<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the Quarterly period ended June 30, 1998; or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period
from ____________________ to ___________________.
Commission File Number: 0-27186
RAYTEL MEDICAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-2787342
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2755 Campus Drive, Suite 200, San Mateo, California 94403
(Address of principal executive offices)(Zip code)
(650) 349-0800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares Outstanding as of July 31, 1998
----- --------------------------------------
Common Stock
($.001 par value) 8,823,679
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RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
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PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
<S> <C> <C>
Condensed Consolidated Balance Sheets as of
June 30, 1998 and September 30, 1997................................................3
Condensed Consolidated Statements of Operations
for the three months and the nine months ended June 30, 1998 and 1997................4
Condensed Consolidated Statements of Cash Flows
for the nine months ended June 30, 1998 and 1997.....................................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................................................12
SIGNATURE.......................................................................................13
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND SEPTEMBER 30, 1997
(000's omitted)
<TABLE>
<CAPTION>
ASSETS
June 30, September 30,
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents .............................. $ 8,493 $ 7,873
Receivables, net ....................................... 35,406 30,345
Prepaid expenses and other ............................. 3,852 3,970
--------- ---------
Total current assets ............................ 47,751 42,188
Property and equipment, less accumulated
depreciation and amortization .......................... 19,613 19,712
Intangible assets, less accumulated
amortization ........................................... 55,878 57,486
Other .................................................... 45 35
--------- ---------
Total assets .................................... $ 123,287 $ 119,421
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and
capital lease obligations .......................... $ 2,035 $ 1,893
Accounts payable ....................................... 4,271 5,110
Accrued liabilities .................................... 9,948 10,794
--------- ---------
Total current liabilities ....................... 16,254 17,797
Long-term debt and capital lease obligations,
net of current portion .............................. 36,318 34,461
Deferred liabilities ..................................... 1,386 1,163
Minority interest in consolidated entities ............... 3,866 4,101
--------- ---------
Total liabilities ............................... 57,824 57,522
--------- ---------
Stockholders' equity:
Common stock ........................................... 9 9
Additional paid-in capital ............................. 61,504 61,261
Common stock to be issued .............................. 916 943
Retained earnings ...................................... 5,583 1,097
--------- ---------
68,012 63,310
Less treasury stock, at cost ........................... (2,549) (1,411)
--------- ---------
Total stockholders' equity ...................... 65,463 61,899
--------- ---------
Total liabilities and stockholders'
equity ........................................ $ 123,287 $ 119,421
========= =========
</TABLE>
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RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
(000's omitted, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
-------------------------- -------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Pacing, CEDS and Holter ............. $ 11,618 $ 11,807 $ 34,580 $ 35,778
Diagnostic imaging service .......... 5,700 4,510 15,044 13,343
Heart center, practice management
and other ......................... 10,813 3,441 31,522 11,725
-------- -------- -------- --------
Total revenues ......... 28,131 19,758 81,146 60,846
-------- -------- -------- --------
Costs and expenses:
Operating costs ..................... 12,970 7,597 37,789 23,961
Selling, general and administrative . 9,428 7,314 26,544 22,421
Depreciation and amortization ....... 2,049 1,544 6,373 4,487
-------- -------- -------- --------
Total costs and expenses 24,447 16,455 70,706 50,869
-------- -------- -------- --------
Operating income .................... 3,684 3,303 10,440 9,977
Interest expense ...................... 779 106 2,288 358
Other expense (income) ................ (98) (174) (296) (2,850)
Minority interest ..................... 394 95 972 275
-------- -------- -------- --------
Income before income taxes .......... 2,609 3,276 7,476 12,194
Provision for income taxes ............ 1,043 1,311 2,990 4,878
-------- -------- -------- --------
Net income .......................... $ 1,566 $ 1,965 $ 4,486 $ 7,316
======== ======== ======== ========
Net income per share:
Basic ........................... $ .18 $ .23 $ .50 $ .87
======== ======== ======== ========
Diluted ......................... $ .17 $ .22 $ .48 $ .82
======== ======== ======== ========
Weighted average shares:
Basic ........................... 8,880 8,418 8,906 8,386
======== ======== ======== ========
Diluted ......................... 9,166 8,950 9,369 8,947
======== ======== ======== ========
</TABLE>
4
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RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
(000's omitted)
<TABLE>
<CAPTION>
June 30,
-----------------
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................... $ 4,486 $ 7,316
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ........................ 6,373 4,487
Minority interest .................................... 972 275
Other, net ........................................... 199 (511)
Changes in operating accounts:
Receivables, net ................................... (5,061) (4,172)
Prepaid expenses and other ......................... 153 (575)
Accounts payable ................................... (839) (102)
Accrued liabilities and other ...................... (964) 382
------- -------
Net cash provided by operating activities ..... 5,319 7,100
------- -------
Cash flows from investing activities:
Capital expenditures ..................................... (3,969) (2,323)
Purchases of net assets and physician practice ........... -- (427)
Other, net ............................................... (672) 568
------- -------
Net cash used in investing activities ......... (4,641) (2,182)
------- -------
Cash flows from financing activities:
Repurchase of Company stock .............................. (1,138) (1,170)
Income distributions to noncontrolling investors ......... (1,146) (796)
Proceeds from (paydown of) line of credit ................ 3,222 (1,764)
Principal repayments of debt ............................. (1,268) (1,522)
Other, net ............................................... 272 380
------- -------
Net cash used in financing activities ......... (58) (4,872)
------- -------
Net increase in cash and cash equivalents .................. 620 46
Cash and cash equivalents at beginning of period ........... 7,873 5,737
------- -------
Cash and cash equivalents at end of period ................. $ 8,493 $ 5,783
======= =======
</TABLE>
The accompanying unaudited condensed consolidated financial statements of
Raytel Medical Corporation (the "Company") have been prepared in accordance with
the instructions to Form 10-Q and do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for the
three months and nine months ended June 30, 1998 are not necessarily indicative
of results that may be expected for the year ending September 30, 1998. For
further information, refer to the consolidated financial statements and notes
included in the Company's Annual Report on Form 10-K for the year ended
September 30, 1997.
5
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The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share. The adoption of this accounting standard
did not affect previously reported earnings per share.
For the three months and nine months ended June 30, 1998 and 1997, basic
and diluted earnings per share are calculated as follows:
<TABLE>
<CAPTION>
For the three months For the nine months
ended June 30, ended June 30,
-------------------- -------------------
1998 1997 1998 1997
------ ------ ----- -----
(000's omitted, except per share amounts)
<S> <C> <C> <C> <C>
Basic Earnings per Share:
Net income ........................ $1,566 $1,965 $4,486 $7,316
====== ====== ====== ======
Weighted average shares outstanding 8,880 8,418 8,906 8,386
====== ====== ====== ======
Per share ......................... $ .18 $ .23 $ .50 $ .87
====== ====== ====== ======
Diluted Earnings per Share:
Net income ........................ $1,566 $1,965 $4,486 $7,316
====== ====== ====== ======
Weighted average shares outstanding 8,880 8,418 8,906 8,386
Shares to be issued ............... 132 136 132 135
Options ........................... 154 317 293 334
Warrants .......................... -- 79 38 92
------ ------ ------ ------
9,166 8,950 9,369 8,947
====== ====== ====== ======
Per share ......................... $ .17 $ .22 $ .48 $ .82
====== ====== ====== ======
</TABLE>
Certain options and warrants to purchase shares of common stock were
outstanding during the three months and nine months ended June 30, 1998 and
1997, but were not included in the computation of diluted earnings per share
because their exercise prices were greater than the average market price of the
common shares for the period. The options and warrants outstanding and their
exercise prices are as follows:
<TABLE>
<CAPTION>
For the three months For the nine months
ended June 30, ended June 30,
------------------------------- -------------------------------
1998 1997 1998 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Options and warrants outstanding ...... 984,999 24,731 365,208 377,339
Range of exercise prices .............. $7.50-$13.50 $10.00-$13.50 $7.50-$13.50 $10.00-$13.50
</TABLE>
6
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion and analysis includes a number of forward-looking
statements which reflect the Company's current views with respect to future
events and financial performance. These forward-looking statements are subject
to certain risks and uncertainties, including those discussed under "Business
Environment and Future Results" and elsewhere in this Item, that could cause
actual results to differ materially from historical results or those
anticipated. In this Item, the words "anticipates," "believes," "expects,"
"intends," "future" and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof.
Overview
The Company generates the majority of its revenues from the provision of
transtelephonic monitoring services for cardiac pacemaker patients ("Pacing"),
cardiac event detection services ("CEDS") and Holter, diagnostic imaging
services and cardiac catheterization procedures.
Following the Company's initial public offering in December 1995, the
Company has entered into a series of transactions which have expanded its heart
center and physician practice management businesses. As a result, revenue is
also being provided from: Raytel Heart Center at Granada Hills ("RHCGH")
beginning on February 1, 1996; the management of Southeast Texas Cardiology
Associates II P.A. ("SETCA") beginning on September 18, 1996; the management of
Comprehensive Cardiology Consultants, a Medical Group, Inc. ("CCMG") beginning
on November 1, 1996; and Cardiovascular Ventures, Inc. ("CVI") beginning on
August 15, 1997, which included the multi-specialty medical practice, Heart and
Family Health Institute ("HFHI").
The Company's investments in two ventures ("Ventures") that operated four
of the consolidated diagnostic imaging centers terminated during fiscal 1997.
Revenues contributed by these ventures were $280,000 and $1,318,000 for the
three months and nine months ended June 30, 1997, respectively.
Under certain practice management contracts, revenues are recognized
pursuant to long-term arrangements with physician groups under which the Company
provides the physician group with a full range of services, including, but not
limited to, office space, specialized clinical and procedural facilities,
medical equipment, data processing and medical record keeping, billing and
collection procedures and services, non-physician licensed personnel, such as
nurses and technicians, as well as office staff and administrative personnel. In
the case of SETCA and CCMG, the Company's practice management revenues are
derived from the physician groups' revenues, generally as a purchased service,
except for certain physician compensation and employment benefits, which are
paid by the physician group on a priority basis. Under the above management
services arrangements, the Company's practice management revenues represent
approximately 56.2% and 56.1% of the revenues of the physician groups for the
three months ended June 30, 1998 and 1997, respectively and approximately 54.5%
and 56.1% for the nine months ended June 30, 1998 and 1997, respectively. For
HFHI, the Company recognizes 100% of all medical revenue as the physicians are
employees of the Company.
On August 15, 1997, the Company acquired the stock of CVI, of New Orleans,
Louisiana. CVI currently manages, owns and operates cardiovascular diagnostic
facilities in Texas, Louisiana, and Florida and owns and manages a physician
clinic in Florida. Total consideration for the transaction consisted of cash and
transaction costs of approximately $16,980,000 and 500,000 shares of Raytel
Common Stock. The contingent promissory notes in the aggregate principal amount
of $820,000 were cancelled in accordance with the terms of the agreement.
On October 9, 1997, the Company announced it had entered into an agreement
with The Baptist Hospital of Southeast Texas to develop a Raytel Heart Center at
the hospital. Under the agreement, Raytel will manage the heart center, which
will provide a range of cardiovascular services, including diagnostic,
therapeutic and patient wellness programs. Among other duties, Raytel will be
responsible for the day-to-day operations of the heart center, including
administrative support, information systems management and public relations
activities. The Company expects to begin operations at Baptist Hospital during
its fourth quarter of fiscal 1998.
7
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In September 1996, the Company received a favorable administrative
decision related to a billing dispute with a New York Medicare carrier whereby
it was entitled to receive approximately $4.0 million. The time period for the
Healthcare Finance Administration ("HCFA") and the Social Security
Administration to file an appeal expired on February 10, 1997. After accounting
for administrative costs and reimbursements due to Medtronic under the terms of
the acquisition of CardioCare and a separate provision against the value of a
non-operating asset, the Company recognized other income of $2,510,000 pretax in
its second fiscal quarter ending March 31, 1997, with a positive after tax
effect of $1,506,000 or $.17 per share (the "Decision").
Results of Operations
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30,
1997.
The operations of CVI are included in the Company's Condensed Consolidated
Statements of Operations since August 15, 1997, the effective date of the
Company's acquisition of CVI. Accordingly, such results are included in the
three month period ended June 30, 1998, but are not included in the three month
period ended June 30, 1997.
Revenues. Pacing, CEDS and Holter revenues decreased by $189,000, or 1.6%,
from $11,807,000 for the three months ended June 30, 1997 to $11,618,000 for the
three months ended June 30, 1998, due primarily to a slight decrease in CEDS
revenue due to a combination of competitive pressures and lower reimbursement
rates, partially offset by a slight increase in pacing revenue. Diagnostic
imaging service revenues increased by $1,190,000, or 26.4%, from $4,510,000 for
the three months ended June 30, 1997 to $5,700,000 for the three months ended
June 30, 1998, due primarily to increases in revenues at certain centers due to
an increase in volume, partially offset by decreased revenues due to the
termination of a venture on June 30, 1997. Heart Center, practice management and
other revenues increased by $7,372,000 or 214.2% from $3,441,000 for the three
months ended June 30, 1997 to $10,813,000 for the three months ended June 30,
1998 due primarily to the inclusion of revenues from CVI.
As a result of the foregoing factors, total revenues increased by
$8,373,000, or 42.4%, from $19,758,000 for the three months ended June 30, 1997
to $28,131,000 for the three months ended June 30, 1998.
Operating Expenses. Operating costs and selling, general and
administrative expenses increased by $7,487,000, or 50.2%, from $14,911,000 for
the three months ended June 30, 1997 to $22,398,000 for the three months ended
June 30, 1998 due primarily to the inclusion of costs and expenses from CVI.
Operating costs and selling, general and administrative expenses as a percentage
of total revenues increased by 4.1%, from 75.5% for the three months ended June
30, 1997 to 79.6% for the three months ended June 30, 1998. At RHCGH, operating
expenses were slightly in excess of revenues for the three month periods ended
June 30, 1998 and 1997.
Depreciation and Amortization. Depreciation and amortization expense
increased by $505,000, from $1,544,000 for the three months ended June 30, 1997
to $2,049,000 for the three months ended June 30, 1998, due primarily to the
inclusion of CVI, but decreased as a percentage of revenues from 7.8% for the
three months ended June 30, 1997 to 7.3% for the three months ended June 30,
1998.
Operating Income. As a result of the foregoing factors, operating income
increased by $381,000, or 11.5%, from $3,303,000 for the three months ended June
30, 1997 to $3,684,000 for the three months ended June 30, 1998.
Interest Expense. Interest expense increased by $673,000, or 634.9%, from
$106,000 for the three months ended June 30, 1997 to $779,000 for the three
months ended June 30, 1998 due primarily to an increase in debt due to the CVI
acquisition.
Minority Interest. Minority interest increased by $299,000 or 314.7%, from
$95,000 for the three months ended June 30, 1997 to $394,000 for the three
months ended June 30, 1998 due primarily to the inclusion of CVI.
8
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Income Taxes. The provision for income taxes decreased by $268,000, or
20.4%, from $1,311,000 for the three months ended June 30, 1997 to $1,043,000
for the three months ended June 30, 1998 as a result of decreased taxable
income.
Net Income. As a result of the foregoing factors, net income decreased by
$399,000, or 20.3%, from $1,965,000 for the three months ended June 30, 1997 to
$1,566,000 for the three months ended June 30, 1998.
Nine Months Ended June 30, 1998 Compared to Nine Months Ended June 30, 1997.
The operations of CVI are included in the Company's Condensed Consolidated
Statements of Operations since August 15, 1997, the effective date of the
Company's acquisition of CVI. Accordingly, such results are included in the nine
month period ended June 30, 1998, but are not included in the nine month period
ended June 30, 1997. The results of operations from the management service
agreement with CCMG are included in the Company's Condensed Consolidated
Statements of Operations since November 1, 1996, the effective date of the
agreement. Accordingly, such results are included in the nine month period ended
June 30, 1998, but are only included for eight months of the nine month period
ended June 30, 1997.
Revenues. Pacing, CEDS and Holter revenues decreased by $1,198,000, or
3.3%, from $35,778,000 for the nine months ended June 30, 1997 to $34,580,000
for the nine months ended June 30, 1998, due primarily to a combination of
competitive pressures and lower reimbursement rates for CEDS. Diagnostic imaging
service revenues increased by $1,701,000, or 12.7%, from $13,343,000 for the
nine months ended June 30, 1997 to $15,044,000 for the nine months ended June
30, 1998, due primarily to increases in revenues at certain centers due to an
increase in volume, partially offset by decreased revenues due to the
termination of two Ventures in fiscal 1997. Heart Center, practice management
and other revenues increased by $19,797,000, or 168.8%, from $11,725,000 for the
nine months ended June 30, 1997 to $31,522,000 for the nine months ended June
30, 1998 due primarily to the inclusion of revenues from CVI.
As a result of the foregoing factors, total revenues increased by
$20,300,000, or 33.4%, from $60,846,000 for the nine months ended June 30, 1997
to $81,146,000 for the nine months ended June 30, 1998.
Operating Expenses. Operating costs and selling, general and
administrative expenses increased by $17,951,000, or 38.7%, from $46,382,000 for
the nine months ended June 30, 1997 to $64,333,000 for the nine months ended
June 30, 1998, due primarily to the inclusion of costs and expenses from CVI.
Operating costs and selling, general and administrative expenses as a percentage
of total revenues increased from 76.2% for the nine months ended June 30, 1997
to 79.3% for the nine months ended June 30, 1998. At RHCGH, operating expenses
were slightly in excess of revenues for the nine month periods ended June 30,
1998 and 1997.
Depreciation and Amortization. Depreciation and amortization expense
increased by $1,886,000, from $4,487,000 for the nine months ended June 30, 1997
to $6,373,000 for the nine months ended June 30, 1998 due primarily to the
inclusion of CVI, and increased as a percentage of revenues from 7.4% for the
nine months ended June 30, 1997 to 7.9% for the nine months ended June 30, 1998.
Operating Income. As a result of the foregoing factors, operating income
increased by $463,000 or 4.6%, from $9,977,000 for the nine months ended June
30, 1997 to $10,440,000 for the nine months ended June 30, 1998.
Interest Expense. Interest expense increased by $1,930,000, or 539.1%,
from $358,000 for the nine months ended June 30, 1997 to $2,288,000 for the nine
months ended June 30, 1998 due primarily to an increase in debt due to the CVI
acquisition.
Other expense (income). Other income decreased by $2,554,000 from
$2,850,000 for the nine months ended June 30, 1997 to $296,000 for the nine
months ended June 30, 1998 due primarily to the Decision.
Minority Interest. Minority interest increased by $697,000, or 253.5%,
from $275,000 for the nine months ended June 30, 1997 to $972,000 for the nine
months ended June 30, 1998 due primarily to the inclusion of CVI.
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Income Taxes. The provision for income taxes decreased by $1,888,000, or
38.7%, from $4,878,000 for the nine months ended June 30, 1997 to $2,990,000 for
the nine months ended June 30, 1998 as a result of decreased taxable income.
Net Income. As a result of the foregoing factors, net income decreased by
$2,830,000, or 38.7%, from $7,316,000 for the nine months ended June 30, 1997 to
$4,486,000 for the nine months ended June 30, 1998.
Business Environment and Future Results
The Company's future operating results may be affected by various trends
in the healthcare industry as well as by a variety of other factors, some of
which are beyond the Company's control.
The healthcare industry is undergoing significant change as third-party
payors attempt to control the cost, utilization and delivery of healthcare
services. Substantially all of the Company's revenues are derived from Medicare,
HMOs, and commercial insurers and other third-party payors. Both government and
private payment sources have instituted cost containment measures designed to
limit payments made to healthcare providers, by reducing reimbursement rates,
limiting services covered, increasing utilization review of services,
negotiating prospective or discounted contract pricing, adopting capitation
strategies and seeking competitive bids. Although the Company's total revenues
have increased in each of the last three fiscal years, revenue of the Company's
Pacing operations during that period has been negatively impacted by Medicare
reimbursement rate reductions in certain geographic areas. Additional
reimbursement rate reductions applicable to the Company's Pacing procedures
became effective on January 1, 1996 and January 1, 1997. These reductions had a
negative effect on the Company's operating results for fiscal 1997 and the first
quarter of fiscal 1998. The Company's Pacing operations have been favorably
impacted since January 1, 1998 due to an increase in Medicare reimbursement
rates effective on that date. The Company cannot predict with any certainty
whether or when additional reductions or changes in Medicare or other
third-party reimbursement rates or policies will be implemented. There can be no
assurance that future changes, if any, will not adversely affect the amounts or
types of services that may be reimbursed to the Company, or that future
reimbursement of any service offered by the Company will be sufficient to cover
the costs and overhead allocated to such service.
From time to time, Congress considers legislation to reduce Medicare and
Medicaid expenditures. Future legislation of this type could have a material
adverse effect on the Company's business, financial condition and operating
results. Governmental agencies promulgate regulations which mandate changes in
the method of delivering services which could have a material adverse effect on
the Company's business.
A key element of the Company's long-range strategy is the development and
operation of integrated heart centers and the acquisition of cardiac healthcare
providers specializing in cardiology related services and the assets of
physician practices and other businesses related to its current operations. The
success of the Company's existing and future heart centers and physician
practices will depend upon several factors, including the Company's ability to:
obtain and operate in compliance with appropriate licenses; control costs and
realize operating efficiencies; educate patients, referring physicians and
third-party payors about the benefits of such heart centers; and provide
cost-effective services that meet or exceed existing standards of care.
An element of the Company's strategy is to expand, in part, through
acquisitions and investments in complementary healthcare businesses. The
implementation of this strategy may place significant strain on the Company's
administrative, operational and financial resources and increase demands on its
systems and controls. There can be no assurances that businesses acquired by the
Company, either recently or in the future, will be integrated successfully and
profitably into the Company's operations, that suitable acquisition or
investment opportunities will be identified, or that any such transactions can
be consummated.
Providers of healthcare services are subject to numerous federal, state
and local laws and regulations that govern various aspects of their business.
There can be no assurance that the Company will be able to obtain regulatory
approvals that may be required to expand its services or that new laws or
regulations will not be enacted
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or adopted that will have a material adverse effect on the Company's business,
financial condition or operating results.
The healthcare businesses in which the Company is engaged are highly
competitive. The Company expects competition to increase as a result of ongoing
consolidations and cost-containment pressures, among other factors.
The trading price of the Company's Common Stock could be subject to wide
fluctuations in response to quarterly variations in the Company's operating
results, shortfalls in such operating results from levels forecasted by
securities analysts and other events or factors. In addition, the stock market
has, from time to time, experienced extreme price and volume fluctuations that
have particularly affected the market prices of companies in the healthcare
service industries and that have often been unrelated to the operating
performance of the affected companies. Announcements of changes in reimbursement
policies of third-party payors, legislative or regulatory developments, economic
news and other external factors may have a significant impact on the market
price of healthcare stocks.
Liquidity and Capital Resources
The Company's liquidity was materially improved as a result of the
completion of the initial public offering of its Common Stock in December 1995
and its receipt of $20,400,000 in net proceeds therefrom. The Company acquired
certain assets and assumed certain liabilities of CDS in June 1996 for cash in
the amount of $14,254,000, SETCA in September 1996 for cash in the amount of
$4,010,000 and CCMG in November 1996 for cash in the amount of $427,000 and
acquired the stock of CVI in August 1997 for cash and transaction costs in the
amount of $16,980,000. At June 30, 1998, the Company had working capital of
$31,497,000, compared to $24,391,000 at September 30, 1997. At June 30, 1998,
the Company had cash and temporary cash investments of $8,493,000. At June 30,
1998, $29,183,000 was outstanding under the Company's line of credit.
The Company batch-bills Medicare insurance carriers for most cardiac
testing services performed during the first five months of each calendar year.
This practice results in a temporary build-up of accounts receivable during the
Company's second and third fiscal quarters and the collection of these
receivables primarily during the subsequent fourth fiscal quarter.
The Company has a revolving line of credit with two banks in the amount of
$45,000,000 to fund working capital needs, future acquisitions, equipment
purchases and other business needs. Amounts outstanding under the line of credit
bear interest based on a defined formula and are subject to certain covenants.
The line of credit expires in August 1999 at which time any outstanding balance
will be converted to a five-year term loan.
The Company's long-term capital requirements will depend on numerous
factors, including the rate at which the Company develops and opens new heart
centers or acquires existing heart centers, physician practices or other
businesses, if any. The Company believes that its cash and cash equivalent
balances, together with amounts available from bank borrowings and cash
generated by its operating activities, will be adequate to meet the Company's
anticipated needs for working capital and capital expenditures through fiscal
1999.
11
<PAGE> 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
The following exhibits are filed as a part of this Report:
Exhibit
Number Title
------ -----
27 Financial data schedule
b. Reports on Form 8-K:
The Company filed no reports on Form 8-K during the quarter ended
June 30, 1998.
12
<PAGE> 13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RAYTEL MEDICAL CORPORATION
Dated: August 7, 1998 By: /s/ E. Payson Smith, Jr.
------------------------
E. Payson Smith, Jr.
Senior Vice President and
Chief Financial Officer
(duly authorized officer and
principal financial officer)
13
<PAGE> 14
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 8,493
<SECURITIES> 0
<RECEIVABLES> 35,406<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 47,751
<PP&E> 39,564
<DEPRECIATION> 19,951
<TOTAL-ASSETS> 123,287
<CURRENT-LIABILITIES> 16,254
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 65,454
<TOTAL-LIABILITY-AND-EQUITY> 123,287
<SALES> 0
<TOTAL-REVENUES> 81,146
<CGS> 0
<TOTAL-COSTS> 70,706
<OTHER-EXPENSES> 676
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 2,288
<INCOME-PRETAX> 7,476
<INCOME-TAX> 2,990
<INCOME-CONTINUING> 4,486
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,486
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.48
<FN>
<F1>Represents net receivables
<F2><LOSS PROVISION> Included in <TOTAL COSTS>
</FN>
</TABLE>
