<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, 1997
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 May 9, 1997 the Registrant had 6,268,228 shares of Common Stock, $0.01 Par
Value, outstanding.
Page 1 of 16
----
Index of Exhibits on page 14
<PAGE>
FORM 10-Q
PEDIATRIC SERVICES OF AMERICA, INC.
INDEX
PART I FINANCIAL INFORMATION PAGE
NUMBER
ITEM 1: Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 1997 and September 30, 1996.................... 3
Condensed Consolidated Statements of Operations for
the three and six months ended March 31, 1997 and 1996... 5
Condensed Consolidated Statements of Cash Flows for
the six months ended March 31, 1997 and 1996............. 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............................... 12
Signatures..................................................... 13
Index of Exhibits.............................................. 14
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEDIATRIC SERVICES OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, SEPTEMBER 30,
1997 1996
--------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 779 $ 770
Accounts receivable, less allowances
for doubtful accounts of $10,127 and
$8,523, respectively........................ 59,410 47,745
Prepaid expenses............................. 251 461
Deferred income taxes........................ 3,524 3,524
Other current assets......................... 3,045 2,065
-------- --------
Total current assets.......................... 67,009 54,565
Property and equipment:
Home care equipment held for rental.......... 21,260 19,014
Furniture and fixtures....................... 6,215 4,910
Vehicles..................................... 633 581
Leasehold improvements....................... 558 562
-------- --------
28,666 25,067
Accumulated depreciation and amortization.... (13,652) (11,644)
-------- --------
15,014 13,423
Other assets:
Goodwill, less accumulated amortization of
$2,944 and $2,333, respectively............. 34,970 28,734
Certificates of need, less accumulated
amortization of $206 and $176, respectively. 1,141 1,172
Deferred financing fees, less accumulated
amortization of $124 and $76, respectively.. 379 216
Non-compete agreements, less accumulated
amortization of $642 and $582, respectively.. 358 368
Other........................................ 349 258
-------- --------
Total assets.................................. $119,220 $ 98,736
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, SEPTEMBER 30,
1997 1996
--------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $ 4,133 $ 5,780
Accrued compensation................... 3,912 3,581
Accrued insurance...................... 2,270 1,846
Other accrued liabilities.............. 3,223 2,724
Deferred revenue....................... 751 792
Income taxes payable................... 322 1,852
Current maturities of long-term
obligations........................... 3,476 2,318
-------- -------
Total current liabilities............... 18,087 18,893
Long-term obligations, net of current
maturities............................. 41,516 23,638
Deferred income taxes................... 1,077 1,077
Minority interest in subsidiary......... 888 935
Stockholders' equity:
Preferred stock, $.01 par value, 2,000
shares authorized; no
shares issued and outstanding......... - -
Common stock, $.01 par value, 80,000
shares authorized; 6,261 shares at
March 31, 1997 and 6,248 shares at
September 30, 1996 issued and
outstanding, respectively.............. 63 62
Additional paid-in capital............. 41,583 41,514
Retained earnings...................... 16,006 12,617
-------- -------
Total stockholders' equity.............. 57,652 54,193
-------- -------
Total liabilities and stockholders'
equity................................. $119,220 $98,736
======== =======
</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)
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenue............................. $49,746 $40,166 $96,300 $77,077
Costs and expenses:
Operating salaries, wages and
employee benefits.................... 21,461 18,147 41,196 35,011
Other operating costs................. 18,541 14,708 36,489 27,540
Corporate general and administrative.. 2,973 2,453 5,745 4,700
Provision for doubtful accounts....... 1,607 1,164 2,982 2,236
Depreciation and amortization......... 1,481 1,180 2,897 2,310
Merger costs.......................... - 1,166 - 1,166
------- ------- ------- -------
Total costs and expenses............ 46,063 38,818 89,309 72,963
------- ------- ------- -------
Operating income........................ 3,683 1,348 6,991 4,114
Interest expense........................ 787 400 1,361 670
------- ------- ------- -------
Income before income taxes and minority
interest............................... 2,896 948 5,630 3,444
Minority interest in loss of subsidiary. 7 - 47 -
------- ------- ------- -------
Income before income taxes.............. 2,903 948 5,677 3,444
Income taxes............................ 1,170 372 2,288 1,379
------- ------- ------- -------
Net income.............................. $ 1,733 $ 576 $ 3,389 $ 2,065
======= ======= ======= =======
NET INCOME ATTRIBUTABLE TO COMMON AND
COMMON EQUIVALENT SHARES:
Net income.............................. $ 1,733 $ 576 $ 3,389 $ 2,065
Less accretion on redeemable preferred
stock.................................. - 4 - 10
Less preferred stock dividends.......... - 35 - 86
------- ------- ------- -------
Net income attributable to common and
common equivalent shares............... $ 1,733 $ 537 $ 3,389 $ 1,969
======= ======= ======= =======
SHARE DATA:
Net income per common and common
equivalent share...................... $ 0.27 $ 0.09 $ 0.53 $ 0.32
======= ======= ======= =======
Weighted average common shares
outstanding........................... 6,436 6,231 6,434 6,136
======= ======= ======= =======
</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)
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income..................................... $ 3,389 $ 2,065
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization.................. 2,897 2,310
Provision for doubtful accounts................ 2,982 2,236
Amortization of deferred financing fees........ 48 17
Deferred income taxes.......................... - (351)
Minority interest in loss of subsidiary........ (47) -
Changes in operating assets and liabilities,
net of effects from acquisitions of businesses:
Accounts receivable............................ (12,950) (14,529)
Prepaid expenses and other current assets...... (810) (62)
Accounts payable............................... (1,668) 3,530
Income taxes................................... (1,550) (102)
Accrued liabilities............................ 969 281
-------- --------
Net cash used in operating activities........... (6,740) (4,605)
INVESTING ACTIVITIES
Purchases of property and equipment............ (3,567) (3,082)
Acquisitions of businesses..................... (7,247) (3,854)
Other, net..................................... (7) (68)
-------- --------
Net cash used in investing activities........... (10,821) (7,004)
FINANCING ACTIVITIES
Principal payments on long-term debt........... (854) (496)
Borrowings on long-term debt................... 18,564 12,241
Deferred financing fees........................ (210) -
Payment of preferred stock dividends........... - (281)
Proceeds from exercise of stock options........ 70 44
-------- --------
Net cash provided by financing
activities..................................... 17,570 11,508
-------- --------
Increase (Decrease) in cash and cash
equivalents.................................... 9 (101)
Cash and cash equivalents at beginning
of year........................................ 770 101
-------- --------
Cash and cash equivalents at end of
period......................................... $ 779 $ -
======== ========
Supplemental disclosure of cash flow
information:
Cash paid for interest......................... $ 1,144 $ 753
======== ========
Cash paid for income taxes..................... $ 3,848 $ 1,481
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
6
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Pediatric Services of America, Inc. (the "Company") and its majority-owned
subsidiaries 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 three and six month periods ended March 31,
1997 are not necessarily indicative of the results to be expected for the
entire fiscal year ending September 30, 1997. These condensed consolidated
financial statements should be read in conjunction with the Company's
audited financial statements for the year ended September 30, 1996 included
in the Company's Annual Report on Form 10-K for such year filed with the
Securities and Exchange Commission. Principal accounting policies are set
forth in the Company's 1996 Annual Report.
2. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is computed using the
weighted average number of common and common equivalent shares outstanding
during the period. Dilutive common equivalent shares consist of stock
options (calculated using the treasury stock method). This calculation
excludes any antidilutive shares during the period.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted for the
periods after December 15, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share
and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock
options will be excluded. The impact is expected to result in an increase
in primary earnings per share for the three months ended March 31, 1997 and
1996 of $0.01 and $0.0 per share respectively. The impact is expected to
result in an increase in primary earnings per share for the six months
ended March 31, 1997 and 1996 of $0.01 and $0.02 per share respectively.
The impact of statement 128 on the calculation of fully diluted earnings
per share for these three months ended March 31, 1997 and 1996 and six
months ended March 31, 1997 and 1996 is not expected to be material.
3. ACQUISITIONS
On October 1, 1996, the Company purchased the assets and assumed certain
liabilities of IntensiCare, Inc. ("ICI"), a pediatric nursing company in
Elmhurst, Illinois, for a total purchase price of $3.1 million, consisting
of cash and assumption of indebtedness. Approximately $700,000 of the
purchase price was placed in escrow to be issued to the stockholders of ICI
on the first anniversary date of the purchase.
On October 1, 1996, the Company purchased the assets and assumed certain
liabilities of Pediatric Specialists, Inc. ("PSI"), a pediatric
phototherapy company in San Dimas, California, for a total cash purchase
price of $1.1 million. Approximately $50,000 of the purchase price was
allocated to a non-compete agreement and $250,000 was placed in escrow to
be issued to the stockholders of PSI on the first anniversary date of the
purchase.
On January 1, 1997, the Company purchased the assets of Ivonyx, Inc. ("IV")
a pharmacy company in Rancho Cordova, California for a total cash purchase
price of $105,000.
On January 1, 1997, the Company purchased the assets and assumed certain
liabilities of Nurses Unlimited, Inc. ("NU"), a pediatric home nursing
company in Santa Cruz, California for a total purchase price of $525,000.
Approximately $200,000 of the purchase price will be paid quarterly in the
form of a note over a two year period.
On February 1, 1997, the Company purchased the assets and assumed certain
liabilities of Concerned Nursing Care, Inc. ("CNC") a pediatric home
nursing company in Newton, New Jersey for a total purchase price of $3.5
million. Approximately, $1.2 million of the purchase price will be paid
over a two year period in the form of a note.
The acquisition of ICI, PSI, IV, NU and CNC are not considered significant
and, therefore, the consolidated financial statements do not reflect pro
forma financial information for these acquisitions.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Quarterly Report on Form 10-Q contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Such statements are only predictions and the
actual events or results may differ materially from the results discussed
in the forward-looking statements. Factors that could cause or contribute
to such differences include those discussed below as well as those
discussed in the Company's filings with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
The historical condensed consolidated statements of operations of the
Company for the three and six month periods ended March 31, 1997 contained
in this report and the following discussion thereof include the effect of
the Company's acquisitions of ICI, PSI, IV, NU and CNC subsequent to the
respective dates of acquisition.
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 MONTHS SIX MONTHS THREE MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
------------ ----------- -------------- --------------
1997 1996 1997 1996 1997 TO 1996 1997 TO 1996
---- ---- ---- ---- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue............................. 100% 100% 100% 100% 23.9% 24.9%
Operating salaries, wages and employee
benefits............................... 43.1 45.2 42.8 45.4 18.3 17.7
Other operating costs................... 37.3 36.6 37.9 35.7 26.1 32.5
Corporate, general and administrative... 6.0 6.1 6.0 6.1 21.2 22.2
Provision for doubtful accounts......... 3.2 2.9 3.1 2.9 38.1 33.4
Depreciation and amortization........... 3.0 2.9 3.0 3.0 25.5 25.4
Merger costs............................ - 2.9 - 1.5 -100.0 -100.0
---- ---- ---- ---- ------ ------
Operating income........................ 7.4 3.4 7.2 5.4 173.2 69.9
Interest expense........................ 1.6 1.0 1.4 0.9 96.8 103.1
---- ---- ---- ---- ------ ------
Income before income taxes and minority
interest............................... 5.8 2.4 5.8 4.5 205.5 63.5
Minority interest in loss of subsidiary. 0.0 - 0.0 - - -
---- ---- ---- ---- ------ ------
Income before income taxes.............. 5.8 2.4 5.8 4.5 206.2 64.8
Income taxes............................ 2.4 0.9 2.4 1.8 214.5 65.9
---- ---- ---- ---- ------ ------
Net income.............................. 3.4% 1.5% 3.4% 2.7% 200.9% 64.1%
==== ==== ==== ==== ====== ======
</TABLE>
8
<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:
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Nursing.............................. $14,234 $13,551 $28,544 $26,376
Respiratory Therapy Equipment........ 5,914 4,494 10,817 8,286
Home Medical Equipment............... 338 406 717 746
Pharmacy and Other................... 6,264 5,661 12,256 10,444
------- ------- ------- -------
Total Pediatric Home Health
Care.......................... 26,750 24,112 52,334 45,852
------- ------- ------- -------
ADULT HOME HEALTH CARE:
Nursing.............................. 7,187 3,387 13,041 7,537
Respiratory Therapy Equipment........ 5,735 5,538 11,504 10,730
Home Medical Equipment............... 1,418 1,419 2,855 2,743
Pharmacy and Other................... 2,501 1,471 4,244 2,563
------- ------- ------- -------
Total Adult Home Health Care... 16,841 11,815 31,644 23,573
------- ------- ------- -------
Total Medical Testing Services. 6,155 4,239 12,322 7,652
------- ------- ------- -------
Total Net Revenue.............. $49,746 $40,166 $96,300 $77,077
======= ======= ======= =======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996.
Net revenue increased $9.6 million, or 24%, to $49.8 million in the three
months ended March 31, 1997 from $40.2 million in the same period in 1996. The
Company's acquisitions and start up operations accounted for approximately $2.5
million, or 26%, of the increase and internal growth accounted for the remaining
$7.1 million, or 74%, of the increase. Overall, the internal growth in net
revenue was 18% for the three months ended March 31, 1997. Of the $9.6 million
increase in net revenue in the 1997 period, pediatric net revenue accounted for
$2.7 million, or 28%, of the increase. Increased pediatric net revenue for the
three months ended March 31, 1997 was attributable to the Company's acquisitions
and start up operations which contributed approximately $2.5 million, or 93%, of
the increase and to marketing efforts which resulted in an increase in patients
served rather than any significant increase in rates charged. The comparison of
net pediatric revenue versus prior year periods is impacted by a refinement in
methodology used to calculate the statistic for acquired companies. The company
is confident that its new method better reflects true operating performance and
can be measured on a consistent basis now and in the future. Adult net revenue
accounted for $5.0 million, or 52%, of the increase in net revenue for the three
months ended March 31, 1997, primarily due to internal growth of existing
locations. Medical testing services net revenue accounted for $1.9 million, or
20%, of the increase in net revenue for the quarter, 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 $3.3
million, or 18%, to $21.5 million in the three months ended March 31, 1997 from
$18.1 million in the same period in 1996. The increase was attributable to the
Company's acquisitions and start up operations which added approximately $1.5
million, or 44%, of the increase and the remainder to internal growth. As a
percentage of net revenue, operating salaries, wages and employee benefits for
the three months ended March 31, 1997 decreased to 43% from 45% in the
comparable period in 1996. The decrease in operating salaries, wages and
employee benefits as a percentage of net revenue is attributable to a number of
factors including: improved nursing productivity due to scheduling and staffing
efficiencies and a change in business mix to a higher percentage of medical
testing services net revenue to total net revenue. The medical testing services
operations maintain a lower operating salaries, wages and employee benefits
component as compared to the Company's other operations, 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
$3.8 million, or 26%, to $18.5 million in the three months ended March 31, 1997
from $14.7 million in the comparable period in 1996. Of this increase, $3.2
million, or 84%, relates to the Company's internal growth and the remainder to
the Company's acquisitions and start up operations. As a percentage of net
revenue, other operating costs for the three months ended March 31, 1997
remained unchanged when compared to the same period of 1996.
9
<PAGE>
Corporate, general and administrative costs increased $0.5 million, or 21%,
to $3.0 million to the three months ended March 31, 1997 from $2.5 million in
the same period in 1996. The increase was primarily due to the internal growth
of the Company's operations. The percentage of corporate, general and
administrative costs to net revenue was comparable for the three months ended
March 31, 1997 and 1996.
Provision for doubtful accounts consists of the amount of billed revenue
that management estimates will become uncollectable. During the three months
ended March 31, 1997, the Company's provision for doubtful accounts increased
approximately $0.4 million, or 38%, to $1.6 million from $1.2 million in the
same period in 1996. The increase is primarily due to the increase in total net
revenue and days sales outstanding. As a percentage of net revenue, the
provision for doubtful accounts is comparable for the three months ended March
31, 1997 and 1996.
Depreciation and amortization expenses increased $0.3 million, or 26%, to
$1.5 million in the three months ended March 31, 1997 from $1.2 million in the
same period in 1996. The increase was primarily due to capital expenditures for
the purchase of rental equipment and the amortization of goodwill from the
Company's acquisitions. As a percentage of the Company's total net revenue,
depreciation and amortization costs were comparable for the three months ended
March 31, 1997 and 1996.
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.
Interest expense increased $0.4 million, or 97%, to $0.8 million in the
three months ended March 31, 1997 from $0.4 million in the same period in 1996.
The increase was primarily the result of an increase of $24 million compared to
the same period last year in the Company's average debt outstanding incurred to
finance acquisitions and the Company's internal growth.
Income tax expense increased $0.3 million, or 37% to $1.2 million in the
three months ended March 31, 1997 from $0.9 million, excluding the tax effect of
the non-recurring merger costs, in the same period in 1996. This increase is due
to an increase in the income before tax of the Company.
SIX MONTHS ENDED MARCH 31, 1997 COMPARED TO SIX MONTHS ENDED MARCH 31, 1996.
Net revenue increased $19.2 million, or 25% to $96.3 million in the
six months ended March 31, 1997 from $77.1 million in the same period in 1996.
The Company's acquisitions and start-up operations accounted for approximately
$6.0 million, or 31% of the increase and internal growth accounted for the
remaining $13.2 million, or 69% of the increase. Overall, the internal growth
in net revenue was 17% for the six months ended March 31, 1997. Of the $19.2
million increase in net revenue in the 1997 period, pediatric net revenue
accounted for $6.5 million, or 34% of the increase. Increased pediatric net
revenue for the six months ended March 31, 1997 was attributable to the
Company's acquisitions and start up operations which contributed approximately
$5.9 million, or 91% of the increase and to marketing efforts which resulted in
an increase in patients served rather than any significant increase in rates
charged. The comparison of net pediatric revenue versus prior year periods is
impacted by a refinement in methodology used to calculate the statistic for
acquired companies. The company is confident that its new method better
reflects true operating performance and can be measured on a consistent basis
now and in the future. Adult net revenue accounted for $8.0 million, or 42% of
the increase in net revenue for the six months ended March 31, 1997, primarily
due to internal growth of existing locations. Medical testing services net
revenue accounted for $4.7 million, or 24% of the increase.
Operating salaries, wages and employee benefits consist primarily of
branch office operations. Operating salaries, wages and benefits increased $6.2
million or 18% to $41.2 million in the six months ended March 31, 1997 from
$35.0 million in the same period in 1996. The increase was primarily due to the
Company's acquisitions and start up operations which added approximately $4.1
million, or 66%, of the increase and the remainder to internal growth. As a
percentage of net revenue, operating salaries, wages and employee benefits for
the six months ended March 31, 1997 decreased to 43% from 45% in the comparable
period in 1996. The decrease in operating salaries, wages and employee benefits
as a percentage of net revenue is attributable to a number of factors including:
improved nursing productivity due to scheduling and staffing efficiencies and a
change in business mix to a higher percentage of medical testing services net
revenue to total net revenue. The medical testing services operations maintain a
lower operating salaries, wages, and employee benefits component as compared to
the Company's other operations, 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
$8.9 million, or 32%, to $36.5 million in the six months ended March 31, 1997
from $27.5 million in the comparable period in 1996. Of this increase, $7.8
million or 87%, relates to the Company's internal growth
10
<PAGE>
and the remainder to the Company's acquisitions and start up operations. As a
percentage of net revenue, other operating costs for the six months ended March
31, 1997 increased to 38% from 36% in the comparable period of 1996. The
increase in other operating costs as a percentage of net revenue is primarily
attributable to the increase in net revenue volume from the medical testing
services operations. The medical testing services operations have a higher other
operating cost component than the Company's other operations due to the payment
of operating expenses for the medical testing services business.
Corporate, general and administrative costs increased $1.0 million, or
22%, to $5.7 million in the six months ended March 31, 1997 from $4.7 million in
the same period in 1996. The increase was primarily due to the internal growth
of the Company's operations. The percentage of corporate, general, and
administrative costs to net revenue was comparable for the six months ended
March 31, 1997 and 1996.
Provision for doubtful accounts consists of the amount of billed revenue
that management estimates will become uncollectable. During the six months
ended March 31, 1997, the Company's provision for doubtful accounts increased
approximately $0.8 million, or 33%, to $3.0 million from $2.2 million in the
same period in 1996. The increase is primarily due to the increase in total net
revenue and days sales outstanding. As a percentage of net revenue, the
provision for doubtful accounts is comparable for the six months ended March 31,
1997 and 1996.
Depreciation and amortization expenses increased $0.6 million, or 25%, to
$2.9 million in the six months ended March 31, 1997 from $2.3 million in the
same period in 1996. The increase was primarily due to capital expenditures for
the purchase of rental equipment and the amortization of goodwill from the
Company's acquisitions. As a percentage of the Company's total net revenue,
depreciation and amortization costs were comparable for the six months ended
March 31, 1997 and 1996.
For the six 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.
Interest expense increased $0.7 million, or 103%, to $1.4 million in the
six months ended March 31, 1997 from $0.7 million in the same period in 1996.
The increase was primarily the result of an increase of $22 million compared to
the same period last year in the Company's average debt outstanding incurred to
finance acquisitions and the Company's internal growth.
Income tax expense increased $0.4 million, or 23%, to $2.3 million in the
six months ended March 31, 1997 from $1.9 million, excluding the tax effect of
the non-recurring merger costs, in the same period in 1996. This increase is
due to an increase in the income before tax of the Company.
LIQUIDITY AND CAPITAL RESOURCES
In December 1996, the Company and its primary bank amended and restated the
Credit Agreement ("1996 Amended and Restated Credit Agreement") to further
increase the amount of available financing to $60 million, consisting of a $50
million revolving loan and a $10 million term loan. An additional bank was
added to the credit agreement to expand the credit facility. Amounts available
to borrow under the amended credit facility are subject to certain limits as
defined in the agreement. As of March 31, 1997, the amount available under the
1996 Amended and Restated Credit Agreement was $15.7 million. Borrowings under
this facility bear interest at LIBOR plus 1.5% or the Bank's base rate, at the
Company's option. The interest rates under this facility at March 31, 1997
ranged from 8.50% to 6.94% per annum. Amounts outstanding under the revolving
loan are due in October 2000, and principal amounts outstanding under the term
loan are due in 14 quarterly installments the first of which was paid March 31,
1997. Outstanding borrowings under this facility at March 31, 1997 were
approximately $43.6 million ($34.3 million under the revolving loan and $9.3
million under the term loan).
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 and
the increase in the days sales outstanding. For the six months ended March 31,
1997 and 1996, the Company's cash flows from operations were affected by
increases in accounts receivable balances of $13.0 million and $14.5 million,
respectively. These increases were due primarily to volume growth, acquisitions
and higher days sales outstanding ("DSO"). The Company's DSO in accounts
receivable was 107 days and 101 days as of March 31, 1997 and March 31, 1996,
respectively, based on the annualized net revenue for the last quarter of the
period. The increase in the DSO is primarily attributable to the accelerated
growth experienced by the Company, seasonality and the impact of the acquired
accounts receivable balances from the acquisitions. The Company has taken
measures to improve the DSO by investing in upgraded skill sets of key
reimbursement personnel, improved training programs and has begun the phased
implementation of its new billing and receivable management system. For the six
11
<PAGE>
months ended March 31, 1997 and 1996, the Company's cash flows from operations
were affected by the decrease and increase in accounts payable balances of $1.7
and $3.5, respectively. The days sales outstanding in payables decline of $5.2
is primarily attributed to the changes in the mix of vendor payment terms.
The Company's investments in property and equipment are attributable to
purchases of medical equipment that is rented to patients and capitalization of
the cost of the new billing and receivable management system. The Company's
investments in the acquisition of businesses were $7.3 million and $3.9 million
respectively, for the six months ended March 31, 1997 and 1996.
The Company has recorded a net deferred tax asset in its consolidated
financial statements. Management believes that it is more likely than not that
the net deferred tax asset will be realized.
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, borrowings under the Company's
credit facility and shares of Common Stock of the Company.
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 may approximate $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 to be able to
finance its current plan to expand services at the Company's existing branch
offices with existing sources of working capital.
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 for the foreseeable future.
QUARTERLY OPERATING RESULTS AND SEASONALITY
The Company's quarterly results may vary significantly depending primarily
on factors such as rehospitalizations of patients, 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.
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 Company did not file a Current Report on Form 8-K during the
quarter ended March 31, 1997.
12
<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 12, 1997 By: Stephen M. Mengert
----------------------------
Stephen M. Mengert
Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary
(Duly authorized officer and
Principal Financial Officer)
13
<PAGE>
INDEX OF EXHIBITS
PAGE NO.
--------
11.1 Computation of Earnings per Share.......................... 15
14
<PAGE>
EXHIBIT 11.1
PEDIATRIC SERVICES OF AMERICA, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------------------
Primary Fully Diluted
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average common stock
outstanding during the period.......... 6,249,923 5,853,982 6,249,923 6,078,895
Options and warrants..................... 186,540 376,599 186,518 403,151
---------- ---------- ---------- ----------
Total.................................... 6,436,463 6,230,581 6,436,441 6,482,046
========== ========== ========== ==========
Net income attributable to
common and common equivalent shares:
Net Income........................... $1,733,137 $ 575,684 $1,733,137 $ 575,684
Less accretion on redeemable preferred
stock.............................. - 4,065 - 4,065
Less preferred stock dividend........ - 34,300 - 34,300
---------- ---------- ---------- ----------
Net income attributable to common and
common equivalent shares............... $1,733,137 $ 537,319 $1,733,137 $ 537,319
========== ========== ========== ==========
Net income per common and common
equivalent share....................... $ 0.27 $ 0.09 $ 0.27 $ 0.08
========== ========== ========== ==========
</TABLE>
<PAGE>
EXHIBIT 11.2
PEDIATRIC SERVICES OF AMERICA, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Six Months Ended March 31,
-------------------------------------------------
Primary Fully Diluted
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average common stock
outstanding during the period.......... 6,248,745 5,786,672 6,248,745 6,060,907
Options and warrants..................... 185,705 348,880 187,320 361,335
---------- ---------- ---------- ----------
Total.................................... 6,434,450 6,135,552 6,436,065 6,422,242
========== ========== ========== ==========
Net income attributable to
common and common equivalent shares:
Net Income........................... $3,389,446 $2,065,125 $3,389,446 $2,065,125
Less accretion on redeemable preferred
stock.............................. - 10,162 - 10,162
Less preferred stock dividend........ - 85,750 - 85,750
---------- ---------- ---------- ----------
Net income attributable to common and
common equivalent shares............... $3,389,446 $1,969,213 $3,389,446 $1,969,213
========== ========== ========== ==========
Net income per common and common
equivalent share....................... $ 0.53 $ 0.32 $ 0.53 $ 0.31
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1996
<PERIOD-START> JAN-01-1997 OCT-01-1997
<PERIOD-END> MAR-31-1997 MAR-31-1997
<CASH> 779 770
<SECURITIES> 0 0
<RECEIVABLES> 69,537 56,268
<ALLOWANCES> 10,127 8,523
<INVENTORY> 0 0
<CURRENT-ASSETS> 67,009 57,565
<PP&E> 28,666 25,067
<DEPRECIATION> 13,652 11,644
<TOTAL-ASSETS> 119,220 98,736
<CURRENT-LIABILITIES> 18,087 18,893
<BONDS> 0 0
0 0
0 0
<COMMON> 63 62
<OTHER-SE> 57,589 54,131
<TOTAL-LIABILITY-AND-EQUITY> 119,220 98,736
<SALES> 0 0
<TOTAL-REVENUES> 49,746 96,300
<CGS> 0 0
<TOTAL-COSTS> 44,456 86,327
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 1,607 2,982
<INTEREST-EXPENSE> 787 1,361
<INCOME-PRETAX> 2,903 5,677
<INCOME-TAX> 1,170 2,288
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,733 3,389
<EPS-PRIMARY> .27 .53
<EPS-DILUTED> 0 0
</TABLE>
