of bonus payments are determined, or recommended to the
full board, by our Compensation Committee based upon its assessment of the contribution by
the individual to our company and our financial performance, as well as such other factors
as the Compensation Committee may deem relevant at the time of determining the bonus.
Long-Term Incentives. The Compensation Committee uses stock-based long-term
incentives, such as stock option grants and stock appreciation rights, to align the
financial interests of our executive officers with those of our companys shareholders, to
provide that our executive officers have a continuing stake in our long-term success, and to
provide executive officers with an incentive to manage our company from the perspective of
an owner. We typically grant these stock-based awards with an exercise price equal to the
closing price of a share of our companys common stock on the NASDAQ Global Select Market on
the date of grant, so that the executives to whom they are granted will only realize value
if the trading price of our shares increase or, in certain cases, if certain specified
financial goals set forth in the stock-based awards are met by our company.
Historically, we have granted stock options subject to time-based vesting. However, in
fiscal 2008 and fiscal 2009 we awarded our executive officers, as well as our non-executive
officers, performance-based option awards that vest wholly or partly only if our companys
financial performance meets certain specified criteria. Performance-based options will only
be of value to those awarded the options if our company meets the performance criteria
specified in the option grants. As it is increasingly common for stock option plans to
include performance-based option awards, we incorporated that component to trigger vesting
of the option grants. The terms of the performance-based options that we awarded in fiscal
2008 and fiscal 2009 to our named executive officers are described below under Compensation
of Our Named Executive OfficersLong-Term Incentives2008 Stock Option Grants and
Compensation of Our Named Executive OfficersLong-Term Incentives2009 Stock Option
Grants.
- 54 -
In April 2009 we granted to Mr. Young stock appreciation rights that will be settled in
shares of our common stock. The exact amount of shares to be awarded to Mr. Young pursuant
to the stock appreciation rights will be dependent on the average growth during the period
from October 1, 2009 through September 30, 2011 in sales, earnings per share and earnings
before interest, taxes and amortization of our company as compared to the
base year ended September 30, 2007. The stock appreciation rights are described in more
detail in Employment Agreements; Potential Payments Upon Termination or Change-in-Control
below. In connection with the negotiation of Mr. Youngs employment agreement, the
Compensation Committee determined that a long-term incentive award was an appropriate equity
incentive to further align Mr. Youngs interests with those of shareholders, as well as a
means to provide Mr. Young with liquidity upon the exercise of such rights. There is no
current expectation that a long-term incentive award will be adopted for other executive
officers.
No constant criteria or formula is used in determining the amount of a bonus or the number of
stock-based awards to grant to our executive officers or in determining the allocation of
compensation among salary, bonus and stock-based awards. The Compensation Committee considers
compensation in total (base salary, bonus and long-term incentives) for each executive officer.
The Compensation Committee uses its discretion to make a determination of the effectiveness of the
executive and the extent of the executives contributions to our companys success and, based on
that determination, recommends to the full board the amount of a bonus and/or the number of
stock-based awards to be awarded to executive officers. In determining the bonus amounts for
fiscal 2008 and fiscal 2009, the Compensation Committee reviewed the practices of other companies
with similar businesses and similar positions in the marketplace that are of like size. In
determining whether to make grants of stock-based awards to our executive officers, the
Compensation Committee will often review the history of prior grants made to these individuals, the
status of the vesting of prior grants and the amounts, if any, that have been or may be realized by
these individuals from the prior grants.
We generally pay bonuses shortly after our fiscal year has ended, in conjunction with a review
of our companys performance during that fiscal year. We do not have fixed dates on which we issue
stock-based awards. We often issue stock-based awards to executive officers when they are hired or
when they assume a new position or take on greater responsibilities. We usually grant stock-based
awards outside of the blackout period established under our insider trading policy during which
directors and executive officers are forbidden to purchase or sell their shares of our common
stock. We do not have a program, plan or practice to coordinate stock-based grants to our
executives or any other recipients of stock-based awards with the release of material non-public
information.
The Compensation Committee has not historically benchmarked or tied any element of
compensation to the performance by our company relative to a peer group or to a broader index, such
as the S&P 500 Index, and it did not do so in fiscal 2008 or fiscal 2009.
In addition to the three main elements of compensation, we have traditionally paid for some
personal benefits and perquisites of our executive officers. The amounts of the personal benefits
and perquisites have traditionally been modest. While the personal benefits and perquisites that
we award confer a direct or indirect benefit, often of a personal nature, on our executive officers
and are not generally available to all employees, our Compensation Committee and board have
determined that there are sound business reasons for awarding them, such as the ability to attract
and retain executive officers. For example, as discussed below under the Summary Compensation
Table, in fiscal 2008 and fiscal 2009 we provided a car allowance to each of our two named
executive officers. Our Compensation Committee believes that a car
allowance for members of senior management is a standard reimbursement item for
similarly-situated companies and is thus a necessary expense to attract and retain executive
officers.
- 55 -
Our company pays for a group life insurance policy that covers certain of our employees,
including Mr. Young and Mr. Weston. Benefits under the group life insurance policy are payable to
the beneficiaries of the covered employees in the event of their death. Our company also pays for
a group health insurance policy that covers certain of our employees, including Mr. Young and Mr.
Weston. The amount of the premium attributable to coverage of each of Mr. Young and Mr. Weston
under the group life insurance policy and under the health insurance policy is de minimus.
Process
Under NASDAQ rules, the compensation of our executive officers must be determined, or
recommended to the board for determination, by the Compensation Committee. As a general matter,
the Compensation Committee recommends, for full board consideration and approval, the compensation
of our executive officers, to the extent not set forth in an executive officers employment
agreement. The Compensation Committee seeks the input of our chief executive officer in
determining the compensation of executive officers other than the chief executive officer to
recommend to the full board. While the Compensation Committee also seeks input from the chief
executive officer on what he believes is an appropriate salary for himself, the Compensation
Committee determines in its discretion, at a meeting of the committee at which no members of
management are present, the amount of chief executive officer compensation to recommend to the full
board.
The Compensation Committee was in session during each of the formal meetings of our companys
board of directors during the fiscal year ended September 30, 2009. The Compensation Committee
also held four formal meetings during fiscal 2009; it did not act by unanimous written consent
during that period. The members of the Compensation Committee held numerous informal meetings
(consisting generally of telephone conference calls) among themselves during fiscal 2009. Mr.
Youngs employment agreement was approved by the full board in January 2008 and the issuance of his
stock appreciation rights was approved by the full board in April 2009. Prior to the approval of
Mr. Youngs employment agreement and the issuance of his stock appreciation rights, the members of
the Compensation Committee had spent considerable time in negotiating Mr. Youngs employment
agreement and his stock appreciation rights, so that by the time the full board approved the
employment agreement and the stock appreciation rights they bore the imprimatur of the Compensation
Committee. Mr. Youngs employment agreement and his stock appreciation rights are described below
under Employment Agreements; Potential Payments upon Termination or Change-in-Control.
At the four formal meetings of the Compensation Committee that were held in fiscal 2009, no
individuals other than the members of the Compensation Committee were present. However, during its
informal meetings that it held throughout fiscal 2009, advisors were sometimes present when
executive compensation was discussed.
- 56 -
We retained Towers Perrin, a leading compensation consultant with expertise in healthcare
services industry compensation practices, to assist us in structuring Mr. Youngs
compensation. Towers Perrin provided a third-party perspective based on their extensive
knowledge of the healthcare services industry and it advised the Compensation Committee of
developments in the design of compensation programs. At the Compensation Committees discretion,
Towers Perrin may be asked to attend and participate in Compensation Committee meetings that deal
with executive pay matters.
To the knowledge of the members of the Compensation Committee, no member of management
retained a compensation consultant on his behalf during fiscal 2009.
Compensation of our Named Executive Officers
This section discusses the amount of each element of compensation paid to our named executive
officers in respect of fiscal 2009.
Base Salary. The base salaries for fiscal 2009 for Alexander (Sandy) Young, who has
served as chief executive officer of our company since January 2008, and Paul Weston, who
served as chief financial officer designate from May 2008 until September 2008 and as chief
financial officer since October 2008, were approved by the full board, upon the
recommendation of the Compensation Committee. In the case of Mr. Young, his base salary was
negotiated and memorialized in the employment agreement that he entered into in January 2008
when he became our chief executive officer. Mr. Weston received an increase in base salary
when he was appointed as chief financial officer designate in May 2008 and a subsequent
increase in January 2009 as part of the annual salary increase.
Bonus. The Compensation Committee recommended to the board of directors that Mr.
Young be paid a bonus of £65,000 ($128,252) in respect of our 2008 fiscal year and £86,520
($134,244) in respect of our 2009 fiscal year and that Mr. Weston be paid a bonus of £44,000
($86,816) in respect of our 2008 fiscal year and £55,878 ($86,700) in respect of our 2009
fiscal year. The non-employee members of the board of directors approved the
recommendations of the Compensation Committee.
In determining the bonuses to recommend in respect of our 2008 fiscal year, the Compensation
Committee, in addition to reviewing our financial performance during the year, took note of
the fact that Mr. Young and Mr. Weston had performed their duties well and achieved a smooth
transition of responsibilities from their respective predecessors. In determining the
bonuses to recommend in respect of our 2009 fiscal year, the Compensation Committee, in
addition to reviewing our financial performance during the year, took note of the fact that
Mr. Young continued to lead our company in a manner approved by the board and had improved
our operations by, among other things, implementing actions to accelerate growth, and that
Mr. Weston had continued to provide solid financial leadership to our company and continued
to be a critical executive in driving the Company s growth.
- 57 -
Long-Term Incentives2008 Stock Option Grants. During fiscal 2008, we granted the
following options to purchase shares of our common stock under our 2002 Stock Option Plan to
our named executive officers as compensation in respect of our 2008 fiscal year,
all of which have time-based vesting and performance-based vesting: (1) 200,000 to Mr.
Young, and (2) 80,000 to Mr. Weston. The exercise price of Mr. Youngs options is $2.11 per
share and the exercise price of Mr. Westons options is $2.01 per share (in each case, the
closing price of a share of our common stock on the date of grant). Each of the options has
a ten-year term.
Mr. Youngs options were granted pursuant to the employment agreement with our company that
he entered into in January 2008. The terms of Mr. Youngs options were finalized in April
2009. The options will vest in full on September 30, 2011, subject to the satisfaction by
our company of certain performance criteria. The performance criteria for Mr. Youngs
options are the same as the performance criteria for his stock appreciation rights, which
are described below under Long-Term IncentivesStock Appreciation Rights.
The terms of the options granted to Mr. Weston in fiscal 2008 provided that 25% will vest on
the date that our company files its Annual Report on Form 10-K for its fiscal year ending
September 30, 2009 with the Securities and Exchange Commission, 25% will vest on May 14,
2010 and 50% will vest on May 14, 2011. In addition to, and not in lieu of these time-based
vesting requirements, the options are subject to performance-based vesting requirements as
follows:
if our earnings before interest, taxes, depreciation and amortization (EBITDA) for
fiscal 2009 exceeds our EBITDA for fiscal 2008 by 20% or more, then all of the options will
vest;
if our EBITDA for fiscal 2009 exceeds our EBITDA for fiscal 2008 by 15% or more but less
than 20%, then 50% of the options will vest;
if our EBITDA for fiscal 2009 exceeds our EBITDA for fiscal 2008 by 10% or more but less
than 15%, then 25% of the options will vest; and
if our EBITDA for fiscal 2009 exceeds our EBITDA for fiscal 2008 by less than 10%, then
none of the options will vest.
On the date of filing of this Form 10-K, 20,000 of the 2008 options granted to Mr. Weston
will vest.
Long-Term Incentives2009 Stock Option Grants. During fiscal 2009, we granted Mr.
Weston options to purchase 80,000 shares of our common stock under our 2002 Stock Option
Plan as compensation in respect of our 2009 fiscal year. These options have both time-based
vesting and performance-based vesting. We did not grant Mr. Young any options in fiscal
2009 (although, as described above under Long-Term Incentives2008 Stock Option Grants, we
finalized the terms of Mr. Youngs fiscal 2008 option grants in April 2009). The exercise
price of Mr. Westons options is $2.12 per share (the closing price of a share of our common
stock on the date of grant). The options have a ten-year term.
- 58 -
Of the 80,000 shares underlying the options granted to Mr. Weston in fiscal 2009, 48,000 are
denominated Performance Based Shares and 32,000 are denominated Non-Performance Based
Shares. Twenty five percent (25%) of the Performance Based Shares will vest on the date
that our company files its Annual Report on Form 10-K for its fiscal year ending September
30, 2010 with the Securities and Exchange Commission, 25% of the Performance Based Shares
will vest on June 17, 2011 and 50% of the Performance Based Shares will vest on June 17,
2012. In addition to, and not in lieu of these time-based vesting requirements, the
Performance Based Shares are subject to performance-based vesting requirements as follows:
if our earnings before interest, taxes and amortization (EBITA) for fiscal 2010 exceeds
our EBITA for fiscal 2009 by 30% or more, then all of the Performance Based Shares will
vest;
if our EBITA for fiscal 2010 exceeds our EBITA for fiscal 2009 by 25% or more but less
than 30%, then 50% of the Performance Based Shares will vest;
if our EBITA for fiscal 2010 exceeds our EBITA for fiscal 2009 by 20% or more but less
than 25%, then 25% of the Performance Based Shares will vest; and
if our EBITA for fiscal 2010 exceeds our EBITA for fiscal 2009 by less than 20%, then none
of the Performance Based Shares will vest.
With respect to the Non-Performance Based Shares granted to Mr. Weston:
25% will vest on the date that our company files its Annual Report on Form 10-K for its
fiscal year ending September 30, 2010 with the Securities and Exchange Commission;
25% will vest on June 17, 2011; and
50% will vest on June 17, 2012.
Long-Term IncentivesStock Appreciation Rights. In our employment agreement with
Mr. Young, we agreed to grant to him (in addition to stock options) a long-term incentive
award. In April 2009, our board of directors, upon the recommendation of the Compensation
Committee, made a grant of 566,135 stock appreciation rights to Mr. Young. The stock
appreciation rights will vest on September 30, 2011 and will be settled in shares of common
stock of our company. The exact amount of stock appreciation rights to be awarded to Mr.
Young is dependent on the average growth of our company during the period from October 1,
2009 through September 30, 2011 in each of three areas: (1) sales, (2) earnings per share
and (3) EBITA, in each case as compared to the base year ended September 30, 2007. However,
the potential maximum value of the stock appreciation rights (when aggregated with the value
of the vested portion of the option to purchase 200,000 shares of our common stock held by
Mr. Young) will be capped at £3,000,000. The stock appreciation rights are described in
more detail in Employment Agreements; Potential Payments Upon Termination or
Change-in-Control.
- 59 -
Personal Benefits and Perquisites. Our company has traditionally paid a relatively
modest amount to our named executive officers by way of personal benefits and perquisites.
For each of our two named executive officers, we paid a car allowance in fiscal 2008
($17,060 in the case of Mr. Young and $7,399 in the case of Mr. Weston) and fiscal 2009
($18,619 in the case of Mr. Young and $13,964 in the case of Mr. Weston). We also
contributed $44,781 and $19,114, respectively, to Mr. Youngs and Mr. Westons U.K.-based
private pension fund in fiscal 2008 and $49,731 and $33,700, respectively, in fiscal 2009.
The contribution to Mr. Youngs and Mr. Westons private pension fund was made pursuant to
the terms of their respective employment agreements.
Potential Payments upon Termination or Change-in-Control
As discussed more fully below under Employment Agreements; Potential Payments Upon
Termination or Change-in-Control, we have entered into employment agreements with each of Mr.
Young and Mr. Weston. The decisions to enter into employment agreements and the terms of those
agreements were based on our companys need to attract and retain executives responsible for the
long-term growth of our company.
Pursuant to our employment agreement with Mr. Young, we are required to give him at least 12
months notice of termination of employment. Pursuant to our employment agreement with Mr. Weston,
we are required to give him six months notice of termination of employment. In addition, Mr.
Westons employment agreement provides that if he is terminated due to an acquisition, we will pay
him 12 months salary in lieu of notice.
We have structured Mr. Westons change in control severance compensation as double trigger
benefits. In other words, the change of control does not itself trigger benefits; rather, benefits
are paid only if the employment of the executive is terminated due to a change of control. We
believe a double trigger benefit maximizes shareholder value because it prevents an unintended
windfall to executives in the event of a friendly change of control, while still providing
appropriate incentives to cooperate in negotiating any change of control. In all, the severance
benefits were designed to provide our executive officers with a certain measure of job security and
protection against termination without cause and termination or loss of employment through no fault
of their own.
Information regarding our change of control arrangements with Mr. Weston is set forth below
under Employment Agreements; Potential Payments Upon Termination or Change-in-Control.
Tax and Accounting Implications of Executive Compensation
Tax and accounting issues are considered by the Compensation Committee in setting compensation
policies.
Section 162(m) of the Internal Revenue Code denies a deduction to any publicly-held
corporation for compensation paid to certain covered employees in a taxable year to the extent that
compensation exceeds $1,000,000 for the covered employee. Under Section 162(m), certain
performance-based compensation that has been approved by our shareholders is not subject to this
limitation. As a result of this exclusion, stock options granted under our 2002 Stock Option
Plan are not subject to the limitations of Section 162(m). However, since our board retains
discretion over cash bonuses, those bonuses do not qualify for the exemption for performance-based
compensation. Since none of our executive officers had compensation in excess of $1,000,000 that
was subject to Section 162(m) limitations in fiscal 2009, Section 162(m) was not applicable.
- 60 -
We make decisions about the grant of stock options based partly on the accounting treatment
they receive under the accounting guidance for stock compensation. This guidance requires
companies to recognize in their income statement the grant-date fair value of stock options and
other equity-based compensation issued to employees. The effect of this guidance is to reduce our
reported profits by the cost of our stock-based awards. See Note 9 of Notes to Consolidated
Financial Statements for our fiscal year ended September 30, 2009 for a discussion of the
assumptions made in determining the grant-date fair value.
While the Compensation Committee attempts to recommend compensation for executives that
produces favorable tax and accounting treatment for our company, its main objective is to develop
fair and equitable compensation arrangements that attract, motivate and retain talented executives.
Stock Ownership Guidelines
While we have not adopted equity or other security ownership requirements or guidelines that
specify any minimum amounts of ownership for our directors or our executive officers, we encourage
our officers and directors to maintain at least some equity in our company and to align their
interests with those of our stockholders. We have adopted policies that restrict the circumstances
in which executives may hedge the economic risk of common stock ownership. Our insider trading
policy prohibits both short sales (i.e., selling stock that is not owned and borrowing shares to
make delivery) and the buying or selling of puts, call or other derivatives in respect of
securities of our company, other than long-term hedging transactions that are designed to protect
an individuals investment in our company and that are pre-cleared in accordance with the
procedures set forth in our insider trading policy. In order to meet the criteria that a long-term
hedging transaction be designed to protect an individuals investment in our company, our insider
trading policy requires that any hedge must be for at least one year and relate to stock or options
held by the individual.
Compensation Committee Report
The information contained in this Compensation Committee Report shall not be deemed
soliciting material or to be filed with the Securities and Exchange Commission or subject to
the liabilities of Section 18 of the Securities Exchange Act of 1934, except to the extent that we
specifically incorporate it by reference into a document filed under the Securities Act of 1933 or
the Securities Exchange Act of 1934.
- 61 -
The Compensation Committee of the board of directors has reviewed and discussed the
Compensation Discussion and Analysis set forth above with management and, based on such review and
discussions, the Compensation Committee recommended to the board of directors
that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.
The Compensation Committee
Sophia Corona
Mark Hanley
Jeffrey S. Peris
Executive Compensation
Summary Compensation Table
The following table summarizes all compensation earned by or paid to our named executive
officers in fiscal 2009 and fiscal 2008. None of the individuals named in the table below served
as an executive officer of our company in fiscal 2007; therefore, compensation for fiscal 2007 for
these individuals is not included in the table below.
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Option |
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Awards |
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(including |
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Stock |
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Name and |
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Appreciation |
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All Other |
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Principal |
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Fiscal |
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Salary |
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Bonus |
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Rights) |
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Compensation |
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Total |
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Position(s) |
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Year |
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($) |
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($) |
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($)(3) |
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($) |
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($) |
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Alexander (Sandy) Young, |
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2009 |
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$ |
333,167 |
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$ |
134,244 |
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$ |
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(4) |
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$ |
68,350 |
(6)(7) |
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$ |
535,761 |
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Chief Executive
Officer(1) |
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2008 |
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$ |
298,545 |
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$ |
128,252 |
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| |
(5) |
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$ |
61,842 |
(6)(7) |
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$ |
488,639 |
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Paul Weston, |
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2009 |
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$ |
245,909 |
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$ |
86,700 |
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$ |
36,340 |
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$ |
47,664 |
(7)(8) |
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$ |
416,613 |
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Chief Financial Officer(2) |
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2008 |
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$ |
127,429 |
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$ |
86,816 |
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$ |
93,185 |
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$ |
26,514 |
(7)(8) |
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$ |
333,944 |
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(1) |
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Mr. Young became our chief executive office in January 2008. |
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(2) |
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From 2004 until September 2008, Mr. Weston was our companys financial director in the United
Kingdom. In May 2008, Mr. Weston was appointed the chief financial officer designate of our
company and in October 2008 he became the chief financial officer of our company. |
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(3) |
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The amounts in this column show the amount of compensation cost recognized for financial
statement reporting purposes (disregarding any estimate of forfeitures related to
service-based vesting conditions). They do not reflect compensation actually received by the
named executive officers. The amounts shown in this column have been calculated in accordance
with the accounting guidance for option awards. See Note 9 of Notes to Consolidated Financial
Statements for our fiscal year ended September 30, 2009 for a discussion of the assumptions
made in determining the grant-date fair value. The actual value, if any, that an executive
officer will realize upon the exercise of the stock options or stock appreciation rights
issued to him will be equal to the excess of the trading price of shares of our common stock
on the date that the shares underlying the options or the stock appreciation rights are sold
over the exercise price of the options or the base price of the stock appreciation rights,
less any transaction costs. The grant date fair market value of the stock options granted in
fiscal 2009 is shown in the Grant of Plan-Based Awards table below. |
- 62 -
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(4) |
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We did not recognize a compensation cost associated with the 200,000 options awarded during
fiscal 2008 and the 566,135 stock appreciation rights awarded during fiscal 2009 to Mr. Young
pursuant to his employment agreement, as we estimated that none of the performance measures
will be achieved. A change in the estimate of the performance measures vesting could result in the company
incurring stock compensation cost over a period through September 30, 2011. |
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(5) |
|
We did not recognize a compensation cost associated with the 200,000 options awarded during
fiscal 2008 to Mr. Young pursuant to his employment agreement. Because the criteria for a
grant date for these options had not been established as of the end of our 2008 fiscal year,
they were not considered granted for accounting purposes. |
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(6) |
|
In fiscal 2009, represents payment for a car allowance of $18,619 and payments of $49,731
toward Mr. Youngs U.K.-based private pension fund. In fiscal 2008, represents payment for a
car allowance of $17,060 and payments of $44,782 towards Mr. Youngs U.K.- based private
pension fund. |
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(7) |
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Our company pays for a group life insurance policy that covers certain of our employees,
including the named executive officer, and is payable to the beneficiaries of the covered
employees in the event of their death. Our company also pays for a group health insurance
policy that covers certain of our employees, including the named executive officers. The
amount listed in the All Other Compensation column does not include premiums in a de minimus
amount that are attributable to the coverage of the named executive officer under such group
life insurance policy or such group health insurance policy. |
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(8) |
|
In fiscal 2009, represents payment for a car allowance of $13,964 and payments of $33,700
towards Mr. Westons U.K.- based private pension fund. In fiscal 2008, represents payment for
a car allowance of $7,399 and payments of $19,115 towards Mr. Westons U.K.- based private
pension fund. |
Grants of Plan-Based Awards
The following table summarizes the options that our company granted to our named executive
officers during fiscal 2009. All options listed in the table were granted under our 2002 Stock
Option Plan.
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Exercise |
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Estimated Future Payouts |
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or Base |
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Grant Date |
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under Equity |
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Price of |
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Fair Value |
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Incentive Plan Awards |
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Option |
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of Stock |
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Grant |
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Threshold |
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Target |
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Maximum |
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Awards |
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and Option |
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Name |
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Date |
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(#) |
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(#) |
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(#) |
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($/Sh) |
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Awards(4) |
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Alexander (Sandy) Young |
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(1) |
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0 |
(1) |
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(1) |
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200,000 |
(1) |
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$ |
2.11 |
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$ |
119,980 |
(1) |
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4/21/09 |
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0 |
(2) |
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(2) |
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566,135 |
(2) |
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$ |
1.51 |
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$ |
274,695 |
(2) |
Paul Weston |
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6/17/09 |
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32,000 |
(3) |
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(3) |
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80,000 |
(3) |
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$ |
2.12 |
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$ |
88,016 |
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(1) |
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In February 2008, Mr. Young was awarded options to purchase up to 200,000 shares of our common
stock. The terms of these options were finalized in April 2009. See Employment Agreements;
Potential Payments Upon Termination or Change-in-Control below for a description of the options
granted to Mr. Young. Since, under the accounting guidance, the criteria for a grant date for the
stock options issued to Mr. Young had not been established as of the completion of our 2008 fiscal
year, the grant date fair value of these awards was not determined as of September 30, 2008. The
grant date fair market value of these awards that is provided in the table is the value determined
as of April 21, 2009. |
- 63 -
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(2) |
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In our employment agreement with Mr. Young, we agreed to grant to him (in addition to stock
options) a long-term incentive award. In April 2009, our board of directors, upon the
recommendation of the Compensation
Committee, made a grant of 566,135 stock appreciation rights to Mr. Young. See Employment
Agreements; Potential Payments Upon Termination or Change-in-Control below for a description of
the stock appreciation rights granted to Mr. Young. |
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(3) |
|
Of the 80,000 shares underlying the options granted to Mr. Weston in fiscal 2009, 48,000 are
denominated Performance Based Shares and 32,000 are denominated Non-Performance Based Shares.
Twenty five percent (25%) of the Performance Based Shares will vest on the date that our company
files its Annual Report on Form 10-K for its fiscal year ending September 30, 2010 with the
Securities and Exchange Commission, 25% of the Performance Based Shares will vest on June 17, 2011
and 50% of the Performance Based Shares will vest on June 17, 2012. In addition to, and not in
lieu of these time-based vesting requirements, the Performance Based Shares are subject to
performance-based vesting requirements as follows: |
if our earnings before interest, taxes and amortization (EBITA) for fiscal 2010 exceeds
our EBITA for fiscal 2009 by 30% or more, then all of the Performance Based Shares will vest;
if our EBITA for fiscal 2010 exceeds our EBITA for fiscal 2009 by 25% or more but less than
30%, then 50% of the Performance Based Shares will vest;
if our EBITA for fiscal 2010 exceeds our EBITA for fiscal 2009 by 20% or more but less than
25%, then 25% of the Performance Based Shares will vest; and
if our EBITA for fiscal 2010 exceeds our EBITA for fiscal 2009 by less than 20%, then none
of the Performance Based Shares will vest.
With respect to the Non-Performance Based Shares granted to Mr. Weston:
25% will vest on the date that our company files its Annual Report on Form 10-K for its
fiscal year ending September 30, 2010 with the Securities and Exchange Commission;
25% will vest on June 17, 2011; and
50% will vest on June 17, 2012.
|
|
|
(4) |
|
The amounts shown in this column represent the full grant date value of each equity award
computed in accordance with the accounting guidance for stock compensation. See Note 9 of Notes to
Consolidated Financial Statements for our fiscal year ended September 30, 2009 for a discussion of
the assumptions made in determining the grant-date fair value. The actual value, if any, that an
executive officer will realize upon the exercise of the stock options or stock appreciation rights
issued to him will be equal to the excess of the trading price of shares of our common stock on the
date that the shares underlying the options or stock appreciation rights are sold over the exercise
price of the options or the base price of the stock appreciation rights, less any transaction
costs. |
- 64 -
Outstanding Equity Awards at Fiscal Year End
The following table summarizes the outstanding options held by our named executive officers at
September 30, 2009.
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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Plan |
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|
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|
|
|
|
|
|
|
|
|
|
Awards: |
|
|
|
|
|
|
|
|
|
Number of |
|
|
Number of |
|
|
Number of |
|
|
|
|
|
|
|
|
|
Securities |
|
|
Securities |
|
|
Securities |
|
|
|
|
|
|
|
|
|
Underlying |
|
|
Underlying |
|
|
Underlying |
|
|
|
|
|
|
|
|
|
Unexercised |
|
|
Unexercised |
|
|
Unexercised |
|
|
Option |
|
|
|
|
|
|
Options |
|
|
Options |
|
|
Unearned |
|
|
Exercise |
|
|
Option |
|
|
|
(#) |
|
|
(#) |
|
|
Options |
|
|
Price |
|
|
Expiration |
|
Name |
|
Exercisable |
|
|
Unexercisable |
|
|
(#) |
|
|
($) |
|
|
Date |
|
Alexander (Sandy) Young |
|
|
|
|
|
|
|
|
|
|
200,000 |
(1) |
|
$ |
2.11 |
|
|
|
2/6/2015 |
(5) |
|
|
|
|
|
|
|
|
|
|
|
566,135 |
(2) |
|
|
1.51 |
|
|
|
|
|
Paul Weston |
|
|
12,000 |
|
|
|
|
|
|
|
|
|
|
$ |
6.20 |
|
|
|
3/23/2015 |
|
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
5.65 |
|
|
|
9/30/2015 |
|
|
|
|
60,000 |
|
|
|
|
|
|
|
|
|
|
|
1.92 |
|
|
|
10/16/2016 |
|
|
|
|
|
|
|
|
20,000 |
(3) |
|
|
60,000 |
(3) |
|
|
2.01 |
|
|
|
5/14/2018 |
|
|
|
|
|
|
|
|
32,000 |
|
|
|
48,000 |
(4) |
|
|
2.12 |
|
|
|
6/17/2019 |
|
|
|
|
(1) |
|
Represents options to purchase 200,000 shares of our common stock. See Employment Agreements;
Potential Payments Upon Termination or Change-in-Control for a description of these options. |
|
(2) |
|
Represents stock appreciation rights to purchase up to 566,135 shares of our common stock. See
Employment Agreements; Potential Payments Upon Termination or Change-in-Control for a description
of these stock appreciation rights. The potential maximum value of the stock appreciation rights
(when aggregated with the actual or, if still unexercised, expected value of the 200,000 stock
options) will be £3.0 million (approximately $4.8 million at the closing exchange rate at September
30, 2009). |
|
(3) |
|
In May 2008, Mr. Weston was granted 80,000 options. The terms of these options provide that
25% will vest on the date that our company files this Annual Report on Form 10-K with the
Securities and Exchange Commission, 25% will vest on May 14, 2010 and 50% will vest on May 14,
2011. In addition to, and not in lieu of these time-based vesting requirements, the options are
subject to the following performance-based vesting requirements: |
if our EBITDA for fiscal 2009 exceeds our EBITDA for fiscal 2008 by 20% or more, then all of the
options will vest;
if our EBITDA for fiscal 2009 exceeds our EBITDA for fiscal 2008 by 15% or more but less than
20%, then 50% of the options will vest;
if our EBITDA for fiscal 2009 exceeds our EBITDA for fiscal 2008 by 10% or more but less than
15%, then 25% of the options will vest; and
if our EBITDA for fiscal 2009 exceeds our EBITDA for fiscal 2008 by less than 10%, then none of
the options will vest.
- 65 -
Since
our EBITDA for fiscal 2009 exceeded our EBITDA for fiscal 2008 by 20% or more, 25% (or 20,000)
of the options will vest on the date that we file this Annual Report on Form 10-K with the
Securities and Exchange Commission.
|
|
|
(4) |
|
The terms of these options are described in the footnotes to the Grant of Plan Based Awards
table above. |
|
(5) |
|
If earned, the shares of common stock underlying the stock appreciation rights will be paid to
Mr. Young as soon as practicable after September 30, 2011. |
Exercise of Options During Fiscal 2009
None of our named executive officers exercised any options of our company held by them in our
fiscal year ended September 30, 2009.
Employment Agreements; Potential Payments
Upon Termination or Change-in-Control
Chief Executive Officer
In January 2008, we entered into an employment agreement with Alexander Young, our chief
executive officer. Pursuant to his employment agreement, Mr. Young serves as the chief executive
officer of our company at a salary of £216,300 per annum (approximately $344,400 at the closing
exchange rate at September 30, 2009), subject to annual review by the Compensation Committee, and
as a director of our company. Mr. Youngs employment agreement provides that it shall continue
until terminated by either party giving the other party no less than 12 months prior written
notice. In addition, the employment agreement automatically terminates on Mr. Youngs 65th
birthday. Pursuant to his employment agreement:
|
|
|
we awarded Mr. Young 200,000 stock options in February 2008; |
|
|
|
we granted Mr. Young 566,135 stock appreciation rights in April 2009, the terms of
which are described below; |
|
|
|
we provide Mr. Young with a car allowance; and |
|
|
|
we have agreed to make a payment equal to 15% of Mr. Youngs annual salary towards
his U.K.-based private pension fund. |
In April 2009, our board of directors, upon the recommendation of our Compensation Committee,
made a grant of 566,135 stock appreciation rights to Mr. Young. The stock appreciation rights
represent the right to receive a payment, in shares of our common stock, equal to the product of
(a) the number of stock appreciation rights granted that vest and (b) the excess of (i) the closing
sale price of a share of our common stock on the date that the stock appreciation rights are
settled over (ii) the base price of $1.51 (the closing price of a share of our common stock on
NASDAQ on April 21, 2009, the date that the stock appreciation rights were granted to Mr. Young).
- 66 -
The stock appreciation rights are subject to both time vesting and performance vesting.
Time Vesting. The stock appreciation rights generally will not vest if Mr. Youngs
employment with our company is terminated prior to January 14, 2011, the third anniversary
of the date he became our chief executive officer. However, if Mr. Youngs employment
terminates because of his death or disability, he shall become vested in the stock
appreciation rights to the extent determined by the Compensation Committee. The
Compensation Committees determination shall be made by multiplying that portion of the
stock appreciation rights that are deemed potentially to have vested by reason of
satisfaction of the applicable performance levels by a fraction, the numerator of which is
the number of completed months elapsed since October 1, 2007 through the date of termination
of employment and the denominator of which is 48.
In addition, in the event of a change of control (as defined in the stock appreciation
rights agreement), the stock appreciation rights will become immediately vested to the same
extent provided in the previous paragraph and shall be exercisable for a period of 30 days
after the change of control. If Mr. Youngs employment with our company is terminated for
reasons that the Compensation Committee determines constitutes cause (as defined in the
stock appreciation rights agreement), the stock appreciation rights will be forfeited,
without regard to whether they have become vested.
Performance Vesting. The determination of whether the stock appreciation rights
have vested will be made as soon as practicable after the fiscal year ending September 30,
2011 and will be based on the achievement of the performance measures set forth in the stock
appreciation rights agreement with Mr. Young. The stock appreciation rights agreement
establishes a threshold, base and stretch level of improvement (in percentage terms) in
growth in each of sales, earnings per share and EBITA during the period from October 1, 2009
through September 30, 2011 as compared to the base year ended September 30, 2007 and
provides that the amount of stock appreciation rights that will vest will be dependent on
whether the threshold, base and stretch levels have been met in each performance measure.
The determination of vesting attributable to each performance measure shall be independent
from the other performance measures. A performance below threshold in one performance
measure does not preclude vesting under any other performance measure.
If the actual results for any performance measure fall between the threshold and the base,
or between the base and the stretch, vesting of the stock appreciation rights will be
prorated.
The stock appreciation rights agreement with Mr. Young provides that the potential maximum
value of the stock appreciation rights (when aggregated with the value of the vested portion
of the option to purchase 200,000 shares of our company common stock held by Mr. Young) is
£3 million. If the total value of the stock appreciation rights and the value of the vested
portion of Mr. Youngs options exceeds £3 million, then the base price of $1.51 for the
stock appreciation rights will be increased so that the total value is equal to £3 million.
- 67 -
In April 2009, in addition to the grant of the stock appreciation rights, our board of
directors, upon the recommendation of our Compensation Committee, finalized the performance-based
vesting conditions of the 200,000 options to purchase shares of common stock of the company held by
Mr. Young. These options had been granted in February 2008 at an exercise price of $2.11 per
share. The vesting of the stock options will be subject to vesting in the same manner as the stock
appreciation rights.
Mr. Youngs employment agreement does not provide for payments to be made to him at, following
or in connection with a change of control of our company. In lieu of the 12 months prior written
notice of termination, our employment agreement with Mr. Young provides that we may terminate the
employment agreement at any time by making a payment to Mr. Young equal to his salary for the
notice period (or, if applicable, the remainder of the notice period) and the cost to us of
providing Mr. Young with his health insurance, car allowance and contribution to his U.K.-based
private pension fund for the notice period (or, if applicable, the remainder of the notice period).
The following table illustrates that benefits that Mr. Young would have been entitled to receive
pursuant to this employment agreement, assuming (i) our company terminated his employment on
September 30, 2009, and (ii) we chose to pay his salary and benefits in one lump sum, rather than
provide him with 12 months notice of termination:
|
|
|
|
|
Severance payment in lieu of salary |
|
$ |
344,400 |
|
|
|
|
|
|
Severance payment in lieu of health insurance |
|
$ |
3,463 |
|
|
|
|
|
|
Severance payment in lieu of car allowance |
|
$ |
19,106 |
|
|
|
|
|
|
Severance payment in lieu of payment towards
U.K.-based private pension fund |
|
$ |
51,659 |
|
|
|
|
|
|
|
|
|
|
Total: |
|
$ |
418,628 |
(1) |
|
|
|
|
|
|
|
(1) |
|
Represents a single payment. |
Chief Financial Officer
In May 2008 we entered into an employment agreement with Paul Weston, who was then serving as
our chief financial officer designate. Mr. Weston became our chief financial officer in October
2008. Our employment agreement with Mr. Weston provides that either party may terminate the
agreement upon six months written notice. In addition, under our employment agreement with Mr.
Weston, we are required to pay him 12 months salary in the event he is terminated due to an
acquisition. Our employment agreement with Mr. Weston further provides that Mr. Weston will not
compete against us for a period of six months following the termination of his employment with us.
Pursuant to his employment agreement, Mr. Weston currently receives a salary of £159,650
(approximately $254,200 at the closing exchange rate at September 30, 2009). In addition, pursuant
to his employment agreement with us, Mr. Weston receives a car allowance and we have agreed to make
a payment equal to 15% of his annual salary towards his U.K.-based private pension fund. In the
event that Mr. Westons employment had been terminated on September 30, 2009 due to an acquisition,
we would have been required to pay him $254,200 in a single lump sum payment.
- 68 -
Director Compensation
The following table summarizes the compensation paid to our directors during fiscal 2009.
Director Compensation Table for Fiscal 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned |
|
|
|
|
|
|
|
|
|
or Paid in |
|
|
Option |
|
|
|
|
|
|
Cash |
|
|
Awards |
|
|
Total |
|
Name (1)(2) |
|
($) |
|
|
($)(5)(6) |
|
|
($) |
|
Sophia Corona |
|
$ |
53,083 |
|
|
$ |
64,071 |
|
|
$ |
117,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G. Richard Green |
|
$ |
45,000 |
|
|
$ |
60,541 |
|
|
$ |
105,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Hanley(3) |
|
$ |
31,542 |
|
|
$ |
21,180 |
|
|
$ |
52,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wayne Palladino |
|
$ |
48,083 |
|
|
$ |
64,071 |
|
|
$ |
112,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey S. Peris |
|
$ |
76,500 |
|
|
$ |
79,913 |
|
|
$ |
156,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ann Thornburg |
|
$ |
60,000 |
|
|
$ |
78,148 |
|
|
$ |
138,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Tompkins(4) |
|
$ |
59,750 |
|
|
$ |
28,201 |
|
|
$ |
87,951 |
|
|
|
|
(1) |
|
Alexander (Sandy) Young, who has served as a director of our company since January 2008,
is not included in this table because he is an employee of our company who received no additional
compensation for services as a director. The compensation received by Mr. Young as an employee of
our company during fiscal 2009 is reflected in the Summary Compensation Table. |
|
(2) |
|
Except as otherwise indicated, each individual named below served as a director of our
company for all of fiscal 2009. |
|
(3) |
|
Mark Hanley joined our board of directors on January 29, 2009. |
|
(4) |
|
Mark Tompkins resigned from our board of directors effective as of June 8, 2009. |
|
(5) |
|
The amounts in this column show the amount of compensation cost recognized for financial
statement reporting purposes (disregarding any estimate of forfeitures related to service-based
vesting conditions). The amounts shown represent the grant date fair value of the option, computed
in accordance with the accounting guidance for stock compensation. The amounts shown do not
reflect compensation actually received by the named directors. See Note 9 of Notes to Consolidated
Financial Statements for our fiscal year ended September 30, 2009 for a discussion of the
assumptions made in determining the grant-date fair value. The actual value, if any, that a
director will realize upon the exercise of the stock options issued to him or her will be equal to
the excess of the trading price of shares of our common stock on the date that the shares
underlying the options are sold over the exercise price of the options, less any transaction costs. |
- 69 -
|
|
|
(6) |
|
As of September 30, 2009, each director listed in the table above had the option awards
outstanding set forth below: |
|
|
|
Sophia Corona: 220,000 |
|
|
|
|
G. Richard Green: 222,000 |
|
|
|
|
Mark Hanley: 60,000 |
|
|
|
|
Wayne Palladino: 241,000 |
|
|
|
|
Jeffrey S. Peris: 299,000 |
|
|
|
|
Ann Thornburg: 275,000 |
|
|
|
|
Mark Tompkins: 100,000 |
Director Compensation General
We use a combination of cash and stock option grants to attract and retain qualified
candidates to serve on our board of directors. In setting director compensation, our board
considers the amount of time that directors expend in fulfilling their duties, as well as the
expertise that the board members bring to our company.
Cash Compensation
We do not pay directors who are employees of our company additional cash compensation for
their services as a director. Our cash compensation program for non-employee directors is as
follows:
|
|
|
each non-employee director is entitled to an annual retainer of $30,000 per
year; |
|
|
|
each non-employee director who is a member of our Audit Committee, our
Compensation Committee or our Nominating and Corporate Governance Committee (other
than the chairpersons) is entitled to receive an additional $5,000 per year for
service on those committees; |
|
|
|
the chairperson of our Audit Committee and our Nominating and Corporate
Governance Committee, is entitled to receive $20,000 per year for serving as such,
which amount is in addition to the $30,000 annual retainer paid to non-employee
directors; |
|
|
|
the co-chairpersons of the Strategic Investment Committee are each entitled to
receive $10,000 per year for serving as such, which amounts are in addition to the
$30,000 annual retainer paid to all non-employee directors; |
|
|
|
the non-executive chairman of the board is entitled to receive $100,000 per year
(which amount includes the $30,000 annual retainer paid to all non-employee
directors) Our non-executive chairman of the board also serves as the chairperson
of our Compensation Committee, but he does not receive additional remuneration for
serving as such. |
- 70 -
In addition, in June 2009 the board approved a one-time payment of $10,000 to each
non-employee member of the board in recognition of the unusual and extraordinary services that had
been performed by such individuals for the benefit of our company over the previous year.
We make payments to our directors of the amounts to which they are entitled on a quarterly
basis.
Equity-Based Compensation
In order to ensure that directors have an ownership interest aligned with our shareholders,
our board has granted to non-employee directors options to purchase shares of our common
stock. In connection with its periodic review of director compensation, in June 2009 our
board granted options to purchase 60,000 shares of our common stock at a price of $2.12 per share
(the closing price of a share of our common stock on the date of grant) to each non-employee
director. In connection with this grant of options, the chairperson of both our Audit Committee
and our Nominating and Corporate Governance Committee received options to purchase an additional
15,000 shares of our common stock, our chairman, who also serves as the chairman of our
Compensation Committee, received options to purchase an additional 20,000 shares of our common
stock, and the co-chairs of our Strategic Investment Committee each received options to purchase an
additional 10,000 shares of our common stock. Accordingly, in June 2009 we issued options to
purchase an aggregate of 415,000 shares of our common stock to our non-employee directors.
The equity-based compensation that we pay to our chief executive officer, who is also a
director of our company, is discussed above under Executive Compensation and Employment
Agreements; Potential Payments Upon Termination or Change-in-Control.
Our board anticipates that it will review board compensation annually in conjunction with the
boards review of executive officer salaries and benefits.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Sophia Corona, Mark Hanley and Jeffrey S. Peris. Dr.
Peris serves as chairman of the Compensation Committee. Ms. Corona and Dr. Peris served on our
Compensation Committee throughout fiscal 2009. Mr. Hanley was appointed to the Compensation
Committee in June 2009. From the beginning of our 2009 fiscal year until June 2009, G. Richard
Green was a member of the Compensation Committee. Except for Mr. Hanley, who served from 1995 to
1997 as an executive director/director of business development of Transworld Healthcare (UK)
Limited, a subsidiary of our company now known as Allied Healthcare Holdings Limited, none of Ms.
Corona or Messrs. Green, Hanley or Peris has ever served as an officer or employee of our company
or any of our subsidiaries, nor has any such individual had a business relationship with our
company or any of our subsidiaries during fiscal 2009 that requires disclosure under the rules of
the Securities and Exchange Commission. In addition, during fiscal 2009, no executive officer of
our company served as either a director or a member of the compensation committee (or other board
committee performing equivalent functions) of another entity, one of whose executive officers
served on our companys Compensation Committee or board of directors.
- 71 -
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth the number of shares of common stock, and the percentage of
shares of common stock, beneficially owned as of November 30, 2009 (the Determination Date)
(except as noted in the footnotes below) by (1) each director of our company, (2) each current
named executive officer, (3) all persons known by us to be the beneficial owner of more than 5% of
our outstanding shares of common stock, and (4) all current directors and named executive officers
of our company as a group (8 persons). The information as to the number of
shares of our common stock beneficially owned by the individuals and entities listed below was
derived from reports filed with the Securities and Exchange Commission by such persons and company
records. To our knowledge, except as indicated in the footnotes to the table, the persons named in
the table have sole voting and investment power with respect to all shares of our common stock
shown as beneficially owned by them. Except as set forth below, the address of each of the
following holders of shares of our common stock is c/o Allied Healthcare International Inc., 245
Park Avenue, New York, New York 10167.
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Shares of |
|
|
Percentage of |
|
|
|
Common Stock |
|
|
Common Stock |
|
|
|
Beneficially |
|
|
Beneficially |
|
Name |
|
Owned |
|
|
Owned(1) |
|
Alexander (Sandy) Young |
|
|
116,839 |
(2) |
|
|
* |
|
Paul Weston |
|
|
102,000 |
(3) |
|
|
* |
|
Sophia Corona |
|
|
105,000 |
(4) |
|
|
* |
|
G. Richard Green |
|
|
197,354 |
(5) |
|
|
* |
|
Mark Hanley |
|
|
15,000 |
(6) |
|
|
* |
|
Wayne Palladino |
|
|
132,164 |
(7) |
|
|
* |
|
Jeffrey S. Peris |
|
|
153,500 |
(8) |
|
|
* |
|
Ann Thornburg |
|
|
131,250 |
(9) |
|
|
* |
|
All current executive
officers and directors as
a group (8 persons) |
|
|
953,107 |
(10) |
|
|
2.1 |
% |
|
|
|
* |
|
Less than 1%. |
|
(1) |
|
As of the Determination Date, there were 45,136,229 shares of our
common stock outstanding. The percentage given for each shareholder
assumes that such shareholder has exercised the options held by such
shareholder that are exercisable within 60 days of the Determination
Date, but that no other shareholders have exercised the options held
by them. |
- 72 -
|
|
|
(2) |
|
Does not include 200,000 shares subject to options and 566,135 stock
appreciation rights held by Mr. Young that are not exercisable within
60 days of the Determination Date. |
|
(3) |
|
Consists of 102,000 shares subject to options held by Mr. Weston that
are exercisable within 60 days of the Determination Date. Does not
include 140,000 shares subject to options held by Mr. Weston that are
not exercisable within 60 days of the Determination Date. |
|
(4) |
|
Consists of 105,000 shares subject to options held by Ms. Corona that
are exercisable within 60 days of the Determination Date. Does not
include 115,000 shares subject to options held by Ms. Corona that are
not exercisable within 60 days of the Determination Date. |
|
(5) |
|
Consists of 3,000 shares of common stock held by Mr. Green, 57,995
shares of common stock held jointly by Mr. Green and his wife, 19,259
shares of common stock held by Orion Nominees Limited, an affiliate
of Mr. Green, 114,500 shares subject to options held by Mr. Green
that are exercisable within 60 days of the Determination Date and
2,600 shares owned of record by Mr. Greens wife, as to which Mr.
Green disclaims beneficial ownership. Mr. Green has shared voting
and shared dispositive power over the shares of common stock held
jointly by him and his wife and sole voting and sole dispositive
power over the shares of common stock held by Orion Nominees Limited.
Does not include an additional 107,500 shares subject to options
held by Mr. Green that are not exercisable within 60 days of the
Determination Date. |
|
(6) |
|
Consists of 15,000 shares subject to options held by Mr. Hanley that
are exercisable within 60 days of the Determination Date. Does not
include 45,000 shares subject to options held by Mr. Hanley that are
not exercisable within 60 days of the Determination Date. |
|
(7) |
|
Consists of 5,914 shares of common stock held by Mr. Palladino, 250
shares held jointly by Mr. Palladino and his wife and 126,000 shares
subject to options that are exercisable within 60 days of the
Determination Date. Does not include an additional 115,000 shares
subject to options held by Mr. Palladino that are not exercisable
within 60 days of the Determination Date. |
|
(8) |
|
Consists of 2,000 shares of common stock held by Marjon Repjel, LP
and 151,500 shares subject to options held by Dr. Peris that are
exercisable within 60 days of the Determination Date. Dr. Peris has
shared voting and shared dispositive power over the shares of common
stock held by Marjon Repjel, LP with his wife. Does not include an
additional 147,500 shares subject to options held by Dr. Peris that
are not exercisable within 60 days of the Determination Date. |
|
(9) |
|
Consists of 131,250 shares subject to options held by Ms. Thornburg
that are exercisable within 60 days of the Determination Date. Does
not include 143,750 shares subject to options held by Ms. Thornburg
that are not exercisable within 60 days of the Determination Date. |
|
(10) |
|
Includes an aggregate of 745,250 shares subject to options held by
our executive officers and directors that are exercisable within 60
days of the Determination Date and 2,600 shares owned of record by
Mr. Greens wife, as to which Mr. Green disclaims beneficial
ownership. |
- 73 -
Equity Compensation Plan Information
The following table sets forth certain information as of September 30, 2009 regarding
compensation plans under which equity securities of our company are authorized for issuance:
Equity Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
|
|
|
|
|
|
|
|
|
remaining available for |
|
|
|
|
|
|
|
|
|
|
|
future issuance under |
|
|
|
Number of securities to |
|
|
Weighted-average |
|
|
equity compensation |
|
|
|
be issued upon exercise |
|
|
exercise price of |
|
|
plans (excluding |
|
|
|
of outstanding options, |
|
|
outstanding options, |
|
|
securities reflected in |
|
|
|
warrants and rights |
|
|
warrants and rights |
|
|
column (a)) |
|
Plan Category |
|
(a) |
|
|
(b) |
|
|
(c) |
|
Equity compensation
plans approved by
shareholders |
|
|
2,991,334 |
|
|
$ |
2.22 |
|
|
|
2,431,624 |
|
Equity compensation
plans not approved
by shareholders |
|
|
566,135 |
(1) |
|
$ |
1.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,557,469 |
|
|
$ |
2.11 |
|
|
|
2,431,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The securities covered by the equity compensation plan that has not been approved by our
shareholders consist of the stock appreciation rights granted in April 2009 to our chief executive
officer. For a description of the stock appreciation rights, see Item 11Executive
CompensationEmployment Agreements; Potential Payments Upon Termination or Change-in-Control. |
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Related Party Transactions
Our certificate of incorporation and bylaws provide that our company shall indemnify our
directors and officers to the fullest extent permitted by New York law. In addition, we have
entered into indemnification agreements with each of our directors and executive officers. Neither
our certificate of incorporation, our bylaws nor our indemnification agreements place a cap on our
maximum indemnification obligations; however, our directors and officers liability insurance may
enable us to recover some or all of the amounts, if any, that we pay by way of indemnification to
our directors and executive officers.
Other than as described in the previous paragraph and other than the compensation and
severance arrangements with our named executive officers and the director compensation arrangements
described in Item 11Executive Compensation, we are not a participant in any transaction
involving more than $120,000 in which any shareholder holding more than 5% of our outstanding
common stock, any of our executive officers or directors or their immediate family members, or any
other related person (as such term is defined in the rules of the Securities and Exchange
Commission) has or will have a direct or indirect material interest.
- 74 -
Review of Related Party Transactions
Our Code of Conduct (a copy of which is filed as an exhibit to this Annual Report on Form
10-K) prohibits, among other things, our directors, officers and employees from, directly or
indirectly, engaging or participating in any transaction involving, or raising questions of, a
possible conflict between the interests of our company and the personal interests of the employee
or his or her family.
Under its charter, the Audit Committee has the responsibility of reviewing related party
transactions (other than executive and director compensation) between our company and our officers,
directors, key employees and any of their affiliates. Notwithstanding the foregoing, in some cases
(such as executive compensation arrangements), the full board has approved the related party
transaction. In addition, as a general matter, the Compensation Committee
recommends, for full board consideration and approval, the compensation of our executive
officers, to the extent not set forth in an executive officers employment agreement.
The Audit Committee considers whether to ratify or approve a related party transaction on a
case-by-case basis, rather than pursuant to a written policy. To date, there have been no
instances in which the Audit Committee has been called upon to review a related party transaction.
In reviewing any related party transaction, it is expected that the Audit Committee will examine
the terms of the transaction to determine how close they are to terms that would be likely to be
found in a similar arms-length transaction and whether they are fair and reasonable to our
company. If the related party transaction involves a non-employee director, the Audit Committee
may also consider whether the transaction would compromise the directors independence.
Director Independence
Our board of directors has determined that Sophia Corona, G. Richard Green, Mark Hanley, Wayne
Palladino, Jeffery A. Peris and Ann Thornburg are independent directors, as such term is defined
in the rules of The NASDAQ Stock Market LLC. The only current member of our board of directors who
is not independent is Alexander (Sandy) Young, who serves an executive officer of our company.
All of the members of each of our Audit Committee, our Compensation Committee and our
Nominating and Corporate Governance Committee are independent directors, as such term is defined
in the rules of The NASDAQ Stock Market LLC. The members of our Audit Committee also satisfy the
requirements for independence imposed upon audit committee members by Rule 10A-3 promulgated under
the Securities Exchange Act of 1934 by the Securities and Exchange Commission.
The NASDAQ rules for independent directors provide, among other things, that a director cannot
be considered independent if he or she has been employed by the issuer in the past three years. In
considering whether Mr. Palladino qualifies as an independent director under the NASDAQ rules,
our board of directors considered the fact that he served from February 1991 until August 2000 as
an officer of our company in various positions (including chief financial officer). In considering
whether Mr. Hanley qualifies as an independent director under the NASDAQ rules, our board of
directors considered the fact that he served from 1995 to 1997 as an executive director/director of
business development of Transworld Healthcare (UK) Limited, a subsidiary of our company now known
as Allied Healthcare Holdings Limited.
- 75 -
Item 14. Principal Accountant Fees and Services.
Audit and Other Fees During Fiscal 2009 and Fiscal 2008
The following table sets forth the fees for professional services provided by our independent
auditor in respect of our fiscal years ended September 30, 2009 and September 30, 2008 for various
audit and other services. Our independent auditor for those fiscal years was Eisner LLP.
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009 |
|
|
Fiscal 2008 |
|
|
|
|
|
|
|
|
|
|
Audit fees |
|
$ |
764,000 |
|
|
$ |
764,000 |
|
|
|
|
|
|
|
|
|
|
Audit-related fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other fees |
|
|
|
|
|
|
|
|
Audit fees include the fees for auditing our annual financial statements and reviewing the
financial statements included in our quarterly reports on Form 10-Q, as well auditing the internal
controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002. Audit
fees also include fees for services that were provided in connection with regulatory filings and
consents related to filings with the Securities and Exchange Commission.
Pre-Approval Policy
The charter of the Audit Committee was adopted by the board of directors in May 2007. The
charter of the Audit Committee provides that the Audit Committee shall pre-approve all auditing and
permitted non-audit services (including the fees and terms thereof) to be performed for us by our
independent auditor, subject to the de minimus exception (the de minimus exception) for non-audit
services that are permitted by Section 10A(i)(1)(B) of the Securities Exchange Act of 1934 and that
are approved by the Audit Committee prior to the completion of the audit.
We did not incur audit-related fees, tax fees or other fees during fiscal 2009 or fiscal 2008
from services provided to us by our independent auditor for those periods. Accordingly, no
non-audit services provided by our independent auditor were approved by the Audit Committee after
the fact in reliance upon the de minimus exception.
- 76 -
PART IV
Item 15. Exhibits and Financial Statement Schedules.
The following documents are filed as part of this Annual Report on Form 10-K:
|
|
|
|
|
|
|
Page |
|
(1) Consolidated Financial Statements: |
|
|
|
|
|
|
|
|
F-1 |
|
|
|
|
|
F-3 |
|
|
|
|
|
F-4 |
|
|
|
|
|
F-5 |
|
|
|
|
|
F-6 |
|
|
|
|
|
F-7 |
|
|
|
|
|
|
(2) Consolidated Financial Statement Schedules: |
|
|
|
|
|
|
|
|
S-1 |
|
|
|
|
|
S-5 |
|
|
Schedules other than those listed above are omitted because
they are not required or are not applicable or the
information is shown in the audited consolidated financial
statements or related notes. |
|
|
|
|
|
|
|
|
|
(3) Exhibits: |
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
Number |
|
Title |
|
|
|
|
|
|
2.1 |
|
|
Agreement, dated September 30, 2007, among Air Liquide Limited,
Omnicare Limited, Allied Healthcare Group Holdings Limited and
Air Liquide UK Limited (incorporated herein by reference to
Exhibit 2.1 of our Annual Report on Form 10-K for the fiscal year
ended September 30, 2007; File No. 001-11570). |
|
|
|
|
|
|
3.1 |
|
|
Restated Certificate of Incorporation of United States Home
Health Care Corp. (now known as Allied Healthcare International
Inc.) filed with the Department of State of the State of New York
on December 12, 1990, as amended on August 7, 1992 (incorporated
herein by reference to Exhibit 3.1 of our Quarterly Report on
Form 10-Q for the quarter ended April 30, 1997; File No.
000-20918). |
|
|
|
|
|
|
3.2 |
|
|
Certificate of Amendment of the Certificate of Incorporation of
Transworld Home Healthcare, Inc. (now known as Allied Healthcare
International Inc.) filed with the Department of State of the
State of New York on June 28, 1995 (incorporated herein by
reference to Exhibit 3.2 of our Quarterly Report on Form 10-Q for
the quarter ended April 30, 1997; File No. 000-20918). |
|
|
|
|
|
|
3.3 |
|
|
Certificate of Amendment of the Certificate of Incorporation of
Transworld Home Healthcare, Inc. (now known as Allied Healthcare
International Inc.) filed with the Department of State of the
State of New York on October 9, 1996 (incorporated herein by
reference to Exhibit 3.3 of our Quarterly Report on Form 10-Q for
the quarter ended April 30, 1997; File No. 000-20918). |
- 77 -
|
|
|
|
|
Exhibit |
|
|
Number |
|
Title |
|
|
|
|
|
|
3.4 |
|
|
Certificate of Amendment of the Certificate of Incorporation of
Transworld Home Healthcare, Inc. (now known as Allied Healthcare
International Inc.) filed with the Department of State of the
State of New York on May 6, 1997 (incorporated herein by
reference to Exhibit 3.4 of our Quarterly Report on Form 10-Q for
the quarter ended April 30, 1997; File No. 000-20918). |
|
|
|
|
|
|
3.5 |
|
|
Certificate of Amendment of the Certificate of Incorporation of
Transworld Healthcare, Inc. (now known as Allied Healthcare
International Inc.) filed with the Department of State of the
State of New York on April 16, 1998 (incorporated herein by
reference to Exhibit 3.5 of our Registration Statement on Form
S-4 (Reg. St. No. 333-87304) filed with the Securities and
Exchange Commission on May 1, 2002; File No. 333-87304). |
|
|
|
|
|
|
3.6 |
|
|
Certificate of Amendment to Certificate of Incorporation of
Transworld Healthcare, Inc. (now known as Allied Healthcare
International Inc.) filed with the Department of State of the
State of New York on June 7, 2002 (incorporated herein by
reference to Exhibit 3.1 of our Current Report on Form 8-K filed
with the Securities and Exchange Commission on June 10, 2002;
File No. 001-11570). |
|
|
|
|
|
|
3.7 |
|
|
Certificate of Amendment of the Certificate of Incorporation of
Allied Healthcare International Inc. that defines the rights of
the Series A Convertible Preferred Stock, filed with the
Department of State of the State of New York on June 26, 2002
(incorporated herein by reference to Exhibit 4.1 of our Current
Report on Form 8-K filed with the Securities and Exchange
Commission on August 9, 2002; File No. 001-11570). |
|
|
|
|
|
|
3.8 |
|
|
Certificate of Amendment of the provisions of the Certificate of
Incorporation of Allied Healthcare International Inc. that
defines the rights of the Series A Convertible Preferred Stock,
filed with the Department of State of the State of New York on
February 12, 2003 (incorporated herein by reference to Exhibit
3.8 of our Quarterly Report on Form 10-Q for the quarter ended
December 31, 2002; File No. 001-11570). |
|
|
|
|
|
|
3.9 |
|
|
Certificate of Amendment of the Certificate of Incorporation of
Allied Healthcare International Inc. that eliminates all
references to the Series A Convertible Preferred Stock, filed
with the Department of State of the State of New York on July 20,
2004 (incorporated herein by reference to Exhibit 9 of our Form
8-A/A filed with the Securities and Exchange Commission on July
21, 2004; File No. 001-11570). |
|
|
|
|
|
|
3.10 |
|
|
Certificate of Amendment of the Certificate of Incorporation of
Allied Healthcare International Inc. filed with the Department of
State of the State of New York on September 10, 2004
(incorporated herein by reference to Exhibit 3.1 of our Current
Report on Form 8-K filed with the Securities and Exchange
Commission on September 15, 2004; File No. 001-11570). |
|
|
|
|
|
|
3.11 |
|
|
Certificate of Change of Allied Healthcare International Inc.
filed with the Department of State of the State of New York on
April 26, 2007 (incorporated herein by reference to Exhibit 3.11
of our Annual Report on Form 10-K for the fiscal year ended
September 30, 2007; File No. 001-11570). |
- 78 -
|
|
|
|
|
Exhibit |
|
|
Number |
|
Title |
|
|
|
|
|
|
3.12 |
|
|
Certificate of Amendment to Certificate of Incorporation of
Allied Healthcare International Inc., as filed with the
Department of State of the State of New York on April 2, 2009
(incorporated herein by reference to Exhibit 3.1 of our Current
Report on Form 8-K filed with the Securities and Exchange
Commission on April 2, 2009; File No. 001-11570). |
|
|
|
|
|
|
3.13 |
|
|
Restated Bylaws of Transworld Home Healthcare, Inc. (now known as
Allied Healthcare International Inc.) (incorporated herein by
reference to Exhibit 3.4 of our Annual Report on Form 10-K for
the fiscal year ended October 31, 1996; File No. 000-20918). |
|
|
|
|
|
|
3.14 |
|
|
Amendment to the Bylaws of Allied Healthcare International Inc.
effective June 7, 2002 (incorporated herein by reference to
Exhibit 3.2 of our Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 10, 2002; File No.
001-11570). |
|
|
|
|
|
|
4.1 |
|
|
Specimen Certificate of Common Stock (incorporated herein by
reference to Exhibit 4.1 of our Current Report on Form 8-K filed
with the Securities and Exchange Commission on June 10, 2002;
File No. 001-11570). |
|
|
|
|
|
|
4.2 |
|
|
Rights Agreement, dated as of April 2, 2009, between Allied
Healthcare International Inc. and Computershare Trust Company,
N.A., as Rights Agent (incorporated herein by reference to
Exhibit 4.1 of our Current Report on Form 8-K filed with the
Securities and Exchange Commission on April 2, 2009; File No.
001-11570). |
|
|
|
|
|
|
10.1 |
|
|
Form of Indemnity Agreement for officers and directors
(incorporated herein by reference to Exhibit 10.2 of our Annual
Report on Form 10-K for the fiscal year ended September 30, 2008;
File No. 001-11570). |
|
|
|
|
|
|
10.2A |
|
|
Amended and Restated Employment Agreement, dated October 16,
2006, between Allied Healthcare International Inc. and Sarah
Eames (incorporated herein by reference to Exhibit 10.4E of our
Annual Report on Form 10-K for the fiscal year ended September
30, 2006; File No. 001-11570). |
|
|
|
|
|
|
10.2B |
|
|
Transitional Services Agreement, dated January 14, 2008, between
Allied Healthcare International Inc. and Sarah L. Eames
(incorporated herein by reference to Exhibit 10.2 of our Current
Report on Form 8-K filed with the Securities and Exchange
Commission on January 14, 2008; File No. 001-11570). |
|
|
|
|
|
|
10.3 |
|
|
Registration Rights Agreement, dated April 30, 2002, among
Transworld Healthcare, Inc. (now known as Allied Healthcare
International Inc.), Triumph Partners III, L.P. and Triumph III
Investors, L.P. (incorporated herein by reference to Exhibit
10.29 of our Registration Statement on Form S-4 (Reg. St. No.
333-87304) filed with the Securities and Exchange Commission on
May 1, 2002; File No. 333-87304). |
|
|
|
|
|
|
10.4 |
|
|
2002 Stock Option Plan (incorporated herein by reference to Annex
D to the proxy statement/prospectus forming a part of Amendment
No. 1 to our Registration Statement on Form S-4 (Reg. St. No.
333-87304) filed with the Securities and Exchange Commission on
May 21, 2002; File No. 333-87304). |
- 79 -
|
|
|
|
|
Exhibit |
|
|
Number |
|
Title |
|
|
|
|
|
|
10.5A |
|
|
Employment Agreement, dated July 31, 2006, between Allied
Healthcare Group Limited and David Moffatt (incorporated herein
by reference to Exhibit 10.15 of our Annual Report on Form 10-K
for the fiscal year ended September 30, 2006; File No.
001-11570). |
|
|
|
|
|
|
10.5B |
|
|
Leaving Agreement, executed by Allied Healthcare Group Limited on
October 1, 2008, between Allied Healthcare Group Limited and
David Moffatt (incorporated herein by reference to Exhibit 10.7B
of our Annual Report on Form 10-K for the fiscal year ended
September 30, 2008; File No. 001-11570). |
|
|
|
|
|
|
10.6 |
|
|
Executive Service Agreement, dated December 22, 2007, between
Allied Healthcare International Inc. and Alexander Young, but
executed by Allied Healthcare International Inc. on January 8,
2008 (incorporated herein by reference to Exhibit 10.1 of our
Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 14, 2008; File No. 001-11570). |
|
|
|
|
|
|
10.7 |
|
|
Employment Agreement, dated May 1, 2008, between Allied
Healthcare Group Limited and Paul Weston (incorporated herein by
reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q
for the quarter ended June 30, 2008; File No. 001-11570). |
|
|
|
|
|
|
10.8 |
|
|
Stock Appreciation Rights Agreement, entered into effective as of
April 21, 2009, between Allied Healthcare International Inc. and
Alexander Young (incorporated by reference to Exhibit 10.1 of our
Quarterly Report on Form 10-Q for the quarter ended March 31,
2009; File No. 001-11570). |
|
|
|
|
|
|
11 |
|
|
Statement re: computation of earnings per share (computation can
be determined clearly from the material contained in this Annual
Report on Form 10-K). |
|
|
|
|
|
|
14.1 |
|
|
Allied Healthcare International Inc. Code of Conduct
(incorporated herein by reference to Exhibit 14 to our Form 10-K
for the fiscal year ended September 30, 2003; File No.
001-11570). |
|
|
|
|
|
|
14.2
|
(1) |
|
Allied Healthcare International Inc. Supplemental Code of Conduct. |
- 80 -
|
|
|
|
|
Exhibit |
|
|
Number |
|
Title |
|
|
|
|
|
|
21
|
(1) | |
Subsidiaries of Allied Healthcare International Inc. |
|
|
|
|
|
|
23
|
(1) | |
Consent of Eisner LLP, independent registered public accounting
firm of Allied Healthcare International Inc. |
|
|
|
|
|
|
31.1
|
(1) | |
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. |
|
|
|
|
|
|
31.2
|
(1) | |
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. |
|
|
|
|
|
|
32.1
|
(1) | |
Section 1350 Certification of Chief Executive Officer. |
|
|
|
|
|
|
32.2
|
(1) | |
Section 1350 Certification of Chief Financial Officer. |
|
|
|
|
|
|
99.1 |
|
|
AIM Schedule 1Pre-Admission Announcement filed by Allied
Healthcare International Inc. with the Alternative Investment
Market of the London Stock Exchange (incorporated herein by
reference to Exhibit 99.2 of our Current Report on Form 8-K filed
with the Securities and Exchange Commission on November 30, 2005;
File No. 001-11570). |
- 81 -
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 INTERNATIONAL INC.
|
|
|
By: |
/s/ Sandy Young
|
|
|
|
Name: |
Sandy Young |
|
|
|
Title: |
Chief Executive Officer |
|
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Sandy Young, Paul Weston
and Marvet Abbassi, and each of them, his or her true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form
10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and thing requisite and
necessary to be done to effectuate the intent and purpose of this paragraph, as fully as he or she
might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his or her substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
The power of attorney granted herein shall not in any manner revoke in whole or in part any
power of attorney that each person whose signature appears below has previously executed.
- 82 -
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 and on the
dates indicated.
|
|
|
|
|
/s/ Sandy Young
Sandy Young
|
|
Chief Executive Officer and Director
(principal executive officer)
|
|
December 4, 2009 |
|
|
|
|
|
/s/ Paul Weston
Paul Weston
|
|
Chief Financial Officer
(principal financial and
accounting officer)
|
|
December 4. 2009 |
|
|
|
|
|
/s/ Sophia Corona
|
|
Director
|
|
December 3, 2009 |
|
|
|
|
|
|
|
|
|
|
/s/ G. Richard Green
|
|
Director
|
|
November 30, 2009 |
|
|
|
|
|
|
|
|
|
|
/s/ Mark Hanley
|
|
Director
|
|
November 30, 2009 |
|
|
|
|
|
|
|
|
|
|
/s/ Wayne Palladino
|
|
Director
|
|
November 30, 2009 |
|
|
|
|
|
|
|
|
|
|
/s/ Jeffrey S. Peris
|
|
Director
|
|
November 28, 2009 |
|
|
|
|
|
|
|
|
|
|
/s/ Ann Thornburg
|
|
Director
|
|
December 3, 2009 |
|
|
|
|
|
- 83 -
ALLIED HEALTHCARE INTERNATIONAL INC.
|
|
|
|
|
|
|
Page |
|
|
|
|
|
|
Index to Consolidated Financial Statements |
|
|
|
|
|
|
|
|
|
|
|
|
F-1 |
|
|
|
|
|
|
|
|
|
F-3 |
|
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-5 |
|
|
|
|
|
|
|
|
|
F-6 |
|
|
|
|
|
|
|
|
|
F-7 |
|
|
|
|
|
|
Index to Consolidated Financial Statement Schedules |
|
|
|
|
|
|
|
|
|
|
|
|
S-1 |
|
|
|
|
|
|
|
|
|
S-5 |
|
F-i
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Allied Healthcare International Inc.
We have audited the accompanying consolidated balance sheets of Allied Healthcare International
Inc. and subsidiaries (the Company) as of September 30, 2009 and 2008, and the related
consolidated statements of operations, changes in shareholders equity and cash flows for each of
the years in the three-year period ended September 30, 2009. Our audits also included the
financial statement schedules listed in the index at Item 15. These financial statements and
schedules are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Allied Healthcare International Inc. and
subsidiaries as of September 30, 2009 and 2008, and the consolidated results of their operations
and their consolidated cash flows for each of the years in the three-year period ended
September 30, 2009 in conformity with accounting principles generally accepted in the United States
of America. Also, in our opinion, such financial statement schedules referred to above, when
considered in relation to the consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Allied Healthcare International Inc.s internal control over financial
reporting as of September 30, 2009, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
and our report dated December 4, 2009 expressed an unqualified opinion thereon.
/s/ Eisner LLP
New York, New York
December 4, 2009
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Allied Healthcare International Inc.
We have audited the internal control over financial reporting of Allied Healthcare International
Inc. and subsidiaries (the Company) as of September 30, 2009, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Companys management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying Report of Management on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A companys
internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of the effectiveness to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of September 30, 2009, based on the criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Allied Healthcare International Inc. and
subsidiaries as of September 30, 2009 and 2008, and the related consolidated statements of
operations, changes in shareholders equity, and cash flows and schedules listed in the Index at
Item 15 for each of the years in the three-year period ended September 30, 2009, and our report
dated December 4, 2009 expressed an unqualified opinion on those consolidated financial statements.
/s/ Eisner LLP
New York, New York
December 4, 2009
F-2
ALLIED HEALTHCARE INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
35,273 |
|
|
$ |
26,199 |
|
Restricted Cash |
|
|
|
|
|
|
136 |
|
Accounts receivable, less allowance for doubtful
accounts of $839 and $823, respectively |
|
|
19,594 |
|
|
|
17,774 |
|
Unbilled accounts receivable |
|
|
11,572 |
|
|
|
15,892 |
|
Deferred income taxes |
|
|
389 |
|
|
|
474 |
|
Prepaid expenses and other assets |
|
|
1,188 |
|
|
|
1,375 |
|
Assets of discontinued operations |
|
|
|
|
|
|
182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
68,016 |
|
|
|
62,032 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
7,756 |
|
|
|
8,574 |
|
Goodwill |
|
|
95,649 |
|
|
|
109,292 |
|
Other intangible assets, net |
|
|
1,646 |
|
|
|
3,345 |
|
Taxes receivable |
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
173,067 |
|
|
$ |
183,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,186 |
|
|
$ |
1,614 |
|
Accrued expenses, inclusive of payroll and related expenses |
|
|
24,304 |
|
|
|
28,244 |
|
Taxes payable |
|
|
201 |
|
|
|
|
|
Liabilities of discontinued operations |
|
|
|
|
|
|
624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
25,691 |
|
|
|
30,482 |
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
103 |
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
25,794 |
|
|
|
30,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; authorized 10,000 shares,
issued and outstanding none |
|
|
|
|
|
|
|
|
Common stock, $.01 par value; authorized 80,000 shares,
issued 45,571 shares |
|
|
456 |
|
|
|
456 |
|
Additional paid-in capital |
|
|
241,555 |
|
|
|
241,018 |
|
Accumulated other comprehensive (loss) income |
|
|
(14,418 |
) |
|
|
1,819 |
|
Accumulated deficit |
|
|
(78,026 |
) |
|
|
(88,329 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149,567 |
|
|
|
154,964 |
|
Less cost of treasury stock (585 shares) |
|
|
(2,294 |
) |
|
|
(2,294 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
147,273 |
|
|
|
152,670 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
173,067 |
|
|
$ |
183,262 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-3
ALLIED HEALTHCARE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Net patient services |
|
$ |
249,810 |
|
|
$ |
298,577 |
|
|
$ |
277,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Patient services |
|
|
173,462 |
|
|
|
208,192 |
|
|
|
193,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
76,348 |
|
|
|
90,385 |
|
|
|
83,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
63,234 |
|
|
|
77,655 |
|
|
|
75,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
13,114 |
|
|
|
12,730 |
|
|
|
8,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
537 |
|
|
|
935 |
|
|
|
124 |
|
Interest expense |
|
|
(110 |
) |
|
|
(542 |
) |
|
|
(4,156 |
) |
Foreign exchange (loss) income |
|
|
(197 |
) |
|
|
(586 |
) |
|
|
285 |
|
Other income |
|
|
|
|
|
|
|
|
|
|
759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and discontinued operations |
|
|
13,344 |
|
|
|
12,537 |
|
|
|
5,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
3,408 |
|
|
|
3,751 |
|
|
|
2,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
9,936 |
|
|
|
8,786 |
|
|
|
3,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of taxes |
|
|
367 |
|
|
|
|
|
|
|
6,266 |
|
Gain on disposal of subsidiaries, net of taxes |
|
|
|
|
|
|
|
|
|
|
56,471 |
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
367 |
|
|
|
|
|
|
|
62,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
10,303 |
|
|
$ |
8,786 |
|
|
$ |
66,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.22 |
|
|
$ |
0.20 |
|
|
$ |
0.08 |
|
Income from discontinued operations |
|
|
0.01 |
|
|
|
|
|
|
|
1.40 |
|
|
|
|
|
|
|
|
|
|
|
Net income per share of common stock |
|
$ |
0.23 |
|
|
$ |
0.20 |
|
|
$ |
1.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.22 |
|
|
$ |
0.19 |
|
|
$ |
0.08 |
|
Income from discontinued operations |
|
|
0.01 |
|
|
|
|
|
|
|
1.39 |
|
|
|
|
|
|
|
|
|
|
|
Net income per share of common stock |
|
$ |
0.23 |
|
|
$ |
0.19 |
|
|
$ |
1.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
44,986 |
|
|
|
44,986 |
|
|
|
44,962 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
45,011 |
|
|
|
45,078 |
|
|
|
45,147 |
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-4
ALLIED HEALTHCARE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
Retained |
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Comprehensive |
|
|
(Deficit) |
|
|
Treasury |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
(Loss) Income |
|
|
Earnings |
|
|
Shares |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2006 |
|
|
45,542 |
|
|
$ |
455 |
|
|
$ |
238,944 |
|
|
$ |
13,258 |
|
|
$ |
(163,980 |
) |
|
$ |
(2,294 |
) |
|
$ |
86,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,353 |
|
|
|
|
|
|
|
66,353 |
|
Foreign currency translation adjustment, net of taxes of $1,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,032 |
|
|
|
|
|
|
|
|
|
|
|
5,032 |
|
Unrealized gains from cash flow hedging activities, net of taxes
of $(117) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(272 |
) |
|
|
|
|
|
|
|
|
|
|
(272 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
|
|
|
|
|
|
|
|
|
764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for consulting services |
|
|
29 |
|
|
|
1 |
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance and modification of warrants for professional services |
|
|
|
|
|
|
|
|
|
|
435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2007 |
|
|
45,571 |
|
|
$ |
456 |
|
|
$ |
240,206 |
|
|
$ |
18,018 |
|
|
$ |
(97,627 |
) |
|
$ |
(2,294 |
) |
|
$ |
158,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,786 |
|
|
|
|
|
|
|
8,786 |
|
Foreign currency translation adjustment, net of taxes of $(1,747) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,199 |
) |
|
|
|
|
|
|
|
|
|
|
(16,199 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,413 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of guidance for uncertainty in income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
512 |
|
|
|
|
|
|
|
512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
|
|
|
|
|
|
|
|
|
812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2008 |
|
|
45,571 |
|
|
$ |
456 |
|
|
$ |
241,018 |
|
|
$ |
1,819 |
|
|
$ |
(88,329 |
) |
|
$ |
(2,294 |
) |
|
$ |
152,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,303 |
|
|
|
|
|
|
|
10,303 |
|
Foreign currency translation adjustment, net of taxes of $(2,057) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,237 |
) |
|
|
|
|
|
|
|
|
|
|
(16,237 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,934 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
|
|
|
|
|
|
|
|
|
537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2009 |
|
|
45,571 |
|
|
$ |
456 |
|
|
$ |
241,555 |
|
|
$ |
(14,418 |
) |
|
$ |
(78,026 |
) |
|
$ |
(2,294 |
) |
|
$ |
147,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-5
ALLIED HEALTHCARE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
10,303 |
|
|
$ |
8,786 |
|
|
$ |
66,353 |
|
Adjustments to reconcile net income to net
cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
(367 |
) |
|
|
|
|
|
|
(6,266 |
) |
Gain on disposal of subsidiaries |
|
|
|
|
|
|
|
|
|
|
(56,471 |
) |
Depreciation and amortization |
|
|
2,590 |
|
|
|
3,231 |
|
|
|
3,377 |
|
Amortization of intangible assets |
|
|
1,252 |
|
|
|
1,634 |
|
|
|
1,743 |
|
Amortization of debt issuance costs |
|
|
|
|
|
|
|
|
|
|
368 |
|
Warrants issued for professional services |
|
|
|
|
|
|
|
|
|
|
499 |
|
Foreign exchange loss |
|
|
7 |
|
|
|
|
|
|
|
|
|
Increase (decrease) in provision for allowance for doubtful accounts |
|
|
360 |
|
|
|
(167 |
) |
|
|
222 |
|
Loss on sale of fixed assets |
|
|
20 |
|
|
|
166 |
|
|
|
|
|
Stock based compensation |
|
|
537 |
|
|
|
812 |
|
|
|
764 |
|
Write-off of deferred financing fees |
|
|
|
|
|
|
|
|
|
|
705 |
|
Deferred income taxes |
|
|
117 |
|
|
|
88 |
|
|
|
557 |
|
Changes in operating assets and liabilities, excluding
the effect of businesses acquired and sold: |
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable |
|
|
(4,281 |
) |
|
|
1,579 |
|
|
|
7,307 |
|
Decrease (increase) in prepaid expenses and other assets |
|
|
2,318 |
|
|
|
(3,488 |
) |
|
|
(2,017 |
) |
Increase (decrease) in accounts payable and other liabilities |
|
|
2,867 |
|
|
|
(3,779 |
) |
|
|
5,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by continuing operations |
|
|
15,723 |
|
|
|
8,862 |
|
|
|
22,185 |
|
Net cash (used in) provided by discontinued operations |
|
|
|
|
|
|
(561 |
) |
|
|
5,870 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
15,723 |
|
|
|
8,301 |
|
|
|
28,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(2,850 |
) |
|
|
(3,344 |
) |
|
|
(1,275 |
) |
Proceeds from sale of business |
|
|
|
|
|
|
|
|
|
|
70,994 |
|
Proceeds from sale of business held in escrow and designated for debt repayment |
|
|
116 |
|
|
|
53,638 |
|
|
|
(53,679 |
) |
Proceeds from sale of property and equipment |
|
|
1 |
|
|
|
50 |
|
|
|
|
|
Payments on acquisitions payable |
|
|
(1,082 |
) |
|
|
|
|
|
|
(2,584 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by continuing operations investing activities |
|
|
(3,815 |
) |
|
|
50,344 |
|
|
|
13,456 |
|
Net cash used in discontinued operations investing activities |
|
|
|
|
|
|
|
|
|
|
(1,786 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(3,815 |
) |
|
|
50,344 |
|
|
|
11,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Payments for financing fees |
|
|
|
|
|
|
|
|
|
|
(533 |
) |
Payments under revolving loan, net |
|
|
|
|
|
|
(24,664 |
) |
|
|
(14,769 |
) |
(Payments) borrowings under invoice discounting facility, net |
|
|
|
|
|
|
(4,458 |
) |
|
|
4,449 |
|
Principal payments on long-term debt |
|
|
|
|
|
|
(23,678 |
) |
|
|
(11,815 |
) |
Proceeds from sale of interest rate swap agreements |
|
|
|
|
|
|
617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
|
|
|
|
(52,183 |
) |
|
|
(22,668 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate on cash |
|
|
(2,834 |
) |
|
|
(504 |
) |
|
|
(754 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash |
|
|
9,074 |
|
|
|
5,958 |
|
|
|
16,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of year |
|
|
26,199 |
|
|
|
20,241 |
|
|
|
3,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
35,273 |
|
|
$ |
26,199 |
|
|
$ |
20,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
405 |
|
|
$ |
1,143 |
|
|
$ |
4,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes, net |
|
$ |
1,102 |
|
|
$ |
4,872 |
|
|
$ |
2,570 |
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-6
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements
1. Business and Operations:
Allied Healthcare International Inc. and its subsidiaries (the Company) is a provider of
flexible, or temporary, healthcare staffing services to the United Kingdom (U.K.) healthcare and
social care (often referred to as domiciliary care) industry. The Company was incorporated in New
York in 1981. The Companys flexible healthcare staffing business provides personal or basic care
and nursing services in the home, nursing and care homes and hospitals. The Companys healthcare
staff consists principally of homecare aides (known as carers in the U.K.), nurses and nurses
aides. The Company maintains a listing of approximately 11,000 homecare aides, nurses and nurses
aides. During fiscal 2009, the Company generally placed an average of 7,345 individuals each week
with its customers.
Essentially, all services provided by the Company are provided by its integrated network of
approximately 110 branches, which are located throughout most of the U.K. The Companys management
evaluates operating results on a branch basis. For financial reporting purposes, all our branches
are aggregated into one reportable segment.
In September 2007, the Company disposed of two of its U.K. subsidiaries when it sold all of
the issued and outstanding ordinary shares of Allied Respiratory Limited and Medigas Limited for
£36.5 million ($74.7 million) in cash, of which £0.5 million ($1.0 million) was held back until
certain conditions relating to the settlement of claims with U.K. regulatory agencies were met.
Such conditions were met and the funds were released in fiscals 2008 and 2009. These two
subsidiaries constituted the Companys respiratory therapy segment. The respiratory therapy
segment supplied medical-grade oxygen for use in respiratory therapy to pharmacies in the U.K.,
oxygen concentrators to customers in Northern Ireland and oxygen services to customers in the South
East of England. The Company has accounted for its respiratory therapy segment as a discontinued
operation. The Companys consolidated financial statements reflect the assets and liabilities of
the discontinued operations as separate line items and the operations of its respiratory therapy
segment for the prior periods are reported in discontinued operations on the statement of
operations. As a result of the disposition, the Company operates in one reportable segment.
2. Summary of Significant Accounting Policies:
Basis of Accounting and Principles of Consolidation:
The accompanying consolidated financial statements of the Company are prepared on the accrual
basis of accounting in accordance with accounting principles generally accepted in the United
States of America (U.S.). All intercompany accounts and transactions are eliminated in
consolidation.
F-7
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
Cash and Cash Equivalents:
Cash and cash equivalents include highly liquid short-term investments purchased with initial
maturities of 90 days or less. Included in cash and cash equivalents are amounts placed in escrow
deposits for the potential payments on contingent consideration that was dependent upon future
earnings of the Companys acquisition of certain flexible staffing agencies. These escrow deposits
totaled $0 and $0.5 million at September 30, 2009 and 2008, respectively.
Restricted Cash:
At September 30, 2008, restricted cash represented $0.1 million of the remaining proceeds from
the sale of the respiratory therapy segment, in the fourth quarter of fiscal 2007, that had been
held back until certain conditions relating to the settlement of claims with U.K. regulatory
agencies were met in October 2008.
Stock-Based Compensation:
Effective October 1, 2005, the Company adopted policies relating to stock compensation which
requires companies to measure, at the grant date, and recognize in the financial statements
compensation expense for all share-based payments at fair value over the requisite service period.
The Company generally recognizes compensation expense on a straight-line basis over the requisite
service period for its employee and director share-based compensation plan.
Accounts Receivable:
The Company maintains a cash management program that focuses on the reimbursement function, as
growth in accounts receivable has been the main operating use of cash historically. At September
30, 2009 and September 30, 2008, $19.6 million (11.3%) and $17.8 million (9.7%), respectively, of
the Companys total assets consisted of accounts receivable.
The Company maintains credit controls to ensure cash collection on a timely basis. The credit
terms agreed with the Companys customers range from 7 days to a maximum of 30 days from invoice
date. The Company has devised a provisioning methodology based on its customer profile and
historical credit risk across its U.K. business. Accounts receivable are written off when the
credit control department determines the amount is no longer collectible. Each fiscal year the
Company undertakes a review of its methodology and procedure for reserving for its doubtful
accounts. This process also takes into account the Companys actual experience of write offs in
the period. The policy is applied at each quarter end to arrive at a closing reserve for doubtful
accounts.
F-8
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
Property and Equipment:
Property and equipment is carried at cost, net of accumulated depreciation and amortization.
Leasehold improvements are amortized over the related lease terms or estimated useful lives,
whichever is shorter. Furniture, fixtures and equipment are amortized on a straight-line method
over the estimated useful lives ranging from three to eight years. Computer software is amortized
on a straight-line method over the estimated useful lives ranging from three to seven years.
Purchase Accounting:
For completed acquisitions, preliminary values and useful lives are allocated based upon fair
values that have been determined for assets acquired and liabilities assumed and managements best
estimates for values that have not yet been finalized. The Company obtains a third-party valuation
in order to complete its purchase price allocations. Accordingly, final asset and liability fair
values as well as useful lives may differ from managements original estimates and could have an
adverse impact on the Companys consolidated financial position or results of operations.
Goodwill and Other Intangible Assets:
Goodwill and intangible assets deemed to have indefinite lives are carried at cost, and are
subject to annual impairment tests. Other intangible assets are carried at cost, net of
accumulated amortization. The Company completed its annual impairment test during the fourth
quarter of fiscal 2009 and determined there was no impairment to its recorded goodwill balance.
The Company does not have intangible assets with indefinite lives.
The following table presents the changes in the carrying amount of goodwill for the years
ended September 30, 2009 and 2008 (in thousands):
|
|
|
|
|
Balance at October 1, 2007 |
|
$ |
122,843 |
|
Foreign exchange effect |
|
|
(13,551 |
) |
|
|
|
|
Balance at September 30, 2008 |
|
|
109,292 |
|
Foreign exchange effect |
|
|
(13,263 |
) |
Acquisitions payable adjustment |
|
|
(380 |
) |
|
|
|
|
Balance at September 30, 2009 |
|
$ |
95,649 |
|
|
|
|
|
In the fourth quarter of fiscal 2009, the Company negotiated a final settlement with the
owner of a previously acquired entity relating to its contingent consideration acquisitions payable
which resulted in a $0.4 million adjustment to goodwill. Of the $95.6 million goodwill balance at
September 30, 2009, approximately $6.6 million is deductible for U.K. income tax purposes.
F-9
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
Intangible assets subject to amortization are being amortized on the straight-line method and
consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
Range |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
|
Of Lives |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
|
(Years) |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
Customer relationships |
|
|
5 12 |
|
|
$ |
8,502 |
|
|
$ |
6,856 |
|
|
$ |
1,646 |
|
Trade names |
|
|
3 |
|
|
|
164 |
|
|
|
164 |
|
|
|
|
|
Non-compete agreements |
|
|
2 3 |
|
|
|
192 |
|
|
|
192 |
|
|
|
|
|
Favorable leasehold interests |
|
|
2 5 |
|
|
|
8 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
8,866 |
|
|
$ |
7,220 |
|
|
$ |
1,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008 |
|
|
|
Range |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
|
Of Lives |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
|
(Years) |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
Customer relationships |
|
|
5 12 |
|
|
$ |
9,705 |
|
|
$ |
6,360 |
|
|
$ |
3,345 |
|
Trade names |
|
|
3 |
|
|
|
187 |
|
|
|
187 |
|
|
|
|
|
Non-compete agreements |
|
|
2 3 |
|
|
|
219 |
|
|
|
219 |
|
|
|
|
|
Favorable leasehold interests |
|
|
2 5 |
|
|
|
9 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
10,120 |
|
|
$ |
6,775 |
|
|
$ |
3,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for other intangible assets subject to amortization was $1.3
million, $1.6 million and $1.7 million for the years ended September 30, 2009, 2008 and 2007,
respectively. At September 30, 2009, estimated future amortization expense of other intangible
assets subject to amortization is as follows: approximately $1.1 million, $0.4 million, $0.1
million, $0.1 million and $24,000 for the fiscal years ending September 30, 2010, 2011, 2012, 2013
and 2014, respectively. The change in the net carrying amount at September 30, 2009 is due to
amortization expense and the foreign exchange effect.
Deferred Financing Costs:
Costs incurred in obtaining long-term financing are amortized over the benefit period provided
by the long-term financing agreements. During the fourth quarter of fiscal 2007, the Company
wrote-off $0.7 million of deferred financing costs as a result of the prepayment of the amounts
outstanding under its term loan A and its term loan B1 facilities from the proceeds of sale of its
respiratory therapy segment. Amortization of deferred financing costs is included in interest
expense in the accompanying Consolidated Statements of Operations.
F-10
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
Income Taxes:
The Company accounts for income taxes using the liability method of accounting for income
taxes. Under this method, deferred income tax assets and liabilities reflect tax carryforwards and
the net effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting and income tax purposes, as determined under currently enacted tax rates.
Deferred tax assets are recorded if future realization is more likely than not. Deferred taxes are
recorded primarily for bad debts, federal and state net operating loss carryforwards, depreciation
and amortization of intangibles, which are reported in different periods for income tax purposes
than for financial reporting purposes. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amounts expected to be realized.
The Company recognizes a tax benefit from an uncertain tax position only if it is more likely
than not that the tax position will be sustained on examination by the taxing authorities, based on
the technical merits of the position. The tax benefits recognized in the financial statements from
such a position are measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement. As of September 30, 2009, the Company has
not recorded any unrecognized tax benefits, which remains unchanged from September 30, 2008.
Revenue Recognition:
Patient services are recognized when services are performed and substantiated by proper
documentation. For patient services, which are billed at fixed rates, revenue is mainly recognized
upon completion of timesheets that also require the signature of the recipient of services and
through electronic call monitoring. Unbilled accounts receivable represents amounts due for
services performed, but not billed as of the balance sheet date. At September 30, 2009 and 2008,
the Company had $11.6 million and $15.9 million, respectively in unbilled accounts receivable.
The Company receives a majority of its revenue from the U.K. local governmental social
services departments and the National Health Services (the NHS) payors. For the years ended
September 30, 2009, 2008 and 2007, 75.0%, 69.0% and 63.5%, respectively, of the Companys net
revenues were attributable to the U.K. local governmental social services departments and the NHS
payor programs.
Advertising Costs:
Advertising costs are expensed as incurred. Advertising expense for the fiscal years ended
September 30, 2009, 2008 and 2007 was $0.4 million, $0.8 million and $0.7 million, respectively.
F-11
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
Earnings Per Share:
Basic earnings per share (EPS) is computed using the weighted average number of common
shares outstanding. Diluted EPS adjusts basic EPS for the effects of stock options and warrants
only when such effect is dilutive. The Company uses the treasury stock method to calculate the
effect of potential common shares, which require it to compute total assumed proceeds as the sum of
(a) the amount the employee must pay upon exercise of the award, (b) the amount of unrecognized
share-based compensation costs attributed to future services and (c) the amount of tax benefits, if
any, that would be credited to additional paid-in capital assuming exercise of the award.
Share-based compensation awards for which total assumed proceeds exceed the average market price
over the applicable period have an antidilutive effect on EPS and are excluded from the calculation
of diluted EPS. At September 30, 2009, 2008 and 2007, the Company had outstanding stock options
(including performance-based stock options) and warrants to purchase 1.9 million, 2.2 million and
2.8 million shares, respectively, of common stock ranging in exercise price from $2.11 to $6.20,
$2.01 to $6.20, and $1.92 to $6.20 per share, respectively, that were not included in the
computation of diluted EPS either because the exercise price was greater than the average market
price of the common shares or the conditions of the performance-based stock options have yet to be
satisfied or such effect would have been anti-dilutive. Further, 0.6 million of contingently
issuable shares related to the stock appreciation rights (the SARs) issued to the Chief Executive
Officer (the CEO), as further described in Note 9, have not been included in the computation of
diluted EPS at September 30, 2009.
The weighted average number of shares used in the basic and diluted earnings per share
computations for the years ended September 30, 2009, 2008 and 2007 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Weighted average number of common shares outstanding
as used in computation of basic EPS of common stock |
|
|
44,986 |
|
|
|
44,986 |
|
|
|
44,962 |
|
Effect of dilutive securities stock options and warrants |
|
|
25 |
|
|
|
92 |
|
|
|
185 |
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation of diluted EPS of common stock |
|
|
45,011 |
|
|
|
45,078 |
|
|
|
45,147 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (Loss) Income:
Components of comprehensive (loss) income include net income and all other non-owner changes
in equity, such as the change in the cumulative translation adjustment and unrealized gains
(losses) from cash flow hedging activities, which are the only items of other comprehensive (loss)
income impacting the Company. The translation of the financial statements of the Companys U.K.
operations is impacted by fluctuation in foreign currency exchange rates.
F-12
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
Impairment of Long-Lived Assets:
Long-lived assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. If the sum of the undiscounted future
cash flows is less than the carrying amount of the asset, a loss is recognized for the difference
between the fair value (discounted future cash flows) and carrying value of the asset. Impairment
loss on assets to be sold, if any, is based on the estimated proceeds to be received, less
estimated costs to sell.
Foreign Currency Translation:
Assets and liabilities of foreign subsidiaries whose functional currency is other than the
U.S. dollar are translated to U.S. dollars using the exchange rates in effect at the balance sheet
date. Results of operations are translated using weighted average exchange rates during the period.
Adjustments resulting from the translation process are included as a separate component of
accumulated other comprehensive (loss) income included in shareholders equity.
Fair Value of Financial Instruments:
Cash, accounts receivable, unbilled accounts receivable, accounts payable, accrued expenses
and taxes payable approximate fair value due to the short-term maturity of those instruments. The
carrying value of the short term financial instruments approximates the fair value due to their
short term nature. These financial instruments have no stated maturities or the financial
instruments have short term maturities that approximate market value.
Concentrations of Credit Risk:
Financial instruments which potentially subject the Company to concentrations of credit risk
are cash equivalents and accounts receivable. The Company places its cash equivalents with various
financial institutions. The Company believes no significant concentration of credit risk exists
with respect to these cash equivalents.
The Company grants credit without collateral to its patients. The Company maintains an
allowance for doubtful accounts based on the expected collectability of accounts receivable. At
September 30, 2009 and 2008, 76.0% and 71.0%, respectively, of accounts receivable was due from the
U.K. governmental local social services departments and the NHS payors with the balance due from
various other third-party payors and self-pay patients (none of which comprise greater than 10% of
the balance).
F-13
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
Use of Managements Estimates:
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles (GAAP) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Estimates are used for, but not limited
to, the accounting for allowance for doubtful accounts, contingencies, accrued expenses, and
determination of impairment, depreciation and amortization.
Reclassifications:
Certain prior year balances have been reclassified to conform to the current year
presentation.
Recent Accounting Pronouncements:
Fair Value Measurements and Disclosures. In September 2006, the Financial Accounting Standards
Board (the FASB) issued a standard which defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. It also established a framework for measuring fair value in
GAAP and expands disclosures about fair value measurement. Effective October 1, 2008, the Company
adopted this standard which did not have any impact on the Companys consolidated financial
position and results of operations.
Fair Value Option For Certain Financial Assets and Liabilities. In February 2007, the FASB
issued a standard which permits entities to choose to measure financial assets and liabilities,
with certain exceptions, at fair value at specified election dates. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. A business entity shall report unrealized gains and losses on
items for which the fair value option has been elected in earnings at each subsequent reporting
date. Effective October 1, 2008, the Company adopted this standard which did not have any impact on
the Companys consolidated financial position and results of operations.
Noncontrolling Interests. In December 2007, the FASB issued a standard which establishes
accounting and reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity in the consolidated
financial statements. This standard is effective for the Company in fiscal year beginning October
1, 2009 and is not expected to have an impact on the Companys consolidated
financial position and results of operations as it does not have any noncontrolling interest
in a subsidiary.
F-14
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
Business Combinations. In December 2007, the FASB issued a standard which establishes
principles and requirements for how the acquirer of a business recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. This standard also provides guidance for recognizing and
measuring the goodwill acquired in the business combination, requires that acquisition costs be
expensed and determines what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. This standard is effective
for the Company in fiscal year beginning October 1, 2009 and will have an impact on the Companys
accounting for future business combinations, once adopted, but the effect is dependent upon
acquisitions that are made in the future.
Disclosures about Derivative Instruments and Hedging Activities. In March 2008, the FASB
issued a standard which enhances required disclosures regarding derivative instruments and hedging
activities, including enhanced disclosure regarding how and why an entity uses derivative
instruments, how derivative instruments and related hedged items are accounted for, and how
derivative instruments and related hedged items affect an entitys financial position, financial
performance and cash flows. This standard is effective for the Company in its fiscal year
beginning October 1, 2009 and is not expected to have an impact on the Companys disclosures about
derivative instruments and hedging activities as it does not currently have derivative instruments
or engage in hedging activities.
Interim Fair Value Disclosures. In April 2009, the FASB issued a staff position to require
disclosures about fair value of financial instruments in interim financial statements as well as in
annual financial statements. This staff position extended previously required annual disclosures
to interim periods. This staff position was effective for interim and annual reporting periods
ending after June 15, 2009. The adoption of this staff position did not have any impact on the
Companys consolidated financial position and results of operations.
Subsequent Events. In May 2009, the FASB issued a standard which establishes general standards
of accounting for and disclosure of events that occur after the balance sheet date but before the
date the financial statements are issued (public entity) or available to be issued (other than
public entity). This standard requires an entity to reflect in their financial statements the
effects of subsequent events that provide additional evidence about conditions at the balance sheet
date including the estimates inherent in the process of preparing financial statements. Subsequent
events that provide evidence about conditions that arose after the balance sheet date should be
disclosed. Disclosures should include the nature of the event and either an estimate of its
financial effect or a statement that an estimate cannot be made. This standard also requires the
disclosure of the date through which an entity has evaluated subsequent events and the basis for
that date. In June 2009, the Company adopted this standard. The adoption of this standard did not have
an impact on the Companys consolidated financial position and results of operations as the
requirements under this statement are consistent with the Companys current practice.
F-15
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
Transfers of Financial Assets. In June 2009, the FASB issued a standard which provides
guidance to improve transparency about transfers of financial assets and a transferors continuing
involvement, if any, with transferred financial assets. This standard amends various provisions of
the previously issued standard relating to transfers and servicing of financial assets and
extinguishments of liabilities to improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its financial reports about a
transfer of financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferors continuing involvement in transferred financial
assets. This standard is effective for the Company in fiscal year beginning October 1, 2010 and is
not expected to have an impact on the Companys consolidated financial position and results of
operations.
Consolidation of Variable Interest Entities. In June 2009, the FASB issued a standard to
improve the financial reporting by enterprises involved with variable interest entities and to
provide more relevant and reliable information to users of financial statements. This standard is
effective for the Company in fiscal year beginning October 1, 2010 and is not expected to have an
impact on the Companys consolidated financial position and results of operations as the Company
does not have variable interest entities.
FASB Codification. In June 2009, the FASB issued a standard that establishes the FASB
Accounting Standards Codification as the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in the preparation of financial statements in
accordance with GAAP. All existing accounting standard documents are superseded by the
Codification and any accounting literature not included in the Codification will not be
authoritative. However, rules and interpretive releases of the SEC issued under the authority of
federal securities laws will continue to be sources of authoritative GAAP for SEC registrants.
Effective July 1, 2009, the Company adopted this standard and has eliminated citations for previous
standards. The Codification does not change or alter existing GAAP and, therefore, the adoption of
this standard did not have an impact on the Companys consolidated financial position and results
of operations.
F-16
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
Fair Value Measurements and Disclosures. In August 2009, the FASB issued a standard to further
update the fair value measurement guidance to clarify how an entity should measure liabilities at
fair value. This standard update provides clarification that in circumstances in which a quoted
price in an active market for the identical liability is not available, a reporting entity is
required to measure fair value using certain techniques. When quoted prices are not available, the
quoted price of the identical liability traded as an asset, quoted prices for similar liabilities
or similar liabilities traded as an asset, or another valuation approach should be used. This
standard update also clarifies that restrictions preventing the transfer of a liability should not be
considered as a separate input or adjustment in the measurement of fair value. This standard is
effective for the Company in fiscal year beginning October 1, 2010 and is not expected to have a
material impact on the Companys consolidated financial position and results of operations.
3. Business Dispositions:
Dispositions:
In September 2007, the Company sold its respiratory therapy segment for £36.5 million ($74.7
million) in cash, of which £0.5 million ($1.0 million) was held back until certain conditions
relating to the settlement of claims with U.K. regulatory agencies are met. The Company received
£0.4 million ($0.9 million) of the escrowed amount in December 2007 and the remaining £0.1 million
($0.1 million) was received in October 2008. The respiratory therapy segment supplied
medical-grade oxygen for use in respiratory therapy to pharmacies in the U.K., oxygen concentrators
to customers in Northern Ireland and oxygen services to customers in the South East of England. In
accordance with FASB guidance related to impairment or disposal of long-lived assets, the Company
has accounted for its respiratory therapy segment as a discontinued operation. The Companys
consolidated financial statements reflect the assets and liabilities of the discontinued operations
as separate line items and the operations of its respiratory therapy segment for the current and
prior periods are reported in discontinued operations on the statement of operations. Within
discontinued operations, during the fiscal year ended September 30, 2007 the Company recorded a
gain of $56.5 million, net of tax of $0 on the sale of its respiratory therapy segment. Under U.K.
tax legislation, enacted on April 1, 2002, disposals of shares by companies with substantial
shareholdings do not result in a taxable gain transaction.
F-17
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
The following table presents the financial results of the discontinued operations (in
thousands):
|
|
|
|
|
|
|
Year Ended |
|
|
|
September 30, |
|
|
|
2007 |
|
Revenues: |
|
|
|
|
Net respiratory, medical equipment and supplies |
|
$ |
28,699 |
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
Respiratory, medical equipment and supplies |
|
|
13,024 |
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
15,675 |
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
6,091 |
|
|
|
|
|
|
|
|
|
|
Operating income from discontinued operations |
|
|
9,584 |
|
|
|
|
|
|
Interest income |
|
|
2 |
|
Interest expense |
|
|
(1,570 |
) |
|
|
|
|
|
|
|
|
|
Income from discontinued operations before income tax |
|
|
8,016 |
|
|
|
|
|
|
Gain on disposal of subsidiaries, net of tax |
|
|
56,471 |
(a) |
|
|
|
|
|
Provision for income taxes |
|
|
1,750 |
(b) |
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
$ |
62,737 |
|
|
|
|
|
|
|
|
(a) |
|
Translation adjustments that result when a foreign entitys financial statements are
translated into a parent companys or an investors reporting currency are separately reported in
the parent companys other comprehensive income. Foreign currency translation adjustments that are
accumulated in other comprehensive income are reclassified to income only when they are realized,
if the investment in the foreign entity is sold or is substantially or completely liquidated.
Accordingly, the foreign currency translation adjustments of the balance sheet related to the
respiratory therapy segment in the amount of approximately $1.6 million were reclassified into the
gain on disposal of subsidiaries. |
|
(b) |
|
Included in the provision for income taxes for the year ended September 30, 2007, is the
reversal of $0.7 million of certain tax contingencies, related to the Companys fiscal 2003
discontinued operations on the sale of two of its U.S. subsidiaries as the statute of limitation
has expired. |
F-18
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
In fiscal 2007 interest expense has been allocated to discontinued operations based on debt
that the Company had specifically identified as being attributable to discontinued operations, as
an allocation based on net assets would not provide a meaningful result. The Company based its
allocation on the amount of capital expenditures directly related to its discontinued
operations and then considered cash borrowings necessary to maintain the operations of its then
respiratory therapy segment.
At September 30, 2008, assets of discontinued operations consisted of deferred income taxes
and liabilities of discontinued operations consisted of accrued costs for refunds payable and
patient electric usage reimbursement. In fiscal 2009, the company released the reserves and
associated deferred income taxes related to such accruals as the warranty period under the sales
agreement had expired.
F-19
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
The following table displays the unaudited pro forma results of operations, related EPS and
condensed balance sheet, at September 30, 2007, of the Company as if the disposition of the
respiratory therapy segment was completed on October 1, 2006 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2007 |
|
|
|
|
|
|
|
Pro Forma |
|
|
Consolidated |
|
|
|
Consolidated |
|
|
Adjustments |
|
|
Pro Forma |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
277,795 |
|
|
$ |
|
|
|
$ |
277,795 |
|
Cost of revenues |
|
|
193,839 |
|
|
|
|
|
|
|
193,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
83,956 |
|
|
|
|
|
|
|
83,956 |
|
Selling, general and administrative expenses |
|
|
75,284 |
|
|
|
|
|
|
|
75,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
8,672 |
|
|
|
|
|
|
|
8,672 |
|
Interest expense, net |
|
|
(3,273 |
) |
|
|
3,188 |
(a) |
|
|
(85 |
) |
Foreign exchange gain |
|
|
285 |
|
|
|
|
|
|
|
285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and discontinued operations |
|
|
5,684 |
|
|
|
3,188 |
|
|
|
8,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
2,068 |
|
|
|
956 |
(b) |
|
|
3,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
3,616 |
|
|
|
2,232 |
|
|
|
5,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of taxes |
|
|
6,266 |
|
|
|
1,099 |
(a) |
|
|
7,365 |
|
Gain on disposal of subsidiaries, net of taxes |
|
|
56,471 |
|
|
|
|
|
|
|
56,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,737 |
|
|
|
1,099 |
|
|
|
63,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
66,353 |
|
|
$ |
3,331 |
|
|
$ |
69,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share of common stock from: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.08 |
|
|
|
|
|
|
$ |
0.13 |
|
Income from discontinued operations |
|
|
1.40 |
|
|
|
|
|
|
|
1.42 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.48 |
|
|
|
|
|
|
$ |
1.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share of common stock from: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.08 |
|
|
|
|
|
|
$ |
0.13 |
|
Income from discontinued operations |
|
|
1.39 |
|
|
|
|
|
|
|
1.41 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.47 |
|
|
|
|
|
|
$ |
1.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
44,962 |
|
|
|
|
|
|
|
44,962 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
45,147 |
|
|
|
|
|
|
|
45,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
To record interest savings on pay down of senior credit facility from the proceeds
from the sale of the respiratory therapy segment. |
|
(b) |
|
To record tax expense attributable to pro forma adjustments at the UK statutory rate of
30%. |
F-20
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
4. Property and Equipment:
Major classes of property and equipment, net, consist of the following at September 30 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Furniture, fixtures and equipment (including software) |
|
$ |
16,448 |
|
|
$ |
26,639 |
|
Leasehold improvements |
|
|
1,036 |
|
|
|
1,332 |
|
|
|
|
|
|
|
|
|
|
|
17,484 |
|
|
|
27,971 |
|
Less, accumulated depreciation and amortization |
|
|
9,728 |
|
|
|
19,397 |
|
|
|
|
|
|
|
|
|
|
$ |
7,756 |
|
|
$ |
8,574 |
|
|
|
|
|
|
|
|
In fiscal 2009, the Company wrote-off fully depreciated property and equipment of
approximately $8.9 million due to obsolescence. Depreciation and amortization of property and
equipment for the years ended September 30, 2009, 2008 and 2007 were $2.6 million, $3.2 million and
$3.4 million, respectively.
5. Accrued Expenses:
Accrued expenses consist of the following at September 30 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Payroll and related expenses |
|
$ |
19,750 |
|
|
$ |
19,370 |
|
Acquisitions payable (on earned contingent
consideration) |
|
|
|
|
|
|
1,702 |
(A) |
Professional fees |
|
|
1,087 |
|
|
|
1,327 |
|
Interest payable |
|
|
|
|
|
|
390 |
|
Refunds payable |
|
|
1,024 |
|
|
|
1,648 |
|
Other |
|
|
2,443 |
|
|
|
3,807 |
|
|
|
|
|
|
|
|
|
|
$ |
24,304 |
|
|
$ |
28,244 |
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
At September 30, 2008 amount included $0.8 million, which was under negotiation
with the owner of the previously acquired entity. In the fourth quarter of fiscal 2009, the
Company completed negotiation which resulted in negative adjustment to goodwill of $0.4 million.
See Note 2. |
6. Debt:
In the fourth quarter of fiscal 2004, the Companys U.K. subsidiary, Allied Healthcare Group
Holdings Limited (Allied Holdings) obtained a senior credit facility, which was amended in the
first quarter of fiscal 2007 to provide for additional facilities. The facility consisted of a
term loan A, revolving loan B1, invoice discounting facility B2 and revolving loan C. In the first
quarter of fiscal 2008, Allied Holdings prepaid the amounts outstanding under the term loan A and
the term loan B1 facilities from the proceeds of sale of the respiratory therapy division in fiscal
2007. Allied Holdings also cancelled term loan A, term loan B1 and revolving loan C in the
first quarter of fiscal 2008. Allied Holdings had retained the £7.5 million ($12.4 million)
invoice discounting facility B2. In the second quarter of fiscal 2008, the Company agreed with the
bank to suspend the availability of its invoice discount facility and to have the right to
reinstate availability upon nine weeks notice. As the Company did not anticipate reinstating the
invoice discount facility it had recognized interest costs of $0.4 million for bank fees in the
third quarter of fiscal 2008. In the third quarter of fiscal 2009, the Company cancelled the
invoice discounting facility B2, thus terminating the senior credit facility.
F-21
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
Guarantees. The senior credit facility was secured by a first priority lien on the assets of
Allied Holdings and certain of its subsidiaries. Together with Allied Holdings and certain of its
subsidiaries, the Company had guaranteed the debt and other obligations of certain wholly-owned
U.K. subsidiaries under the senior credit facility. In conjunction with the amendment to the
senior credit facility, the Company had granted the senior lenders a security interest in
substantially all of its assets to secure the payment of its guarantee. At September 30, 2009 and
2008, there were no amounts outstanding under the senior credit facility. In the third quarter of
fiscal 2009 the Company terminated its senior credit facility and the liens and guarantees under
such facility have since been released.
Financial Instruments. In February 2005, the Company entered into two interest rate swap
agreements, which would have expired in July 2009, the objective of which was to protect the
Company against the potential rising of interest rates on its floating rate debt. The interest
rate under the swap agreements was fixed at 4.935% and was payable semi-annually. In October 2007,
the Company prepaid the amounts outstanding under its term loan A and term loan B1 and sold the
related interest rate swaps for $0.6 million.
7. Shareholders Equity:
In April 2009, the Company adopted a shareholder rights plan pursuant to which each share of
its outstanding common stock is accompanied by one preferred share purchase right. The rights
generally will not become exercisable until a person or group acquires 20% or more of the Companys
common stock in a transaction that is not approved in advance by its Board of Directors. In that
event, each right will entitle the holder, other than the unapproved acquirer and its affiliates,
to buy the Companys common stock at 50% of its market value for the rights exercise price. The
Companys Board of Directors may redeem the rights for a nominal amount at any time prior to ten
days after a person or group announces that it has acquired 20% or more of the Companys common
stock. If not redeemed by the Board, the rights will expire on April 1, 2019, or, if not approved
by the shareholders at the annual meeting of shareholders in 2010, immediately following such
meeting.
In the fourth quarter of fiscal 2007, the Company recognized a charge of $64,000 related to
the issuance of 28,737 shares of common stock to Parthenon Group LLC for partial payment
of professional services.
F-22
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes:
The provision for income taxes from continuing operations for the years ended September 30,
2009, 2008 and 2007 is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
26 |
|
|
$ |
8 |
|
|
$ |
10 |
|
Foreign |
|
|
3,265 |
|
|
|
3,655 |
|
|
|
1,273 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
117 |
|
|
|
88 |
|
|
|
785 |
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$ |
3,408 |
|
|
$ |
3,751 |
|
|
$ |
2,068 |
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities recorded for financial reporting purposes and the
amounts used for income tax purposes. Significant components of the Companys deferred tax assets
and liabilities as of September 30, 2009 and 2008 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Accrued expenses |
|
$ |
380 |
|
|
$ |
690 |
|
Federal net operating loss carryforward |
|
|
24,468 |
|
|
|
25,380 |
|
State net operating loss carryforward |
|
|
8,532 |
|
|
|
8,838 |
|
Provision for doubtful accounts |
|
|
85 |
|
|
|
150 |
|
Depreciation |
|
|
928 |
|
|
|
854 |
|
Stock Options |
|
|
471 |
|
|
|
563 |
|
Other, net |
|
|
150 |
|
|
|
29 |
|
|
|
|
|
|
|
|
Gross deferred tax assets |
|
|
35,014 |
|
|
|
36,504 |
|
Valuation allowance |
|
|
(33,538 |
) |
|
|
(34,826 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
1,476 |
|
|
|
1,678 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Intangible assets |
|
|
(1,190 |
) |
|
|
(1,132 |
) |
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
(1,190 |
) |
|
|
(1,132 |
) |
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
286 |
|
|
$ |
546 |
|
|
|
|
|
|
|
|
|
|
Classification of Deferred Taxes: |
|
|
|
|
|
|
|
|
Current Deferred Tax Asset |
|
$ |
389 |
|
|
$ |
474 |
|
Current Deferred Tax Asset (included in
Assets of discontinued
operations |
|
|
|
|
|
|
182 |
|
Long-Term Deferred Tax Liabilities |
|
|
(103 |
) |
|
|
(110 |
) |
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
286 |
|
|
$ |
546 |
|
|
|
|
|
|
|
|
F-23
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
The Company has recorded a full valuation allowance against its U.S. deferred tax assets
as management believes it is not more likely than not that these deferred tax assets will be
utilized prior to their expiration. Subsequent recognition of these deferred tax assets would
result in an income tax benefit in the year of such recognition.
As of September 30, 2009, the Company has a federal net operating loss carryforward of
approximately $72.0 million which if unused, will expire in the years 2018 through 2024. Current
or future ownership changes may limit the future realization of these net operating losses in
accordance with Internal Revenue Code Section 382.
Reconciliations of the differences between income taxes computed at federal statutory tax
rates and consolidated provisions for income taxes on income before income taxes and discontinued
operations for the years ended September 30, 2009, 2008 and 2007 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
Income taxes at 34% |
|
$ |
4,537 |
|
|
$ |
4,263 |
|
|
$ |
1,933 |
|
Valuation allowance |
|
|
(1,288 |
) |
|
|
(783 |
) |
|
|
46 |
|
Foreign tax, net |
|
|
(743 |
) |
|
|
(592 |
) |
|
|
(245 |
) |
Enacted U.K. rate change |
|
|
|
|
|
|
(78 |
) |
|
|
148 |
|
Stock options |
|
|
246 |
|
|
|
111 |
|
|
|
|
|
Expiration of warrants unexercised |
|
|
80 |
|
|
|
391 |
|
|
|
|
|
Other, net |
|
|
576 |
|
|
|
439 |
|
|
|
186 |
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$ |
3,408 |
|
|
$ |
3,751 |
|
|
$ |
2,068 |
|
|
|
|
|
|
|
|
|
|
|
Provision has not been made for U.S. or additional foreign taxes for undistributed
earnings of the U.K. foreign subsidiaries. Any of those earnings have been and will continue to be
reinvested. Determination of the amount of unrecognized deferred tax liability with respect to
such earnings is not practicable. The Company believes that the amount of additional taxes that
might be payable on the earning of foreign subsidiaries, if remitted, would be partially offset by
the U.S. foreign tax credits.
Income before income taxes and discontinued operations generated from the U.K. operations for
the years ended September 30, 2009, 2008 and 2007 was $12.4 million, $11.2 million and $6.1
million, respectively.
In June 2006, the FASB issued guidance related to the recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. It also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods and requires increased disclosures.
F-24
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
Under this guidance, the Company may recognize the tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position. The tax benefits recognized in
the financial statements from such a position should be measured based on the largest benefit that
has a greater than fifty percent likelihood of being realized upon ultimate settlement. As of
September 30, 2009, the Company has not recorded any unrecognized tax benefits, which remains
unchanged from September 30, 2008. The Companys policy, if it had unrecognized benefits, is to
recognize accrued interest in interest expense and penalities in operating expenses.
Effective October 1, 2007, the Company adopted the provisions of this guidance. Upon
implementation, the Company recognized a net decrease to its opening accumulated deficit of $0.5
million and a decrease in taxes payable of $0.5 million from the cumulative effect of adoption as a
result of the Companys evaluation of its tax positions in accordance with this guidance, including
recent experience with taxing authorities. After adoption of this guidance, the accrual for
unrecognized tax benefits was zero which remains unchanged at September 30, 2009.
The Companys U.S. subsidiaries have joined in the filing of a U.S. federal consolidated
income tax return since it was formed in November 1981. The U.S. federal statute of limitations
remains open for the years 2005 onward.
State income tax returns are generally subject to examination for a period of three to five
years after filing of the respective return. The state impact of any federal changes remains
subject to examination by various states for a period of up to one year after formal notification
to the states. The Company is not currently under examination in any state jurisdictions.
Years still open to examination by foreign tax authorities are fiscal 2008 onward. The
Company is not currently under examination in any foreign jurisdictions.
9. Stock Options and Warrants:
Stock Options:
Under the shareholder approved 2002 Stock Option Plan (Option Plan), the Company may grant
incentive and non-qualified options to purchase its common stock to key employees, officers,
directors and non-employee independent contractors. Stock options are generally issued at an
exercise price per share which is not less than the fair market value of the stock on the grant
date and generally vest over a three year period and expire ten years from the grant date. Options
granted under the plans generally may be exercised upon payment of the option price in cash or by
delivery of shares of our common stock with a fair market value equal to the option price. Certain
option awards provide for accelerated vesting if there is a change in control. Shares delivered
under the Option Plan will be available from authorized but unissued shares of common
stock or from shares of common stock reacquired by the Company. Shares available for future
grant under the Option Plan were 2.4 million shares at September 30, 2009.
F-25
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
Following is a summary of transactions under the Option Plan during the years ended September
30, 2009, 2008 and 2007 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
Number |
|
|
Average |
|
|
Number |
|
|
Average |
|
|
Number |
|
|
Average |
|
|
|
Of Stock |
|
|
Exercise |
|
|
of Stock |
|
|
Exercise |
|
|
of Stock |
|
|
Exercise |
|
|
|
Options |
|
|
Price ($) |
|
|
Options |
|
|
Price ($) |
|
|
Options |
|
|
Price ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding beginning of year |
|
|
2,576 |
|
|
|
2.24 |
|
|
|
2,977 |
|
|
|
3.64 |
|
|
|
2,633 |
|
|
|
4.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
1,221 |
|
|
|
2.12 |
|
|
|
1,280 |
|
|
|
2.01 |
|
|
|
1,440 |
|
|
|
2.03 |
|
Forfeited or expired |
|
|
(806 |
) |
|
|
2.12 |
|
|
|
(1,681 |
) |
|
|
4.55 |
|
|
|
(1,096 |
) |
|
|
4.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding end of year |
|
|
2,991 |
|
|
|
2.22 |
|
|
|
2,576 |
|
|
|
2.24 |
|
|
|
2,977 |
|
|
|
3.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the options outstanding, vested and expected to vest and exercisable as of
September 30, 2009 is as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Exercise Price |
|
|
Remaining |
|
|
Aggregate |
|
|
|
Number |
|
|
of Options |
|
|
Contractual |
|
|
Intrinsic |
|
Range Of Exercise Price ($) |
|
Outstanding |
|
|
Outstanding ($) |
|
|
Life in Years |
|
|
Value ($) |
|
1.92 2.24 |
|
|
2,856 |
|
|
|
2.07 |
|
|
|
8.0 |
|
|
|
2,094 |
|
3.83 4.70 |
|
|
41 |
|
|
|
4.36 |
|
|
|
3.4 |
|
|
|
|
|
5.41 6.20 |
|
|
94 |
|
|
|
6.02 |
|
|
|
5.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding |
|
|
2,991 |
|
|
|
2.22 |
|
|
|
7.8 |
|
|
|
2,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and expect to vest |
|
|
2,546 |
|
|
|
2.25 |
|
|
|
7.9 |
|
|
|
1,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Exercise Price |
|
|
Remaining |
|
|
Aggregate |
|
|
|
Number |
|
|
of Options |
|
|
Contractual |
|
|
Intrinsic |
|
Range Of Exercise Price ($) |
|
Exercisable |
|
|
Exercisable ($) |
|
|
Life in Years |
|
|
Value ($) |
|
1.92 2.24 |
|
|
1,001 |
|
|
|
2.04 |
|
|
|
6.5 |
|
|
|
764 |
|
3.83 4.70 |
|
|
41 |
|
|
|
4.36 |
|
|
|
3.4 |
|
|
|
|
|
5.41 6.20 |
|
|
94 |
|
|
|
6.02 |
|
|
|
5.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable |
|
|
1,136 |
|
|
|
2.45 |
|
|
|
6.3 |
|
|
|
764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
The weighted average grant-date fair value of stock options granted during the years
ended September 30, 2009, 2008 and 2007 was $1.02, $1.00 and $1.13, respectively. The total
grant date fair value of stock options vested during the years ended September 30, 2009, 2008 and
2007 was $0.5 million, $0.8 million and $0.5 million, respectively.
The fair value of each option granted, excluding the 0.2 million options granted to the
Companys CEO that are described below, was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Expected life (years) |
|
|
6.0 |
|
|
|
5.8 |
|
|
|
6 |
|
Risk-free interest rate |
|
|
2.7 |
% |
|
|
3.1 |
% |
|
|
4.7 |
% |
Volatility |
|
|
52.7 |
% |
|
|
49.3 |
% |
|
|
54.1 |
% |
Expected dividend yield |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
The average risk-free interest rate is based on the U.S. treasury security rate in effect
as of the grant date. The Company determined expected volatility using a weighted average of its
historical month-end close stock price. The expected life was determined using the simplified
method as the Company does not believe it has sufficient historical stock option exercise
experience on which to base the expected term.
In the third quarter of fiscal 2009, in addition to the grant of the SARs, as further
described below, the Companys Board of Directors, upon the recommendation of its Compensation
Committee, finalized the performance-based vesting conditions of the 0.2 million options to
purchase shares of common stock of the Company held by the CEO. These options had been awarded in
February 2008 at an exercise price of $2.11 per share but were not considered granted for
accounting purposes as the criteria for grant date under the accounting guidance had not been
established. The market value of the Companys common stock on the established grant date of April
21, 2009 was $1.51. The vesting of the stock options is subject to vesting in the same manner as
the SARs. As such, the fair value of these 0.2 million options was estimated, in the same manner
as the SARs, on the date of grant using the Monte-Carlo pricing model with the following weighted
average assumptions for fiscal 2009:
|
|
|
|
|
Expected life (years) |
|
|
4.1 |
|
Risk-free interest rate |
|
|
1.6 |
% |
Volatility |
|
|
62 |
% |
Expected dividend yield |
|
|
0 |
% |
F-27
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
The average risk-free interest rate is based on the U.S. constant maturity treasury rates
in effect as of the grant date for terms corresponding to the valuation terms. The Company
determined expected volatility using a weighted average of its historical weekly close stock price.
The expected life was determined using the midpoint between the earliest exercise time and the
latest exercise time as the Company does not have sufficient historical exercise experience on
which to base the expected term.
Following is a summary of the status of the Companys nonvested stock options as of September
30, 2009 and changes during the year ended September 30, 2009 (in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
Stock |
|
|
Grant-Date |
|
Nonvested Stock Options |
|
Options |
|
|
Fair Value ($) |
|
Nonvested at October 1, 2008 |
|
|
1,295 |
|
|
|
1.04 |
|
Granted |
|
|
1,221 |
|
|
|
1.02 |
|
Vested |
|
|
(481 |
) |
|
|
1.09 |
|
Forfeited |
|
|
(180 |
) |
|
|
1.03 |
|
|
|
|
|
|
|
|
|
Nonvested at September 30, 2009 |
|
|
1,855 |
|
|
|
1.01 |
|
|
|
|
|
|
|
|
|
The Company has granted certain options that, in addition to the time vesting
requirement, have performance conditions based on one or more of the Companys growth in sales,
earnings per share, earnings before interest and taxes, earnings before interest, taxes and
amortization or earnings before interest, taxes, depreciation and amortization. Of the 3.0 million
options outstanding at September 30, 2009, 1.1 million options have both time and performance
conditions. The following is a summary of the status of the Companys options that have both the
time vesting requirement and performance conditions (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual |
|
|
Aggregate |
|
|
|
Stock |
|
|
Weighted-Average |
|
|
Life |
|
|
Intrinsic |
|
Time and Performance Based Stock Options |
|
Options |
|
|
Exercise Price ($) |
|
|
In Years |
|
|
Value ($) |
|
Outstanding at October 1, 2008 |
|
|
760 |
|
|
|
1.98 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
564 |
|
|
|
2.12 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(225 |
) |
|
|
1.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2009 |
|
|
1,099 |
|
|
|
2.05 |
|
|
|
8.2 |
|
|
|
822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at
September 30, 2009 |
|
|
714 |
|
|
|
2.03 |
|
|
|
8.7 |
|
|
|
548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2009 |
|
|
160 |
|
|
|
1.92 |
|
|
|
7.0 |
|
|
|
141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
The weighted average grant-date fair value of time and performance based stock options
granted during the years ended September 30, 2009, 2008 and 2007 was $0.92, $1.02 and $1.16,
respectively. The total grant date fair value of stock options vested during the years ended
September 30, 2009 and 2008 was $0.1 million and $0.3 million, respectively. No stock options
vested during the year ended September 30, 2007 (in thousands, except per share data).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
Stock |
|
|
Grant-Date |
|
Time and Performance Based Stock Options |
|
Options |
|
|
Fair Value ($) |
|
Nonvested at October 1, 2008 |
|
|
545 |
|
|
|
1.07 |
|
Granted |
|
|
564 |
|
|
|
0.92 |
|
Vested |
|
|
(115 |
) |
|
|
1.23 |
|
Forfeited |
|
|
(55 |
) |
|
|
1.03 |
|
|
|
|
|
|
|
|
|
Nonvested at September 30, 2009 |
|
|
939 |
|
|
|
0.96 |
|
|
|
|
|
|
|
|
|
For the year ended September 30, 2009 stock-based compensation cost recognized in
selling, general and administrative expenses decreased income before income taxes and discontinued
operations by $0.5 million and net income by $0.6 million. For the year ended September 30, 2008
stock-based compensation cost recognized in selling, general and administrative expenses decreased
income before income taxes and discontinued operations by $0.8 million and net income by $0.8
million. For the year ended September 30, 2007 stock-based compensation cost recognized in
selling, general and administrative expenses decreased income before income taxes and discontinued
operations by $0.8 million and net income by $0.6 million. For the years ended September 30, 2009,
2008 and 2007, stock-based compensation had a $0.01, $0.02 and $0.01 impact on basic and diluted
EPS, respectively. The Company recognizes compensation expense on a straight-line basis over the
requisite service period. As of September 30, 2009 there was $1.2 million of total unrecognized
compensation cost related to nonvested share-based compensation awards, net of estimated
forfeitures, which the Company expects to recognize over a weighted average period of approximately
2.3 years. The compensation cost as generated by the Black-Scholes option-pricing model may not be
indicative of the future benefit, if any, that may be received by the option holder.
Stock Appreciation Rights:
In April 2009, the Companys Board of Directors, upon the recommendation of its Compensation
Committee, made a grant of 0.6 million SARs to Alexander (Sandy) Young, its CEO. The SARs
represent the right to receive a payment, in shares of the Companys common stock, equal to the
product of (a) the number of SARs granted that vest and (b) the excess of (i) the closing sale
price of a share of the Companys common stock on the date that the SARs are settled over (ii) the
base price of $1.51 (the closing price of a share of the Companys common stock on Nasdaq on April
21, 2009, the date that the SARs were granted to Mr. Young).
The SARs are subject to both time vesting and performance vesting.
F-29
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
Time Vesting. The SARs generally will not vest if Mr. Youngs employment with the
Company is terminated prior to January 14, 2011, the third anniversary of the date he became the
Companys CEO. However, if Mr. Youngs employment terminates because of his death or disability,
he shall become vested in the SARs to the extent determined by the Compensation
Committee. The Compensation Committees determination shall be made by multiplying that
portion of the SARs that are deemed potentially to have vested by reason of satisfaction of the
applicable performance levels by a fraction, the numerator of which is the number of completed
months elapsed since October 1, 2007 through the date of termination of employment and the
denominator of which is 48.
In addition, in the event of a change of control (as defined in the SARs agreement), the
SARs will become immediately vested to the same extent provided in the previous paragraph and shall
be exercisable for a period of 30 days after the change of control. If Mr. Youngs employment with
the Company is terminated for reasons that the Compensation Committee determines constitutes
cause (as defined in the SARs agreement), the SARs will be forfeited, without regard to whether
they have become vested.
Performance Vesting. The determination of whether the SARs have vested will be made
as soon as practicable after the fiscal year ending September 30, 2011 and will be based on the
achievement of the performance measures set forth in the SARs agreement with Mr. Young. The SARs
agreement establishes a threshold, base and stretch level of improvement (in percentage terms) in
growth in each of sales, earnings per share and earnings before interest, taxes and amortization
(EBITA) during the period from October 1, 2009 through September 30, 2011 as compared to the base
year ended September 30, 2007 and provides that the amount of SARs that will vest will be dependent
on whether the threshold, base and stretch levels have been met in each performance measure. The
determination of vesting attributable to each performance measure shall be independent from the
other performance measures. A performance below threshold in one performance measure does not
preclude vesting under any other performance measure.
If the actual results for any performance measure fall between the threshold and the base, or
between the base and the stretch, vesting of the SARs will be prorated.
The SARs agreement with Mr. Young provides that the potential maximum value of the SARs (when
aggregated with the value of the vested portion of the option to purchase 0.2 million shares of the
Companys common stock held by Mr. Young as described above) is £3.0 million (approximately $4.8
million at the closing exchange rate at September 30, 2009). If the total value of the SARs and
the value of the vested portion of Mr. Youngs options exceeds £3.0 million, then the base price of
$1.51 for the SARs will be increased so that the total value is equal to £3.0 million.
F-30
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
At September 30, 2009, the Company estimated that none of the performance measures will be
achieved which resulted in zero stock-based compensation cost related to SARs to be recognized as
of September 30, 2009. At September 30, 2009, the Company had $0.3 million of total unrecognized
compensation cost related to SARs compensation awards. A change in the estimate of the SARs
performance measures vesting could result in the Company incurring such
cost over a period through September 30, 2011. The compensation cost as generated by the
Monte-Carlo pricing model may not be indicative of the future benefit, if any, that may be received
by the SARs holder.
The weighted average grant-date fair value of SARs granted during the year ended September 30,
2009 was $0.49. The fair value of the SARs granted was estimated on the date of grant using the
Monte-Carlo pricing model with the following weighted average assumptions for the year ended
September 30, 2009:
|
|
|
|
|
Expected life (years) |
|
|
2.4 |
|
Risk-free interest rate |
|
|
1.1 |
% |
Volatility |
|
|
62 |
% |
Expected dividend yield |
|
|
0 |
% |
The average risk-free interest rate is based on the U.S. constant maturity treasury rates
in effect as of the grant date for terms corresponding to the valuation terms. The Company
determined expected volatility using a weighted average of its historical weekly close stock price.
The expected life was determined using the midpoint between the earliest exercise time and the
latest exercise time as the Company does not have historical SARs exercise experience on which to
base the expected term.
Warrants:
In the third quarter of fiscal 2007, in connection with the execution of an agreement with an
unaffiliated third party pursuant to which such third party agreed to provide the Company with
consulting services related to investment banking advice, investor awareness and business advisory
services, the Company issued to such third party warrants to purchase up to an aggregate of 135,000
shares of its common stock. Of the 135,000 warrants issued, 45,000 of the warrants were
exercisable at $3.00 per share, 45,000 of the warrants were exercisable at $3.35 per share and
45,000 of the warrants were exercisable at a price of $3.75 per share. The warrants expired
unexercised on October 18, 2008. At issuance, the warrants were immediately vested and the Company
recognized a charge of $0.2 million related to the fair value of the warrants in fiscal 2007.
F-31
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
In the fourth quarter of fiscal 2003, in connection with the execution of an agreement with an
unaffiliated third party pursuant to which such third party agreed to provide the Company with
consulting services related to corporate finance and investment banking matters, the Company issued
to such third party warrants to purchase up to an aggregate of 350,000 shares of its common stock.
Of the 350,000 warrants issued, 100,000 of the warrants were exercisable at $4.75 per share, 175,00
of the warrants were exercisable at $5.50 per share and 75,000 of the warrants were exercisable at
a price of $6.00 per share. At issuance, the warrants had a fair value of $0.6 million, which was
recognized by the Company in previous fiscal years. In the third
quarter of fiscal 2007, the Company extended the expiration date of the warrants from August
13, 2007 to August 31, 2008 and recognized a charge of $0.3 million related to the additional fair
value of the warrants. The warrants expired unexercised in fiscal 2008.
The fair value of the warrants issued is estimated on the date of issuance using the
Black-Scholes pricing model.
10. Commitments and Contingencies:
Guarantees:
The senior credit facility was secured by a first priority lien on the assets of Allied
Holdings and certain of its subsidiaries. Together with Allied Holdings and certain of its
subsidiaries, the Company had guaranteed the debt and other obligations of certain wholly-owned
U.K. subsidiaries under the senior credit facility. In conjunction with the amendment to the
senior credit facility, the Company had granted the senior lenders a security interest in
substantially all of its assets to secure the payment of its guarantee. At September 30, 2009 and
2008, there were no amounts outstanding under the senior credit facility. In the third quarter of
fiscal 2009 the Company terminated its senior credit facility and the liens and guarantees under
such facility have since been released.
Employment Agreements:
The Company currently has employment agreements with its two executive officers that provided
for minimum aggregate annual compensation of $0.6 million (at the closing exchange rate at
September 30, 2009) in fiscal 2009.
In January 2008, the Company entered into an employment agreement with Alexander (Sandy)
Young, its CEO. The employment agreement is terminable by either Mr. Young or the Company by
giving not less than twelve months prior written notice to the other party or automatically on Mr.
Youngs 65th birthday. The salary of Mr. Young is currently £216,300 (approximately
$344,400 at the closing exchange rate at September 30, 2009). In addition, pursuant to his
employment agreement:
|
|
|
the Company awarded Mr. Young 0.2 million stock options in February 2008; |
|
|
|
the Company granted Mr. Young 0.6 million SARs in April 2009, the terms of which
are described above in Note 9; |
|
|
|
the Company provides Mr. Young with a car allowance; and |
|
|
|
the Company has agreed to make a payment equal to 15% of Mr. Youngs annual salary
towards his U.K.-based private pension fund. |
F-32
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
Mr. Youngs employment agreement does not provide for payments to be made to him at, following
or in connection with a change in control of the Company. In lieu of the twelve
months prior written notice of termination, the Companys employment agreement with Mr. Young
provides that it may terminate the employment agreement at any time by making a payment to Mr.
Young equal to his salary for the notice period (or, if applicable, the remainder of the notice
period) and the cost to the Company of providing Mr. Young with his health insurance, car allowance
and contribution to his U.K.-based private pension fund for the notice period (or, if applicable,
the remainder of the notice period).
In May 2008 the Company entered into an employment agreement with Paul Weston, its then Chief
Financial Officer Designate. Mr. Weston became the Chief Financial Officer of the Company on
October 1, 2008. The Companys employment agreement with Mr. Weston provides that either party may
terminate the agreement upon six months written notice. In addition, under its employment
agreement with Mr. Weston, the Company is required to pay him twelve months salary in the event he
is terminated due to an acquisition. The Companys employment agreement with Mr. Weston further
provides that Mr. Weston will not compete against the Company for a period of six months following
the termination of his employment with the Company. Pursuant to his employment agreement, the
salary of Mr. Weston is currently £159,650 (approximately $254,200 at the closing exchange rate at
September 30, 2009). In addition, pursuant to his employment agreement with the Company, Mr.
Weston receives a car allowance and the Company has agreed to make a payment equal to 15% of his
annual salary towards his U.K.-based private pension fund.
Contractual Cash Obligations:
The Company has entered into various operating lease agreements for office space and
equipment. Certain of these leases provide for renewal options. Rent expense under non-capitalized
lease or rental agreements for the years ended September 30, 2009, 2008 and 2007 amounted to $2.8
million, $3.3 million and $3.3 million, respectively.
Other obligations represent the Companys contractual commitment for a new branch operating
system and investment bank fees associated with the Companys capital resources review.
F-33
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
The following table summarizes the Companys future minimum rental commitments required under
operating lease agreements and other obligations as of September 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Lease |
|
|
Total Other |
|
|
Total |
|
Fiscal |
|
Obligations |
|
|
Obligations |
|
|
Obligations |
|
2010 |
|
$ |
2,378 |
|
|
$ |
721 |
|
|
$ |
3,099 |
|
2011 |
|
|
1,472 |
|
|
|
958 |
|
|
|
2,430 |
|
2012 |
|
|
858 |
|
|
|
718 |
|
|
|
1,576 |
|
2013 |
|
|
300 |
|
|
|
207 |
|
|
|
507 |
|
2014 |
|
|
120 |
|
|
|
|
|
|
|
120 |
|
Thereafter |
|
|
69 |
|
|
|
|
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,197 |
|
|
$ |
2,604 |
|
|
$ |
7,801 |
|
|
|
|
|
|
|
|
|
|
|
Contingencies:
The Company believes that it has been in compliance, in all material respects, with the
applicable provisions of the federal statutes, regulations and laws and applicable state laws
together with all applicable laws and regulations of other countries in which the Company operates.
There can be no assurance that an enforcement action will not be brought against the Company, or
that the Company will not be found to be in violation of one or more of these provisions. At
present, the Company cannot anticipate what impact, if any, administrative or judicial
interpretation of the applicable federal and state laws and those of other countries may have on
the Companys consolidated financial position, cash flows or results of operations.
The Company is involved in various other legal proceedings and claims incidental to its normal
business activities. The Company is vigorously defending its position in all such proceedings.
Management believes these matters should not have a material adverse impact on the consolidated
financial position, cash flows or results of operations of the Company.
Liabilities for loss contingencies, arising from claims, assessments, litigation and other
sources are recorded when it is probable that a liability has been incurred and the amount of
liability can be reasonably estimated. Based on managements best estimate of probable liability,
the Company has accrued $0.2 million and $0.3 million for such costs at September 30, 2009 and
2008, respectively.
F-34
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
In some of the Companys supply of healthcare staffing services it has historically benefited
from a concession under U.K. law (the Staff Hire Concession) which allowed it to charge
value-added tax (VAT) only on the amount of commission charged to the purchaser of flexible
staff. The Staff Hire Concession expired on March 31, 2009. The Company has undertaken a review
of its post-concession VAT treatment and concluded that, other than permanent placement, its
supplies are exempt from VAT on the basis that it provides nursing and
welfare services and not the supply of staff (which are not exempt from VAT). However, if the
Company is deemed to supply staff, there is, by concession, a further exemption from VAT under U.K.
law for the supply of nursing staff and nursing auxiliaries where certain conditions are met (the
Nursing Agencies Concession). The foregoing reflects the Companys advisors view of the law as
it currently stands, but there is a risk that this interpretation could be challenged by Her
Majestys Revenue and Customs (HMRC). The Company has sent correspondences to HMRC to seek its
concurrence with its VAT position. HMRC is seeking clarification on the Companys historical and
post-concession VAT treatment before it can make a conclusion on the Companys VAT position. If
HMRC ultimately does not concur with the Companys VAT treatments, then a VAT liability may be
imposed. At September 30, 2009, the Company has not recorded a liability relating to this matter
as it believes a VAT liability is not probable to occur.
11. Profit Sharing Plan:
The Company has a defined contribution plan, pursuant to Section 401(k) of the Internal
Revenue Code, covering all U.S. employees who meet certain requirements. These requirements
include, among other things, at least one year of service and attainment of the age of 21. The plan
operates as a salary reduction plan whereby participants contribute anywhere from 1% to 15% of
their compensation, not to exceed the maximum available under the Code. The Company may make
additional matching cash contributions at its discretion. In addition to the U.S. plan, the
Companys U.K. subsidiaries also sponsor personal pension plans that operate as salary reduction
plans. Further, as part of certain employees compensation, the company has agreed to make
payments towards their U.K. based private pension fund. The Companys contribution to such plans
were $0.2 million, $0.2 million and $0.1 million for the years ended September 30, 2009, 2008 and
2007, respectively.
12. Selected Quarterly Financial Data (Unaudited):
The following table presents the comparative unaudited quarterly results for the years ended
September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Quarter Ended |
|
December 31, |
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
Total revenues |
|
$ |
61,528 |
|
|
$ |
55,334 |
|
|
$ |
63,103 |
|
|
$ |
69,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
18,813 |
|
|
$ |
17,166 |
|
|
$ |
19,173 |
|
|
$ |
21,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations |
|
$ |
2,467 |
|
|
$ |
2,144 |
|
|
$ |
2,388 |
|
|
$ |
2,937 |
|
Discontinued Operations |
|
$ |
|
|
|
$ |
367 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,467 |
|
|
$ |
2,511 |
|
|
$ |
2,388 |
|
|
$ |
2,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income per share
of common stock from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.05 |
|
|
$ |
0.05 |
|
|
$ |
0.05 |
|
|
$ |
0.07 |
|
Discontinued operations |
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share |
|
$ |
0.05 |
|
|
$ |
0.06 |
|
|
$ |
0.05 |
|
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-35
ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Quarter Ended |
|
December 31, |
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
Total revenues |
|
$ |
74,770 |
|
|
$ |
73,815 |
|
|
$ |
75,024 |
|
|
$ |
74,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
22,423 |
|
|
$ |
21,931 |
|
|
$ |
23,120 |
|
|
$ |
22,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,678 |
|
|
$ |
1,764 |
|
|
$ |
2,453 |
|
|
$ |
2,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
income per share of
common stock from
continuing
operations |
|
$ |
0.04 |
|
|
$ |
0.04 |
|
|
$ |
0.05 |
|
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. Subsequent Events:
The Company has evaluated its activity through December 4, 2009, the date its financial
statements were issued.
F-36
ALLIED HEALTHCARE INTERNATIONAL INC.
(PARENT COMPANY ONLY)
SCHEDULE I CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS
(In thousands, except per share data)
|
|
|
|
|
|
|
September 30, |
|
|
|
2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
36 |
|
Prepaid expenses and other assets |
|
|
69 |
|
|
|
|
|
Total current assets |
|
|
105 |
|
|
|
|
|
|
Investment in and advances to subsidiaries |
|
|
150,757 |
|
Goodwill |
|
|
2,300 |
|
|
|
|
|
Total assets |
|
$ |
153,162 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
|
$ |
71 |
|
Accrued expenses |
|
|
421 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
492 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
Preferred stock, $.01 par value; authorized
10,000 shares,
issued and outstanding none |
|
|
|
|
Common stock, $.01 par value; authorized 80,000
shares, issued 45,571 |
|
|
456 |
|
Additional paid-in capital |
|
|
241,018 |
|
Accumulated other comprehensive income |
|
|
1,819 |
|
Accumulated deficit |
|
|
(88,329 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
154,964 |
|
Less cost of treasury stock (585 shares) |
|
|
(2,294 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
152,670 |
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
153,162 |
|
|
|
|
|
See note to condensed financial information.
S-1
ALLIED HEALTHCARE INTERNATIONAL INC.
(PARENT COMPANY ONLY)
SCHEDULE I CONDENSED FINANCIAL INFORMATION
STATEMENTS OF OPERATIONS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
2,399 |
|
|
|
4,257 |
|
|
|
|
|
|
|
|
Total expenses |
|
|
2,399 |
|
|
|
4,257 |
|
|
|
|
|
|
|
|
|
|
Equity in income of subsidiaries |
|
|
7,478 |
|
|
|
4,053 |
|
Interest income |
|
|
3,762 |
|
|
|
3,765 |
|
Other (expense) income |
|
|
(47 |
) |
|
|
65 |
|
|
|
|
|
|
|
|
Income before income taxes and discontinued
operations |
|
|
8,794 |
|
|
|
3,626 |
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
8 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before discontinued operations |
|
|
8,786 |
|
|
|
3,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
Income from discontinued operations, net of taxes |
|
|
|
|
|
|
6,266 |
|
Gain on disposal of subsidiaries, net of taxes |
|
|
|
|
|
|
56,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
8,786 |
|
|
$ |
66,353 |
|
|
|
|
|
|
|
|
See note to condensed financial information.
S-2
SCHEDULE I
ALLIED HEALTHCARE INTERNATIONAL INC.
(PARENT COMPANY ONLY)
SCHEDULE I CONDENSED FINANCIAL INFORMATION
STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
8,786 |
|
|
$ |
66,353 |
|
Adjustments to reconcile net income to net
cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
|
|
|
|
(6,266 |
) |
Gain on disposal of subsidiaries |
|
|
|
|
|
|
(56,471 |
) |
Equity interest in net income of subsidiaries |
|
|
(7,478 |
) |
|
|
(4,053 |
) |
Depreciation and amortization |
|
|
1 |
|
|
|
3 |
|
Issuance and amortization of warrants |
|
|
|
|
|
|
499 |
|
Stock based compensation |
|
|
812 |
|
|
|
764 |
|
Forgiveness of intercompany debt |
|
|
|
|
|
|
(125 |
) |
Changes in operating assets and liabilities, excluding
the effect of businesses acquired and sold: |
|
|
|
|
|
|
|
|
Increase in receivables from subsidiaries |
|
|
(895 |
) |
|
|
(1,852 |
) |
Decrease in prepaid expenses and other assets |
|
|
39 |
|
|
|
120 |
|
Increase (decrease) in accounts payable and other liabilities |
|
|
(1,237 |
) |
|
|
1,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
28 |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash |
|
|
28 |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
8 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
36 |
|
|
$ |
8 |
|
|
|
|
|
|
|
|
See note to condensed financial information.
S-3
ALLIED HEALTHCARE INTERNATIONAL INC.
(PARENT COMPANY ONLY)
SCHEDULE I CONDENSED FINANCIAL INFORMATION
NOTE TO CONDENSED FINANCIAL INFORMATION
Basis of Presentation:
Certain information and footnote disclosures normally included in financial statements
prepared in conformity with generally accepted accounting principles have been condensed or
omitted. Accordingly, this condensed financial information should be read in conjunction with the
consolidated financial statements of Allied Healthcare International Inc. (the Company) in its
2009 Annual Report on Form 10-K.
The investments in the Companys subsidiaries are carried on the equity basis, which
represents amount invested less dividends received plus or minus the Companys equity in the
subsidiaries income or loss to date. Significant intercompany balances and activities have not
been eliminated in the unconsolidated financial information.
At September 30, 2008 and 2007, the Companys U.K. subsidiary was restricted from paying
dividends to the Company under the terms of its senior credit facility. At September 30, 2009, the
senior credit facility had been terminated.
S-4
ALLIED HEALTHCARE INTERNATIONAL INC.
(In thousands)
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column A |
|
Column B |
|
|
Column C |
|
|
Column D |
|
|
Column E |
|
|
|
Balance at |
|
|
Additions Charged to |
|
|
|
|
|
|
Balance at |
|
|
|
Beginning |
|
|
Cost and |
|
|
Other |
|
|
|
|
|
|
End |
|
Description |
|
of Period |
|
|
Expenses |
|
|
Accounts |
|
|
Deductions |
|
|
of Period |
|
|
|
Allowance for
Doubtful Accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
September 30, 2009 |
|
$ |
823 |
|
|
$ |
360 |
|
|
$ |
(93 |
)(B) |
|
$ |
251 |
(A) |
|
$ |
839 |
|
|
|
Year ended
September 30, 2008 |
|
$ |
1,570 |
|
|
$ |
(167 |
) |
|
$ |
(163 |
)(B) |
|
$ |
417 |
(A) |
|
$ |
823 |
|
|
|
Year ended
September 30, 2007 |
|
$ |
1,703 |
|
|
$ |
222 |
|
|
$ |
168 |
(B) |
|
$ |
523 |
(A) |
|
$ |
1,570 |
|
|
|
|
(A) |
|
Doubtful accounts written off, net of recoveries. |
|
(B) |
|
Adjustments arising from translation of foreign financial statements to U.S. dollars. |
S-5