<PAGE> 1
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 SECURITY EXCHANGE ACT OF 1934.
For the quarterly period ended: September 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 0-16271
DVI, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2722773
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
500 HYDE PARK
DOYLESTOWN, PENNSYLVANIA 18901
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number including area code: (215) 345-6600
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 issuers classes of
common stock, as of the latest practical date:
Common stock, $.005 par value - 14,080,458 shares as of September 30, 1998.
<PAGE> 2
DVI, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION: PAGE
NUMBER
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets -
September 30, 1998 (unaudited) and June 30, 1998................ 3-4
Consolidated Statements of Operations -
Three months ended September 30, 1998 and 1997 (unaudited)...... 5
Consolidated Statements of Comprehensive Income -
Three months ended September 30, 1998 and 1997 (unaudited)...... 5
Consolidated Statements of Shareholders' Equity -
July 1, 1997 through September 30, 1998 (unaudited)............. 6
Consolidated Statements of Cash Flows -
Three months ended September 30, 1998 and 1997 (unaudited)...... 7-8
Notes to Consolidated Financial Statements (unaudited)............... 9-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......... 11-12
PART II. OTHER INFORMATION.......................................... 13
Signatures........................................................... 14
2
<PAGE> 3
DVI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1998
------------- ---------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents ........................................ $ 46,819 $ 15,192
Cash and cash equivalents, restricted ............................ 47,048 47,582
Amounts due from portfolio sale .................................. 10,766 --
Receivables:
Investment in direct financing leases and
notes secured by equipment or medical receivables:
Receivables in installments ................................. 660,438 572,679
Receivables and notes - related parties ..................... 27,011 6,563
Recourse credit enhancements ................................ 54,050 51,883
Notes collateralized by medical receivables ................. 139,867 137,316
Residual valuation .......................................... 24,879 14,287
Unearned income ............................................. (82,334) (69,367)
--------- ---------
Net investment in direct financing leases and
notes secured by equipment or medical receivables ............ 823,911 713,361
Less: Allowance for losses on receivables ..................... (11,894) (9,955)
--------- ---------
Net receivables .................................................. 812,017 703,406
Equipment on operating leases
(net of accumulated depreciation of $3,554 (September 30, 1998)
and $3,189 (June 30, 1998)) ................................... 14,010 14,773
Furniture and fixtures
(net of accumulated depreciation of $2,901 (September 30, 1998)
and $2,600 (June 30, 1998)) ................................... 4,978 4,225
Investments in investees ......................................... 6,977 7,120
Goodwill, net .................................................... 10,070 3,646
Other assets ..................................................... 22,577 20,976
--------- ---------
Total assets ..................................................... $ 975,262 $ 816,920
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
DVI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1998
------------- --------
(Unaudited)
<S> <C> <C>
Liabilities:
Accounts payable ........................................................... $ 72,133 $ 48,030
Accrued expenses and other liabilities ..................................... 18,731 18,271
Borrowings under warehouse facilities ...................................... 222,823 82,828
Deferred income taxes ...................................................... 19,393 19,393
Long-term debt, net:
Discounted receivables (primarily limited recourse) ..................... 303,280 342,120
9 7/8% Senior notes due 2004 ............................................ 96,643 96,486
Other debt .............................................................. 43,099 15,808
Convertible subordinated notes .......................................... 13,467 13,439
-------- ---------
Total long-term debt, net .................................................. 456,489 467,853
-------- ---------
Total liabilities .......................................................... 789,569 636,375
Minority interest in consolidated subsidiaries ............................. 8,131 8,260
Shareholders' equity:
Preferred stock, $10.00 par value; authorized 100,000 shares; no
shares issued
Common stock, $0.005 par value; authorized 25,000,000 shares; outstanding
14,080,458 shares (September 30, 1998) and
14,080,358 shares (June 30, 1998) ..................................... 70 70
Additional capital ...................................................... 133,318 133,516
Retained earnings ....................................................... 43,931 39,387
Cumulative translation adjustments ...................................... 243 (688)
-------- ---------
Total shareholders' equity ................................................. 177,562 172,285
-------- ---------
Total liabilities and shareholders' equity ................................. $975,262 $ 816,920
======== =========
</TABLE>
4
<PAGE> 5
DVI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Finance and other income:
Amortization of finance income ..................................... $ 17,919 $ 14,240
Other income ....................................................... 3,896 1,894
-------- --------
Total finance and other income ........................................ 21,815 16,134
Interest expense ...................................................... 12,543 11,628
-------- --------
Net interest and other income ......................................... 9,272 4,506
Net gain on sale of financing transactions ............................ 6,854 5,024
-------- --------
Net finance income .................................................... 16,126 9,530
Selling, general and administrative expenses .......................... 6,646 3,786
Provision for losses on receivables ................................... 1,505 992
-------- --------
Earnings before minority interest, equity in net loss of investees, and
provision for income taxes ......................................... 7,975 4,752
Minority interest in net loss of consolidated subsidiaries ............ 69 --
Equity in (net loss) of investees ..................................... (92) (205)
Provision for income taxes ............................................ 3,408 1,957
-------- --------
Net earnings .......................................................... $ 4,544 $ 2,590
======== ========
Net earnings per share:
Basic .............................................................. $ 0.32 $ 0.23
======== ========
Diluted ............................................................ $ 0.30 $ 0.22
======== ========
</TABLE>
DVI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1998 1997
------- -------
<S> <C> <C>
Net earnings .................................. $ 4,544 $ 2,590
Other comprehensive income, net of tax
Foreign currency translation adjustment .... 931 (53)
------- -------
Comprehensive income .......................... $ 5,475 $ 2,537
======= =======
</TABLE>
5
<PAGE> 6
DVI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------
$0.005 PAR VALUE CUMULATIVE TOTAL
-------------------------- ADDITIONAL RETAINED TRANSLATION SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT EQUITY
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at July 1, 1997 ................ 10,590,859 $ 53 $ 69,194 $ 26,529 $ (116) $ 95,660
Issuance of common stock upon
exercise of stock options and warrants 149,499 1,756 1,756
Net proceeds from issuance of
common stock .......................... 2,940,000 15 57,918 57,933
Issuance of common stock for acquisition
of MEFC ............................... 400,000 2 4,648 4,650
Currency translation adjustment ......... (572) (572)
Net earnings ............................ 12,858 12,858
----------- ----------- ----------- ----------- ----------- -----------
Balances at June 30, 1998 ............... 14,080,358 $ 70 $ 133,516 $ 39,387 $ (688) $ 172,285
Issuance of common stock upon
exercise of stock options and warrants 100
Cost of issuance of common stock ........ (198) (198)
Currency translation adjustment ......... 931 931
Net earnings ............................ 4,544 4,544
----------- ----------- ----------- ----------- ----------- -----------
Balances at September 30, 1998 .......... 14,080,458 $ 70 $ 133,318 $ 43,931 $ 243 $ 177,562
=========== =========== =========== =========== =========== ===========
</TABLE>
6
<PAGE> 7
DVI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings .................................................... $ 4,544 $ 2,590
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Equity in net loss of investees ........................... 92 205
Depreciation and amortization ............................. 3,323 2,826
Additions to allowance accounts ........................... 1,505 992
Net gain on sale of financing transactions ................ (6,854) (5,024)
Minority interest ......................................... (129) --
Cumulative translation adjustments ........................ 982 (50)
Changes in assets and liabilities, net of effects from
acquisition of business:
(Increases) decreases in:
Cash and cash equivalents, restricted .............. 534 (3,284)
Amounts due from portfolio sale .................... (10,766) --
Receivables ........................................ (1,199) (511)
Other assets ....................................... (852) (439)
Increases (decreases) in:
Accounts payable ................................... 22,626 161
Accrued expenses and other liabilities ............. 460 (2,721)
--------- ---------
Total adjustments ............................................... 9,722 (7,845)
--------- ---------
Net cash provided by (used in) operating activities ............. 14,266 (5,255)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business ......................................... (74,678) --
Cost of equipment acquired ...................................... (167,502) (128,383)
Portfolio receipts net of amounts included in income and proceeds
from sales of financing transactions ......................... 135,621 125,127
Net increase in notes collateralized by medical receivables ..... (2,544) (17,853)
Furniture and fixtures additions ................................ (870) (1,186)
--------- ---------
Net cash used in investing activities ........................ (109,973) (22,295)
--------- ---------
</TABLE>
Continued
7
<PAGE> 8
DVI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options and warrants ... -- 427
Cost of issuance of common stock ......... (198) --
Borrowings under:
Warehouse facilities .................. 209,230 194,815
Long-term debt ........................ 28,149 --
Repayments on:
Warehouse facilities .................. (69,415) (122,910)
Long-term debt ........................ (40,432) (30,449)
--------- ---------
Net cash provided by financing activities 127,334 41,883
--------- ---------
Net increase in cash and cash equivalents .... 31,627 14,333
Cash and cash equivalents, beginning of period 15,192 9,187
--------- ---------
Cash and cash equivalents, end of period ..... $ 46,819 $ 23,520
========= =========
CASH PAID DURING THE PERIOD FOR:
Interest ................................. $ 13,578 $ 12,910
========= =========
Income taxes (net of refunds) ............ $ (2,088) $ 72
========= =========
</TABLE>
8
<PAGE> 9
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles (GAAP) for complete financial
statements. The consolidated financial statements should be read in conjunction
with the financial statements and notes thereto included in DVI, Inc.'s ("the
Company") latest annual report on Form 10-K for the fiscal year ended June 30,
1998.
In the opinion of management, the consolidated financial statements contain all
adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair statement of the consolidated balance sheets as of
September 30, 1998 and June 30, 1998, the consolidated statements of operations
for the three month periods ended September 30, 1998 and 1997, the consolidated
statements of shareholders' equity for the period from July 1, 1997 through
September 30, 1998, and the consolidated statements of cash flows for the three
month periods ended September 30, 1998 and 1997. The results of operations for
the three month period ended September 30, 1998 are not necessarily indicative
of the results of operations to be expected for the entire fiscal year ending
June 30, 1999.
NOTE 2 - RECONCILIATION OF EARNINGS PER SHARE CALCULATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------
(IN THOUSANDS EXCEPT PER SHARE DATA) 1998 1997
------- -------
BASIC
<S> <C> <C>
Income available to common shareholders ............ $ 4,544 $ 2,590
Average common shares .............................. 14,080 11,026
Basic earnings per common share .................... $ 0.32 $ 0.23
======= =======
DILUTED
Income available to common shareholders ............ $ 4,544 $ 2,590
Effect of dilutive securities:
Convertible debentures ........................... 184 184
------- -------
Diluted income available to common shareholders .... $ 4,728 $ 2,774
Average common shares .............................. 14,080 11,026
Effect of dilutive securities, net:
Warrants ......................................... 94 43
Options .......................................... 364 225
Convertible debentures ........................... 1,311 1,311
------- -------
Diluted average common shares ...................... 15,849 12,605
Diluted earnings per common share .................. $ 0.30 $ 0.22
======= =======
</TABLE>
9
<PAGE> 10
NOTE 3 - HEDGE TRANSACTIONS
At September 30, 1998, the Company had $70.0 million in Treasury lock
transactions and $250.0 million in collars. The Company also had $29.8 million
in interest rate swaps. At September 30, 1998, the Company had a total of 20.0
million German Deutsche Marks in forward contracts and cross-currency interest
rate swaps.
10
<PAGE> 11
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total finance and other income increased to $21.8 million for the three month
period ended September 30, 1998 from $16.1 million for the three month period
ended September 30, 1997. Amortization of finance income increased to $17.9
million from $14.2 million for the three month period ended September 30, 1998
as compared to the same period of the prior year. The increase primarily was a
result of the overall increase in the size of the Company's loan portfolio.
Other income increased to $3.9 million in the three month period ended September
30, 1998 from $1.9 million in the comparable prior year period. The increase was
due mainly to fees earned on the larger portfolio and service fees earned on
serviced assets.
Interest expense increased to $12.5 million for the three months ended September
30, 1998 from $11.6 million for the three months ended September 30, 1997. The
increase is primarily a result of the growth of the Company's loan portfolio and
growth in international markets. The weighted average interest rate on
discounted receivables, the largest component of interest expense, decreased to
7.86% as of September 30, 1998 compared to 8.41% as of September 30, 1997.
Net gain on sale of financing transactions increased to $6.9 million for the
three months ended September 30, 1998 from $5.0 million for the same period of
the prior fiscal year. Loans sold during the three month period ended September
30, 1998 were $72.7 million compared to $78.4 million during the same period of
the prior fiscal year. The increase in the Company's net gain on sale of
financing transactions was partially due to the higher yields associated with
the portfolios of acquired companies.
Selling, general and administrative expenses for the first quarter ended
September 30, 1998 increased by 75.5% to $6.6 million from $3.8 million for the
same quarter of the prior fiscal year. The increase in the Company's selling,
general and administrative expenses was primarily related to the expansion of
the Company's new domestic and international businesses and the Company's 36.0%
growth in managed net financed assets.
The provision for possible losses on receivables was $1.5 million for the three
month period ended September 30, 1998 as compared to $1.0 million for the three
month period ended September 30, 1997. On a quarterly basis, the Company
evaluates the collectibility of its receivables and records a provision for
amounts deemed uncollectible. In the opinion of management, the provisions are
adequate based on current trends in the Company's delinquencies and losses.
Earnings before minority interest, equity in net loss of investees, and
provision for income taxes increased 67.8% to $8.0 million for the three month
period ended September 30, 1998 compared to $4.8 million for the same period
ended September 30, 1997. Net earnings increased 75.4% to $4.5 million from $2.6
million in comparing the three month period ended September 30, 1998 to the same
period ended September 30, 1997. Diluted earnings per share increased 36.4% to
$0.30 from $0.22 when comparing the three month period ended September 30, 1998
to September 30, 1997. The increase in diluted earnings per share resulted from
an increase in the Company's net earnings, partially offset by an increase in
diluted shares.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION
Total shareholders' equity increased $5.3 million to $177.6 million at September
30, 1998 from $172.3 million at June 30, 1998. The increase primarily was due to
net earnings of $4.5 million.
The Company believes that its present warehouse and permanent funding sources
are sufficient to fund the Company's current needs for its equipment and medical
receivables financing businesses.
At September 30, 1998, the Company had available an aggregate of $527.0 million
in warehouse facilities of which $222.8 million was utilized.
Through September 30, 1998, the Company has completed 21 securitizations or
other structured finance transactions for medical equipment and medical
receivables financings totaling approximately $1.6 billion, including two public
debt issues totaling $75.7 and $90.0 million and 19 private placements of debt
and whole loan sales totaling $1.4 billion. The Company expects for the
foreseeable future to continue to use securitization, on both a public and
private basis, as its principal means to permanently fund its loans.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Any statements contained in this Form 10-Q which are not historical facts are
forward-looking statements; and, therefore, many important factors could cause
actual results to differ materially from those in the forward-looking
statements. Such factors include, but are not limited to, changes (legislative
and otherwise) in the healthcare industry, those relating to demand for DVI's
services, pricing, market acceptance, the effect of economic conditions,
litigation, competitive products and services, the results of financing efforts,
the ability to complete transactions, and other risks identified in the
Company's Securities and Exchange Commission filings.
12
<PAGE> 13
PART II - OTHER INFORMATION
Items 1 through 5 have been omitted because the related information is either
inapplicable or has been previously reported.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Form 8-K
None
13
<PAGE> 14
SIGNATURES
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.
DVI, INC.
---------
(Registrant)
By: /S/MICHAEL A. O'HANLON
-------------------------
Michael A. O'Hanlon
President and Chief
Executive Officer
By: /S/STEVEN R. GARFINKEL
-------------------------
Steven R. Garfinkel
Executive Vice President and
Chief Financial Officer
Date: November 9, 1998
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from 10Q at
quarter end 9/30/98 and is qualified in its entirety by reference to such 10K at
year end 6/30/98.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 93,867
<SECURITIES> 0
<RECEIVABLES> 823,911
<ALLOWANCES> 11,894
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,879
<DEPRECIATION> 2,901
<TOTAL-ASSETS> 975,262
<CURRENT-LIABILITIES> 313,687
<BONDS> 0
0
0
<COMMON> 70
<OTHER-SE> 177,492
<TOTAL-LIABILITY-AND-EQUITY> 975,262
<SALES> 0
<TOTAL-REVENUES> 28,669
<CGS> 0
<TOTAL-COSTS> 12,543
<OTHER-EXPENSES> 6,669
<LOSS-PROVISION> 1,505
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,952
<INCOME-TAX> 3,408
<INCOME-CONTINUING> 4,544
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,544
<EPS-PRIMARY> 0.32<F1>
<EPS-DILUTED> 0.30
<FN>
<F1>
EPS-PRIMARY SHOWN ABOVE IS ACTUALLY EPS-BASIC AS REQUIRED.
</FN>
</TABLE>
