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In an effort to ensure future growth, this past year we made significant changes to our distribution strategies as they relate to our Disposable Protective Apparel and Engineered Products business units. For the Disposable Protective Apparel, we negotiated a new agreement with our largest distributor in September 2006 that provides them with the exclusive right to sell our private label Critical Cover® products and gives us the right to sell Alpha Pro Tech and other branded products to other distributors. This new agreement is having a positive impact on our business by enabling us to gain additional market share as we develop relationships with other distributors in the industrial and cleanroom markets. We expect continued long-term growth from this business unit due to our expanded distribution network now that we can sell our products to other distributors. Even though sales of our disposable protective apparel were down in the fourth quarter 2007, they were up $1.4 million for the year.
For the Engineered Products business unit, our decision to change our distribution strategy had a short-term negative impact on our top-line sales. During the 2006 fourth quarter, it became apparent that our exclusive distributor was not going to meet the minimum sales amount required to retain exclusivity on our roof underlayment product. In addition, they were going to barely meet the minimum sales level on our house wrap product. As a result, in 2007, we decided to expand our distribution channels for the roof underlayment product only in order to meet our growth objectives.
We had anticipated a slow-down during a transition period while we worked to move forward with them on a non-exclusive basis. However, in late February we inquired why orders from this exclusive distributor were markedly down and were informed that they were no longer going to purchase any product from us. As a result of the loss of this distributor and a downturn in the housing market, our building products sales for the year were down 32.9% to approximately $5.2 million from $7.8 million in 2006. Moving forward we believe this was the right course of action. We are already seeing that our new Engineered Products distribution channel strategy has broadened our market opportunities. In May, we signed a Vendor Supply Agreement with ABC Supply Co. Inc. and its division Amcraft Building Products. This new agreement will allow ABC Supply and Amcraft to sell our housewrap and tape products in the weatherization systems for the new construction and the residential markets. In addition, we will supply our housewrap as a private label product under the brand name ProGuard Quality Housewrap. This private label product will be available exclusively at ABC Supply locations. Additionally, in December, we signed a new private label manufacturing agreement with Allied Building Products Corp., which has nearly 200 locations nationwide and will private label the RexSynfelt® roof underlayment. In addition, in early 2008 we also received the necessary vendor number from a national home and building products chain for the RexSynfelt® roof underlayment product.
For 2008, we expect revenues for Engineered Products to be about $11 million. However, we feel that there is still the potential to reach the $13 million we had previously expected if economic factors should strengthen.
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In 2007, Alpha Pro Tech recorded its second highest level of sales in the company’s history. Top-line sales decreased 5.1% to $35,453,000 from $37,338,000 in 2006. The majority of this decrease came primarily from one product segment. Engineered Products decreased by 32.9%, or $2,554,000, to $5,227,000 from $7,781,000 in 2006. The primary reason for the decrease was the change in our distribution strategy, which led to our losing our main distributor as described above as well as the decline in the housing market. Sales in our Infection Control business unit also dipped by $432,000, or 6.3%, to $6,512,000 from $6,944,000 in 2006. Sales in this business unit were impacted by lower sales of our N-95 NIOSH approved Respirator mask as fears of the Avian Flu decreased. Sales in our Disposable Protective Apparel business unit rose 6.6% to $22,583,000 from $21,183,000 in 2006. This segment remains our largest contributor in terms of overall sales dollars, at 63.7%. This is an increase from 2006, when sales in this segment represented 56.7% of our overall sales.
The decrease in our top-line sales had a direct impact on our bottom-line results. For the year, Alpha Pro Tech’s net income decreased 35.4% to $2,417,000, or 9 cents per share, from $3,739,000, or 15 cents per share, in 2006. This still represents the third best year, in terms of earnings, in the company’s history and our tenth consecutive year of profitability.
Gross profit for the year decreased 5.1% to $16,442,000 from $17,320,000 in 2006. The primary reason for this was the 5.1% decrease in sales. Gross margin for 2007 remained strong at 46.4%, the same as the prior year, which was up significantly from 45.5% in 2005. The gross margin was positively impacted by higher margins in our Engineered Products segment and negatively by the lower gross margin on Disposable Apparel due to increased costs from our manufacturing in China.
Management’s focus on fiscal responsibility and creating shareholder value can be found in the company’s strong balance sheet. The current ratio stands at a robust level at 12.7 to 1; this is a significant increase from the 8.3 to 1 in 2006. Current assets increased 10.3% to $24,604,000 from $22,297,000 a year ago. The majority of this increase is attributable to a higher cash balance. Our cash position increased to $4,064,000 from $1,837,000 in 2006. At the year end, our inventory stood at $14,111,000 compared to $12,713,000 in 2006. In addition, our accounts payables decreased to $457,000 from $1,213,000 in the prior year. The company remains debt free and has an unused $3.5 million line of credit. Shareholders’ equity continued to improve by climbing 14.2% to $26,804,000 from $23,480,000 in 2006, and from $18,643,000 in 2005. Our consistent approach to managing our assets provides us with the ability to continue to pursue and fund our growth initiatives.
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This past year we faced several challenges not unlike the growing pains that many small companies face. We recognized these issues early and acted quickly to take corrective measures. We strongly believe that our decision to change our distribution strategy will position the company well for sustained long-term growth.
Despite the short-term small top-line sales decrease we experienced, we did have several positive developments during 2007. The Disposable Apparel Products division’s sales climbed 6.6% to $22.6 million from $21.2 million in 2006. We expect sales to continue to grow in 2008 and at a higher rate due to a new and expanded distribution agreement with our largest distributor.
The new distribution agreement, which we signed in September 2006, allows them to retain the exclusive right to sell our private label Critical Cover® products. The agreement also allows us to sell Alpha Pro Tech and other branded products to other distributors. With this expanded distribution channel, we have been able to gain additional market share through other industrial and cleanroom distributors. Thus, we remain encouraged about our ability to gain additional market acceptance of our products and significant growth in the years ahead.
In the Engineered Products business unit, we achieved a significant milestone. Our REX SynFelt® Synthetic Roof Underlayment was named by the PCBC, a trade organization dedicated to the construction industry along the Pacific Coast, as one of its “Cool Products” for 2007. Our excitement for this particular award is based on the belief that this further validates this exceptional technology for the construction industry.
Subsequent to year end we achieved another key product validation. In March 2008, we announced that our house wrap product, aimed at the construction industry, received the highly coveted International Code Council-Evaluation Service (ICC-ES) approval. This approval represents the final milestone required to clear the product for distribution throughout the construction industry.
The approval requires rigorous testing and inspection and is a meaningful validation of our product. It demonstrates the product’s technical capabilities and tells construction companies that our housewrap will meet the latest appropriate technical specifications. This also provides us full accreditation with the architectural community as a leader in new and innovative weatherization products that meet the newest code requirements in the building industry.
The ICC-ES governs the International Building Code (IBC) which oversees most building departments around the country. This approval significantly expands the opportunity for Alpha Pro Tech’s REX Wrap™ and REX Wrap Plus™ house wrap products as many construction supply companies, as well as builders and architects, require this certification to sell the product.
In our continuing effort to demonstrate our commitment to building shareholder value, in 2007, we repurchased 572,300 shares of common stock at a cost of $907,000. Since we began repurchasing company shares on the open market, as of December 31, 2007, we have repurchased and retired a total of 2.9 million shares at a cost of $3.4 million. Management and the Board of Directors currently believe this is an effective use of cash and the reduction in shares outstanding is in the best interest of our shareholders. We will continue to repurchase stock in 2008.
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