<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, 2000
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)
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 4, 2000, the Registrant had 6,658,305 shares of Common Stock, $0.01
Par Value, outstanding.
================================================================================
Page 1 of 25
Index of Exhibits on page 20
<PAGE>
FORM 10-Q
PEDIATRIC SERVICES OF AMERICA, INC.
INDEX
PAGE
NUMBER
------
PART I FINANCIAL INFORMATION
ITEM 1: Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 2000 and September 30, 1999......................3
Condensed Consolidated Statements of Operations for
the three and six months ended March 31, 2000 and 1999.....5
Condensed Consolidated Statements of Cash Flows for
the six months ended March 31, 2000 and 1999...............6
Notes to Condensed Consolidated Financial
Statements.................................................7
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................11
ITEM 3: Quantitative and Qualitative Disclosures about Market Risk..........16
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings...................................................16
ITEM 4: Submission of Matters to a Vote of Security Holders.................17
ITEM 5. Other Events........................................................18
ITEM 6: Exhibits and Reports on Form 8-K....................................18
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>
MARCH 31, SEPTEMBER 30,
2000 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................. $ 23,658 $ 8,361
Accounts receivable, less allowances for doubtful
accounts of $11,605 and $14,649, respectively ....... 45,988 55,482
Prepaid expenses ....................................... 711 667
Income taxes receivable .............................. 687 345
Other current assets ................................... 4,138 4,011
Net current assets of discontinued operations .......... -- 25,192
--------- ---------
Total current assets ........................................ 75,182 94,058
PROPERTY AND EQUIPMENT:
Home care equipment held for rental .................... 30,390 30,096
Furniture and fixtures ................................. 9,819 9,813
Vehicles ............................................... 805 805
Leasehold improvements ................................. 1,048 1,032
--------- ---------
42,062 41,746
Accumulated depreciation and amortization .............. (27,706) (25,071)
--------- ---------
14,356 16,675
OTHER ASSETS:
Goodwill, less accumulated amortization of
$6,273 and $5,159, respectively ..................... 35,047 36,160
Certificates of need, less accumulated amortization of
$353 and $302, respectively ......................... 320 371
Deferred financing fees, less accumulated
amortization of $599 and $1,119, respectively ...... 2,446 2,719
Non-compete agreements, less accumulated amortization of
$1,068 and $1,032, respectively ..................... 92 28
Other .................................................. 271 367
Non-current assets of discontinued operations .......... -- 27,253
--------- ---------
38,176 66,898
--------- ---------
Total assets ................................................ $ 127,714 $ 177,631
========= =========
</TABLE>
See accompanying notes.
3
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS--(CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
------------- -----------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................................ $ 6,758 $ 9,126
Accrued compensation ........................................................ 5,534 9,116
Accrued insurance ........................................................... 4,996 4,602
Other accrued liabilities ................................................... 9,797 8,718
Deferred revenue ............................................................ 716 714
Current maturities of long-term obligations to related parties .............. 195 1,141
Current maturities of long-term obligations ................................. 21 31
--------- ---------
Total current liabilities ...................................................... 28,017 33,448
Long-term obligations to related parties, net of current
maturities ................................................................. 50 25
Long-term obligations, net of current maturities ............................... 75,022 137,272
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,000 shares
authorized, no shares issued and outstanding .............................. -- --
Common stock, $.01 par value, 80,000 shares
authorized; 6,658 and 6,652 shares issued and outstanding at March 31, 2000
and September 30, 1999, respectively ...................................... 67 67
Additional paid-in capital .................................................. 48,363 48,362
Accumulated deficit ......................................................... (23,805) (41,543)
--------- ---------
Total stockholders' equity ..................................................... 24,625 6,886
--------- ---------
Total liabilities and stockholders' equity ..................................... $ 127,714 $ 177,631
========= =========
</TABLE>
See accompanying notes.
4
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
--------- --------- --------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUE ........................................ $ 47,401 $ 54,870 $ 95,505 $ 111,611
COSTS AND EXPENSES:
Operating salaries, wages and employee benefits . 22,036 27,109 44,694 54,564
Other operating costs ........................... 16,848 19,797 34,499 38,058
Corporate, general and administrative ........... 5,064 4,321 9,816 8,450
Provision for doubtful accounts ................. 1,948 7,346 4,292 10,510
Depreciation and amortization ................... 2,041 2,179 4,105 4,334
Impairment of intangible assets ................. -- 20,984 -- 20,984
--------- --------- --------- ---------
Total costs and expenses .................. 47,937 81,736 97,406 136,900
--------- --------- --------- ---------
Operating loss ..................................... (536) (26,866) (1,901) (25,289)
Interest income .................................... (227) -- (227) --
Interest expense ................................... 1,935 3,870 4,902 6,964
--------- --------- --------- ---------
Loss from continuing operations, before minority
interest and income taxes ...................... (2,244) (30,736) (6,576) (32,253)
Minority interest in loss of subsidiary ............ -- 124 -- 167
--------- --------- --------- ---------
Loss from continuing operations, before income taxes (2,244) (30,612) (6,576) (32,086)
Income tax benefit ................................. -- (1,184) -- (1,659)
--------- --------- --------- ---------
Loss from continuing operations .................... (2,244) (29,428) (6,576) (30,427)
Discontinued operations:
Income from discontinued operations, net of taxes . -- 628 -- 1,735
Gain on disposal of discontinued operations ........ -- -- 24,314 --
--------- --------- --------- ---------
Net income (loss) .................................. $ (2,244) $ (28,800) $ 17,738 $ (28,692)
--------- --------- --------- ---------
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE DATA:
Loss from continuing operations .................... $ (0.34) $ (4.42) $ (0.99) $ (4.57)
Income from discontinued operations ................ -- 0.09 -- 0.26
Gain on disposal of discontinued operations ........ -- -- 3.66 --
--------- --------- --------- ---------
Net income (loss) .................................. $ (0.34) $ (4.33) $ 2.67 $ (4.31)
========= ========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and diluted .................................. 6,653 6,652 6,652 6,652
========= ========= ========= =========
</TABLE>
See accompanying notes.
5
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
2000 1999
---------- ----------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Loss from continuing operations ................................................ $ (6,576) $(30,427)
Adjustments to reconcile loss from continuing operations to net cash provided by
(used in) operating activities:
Depreciation and amortization ............................................. 4,105 4,334
Provision for doubtful accounts ........................................... 4,292 10,510
Impairment of intangible assets ........................................... -- 20,984
Amortization of deferred financing fees ................................... 515 284
Deferred income taxes ..................................................... -- (612)
Minority interest in loss of subsidiary ................................... -- (167)
Changes in operating assets and liabilities:
Accounts receivable .................................................... 5,201 (12,518)
Prepaid expenses ....................................................... (45) 228
Other assets ........................................................... (147) (384)
Accounts payable ....................................................... (2,368) 1,007
Income taxes ........................................................... (342) 925
Accrued liabilities .................................................... (2,108) 300
-------- --------
Net cash provided by (used in) operating activities of continuing
operations .................................................................. 2,527 (5,536)
Net cash provided by (used in) operating activities of discontinued
operations .................................................................. (1,087) 4,549
-------- --------
Net cash provided by (used in) operating activities ............................ 1,440 (987)
INVESTING ACTIVITIES
Purchases of property and equipment ............................................ (535) (1,782)
Proceeds from sale of division ................................................. 77,869 --
Other, net ..................................................................... 70 16
-------- --------
Net cash provided by (used in) investing activities of continuing operations ... 77,404 (1,766)
Net cash used in investing activities of discontinued operations ............... (24) (513)
-------- --------
Net cash provided by (used in) investing activities ............................ 77,380 (2,279)
FINANCING ACTIVITIES
Principal payments on long-term debt ........................................... (63,281) (6,530)
Borrowings on long-term debt ................................................... -- 16,500
Deferred financing fees ........................................................ (242) (16)
Proceeds from exercise of stock options ........................................ -- 1
-------- --------
Net cash provided by (used in) financing activities ............................ (63,523) 9,955
-------- --------
Increase in cash and cash equivalents .......................................... 15,297 6,689
Cash and cash equivalents at beginning of period ............................... 8,361 1,444
-------- --------
Cash and cash equivalents at end of period ..................................... $ 23,658 $ 8,133
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest ......................................................... $ 4,388 $ 6,754
======== ========
</TABLE>
See accompanying notes.
6
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Pediatric Services of America, Inc. (the "Company") and its
majority-owned subsidiaries have been prepared in accordance with
accounting principles generally accepted in the United States 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 months ended
March 31, 2000 are not necessarily indicative of the results to be
expected for the entire fiscal year ending September 30, 2000. These
condensed consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial
statements for the year ended September 30, 1999 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 1999 Annual Report.
2. DESCRIPTION OF BUSINESS
The Company provides a broad range of pediatric health care services
and equipment including nursing, respiratory therapy, rental and sale
of durable medical equipment, pharmaceutical services and infusion
therapy services. In addition, the Company provides pediatric
rehabilitation services, day treatment centers for medically fragile
children, pediatric well care services and special needs educational
services for pediatric patients. The Company also provides case
management services in order to assist the family and patient by
coordinating the provision of services between the insurer or other
payor, the physician, the hospital and other health care providers. The
Company's services are designed to provide a high quality, lower cost
alternative to prolonged hospitalization for medically fragile
children. As a complement to its pediatric respiratory and infusion
therapy services, the Company also provides respiratory and infusion
therapy and related services for adults.
3. USE OF ESTIMATES
The preparation of the condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of net revenue and
expenses during the reporting period. Actual results could differ from
those estimates and the differences could be material. Due to the
nature of the industry and the reimbursement environment in which the
Company operates, certain estimates are required in recording net
revenue and determining the provision for doubtful accounts. Inherent
in these estimates is the risk that they will have to be revised or
updated as additional information becomes available to management.
4. ACCOUNTS RECEIVABLE
Accounts receivable include approximately $9.7 million and $10.5
million for which services have been rendered but the amounts were
unbilled as of March 31, 2000 and September 30, 1999, respectively.
Such unbilled amounts are primarily a result of the time required to
obtain and reconcile information from field locations in order to
process bills for services rendered.
7
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - (CONTINUED)
5. CONCENTRATION OF CREDIT RISK
The Company's principal financial instruments subject to potential
concentration of credit risk are cash and cash equivalents and accounts
receivable. Cash and cash equivalents are held primarily in one
financial institution. The Company performs periodic evaluations of the
relative credit standing of this financial institution. The
concentration of credit risk with respect to accounts receivable, which
are primarily health care industry related, represent a risk to the
Company given the current health care environment. The risk is somewhat
limited due to the large number of payors including Medicare and
Medicaid, insurance companies, and individuals and the diversity of
geographic locations in which the Company operates.
On January 13, 2000, the Company settled and received a final payment
of $0.1 million under the Interest Rate Swap Agreement with a
commercial bank, having a cumulative notional principle amount of $25
million (the "Interest Rate Swap Agreement").
6. RECLASSIFICATIONS
Certain amounts for prior periods have been reclassified to conform to
the current year presentation.
7. DISCONTINUED OPERATIONS
During the third quarter of fiscal 1999, the Company's Board of
Directors approved management's plan to sell the Company's paramedical
testing operations. On November 1, 1999, the Company concluded the sale
of the assets of its paramedical testing division to Hooper Holmes,
Inc. During the first quarter of fiscal 2000, the Company recorded a
gain on the sale of this division of $24.3 million, including the
deferred operating losses of $10.6 million incurred between the
measurement date and disposal date. As a result, the paramedical
testing operations are reflected as a discontinued operation and the
condensed consolidated financial statements of the Company for all
periods presented have been restated to reflect the discontinued
operations. The operating results of the discontinued operations are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue ........................ $-- $22,129 $ 6,415 $44,763
Income before income tax expense ... -- 1,201 -- 2,841
Income tax expense ................. -- 573 -- 1,106
---- ------- ------- -------
Net income ......................... $-- $ 628 $ -- $ 1,735
==== ======= ======= =======
</TABLE>
8
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - (CONTINUED)
DISCONTINUED OPERATIONS - CONTINUED
Assets and liabilities of the discontinued operations have been
reflected in the condensed consolidated balance sheets as current or
non-current based on the original classification of the accounts,
except certain current liabilities are netted against current assets.
The following is a summary of assets and liabilities of discontinued
operations (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
------------
<S> <C>
Cash ................................................... $ 541
Accounts receivable, net ............................... 12,691
Prepaid expenses ....................................... 29
Other current assets ................................... 12,471
-------
Total current assets ................................... 25,732
Accrued compensation ................................... 540
-------
Net current assets of discontinued operations .......... $25,192
=======
Property, net .......................................... $ 5,025
Goodwill, net .......................................... 22,173
Other .................................................. 55
-------
Non-current assets of discontinued operations .......... $27,253
=======
</TABLE>
Accounts receivable for discontinued operations include approximately
$9.4 million for which services have been rendered but the amounts were
unbilled as of September 30, 1999. Primarily such unbilled amounts
result from the paramedical testing division's practice of billing one
month in arrears. Certain liabilities were not assumed by Hooper
Holmes, Inc. in the sale of the paramedical testing division. These
liabilities include accounts payable, additional accrued compensation
and other accrued liabilities which totaled approximately $3.3 million
at March 31, 2000.
8. INCOME TAXES
The Company recorded a full valuation allowance against the net
deferred tax assets as of March 31, 2000. In recording the valuation
allowance, management considered whether it is more likely than not
that some or all of the deferred tax assets will be realized. This
analysis includes considering scheduled reversal of deferred tax
liabilities, projected future taxable income, carryback potential, and
tax planning strategies. Management concluded that the net deferred tax
asset required a full valuation allowance. Accordingly, the Company did
not recognize any income taxes for the three and six months ended March
31, 2000.
9. LONG-TERM BORROWING ARRANGEMENTS
A portion of the proceeds from the sale of the Company's paramedical
testing division were used to pay down to zero all outstanding amounts
under the Company's existing Credit Agreement. Simultaneous with the
pay down of the existing Credit Agreement, the Company amended and
restated the Credit Agreement (the "Amended and Restated Loan Security
Agreement"). Subject to the terms and conditions of the Amended and
Restated Loan Security Agreement, the Lender made available a total
credit facility of up to $30.0 million for use by the Company and its
subsidiaries from time to time during the term of the Amended and
Restated Loan and Security Agreement. The total credit facility is
comprised of a revolving line of credit up to the available limit,
consisting of Loans and Letters of Credit (as defined therein). As of
this report date no amounts were outstanding under the Amended and
Restated Loan Security Agreement.
10. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed using the weighted
average number of shares of common stock outstanding during the period.
Diluted net income (loss) per share is computed using the weighted
average number of shares of common stock outstanding and the dilutive
effect of common equivalent
9
<PAGE>
shares (calculated using the treasury stock method). For the three and
six months ended March 31, 2000 and 1999, weighted average shares
outstanding for continuing operations for basic and diluted
computations are the same since the impact of common equivalent shares
on earnings per share is anti-dilutive.
11. SUBSEQUENT EVENT
The Company recently completed a series of transactions to repurchase a
total of $29.6 million of the $75 million aggregate principal amount of
10% Senior Subordinated Notes due 2008 ("the Notes") for $18.4 million
cash plus accrued interest. The pre-tax gain (net of debt issue costs)
of $10.3 million will be recorded as an extraordinary item during the
third quarter of fiscal year 2000.
10
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) relating to
future financial performance of Pediatric Services of America, Inc. (the
"Company"). When used in this Form 10-Q, the words "may," "could," "should,"
"would," "believe, " "feel, " "anticipate," "estimate," "intend," "plan" and
similar expressions may be indicative of forward-looking statements. These
statements by their nature involve substantial risks and uncertainties, certain
of which are beyond the Company's control. The Company cautions that various
factors, including the factors described hereunder and those discussed in the
Company's filings with the Securities and Exchange Commission, as well as
general economic conditions, industry trends, the Company's ability to collect
for equipment sold or rented, assimilate and manage previously acquired field
operations, collect accounts receivable, including receivables related to
acquired businesses and receivables under appeal, hire and retain qualified
personnel and comply with and respond to billing requirements issues, including
those related to the Company's billing and collection system could cause actual
results or outcomes to differ materially from those expressed in any
forward-looking statements of the Company made by or on behalf of the Company.
Any forward-looking statement speaks only as of the date on which such statement
is made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of an unanticipated
event. New factors emerge from time to time, and it is not possible for
management to predict all of such factors. Further, management cannot assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
The following discussion should be read in conjunction with the unaudited
Condensed Consolidated Financial Statements of the Company included in this
Quarterly Report.
RECENT DEVELOPMENTS
In the second quarter of fiscal 2000, the Company's senior management continued
implementation of its strategic plan (the "Plan") to improve the Company's
performance. The primary focus of the Plan is to redirect the Company to its
core businesses, the pediatric home healthcare and adult respiratory businesses.
The Company made progress on other operating initiatives contained within the
Plan. The Company continued to evaluate its portfolio of managed care contracts
with its intention to cancel or renegotiate those with minimal profitability and
cash flow performance. While progress to date has impacted operating results to
a lesser degree than anticipated, as contracts reach their respective renewal
dates the Company believes its ability to impact future results will improve.
The Company continues to focus its marketing efforts on its core competencies to
facilitate future internal revenue growth. While there will continue to be
revenues from non-core services previously marketed, the Company anticipates
these amounts will continue to decline and hopes to offset this decline with
internally generated revenue growth within the core services. The Company
continues to refine its best practices methodology for assessing and improving
branch office performance. In response to best practices findings to date,
ongoing organizational changes are occurring. Additionally, the Company has
invested significantly in its reimbursement organization by, among other things,
hiring more experienced senior managers, increasing incentive compensation for
billing and collection teams, improving its reporting and analysis capabilities
and increasing the amounts billed electronically.
Although the Plan is expected to reduce operating costs and improve cash flow,
there can be no assurance that the Company will be able to achieve the expected
cost savings from the Plan or will be able to reduce costs without negatively
impacting operations.
RESULTS OF OPERATIONS
Due to the nature of the industry and the reimbursement environment in which the
Company operates, certain
11
<PAGE>
estimates are required in recording net revenue. Inherent in these estimates is
the risk that net revenue will have to be revised or updated, with the changes
recorded in subsequent periods as additional information becomes available to
management.
The following table is derived from the Company's unaudited condensed
consolidated statements of operations for the periods indicated and presents
results of continuing operations as a percentage of net revenue and the
percentage change in the dollar amounts of each item from the comparative prior
period:
<TABLE>
<CAPTION>
PERIOD-TO-PERIOD PERCENTAGE
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,
--------- --------- --------- ---------
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net revenue ........................... 100% 100% 100% 100% (14)% (14)%
Operating salaries, wages and employee
benefits .............................. 46.5 49.4 46.8 48.9 (19) (18)
Other operating costs ................. 35.5 36.1 36.1 34.1 (15) (9)
Corporate, general and administrative . 10.7 7.9 10.3 7.6 17 16
Provision for doubtful accounts ....... 4.1 13.4 4.5 9.4 (74) (59)
Depreciation and amortization ......... 4.3 4.0 4.3 3.9 (6) (5)
Impairment of intangible assets ....... -- 38.2 -- 18.8 (100) (100)
----- ----- ----- ----- ---- ----
Operating loss ........................ (1.1) (49.0) (2.0) (22.7) (98) (93)
Interest income ....................... (0.5) -- (0.2) -- -- --
Interest expense ...................... 4.1 7.1 5.1 6.2 (50) (30)
----- ----- ----- ----- ---- ----
Loss from continuing operations, before
minority interest and income taxes .... (4.7) (56.1) (6.9) (28.9) (92) (79)
Minority interest in loss of subsidiary -- 0.2 -- 0.1 -- --
----- ----- ----- ----- ---- ----
Loss from continuing operations before
income taxes .......................... (4.7) (55.9) (6.9) (28.8) (92) (79)
Income tax benefit .................... -- (2.2) -- (1.5) (100) (100)
----- ----- ----- ----- ---- ----
Net loss from continuing operations ... (4.7)% (53.7)% (6.9)% (27.3)% (92)% (78)%
===== ===== ===== ===== ==== ====
</TABLE>
The following table sets forth for the periods indicated the net revenue
breakdown by service:
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
PEDIATRIC HOME HEALTH CARE
Nursing ............................... $ 21,231 $ 22,811 $ 42,203 $ 46,161
Respiratory Therapy Equipment ......... 4,436 6,288 9,217 12,848
Home Medical Equipment ................ 515 825 1,029 1,688
Pharmacy and Other .................... 8,931 9,245 17,457 19,000
-------- -------- -------- --------
Total Pediatric Home Health Care 35,113 39,169 69,906 79,697
-------- -------- -------- --------
ADULT HOME HEALTH CARE:
Nursing ............................... 3,039 5,250 5,986 10,259
Respiratory Therapy Equipment ......... 4,295 5,670 9,160 11,707
Home Medical Equipment ................ 1,147 1,730 2,371 3,621
Pharmacy and Other .................... 3,807 3,051 8,082 6,327
-------- -------- -------- --------
Total Adult Home Health Care ... 12,288 15,701 25,599 31,914
-------- -------- -------- --------
Total Net Revenue .............. $ 47,401 $ 54,870 $ 95,505 $111,611
======== ======== ======== ========
</TABLE>
12
<PAGE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Net revenue decreased $7.5 million, or 14%, to $47.4 million in the three months
ended March 31, 2000 from $54.9 million in the three months ended March 31,
1999. The reduction in revenue reflects the continued efforts to reduce non-core
and/or non-profitable products and services consistent with the Plan. Of the
$7.5 million decrease in net revenue for the three months ended March 31, 2000,
pediatric health care net revenue accounted for $4.1 million, primarily
attributable to the closure of select locations. Adult health care net revenue
accounted for a decrease of $3.4 million for the three months ended March 31,
2000, primarily as a result of the Company's sale of the medical staffing
business and reduction in adult nursing. In the three months ended March 31,
2000, the Company derived approximately 50% of its net revenue from commercial
insurers and other private payors, 43% from Medicaid and 7% from Medicare.
Operating salaries, wages and employee benefits consist primarily of branch
office employee costs. Operating salaries, wages and employee benefits decreased
$5.1 million, or 19%, to $22.0 million in the three months ended March 31, 2000
from $27.1 million in the three months ended March 31, 1999. Labor costs have
decreased across all services as a result of headcount reductions and reduced
nursing services primarily attributable to the closure and sale of select
nursing locations. However, due to the impact of the nursing shortage in
particular markets, location scheduling efficiencies have declined resulting in
higher overtime costs. As a percentage of net revenue, operating salaries, wages
and employee benefits for the three months ended March 31, 2000 decreased to 47%
from 49% for the three months ended March 31, 1999.
Other operating costs include medical supplies, branch office rent, utilities,
vehicle expenses, allocated insurance costs and cost of sales. Cost of sales
consists primarily of the costs of pharmaceuticals and related services. Other
operating costs decreased $3.0 million, or 15%, to $16.8 million in the three
months ended March 31, 2000, from $19.8 million in the three months ended March
31, 1999. As a percentage of net revenue, other operating costs for the three
months ended March 31, 2000 was comparable to the three months ended March 31,
1999.
Corporate, general and administrative costs increased $0.7 million, or 17%, to
$5.0 million in the three months ended March 31, 2000, from $4.3 million in the
three months ended March 31, 1999. As a percentage of net revenue, corporate,
general and administrative costs for the three months ended March 31, 2000,
increased to 11% from 8% in the three months ended March 31, 1999. The Company
has chosen to selectively invest in key areas where improvements have a tangible
impact on cash flow from operations. In addition, there are certain non-labor
fixed costs necessary to sustain the Company's infrastructure. As the Company's
Plan impacts future periods, certain of these costs should be able to be
reduced.
Provision for doubtful accounts decreased $5.4 million, or 74%, to $1.9 million
in the three months ended March 31, 2000, from $7.3 million in the three months
ended March 31, 1999. Overall cash collections for continuing operations
increased approximately $3.8 million or 8% during the three months ended March
31, 2000 as compared to the three months ended March 31, 1999 and these
provision levels were deemed to be appropriate.
Depreciation and amortization decreased $0.2 million, or 6%, to $2.0 million in
the three months ended March 31, 2000 from $2.2 million in the three months
ended March 31, 1999. As a percentage of the Company's net revenue, depreciation
and amortization costs for the three months ended March 31, 2000 increased
slightly compared to the three months ended March 31, 1999.
Interest expense decreased $1.9 million, or 50%, to $1.9 million in the three
months ended March 31, 2000, from $3.8 million in the three months ended March
31, 1999. The Company's average debt outstanding decreased $60.5 million as the
amount outstanding under the Credit Agreement was paid down to zero on November
1, 1999.
Interest income increased $0.2 million in the three months ended March 31, 2000.
The Company invested its excess cash balances in highly liquid investments.
Income tax benefit decreased $1.2 million to zero in the three months ended
March 31, 2000, from $1.2 million in the three months ended March 31, 1999. The
Company recorded a full valuation allowance against the net deferred tax assets
as of March 31, 2000.
13
<PAGE>
SIX MONTHS ENDED MARCH 31, 2000 COMPARED TO SIX MONTHS ENDED MARCH 31, 1999
Net revenue decreased $16.1 million, or 14%, to $95.5 million in the six months
ended March 31, 2000 from $111.6 million in the six months ended March 31, 1999.
The reduction in revenue reflects the continued efforts to reduce non-core
and/or non-profitable products and services consistent with the Plan. Of the
$16.1 million decrease in net revenue for the six months ended March 31, 2000,
pediatric health care net revenue accounted for $9.0 million, primarily
attributable to the closure of select locations. Adult health care net revenue
accounted for a decrease of $7.1 million for the six months ended March 31,
2000, primarily as a result of the Company's sale of the medical staffing
business and reduction in adult nursing. In the six months ended March 31, 2000,
the Company derived approximately 51% of its net revenue from commercial
insurers and other private payors, 42% from Medicaid and 7% from Medicare.
Operating salaries, wages and employee benefits consist primarily of branch
office employee costs. Operating salaries, wages and employee benefits decreased
$9.9 million, or 18%, to $44.7 million in the six months ended March 31, 2000
from $54.6 million in the six months ended March 31, 1999. Labor costs have
decreased across all services as a result of headcount reductions and reduced
nursing services primarily attributable to the closure and sale of select
nursing locations. However, due to the impact of the nursing shortage in
particular markets, location scheduling efficiencies have declined resulting in
higher overtime costs. As a percentage of net revenue, operating salaries, wages
and employee benefits for the six months ended March 31, 2000 decreased to 47%
from 49% for six months ended March 31, 1999.
Other operating costs include medical supplies, branch office rent, utilities,
vehicle expenses, allocated insurance costs and cost of sales. Cost of sales
consists primarily of the costs of pharmaceuticals and related services. Other
operating costs decreased $3.6 million, or 9%, to $34.5 million in the six
months ended March 31, 2000, from $38.1 million in the six months ended March
31, 1999. As a percentage of net revenue, other operating costs for the six
months ended March 31, 2000 increased to 36% from 34% for the six months ended
March 31, 1999. The increase primarily relates to increased costs for the
product mix for infusion services delivered in the six months ended March 31,
2000, as compared to the six months ended March 31, 1999, as well as the impact
of location fixed costs relative to the decline in net revenue.
Corporate, general and administrative costs increased $1.4 million, or 16%, to
$9.8 million in the six months ended March 31, 2000, from $8.4 million in the
six months ended March 31, 1999. As a percentage of net revenue, corporate,
general and administrative costs for the six months ended March 31, 2000,
increased to 10% from 8% in the six months ended March 31, 1999. The Company has
chosen to selectively invest in key areas where improvements have a tangible
impact on cash flow from operations. In addition, there are certain non-labor
fixed costs necessary to sustain the Company's infrastructure. As the Company's
Plan impacts future periods, certain of these costs should be able to be
reduced.
Provision for doubtful accounts decreased $6.2 million, or 59%, to $4.3 million
in the six months ended March 31, 2000, from $10.5 million in the six months
ended March 31,1999. Overall cash collections for continuing operations
increased approximately $7.0 million or 8% during the six months ended March 31,
2000 as compared to the six months ended March 31, 1999 and these provision
levels were deemed to be appropriate.
Depreciation and amortization decreased $0.2 million, or 5%, to $4.1 million in
the six months ended March 31, 2000 from $4.3 million in the six months ended
March 31, 1999. As a percentage of the Company's net revenue, depreciation and
amortization costs for the six months ended March 31, 2000 increased slightly
compared to the six months ended March 31, 1999.
Interest expense decreased $2.1 million, or 30%, to $4.9 million in the six
months ended March 31, 2000, from $7.0 million in the six months ended March 31,
1999. The Company's average debt outstanding decreased $48.5 million as the
amount outstanding under the Credit Agreement was paid down to zero on November
1, 1999.
Interest income increased $0.2 million in the six months ended March 31, 2000.
The Company invested its excess cash balances in highly liquid investments.
Income tax benefit decreased $1.7 million to zero in the six months ended March
31, 2000, from $1.7 million in the six months ended March 31, 1999. The Company
recorded a full valuation allowance against the net deferred tax assets as of
March 31, 2000.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, total borrowings under the Notes were $75.0 million. The
Company recently completed a series of transactions to repurchase a total of
$29.6 million of the $75 million aggregate principal amount of 10% Senior
Subordinated Notes due 2008 ("the Notes") for $18.4 million cash plus accrued
interest. The pre-tax gain (net of debt issue costs) of $10.3 million will be
recorded as an extraordinary item during the third quarter of fiscal year 2000.
On November 1, 1999, the Company concluded the sale of the assets of its
paramedical testing division to Hooper Holmes, Inc. A portion of the proceeds
were used to pay down to zero all outstanding amounts under the Company's
existing Credit Agreement. Simultaneous with the pay down, the Credit Agreement
was further amended and restated with Banc of America Commercial Finance
Corporation, successor to NationsBank, N.A., as Lender and sole credit party
(the "Amended and Restated Loan Security Agreement").
Subject to the terms and conditions of the Amended and Restated Loan Security
Agreement, the Lender shall make available a total credit facility of up to
$30.0 million. The total credit facility is comprised of a revolving line of
credit up to the available limit, consisting of Loans and Letters of Credit. As
of the date of this Report, the Company has no outstanding borrowings under the
Amended and Restated Loan Security Agreement.
On January 13, 2000, the Company settled and received a final payment of $0.1
million under the Interest Rate Swap Agreement with a commercial bank, having a
cumulative notional principle amount of $25 million.
Certain liabilities were not assumed by Hooper Holmes, Inc. in the sale of the
paramedical testing division. These include accounts payable, additional accrued
compensation and other accrued liabilities which totaled approximately $3.3
million at March 31, 2000.
Overall cash collections for continuing operations increased approximately $3.8
million or 8% during the three months ended March 31, 2000 as compared to the
three months ended March 31, 1999, as a percentage of net revenue the cash
collections were 104% and 83% respectively. The organizational restructuring of
the Company's reimbursement process continues and indications of progress to
date are positive. While management anticipates that continued implementation of
the Plan will achieve the desired results, there can be no assurance that this
will result in the Company realizing sustained operating improvements and
improved cash flow.
The Company has suspended acquisition plans for the foreseeable future and will
be focusing resources on strengthening infrastructure, cash collections and
sales and marketing.
Management currently believes that its cash on hand, internally generated funds
and current availability under the Amended and Restated Loan Security Agreement
will be more than adequate to satisfy the Company's working capital requirements
for the foreseeable future.
YEAR 2000 COMPLIANCE
STATUS OF YEAR 2000 PERFORMANCE
The Company completed it's Y2K preparations on time and there are no reportable
significant problems as of the date of this report. While it appears the
Company's information systems correctly accommodated the Year 2000 date change,
computer analysts have indicated that further Y2K problems may linger due to pay
and billing cycle variations that may occur throughout the year.
IMPORTANCE OF THIRD PARTY EXPOSURE TO THE YEAR 2000
Certain of the Company's systems interface directly with significant third party
vendors and payors including federal and state Medicare and Medicaid agencies.
The Company also conducts business electronically with certain external parties,
including some payors and vendors. Management does not know at this time what
impact Year 2000 compliance had or may continue to have on its payor and vendor
sources, if any.
The Company continues to receive responses to its Year 2000 survey from
commercial insurance carriers and
15
<PAGE>
government agencies. It is impossible to quantify the effects of any payment
delays at this time, but the Company will continue to monitor and update Year
2000 compliance efforts of the Company and of its material suppliers and payors.
RISKS
Management believes that it has an effective Year 2000 Plan in place to resolve
any further Year 2000 issues in a timely manner. However, the Company has no
means of ensuring that payors, including federal and state Medicare and Medicaid
agencies will not incur additional Year 2000 problems. The inability of these
payors to be Year 2000 compliant could have a material adverse effect on the
Company. In addition, disruptions in the economy resulting from Year 2000 issues
could also materially adversely affect the Company, and the Company could be
subject to litigation for systems or equipment failure or malfunctions relating
to Year 2000 problems. The amount of potential liability and lost revenue cannot
be reasonably estimated at this time. However, no reportable significant
problems have been reported as of the date of this Report.
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's operating results for any particular
quarter may not be indicative of the results for the full fiscal year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's principal financial instruments subject to potential concentration
of credit risk are cash and cash equivalents and accounts receivable. Cash and
cash equivalents are held primarily in one financial institution. The Company
performs periodic evaluations of the relative credit standing of this financial
institution. The concentration of credit risk with respect to accounts
receivable, which are primarily health care industry related, represent a risk
to the Company given the current health care environment. The risk is somewhat
limited due to the large number of payors including Medicare and Medicaid,
insurance companies, and individuals and the diversity of geographic locations
in which the Company operates.
On January 13, 2000, the Company settled and received a final payment of $0.1
million under the Interest Rate Swap Agreement with a commercial bank, having a
cumulative notional principle amount of $25 million.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On March 11, 1999, a putative class action complaint was filed against
the Company in the United States District Court for the Northern District of
Georgia. The Company and certain of its then current officers and directors were
named as defendants. To the Company's knowledge, no other putative class action
complaints were filed within the 60-day time period provided for in the Private
Securities Litigation Reform Act. The plaintiffs and their counsel were
appointed lead plaintiffs and lead counsel, and an amended complaint was filed
on or about July 22, 1999.
In general, the plaintiffs allege that prior to the decline in the
price of the Company's Common Stock on July 28, 1998, there were violations of
the Federal Securities Laws arising from misstatements of material information
in and/or omissions of material information from certain of the Company's
securities filings and other public disclosures principally related to its
reporting of accounts receivable and the allowance for doubtful accounts. The
amended complaint purports to expand the class to include all persons who
purchased the Company's Common Stock during the period from July 29, 1997
through and including July 29, 1998. On October 8, 1999, the Company and the
individuals named as defendants moved to dismiss the amended complaint on both
substantive and procedural grounds. On March 30, 2000, the court denied the
Company's motion to dismiss. The case is currently
16
<PAGE>
pending before the Court. The Company and the individuals named as defendants
deny that they have violated any of the requirements or obligations of the
Federal Securities Laws.
On July 28, 1999, a civil action was filed against the Company and
certain of its current and former officers and directors in the United States
District Court for the Middle District of Tennessee. The action was filed by
Phyllis T. Craighead and Healthmark Partners, LLC, as well as a liquidating
trust apparently established to wind up the business affairs of their
corporation, Kids &Nurses, Inc. In the original complaint, in general, the
plaintiffs alleged that the defendants violated Federal and Tennessee Securities
Laws and committed common law fraud in connection with the Company's purchase of
Kids and Nurses, Inc. in November, 1997. The plaintiffs seek actual damages in
an amount between $2.5 million and $3.5 million, plus punitive damages and the
costs of litigation, including reasonable attorneys' fees. On September 24,
1999, the defendants filed a motion to dismiss the complaint on both substantive
and procedural grounds. On December 20, 1999, the plaintiffs filed an amended
complaint in which they withdrew their claims under the Federal securities laws,
and added claims under Georgia's securities laws. The plaintiffs also filed a
brief in response to the Company's motion to dismiss. On February 1, 2000, the
defendants filed an amended motion to dismiss addressing the allegations of the
amended complaint. The motion to dismiss is currently pending before the Court.
The Company and the individuals named as defendants deny that they have violated
any of the requirements or obligations of any applicable Federal or State
securities laws, or any other applicable law.
In the opinion of the Company's management, the ultimate disposition of
these two lawsuits should not have a material adverse effect on the Company's
financial condition or results of operations, however, there can be no assurance
that the Company will not sustain material liability as a result of or related
to these lawsuits.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2000 Annual Meeting of Shareholders of the Company was held on March 8,
2000. 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 Joseph D. Sansone as director for a term of three
years expiring at the 2003 Annual Meeting of Shareholders.
There was no solicitation in opposition to the nominee listed
in the proxy statement, and the nominee was elected.
Votes Broker
--------------------- ---------------------------
Nominees For Withheld Abstentions Non-votes
-------- --- -------- ----------- ---------
Joseph D. Sansone 5,538,361 582,476 - -
(b) Ratification of the appointment of Ernst & Young LLP as
independent auditors of the Company for the fiscal year ending
September 30, 2000. The Shareholders approved the proposal.
Votes
---------------------------------------------------------------------
For Against Abstentions
--- ------- -----------
6,046,653 61,461 12,723
17
<PAGE>
ITEM 5 OTHER EVENTS
AUDIT COMMITTEE CHARTER
On December 14, 1999, the Securities and Exchange Commission ("SEC") approved
amendments to Nasdaq's independent director and Audit Committee listing
standards which are required to be certified to Nasdaq by June 14, 2000. On
April 26, 2000, the Company certified to Nasdaq that it has adopted a formal
written charter the adequacy of which will be reviewed and assessed on an annual
basis, and that the Company complies, and will continue to comply with the new
Audit Committee structure and membership requirements.
NASDAQ SMALLCAP MARKET
On January 19, 2000, the Nasdaq Listing Qualifications Staff determined that the
Company had not maintained the minimum requirements for continued listing on the
Nasdaq SmallCap Market and requested an update on the Company's efforts to
achieve compliance. On January 28, 2000, the Company responded to the Staff's
written inquiry and requested continued listing on the Nasdaq SmallCap Market.
On March 27, 2000, the Staff denied the Company's request determining that the
Company had not provided a definitive plan evidencing its ability to achieve
near term compliance with the continued listing requirements. The Company
appealed the Staff's determination and an oral hearing was held before the
Nasdaq Listing Qualifications Panel on May 4, 2000. On May 12, 2000, the Company
received the Panel's decision to de-list the Company's securities from the
Nasdaq SmallCap Market effective at the opening of trading on May 15, 2000.
Prices for the Company's Common Stock will be quoted on the OTC Bulletin Board
using the Company's trading symbol, PSAI. The Company has issued a press release
regarding this event, a copy of which is attached hereto as Exhibit 99.2, and
incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The following exhibits are filed as part of this Report.
27 Financial Data Schedule
99.1 Audit Committee Charter, approved and adopted
March 7, 2000.
99.2 Press Release
(b) Reports on Form 8-K
The Company did not file a Current Report on Form 8-K during
the quarter ended March 31, 2000.
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 15, 2000 By: /s/ James M. McNeill
----------------------------------
James M. McNeill
Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary
(Duly authorized officer and
Principal Financial Officer)
19
<PAGE>
INDEX OF EXHIBITS
PAGE
NO.
Exhibit 27. Financial Data Schedule.................................. 21
Exhibit 99.1. Audit Committee Charter, approved and adopted
March 7, 2000 ......................................... 22
Exhibit 99.2 Press Release............................................ 25
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> SEP-30-2000 SEP-30-1999
<PERIOD-START> OCT-01-1999 OCT-01-1998
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 23,658 0
<SECURITIES> 0 0
<RECEIVABLES> 57,593 0
<ALLOWANCES> 11,605 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 75,182 0
<PP&E> 42,062 0
<DEPRECIATION> 27,706 0
<TOTAL-ASSETS> 127,714 0
<CURRENT-LIABILITIES> 28,017 0
<BONDS> 0 0
0 0
0 0
<COMMON> 67 0
<OTHER-SE> 24,558 0
<TOTAL-LIABILITY-AND-EQUITY> 127,714 0
<SALES> 95,505 111,611
<TOTAL-REVENUES> 95,505 111,611
<CGS> 0 0
<TOTAL-COSTS> 93,114 126,390
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 4,292 10,510
<INTEREST-EXPENSE> 4,902 6,964
<INCOME-PRETAX> (6,576) (32,086)
<INCOME-TAX> 0 (1,659)
<INCOME-CONTINUING> (6,576) (30,427)
<DISCONTINUED> 24,314 1,735
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 17,738 (28,692)
<EPS-BASIC> 2.67 (4.31)
<EPS-DILUTED> 2.67 (4.31)
</TABLE>
<PAGE>
Exhibit 99.1
Audit Committee Charter
Organization
This charter governs the operations of the audit committee. The committee shall
review and reassess the charter at least annually and obtain the approval of the
Board of Directors. The committee shall be appointed by the Board of Directors
and shall comprise at least three directors, each of whom are independent of
management and the Company. Members of the committee shall be considered
independent if they have no relationship that may interfere with the exercise of
their independence from management and the Company. All committee members shall
be financially literate, or shall become financially literate within a
reasonable period of time after appointment to the committee, and at least one
member shall have accounting or related financial management expertise.
Statement of Policy
The audit committee shall provide assistance to the Board of Directors in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community, and others relating to the Company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the internal audit function, the
annual independent audit of the Company's financial statements, and the legal
compliance and ethics programs as established by management and the Board. In
so doing, it is the responsibility of the committee to maintain free and open
communication between the committee, independent auditors, the internal auditors
and management of the Company. In discharging its oversight
<PAGE>
role, the committee is empowered to investigate any matter brought to its
attention with full access to all books, records, facilities, and personnel of
the Company and the power to retain outside counsel, or other experts for this
purpose.
Responsibilities and Processes
The primary responsibility of the audit committee is to oversee the Company's
financial reporting process on behalf of the Board and report the results of
their activities to the Board. Management is responsible for preparing the
Company's financial statements, and the independent auditors are responsible for
auditing those financial statements. The committee in carrying out its
responsibilities believes its policies and procedures should remain flexible, in
order to best react to changing conditions and circumstances. The committee
should take the appropriate actions to set the overall corporate "tone" for
quality financial reporting, sound business risk practices, and ethical
behavior.
In carrying out these responsibilities, the audit committee will:
. Review and recommend to the directors the independent auditors to be selected
to audit the financial statements of the Company and its divisions and
subsidiaries.
. Meet with the independent auditors and financial management of the Company to
review the scope of the proposed audit for the current year and the audit
procedures to be utilized, and at the conclusion thereof review such audit,
including any comments or recommendations of the independent auditors.
. Review with the independent auditors, the Company's internal auditor, and
financial and accounting personnel, the adequacy and effectiveness of the
accounting and financial controls of the Company, and elicit any
recommendations for the improvement of such internal control procedures or
particular areas where new or more detailed controls or
<PAGE>
procedures are desirable. Particular emphasis should be given to the adequacy
of such internal controls to expose any payments, transactions, or procedures
that might be deemed illegal or otherwise improper. Further, the committee
periodically should review company policy statements to determine their
adherence to the code of conduct.
. Review the internal audit function of the Company including the independence
and authority of its reporting obligations, the proposed audit plans for the
coming year, and the coordination of such plans with the independent
auditors.
. Receive prior to each meeting, a summary of findings from completed internal
audits and a progress report on the proposed internal audit plan, with
explanations for any deviations from the original plan.
. Review the interim financial statements and the financial statements
contained in the annual report to shareholders with management and the
independent auditors to determine that the independent auditors are satisfied
with the disclosure and content of the financial statements to be presented
to the shareholders. Any changes in accounting principles should be reviewed.
. Provide sufficient opportunity for the internal and independent auditors to
meet with the members of the audit committee without members of management
present. Among the items to be discussed in these meetings are the
independent auditors' evaluation of the Company's financial, accounting, and
auditing personnel, and the cooperation that the independent auditors
received during the course of the audit.
. Review accounting and financial human resources and succession planning
within the Company.
. Submit the minutes of all meetings of the audit committee to, or discuss the
matters discussed at each committee meeting with, the Board of Directors.
<PAGE>
. Investigate any matter brought to its attention within the scope of its
duties, with the power to retain outside counsel for this purpose if, in its
judgment, that is appropriate.
Approved and adopted this 7th day of March, 2000.
/s/ Adam O. Holzhauer
- ---------------------------------
Adam O. Holzhauer, Chairman
/s/ Michael J. Finn
- ---------------------------------
Michael J. Finn, Committee Member
/s/ Richard S. Smith
- ---------------------------------
Richard S. Smith, Committee Member
<PAGE>
EXHIBIT 99.2
PEDIATRIC SERVICES OF AMERICA, INC.
ANNOUNCES DELISTING FROM THE NASDAQ SMALLCAP MARKET
Norcross, Georgia--May 15, 2000--Pediatric Services of America, Inc.
(NASDAQ: PSAI) today announced that effective as of the opening of trading today
the Company's stock will not be listed on The Nasdaq SmallCap Market but will
trade on the OTC Bulletin Board. The stock symbol will remain the same. The
Nasdaq Listing Qualifications Panel determined that the common stock failed to
meet the minimum requirements for continued listing on The Nasdaq SmallCap
Market, and the Company's appeal of the Panel's determination was denied. The
Company may request that the Nasdaq Listing and Hearing Review Council review
the Panel's decision, although a review would not suspend the Panel's decision.
The OTC Bulletin Board is a regulated quotation service that displays
real-time quotes and last-sale price and volume information in over-the-counter
equity securities. Information about the OTC Bulletin Board is available on the
Internet at http://www.otcbb.com.
--------------------
Additionally, the Company will announce prior to the close of trading today
the financial results for the quarter ended March 31, 2000.
PSAI provides a board range of pediatric health care services and
equipment through a network of 103 branch offices in 24 states.
Except for any historical information contained herein, the matters
discussed in this press release contain forward-looking statements that involve
risks and uncertainties which are described in PSAI's SEC reports, including
PSAI's Annual Report on Form 10-K for the year ended September 30, 1999 and
Quarterly Report on Form 10-Q for the quarter ended December 31, 1999.
Contact: Pediatric Services of America, Inc.
Joseph D. Sansone or
James M. McNeill
(770) 441-1580
