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| AHPI > SEC Filings for AHPI > Form 10-Q on 7-Nov-2008 | All Recent SEC Filings |
7-Nov-2008
Quarterly Report
RESULTS OF OPERATIONS
Three Months ended September 30, 2008 compared to three months ended September 30, 2007.
Allied had net sales of $14.4 million for the three months ended September 30, 2008, up $0.3 million, or 2.1%, from net sales of $14.1 million in the prior year same quarter. Customer purchase order releases were $0.3 million lower than in the prior year same quarter. Additionally, customer orders were $0.1 million higher than the prior year same quarter. Purchase order release times depend on the scheduling practices of individual customers, and do vary over time.
Domestic sales were up 8.9% from the prior year same quarter, while international business, which represented 16.7% of first quarter sales, was down 21.0%. Orders for the Company's products for the three months ended September 30, 2008 of $13.3 million were $0.1 million or 0.8% higher than orders for the prior year same quarter of $13.2 million. Domestic orders are down 4.2% over the prior year same quarter while international orders which represented 19.0% of first quarter orders were up 28.6%. The Company currently believes that the increase in international orders is a result of order timing, and is not reflective of a gain of market share.
Sales for the three months ended September 30, 2008 include $172,500 for the recognition into income of payments resulting from the agreement with Abbott Laboratories to cease the production and distribution of BaralymeŽ. Sales for the three months ended September 30, 2008 also include $99,000 as a result of product development activities to pursue development of a new carbon dioxide absorption product. The agreement with Abbott provides for Abbott to pay Allied up to $2,150,000 in product development cost to pursue development of a new carbon dioxide absorption product for use in connection with inhalation anesthetics that does not contain potassium hydroxide and does not produce a significant exothermic reaction with currently available inhalation agents.
The Company ceased the sale of BaralymeŽ on August 27th, 2004. Sales for the three months ended September 30, 2007 include $116,250 for the recognition into income of payments resulting from the agreement with Abbott Laboratories to cease the production and distribution of BaralymeŽ. Sales for the three months ended September 30, 2007 also include $97,551 as a result of product development activities to pursue development of a new carbon dioxide absorption product. Income from the agreement will continue to be recognized over eight years, the term of the agreement, at $57,350 per month. Allied continues to sell CarbolimeŽ, a carbon dioxide absorbent with a different formulation than BaralymeŽ.
Gross profit for the three months ended September 30, 2008 was $3.5 million, or 24.3% of net sales, compared to $3.2 million, or 22.7% of net sales, for the three months ended September 30, 2007. Increases in material cost negatively impacted gross margins during the first quarter of fiscal 2008. Material cost during the first quarter was approximately 1.9% higher than in the first quarter of the prior year. Gross profit during the first quarter was favorably impacted by an approximately 2.1% price increase in selected products. Cost of sales for the three months ended September 30, 2008 also included $94,000 as a result of product development of a new carbon dioxide absorption product.
Selling, general and administrative expenses for the three months ended September 30, 2008 were $3.2 million compared to selling, general and administrative expenses of $3.0 million for the three months ended September 30, 2007. Salaries and benefits increased approximately $117,000. This increase is primarily due to employee turnover in the first quarter of the prior fiscal year. There have not been changes in staffing levels compared to the same quarter of the prior fiscal year. Additionally, legal expenses increased by approximately $52,000, as a result of product liability claims.
Income from operations was $0.3 million for the three months ended September 30, 2008 compared to income from operations of $0.1 million for the three months ended September 30, 2007. Interest income was $30,659 for the three months ended September 30, 2008 compared to interest income of $40,769 for the three months ended September 30, 2007. Allied had income before provision for income taxes in the first quarter of fiscal 2009 of $0.3 million, compared to income before provision for income taxes in the first quarter of fiscal 2008 of $0.1 million. The Company recorded a tax provision of $0.1 million for the three-months ended September 30, 2008 and 2007.
Net income for the first quarter of fiscal 2009 was $0.2 million or $0.03 per basic and diluted share compared to net income of $0.1 million or $0.01 per basic and diluted share for the first quarter of fiscal 2008. The weighted average number of common shares outstanding, used in the calculation of basic earnings per share for the first quarters of fiscal 2009 and 2008 were 7,891,232 and 7,883,577 shares, respectively. The weighted average number of common shares outstanding used in the calculation of diluted earnings per share for the first quarters of fiscal 2009 and fiscal 2008 were 8,132,931 and 8,106,796 shares, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that available resources and anticipated cash flows from operations are sufficient to meet operating requirements in the coming year.
The Company's working capital was $17.8 million at September 30, 2008 compared to $18.3 million at June 30, 2008. Accrued liabilities decreased $0.8 million, inventory increased $0.7 million and other current assets increased $0.2 million. At September 30, 2008 these increases in working capital were offset by a decrease in Cash and cash equivalents of $2.0 million. Accounts payable increased $0.1 million and accounts receivable decreased $0.1 million to $6.4 million at September 30, 2008. Accounts receivable as measured in days of sales outstanding ("DSO") increased to 40 DSO at September 30, 2008, up from 34 DSO at June 30, 2008.
On September 30, 2008, the Bank and the Company agreed to an amendment of the credit facility. In conjunction with the amendment to the Company's credit facility, the Bank extended the maturity on the Company's revolving credit facility to September 1, 2010, with automatic renewals. The amendment also increased the capital expenditure limitation to $4,000,000, from $2,000,000, for the fiscal year ended June 30, 2009. The entire credit facility continues to accrue interest at the Bank's prime rate. The prime rate was 5.00% on September 30, 2008. The interest rate on prime rate loans may increase from prime to prime plus 0.75% if the ratio of the Company's funded debt to EBITDA exceeds 2.5. The amended credit facility continues to provide the Company with a rate of LIBOR plus 1.75%, at the Company's option. The optional LIBOR rate may increase from LIBOR plus 1.75% to LIBOR plus 2.75% based on the Company's fixed charge coverage ratio. The 90-day LIBOR rate was 4.05% at September 30, 2008.
At September 30, 2008 the Company had no aggregate indebtedness, including capital lease obligations, short-term debt and long term debt.
The Company was in compliance with all of the financial covenants associated with its credit facility at September 30, 2008.
In the event that economic conditions were to severely worsen for a protracted period of time, we believe that our borrowing capacity under our credit facilities will provide sufficient financial flexibility. The Company would have options available to ensure liquidity in addition to increased borrowing. Capital expenditures, which are budgeted at $3.4 million for the fiscal year ended June 30, 2009, could be postponed. At September 30, 2008, the Company had no bank debt. Based on the Company's current level of debt, and performance, debt would bear interest at the Bank's prime rate. The Company's agreement with the Bank does include provisions for higher interest rates at higher debt levels and different levels of Company performance.
Inflation has not had a material effect on the Company's business or results of operations.
Litigation and Contingencies
The Company becomes, from time to time, a party to personal injury litigation arising out of incidents involving the use of its products. The Company believes that any potential judgments resulting from these claims over its self-insured retention will be covered by the Company's product liability insurance.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (FAS 141(R)). FAS 141(R) requires that the fair value of the purchase price of an acquisition including the issuance of equity securities be determined on the acquisition date; requires that all assets, liabilities, noncontrolling interests, contingent consideration, contingencies, and in-process research and development costs of an acquired business be recorded at fair value at the acquisition date; requires that acquisition costs generally be expensed as incurred; requires that restructuring costs generally be expensed in periods subsequent to the acquisition date; and requires that changes in deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. FAS 141(R) also broadens the definition of a business combination and expands disclosures related to business combinations. FAS 141(R) will be applied prospectively to business combinations occurring after the beginning of the Company's fiscal year 2010, except that business combinations consummated prior to the effective date must apply FAS 141(R) income tax requirements immediately upon adoption. The Company is currently evaluating the impact of FAS 141(R) on its financial position, results of operations, and cash flows, and does not anticipate any material effect on the Company's consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements", which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. This statement was effective for us beginning July 1, 2008. Adoption of SFAS No. 157 did not have a material impact on the Company's results of operations, financial position or cash flows.
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