UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________
FORM 10-K/A
[ X ] Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
[ ] 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: 0-22392
__________________________
PRIME MEDICAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2652727
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1301 Capital of Texas Highway, Austin, Texas 78746
(Address of principal executive offices) (Zip Code)
(512) 328-2892
(Registrant's telephone number, including area code)
Check 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
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-K contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-K or
any amendment to this Form 10-K.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within 60 days prior
to the date of filing.
Aggregate Market Value at April 23, 1998: $215,643,000
Indicate the number of shares outstanding of each of the registrants'
classes of common stock, as of the latest practicable date.
Number of Shares Outstanding
Title of Each Class April 23, 1998
------------------- --------------
Common Stock, $.01 par value 19,168,267
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the registrant's definitive proxy material for the
1998 annual meeting of shareholders are incorporated by reference into Part III
of the Form 10-K.
<PAGE>
1. The undersigned registrant hereby amends Item 6, Part II of its Annual Report
on Form 10-K for the calendar year ended December 31, 1997 by deletion of the
original Item 6 in its entirety and the substitution of the following in its
place:
ITEM 6. SELECTED FINANCIAL DATA.
- --------------------------------
($ in thousands, except per share data)
<TABLE>
<S> <C> <C> <C> <C> <C>
Years Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Revenues:
Lithotripsy $ 93,113 $ 71,602 $ 22,153 $ 14,843 $ 7,309
Other 2,866 802 1,042 9,925 13,259
-------- -------- -------- --------- --------
Total $ 95,979 $ 72,404 $ 23,195 $ 24,768 $ 20,568
======== ======== ======== ======== ========
Income:
Net income $ 14,856 $ 8,961 $ 7,204 $ 4,504 $ 2,539
======== ========= ======== ======== ========
Diluted earnings per share:
Net income $ 0.76 $ 0.49 $ 0.48 $ 0.31 $ 0.21
====== ====== ====== ====== ======
Dividends per share None None None None None
Total assets $225,826 $202,534 $ 77,627 $ 53,861 $ 38,678
======== ======== ======== ======== ========
Long-term obligations $ 71,198 $ 70,910 $ 22,323 $ 12,734 $ 2,675
======== ======== ======== ======== ========
</TABLE>
Quarterly Data
($ in thousands, except share amounts)
1996 3/31 6/30 9/30 12/31
- ---- ---- ---- ---- -----
Revenues $7,224 $18,695 $24,300 $22,185
Net income (loss) 1,906 ( 353) 4,017 3,391
Per share amounts (basic):
Net income (loss) .14 ( .02) .21 .18
Weighted average shares
outstanding 14,754 17,597 19,071 19,079
Per share amounts (diluted):
Net income (loss) .12 ( .02) .21 .18
Weighted average shares
outstanding 16,155 18,114 19,365 19,362
1997
- ----
Revenues $20,889 $23,220 $26,361 $25,509
Net income 2,876 3,670 4,520 3,790
Per share amounts (basic):
Net income .15 .19 .23 .20
Weighted average shares
outstanding 19,218 19,277 19,299 19,306
Per share amounts (diluted):
Net income .15 .19 .23 .19
Weighted average shares
outstanding 19,395 19,435 19,483 19,496
2. The undersigned registrant hereby amends Item 8, Part II of its Annual Report
on Form 10-K for the calendar year ended December 31, 1997 by deletion of the
original Item 8 in its entirety and the substitution of the following in its
place:
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ------- --------------------------------------------
The information required by this item is contained in Appendix A attached
hereto.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-K/A, amending
the registrant's Form 10-K for the fiscal year ended December 31, 1997, to be
signed on its behalf by the undersigned, thereunto duly authorized.
PRIME MEDICAL SERVICES, INC.
By /s/ Joseph Jenkins, M.D., J.D.
------------------------------
Joseph Jenkins, M.D., J.D.,
President, Chief Executive
Officer and Director
Date: April 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-K/A, amending the registrant's Form 10-K for the fiscal year ended
December 31, 1997, has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Kenneth S. Shifrin
------------------------
Kenneth S. Shifrin
Chairman of the Board
Date: April 30, 1998
By: /s/ Cheryl L. Williams
------------------------
Cheryl L. Williams
Vice President of Finance, Secretary
and Chief Financial Officer (Principal
Financial and Accounting Officer)
Date: April 30, 1998
By: /s/ Joseph Jenkins, M.D.
------------------------
Joseph Jenkins, M.D., President,
Chief Executive Officer and Director
Date: April 30, 1998
<PAGE>
By: /s/ Paul R. Butrus
------------------------
Paul R. Butrus, Director
Date: April 30, 1998
By: /s/ William E. Foree, M.D.
--------------------------
William E. Foree, M.D., Director,
Date: April 30, 1998
By: /s/ Irwin Katz
-----------------
Irwin Katz, Director
Date: April 30, 1998
By: /s/ John McEntire
-------------------
John McEntire, Director
Date: April 30, 1998
By: /s/ William A. Searles
------------------------
William A. Searles, Director
Date: April 30, 1998
By: /s/ Michael Spalding, M.D.
-------------------------
Michael Spalding, M.D., Director
Date: April 30, 1998
<PAGE>
APPENDIX A
INDEX
Page
Independent Auditors' Report A-2
Consolidated Financial Statements:
Consolidated Statements of Income
for the years ended December 31, 1997, 1996 and 1995. A-3
Consolidated Balance Sheets at December 31, 1997 and 1996. A-4
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995. A-6
Consolidated Statements of Cash Flows
for the years ended December 31, 1997, 1996 and 1995. A-7
Notes to Consolidated Financial Statements. A-11
A-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Prime Medical Services, Inc.:
We have audited the accompanying consolidated financial statements of Prime
Medical Services, Inc. and subsidiaries ("Company") as listed in the
accompanying index. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Prime Medical
Services, Inc. and subsidiaries at December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick, LLP
- --------------------------
Austin, Texas
February 27, 1998, except Note N,
to which the date is March 27, 1998
A-2
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data) Years Ended December 31,
1997 1996 1995
---- ---- ----
Fee Revenue:
Lithotripsy:
Fee revenues $84,537 $65,138 $19,306
Management fees 6,237 4,698 1,617
Equity income 2,339 1,766 1,230
-------- --------- ----------
93,113 71,602 22,153
Manufacturing 2,358 -- --
Cardiac 479 802 1,042
Other 29 -- --
-------- ----------- ------------
Total fee revenue 95,979 72,404 23,195
-------- ----------- ------------
Cost of services and general and
administrative expenses
Lithotripsy 25,381 19,922 5,979
Manufacturing 1,743 -- --
Cardiac 310 632 1,505
Other 168 -- --
Corporate 5,683 4,245 2,573
-------- --------- ----------
33,285 24,799 10,057
Depreciation and amortization 9,911 8,422 3,195
-------- --------- ----------
Total operating expenses 43,196 33,221 13,252
------- --------- ---------
Operating income 52,783 39,183 9,943
Other income (deductions):
Interest and dividends 740 459 152
Interest expense (7,477) (5,977) ( 1,231)
Loan fees and stock offering costs (360) (3,535) --
Other, net 6 370 647
---------- ----------- ------------
(7,091) (8,683) ( 432)
--------- ----------- -----------
Income before provision for income taxes
and minority interest 45,692 30,500 9,511
Minority interest in
consolidated income 25,041 19,543 1,421
Provision for income taxes 5,795 1,996 886
-------- ---------- -----------
Net income $14,856 $ 8,961 $ 7,204
========= ========= ==========
Basic earnings per share:
Net income $0.77 $0.51 $0.51
===== ===== =====
Weighted average shares
outstanding 19,275 17,633 14,226
====== ====== ======
Diluted earnings per share:
Net income $0.76 $0.49 $0.48
===== ===== =====
Weighted average shares
outstanding 19,461 18,638 15,350
====== ====== ======
See accompanying notes to consolidated financial statements.
A-3
A-3
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands)
December 31,
1997 1996
-------- --------
ASSETS
Current assets:
Cash $ 23,770 $ 20,096
Accounts receivable, less allowance
for doubtful accounts of $811 in 1997
and $335 in 1996 19,387 16,346
Other receivables 1,103 1,842
Deferred income taxes 1,506 948
Prepaid expenses and other current assets 1,776 841
--------- ----------
Total current assets 47,542 40,073
-------- --------
Property and equipment:
Equipment, furniture and fixtures 32,673 28,318
Leasehold improvements 531 113
--------- ---------
33,204 28,431
Less accumulated depreciation and
amortization (13,497) (8,089)
-------- --------
Property and equipment, net 19,707 20,342
-------- -------
Other investments 12,305 8,100
Goodwill, at cost, net of amortization 143,823 131,415
Other noncurrent assets 2,449 2,604
--------- ---------
$225,826 $202,534
======== ========
(continued)
See accompanying notes to consolidated financial statements.
A-4
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
($ in thousands)
December 31,
1997 1996
---------- -----------
LIABILITIES:
Current Liabilities:
Current portion of long-term debt $ 11,138 $ 10,522
Accounts payable 5,386 4,451
Accrued expenses 20,859 16,582
---------- ---------
Total current liabilities 37,383 31,555
Long-term debt, net of current portion 71,198 70,910
Deferred income taxes 5,809 4,907
----------- ----------
Total liabilities 114,390 107,372
Minority interest 19,372 18,735
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
1,000,000 shares authorized;
none outstanding -- --
Common stock, $.01 par value,
40,000,000 shares authorized;
19,306,267 issued in 1997 and
19,078,933 issued in 1996 193 191
Capital in excess of par value 84,050 83,271
Accumulated earnings (deficit) 7,821 ( 7,035)
----------- -----------
Total stockholders' equity 92,064 76,427
---------- ----------
$ 225,826 $202,534
========= ========
See accompanying notes to consolidated financial statements.
A-5
<PAGE>
PRIME MEDICAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1997, 1996 and 1995
($ in thousands, except share data)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issued Capital in Accumulated
Common Stock Excess of Earnings Treasury Stock Reciprocal
Shares Amount Par Value (Deficit) Shares Amount Stockholdings Total
-------------- ---------- ------------ --------- -------- ---------- ------------- ---------
Balance, January 1, 1995 14,594,663 $146 $58,631 ($23,200) 30,000 ($101) ( $1,055) $ 34,421
Net income for the year -- -- -- 7,204 -- -- -- 7,204
Exercise of stock options 135,000 1 69 -- -- -- -- 70
Reclassification of
reciprocal stockholdings -- -- -- -- -- -- 1,055 1,055
-------------- ---------- ------------- --------- -------- --------- ------------- ---------
Balance, December 31, 1995 14,729,663 147 58,700 ( 15,996) 30,000 (101) -- 42,750
Net income for the year -- -- -- 8,961 -- -- -- 8,961
Issuance of stock 1,636,364 17 14,903 -- -- -- -- 14,920
Exercise of stock options
including tax benefit of
$130 on non-qualifying
exercises 477,666 5 488 -- -- -- -- 493
Debt converted to stock 921,415 9 5,241 -- -- -- -- 5,250
Exercise of warrants 1,343,825 13 4,040 -- -- -- -- 4,053
Retirement of treasury
stock ( 30,000) -- ( 101) -- (30,000) 101 -- --
-------------- ---------- ---------- --------- --------- -------- ------------- --------
Balance, December 31, 1996 19,078,933 191 83,271 ( 7,035) -- -- -- 76,427
Net income for the year -- -- -- 14,856 -- -- -- 14,856
Exercise of stock options
including tax benefit of
$438 on non-qualifying
exercises 227,334 2 779 -- -- -- -- 781
-------------- ---------- ---------- --------- --------- -------- ------------- ---------
Balance, December 31, 1997 19,306,267 $ 193 $ 84,050 $ 7,821 -- $ -- $ -- $ 92,064
============== ========== ========== ========= ========= ======== ============= =========
</TABLE>
See accompanying notes to consolidated financial statements.
A-6
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
($ in thousands)
Years Ended December 31,
-------------------------------------
1997 1996 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Fee and other revenue collected $90,924 $ 72,452 $ 21,640
Cash paid to employees, suppliers
of goods and others (31,685) (25,190) ( 9,094)
Interest received 739 459 157
Interest paid ( 7,521) ( 5,104) ( 1,275)
Taxes paid ( 764) ( 1,015) ( 530)
-------- --------- ---------
Net cash provided by operating activities 51,693 41,602 10,898
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of lithotripter entities (20,217) (66,742) (15,033)
Proceeds from sale of investment in American
Physicians Service Group, Inc. stock -- -- 2,753
Purchases of equipment and leasehold
improvements ( 4,546) ( 2,526) ( 473)
Deferred payments on lithotripter entities -- ( 3,387) --
Proceeds from sales of equipment 30 6 21
Investments 1,690 1,257 864
Other 94 ( 378) ( 6)
-------- --------- ---------
Net cash used by investing activities (22,949) (71,770) ( 11,874)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable & capital leases,
exclusive of interest (50,328) (15,351) ( 9,588)
Borrowings on notes payable 51,201 74,000 14,284
Distributions to minority interest (28,667) (13,440) ( 1,644)
Contributions by minority interest 2,381 -- --
Exercise of stock options 343 363 70
Other -- -- ( 366)
-------- --------- ---------
Net cash provided by (used in)
financing activities (25,070) 45,572 2,756
-------- --------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 3,674 15,404 1,780
Cash and cash equivalents, beginning of period 20,096 4,692 2,912
-------- --------- ---------
Cash and cash equivalents, end of period $23,770 $ 20,096 $ 4,692
======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
A-7
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
($ in thousands)
<TABLE>
<S> <C> <C> <C>
Years Ended December 31,
1997 1996 1995
---- ---- ----
Reconciliation of net income to net
cash provided by operating activities
Net income $ 14,856 $ 8,961 $ 7,204
Adjustments to reconcile net
income to cash provided by
operating activities:
Minority interest in consolidated income 25,041 19,543 1,421
Depreciation and amortization 9,911 8,422 3,195
Provision for uncollectible accounts 427 319 771
Equity in earnings of affiliates (2,342) ( 1,773) (1,234)
Gain on sale of investment in American
Physicians Service Group, Inc. stock -- -- ( 559)
Provision for deferred income taxes 68 974 193
Writeoff of loan fees -- 696 --
Other 1,162 -- (226)
Changes in operating assets and liabilities,
net of effect of purchase transactions:
Accounts receivable (3,156) 1,284 ( 541)
Other receivables 754 472 2,197
Other current assets (602) 529 (447)
Accounts payable 934 452 (1,224)
Accrued expenses 4,640 1,723 148
-------- --------- -----------
Total adjustments 36,837 32,641 3,694
-------- -------- ----------
Net cash provided by operating activities $ 51,693 $ 41,602 $ 10,898
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
A-8
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
($ in thousands)
<TABLE>
<S> <C> <C> <C>
Years Ended December 31,
---------------------------------------
1997 1996 1995
---- ---- ----
SUPPLEMENTAL INFORMATION OF
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
In 1997, the Company acquired (1)
additional ownership interests in 10
partnerships (2) a 38.25% general
partnership interest in a lithotripter
operation (3) 100% of the stock of a
lithotripter operator and (4) 75% equity
interest in a trailer manufacturer.
These transactions are discussed
further in Notes C and D. The acquired assets
and liabilities were as follows:
Current assets decreased by $ 9,532
Noncurrent assets increased by 4,041
Goodwill increased by 15,836
Current liabilities increased by 1,343
Noncurrent liabilities increased 10,000
Minority interest decreased by 998
At December 31, 1997, the Company had accrued
distributions payable to minority interests. The
effect of this transaction was as follows:
Current liabilities increased by 8,655
Minority interest decreased by 8,655
In 1996, the Company acquired (1)
100% of the outstanding stock of a
corporation which operated 31
lithotripters and (2) increased ownership
in two partnerships, in which the Company
is the managing general partner. These
transactions are discussed further in
Note D. The acquired assets
and liabilities were as follows:
Current assets increased by $19,032
Noncurrent assets increased by 12,630
Goodwill increased by 82,297
Current liabilities increased by 13,110
Noncurrent liabilities increased by 69,712
Minority interest increased by 16,218
Stockholders' equity 14,919
</TABLE>
See accompanying notes to consolidated financial statements.
A-9
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
($ in thousands)
<TABLE>
<S> <C> <C> <C>
Years Ended December 31,
------------------------------------
1997 1996 1995
---- ---- ----
In 1996, several holders of notes
issued by the Company elected to convert
the outstanding balances of the notes
into 921,000 shares of the Company stock.
In addition, certain holders of warrants
exercised their warrants and the Company
issued 1,344,000 shares of the Company's
stock to the warrant holders. The effect
of these transactions were as follows:
Current assets increased by 1,749
Current liabilities decreased by 4,062
Noncurrent liabilities decreased by 3,493
Stockholders' equity increased by 9,304
At December 31, 1996, the Company had accrued
distributions payable to minority interests. The
effect of this transaction was as follows:
Current liabilities increased by 10,705
Minority interest decreased by 10,705
In 1995, the Company acquired (1) 100% of
the outstanding stock of a corporation
which owned or managed eight lithotripter
operations and (2) 70% interest in a
lithotripter operation. These transactions
are discussed further in Note D. The
acquired assets and liabilities were as follows:
Current assets decreased by $ 9,905
Noncurrent assets increased by 2,491
Goodwill increased by 19,553
Current liabilities increased by 7,249
Noncurrent liabilities increased by 4,890
In 1995, the Company retired a note payable
to American Physicians Service Group, Inc.
("APS"). This note was retired by the Company
transferring to APS shares of stock of APS
that the Company owned. The effect of this
transaction is as follows:
Current assets decreased by 3
Investment in APS decreased by 301
Notes payable decreased by 297
Stockholders' equity 7
</TABLE>
See accompanying notes to consolidated financial statements.
A-10
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ORGANIZATION AND OPERATION OF THE COMPANY
Prime Medical Services, Inc. ("Prime"), through its direct and indirect
wholly-owned subsidiaries, provides non-medical management services to
lithotripsy, prostatherapy, and cardiac rehabilitation centers.
References to the Company are to Prime and its controlled and
affiliated entities. The Company also manufactures trailers for major
medical equipment manufacturers and mobile medical service providers.
The Company operates lithotripters in 34 states.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of
Prime, its wholly-owned subsidiaries, entities more than 50% owned
and partnerships where Prime has control, even though its
ownership is less than 50%. Investments in entities in which the
Company's investment is less than 50% ownership, and the Company does
not control, are accounted for by the equity method if ownership is
between 20% - 50%, or by the cost method if ownership is less than 20%.
Through December 31, 1997, the Company had recognized $466,000 in
undistributed earnings using the equity method. This amount represents
undistributed earnings from entities, in which the Company owns 50
percent or less, and does not exhibit control. All significant
intercompany accounts and transactions have been eliminated.
Cash Equivalents
The Company considers as cash equivalents demand deposits and all
short-term investments with an original maturity of three months or
less.
Property and Equipment
Property and equipment are stated at cost. Major betterments are
capitalized while normal maintenance and repairs are charged to
operations. Depreciation is computed by the straight-line method using
estimated useful lives of five to ten years. Leasehold improvements are
generally amortized over ten years or the term of the lease, whichever
is shorter. When assets are sold or retired, the corresponding cost and
accumulated depreciation or amortization are removed from the related
accounts and any gain or loss is credited or charged to operations.
A-11
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Intangible Assets
The Company records as goodwill the excess of the purchase price over
the fair value of the net assets associated with acquired businesses.
Goodwill is amortized over a period not to exceed forty years using the
straight-line basis. Accumulated amortization at December 31, 1997 and
1996 is $9,745,000 and $5,798,000, respectively. Goodwill is reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. If the sum of
the expected future undiscounted cash flows is less than the carrying
amount of the goodwill, a loss is recognized for the difference
between the fair value and carrying value of the goodwill.
Revenue Recognition
Revenues generated from management services are recognized as they are
earned.
The Company's lithotripsy fee revenues are based upon fees charged for
services to hospitals, commercial insurance carriers, state and
federal health care agencies, and individuals, net of contractual fee
reductions.
Revenues for the manufacture of trailers are recognized using the
percentage of completion method.
At December 31, 1997, approximately 15% of accounts receivable relate
to units operating in Texas, 11% relate to units located in California,
11% relate to operations located in North Carolina and 9% relate to
units located in Louisiana.
Reciprocal Stockholdings
The Company had accounted for its investment in its largest
shareholder's common stock on the equity basis prior to 1995 (see Note
C). The Company's investment was reduced for the Company's pro rata
interest in the common stock of the Company owned by such shareholder.
This reduction was reflected in an offsetting charge to reciprocal
stockholdings. When the Company's investment dropped below 5%
in 1995, reciprocal stockholdings were eliminated.
A-12
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Income Tax
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected future undiscounted cash flows
is less than the carrying amount of the asset, a loss is recognized,
for the difference between the fair value and carrying value of the
asset.
Accounts Receivable
Accounts receivable are recorded based on revenues, less allowance for
doubtful accounts and contractual adjustments.
Stock-Based Compensation
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation
("Statement 123"), in October 1995 for implementation in fiscal years
beginning after December 15, 1995. Statement 123 became effective
beginning with the Company's first quarter of fiscal year 1996 and did
not have a material effect on the Company's financial position or
results of operations. Upon adoption of Statement 123, the Company
continued to measure compensation expense for its stock-based employee
compensation plans using the intrinsic value method prescribed by APB
Opinion No. 25, Accounting for Stock Issued to Employees. The Company
provides proforma disclosures of net income and earnings per share as
if the fair value-based method prescribed by Statement 123 had been
applied in measuring compensation expense. (See Note J).
A-13
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Debt Issuance Costs
The Company expenses debt issuance costs as incurred.
Estimates Used to Prepare Financial Statements
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities,
and the reported revenues and expenses. Actual results could vary from
the estimates that were assumed in preparing the financial statements.
Reclassification
Certain reclassifications have been made to amounts presented in
previous years to be consistent with the 1997 presentation.
Earnings Per Share
Statement of Financial Accounting Standards No. 128, "Earnings per
Share", specifies new measurement, presentation and disclosure
requirements for earnings per share and is required to be applied
retroactively upon initial adoption. The Company has adopted SFAS No.
128 effective with the release of December 31, 1997 earnings data, and
accordingly, has restated herein all previously reported earnings per
share data. Basic earnings per share is based on the weighted average
shares outstanding without any dilutive effects considered. Diluted
earnings per share reflects dilution from all contingently issuable
shares, including options and convertible debt. A reconciliation of
such earnings per share data is as follows:
A-14
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
($ in thousands, except per share data)
1997
Per Share
Income Shares Amounts
Basic EPS
Net Income..................... $14,856 19,275 $ 0.77
========
Effect of dilutive securities:
Options . 186
-------- ---
Diluted EPS.................... $14,856 19,461 $ 0.76
======= ====== ========
1996
Per Share
Income Shares Amounts
Basic EPS
Net Income..................... $ 8,961 17,633 $ 0.51
========
Effect of dilutive securities:
Warrants....................... 400
Convertible Debt............... 101 224
Options . 381
-------- ---
Diluted EPS.................... $9,062 18,638 $ 0.49
====== ====== ========
1995
Per Share
Income Shares Amounts
Basic EPS
Net Income..................... $ 7,204 14,226 $ 0.51
========
Effect of dilutive securities:
Warrants....................... 402
Convertible Debt............... 97 209
Options . 513
-------- ---
Diluted EPS.................... $7,301 15,350 $ 0.48
====== ====== ========
Unexercised employee stock options to purchase 841,000 and 706,000
shares of Prime common stock as of December 31, 1997 and 1996,
respectively, were not included in the computations of diluted EPS
because the options exercise prices were greater than the average market
price of Prime's common stock during the respective periods.
A-15
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
C. INVESTMENTS
Tenn-Ga
In May 1997, the Company acquired a 38.25% general partner interest in a
partnership that provides mobile lithotripsy service in Tennessee and
Georgia. The purchase price was cash of $3,470,000. This investment is
accounted for using the equity method.
Southern California
Effective June 1, 1995, the Company acquired a 32.5% interest in a
limited liability company that operates a fixed site lithotripter near
Los Angeles, California. This investment is accounted for using the
equity method.
Texas, Ohio & Louisiana Partnerships
In December 1994, the Company acquired all of the common stock of
three corporations. Each corporation is the general partner and
holds an approximate 20% interest in a limited partnership which
operates a mobile lithotripter. Texas ESWL/Laser Lithotripter, Ltd.
operates a mobile lithotripter in Texas, Oklahoma and Arkansas. Ohio
Mobile Lithotripter, Ltd. operates a mobile lithotripter in Ohio.
Arklatx Mobile Lithotripter, L.P. operates a mobile lithotripter in
Louisiana. This investment is accounted for using the equity method.
American Physicians Service Group, Inc.
At December 31, 1997 and 1996, the Company owned 50,000 shares of common
stock, representing approximately 1%, of the outstanding common stock of
American Physicians Service Group, Inc. (APS). APS owned approximately
16% of the outstanding common stock of the Company at December 31, 1997
and 1996. The Company's pro rata interest in its own shares of common
stock had been included in stockholders' equity as reciprocal
stockholdings prior to 1995. (See Note B). Two of the Company's eight
board members are also on the board of APS.
The Company occupies approximately 5,600 square feet of office space
owned by APS. The Company also shares certain personnel with APS. The
monthly rent and personnel cost is approximately $8,000.
D. ACQUISITIONS
Effective September 1, 1997, the Company acquired a 75% equity interest
in AK Associates, LLC ("AK"), which provides installation, upgrade,
manufacturing, refurbishment and repair services for major medical
equipment manufacturers and mobile medical service providers. The
purchase price was $4,761,000 in cash with contingent consideration up
to another $1,050,000 being payable based upon certain performance
criteria being met by AK during 1998. This transaction was accounted
for using the purchase method of accounting.
A-16
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
D. ACQUISITIONS, continued
Effective June 1, 1997, the Company acquired 100% of the stock of
Executive Medical Enterprises, Inc. ("EME"), which operated three
lithotripters in California, Oregon and Washington. The purchase price
was $1,339,000 in cash and potential contingent consideration based
upon the performance of these operations during 1998, 1999 and 2000.
The transaction was accounted for using the purchase method of
accounting.
In January 1997, the Company purchased additional ownership
interests in 10 partnerships, which the Company controls. The
purchase price for the additional ownership interests was $10,510,000
in cash. These transactions were accounted for using the purchase
method of accounting.
Unaudited proforma combined income data for the years ended December
31, 1997 and 1996 of the Company and the acquisitions
discussed above assuming all were effective January 1, 1996 is as
follows:
($ in thousands except per share data)
1997 1996
-------- -------
Total revenues $100,228 $81,143
Total expenses 84,941 71,080
-------- --------
Net income $ 15,287 $10,063
======== =======
Diluted earnings per share $0.79 $0.54
===== =====
Effective May 1, 1996, the Company acquired 100% of the common stock of
Lithotripters, Inc. ("Litho"). Litho operated 31 lithotripters serving
approximately 200 locations in 19 states. The purchase price was
$86,500,000 consisting of $71,600,000 cash and 1,636,000 shares of the
Company's common stock valued at $14,900,000. This transaction was
accounted for using the purchase method of accounting.
Effective November 1, 1996, the Company increased its ownership
interest in two partnerships that operate lithotripters in Arkansas and
South Carolina. The Company acquired an additional 12.0% interest in
Fayetteville Lithotripters Limited Partnership - Arkansas I and 2.7%
interest in Fayetteville Lithotripters Limited Partnership - South
Carolina II, which the Company manages as General Partner. The purchase
price was $1,291,000 in cash. This transaction was accounted for using
the purchase method of accounting.
Unaudited proforma combined income data for the years ended December
31, 1996 and 1995 of the Company and the acquisitions
discussed immediately above assuming both were effective January 1,
1995 is as follows:
A-17
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
D. ACQUISITIONS, continued
($ in thousands except per share data)
1996 1995
------ -------
Total revenues $92,499 $82,934
Total expenses 82,684 74,409
------- -------
Net income $ 9,815 $ 8,525
======= ========
Diluted earnings per share $ 0.51 $ 0.50
======= ========
Effective October 1, 1995, the Company acquired 100% of the outstanding
stock of Sun Medical Technologies, Inc. ("Sun"). Sun operates eight
lithotripters serving clients in California, Arizona, Montana, New
Mexico, Washington and Wyoming. The purchase price was $16,150,000
consisting of cash of $9,438,000, deferred payments payable in January
1996 of $2,687,000, notes payable of $4,025,000, and warrants to
purchase 200,000 shares of the Company's common stock. The exercise
price of the warrants represented the market price of the Company's
common stock at the date the warrants were issued. The notes payable of
$4,025,000 were convertible into 672,000 shares of the Company's common
stock. These noteholders elected to convert the outstanding balances of
their notes into the Company's stock in 1996. This acquisition was
accounted for using the purchase method of accounting.
Effective July 1, 1995 the Company acquired an undivided 70% interest
in a fixed site lithotripter located in Fort Lauderdale, Florida. The
purchase price was $5,550,000 consisting of cash of $3,885,000 and
notes payable of $1,665,000, which could be converted into 326,000
shares of the Company's common stock. The noteholder elected to convert
the outstanding balance of such note into the Company's stock in 1996.
The acquisition was accounted for using the purchase method of
accounting.
A-18
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
E. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures About
Fair Value of Financial Instruments (Statement 107), requires that the
Company disclose estimated fair values for its financial instruments as
of December 31, 1997 and 1996. The carrying amounts and fair values of
the Company's financial instruments are as follows:
<TABLE>
<S> <C> <C> <C> <C>
1997 1996
---------------------- -------------------------
Carrying Fair Carrying Fair
($ in Thousands) Amount Value Amount Value
------ ----- ------ -----
Financial assets:
Cash $23,770 $23,770 $20,096 $20,096
Accounts receivable 19,387 19,387 16,346 16,346
Other receivables 1,103 1,103 1,842 1,842
Investment in American
Physicians Service Group, Inc. 173 356 173 325
Financial liabilities:
Debt 82,336 82,336 81,432 81,432
Accounts payable 5,386 5,386 4,451 4,451
</TABLE>
The following methods and assumptions were used by the Company
in estimating its fair value disclosures for financial instruments.
Cash
The carrying amounts for cash approximate fair value because they
mature in less than 90 days and do not present unanticipated credit
concerns.
Accounts Receivable and Other Receivables
The carrying value of these receivables approximates the fair value
due to their short-term nature and historical collectibility.
Investment in American Physicians Service Group, Inc.
The fair value of the stock is based on the last trade value at the
end of the year.
Debt
The carrying value of debt approximates fair value since the majority
is primarily floating rate debt based on current market rates.
A-19
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
E. FAIR VALUE OF FINANCIAL INSTRUMENTS, continued
Accounts Payable
The carrying value of the payables approximates fair value due to the
short-term nature of the obligation.
Limitations
Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial
instrument. Fair value estimates are based on existing on-balance
sheet financial instruments without attempting to estimate the value
of anticipated future business and the value of assets and liabilities
that are not considered financial instruments. Other significant
assets and liabilities that are not considered financial assets or
liabilities include the deferred tax assets and liabilities, property
and equipment, equity investment in partnerships, goodwill, other
noncurrent assets and accrued expenses. In addition, the tax
ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and have
not been considered in the aforementioned estimates.
F. ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31, December 31,
1997 1996
($ in Thousands)
Legal fees $ 634 $ 452
Accrued group insurance costs 228 164
Compensation and payroll
related expense 1,787 1,502
Taxes, other than income taxes 439 334
Accrued interest 984 1,028
Provision for closed centers 159 163
Income taxes payable 4,229 761
Dividends payable to minority interest 8,655 10,705
Deferred payments for acquisitions 1,339 --
Other 2,405 1,473
------- -------
$20,859 $16,582
======= =======
A-20
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
G. INDEBTEDNESS
Long-term debt, other than bank debt, are as follows:
($ in thousands)
Interest December 31,
Rates Maturities 1997 1996
-------- ---------- ------- ------
None 2000 - 2006 $ 161 $ 241
6% -- -- 984
11.5% 1998 6 12
------- -------
167 1,237
Less current portion of
long-term debt 6 1,100
------- ------
$ 161 $ 137
======= ======
The non-interest bearing notes totaling $161,000 are unsecured. The 11.5%
note is secured by computer equipment.
Long-term bank notes payable are as follows:
($ in thousands)
Interest December 31,
Rates Maturities 1997 1996
-------- ---------- ------- ------
60-day LIBOR
plus 2 1/2% 1998-2003 $79,000 $76,750
Prime 1998-2001 2,969 3,245
Prime + 1% 1998 200 200
------- -------
82,169 80,195
Less current portion of
long-term bank debt 11,132 9,422
------- -------
$71,037 $70,773
======= =======
During 1997, the Company increased its bank facility with Bank Boston
from $90 million to $135 million. The facility consists of three separate
loans: (1) a $45 million term loan bearing an interest rate of LIBOR +2
to 3%, payable quarterly, with quarterly principal payments, maturing in
April 2001, (2) a $40 million term loan bearing an interest rate of LIBOR
+2 to 3%, payable quarterly, with annual principal payments, maturing in
April 2003, and (3) a $50 million revolving credit facility bearing
interest of LIBOR +2 to 3%, maturing in April 2001. At December 31, 1997,
the entire $50 million revolving credit facility was undrawn. At December
31, 1997,
A-21
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
G. INDEBTEDNESS, continued
interest on the Company's bank facility was 8.6%. The bank facility is
collateralized by the assets of the Company, including the stock of its
subsidiaries. (See Note N)
The stated principal repayments for all indebtedness as of December 31,
1997 are payable as follows:
($ in thousands)
1998 $11,138
1999 13,134
2000 13,706
2001 7,426
2002 800
Thereafter 36,132
H. COSTS OF SERVICES AND GENERAL AND ADMINISTRATIVE EXPENSES
Costs of services and general and administrative expenses consist of
the following:
Years Ended December 31,
1997 1996 1995
---------- --------- ---------
($ in thousands)
Salaries, wages and benefits $15,779 $11,953 $ 4,027
Other costs of services 7,569 6,878 3,412
General and administrative 3,595 1,941 718
Legal and professional 2,064 1,315 659
Manufacturing costs 1,394 -- --
Other 2,884 2,712 1,241
--------- ------- -------
$33,285 $24,799 $10,057
========= ======= =======
I. COMMITMENTS AND CONTINGENCIES
At December 31, 1997, minimum annual rental commitments under
non-cancelable operating leases for equipment and office space, which
may contain renewal and escalation clauses through 2001, are:
($ in thousands)
1998 $ 439
1999 365
2000 309
2001 2
A-22
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
I. COMMITMENTS AND CONTINGENCIES
Rent expense for equipment and office space for the years ended
December 31, 1997, 1996 and 1995 are $568,000, $360,000, and
$239,000, respectively.
The Company sponsors a partially, self-insured group medical
insurance plan. The plan is designed to provide a specified level of
coverage, with stop-loss coverage provided by a commercial insurer.
The Company's maximum claim exposure is limited to $35,000 per person
per policy year. At December 31, 1997, the Company had 172 employees
enrolled in the plan. The plan provides non-contributory coverage for
employees and contributory coverage for dependents. The Company's
contributions totaled $351,000 in 1997, $224,000 in 1996, and
$150,000 in 1995.
J. COMMON STOCK OPTIONS
1993 Stock Option Plan:
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25")
and related Interpretations in accounting for its employee stock
options. The Company provides proforma disclosures of net income and
earnings per share as if the fair-value based method prescribed by
Statement 123 had been applied in measuring compensation expense.
Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
On October 12, 1993, the Company adopted the 1993 Stock Option Plan
which authorizes the grant of up to 2,000,000 shares to certain key
employees, directors, and consultants and advisors to the Company.
Options granted under the 1993 Stock Option Plan shall terminate
no later than ten years from the date the option is granted, unless
the option terminates sooner by reason of termination of employment,
disability or death.
In June 1997, the Company adopted an amendment to the 1993 Stock
Option Plan that raised the number of shares to be issued by 500,000.
A summary of the Company's stock option activity, and related
information for the years ended December 31, follows:
A-23
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
J. COMMON STOCK OPTIONS, continued
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
--------------------------- -------------------------- --------------------
Options Weighted-Average Options Weighted-Average Options Weighted-Average
(000) Exercise Price (000) Exercise Price (000) Exercise Price
Outstanding - beginning
of year 1,228 $8.99 975 $1.31 1,055 $0.98
Granted 428 11.94 730 13.87 55 5.58
Exercised (227) 1.51 (477) 0.52 (135) 0.52
Forfeited (35) 12.19 (--) -- (--) --
------ -------
Outstanding-end of year 1,394 $11.04 1,228 $8.99 975 $1.31
====== ======= =======
Exercisable at end of year 466 $ 8.21 422 $2.03 816 $0.75
Weighted-average fair
value of options granted
during the year $5.21 -- $6.13 -- $2.07 --
</TABLE>
The following table summarizes the Company's outstanding options at
December 31, 1997:
<TABLE>
<S> <C> <C> <C> <C> <C>
Outstanding options Exercisable options
------------------------- ----------------------
Average Weighted Weighted
Remaining Average Average
Options Contractual Exercise Options Exercise
Range of Exercise Prices (000) Life Price (000) Price
------------------------ ------ ----------- --------- ------- --------
$ 0.25 - $ 4.12 223 2.0 years $ 1.39 195 $ 1.10
$ 4.13 - $ 8.25 37 3.9 years $ 5.75 10 $ 5.99
$ 8.26 - $12.37 292 2.3 years $ 10.55 5 $ 8.94
$12.38 - $16.50 842 3.9 years $ 14.04 256 $13.72
------ -------
Total 1,394 466
======= =======
</TABLE>
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company
had accounted for its employee stock options under the fair value
method of that Statement. The fair value for these options was
estimated at the date of grant using a Black- Scholes option pricing
model with the following weighted-average assumptions for 1995, 1996,
and 1997
A-24
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
J. COMMON STOCK OPTIONS, continued
respectively: risk-free interest rates of 5.7%, 6.2% and 6.2%;
dividend yields of 0%, 0% and 0%; volatility factors of the expected
market price of the Company's common stock of .38, .53 and .46; and a
weighted-average expected life of the option of 4 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's
employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide
a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period.
The Company's pro forma information follows (in thousands except for
earnings per share information):
1997 1996 1995
------- ------- ------
Pro forma net income $12,448 $ 8,109 $7,197
Pro forma earnings
per share
Basic $0.65 $0.46 $0.51
Diluted $0.64 $0.44 $0.47
Statement 123 calls for a prospective application of compensation
relating to the grant of stock options and, consequently pro-forma
financial information may not be indicative of future amounts until
the new rules are applied to all outstanding nonvested awards.
K. OTHER INCOME (EXPENSE)
Included in other, net in the consolidated statements of operations are
the following components:
($ in thousands)
Years Ended December 31,
1997 1996 1995
Collections on amounts ----- ----- -----
previously written off $ -- $ 192 --
Gain on sale of investment
in American Physicians Service
Group, Inc. Stock -- -- 559
Equipment rental -- 58 --
Other income 6 120 88
----- ----- -----
Other, net $ 6 $ 370 $ 647
===== ===== =====
A-25
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
L. INCOME TAXES
The Company files a consolidated tax return with its wholly owned
subsidiaries. A substantial portion of consolidated income is not
taxed at the corporate level as it represents income from partnerships.
Accordingly, only the portion of income from these partnerships
attributable to the Company's ownership interests is included in
taxable income in the consolidated tax return and financial statements.
The minority interest portion of this income is the responsibility of
the individual partners.
Income tax expense consists of the following:
($ in thousands)
Years ended December 31,
----------------------------
1997 1996 1995
------ ------ ------
Federal
Current $4,369 $ 97 $ 110
Deferred 68 974 193
State 1,358 925 583
------ ------ -----
$5,795 $1,996 $ 886
====== ====== =====
A reconciliation of expected income tax (computed by applying the
United States statutory income tax rate of 35% for 1997 and 34% for
1996 and 1995, to earnings before income taxes) to total income
tax expense in the accompanying consolidated statements of income
follows:
($ in thousands) Years ended December 31,
------------------------
1997 1996 1995
------ ------ ------
Expected federal income tax $7,228 $3,725 $2,751
Change in beginning of year
valuation allowance (2,399) (3,093) (2,091)
State taxes 1,358 925 583
Other ( 392) 439 ( 357)
------ ------ ------
$5,795 $1,996 $ 886
====== ====== ======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and 1996 are presented below.
($ in thousands)
1997 1996
----- ------
Deferred tax assets:
Accounts receivable,
principally due to allowance
for doubtful accounts $ 266 $ 114
AMT credit carryforwards -- 249
Net operating loss carryforwards -- 944
Investment tax credit carryforwards -- 1,200
Accrued expenses deductible
for tax purposes when paid 1,240 834
Property and equipment,
principally due to
differences in depreciation -- 656
Other 932 829
----- ------
Total gross deferred tax assets 2,438 4,826
Less valuation allowance -- (2,399)
----- ------
Net deferred tax assets 2,438 2,427
----- ------
Deferred tax liabilities:
Property and equipment,
principally due to
differences in depreciation ( 583) --
Investments in affiliated
entities, principally due to
undistributed income (2,807) (2,860)
Intangible assets, principally
due to differences in
amortization periods for tax
purposes (2,419) (1,872)
IRS Section 481(A) adjustment
for partnerships acquired ( -- ) ( 175)
------- ------
A-26
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
L. INCOME TAXES, continued
1997 1996
Total gross deferred tax ------- -------
liabilities ( 5,809) ( 4,907)
------- -------
Net deferred tax liability ($3,371) ($2,480)
======= =======
The valuation allowance for deferred tax assets as of December 31, 1997
was $-0- representing a decrease of $2,399,000, primarily due to
utilization of net operating loss carryforwards. The valuation
allowance for deferred tax assets as of January 1, 1996 was $5,492,000
with the change in the total valuation allowance for the year ended
December 31, 1996 being a decrease of $3,093,000. The Company believed
that the valuation allowance at December 31, 1996 was necessary due to
uncertainties regarding the Company's use of the net operating loss
carryforwards and tax credit carryforwards which could have become
limited in the event that the Company experienced a greater than 50%
stock ownership change in a three-year period (as defined in the
Internal Revenue Service regulations).
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment.
Based upon the level of historical taxable income and projections for
future taxable income over the periods which the deductible temporary
differences reverse, management believes it is more likely than not the
Company will realize the benefits of these deductible differences, net
of the existing valuation allowances.
M. RELATED PARTY TRANSACTIONS
See Notes B and C for additional related party transactions involving
investments in affiliates.
N. SUBSEQUENT EVENT
On March 27, 1998, the Company completed an offering of $100 million of
senior subordinated notes due 2008 (the "Notes") to qualified
institutional buyers. The net proceeds from the offering of
approximately $96.0 million will be used to repay all outstanding
indebtedness under the Company's bank facility, with the remainder to
be used for general corporate purposes, including acquisitions.
In connection herewith, the Company will take a charge to earnings of
approximately $3.8 million for debt issuance costs associated with the
Notes. (See Note B)
O. CONDENSED FINANCIAL INFORMATION REGARDING GUARANTOR SUBSIDIARIES
Condensed consolidating financial information regarding the Company,
Guarantor Subsidiaries and non-guarantor subsidiaries as of December
31, 1997 and 1996 and for each of the years in the three-year period
ended December 31, 1997 is presented below for purposes of complying
with the reporting requirements of the Guarantor Subsidiaries.
Separate financial statements and other disclosures concerning each
Guarantor Subsidiary have not been presented because management has
determined that such information is not material to investors. The
Guarantor Subsidiaries are wholly-owned subsidiaries of the Company
who have fully and unconditionally guaranteed the Notes described in
Note N.
A-27
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
($ in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
----------------------------------------------------------------------------
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
Services, Inc. Subsidiaries Subsidiaries Entries Total
-------------- ------------ ------------ ------- -----
Fee Revenue:
Lithotripsy:
Fee revenues $ -- $ 20,863 $ 63,674 $ -- $ 84,537
Management fees -- 3,978 2,259 -- 6,237
Equity income 27,386 18,587 -- (43,634) 2,339
-------- --------- ---------- ----------- -----------
27,386 43,428 65,933 (43,634) 93,113
Manufacturing -- -- 2,358 -- 2,358
Cardiac -- 479 -- -- 479
Other -- 29 -- -- 29
-------- ----------- ------------ ----------- -----------
Total fee revenue 27,386 43,936 68,291 (43,634) 95,979
-------- ----------- ------------ ----------- -----------
Cost of services and general and
administrative expenses
Lithotripsy -- 4,646 20,735 -- 25,381
Manufacturing -- -- 1,743 -- 1,743
Cardiac -- 310 -- -- 310
Other -- 168 -- -- 168
Corporate 567 5,116 -- -- 5,683
-------- --------- ---------- ----------- -----------
567 10,240 22,478 -- 33,285
Depreciation and amortization 7 5,157 4,747 -- 9,911
-------- --------- ---------- ----------- -----------
Total operating expenses 574 15,397 27,225 -- 43,196
------- --------- ---------- ----------- -----------
Operating income 26,812 28,539 41,066 (43,634) 52,783
Other income (deductions):
Interest and dividends -- 309 431 -- 740
Interest expense (7,160) ( 52) ( 265) -- (7,477)
Loan fees and stock offering costs (360) -- -- -- ( 360)
Other, net -- ( 128) 134 -- 6
---------- ----------- ------------ ----------- ----------
(7,520) 129 300 -- (7,091)
--------- ----------- ----------- ----------- ----------
Income before provision for income taxes
and minority interest 19,292 28,668 41,366 (43,634) 45,692
Minority interest in
consolidated income -- -- -- 25,041 25,041
Provision for income taxes 4,436 1,282 77 -- 5,795
-------- ---------- ----------- ----------- ----------
Net income $14,856 $ 27,386 $ 41,289 $ (68,675) $ 14,856
========= ========= ========== =========== ==========
A-28
</TABLE>
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
($ in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
----------------------------------------------------------------------------
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
Services, Inc. Subsidiaries Subsidiaries Entries Total
-------------- ------------ ------------ ------- -----
Fee Revenue:
Lithotripsy:
Fee revenues $ -- $ 18,688 $ 46,450 $ -- $ 65,138
Management fees -- 3,180 1,518 -- 4,698
Equity income 19,382 10,701 -- (28,317) 1,766
-------- --------- ---------- ----------- -----------
19,382 32,569 47,968 (28,317) 71,602
Cardiac -- 802 -- -- 802
-------- ----------- ------------ ----------- -----------
Total fee revenue 19,382 33,371 47,968 (28,317) 72,404
-------- ----------- ------------ ----------- -----------
Cost of services and general and
administrative expenses
Lithotripsy -- 5,093 14,829 -- 19,922
Cardiac -- 632 -- -- 632
Corporate 257 3,988 -- -- 4,245
-------- --------- ---------- ----------- -----------
257 9,713 14,829 -- 24,799
Depreciation and amortization 127 3,537 4,758 -- 8,422
-------- --------- ---------- ----------- -----------
Total operating expenses 384 13,250 19,587 -- 33,221
------- --------- ---------- ----------- -----------
Operating income 18,998 20,121 28,381 (28,317) 39,183
Other income (deductions):
Interest and dividends -- 202 257 -- 459
Interest expense (5,431) ( 299) ( 247) -- (5,977)
Loan fees and stock offering costs (3,535) -- -- -- (3,535)
Other, net -- 207 163 -- 370
---------- ----------- ------------ ----------- ----------
(8,966) 110 173 -- (8,683)
--------- ----------- ----------- ----------- ----------
Income before provision for income taxes
and minority interest 10,032 20,231 28,554 (28,317) 30,500
Minority interest in
consolidated income -- -- -- 19,543 19,543
Provision for income taxes 1,071 849 76 -- 1,996
-------- ---------- ----------- ----------- ----------
Net income $ 8,961 $ 19,382 $ 28,478 $ (47,860) $ 8,961
========= ========= ========== =========== ==========
A-29
</TABLE>
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
($ in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995
----------------------------------------------------------------------------
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
Services, Inc. Subsidiaries Subsidiaries Entries Total
-------------- ------------ ------------ ------- -----
Fee Revenue:
Lithotripsy:
Fee revenues $ -- $ 15,032 $ 4,274 $ -- $ 19,306
Management fees -- 690 927 -- 1,617
Equity income 7,988 3,502 -- (10,260) 1,230
-------- --------- ---------- ----------- -----------
7,988 19,224 5,201 (10,260) 22,153
Cardiac and Imaging -- 1,042 -- -- 1,042
-------- ----------- ------------ ----------- -----------
Total fee revenue 7,988 20,266 5,201 (10,260) 23,195
-------- ----------- ------------ ----------- -----------
Cost of services and general and
administrative expenses
Lithotripsy -- 4,885 1,094 -- 5,979
Cardiac -- 1,505 -- -- 1,505
Corporate 38 2,535 -- -- 2,573
-------- --------- ---------- ----------- -----------
38 8,925 1,094 -- 10,057
Depreciation and amortization 296 2,516 383 -- 3,195
-------- --------- ---------- ----------- -----------
Total operating expenses 334 11,441 1,477 -- 13,252
------- --------- ---------- ----------- -----------
Operating income 7,654 8,825 3,724 (10,260) 9,943
Other income (deductions):
Interest and dividends -- 150 2 -- 152
Interest expense ( 672) ( 518) ( 41) -- (1,231)
Other, net 222 417 8 -- 647
---------- ----------- ------------ ----------- ----------
( 450) 49 ( 31) -- ( 432)
--------- ----------- ----------- ----------- ----------
Income before provision for income taxes
and minority interest 7,204 8,874 3,693 (10,260) 9,511
Minority interest in
consolidated income -- -- -- 1,421 1,421
Provision for income taxes -- 886 -- -- 886
-------- ---------- ----------- ----------- ----------
Net income $ 7,204 $ 7,988 $ 3,693 $ (11,681) $ 7,204
========= ========= ========== =========== ==========
A-30
</TABLE>
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
($ in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
December 31, 1997
----------------------------------------------------------------------------
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
Services, Inc. Subsidiaries Subsidiaries Entries Total
-------------- ------------ ------------ ------- -----
ASSETS
Current assets:
Cash $ 18 $ 6,260 $ 17,492 $ -- $ 23,770
Accounts receivable, net -- 4,564 14,823 -- 19,387
Other receivables 291 578 234 -- 1,103
Deferred income taxes 779 727 -- -- 1,506
Prepaid expenses and
other current assets 24 1,098 654 -- 1,776
----------- ---------- ---------- --------- ----------
Total current assets 1,112 13,227 33,203 -- 47,542
----------- ---------- ---------- --------- ----------
Property and equipment:
Equipment, furniture
and fixtures -- 5,970 26,703 -- 32,673
Leasehold improvements -- 515 16 -- 531
----------- ---------- ---------- --------- ----------
-- 6,485 26,719 -- 33,204
Less accumulated depreciation
and amortization -- ( 4,646) (8,851) -- (13,497)
----------- ---------- ---------- --------- ----------
Property and equipment, net -- 1,839 17,868 -- 19,707
----------- ---------- ---------- --------- ----------
Investment in subsidiaries and
other investments 175,082 24,376 -- (187,153) 12,305
Goodwill, at cost,
net of amortization -- 143,790 33 -- 143,823
Other noncurrent assets 344 1,721 384 -- 2,449
----------- --------- ---------- --------- ----------
Total Assets $ 176,538 $ 184,953 $ 51,488 $(187,153) $ 225,826
=========== ========== ========== ========= ==========
</TABLE>
(continued)
A-31
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET (continued)
($ in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
December 31, 1997
----------------------------------------------------------------------------
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
Services, Inc. Subsidiaries Subsidiaries Entries Total
-------------- ------------ ------------ ------- -----
LIABILITIES:
Current Liabilities:
Current portion of
long-term debt $ 9,800 $ 6 $ 1,332 $ -- $ 11,138
Accounts payable -- 3,439 1,947 -- 5,386
Accrued expenses 3,367 2,563 14,929 -- 20,859
------------ ----------- --------- --------- ----------
Total current liabilities 13,167 6,008 18,208 -- 37,383
Long-term debt,
net of current portion 69,200 161 1,837 -- 71,198
Deferred income taxes 2,107 3,702 -- -- 5,809
------------- ----------- --------- --------- ----------
Total liabilities 84,474 9,871 20,045 -- 114,390
Minority interest -- -- -- 19,372 19,372
STOCKHOLDERS' EQUITY:
Common stock 193 -- -- -- 193
Capital in excess of par value 84,050 -- -- -- 84,050
Accumulated earnings 7,821 -- -- -- 7,821
Subsidiary net equity -- 175,082 31,443 (206,525) --
------------ ----------- -------- --------- ---------
Total stockholders' equity 92,064 175,082 31,443 (206,525) 92,064
------------ ----------- -------- --------- ---------
Total Liabilities and
stockholders' equity $ 176,538 $ 184,953 $ 51,488 $(187,153) $ 225,826
============ =========== ======== ========= ==========
A-32
</TABLE>
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
($ in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
December 31, 1996
----------------------------------------------------------------------------
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
Services, Inc. Subsidiaries Subsidiaries Entries Total
-------------- ------------ ------------ ------- -----
ASSETS
Current assets:
Cash $ 1 $ 2,598 $ 17,497 $ -- $ 20,096
Accounts receivable, net -- 4,061 12,285 -- 16,346
Other receivables 1,048 758 36 -- 1,842
Deferred income taxes 948 -- -- -- 948
Prepaid expenses and
other current assets -- 660 181 -- 841
----------- ---------- ---------- --------- ----------
Total current assets 1,997 8,077 29,999 -- 40,073
----------- ---------- ---------- --------- ----------
Property and equipment:
Equipment, furniture
and fixtures -- 5,035 23,283 -- 28,318
Leasehold improvements -- 113 -- -- 113
----------- ---------- ---------- --------- ----------
-- 5,148 23,283 -- 28,431
Less accumulated depreciation
and amortization -- ( 3,924) (4,165) -- ( 8,089)
----------- ---------- ---------- --------- ----------
Property and equipment, net -- 1,224 19,118 -- 20,342
----------- ---------- ---------- --------- ----------
Investment in subsidiaries and
other investments 153,846 17,891 -- (163,637) 8,100
Goodwill, at cost,
net of amortization -- 131,391 24 -- 131,415
Other noncurrent assets 558 1,987 59 -- 2,604
----------- --------- ---------- --------- ----------
Total Assets $ 156,401 $ 160,570 $ 49,200 $(163,637) $ 202,534
=========== ========== ========== ========= ==========
</TABLE>
(continued)
A-33
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET (continued)
($ in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
December 31, 1996
----------------------------------------------------------------------------
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
Services, Inc. Subsidiaries Subsidiaries Entries Total
-------------- ------------ ------------ ------- -----
LIABILITIES:
Current Liabilities:
Current portion of
long-term debt $ 8,000 $ 1,100 $ 1,422 $ -- $ 10,522
Accounts payable 320 2,718 1,413 -- 4,451
Accrued expenses 1,182 ( 313) 15,713 -- 16,582
------------ ----------- --------- --------- ----------
Total current liabilities 9,502 3,505 18,548 -- 31,555
Intercompany -- ( 103) 103 -- --
Long-term debt,
net of current portion 68,750 137 2,023 -- 70,910
Deferred income taxes 1,722 3,185 -- -- 4,907
------------- ----------- --------- --------- ----------
Total liabilities 79,974 6,724 20,674 -- 107,372
Minority interest -- -- -- 18,735 18,735
STOCKHOLDERS' EQUITY:
Common stock 191 -- -- -- 191
Capital in excess of par value 83,271 -- -- -- 83,271
Accumulated earnings (7,035) -- -- -- (7,035)
Subsidiary net equity -- 153,846 28,526 (182,372) --
------------ ----------- -------- --------- ---------
Total stockholders' equity 76,427 153,846 28,526 (182,372) 76,427
------------ ----------- -------- --------- ---------
Total Liabilities and
stockholders' equity $ 156,401 $ 160,570 $ 49,200 $(163,637) $ 202,534
============ =========== ======== ========= ==========
A-34
</TABLE>
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C> <C>
($ in thousands)
Year Ended December 31, 1997
----------------------------------------------------------------------------
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
Services, Inc. Subsidiaries Subsidiaries Entries Total
-------------- ------------ ------------ ------- -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in)
operating activities $ ( 9,441) $ 14,879 $ 46,255 $ -- $ 51,693
------------ ----------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of lithotripter entities -- (20,217) -- -- (20,217)
Purchases of equipment and leasehold
improvements -- ( 1,516) ( 3,030) -- ( 4,546)
Proceeds from sales of equipment -- 30 -- -- 30
Distributions from subsidiaries 6,865 16,667 -- (23,532) --
Investments -- 1,690 -- -- 1,690
Other -- 94 -- -- 94
------------ ---------- ---------- --------- ----------
Net cash provided by (used in)
investing activities 6,865 ( 3,252) ( 3,030) (23,532) (22,949)
------------ ---------- ---------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable
exclusive of interest (47,750) ( 1,100) ( 1,478) -- (50,328)
Borrowings on notes payable 50,000 -- 1,201 -- 51,201
Distributions to minority interest -- -- -- (28,667) (28,667)
Contributions by minority interest -- -- 2,381 -- 2,381
Exercise of stock options 343 -- -- -- 343
Distributions to equity owners -- ( 6,865) (45,334) 52,199 --
------------ ---------- ---------- --------- ----------
Net cash provided by (used in)
financing activities 2,593 ( 7,965) (43,230) 23,532 (25,070)
------------ ---------- ---------- --------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 17 3,662 ( 5) 3,674
Cash and cash equivalents,
beginning of period 1 2,598 17,497 20,096
------------ ---------- --------- ----------
Cash and cash equivalents,
end of period $ 18 $ 6,260 $ 17,492 $ 23,770
=========== ========== ========= ==========
</TABLE>
A-35
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C> <C>
($ in thousands)
Year Ended December 31, 1996
----------------------------------------------------------------------------
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
Services, Inc. Subsidiaries Subsidiaries Entries Total
-------------- ------------ ------------ ------- -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in)
operating activities $ ( 7,045) $ 7,912 $ 40,735 $ -- $ 41,602
------------ ----------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of lithotripter entities -- (66,742) -- -- (66,742)
Purchases of equipment and leasehold
improvements -- ( 1,131) ( 1,395) -- ( 2,526)
Deferred payments on lithotripter
entities -- ( 3,387) -- -- ( 3,387)
Proceeds from sales of equipment -- -- 6 -- 6
Contributions to subsidiaries (57,510) -- -- 57,510 --
Distributions from subsidiaries -- 7,180 -- ( 7,180) --
Investments -- 1,257 -- -- 1,257
Other -- ( 378) -- -- ( 378)
------------ ---------- ---------- --------- ----------
Net cash provided by (used in)
investing activities (57,510) (63,201) ( 1,389) 50,330 (71,770)
------------ ---------- ---------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable
exclusive of interest (12,300) ( 1,515) ( 1,536) -- (15,351)
Borrowings on notes payable 74,000 -- -- -- 74,000
Distributions to minority interest -- -- -- (13,440) (13,440)
Contributions from parent -- 57,510 -- (57,510) --
Exercise of stock options 363 -- -- -- 363
Distributions to equity owners -- -- ( 20,620) 20,620 --
------------ ---------- ---------- --------- ----------
Net cash provided by (used in)
financing activities 62,063 55,995 ( 22,156) (50,330) 45,572
------------ ---------- ---------- --------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ( 2,492) 706 17,190 15,404
Cash and cash equivalents,
beginning of period 2,493 1,892 307 4,692
------------ ---------- --------- ---------
Cash and cash equivalents,
end of period $ 1 $ 2,598 $ 17,497 $ 20,096
=========== ========== ========= =========
</TABLE>
A-36
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C> <C>
($ in thousands)
Year Ended December 31, 1995
----------------------------------------------------------------------------
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
Services, Inc. Subsidiaries Subsidiaries Entries Total
-------------- ------------ ------------ ------- -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in)
operating activities $ ( 687) $ 7,565 $ 4,020 $ -- $ 10,898
------------ ----------- --------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of lithotripter entities -- (15,033) -- -- (15,033)
Proceeds from sale of Investment in
American Physicians Service Group,
Inc. 585 2,168 -- -- 2,753
Purchases of equipment and leasehold
improvements -- ( 473) -- -- ( 473)
Proceeds from sales of equipment -- 21 -- -- 21
Contributions to subsidiaries (4,241) -- -- 4,241 --
Distributions from subsidiaries -- 2,142 -- ( 2,142) --
Investments -- 864 -- -- 864
Other -- ( 6) -- -- ( 6)
------------ ---------- --------- --------- ----------
Net cash provided by (used in)
investing activities (3,656) (10,317) -- 2,099 (11,874)
------------ ---------- --------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable
exclusive of interest ( 6,751) ( 2,319) ( 518) -- ( 9,588)
Borrowings on notes payable 13,800 -- 484 -- 14,284
Distributions to minority interest -- -- -- ( 1,644) ( 1,644)
Contributions from parent -- 4,241 -- ( 4,241) --
Exercise of stock options 70 -- -- -- 70
Distributions to equity owners -- -- ( 3,786) 3,786 --
Other ( 283) ( 83) -- -- ( 366)
------------ ---------- --------- --------- ----------
Net cash provided by (used in)
financing activities 6,836 1,839 ( 3,820) ( 2,099) 2,756
------------ ---------- --------- --------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,493 ( 913) 200 1,780
Cash and cash equivalents,
beginning of period -- 2,805 107 2,912
------------ ---------- --------- ----------
Cash and cash equivalents,
end of period $ 2,493 $ 1,892 $ 307 $ 4,692
=========== ========== ========= =========
</TABLE>
A-37
