10-Q/A 1 0001.txt FOR THE PERIOD ENDED JUNE 30, 2000 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A [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, $.01 par value 16,005,533 PART I FINANCIAL INFORMATION 2 PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ($ 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 6,145 - 9,080 - Prostatherapy 390 485 792 1,003 Other 42 61 87 116 -------- -------- -------- -------- Total revenue 32,966 28,608 62,409 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 14,303 15,129 28,275 28,151 Other income (deductions): Interest and dividends 197 333 555 738 Interest expense (2,578) (2,325) (5,004) (4,654) Loan fees (24) - (107) - Release of contractual obligation - 1,140 - 1,140 Other, net 78 47 73 (291) -------- -------- -------- -------- (2,327) (805) (4,483) (3,067) -------- -------- -------- -------- Income before provision for income taxes and minority interests 11,976 14,324 23,792 25,084 Minority interest in consolidated income 6,700 7,201 13,155 12,644 Provision for income taxes 2,174 2,821 4,238 4,976 -------- -------- -------- -------- Net income $ 3,102 $ 4,302 $ 6,399 $ 7,464 ======== ======== ======== ======== Basic earnings per share: Net income $ 0.19 $ 0.25 $ 0.39 $ 0.43 ======== ======== ======== ======== Weighted average shares outstanding 16,218 17,098 16,327 17,241 ======== ======== ======== ======== Diluted earnings per share: Net income $ 0.19 $ 0.25 $ 0.39 $ 0.43 ======== ======== ======== ======== Weighted average shares outstanding 16,303 17,196 16,455 17,344 ======== ======== ======== ========
See accompanying notes to consolidated financial statements. 3 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 164,981 149,088 Other noncurrent assets 2,402 2,110 -------- -------- $256,735 $246,826 ======== ======== See accompanying notes to consolidated financial statements. 4 PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) (Unaudited) June 30, December 31, ($ in thousands, except share data) 2000 1999 -------- -------- LIABILITIES Current liabilities: Current portion of long-term debt $ 1,887 $ 1,763 Accounts payable 5,386 3,290 Accrued distributions to minority interests - 8,332 Accrued expenses 5,406 7,108 -------- -------- Total current liabilities 12,679 20,493 Long-term debt, net of current portion 113,146 103,797 Deferred income taxes 7,832 6,400 -------- -------- Total liabilities 133,657 130,690 Minority interest 23,665 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 40,054 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 99,413 96,682 -------- -------- $256,735 $246,826 ======== ======== See accompanying notes to consolidated financial statements. 5 PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, ($ 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 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 $ 6,399 $ 7,464 Adjustments to reconcile net income to cash provided by operating activities: Minority interest in consolidated income 13,155 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 1,652 (1,737) Accrued expenses (1,543) (3,005) -------- -------- Total adjustments 20,472 8,410 -------- -------- Net cash provided by operating activities $ 26,871 $ 15,874 ======== ======== See accompanying notes to consolidated financial statements. 7 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 $6,399 $6,399 ====== ====== 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 $0.39 $0.39 ===== ===== 8 PRIME MEDICAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (continued) (Unaudited) 2. Earnings per share (continued) -- ------------------------------ Basic Diluted earnings earnings ($ 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 $3,102 $3,102 ====== ====== 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 $0.19 $0.19 ======= ======= 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 $0.25 ======= ======= Unexercised stock options and warrants to purchase 1,358,000 and 1,616,500 shares of the Company's common stock as of June 30, 2000 and 1999 were not included in the computation of diluted EPS because the effect would be antidilutive. 9 PRIME MEDICAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (continued) (Unaudited) 3. Segment Reporting -- ----------------- The Company has three reportable segments: lithotripsy, manufacturing and refractive. The lithotripsy segment provides services related to the operation of the lithotripters, including scheduling, staffing, training, quality assurance, maintenance, regulatory compliance and contracting with payors, hospitals and surgery centers. The manufacturing segment provides manufacturing services and installation, upgrade, refurbishment and repair of major medical equipment for mobile medical service providers. The refractive segment provides services related to the operations of refractive vision correction centers. Other operating segments, which do not meet the quantitative thresholds for reportable segments, include prostatherapy services. The Company measures performance based on the pretax income or loss from its operating segments, which do not include unallocated corporate general and administrative expenses and corporate interest revenue and expense. ($ in thousands) Lithotripsy Manufacturing Refractive Other ----------- ------------- ---------- ----- Six Months Ended June 30, 2000 ------------------------------ Revenue from external customers $41,346 $11,104 $9,080 $879 Intersegment revenues - 226 - - Segment profit 13,915 1,726 1,113 33 Six Months Ended June 30, 1999 ------------------------------ Revenue from external customers $44,998 $7,873 - $1,119 Intersegment revenues - 148 - - Segment profit (loss) 16,646 1,367 - (14)
10 PRIME MEDICAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (continued) (Unaudited) 3. Segment Reporting (continued) -- ----------------------------- The following is a reconciliation of the measure of segment profit per above to consolidated income before income taxes per the consolidated statements of operations: Six Months ended June 30, ($ in thousands) 2000 1999 ---- ---- Total segment profit $16,787 $17,999 Unallocated corporate expenses: General and administrative (2,133) (2,289) Net interest expense (3,501) (3,926) Loan fees (107) - Restructuring charges (350) - Release of contractual obligation - 1,140 Other, net (59) (484) -------- -------- Total unallocated corporate expenses (6,150) (5,559) -------- -------- Income before income taxes $10,637 $12,440 ======== ======== ($ in thousands) Lithotripsy Manufacturing Refractive Other ----------- ------------- ---------- ----- Three Months Ended June 30, 2000 -------------------------------- Revenue from external customers $20,812 $5,577 $6,145 $432 Intersegment revenues - 131 - - Segment profit 7,036 860 832 24 Three Months Ended June 30, 1999 -------------------------------- Revenue from external customers $23,589 $4,473 - $546 Intersegment revenues - 102 - - Segment profit (loss) 8,756 746 - 4
11 PRIME MEDICAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (continued) (Unaudited) 3. Segment Reporting (continued) -- ----------------------------- The following is a reconciliation of the measure of segment profit per above to consolidated income before income taxes per the consolidated statements of operations: Three Months ended June 30, ($ in thousands) 2000 1999 ---- ---- Total segment profit $8,752 $9,506 Unallocated corporate expenses: General and administrative (1,177) (1,418) Net interest expense (1,895) (1,987) Loan fees (24) - Restructuring charges (350) - Release of contractual obligation - 1,140 Other, net (30) (118) -------- -------- Total unallocated corporate expenses (3,476) (2,383) -------- -------- Income before income taxes $5,276 $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 twenty 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 $8,705,000 is being amortized over twenty years. The proforma effects of these acquisitions on an aggregated basis are not material. 12 PRIME MEDICAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (continued) (Unaudited) 5. Condensed Financial Information Regarding Guarantor Subsidiaries -- ---------------------------------------------------------------- Condensed consolidating financial information regarding the Company, Guarantor Subsidiaries and Non-guarantor Subsidiaries for June 30, 2000 and 1999 is presented below for purposes of complying with the reporting requirements of the Guarantor Subsidiaries. Separate financial statements and other disclosures concerning each Guarantor Subsidiary have not been presented because management has determined that such information is not material to investors. The Guarantor Subsidiaries are wholly owned subsidiaries of the Company who have fully and unconditionally guaranteed the 8.75% unsecured senior subordinated Notes. 13 PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Income Six Months Ended June 30, 2000 (Unaudited) Prime Medical Guarantor Non-Guarantor Eliminating Consolidated ($ 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 967 1,518 8,302 (1,707) 9,080 Prostatherapy - - 792 - 792 Other - 87 - - 87 --------------- -------------- -------------- -------------- -------------- Total revenue 14,746 19,645 51,349 (23,331) 62,409 --------------- -------------- -------------- -------------- -------------- 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 14,722 13,838 23,046 (23,331) 28,275 --------------- -------------- -------------- -------------- -------------- Other income (deductions): Interest and dividends 177 162 216 - 555 Interest expense (4,652) 813 (1,165) - (5,004) Loan fees (107) - - - (107) Other, net 52 (58) 79 - 73 --------------- -------------- -------------- -------------- -------------- Total other income (deductions) (4,530) 917 (870) - (4,483) --------------- -------------- -------------- -------------- -------------- Income before provision for income taxes and minority interest 10,192 14,755 22,176 (23,331) 23,792 Minority interest in consolidated income - - - 13,155 13,155 Provision for income taxes 3,793 9 436 - 4,238 --------------- -------------- -------------- -------------- -------------- Net income $ 6,399 $ 14,746 $ 21,740 $ (36,486) $ 6,399 =============== ============== ============== ============== ==============
14 PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Income Six Months Ended June 30, 1999 (Unaudited) 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 =============== ============== ============== ============== ==============
15 PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Income Three Months Ended June 30, 2000 (Unaudited) 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 679 1,116 5,719 (1,369) 6,145 Prostatherapy - - 390 - 390 Other - 42 - - 42 --------------- -------------- -------------- -------------- -------------- Total revenue 7,520 10,218 27,478 (12,250) 32,966 --------------- -------------- -------------- -------------- -------------- 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 7,505 7,116 11,932 (12,250) 14,303 --------------- -------------- -------------- -------------- -------------- Other income (deductions): Interest and dividends 28 63 106 - 197 Interest expense (2,393) 406 (591) - (2,578) Loan fees (24) - - - (24) Other, net 55 (56) 79 - 78 --------------- -------------- -------------- -------------- -------------- Total other income (deductions) (2,334) 413 (406) - (2,327) --------------- -------------- -------------- -------------- -------------- Income before provision for income taxes and minority interest 5,171 7,529 11,526 (12,250) 11,976 Minority interest in consolidated income - - - 6,700 6,700 Provision for income taxes 2,069 9 96 - 2,174 --------------- -------------- -------------- -------------- -------------- Net income $ 3,102 $ 7,520 $ 11,430 $ (18,950) $ 3,102 =============== ============== ============== ============== ==============
16 PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Income Three Months Ended June 30, 1999 (Unaudited) 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 =============== ============== ============== ============== ==============
17 PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Balance Sheet June 30, 2000 (Unaudited) 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 212,347 52,473 - (246,316) 18,504 Goodwill, at cost, net of amortization - 155,963 9,018 - 164,981 Other noncurrent assets 362 641 1,399 - 2,402 --------------- -------------- -------------- -------------- -------------- $ 214,466 $ 219,886 $ 68,699 $ (246,316) $ 256,735 =============== ============== ============== ============== ============== LIABILITIES Current liabilities: Current portion of long-term debt $ - $ - $ 1,887 $ - $ 1,887 Accounts payable - 1,516 3,870 - 5,386 Accrued expenses 3,670 533 1,203 - 5,406 --------------- -------------- -------------- -------------- -------------- Total current liabilities 3,670 2,049 6,960 - 12,679 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 115,053 7,539 11,065 - 133,657 --------------- -------------- -------------- -------------- -------------- Minority interest - - - 23,665 23,665 STOCKHOLDERS' EQUITY Common stock 194 - - - 194 Capital in excess of par value 88,859 - - - 88,859 Accumulated earnings 40,054 - - - 40,054 Treasury stock (29,694) - - - (29,694) Subsidiary net equity - 212,347 57,634 (269,981) - --------------- -------------- -------------- -------------- -------------- Total stockholders' equity 99,413 212,347 57,634 (269,981) 99,413 --------------- -------------- -------------- -------------- -------------- $ 214,466 $ 219,886 $ 68,699 $ (246,316) $ 256,735 =============== ============== ============== ============== ==============
18 PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Cash Flows Six Months Ended June 30, 2000 (Unaudited) 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 =============== ============== ============== ============== ==============
19 PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Cash Flows Six Months Ended June 30, 1999 (Unaudited) 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 =============== ============== ============== ============== ==============
20 Management's Discussion and Analysis of Financial Condition and Results of Operations Revenues -------- For the six months ended June 30, 2000, total revenues increased $8,419,000 (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 $9,080,000, 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 $4,358,000 (15%) 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 $6,145,000, 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 45% 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 Other Income (Deductions) ------------------------- For the six months ended June 30, 2000, other deductions increased $1,416,000 (46%) 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 $350,000 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 $1,522,000 (189%) 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 $511,000 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 $15,327,000 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 $501,000 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 $7,950,000 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 $738,000 and for the three months ended June 30, 2000 decreased $647,000 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 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 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 PART II OTHER INFORMATION 25 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 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: November 3, 2000 By: /s/ Cheryl L. Williams ---------------------- Cheryl L. Williams, Senior Vice President and Chief Financial Officer 27