<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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
COMMISSION FILE NUMBER 0-23946
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.)
310 TECHNOLOGY PARKWAY, NORCROSS GA 30092
(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 11, 1998 the Registrant had 7,144,884 shares of Common Stock, $0.01
par value, outstanding.
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Page 1 of 29
Index of Exhibits on page 20
<PAGE>
FORM 10-Q
PEDIATRIC SERVICES OF AMERICA, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION NUMBER
ITEM 1: Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 1998 and September 30, 1997...................... 3
Condensed Consolidated Statements of Income for
the three and six months ended March 31, 1998 and 1997..... 5
Condensed Consolidated Statements of Cash Flows for
the six months ended March 31, 1998 and 1997............... 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................................ 17
Signatures...................................................... 19
Index of Exhibits............................................... 20
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEDIATRIC SERVICES OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
MARCH 31, SEPTEMBER 30,
1998 1997
---------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 311 $ 501
Accounts receivable, less allowances for doubtful accounts
of $12,324 and $10,036, respectively................ 100,691 75,458
Prepaid expenses.......................................... 738 508
Deferred income taxes..................................... 2,665 3,880
Other current assets...................................... 4,680 3,481
-------- -------
Total current assets........................................ 109,085 83,828
Property and equipment:
Home care equipment held for rental....................... 26,611 24,104
Furniture and fixtures.................................... 9,603 6,979
Vehicles.................................................. 876 731
Leasehold improvements.................................... 1,139 581
------- -------
38,229 32,395
Accumulated depreciation and amortization................. (18,210) (15,678)
------- -------
20,019 16,717
Other assets:
Goodwill, less accumulated amortization of $5,026
and $3,695, respectively............................... 85,987 50,421
Certificates of need, less accumulated amortization of
$382 and $279, respectively.............................. 3,165 1,543
Deferred financing fees, less accumulated amortization of
$282 and $192, respectively............................ 576 632
Non-compete agreements, less accumulated amortization of
$797 and $719, respectively............................ 263 321
Other..................................................... 473 372
-------- --------
Total assets................................................ $219,568 $153,834
======== ========
</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) (AUDITED)
MARCH 31, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 7,892 $ 6,302
Accrued compensation................................................. 6,725 5,147
Accrued insurance.................................................... 2,864 2,393
Other accrued liabilities............................................ 4,059 3,559
Deferred revenue..................................................... 826 853
Income taxes payable................................................. 1,101 1,119
Current maturities of long-term obligations from related
parties............................................................ 1,462 2,163
Current maturities of long-term obligations.......................... 749 99
-------- --------
Total current liabilities.............................................. 25,678 21,635
Long-term obligations from related parties net of current
maturities.......................................................... 3,510 3,887
Long-term obligations, net of current maturities....................... 100,110 61,125
Deferred income taxes.................................................. 5,336 4,691
Minority interest in subsidiary........................................ 789 816
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;
7,139 shares at March 31, 1998 and 6,258 shares at
September 30, 1997 issued and outstanding, respectively........... 71 63
Additional paid-in capital........................................... 59,947 41,746
Retained earnings.................................................... 24,127 19,871
-------- --------
Total stockholders' equity............................................. 84,145 61,680
-------- --------
Total liabilities and stockholders' equity............................. $219,568 $153,834
======== ========
</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 SIX MONTHS ENDED
MARCH 31, MARCH 31,
(UNAUDITED) (UNAUDITED)
-------------------- ---------------------
1998 1997 1998 1997
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net revenue............................................. $79,479 $49,746 $141,038 $96,300
Costs and expenses:
Operating salaries, wages and employee benefits....... 31,017 21,461 57,098 41,196
Other operating costs................................. 32,524 18,541 55,467 36,489
Corporate general and administrative.................. 6,070 2,973 9,907 5,745
Provision for doubtful accounts....................... 2,095 1,607 3,928 2,982
Depreciation and amortization......................... 2,297 1,481 4,144 2,897
------- ------- -------- -------
Total costs and expenses................................ 74,003 46,063 130,544 89,309
------- ------- -------- -------
Operating income........................................ 5,476 3,683 10,494 6,991
Interest expense........................................ 1,926 787 3,392 1,361
------- ------- -------- -------
Income before minority interest and income taxes........ 3,550 2,896 7,102 5,630
Minority interest in loss of subsidiary................. 26 7 27 47
------- ------- -------- -------
Income before income taxes.............................. 3,576 2,903 7,129 5,677
Income taxes............................................ 1,441 1,170 2,873 2,288
------- ------- -------- -------
Net income.............................................. $ 2,135 $ 1,733 $ 4,256 $ 3,389
======= ======= ======== =======
BASIC SHARE DATA:
Net income per common and common equivalent share...... $ 0.30 $ 0.28 $ 0.63 $ 0.54
======= ======= ======== =======
Weighted average common shares outstanding............. 7,075 6,257 6,789 6,253
======= ======= ======== =======
DILUTED SHARE DATA:
Net income per common and common equivalent share...... $ 0.30 $ 0.27 $ 0.61 $ 0.53
======= ======= ======== =======
Weighted average common shares outstanding............. 7,234 6,436 6,971 6,434
======= ======= ======== =======
</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)
-----------------------
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................................. $ 4,256 $ 3,389
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization.............................................. 4,144 2,897
Provision for doubtful accounts............................................ 3,928 2,982
Amortization of deferred financing fees.................................... 90 48
Deferred income taxes...................................................... 2,418 -
Minority interest in loss of subsidiary.................................... (27) (47)
Changes in operating assets and liabilities, net of effects from
acquisitions of businesses:
Accounts receivable........................................................ (27,663) (12,950)
Prepaid expenses and other current assets.................................. (809) (810)
Accounts payable........................................................... 920 (1,668)
Income taxes payable....................................................... (18) (1,550)
Accrued liabilities........................................................ 1,682 969
-------- --------
Net cash used in operating activities........................................ (11,079) (6,740)
INVESTING ACTIVITIES
Purchases of property and equipment........................................ (3,804) (3,567)
Acquisitions of businesses................................................. (23,356) (7,247)
Other, net................................................................. (26) (7)
-------- --------
Net cash used in investing activities........................................ (27,186) (10,821)
FINANCING ACTIVITIES
Principal payments on long-term debt....................................... (5,961) (854)
Borrowings on long-term debt............................................... 44,000 18,564
Deferred financing fees.................................................... (33) (210)
Proceeds from exercise of stock options.................................... 69 70
-------- --------
Net cash provided by financing activities.................................... 38,075 17,570
Increase (decrease) in cash and cash equivalents............................. (190) 9
Cash and cash equivalents at beginning of year............................... 501 770
-------- --------
Cash and cash equivalents at end of period................................... $ 311 $ 779
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest..................................................... $ 3,370 $ 1,144
======== ========
Cash paid for income taxes................................................. $ 577 $ 3,848
======== ========
</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,
1998 are not necessarily indicative of the results to be expected for the
entire fiscal year ending September 30, 1998. These condensed consolidated
financial statements should be read in conjunction with the Company's
audited financial statements for the year ended September 30, 1997 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 1997 Annual Report.
2. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share. Statement
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings
per share, basic earnings per share excludes any dilutive effects of
options, warrants, and convertible securities. Diluted earnings per share
is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented,
and where necessary, restated to conform to the Statement 128 requirements.
The dilutive effect of the weighted average options included in the diluted
earnings per share is 159,708 and 179,514 for the three months ended
March 31, 1998 and 1997, respectively and 182,126 and 181,617 for the six
months ended March 31, 1998 and 1997, respectively.
3. INTEREST RATE SWAP AGREEMENT
At March 31, 1998, the Company had one interest rate swap agreement with a
commercial bank (the "Counter Party"), having a cumulative notional
principal amount of $25 million. The Company pays a fixed rate of 6.61%
plus the applicable margin that varies from a minimum of 1.0% to a maximum
of 1.75% and is based on the calculation of a leverage ratio. The interest
rate differential to be received or paid is recognized over the life of the
agreement as an adjustment to interest expense. 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.
7
<PAGE>
4. ACQUISITIONS
On October 31, 1997, the Company purchased the assets and assumed certain
liabilities of Pediatric Physical Therapy, Inc. ("PPT"), a physical therapy
company in St. Louis, Missouri, for a total purchase price of $50,000,
consisting of $30,000 cash and $20,000 in the form of a note payable by the
Company. The Company assumed approximately $200,000 in indebtedness.
On November 7, 1997, the Company purchased substantially all of the assets
of Intra-Care, Inc. ("IC"), a home infusion and pharmaceutical company in
Little Falls, New Jersey, for a total purchase price of $7.5 million. The
purchase price consisted of $4.5 million in cash and $3.0 million in the
form of shares of the Company's Common Stock. The shares of Common Stock
have been placed in escrow and will be released upon the satisfaction of
certain conditions. The parties agreed to an earnout formula based on the
earnings for the 1998 calendar year, whereby IC is paid in cash if it meets
or exceeds certain targets or IC repays the Company in Common Stock if it
fails to meet certain targets.
On November 11, 1997, one of the Company's consolidated subsidiaries,
Insurance Medical Reporter, Inc. ("IMR"), purchased certain assets of
American Insurance Examiners, Inc. ("AIE"), a paramedical testing company
in Los Angeles, California, for a total cash purchase price of $1.225
million.
On November 21, 1997, the Company purchased substantially all of the assets
of Kids and Nurses, Inc. ("KAN"), a company specializing in prescribed
pediatrics extended care facilities. The total purchase price was $2.5
million consisting of shares of the Company's Common Stock. A portion of
the shares have been placed in escrow for a period of one year from the
closing date and will be released upon the satisfaction of certain
conditions. At closing, the Company assumed and paid $750,000 of
indebtedness.
On December 1, 1997, the Company purchased substantially all of the assets
of Cyber Home Medical Equipment Corp., Inc. ("CHM"), a home medical
equipment company, in Rockville Center, New York, for a total purchase
price of $1.25 million. The purchase price consisted of $550,000 in cash,
$300,000 in the form of a note payable by the Company and $400,000 in the
form of shares of the Company's Common Stock. The shares of Common Stock
have been placed in an escrow account for the term of one year from
December 1, 1997 and will be released upon the satisfaction of certain
conditions. The note will be paid quarterly over a three year period.
On December 15, 1997, one of the Company's consolidated subsidiaries, IMR,
purchased certain paramedical testing assets of ChoicePoint Services, Inc.
("PMI") for $21.7 million consisting of $11.7 million in cash and $10.0
million in the form of shares of the Company's Common Stock. The Company
provided the seller with a one-year price protection upon disposition for
the Company's Common Stock issued at closing.
On December 29, 1997, the Company purchased all of the assets and assumed
certain liabilities of Kid's Nurses, Inc. ("KN"), a pediatric nursing
company in St. Louis, Missouri, for a total purchase price of $350,000.
The purchase price consisted of $250,000 in cash, $50,000 in the form of a
note payable by the Company and $50,000 in the form of shares of the
Company's Common Stock. The shares have been placed in an escrow account
until December 29, 1998 and will be released upon the satisfaction of
certain conditions. The note will be paid annually over a two year period.
8
<PAGE>
On January 12, 1998, the Company purchased substantially all of the assets
and assumed certain liabilities of Texas Air Supply Home Medical Equipment,
Inc. ("TAS"), a home medical equipment and supply company in Ft. Worth,
Texas, for a total purchase price of $1.0 million, consisting of $750,000
cash and $250,000 in the form of shares of the Company's Common Stock. The
shares of Common Stock have been placed in escrow and will be released upon
the satisfaction of certain conditions. The Company paid at closing
$500,000 of indebtedness of TAS.
On January 30, 1998, the Company purchased the stock of Pediatric Nursing
Service, inc. ("PNS"), a pediatric nursing company in Parsippany, New
Jersey, for a total purchase price of $2.4 million, consisting of
$1,800,000 cash and $600,000 in the form of shares of the Company's Common
Stock. The shares of Common Stock have been placed in escrow and will be
released upon the satisfaction of certain conditions. The Company granted
the sellers a price protection upon disposition of the shares of Common
Stock for a period of 30 days after they are released from escrow.
On February 10, 1998, the Company purchased substantially all of the assets
and assumed certain liabilities of Strictly Pediatrics, L.L.C. ("SP"), a
home nursing and supply company in Austin, Texas, for a total purchase
price of $15,000 in cash. The Company assumed and paid approximately
$129,000 of indebtedness.
On March 1, 1998 the Company purchased the stock of Medical Equipment &
Supply, Inc. ("MES"), in Austin, Texas, for a total purchase price of $2.0
million, consisting of $670,000 cash and $1,340,000 in the form of shares
of the Company's Common Stock. The shares of Common Stock have been placed
in escrow and will be released upon the satisfaction of certain conditions.
The Company granted the sellers a price protection upon disposition of the
shares of Common Stock for a period of 30 days after they are released
from escrow.
The purchase method of accounting was used to record each of the above
acquisitions. Accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on estimated fair values at the
purchase dates. Operating results for the acquired companies have been
included in the Company's consolidated results of operations from the
respective purchase dates.
The acquisitions of PPT, IC, AIE, KAN, CHM, PMI, KN,TAS, PNS, SP and MES
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.
9
<PAGE>
RESULTS OF OPERATIONS
The historical condensed consolidated statements of income of the
Company for the three and six month periods ended March 31, 1998 contained
in this report and the following discussion thereof, include the effect of
the Company's acquisitions of PPT, IC, AIE, KAN, CHM, PMI, KN, TAS, PNS, SP
and MES subsequent to the respective dates of acquisition.
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 SIX MONTHS THREE MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
-------------------- -------------------- ------------------ ------------------
1998 1997 1998 1997 1998 TO 1997 1998 TO 1997
------ ------- ------- ------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue......................... 100% 100% 100% 100% 59.8% 46.5%
Operating salaries, wages and
employee benefits.................. 39.0 43.1 40.5 42.8 44.5 38.6
Other operating costs............... 40.9 37.3 39.3 37.9 75.4 52.0
Corporate, general and
administrative..................... 7.6 6.0 7.0 6.0 104.2 72.4
Provision for doubtful accounts..... 2.6 3.2 2.8 3.1 30.3 31.7
Depreciation and amortization....... 2.9 3.0 2.9 3.0 55.1 43.1
--- --- --- --- ----- -----
Operating income.................... 7.0 7.4 7.5 7.2 48.7 50.1
Interest expense.................... 2.4 1.6 2.4 1.4 144.9 149.2
--- --- --- --- ----- -----
Income before income taxes and
minority interest.................. 4.6 5.8 5.1 5.8 22.6 26.1
Minority interest in loss of
subsidiary......................... 0.0 0.0 0.0 0.0 273.6 (41.5)
--- --- --- --- ----- -----
Income before income taxes.......... 4.6 5.8 5.1 5.8 23.2 25.6
Income taxes........................ 1.8 2.4 2.0 2.4 23.2 25.6
--- --- --- --- ----- -----
Net income.......................... 2.8% 3.4% 3.1% 3.4% 23.1% 25.6%
=== === === === ===== =====
</TABLE>
10
<PAGE>
The following table sets forth for the periods indicated, the percentage of net
revenue represented by the following items:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1998 1997 1998 1997
PEDIATRIC HOME HEALTH CARE: ------- ------- ------- -------
<S> <C> <C> <C> <C>
Nursing.......................................... $22,418 $14,234 $44,973 $28,544
Respiratory Therapy Equipment.................... 6,891 5,914 11,643 10,817
Home Medical Equipment........................... 777 338 1,574 717
Pharmacy and Other............................... 9,878 6,264 17,980 12,256
Total Pediatric Home Health Care........... ------- ------- ------- -------
39,964 26,750 76,170 52,334
------- ------- ------- -------
ADULT HOME HEALTH CARE:
Nursing.......................................... 4,714 7,187 8,825 13,041
Respiratory Therapy Equipment.................... 5,504 5,735 11,491 11,504
Home Medical Equipment........................... 1,507 1,418 3,071 2,855
Pharmacy and Other............................... 5,613 2,501 9,660 4,244
------- ------- -------- -------
Total Adult Home Health Care............... 17,338 16,841 33,047 31,644
------- ------- -------- -------
Total Medical Testing Services............. 22,177 6,155 31,821 12,322
------- ------- -------- -------
Total Net Revenue.......................... $79,479 $49,746 $141,038 $96,300
======= ======= ======== =======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997.
Net revenue increased $29.7 million, or 60%, to $79.5 million in the three
months ended March 31, 1998 from $49.8 million in the same period in the prior
year. The Company's acquisitions and start up operations accounted for
approximately $23.3 million, or 78%, of the increase and internal growth
accounted for the remaining $6.4 million, or 22%, of the increase. Overall,
for branch offices that have been under the Company's management for more than
one year, the internal growth in net revenue was 13% for the three months ended
March 31, 1998. Of the $29.7 million increase in net revenue in the second
quarter of fiscal 1998, pediatric health care net revenue accounted for $13.2
million, or 44%, of the increase. Increased pediatric health care net revenue
for the three months ended March 31, 1998 was attributable to the Company's
acquisitions and start up operations which accounted for approximately $4.7
million, or 20%, of the total acquisitions and startup increase and to marketing
efforts which resulted in an increase in patients served rather than any
significant increase in rates charged. The net increase in adult health care
net revenue (attributable to young adult and geriatric patients) accounted for
$0.5 million, or 2% of the total increase in net revenue for the three months
ended March 31, 1998. Increased adult net revenue for the three months ended
March 31, 1998 was attributable to the Company's acquisitions which accounted
for approximately $4.3 million, a 19% increase. This was largely offset by a
decline in internal revenue for adult health care of $3.8 million. Effective
January 1, 1998, there was a 25% reduction in the Medicare reimbursement rate
for oxygen and related services. This
11
<PAGE>
served to reduce the Company's revenue by approximately $0.9 million. In
addition, paramedical testing services net revenue accounted for $16.0 million,
or 54% of the increase in net revenue for the quarter, primarily due to the
acquisition of PMI. This acquisition accounted for $14.3 million, or 61%, of the
increase. In the three months ended March 31, 1998, the Company derived
approximately 72% of its net revenues from commercial insurers and other private
payors, 22% from Medicaid and 6% from Medicare.
Operating salaries, wages and employee benefits consist primarily of branch
office operations. Operating salaries, wages and employee benefits increased
$9.6 million, or 45%, to $31.0 million in the three months ended March 31, 1998
from $21.4 million in the same period in the prior year. The increase was
primarily due to the Company's acquisitions and start up operations which added
approximately $8.1 million, or 85% of the increase. As a percentage of net
revenue, operating salaries, wages and employee benefits for the three months
ended March 31, 1998 decreased to 39% from 43% in the comparable period of the
prior year due to a shift in the business mix. As a result of acquisitions
completed by the Company, particularly the December 1997 acquisition of PMI, the
Company's historical results of operations are not necessarily indicative of
future results. PMI has a much 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, independent contractor payments and cost of sales.
The cost of sales consists primarily of the cost of pharmacy products. Other
operating costs increased $14.0 million, or 75%, to $32.5 million in the three
months ended March 31, 1998 from $18.5 million in the comparable period in 1997.
Of this increase, $10.2 million, or 73%, relates to the Company's acquisitions.
As a percentage of net revenue, other operating costs for the three months ended
March 31, 1998 increased to 41% from 37% in the comparable period of the prior
year. This was due to a shift in the business mix towards paramedical testing
which is more service oriented, as well as the leverage of incremental revenue
against the fixed cost component of other operating costs.
Corporate, general and administrative costs increased $3.1 million, or
104%, to $6.1 million for the three months ended March 31, 1998 from $3.0
million in the same period in the prior year. The increase was primarily due to
the allocation of some of the paramedical testing expenses to corporate, general
and administrative costs. This allocation may change as the methodology becomes
more refined. As a percentage of net revenue, corporate, general and
administrative costs for the three months ended March 31,1998 increased to 8%
from 6% in the comparable period of the prior year.
Provision for doubtful accounts consists of the amount of billed revenue
that management estimates will become uncollectable. During the three months
ended March 31, 1998, the Company's provision for doubtful accounts increased
approximately $0.5 million, or 30%, to $2.1 million from $1.6 million in the
same period in 1997. The increase is primarily due to the increase in total net
revenue and an increase in days sales outstanding ("DSO"), which increased to
114 days in the fiscal 1998 period from 107 days in the prior year period. As a
percentage of net revenue, the provision for doubtful accounts decreased
slightly due to the full quarter of PMI revenue that has lower DSO and
significantly higher projected collectability compared to the three months ended
March 31, 1997.
Depreciation and amortization expenses increased $0.8 million, or 55%, to
$2.3 million in the three months ended March 31, 1998 from $1.5 million in the
same period in 1997. The increase was primarily due to capital expenditures for
the purchase of rental equipment and the amortization of goodwill from the
Company's
12
<PAGE>
acquisitions. As a percentage of the Company's total net revenue, depreciation
and amortization costs were comparable for the three months ended March 31, 1998
and 1997.
Interest expense increased $1.1 million, or 145%, to $1.9 million in the
three months ended March 31, 1998 from $0.8 million in the same period in the
prior year. The increase was primarily the result of a $59 million increase in
the Company's average debt outstanding at March 31, 1998 compared to the same
period in the prior year. This additional debt was used to finance acquisitions
and the Company's working capital requirements.
Income tax expense increased $0.3 million, or 23% to $1.5 million in the
three months ended March 31, 1998 from $1.2 million in the same period in the
prior year. This increase is due to an increase in the taxable income of the
Company.
SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO SIX MONTHS ENDED MARCH 31, 1997.
Net revenue increased $44.7 million, or 46% to $141.0 million in the six
months ended March 31, 1998 from $96.3 million in the same period in the prior
year. The Company's acquisitions and start-up operations accounted for
approximately $33.3 million, or 74% of the increase and internal growth
accounted for the remaining $11.4 million, or 26% of the increase. Overall, for
branch offices that have been under the Company's management for more than one
year, the internal growth in net revenue was 12% for the six months ended March
31, 1998. Of the $44.7 million increase in net revenue for the six months ended
for March 31, 1998, pediatric net revenue accounted for $23.8 million, or 53% of
the increase. Increased pediatric net revenue for the six months ended March 31,
1998 was attributable to the Company's acquisitions which accounted for
approximately $9.2 million, or 28%, of the total acquisitions and start up
increase and to marketing efforts which resulted in an increase in patients
served rather than any significant increase in rates charged. Adult net revenue
accounted for $1.4 million, or 3% of the increase in net revenue for the six
months ended March 31, 1998. Increased adult net revenue for the six months
ended March 31, 1998 was attributable to the Company's acquisitions which
accounted for approximately $7.4 million, or 22% of the increase. This was
largely offset by a decline in internal revenue for adult health care of $6.0
million. Effective January 1, 1998, there was a 25% reduction in the Medicare
reimbursement rate for oxygen and related services. This served to reduce the
Company's revenue by approximately $0.9 million. In addition, paramedical
testing services net revenue accounted for $19.5 million, or 44%, of the
increase in net revenue for the six month period, primarily due to the
acquisition of PMI. This acquisition accounted for $16.7 million, or 50%, of the
increase. The Company derived approximately 70% of its net revenues from
commercial insurers and other private payors, 23% from Medicaid and 7% from
Medicare.
Operating salaries, wages and employee benefits consist primarily of branch
office operations. Operating salaries, wages and employee benefits increased
$15.9 million or 39% to $57.1 million in the six months ended March 31, 1998
from $41.2 million in the same period in the prior year. The increase was
primarily due to the Company's acquisitions and start up operations which added
approximately $11.9 million, or 75%, of the increase. As a percentage of net
revenue, operating salaries, wages and employee benefits for the six months
ended March 31, 1998 decreased to 41% from 43%. As a result of acquisitions
completed by the Company, particularly the December 1997 acquisition of PMI, the
Company's historical results of operations are not necessarily indicative of
future results. PMI has a much lower operating salaries, wages and employee
benefits component as compared to the Company's other operations, thereby
decreasing the Company's overall ratio.
13
<PAGE>
Other operating costs include medical supplies, branch office rents,
utilities, vehicle expenses, independent contractor payments and cost of sales.
Other operating costs increased $19.0 million, or 52%, to $55.5 million in the
six months ended March 31, 1998 from $36.5 million in the comparable period in
1997. Of this increase, $14.7 million or 77%, relates to the Company's
acquisitions. As a percentage of net revenue, other operating costs for the six
months ended March 31, 1998 increased to 39% from 38% in the comparable period
of the prior year. This was due to a shift in the business mix towards
paramedical testing, which is more service oriented, as well as the leverage of
incremental revenue against the fixed cost component of other operating costs.
Corporate, general and administrative costs increased $4.2 million, or 72%,
to $9.9 million in the six months ended March 31, 1998 from $5.7 million in the
same period in the prior year. The increase was primarily due to the allocation
of some of the paramedical testing expenses to corporate, general and
administrative costs. This allocation may change as the methodology becomes more
refined.
Provision for doubtful accounts consists of the amount of billed revenue
that management estimates will become uncollectable. During the six months
ended March 31, 1998, the Company's provision for doubtful accounts increased
approximately $0.9 million, or 32%, to $3.9 million from $3.0 million in the
same period in 1997. The increase is primarily due to the increase in total net
revenue and an increase in DSO. As a percentage of net revenue, the provision
for doubtful accounts decreased slightly compared to the six months ended March
31, 1997 due to the full quarter of PMI revenue that has lower DSO and
significantly higher projected collectability.
Depreciation and amortization expenses increased $1.2 million, or 43%, to
$4.1 million in the six months ended March 31, 1998 from $2.9 million in the
same period in 1997. 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, 1998 and 1997.
Interest expense increased $2.0 million, or 149%, to $3.4 million in the
six months ended March 31, 1998 from $1.4 million in the same period in the
prior year. The increase was primarily the result of a $51 million increase in
the Company's average debt outstanding at March 31, 1998, compared to the same
period in the prior year. This additional debt was used to finance acquisitions
and the Company's working capital requirements.
Income tax expense increased $0.6 million, or 26%, to $2.9 million in the
six months ended March 31, 1998 from $2.3 million in the same period in the
prior year. This increase is due to an increase in the taxable income of the
Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating cash flows are affected significantly by changes in
accounts receivable, which have grown substantially over time, largely as a
result of the Company's net revenue growth. For the six months ended March 31,
1998 and 1997, the Company's cash flows from operations were affected by
increases in accounts receivable balances of $27.7 million and $13.0 million,
respectively. The Company's DSO was 114
14
<PAGE>
days and 107 days as of March 31, 1998, and March 31, 1997, respectively, based
on the annualized net revenue for the last quarter of the period. The increase
in DSO is primarily attributable to the growth experienced by the Company, the
impact of the acquired accounts receivable balances from the acquisitions, the
integration of the Company's billing and collection management system and the
increasing complexity of third-party payor billing procedures and the
corresponding lengthening of the collection period. The Company has taken
measures intended to improve DSO by hiring additional experienced reimbursement
personnel, improving training programs and implementing and integrating its new
billing and collection management system. Reductions in DSO will increase funds
available for expansion and growth.
As of March 31, 1998, the Company has recorded a deferred tax asset in its
consolidated financial statements. Management believes that it is more likely
than not that the deferred tax asset will be realized. Under new guidance
issued by the Internal Revenue Service, in December 1996, the Company made an
election entitling it to mark its accounts receivable to market value for tax
purposes. This election eliminated the deferred tax asset relating to the
allowance for doubtful accounts and established a new deferred tax liability to
reflect the new temporary differences. During fiscal 1997, the 1996 tax return
and the 1993 through 1995 amended tax returns were filed for the Company and its
subsidiaries under this new guidance. This election gave rise to expected cash
refunds of $2.0 million plus interest. As of March 31, 1998, $1.8 million plus
interest had been received. As of March 31, 1998, the net operating loss
carryforward of certain subsidiaries had been fully utilized.
The Company's investments in property and equipment are attributable
largely to purchases of medical equipment that is rented to patients and
computer equipment related to the Company's new billing and receivable
management system. The Company intends to continue to expand its business
primarily through acquiring local and regional home health care companies,
opening 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 borrowings under the Credit Agreement,
shares of Common Stock of the Company and seller notes. The Company's
investments in the acquisition of businesses were $23.4 million and $7.2 million
respectively, for the six months ended March 31, 1998 and 1997.
On April 16, 1998, the Company, in a private placement, issued $75 million
aggregate principal amount of 10% Senior Subordinated Notes due 2008 (the "Old
Notes"). After paying issuance costs of approximately $2.25 million, the
Company received proceeds of $72.75 million, which were used to repay a portion
of the indebtedness outstanding under its revolving credit facility. There are
an additional $0.75 million in issuance costs remaining to be paid. Interest on
the Old Notes accrues from the date of issuance, and is payable semi-annually on
April 15 and October 15 of each year, commencing October 15, 1998. The Old
Notes are redeemable for cash at any time on or after April 15, 2003, at the
option of the Company, in whole or in part, at certain redemption prices, plus
accrued and unpaid interest to the date of redemption. In addition, at any time
prior to April 15, 2001, the Company may redeem up to 25% of the aggregate
principal amount of the Old Notes with the net proceeds from one or more public
offerings of Common Stock of the Company at a set redemption amount. The Old
Notes place certain restrictions on the incurrence of additional indebtedness,
the creation of liens, sales of assets, mergers and consolidations and payment
of dividends, among other things.
On May 12, 1998, the Company registered with the Securities and Exchange
Commission $75 million aggregate principal amount of 10% Senior Subordinated
Notes due 2008, Series A (the "New Notes"). The New Notes are being offered by
the Company to the Old Notes holders in an exchange ("Exchange Offer"). The
15
<PAGE>
Company will not receive any proceeds from the Exchange Offer. The terms of the
New Notes are identical in all material respects to the Old Notes.
In August 1997, the Company increased the amount of financing available
under the Credit Agreement to $100.0 million from $60.0 million, consisting of a
$100.0 million revolving loan with a $5.0 million swingline loan credit
subfacility. The loan is due August 13, 2002. The Credit Agreement was amended
April 16, 1998, effective upon the issuance of the Old Notes, changing the
commitment fees and the financial ratio requirements. In addition, limitations
were put in place through September 1998, upon the cash component of the
consideration payable by the Company for acquisitions of new businesses. A
commitment fee ranging from .225% to .450% per annum is charged on the average
daily unused portion of the loan facility. The loan is collateralized by 100%
of the voting stock of the Company. The loan requires the Company to maintain
certain financial ratios, and places restrictions on the sale and purchase of
assets, payment of dividends and other distributions relating to the Company's
outstanding capital stock. At the Company's option, borrowings under the
revolving facility bear interest at (1) LIBOR plus an applicable margin that
varies from a minimum of 1.0% to a maximum of 1.75% and is based on the
calculation of a leverage ratio, or (2) the prime rate. At the Company's
option, borrowings under the swingline loan credit subfacility bear interest at
either (1) a Quoted Rate established by the lender or (2) the prime rate. At
March 31, 1998, the Company's applicable margin was 1.625%, and the interest
rates under this facility at March 31, 1998 ranged from 7.175% to 7.315%.
Outstanding borrowings under this facility at March 31,1998 were approximately
$100.0 million. Pending consummation of the offering of the Old Notes, the
Company also entered into a revolving credit promissory note (the "Revolving
Note") whereby NationsBank, N.A. agreed to advance the Company up to $10 million
provided availability under the Credit Agreement had been exhausted. The
Revolving Note was closed on February 26, 1998, and terminated upon the
consummation of the offering of the Old Notes. Pricing and conditions to
funding for the Revolving Note were identical to those on the Credit Agreement,
and the Revolving Note was cross-defaulted to the Credit Agreement.
At April 30, 1998, total borrowings under the Credit Agreement, including
current portion, was approximately $27.0 million.
At March 31, 1998, the Company had one interest rate swap agreement with a
commercial bank (the "Counter Party"), having a cumulative notional principal
amount of $25.0 million. The Company pays a fixed rate of 6.61% plus the
applicable margin that varies from a minimum of 1.0% to a maximum of 1.75% and
is based on the calculation of a leverage ratio. 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.
A portion of the consideration paid by the Company for PMI consisted of
495,050 shares of the Company's Common Stock. Pursuant to the terms of the PMI
acquisition, the Company agreed to provide to ChoicePoint for a period of one
year after the acquisition, protection against a decrease in the value of any of
the Company's shares issued to and subsequently sold by ChoicePoint in the
marketplace. Under the terms of the agreement, each month the Company must
reimburse ChoicePoint in cash for any decrease in the price of the Company's
shares by paying ChoicePoint the difference between the actual sale price of any
shares sold by ChoicePoint and $20.20 (the average share price of the Company's
Common Stock on the Nasdaq National Market system for a 15-day period prior to
the closing of the transaction), multiplied by the number of shares sold. If any
net gain is realized by ChoicePoint in any month during the one-year period of
the agreement, then ChoicePoint will reimburse the Company for amounts
previously paid by the Company to the extent of such net gains.
16
<PAGE>
Management currently believes that internally generated funds and
borrowings under the Credit Agreement will be adequate to satisfy the Company's
working capital requirements, including anticipated expansion, for the
foreseeable future.
YEAR 2000 COMPLIANCE
As the year 2000 approaches, an issue impacting all companies has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. Management does not anticipate that the Company
will incur significant operating expenses or will be required to invest heavily
in computer system improvements relating to the uncertainties associated with
the year 2000 because the Company's current and planned systems are year 2000
compliant. The Company conducts business electronically with certain external
parties, including payors and vendors. Management does not know at this time
what, if any, impact year 2000 compliance may have on its payor and vendor
sources and the impact, if any, on the Company if such payors or vendors are not
fully compliant. Management is contacting external parties with which it
interacts to determine year 2000 compliance issues and when its payors or
vendors expect to be year 2000 compliant.
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 with or incorporated by reference in
this report. Where such filing is made by incorporation by reference
to a previously filed registration statement or report, such
registration statement or report is identified in parentheses. The
Company will furnish any exhibit upon request to Pediatric Services of
America, Inc., 310 Technology Parkway, Norcross, Georgia 30092.
There is a charge of $.50 per page to cover expenses for copying and
mailing.
10.15 Amendment No. 1 to Credit Agreement, dated April 16, 1998, by
and among the Company and its wholly-owned subsidiary,
Pediatric Services of America, Inc., a Georgia corporation as
Borrower, the subsidiaries and affiliates identified therein,
the lenders identified therein, and NationsBank, N.A., as
Administrative Agent, filed herewith.
11.1 Computation of Earnings Per Share (Three Months)
17
<PAGE>
11.2 Computation of Earnings Per Share (Six Months)
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
On April 20, 1998, the Registrant filed a report on Form 8-K under Item 5,
announcing that the Registrant had consummated a private offering of $75,000,000
aggregate principal amount of 10% Senior Subordinated Notes due April 15, 2008.
18
<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 14, 1998 By: /s/ Stephen M. Mengert
-------------------------------
Stephen M. Mengert
Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary
(Duly authorized officer and
Principal Financial Officer)
19
<PAGE>
INDEX OF EXHIBITS
PAGE NO.
--------
10.15 Amendment No. 1 to Credit Agreement, dated April 16,
1998, by and among the Company and its wholly-owned
subsidiary, Pediatric Services of America, Inc., a
Georgia corporation as Borrower, the subsidiaries and
affiliates identified therein, the lenders identified
therein, and NationsBank, N.A., as Administrative Agent,
filed herewith............................................... 21
11.1 Computation of Earnings per Share (Three Months)............. 27
11.2 Computation of Earnings per Share (Six Months)............... 28
27 Financial Data Schedule...................................... 29
20
<PAGE>
Exhibit 10.15
AMENDMENT NO. 1
THIS AMENDMENT NO. 1 (the "Amendment") dated as of April 16, 1998, to the
---------
Credit Agreement referenced below, is by and among PEDIATRIC SERVICES OF
AMERICA, INC., a Georgia corporation, PEDIATRIC SERVICES OF AMERICA, INC., a
Delaware corporation, the subsidiaries and affiliates identified herein, the
lenders identified herein, and NATIONSBANK, N.A., as Administrative Agent. Terms
used but not otherwise defined shall have the meanings provided in the Credit
Agreement.
W I T N E S S E T H
WHEREAS, a $100 million credit facility has been established in favor of
Pediatric Services of America, Inc., a Georgia corporation (the "Borrower")
--------
pursuant to the terms of that Credit Agreement dated as of August 13, 1997 (as
amended and modified, the "Credit Agreement") among the Borrower, the Guarantors
----------------
and Lenders identified therein, and NationsBank, N.A., as Administrative Agent;
WHEREAS, Pediatric Services of America, Inc., a Delaware corporation (the
"Company") plans to issue up to $100 million in senior subordinated notes;
- --------
WHEREAS, the issuance of the senior subordinated notes requires the consent
of the Required Lenders;
WHEREAS, the Required Lenders have agreed to the issuance of the senior
subordinated notes on the terms and conditions set forth herein;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. The Credit Agreement is amended in the following respects:
1.1 In Section 1.1 the pricing grid in the definition of "Applicable
Percentage" is amended to read as follows:
<TABLE>
<CAPTION>
Eurodollar
Margin
Consolidated and
Pricing Leverage Base Rate Letter of Commitment
Level Ratio Margin Credit Fee Fee
----- ----- ------ ---------- ---
<S> <C> <C> <C> <C>
equal to
or greater
I than 4.0 0% 1.750% .450%
equal to
or greater than 3.5
II but less than 4.0 0% 1.625% .375%
equal to
or greater than 3.0
III but less than 3.5 0% 1.500% .325%
equal to
or greater than 2.75
IV but less than 3.0 0% 1.375% .300%
equal to
or greater than 2.5
V but less than 2.75 0% 1.250% .275%
equal to
or greater than 2.0
VI but less than 2.5 0% 1.125% .250%
VII less than 2.0 0% 1.000% .225%
</TABLE>
1.2 The following definitions in Section 1.1 are amended and modified,
or added, to read as follows:
"Restricted Payment" means (i) any dividend or other
------------------
distribution, direct or indirect, on account of any shares of any class of
stock not or hereafter outstanding, except (A) a dividend payable solely in
shares of that class to the holders of that class and (B) dividends and
other distributions payable to a Credit Party, (ii) any redemption,
<PAGE>
retirement, sinking fund or similar payment, purchase or other acquisition
for value, direct or indirect, of any shares of any class of stock nor or
hereafter outstanding, (iii) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of stock now or hereafter outstanding, and (iv) any
prepayment of principal of, and premium, if any, on the senior subordinated
indebtedness referenced in Section 8.1(g) or other subordinated
indebtedness permitted hereunder, or redemption, retirement, defeasance,
sinking fund or other similar payments thereon or in respect thereof.
"Consolidated Senior Funded Debt" means Funded Debt of the
-------------------------------
Consolidated Group which is not subordinated in right of payment to the
prior payment of the obligations under this Credit Agreement and the other
Credit Documents, determined on a consolidated basis in accordance with
GAAP applied on a consistent basis.
"Consolidated Senior Leverage Ratio" means, as of the last day of
----------------------------------
any fiscal quarter, the ratio of Consolidated Senior Funded Debt on such
day to Consolidated EBITDA determined by annualizing Consolidated EBITDA
for the two consecutive fiscal quarters ending as of the date of
determination.
1.3 In Section 3.5, a new sentence shall be inserted immediately after
the first sentence to read as follows:
For purposes hereof, Swingline Loans shall not be considered usage
under the Revolving Commitments.
1.4 Section 7.9(a) is amended to read as follows:
(a) Consolidated Leverage Ratio. As of the end of each fiscal
---------------------------
quarter to occur during the periods set forth below, the Consolidated
Leverage Ratio shall not be greater than:
<TABLE>
<CAPTION>
<S> <C>
Closing Date through September 29, 1998 4.25:1.0
September 30,1998 through March 30, 1999 4.00:1.0
March 31, 1999 through September 29, 1999 3.75:1.0
September 30, 1999 and thereafter 3.50:1.0
</TABLE>
1.5 A new subsection (d) is added to Section 7.9 to read as follows:
(d) Consolidated Senior Leverage Ratio. As of the end of each
----------------------------------
fiscal quarter, the Consolidated Senior Leverage Ratio shall not be greater
than 2.50:1.0.
1.6 A new subsection (c) is added to Section 7.1 to read as follows:
(c) Additional Guaranties. Notwithstanding anything contained in
---------------------
the foregoing subsections (a) and (b) of this Section 7.11, each subsidiary
or affiliate of the Company and the Borrower which shall give a guaranty or
other Support Obligation in respect of the senior subordinated indebtedness
referenced in Section 8.1(g), shall also be joined as a Guarantor
hereunder.
1.7 In Section 8.1, subsections (g) and (h) are renumbered as (h) and
(i), respectively, and an new subsection (g) is added to read as follows:
(g) unsecured senior subordinated indebtedness of the Company of up to
$100,000,000 in aggregate principal amount issued, and subordinated Support
Obligations thereof by subsidiaries relating thereto, in each case, on
terms substantially as described in the Offering Memorandum attached as an
Exhibit to Amendment No. 1;
2
<PAGE>
1.8. In Section 8.4(c)(ii), subsections (B) and (C) are renumbered as
(C) and (D), respectively, and a new subsection (B) is added to read as follows:
(B) during the period from the closing Date through September 30, 1998,
the cash consideration paid in any such acquisition (or series of related
acquisitions) shall not exceed $1 million in any instance;
1.9 Section 8.12 is amended to read as follows:
Except with respect to (i) prohibitions against other encumbrances on
specific Property encumbered to secure payment of particular Indebtedness
(which indebtedness relates solely to such specific Property, and
improvements and accretions thereto, and is otherwise permitted hereby) and
(ii) limitations provided in the indenture relating to the senior
subordinated indebtedness permitted under Section 8.1(g) as described in
the Offering Memorandum attached as an Exhibit to Amendment No. 1, no
member of the Consolidated Group will enter into, assume or become subject
to any agreement prohibiting or otherwise restricting the creation or
assumption of any Lien upon its properties or assets, whether now owned or
hereafter acquired, or requiring the grant of any security for such
obligation if security is given for some other obligation.
2. This Amendment shall be effective upon satisfaction of the following
conditions:
(a) confirmation by the Administrative Agent that the terms of the
indenture relating to the senior subordinated indebtedness in an aggregate
principal amount of up to $100 million are consistent with the terms
described in the Offering Memorandum attached;
(b) execution of this Amendment by the Credit Parties and the Required
Lenders;
(c) receipt by the Administrative Agent of legal opinions of counsel to
the Credit Parties relating to this Amendment;
(d) receipt by the Administrative Agent of conformed copies of the
indenture, notes and other operative documents relating to the senior
subordinated indebtedness in an aggregate principal amount of up to $100
million; and
(e) receipt by the Administrative Agent for the ratable benefit of the
consenting Lenders of an Amendment Fee of 5 basis points on the aggregate
amount of Commitments held by each of the Lenders consenting to this
Amendment.
3. Except as modified hereby, all of the terms and provisions of the
Credit Agreement (including Schedules and Exhibits) shall remain in full force
and effect.
4. The Borrower agree to pay all reasonable costs and expenses of the
Administrative Agent in connection with the preparation, execution and delivery
of this Amendment, including without limitation the reasonable fees and expenses
of Moore & Van Allen, PLLC.
5. This Amendment may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original and it shall
not be necessary in making proof of this Amendment to produce or account for
more than one such counterpart.
6. This Amendment shall be deemed to be a contract made under, and for all
purposes shall be construed in accordance with the laws of the State of North
Carolina.
[Remainder of Page Intentionally Left Blank]
3
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.
BORROWER: PEDIATRIC SERVICES OF AMERICA, INC.,
- -------- a Georgia corporation
By:
----------------------------------------------------
Name: Stephen M. Mengert
Title: Senior Vice President and
Chief Financial Officer
GUARANTORS: PEDIATRIC SERVICES OF AMERICA, INC.,
- ---------- a Delaware corporation
By:
----------------------------------------------------
Name: Stephen M. Mengert
Title: Senior Vice President and Chief Financial Officer
PSA LICENSING CORPORATION,
a Delaware corporation
PSA PROPERTIES CORPORATION,
a Delaware corporation
By:
----------------------------------------------------
Name: Susan E. Dignan
Title: President for each of the foregoing
PEDIATRIC SERVICES OF AMERICA, (CONNECTICUT), INC.,
a Connecticut corporation
PREMIER MEDICAL SERVICES, INC.
a Nevada corporation
PEDIATRIC HOME NURSING SERVICES, INC.,
a New York corporation
PEDIATRIC PARTNERS, INC.,
a Delaware corporation
INSURANCE MEDICAL REPORTER, INC.,
a California corporation
PREMIER NURSE STAFFING INC.,
a Nevada corporation
PREMIER CERTIFIED HOME HEALTH SERVICES, INC.,
a Nevada corporation
ARO HEALTH SERVICES, INC.
a Washington corporation
By:
----------------------------------------------------
Name: Joseph D. Sansone
Title: President for each of the foregoing
4
<PAGE>
LENDERS: NATIONSBANK, N.A.
- ------- individually in its capacity as a
Lender and in its capacity as Administrative Agent
By:
----------------------------------------------------
Name: MICHAEL S. SYLVESTER
Title: Vice President
TORONTO DOMINION (TEXAS), INC.
By:
----------------------------------------------------
Name: JIMMY SIMIEN
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By:
----------------------------------------------------
Name: JEFFREY R. DICKSON
Title: Vice President
SUNTRUST BANK, ATLANTA
By:
----------------------------------------------------
Name: BRENDA ZINO
Title: Corporate Banking Officer
By:
----------------------------------------------------
Name: JEFF SEAVEY
Title: Vice President
MELLON BANK
By:
----------------------------------------------------
Name: GREGORY B. ANDERSON
Title: Vice President
CREDITANSTALT-BANKVEREIN
By:
----------------------------------------------------
Name: CARL G. DRAKE
Title: Vice President
By:
----------------------------------------------------
Name: WILLIAM E. MCCOLLUM, JR.
Title: Senior Associate
5
<PAGE>
EXHIBIT
-------
OFFERING MEMORANDUM
6
<PAGE>
EXHIBIT 11.1
PEDIATRIC SERVICES OF AMERICA, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------
BASIC DILUTED
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average common stock
outstanding during the period... 7,021,533 6,256,949 7,021,533 6,256,949
Options.......................... 0 0 159,708 179,514
Effect upon weighted average of
shares issued in acquisitions... 53,018 0 53,018 0
---------- ---------- ---------- ----------
Total............................ 7,074,551 6,256,949 7,234,259 6,436,463
========== ========== ========== ==========
Net income attributable to common
and common equivalent shares:
Net income.................... $2,134,354 $1,733,137 $2,134,354 $1,733,137
========== ========== ========== ==========
Net income per common and common
equivalent share................ $ 0.30 $ 0.28 $ 0.30 $ 0.27
========== ========== ========== ==========
</TABLE>
<PAGE>
EXHIBIT 11.2
PEDIATRIC SERVICES OF AMERICA, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
----------------------------------------------
BASIC DILUTED
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average common stock
outstanding during the period... 6,641,052 6,252,834 6,641,052 6,252,834
Options.......................... 0 0 182,126 181,617
Effect upon weighted average of
shares issued in acquisitions... 147,997 0 147,997 0
---------- ---------- ---------- ----------
Total............................ 6,789,049 6,252,834 6,971,175 6,434,451
========== ========== ========== ==========
Net income attributable to common
and common equivalent shares:
Net income.................... $4,255,997 $3,389,446 $4,255,997 $3,389,446
========== ========== ========== ==========
Net income per common and common
equivalent share................ $ 0.63 $ 0.54 $ 0.61 $ 0.53
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 311
<SECURITIES> 0
<RECEIVABLES> 113,015
<ALLOWANCES> 12,324
<INVENTORY> 0
<CURRENT-ASSETS> 109,085
<PP&E> 38,229
<DEPRECIATION> 18,210
<TOTAL-ASSETS> 219,568
<CURRENT-LIABILITIES> 25,678
<BONDS> 0
0
0
<COMMON> 71
<OTHER-SE> 84,074
<TOTAL-LIABILITY-AND-EQUITY> 219,568
<SALES> 141,038
<TOTAL-REVENUES> 141,038
<CGS> 0
<TOTAL-COSTS> 126,616
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,928
<INTEREST-EXPENSE> 3,392
<INCOME-PRETAX> 7,129
<INCOME-TAX> 2,873
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,256
<EPS-PRIMARY> .63<F1>
<EPS-DILUTED> .61
<FN>
<F1>EPS-Primary reflects EPS-Basic
</FN>
</TABLE>
