<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 December 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-23946
PEDIATRIC SERVICES OF AMERICA, INC.
(Exact name of Registrant as specified in its charter)
Delaware 58-1873345
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
310 Technology Parkway, Norcross GA 30092-2929
(Address of principal executive offices, including zip code)
(770) 441-1580
(Registrant's telephone number, including area code)
3159 Campus Drive, Norcross GA 30071
(Former Address)
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 February 11, 1998, the Registrant had 7,064,927 shares of Common Stock,
$0.01 Par Value, outstanding.
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Page 1 of 18
Index of Exhibits on page 15
1
<PAGE>
FORM 10-Q
PEDIATRIC SERVICES OF AMERICA, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
Number
ITEM 1: Financial Statements
<S> <C> <C>
Condensed Consolidated Balance Sheets as of
December 31, 1997 and September 30, 1997.....................................3
Condensed Consolidated Statements of Income for
the three months ended December 31, 1997 and 1996............................5
Condensed Consolidated Statements of Cash Flows for
the three months ended December 31, 1997 and 1996............................6
Notes to Condensed Consolidated Financial
Statements Unaudited.........................................................7
ITEM 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................................8
PART II OTHER INFORMATION
ITEM 4: Submission of Matters to a Vote of Security Holders..................................12
ITEM 6: Exhibits and Reports on Form 8-K.....................................................13
Signatures...........................................................................14
Index of Exhibits....................................................................15
</TABLE>
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)
December 31, September 30,
1997 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 415 $ 501
Accounts receivable, less allowances for doubtful accounts
of $11,461 and $10,036, respectively............................... 86,252 75,458
Prepaid expenses...................................................... 962 508
Deferred income taxes................................................. 3,400 3,880
Other current assets.................................................. 5,448 3,481
--------- ---------
Total current assets.................................................... 96,477 83,828
Property and equipment:
Home care equipment held for rental................................... 25,660 24,104
Furniture and fixtures................................................ 8,860 6,979
Vehicles.............................................................. 789 731
Leasehold improvements................................................ 631 581
--------- ---------
35,940 32,395
Accumulated depreciation and amortization............................. (16,850) (15,678)
--------- ---------
19,090 16,717
Other assets:
Goodwill, less accumulated amortization of $4,231
and $3,695, respectively........................................... 81,701 50,421
Certificates of need, less accumulated amortization of $319
and $279, respectively............................................. 2,929 1,543
Deferred financing fees, less accumulated amortization of
$237 and $192, respectively........................................ 588 632
Non-compete agreements, less accumulated amortization of
$757 and $719, respectively........................................ 306 321
Other................................................................. 426 372
--------- ---------
Total assets............................................................ $ 201,517 $ 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)
December 31, September 30,
1997 1997
---- ----
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................... $ 7,408 $ 6,302
Accrued compensation.................................................. 4,753 5,147
Accrued insurance..................................................... 2,643 2,393
Other accrued liabilities............................................. 6,144 3,559
Deferred revenue...................................................... 983 853
Income taxes payable.................................................. 1,709 1,119
Current maturities of long-term obligations from related parties...... 2,086 2,163
Current maturities of long-term obligations........................... 105 99
------- -------
Total current liabilities............................................... 25,831 21,635
Long-term obligations from related parties net of current maturities.... 3,854 3,887
Long-term obligations, net of current maturities........................ 86,102 61,125
Deferred income taxes................................................... 5,132 4,691
Minority interest in subsidiary......................................... 815 816
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; 7,109
shares at December 31, 1997 and 6,258 shares at September 30, 1997
issued and outstanding, respectively............................... 70 63
Additional paid-in capital............................................ 57,720 41,746
Retained earnings..................................................... 21,993 19,871
------- -------
Total stockholders' equity ............................................. 79,783 61,680
------- -------
Total liabilities & stockholders' equity ............................... $201,517 $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
December 31,
(Unaudited)
-----------
1997 1996
------ ------
<S> <C> <C>
Net revenue.................................................................. $ 61,559 $ 46,554
Costs and expenses:
Operating salaries, wages and employee benefits............................ 26,081 19,734
Other operating costs...................................................... 22,943 17,948
Corporate, general and administrative...................................... 3,836 2,772
Provision for doubtful accounts............................................ 1,833 1,375
Depreciation and amortization.............................................. 1,847 1,416
------- -------
Total costs and expenses................................................. 56,540 43,245
------- -------
Operating income............................................................. 5,019 3,309
Interest expense............................................................. 1,466 575
------- -------
Income before minority interest and income taxes............................. 3,553 2,734
Minority interest in loss of subsidiary...................................... 1 40
------- -------
Income before income taxes................................................... 3,554 2,774
Income taxes................................................................. 1,432 1,118
------- -------
Net income................................................................... $ 2,122 $ 1,656
======= =======
Basic Share data:
Net income per common and common equivalent share........................... $ 0.33 $ 0.27
======= =======
Weighted average common shares outstanding ................................. 6,504 6,249
======= =======
Diluted Share data:
Net income per common and common equivalent share........................... $ 0.32 $ 0.26
======= =======
Weighted average common shares outstanding ................................. 6,708 6,433
======= =======
</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>
Three Months Ended
December 31,
(unaudited)
-----------
1997 1996
----------- --------
<S> <C> <C>
Operating activities
Net income........................................................................ $ 2,122 $ 1,656
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization..................................................... 1,847 1,416
Provision for doubtful accounts................................................... 1,833 1,375
Amortization of deferred financing fees........................................... 45 19
Deferred income taxes............................................................. 922 -
Minority interest loss in subsidiary.............................................. (1) (40)
Changes in operating assets and liabilities, net of effects from acquisitions of
businesses:
Accounts receivable............................................................... (11,734) (7,031)
Prepaid expenses and other current assets......................................... (1,764) (551)
Accounts payable.................................................................. 1,029 (360)
Income taxes...................................................................... 590 (281)
Accrued liabilities............................................................... 2,108 1,036
----------- -----------
Net cash used in operating activities............................................... (3,003) (2,761)
Investing activities
Purchases of property and equipment............................................... (1,774) (1,400)
Acquisitions of businesses........................................................ (19,736) (4,250)
Other, net........................................................................ (10) (378)
----------- -----------
Net cash used in investing activities............................................... (21,520) (6,028)
Financing activities
Principal payments on long-term debt.............................................. (594) (91)
Borrowings on long-term debt...................................................... 25,000 8,850
Deferred financing fees........................................................... - (179)
Proceeds from exercise of stock options........................................... 31 18
----------- -----------
Net cash provided by financing activities .......................................... 24,437 8,598
----------- ------------
Decrease in cash and cash equivalents............................................... (86) (191)
Cash and cash equivalents at beginning of year...................................... 501 770
----------- -----------
Cash and cash equivalents at end of period.......................................... $ 415 $ 579
=========== ============
Supplemental disclosure of cash flow information:
Cash paid for interest........................................................... $ 1,262 $ 439
=========== ============
Cash paid for income taxes........................................................ $ 50 $ 1,405
=========== ============
</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 month period ended December 31, 1997
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 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 204,545 and 183,889 for the three months ended
December 31, 1997 and 1996, respectively.
3. Interest Rate Swap Agreement
At December 31, 1997, 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 .875% to a maximum
of 1.625% 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.
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.
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
7
<PAGE>
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
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. For a one year period, the Company has agreed to protect the
average price received by PMI upon disposition of the Company's shares.
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.
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 and KN 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.
Results of Operations
The historical condensed consolidated statements of operations of the
Company for the three months ended December 31, 1997 contained in this
report and the following discussion thereof include the effect of the
Company's acquisitions of PPT, IC, AIE, KAN, CHM, PMI and KN subsequent
to the respective dates of acquisition.
8
<PAGE>
The following table is derived from the Company's unaudited condensed
consolidated statements of operations for the periods indicated and
presents results of operations as a percentage of net revenue and the
percentage change in the dollar amounts of each item from the prior period.
<TABLE>
<CAPTION>
Period-to-Period
Percentage of
Percentage of Net Revenue Increase (Decrease)
------------------------- ------------------
Three Months Three Months
Ended Ended
December 31, December 31,
--------------- ---------------
1997 1996 1997 to 1996
---- ---- ------------
<S> <C> <C> <C>
Net revenue...................................... 100% 100% 32.2%
Operating salaries, wages and employee
benefits...................................... 42.4 42.4 32.2
Other operating costs............................ 37.3 38.5 27.8
Corporate, general and administrative............ 6.2 6.0 38.4
Provision for doubtful accounts.................. 3.0 3.0 33.4
Depreciation and amortization.................... 3.0 3.0 30.4
---- ---- ----
Operating income................................. 8.1 7.1 51.6
Interest expense................................. 2.4 1.2 155.1
---- ---- -----
Income before income taxes and minority
interest...................................... 5.7 5.9 29.9
Minority interest loss in subsidiary............. 0.0 0.1 (97.0)
---- ---- ------
Income before income taxes....................... 5.7 6.0 28.1
Income taxes..................................... 2.3 2.4 28.1
---- ---- ----
Net income....................................... 3.4% 3.6% 28.1%
==== ==== =====
</TABLE>
9
<PAGE>
The following table sets forth for the periods indicated a summary of net
revenue by category:
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------------
Pediatric Home Health Care: 1997 1996
---- ----
<S> <C> <C>
Nursing................................................................... $22,555 $13,946
Respiratory Therapy Equipment............................................. 4,753 4,667
Home Medical Equipment.................................................... 796 941
Pharmacy and Other........................................................ 8,102 6,691
----- -----
Total Pediatric Home Health Care.................................... 36,206 26,245
Adult Home Health Care:
Nursing................................................................... 4,111 5,810
Respiratory Therapy Equipment............................................. 5,987 5,412
Home Medical Equipment.................................................... 1,564 1,284
Pharmacy and Other ....................................................... 4,047 1,635
-------- --------
Total Adult Home Health Care........................................ 15,709 14,141
Total Paramedical Testing Services.................................. 9,644 6,168
-------- --------
Total Net Revenue................................................... $ 61,559 $ 46,554
======== ========
</TABLE>
Three Months Ended December 31, 1997 Compared to Three Months Ended
December 31, 1996.
Net revenue increased $15.0 million, or 32%, to $61.6 million in the three
months ended December 31, 1997 from $46.6 million in the same period in the
prior year. The Company's acquisitions and start up operations accounted for
approximately $10.0 million, or 67%, of the increase and internal growth
accounted for the remaining $5.0 million, or 33%, of the increase. Overall, the
internal growth in net revenue was 11% for the three months ended December 31,
1997. Of the $15.0 million increase in net revenue in the first quarter of
fiscal 1998, pediatric net revenue accounted for $10.0 million, or 67%, of the
increase. Increased pediatric net revenue for the three months ended December
31, 1997 was attributable to the Company's acquisitions which contributed
approximately $4.6 million, or 46%, of the increase and to internal marketing
efforts which resulted in an increase in patients served rather than any
significant increase in rates charged. Adult net revenue accounted for $1.5
million, or 10%, of the increase in net revenue for the three months ended
December 31, 1997. Increased adult net revenue for the three months ended
December 31, 1997 was attributable to the Company's acquisitions which
contributed approximately $3.0 million, or 30% of the increase. Paramedical
testing services net revenue accounted for $3.5 million, or 23%, of the increase
in net revenue for the quarter, primarily due to an acquisition. This
acquisition accounted for $2.4 million, or 24%, of the increase.
Operating salaries, wages and employee benefits consist primarily of branch
office operations. Operating salaries, wages and benefits increased $6.4
million, or 32%, to $26.1 million in the three months ended December 31, 1997
from $19.7 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 $4.4 million, or 70%, 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 December 31, 1997 remained
unchanged to the comparable period in the prior year.
Other operating costs include medical supplies, branch office rents,
utilities, vehicle expenses and cost of sales. Other operating costs increased
$5.0 million, or 28%, to $22.9 million in the three months ended December 31,
1997 from $17.9 million in the comparable period in 1996. Of this increase, $4.0
million, or 81%, relates to operations from the Company's acquisitions. As a
percentage of net revenue, other operating costs for the three months ended
December 31, 1997 decreased to 37% from 39% in the comparable period of the
prior year.
Corporate, general and administrative costs increased $1.0 million, or 38%,
to $3.8 million in the three months ended December 31, 1997 from $2.8 million in
the same period in the prior year. The increase was primarily due the internal
growth of the Company's operations.
Provision for doubtful accounts consists of the amount of billed
revenue that management estimates will become uncollectible. During the three
months ended December 31, 1997, the Company's provision for doubtful accounts
increased approximately $0.5 million, or 33%, to $1.8 million from $1.4 million
in the same period in 1996. The increase is
10
<PAGE>
primarily due to the increase in total net revenue and an increase in Days Sales
Outstanding ("DSO"). As a percentage of net revenue, the provision for doubtful
accounts is comparable for the three months ended December 31, 1997 and 1996.
Depreciation and amortization expenses increased $0.4 million, or 30%, to
$1.8 million in the three months ended December 31, 1997 from $1.4 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
December 31, 1997 and 1996.
Interest expense increased $0.9 million, or 155%, to $1.5 million in the
three months ended December 31, 1997 from $0.6 million in the same period in the
prior year. The increase was primarily the result of a $49 million increase in
the Company's average debt outstanding at December 31, 1997 compared to the same
period in the prior year. This additional debt was used to finance acquisitions
and the Company's working capital.
Income tax expense increased $0.3 million, or 28%, to $1.4 million in the
three months ended December 31, 1997 from $1.1 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 growth in
accounts receivable, largely as a result of the Company's net revenue growth.
For the three months ended December 31, 1997 and 1996, the Company's cash flows
from operations were affected by increases in accounts receivable balances of
$11.7 million and $7.0 million, respectively. These increases in accounts
receivable were due primarily to volume growth, acquisitions and slower
collections. The Company's DSO in accounts receivable was 125 days and 107 days
as of December 31, 1997, and December 31, 1996, respectively, based on the
annualized net revenue for the last quarter of the period. The increase in DSO
is primarily attributable to the accelerated growth experienced by the Company,
seasonality, the impact of the acquired accounts receivable balances from the
acquisitions, diversion of collection activities due to the integration issues
of the Company's new billing and receivable management system and slower receipt
hiring more experienced key reimbursement personnel, improving training programs
and incorporating its new billing and receivable management system. Any
reduction in DSO will increase funds available for expansion and growth.
As of December 31, 1997, 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 December 31, 1997, $1.8 million
plus interest had been received. In addition, the net operating loss
carryforward of certain subsidiaries were increased and at December 31, 1997,
$3.9 million was remaining to offset certain future tax payments. Such losses
expire $1.0 million by the year 2010 and $2.9 million by the year 2011.
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 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 borrowings under the Company's credit
facility and shares of Common Stock of the Company. The Company's investments in
the acquisition of businesses were $19.7 million and $4.6 million respectively,
for the three months ended December 31, 1997 and 1996.
In August 1997, the Company extended its existing credit facility. The
amount of financing available increased to $100.0 million from $60.0 million
consisting of a $95 million revolving loan and a $5 million swingline facility.
The loan is due August 2002. A commitment fee ranging from .225% to .375% per
annum is charged on the average daily unused portion of the facility. The loan
is collateralized by 100% of the voting stock of the Company. The loan requires
the
11
<PAGE>
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, (2) prime
rate, or (3) at a rate equal to the bank's cost of funds, plus an applicable
margin that varies from a minimum of .875% to a maximum of 1.625%and is based on
the calculation of a leverage ratio. At December 31, 1997, the Company's
applicable margin was 1.625%, and the interest rates under this facility at
December 31, 1997 ranged from 7.12% to 7.22%. Outstanding borrowings under this
facility at December 31, 1997 were approximately $86.0 million.
At December 31, 1997, 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 .875% to a maximum of 1.625% 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.
The Company is currently in the process of extending its present bank line
as contemplated under the credit facility, and is considering additional and
alternative sources of third party financing.
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. Management does not know at this time what, if any, impact year 2000
compliance may have on its payor sources and the impact, if any, on the Company
if such payors are not fully compliant. Management will be developing a plan to
determine when its payors will 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 4. Submission of Matters to a Vote of Security Holders
The 1998 Annual Meeting of Shareholders of the Company was held on January
21, 1998. Proxies with regard to the matters to be voted upon at the Annual
Meeting were solicited under Regulation 14A of the Securities Exchange Act of
1934, as amended. Set forth below is a brief description of each matter voted
upon at the Annual Meeting and the results of the voting on each matter.
(a) Election of the two directors named below for a term of three years
expiring at the 2001 Annual Meeting of Shareholders. There was no
solicitation in opposition to any of the nominees listed in the proxy
statement, and each of the nominees was elected.
Votes Broker
-----------------------------------------------------
Nominees For Withheld Abstentions Non-votes
-------- --- -------- ----------- ---------
Robert P. Pinkas 4,340,395 194,025 - -
Richard S. Smith 4,340,095 194,325 - -
12
<PAGE>
(b) The approval of an amendment to the Company's Amended and Restated
Stock Option Plan to increase the aggregate number of Common Stock
from 700,000 to 1,750,000 shares. The Shareholders approved the
proposal.
Votes
---------------------------------------------------------------------------
For Against Abstentions
--- ------- -----------
3,327,629 831,368 3,279
(c) The approval of an amendment to the Company's Amended and Restated
Directors' Stock Option Plan to increase the aggregate number of
Common Stock from 95,000 to 300,000 shares. The Shareholders approved
the proposal.
Votes
---------------------------------------------------------------------------
For Against Abstentions
--- ------- -----------
3,420,259 768,198 3,379
(d) The approval of an amendment to the Company's Amended and Restated
Directors' Stock Option Plan which gives the Compensation Committee
the authority and sole discretion to (i) make additional grants of
options and (ii) approve all subsequent transactions related to the
grants. The Shareholders approved the proposal.
Votes
---------------------------------------------------------------------------
For Against Abstentions
--- ------- -----------
4,346,390 152,891 5,579
(e) Ratification of the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending September 30, 1998.
The Shareholders approved the proposal.
Votes
---------------------------------------------------------------------------
For Against Abstentions
--- ------- -----------
4,532,530 1,225 665
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
The following exhibits are filed as part of this Report:
3.4 Certificate of Correction to Certificate of Amendment of the
Amended and Restated Certificate of Incorporation
11.1 Computation of Earnings per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
The Company did not file a Current Report on Form 8-K during the
quarter ended December 31, 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: February 17, 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)
14
<PAGE>
INDEX OF EXHIBITS
Page No.
--------
3.4 Certificate of Correction to Certificate of
Amendment of the Amended and Restated
Certificate of Incorporation........................................16
11.1 Computation of Earnings per Share...................................17
27 Financial Data Schedule.............................................18
15
<PAGE>
EXHIBIT 3.4
CERTIFICATE OF CORRECTION
FILED TO CORRECT A CERTAIN ERROR IN THE
CERTIFICATE OF AMENDMENT OF THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
PEDIATRIC SERVICES OF AMERICA, INC.
AS FILED WITH THE SECRETARY OF STATE OF DELAWARE ON
FEBRUARY 3, 1997
PEDIATRIC SERVICES OF AMERICA, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify:
1. The name of the corporation is PEDIATRIC SERVICES OF AMERICA, INC.
2. That a Certificate of Amendment was filed by the Secretary of State of
Delaware on February 3, 1997, and that said Certificate requires correction as
permitted by Section 103 of the General Corporation Law of the State of
Delaware.
3. The inaccuracy or defect of said Certificate to be corrected is as
follows: Article FOURTH of the Certificate lists the total authorized shares as
------
80,000,000, par value $0.01 per share, of which 78,000,000 shares is designated
as "Common Stock" and 2,000,000 shares is designated as "Preferred Stock."
4. Article FOURTH of the Certificate is corrected to read as follows:
------
"FOURTH: The total number of shares of all classes which the
------
Corporation has authority to issue is 82,000,000, par value
$0.01 per share, of which 80,000,000 shares shall be designated
as "Common Stock," and 2,000,000 shall be designated as
"Preferred Stock"."
IN WITNESS WHEREOF, said PEDIATRIC SERVICES OF AMERICA, INC. has caused
this Certificate to be signed by Susan E. Dignan, its Assistant Secretary, this
13th day of February, 1998.
PEDIATRIC SERVICES OF AMERICA, INC.
By: /s/ Susan E. Dignan
------------------------------------------
Susan E. Dignan, Assistant Secretary
16
<PAGE>
Exhibit 11.1
PEDIATRIC SERVICES OF AMERICA, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended December 31,
--------------------------------------------------------
Basic Diluted
----------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common stock
outstanding during the period.................. 6,260,570 6,248,718 6,260,570 6,248,718
Options........................................... 0 0 204,545 183,889
Effect upon weighted average of shares
issued in acquisitions.......................... 242,977 0 242,977 0
--------- --------- --------- ---------
Total............................................. 6,503,547 6,248,718 6,708,092 6,432,607
========= ========= ========= =========
Net income attributable to common and common
equivalent shares:
Net Income..................................... $2,121,642 $1,656,308 $2,121,642 $1,656,308
========== ========== ========== ==========
Net income per common and common
equivalent share................................ $ 0.33 $ 0.27 $ 0.32 $ 0.26
========== ========== ========== ==========
</TABLE>
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 415
<SECURITIES> 0
<RECEIVABLES> 97,713
<ALLOWANCES> 11,461
<INVENTORY> 0
<CURRENT-ASSETS> 96,477
<PP&E> 35,940
<DEPRECIATION> 16,850
<TOTAL-ASSETS> 201,517
<CURRENT-LIABILITIES> 25,831
<BONDS> 0
0
0
<COMMON> 70
<OTHER-SE> 79,713
<TOTAL-LIABILITY-AND-EQUITY> 201,517
<SALES> 61,559
<TOTAL-REVENUES> 61,559
<CGS> 0
<TOTAL-COSTS> 54,707
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,833
<INTEREST-EXPENSE> 1,466
<INCOME-PRETAX> 3,554
<INCOME-TAX> 1,432
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,122
<EPS-PRIMARY> .33
<EPS-DILUTED> .32
</TABLE>
