<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, 1999; 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)
<TABLE>
<S> <C>
Delaware 94-2787342
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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.
<TABLE>
<CAPTION>
Class Shares Outstanding as of July 30, 1999
----- --------------------------------------
<S> <C>
Common Stock 8,743,509
($.001 par value)
</TABLE>
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RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1999 and September 30, 1998............................ 3
Condensed Consolidated Statements of Operations
for the three months and the nine months ended
June 30, 1999 and 1998........................................... 4
Condensed Consolidated Statements of Cash Flows
for the nine months ended June 30, 1999 and 1998................. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 7
Item 3. Quantitative and Qualitative Disclosures about Market Risks....... 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................... 13
SIGNATURE................................................................... 14
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND SEPTEMBER 30, 1998
(000's omitted)
ASSETS
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
-------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,597 $ 7,463
Receivables, net 35,672 35,504
Prepaid expenses and other 3,616 3,996
-------- --------
Total current assets 48,885 46,963
Property and equipment, less accumulated
depreciation and amortization 22,994 19,681
Intangible assets, less accumulated
amortization 52,311 55,497
Other 42 45
-------- --------
Total assets $124,232 $122,186
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and
capital lease obligations $ 2,118 $ 1,962
Accounts payable 3,969 4,649
Accrued liabilities 8,565 9,184
-------- --------
Total current liabilities 14,652 15,795
Long-term debt and capital lease obligations,
net of current portion 35,415 35,035
Deferred liabilities 141 1,405
Minority interest in consolidated entities 3,325 3,460
-------- --------
Total liabilities 53,533 55,695
-------- --------
Stockholders' equity:
Common stock 9 9
Additional paid-in capital 62,048 61,790
Common stock to be issued 1,045 1,124
Retained earnings 11,219 7,190
-------- --------
74,321 70,113
Less treasury stock, at cost (3,622) (3,622)
-------- --------
Total stockholders' equity 70,699 66,491
-------- --------
Total liabilities and stockholders'
equity $124,232 $122,186
======== ========
</TABLE>
3
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RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
(000's omitted, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------- --------------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Pacing, CEDS and Holter $10,953 $11,618 $33,694 $34,580
Diagnostic imaging service 5,207 5,700 14,977 15,044
Heart center, practice management
and other 8,421 10,813 28,771 31,522
------- ------- ------- -------
Total revenues 24,581 28,131 77,442 81,146
------- ------- ------- -------
Costs and expenses:
Operating costs 10,439 12,970 34,987 37,789
Selling, general and administrative 8,894 9,428 27,460 26,544
Depreciation and amortization 2,157 2,049 6,289 6,373
------- ------- ------- -------
Total costs and expenses 21,490 24,447 68,736 70,706
------- ------- ------- -------
Operating income 3,091 3,684 8,706 10,440
Interest expense 693 779 1,979 2,288
Other expense (income) (129) (98) (666) (296)
Minority interest 337 394 788 972
------- ------- ------- -------
Income before income taxes 2,190 2,609 6,605 7,476
Provision for income taxes 854 1,043 2,576 2,990
------- ------- ------- -------
Net income $ 1,336 1,566 $ 4,029 $ 4,486
======= ======= ======= =======
Net income per share:
Basic $ .15 $ .18 $ .46 $ .50
======= ======= ======= =======
Diluted $ .15 $ .17 $ .44 $ .48
======= ======= ======= =======
Weighted average shares:
Basic 8,724 8,880 8,700 8,906
======= ======= ======= =======
Diluted 9,059 9,166 9,070 9,369
======= ======= ======= =======
</TABLE>
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RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
(000's omitted)
<TABLE>
<CAPTION>
June 30,
--------------------
1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,029 $ 4,486
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,289 6,373
Minority interest 788 972
Pay out of deferred compensation (1,245) -
Other, net (41) 199
Changes in operating accounts:
Receivables, net (168) (5,061)
Prepaid expenses and other 380 153
Accounts payable (680) (839)
Accrued liabilities and other (619) (964)
------- -------
Net cash provided by operating activities 8,733 5,319
------- -------
Cash flows from investing activities:
Capital expenditures (7,146) (3,969)
Other, net (20) (672)
------- -------
Net cash used in investing activities (7,166) (4,641)
------- -------
Cash flows from financing activities:
Repurchase of Company stock -- (1,138)
Income distributions to noncontrolling investors (925) (1,146)
Proceeds from (paydown of) line of credit (1,430) 3,222
Proceeds from (principal repayments of) debt, net 2,740 (1,268)
Other, net 182 272
------- -------
Net cash provided by (used in)
financing activities 567 (58)
------- -------
Net increase in cash and cash equivalents 2,134 620
Cash and cash equivalents at beginning of period 7,463 7,873
------- -------
Cash and cash equivalents at end of period $ 9,597 $ 8,493
======= =======
</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, 1999 are not necessarily indicative
of results that may be expected for the year ending September 30, 1999. 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, 1998.
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For the three months and nine months ended June 30, 1999 and 1998, 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,
-------------------- -------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
(000's omitted, except per share amounts)
Basic Earnings per Share:
Net income $1,336 $1,566 $4,029 $4,486
====== ====== ====== ======
Weighted average shares outstanding 8,724 8,880 8,700 8,906
====== ====== ====== ======
Per share $ .15 $ .18 $ .46 $ .50
====== ====== ====== ======
Diluted Earnings per Share:
Net income $1,336 $1,566 $4,029 $4,486
====== ====== ====== ======
Weighted average shares outstanding 8,724 8,880 8,700 8,906
Shares to be issued 144 132 148 132
Options 191 154 222 293
Warrants -- -- -- 38
------ ------ ------ ------
9,059 9,166 9,070 9,369
====== ====== ====== ======
Per share $ .15 $ .17 $ .44 $ .48
====== ====== ====== ======
</TABLE>
Certain options and warrants to purchase shares of common stock were
outstanding during the three months and nine months ended June 30, 1999 and
1998, 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,
---------------------------- ----------------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Options and warrants outstanding 484,299 984,999 482,856 365,208
Range of exercise prices $4.563-$13.50 $7.50-$13.50 $4.563-$13.50 $7.50-$13.50
</TABLE>
6
<PAGE> 7
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") and seven cardiovascular diagnostic facilities.
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 75.8% and 56.2% of the revenues of the physician groups for the
three months ended June 30, 1999 and 1998, respectively and approximately 69.8%
and 54.5% for the nine months ended June 30, 1999 and 1998, respectively. For
HFHI, the Company recognizes 100% of all medical revenue as the physicians are
employees of the Company.
On October 9, 1997, the Company announced it had entered into an agreement
with The Baptist Hospital of Southeast Texas ("Baptist") to develop a Raytel
Cardiovascular Center at the hospital. Under the agreement, Raytel was to manage
the cardiovascular center, which will provide the entire continuum of
cardiovascular services, including diagnostic, therapeutic and patient
management programs. Among other duties, Raytel was to be responsible for the
day-to-day operations of the heart center, including administrative support,
information systems management, marketing and public relations activities. The
Company began operations at Baptist during its fourth quarter of fiscal 1998.
Due to the recent merger between Baptist and the Memorial Hermann Hospital
System, a modified agreement became effective March 1, 1999. Therefore, during
the first five months of fiscal 1999, the Company only recognized revenue to the
extent of expenses. Effective March 1, 1999, the Company is recognizing revenue
based on the modified agreement which calls for the Company to manage portions
of the cardiovascular surgery and cardiology programs at Baptist and to develop
and manage specialty clinics to support the cardiovascular program.
7
<PAGE> 8
Effective March 27, 1999, the Company entered into a revised agreement with
RHCGH. The new agreement will result in significantly lower revenues and
expenses than revenues and expenses recognized under the previous agreements.
However, under the new agreement, the Company expects to generate operating
income. Under the old agreements, operating expenses were in excess of revenues.
Results of Operations
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998.
Revenues. Pacing, CEDS and Holter revenues decreased by $665,000, or 5.7%,
from $11,618,000 for the three months ended June 30, 1998 to $10,953,000 for the
three months ended June 30, 1999, due primarily to slight decreases in Pacing
and CEDS revenue. Diagnostic imaging service revenues decreased by $493,000, or
8.6%, from $5,700,000 for the three months ended June 30, 1998 to $5,207,000 for
the three months ended June 30, 1999, due primarily to decreases in revenues at
certain centers due to a decrease in volume. Heart Center, practice management
and other revenues decreased by $2,392,000 or 22.1% from $10,813,000 for the
three months ended June 30, 1998 to $8,421,000 for the three months ended June
30, 1999 due primarily to lower revenues at RHCGH due to the amended agreement.
As a result of the foregoing factors, total revenues decreased by
$3,550,000, or 12.6%, from $28,131,000 for the three months ended June 30, 1998
to $24,581,000 for the three months ended June 30, 1999.
Operating Expenses. Operating costs and selling, general and administrative
expenses decreased by $3,065,000, or 13.7%, from $22,398,000 for the three
months ended June 30, 1998 to $19,333,000 for the three months ended June 30,
1999 due primarily to lower expenses at RHCGH due to the amended agreement.
Operating costs and selling, general and administrative expenses as a percentage
of total revenues decreased by .9%, from 79.6% for the three months ended June
30, 1998 to 78.7% for the three months ended June 30, 1999.
Depreciation and Amortization. Depreciation and amortization expense
increased by $108,000, from $2,049,000 for the three months ended June 30, 1998
to $2,157,000 for the three months ended June 30, 1999 and increased as a
percentage of revenues from 7.3% for the three months ended June 30, 1998 to
8.8% for the three months ended June 30, 1999.
Operating Income. As a result of the foregoing factors, operating income
decreased by $593,000, or 16.1%, from $3,684,000 for the three months ended June
30, 1998 to $3,091,000 for the three months ended June 30, 1999.
Interest Expense. Interest expense decreased by $86,000, or 11%, from
$779,000 for the three months ended June 30, 1998 to $693,000 for the three
months ended June 30, 1999 due primarily to lower interest rates and to a
decrease in the average amount of debt outstanding.
Other Expense (income). Other income increased by $31,000 from $98,000 for
the three months ended June 30, 1998 to $129,000 for the three months ended June
30, 1999 due to a series of insignificant items.
Minority Interest. Minority interest decreased by $57,000 or 14.5%, from
$394,000 for the three months ended June 30, 1998 to $337,000 for the three
months ended June 30, 1999 due primarily to decreased income in certain
diagnostic imaging facilities.
Income Taxes. The provision for income taxes decreased by $189,000, or
18.1%, from $1,043,000 for the three months ended June 30, 1998 to $854,000 for
the three months ended June 30, 1999 as a result of decreased taxable income and
a lower effective tax rate.
Net Income. As a result of the foregoing factors, net income decreased by
$230,000, or 14.7%, from $1,566,000 for the three months ended June 30, 1998 to
$1,336,000 for the three months ended June 30, 1999.
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<PAGE> 9
Nine Months Ended June 30, 1999 Compared to Nine Months Ended June 30, 1998.
Revenues. Pacing, CEDS and Holter revenues decreased by $886,000, or 2.6%,
from $34,580,000 for the nine months ended June 30, 1998 to $33,694,000 for the
nine months ended June 30, 1999, due primarily to slight decreases in Pacing and
CEDS revenue. Diagnostic imaging service revenues decreased by $67,000, or .4%,
from $15,044,000 for the nine months ended June 30, 1998 to $14,977,000 for the
nine months ended June 30, 1999. Heart Center, practice management and other
revenues decreased by $2,751,000, or 8.7%, from $31,522,000 for the nine months
ended June 30, 1998 to $28,771,000 for the nine months ended June 30, 1999 due
primarily to lower revenues at RHCGH due to the amended agreement.
As a result of the foregoing factors, total revenues decreased by
$3,704,000, or 4.6%, from $81,146,000 for the nine months ended June 30, 1998 to
$77,442,000 for the nine months ended June 30, 1999.
Operating Expenses. Operating costs and selling, general and administrative
expenses decreased by $1,886,000, or 2.9%, from $64,333,000 for the nine months
ended June 30, 1998 to $62,447,000 for the nine months ended June 30, 1999, due
primarily to lower expenses at RHCGH due to the amended agreement, partially
offset by increases in costs and expenses in diagnostic imaging services.
Operating costs and selling, general and administrative expenses as a percentage
of total revenues increased from 79.3% for the nine months ended June 30, 1998
to 80.6% for the nine months ended June 30, 1999. At RHCGH, operating expenses
were slightly in excess of revenues for the nine month periods ended June 30,
1999 and 1998.
Depreciation and Amortization. Depreciation and amortization expense
decreased by $84,000, from $6,373,000 for the nine months ended June 30, 1998 to
$6,289,000 for the nine months ended June 30, 1999 and increased as a percentage
of revenues from 7.9% for the nine months ended June 30, 1998 to 8.1% for the
nine months ended June 30, 1999.
Operating Income. As a result of the foregoing factors, operating income
decreased by $1,734,000 or 16.6%, from $10,440,000 for the nine months ended
June 30, 1998 to $8,706,000 for the nine months ended June 30, 1999.
Interest Expense. Interest expense decreased by $309,000, or 13.5%, from
$2,288,000 for the nine months ended June 30, 1998 to $1,979,000 for the nine
months ended June 30, 1999 due primarily to lower interest rates and to a
decrease in the average debt outstanding.
Other expense (income). Other income increased by $370,000 from $296,000
for the nine months ended June 30, 1998 to $666,000 for the nine months ended
June 30, 1999 due primarily to a series of insignificant items.
Minority Interest. Minority interest decreased by $184,000, or 18.9%, from
$972,000 for the nine months ended June 30, 1998 to $788,000 for the nine months
ended June 30, 1999 due primarily to decreased income in a certain diagnostic
imaging facility and a certain cardiovascular diagnostic facility.
Income Taxes. The provision for income taxes decreased by $414,000, or
13.8%, from $2,990,000 for the nine months ended June 30, 1998 to $2,576,000 for
the nine months ended June 30, 1999 as a result of decreased taxable income and
a lower effective tax rate.
Net Income. As a result of the foregoing factors, net income decreased by
$457,000, or 10.2%, from $4,486,000 for the nine months ended June 30, 1998 to
$4,029,000 for the nine months ended June 30, 1999.
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
9
<PAGE> 10
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. Additional reimbursement rate reductions
applicable to the Company's Pacing procedures became effective on January 1,
1997. These reductions had a negative effect on the Company's operating results
for the first quarter of fiscal 1998. The Company's Pacing operations have been
favorably impacted for the period January 1, 1998 to December 31, 1998 due to an
increase in Medicare reimbursement rates effective on January 1, 1998. However,
a slight decrease in these rates became effective on January 1, 1999. 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 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 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.
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Liquidity and Capital Resources
The Company acquired 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 CVI in August 1997
for cash in the amount of $16,980,000 plus $280,000 paid during fiscal 1998. At
June 30, 1999, the Company had working capital of $34,233,000, compared to
$31,168,000 at September 30, 1998. At June 30, 1999, the Company had cash and
temporary cash investments of $9,597,000. At June 30, 1999, $26,795,000 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 few 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 2001 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.
Year 2000 Compliance
The Company is aware of the issues associated with the programming code in
existing computer systems as the Year 2000 approaches. Many existing computer
programs use only two digits instead of four to identify a year in the date
field. The Company has completed a thorough review of its material computer
applications. The Company has begun installation of a new billing and collection
system and a new accounting system has been installed. These new systems are
Year 2000 compliant. The Company had planned on replacing them regardless of the
Year 2000 issue. There are other systems being used by the Company which may not
be Year 2000 compliant, however, the Company anticipates that all such systems
will be either replaced or made Year 2000 compliant before the Year 2000.
There can be no assurances that any systems at companies purchased by or
affiliated with the Company in the future will be Year 2000 compliant or, if
not, will be converted on a timely basis. At the present time, the Company does
not anticipate that the cost for it to become Year 2000 compliant will have a
material impact on the Company's financial statements.
The Company has initiated a program to determine whether the computer
applications of its significant vendors will be upgraded in a timely manner. The
Company has also initiated a program to determine whether embedded applications
which control medical and other equipment will be affected. The Company has not
yet completed these reviews. The Company has begun discussions with its payors
to determine the status of their systems. The nature of the Company's business
is such that any failure to these types of applications may have a material
adverse effect on its business.
Because of the many uncertainties associated with Year 2000 compliance
issues, and because the Company's assessment is necessarily based on information
from third-party vendors, payors and suppliers, there can be no assurance that
the Company's assessment is correct or as to the materiality or effect of any
failure of such assessment to be correct. At the present time, the Company has
not developed a contingency plan relative to Year 2000 compliance.
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Item 3. Quantitative and Qualitative Disclosures about Market Risks
The Company is exposed to market risk from interest rate fluctuations
because it uses variable rate debt to finance working capital requirements. The
Company does not believe that there is any material market risk exposure with
respect to other financial instruments that would require further disclosure
under this item.
12
<PAGE> 13
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:
<TABLE>
<CAPTION>
Exhibit
Number Title
------- -----
<S> <C>
27 Financial data schedule
</TABLE>
b. Reports on Form 8-K:
On April 27, 1999, the Company filed a report on Form 8-K announcing that
E. Payson Smith, Jr. had resigned as Chief Financial Officer and John F. Lawler,
Jr. had been appointed Interim Chief Financial Officer.
13
<PAGE> 14
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 12, 1999 By: /s/ John F. Lawler, Jr.
-------------------------------
John F. Lawler, Jr.
Vice President and
Chief Financial Officer
(duly authorized officer and
principal financial officer)
14
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
27 Financial data schedule
</TABLE>
<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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 9,597
<SECURITIES> 0
<RECEIVABLES> 35,672<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 48,885
<PP&E> 47,030
<DEPRECIATION> 24,036
<TOTAL-ASSETS> 124,232
<CURRENT-LIABILITIES> 14,652
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 70,690
<TOTAL-LIABILITY-AND-EQUITY> 124,232
<SALES> 0
<TOTAL-REVENUES> 77,442
<CGS> 0
<TOTAL-COSTS> 68,736
<OTHER-EXPENSES> 122
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 1,979
<INCOME-PRETAX> 6,605
<INCOME-TAX> 2,576
<INCOME-CONTINUING> 4,029
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,029
<EPS-BASIC> 0.46
<EPS-DILUTED> 0.44
<FN>
<F1>(RECEIVABLES) Represent net receivables
<F2>(LOSS)-PROVISION) Included in (TOTAL-COSTS)
</FN>
</TABLE>
