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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2002
OR
[ ] 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, 2002
------------------- -------------
Common Stock, $.01 par value 16,910,117
1
PART I
FINANCIAL INFORMATION
2
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
($ in thousands, except per share data) 2002 2001 2002 2001
----------- ----------- ----------- -----------
Revenue:
Lithotripsy:
Fee revenues $17,502 $ 18,614 $34,561 $ 36,695
Management fees 75 1,002 311 1,777
Equity income 254 533 360 1,120
----------- ----------- ----------- -----------
17,831 20,149 35,232 39,592
Manufacturing 19,106 12,425 37,325 18,019
Refractive 3,571 6,366 8,058 14,062
Other 196 - 392 -
----------- ----------- ----------- -----------
Total revenue 40,704 38,940 81,007 71,673
----------- ----------- ----------- -----------
Cost of services and general and
administrative expenses:
Lithotripsy 6,977 6,834 13,732 13,775
Manufacturing 15,515 10,917 31,142 15,278
Refractive 3,050 4,185 6,222 8,899
Corporate 807 616 1,619 1,339
----------- ----------- ----------- -----------
26,349 22,552 52,715 39,291
Depreciation and amortization 1,814 3,510 3,609 6,985
----------- ----------- ----------- -----------
28,163 26,062 56,324 46,276
----------- ----------- ----------- -----------
Operating income 12,541 12,878 24,683 25,397
Other income (expenses):
Interest and dividends 77 143 128 279
Interest expense (2,534) (2,900) (5,077) (5,780)
Loan fees (217) (163) (513) (163)
Other, net 89 39 27 111
----------- ----------- ----------- -----------
(2,585) (2,881) (5,435) (5,553)
----------- ----------- ----------- -----------
Income before provision for income
taxes and minority interests 9,956 9,997 19,248 19,844
Minority interest in consolidated income 5,035 6,605 10,911 13,263
Provision for income taxes 1,890 1,347 3,200 2,566
----------- ----------- ----------- -----------
Net income $ 3,031 $ 2,045 $ 5,137 $ 4,015
=========== =========== =========== ===========
Basic earnings per share:
Net income $ 0.19 $ 0.13 $ 0.33 $ 0.26
=========== =========== =========== ===========
Weighted average shares outstanding 15,863 15,704 15,784 15,704
=========== =========== =========== ===========
Diluted earnings per share:
Net income $ 0.19 $ 0.13 $ 0.32 $ 0.26
=========== =========== =========== ===========
Weighted average shares outstanding 16,199 15,716 15,972 15,720
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
3
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2002 2001
($ in thousands) (Unaudited) (Audited)
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 5,658 $ 16,503
Investments - 612
Accounts receivable, less allowance for doubtful
accounts of $1,353 in 2002 and $2,172 in 2001 24,598 21,781
Other receivables 2,404 3,167
Deferred income taxes 1,280 1,658
Prepaid expenses and other current assets 3,004 4,349
Inventory 17,020 11,143
-------- ---------
Total current assets 53,964 59,213
-------- ---------
Property and equipment:
Equipment, furniture and fixtures 51,414 52,735
Building and leasehold improvements 11,353 11,282
-------- ---------
62,767 64,017
Less accumulated depreciation and amortization (33,838) (32,823)
-------- ---------
Property and equipment, net 28,929 31,194
-------- ---------
Other investments 5,551 4,737
Goodwill, net of accumulated amortization 167,743 151,687
Other noncurrent assets 5,307 5,210
-------- ---------
$261,494 $ 252,041
======== =========
See accompanying notes to consolidated financial statements.
4
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
June 30, December 31,
2002 2001
($ in thousands, except share data) (Unaudited) (Audited)
------------- ------------
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 2,033 $ 3,002
Accounts payable 7,091 3,706
Accrued distributions to minority interests - 6,739
Accrued expenses 10,687 13,128
Customer deposits 4,749 1,775
------------- ------------
Total current liabilities 24,560 28,350
Long-term debt, net of current portion 115,798 117,364
Deferred compensation liability - 1,168
Deferred income taxes 3,774 1,065
------------- ------------
Total liabilities 144,132 147,947
Minority interest 14,753 18,618
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; 20,730,317 shares
issued in 2002 and 19,524,533 in 2001; 16,910,117 shares outstanding in 2002
and 15,562,734 in 2001 207 195
Capital in excess of par value 99,943 89,128
Accumulated earnings 34,984 29,846
Treasury stock, at cost; 3,820,200 shares in 2002 and 3,961,799 in 2001 (32,525) (33,693)
------------- ------------
Total stockholders' equity 102,609 85,476
------------- ------------
$261,494 $ 252,041
============= ============
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) 2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Fee and other revenue collected $ 80,139 $ 65,621
Cash paid to employees, suppliers of goods and others (56,601) (47,849)
Purchase of investments (199) (1,644)
Proceeds from sales and maturities of investments 811 2,587
Interest received 128 255
Interest paid (5,083) (5,822)
Taxes refunded 2,035 825
--------- ---------
Net cash provided by operating activities 21,230 13,973
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of entity (12,285) (9,866)
Purchases of equipment and leasehold improvements (806) (2,649)
Distributions from investments 533 1,743
Other 64 57
--------- ---------
Net cash used in investing activities (12,494) (10,715)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable 5,411 11,090
Payments on notes payable, exclusive of interest (8,696) (8,160)
Distributions to minority interest (19,088) (17,188)
Contributions by minority interest, net of buyouts 1,255 2,324
Exercise of stock options 1,537 -
--------- ---------
Net cash used in financing activities (19,581) (11,934)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (10,845) (8,676)
Cash and cash equivalents, beginning of period 16,503 15,530
--------- ---------
Cash and cash equivalents, end of period $ 5,658 $ 6,854
========= =========
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) 2002 2001
------------ ------------
Reconciliation of net income to net cash provided by operating activities:
Net income $ 5,137 $ 4,015
Adjustments to reconcile net income to net cash provided by operating activities:
Minority interest in consolidated income 10,911 13,263
Depreciation and amortization 3,609 6,985
Provision for deferred income taxes 3,087 1,520
Equity in earnings of affiliates (347) (1,078)
Other 359 32
Changes in operating assets and liabilities, net of effect of purchase transactions:
Investments 612 919
Accounts receivable (805) (3,867)
Other receivables 762 425
Other assets 2,395 (1,668)
Accounts payable (523) (5,736)
Accrued expenses (3,967) (837)
--------- ---------
Total adjustments 16,093 9,958
--------- ---------
Net cash provided by operating activities $ 21,230 $ 13,973
========= =========
See accompanying notes to consolidated financial statements.
7
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(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
consolidated financial statements reflect all adjustments which are, in our
opinion, necessary for a fair presentation of the statement of the financial
position as of June 30, 2002 and the results of operations and cashflows for the
periods presented. These statements have not been audited by our 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 our Annual Report on
Form 10-K for the year ended December 31, 2001 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.
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, 2002
- ------------------------------
Net income $5,137 $5,137
====== ======
Weighted average shares outstanding 15,784 15,784
Effect of dilutive securities -- 188
------ ------
Shares for EPS calculation 15,784 15,972
====== ======
Net income per share $0.33 $0.32
===== ======
Six Months Ended June 30, 2001
- ------------------------------
Net income $4,015 $4,015
====== ======
Weighted average shares outstanding 15,704 15,704
Effect of dilutive securities -- 16
------ ------
Shares for EPS calculation 15,704 15,720
====== ======
Net income per share $0.26 $0.26
======= =======
8
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 (continued)
(Unaudited)
2. Earnings per share (continued)
------------------
Basic Diluted
earnings earnings
($ in thousands, except per share data) per share per share
--------- ---------
Three Months Ended June 30, 2002
- --------------------------------
Net income $3,031 $3,031
====== ======
Weighted average shares outstanding 15,863 15,863
Effect of dilutive securities -- 336
------ ------
Shares for EPS calculation 15,863 16,199
====== ======
Net income per share $0.19 $0.19
===== ======
Three Months Ended June 30, 2001
- --------------------------------
Net income $2,045 $2,045
====== ======
Weighted average shares outstanding 15,704 15,704
Effect of dilutive securities -- 12
------ ------
Shares for EPS calculation 15,704 15,716
====== ======
Net income per share $0.13 $0.13
===== =====
We did not include in our computation of diluted EPS unexercised stock options
and warrants to purchase 474,000 and 2,844,000 shares of our common stock as of
June 30, 2002 and 2001, respectively, because the effect would be antidilutive.
3. Segment Reporting
-----------------
We have three reportable segments: lithotripsy, manufacturing and refractive.
The lithotripsy segment provides services related to the operation of the
lithotripters, including scheduling, staffing, training, quality assurance,
maintenance, regulatory compliance and contracting with payors, hospitals and
surgery centers. The manufacturing segment provides manufacturing services and
installation, upgrade, refurbishment and repair of major medical equipment for
mobile medical service providers and the mobile broadcast and communication
industry. The refractive segment provides services related to the operations of
refractive vision correction centers.
We measure performance based on the pretax income or loss from our operating
segments, which does not include unallocated corporate general and
administrative expenses and corporate interest revenue and expense.
9
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 (continued)
(Unaudited)
3. Segment Reporting (continued)
-----------------
($ in thousands) Lithotripsy Manufacturing Refractive
----------- ------------- ----------
Six Months Ended
- -----------------
June 30, 2002
-------------
Revenue from
external customers $35,232 $37,325 $8,058
Intersegment revenues -- -- --
Segment profit 9,474 5,437 256
Six Months Ended
- -----------------
June 30, 2001
-------------
Revenue from
external customers $39,592 $18,019 $14,062
Intersegment revenues -- 46 --
Segment profit 10,059 1,955 1,230
The following is a reconciliation of the measure of segment profit per above to
consolidated income before provision for income taxes per the consolidated
statements of operations:
Six Months ended June 30,
($ in thousands) 2002 2001
---- ----
Total segment profit $15,167 $13,244
Corporate revenues 392 --
Unallocated corporate expenses:
General and administrative (1,619) (1,339)
Net interest expense (4,762) (5,032)
Loan fees (513) (163)
Other, net (328) (129)
------ ------
Total unallocated corporate expenses (7,222) (6,663)
------ ------
Income before income taxes $8,337 $6,581
====== ======
10
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 (continued)
(Unaudited)
3. Segment Reporting (continued)
-----------------
($ in thousands) Lithotripsy Manufacturing Refractive
----------- ------------- ----------
Three Months Ended
- -----------------
June 30, 2002
-------------
Revenue from
external customers $17,831 $19,106 $3,571
Intersegment revenues -- -- --
Segment profit 4,915 3,441 (116)
Three Months Ended
- ------------------
June 30, 2001
-------------
Revenue from
external customers $20,149 $12,425 $6,366
Intersegment revenues -- 4 --
Segment profit 5,385 1,083 324
The following is a reconciliation of the measure of segment profit per above to
consolidated income before provision for income taxes per the consolidated
statements of operations:
Three Months ended June 30,
($ in thousands) 2002 2001
---- ----
Total segment profit $8,240 $6,792
Corporate revenues 196 --
Unallocated corporate expenses:
General and administrative (807) (616)
Net interest expense (2,370) (2,504)
Loan fees (217) (163)
Other, net (121) (117)
------ ------
Total unallocated corporate expenses (3,515) (3,400)
------ ------
Income before income taxes $4,921 $3,392
====== ======
11
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 (continued)
(Unaudited)
4. Goodwill and Other Intangible Assets
------------------------------------
We adopted Statement of Financial Accounting Standards ("SFAS") No. 142
"Goodwill and Other Intangible Assets" effective January 1, 2002. Under the new
standard, we no longer amortize goodwill and indefinite life intangible assets,
but those assets are subject to annual impairment tests. Other intangible assets
with finite lives consisted entirely of non-compete agreements at June 30, 2002
and December 31, 2001, and we have included them as other noncurrent assets in
the accompanying consolidated balance sheets. The non-compete agreements will
continue to be amortized over their useful lives.
In accordance with SFAS 142, we have not restated prior period amounts. A
reconciliation of the previously reported net income and earnings per share for
the six and three months ended June 30, 2001 to the amounts adjusted for the
reduction of amortization expense, net of the related income tax effect, is as
follows:
Six Months Ended
- ----------------
June 30, 2001
- -------------
($ in thousands, except per share data) Net Income Basic EPS Diluted EPS
---------- --------- -----------
Reported net income $4,015 $ 0.26 $ 0.26
Add: amortization adjustment 1,945 0.12 0.12
------ ------ ------
Adjusted net income $5,960 $ 0.38 $ 0.38
====== ====== ======
Three Months Ended
- ------------------
June 30, 2001
- -------------
($ in thousands, except per share data)
Reported net income $2,045 $ 0.13 $ 0.13
Add: amortization adjustment 974 0.06 0.06
------- ------ ------
Adjusted net income $3,019 $ 0.19 $ 0.19
====== ====== ======
The net carrying value of goodwill and other intangible assets as of June 30,
2002 is comprised of the following:
Total Lithotripsy Manufacturing Refractive
--------- ----------- ------------- ----------
Goodwill $ 167,743 $ 129,876 $ 27,237 $ 10,630
Non-compete agreements 4,222 306 500 3,416
--------- --------- -------- ----------
$ 171,965 $ 130,182 $ 27,737 $ 14,046
========= ========= ======== ========
Non-compete agreements as of June 30, 2002, subject to amortization expense, are
comprised of the following:
Gross Carrying Accumulated
Amount Amortization Net
-------------- ------------ ------
Non-compete agreements $ 5,626 $ 1,404 $4,222
======= ======= ======
12
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 (continued)
(Unaudited)
4. Goodwill and Other Intangible Assets (continued)
------------------------------------
Amortization expense for non-compete agreements with finite lives was $268,000
and $135,000 for the six and three months ended June 30, 2002, respectively. We
estimate annual amortization expense for each of the five succeeding fiscal
years as follows:
2002 $ 577,000
2003 613,000
2004 565,100
2005 465,900
2006 322,200
5. Aquisitions
-----------
Effective May 31, 2002, we acquired the assets and certain liabilities of
Frontline Communications Corporation ("Frontline"). Frontline is a leading
manufacturer and integrator of custom vehicles exclusively for the broadcast and
communications industry with 2001 sales in excess of $20 million. This
acquisition expands our market share in the broadcast and communications
industry and provides opportunities for combination synergy with our existing
manufacturing operations. The aggregate purchase price was approximately $12.8
million, comprised of approximately $10.1 million in cash and approximately
300,000 shares of our common stock valued at $2.7 million. We determined the
value of our common stock using an average closing price of our common stock
over the ten trading days ending 5 days prior to May 31, 2002. We recognized
approximately $12 million of goodwill related to this transaction.
Also effective May 31, 2002, we acquired the remaining 20% ownership interest in
our manufacturing subsidiary, AK Specialty Vehicles. The aggregate purchase
price was approximately $8.2 million comprised of $1.8 million in cash and
approximately 730,000 shares of our common stock valued at $6.4 million. We
determined the value of our common stock using an average closing price for the
twenty trading days ending five days prior to the date of the Purchase
Agreement. Upon first anniversary of closing, each of the two sellers has a
one-time right to require us to purchase its shares of our common stock at a
20% discount to the original value of the common stock. We recognized $4.5
million of goodwill related to this transaction.
6. Condensed Financial Information Regarding Guarantor Subsidiaries
----------------------------------------------------------------
We have presented below our condensed consolidating financial information
regarding Guarantor Subsidiaries and Non-guarantor Subsidiaries for June 30,
2002 and 2001 for purposes of complying with the reporting requirements of the
Guarantor Subsidiaries. We have not presented separate financial statements and
other disclosures concerning each Guarantor Subsidiary because we have
determined that such information is not material to investors. The Guarantor
Subsidiaries are wholly owned subsidiaries of ours who have fully and
unconditionally guaranteed the 8.75% unsecured senior subordinated Notes.
13
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Operations
Six Months Ended June 30, 2002
(Unaudited)
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
($ in thousands) Services, Inc. Subsidiaries Subsidiaries Entries Total
-------------- --------------- --------------- --------------- ---------------
Revenue:
Lithotripsy:
Fee revenues $ - $ 6,237 $ 28,324 $ - $ 34,561
Management fees - 488 (177) - 311
Equity income 7,811 4,294 337 (12,082) 360
-------------- --------------- --------------- --------------- ---------------
7,811 11,019 28,484 (12,082) 35,232
Manufacturing 5,378 14,741 25,005 (7,799) 37,325
Refractive 399 537 8,058 (936) 8,058
Other - 392 - - 392
-------------- --------------- --------------- --------------- ---------------
Total revenue 13,588 26,689 61,547 (20,817) 81,007
-------------- --------------- --------------- --------------- ---------------
Cost of services and general and
administrative expenses:
Lithotripsy - 1,237 12,495 - 13,732
Manufacturing - 9,352 21,790 - 31,142
Refractive - - 6,222 - 6,222
Corporate 39 1,580 - - 1,619
-------------- --------------- --------------- --------------- ---------------
39 12,169 40,507 - 52,715
Depreciation and amortization - 882 2,727 - 3,609
-------------- --------------- --------------- --------------- ---------------
39 13,051 43,234 - 56,324
-------------- --------------- --------------- --------------- ---------------
Operating income 13,549 13,638 18,313 (20,817) 24,683
-------------- --------------- --------------- --------------- ---------------
Other income (expenses):
Interest and dividends 30 51 47 - 128
Interest expense (4,706) (147) (224) - (5,077)
Loan fees (459) (54) - - (513)
Other, net (118) 185 (40) - 27
-------------- --------------- --------------- --------------- ---------------
Total other income (expenses) (5,253) 35 (217) - (5,435)
-------------- --------------- --------------- --------------- ---------------
Income before provision for income
taxes and minority interest 8,296 13,673 18,096 (20,817) 19,248
Minority interest in consolidated income - - - 10,911 10,911
Provision for income taxes 3,159 85 (44) - 3,200
-------------- --------------- --------------- --------------- ---------------
Net income $ 5,137 $ 13,588 $ 18,140 $ (31,728) $ 5,137
============== =============== =============== =============== ===============
14
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Operations
Six Months Ended June 30, 2001
(Unaudited)
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
($ in thousands) Services, Inc. Subsidiaries Subsidiaries Entries Total
--------------- --------------- --------------- -------------- ---------------
Revenue:
Lithotripsy:
Fee revenues $ - $ 6,414 $ 30,281 $ - $ 36,695
Management fees - 980 797 - 1,777
Equity income 8,719 6,897 341 (14,837) 1,120
--------------- --------------- --------------- -------------- ---------------
8,719 14,291 31,419 (14,837) 39,592
Manufacturing 1,923 2,010 18,019 (3,933) 18,019
Refractive 1,264 2,284 14,062 (3,548) 14,062
--------------- --------------- --------------- -------------- ---------------
Total revenue 11,906 18,585 63,500 (22,318) 71,673
--------------- --------------- --------------- -------------- ---------------
Cost of services and general and
administrative expenses:
Lithotripsy - 1,560 12,215 - 13,775
Manufacturing - - 15,278 - 15,278
Refractive - - 8,899 - 8,899
Corporate 19 1,320 - - 1,339
--------------- --------------- --------------- -------------- ---------------
19 2,880 36,392 - 39,291
Depreciation and amortization - 3,889 3,096 - 6,985
--------------- --------------- --------------- -------------- ---------------
19 6,769 39,488 - 46,276
--------------- --------------- --------------- -------------- ---------------
Operating income 11,887 11,816 24,012 (22,318) 25,397
--------------- --------------- --------------- -------------- ---------------
Other income (expenses):
Interest income 30 116 133 - 279
Interest expense (5,176) (16) (588) - (5,780)
Loan fees (163) - - - (163)
Other, net 62 (19) 68 - 111
--------------- --------------- --------------- -------------- ---------------
Total other income (expenses) (5,247) 81 (387) - (5,553)
--------------- --------------- --------------- -------------- ---------------
Income before provision for income
taxes and minority interest 6,640 11,897 23,625 (22,318) 19,844
Minority interest in consolidated income - - - 13,263 13,263
Provision for income taxes 2,625 (9) (50) - 2,566
--------------- --------------- --------------- -------------- ---------------
Net income $ 4,015 $ 11,906 $ 23,675 $ (35,581) $ 4,015
=============== =============== =============== ============== ===============
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Operations
Three Months Ended June 30, 2002
(Unaudited)
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
($ in thousands) Services, Inc. Subsidiaries Subsidiaries Entries Total
--------------- --------------- --------------- --------------- ---------------
Revenue:
Lithotripsy:
Fee revenues $ - $ 3,243 $ 14,259 $ - $ 17,502
Management fees - 207 (132) - 75
Equity income 4,158 2,185 169 (6,258) 254
--------------- --------------- --------------- --------------- ---------------
4,158 5,635 14,296 (6,258) 17,831
Manufacturing 3,421 12,781 6,786 (3,882) 19,106
Refractive (59) 10 3,571 49 3,571
Other - 196 - - 196
--------------- --------------- --------------- --------------- ---------------
Total revenue 7,520 18,622 24,653 (10,091) 40,704
--------------- --------------- --------------- --------------- ---------------
Cost of services and general and
administrative expenses:
Lithotripsy - 603 6,374 - 6,977
Manufacturing - 9,352 6,163 - 15,515
Refractive - - 3,050 - 3,050
Corporate 20 787 - - 807
--------------- --------------- --------------- --------------- ---------------
20 10,742 15,587 - 26,349
Depreciation and amortization - 463 1,351 - 1,814
--------------- --------------- --------------- --------------- ---------------
20 11,205 16,938 - 28,163
--------------- --------------- --------------- --------------- ---------------
Operating income 7,500 7,417 7,715 (10,091) 12,541
--------------- --------------- --------------- --------------- ---------------
Other income (expenses):
Interest and dividends 29 27 21 - 77
Interest expense (2,356) (78) (100) - (2,534)
Loan fees (217) - - - (217)
Other, net (1) 156 (66) - 89
--------------- --------------- --------------- --------------- ---------------
Total other income (expenses) (2,545) 105 (145) - (2,585)
--------------- --------------- --------------- --------------- ---------------
Income before provision for income
taxes and minority interest 4,955 7,522 7,570 (10,091) 9,956
Minority interest in consolidated income - - - 5,035 5,035
Provision for income taxes 1,924 2 (36) - 1,890
--------------- --------------- --------------- --------------- ---------------
Net income $ 3,031 $ 7,520 $ 7,606 $ (15,126) $ 3,031
=============== =============== =============== =============== ===============
16
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Operations
Three Months Ended June 30, 2001
(Unaudited)
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
($ in thousands) Services, Inc. Subsidiaries Subsidiaries Entries Total
--------------- --------------- --------------- --------------- ---------------
Revenue:
Lithotripsy:
Fee revenues $ - $ 3,139 $ 15,475 $ - $ 18,614
Management fees - 562 440 - 1,002
Equity income 4,710 3,648 160 (7,985) 533
--------------- --------------- --------------- --------------- ---------------
4,710 7,349 16,075 (7,985) 20,149
Manufacturing 1,051 1,099 12,425 (2,150) 12,425
Refractive 468 975 6,366 (1,443) 6,366
--------------- --------------- --------------- --------------- ---------------
Total revenue 6,229 9,423 34,866 (11,578) 38,940
--------------- --------------- --------------- --------------- ---------------
Cost of services and general and
administrative expenses:
Lithotripsy - 700 6,134 - 6,834
Manufacturing - - 10,917 - 10,917
Refractive - - 4,185 - 4,185
Corporate 2 614 - - 616
--------------- --------------- --------------- --------------- ---------------
2 1,314 21,236 - 22,552
Depreciation and amortization - 1,950 1,560 - 3,510
--------------- --------------- --------------- --------------- ---------------
2 3,264 22,796 - 26,062
--------------- --------------- --------------- --------------- ---------------
Operating income 6,227 6,159 12,070 (11,578) 12,878
--------------- --------------- --------------- --------------- ---------------
Other income (expenses):
Interest and dividends 23 55 65 - 143
Interest expense (2,580) (8) (312) - (2,900)
Loan fees (163) - - - (163)
Other, net (19) 14 44 - 39
--------------- --------------- --------------- --------------- ---------------
Total other income (expenses) (2,739) 61 (203) - (2,881)
--------------- --------------- --------------- --------------- ---------------
Income before provision for income
taxes and minority interest 3,488 6,220 11,867 (11,578) 9,997
Minority interest in consolidated income - - - 6,605 6,605
Provision for income taxes 1,443 (9) (87) - 1,347
--------------- --------------- --------------- --------------- ---------------
Net income $ 2,045 $ 6,229 $ 11,954 $ (18,183) $ 2,045
=============== =============== =============== =============== ===============
17
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Balance Sheet
June 30, 2002
(Unaudited)
Prime Medical Guarantor Non-Guarantor Eliminating Consolidated
($ in thousands) Services, Inc. Subsidiaries Subsidiaries Entries Total
-------------- --------------- -------------- -------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 60 $ 2,486 $ 3,112 $ - $ 5,658
Accounts receivable, net - 13,326 11,272 - 24,598
Other receivables 1,145 (120) 1,379 - 2,404
Deferred income taxes 1,280 - - - 1,280
Prepaid expenses and other current assets 1,757 170 1,077 - 3,004
Inventory - 17,020 - - 17,020
-------------- --------------- -------------- -------------- --------------
Total current assets 4,242 32,882 16,840 - 53,964
-------------- --------------- -------------- -------------- --------------
Property and equipment:
Equipment, furniture and fixtures - 11,221 40,193 - 51,414
Building and leasehold improvements - 10,044 1,309 - 11,353
-------------- --------------- -------------- -------------- --------------
- 21,265 41,502 - 62,767
Less accumulated depreciation
and amortization - (7,746) (26,092) - (33,838)
-------------- --------------- -------------- -------------- --------------
Property and equipment, net - 13,519 15,410 - 28,929
-------------- --------------- -------------- -------------- --------------
Investment in subsidiaries
and other investments 213,885 18,796 - (227,130) 5,551
Goodwill, net of accumulated amortization - 167,743 - - 167,743
Other noncurrent assets 881 3,571 855 - 5,307
-------------- --------------- -------------- -------------- --------------
$ 219,008 $ 236,511 $ 33,105 $ (227,130) $ 261,494
============== =============== ============== ============== ==============
LIABILITIES
Current liabilities:
Current portion of long-term debt $ - $ - $ 2,033 $ - $ 2,033
Accounts payable - 5,997 1,094 - 7,091
Accrued expenses 3,125 6,838 724 - 10,687
Customer deposits - 4,749 - - 4,749
-------------- --------------- -------------- -------------- --------------
Total current liabilities 3,125 17,584 3,851 - 24,560
Long-term debt, net of current portion 109,500 5,042 1,256 - 115,798
Deferred income taxes 3,774 - - - 3,774
-------------- --------------- -------------- -------------- --------------
Total liabilities 116,399 22,626 5,107 - 144,132
-------------- --------------- -------------- -------------- --------------
Minority interest - - - 14,753 14,753
STOCKHOLDERS' EQUITY
Common stock 207 - - - 207
Capital in excess of par value 99,943 - - - 99,943
Accumulated earnings 34,984 - - - 34,984
Treasury stock (32,525) - - - (32,525)
Subsidiary net equity - 213,885 27,998 (241,883) -
-------------- --------------- -------------- -------------- --------------
Total stockholders' equity 102,609 213,885 27,998 (241,883) 102,609
-------------- --------------- -------------- -------------- --------------
$ 219,008 $ 236,511 $ 33,105 $ (227,130) $ 261,494
============== =============== ============== ============== ==============
18
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2002
(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 $ (3,704) $ 5,463 $ 19,471 $ - $ 21,230
-------------- -------------- --------------- --------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of operating entities - (12,285) - - (12,285)
Purchases of equipment and leasehold
improvements - (165) (641) - (806)
Distributions from subsidiaries 8,468 9,320 - (17,788) -
Investments in subsidiaries (5,000) - - 5,000 -
Distributions from investments - 533 - - 533
Other - - 64 - 64
-------------- -------------- --------------- --------------- ---------------
Net cash provided by (used in)
investing activities 3,468 (2,597) (577) (12,788) (12,494)
-------------- -------------- --------------- --------------- ---------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings on notes payable 5,000 - 411 - 5,411
Payments on notes payable exclusive of
interest (6,500) - (2,196) - (8,696)
Exercise of stock options 1,537 - - - 1,537
Contributions by minority interest,
net of buyouts - - 1,255 - 1,255
Distributions to minority interest - - - (19,088) (19,088)
Contributions by parent - 5,000 - (5,000) -
Distributions to equity owners - (8,468) (28,408) 36,876 -
-------------- -------------- --------------- --------------- ---------------
Net cash provided by (used in)
financing activities 37 (3,468) (28,938) 12,788 (19,581)
-------------- -------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (199) (602) (10,044) - (10,845)
Cash and cash equivalents, beginning of period 259 3,088 13,156 - 16,503
-------------- -------------- --------------- --------------- ---------------
Cash and cash equivalents, end of period $ 60 $ 2,486 $ 3,112 $ - $ 5,658
============== ============== =============== =============== ===============
19
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2001
(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 $ (7,098) $ (2,344) $ 23,415 $ - $ 13,973
-------------- -------------- --------------- --------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of operating entities - (3,101) (6,765) - (9,866)
Purchases of equipment and leasehold
improvements - (843) (1,806) - (2,649)
Proceeds from sales of equipment - - 57 - 57
Distributions from subsidiaries 13,273 10,348 - (23,621) -
Investments in subsidiaries (11,000) (8,000) - 19,000 -
Distributions from investments - 1,743 - - 1,743
-------------- -------------- --------------- --------------- ---------------
Net cash provided by (used in)
investing activities 2,273 147 (8,514) (4,621) (10,715)
-------------- -------------- --------------- --------------- ---------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings on notes payable 11,000 - 90 - 11,090
Payments on notes payable exclusive of
interest (6,000) - (2,160) - (8,160)
Contributions by minority interest,
net of buyouts - - 2,324 - 2,324
Distributions to minority interest - - - (17,188) (17,188)
Contributions by parent - 11,000 8,000 (19,000) -
Distributions to equity owners - (13,273) (27,536) 40,809 -
-------------- -------------- --------------- --------------- ---------------
Net cash provided by (used in)
financing activities 5,000 (2,273) (19,282) 4,621 (11,934)
-------------- -------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 175 (4,470) (4,381) - (8,676)
Cash and cash equivalents, beginning of period 427 7,393 7,710 - 15,530
-------------- -------------- --------------- --------------- ---------------
Cash and cash equivalents, end of period $ 602 $ 2,923 $ 3,329 $ - $ 6,854
============== ============== =============== =============== ===============
20
Management's Discussion and Analysis
of Financial Condition and
Results of Operations
Forward-Looking Statements
- --------------------------
The statements contained in this report 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 our expectations, hopes, intentions or strategies regarding
the future. You should not place undue reliance on forward-looking statements.
All forward-looking statements included in this report are based on information
available to us on the date hereof, and we assume no obligation to update any
such forward-looking statements. It is important to note that our actual results
could differ materially from those in the forward-looking statements. In
addition to any risks and uncertainties specifically identified in the text
surrounding such forward-looking statements, you should consult our 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 our 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 our control. Any of such assumptions
could be inaccurate and therefore, there can be no assurance that the
forward-looking statements included in this report will prove to be accurate.
General
- -------
We provide lithotripsy services, design and manufacture trailers and coaches
that transport high technology medical devices and equipment for the media and
broadcast industry, and provide refractive vision correction services.
Lithotripsy Services. Lithotripsy is a non-invasive procedure for treating
kidney stones, typically performed on an outpatient basis, that eliminates the
need for lengthy hospital stays and extensive recovery periods associated with
surgery. We own 65 lithotripters, 60 of which are mobile and five of which are
fixed site. We do not render any medical services. Rather, the physicians do.
We also provide services relating to operating our lithotripters, including
scheduling, staffing, training, quality assurance, maintenance, regulatory
compliance, and contracting with payors, hospitals and surgery centers.
Manufacturing. We design, construct and engineer mobile trailers, coaches, and
special purpose mobile units that transport high technology medical devices and
equipment designed for broadcasting and communications applications, such as
magnetic resonance imaging, cardiac catheterization labs, CT scanware,
lithotripters, postitron emission tomography, mobile command and control centers
and satellite news gathering vehicles.
21
Refractive Vision Correction, or RVC Services. Our RVC procedures correct common
vision disorders such as myopia (nearsightedness), hyperopia (farsightedness)
and astigmatism by using specialized laser applications such as LASIK. We
currently operate 14 RVC facilities.
Recent Developments
- -------------------
Effective May 31, 2002, we acquired the assets and certain liabilities of
Frontline. Frontline is a leading manufacturer and integrator of custom vehicles
exclusively for the broadcast and communications industry with 2001 sales in
excess of $20 million. This acquisition expands our market share in the
broadcast and communications industry and provides opportunities for combination
synergy with our existing operations. The aggregate purchase price was
approximately $12.8 million, comprised of approximately $10.1 million in cash
and shares of our common stock valued at $2.7 million.
Also effective May 31, 2002, we acquired the remaining 20% ownership interest in
our manufacturing subsidiary, AK Specialty Vehicles. The aggregate purchase
price of approximately $8.2 million comprised of $1.8 million in cash and shares
of our common stock valued at $6.4 million.
In February 2002, we announced our intention to divest our RVC operations to
focus more on opportunities in our manufacturing and lithotripsy businesses.
Critical Accounting Policies.
- ----------------------------
Management has identified the following critical accounting policies:
Consolidation of our investment in certain limited partnerships where we, as the
general partner, exercise effective control, even though our ownership is less
than 50%. We have reviewed each of the underlying agreements and determined we
have effective control. If effective control did not exist, we would reflect
these investments using the equity method of accounting. Although equity method
presentation would change individual line items within our consolidated
financial statements, it would have no effect on our net income and/or total
stockholders' equity.
Impairments of intangible assets is another critical accounting policy that
requires judgment and is based on assumptions of future operations. Effective
January 1, 2002, we adopted Statement of Financial Accounting Standards ("SFAS")
No. 142. Under SFAS No. 142, goodwill is no longer amortized, but must be tested
for impairment at least annually. We provide impairment testing at a reporting
unit level. We currently have identified three reporting units under the
criteria set forth by SFAS No. 142. Pursuant to the transitional rules of SFAS
No. 142, we have completed the first step of our goodwill impairment test during
the second quarter of 2002. As a result of our first step testing, a potential
impairment related to our RVC reporting unit was indicated. We will complete the
second step of the evaluation required by SFAS No. 142 in the third quarter of
2002. The statement requires any such charge be recognized as a cumulative
effect of a change in accounting principle.
A third critical accounting policy which requires judgment of management is the
estimated allowance for doubtful accounts and contractual adjustments. We have
based our estimates on historical collection amounts, current contracts with
payors, current changes of the facts and circumstances relating to these matters
and certain negotiations with related payors. Actual results could vary from
these estimates.
22
Six months ended June 30, 2002 compared to the six months ended June 30, 2001
- -----------------------------------------------------------------------------
Our total revenues for the six months ended June 30, 2002 increased $9,334,000
(13%) as compared to the same period in 2001. Revenues from our lithotripter
operations decreased by $4,360,000 (11%). Conversion of contracts from a retail
style contract to a wholesale style contract, payor mix changes and
renegotiation of contracts during the past year resulted in decreases in average
revenue per procedure. The actual number of procedures performed in the period
decreased by 8% compared to the same period in 2001. Our manufacturing revenues
increased $19,306,000 (107%) due to the acquisitions of Calumet Coach Company
during May 2001 and Frontline in May 2002. Our refractive revenues decreased
$6,004,000 (43%). Our refractive operations actually decreased 37% on a same
store basis between the two periods. The remaining decrease is due to the sale
of one of our refractive centers in October of 2001. Our refractive operations
continue to be affected by weakness in the economy, which is an industry-wide
phenomenon. Our physician partners remain committed to our markets and focused
on lowering costs to reflect marketplace realities and maintaining
profitability. While we expect demand to return once general economic
uncertainty is alleviated, we do not intend to invest further into this segment,
and we have announced our intention to sell our refractive business.
Our costs of services and general and administrative expenses (excluding
depreciation and amortization) for six months ended June 30, 2002 increased from
55% to 65% of revenues, primarily due to increases in our manufacturing
operations, which has lower operating margins than our lithotripsy operations.
Our costs of services associated with our lithotripsy operations decreased
$43,000 (1%) in absolute terms and increased from 34% to 39% of our lithotripsy
revenues primarily due to decrease in revenues noted above. Our cost of services
associated with our manufacturing operations increased $15,864,000 (104%) in
absolute terms due to increased sales and costs related to our acquisitions but
decreased from 85% to 83% of our manufacturing revenues as we were able to
improve our margins do to successfully integration cost savings at Calumet. Cost
of services associated with our refractive operations decreased $2,677,000 (30%)
in absolute terms, but increased from 63% to 77% of our refractive revenues due
to decreased procedures from the same period a year ago. Our corporate expenses
remained constant at 2% of revenues, increasing $280,000 (21%) in absolute
terms, as we continue to grow without adding a disproportionately higher amount
of corporate expenses.
Depreciation and amortization expense decreased $3,376,000 for the six months
ended June 30, 2002 compared to the same period in 2001, primarily due to the
adoption of SFAS No. 142 on January 1, 2002, which eliminated amortization
expense related to goodwill and due to certain lithotripsy units becoming fully
depreciated in the fourth quarter of 2001.
Other expenses, net for the six months ended June 30, 2002 decreased $118,000
(2%) compared to the same period in 2001, primarily due to a $366,000 decrease
in interest expense related to our senior credit facility.
Minority interest in consolidated income for the six months ended June 30, 2002
decreased $2,352,000 compared to the same period in 2001, primarily as a result
of a decrease in income from our lithotripsy segment which has significantly
higher minority interest percentages than our other segments and due to our
acquiring the remaining minority interest in our manufacturing segment. Earnings
before interest, taxes, depreciation and amortization (EBITDA) attributable to
minority interest was $12,616,000 for the six months ended June 30, 2002
compared to $15,215,000 for the same period in 2001. 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 our profitability or liquidity.
23
Provision for income taxes for the six months ended June 30, 2002 increased
$634,000 compared to the same period in 2001 due to an increase in taxable
income.
Three months ended June 30, 2002 compared to the three months ended
- -------------------------------------------------------------------
June 30, 2001
- -------------
Our total revenues for the three months ended June 30, 2002 increased $1,764,000
(5%) as compared to the same period in 2001. Revenues from our lithotripter
operations decreased by $2,318,000 (12%). Conversion of contracts from a retail
style contract to a wholesale style contract, payor mix changes and
renegotiation of contracts during the past year resulted in decreases in average
revenue per procedure. The actual number of procedures performed in the three
months ended June 30, 2002 decreased by 6% compared to the same period in 2001.
Our manufacturing revenues increased $6,681,000 (54%) due to the acquisition of
Calumet Coach Company during May 2001 and Frontline in May 2002. Our refractive
revenues decreased $2,795,000 (44%). Our refractive operations actually
decreased 39% on a same store basis between the two periods. The remaining
decrease is due to the sale of one of our refractive centers in October of 2001.
Our refractive operations continue to be affected by weakness in the economy,
which is an industry-wide phenomenon. Our physician partners remain committed to
our markets and focused on lowering costs to reflect marketplace realities and
maintaining profitability. While we expect demand to return once general
economic uncertainty is alleviated, we do not intend to invest further into this
segment, and we have announced our intention to sell our refractive business.
Our costs of services and general and administrative expenses (excluding
depreciation and amortization) for three months ended June 30, 2002 increased
from 58% to 65% of revenues, primarily due to increases in our manufacturing
operations, which has lower operating margins than our lithotripsy operations.
Our costs of services associated with our lithotripsy operations increased
$143,000 (2%) in absolute terms and increased from 34% to 39% of our lithotripsy
revenues primarily due to decrease in revenues noted above. Our cost of services
associated with our manufacturing operations increased $4,598,000 (42%) in
absolute terms due to increased sales and costs related to our acquisitions but
decreased from 88% to 81% of our manufacturing revenues as we were able to
significantly improve our margins do to successfully integration cost savings at
Calumet. Cost of services associated with our refractive operations decreased
$1,135,000 (27%) in absolute terms, and increased from 66% to 85% of our
refractive revenues due to decreased procedures from the same period a year ago.
Our corporate expenses remained constant at 2% of revenues, increasing $191,000
(31%) in absolute terms, as we continue to grow without adding a
disproportionately higher amount of corporate expenses.
Depreciation and amortization expense decreased $1,696,000 for the three months
ended June 30, 2002 compared to the same period in 2001, primarily due to the
adoption of SFAS No. 142 on January 1, 2002, which eliminated amortization
expense related to goodwill and due to certain lithotripsy units becoming fully
depreciated in the fourth quarter of 2001.
Other expenses, net for the three months ended June 30, 2002 decreased $296,000
(10%) compared to the same period in 2001, primarily due to a $366,000 decrease
interest expense to our senior credit facility.
Minority interest in consolidated income for the three months ended June 30,
2002 decreased $1,570,000 compared to the same period in 2001, primarily as a
result of a decrease in income from our lithotripsy segment which has
significantly higher minority interest percentages than our other segments and
due to our acquiring the remaining minority interest in our manufacturing
segment. Earnings before interest, taxes, depreciation and amortization (EBITDA)
attributable to minority interest was $5,999,000 for the three months ended June
30, 2002 compared to $7,700,000 for the same period in 2001.
24
Provision for income taxes for the three months ended June 30, 2002 increased
$543,000 compared to the same period in 2001 due to an increase in taxable
income.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents were $5,658,000 and $16,503,000 at June 30, 2002 and
December 31, 2001, respectively. Cash provided by operations for the six months
ended June 30, 2002 was $21,230,000 compared to cash provided by operations for
the six months ended June 30, 2001 of $13,973,000. Fee and other revenue
collected increased by $14,518,000 and was partially offset by the increase in
cash paid to employees, suppliers of goods and others of $8,752,000. We
attribute these fluctuations to increased operations primarily in our
manufacturing segment as well as the timing of accounts receivable collections
and accounts payable and accrued expense payments. A decrease in interest
payments of $739,000 was due to less monies drawn on our senior credit facility.
Taxes refunded increased $1,210,000 from 2001 to 2002 due to the receipt of a
2001 tax refund in 2002.
Cash used in investing activities for the six months ended June 30, 2002 was
$12,494,000 compared to cash used in investing activities for the six months
ended June 30, 2001 of $10,715,000. The increase in cash used was attributable
to an increase in the cash paid for acquisitions partially offset by decrease in
cash paid for equipment purchases. Cash used in financing activities for the six
months ended June 30, 2002 was $19,581,000 compared to cash used for financing
activities for the six months ended June 30, 2001 of $11,934,000. The increase
in cash used was primarily due to a net increase in payments on notes payable
and distributions paid to minority interests.
We terminated our deferred compensation plan during the first quarter of 2002.
We satisfied the related deferred compensation liability through the issuance of
treasury stock, which we had previously held in the deferred compensation plan.
Senior Credit Facility
- ----------------------
We revised our senior credit facility, which is a revolving line of credit, in
July 2002. The new revolving line of credit has a borrowing limit of $50
million, $9.5 million of which was drawn at June 30, 2002 and July 31, 2002,
respectively. Our senior credit facility contains covenants that, among other
things, limit the payment of cash dividends on our common stock, limit
repurchases of our common stock, limit the amount of our consolidated debt,
limit our ability to make certain loans and investments, and provide that we
must maintain certain financial ratios.
8.75% Notes
- -----------
In addition, we have $100 million of unsecured senior subordinated notes. The
notes bear interest at 8.75% and interest is payable semi-annually on April 1st
and October 1st. Principal is due April 2008.
The indenture governing our 8.75% notes contains covenants that, among other
things: (1) limit the incurrence of additional indebtedness; (2) limit certain
investments; (3) limit restricted payments; (4) limit the disposition of assets;
(5) limit the payment of dividends and other payment restrictions affecting
subsidiaries; (6) limit transactions with affiliates; (7) limit the creation of
liens; and (8) restrict mergers, consolidations and transfers of assets. In the
event of a change of control under the indenture, we will be required to make an
offer to repurchase the 8.75% notes at 101% of the principal amount thereof,
plus accrued and unpaid interest to the date of the repurchase.
25
The 8.75% notes are unsecured general obligations and are subordinated in right
of payment to all our existing and future senior indebtedness and are guaranteed
by our subsidiaries on a full, unconditional, joint and several basis.
General
- -------
We seek opportunities to increase our lithotripsy operations primarily through
forming new operating subsidiaries in new markets as well as by acquisitions. We
seek opportunities to grow our manufacturing operations through both
acquisitions, expanding our product lines and by selling to a broader customer
base. We intend to fund the purchase price for future acquisitions and
developments using borrowings under our senior credit facility and cash flows
from our operations. In addition, we may use shares of our common stock in
acquisitions where appropriate.
During 1998, we announced a stock repurchase program of up to $25.0 million of
our common stock. In February 2000, we announced an increase in the authorized
repurchase amount from $25.0 million to $35.0 million and in January 2001 we
increased this amount to $45.0 million. We did not repurchase any of our common
stock during 2002 or 2001. From time to time, we may purchase additional shares
of our common stock where, in our judgment, market valuations of our stock do
not accurately reflect our past and projected results of operations. We intend
to fund any additional stock purchases using cash flows from operations and
borrowings under our senior credit facility. Under our repurchase program,
through July 31, 2002, we have purchased 3,820,200 shares of our stock at total
cost of $32,525,000.
Our ability to make scheduled payments of principal, or to pay the interest on,
or to refinance, our indebtedness, or to fund planned capital expenditures, will
depend on our future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control. Based upon the current level of our
operations and anticipated cost savings and revenue growth, we believe that cash
flows from our operations and available cash, together with available borrowings
under our senior credit facility, will be adequate to meet our future liquidity
needs for at least the next several years. However, there can be no assurance
that our business will generate sufficient cash flows from operations, that we
will realize our anticipated revenue growth and operating improvements or that
future borrowings will be available under our senior credit facility in an
amount sufficient to enable us to service our indebtedness or to fund our other
liquidity needs.
Inflation
- ---------
Our operations are not significantly affected by inflation because we are not
required to make large investments in fixed assets. However, the rate of
inflation will affect certain of our expenses, such as employee compensation and
benefits.
Adoption of Accounting Pronouncements
- -------------------------------------
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144 ("Statement 144"), Accounting for the Impairment or Disposal of Long-Lived
Assets. Statement 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. Statement 144 requires that one
accounting model be used for long-lived assets to be disposed of by sale and
broadens presentation of discontinued operations to include more disposals. Our
adoption or Statement 144 effective January 1, 2002 did not have a material
effect on our financial position or results of operations.
26
Quantitative and Qualitative Disclosures
About Market Risk
Interest Rate Risk
- ------------------
As of June 30, 2002, we had long-term debt (including current portion) totaling
$117,831,000, of which $100,000,000 has a fixed rate of interest of 8.75%,
$356,000 has fixed rates of 5% to 14%, $7,960,000 bears interest at a variable
rate equal to a specified prime rate, $9,500,000 bears interest at a variable
rate equal to LIBOR + 2 to 3.5% and $15,000 does not bear any interest. We are
exposed to some market risk due to the floating interest rate debt totaling
$17,460,000. We make monthly or quarterly payments of principal and interest on
$7,960,000 of the floating rate debt. An increase in interest rates of 1.5%
would result in a $262,000 annual increase in interest expense on this existing
principal balance.
27
PART II
OTHER INFORMATION
28
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
On June 18, 2002, we held an annual meeting of our stockholders to consider and
vote on the two proposals we describe below. Management solicited proxies for
this meeting.
1) Election of seven directors to the board of directors;
The nominees for director were:
David D. Dulaney, M.D., Brad A. Hummel, Joseph Jenkins, M.D., J.D.,
Michael R. Nicolais, William A. Searles, Kenneth S. Shifrin, and
Michael J. Spalding, M.D.
All nominees were elected. The voting was as follows:
Nominee Votes For Votes Against Votes Withheld
David D. Dulaney, M.D. 12,640,210 1,888,390 --
Brad A. Hummel 13,875,378 653,222 --
Joseph Jenkins, M.D., J.D. 13,875,378 653,222 --
Michael R. Nicolais 13,875,378 653,222 --
William A. Searles 13,875,378 653,222 --
Kenneth S. Shifrin 12,973,676 1,554,924 --
Michael J. Spalding, M.D. 13,874,681 653,919 --
2) We amended our 1993 Stock Option Plan to increase the aggregate number of
shares that we may issue thereunder by 500,000 to 4,550,000. The votes for were
13,456,432, the votes against were 1,035,860 and the votes withheld were 36,308.
Item 6. Exhibits and Reports on Form 8-K.
- ------- ---------------------------------
(a) Exhibits
12. Computation of ratio of earnings to fixed charges.
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
(b) Current Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIME MEDICAL SERVICES, INC.
Date: August 7, 2002
By: /s/ John Q. Barnidge
John Q. Barnidge, Senior Vice President
and Chief Financial Officer
30