-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IQlNKEMcP+Xn/t0HJrUoTShzwWZyRixUwSNHJYjVsLBFrTPzZU7jM+dqkwqPfBsR BY8jPJO2DlNZ0HDar4h4Tg== 0000950109-98-001186.txt : 19980218 0000950109-98-001186.hdr.sgml : 19980218 ACCESSION NUMBER: 0000950109-98-001186 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980217 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEDIATRIC SERVICES OF AMERICA INC CENTRAL INDEX KEY: 0000893430 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOME HEALTH CARE SERVICES [8082] IRS NUMBER: 581873345 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23946 FILM NUMBER: 98543879 BUSINESS ADDRESS: STREET 1: 31O TECHNOLOGY PRWY CITY: NORCROSS STATE: GA ZIP: 30092 BUSINESS PHONE: 4044411580 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1997 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission file number 0-23946 PEDIATRIC SERVICES OF AMERICA, INC. (Exact name of Registrant as specified in its charter) Delaware 58-1873345 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 310 Technology Parkway, Norcross GA 30092-2929 (Address of principal executive offices, including zip code) (770) 441-1580 (Registrant's telephone number, including area code) 3159 Campus Drive, Norcross GA 30071 (Former Address) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] As of February 11, 1998, the Registrant had 7,064,927 shares of Common Stock, $0.01 Par Value, outstanding. - -------------------------------------------------------------------------------- Page 1 of 18 Index of Exhibits on page 15 1 FORM 10-Q PEDIATRIC SERVICES OF AMERICA, INC. INDEX
PART I FINANCIAL INFORMATION Page Number ITEM 1: Financial Statements Condensed Consolidated Balance Sheets as of December 31, 1997 and September 30, 1997.....................................3 Condensed Consolidated Statements of Income for the three months ended December 31, 1997 and 1996............................5 Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 1997 and 1996............................6 Notes to Condensed Consolidated Financial Statements Unaudited.........................................................7 ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations..........................................8 PART II OTHER INFORMATION ITEM 4: Submission of Matters to a Vote of Security Holders..................................12 ITEM 6: Exhibits and Reports on Form 8-K.....................................................13 Signatures...........................................................................14 Index of Exhibits....................................................................15
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PEDIATRIC SERVICES OF AMERICA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
(Unaudited) (Audited) December 31, September 30, 1997 1997 -------- -------- ASSETS Current assets: Cash and cash equivalents............................................. $ 415 $ 501 Accounts receivable, less allowances for doubtful accounts of $11,461 and $10,036, respectively............................... 86,252 75,458 Prepaid expenses...................................................... 962 508 Deferred income taxes................................................. 3,400 3,880 Other current assets.................................................. 5,448 3,481 --------- --------- Total current assets.................................................... 96,477 83,828 Property and equipment: Home care equipment held for rental................................... 25,660 24,104 Furniture and fixtures................................................ 8,860 6,979 Vehicles.............................................................. 789 731 Leasehold improvements................................................ 631 581 --------- --------- 35,940 32,395 Accumulated depreciation and amortization............................. (16,850) (15,678) --------- --------- 19,090 16,717 Other assets: Goodwill, less accumulated amortization of $4,231 and $3,695, respectively........................................... 81,701 50,421 Certificates of need, less accumulated amortization of $319 and $279, respectively............................................. 2,929 1,543 Deferred financing fees, less accumulated amortization of $237 and $192, respectively........................................ 588 632 Non-compete agreements, less accumulated amortization of $757 and $719, respectively........................................ 306 321 Other................................................................. 426 372 --------- --------- Total assets............................................................ $ 201,517 $ 153,834 ========= =========
See accompanying notes to condensed consolidated financial statements 3 PEDIATRIC SERVICES OF AMERICA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
(Unaudited) (Audited) December 31, September 30, 1997 1997 ---- ---- LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable...................................................... $ 7,408 $ 6,302 Accrued compensation.................................................. 4,753 5,147 Accrued insurance..................................................... 2,643 2,393 Other accrued liabilities............................................. 6,144 3,559 Deferred revenue...................................................... 983 853 Income taxes payable.................................................. 1,709 1,119 Current maturities of long-term obligations from related parties...... 2,086 2,163 Current maturities of long-term obligations........................... 105 99 ------- ------- Total current liabilities............................................... 25,831 21,635 Long-term obligations from related parties net of current maturities.... 3,854 3,887 Long-term obligations, net of current maturities........................ 86,102 61,125 Deferred income taxes................................................... 5,132 4,691 Minority interest in subsidiary......................................... 815 816 Stockholders' equity: Preferred stock, $.01 par value, 2,000 shares authorized; no shares issued and outstanding...................................... - - Common stock, $.01 par value, 80,000 shares authorized; 7,109 shares at December 31, 1997 and 6,258 shares at September 30, 1997 issued and outstanding, respectively............................... 70 63 Additional paid-in capital............................................ 57,720 41,746 Retained earnings..................................................... 21,993 19,871 ------- ------- Total stockholders' equity ............................................. 79,783 61,680 ------- ------- Total liabilities & stockholders' equity ............................... $201,517 $153,834 ======== ========
See accompanying notes to condensed consolidated financial statements 4 PEDIATRIC SERVICES OF AMERICA, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share data)
Three Months Ended December 31, (Unaudited) ----------- 1997 1996 ------ ------ Net revenue.................................................................. $ 61,559 $ 46,554 Costs and expenses: Operating salaries, wages and employee benefits............................ 26,081 19,734 Other operating costs...................................................... 22,943 17,948 Corporate, general and administrative...................................... 3,836 2,772 Provision for doubtful accounts............................................ 1,833 1,375 Depreciation and amortization.............................................. 1,847 1,416 ------- ------- Total costs and expenses................................................. 56,540 43,245 ------- ------- Operating income............................................................. 5,019 3,309 Interest expense............................................................. 1,466 575 ------- ------- Income before minority interest and income taxes............................. 3,553 2,734 Minority interest in loss of subsidiary...................................... 1 40 ------- ------- Income before income taxes................................................... 3,554 2,774 Income taxes................................................................. 1,432 1,118 ------- ------- Net income................................................................... $ 2,122 $ 1,656 ======= ======= Basic Share data: Net income per common and common equivalent share........................... $ 0.33 $ 0.27 ======= ======= Weighted average common shares outstanding ................................. 6,504 6,249 ======= ======= Diluted Share data: Net income per common and common equivalent share........................... $ 0.32 $ 0.26 ======= ======= Weighted average common shares outstanding ................................. 6,708 6,433 ======= =======
See accompanying notes to condensed consolidated financial statements 5 PEDIATRIC SERVICES OF AMERICA, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Three Months Ended December 31, (unaudited) ----------- 1997 1996 ----------- -------- Operating activities Net income........................................................................ $ 2,122 $ 1,656 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization..................................................... 1,847 1,416 Provision for doubtful accounts................................................... 1,833 1,375 Amortization of deferred financing fees........................................... 45 19 Deferred income taxes............................................................. 922 - Minority interest loss in subsidiary.............................................. (1) (40) Changes in operating assets and liabilities, net of effects from acquisitions of businesses: Accounts receivable............................................................... (11,734) (7,031) Prepaid expenses and other current assets......................................... (1,764) (551) Accounts payable.................................................................. 1,029 (360) Income taxes...................................................................... 590 (281) Accrued liabilities............................................................... 2,108 1,036 ----------- ----------- Net cash used in operating activities............................................... (3,003) (2,761) Investing activities Purchases of property and equipment............................................... (1,774) (1,400) Acquisitions of businesses........................................................ (19,736) (4,250) Other, net........................................................................ (10) (378) ----------- ----------- Net cash used in investing activities............................................... (21,520) (6,028) Financing activities Principal payments on long-term debt.............................................. (594) (91) Borrowings on long-term debt...................................................... 25,000 8,850 Deferred financing fees........................................................... - (179) Proceeds from exercise of stock options........................................... 31 18 ----------- ----------- Net cash provided by financing activities .......................................... 24,437 8,598 ----------- ------------ Decrease in cash and cash equivalents............................................... (86) (191) Cash and cash equivalents at beginning of year...................................... 501 770 ----------- ----------- Cash and cash equivalents at end of period.......................................... $ 415 $ 579 =========== ============ Supplemental disclosure of cash flow information: Cash paid for interest........................................................... $ 1,262 $ 439 =========== ============ Cash paid for income taxes........................................................ $ 50 $ 1,405 =========== ============
See accompanying notes to condensed consolidated financial statements 6 PEDIATRIC SERVICES OF AMERICA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Pediatric Services of America, Inc. (the "Company") and its majority-owned subsidiaries have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for the three month period ended December 31, 1997 are not necessarily indicative of the results to be expected for the entire fiscal year ending September 30, 1998. These condensed consolidated financial statements should be read in conjunction with the Company's audited financial statements for the year ended September 30, 1997 included in the Company's Annual Report on Form 10-K for such year filed with the Securities and Exchange Commission. Principal accounting policies are set forth in the Company's 1997 Annual Report. 2. Net Income per Common and Common Equivalent Share In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings per Share. Statement 128 replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants, and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where necessary, restated to conform to the Statement 128 requirements. The dilutive effect of the weighted average options included in the diluted earnings per share is 204,545 and 183,889 for the three months ended December 31, 1997 and 1996, respectively. 3. Interest Rate Swap Agreement At December 31, 1997, the Company had one interest rate swap agreement with a commercial bank (the "Counter Party"), having a cumulative notional principal amount of $25 million. The Company pays a fixed rate of 6.61% plus the applicable margin that varies from a minimum of .875% to a maximum of 1.625% and is based on the calculation of a leverage ratio. The interest rate differential to be received or paid is recognized over the life of the agreement as an adjustment to interest expense. The interest rate swap terminates in June 2002. The Company is exposed to credit loss in the event of non-performance by the Counter Party to the interest rate swap agreement. However, the Company does not anticipate such non-performance. 4. Acquisitions On October 31, 1997, the Company purchased the assets and assumed certain liabilities of Pediatric Physical Therapy, Inc. ("PPT"), a physical therapy company in St. Louis, Missouri, for a total purchase price of $50,000, consisting of $30,000 cash and $20,000 in the form of a note payable by the Company. The Company assumed approximately $200,000 in indebtedness. On November 7, 1997, the Company purchased substantially all of the assets of Intra-Care, Inc. ("IC"), a home infusion and pharmaceutical company in Little Falls, New Jersey, for a total purchase price of $7.5 million. The purchase price consisted of $4.5 million in cash and $3.0 million in the form of shares of the Company's Common Stock. The shares of Common Stock have been placed in escrow and will be released upon the satisfaction of certain conditions. On November 11, 1997, one of the Company's consolidated subsidiaries, Insurance Medical Reporter, Inc. ("IMR"), purchased certain assets of American Insurance Examiners, Inc. ("AIE"), a paramedical testing company in Los Angeles, California, for a total cash purchase price of $1.225 million. On November 21, 1997, the Company purchased substantially all of the assets of Kids and Nurses, Inc. ("KAN"), a company specializing in prescribed pediatrics extended care facilities. The total purchase price was $2.5 million 7 consisting of shares of the Company's Common Stock. A portion of the shares have been placed in escrow for a period of one year from the closing date and will be released upon the satisfaction of certain conditions. At closing, the Company assumed and paid $750,000 indebtedness. On December 1, 1997, the Company purchased substantially all of the assets of Cyber Home Medical Equipment Corp., Inc. ("CHM"), a home medical equipment company, in Rockville Center, New York, for a total purchase price of $1.25 million. The purchase price consisted of $550,000 in cash, $300,000 in the form of a note payable by the Company and $400,000 in the form of shares of the Company's Common Stock. The shares of Common Stock have been placed in an escrow account for the term of one year from December 1, 1997 and will be released upon the satisfaction of certain conditions. The note will be paid quarterly over a three year period. On December 15, 1997, one of the Company's consolidated subsidiaries, IMR, purchased certain paramedical testing assets of ChoicePoint Services, Inc. ("PMI") for $21.7 million consisting of $11.7 million in cash and $10.0 million in the form of shares of the Company's Common Stock. For a one year period, the Company has agreed to protect the average price received by PMI upon disposition of the Company's shares. On December 29, 1997, the Company purchased all of the assets and assumed certain liabilities of Kid's Nurses, Inc. ("KN"), a pediatric nursing company in St. Louis, Missouri, for a total purchase price of $350,000. The purchase price consisted of $250,000 in cash, $50,000 in the form of a note payable by the Company and $50,000 in the form of shares of the Company's Common Stock. The shares have been placed in an escrow account until December 29, 1998 and will be released upon the satisfaction of certain conditions. The note will be paid annually over a two year period. The purchase method of accounting was used to record each of the above acquisitions. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on estimated fair values at the purchase dates. Operating results for the acquired companies have been included in the Company's consolidated results of operations from the respective purchase dates. The acquisitions of PPT, IC, AIE, KAN, CHM, PMI and KN are not considered significant as defined by Regulation S-X Rule 1-02(w) and, therefore, the consolidated financial statements do not reflect pro forma financial information for these acquisitions. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations The historical condensed consolidated statements of operations of the Company for the three months ended December 31, 1997 contained in this report and the following discussion thereof include the effect of the Company's acquisitions of PPT, IC, AIE, KAN, CHM, PMI and KN subsequent to the respective dates of acquisition. 8 The following table is derived from the Company's unaudited condensed consolidated statements of operations for the periods indicated and presents results of operations as a percentage of net revenue and the percentage change in the dollar amounts of each item from the prior period.
Period-to-Period Percentage of Percentage of Net Revenue Increase (Decrease) ------------------------- ------------------ Three Months Three Months Ended Ended December 31, December 31, --------------- --------------- 1997 1996 1997 to 1996 ---- ---- ------------ Net revenue...................................... 100% 100% 32.2% Operating salaries, wages and employee benefits...................................... 42.4 42.4 32.2 Other operating costs............................ 37.3 38.5 27.8 Corporate, general and administrative............ 6.2 6.0 38.4 Provision for doubtful accounts.................. 3.0 3.0 33.4 Depreciation and amortization.................... 3.0 3.0 30.4 ---- ---- ---- Operating income................................. 8.1 7.1 51.6 Interest expense................................. 2.4 1.2 155.1 ---- ---- ----- Income before income taxes and minority interest...................................... 5.7 5.9 29.9 Minority interest loss in subsidiary............. 0.0 0.1 (97.0) ---- ---- ------ Income before income taxes....................... 5.7 6.0 28.1 Income taxes..................................... 2.3 2.4 28.1 ---- ---- ---- Net income....................................... 3.4% 3.6% 28.1% ==== ==== =====
9 The following table sets forth for the periods indicated a summary of net revenue by category:
Three Months Ended December 31, ------------------------ Pediatric Home Health Care: 1997 1996 ---- ---- Nursing................................................................... $22,555 $13,946 Respiratory Therapy Equipment............................................. 4,753 4,667 Home Medical Equipment.................................................... 796 941 Pharmacy and Other........................................................ 8,102 6,691 ----- ----- Total Pediatric Home Health Care.................................... 36,206 26,245 Adult Home Health Care: Nursing................................................................... 4,111 5,810 Respiratory Therapy Equipment............................................. 5,987 5,412 Home Medical Equipment.................................................... 1,564 1,284 Pharmacy and Other ....................................................... 4,047 1,635 -------- -------- Total Adult Home Health Care........................................ 15,709 14,141 Total Paramedical Testing Services.................................. 9,644 6,168 -------- -------- Total Net Revenue................................................... $ 61,559 $ 46,554 ======== ========
Three Months Ended December 31, 1997 Compared to Three Months Ended December 31, 1996. Net revenue increased $15.0 million, or 32%, to $61.6 million in the three months ended December 31, 1997 from $46.6 million in the same period in the prior year. The Company's acquisitions and start up operations accounted for approximately $10.0 million, or 67%, of the increase and internal growth accounted for the remaining $5.0 million, or 33%, of the increase. Overall, the internal growth in net revenue was 11% for the three months ended December 31, 1997. Of the $15.0 million increase in net revenue in the first quarter of fiscal 1998, pediatric net revenue accounted for $10.0 million, or 67%, of the increase. Increased pediatric net revenue for the three months ended December 31, 1997 was attributable to the Company's acquisitions which contributed approximately $4.6 million, or 46%, of the increase and to internal marketing efforts which resulted in an increase in patients served rather than any significant increase in rates charged. Adult net revenue accounted for $1.5 million, or 10%, of the increase in net revenue for the three months ended December 31, 1997. Increased adult net revenue for the three months ended December 31, 1997 was attributable to the Company's acquisitions which contributed approximately $3.0 million, or 30% of the increase. Paramedical testing services net revenue accounted for $3.5 million, or 23%, of the increase in net revenue for the quarter, primarily due to an acquisition. This acquisition accounted for $2.4 million, or 24%, of the increase. Operating salaries, wages and employee benefits consist primarily of branch office operations. Operating salaries, wages and benefits increased $6.4 million, or 32%, to $26.1 million in the three months ended December 31, 1997 from $19.7 million in the same period in the prior year. The increase was primarily due to the Company's acquisitions and start up operations which added approximately $4.4 million, or 70%, of the increase and the remainder to internal growth. As a percentage of net revenue, operating salaries, wages and employee benefits for the three months ended December 31, 1997 remained unchanged to the comparable period in the prior year. Other operating costs include medical supplies, branch office rents, utilities, vehicle expenses and cost of sales. Other operating costs increased $5.0 million, or 28%, to $22.9 million in the three months ended December 31, 1997 from $17.9 million in the comparable period in 1996. Of this increase, $4.0 million, or 81%, relates to operations from the Company's acquisitions. As a percentage of net revenue, other operating costs for the three months ended December 31, 1997 decreased to 37% from 39% in the comparable period of the prior year. Corporate, general and administrative costs increased $1.0 million, or 38%, to $3.8 million in the three months ended December 31, 1997 from $2.8 million in the same period in the prior year. The increase was primarily due the internal growth of the Company's operations. Provision for doubtful accounts consists of the amount of billed revenue that management estimates will become uncollectible. During the three months ended December 31, 1997, the Company's provision for doubtful accounts increased approximately $0.5 million, or 33%, to $1.8 million from $1.4 million in the same period in 1996. The increase is 10 primarily due to the increase in total net revenue and an increase in Days Sales Outstanding ("DSO"). As a percentage of net revenue, the provision for doubtful accounts is comparable for the three months ended December 31, 1997 and 1996. Depreciation and amortization expenses increased $0.4 million, or 30%, to $1.8 million in the three months ended December 31, 1997 from $1.4 million in the same period in 1996. The increase was primarily due to capital expenditures for the purchase of rental equipment and the amortization of goodwill from the Company's acquisitions. As a percentage of the Company's total net revenue, depreciation and amortization costs were comparable for the three months ended December 31, 1997 and 1996. Interest expense increased $0.9 million, or 155%, to $1.5 million in the three months ended December 31, 1997 from $0.6 million in the same period in the prior year. The increase was primarily the result of a $49 million increase in the Company's average debt outstanding at December 31, 1997 compared to the same period in the prior year. This additional debt was used to finance acquisitions and the Company's working capital. Income tax expense increased $0.3 million, or 28%, to $1.4 million in the three months ended December 31, 1997 from $1.1 million in the same period in the prior year. This increase is due to an increase in the taxable income of the Company. Liquidity and Capital Resources The Company's operating cash flows are affected significantly by growth in accounts receivable, largely as a result of the Company's net revenue growth. For the three months ended December 31, 1997 and 1996, the Company's cash flows from operations were affected by increases in accounts receivable balances of $11.7 million and $7.0 million, respectively. These increases in accounts receivable were due primarily to volume growth, acquisitions and slower collections. The Company's DSO in accounts receivable was 125 days and 107 days as of December 31, 1997, and December 31, 1996, respectively, based on the annualized net revenue for the last quarter of the period. The increase in DSO is primarily attributable to the accelerated growth experienced by the Company, seasonality, the impact of the acquired accounts receivable balances from the acquisitions, diversion of collection activities due to the integration issues of the Company's new billing and receivable management system and slower receipt hiring more experienced key reimbursement personnel, improving training programs and incorporating its new billing and receivable management system. Any reduction in DSO will increase funds available for expansion and growth. As of December 31, 1997, the Company has recorded a deferred tax asset in its consolidated financial statements. Management believes that it is more likely than not that the deferred tax asset will be realized. Under new guidance issued by the Internal Revenue Service, in December 1996, the Company made an election entitling it to mark its accounts receivable to market value for tax purposes. This election eliminated the deferred tax asset relating to the allowance for doubtful accounts and established a new deferred tax liability to reflect the new temporary differences. During fiscal 1997, the 1996 tax return and the 1993 through 1995 amended tax returns were filed for the Company and its subsidiaries under this new guidance. This election gave rise to expected cash refunds of $2.0 million plus interest. As of December 31, 1997, $1.8 million plus interest had been received. In addition, the net operating loss carryforward of certain subsidiaries were increased and at December 31, 1997, $3.9 million was remaining to offset certain future tax payments. Such losses expire $1.0 million by the year 2010 and $2.9 million by the year 2011. The Company's investments in property and equipment are attributable largely to purchases of medical equipment that is rented to patients and computer equipment related to the Company's new billing and receivable management system. The Company intends to continue to expand its business primarily through acquiring local and regional home health care companies, opening branch offices in both new and existing markets and expanding the services currently provided at its existing branch offices. Acquisitions to date have been financed with a combination of borrowings under the Company's credit facility and shares of Common Stock of the Company. The Company's investments in the acquisition of businesses were $19.7 million and $4.6 million respectively, for the three months ended December 31, 1997 and 1996. In August 1997, the Company extended its existing credit facility. The amount of financing available increased to $100.0 million from $60.0 million consisting of a $95 million revolving loan and a $5 million swingline facility. The loan is due August 2002. A commitment fee ranging from .225% to .375% per annum is charged on the average daily unused portion of the facility. The loan is collateralized by 100% of the voting stock of the Company. The loan requires the 11 Company to maintain certain financial ratios, and places restrictions on the sale and purchase of assets, payment of dividends and other distributions relating to the Company's outstanding capital stock. At the Company's option, borrowings under the revolving facility bear interest at (1) LIBOR, (2) prime rate, or (3) at a rate equal to the bank's cost of funds, plus an applicable margin that varies from a minimum of .875% to a maximum of 1.625%and is based on the calculation of a leverage ratio. At December 31, 1997, the Company's applicable margin was 1.625%, and the interest rates under this facility at December 31, 1997 ranged from 7.12% to 7.22%. Outstanding borrowings under this facility at December 31, 1997 were approximately $86.0 million. At December 31, 1997, the Company had one interest rate swap agreement with a commercial bank (the "Counter Party"), having a cumulative notional principal amount of $25.0 million. The Company pays a fixed rate of 6.61% plus the applicable margin that varies from a minimum of .875% to a maximum of 1.625% and is based on the calculation of a leverage ratio. The interest rate swap terminates in June 2002. The Company is exposed to credit loss in the event of non-performance by the Counter Party to the interest rate swap agreement. However, the Company does not anticipate such non-performance. The Company is currently in the process of extending its present bank line as contemplated under the credit facility, and is considering additional and alternative sources of third party financing. As the year 2000 approaches, an issue impacting all companies has emerged regarding how existing application software programs and operating systems can accommodate this date value. Management does not anticipate that the Company will incur significant operating expenses or will be required to invest heavily in computer system improvements relating to the uncertainties associated with the year 2000 because the Company's current and planned systems are year 2000 compliant. Management does not know at this time what, if any, impact year 2000 compliance may have on its payor sources and the impact, if any, on the Company if such payors are not fully compliant. Management will be developing a plan to determine when its payors will be year 2000 compliant. QUARTERLY OPERATING RESULTS AND SEASONALITY The Company's quarterly results may vary significantly depending primarily on factors such as rehospitalizations of patients, the timing of new branch office openings and pricing pressures due to legislative and regulatory initiatives to contain health care costs. The Company believes that its net revenue is typically higher during the third and fourth quarters of its fiscal year due to respiratory illnesses associated with the spring and summer months. As a result of the above factors, the Company's operating results for any particular quarter may not be indicative of the results for the full fiscal year. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The 1998 Annual Meeting of Shareholders of the Company was held on January 21, 1998. Proxies with regard to the matters to be voted upon at the Annual Meeting were solicited under Regulation 14A of the Securities Exchange Act of 1934, as amended. Set forth below is a brief description of each matter voted upon at the Annual Meeting and the results of the voting on each matter. (a) Election of the two directors named below for a term of three years expiring at the 2001 Annual Meeting of Shareholders. There was no solicitation in opposition to any of the nominees listed in the proxy statement, and each of the nominees was elected. Votes Broker ----------------------------------------------------- Nominees For Withheld Abstentions Non-votes -------- --- -------- ----------- --------- Robert P. Pinkas 4,340,395 194,025 - - Richard S. Smith 4,340,095 194,325 - - 12 (b) The approval of an amendment to the Company's Amended and Restated Stock Option Plan to increase the aggregate number of Common Stock from 700,000 to 1,750,000 shares. The Shareholders approved the proposal. Votes --------------------------------------------------------------------------- For Against Abstentions --- ------- ----------- 3,327,629 831,368 3,279 (c) The approval of an amendment to the Company's Amended and Restated Directors' Stock Option Plan to increase the aggregate number of Common Stock from 95,000 to 300,000 shares. The Shareholders approved the proposal. Votes --------------------------------------------------------------------------- For Against Abstentions --- ------- ----------- 3,420,259 768,198 3,379 (d) The approval of an amendment to the Company's Amended and Restated Directors' Stock Option Plan which gives the Compensation Committee the authority and sole discretion to (i) make additional grants of options and (ii) approve all subsequent transactions related to the grants. The Shareholders approved the proposal. Votes --------------------------------------------------------------------------- For Against Abstentions --- ------- ----------- 4,346,390 152,891 5,579 (e) Ratification of the appointment of Ernst & Young LLP as independent auditors of the Company for the fiscal year ending September 30, 1998. The Shareholders approved the proposal. Votes --------------------------------------------------------------------------- For Against Abstentions --- ------- ----------- 4,532,530 1,225 665 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits -------- The following exhibits are filed as part of this Report: 3.4 Certificate of Correction to Certificate of Amendment of the Amended and Restated Certificate of Incorporation 11.1 Computation of Earnings per Share 27 Financial Data Schedule (b) Reports on Form 8-K ------------------- The Company did not file a Current Report on Form 8-K during the quarter ended December 31, 1997. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PEDIATRIC SERVICES OF AMERICA, INC. (Registrant) Date: February 17, 1998 By: /s/ Stephen M. Mengert -------------------------------------- Stephen M. Mengert Senior Vice President, Chief Financial Officer, Treasurer and Secretary (Duly authorized officer and Principal Financial Officer) 14 INDEX OF EXHIBITS Page No. -------- 3.4 Certificate of Correction to Certificate of Amendment of the Amended and Restated Certificate of Incorporation........................................16 11.1 Computation of Earnings per Share...................................17 27 Financial Data Schedule.............................................18 15 EX-3.4 2 CERT OF CORRECTION EXHIBIT 3.4 CERTIFICATE OF CORRECTION FILED TO CORRECT A CERTAIN ERROR IN THE CERTIFICATE OF AMENDMENT OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF PEDIATRIC SERVICES OF AMERICA, INC. AS FILED WITH THE SECRETARY OF STATE OF DELAWARE ON FEBRUARY 3, 1997 PEDIATRIC SERVICES OF AMERICA, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify: 1. The name of the corporation is PEDIATRIC SERVICES OF AMERICA, INC. 2. That a Certificate of Amendment was filed by the Secretary of State of Delaware on February 3, 1997, and that said Certificate requires correction as permitted by Section 103 of the General Corporation Law of the State of Delaware. 3. The inaccuracy or defect of said Certificate to be corrected is as follows: Article FOURTH of the Certificate lists the total authorized shares as ------ 80,000,000, par value $0.01 per share, of which 78,000,000 shares is designated as "Common Stock" and 2,000,000 shares is designated as "Preferred Stock." 4. Article FOURTH of the Certificate is corrected to read as follows: ------ "FOURTH: The total number of shares of all classes which the ------ Corporation has authority to issue is 82,000,000, par value $0.01 per share, of which 80,000,000 shares shall be designated as "Common Stock," and 2,000,000 shall be designated as "Preferred Stock"." IN WITNESS WHEREOF, said PEDIATRIC SERVICES OF AMERICA, INC. has caused this Certificate to be signed by Susan E. Dignan, its Assistant Secretary, this 13th day of February, 1998. PEDIATRIC SERVICES OF AMERICA, INC. By: /s/ Susan E. Dignan ------------------------------------------ Susan E. Dignan, Assistant Secretary 16 EX-11.1 3 COMPUTATION OF EARNINGS PER SHARE Exhibit 11.1 PEDIATRIC SERVICES OF AMERICA, INC. COMPUTATION OF EARNINGS PER SHARE
Three Months Ended December 31, -------------------------------------------------------- Basic Diluted ----------------------- ------------------- 1997 1996 1997 1996 ---- ---- ---- ---- Weighted average common stock outstanding during the period.................. 6,260,570 6,248,718 6,260,570 6,248,718 Options........................................... 0 0 204,545 183,889 Effect upon weighted average of shares issued in acquisitions.......................... 242,977 0 242,977 0 --------- --------- --------- --------- Total............................................. 6,503,547 6,248,718 6,708,092 6,432,607 ========= ========= ========= ========= Net income attributable to common and common equivalent shares: Net Income..................................... $2,121,642 $1,656,308 $2,121,642 $1,656,308 ========== ========== ========== ========== Net income per common and common equivalent share................................ $ 0.33 $ 0.27 $ 0.32 $ 0.26 ========== ========== ========== ==========
17 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS SEP-30-1998 OCT-01-1997 DEC-31-1997 415 0 97,713 11,461 0 96,477 35,940 16,850 201,517 25,831 0 0 0 70 79,713 201,517 61,559 61,559 0 54,707 0 1,833 1,466 3,554 1,432 0 0 0 0 2,122 .33 .32
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