_______________________________________________________
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 September 30, 2004
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 incorporation or organization) |
(IRS Employer Identification No.) |
1301 Capitol of Texas
Highway, Suite 200B, Austin, Texas 78746
(Address of principal executive offices) (Zip Code)
(512) 328-2892
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. |
|
Indicate by check mark whether the registrant is an accelerated filer (as
described in Rule 12b-2 of the Exchange Act). 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. |
Title of Each Class Common Stock, $.01 par value |
Number of Shares Outstanding at November 1, 2004 20,705,335 |
PART IITEM 1 — FINANCIAL INFORMATION |
|
-2- |
|
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) |
|---|
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ($ in thousands, except per share data) |
2004 |
2003 |
2004 |
2003 | ||||||||||
| Revenue: | ||||||||||||||
| Urology | $ | 20,003 | $ | 15,658 | $ | 55,989 | $ | 45,756 | ||||||
| Manufacturing | 26,192 | 23,641 | 80,462 | 70,780 | ||||||||||
| Other | 237 | 260 | 712 | 785 | ||||||||||
| Total revenue | 46,432 | 39,559 | 137,163 | 117,321 | ||||||||||
| Cost of services and general and | ||||||||||||||
| administrative expenses: | ||||||||||||||
| Urology | 9,155 | 5,963 | 24,861 | 18,974 | ||||||||||
| Manufacturing | 24,076 | 22,503 | 73,287 | 64,923 | ||||||||||
| Corporate | 700 | 901 | 2,724 | 2,341 | ||||||||||
| Depreciation and amortization | 1,837 | 1,759 | 5,303 | 5,410 | ||||||||||
| 35,768 | 31,126 | 106,175 | 91,648 | |||||||||||
| Operating income | 10,664 | 8,433 | 30,988 | 25,673 | ||||||||||
| Other income (expenses): | ||||||||||||||
| Interest and dividends | 58 | 43 | 207 | 264 | ||||||||||
| Interest expense | (2,380 | ) | (2,338 | ) | (7,033 | ) | (6,875 | ) | ||||||
| Loan fees | -- | (257 | ) | -- | (257 | ) | ||||||||
| Other, net | 76 | 203 | 44 | (55 | ) | |||||||||
| (2,246 | ) | (2,349 | ) | (6,782 | ) | (6,923 | ) | |||||||
| Income before provision for income | ||||||||||||||
| taxes and minority interests | 8,418 | 6,084 | 24,206 | 18,750 | ||||||||||
| Minority interest in consolidated income | 6,592 | 4,910 | 16,856 | 12,803 | ||||||||||
| Provision for income taxes | 584 | 399 | 2,605 | 2,022 | ||||||||||
| Net income | $ | 1,242 | $ | 775 | $ | 4,745 | $ | 3,925 | ||||||
| Basic earnings per share: | ||||||||||||||
| Net income | $ | 0.06 | $ | 0.05 | $ | 0.24 | $ | 0.23 | ||||||
| Weighted average shares outstanding | 20,680 | 17,145 | 20,012 | 17,182 | ||||||||||
| Diluted earnings per share: | ||||||||||||||
| Net income | $ | 0.06 | $ | 0.04 | $ | 0.23 | $ | 0.23 | ||||||
| Weighted average shares outstanding | 21,013 | 17,366 | 20,282 | 17,387 | ||||||||||
|
See accompanying notes to consolidated financial statements. |
|
-3- |
| PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS |
($ in thousands) |
September 30, 2004 (Unaudited) |
December 31, 2003 (Audited) | ||||||
|---|---|---|---|---|---|---|---|---|
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 6,385 | $ | 9,780 | ||||
| Accounts receivable, less allowance for doubtful | ||||||||
| accounts of $444 in 2004 and $512 in 2003 | 24,456 | 27,245 | ||||||
| Other receivables | 731 | 795 | ||||||
| Deferred income taxes | 13,021 | 8,385 | ||||||
| Prepaid expenses and other current assets | 2,328 | 1,617 | ||||||
| Inventory | 30,506 | 21,288 | ||||||
| Total current assets | 77,427 | 69,110 | ||||||
| Property and equipment: | ||||||||
| Equipment, furniture and fixtures | 42,104 | 40,161 | ||||||
| Building and leasehold improvements | 12,188 | 11,235 | ||||||
| 54,292 | 51,396 | |||||||
| Less accumulated depreciation and amortization | (26,776 | ) | (27,440 | ) | ||||
| Property and equipment, net | 27,516 | 23,956 | ||||||
| Other investments | 2,916 | 3,088 | ||||||
| Goodwill, at cost | 185,882 | 177,974 | ||||||
| Other noncurrent assets | 6,841 | 5,840 | ||||||
| $ | 300,582 | $ | 279,968 | |||||
|
See accompanying notes to consolidated financial statements. |
|
-4- |
| PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) |
($ in thousands, except share data) |
September 30, 2004 (Unaudited) |
December 31, 2003 (Audited) | ||||||
|---|---|---|---|---|---|---|---|---|
| LIABILITIES | ||||||||
| Current liabilities: | ||||||||
| Current portion of long-term debt | $ | 3,397 | $ | 3,345 | ||||
| Accounts payable | 9,362 | 8,617 | ||||||
| Accrued distributions to minority interests | -- | 6,908 | ||||||
| Accrued expenses | 13,728 | 10,137 | ||||||
| Customer deposits | 6,904 | 6,259 | ||||||
| Total current liabilities | 33,391 | 35,266 | ||||||
| Long-term debt, net of current portion | 107,040 | 111,728 | ||||||
| Other long term obligations | 1,279 | 1,397 | ||||||
| Deferred income taxes | 21,003 | 17,889 | ||||||
| Total liabilities | 162,713 | 166,280 | ||||||
| Minority interest | 9,076 | 7,077 | ||||||
| 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; 21,078,633 shares issued | ||||||||
| in 2004 and 17,324,585 issued in 2003; and 20,695,667 outstanding in 2004 and | 211 | 173 | ||||||
| 17,081,869 outstanding in 2003 | ||||||||
| Capital in excess of par value | 88,916 | 70,813 | ||||||
| Accumulated earnings | 41,584 | 36,839 | ||||||
| Treasury stock, at cost, 382,966 shares in 2004 and 242,716 shares in 2003 | (1,918 | ) | (1,214 | ) | ||||
| Total stockholders' equity | 128,793 | 106,611 | ||||||
| $ | 300,582 | $ | 279,968 | |||||
|
See accompanying notes to consolidated financial statements. |
|
-5- |
|
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
|---|
| Nine Months Ended September 30, | ||||||||
|---|---|---|---|---|---|---|---|---|
| ($ in thousands) |
2004 |
2003 | ||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Fee and other revenue collected | $ | 143,092 | $ | 120,355 | ||||
| Cash paid to employees, suppliers of goods and others | (114,133 | ) | (92,421 | ) | ||||
| Interest received | 207 | 264 | ||||||
| Interest paid | (4,991 | ) | (3,397 | ) | ||||
| Taxes refunded | 794 | 8 | ||||||
| Net cash provided by operating activities | 24,969 | 24,809 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of entities, net of cash acquired | 3,155 | (12,513 | ) | |||||
| Escrow deposits | 513 | (1,742 | ) | |||||
| Purchases of equipment and leasehold improvements | (6,403 | ) | (5,128 | ) | ||||
| Distributions from investments | 232 | 274 | ||||||
| Proceeds from sales of equipment | 568 | 243 | ||||||
| Net cash used in investing activities | (1,935 | ) | (18,866 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Borrowings on notes payable | 1,491 | 19,572 | ||||||
| Payments on notes payable, exclusive of interest | (5,776 | ) | (14,148 | ) | ||||
| Distributions to minority interest | (22,509 | ) | (21,346 | ) | ||||
| Contributions by minority interest, net of buyouts | 153 | (280 | ) | |||||
| Purchase of treasury stock | -- | (1,214 | ) | |||||
| Exercise of stock options | 212 | -- | ||||||
| Net cash used in financing activities | (26,429 | ) | (17,416 | ) | ||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS | (3,395 | ) | (11,473 | ) | ||||
| Cash and cash equivalents, beginning of period | 9,780 | 20,174 | ||||||
| Cash and cash equivalents, end of period | $ | 6,385 | $ | 8,701 | ||||
|
See accompanying notes to consolidated financial statements. |
|
-6- |
|
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited) |
|---|
| Nine Months Ended September 30, | ||||||||
|---|---|---|---|---|---|---|---|---|
| ($ in thousands) |
2004 |
2003 | ||||||
| Reconciliation of net income to net cash provided by operating activities: | ||||||||
| Net income | $ | 4,745 | $ | 3,925 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Minority interest in consolidated income | 16,856 | 12,803 | ||||||
| Depreciation and amortization | 5,303 | 5,410 | ||||||
| Provision for uncollectible accounts | (97 | ) | 218 | |||||
| Provision for deferred income taxes | 1,741 | 4,667 | ||||||
| Stock buyback agreements | (816 | ) | 850 | |||||
| Equity in earnings of affiliates | (60 | ) | (48 | ) | ||||
| Proceeds from termination of interest rate swap | -- | 1,151 | ||||||
| Other | (418 | ) | 356 | |||||
| Changes in operating assets and liabilities, net of effect of purchase transactions: | ||||||||
| Accounts receivable | 5,515 | 1,946 | ||||||
| Other receivables | (217 | ) | 2,285 | |||||
| Other assets | (6,320 | ) | (2,961 | ) | ||||
| Accounts payable | (1,630 | ) | (4,028 | ) | ||||
| Accrued expenses | 367 | (1,765 | ) | |||||
| Total adjustments | 20,224 | 20,884 | ||||||
| Net cash provided by operating activities | $ | 24,969 | $ | 24,809 | ||||
|
See accompanying notes to consolidated financial statements. |
|
-7- |
|
PRIME MEDICAL
SERVICES, INC. AND SUBSIDIARIES |
|
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 September 30, 2004 and the results of operations and cash flows for the periods presented. These statements have not been audited by our independent registered public accounting firm. 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, 2003 filed with the Securities and 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 and as discussed herein. |
|
On June 11, 2004, we executed a definitive Agreement and Plan of Merger with HealthTronics Surgical Services, Inc. (HealthTronics) pursuant to which we will, if all closing conditions are met (including approval of the merger by our stockholders and HealthTronics shareholders), merge with and into HealthTronics, with HealthTronics as the surviving corporation. Under the terms of that agreement, as a result of the merger, our stockholders will receive one share of HealthTronics common stock for each share of our common stock. Because our stockholders will own approximately 62% of the shares of HealthTronics common stock after the merger, and because our directors and senior management will represent a majority of the combined company’s directors and senior management, we will be deemed to be the acquiring company for accounting purposes and the merger will be accounted for as a reverse acquisition under the purchase method of accounting for business combinations in accordance with accounting principles generally accepted in the United States. The consideration paid (purchase price) will be allocated to the tangible and intangible net assets of HealthTronics based on their fair values, and the net assets of HealthTronics will be recorded at fair values as of the completion of the merger and added to those of Prime. The assets acquired and liabilities assumed will be deemed to be those of HealthTronics because HealthTronics will be the surviving legal entity. |
|
Basic earnings per share (“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: |
|
-8- |
|
PRIME MEDICAL
SERVICES, INC. AND SUBSIDIARIES |
2. Earnings per share (continued)
($ in thousands, except per share data) |
Basic earnings per share |
Diluted earnings per share | ||||||
|---|---|---|---|---|---|---|---|---|
| Nine Months Ended September 30, 2004 | ||||||||
| Net income | $ | 4,745 | $ | 4,745 | ||||
| Weighted average shares outstanding | 20,012 | 20,012 | ||||||
| Effect of dilutive securities | -- | 270 | ||||||
| Shares for EPS calculation | 20,012 | 20,282 | ||||||
| Net income per share | $ | 0.24 | $ | 0.23 | ||||
| Nine Months Ended September 30, 2003 | ||||||||
| Net income | $ | 3,925 | $ | 3,925 | ||||
| Weighted average shares outstanding | 17,182 | 17,182 | ||||||
| Effect of dilutive securities | -- | 205 | ||||||
| Shares for EPS calculation | 17,182 | 17,387 | ||||||
| Net income per share | $ | 0.23 | $ | 0.23 | ||||
| Three Months Ended September 30, 2004 | ||||||||
| Net income | $ | 1,242 | $ | 1,242 | ||||
| Weighted average shares outstanding | 20,680 | 20,680 | ||||||
| Effect of dilutive securities | -- | 333 | ||||||
| Shares for EPS calculation | 20,680 | 21,013 | ||||||
| Net income per share | $ | 0.06 | $ | 0.06 | ||||
| Three Months Ended September 30, 2003 | ||||||||
| Net income | $ | 775 | $ | 775 | ||||
| Weighted average shares outstanding | 17,145 | 17,145 | ||||||
| Effect of dilutive securities | -- | 221 | ||||||
| Shares for EPS calculation | 17,145 | 17,366 | ||||||
| Net income per share | $ | 0.05 | $ | 0.04 | ||||
|
-9- |
|
PRIME MEDICAL
SERVICES, INC. AND SUBSIDIARIES |
2. Earnings per share (continued)
|
We did not include in our computation of diluted EPS unexercised stock options and warrants to purchase 1,625,000 and 3,050,000 shares of our common stock as of September 30, 2004 and 2003, respectively, because the effect would be antidilutive. |
|
We have two reportable segments: urology and manufacturing. The urology 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. |
|
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. |
| ($ in thousands) | Urology | Manufacturing | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Nine Months Ended | |||||||||||
| September 30, 2004 | |||||||||||
| Revenue from | |||||||||||
| external customers | $ | 55,989 | $ | 80,462 | |||||||
| Intersegment revenues | -- | -- | |||||||||
| Segment profit | 10,044 | 6,308 | |||||||||
| Nine Months Ended | |||||||||||
| September 30, 2003 | |||||||||||
| Revenue from | |||||||||||
| external customers | $ | 45,756 | $ | 70,780 | |||||||
| Intersegment revenues | -- | 603 | |||||||||
| Segment profit | 9,775 | 5,039 | |||||||||
|
-10- |
|
PRIME MEDICAL
SERVICES, INC. AND SUBSIDIARIES |
| 3. | Segment Reporting (continued) |
|
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: |
| ($ in thousands) | Nine Months Ended September 30, 2004 2003 |
|||||||
|---|---|---|---|---|---|---|---|---|
| Total segment profit | $ | 16,352 | $ | 14,814 | ||||
| Corporate revenues | 712 | 785 | ||||||
| Unallocated corporate expenses: | ||||||||
| General and administrative | (2,724 | ) | (2,341 | ) | ||||
| Net interest expense | (6,574 | ) | (6,299 | ) | ||||
| Loan Fees | -- | (257 | ) | |||||
| Other, net | (416 | ) | (755 | ) | ||||
| Total unallocated corporate expenses | (9,714 | ) | (9,652 | ) | ||||
| Income before income taxes | $ | 7,350 | $ | 5,947 | ||||
| ($ in thousands) | Urology | Manufacturing | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended | |||||||||||
| September 30, 2004 | |||||||||||
| Revenue from | |||||||||||
| external customers | $ | 20,003 | $ | 26,192 | |||||||
| Intersegment revenues | -- | -- | |||||||||
| Segment profit | 2,849 | 1,842 | |||||||||
| Three Months Ended | |||||||||||
| September 30, 2003 | |||||||||||
| Revenue from | |||||||||||
| external customers | $ | 15,658 | $ | 23,641 | |||||||
| Intersegment revenues | -- | -- | |||||||||
| Segment profit | 3,756 | 840 | |||||||||
|
-11- |
|
PRIME MEDICAL
SERVICES, INC. AND SUBSIDIARIES |
| 3. | Segment Reporting (continued) |
|
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: |
| ($ in thousands) | Three Months Ended September 30, 2004 2003 |
|||||||
|---|---|---|---|---|---|---|---|---|
| Total segment profit | $ | 4,691 | $ | 4,596 | ||||
| Corporate revenues | 237 | 260 | ||||||
| Unallocated corporate expenses: | ||||||||
| General and administrative | (700 | ) | (901 | ) | ||||
| Net interest expense | (2,247 | ) | (2,165 | ) | ||||
| Loan fees | -- | (257 | ) | |||||
| Other, net | (155 | ) | (359 | ) | ||||
| Total unallocated corporate expenses | (3,102 | ) | (3,682 | ) | ||||
| Income before income taxes | $ | 1,826 | $ | 1,174 | ||||
|
Upon adoption of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“Statement 123”), in 1996, we have continued to measure compensation expense for our stock-based employee compensation plans using the intrinsic value method prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees. We have provided proforma disclosures of net income and earnings per share as if the fair value-based method prescribed by Statement 123 had been applied in measuring compensation expense. |
|
For purposes of proforma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. Our proforma information follows (in thousands except for earnings per share information): |
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 |
2004 |
2003 | |||||||||||
| Net income, as reported | $ | 1,242 | $ | 775 | $ | 4,745 | $ | 3,925 | ||||||
| Stock-based employee compensation | ||||||||||||||
| expense, net of tax | 282 |
275 |
866 |
1,046 |
||||||||||
| Pro forma net income | $ | 960 |
$ | 500 |
$ | 3,879 |
$ | 2,879 |
||||||
| Pro forma earning per share: | ||||||||||||||
| Basic | $ | 0.05 | $ | 0.03 | $ | 0.19 | $ | 0.17 | ||||||
| Diluted | $ | 0.05 | $ | 0.03 | $ | 0.19 | $ | 0.17 | ||||||
|
-12- |
|
PRIME MEDICAL
SERVICES, INC. AND SUBSIDIARIES |
|
Effective February 20, 2004, we acquired Medstone International, Inc. (“Medstone”). Medstone manufactures, sells, and maintains lithotripters and makes them available for use by health care providers under various fee-for-service arrangements in both fixed and mobile settings. Medstone and its subsidiaries also market fixed and mobile tables for urological treatments and imaging, patient handling tables for use by pain management clinics and other users, and x-ray generators for medical imaging. A pioneer in the manufacture of shockwave lithotripsy, Medstone’s lithotripter was the first FDA approved device to treat both kidney stones and gallstones. With more than 130 lithotripters in operation worldwide, and more than 324 urology and patient handling tables in use, the Medstone devices are well established in the urology office and hospital market. The aggregate purchase price was approximately $19 million of our common stock for all outstanding shares of Medstone. We determined the value of our common stock by using an average closing price for the two trading days prior to and after the public announcement of the merger. Approximately 3.6 million shares were issued. We recognized $6 million of goodwill related to this transaction, none of which is tax deductible. We recognized approximately $1 million of intangibles, which are being amortized over three years. Medstone had total assets with an estimated fair value of $20.5 million and total liabilities with an estimated fair value of $7.2 million as of the purchase date. |
|
Condensed consolidating financial information for us, our Guarantor Subsidiaries and our Non-guarantor Subsidiaries for September 30, 2004 and 2003 is presented below for purposes of complying with the reporting requirements of the Guarantor Subsidiaries. The Guarantor Subsidiaries are wholly owned subsidiaries of ours that have fully, unconditionally, jointly and severally guaranteed our 8.75% unsecured senior subordinated notes. |
|
-13- |
|
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Operations Nine Months Ended September 30, 2004 (Unaudited) |
|---|
($ in thousands) |
Prime Medical Services, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminating Entries |
Consolidated Total | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue: | |||||||||||||||||
| Urology | $ | 7,625 | $ | 19,621 | $ | 42,617 | $ | (13,874 | ) | $ | 55,989 | ||||||
| Manufacturing | 6,181 | 80,462 | -- | (6,181 | ) | 80,462 | |||||||||||
| Other | -- | 712 | -- | -- | 712 | ||||||||||||
| Total revenue | 13,806 | 100,795 | 42,617 | (20,055 | ) | 137,163 | |||||||||||
| Cost of services and general and | |||||||||||||||||
| administrative expenses: | |||||||||||||||||
| Urology | -- | 8,454 | 16,407 | -- | 24,861 | ||||||||||||
| Manufacturing | -- | 73,287 | -- | -- | 73,287 | ||||||||||||
| Corporate | 160 | 2,564 | -- | -- | 2,724 | ||||||||||||
| Depreciation and amortization | -- | 2,466 | 2,837 | -- | 5,303 | ||||||||||||
| 160 | 86,771 | 19,244 | -- | 106,175 | |||||||||||||
| Operating income | 13,646 | 14,024 | 23,373 | (20,055 | ) | 30,988 | |||||||||||
| Other income (expenses): | |||||||||||||||||
| Interest and dividends | 66 | 119 | 22 | -- | 207 | ||||||||||||
| Interest expense | (6,525 | ) | (279 | ) | (229 | ) | -- | (7,033 | ) | ||||||||
| Other, net | 22 | 68 | (46 | ) | -- | 44 | |||||||||||
| Total other income (expenses) | (6,437 | ) | (92 | ) | (253 | ) | -- | (6,782 | ) | ||||||||
| Income before provision for income | |||||||||||||||||
| taxes and minority interest | 7,209 | 13,932 | 23,120 | (20,055 | ) | 24,206 | |||||||||||
| Minority interest in consolidated income | -- | -- | -- | 16,856 | 16,856 | ||||||||||||
| Provision for income taxes | 2,464 | 126 | 15 | -- | 2,605 | ||||||||||||
| Net income | $ | 4,745 | $ | 13,806 | $ | 23,105 | $ | (36,911 | ) | $ | 4,745 | ||||||
|
-14- |
|
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Operations Nine Months Ended September 30, 2003 (Unaudited) |
|---|
($ in thousands) |
Prime Medical Services, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminating Entries |
Consolidated Total | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue: | |||||||||||||||||
| Urology | $ | 7,200 | $ | 11,893 | $ | 38,756 | $ | (12,093 | ) | $ | 45,756 | ||||||
| Manufacturing | 5,039 | 70,780 | -- | (5,039 | ) | 70,780 | |||||||||||
| Other | -- | 785 | -- | -- | 785 | ||||||||||||
| Total revenue | 12,239 | 83,458 | 38,756 | (17,132 | ) | 117,321 | |||||||||||
| Cost of services and general and | |||||||||||||||||
| administrative expenses: | |||||||||||||||||
| Urology | -- | 1,740 | 17,234 | -- | 18,974 | ||||||||||||
| Manufacturing | -- | 64,923 | -- | -- | 64,923 | ||||||||||||
| Corporate | 73 | 2,268 | -- | -- | 2,341 | ||||||||||||
| Depreciation and amortization | -- | 2,153 | 3,257 | -- | 5,410 | ||||||||||||
| 73 | 71,084 | 20,491 | -- | 91,648 | |||||||||||||
| Operating income | 12,166 | 12,374 | 18,265 | (17,132 | ) | 25,673 | |||||||||||
| Other income (expenses): | |||||||||||||||||
| Interest and dividends | 53 | 189 | 22 | -- | 264 | ||||||||||||
| Interest expense | (6,285 | ) | (353 | ) | (237 | ) | -- | (6,875 | ) | ||||||||
| Loan fees | (257 | ) | -- | -- | -- | (257 | ) | ||||||||||
| Other, net | -- | 299 | (354 | ) | -- | (55 | ) | ||||||||||
| Total other income (expenses) | (6,489 | ) | 135 | (569 | ) | -- | (6,923 | ) | |||||||||
| Income before provision for income | |||||||||||||||||
| taxes and minority interest | 5,677 | 12,509 | 17,696 | (17,132 | ) | 18,750 | |||||||||||
| Minority interest in consolidated income | -- | -- | -- | 12,803 | 12,803 | ||||||||||||
| Provision for income taxes | 1,752 | 270 | -- | -- | 2,022 | ||||||||||||
| Net income | $ | 3,925 | $ | 12,239 | $ | 17,696 | $ | (29,935 | ) | $ | 3,925 | ||||||
|
-15- |
|
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Operations Three Months Ended September 30, 2004 (Unaudited) |
|---|
($ in thousands) |
Prime Medical Services, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminating Entries |
Consolidated Total | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue: | |||||||||||||||||
| Urology | $ | 2,283 | $ | 6,854 | $ | 15,218 | $ | (4,352 | ) | $ | 20,003 | ||||||
| Manufacturing | 1,842 | 26,192 | -- | (1,842 | ) | 26,192 | |||||||||||
| Other | -- | 237 | -- | -- | 237 | ||||||||||||
| Total revenue | 4,125 | 33,283 | 15,218 | (6,194 | ) | 46,432 | |||||||||||
| Cost of services and general and | |||||||||||||||||
| administrative expenses: | |||||||||||||||||
| Urology | -- | 3,615 | 5,540 | -- | 9,155 | ||||||||||||
| Manufacturing | -- | 24,076 | -- | -- | 24,076 | ||||||||||||
| Corporate | 118 | 582 | -- | -- | 700 | ||||||||||||
| Depreciation and amortization | -- | 899 | 938 | -- | 1,837 | ||||||||||||
| 118 | 29,172 | 6,478 | -- | 35,768 | |||||||||||||
| Operating income | 4,007 | 4,111 | 8,740 | (6,194 | ) | 10,664 | |||||||||||
| Other income (expenses): | |||||||||||||||||
| Interest and dividends | 10 | 40 | 8 | -- | 58 | ||||||||||||
| Interest expense | (2,206 | ) | (97 | ) | (77 | ) | -- | (2,380 | ) | ||||||||
| Other, net | 1 | 70 | 5 | -- | 76 | ||||||||||||
| Total other income (expenses) | (2,195 | ) | 13 | (64 | ) | -- | (2,246 | ) | |||||||||
| Income before provision for income | |||||||||||||||||
| taxes and minority interest | 1,812 | 4,124 | 8,676 | (6,194 | ) | 8,418 | |||||||||||
| Minority interest in consolidated income | -- | -- | -- | 6,592 | 6,592 | ||||||||||||
| Provision for income taxes | 570 | (1 | ) | 15 | -- | 584 | |||||||||||
| Net income | $ | 1,242 | $ | 4,125 | $ | 8,661 | $ | (12,786 | ) | $ | 1,242 | ||||||
|
-16- |
|
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Operations Three Months Ended September 30, 2003 (Unaudited) |
|---|
($ in thousands) |
Prime Medical Services, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminating Entries |
Consolidated Total | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue: | |||||||||||||||||
| Urology | $ | 2,686 | $ | 4,126 | $ | 13,603 | $ | (4,757 | ) | $ | 15,658 | ||||||
| Manufacturing | 840 | 23,641 | -- | (840 | ) | 23,641 | |||||||||||
| Other | -- | 260 | -- | -- | 260 | ||||||||||||
| Total revenue | 3,526 | 28,027 | 13,603 | (5,597 | ) | 39,559 | |||||||||||
| Cost of services and general and | |||||||||||||||||
| administrative expenses: | |||||||||||||||||
| Urology | -- | 562 | 5,401 | -- | 5,963 | ||||||||||||
| Manufacturing | -- | 22,503 | -- | -- | 22,503 | ||||||||||||
| Corporate | 20 | 881 | -- | -- | 901 | ||||||||||||
| Depreciation and amortization | -- | 732 | 1,027 | -- | 1,759 | ||||||||||||
| 20 | 24,678 | 6,428 | -- | 31,126 | |||||||||||||
| Operating income | 3,506 | 3,349 | 7,175 | (5,597 | ) | 8,433 | |||||||||||
| Other income (expenses): | |||||||||||||||||
| Interest and dividends | -- | 35 | 8 | -- | 43 | ||||||||||||
| Interest expense | (2,155 | ) | (92 | ) | (91 | ) | -- | (2,338 | ) | ||||||||
| Loan fees | (257 | ) | -- | -- | -- | (257 | ) | ||||||||||
| Other, net | -- | 314 | (111 | ) | -- | 203 | |||||||||||
| Total other income (expenses) | (2,412 | ) | 257 | (194 | ) | -- | (2,349 | ) | |||||||||
| Income before provision for income | |||||||||||||||||
| taxes and minority interest | 1,094 | 3,606 | 6,981 | (5,597 | ) | 6,084 | |||||||||||
| Minority interest in consolidated income | -- | -- | -- | 4,910 | 4,910 | ||||||||||||
| Provision for income taxes | 319 | 80 | -- | -- | 399 | ||||||||||||
| Net income | $ | 775 | $ | 3,526 | $ | 6,981 | $ | (10,507 | ) | $ | 775 | ||||||
|
-17- |
|
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Balance Sheet September 30, 2004 (Unaudited) |
|---|
($ in thousands) |
Prime Medical Services, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminating Entries |
Consolidated Total | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ASSETS | |||||||||||||||||
| Current assets: | |||||||||||||||||
| Cash and cash equivalents | $ | 30 | $ | 3,582 | $ | 2,773 | $ | -- | $ | 6,385 | |||||||
| Accounts receivable, net | -- | 15,845 | 8,611 | -- | 24,456 | ||||||||||||
| Other receivables | -- | 2,783 | (2,052 | ) | -- | 731 | |||||||||||
| Deferred income taxes | 2,061 | 10,960 | -- | -- | 13,021 | ||||||||||||
| Prepaid expenses and other current assets | 15 | 2,190 | 123 | -- | 2,328 | ||||||||||||
| Inventory | -- | 30,506 | -- | -- | 30,506 | ||||||||||||
| Total current assets | 2,106 | 65,866 | 9,455 | -- | 77,427 | ||||||||||||
| Property and equipment: | |||||||||||||||||
| Equipment, furniture and fixtures | -- | 13,891 | 28,213 | -- | 42,104 | ||||||||||||
| Building and leasehold improvements | -- | 12,176 | 12 | -- | 12,188 | ||||||||||||
| -- | 26,067 | 28,225 | -- | 54,292 | |||||||||||||
| Less accumulated depreciation | |||||||||||||||||
| and amortization | -- | (8,966 | ) | (17,810 | ) | -- | (26,776 | ) | |||||||||
| Property and equipment, net | -- | 17,101 | 10,415 | -- | 27,516 | ||||||||||||
| Investment in subsidiaries | |||||||||||||||||
| and other investments | 251,223 | 7,439 | -- | (255,746 | ) | 2,916 | |||||||||||
| Goodwill, net of accumulated amortization | -- | 185,882 | -- | -- | 185,882 | ||||||||||||
| Other noncurrent assets | 1,648 | 4,689 | 504 | -- | 6,841 | ||||||||||||
| $ | 254,977 | $ | 280,977 | $ | 20,374 | $ | (255,746 | ) | $ | 300,582 | |||||||
| LIABILITIES | |||||||||||||||||
| Current liabilities: | |||||||||||||||||
| Current portion of long-term debt | $ | 188 | $ | 311 | $ | 2,898 | $ | -- | $ | 3,397 | |||||||
| Accounts payable | -- | 9,146 | 216 | -- | 9,362 | ||||||||||||
| Accrued expenses | 5,748 | 7,278 | 702 | -- | 13,728 | ||||||||||||
| Customer deposits | -- | 6,904 | -- | -- | 6,904 | ||||||||||||
| Total current liabilities | 5,936 | 23,639 | 3,816 | -- | 33,391 | ||||||||||||
| Long-term debt, net of current portion | 100,470 | 3,611 | 2,959 | -- | 107,040 | ||||||||||||
| Other long term obligations | -- | 1,279 | -- | -- | 1,279 | ||||||||||||
| Deferred income taxes | 19,778 | 1,225 | -- | -- | 21,003 | ||||||||||||
| Total liabilities | 126,184 | 29,754 | 6,775 | -- | 162,713 | ||||||||||||
| Minority interest | -- | -- | -- | 9,076 | 9,076 | ||||||||||||
| STOCKHOLDERS' EQUITY | |||||||||||||||||
| Common stock | 211 | -- | -- | -- | 211 | ||||||||||||
| Capital in excess of par value | 88,916 | -- | -- | -- | 88,916 | ||||||||||||
| Accumulated earnings | 41,584 | -- | -- | -- | 41,584 | ||||||||||||
| Treasury stock | (1,918 | ) | -- | -- | -- | (1,918 | ) | ||||||||||
| Subsidiary net equity | -- | 251,223 | 13,599 | (264,822 | ) | -- | |||||||||||
| Total stockholders' equity | 128,793 | 251,223 | 13,599 | (264,822 | ) | 128,793 | |||||||||||
| $ | 254,977 | $ | 280,977 | $ | 20,374 | $ | (255,746 | ) | $ | 300,582 | |||||||
|
-18- |
|
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Cash Flow Nine Months Ended September 30, 2004 (Unaudited) |
|---|
($ in thousands) |
Prime Medical Services, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminating Entries |
Consolidated Total | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CASH FLOWS FROM OPERATING | |||||||||||||||||
| ACTIVITIES: | |||||||||||||||||
| Net cash provided by (used in) | |||||||||||||||||
| operating activities | $ | (8,977 | ) | $ | 4,745 | $ | 29,201 | $ | -- | $ | 24,969 | ||||||
| CASH FLOWS FROM INVESTING | |||||||||||||||||
| ACTIVITIES: | |||||||||||||||||
| Purchase of equity investments and entities | -- | 3,155 | -- | -- | 3,155 | ||||||||||||
| Purchases of property and equipment | -- | (3,733 | ) | (2,670 | ) | -- | (6,403 | ) | |||||||||
| Proceeds from sales of equipment | -- | 514 | 54 | -- | 568 | ||||||||||||
| Distributions from subsidiaries | 11,232 | 7,760 | -- | (18,992 | ) | -- | |||||||||||
| Distributions from investments | -- | 232 | -- | -- | 232 | ||||||||||||
| Escrow deposits | 513 | -- | -- | -- | 513 | ||||||||||||
| Net cash provided by (used in) | |||||||||||||||||
| investing activities | 11,745 | 7,928 | (2,616 | ) | (18,992 | ) | (1,935 | ) | |||||||||
| CASH FLOWS FROM FINANCING | |||||||||||||||||
| ACTIVITIES: | |||||||||||||||||
| Borrowings on notes payable | -- | -- | 1,491 | -- | 1,491 | ||||||||||||
| Payments on notes payable exclusive of | |||||||||||||||||
| interest | (3,000 | ) | -- | (2,776 | ) | -- | (5,776 | ) | |||||||||
| Contributions by minority interest, | |||||||||||||||||
| net of buyouts | -- | -- | 153 | -- | 153 | ||||||||||||
| Distributions to minority interest | -- | -- | -- | (22,509 | ) | (22,509 | ) | ||||||||||
| Exercise of stock options | 212 | -- | -- | -- | 212 | ||||||||||||
| Distributions to equity owners | -- | (11,232 | ) | (30,269 | ) | 41,501 | -- | ||||||||||
| Net cash provided by (used in) | |||||||||||||||||
| financing activities | (2,788 | ) | (11,232 | ) | (31,401 | ) | 18,992 | (26,429 | ) | ||||||||
| NET INCREASE (DECREASE) IN CASH AND | |||||||||||||||||
| CASH EQUIVALENTS | (20 | ) | 1,441 | (4,816 | ) | -- | (3,395 | ) | |||||||||
| Cash and cash equivalents, beginning of period | 50 | 2,141 | 7,589 | -- | 9,780 | ||||||||||||
| Cash and cash equivalents, end of period | $ | 30 | $ | 3,582 | $ | 2,773 | $ | -- | $ | 6,385 | |||||||
|
-19- |
|
PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Cash Flows Nine Months Ended September 30, 2003 (Unaudited) |
|---|
($ in thousands) |
Prime Medical Services, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminating Entries |
Consolidated Total | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CASH FLOWS FROM OPERATING | |||||||||||||||||
| ACTIVITIES: | |||||||||||||||||
| Net cash provided by (used in) | |||||||||||||||||
| operating activities | $ | (6,997 | ) | $ | 9,384 | $ | 22,422 | $ | -- | $ | 24,809 | ||||||
| CASH FLOWS FROM INVESTING | |||||||||||||||||
| ACTIVITIES: | |||||||||||||||||
| Purchase of equity investments and entities | -- | (12,513 | ) | -- | -- | (12,513 | ) | ||||||||||
| Purchases of property and equipment | -- | (2,017 | ) | (3,111 | ) | -- | (5,128 | ) | |||||||||
| Proceeds from sales of equipment | -- | 186 | 57 | -- | 243 | ||||||||||||
| Distributions from subsidiaries | 18,371 | 8,569 | -- | (26,940 | ) | -- | |||||||||||
| Investments | (12,000 | ) | -- | -- | 12,000 | -- | |||||||||||
| Distributions from investments | -- | 274 | -- | -- | 274 | ||||||||||||
| Escrow deposits | (1,742 | ) | -- | -- | -- | (1,742 | ) | ||||||||||
| Net cash provided by (used in) | |||||||||||||||||
| investing activities | 4,629 | (5,501 | ) | (3,054 | ) | (14,940 | ) | (18,866 | ) | ||||||||
| CASH FLOWS FROM FINANCING | |||||||||||||||||
| ACTIVITIES: | |||||||||||||||||
| Borrowings on notes payable | 16,000 | -- | 3,572 | -- | 19,572 | ||||||||||||
| Payments on notes payable exclusive of | |||||||||||||||||
| interest | (12,500 | ) | -- | (1,648 | ) | -- | (14,148 | ) | |||||||||
| Contributions by minority interest, | |||||||||||||||||
| net of buyouts | -- | -- | (280 | ) | -- | (280 | ) | ||||||||||
| Distributions to minority interest | -- | -- | -- | (21,346 | ) | (21,346 | ) | ||||||||||
| Purchase of treasury stock | (1,214 | ) | -- | -- | -- | (1,214 | ) | ||||||||||
| Contributions from parent | -- | 12,000 | -- | (12,000 | ) | -- | |||||||||||
| Distributions to equity owners | -- | (18,371 | ) | (29,915 | ) | 48,286 | -- | ||||||||||
| Net cash provided by (used in) | |||||||||||||||||
| financing activities | 2,286 | (6,371 | ) | (28,271 | ) | 14,940 | (17,416 | ) | |||||||||
| NET INCREASE (DECREASE) IN CASH AND | |||||||||||||||||
| CASH EQUIVALENTS | (82 | ) | (2,488 | ) | (8,903 | ) | -- | (11,473 | ) | ||||||||
| Cash and cash equivalents, beginning of period | 66 | 7,897 | 12,211 | -- | 20,174 | ||||||||||||
| Cash and cash equivalents, end of period | $ | (16 | ) | $ | 5,409 | $ | 3,308 | $ | -- | $ | 8,701 | ||||||
|
-20- |
Item 2 —
Management’s Discussion and Analysis
|
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 below and in the text surrounding forward-looking statements in this report, you should consult our reports on Form 10-K and other filings with the Securities and Exchange Commission for factors that could cause our actual results to differ materially from those presented. |
|
Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “will”, “would”, “should”, “plans”, “likely”, “expects”, “anticipates”, “intends”, “believes”, “estimates”, “thinks”, “may”, and similar expressions, are forward-looking statements. The following important factors, in addition to those referred to above, could affect the future results of our industries in general, and us in particular, and could cause those results to differ materially from those expressed in such forward-looking statements: |
| • | the effects of our indebtedness, which could adversely restrict our ability to operate, could make us vulnerable to general adverse economic and industry conditions, could place us at a competitive disadvantage compared to our competitors that have less debt, and could have other adverse consequences; | |
| • | uncertainties in our establishing or maintaining relationships with physicians and hospitals; | |
| • | the impact of current and future laws and governmental regulations; | |
| • | uncertainties inherent in third party payors’ attempts to limit health care coverages and levels of reimbursement; | |
| • | uncertainties in our establishing or maintaining relationships with our manufacturing suppliers; | |
| • | the effects of competition and technological changes; | |
| • | the availability (or lack thereof) of acquisition or combination opportunities; and | |
| • | general economic, market or business conditions. |
|
-21- |
General
|
We provide urology services and design and manufacture trailers and coaches that transport high technology medical devices and equipment for mobile command and control centers and the media and broadcast industry. |
Urology Services. According to the American Foundation for Urologic Disease, nearly 10% of Americans are afflicted with kidney stones during their lifetime. Most kidney stones occur within the 40-60 year old age group. The two primary forms of treatment of kidney stones are lithotripsy and endoscopy, a form of invasive surgery that sometimes utilizes laser. Of the approximately 600,000 kidney stone cases each year, approximately 225,000 to 250,000 are treated with lithotripsy. Lithotripsy uses extracorporeal shock waves to break up kidney stones into small pieces, which can pass naturally through the body’s urinary tract. This procedure 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. |
Our services are provided principally through limited partnerships or other entities that we manage, which use lithotripsy devices. As of September 30, 2004, we owned 86 lithotripters, 68 of which are mobile and 18 of which are fixed site. We do not render any medical services. Rather, the physicians do. |
We have two types of contracts, retail and wholesale. Retail contracts are contracts where we contract with the hospital and private insurance payors. Wholesale contracts are contracts where we contract only with the hospital. The two approaches functionally differ in that, under a retail contract, we generally bill for the entire non-physician fee for all patients other than governmental pay patients, for which the hospital bills the non-physician fee. Under a wholesale contract, the hospital generally bills for the entire non-physician fee for all patients. In both cases, the billing party contractually bears the costs associated with the billing service, including pre-certification, as well as non-collection. The non-billing party is generally entitled to its fees regardless of whether the billing party actually collects the non-physician fee. Accordingly, under the wholesale contracts where we are the non-billing party, the hospital generally receives a greater proportion of the total non-physician fee to compensate for its billing costs and collection risk. Conversely, under the retail contracts where we generally provide the billing services and bear the collection risk, we receive a greater proportion of the total non-physician fee. |
Although the non-physician fee under both retail and wholesale contracts varies widely based on geographical markets and the identity of the third party payor, we estimate that nationally, on average, our share of the non-physician fee is roughly $3,400 and $1,600 under the retail and wholesale arrangements, respectively for 2004 and 2003. At this time, we do not anticipate a material shift between our retail and wholesale arrangements. |
We also, through our Medstone subsidiary, manufacture, sell and maintain lithotripters, and market fixed and mobile tables for urological treatments and imaging, as well as patient handling tables for use by pain management clinics. See “Recent Developments” for a description of our Medstone subsidiary. |
As the general partner of the limited partnerships, 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. We do not directly bill, nor do we collect for services rendered to, Medicare or Medicaid. |
|
-22- |
Although, for the three and nine months ended September 30, 2004 and 2003, manufacturing revenue was higher than urology revenue, the operating margins on urology revenue have been, historically, much higher than on manufacturing revenue. We recognize urology revenue primarily from the following sources: |
| • | Fees for urology services. A substantial majority of our urology revenue is derived from fees related to lithotripsy treatments performed using our lithotripters. We, through our partnerships or other entities, facilitate the use of our equipment and provide other support services in connection with these treatments at hospitals and other health care facilities. The professional fee payable to the physician performing the procedure is generally billed and collected by the physician. |
| • | Fees for operating our lithotripters. Through our partnerships and otherwise directly by us, we provide services related to operating our lithotripters and receive a management fee for performing these services. In addition, we provide equipment maintenance services to our partnerships and supply them with other consumables. |
| • | Fees for equipment sales and licensing applications. We manufacture, sell and maintain lithotripters and certain medical tables. In addition to the original sales price we receive for lithotripter sales, we receive a licensing fee for each patient treated from the owner of the lithotripter. In exchange for this licensing fee, we also provide the owner of the lithotripter with certain consumables. |
Manufacturing. We design, construct and engineer mobile trailers, coaches, and special purpose mobile units that transport high technology medical devices such as magnetic resonance imaging, or MRI machines, cardiac catheterization labs for testing blood pressure, CT scanware, or CAT scan machines, lithotripters, postitron emission tomography devices, or machines for PET scans, and equipment designed for mobile command and control centers, and broadcasting and communications applications. |
A significant portion of our revenue has been derived from our manufacturing operations. Manufacturing revenue is recognized at the time we fulfill the terms of the contract under which we have sold the equipment. |
Recent Developments
|
In February 2004, we acquired Medstone International, Inc., or Medstone, for approximately $19 million of our common stock. Medstone manufactures, sells, and maintains lithotripters and makes them available for use by health care providers under various fee-for-service arrangements in both fixed and mobile settings. Medstone and its subsidiaries also market fixed and mobile tables for urological treatments and imaging, patient handling tables for use by pain management clinics and other users, and x-ray generators for medical imaging. A pioneer in the manufacture of shockwave lithotripsy, Medstone’s lithotripter was the first FDA approved device to treat both kidney stones and gallstones. With more than 130 lithotripters in operation worldwide, and more than 324 urology and patient handling tables in use, the Medstone devices are well established in the urology office and hospital market. |
|
In April 2004, we announced our plans to reorganize our manufacturing segment in the last half of 2004. This reorganization will rationalize plant capacity accumulated through acquisitions, streamline production, and optimize synergies available through labor redundancies and purchasing and materials management. |
|
-23- |
|
On June 11, 2004, we executed a definitive Agreement and Plan of Merger with HealthTronics Surgical Services, Inc., or HealthTronics, pursuant to which we will, if all closing conditions are met (including approval of the merger by our stockholders and HealthTronics shareholders), merge with and into HealthTronics, with HealthTronics as the surviving corporation. Under the terms of that agreement, as a result of the merger, our stockholders will receive one share of HealthTronics common stock for each share of our common stock. Because our stockholders will own approximately 62% of the shares of HealthTronics common stock after the merger, and because our directors and senior management will represent a majority of the combined company’s directors and senior management, we will be deemed to be the acquiring company for accounting purposes and the merger will be accounted for as a reverse acquisition under the purchase method of accounting for business combinations in accordance with accounting principles generally accepted in the United States. The consideration paid (purchase price) will be allocated to the tangible and intangible net assets of HealthTronics based on their fair values, and the net assets of HealthTronics will be recorded at fair values as of the completion of the merger and added to those of Prime. The assets acquired and liabilities assumed will be deemed to be those of HealthTronics because HealthTronics will be the surviving legal entity. |
Critical Accounting Policies and Estimates.
Management has identified the following critical accounting policies and estimates:
|
Impairments of goodwill and other intangible assets are both a critical accounting policy and estimate that requires judgment and is based on assumptions of future operations. We are required to test for impairments at least annually or if circumstances change that would reduce the fair value of a reporting unit below its carrying value. We test for impairment of goodwill during the fourth quarter. We have two reporting units, urology and manufacturing. The fair value of each reporting unit is calculated using estimated discounted future cash flow projections. As of September 30, 2004, we had goodwill of $186 million. |
|
A second critical accounting policy and estimate 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. |
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A third critical accounting policy is consolidation of our investment in partnerships where we, as the general partner, exercise effective control, even though our ownership is less than 50%. The consolidated financial statements include our accounts, our wholly-owned subsidiaries, and entities more than 50% owned and limited partnerships where we, as the general partner, exercise effective control, even though our ownership is less than 50%. The related partnership agreements provide for broad powers by the general partner. The limited partners do not participate in the management of the partnership and do not have the substantial ability to remove the general partner. Investment in entities in which our investment is less than 50% ownership and we do not have significant control are accounted for by the equity method if ownership is between 20% - 50%, or by the cost method if ownership is less than 20%. We have reviewed each of the underlying agreements and determined we have effective control; however, if it was determined this control did not exist, these investments would be reflected on the equity method of accounting. Although this would change individual line items within our consolidated financial statements, it would have no effect on our net income and/or total stockholders’ equity. |
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Nine months ended September 30, 2004 compared to the nine months ended September 30, 2003 |
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Our total revenues for the nine months ended September 30, 2004 increased $19,842,000 (17%) as compared to the same period in 2003. Revenues from our urology operations increased by $10,233,000 (22%) due primarily to the acquisition of Medstone during February 2004. The actual numbers of procedures performed in the nine months ended September 30, 2004 increased by 3,235 (15%) compared to the same period in 2003 due primarily to the Medstone acquisition. Average revenue per procedures decreased by 8% because procedures from our Medstone acquisition have a lower average rate. For the nine months ended September 30, 2004, actual Medstone revenues from the acquisition date forward totaled $7.8 million on 3,983 procedures and 13,283 procedures generating per use license fees from the lithotripter sales. We also had $3 million in Medstone equipment sales. Revenues from our organic operations were down approximately $600,000 or 1% as compared to same period in 2003. Our manufacturing revenues increased $9,682,000 (14%) due to a significant increase in the average price per unit. The increase in price per unit is the result of an increase in the sale of command and control units, which usually have a significantly higher sales price. The total number of units actually shipped decreased from 285 during the nine months ended September 30, 2003 to 274 in the same period in 2004. |
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Our costs of services and general and administrative expenses for the nine months ended September 30, 2004 decreased from 78% to 77% of revenues. Our costs of services associated with our urology operations increased $5,887,000 (31%) in absolute terms and increased from 41% to 44% of our urology revenues. All of these increases relate to costs associated with our newly acquired Medstone operations, which totaled $7.8 million. Our costs related to organic operations actually decreased $1.3 million primarily due to reduced personnel costs, including a partial reversal of our discretionary bonus accrual, and a decrease in legal costs due to the hiring of an internal legal department in early 2004. Our cost of services associated with our manufacturing operations increased $8,364,000 (13%) in absolute terms and decreased from 92% to 91% of our manufacturing revenues. Our corporate expenses remained constant at 2% of revenues, increasing $383,000 (16%) in absolute terms, as we continue to successfully grow without proportionately adding corporate expenses. |
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Depreciation and amortization expense decreased $107,000 for the nine months ended September 30, 2004 compared to the same period in 2003. This decrease relates to several lithotripsy units becoming fully depreciated in late 2003 and early 2004 as well as certain computer equipment installed in our central business office in late 2000, partially offset by an increase from our newly acquired Medstone equipment. |
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Minority interest in consolidated income for the nine months ended September 30, 2004 increased $4,053,000 compared to the same period in 2003. This increase is consistent with the percentage increase in income from our urology segment. |
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Provision for income taxes for the nine months ended September 30, 2004 increased $583,000 compared to the same period in 2003 and is consistent with the percentage increase in taxable income. |
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Three months ended September 30, 2004 compared to the three months ended September 30, 2003 |
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Our total revenues for the three months ended September 30, 2004 increased $6,873,000 (17%) as compared to the same period in 2003. Revenues from our urology operations increased by $4,345,000 (28%) due primarily to the acquisition of Medstone in February 2004. The actual number of procedures performed in the three months ended September 30, 2004 increased by 1,449 (20%) compared to the same period in 2003 due primarily to the Medstone acquisition. Average revenue per procedures decreased by 8% because procedures from our Medstone acquisition have a lower average rate. Actual revenues from Medstone in the quarter totaled $2.7 million on 1,585 procedures and 5,338 procedures generating per use license fees from the lithotripter sales. We also had $1 million in Medstone equipment sales. Revenues from our organic operations increased $633,000 for the three months ended September 30, 2004 compared to the same period in 2003. This increase is a result of an increase in lithotripsy procedures and the startup of our greenlight laser operations. Greenlight lasers are a devise used as a treatment for benign prostatic hyperplasia. Our manufacturing revenues increased $2,551,000 (11%) due to an increase in average price per unit. The total number of units shipped decreased from 96 during the three months ended September 30, 2003 to 95 during the same period in 2004. The price per unit increased as a result of an increase in the sale of larger command and control units, which usually have a significantly higher sales price. |
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Our costs of services and general and administrative expenses for the three months ended September 30, 2004 decreased from 79% to 77% of revenues. Our costs of services associated with our urology operations increased $3,192,000 (54%) in absolute terms and increased from 38% to 46% of our urology revenues. Costs associated with Medstone revenues discussed above totaled $2.9 million. Our costs related to organic operations remained relatively constant as increased costs from our new greenlight laser operations were offset by a partial reversal of our discretionary bonus plan accrual. Our cost of services associated with our manufacturing operations increased $1,573,000 (7%) in absolute terms and decreased from 95% to 92% of our manufacturing revenues. Our corporate expenses remained constant at 2% of revenues, decreasing $201,000 (22%) in absolute terms, as we continue to successfully grow without proportionately adding corporate expenses. |
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Depreciation and amortization expense increased $78,000 for the three months ended September 30, 2004 compared to the same period in 2003. This increase relates to several lithotripsy units being fully depreciated in late 2003 and early 2004, as well as certain computer equipment installed in our central business office late 2000, offset by an increase from our newly-acquired Medstone equipment. |
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Minority interest in consolidated income for the three months ended September 30, 2004 increased $1,682,000 compared to the same period in 2003, which was consistent with the increase in income from our urology segment |
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Provision for income taxes for the three months ended September 30, 2004 increased $185,000 compared to the same period in 2003 due to an increase in taxable income. |
Liquidity and Capital Resources
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Cash and cash equivalents were $6,385,000 and $9,780,000 at September 30, 2004 and December 31, 2003, respectively. Our subsidiaries generally distribute all of their available cash quarterly, after establishing reserves for estimated capital expenditures and working capital. For the nine months ended September 30, 2004 and 2003, our subsidiaries distributed approximately $22,509,000 and $21,346,000, respectively, to minority interest holders. |
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Cash provided by operations, after minority interest, was $24,969,000 for the nine months ended September 30, 2004 and was $24,809,000 for the nine months ended September 30, 2003. Fee and other revenue collected increased by $22,737,000 while cash paid to employees, suppliers of goods and others increased by $21,712,000. These fluctuations are attributable to increased operations in our manufacturing segment and from our acquisition of Medstone as well as the timing of accounts payable and accrued expense payments. An increase in interest payments of $1,594,000 was due primarily to proceeds received for the termination of our interest rate swap in May 2003. |
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Cash used in investing activities for the nine months ended September 30, 2004 was $1,935,000 primarily due to purchases of equipment and leasehold improvements totaling $6,403,000 partially offset by net cash received from our Medstone acquisition. Cash used in our investing activities for the nine months ended September 30, 2003 was $18,866,000 primarily due to $12,513,000 used in our acquisitions of Winemiller Communications and Aluminum Body Corporation, or ABC. We purchased equipment and leasehold improvements totaling $5,128,000 in 2003. We also had $1,742,000 remaining in an escrow account at September 30, 2003 related to certain contingent consideration for the ABC acquisition. |
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Cash used in our financing activities for the nine months ended September 30, 2004 was $26,429,000, primarily due to the distributions to minority interest of $22,509,000 and net payments on notes payable of $4,285,000. Cash used in our financing activities for the nine months ended September 30, 2003 was $17,416,000, primarily due to the distributions to minority interests of $21,346,000, partially offset by net borrowings on notes payable of $5,424,000. |
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Accounts receivable as of September 30, 2004 has decreased $2,789,000 from December 31, 2003. This decrease is primarily related to our manufacturing segment which normally has more unit sales at the end of the fourth quarter than the third quarter, partially offset by an increase in receivables in urology from our newly acquired Medstone operations. Bad debt expense was less than $100,000 for the nine months ended September 30, 2004 compared to approximately $200,000 for the same period in 2003. |
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Inventory as of September 30, 2004 totaled $30,506,000 and increased $9,218,000 from December 31, 2003. This increase relates primarily to work in process in our manufacturing segment and newly acquired inventory from our Medstone acquisition. Total backlog for the manufacturing segment was $33,720,000 and $30,372,000 as of September 30, 2004 and 2003, respectively. |
Senior Credit Facility
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Our senior credit facility is a revolving line of credit, and it expires on July 25, 2005. The revolving line of credit has a borrowing limit of $50 million, none of which was drawn at September 30, 2004 and $5 million of which was drawn as of November 1, 2004. 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, restrict the amount of our consolidated debt, restrict our ability to make certain loans and investments, and provide that we must maintain certain financial ratios. As of September 30, 2004, we were not in compliance with one financial ratio, “Total Net Funded Debt to Adjusted EBITDA”. The maximum permitted ratio is 3.75 to 1 and our ratio as of September 30, 2004 was 3.9 to 1. We received a waiver of this noncompliance from the lenders under our credit facility and, as a result, there was no material impact on us. |
8.75% Notes
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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. |
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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. Our merger with HealthTronics described above will not be a change of control under the indenture. |
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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 certain of our subsidiaries on a full, unconditional, joint and several basis. |
Other
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Interest Rate Swap .. In August 2002, we entered into an interest rate swap which was designated as a fair value hedge pursuant to the provisions of FAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and FAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, An Amendment of FASB Statement No. 133. This swap was executed to convert $50 million of the 8.75% notes from a fixed to floating rate instrument. The floating rate was based on LIBOR plus 4.56%. In March 2003, we amended our interest rate swap agreement to add an additional $25 million with a floating rate based on LIBOR plus 5.11%. We terminated the swaps in May 2003. In August 2003, we entered into two new interest rate swaps for $25 million each which were also designated as fair value hedges. The floating rates of these two interest rate swap agreements were based on LIBOR plus 4.72% and 4.97%, respectively. In January 2004, we terminated these swaps. As of September 30, 2004, approximately $658,000 in proceeds from these swaps was capitalized and is being amortized as a reduction to future interest expense over the remaining life of the 8.75% notes. |
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Other long term debt. At September 30, 2004, we had approximately $3.9 million of debt related to our building in Austin, Texas, which bears interest at prime plus 1% and is due in monthly installments until November 2006. We also had notes totaling $5.9 million related to equipment purchased by our limited partnerships. These notes are paid from the cash flows of the related partnerships. They bear interest at LIBOR or prime plus a certain premium and are due over the next three years. |
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Other long term obligations. At September 30, 2004, we had an obligation totaling $1,125,000 related to payments to the previous owner of ABC for $75,000 per quarter until March 31, 2008 as consideration for a noncompetition agreement. Also at September 30, 2004, as part of our Medstone acquisition, we had an obligation totaling $704,000 related to payments to an employee for $20,833 a month until February 28, 2007 and $4,167 a month beginning March 1, 2007 and continuing until February 28, 2009 as consideration for a noncompetition agreement. We also had an obligation for $33,000 related to the estimated fair values of “puts” on our common stock held by two previous minority interest owners of one of our subsidiaries, AK Specialty Vehicles, each of which may be exercised for approximately 121,360 shares in June 2005 at a per share purchase price of $7.19. |
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Stock Repurchases. 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 have not repurchased any of our common stock since 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, we had purchased 3,820,200 shares of our stock for a total cost of $32,524,000. These shares were retired in August 2002 and no additional shares have been purchased under this program. |
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General
The following table presents our contractual obligations as of September 30, 2004 (in thousands):
| Payments due by period | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years
| More than 5 years | ||||||||||||
| Long Term Debt (1) | $ | 110,437 | $ | 3,397 | $ | 6,921 | $ | 100,119 | $ | -- | |||||||
| Operating Leases (2) | 4,617 | 1,299 | 2,198 | 768 | 352 | ||||||||||||
| Non-compete contracts (3) | 1,829 | 550 | 983 | 296 | -- | ||||||||||||
| Stock repurchase agreements (4) | 33 | 33 | -- | -- | -- | ||||||||||||
| Total | $ | 116,916 | $ | 5,279 | $ | 10,102 | $ | 101,183 | $ | 352 | |||||||
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| (1) | Represents long term debt as discussed above under “Senior Credit Facility”, “8.75% Notes” and “Other-Other Long Term Debt.” |
| (2) | Represents operating leases in the ordinary course of our business. |
| (3) | Represents an obligation of approximately $1,125 due to the previous owner of ABC, at a rate of $75 per quarter and an obligation of $704 due to an employee, at a rate of $21 per month until February 28, 2007 and $4 beginning March 1, 2007 and continuing until February 28, 2009. |
| (4) | Represents the estimated liability, in accordance with SFAS No. 150, of certain “put” rights on our common stock discussed above under “Other long term obligations.” |
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Our primary sources of cash are cash flows from operations and borrowings under our senior credit facility. Our cash flows from operations and therefore 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 is subject to general economic, financial, competitive, legislative, regulatory and other factors. Likewise, our ability to borrow under our senior credit facility will depend on these factors, which will affect our ability to comply with the covenants in our facility and our ability to obtain waivers for, or otherwise address, any noncompliance with the terms of our facility with our lenders. |
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We intend to increase our urology operations primarily through forming new operating subsidiaries in new markets as well as by acquisitions. We seek opportunities to grow our manufacturing operations through 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 such acquisitions where appropriate. |
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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 both for the short term and 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. |
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Inflation
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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
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In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51, or FIN 46. This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created after January 31, 2003, and July 1, 2003 for variable interests in variable interest entities that existed at January 31, 2003 and remain in existence at July 1, 2003. In October 2003, the FASB delayed the implementation date for variable interests in variable interest entities that existed at January 31, 2003 and remain in existence at July 1, 2003 until fiscal years beginning after December 31, 2003. FIN 46 was subsequently revised and reissued in December 2003. The reissued guidance required implementation by March 31, 2004. The application of this Interpretation did not have a material effect on our consolidated financial statements. |
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Item 3 — Quantitative and Qualitative Disclosures |
Interest Rate Risk
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As of September 30, 2004, we had long-term debt (including current portion) totaling $110,437,000, of which $100 million has a fixed rate of interest of 8.75%, $37,000 has fixed rates of 5% to 11%, $3,885,000 bears interest at a variable rate equal to a specified prime rate and $5,857,000 bears interest at a variable rate equal to LIBOR + 1% to 3.75%. The remaining $658,000 relates to our interest rate swaps, which are discussed below. We are exposed to some market risk due to the floating interest rate debt totaling $9,742,000 on which we make monthly or quarterly payments of principal and interest. An increase in interest rates of 1% would result in a $97,000 annual increase in interest expense on this existing principal balance. |
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Additionally, in August 2002, we entered into an interest rate swap, which was designated as a fair value hedge pursuant to the provisions of FAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and FAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of FASB Statement No. 133. This swap had the effect of converting $50 million of our 8.75% notes from a fixed to floating rate instrument with a rate of LIBOR plus 4.57%. In March 2003, we amended our interest rate swap agreement to add an additional $25 million with a floating rate based on LIBOR plus 5.11%. We terminated the swap in May 2003. In August 2003, we entered into two new interest rate swaps for $25 million each, which were also designated as fair value hedges. The floating rates of these two interest rate swap agreements were based on LIBOR plus 4.72% and 4.97%, respectively. In January 2004, we terminated these swaps for approximately $150,000. At September 30, 2004, approximately $658,000 in net proceeds from these swaps was capitalized and is being amortized as a reduction to future interest expense over the remaining life of the 8.75% notes. |
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Item 4 – Controls and Procedures |
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At September 30, 2004, under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer), we evaluated the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of September 30, 2004, our disclosure controls and procedures are effective. |
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Except as discussed below, there have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, such internal control over financial reporting. |
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During the three months ended September 30, 2004, in response to an internal investigation related to a business transaction involving our manufacturing division, which is more fully described in a Form 8-K we filed on September 28, 2004, we implemented certain improvements to (1) strengthen our internal controls, including heightened authorization and documentation requirements for commissions, (2) establish clear guidelines and training protocol for the solicitation of and entering into government contracts, and (3) ensure that our personnel fully understand and appropriately execute internal control procedures. |
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PART IIOTHER INFORMATION |
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| Unregistered Sales of Equity Securities. |
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During the third quarter of 2004, warrants were exercised at an average price of $4.87 resulting in the issuance of 32,990 shares of
our common stock. These share were issued under an exception from registration pursuant to Section 4(2) of the Securities Act of
1933.
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| (a) (b) |
Exhibits 12. Computation of ratio of earnings to fixed charges. 31.1 Certification of Chief Executive Officer 31.2 Certification of Chief Financial Officer 32.1 Certification of Chief Executive Officer 32.2 Certification of Chief Financial Officer 99.1 Waiver of Certain Provisions of the Fifth Amended and Restated Loan Agreement dated November, 2004. Current Reports on Form 8-K On July 22, 2004, we filed a report on Form 8-K disclosing our second quarter 2004 earnings release. On September 28, 2004, we filed a report on Form 8-K announcing the conclusion of an internal investigation of a business transaction involving our manufacturing division. |
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SIGNATURES |
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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. |
| Date: November 5, 2004 |
PRIME MEDICAL SERVICES, INC. By: /s/ John Q. Barnidge John Q. Barnidge, Senior Vice President and Chief Financial Officer |
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