<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, 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 August 6, 1997 the Registrant had 6,284,033 shares of Common Stock, $0.01
Par Value, outstanding.
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Page 1 of 17
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Index of Exhibits on page 15
<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
June 30, 1997 and September 30, 1996......................... 3
Condensed Consolidated Statements of Income for
the three and nine months ended June 30, 1997 and 1996....... 5
Condensed Consolidated Statements of Cash Flows for
the nine months ended June 30, 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................................. 13
Signatures...................................................... 14
Index of Exhibits............................................... 15
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEDIATRIC SERVICES OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
1997 1996
----------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,140 $ 770
Accounts receivable, less allowances for doubtful accounts
of $9,829 and $8,523, respectively..................... 65,726 47,745
Prepaid expenses.......................................... 587 461
Deferred income taxes..................................... 3,524 3,524
Other current assets...................................... 2,708 2,065
-------- --------
Total current assets........................................ 73,685 54,565
Property and equipment:
Home care equipment held for rental....................... 22,491 19,014
Furniture and fixtures.................................... 6,534 4,910
Vehicles.................................................. 690 581
Leasehold improvements.................................... 564 562
-------- --------
30,279 25,067
Accumulated depreciation and amortization................. (14,665) (11,644)
-------- --------
15,614 13,423
Other assets:
Goodwill, less accumulated amortization of $3,295
and $2,333, respectively............................... 38,571 28,734
Certificates of need, less accumulated amortization of
$222 and $176, respectively.............................. 1,126 1,172
Deferred financing fees, less accumulated amortization of
$153 and $76, respectively............................. 350 216
Non-compete agreements, less accumulated amortization of
$677 and $582, respectively............................ 363 368
Other..................................................... 826 258
-------- --------
Total assets................................................ $130,535 $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)
JUNE, 30 SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 4,542 $ 5,780
Accrued compensation...................................... 4,818 3,581
Accrued insurance......................................... 2,501 1,846
Other accrued liabilities................................. 4,182 2,724
Deferred revenue.......................................... 764 792
Income taxes payable...................................... 1,503 1,852
Current maturities of long-term obligations............... 3,865 2,318
------- -------
Total current liabilities................................... 22,175 18,893
Long-term obligations, net of current maturities............ 46,812 23,638
Deferred income taxes....................................... 1,077 1,077
Minority interest in subsidiary............................. 892 935
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;
6,282 shares at June 30, 1997 and 6,248 shares at
September 30, 1996 issued and outstanding, respectively. 63 62
Additional paid-in capital................................ 41,671 41,514
Retained earnings......................................... 17,845 12,617
-------- -------
Total stockholders' equity.................................. 59,579 54,193
-------- -------
Total liabilities and stockholders' equity.................. $130,535 $98,736
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
(UNAUDITED) (UNAUDITED)
------------------------------ -----------------------------
1997 1996 1997 1996
-------------- --------------- -------------- ------------
<S> <C> <C> <C> <C>
Net revenue..................................... $53,890 $43,033 $150,191 $120,110
Costs and expenses:
Operating salaries, wages and employee
benefits..................................... 23,108 18,704 64,304 53,715
Other operating costs......................... 19,993 15,762 56,483 43,302
Corporate general and administrative.......... 3,499 2,959 9,244 7,659
Provision for doubtful accounts............... 1,675 1,340 4,657 3,575
Depreciation and amortization................. 1,583 1,267 4,480 3,577
Merger costs.................................. - - - 1,166
------- ------- -------- --------
Total costs and expenses.................... 49,858 40,032 139,168 112,994
------- ------- -------- --------
Operating income................................ 4,032 3,001 11,023 7,116
Interest expense................................ 964 588 2,325 1,258
------- ------- -------- --------
Income before income taxes and minority interest 3,068 2,413 8,698 5,858
Minority interest in (gain) loss of subsidiary.. (4) - 43 -
------- ------- -------- --------
Income before income taxes...................... 3,064 2,413 8,741 5,858
Income taxes.................................... 1,225 1,012 3,513 2,392
------- ------- -------- --------
Net income...................................... $ 1,839 $ 1,401 $ 5,228 $ 3,466
======= ======= ======== ========
NET INCOME ATTRIBUTABLE TO COMMON AND COMMON
EQUIVALENT SHARES:
Net income...................................... $ 1,839 $ 1,401 $ 5,228 $ 3,466
Less accretion on redeemable preferred stock.... - - - 10
Less preferred stock dividends.................. - - - 86
------- ------- -------- --------
Net income attributable to common and common
equivalent shares............................. $ 1,839 $ 1,401 $ 5,228 $ 3,370
======= ======= ======== ========
SHARE DATA:
Net income per common and common equivalent
share......................................... $ 0.29 $ 0.22 $ 0.81 $ 0.54
======= ======= ======== ========
Weighted average common shares outstanding..... 6,434 6,488 6,434 6,253
======= ======= ======== ========
</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>
NINE MONTHS ENDED
JUNE 30,
(UNAUDITED)
1997 1996
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.......................................................... $ 5,228 $ 3,466
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization....................................... 4,480 3,577
Provision for doubtful accounts..................................... 4,657 3,575
Amortization of deferred financing fees............................. 77 27
Deferred income taxes............................................... - (351)
Minority interest in loss of subsidiary............................. (43) -
Changes in operating assets and liabilities, net of effects from
acquisitions of businesses:
Accounts receivable................................................. (20,656) (17,146)
Prepaid expenses and other current assets........................... (1,083) (138)
Accounts payable.................................................... (1,344) 1,655
Income taxes........................................................ (369) 34
Accrued liabilities................................................. 2,708 2,068
-------- --------
Net cash used in operating activities................................. (6,345) (3,233)
INVESTING ACTIVITIES
Purchases of property and equipment................................. (5,134) (4,659)
Acquisitions of businesses.......................................... (10,683) (4,602)
Other, net.......................................................... (1) (50)
-------- --------
Net cash used in investing activities................................. (15,818) (9,311)
FINANCING ACTIVITIES
Principal payments on long-term debt................................ (1,729) (8,276)
Borrowings on long-term debt........................................ 24,314 21,605
Deferred financing fees............................................. (210) (91)
Payment of preferred stock dividends................................ - (281)
Proceeds from exercise of stock options............................. 158 98
-------- --------
Net cash provided by financing activities............................. 22,533 13,055
-------- --------
Increase in cash and cash equivalents................................. 370 511
Cash and cash equivalents at beginning of year........................ 770 101
-------- --------
Cash and cash equivalents at end of period............................ $ 1,140 $ 612
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest.............................................. $ 1,977 $ 1,143
======== ========
Cash paid for income taxes.......................................... $ 3,892 $ 2,357
======== ========
</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 nine month periods ended June 30,
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. There is no expected impact on primary earnings per share for the
three months ended June 30, 1997. The impact for the three months ended
June 30, 1996 is expected to result in an increase in primary earnings per
share of $0.01 per share. Adoption of Statement No. 128 is expected to
result in an increase in primary earnings per share for the nine months
ended June 30, 1997 and 1996 of $0.03 and $0.03 per share respectively. The
impact of Statement 128 on the calculation of fully diluted earnings per
share for these three months ended June 30, 1997 and 1996 and nine months
ended June 30, 1997 and 1996 is not expected to be material.
3. INTEREST RATE SWAP AGREEMENT
At June 30, 1997, the Company had one interest rate swap agreement with a
commercial bank (the "Counter Party") outstanding, having a cumulative
notional principal amount of $25 million. The Company pays a fixed rate of
6.61% plus the applicable credit spread under the Company's credit
facility. The interest rate swap terminates in June 2002. The Company is
exposed to credit loss in the event of non-performance by the Counter Party
to the interest rate swap agreement. However, the Company does not
anticipate such non-performance.
4. 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.
7
<PAGE>
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.
On April 1, 1997, the Company purchased substantially all of the assets of
Comprehensive Medical Enterprises, Inc. ("CME") a pediatric home nursing
company in Orlando, Florida for a total purchase price of $2.8 million.
Approximately $550,000 of the purchase price will be paid annually over a
two year period in the form of a note.
On April 4, 1997, the Company purchased certain assets of Olsten Certified
Healthcare Corporation ("OCH") in Raleigh, North Carolina for a total
purchase price of $175,000.
On May 1, 1997, the Company purchased the stock of Home Vitality, Inc.
("HVI") a pharmacy company in Downers Grove, Illinois for a total purchase
price of $1.2 million, consisting of cash and assumption of indebtedness.
Approximately $200,000 of the purchase price will be paid semi-annually in
the form of a note over a two year period.
The acquisitions of ICI, PSI, IV, NU, CNC, CME, OCH, and HVI are not
considered significant as defined by Regulation S-X Rule 1-02(w) and,
therefore, the consolidated financial statements do not reflect pro forma
financial information for these acquisitions.
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 financial statements of the Company
for the three and nine month periods ended June 30, 1997 contained in this
report and the following discussion thereof include the effect of the
Company's acquisitions of ICI, PSI, IV, NU, CNC, CME, OCH, and HVI
subsequent to the respective dates of acquisition.
8
<PAGE>
The following table is derived from the Company's unaudited condensed
consolidated Statements of Income 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 NINE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
------------------ ----------------- ---------------- ---------------
1997 1996 1997 1996 1997 TO 1996 1997 TO 1996
--------- ------- ------- -------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue............................... 100% 100% 100% 100% 25.2% 25.0%
Operating salaries, wages and employee
benefits................................. 42.9 43.5 42.8 44.7 23.5 19.7
Other operating costs..................... 37.1 36.6 37.6 36.0 26.8 30.4
Corporate, general and administrative..... 6.5 6.9 6.2 6.4 18.3 20.7
Provision for doubtful accounts........... 3.1 3.1 3.1 3.0 25.1 30.3
Depreciation and amortization............. 2.9 2.9 3.0 3.0 24.9 25.2
Merger costs.............................. - - - 1.0 - (100.0)
---- ---- ----- ---- ----- ------
Operating income.......................... 7.5 7.0 7.3 5.9 34.3 54.9
Interest expense.......................... 1.8 1.4 1.5 1.0 63.9 84.8
---- ---- ----- ---- ----- ------
Income before income taxes and minority
interest................................. 5.7 5.6 5.8 4.9 27.1 48.5
Minority interest in loss of subsidiary... 0.0 - 0.0 - - -
---- ---- ----- ---- ----- ------
Income before income taxes................ 5.7 5.6 5.8 4.9 26.9 49.2
Income taxes.............................. 2.3 2.3 2.3 2.0 21.0 46.9
---- ---- ----- ---- ----- ------
Net income................................ 3.4% 3.3% 3.5% 2.9% 31.2% 50.8%
==== ==== ===== ==== ===== =====
</TABLE>
9
<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: 1997 1996 1997 1996
------------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Nursing.......................................... $19,075 $12,870 $47,255 $39,245
Respiratory Therapy Equipment.................... 5,944 4,780 16,525 13,066
Home Medical Equipment........................... 482 303 1,761 1,049
Pharmacy and Other............................... 7,702 5,791 20,657 16,236
------- ------- ------- -------
Total Pediatric Home Health Care.......... 33,203 23,744 86,198 69,596
------- ------- ------- -------
ADULT HOME HEALTH CARE:
Nursing.......................................... 4,485 5,159 17,482 12,695
Respiratory Therapy Equipment.................... 5,548 5,673 16,695 16,404
Home Medical Equipment........................... 1,385 1,319 4,088 4,062
Pharmacy and Other............................... 2,469 1,733 6,605 4,297
------- ------- -------- --------
Total Adult Home Health Care.............. 13,887 13,884 44,870 37,458
------- ------- -------- --------
Total Medical Testing Services............ 6,800 5,405 19,123 13,056
------- ------- -------- --------
Total Net Revenue......................... $53,890 $43,033 $150,191 $120,110
======= ======= ======== ========
</TABLE>
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996.
Net revenue increased $10.9 million, or 25%, to $53.9 million in the three
months ended June 30, 1997 from $43.0 million in the same period in 1996. The
Company's acquisitions and start-up operations accounted for approximately $3.7
million, or 34%, of the increase and internal growth accounted for the remaining
$7.2 million, or 66%, of the increase. Overall, the internal growth in net
revenue was 17% for the three months ended June 30, 1997. Of the $10.9 million
increase in net revenue in the 1997 period, pediatric net revenue accounted for
$9.5 million, or 87%, of the increase. Increased pediatric net revenue for the
three months ended June 1997 was attributable to the Company's acquisitions and
start-up operations which contributed approximately $3.6 million, or 38%, of the
increase and the remainder to internal growth rather than any significant
increase in rates charged. Adult net revenue was essentially unchanged. The
comparison of net pediatric revenue versus prior year periods and the comparison
of pediatric to adult is impacted by a refinement in methodology used to
calculate the statistics. 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. Medical testing services net revenue accounted for $1.4
million, or 13%, 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 employee benefits increased
$4.4 million, or 24%, to $23.1 million in the three months ended June 30, 1997
from $18.7 million in the same period in 1996. The increase was attributable to
the Company's acquisitions and start-up operations which added approximately
$2.8 million, or 63%, 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 June 30, 1997 decreased to 43% from 44% 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 pharmacy net revenue to total
net revenue. The pharmacy operations maintain a lower operating salaries, wages
and employee benefits component as compared to many of 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. The cost of sales consist
primarily of the cost of pharmacy products. Other operating costs increased
$4.2 million, or 27%, to $20.0 million in the three months ended June 30, 1997
from $15.8 million in the comparable period in 1996. Of this increase, $3.5
million, or 83%, 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 June 30, 1997
increased one half of 1% compared to the same period of 1996. The primary
factor behind the increase is the higher cost of sales component in the pharmacy
operations.
10
<PAGE>
Corporate, general and administrative costs increased $0.5 million, or 18%,
to $3.5 million for the three months ended June 30, 1997 from $3.0 million in
the same period in 1996. The increase was primarily due to the growth of the
Company's operations and the addition of temporary personnel needed for
implementation of the Company's new billing and collection system. The
percentage of corporate, general and administrative costs to net revenue
decreased by one half of 1% for the three months ended June 30, 1997 compared to
the same period of 1996.
Provision for doubtful accounts consists of the amount of billed revenue
that management estimates will become uncollectable. During the three months
ended June 30, 1997, the Company's provision for doubtful accounts increased
approximately $0.3 million, or 25%, to $1.7 million from $1.3 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 June
30, 1997 and 1996.
Depreciation and amortization expenses increased $0.3 million, or 25%, to
$1.6 million in the three months ended June 30, 1997 from $1.3 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 three months ended
June 30, 1997 and 1996.
Interest expense increased $0.4 million, or 64%, to $1.0 million in the
three months ended June 30, 1997 from $0.6 million in the same period in 1996.
The increase was primarily the result of a $25 million increase in the Company's
average debt outstanding at June 30, 1997 compared to the same period last year.
This additional debt was secured to finance acquisitions and the Company's
working capital.
Income tax expense increased $0.2 million, or 21% to $1.2 million in the
three months ended June 30, 1997 from $1.0 million, in the same period in 1996.
This increase is due to an increase in the income before tax of the Company.
NINE MONTHS ENDED JUNE 30, 1997 COMPARED TO NINE MONTHS ENDED JUNE 30, 1996.
Net revenue increased $30.1 million, or 25% to $150.2 million in the
nine months ended June 30, 1997 from $120.1 million in the same period in 1996.
The Company's acquisitions and start-up operations accounted for approximately
$9.7 million, or 32% of the increase and internal growth accounted for the
remaining $20.4 million, or 68% of the increase. Overall, the internal growth
in net revenue was 17% for the nine months ended June 30, 1997. Of the $30.1
million increase in net revenue in the 1997 period, pediatric net revenue
accounted for $16.6 million, or 55% of the increase. Increased pediatric net
revenue for the nine months ended June 30, 1997 was attributable to the
Company's acquisitions and start-up operations which contributed approximately
$9.4 million, or 57% of the increase and the remainder to internal growth rather
than any significant increase in rates charged. Adult net revenue accounted for
$7.4 million, or 25% of the increase in net revenue for the nine months ended
June 30, 1997, primarily due to internal growth of existing locations. The
comparison of net pediatric revenue versus prior year periods and the comparison
of pediatric to adult is impacted by a refinement in methodology used to
calculate the statistics. 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. Medical testing services net revenue accounted for $6.1
million, or 20% of the increase.
Operating salaries, wages and employee benefits consist primarily of
branch office operations. Operating salaries, wages and employee benefits
increased $10.6 million or 20% to $64.3 million in the nine months ended June
30, 1997 from $53.7 million in the same period in 1996. The increase was
primarily due to the Company's acquisitions and start-up operations which added
approximately $6.9 million, or 65%, of the increase and the remainder to
internal growth. As a percentage of net revenue, operating salaries, wages and
employee benefits for the nine months ended June 30, 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. The cost of sales consist
primarily of the cost of pharmacy products. Other operating costs increased
$13.2 million, or 30%, to $56.5 million in the nine months ended June 30, 1997
from $43.3 million in the comparable period in 1996. Of this increase, $11.3
million or 86%, 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 nine months ended June 30, 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
higher cost of sales component in the pharmacy operations and the
increase in net revenue volume from the medical testing services operations.
11
<PAGE>
Corporate, general and administrative costs increased $1.6 million, or
21%, to $9.2 million in the nine months ended June 30, 1997 from $7.7 million in
the same period in 1996. The increase was primarily due to the growth of the
Company's operations and the addition of temporary personnel needed for the
implementation of the Company's new billing and collection system. The
percentage of corporate, general, and administrative costs to net revenue was
essentially comparable for the nine months ended June 30, 1997 and 1996.
Provision for doubtful accounts consists of the amount of billed revenue
that management estimates will become uncollectable. During the nine months
ended June 30, 1997, the Company's provision for doubtful accounts increased
approximately $1.1 million, or 30%, to $4.7 million from $3.6 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 nine months ended June 30,
1997 and 1996.
Depreciation and amortization expenses increased $0.9 million, or 25%, to
$4.5 million in the nine months ended June 30, 1997 from $3.6 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 nine months ended
June 30, 1997 and 1996.
For the nine months ended June 30, 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 $1.1 million, or 85%, to $2.3 million in the
nine months ended June 30, 1997 from $1.3 million in the same period in 1996.
The increase was primarily the result of a $21 million increase in the Company's
average debt outstanding at June 30, 1997 compared to the same period last year.
This additional debt was secured to finance acquisitions and the Company's
working capital.
Income tax expense increased $0.6 million, or 21%, to $3.5 million in the
nine months ended June 30, 1997 from $2.9 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 June 30, 1997, the amount available under the
1996 Amended and Restated Credit Agreement was $10 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 June 30, 1997
ranged from 7.19% to 7.32% 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 second of which was paid June 30,
1997. Outstanding borrowings under this facility at June 30, 1997 were
approximately $48.6 million ($40.0 million under the revolving loan and $8.6
million under the term loan).
The Company is in the process of revising the credit facility to increase
the amount of available financing to $100 million, modify the pricing structure,
and expand the number of banks in the credit facility. The Company currently has
commitments for the full $100 million bank facility. The revised bank facility
is expected to close in the 1997 fiscal year fourth quarter.
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 nine months ended June 30,
1997 and 1996, the Company's cash flows from operations were affected by
increases in accounts receivable balances of $20.7 million and $17.1 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 111 days and 97 days as of June 30, 1997 and June 30, 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 and diversion of collection
activities due to the installation of the Company's new billing and collection
system. The Company has taken measures to improve the DSO by hiring more
experienced key reimbursment personnel, improving training programs
12
<PAGE>
and implementing its new billing and receivable management system. For the nine
months ended June 30, 1997 and 1996, the Company's cash flows from operations
were affected by the decrease and increase in accounts payable balances of $1.3
million and $1.7 million, respectively.
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 $10.7 million and $4.6 million
respectively, for the nine months ended June 30, 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. During the quarter ended June 30,
1997, the 1996 tax return and the 1993 through 1995 amended tax returns were
filed for the Company and its subsidiaries to take advantage of recent changes
in the tax code which allowed for a revaluation of trade accounts receivable.
This revaluation gave rise to expected cash refunds of $2.0 million plus
interest. As a result of this revaluation, the net operating loss carryforwards
of certain subsidiaries were increased by approximately $5.0 million which will
be available to offset certain future tax payments.
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 and anticipated revised 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
11.2 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 June 30, 1997.
13
<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 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)
14
<PAGE>
INDEX OF EXHIBITS
PAGE NO.
--------
11.1 Computation of Earnings per Share.................... 16
11.2 Computation of Earnings per Share.................... 17
15
<PAGE>
EXHIBIT 11.1
PEDIATRIC SERVICES OF AMERICA, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------------------------------------------------
PRIMARY FULLY DILUTED
---------------------------------- ---------------------------------
1997 1996 1997 1996
----------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Weighted average common stock
outstanding during the period........... 6,261,018 6,101,841 6,261,018 6,101,841
Options and warrants....................... 173,388 386,530 180,889 386,530
--------- --------- --------- ---------
Total...................................... 6,434,406 6,488,371 6,441,907 6,488,371
========= ========= ========= =========
Net income attributable to common and
common equivalent shares............... $1,838,970 $1,401,235 $1,838,970 $1,401,235
========== ========== ========== ==========
Net income per common and common
equivalent share.......................... $ 0.29 $ 0.22 $ 0.29 $ 0.22
========== ========== ========== ==========
</TABLE>
<PAGE>
EXHIBIT 11.2
PEDIATRIC SERVICES OF AMERICA, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
---------------------------------------------------------------------
PRIMARY FULLY DILUTED
---------------------------------- ---------------------------------
1997 1996 1997 1996
----------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Weighted average common stock
outstanding during the period........... 6,252,836 5,891,727 6,252,836 6,074,550
Options and warrants....................... 181,600 361,431 185,176 369,714
--------- --------- --------- ---------
Total...................................... 6,434,436 6,253,158 6,438,012 6,444,264
========= ========= ========= =========
Net income attributable to
common and common equivalent shares:
Net Income.............................. $5,228,415 $3,466,359 $5,228,415 $3,466,359
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............... $5,228,415 $3,370,447 $5,228,415 $3,370,447
========== ========== ========== ==========
Net income per common and common
equivalent share....................... $ 0.81 $ 0.54 $ 0.81 $ 0.52
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 1,140
<SECURITIES> 0
<RECEIVABLES> 75,555
<ALLOWANCES> 9,829
<INVENTORY> 0
<CURRENT-ASSETS> 73,685
<PP&E> 30,279
<DEPRECIATION> 14,665
<TOTAL-ASSETS> 130,535
<CURRENT-LIABILITIES> 22,175
<BONDS> 0
0
0
<COMMON> 63
<OTHER-SE> 59,516
<TOTAL-LIABILITY-AND-EQUITY> 130,535
<SALES> 150,191
<TOTAL-REVENUES> 150,191
<CGS> 0
<TOTAL-COSTS> 134,511
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,657
<INTEREST-EXPENSE> 2,325
<INCOME-PRETAX> 8,741
<INCOME-TAX> 3,513
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,228
<EPS-PRIMARY> .81
<EPS-DILUTED> 0
</TABLE>
