<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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 0-23946
PEDIATRIC SERVICES OF AMERICA, INC.
(Exact name of Registrant as specified in its charter)
Delaware 58-1873345
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3159 Campus Drive, Norcross GA 30071
(Address of principal executive offices, including zip code)
(770) 441-1580
(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 [ ]
As of August 8, 1996 the Registrant had 6,241,584 shares of Common Stock, $0.01
Par Value, outstanding.
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Page 1 of 18
Index of Exhibits on page 16
<PAGE>
FORM 10-Q
PEDIATRIC SERVICES OF AMERICA, INC.
INDEX
Page
PART I FINANCIAL INFORMATION Number
ITEM 1: Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1996 and September 30, 1995....................... 3
Condensed Consolidated Statements of Operations for
the three and nine months ended June 30, 1996 and 1995..... 5
Condensed Consolidated Statements of Cash Flows for
the nine months ended June 30, 1996 and 1995............... 6
Notes to Condensed Consolidated Financial
Statements................................................. 7
ITEM 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 8
PART II OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K.............................. 14
Signatures.................................................... 15
Index of Exhibits............................................. 16
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEDIATRIC SERVICES OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except per share data)
<TABLE>
<CAPTION>
June 30,
1996 September 30,
(Unaudited) 1995
----------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash & cash equivalents........................... $ 612 $ 101
Accounts receivable, less allowances for
doubtful accounts of $8,597 (unaudited) &
$6,870, respectively........................... 45,887 31,523
Prepaid expenses.................................. 298 475
Deferred income taxes............................. 3,353 2,664
Other current assets.............................. 1,174 867
-------- -------
Total current assets............................... 51,324 35,630
Property & equipment:
Home care equipment held for rental............... 17,766 14,609
Furniture & fixtures.............................. 4,481 3,171
Vehicles.......................................... 593 587
Leasehold improvements............................ 554 520
-------- -------
23,394 18,887
Accumulated depreciation &
amortization.................................... (10,884) (8,357)
-------- -------
12,510 10,530
Other assets:
Goodwill, less accumulated
amortization of $2,040 (unaudited) & $1,373,
respectively................................. 28,848 24,807
Certificates of need, less accumulated
amortization of $160 (unaudited) & $116,
respectively................................. 1,187 1,184
Deferred financing fees, less accumulated
amortization of $55 (unaudited) & $27,
respectively................................. 234 170
Non-compete agreements, less accumulated
amortization of $547 (unaudited) & $436,
respectively................................. 403 514
Other............................................. 260 316
-------- -------
Total assets....................................... $ 94,766 $73,151
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 3
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except per share data)
<TABLE>
<CAPTION>
June 30,
1996 September 30,
(Unaudited) 1995
------------- -------------
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit............................ $ - $ 3,892
Accounts payable.................................... 4,763 3,082
Accrued compensation................................ 4,340 2,928
Accrued insurance................................... 1,119 1,111
Other accrued liabilities........................... 3,307 2,621
Deferred revenue.................................... 1,085 1,066
Income taxes payable................................ 852 741
Current maturities of long-term obligations......... 1,883 2,253
------- -------
Total current liabilities............................ 17,349 17,694
Long-term obligations net of current maturities...... 23,849 6,243
Deferred income taxes................................ 1,081 1,103
Redeemable convertible preferred stock, $.01 par
value; 5,000 shares authorized, 34 shares
issued and outstanding in September 1995........... - 3,490
Stockholders' equity:
Preferred stock, $.01 par value, 2,000
shares authorized; no shares issued &
outstanding........................................ - -
Common stock, $.01 par value, 8,000 shares
authorized; 6,221 shares in June 1996 &
5,604 shares in September 1995 issued &
outstanding, respectively.......................... 62 56
Additional paid-in capital......................... 41,388 36,899
Retained earnings.................................. 11,037 7,666
------- -------
Total stockholders' equity........................... 52,487 44,621
------- -------
Total liabilities & stockholders' equity............. $94,766 $73,151
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 4
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
(Unaudited) (Unaudited)
------------------- ----------------------
1996 1995 1996 1995
-------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenue....................... $ 43,033 $ 31,043 $ 120,110 $ 77,262
Costs & expenses:
Operating salaries, wages &
employee benefits............. 18,704 14,572 53,715 34,978
Other operating costs........... 15,762 10,125 43,302 26,505
Corporate, general &
administrative................ 2,959 2,021 7,659 5,102
Provision for doubtful
accounts...................... 1,340 874 3,575 1,894
Depreciation & amortization..... 1,267 1,015 3,577 2,589
Merger costs.................... - - 1,166 -
------- ------- -------- -------
Total costs and expenses...... 40,032 28,607 112,994 71,068
------- ------- -------- -------
Operating income.................. 3,001 2,436 7,116 6,194
Interest expense.................. 588 611 1,258 1,319
------- ------- -------- -------
Income before income taxes and
extraordinary item............. 2,413 1,825 5,858 4,875
Income taxes...................... 1,012 716 2,392 1,883
------- ------- -------- -------
Income before extraordinary item.. 1,401 1,109 3,466 2,992
Extraordinary item, net of tax.... - - 781
------- ------- -------- -------
Net income........................ $ 1,401 $ 1,109 $ 3,466 $ 3,773
======= ======= ======== =======
Net income attributable to common
and common equivalent shares:
Income before extraordinary
item, as reported............. $ 1,401 $ 1,109 $ 3,466 $ 2,992
Less accretion on redeemable
preferred stock............... - (12) (10) (24)
Less preferred stock dividends.. - (60) (86) (135)
------- ------- -------- -------
Income before extraordinary item
attributable to common and
common equivalent shares....... 1,401 1,037 3,370 2,883
Extraordinary item, net of tax... - - - 781
------- ------- -------- -------
Net income attributable to
common and common equivalent
shares......................... $ 1,401 $ 1,037 $ 3,370 $ 3,614
======= ======= ======== =======
Share data:
Income before extraordinary item
per common and common
equivalent shares............. $ 0.22 $ 0.21 $ 0.54 $ 0.60
Extraordinary item............... - - - 0.16
------- ------- -------- -------
Net income attributable to
common and common equivalent
shares......................... $ 0.22 $ 0.21 $ 0.54 $ 0.76
======= ======= ======== =======
Weighted average shares
outstanding.................... 6,488 4,898 6,253 4,733
======= ======= ======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 5
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
(Unaudited)
1996 1995
----------- ------------
<S> <C> <C>
Operating activities
Net income........................................... $ 3,466 $ 3,773
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation & amortization.......................... 3,577 2,589
Provision for doubtful accounts...................... 3,575 1,894
Amortization of deferred financing fees.............. 27 15
Deferred income taxes................................ (351) -
Extraordinary item, net of tax....................... - (781)
Changes in operating assets & liabilities, net of
effects from acquisitions of businesses:
Accounts receivable.................................. (17,146) (7,057)
Prepaid expenses..................................... 221 84
Other current assets................................. (359) 164
Accounts payable..................................... 1,655 (241)
Income taxes......................................... 34 (650)
Accrued compensation................................. 1,177 698
Accrued insurance.................................... (26) (414)
Other accrued liabilities............................ 896 992
Deferred revenue..................................... 21 340
--------- --------
Net cash (used in) provided by operating activities.... (3,233) 1,406
Investing activities
Purchases of property & equipment.................... (4,659) (2,786)
Acquisitions of business............................. (4,602) (16,271)
Other, net........................................... (50) 79
--------- --------
Net cash used in investing activities.................. (9,311) (18,978)
Financing activities
Principal payments on long-term debt................. (8,276) (21,972)
Borrowings on long-term debt......................... 21,605 18,068
Deferred financing fees.............................. (91) (80)
Payment of preferred stock dividend.................. (281) -
Proceeds from issuance of common stock............... - 15,781
Proceeds from issuance of preferred stock............ - 1,459
Proceeds from exercise of stock options.............. 98 75
--------- --------
Net cash provided by financing activities.............. 13,055 13,331
--------- --------
Increase (decrease) in cash & cash equivalents......... 511 (4,241)
Cash & cash equivalents at beginning of year........... 101 6,010
--------- --------
Cash & cash equivalents at end of year................. $ 612 $ 1,769
========= ========
Supplemental disclosure of cash flow information:
Cash paid for interest................................. $ 1,143 $ 1,253
======== ========
Cash paid for income taxes............................. $ 2,357 $ 2,354
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 6
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Pediatric Services of America, Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a
fair presentation have been included. Results of operations for the three-
month period and nine-month period ended June 30, 1996 are not necessarily
indicative of the results to be expected for the entire fiscal year ending
September 30, 1996. These condensed consolidated financial statements
should be read in conjunction with the Company's Current Report on Form 8-K
dated 2/29/96 and Amendment No. One and Amendment No. Two, thereto, filed
with the Securities and Exchange Commission, which includes the Company's
principal accounting policies.
The accompanying unaudited condensed consolidated financial statements of
the Company as of September 30, 1995, and the three months ended June 30,
1995, and the nine months ended June 30, 1996 and 1995 have been restated
using the pooling-of-interests method of accounting to reflect the merger
of the Company with Premier Medical Services, Inc. on February 29, 1996.
2. Net Income per Share
Net income per share is computed using the weighted average number of
common and common equivalent shares outstanding during the respective
periods. Dilutive common equivalent shares consist of warrants and stock
options (calculated using the treasury stock method). This calculation
excludes any antidilutive shares during the respective periods.
Supplemental earnings per common share is calculated using the weighted
average number of common and common equivalent shares outstanding during
the respective periods assuming the conversion of the Redeemable
Convertible Preferred Stock as of the beginning of the respective periods.
The computation of supplemental earnings per common share is presented
below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
(Unaudited) (Unaudited)
---------------------- ---------------------
1996 1995 1996 1995
------- ------- ------- --------
<S> <C> <C> <C> <C>
Income before extraordinary
item, as reported.............. $1,401 $1,109 $3,466 $2,992
Extraordinary item, net of tax. - - - 781
------ ------ ------ ------
Net income..................... $1,401 $1,109 $3,466 $3,773
====== ====== ====== ======
Supplemental weighted average
shares outstanding............. 6,488 5,233 6,439 5,068
====== ====== ====== ======
Income per share before
extraordinary item............. $ 0.22 $ 0.21 $ 0.54 $ 0.59
Extraordinary item per share... - - - 0.15
------ ------ ------ ------
Net income per share........... $ 0.22 $ 0.21 $ 0.54 $ 0.74
====== ====== ====== ======
</TABLE>
Page 7
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
The historical condensed consolidated statements of operations of the
Company for the three and nine months ended June 30, 1996 contained in
this report and the following discussion thereof include the effect of the
Company's acquisitions in the first two quarters of fiscal 1996 subsequent
to the respective dates of acquisition. In addition, the historical
condensed consolidated statements of operation of the Company contained in
this report as of September 30, 1995, and for the three months ended June
30, 1995, and for the nine months ended June 30, 1996 and 1995 have been
restated to reflect the merger of the Company and Premier Medical
Services, Inc. ("PMS") using the pooling-of-interests method of
accounting.
The following table is derived from the Company's unaudited condensed
consolidated statements of operations for the periods indicated and
presents results of operations as a percentage of net revenue and the
percentage change in the dollar amounts of each item from the prior
period.
<TABLE>
<CAPTION>
Period-to-Period
Percentage of
Percentage of Net Revenue Increase (Decrease)
--------------------------- ---------------------
Three Month Nine Months Three Months Nine Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
---------- ---------- ---------- -----------
1996 1995 1996 1995 1996 to 1995 1996 to 1995
---- ---- ---- ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue................ 100% 100% 100% 100% 38.6% 55.5%
Operating salaries, wages
and employee benefits..... 43.5 46.9 44.7 45.3 28.4 53.6
Other operating costs...... 36.6 32.7 36.0 34.3 55.7 63.4
Corporate, general &
administrative............ 6.9 6.5 6.4 6.6 46.4 50.1
Provision for doubtful
accounts.................. 3.1 2.8 3.0 2.5 53.2 88.7
Depreciation and
amortization.............. 2.9 3.3 3.0 3.3 24.8 38.2
Merger costs............... - - 1.0 - - 100.0
---- ---- ---- ---- ---- ------
Operating income........... 7.0 7.8 5.9 8.0 23.2 14.9
Interest expense........... 1.4 1.9 1.0 1.7 (3.6) (4.7)
---- ---- ---- ---- ---- ------
Income before income
taxes and extraordinary
item...................... 5.6 5.9 4.9 6.3 32.2 20.2
Income taxes............... 2.3 2.3 2.0 2.4 41.3 27.0
---- ---- ---- ---- ---- ------
Income before
extraordinary item........ 3.3 3.6 2.9 3.9 26.4 15.8
Extraordinary item......... - - - 1.0 - (100.0)
---- ---- ---- ---- ---- ------
Net income................. 3.3% 3.6% 2.9% 4.9% 26.4% (8.1)%
==== ==== ==== ==== ==== ======
</TABLE>
Page 8
<PAGE>
The following table sets forth for the periods indicated a summary of net
revenue by category:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
Pediatric Home Health Care: 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Nursing....................... $12,870 $ 9,650 $ 39,245 $24,223
Respiratory Therapy Equipment. 4,780 3,842 13,066 9,423
Home Medical Equipment........ 303 365 1,049 955
Pharmacy and Other............ 5,791 2,941 16,236 5,522
------- ------- -------- -------
Total Pediatric Home Health Care. 23,744 16,798 69,596 40,123
------- ------- -------- -------
Adult Home Health Care:
Nursing....................... 5,159 3,887 12,695 7,374
Respiratory Therapy Equipment. 5,673 5,064 16,404 14,393
Home Medical Equipment........ 1,319 1,302 4,062 3,680
Pharmacy and Other............ 1,733 912 4,297 2,543
------- ------- -------- -------
Total Adult Home Health Care..... 13,884 11,165 37,458 27,990
------- ------- -------- -------
Insurance........................ 5,405 3,080 13,056 9,149
------- ------- -------- -------
Total Net Revenue................ $43,033 $31,043 $120,110 $77,262
======= ======= ======== =======
</TABLE>
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995.
Net revenue increased $12.0 million, or 38.6%, to $43.0 million in the three
months ended June 30, 1996 from $31.0 million in the same period in 1995. The
Company's acquisitions and start-up operations accounted for approximately $3.2
million, or 26.9%, of the increase, and internal growth accounted for the
remaining $8.8 million, or 73.1%, of the increase. Overall, the internal growth
in net revenue increased to 28.2% for the three months ended June 30, 1996
compared to 16.7% for the same period in 1995. Of the $12.0 million increase in
net revenue in the 1996 period, pediatric net revenue accounted for
$7.0 million, or 57.9%, of the increase. Increased pediatric net revenue for
the three months ended June 30, 1996 was attributable to the Company's
acquisitions and start-up operations. Adult net revenue accounted for $2.7
million, or 22.7%, of the increase in net revenue in the three months ended June
30, 1996, primarily due to the internal growth of existing locations. Insurance
net revenue accounted for $2.3 million, or 19.4% of the increase in net revenue
for the three months ended June 30, 1996, primarily due to an increase in the
volume of business.
Operating salaries, wages and employee benefits consist primarily of branch
office operations. Operating salaries, wages and benefits increased $4.1
million, or 28.4%, to $18.7 million in the three months ended June 30, 1996 from
$14.6 million in the same period in 1995. The increase was primarily due to the
Company's acquisitions, start-up operations and to the internal growth of the
Company's operations. The acquisitions and start-up operations added
approximately $2.5 million in operating salaries, wages and employee benefits.
As a percentage of net revenue, operating salaries, wages and employee benefits
for the three months ended June 30, 1996 decreased to 43.5% from 46.9% in the
same period in 1995. The decrease in operating salaries, wages and employee
benefits is primarily attributable to the increase in the net revenue volume
from the pharmacy, respiratory and insurance operations which have a lower
operating salaries and wages and employee benefits component as compared to the
Company's other lines of business, thereby decreasing the Company's overall
ratio.
Page 9
<PAGE>
Other operating costs include medical supplies, branch office rents,
utilities, vehicle expenses and cost of sales. Other operating costs increased
$5.6 million, or 55.7%, to $15.7 million in the three months ended June 30, 1996
from $10.1 million in the comparable period in 1995. Of this increase $0.5
million, or 8.8%, relates to the Company's acquisitions and start-up operations
and the remainder to the internal growth of the Company's operations. As a
percentage of net revenue, other operating costs for the three months ended June
30, 1996 increased to 36.6% from 32.7% in the comparable period of 1995. The
increase in operating costs as a percentage of net revenue is primarily
attributable to the increase in net revenue volume from the pharmacy and
insurance operations. These operations have a higher other operating cost
component due to the cost of sales associated with the purchase of drug products
for the pharmacy business and the payment of operating expenses for the
insurance business.
Corporate, general and administrative costs increased $0.9 million, or 46.4%,
to $2.9 million in the three months ended June 30, 1996 from $2.0 million in the
comparable period in 1995. The increase is primarily due to the internal growth
and the addition of administrative staff to support the acquisitions and start-
up operations. The percentage of corporate, general and administrative expenses
to net revenue increased slightly to 6.9% for the three months ended June 30,
1996 from 6.5% in the comparable 1995 period as a result of the Company's
investment in additional corporate resources to support the growth from
acquisitions and start-ups and internal growth from operations.
Provision for doubtful accounts consists of the amount of billed revenue that
management estimates will become uncollectible. During the three months ended
June 30, 1996, the Company's provision for doubtful accounts increased $0.5
million, or 53.2%, to $1.3 million from $0.8 million in the same period in 1995.
The increase is primarily due to an increase in days sales outstanding. As a
percentage of net revenue, the provision for doubtful accounts increased to 3.1%
for the three months ended June 30, 1996 from 2.8% in the comparable 1995
period.
Depreciation and amortization expenses increased $0.3 million, or 24.8%, to
$1.3 million in the three months ended June 30, 1996 from $1.0 million in the
comparable 1995 period. The increase was primarily due to capital expenditures
for the purchase of rental equipment and the Company's acquisitions. As a
percentage of the Company's total net revenue, depreciation and amortization
costs decreased to 2.9% from 3.3%. The decrease is primarily attributable to
the increase in net revenue volume from the nursing, pharmacy and insurance
operations which have a lower depreciation and amortization cost component as
compared to the Company's other operations.
For the three months ended June 30, 1996, interest expense was relatively
consistent with the same period last year at approximately $0.6 million.
Compared with the same period last year, the Company's weighted average debt
outstanding increased and its average cost of borrowing decreased, offsetting
the impact of the extra debt. In June 1995, the Company used approximately
$19.1 million of the net proceeds from its second public offering to repay
outstanding indebtedness. Management expects indebtedness to increase in the
future due to the financing of internal growth, receivables, and future
acquisitions.
Nine Months Ended June 30, 1996 Compared to Nine Months Ended June 30, 1995
Net revenue increased $42.8 million, or 55.5%, to $120.1 million in the nine
months ended June 30, 1996 from $77.3 million in the same period in 1995. The
Company's acquisitions and start-up operations accounted for approximately $21.9
million, or 51.0%, of the increase, and internal growth accounted for the
remaining $20.9 million, or 49.0%, of the increase. Overall, the internal
growth in net revenue increased to 27.2% for the nine months ended June 30, 1996
compared to 12.5% for the same period in 1995. Of the $42.8 million increase in
net revenue in the 1996 period, pediatric net revenue accounted for $29.5
million, or 68.8% of the increase. Increased pediatric net revenue for the nine
months ended June 30, 1996 was attributable to the Company's acquisitions and
start-up operations. Adult net revenue accounted for $9.4 million, or 22.0%, of
the increase in net revenue in the nine months ended June 30, 1996, primarily
due to the internal growth of existing locations. Insurance net revenue
accounted for $3.9 million, or 9.2% of the increase in net revenue for the nine
months ended June 30, 1996, primarily due to an increase in the volume of
business.
Operating salaries, wages and employee benefits consist primarily of branch
office operations. Operating salaries, wages and benefits increased $18.7
million, or 53.6%, to $53.7 million in the nine months ended June 30, 1996 from
$35.0 million in the same period in 1995. The increase was primarily due to the
Company's acquisitions, start-up operations
Page 10
<PAGE>
and to the internal growth of the Company's operations. The acquisitions and
start-up operations added approximately $15.9 million in operating salaries,
wages and employee benefits. As a percentage of net revenue, operating
salaries, wages and employee benefits for the nine months ended June 30, 1996
decreased to 44.7% from 45.3% in the comparable period in 1995. The decrease in
operating salaries, wages and employee benefits is primarily attributable to the
increase in the net revenue volume from the pharmacy, respiratory and insurance
operations which have a lower operating salaries and wages and employee benefits
component as compared to the Company's other lines of business, thereby
decreasing the Company's overall ratio.
Other operating costs include medical supplies, branch office rents,
utilities, vehicle expenses and cost of sales. Other operating costs increased
$16.8 million, or 63.4%, to $43.3 million in the nine months ended June 30, 1996
from $26.5 million in the comparable period in 1995. Of this increase, $11.8
million, or 70.2%, relates to the Company's acquisitions and start-up operations
and the remainder to the internal growth of the Company's operations. As a
percentage of net revenue, other operating costs for the nine months ended June
30, 1996 increased to 36.0% from 34.3% in the comparable period for 1995. The
increase in operating costs as a percentage of net revenue is primarily
attributable to the increase in net revenue volume from the pharmacy and
insurance operations. These operations have a higher other operating cost
component due to the cost of sales associated with the purchase of drug products
for the pharmacy business and the payment of operating expenses for the
insurance business.
Corporate, general and administrative costs increased $2.6 million, or 50.1%,
to $7.7 million in the nine months ended June 30, 1996 from $5.1 million in the
comparable period in 1995. The increase is primarily due to the internal growth
of the Company and, to a lesser extent, the acquisition of Pediatric Partners,
Inc. ("PPI"), which was acquired in March 1995, and the addition of
administrative staff to support the Company's acquisitions and start-up
operations. The percentage of corporate, general and administrative expenses to
net revenue decreased to 6.4% for the nine months ended June 30, 1996 from 6.6%
in the comparable 1995 period as a result of the greater economies of scale as
the Company's net revenue increased at a more rapid rate than the Company's
corporate, general and administrative expenses.
Provision for doubtful accounts consists of the amount of billed revenue that
management estimates will become uncollectible. During the nine months ended
June 30, 1996, the Company's provision for doubtful accounts increased $1.7
million, or 88.7%, to $3.6 million from $1.9 million in the same period in 1995.
The increase is primarily due to an increase in days sales outstanding. As a
percentage of net revenue, the provision for doubtful accounts increased to 3.0%
for the nine months ended June 30, 1996 from 2.5% in the comparable 1995 period.
Depreciation and amortization expenses increased $1.0 million, or 38.2%, to
$3.6 million in the nine months ended June 31, 1996 from $2.6 million in the
comparable 1995 period. The increase was primarily attributable to the
Company's capital expenditures for the purchase of rental equipment and, to a
lesser extent, the Company's acquisitions. As a percentage of the Company's
total net revenue, depreciation and amortization costs decreased to 3.0% from
3.3%. The decrease is primarily attributable to the increase in net revenue
volume from the nursing, pharmacy and insurance operations which have a lower
depreciation and amortization cost component as compared to the Company's other
operations.
For the nine months ended June 30, 1996, the Company incurred non-recurring
merger costs related to the merger of the Company with PMS on February 29, 1996.
These costs represent legal and professional fees, severance costs and other
costs related to consummating the merger.
For the nine months ended June 30, 1996, interest expense was relatively
consistent with the same period last year at approximately $1.3 million.
Compared with the period last year, the Company's weighted average debt
outstanding increased and its average cost of borrowing decreased, offsetting
the impact of the extra debt. In June 1995, the Company used approximately
$19.1 million of the net proceeds from its second public offering to repay
outstanding indebtedness. Management expects indebtedness to increase in the
future due to the financing of internal growth, receivables and future
acquisitions, thereby causing interest expense to increase.
Liquidity and Capital Resources
Page 11
<PAGE>
Prior to its second public offering of Common Stock, the Company financed its
operations primarily through cash flow from operations and bank borrowings. In
June 1995, the Company completed a second public offering of 1.1 million shares
of Common Stock at a price of $15.75 per share and in July 1995, the Company
sold an additional 0.2 million shares in this offering at a price of $15.75 per
share pursuant to the underwriters' exercise of their over-allotment option.
From the second public offering, the Company received total proceeds, net of
issuance costs, of approximately $19.1 million. Substantially all of the
proceeds of the second public offering were used to repay indebtedness incurred
primarily as a result of acquisitions. Subsequently, the Company has continued
to finance its operations through cash flows from operations and bank
borrowings.
Prior to the merger with the Company, PMS financed its operations primarily
through cash flow from operations, bank borrowings and the issuance of
Redeemable Convertible Preferred Stock. In March 1995, PMS issued additional
shares of Redeemable Convertible Preferred Stock, net of issuance costs, of
approximately $1.4 million. The proceeds were used to repay indebtedness to a
former stockholder of PMS and provide proceeds for acquisitions and general
working capital requirements.
The Company's operating cash flows are affected significantly by growth in
accounts receivable, largely as a result of the Company's net revenue growth.
For the nine months ended June 30, 1996 and 1995, the Company's cash flows from
operations were affected by increases in accounts receivable balances of $17.1
million and $7.1 million, respectively. These increases were due primarily to
volume growth. The Company's days sales outstanding ("DSO") in accounts
receivable was 97 days, 83 days and 81 days as of June 30, 1996, September 30,
1995 and June 30, 1995, based on the annualized net revenue for the last quarter
of each period. The increase in the DSO is primarily attributable to the
accelerated growth experienced by the Company, coupled with the Company's focus
on maintaining low corporate, general and administrative costs. The Company has
reacted to the higher DSO by investing in additional accounts receivable
management staff and is currently developing a new billing and receivable
management system on target for implementation in the first or second quarter of
fiscal 1997.
The Company's property and equipment is primarily medical equipment which is
rented to patients. The Company's investments in the acquisition of businesses
were $4.6 million, $17.0 million and $0 million for the first nine months of
fiscal 1996, and in fiscal 1995, fiscal 1994, respectively.
In May 1996, the Company and the Bank amended the credit agreement to further
increase the amount of available financing to $35 million, consisting of a $25
million revolving loan and an $10 million term loan. Borrowings under the
credit agreement are used for acquisitions and working capital requirements.
Amounts available under the amended credit facility are subject to certain
restrictions. As of June 30, 1996, the additional amount available under the
amended credit agreement was $9.5 million. Borrowings under this facility bear
interest at LIBOR plus 1.5%, the Bank's prime rate or at a rate equal to the
Bank's cost of funds plus 1.5%, at the Company's option. The interest rates
under this facility at June 30, 1996 ranged from 7.04% to 6.96% per annum.
Amounts outstanding under the revolving loan are due in July 2000, and principal
amounts outstanding under the term loan are due in 14 quarterly installments
beginning on March 31, 1997. Outstanding borrowings under this facility at June
30, 1996 were approximately $25.0 million ($15.0 million under the revolving
loan and $10.0 million under the term loan).
PMS also had a credit agreement with a bank that provided a revolving line of
credit financing of $5 million. The borrowing's under the credit agreement were
collateralized by PMS assets. Borrowings under this facility bear interest at
the bank's prime rate plus 1.0%. On May 20, 1996, the Company retired the debt
and cancelled the PMS credit agreement. Outstanding borrowings under this
facility at May 20, 1996 were approximately $5.2 million. The Company financed
the retirement of the debt through borrowings from its credit agreement.
Upon the merger of the Company and PMS, the Redeemable Convertible Preferred
Stock was converted to Common Stock. In addition, the Company paid the
cumulative preferred stock dividend of approximately $281,000 as required upon
the conversion of the Redeemable Convertible Preferred Stock to Common Stock in
February 1996. The Company also incurred non-recurring costs related to the
merger totaling approximately $1.2 million consisting of legal and professional
fees, severance costs and other costs incurred to consummate the merger. As of
the end of June 30, 1996, the Company had paid approximately $934,000 of these
non-recurring costs.
Page 12
<PAGE>
The Company intends to continue to expand its business primarily through
acquiring local and regional home health care companies, opening branch offices
in both new and existing markets and expanding the services currently provided
at its existing branch offices. Acquisitions to date have been financed with a
combination of cash generated from operations and borrowings under the Company's
credit facility and shares of Common Stock of the Company.
Management cannot predict the cost of any future acquisitions. Development
costs of new branch offices include, among other things, lease deposits and
payments, and leasehold improvements and start-up costs, including marketing and
labor costs. Management believes that the Company's cash commitment for each
new branch office that delivers a full range of the Company's services
approximates $500,000. Such costs will vary depending upon inflation and the
size and location of each facility and, accordingly, may vary substantially from
this approximation. Management expects that its current plan to expand services
at the Company's existing branch offices may require funds of up to $2 million.
Management currently believes that internally generated funds and borrowings
under the Company's existing credit facilities will be adequate to satisfy the
Company's working capital requirements, including currently anticipated
expansion, through June 1997. However, unanticipated expansion of the Company's
business may require the Company to obtain additional debt or equity if
internally generated funds and amounts available under the Company's credit
facility are inadequate to meet such needs. There can be no assurance that the
Company would be able to obtain such additional debt or equity on favorable
terms, or at all.
Quarterly Operating Results and Seasonality
The Company's quarterly operating results may vary significantly depending
primarily on factors such as rehospitalization of patients caused by health-
related epidemics, the timing of new branch office openings and pricing
pressures due to legislative and regulatory initiatives to contain health care
costs. The Company believes that its net revenue is typically higher during the
third and fourth quarters of its fiscal year due to respiratory illnesses
associated with the spring and summer months. As a result of the above factors,
the Company's operating results for any particular quarter may not be indicative
of the results for the full fiscal year.
Page 13
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
The following exhibits are filed as part of this Report:
11.1 Computation of Earnings per Share
(b) Reports on Form 8-K
-------------------
The following Current Reports on Form 8-K were filed by the Company during
the quarter ended June 30, 1996:
<TABLE>
<CAPTION>
Financial
Date of Form 8-K Statements
Report Item No. Description Filed
------- -------- --------------------------- ----------
<S> <C> <C> <C>
4/5/96 5, 7 Amendment Number One re the yes
Company's merger with Premier
Medical Services, Inc. on
February 29, 1996.
5/29/96 5, 7 Amendment Number Two re the yes
Company's merger with Premier
Medical Services, Inc. on
February 29, 1996.
</TABLE>
Page 14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PEDIATRIC SERVICES OF AMERICA, INC.
(Registrant)
Date: August 13, 1996 By: Stephen M. Mengert
------------------------------
Stephen M. Mengert
Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary
(Duly authorized officer and
Principal Financial Officer)
Page 15
<PAGE>
INDEX OF EXHIBITS
Page No.
--------
11.1 Computation of Earnings per Share . . . . . . . . . . . . . . . 17
Page 16
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11.1
- ------------------------------------------------------------------------------------------------------------------
PEDIATRIC SERVICES OF AMERICA, INC.
COMPUTATION OF EARNINGS PER SHARE
Primary Fully Diluted
-------------------- ---------------------
Three Months ended June 30,
-----------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common stock
outstanding during the period . . . 6,101,841 4,473,032 6,101,841 4,807,398
Options and warrants . . . . . . . . 386,530 425,370 386,530 432,316
---------- ---------- ---------- ----------
Total. . . . . . . . . . . . . . . .
6,488,371 4,898,402 6,488,371 5,239,714
========== ========== ========== ==========
Income, as reported. . . . . . . . . $1,401,235 $1,109,008 $1,401,235 $1,109,008
Less accretion on redeemable
preferred stock . . . . . . . . . . - (12,198) - (12,198)
Less preferred stock dividends . . . (59,460) (59,460)
---------- ---------- ---------- ---------
Net income attributable to common
shares. . . . . . . . . . . . . . . $1,401,235 $1,037,350 $1,401,235 $1,037,350
========== ========== ========== ==========
Per share amount of net income . . . $ 0.22 $ 0.21 $ 0.22 $ 0.20
========== ========== ========== ==========
Page 17
</TABLE>
<PAGE>
Exhibit 11.1
- --------------------------------------------------------------------------------
PEDIATRIC SERVICES OF AMERICA, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
Primary Fully Diluted
----------------------- ------------------
Nine Months ended June 30,
------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common stock
outstanding during the period . . . . . . 5,891,727 4,304,884 6,074,550 4,546,317
Options and warrants. . . . . . . . . . . . 361,431 428,443 369,714 435,947
---------- --------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . .
6,253,158 4,733,327 6,444,264 4,982,264
========== ========= ========= =========
Income before extraordinary item,
as reported . . . . . . . . . . . . . . . $3,466,359 $ 2,992,113 $3,466,359 $2,992,113
Less accretion on redeemable
preferred stock . . . . . . . . . . . . . (10,162) (23,753) (10,162) (23,753)
Less preferred stock dividends . . . . . . (85,750) (135,482) (85,750) (135,482)
---------- ---------- --------- ---------
Income before extraordinary item . . . . . 3,370,447 2,832,878 3,370,447 2,832,878
Extraordinary item, net of tax. . . . . . . - 781,220 - 781,220
Net income attributable to common ---------- ---------- --------- ----------
shares . . . . . . . . . . . . . . . . . $3,370,447 $3,614,098 $3,370,447 $3,614,098
========== ========== ========== ==========
Per share amount before
extraordinary item. . . . . . . . . . . . $ 0.54 $ 0.60 $ 0.52 $ 0.57
Per share extraordinary item. . . . . . . . - 0.16 - 0.16
---------- ---------- ---------- ----------
Per share amount of net income. . . . . . . $ 0.54 $ 0.76 $ 0.52 $ 0.73
========== ========== ========== ==========
</TABLE>
Page 18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000893430
<NAME> PEDIATRIC SERVICES OF AMERICA, INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1996
<PERIOD-START> APR-01-1996 OCT-01-1995
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 612 0
<SECURITIES> 0 0
<RECEIVABLES> 54,484 0
<ALLOWANCES> 8,597 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 51,324 0
<PP&E> 23,394 0
<DEPRECIATION> 10,884 0
<TOTAL-ASSETS> 94,766 0
<CURRENT-LIABILITIES> 17,349 0
<BONDS> 0 0
0 0
0 0
<COMMON> 62 0
<OTHER-SE> 52,425 0
<TOTAL-LIABILITY-AND-EQUITY> 94,766 0
<SALES> 43,033 120,110
<TOTAL-REVENUES> 43,033 120,110
<CGS> 0 0
<TOTAL-COSTS> 38,692 109,419
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 1,340 3,575
<INTEREST-EXPENSE> 588 1,258
<INCOME-PRETAX> 2,413 5,858
<INCOME-TAX> 1,012 2,392
<INCOME-CONTINUING> 1,401 3,466
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,401 3,466
<EPS-PRIMARY> 0.22 0.54
<EPS-DILUTED> 0.22 0.52
</TABLE>
