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 June 30, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities and 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, TX 78746
(Address of principal executive office) (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 July 31, 2000
------------------- -------------
Common Stock, $.01 par value 16,005,533
<PAGE>
PART I
FINANCIAL INFORMATION
2
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
($ in thousands, except per share data) 2000 1999 2000 1999
---- ---- ---- ----
Revenue:
Lithotripsy:
Fee revenues $19,213 $21,577 $38,283 $41,073
Management fees 934 1,411 1,828 2,762
Equity income 665 601 1,235 1,163
-------- -------- -------- --------
20,812 23,589 41,346 44,998
Manufacturing 5,577 4,473 11,104 7,873
Refractive 6,561 - 9,496 -
Prostatherapy 390 485 792 1,003
Other 42 61 87 116
-------- -------- -------- --------
Total revenue 33,382 28,608 62,825 53,990
-------- -------- -------- --------
Cost of services and general and
administrative expenses:
Lithotripsy 5,735 5,737 11,130 11,779
Manufacturing 4,282 3,342 8,572 5,796
Refractive 3,326 - 4,827 -
Prostatherapy 314 371 673 828
Other 45 58 95 119
Corporate 1,177 1,418 2,133 2,289
Restructuring charges 350 - 350 -
-------- -------- -------- --------
15,229 10,926 27,780 20,811
Depreciation and amortization 3,434 2,553 6,354 5,028
-------- -------- -------- --------
18,663 13,479 34,134 25,839
-------- -------- -------- --------
Operating income 14,719 15,129 28,691 28,151
Other income (deductions):
Interest and dividends 197 333 555 738
Interest expense (2,507) (2,325) (4,933) (4,654)
Loan fees (24) - (107) -
Release of contractual obligation - 1,140 - 1,140
Other, net 78 47 73 (291)
-------- -------- -------- --------
(2,256) (805) (4,412) (3,067)
-------- -------- -------- --------
Income before provision for income
taxes and minority interests 12,463 14,324 24,279 25,084
Minority interest in consolidated income 6,845 7,201 13,300 12,644
Provision for income taxes 2,303 2,821 4,367 4,976
-------- -------- -------- --------
Net income $ 3,315 $ 4,302 $ 6,612 $ 7,464
======== ======== ======== ========
Basic earnings per share:
Net income $ 0.20 $ 0.25 $ 0.41 $ 0.43
======== ======== ======== ========
Weighted average shares outstanding 16,218 17,098 16,327 17,241
======== ======== ======== ========
Diluted earnings per share:
Net income $ 0.20 $ 0.25 $ 0.40 $ 0.43
======== ======== ======== ========
Weighted average shares outstanding 16,303 17,196 16,455 17,344
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
($ in thousands) 2000 1999
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 12,770 $ 20,064
Investments 500 4,120
Accounts receivable, less allowance for doubtful
accounts of $270 in 2000 and $224 in 1999 24,611 23,273
Other receivables 4,064 3,491
Deferred income taxes 788 1,066
Prepaid expenses and other current assets 1,725 2,322
Inventory 4,415 3,676
-------- --------
Total current assets 48,873 58,012
-------- --------
Property and equipment:
Equipment, furniture and fixtures 47,422 42,128
Building and leasehold improvements 2,649 2,092
-------- --------
50,071 44,220
Less accumulated depreciation and amortization (28,096) (25,567)
-------- --------
Property and equipment, net 21,975 18,653
-------- --------
Other investments 18,504 18,963
Goodwill, at cost, net of amortization 165,290 149,088
Other noncurrent assets 2,402 2,110
-------- --------
$257,044 $246,826
======== ========
See accompanying notes to consolidated financial statements.
4
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited)
June 30, December 31,
($ in thousands, except share data) 2000 1999
-------- --------
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 1,887 $ 1,763
Accounts payable 5,445 3,290
Accrued distributions to minority interests - 8,332
Accrued expenses 5,464 7,108
-------- --------
Total current liabilities 12,796 20,493
Long-term debt, net of current portion 113,146 103,797
Deferred income taxes 7,832 6,400
-------- --------
Total liabilities 133,774 130,690
Minority interest 23,644 19,454
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value;
1,000,000 shares authorized;
none outstanding - -
Common stock, $0.01 par value;
40,000,000 shares authorized;
19,524,533 shares issued in 2000
and 19,367,267 shares issued in 1999 194 194
Capital in excess of par value 88,859 87,655
Accumulated earnings 40,267 33,654
Treasury stock, at cost; 3,469,400 shares
in 2000 and 2,875,300 shares in 1999 (29,694) (24,821)
-------- --------
Total stockholders' equity 99,626 96,682
-------- --------
$257,044 $246,826
======== ========
See accompanying notes to consolidated financial statements.
5
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
($ in thousands) 2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Fee and other revenue collected $ 59,228 $ 51,383
Cash paid to employees, suppliers of
goods and others (28,654) (28,545)
Proceeds from sales and maturities of
investments 3,704 -
Interest received 471 738
Interest paid (4,932) (4,555)
Taxes paid (2,946) (3,147)
-------- --------
Net cash provided by operating
activities 26,871 15,874
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of operating entities (18,229) -
Purchases of equipment and leasehold
improvements (4,712) (2,081)
Distributions from investments 2,094 1,540
Other 112 522
-------- --------
Net cash used in investing activities (20,735) (19)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable 10,276 1,508
Payments on notes payable, exclusive
of interest (804) (887)
Distributions to minority interest (18,537) (18,789)
Contributions by minority interest,
net of buyouts 345 2,138
Purchases of treasury stock (4,874) (3,923)
Exercise of stock options, and sales
and purchases of put options 164 53
-------- --------
Net cash used in financing activities (13,430) (19,900)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (7,294) (4,045)
Cash and cash equivalents, beginning of period 20,064 40,146
-------- --------
Cash and cash equivalents, end of period $ 12,770 $ 36,101
======== ========
See accompanying notes to consolidated financial statements.
6
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
Six Months Ended June 30,
($ in thousands) 2000 1999
-------- --------
Reconciliation of net income to cash
provided by operating activities:
Net income $ 6,612 $ 7,464
Adjustments to reconcile net income
to cash provided by operating activities:
Minority interest in consolidated income 13,300 12,644
Depreciation and amortization 6,354 5,028
Provision for deferred income taxes 1,317 2,098
Equity in earnings of affiliates (1,934) (1,113)
Other (69) (51)
Changes in operating assets and liabilities,
net of effect of purchase transactions:
Investments (1,293) -
Accounts receivable 3,619 (2,203)
Other receivables (573) (1,024)
Other assets (213) (2,227)
Accounts payable 1,236 (1,737)
Accrued expenses (1,485) (3,005)
-------- --------
Total adjustments 20,259 8,410
-------- --------
Net cash provided by operating activities $ 26,871 $ 15,874
======== ========
See accompanying notes to consolidated financial statements.
7
<PAGE>
PRIME MEDICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(Unaudited)
1. General
-- -------
The accompanying unaudited consolidated financial statements have been prepared
in conformity with the accounting principles for interim financial statements
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. These
statements reflect all adjustments which are, in the opinion of management,
necessary for a fair statement of the financial position as of June 30, 2000 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, 1999 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.
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133") in June 1998. SFAS No. 133 establishes reporting
standards for derivative instruments and hedging activities that require an
entity to recognize all derivatives as assets or liabilities measured at fair
value and is effective for financial statements issued for all fiscal quarters
of fiscal years beginning after June 15, 2000. If certain conditions are met, a
derivative may be specifically designated as a hedge of the exposure to changes
in the fair market value, variable cash flow, or foreign currency of a
recognized asset or liability or certain other transactions and firm
commitments. The effect of adopting SFAS No. 133 is currently being evaluated,
however, the Company does not believe the effects of adoption will be material
to its financial position or results of operations.
2. 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 and warrants. A reconciliation of such EPS data is as
follows:
Basic Diluted
earnings earnings
($ in thousands, except per share data) per share per share
--------- ---------
Six Months Ended June 30, 2000
------------------------------
Net income $6,612 $6,612
====== ======
Weighted average shares outstanding 16,327 16,327
Effect of dilutive securities - 128
------ ------
Shares for EPS calculation 16,327 16,455
====== ======
Net income per share $0.41 $0.40
===== =====
8
<PAGE>
PRIME MEDICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 (continued)
(Unaudited)
2. Earnings per share (continued)
-- ------------------------------
Basic Diluted
earnings earnings
($ in thousands, except per share data) per share per share
--------- ---------
Six Months Ended June 30, 1999
------------------------------
Net income $7,464 $7,464
======= =======
Weighted average shares outstanding 17,241 17,241
Effect of dilutive securities - 103
------- -------
Shares for EPS calculation 17,241 17,344
======= =======
Net income per share $0.43 $0.43
======= =======
Three Months Ended June 30, 2000
--------------------------------
Net income $3,315 $3,315
====== ======
Weighted average shares outstanding 16,218 16,218
Effect of dilutive securities - 85
------- -------
Shares for EPS calculation 16,218 16,303
======= =======
Net income per share $0.20 $0.20
======= =======
Three Months Ended June 30, 1999
--------------------------------
Net income $4,302 $4,302
======= =======
Weighted average shares outstanding 17,098 17,098
Effect of dilutive securities - 98
------- -------
Shares for EPS calculation 17,098 17,196
======= =======
Net income per share $0.25 $0.25
======= =======
Unexercised stock options and warrants to purchase 1,358,000 and 1,616,500
shares of the Company's common stock as of June 30, 2000 and 1999 were not
included in the computation of diluted EPS because the effect would be
antidilutive.
9
<PAGE>
PRIME MEDICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 (continued)
(Unaudited)
3. Segment Reporting
-- -----------------
The Company has three reportable segments: lithotripsy, manufacturing and
refractive. The lithotripsy segment provides services related to the operation
of the lithotripters, including scheduling, staffing, training, quality
assurance, maintenance, regulatory compliance and contracting with payors,
hospitals and surgery centers. The manufacturing segment provides manufacturing
services and installation, upgrade, refurbishment and repair of major medical
equipment for mobile medical service providers. The refractive segment provides
services related to the operations of refractive vision correction centers.
Other operating segments, which do not meet the quantitative thresholds for
reportable segments, include prostatherapy services.
The Company measures performance based on the pretax income or loss from its
operating segments, which do not include unallocated corporate general and
administrative expenses and corporate interest revenue and expense.
<TABLE>
<S> <C> <C> <C> <C>
($ in thousands) Lithotripsy Manufacturing Refractive Other
----------- ------------- ---------- -----
Six Months Ended June 30, 2000
------------------------------
Revenue from
external customers $41,346 $11,104 $9,496 $879
Intersegment revenues - 226 - -
Segment profit 13,915 1,726 1,384 33
Six Months Ended June 30, 1999
------------------------------
Revenue from
external customers $44,998 $7,873 - $1,119
Intersegment revenues - 148 - -
Segment profit (loss) 16,646 1,367 - (14)
</TABLE>
10
<PAGE>
PRIME MEDICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 (continued)
(Unaudited)
3. Segment Reporting (continued)
-- -----------------------------
The following is a reconciliation of the measure of segment profit per above to
consolidated income before income taxes per the consolidated statements of
operations:
Six Months ended June 30,
($ in thousands) 2000 1999
---- ----
Total segment profit $17,058 $17,999
Unallocated corporate expenses:
General and administrative (2,133) (2,289)
Net interest expense (3,430) (3,926)
Loan fees (107) -
Restructuring charges (350) -
Release of contractual obligation - 1,140
Other, net (59) (484)
-------- --------
Total unallocated corporate expenses (6,079) (5,559)
-------- --------
Income before income taxes $10,979 $12,440
======== ========
<TABLE>
<S> <C> <C> <C> <C>
($ in thousands) Lithotripsy Manufacturing Refractive Other
----------- ------------- ---------- -----
Three Months Ended June 30, 2000
--------------------------------
Revenue from
external customers $20,812 $5,577 $6,561 $432
Intersegment revenues - 131 - -
Segment profit 7,036 860 1,103 24
Three Months Ended June 30, 1999
--------------------------------
Revenue from
external customers $23,589 $4,473 - $546
Intersegment revenues - 102 - -
Segment profit (loss) 8,756 746 - 4
</TABLE>
11
<PAGE>
PRIME MEDICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 (continued)
(Unaudited)
3. Segment Reporting (continued)
-- -----------------------------
The following is a reconciliation of the measure of segment profit per above to
consolidated income before income taxes per the consolidated statements of
operations:
Three Months ended June 30,
($ in thousands) 2000 1999
---- ----
Total segment profit $9,023 $9,506
Unallocated corporate expenses:
General and administrative (1,177) (1,418)
Net interest expense (1,824) (1,987)
Loan fees (24) -
Restructuring charges (350) -
Release of contractual obligation - 1,140
Other, net (30) (118)
-------- --------
Total unallocated corporate expenses (3,405) (2,383)
-------- --------
Income before income taxes $5,618 $7,123
======== ========
4. Acquisitions
-- ------------
Effective March 1, 2000 the Company purchased a 60% interest in the Mann
Berkeley Caplan Laser Center of Austin, Texas, a refractive vision correction
center. The Company paid approximately $3,765,000 in cash and issued warrants to
purchase 27,000 shares of common stock, and has accounted for this transaction
using the purchase method of accounting. Additionally in conjunction with this
transaction, the Company issued warrants to purchase 28,000 shares of common
stock to a third party. Total goodwill recognized of $3,773,000 is being
amortized over twenty-five years.
Effective March 1, 2000 the Company purchased a 60% interest in the Caster Eye
Center, a refractive vision correction center. The Company paid approximately
$5,828,000 in cash, and has accounted for this transaction using the purchase
method of accounting. Additionally in conjunction with this transaction, the
Company issued warrants to purchase 44,000 shares of common stock to a third
party. Total goodwill recognized of $5,894,000 is being amortized over fifteen
years.
Effective April 1, 2000 the Company purchased a 65% interest in New York Eye
Specialists, a refractive vision correction center. The Company paid
approximately $8,872,000 in cash, and has accounted for this transaction using
the purchase method of accounting. Additionally in conjunction with this
transaction, the Company issued warrants to purchase 67,000 shares of common
stock to a third party. Total goodwill recognized of $9,014,000 is being
amortized over fifteen years.
The proforma effects of these acquisitions on an aggregated basis are not
material.
12
<PAGE>
PRIME MEDICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 (continued)
(Unaudited)
5. Condensed Financial Information Regarding Guarantor Subsidiaries
-- ----------------------------------------------------------------
Condensed consolidating financial information regarding the Company, Guarantor
Subsidiaries and Non-guarantor Subsidiaries for June 30, 2000 and 1999 is
presented below for purposes of complying with the reporting requirements of the
Guarantor Subsidiaries. Separate financial statements and other disclosures
concerning each Guarantor Subsidiary have not been presented because management
has determined that such information is not material to investors. The Guarantor
Subsidiaries are wholly owned subsidiaries of the Company who have fully and
unconditionally guaranteed the 8.75% unsecured senior subordinated Notes.
13
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Income
Six Months Ended June 30, 2000
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
($ in thousands) Services, Inc. Subsidiaries Subsidiaries Entries Total
--------------- -------------- -------------- -------------- --------------
Revenue:
Lithotripsy:
Fee revenues $ - $ 8,174 $ 30,109 $ - $ 38,283
Management fees - 1,019 809 - 1,828
Equity income 13,779 8,847 233 (21,624) 1,235
--------------- -------------- -------------- -------------- --------------
13,779 18,040 31,151 (21,624) 41,346
Manufacturing - - 11,104 - 11,104
Refractive 1,238 1,789 8,718 (2,249) 9,496
Prostatherapy - - 792 - 792
Other - 87 - - 87
--------------- -------------- -------------- -------------- --------------
Total revenue 15,017 19,916 51,765 (23,873) 62,825
--------------- -------------- -------------- -------------- --------------
Cost of services and general and
administrative expenses:
Lithotripsy - 182 10,948 - 11,130
Manufacturing - - 8,572 - 8,572
Refractive - 17 4,810 - 4,827
Prostatherapy - (144) 817 - 673
Other - 95 - - 95
Corporate 24 2,109 - - 2,133
Restructuring charges - 350 - - 350
--------------- -------------- -------------- -------------- --------------
24 2,609 25,147 - 27,780
Depreciation and amortization - 3,198 3,156 - 6,354
--------------- -------------- -------------- -------------- --------------
24 5,807 28,303 - 34,134
--------------- -------------- -------------- -------------- --------------
Operating income 14,993 14,109 23,462 (23,873) 28,691
--------------- -------------- -------------- -------------- --------------
Other income (deductions):
Interest and dividends 177 162 216 - 555
Interest expense (4,581) 813 (1,165) - (4,933)
Loan fees (107) - - - (107)
Other, net 52 (58) 79 - 73
--------------- -------------- -------------- -------------- --------------
Total other income (deductions) (4,459) 917 (870) - (4,412)
--------------- -------------- -------------- -------------- --------------
Income before provision for income
taxes and minority interest 10,534 15,026 22,592 (23,873) 24,279
Minority interest in consolidated income - - - 13,300 13,300
Provision for income taxes 3,922 9 436 - 4,367
--------------- -------------- -------------- -------------- --------------
Net income $ 6,612 $ 15,017 $ 22,156 $ (37,173) $ 6,612
=============== ============== ============== ============== ==============
</TABLE>
14
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Income
Six Months Ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
($ in thousands) Services, Inc. Subsidiaries Subsidiaries Entries Total
--------------- -------------- -------------- -------------- --------------
Revenue:
Lithotripsy:
Fee revenues $ - $ 9,899 $ 31,174 $ - $ 41,073
Management fees - 1,725 1,037 - 2,762
Equity income 17,286 9,718 - (25,841) 1,163
--------------- -------------- -------------- -------------- --------------
17,286 21,342 32,211 (25,841) 44,998
Manufacturing - - 7,873 - 7,873
Prostatherapy - - 1,003 - 1,003
Other - 116 - - 116
--------------- -------------- -------------- -------------- --------------
Total revenue 17,286 21,458 41,087 (25,841) 53,990
--------------- -------------- -------------- -------------- --------------
Cost of services and general and
administrative expenses:
Lithotripsy - 1,074 10,705 - 11,779
Manufacturing - - 5,796 - 5,796
Prostatherapy - - 828 - 828
Other - 119 - - 119
Corporate 147 2,142 - - 2,289
--------------- ------------- -------------- -------------- --------------
147 3,335 17,329 - 20,811
Depreciation and amortization 3 2,436 2,589 - 5,028
--------------- -------------- -------------- -------------- --------------
150 5,771 19,918 - 25,839
--------------- -------------- -------------- -------------- --------------
Operating income 17,136 15,687 21,169 (25,841) 28,151
--------------- -------------- -------------- -------------- --------------
Other income (deductions):
Interest and dividends 352 280 106 - 738
Interest expense (4,554) - (100) - (4,654)
Release of contractual obligation - 1,140 - - 1,140
Other, net (726) 417 18 - (291)
--------------- -------------- -------------- -------------- --------------
Total other income (deductions) (4,928) 1,837 24 - (3,067)
--------------- -------------- -------------- -------------- --------------
Income before provision for income
taxes and minority interest 12,208 17,524 21,193 (25,841) 25,084
Minority interest in consolidated income - - - 12,644 12,644
Provision for income taxes 4,744 238 (6) - 4,976
--------------- -------------- -------------- -------------- --------------
Net income $ 7,464 $ 17,286 $ 21,199 $ (38,485) $ 7,464
=============== ============== ============== ============== ==============
</TABLE>
15
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Income
Three Months Ended June 30, 2000
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
($ in thousands) Services, Inc. Subsidiaries Subsidiaries Entries Total
--------------- -------------- -------------- -------------- --------------
Revenue:
Lithotripsy:
Fee revenues $ - $ 3,977 $ 15,236 $ - $ 19,213
Management fees - 496 438 - 934
Equity income 6,841 4,587 118 (10,881) 665
--------------- -------------- -------------- -------------- --------------
6,841 9,060 15,792 (10,881) 20,812
Manufacturing - - 5,577 - 5,577
Refractive 950 1,387 6,135 (1,911) 6,561
Prostatherapy - - 390 - 390
Other - 42 - - 42
--------------- -------------- -------------- -------------- --------------
Total revenue 7,791 10,489 27,894 (12,792) 33,382
--------------- -------------- -------------- -------------- --------------
Cost of services and general and
administrative expenses:
Lithotripsy - (166) 5,901 - 5,735
Manufacturing - - 4,282 - 4,282
Refractive - 17 3,309 - 3,326
Prostatherapy - (72) 386 - 314
Other - 45 - - 45
Corporate 15 1,162 - - 1,177
Restructuring charges - 350 - - 350
--------------- -------------- -------------- -------------- --------------
15 1,336 13,878 - 15,229
Depreciation and amortization - 1,766 1,668 - 3,434
--------------- -------------- -------------- -------------- --------------
Total operating expenses 15 3,102 15,546 - 18,663
--------------- -------------- -------------- -------------- --------------
Operating income 7,776 7,387 12,348 (12,792) 14,719
--------------- -------------- -------------- -------------- --------------
Other income (deductions):
Interest and dividends 28 63 106 - 197
Interest expense (2,322) 406 (591) - (2,507)
Loan fees (24) - - - (24)
Other, net 55 (56) 79 - 78
--------------- -------------- -------------- -------------- --------------
Total other income (deductions) (2,263) 413 (406) - (2,256)
--------------- -------------- -------------- -------------- --------------
Income before provision for income
taxes and minority interest 5,513 7,800 11,942 (12,792) 12,463
Minority interest in consolidated income - - - 6,845 6,845
Provision for income taxes 2,198 9 96 - 2,303
--------------- -------------- -------------- -------------- --------------
Net income $ 3,315 $ 7,791 $ 11,846 $ (19,637) $ 3,315
=============== ============== ============== ============== ==============
</TABLE>
16
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Income
Three Months Ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
($ in thousands) Services, Inc. Subsidiaries Subsidiaries Entries Total
--------------- -------------- -------------- -------------- --------------
Revenue:
Lithotripsy:
Fee revenues $ - $ 4,890 $ 16,687 $ - $ 21,577
Management fees - 937 474 - 1,411
Equity income 9,289 5,284 - (13,972) 601
--------------- -------------- -------------- -------------- --------------
9,289 11,111 17,161 (13,972) 23,589
Manufacturing - - 4,473 - 4,473
Prostatherapy - - 485 - 485
Other - 61 - - 61
--------------- -------------- -------------- -------------- --------------
Total revenue 9,289 11,172 22,119 (13,972) 28,608
--------------- -------------- -------------- -------------- --------------
Cost of services and general and
administrative expenses:
Lithotripsy - 529 5,208 - 5,737
Manufacturing - - 3,342 - 3,342
Prostatherapy - - 371 - 371
Other - 58 - - 58
Corporate 118 1,300 - - 1,418
--------------- ------------- -------------- -------------- --------------
118 1,887 8,921 - 10,926
Depreciation and amortization 2 1,230 1,321 - 2,553
--------------- -------------- -------------- -------------- --------------
120 3,117 10,242 - 13,479
--------------- -------------- -------------- -------------- --------------
Operating income 9,169 8,055 11,877 (13,972) 15,129
--------------- -------------- -------------- -------------- --------------
Other income (deductions):
Interest and dividends 147 141 45 - 333
Interest expense (2,273) - (52) - (2,325)
Release of contractual obligation - 1,140 - - 1,140
Other, net (119) 152 14 - 47
--------------- -------------- -------------- -------------- --------------
Total other income (deductions) (2,245) 1,433 7 - (805)
--------------- -------------- -------------- -------------- --------------
Income before provision for income
taxes and minority interest 6,924 9,488 11,884 (13,972) 14,324
Minority interest in consolidated income - - - 7,201 7,201
Provision for income taxes 2,622 199 - - 2,821
--------------- -------------- -------------- -------------- --------------
Net income $ 4,302 $ 9,289 $ 11,884 $ (21,173) $ 4,302
=============== ============== ============== ============== ==============
</TABLE>
17
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Balance Sheet
June 30, 2000
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
($ in thousands) Services, Inc. Subsidiaries Subsidiaries Entries Total
--------------- -------------- -------------- -------------- --------------
ASSETS
Current assets:
Cash $ 849 $ 2,541 $ 9,380 $ - $ 12,770
Investments 500 - - - 500
Accounts receivable, net - 3,194 21,417 - 24,611
Other receivables 291 1,792 1,981 - 4,064
Deferred income taxes 61 727 - - 788
Prepaid expenses and other current 56 525 1,144 - 1,725
Inventory - - 4,415 - 4,415
--------------- -------------- -------------- -------------- --------------
Total current assets 1,757 8,779 38,337 - 48,873
--------------- -------------- -------------- -------------- --------------
Property and equipment:
Equipment, furniture and fixtures - 5,647 41,775 - 47,422
Building and leasehold improvements - 533 2,116 - 2,649
--------------- -------------- -------------- -------------- --------------
- 6,180 43,891 - 50,071
Less accumulated depreciation
and amortization - (4,150) (23,946) - (28,096)
--------------- -------------- -------------- -------------- --------------
Property and equipment, net - 2,030 19,945 - 21,975
--------------- -------------- -------------- -------------- --------------
Investment in subsidiaries
and other investments 212,618 52,744 - (246,858) 18,504
Goodwill, at cost, net of amortization - 155,963 9,327 - 165,290
Other noncurrent assets 362 641 1,399 - 2,402
--------------- -------------- -------------- -------------- --------------
$ 214,737 $ 220,157 $ 69,008 $ (246,858) $ 257,044
=============== ============== ============== ============== ==============
LIABILITIES
Current liabilities:
Current portion of long-term debt $ - $ - $ 1,887 $ - $ 1,887
Accounts payable - 1,516 3,929 - 5,445
Accrued expenses 3,728 533 1,203 - 5,464
--------------- -------------- -------------- -------------- --------------
Total current liabilities 3,728 2,049 7,019 - 12,796
Long-term debt, net of current portion 109,000 162 3,984 - 113,146
Deferred income taxes 2,383 5,328 121 - 7,832
--------------- -------------- -------------- -------------- --------------
Total liabilities 115,111 7,539 11,124 - 133,774
--------------- -------------- -------------- -------------- --------------
Minority interest - - - 23,644 23,644
STOCKHOLDERS' EQUITY
Common stock 194 - - - 194
Capital in excess of par value 88,859 - - - 88,859
Accumulated earnings 40,267 - - - 40,267
Treasury stock (29,694) - - - (29,694)
Subsidiary net equity - 212,618 57,884 (270,502) -
--------------- -------------- -------------- -------------- --------------
Total stockholders' equity 99,626 212,618 57,884 (270,502) 99,626
--------------- -------------- -------------- -------------- --------------
$ 214,737 $ 220,157 $ 69,008 $ (246,858) $ 257,044
=============== ============== ============== ============== ==============
</TABLE>
18
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2000
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
($ in thousands) Services, Inc. Subsidiaries Subsidiaries Entries Total
--------------- -------------- -------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by
operating activities $ (6,953) $ 8,321 $ 25,503 $ - $ 26,871
--------------- -------------- -------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of operating entities - (18,229) - - (18,229)
Purchases of equipment and leasehold
improvements - (878) (3,834) - (4,712)
Distributions from subsidiaries 10,469 9,908 - (20,377) -
Investments in subsidiaries (9,000) - - 9,000 -
Distributions from investments - 2,094 - - 2,094
Other - 112 - - 112
--------------- -------------- -------------- -------------- --------------
Net cash provided by (used in)
investing activities 1,469 (6,993) (3,834) (11,377) (20,735)
--------------- -------------- -------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable 9,000 - 1,276 - 10,276
Payments on notes payable exclusive of
interest - - (804) - (804)
Contributions by minority interest,
net of buyouts - - 345 - 345
Distributions to minority interest - - - (18,537) (18,537)
Purchases of treasury stock (4,874) - - - (4,874)
Exercise of stock options, and sales and
purchases of put options 164 - - - 164
Contributions by parent - 9,000 - (9,000) -
Distributions to equity owners - (10,469) (28,445) 38,914 -
--------------- -------------- -------------- -------------- --------------
Net cash provided by (used in)
financing activities 4,290 (1,469) (27,628) 11,377 (13,430)
--------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,194) (141) (5,959) - (7,294)
Cash and cash equivalents, beginning
of period 2,043 2,682 15,339 - 20,064
--------------- -------------- -------------- -------------- --------------
Cash and cash equivalents, end of period $ 849 $ 2,541 $ 9,380 $ - $ 12,770
=============== ============== ============== ============== ==============
</TABLE>
19
<PAGE>
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
($ in thousands) Services, Inc. Subsidiaries Subsidiaries Entries Total
--------------- -------------- -------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in)
operating activities $ (8,221) $ 5,335 $ 18,760 $ - $ 15,874
--------------- -------------- -------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold
improvements - (141) (1,940) - (2,081)
Distributions from subsidiaries 11,859 11,440 - (23,299) -
Distributions from investments - 1,540 - - 1,540
Other - 150 372 - 522
--------------- -------------- -------------- -------------- --------------
Net cash provided by (used in)
investing activities 11,859 12,989 (1,568) (23,299) (19)
--------------- -------------- -------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable - - 1,508 - 1,508
Payments on notes payable exclusive of
interest - - (887) - (887)
Contributions by minority interest,
net of buyouts - - 2,138 - 2,138
Distributions to minority interest - - - (18,789) (18,789)
Purchases of treasury stock (3,923) - - - (3,923)
Exercise of stock options, and sales and
purchases of put options 53 - - - 53
Distributions to equity owners - (11,859) (30,229) 42,088 -
--------------- -------------- -------------- -------------- --------------
Net cash provided by (used in)
financing activities (3,870) (11,859) (27,470) 23,299 (19,900)
--------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (232) 6,465 (10,278) - (4,045)
Cash and cash equivalents, beginning
of period 15,798 7,585 16,763 - 40,146
--------------- -------------- -------------- -------------- --------------
Cash and cash equivalents, end of period $ 15,566 $ 14,050 $ 6,485 $ - $ 36,101
=============== ============== ============== ============== ==============
</TABLE>
20
<PAGE>
Management's Discussion and Analysis
of Financial Condition and
Results of Operations
Revenues
--------
For the six months ended June 30, 2000, total revenues increased $8,835,000
(16%) as compared to the same period in 1999. Revenues from lithotripter
operations decreased by $3,652,000 (8%) primarily due to an unusually low
procedure volume in April and fluctuations in payor mix. Revenues from
manufacturing increased $3,231,000 (41%) due to increased sales of MRI trailers
as well as expansion into other modalities. Revenues from refractive services
were $9,496,000, due to procedures from centers acquired since September 1999,
the acquisition of 60% of the Mann Berkeley Caplan Laser Center effective March
1, 2000, the acquisition of 60% of the Caster Eye Center effective March 1,
2000, and the acquisition of 65% of New York Eye Specialists effective April 1,
2000. Revenues from prostatherapy operations declined $211,000 (21%) due to
lower procedure volume.
Total revenues for the three months ended June 30, 2000 increased $4,774,000
(17%) as compared to the same period in 1999. Revenues from lithotripter
operations decreased by $2,777,000 (12%) and revenues from manufacturing
increased $1,104,000 (25%). Revenues from refractive services were $6,561,000,
due to the acquisitions discussed above. Revenues from prostatherapy operations
declined $95,000 (20%) due to lower procedure volume.
Expenses
--------
For the six months ended June 30, 2000, costs and expenses (excluding
depreciation and amortization) increased from 39% to 44% of revenues, primarily
due to increases in the manufacturing and refractive operations, both of which
have lower operating margins than the lithotripsy operations. Costs of services
associated with lithotripsy operations decreased $649,000 (5%) in absolute terms
and slightly increased from 26% to 27% of lithotripsy revenues due to the levels
of fixed costs relative to a lower revenue base. Cost of services and general
and administrative expenses associated with manufacturing increased $2,776,000
(48%) due to increased sales. Cost of services associated with refractive
operations were $4,827,000. Cost of services associated with prostatherapy
operations decreased $155,000 (19%) due to lower procedure volume. Corporate
expenses decreased from 4% to 3% of revenues, decreasing $156,000 (7%) in
absolute terms due to lower variable expenses during the first half of 2000.
During the second quarter the Company recorded restructuring charges of $350,000
for the relocation of its central business office (CBO) from North Carolina to
Texas. The relocation of the CBO is being done in conjunction with the purchase
and implementation of a new practice management system.
Costs and expenses (excluding depreciation and amortization) for the three
months ended June 30, 2000 increased from 38% to 46% of revenues, primarily due
to increases in the manufacturing and refractive operations, both of which have
lower operating margins than the lithotripsy operations. Costs of services
associated with lithotripsy operations remained constant in absolute terms and
increased from 24% to 28% of lithotripsy revenues. Cost of services and general
and administrative expenses associated with manufacturing increased $940,000
(28%) due to increased sales. Cost of services associated with refractive
operations were $3,326,000. Cost of services associated with prostatherapy
operations decreased $57,000 (15%) due to lower procedure volume. Corporate
expenses decreased from 5% to 4% of revenues, decreasing $241,000 (17%) in
absolute terms due to lower variable expenses during the second quarter of 2000.
21
<PAGE>
Other Income (Deductions)
-------------------------
For the six months ended June 30, 2000, other deductions increased $1,345,000
(44%) compared to the same period in 1999, primarily due to a one time
recognition of income related to a 1999 release of a contractual obligation
related to a management incentive compensation program. Also contributing to the
increase in expense was $107,000 related to a restructuring of the Company's
$100 million revolving credit facility, and a $279,000 increase in interest
expense due to higher outstanding debt balances, partially offset by a decrease
in other expense as the 1999 balance included a write-off of costs related to a
proposed acquisition.
Other deductions for the three months ended June 30, 2000 increased $1,451,000
(180%) compared to the same period in 1999 primarily due to a one time
recognition of income related to a 1999 release of a contractual obligation
related to a management incentive compensation program.
Minority Interest In Consolidated Income
----------------------------------------
Minority interest in consolidated income for the six months ended June 30, 2000
increased $656,000 compared to the same period in 1999, primarily as a result of
the refractive acquisitions and the reengineering of certain lithotripsy
partnerships. Earnings before interest, taxes, depreciation and amortization
(EBITDA) attributable to minority interest was $15,472,000 for the six months
ended June 30, 2000 compared to $15,058,000 for the same period in 1999.
Minority interest in consolidated income for the three months ended June 30,
2000 decreased $356,000 compared to the same period in 1999, which is consistent
with the decrease in operating income for those periods. Earnings before
interest, taxes, depreciation and amortization (EBITDA) attributable to minority
interest was $8,095,000 for the three months ended June 30, 2000 compared to
$8,454,000 for the same period in 1999.
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.
Provision for income taxes
--------------------------
Provision for income taxes for the six months ended June 30, 2000 decreased
$609,000 and for the three months ended June 30, 2000 decreased $518,000
compared to the same periods in 1999 due to a decrease in taxable income. The
effective tax rate includes the impact of the Federal tax rate as well as
numerous state tax rates for the Company, and the impact of the Federal and
state rates for a partially owned consolidated corporation, which is required to
file separate tax returns.
Liquidity and Capital Resources
-------------------------------
Cash was $12,770,000 and $20,064,000 at June 30, 2000 and December 31, 1999,
respectively. Cash provided by operations for the six months ended June 30, 2000
was $26,871,000 compared to cash provided by operations for the six months ended
June 30, 1999 of $15,874,000. The increase was attributable to increased
operations as well as proceeds received from sales and maturities of investments
of $3,704,000.
22
<PAGE>
Cash used in investing activities for the six months ended June 30, 2000 was
$20,735,000 compared to cash used in investing activities for the six months
ended June 30, 1999 of $19,000. The increase was attributable to the three
refractive acquisitions effective during 2000 and an increase in the purchase of
equipment. Cash used in financing activities for the six months ended June 30,
2000 was $13,430,000 compared to cash used for financing activities for the six
months ended June 30, 1999 of $19,900,000. The decrease in cash used was due to
additional borrowings, primarily $9,000,000 on the Company's senior credit
facility. Additionally, contributions provided by minority interest decreased
and cash used to purchase treasury stock increased.
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,
$9 million of which was drawn at June 30, 2000 and July 31, 2000.
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 used for general corporate purposes, including acquisitions. 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 and the number of its refractive operations
through both acquisitions and development. The Company intends to fund the
purchase price for future acquisitions and developments using borrowings under
its senior credit facility and cash flow from operations. In addition, the
Company may use shares of its common stock in such acquisitions where
appropriate.
During 1998, the Company announced a stock repurchase program of up to $25.0
million of common stock. In February 2000 the Company announced an increase in
the authorized repurchase amount from $25.0 million to $35.0 million. 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 3,519,000 shares of stock for a total of $30,106,000 as of July 31,
2000.
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.
23
<PAGE>
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.
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.
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 judgments 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.
24
<PAGE>
PART II
OTHER INFORMATION
25
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
12. Computation of ratio of earnings to fixed charges.
(b) Current Reports on Form 8-K
NONE
26
<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: August 14, 2000 By: /s/ Cheryl L. Williams
----------------------
Cheryl L. Williams, Senior Vice President
and Chief Financial Officer
27
<PAGE>
