<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 March 31, 2000; 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.
<TABLE>
<CAPTION>
CLASS SHARES OUTSTANDING AS OF APRIL 28, 2000
----- ---------------------------------------
<S> <C>
COMMON STOCK
($.001 PAR VALUE) 8,747,523
</TABLE>
<PAGE> 2
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
March 31, 2000 and September 30, 1999 ........................................ 3
Condensed Consolidated Statements of Operations
for the three months and the six months ended March 31, 2000 and 1999 ......... 4
Condensed Consolidated Statements of Cash Flows
for the six months ended March 31, 2000 and 1999 .............................. 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 ...................... 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders .............................. 14
Item 6. Exhibits and Reports on Form 8-K ................................................. 15
SIGNATURE ................................................................................ 16
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND SEPTEMBER 30, 1999
(000'S OMITTED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
--------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,207 $ 6,110
Receivables, net 35,845 34,858
Prepaid expenses and other 3,441 3,143
--------- ---------
Total current assets 45,493 44,111
Property and equipment, less accumulated
depreciation and amortization 20,611 22,239
Intangible assets, less accumulated
amortization 49,710 51,388
Other 51 45
--------- ---------
Total assets $ 115,865 $ 117,783
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations $ 1,363 $ 2,124
Accounts payable 4,351 3,793
Accrued compensation and benefits 3,655 3,391
Accrued liabilities 5,975 6,204
--------- ---------
Total current liabilities 15,344 15,512
Long-term debt and capital lease obligations, net
of current portion 24,518 27,246
Deferred liabilities 16 129
Minority interest in consolidated entities 2,240 2,867
--------- ---------
Total liabilities 42,118 45,754
--------- ---------
Stockholders' equity:
Common stock 9 9
Additional paid-in capital 62,060 62,053
Common stock to be issued 976 1,045
Retained earnings 14,324 12,544
--------- ---------
77,369 75,651
Less treasury stock, at cost (3,622) (3,622)
--------- ---------
Total stockholders' equity 73,747 72,029
--------- ---------
Total liabilities and stockholders' equity $ 115,865 $ 117,783
========= =========
</TABLE>
3
<PAGE> 4
RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Cardiac information services $ 10,564 $ 11,024 $ 21,005 $ 22,741
Diagnostic imaging services 5,521 4,990 10,853 9,770
Heart facilities and other 8,543 11,042 16,655 20,350
-------- -------- -------- --------
Total revenues 24,628 27,056 48,513 52,861
-------- -------- -------- --------
Costs and expenses:
Operating costs 10,928 12,704 21,330 24,548
Selling, general and administrative 9,351 9,451 18,727 18,566
Depreciation and amortization 2,220 2,063 4,408 4,132
-------- -------- -------- --------
Total costs and expenses 22,499 24,218 44,465 47,246
-------- -------- -------- --------
Operating income 2,129 2,838 4,048 5,615
Interest expense 548 614 1,101 1,286
Other expense (income) (134) (360) (387) (537)
Minority interest 272 382 416 451
-------- -------- -------- --------
Income before income taxes 1,443 2,202 2,918 4,415
Provision for income taxes 563 859 1,138 1,722
-------- -------- -------- --------
Net income $ 880 $ 1,343 $ 1,780 $ 2,693
======== ======== ======== ========
Net income per share:
Basic $ .10 $ .15 $ .20 $ .31
======== ======== ======== ========
Diluted $ .10 $ .15 $ .20 $ .30
======== ======== ======== ========
Weighted average shares:
Basic 8,746 8,709 8,746 8,688
======== ======== ======== ========
Diluted 8,939 9,076 8,939 9,076
======== ======== ======== ========
</TABLE>
4
<PAGE> 5
RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(000'S OMITTED)
<TABLE>
<CAPTION>
MARCH 31,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,780 $ 2,693
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 4,408 4,132
Minority interest 416 451
Pay out of deferred compensation -- (1,245)
Other, net (40) (22)
Changes in operating accounts:
Receivables, net (1,334) (1,791)
Prepaid expenses and other (344) 463
Accounts payable 609 (215)
Accrued liabilities and other 816 (235)
-------- --------
Net cash provided by operating activities 6,311 4,231
-------- --------
Cash flows from investing activities:
Capital expenditures (2,373) (6,165)
Other, net 76 (20)
-------- --------
Net cash used in investing activities (2,297) (6,185)
-------- --------
Cash flows from financing activities:
Income distributions to noncontrolling investors (1,121) (881)
Proceeds from (paydown of) line of credit (1,895) 356
Proceeds from (principal repayments of) debt (841) 2,974
Other, net (60) 119
-------- --------
Net cash provided by (used in) financing activities (3,917) 2,568
-------- --------
Net increase in cash and cash equivalents 97 614
Cash and cash equivalents at beginning of period 6,110 7,463
-------- --------
Cash and cash equivalents at end of period $ 6,207 $ 8,077
======== ========
</TABLE>
5
<PAGE> 6
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 six months ended March 31, 2000 are not necessarily indicative
of results that may be expected for the year ending September 30, 2000. 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, 1999.
For the three months and six months ended March 31, 2000 and 1999, basic and
diluted earnings per share are calculated as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
-------------------- --------------------
2000 1999 2000 1999
------ ------ ------ ------
(000's omitted, except per share amounts)
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net income $ 880 $1,343 $1,780 $2,693
====== ====== ====== ======
Weighted average shares outstanding 8,746 8,709 8,746 8,688
====== ====== ====== ======
Per share $ .10 $ .15 $ .20 $ .31
====== ====== ====== ======
DILUTED EARNINGS PER SHARE:
Net income $ 880 $1,343 $1,780 $2,693
====== ====== ====== ======
Weighted average shares outstanding 8,746 8,709 8,746 8,688
Shares to be issued 137 151 140 151
Options 56 216 53 237
------ ------ ------ ------
8,939 9,076 8,939 9,076
====== ====== ====== ======
Per share $ .10 $ .15 $ .20 $ .30
====== ====== ====== ======
</TABLE>
Certain options and warrants to purchase shares of common stock were
outstanding during the three months and six months ended March 31, 2000 and
1999, 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 SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
------------------------------------ ------------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Options and warrants outstanding 966,305 481,456 980,874 482,135
Range of exercise prices $3.563 - $13.50 $4.625 - $13.50 $3.563 - $13.50 $4.625 - $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 its revenues from cardiac information services (which
includes telephonic monitoring services for cardiac pacemaker patients
("Pacing"), cardiac event detection services ("CEDS") and Holter), diagnostic
imaging services and from heart facilities.
Following the Company's initial public offering in December 1995, the
Company has entered into a series of transactions which 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 L.L.P. ("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 physician
clinic, Heart and Family Health Institute ("HFHI") and six 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 67% and 68% of the revenues of the physician groups for the three
months ended March 31, 2000 and 1999, respectively and approximately 75% and 67%
for the six months ended March 31, 2000 and 1999, 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 a 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 results 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 income. Under the old
agreements, operating expenses were in excess of revenues.
In November 1999, the Company filed a demand for arbitration against CCMG
with JAMS/Endispute, Inc. The Company provides management services to CCMG
pursuant to a long-term management services agreement entered into between the
parties in November 1996. The demand for arbitration asserts that Raytel is
entitled to rescission, restitution and/or damages as a result of CCMG's
material breaches of the management services agreement. The Company does not
expect that an adverse opinion in the arbitration will have a material adverse
effect on the financial condition of the Company.
The Company is currently engaged in discussions with SETCA, the physician
practice in Beaumont, Texas, which Raytel manages through a wholly-owned
subsidiary. SETCA has asserted the right to terminate the management services
agreement pursuant to an alleged oral agreement with Raytel. Raytel disputes
SETCA's right to terminate the management services agreement and has proposed a
sale of the management subsidiary either to SETCA or to its member physicians.
In the event that the parties are unable to resolve these issues amicably,
litigation may ensue. Any such litigation could be costly and time-consuming.
Should the outcome of the litigation be adverse to Raytel, the management
services agreement would be terminated. In any event, should the current
discussions or the potential litigation result in a termination of the
management services arrangement between Raytel and SETCA, Raytel would record a
material non-recurring, non-cash charge.
The net income from CCMG and SETCA was immaterial for the 3 months and 6
months ended March 31, 2000 and 1999.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,
1999.
Revenues. For the three months ended March 31, 2000, total revenues were
$24,628,000 compared to $27,056,000 for the three months ended March 31, 1999,
representing a decrease of $2,428,000, or 9.0%.
Cardiac information services revenues were $10,564,000 for the three months
ended March 31, 2000, compared to $11,024,000 for the three months ended March
31, 1999, a decrease of $460,000, or 4.2%. The decrease in revenues for cardiac
information services was due primarily to lower revenues from CEDS as a result
of lower test volumes. Diagnostic imaging services revenue was $5,521,000 for
the three months ended March 31, 2000, compared to $4,990,000 for the three
months ended March 31, 1999, an increase of $531,000, or 10.6%, due primarily to
increases in revenue at certain centers and the imaging network due to an
increase in patient volumes. Heart facilities and other revenues were $8,543,000
for the three months ended March 31, 2000, compared to $11,042,000 for the three
months ended March 31, 1999, a decrease of $2,499,000 or 22.6%, due primarily to
lower revenue at RHCGH due to the amended agreement and, to a lesser extent,
decreased revenue at certain cardiovascular diagnostic facilities, partially
offset by an increase in revenue from HFHI.
Operating Expenses. Operating costs and selling, general and administrative
expenses decreased by $1,876,000, or 8.5%, from $22,155,000 for the three months
ended March 31, 1999 to $20,279,000, for the three months ended March 31, 2000
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 slightly from 81.9% for the three months ended March
31, 1999 to 82.3% for the three months ended March 31, 2000. At RHCGH, operating
expenses were slightly in excess of revenues for the period ended March 31,
1999.
Depreciation and Amortization. Depreciation and amortization expense
increased by $157,000, from $2,063,000 for the three months ended March 31, 1999
to $2,220,000 for the three months ended March 31, 2000, and increased as a
percentage of revenues from 7.6% for the three months ended March 31, 1999 to
9.0% for the three months ended March 31, 2000.
Operating Income. As a result of the foregoing factors, operating income
decreased by $709,000, or 25.0%, from $2,838,000 for the three months ended
March 31, 1999 to $2,129,000 for the three months ended March 31, 2000.
Interest Expense. Interest expense decreased by $66,000, or 10.7% from
$614,000 for the three months ended March 31, 1999 to $548,000 for the three
months ended March 31, 2000 due primarily to a decrease in the average amount of
debt outstanding.
8
<PAGE> 9
Other expense (income). Other income decreased by $226,000, from $360,000
for the three months ended March 31, 1999 to $134,000 for the three months ended
March 31, 2000 due primarily to a series of insignificant items.
Minority interest. Minority interest decreased by $110,000, or 28.8%, from
$382,000 for the three months ended March 31, 1999 to $272,000 for the three
months ended March 31, 2000 due primarily to the decreased income in certain
cardiovascular diagnostic facilities.
Income Taxes. The provision for income taxes decreased by $296,000, or
34.5%, from $859,000 for the three months ended March 31, 1999 to $563,000 for
the three months ended March 31, 2000 as a result of decreased taxable income.
Net Income. As a result of the foregoing factors, net income decreased by
$463,000, or 34.5%, from $1,343,000 for the three months ended March 31, 1999 to
$880,000 for the three months ended March 31, 2000.
Six Months Ended March 31, 2000 Compared to Six Months Ended March 31,
1999.
Revenues. For the six months ended March 31, 2000, total revenues were
$48,513,000 compared to $52,861,000 for the six months ended March 31, 1999,
representing a decrease of $4,348,000, or 8.2%.
Cardiac information services revenues were $21,005,000 for the six months
ended March 31, 2000, compared to $22,741,000 for the six months ended March 31,
1999, a decrease of $1,736,000, or 7.6%. The decrease in revenues for cardiac
information services was due primarily to lower revenues from CEDS as a result
of lower test volumes, and, to a lesser extent, lower revenues from Pacing due
to a decrease in test volumes, as well as lower reimbursement rates. Diagnostic
imaging services revenue was $10,853,000 for the six months ended March 31,
2000, compared to $9,770,000 for the six months ended March 31, 1999, an
increase of $1,083,000, or 11.1%, due primarily to increases in revenue at
certain centers and the imaging network due to an increase in patient volumes.
Heart facilities and other revenues were $16,655,000 for the six months ended
March 31, 2000, compared to $20,350,000 for the six months ended March 31, 1999,
a decrease of $3,695,000 or 18.2%, due primarily to lower revenue at RHCGH due
to the amended agreement partially offset by an increase in revenue from HFHI.
Operating Expenses. Operating costs and selling, general and administrative
expenses decreased by $3,057,000, or 7.1%, from $43,114,000 for the six months
ended March 31, 1999 to $40,057,000 for the six months ended March 31, 2000, due
primarily to lower expenses at RHCGH due to the amended agreement, partially
offset by increases in costs and expenses in diagnostic imaging services, HFHI
and cardiac information services. Operating costs and selling, general and
administrative expenses as a percentage of total revenues increased from 81.6%
for the six months ended March 31, 1999 to 82.6% for the six months ended March
31, 2000. At RHCGH, operating expenses were slightly in excess of revenues for
the six months ended March 31, 1999.
Depreciation and Amortization. Depreciation and amortization expense
increased by $276,000, from $4,132,000 for the six months ended March 31, 1999
to $4,408,000 for the six months ended March 31, 2000, and increased as a
percentage of revenues from 7.8% for the six months ended March 31, 1999 to 9.1%
for the six months ended March 31, 2000.
Operating Income. As a result of the foregoing factors, operating income
decreased by $1,567,000, or 27.9%, from $5,615,000 for the six months ended
March 31, 1999 to $4,048,000 for the six months ended March 31, 2000.
Interest Expense. Interest expense decreased by $185,000, or 14.4%, from
$1,286,000 for the six months ended March 31, 1999 to $1,101,000 for the six
months ended March 31, 2000 due primarily to a decrease in the average amount of
debt outstanding.
9
<PAGE> 10
Other expense (income). Other income decreased by $150,000 from $537,000
for the six months ended March 31, 1999 to $387,000 for the six months ended
March 31, 2000 due primarily to a series of insignificant items.
Minority interest. Minority interest decreased by $35,000, or 7.8%, from
$451,000 for the six months ended March 31, 1999 to $416,000 for the six months
ended March 31, 2000 due primarily to decreased incomes in certain
cardiovascular diagnostic facilities.
Income Taxes. The provision for income taxes decreased by $584,000, or
33.9%, from $1,722,000 for the six months ended March 31, 1999 to $1,138,000 for
the six months ended March 31, 2000 as a result of decreased taxable income.
Net Income. As a result of the foregoing factors, net income decreased by
$913,000, or 33.9%, from $2,693,000 for the six months ended March 31, 1999 to
$1,780,000 for the six months ended March 31, 2000.
SEGMENT INFORMATION
The Company's reportable segments are strategic business units that offer
different services. The Company has three reportable segments: Cardiac
Information Services ("Information"), Diagnostic Imaging Services ("Imaging")
and Heart Facilities and Other ("Facilities"). The Information segment provides
remote cardiac monitoring and testing services utilizing telephonic and Internet
communication technology. The Imaging segment operates a network of imaging
centers throughout the United States. The Facilities segment provides
diagnostic, therapeutic and patient management services primarily associated
with cardiovascular disease.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies (see Note 2 of the Company's 1999
Annual Report) except that the Company does not allocate all interest expense,
taxes or corporate overhead to the individual segments. The Company evaluates
performance based on profit or loss from operations before income taxes and
unallocated amounts. The totals per the schedules below will not and should not
agree to the consolidated totals. The difference is due to corporate overhead
and other unallocated amounts which are reflected in the reconciliation to
consolidated earnings before income taxes (in thousands):
<TABLE>
<CAPTION>
INFORMATION IMAGING FACILITIES TOTAL
----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
For the three months ended March 31, 2000:
Net revenue $ 10,564 $ 5,521 $ 8,543 $ 24,628
Total operating expenses 8,876 4,198 6,153 19,227
--------- --------- --------- ---------
Segment contribution 1,688 1,323 2,390 5,401
Depreciation and amortization 766 415 953 2,134
Interest expense -- 69 138 207
Minority interest/other expense (income) (3) (54) 215 158
--------- --------- --------- ---------
Segment profit $ 925 $ 893 $ 1,084 $ 2,902
========= ========= ========= =========
Segment assets $ 40,092 $ 15,036 $ 56,058 $ 111,186
========= ========= ========= =========
Capital expenditures $ 1,043 $ 290 $ 32 $ 1,365
========= ========= ========= =========
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
INFORMATION IMAGING FACILITIES TOTAL
----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
For the three months ended March 31, 1999:
Net revenue $ 11,024 $ 4,990 $ 11,042 $ 27,056
Total operating expenses 8,889 3,632 8,672 21,193
--------- --------- --------- ---------
Segment contribution 2,135 1,358 2,370 5,863
Depreciation and amortization 717 455 853 2,025
Interest expense -- 12 161 173
Minority interest/other expense (income) (86) (33) 165 46
--------- --------- --------- ---------
Segment profit $ 1,504 $ 924 $ 1,191 $ 3,619
========= ========= ========= =========
Segment assets $ 39,536 $ 19,054 $ 62,997 $ 121,587
========= ========= ========= =========
Capital expenditures $ 867 $ 1,985 $ 1,225 $ 4,077
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
INFORMATION IMAGING FACILITIES TOTAL
----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
For the six months ended March 31, 2000:
Net revenue $ 21,005 $ 10,853 $ 16,655 $ 48,513
Total operating expenses 17,592 8,110 12,297 37,999
--------- --------- --------- ---------
Segment contribution 3,413 2,743 4,358 10,514
Depreciation and amortization 1,502 833 1,905 4,240
Interest expense -- 141 275 416
Minority interest/other expense (income) (15) (80) 167 72
--------- --------- --------- ---------
Segment profit $ 1,926 $ 1,849 $ 2,011 $ 5,786
========= ========= ========= =========
Segment assets $ 40,092 $ 15,036 $ 56,058 $ 111,186
========= ========= ========= =========
Capital expenditures $ 1,698 $ 555 $ 71 $ 2,324
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
INFORMATION IMAGING FACILITIES TOTAL
----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
For the six months ended March 31, 1999:
Net revenue $ 22,741 $ 9,770 $ 20,350 $ 52,861
Total operating expenses 17,106 7,261 16,663 41,030
--------- --------- --------- ---------
Segment contribution 5,635 2,509 3,687 11,831
Depreciation and amortization 1,412 911 1,734 4,057
Interest expense -- 15 345 360
Minority interest/other expense (income) (165) (71) 194 (42)
--------- --------- --------- ---------
Segment profit $ 4,388 $ 1,654 $ 1,414 $ 7,456
========= ========= ========= =========
Segment assets $ 39,536 $ 19,054 $ 62,997 $ 121,587
========= ========= ========= =========
Capital expenditures $ 1,429 $ 2,803 $ 1,897 $ 6,129
========= ========= ========= =========
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Segment profit $ 2,902 $ 3,619 $ 5,786 $ 7,456
Unallocated amounts:
Corporate general and administrative 1,052 962 2,058 2,084
Corporate depreciation and amortization 86 38 168 75
Corporate interest expense 341 441 685 926
Corporate other expense (income) (20) (24) (43) (44)
-------- -------- -------- --------
Earnings before income taxes $ 1,443 $ 2,202 $ 2,918 $ 4,415
======== ======== ======== ========
</TABLE>
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, 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. Revenue from the Company's Pacing
operations during certain periods of the last three fiscal years has been
negatively impacted by Medicare reimbursement rate reductions. 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 last three quarters of fiscal 1997 and 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, thereby having a
negative effect on Pacing revenue for calendar 1999. There was a slight increase
in Medicare reimbursement rates effective January 1, 2000. 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.
12
<PAGE> 13
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 acquisitions 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.
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
March 31, 2000, the Company had working capital of $30,149,000, compared to
$28,599,000 at September 30, 1999. At March 31, 2000, the Company had cash and
temporary cash investments of $6,207,000. At March 31, 2000, $17,152,000 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 due and payable.
13
<PAGE> 14
The Company's long-term capital requirements will depend on numerous
factors, including the rate at which the Company develops new products and
services and acquires 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 2000.
YEAR 2000 COMPLIANCE
The Company, to date, has not experienced any significant Year 2000
problems. However, there can be no assurance that the Company will not
experience any significant problems as it moves forward in Year 2000.
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.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. The Company's annual meeting of stockholders was held on March 2,
2000.
b. The following person nominated by management was elected to serve as
director:
<TABLE>
<CAPTION>
Shares
-------------------------
Name For Withheld
---- --------- ---------
<S> <C> <C>
Mary M. Lampe 6,569,470 1,021,609
Gene Miller 6,571,349 1,019,730
David E. Wertheimer, M.D. 6,570,223 1,020,856
</TABLE>
The following directors remained in office; Richard F. Bader, Thomas
J. Fogarty, M.D., and Allan Zinberg.
c. The following additional matters voted upon at the meeting and the
results of the voting were as follows:
1. To ratify the appointment of Arthur Andersen LLP as the
independent accountants of the Company for the fiscal year ending
September 30, 2000.
<TABLE>
<CAPTION>
Shares
----------------------------------
For Against Abstain
--------- ------- -------
<S> <C> <C>
7,474,774 110,375 5,930
</TABLE>
14
<PAGE> 15
2. To approve the 2000 Stock Option Plan to reserve 425,000 shares
for issuance.
<TABLE>
<CAPTION>
Shares
----------------------------------
For Against Abstain
--------- --------- -------
<S> <C> <C> <C>
4,448,388 3,125,709 16,982
</TABLE>
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:
The Company filed no reports on Form 8-K during the quarter ended
March 31, 2000.
15
<PAGE> 16
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: May 11, 2000 By: /s/ JOHN F. LAWLER, JR.
---------------------------------
John F. Lawler, Jr.
Vice President and
Chief Financial Officer
(duly authorized officer and
principal financial officer)
16
<PAGE> 17
Index to Exhibits
<TABLE>
<CAPTION>
Exhibits
- --------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RAYTEL
MEDICAL CORPORATION AND SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 6,207
<SECURITIES> 0
<RECEIVABLES> 35,845<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 45,493
<PP&E> 48,278
<DEPRECIATION> 27,667
<TOTAL-ASSETS> 115,865
<CURRENT-LIABILITIES> 15,344
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 73,738
<TOTAL-LIABILITY-AND-EQUITY> 115,865
<SALES> 0
<TOTAL-REVENUES> 48,513
<CGS> 0
<TOTAL-COSTS> 44,465
<OTHER-EXPENSES> 29
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 1,101
<INCOME-PRETAX> 2,918
<INCOME-TAX> 1,138
<INCOME-CONTINUING> 1,780
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,780
<EPS-BASIC> 0.20
<EPS-DILUTED> 0.20
<FN>
<F1>Represents net receivables
<F2>Included in <Total Costs>
</FN>
</TABLE>
