<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 MARCH 31, 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)
(404) 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 May 8, 1996 the Registrant had 6,105,801 shares of Common Stock, $0.01 Par
Value, outstanding.
______________________________________________________________________
Page 1 of 19
Index of Exhibits on page 17
<PAGE>
FORM 10-Q
PEDIATRIC SERVICES OF AMERICA, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
NUMBER
<S> <C> <C>
ITEM 1: Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 1996 and September 30, 1995.................... 3
Condensed Consolidated Statements of Operations for
the three and six months ended March 31, 1996 and 1995... 5
Condensed Consolidated Statements of Cash Flows for
the six months ended March 31, 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...................... 9
PART II OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K......................... 15
Signatures............................................... 16
Index of Exhibits........................................ 17
</TABLE>
2
<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>
(UNAUDITED)
MARCH 31, SEPTEMBER 30,
1996 1995
----------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash & cash equivalents....................... $ - $ 101
Accounts receivable, less allowances for
doubtful accounts of $8,367 (unaudited) &
$6,870, respectively........................ 44,609 31,523
Prepaid expenses.............................. 421 475
Deferred income taxes......................... 3,353 2,664
Other current assets.......................... 1,017 867
------- -------
Total current assets........................... 49,400 35,630
Property & equipment:
Home care equipment held for rental........... 16,833 14,609
Furniture & fixtures.......................... 3,900 3,171
Vehicles...................................... 587 587
Leasehold improvements........................ 553 520
------- -------
21,873 18,887
Accumulated depreciation &
amortization.............................. (9,957) (8,357)
------- -------
11,916 10,530
Other assets:
Goodwill, less accumulated
amortization of $1,812 (unaudited) & $1,373,
respectively.............................. 28,351 24,807
Certificates of need, less accumulated
amortization of $143 (unaudited) & $116,
respectively.............................. 1,202 1,184
Deferred financing fees, less accumulated
amortization of $45 (unaudited) & $27,
respectively.............................. 153 170
Non-compete agreements, less accumulated
amortization of $517 (unaudited) & $436,
respectively.............................. 433 514
Other....................................... 264 316
------- -------
Total assets................................... $91,719 $73,151
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, SEPTEMBER 30,
1996 1995
----------- -------------
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit.......................... $ 4,633 $ 3,892
Accounts payable.................................. 6,637 3,082
Accrued compensation.............................. 3,951 2,928
Accrued insurance................................. 985 1,111
Other accrued liabilities......................... 2,188 2,621
Deferred revenue.................................. 1,117 1,066
Income taxes payable.............................. 716 741
Current maturities of long-term obligations....... 2,178 2,253
------- -------
Total current liabilities..........................
22,405 17,694
Long-term obligations net of current maturities.... 17,335 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; 6,102 shares in March 1996 &
5,604 shares in September 1995 issued &
outstanding, respectively........................ 61 56
Additional paid-in capital....................... 41,201 36,899
Retained earnings................................ 9,636 7,666
------- -------
Total stockholders' equity......................... 50,898 44,621
------- -------
Total liabilities & stockholders' equity...........
$91,719 $73,151
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
(UNAUDITED) (UNAUDITED)
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue.......................... $40,166 $24,089 $77,077 $46,219
Costs & expenses:
Operating salaries, wages &
employee benefits................ 18,147 10,873 35,011 20,406
Other operating costs.............. 14,708 8,326 27,540 16,379
Corporate, general &
administrative................... 2,453 1,578 4,700 3,082
Provision for doubtful
accounts......................... 1,164 521 2,236 1,020
Depreciation & amortization........ 1,180 793 2,310 1,574
Merger costs....................... 1,166 - 1,166 -
------- ------- ------- -------
Total costs and expenses......... 38,818 22,091 72,963 42,461
------- ------- ------- -------
Operating income..................... 1,348 1,998 4,114 3,758
Interest expense..................... 400 427 670 709
------- ------- ------- -------
Income before income taxes and
extraordinary item.................. 948 1,571 3,444 3,049
Income taxes......................... 372 608 1,379 1,166
------- ------- ------- -------
Income before extraordinary item..... 576 963 2,065 1,883
Extraordinary item, net of tax....... - 781 - 781
------- ------- ------- -------
Net income........................... $ 576 $ 1,744 $ 2,065 $ 2,664
======= ======= ======= =======
NET INCOME ATTRIBUTABLE TO COMMON
AND COMMON EQUIVALENT SHARES:
Income before extraordinary
item, as reported................ $ 576 $ 963 $ 2,065 $ 1,883
Less accretion on redeemable
preferred stock.................. 4 7 10 15
Less preferred stock dividends.... 35 46 86 84
------- ------- ------- -------
Income before extraordinary item
attributable to common and
common equivalent shares........ 537 910 1,969 1,784
Extraordinary item, net of tax - 781 - 781
------- ------- ------- -------
Net income attributable to
common and common equivalent
shares.......................... $ 537 $ 1,691 $ 1,969 $ 2,565
======= ======= ======= =======
SHARE DATA:
Income before extraordinary item
per common and common
equivalent shares............... $0.09 $0.19 $0.32 $0.38
Extraordinary item................ - 0.17 - 0.17
------- ------- ------- -------
Net income attributable to
common and common equivalent
shares......................... $0.09 $0.36 $0.32 $0.55
======= ======= ======= =======
Weighted average shares
outstanding.................... 6,231 4,676 6,136 4,651
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
(UNAUDITED)
1996 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 2,065 $ 2,664
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation & amortization............................... 2,310 1,574
Provision for doubtful accounts........................... 2,236 1,020
Amortization of deferred financing fees................... 17 10
Deferred income taxes..................................... (351) -
Extraordinary item, net of tax............................ - (781)
Changes in operating assets & liabilities, net of effects
from acquisitions of businesses:
Accounts receivable....................................... (14,529) (3,245)
Prepaid expenses.......................................... 154 9
Other current assets...................................... (216) (60)
Accounts payable.......................................... 3,530 (585)
Income taxes.............................................. (102) (589)
Accrued compensation...................................... 788 (100)
Accrued insurance......................................... (26) (89)
Other accrued liabilities................................. (533) 514
Deferred revenue.......................................... 52 (7)
-------- --------
Net cash (used in) provided by operating activities......... (4,605) 335
INVESTING ACTIVITIES
Purchases of property & equipment......................... (3,082) (1,665)
Acquisitions of business.................................. (3,854) (15,349)
Other, net................................................ (68) (242)
-------- --------
Net cash used in investing activities....................... (7,004) (17,256)
FINANCING ACTIVITIES
Principal payments on long-term debt...................... (496) (3,332)
Borrowings on long-term debt.............................. 12,241 13,505
Deferred financing fees................................... - (80)
Payment of preferred stock dividend....................... (281) -
Proceeds from issuance of preferred stock................. - 1,392
Proceeds from exercise of stock options................... 44 64
-------- --------
Net cash provided by financing activities................... 11,508 11,549
-------- --------
Decrease in cash & cash equivalents......................... (101) (5,372)
Cash & cash equivalents at beginning of year................ 101 6,010
-------- --------
Cash & cash equivalents at end of year...................... $ - $ 638
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest...................................... $ 753 $ 686
======== ========
Cash paid for income taxes.................................. $ 1,481 $ 1,757
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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 to 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 six-month period and three-month period ended
March 31, 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 filed with the Securities and Exchange
Commission. Principal accounting policies are set forth in the Company's 1995
Annual Report.
The accompanying unaudited condensed consolidated financial statements of the
Company have been restated using the pooling-of-interests method of accounting
to reflect the merger of the Company with Premier Medical Services, Inc.
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 SIX MONTHS ENDED
MARCH 31, MARCH 31,
(UNAUDITED) (UNAUDITED)
1996 1995 1996 1995
------- ------- ------ -------
<S> <C> <C> <C> <C>
Income before extraordinary
item, as reported............. $ 576 $ 963 $2,065 $1,883
Extraordinary item, net of tax - 781 - 781
------ ------ ------ ------
Net income.................... $ 576 $1,744 $2,065 $2,664
====== ====== ====== ======
Supplemental weighted average
shares outstanding........... 6,451 4,871 6,413 4,846
====== ====== ====== ======
Income per share before
extraordinary item........... $ 0.09 $ 0.20 $ 0.32 $ 0.39
Extraordinary item per share. - 0.16 - 0.16
------ ------ ------ ------
Net income per share......... $ 0.09 $ 0.36 $ 0.32 $ 0.55
====== ====== ====== ======
</TABLE>
3. ACQUISITIONS
On October 1, 1995, the Company purchased the assets and assumed certain
liabilities of Maternal Infant Home Care, Inc. ("MIH"), a pediatric phototherapy
company in Redmond, Washington, for a total cash purchase price of $500,000.
Approximately
7
<PAGE>
$50,000 of the purchase price was placed in escrow to be issued to the
stockholders of MIH on the first anniversary date of the purchase. The amount
of purchase price to be allocated to goodwill, which represents the excess of
the purchase price of the acquired business over the fair value of the net
assets acquired, is approximately $420,000. This amount will be amortized using
the straight-line method over 30 years.
On October 31, 1995 the Company acquired Sutter Home Care ("SHC"), a pediatric
nursing company, located in Sacramento, California, for a total cash purchase
price of approximately $35,000.
On December 31, 1995 the Company purchased the assets of Independent Nurse
Registry, Inc. and Independent Nurses Extended Care P.C. ("INR"), a pediatric
nursing company in Southport, Connecticut, for a total cash purchase price of
$575,000. Approximately, $50,000 of the purchase price was placed in escrow to
be issued to the stockholders of INR on the first anniversary date of the
purchase. The amount of the purchase price to be allocated to goodwill, which
represents the excess of the purchase price of the acquired business over the
fair value of the net assets acquired, is approximately $538,000. This amount
will be amortized using the straight-line method over 30 years.
On January 1, 1996, the Company purchased the assets and assumed certain
liabilities of Case Management Systems, Inc. ("CMS"), a pediatric home nursing
company in Portland, Oregon, for a total cash purchase price of $1,400,000.
Approximately $300,000 of the purchase price was placed in escrow to be issued
to the stockholders of CMS on the first anniversary date of the purchase. The
amount of purchase price allocated to goodwill, which represents the excess of
the purchase price of the acquired business over the fair value of the net
assets acquired, is approximately $1,300,000. This amount will be amortized
using the straight-line method over 30 years.
On February 2, 1996, the Company purchased the assets and assumed certain
liabilities of Primary Health Services, Inc. ("PHS"), a pediatric home nursing
company in Brockton, Massachusetts, for a total purchase price of $1,500,000
which consisted of $500,000 in cash and PSA Common Stock valued at $1,000,000.
Approximately $350,000 of the PSA Common Stock was placed in an escrow account
to be issued to the stockholders of PHS on the first anniversary date of the
purchase. The amount of purchase price allocated to goodwill, which represents
the excess over the fair value of the net assets acquired, is approximately
$1,200,000. This amount will be amortized using the straight-line method over
30 years.
The acquisition of MIH, SHC, INR, CMS and PHS are not considered significant
and, therefore, the consolidated financial statements do not reflect pro forma
financial information for these acquisitions. The merger of the Company and
Premier Medical Services, Inc. on February 29, 1996 is reflected in the
accompanying financial information using the pooling-of-interests method of
accounting.
8
<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 six months ended March 31, 1996 contained in this report and
the following discussion thereof include the effect of the Company's
acquisitions of MIH, SHC, INR, CMS and PHS subsequent to the respective dates of
acquisition. In addition, the historical condensed consolidated statements of
operation of the Company contained in this report 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>
PERCENTAGE OF
PERCENTAGE OF NET REVENUE INCREASE (DECREASE)
-----------------------
THREE MONTH SIX MONTHS THREE MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
-------------- ---------------- ------------ -------------
1996 1995 1996 1995 1996 TO 1995 1996 TO 1995
----- ----- ----- ----- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue............. 100% 100% 100% 100% 66.7% 66.8%
Operating salaries, wages
and employee benefits.. 45.2 45.1 45.4 44.2 66.9 71.6
Other operating costs... 36.6 34.6 35.7 35.4 76.7 68.1
Corporate, general &
administrative......... 6.1 6.5 6.1 6.7 55.6 52.5
Provision for doubtful
accounts............... 2.9 2.2 2.9 2.2 123.3 119.1
Depreciation and
amortization........... 2.9 3.3 3.0 3.4 48.7 46.8
Merger costs............ 2.9 - 1.5 - 100.0 100.0
---- ---- ---- ---- ------ ------
Operating income........ 3.4 8.3 5.4 8.1 (32.5) 9.5
Interest expense........ 1.0 1.8 0.9 1.5 (6.5) (5.5)
---- ---- ---- ---- ------ ------
Income before income
taxes and extraordinary
item................... 2.4 6.5 4.5 6.6 (39.6) 13.0
Income taxes............ 0.9 2.5 1.8 2.5 (38.7) 18.3
---- ---- ---- ---- ------ ------
Income before
extraordinary item..... 1.5 4.0 2.7 4.1 (40.2) 9.7
Extraordinary item...... - 3.2 - 1.7 (100.0) (100.0)
---- ---- ---- ---- ------ ------
Net income.............. 1.5% 7.2% 2.7% 5.8% (67.0)% (22.5)%
==== ==== ==== ==== ====== ======
</TABLE>
9
<PAGE>
The following table sets forth for the periods indicated a summary of net
revenue by category:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
PEDIATRIC HOME HEALTH CARE: 1996 1995 1996 1995
-------- ------- -------- ---------
<S> <C> <C> <C> <C>
Nursing........................ $13,551 $ 7,631 $26,376 $14,574
Respiratory Therapy Equipment.. 4,494 2,968 8,286 5,581
Home Medical Equipment......... 406 319 746 590
Pharmacy and Other............. 5,661 1,517 10,444 2,580
------- ------- ------- -------
Total Pediatric Home Health Care.. 24,112 12,435 45,852 23,325
------- ------- ------- -------
ADULT HOME HEALTH CARE:
Nursing....................... 3,387 1,852 7,537 3,487
Respiratory Therapy Equipment. 5,538 4,694 10,730 9,329
Home Medical Equipment........ 1,419 1,203 2,743 2,378
Pharmacy and Other............ 1,471 823 2,563 1,631
------- ------- ------- -------
Total Adult Home Health Care...... 11,815 8,572 23,573 16,825
------- ------- ------- -------
INSURANCE......................... 4,239 3,082 7,652 6,069
------- ------- ------- -------
Total Net Revenue................. $40,166 $24,089 $77,077 $46,219
======= ======= ======= =======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995.
Net revenue increased $16.1 million , or 66.7%, to $40.2 million in the three
months ended March 31, 1996 from $24.1 million in the same period in 1995. The
Company's acquisitions and start-up operations accounted for approximately $10.3
million, or 64.2%, of the increase, and internal growth accounted for the
remaining $5.8 million, or 35.8%, of the increase. Overall, the internal growth
in net revenue increased to 23.9% for the three months ended March 31, 1996
compared to 13.0% for the same period in 1995. Of the $16.1 million increase in
net revenue in the 1996 period, pediatric net revenue accounted for $11.7
million, or 72.6%, of the increase. Increased pediatric net revenue for the
three months ended March 31, 1996 was attributable to the Company's
acquisitions, start-up operations and successful sales and marketing efforts
which resulted in an increase in patients served. Adult net revenue accounted
for $3.2 million, or 20.2%, of the increase in net revenue in the three months
ended March 31, 1996, primarily due to the internal growth of existing
locations. Insurance net revenue accounted for $1.2 million, or 7.2% of the
increase in net revenue for the three months ended March 31, 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 $7.3
million, or 66.9%, to $18.1 million in the three months ended March 31, 1996
from $10.8 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 $5.4 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 March 31, 1996 was comparable to the same period in
1995.
Other operating costs include medical supplies, branch office rents,
utilities, vehicle expenses and cost of sales. Other operating costs increased
$6.4 million, or 76.7%, to $14.7 million in the three months ended March 31,
1996 from $8.3 million in the comparable period in 1995. Of this increase $4.2
million, or 65.9%, relates to the Company's acquisitions and start-up operations
and the remainder to the internal growth of the Company's operations.
10
<PAGE>
As a percentage of net revenue, other operating costs for the three months ended
March 31, 1996 increased to 36.6% from 34.6% in the comparable period of 1995.
The increase in operating costs as a percentage of net revenue is primarily
attributable to the acquisition of Pediatric Partners, Inc. ("PPI") which was
acquired at the end of the Company's second quarter of fiscal 1995. PPI's
operations have a higher percentage of other operating costs than the Company's
other operations due to the cost of sales associated with the pharmacy business.
Corporate, general and administrative costs increased $0.9 million, or 55.6%,
to $2.5 million in the three months ended March 31, 1996 from $1.6 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 PPI 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 decreased to 6.1% for the three months ended March 31, 1996 from
6.5% in the comparable 1995 period as a result of 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 three months ended
March 31, 1996, the Company's provision for doubtful accounts increased $0.6
million, or 123.3%, to $1.2 million from $0.6 million in the same period in
1995. The increase is primarily due to the acquisition of PPI, which
historically had a higher provision for doubtful accounts than the Company and
to an increase in days sales outstanding. As a percentage of net revenue, the
provision for doubtful accounts increased slightly to 2.9% for the three months
ended March 31, 1996 from 2.2% in the comparable 1995 period, primarily as a
result of the PPI acquisition and an increase in the days sales outstanding.
Depreciation and amortization expenses increased $0.4 million, or 48.7%, to
$1.2 million in the three months ended March 31, 1996 from $0.8 million in the
comparable 1995 period. The increase was primarily due to 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 2.9% from 3.3%. The decrease is primarily
attributable to the increase in net revenue volume from the nursing and pharmacy
operations which have a lower depreciation and amortization cost component as
compared to the Company's other operations.
For the three months ended March 31, 1996, the Company incurred non-recurring
merger costs related to the merger of the Company with Premier Medical Services,
Inc. ("PMS") on February 29, 1996. These costs represent legal and professional
fees, severance costs and other costs related to consummating the merger.
For the three months ended March 31, 1996, interest expense was relatively
consistent with the same period last year at approximately $0.4 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 a
portion of 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.
SIX MONTHS ENDED MARCH 31, 1996 COMPARED TO SIX MONTHS ENDED MARCH 31, 1995
Net revenue increased $30.9 million, or 66.8%, to $77.1 million in the six
months ended March 31, 1996 from $46.2 million in the same period in 1995. The
Company's acquisitions and start-up operations accounted for approximately $18.7
million, or 60.6%, of the increase, and internal growth accounted for the
remaining $12.2 million, or 39.4%, of the increase. Overall, the internal growth
in net revenue increased to 26.3% for the six months ended March 31, 1996
compared to 10.3% for the same period in 1995. Of the $30.9 million increase in
net revenue in the 1996 period, pediatric net revenue accounted for $22.5
million, or 73.0% of the increase. Increased pediatric net revenue for the six
months ended March 31, 1996 was attributable to the Company's acquisitions,
start-up operations and successful sales and marketing efforts which resulted in
an increase in patients served. Adult net revenue accounted for $6.8 million,
or 21.9%, of the increase in net revenue in the six months ended March 31, 1996,
primarily due to the internal growth of existing locations. Insurance net
revenue accounted for $1.6 million, or 5.1% of the increase in net revenue for
the six months ended March 31, 1996, primarily due to an increase in the volume
of business.
11
<PAGE>
Operating salaries, wages and employee benefits consist primarily of branch
office operations. Operating salaries, wages and benefits increased $14.6
million, or 71.6%, to $35.0 million in the six months ended March 31, 1996 from
$20.4 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 $9.7 million in operating salaries, wages and employee benefits.
As a percentage of net revenue, operating salaries, wages and employee benefits
for the six months ended March 31, 1996 increased to 45.4% from 44.2% in the
comparable period in 1995. The increase in operating salaries, wages and
employee benefits as a percentage of net revenue is primarily attributable to a
change in business mix to a higher percentage of nursing net revenue to total
net revenue. The nursing line of business maintains a higher ratio of operating
salaries, wages and employee benefits to net revenue than the Company's other
lines of business, thereby increasing 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
$11.1 million, or 68.1%, to $27.5 million in the six months ended March 31, 1996
from $16.4 million in the comparable period in 1995. Of this increase, $7.4
million, or 66.4%, 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 six months ended March
31, 1996 increased slightly to 35.7% from 35.4% in the comparable period for
1995. The increase in operating costs as a percentage of net revenue is
primarily attributable to the acquisition of PPI. PPI's operations have a
higher percentage of other operating costs than the Company's other operations
due to the cost of sales associated with the pharmacy business.
Corporate, general and administrative costs increased $1.6 million, or 52.5%,
to $4.7 million in the six months ended March 31, 1996 from $3.1 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 PPI 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 6.1% for the six months ended march 31, 1996 from 6.7%
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 six months ended
March 31, 1996, the Company's provision for doubtful accounts increased $1.2
million, or 119.1%, to $2.2 million from $1.0 million in the same period in
1995. The increase is primarily due to the acquisition of PPI which has a
higher provision for doubtful accounts as compared to the Company and to an
increase in days sales outstanding. As a percentage of net revenue, the
provision for doubtful accounts increased to 2.9% for the six months ended March
31, 1996 from 2.2% in the comparable 1995 period, primarily as a result of the
acquisition of PPI and an increase in days sales outstanding.
Depreciation and amortization expenses increased $0.7 million, or 46.8%, to
$2.3 million in the six months ended March 31, 1996 from $1.6 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
3.4%. The decrease is primarily attributable to the increase in net revenue
volume from the nursing and pharmacy operations which have a lower depreciation
and amortization cost component as compared to the Company's other operations.
For the six months ended March 31, 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 six months ended March 31, 1996, interest expense was relatively
consistent with the same period last year at approximately $0.7 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 a
portion of 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.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering of Common Stock, the Company financed
its operations primarily through cash flow from operations and bank borrowings.
In June 1994, the Company completed its initial public offering of 1.6 million
shares of Common Stock at a price of $8 per share, from which the Company
received total proceeds, net of issuance costs, of approximately $11 million.
The Company used approximately $10.4 million of the offering proceeds to repay
the Company's outstanding debt and approximately $0.6 million as partial
consideration for the acquisition of Oxygen Specialties, Inc. ("OSI") in October
1994. 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 the acquisitions of OSI, BEI and PPI. 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 revenue growth. For
the six months ended March 31, 1996 and 1995, the Company's cash flows from
operations were affected by increases in accounts receivable balances of $14.5
million and $3.2 million, respectively. These increases were due primarily to
volume growth. The Company's days sales outstanding ("DSO") in accounts
receivable was 101 days, 83 days and 93 days as of March 31, 1996, September 30,
1995 and March 31, 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 investments in property and equipment are attributable largely
to purchases of medical equipment that is rented to patients. The Company also
invests in computer system hardware and software to manage the growth of the
business. The Company's investments in the acquisition of businesses were $0
million, $17.0 million and $3.9 million in fiscal 1994, fiscal 1995 and the
first six months of fiscal 1996, 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. In connection with the
amendment, the Company incurred loan origination costs of approximately $70,000.
These costs include loan closing fees and legal and professional fees which will
be amortized over the term of the credit agreement. The previous credit
agreement provided financing of $28 million, consisting of a $20 million
revolving loan and an $8 million term loan. Amounts available under the amended
credit facility are subject to certain restrictions. As of March 31, 1996, the
additional amount available under the amended credit agreement was $5.4 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 March 31, 1996
ranged from 9.25% to 6.81% 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 March 31, 1996 were approximately $18.0
million ($14.0 million under the revolving loan and $4.0 million under the term
loan).
13
<PAGE>
PMS also has a credit agreement with a bank that provides a revolving line of
credit financing of $5 million. The borrowing's under the credit agreement are
collateralized by PMS assets. Borrowings under this facility bear interest at
the bank's prime rate plus 1.0%. The interest rate under this facility at March
31, 1996 ranged from 9.75% to 9.25% per annum. As of March 31, 1996, the
additional amount available under the credit agreement was approximately $0.7
million. Outstanding borrowings under this facility at March 31, 1996 were
approximately $5.2 million ($4.6 million under the revolving loan and $0.6
million under the term loan). The Company anticipates the retirement of the PMS
debt in the Company's third quarter of 1996 in accordance with 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 March 31, 1996, the Company had paid approximately $882,000 of these
non-recurring costs.
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 March 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.
14
<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 Report on Form 8-K was filed by the Company during the
quarter ended March 31, 1996:
<TABLE>
<CAPTION>
Financial
Date of Form 8-K Statements
Report Item No. Description Filed
- -------- -------- ----------------------------------- ----------
<S> <C> <C> <C>
2/29/96* 5, 7 Report re the Company's merger None*
with Premier Medical Services, Inc.
on February 29, 1996.*
</TABLE>
* AMENDED ON APRIL 5, 1996 RE THE COMPANY'S MERGER WITH PREMIER MEDICAL
SERVICES, INC. WHICH INCLUDES THE HISTORICAL COMBINED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENTS OF PREMIER MEDICAL SERVICES, INC.
15
<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: May 13, 1996 By: Michael A. Taylor
-----------------------------
Michael A. Taylor
Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary
(Duly authorized officer and
Principal Financial Officer)
16
<PAGE>
INDEX OF EXHIBITS
PAGE NO.
--------
11.1 Computation of Earnings per Share........................ 18
17
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11.1
PEDIATRIC SERVICES OF AMERICA, INC.
COMPUTATION OF EARNINGS PER SHARE
PRIMARY FULLY DILUTED
-------------------- ------------------------
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------
1996 1995 1996 1995
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Weighted average common stock
outstanding during the period........ 5,853,982 4,223,144 6,078,895 4,418,110
Options and warrants................... 376,599 453,325 403,151 446,001
---------- ---------- ---------- ---------
Total.................................. 6,230,581 4,676,469 6,482,046 4,846,111
========== ========== ========== ==========
Income before extraordinary
item, as reported.................... $ 575,684 $ 962,727 $ 575,684 $ 962,727
Less accretion on redeemable
preferred stock...................... 4,065 6,815 4,065 6,815
Less preferred stock dividends......... 34,300 46,022 34,300 46,022
---------- ---------- ---------- ----------
Income before extraordinary item....... 537,319 909,890 537,319 909,890
Extraordinary item, net of tax......... - 781,220 - 781,220
---------- ---------- ---------- ----------
Net income attributable to common
shares............................... $ 537,319 $1,691,110 $ 537,319 $1,691,110
========== ========== ========== ==========
Per share amount before
extraordinary item................... $ 0.09 $ 0.19 $ 0.08 $ 0.19
Per share extraordinary item........... - 0.17 - 0.16
---------- ---------- ---------- ----------
Per share amount of net income......... $ 0.09 $ 0.36 $ 0.08 $ 0.35
========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11.1
PEDIATRIC SERVICES OF AMERICA, INC.
COMPUTATION OF EARNINGS PER SHARE
PRIMARY FULLY DILUTED
------- --------------
SIX MONTHS ENDED MARCH 31,
--------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average common stock
outstanding during the period........... 5,786,672 4,220,810 6,060,907 4,415,776
Options and warrants...................... 348,880 429,979 361,335 437,762
---------- ---------- ---------- ----------
Total 6,135,552 4,650,789 6,422,242 4,853,538
========== ========== ========== ==========
Income before extraordinary item,
as reported............................ $2,065,125 $1,883,105 $2,065,125 $1,883,105
Less accretion on redeemable
preferred stock....................... 10,162 15,125 10,162 15,125
Less preferred stock dividends.......... 85,750 84,032 85,750 84,032
---------- ---------- ---------- ----------
Income before extraordinary item........ 1,969,213 1,783,948 1,969,213 1,783,948
Extraordinary item, net of tax.......... - 781,220 - 781,220
---------- ---------- ---------- ----------
Net income attributable to common
shares................................ $1,969,213 $2,565,168 $1,969,213 $2,565,168
========== ========== ========== ==========
Per share amount before
extraordinary item.................... $ 0.32 $ 0.38 $ 0.31 $ 0.37
Per share extraordinary item............ - 0.17 - 0.16
---------- ---------- ---------- ----------
Per share amount of net income.......... $ 0.32 $ 0.55 $ 0.31 $ 0.53
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1996 MAR-31-1995
<CASH> 0 101
<SECURITIES> 0 0
<RECEIVABLES> 52,976 38,393
<ALLOWANCES> 8,367 6,870
<INVENTORY> 0 0
<CURRENT-ASSETS> 49,400 35,630
<PP&E> 21,873 18,887
<DEPRECIATION> 9,957 8,357
<TOTAL-ASSETS> 91,719 73,151
<CURRENT-LIABILITIES> 22,405 17,694
<BONDS> 0 0
0 3,490
0 0
<COMMON> 61 56
<OTHER-SE> 50,837 44,565
<TOTAL-LIABILITY-AND-EQUITY> 91,719 73,151
<SALES> 0 0
<TOTAL-REVENUES> 40,166 24,089
<CGS> 0 0
<TOTAL-COSTS> 38,818 22,091
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 400 427
<INCOME-PRETAX> 948 1,571
<INCOME-TAX> 372 608
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 781
<CHANGES> 0 0
<NET-INCOME> 576 1,744
<EPS-PRIMARY> 0.09 0.36
<EPS-DILUTED> 0.08 0.35
</TABLE>
