- --------------------------------------------------------------------------------
UNITED STATES
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, 1999
[ ] 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)
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
----- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of Shares Outstanding at
Title of Each Class April 30, 1999
------------------- --------------
Common Stock, $.01 par value 17,104,767
<PAGE>
PART I
FINANCIAL INFORMATION
-2-
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
($ in thousands, except per share data) Three Months Ended March 31,
1999 1998
------ -----
Fee revenue:
Lithotripsy:
Fee revenues $19,496 $18,512
Management fees 1,351 1,069
Equity income 562 578
-------- --------
21,409 20,159
Manufacturing 3,400 2,433
Prostatherapy 518 83
Cardiac 55 120
-------- --------
Total fee revenue 25,382 22,795
-------- --------
Costs and expenses:
Cost of services and general
and administrative expense
Lithotripsy 6,042 5,409
Manufacturing 2,454 1,698
Prostatherapy 457 108
Cardiac 61 101
Corporate 871 1,161
Nonrecurring development
and other costs -- 1,617
-------- --------
9,885 10,094
Depreciation and amortization 2,475 2,568
-------- --------
12,360 12,662
-------- --------
Operating income 13,022 10,133
Other income (deductions):
Interest income 405 183
Interest expense (2,329) (1,783)
Financing costs -- (4,982)
Other, net (338) 156
-------- --------
(2,262) (6,426)
-------- --------
Income before provision for income taxes
and minority interest 10,760 3,707
Minority interest in consolidated income 5,443 5,032
Provision for income taxes 2,155 (157)
-------- --------
Net income (loss) $ 3,162 $ (1,168)
======== ========
Basic earnings per share:
Net income (loss) $ 0.18 $ (0.06)
======== ========
Weighted average shares outstanding 17,387 19,313
======== ========
Diluted earnings per share:
Net income (loss) $ 0.18 $ (0.06)
======== ========
Weighted average shares outstanding 17,495 19,313
======== ========
See notes to consolidated financial statements.
-3-
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
($ in thousands)
March 31, December 31,
1999 1998
---- ----
ASSETS
Current assets:
Cash $ 34,766 $ 40,146
Accounts receivable, less allowance
for doubtful accounts of $954 in
1999 and $966 in 1998 22,533 22,321
Other receivables 3,160 2,228
Deferred income taxes 1,883 2,330
Prepaid expenses and other current assets 4,031 2,774
-------- --------
Total current assets 66,373 69,799
Property and equipment:
Equipment, furniture and fixtures 36,577 34,485
Building and leasehold improvements 2,081 2,073
-------- --------
38,658 36,558
Less accumulated depreciation and
amortization ( 21,083) (18,471)
-------- --------
Property and equipment, net 17,575 18,087
Other investments 11,020 11,491
Goodwill, at cost, net of amortization 139,847 140,863
Other noncurrent assets 806 879
-------- --------
$235,621 $241,119
======== ========
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(continued)
($ in thousands)
March 31, December 31,
1999 1998
---- ----
LIABILITIES:
Current Liabilities:
Current portion of long-term debt $ 851 $ 890
Accounts payable 4,322 6,208
Accrued distributions to minority interests 4,759 8,951
Accrued expenses 7,600 12,051
--------- --------
Total current liabilities 17,532 28,100
Long-term debt, net of current portion 102,129 100,987
Deferred income taxes 5,560 4,789
--------- --------
Total liabilities 125,221 133,876
Minority interest 19,711 17,493
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
1,000,000 shares authorized;
none outstanding -- --
Common stock, $.01 par value,
40,000,000 shares authorized;
19,354,267 issued in 1999 and
19,350,267 issued in 1998 194 194
Capital in excess of par value 87,398 87,380
Accumulated earnings 21,777 18,615
Treasury stock, at cost, 2,130,000 in 1999
and 1,845,200 in 1998 ( 18,680) (16,439)
--------- --------
Total stockholders' equity 90,689 89,750
--------- --------
$ 235,621 $241,119
========= ========
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in thousands)
Three Months Ended
March 31,
1999 1998
-------- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Fee and other revenue collected $ 24,637 $ 23,103
Cash paid to employees, suppliers
of goods and others (16,917) (14,742)
Interest received 405 183
Interest paid (4,515) (2,295)
Income taxes paid (832) (3,258)
--------- --------
Net cash provided by
operating activities 2,778 2,991
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and
leasehold improvements (585) ( 1,500)
Distributions from investments 1,064 808
Other 466 (205)
--------- --------
Net cash provided by (used in)
investing activities 945 (897)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable 1,508 100,025
Payments on notes payable,
exclusive of interest (406) (79,326)
Distributions to minority interest (9,200) (8,702)
Contributions by minority interest 1,224 --
Treasury stock purchased (2,241) --
Exercise of stock options 12 24
--------- --------
Net cash provided by (used in)
financing activities (9,103) 12,021
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (5,380) 14,115
Cash and cash equivalents, beginning of period 40,146 23,770
--------- --------
Cash and cash equivalents, end of period $ 34,766 $ 37,885
========= ========
See notes to consolidated financial statements
-6-
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in thousands)
Three Months Ended
March 31,
1999 1998
------ ------
Reconciliation of net income (loss) to
cash provided by operating activities
Net income (loss) $ 3,162 $ (1,168)
Adjustments to reconcile net income (loss)
to cash provided by
operating activities:
Minority interest in consolidated income 5,443 5,032
Depreciation and amortization 2,475 2,568
Provision for deferred income taxes 92 (539)
Equity in earnings of affiliates (562) (578)
Other 141 --
Changes in operating assets
and liabilities:
Accounts receivable 156 731
Other receivables (1,502) (756)
Other current assets (1,257) (656)
Accounts payable (1,972) 2,273
Accrued expenses (3,398) (3,916)
-------- --------
Total adjustments (384) 4,159
-------- --------
Net cash provided by
operating activities $ 2,778 $ 2,991
======== ========
See notes to consolidated financial statements
-7-
<PAGE>
PRIME MEDICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
1. General
- -- -------
The accompanying unaudited consolidated financial statements have been prepared
in conformity with the accounting principles stated in the audited financial
statements for the year ended December 31, 1998 and reflect all adjustments
which are, in the opinion of management, necessary for a fair statement of the
financial position as of March 31, 1999 and the results of operations for the
periods presented. These statements have not been audited by the Company's
independent certified public accountants. The operating results for the interim
periods are not necessarily indicative of results for the full fiscal year.
The notes to consolidated financial statements appearing in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998 filed with the
Securities Exchange Commission should be read in conjunction with this Quarterly
Report on Form 10-Q. There have been no significant changes in the information
reported in those notes other than from normal business activities of the
Company.
2. Noncash Investing and Financing Activities:
- -- -------------------------------------------
In January 1999, three of the partnerships, that the Company is the general
partner, merged into one partnership ("New"). Prior to the merger, one of the
three partnerships had been accounted for as an equity investment and not been
consolidated with the Company for financial statement purposes. After the
merger, the new partnership has been included as part of the consolidated
financial statements.
3. Earnings per share:
- -- -------------------
Basic EPS is based on weighted average shares outstanding without any dilutive
effects considered. Diluted EPS reflects dilution from all contingently issuable
shares, including options. A reconciliation of such EPS data is as follows:
-8-
<PAGE>
PRIME MEDICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
(continued)
Basic Diluted
earnings earnings
per share per share
--------- ---------
($ in thousands, except per share data)
1999
Net income $ 3,162 $ 3,162
========= =======
Average number of shares outstanding 17,387 17,387
Effect of dilutive options -- 108
--------- -------
Shares for EPS calculation 17,387 17,495
========= =======
Net income per share $ 0.18 $ 0.18
========= =======
1998
Net loss $ (1,168) $(1,168)
========= =======
Average number of shares outstanding 19,313 19,313
Effect of dilutive options -- --
--------- -------
Shares for EPS calculation 19,313 19,313
========= =======
Net loss per share $ (0.06) $ (0.06)
========= =======
Unexercised stock options to purchase 1,186,500 and 1,358,000 shares of the
Company's common stock as of March 31, 1999 and 1998 were not included in the
computation of diluted EPS because the effect would be antidilutive.
4. Segment Reporting
- -- -----------------
The Company has two reportable segments: Medical, which includes lithotripsy,
prostatherapy and cardiac rehabilitation, and Manufacturing. Lithotripsy and
prostatherapy provides services related to the operation of the lithotripters
and prostatherapy units, including scheduling, staffing, training, quality
assurance, maintenance, regulatory compliance and contracting with payors,
hospitals and surgery centers; and cardiac rehabilitation provides non-medical
management services for several cardiac rehabilitation centers pursuant to
agreements with physicians, clinics and hospitals. The manufacturing segment
provides manufacturing services and installation, upgrade, refurbishment and
repair of major medical equipment for mobile medical service providers.
-9-
<PAGE>
The Company measures performance based on pre-tax income or loss for its
operating segments, which do not include unallocated corporate general and
administrative expenses and corporate interest revenue and expense.
<TABLE>
<S> <C> <C> <C> <C>
($ in thousands) Three Months Ended Three Months Ended Three Months Ended Three Months Ended
March 31, 1999 March 31, 1999 March 31, 1998 March 31, 1998
Medical Manufacturing Medical Manufacturing
------- ------------- ------- -------------
Revenue from
external customers
$21,982 $3,400 $20,362 $2,433
Intersegment
revenues 0 46 0 135
Segment profit 7,734 895 7,887 722
</TABLE>
The following is a reconciliation of the measure of segment profit per above to
consolidated income before income taxes per the consolidated statements of
operations:
Three months ended March 31,
($ in thousands) 1999 1998
----- -----
Total segment profit $8,629 $8,609
Unallocated corporate expenses
General and administrative (871) (1,161)
Net interest expense (1,939) (1,672)
Loan fees and stock offering costs -- (4,982)
Nonrecurring development and other costs -- (1,617)
Other, net (502) (502)
------ --------
Unallocated corporate expenses total (3,312) (9,934)
------ --------
Income before income taxes $5,317 $(1,325)
====== ========
5. Condensed Financial Information Regarding Guarantor Subsidiaries:
- -- -----------------------------------------------------------------
Condensed consolidating financial information regarding the Company, Guarantor
Subsidiaries and Non-guarantor Subsidiaries for March 31, 1999 and 1998 is
presented below for purposes of complying with the reporting requirements of the
Guarantor Subsidiaries. Separate financial statements and other disclosures
concerning each Guarantor Subsidiary have not been presented because management
has determined that such information is not material to investors. The Guarantor
Subsidiaries are wholly-owned subsidiaries of the Company who have fully and
unconditionally guaranteed the 8.75% unsecured senior subordinated Notes.
-10-
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Condensed Consolidating Statement of Income
Three Months Ended March 31, 1999
<TABLE>
<S> <C> <C> <C> <C> <C>
($ in thousands)
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
Services Inc. Subsidiaries Subsidiaries Entries Total
------------- ------------ ------------- ------- -----
Fee revenue:
Lithotripsy:
Fee revenues $ -- $ 5,009 $ 14,487 $ -- $ 19,496
Management fees -- 789 562 -- 1,351
Equity income 7,999 4,434 -- (11,871) 562
--------- ------- --------- -------- ---------
7,999 10,232 15,049 (11,871) 21,409
Manufacturing -- -- 3,400 -- 3,400
Prostatherapy -- -- 518 -- 518
Cardiac -- 55 -- -- 55
--------- ------- --------- -------- ---------
Total revenues 7,999 10,287 18,967 (11,871) 25,382
--------- ------- --------- -------- ---------
Costs and expenses:
Cost of services and general and
administrative expenses:
Lithotripsy -- 545 5,497 -- 6,042
Manufacturing -- -- 2,454 -- 2,454
Prostatherapy -- -- 457 -- 457
Cardiac -- 61 -- -- 61
Corporate 29 842 -- -- 871
--------- ------- --------- -------- ---------
Total costs and expenses 29 1,448 8,408 -- 9,885
Depreciation and amortization 2 1,206 1,267 -- 2,475
--------- ------- --------- -------- ---------
31 2,654 9,675 -- 12,360
--------- ------- --------- -------- ---------
Operating income 7,968 7,633 9,292 (11,871) 13,022
--------- ------- --------- -------- ---------
Other income (deductions):
Interest income 205 139 61 -- 405
Interest expense (2,281) -- (48) -- (2,329)
Other, net (607) 265 4 -- (338)
--------- ------- --------- -------- ---------
Total other income
(deductions) (2,683) 404 17 -- (2,262)
--------- ------- --------- -------- ---------
Income before provision for income
taxes 5,285 8,037 9,309 (11,871) 10,760
Minority interest in consolidated
income -- -- -- 5,443 5,443
Provision for income taxes 2,123 38 (6) -- 2,155
--------- ------- --------- -------- ---------
Net income $ 3,162 $ 7,999 $ 9,315 $(17,314) $ 3,162
========= ======= ========= ======== =========
</TABLE>
-11-
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Condensed Consolidating Statement of Operations
Three Months Ended March 31, 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
($ in thousands)
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
Services Inc. Subsidiaries Subsidiaries Entries Total
------------- ------------ ------------ ------- -----
Fee revenue:
Lithotripsy:
Fee revenues $ -- $ 4,805 $ 13,707 $ -- $ 18,512
Management fees -- 677 392 -- 1,069
Equity income 6,656 4,308 -- (10,386) 578
--------- ------- --------- -------- ---------
6,656 9,790 14,099 (10,386) 20,159
--------- ------- --------- -------- ---------
Manufacturing -- -- 2,433 -- 2,433
Prostatherapy -- -- 83 -- 83
Cardiac -- 120 -- -- 120
--------- ------- --------- -------- ---------
Total revenues 6,656 9,910 16,615 (10,386) 22,795
--------- ------- --------- -------- ---------
Costs and expenses:
Cost of services and general and
administrative expenses:
Lithotripsy -- 472 4,937 -- 5,409
Manufacturing -- -- 1,698 -- 1,698
Prostatherapy -- -- 108 -- 108
Cardiac -- 101 -- -- 101
Corporate 49 1,112 -- -- 1,161
Nonrecurring development
and other costs 1,617 -- -- -- 1,617
--------- ------- --------- -------- ---------
Total Cost and Expenses 1,666 1,685 6,743 -- 10,094
Depreciation and amortization 2 1,376 1,190 -- 2,568
--------- ------- --------- -------- ---------
Operating income 4,988 6,849 8,682 (10,386) 10,133
--------- ------- --------- -------- ---------
Other income (deductions):
Interest income 13 59 111 -- 183
Interest expense (1,731) (15) (37) -- (1,783)
Financing costs (4,978) -- (4) -- (4,982)
Other, net -- 131 25 -- 156
--------- ------- --------- -------- ---------
Total other income
(deductions) (6,696) 175 95 -- (6,426)
--------- ------- --------- -------- ---------
Income (loss) before provision for
income taxes (1,708) 7,024 8,777 (10,386) 3,707
Minority interest in consolidated
income -- -- -- 5,032 5,032
Provision for income taxes (540) 368 15 -- (157)
--------- ------- --------- -------- ---------
Net income (loss) $ (1,168) $ 6,656 $ 8,762 $(15,418) $ (1,168)
======== ======= ======== ======== ========
</TABLE>
-12-
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
(Unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Balance Sheet
March 31, 1999
($ in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
Services, Inc. Subsidiaries Subsidiaries Entries Total
-------------- ------------ ------------ ------- -----
ASSETS:
Current Assets:
Cash $ 15,617 $ 7,690 $ 11,459 $ -- $ 34,766
Accounts receivable, net -- 4,558 17,975 -- 22,533
Other receivables -- 3,160 -- -- 3,160
Deferred income taxes 1,156 727 -- -- 1,883
Prepaid expenses and other current assets 28 574 3,429 -- 4,031
--------- ------- --------- -------- ---------
Total current assets 16,801 16,709 32,863 -- 66,373
--------- ------- --------- -------- ---------
Property and equipment:
Equipment, furniture and fixtures -- 4,967 31,610 -- 36,577
Building and leasehold improvements -- 499 1,582 -- 2,081
Less accumulated depreciation
and amortization -- (4,588) (16,495) -- (21,083)
--------- ------- --------- -------- ---------
Property and equipment, net -- 878 16,697 -- 17,575
--------- ------- --------- -------- ---------
Investment in subsidiaries and other
investments 179,058 29,144 -- (197,182) 11,020
Goodwill, at cost, net of amortization -- 139,847 -- -- 139,847
Other noncurrent assets 48 758 -- -- 806
--------- ------- --------- -------- ---------
Total assets $ 195,907 $ 187,336 $ 49,560 $(197,182) $ 235,621
========= ========= ========= ========= =========
LIABILITIES:
Current Liabilities:
Current portion of long-term debt $ -- $ -- $ 851 $ -- $ 851
Accounts payable 950 3,224 148 -- 4,322
Accrued expenses 2,193 1,530 8,636 -- 12,359
--------- ------- --------- -------- ---------
Total current liabilities 3,143 4,754 9,635 -- 17,532
--------- ------- --------- -------- ---------
Long-term debt, net of current portion 100,000 162 1,967 -- 102,129
Deferred income taxes 2,075 3,485 -- -- 5,560
--------- ------- --------- -------- ---------
Total liabilities 105,218 8,401 11,602 -- 125,221
--------- ------- --------- -------- ---------
Minority interest -- -- -- 19,711 19,711
STOCKHOLDERS' EQUITY:
Common stock 194 -- -- -- 194
Capital in excess of par value 87,398 -- -- -- 87,398
Accumulated earnings 21,777 -- -- -- 21,777
Treasury stock (18,680) -- -- -- (18,680)
Subsidiary net equity -- 178,935 37,958 (216,893) --
--------- ------- --------- -------- ---------
Total stockholders' equity 90,689 178,935 37,958 (216,893) 90,689
--------- ------- --------- -------- ---------
Total liabilities and
stockholders' equity $ 195,907 $ 187,336 $ 49,560 $(197,182) $ 235,621
========= ========= ======== ========= =========
</TABLE>
-13-
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 1999
<TABLE>
<S> <C> <C> <C> <C> <C>
($ in thousands) Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
Services, Inc. Subsidiaries Subsidiaries Entries Total
-------------- ------------ ------------ ------- -----
Net cash (used) provided by
operating activities $ (5,503) $ 1,947 $ 6,334 $ -- $ 2,778
--------- ------- --------- -------- ---------
Cash flows from investing activities:
Purchases of equipment and leasehold
improvements -- (114) (471) -- (585)
Distributions from subsidiaries 7,551 4,864 -- (12,415) --
Distributions from investments -- 1,064 -- -- 1,064
Other -- (105) 571 -- 466
--------- ------- --------- -------- ---------
Net cash provided (used) by
investing activities 7,551 5,709 100 (12,415) 945
--------- ------- --------- -------- ---------
Cash flows from financing activities:
Payments on notes payable,
exclusive of interest -- -- (406) -- (406)
Borrowings on notes payable -- -- 1,508 -- 1,508
Distribution to minority interest -- -- -- (9,200) (9,200)
Contributions by minority interest -- -- 1,224 -- 1,224
Purchase of treasury stock (2,241) -- -- -- (2,241)
Other 12 -- -- -- 12
Distributions to equity owners -- (7,551) (14,064) 21,615 --
--------- ------- --------- -------- ---------
Net cash provided (used) by
financing activities (2,229) (7,551) (11,738) 12,415 (9,103)
--------- ------- --------- -------- ---------
Net increase (decrease) in cash and
cash equivalents (181) 105 (5,304) -- (5,380)
Cash and cash equivalents at beginning
of period 15,798 7,585 16,763 -- 40,146
--------- ------- --------- -------- ---------
Cash and cash equivalents at end of
period $ 15,617 $ 7,690 $ 11,459 $ -- $ 34,766
========= ======= ======== ======= =========
</TABLE>
-14-
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
($ in thousands) Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
Services, Inc.Subsidiaries Subsidiaries Entries Total
-------------------------- ------------ ------- -----
Net cash (used) provided by
operating activities $ (5,942) $ (5,393) $ 14,326 $ -- $ 2,991
--------- ------- --------- -------- ---------
Cash flows from investing activities:
Purchases of equipment and leasehold
improvements -- (304) (1,196) -- (1,500)
Distributions from subsidiaries 3,058 4,720 -- (7,778) --
Distributions from investments -- 808 -- -- 808
Other -- (72) (133) -- (205)
--------- ------- --------- -------- ---------
Net cash provided (used) by
investing activities 3,058 5,152 (1,329) (7,778) (897)
--------- ------- --------- -------- ---------
Cash flows from financing activities:
Payments on notes payable,
exclusive of interest (79,000) (2) (324) -- (79,326)
Borrowings on notes payable 100,000 -- 25 -- 100,025
Distribution to minority interest -- -- -- (8,702) (8,702)
Other 24 -- -- -- 24
Distributions to equity owners -- (3,058) (13,422) 16,480 --
--------- ------- --------- -------- ---------
Net cash provided (used) by
financing activities 21,024 (3,060) (13,721) 7,778 12,021
--------- ------- --------- -------- ---------
Net increase (decrease) in cash and
cash equivalents 18,140 (3,301) (724) -- 14,115
Cash and cash equivalents at beginning
of period 18 6,260 17,492 -- 23,770
--------- ------- --------- -------- ---------
Cash and cash equivalents at end of
period $ 18,158 $ 2,959 $ 16,768 $ -- $ 37,885
========= ========= ========= ========= =========
</TABLE>
-15-
<PAGE>
Management's Discussion and Analysis
of Financial Condition and
Results of Operations
Revenues
- --------
Total revenues for the three months ended March 31, 1999 increased $2,587,000
(11%) as compared to the same period in 1998. Revenues from manufacturing
increased $967,000 (40%) due to the sale of trailers for MRI equipment, while
the prior year revenues did not include any revenue from the sale of trailers
for MRI equipment, since AK Associates did not become authorized under the GE
certification process until mid 1998. Revenues from lithotripter operations
increased by $1,250,000 (6%) primarily due to a increase in procedures
performed. Revenues from prostatherapy operations increased $435,000 (524%)
primarily because the California unit not becoming operational until June 1998.
Revenues from cardiac centers decreased $65,000 (54%) primarily due to two
discontinued cardiac centers.
Expenses
- --------
Costs and expenses (excluding depreciation and amortization) for the three
months ended March 31, 1999 decreased from 44% to 39% of revenues, primarily due
to certain nonrecurring development and other costs of $1,617,000 recognized in
the quarter ended March 31, 1998, and decreased $209,000 (2%) in absolute terms,
compared to the same period in 1998. Cost of services and general and
administrative expenses associated with manufacturing increased $756,000 (45%)
due to the increase in MRI trailers manufactured. Costs of services associated
with lithotripter operations increased $633,000 (12%) in absolute terms and
increased from 27% to 28% of lithotripter revenues primarily due to the writeoff
of start up costs incurred during the quarter. Cost of services associated with
prostatherapy operations increased $349,000 (323%) due to the California unit
discussed above. Cost of services associated with cardiac centers decreased
$40,000 (40%). Corporate expenses were decreased from 5% to 3% of revenues, or
$290,000 (25%), as the Company was able to successfully grow without
proportionately adding overhead, and a reduction in the amounts due under
management incentive plans.
Other Income (Deductions)
- -------------------------
Other deductions for the three months ended March 31, 1999 decreased $4,164,000
(65%) compared to the same period in 1998, primarily due to financing costs
totaling $4,982,000 associated with the $100 million debt offering and the $50
million increase in the senior revolving credit facility were expensed in the
quarter ended March 31, 1998. This decrease was partially offset by a $494,000
increase in other deductions, net, primarily due to the writeoff of costs
related to a proposed acquisition that was not consumated and $546,000 increase
in interest expense, due to higher outstanding debt balances in the first
quarter of 1999 compared to the same period in 1998.
Minority Interest In Consolidated Income
- ----------------------------------------
Minority interest in consolidated income for the three months ended March 31,
1999 increased $411,000 compared to the same period in 1998, primarily due to an
increase in operating income of applicable entities resulting from an increase
of procedures performed. Earnings before interest, taxes, depreciation and
amortization (EBITDA) attributable to minority interests was $6,603,000 for the
three months ended March 31, 1999 compared to $6,106,000 for the same period in
1998. EBITDA is not intended to represent net income or cash flows from
operating activities in accordance with generally accepted accounting principles
and should not be considered a measure of the Company's profitability or
liquidity.
-16-
<PAGE>
Provision for income taxes
- --------------------------
Provision for income taxes for the three months ended March 31, 1999 increased
$2,312,000 compared to the same period in 1998 due to the loss in the first
quarter of 1998 arising from the financing costs and development costs written
off.
Liquidity and Capital Resources
- -------------------------------
Cash was $34,766,000 and $40,146,000 at March 31, 1999 and December 31, 1998,
respectively. Cash provided by operations for the quarter ended March 31, 1999
was $2,778,000 compared to cash provided by operations for the quarter ended
March 31, 1998 in the amount of $2,991,000. The decline was primarily
attributable to higher interest expense payments.
Cash provided by investing activities for the quarter ended March 31, 1999 was
$945,000 compared to cash used in investing activities for the quarter ended
March 31, 1998 in the amount of $897,000. The increase was attributable to an
increase in distributions from equity investments and a decrease in the purchase
of equipment. Cash used in financing activities for the quarter ended March 31,
1999 was $9,103,000 which included distributions to minority interest totaling
$9,200,000, purchase of treasury stock of $2,241,000 and payments on notes
payable of $406,000, which was partially offset by borrowings on notes payable
of $1,508,000 and contributions by minority interest of $1,224,000. Cash
provided by financing activities for the quarter ended March 31, 1998 was
$12,021,000 which included $100,025,000 in new borrowings, which was partially
offset by payments on notes payable and distributions to minority interest
totaling $88,028,000.
The Company's existing senior credit facility is comprised of a revolving line
of credit. The revolving line of credit has a borrowing limit of $100 million,
none of which was drawn at March 31, 1999 and April 30, 1999.
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 million was 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 therewith, the Company recorded a charge to earnings of approximately
$4.4 million for debt issuance costs associated with the Notes. The Notes bear
interest at 8.75% and interest is payable semi-annually on April 1st and October
1st. Principal is due April 2008.
The Company intends to increase the number of its lithotripsy operations
primarily through acquisitions. The Company believes that the fragmented nature
of the lithotripsy industry, combined with operational challenges created by
increasing regulatory and business complexities, including Stark II, the Illegal
Remuneration Statute and similar state laws, will provide significant
lithotripsy acquisition opportunities. Where appropriate, the Company will seek
to increase its ownership interest in current lithotripsy operations by
purchasing interests of urologists and other investors who desire to divest due
to concerns over regulatory issues, a desire to realize a return on their
investment or retirement. The Company intends to fund the purchase price for
future acquisitions using borrowings under its senior credit facility, remaining
proceeds from the offering of the Notes and cash flow from operations. In
addition, the Company may use shares of its common stock in such acquisitions
where appropriate.
-17-
<PAGE>
During 1998, the Company announced a stock repurchase program of up to $25.0
million of common stock. From time to time, the Company may purchase additional
shares of its common stock where, in the judgment of management, market
valuations of its stock do not accurately reflect the Company's past and
projected results of operations. The Company intends to fund any such purchases
using available cash, cash flow from operations and borrowings under its senior
credit facility. The Company has purchased 2,249,500 shares of stock for a total
of $19,545,000 as of April 30, 1999.
The Company's ability to make scheduled payments of principal of, or to pay the
interest on, or to refinance, its indebtedness, or to fund planned capital
expenditures will depend on its future performance, which, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond its control. Based upon the current level of
operations and anticipated cost savings and revenue growth, management believes
that cash flow from operations and available cash, together with available
borrowings under its senior credit facility, will be adequate to meet the
Company's future liquidity needs for at least the next several years. However,
there can be no assurance that the Company's business will generate sufficient
cash flow from operations, that anticipated revenue growth and operating
improvements will be realized or that future borrowings will be available under
the senior credit facility in an amount sufficient to enable the Company to
service its indebtedness or to fund its other liquidity needs.
Impact of Inflation
- -------------------
The assets of the Company are not significantly affected by inflation because
the Company is not required to make large investments in fixed assets. However,
the rate of inflation will affect certain of the Company's expenses, such as
employee compensation and benefits.
Year 2000 Compliance
- --------------------
The "Year 2000 " issue refers to the phenomenon whereby computer programs,
having been written using two digits rather than four to define the applicable
year, may erroneously recognize a date using "00" as the year 1900 rather than
the year 2000. This error could potentially result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in similar
normal business activities.
The Company formed a Year 2000 Committee in mid 1998. The Committee was charged
with examining (1) internal hardware and software systems; (2) medical
equipment; (3) physical facilities; and (4) outside suppliers, as these items
relate to potential problems that could be caused by the inability to process
dates beyond December 31, 1999.
The Committee divided its task into four parts - assessment, remediation
planning, implementation and testing and contingency planning. Assessment and
remediation planning have been substantially completed for all four phases of
the project. Implementation and testing and contingency planning are discussed
below.
Internal hardware and software systems: The Company has completed substantially
all of the needed upgrades to its hardware and software systems. The remaining
hardware and software upgrades/replacements are expected to be complete by June
30, 1999.
-18-
<PAGE>
Medical Equipment: A review of the Company's lithotripters has determined that
their operation is not affected directly by the Year 2000 issue. The Company is
currently reviewing the miscellaneous ancillary medical equipment to determine
compliance and expects to be completed by September 30, 1999.
Physical facilities: The Committee has evaluated its non-computer equipment and
has determined that, except for its telephone system, there are no devices whose
failure would materially affect the ability to carry out the business of the
Company. A compliant telephone system is expected to be installed by June 30,
1999. The outside managers of the Company's office buildings have reported that
all aspects of the physical facilities - elevators, fire and security systems,
etc. are compliant. Their further inquiry of those supplying public utilities
have produced assurances of best efforts but no guarantee of performance.
Outside suppliers: The Company is currently inquiring about the state of Year
2000 readiness of those outside suppliers who were determined to be critical to
the Company's ability to carry out its business. This survey is expected to be
complete by June 30, 1999.
Contingency planning: The Company cannot be certain that it has identified and
will be successful in bringing into compliance all Year 2000 issues within its
control. It can be even less certain of critical services being supplied by
third parties beyond its control. Upon completion of the implementation and
testing phases of the plan, the Company will formalize plans for carrying on its
business in the event of unanticipated Year 2000-related failures. Presently,
the Company believes that the most reasonably likely worst case scenario would
be a failure of relatively short duration of basic third party services such as
the power grid. With such a failure the Company's planning will be directed
toward a temporary suspension of operations followed by plans for resumption and
catch up operations. Due to the magnitude of the uncertainties related to Year
2000 issues, the Company is unable to fully assess the consequences of Year 2000
failures and, consequently, there could be a material adverse effect on the
Company's results of operations, financial position and cash flows.
To date, the Company has not experienced significant costs associated with the
Year 2000 issue and does not expect significant costs to be incurred in order to
correct the Year 2000 issue.
Forward-Looking Statements
- --------------------------
The statements contained in this Report on Form 10-Q that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectation, hopes,
intentions or strategies regarding the future. Readers should not place undue
reliance on forward-looking statements. All forward-looking statements included
in this document are based on information available to the Company on the date
hereof, and the Company assumes no obligation to update any such forward-looking
statements. It is important to note that the Company's actual results could
differ materially from those in such forward-looking statements. In addition to
any risks and uncertainties specifically identified in the text surrounding such
forward-looking statements, the reader should consult the Company's reports on
Form 10-K and other filings under the Securities Act of 1933 and the Securities
Exchange Act of 1934, for factors that could cause actual results to differ
materially from those presented.
-19-
<PAGE>
The forward-looking statements included herein are necessarily based on various
assumptions and estimates and are inherently subject to various risks and
uncertainties, including risks and uncertainties relating to the possible
invalidity of the underlying assumptions and estimates and possible changes or
developments in social, economic, business, industry, market, legal and
regulatory circumstances and conditions and actions taken or omitted to be taken
by third parties, including customers, suppliers, business partners and
competitors and legislative, judicial and other governmental authorities and
officials. Assumptions related to the foregoing involve judgements with respect
to, among other things, future economic, competitive and market conditions and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Any of such
assumptions could be inaccurate and therefore, there can be no assurance that
the forward-looking statements included in this Report on Form 10-Q will prove
to be accurate.
-20-
<PAGE>
PART II
OTHER INFORMATION
-21-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
12. Computation of ratio of earnings to fixed charges
27. Financial Data Schedule
(b) Current Reports on Form 8-K
NONE
-22-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIME MEDICAL SERVICES, INC.
Date: May 17, 1999 By: /s/ Cheryl L. Williams
----------------------
Cheryl L. Williams,
Vice President
and Chief Financial Officer
-23-
<PAGE>
EXHIBIT 12
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
Three Months Ended March 31,
($ in thousands)
1999 1998
---- ----
Income (loss) before income taxes and
after minority interest $ 5,317 $(1,325)
Undistributed equity income (58) (9)
Minority interest income of subsidiaries
with fixed charges 355 1,127
------- -------
Adjusted earnings (loss) 5,614 (207)
------- -------
Interest on debt 2,329 1,783
Debt issuance costs -- 4,982
------- -------
Total fixed charges 2,329 6,765
------- -------
Total available earnings before fixed charges 7,943 6,558
======= =======
Ratio 3.4 (a)
======= =======
______________
(a) Earnings were inadequate to cover fixed charges by $207,000.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the March 31, 1999 Form 10-Q and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 34,766
<SECURITIES> 0
<RECEIVABLES> 22,533
<ALLOWANCES> 954
<INVENTORY> 0
<CURRENT-ASSETS> 66,373
<PP&E> 38,658
<DEPRECIATION> 21,083
<TOTAL-ASSETS> 235,621
<CURRENT-LIABILITIES> 17,532
<BONDS> 0
0
0
<COMMON> 194
<OTHER-SE> 90,495
<TOTAL-LIABILITY-AND-EQUITY> 235,621
<SALES> 0
<TOTAL-REVENUES> 25,382
<CGS> 0
<TOTAL-COSTS> 9,885
<OTHER-EXPENSES> 2,475
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,329
<INCOME-PRETAX> 5,317
<INCOME-TAX> 2,155
<INCOME-CONTINUING> 3,162
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,162
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
<FN>
NOTE: Due to the change in computing EPS per FASB No. 128, the tags per the
FDS schedule will correspond to FASB No. 128 as follows:
FDS tag FASB No. 128
EPS - Primary EPS - Basic
EPS - Diluted EPS - Diluted
</FN>
</TABLE>
