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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
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ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from__________ to _________
COMMISSION FILE #0-23946
PEDIATRIC SERVICES OF AMERICA, INC.
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(Exact name of registrant as specified in its charter)
Delaware 58-1873345
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
3159 Campus Drive
Norcross, Georgia 30071-1042
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code - (770) 441-1580
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
$.01 par value
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 reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No ___
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant on December 2, 1996, based on a closing price of $19.625 per share,
was $113,579,060. As of December 2, 1996, the number of shares of the
registrant's common stock outstanding was 6,249,123 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the registrant's 1996 Annual Report and Proxy
Statement for the Annual Meeting of Shareholders of the registrant to be held on
January 22, 1997 is incorporated herein by reference in Parts II and III of this
Annual Report on Form 10-K.
Page 1 of 130, including exhibits. Index of Exhibits is on page 23 hereof.
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PEDIATRIC SERVICES OF AMERICA, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
Table of Contents
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Item Page
Number Number
- ------ ------
PART I
1. Business................................................................ 3
2. Properties.............................................................. 12
3. Legal Proceedings....................................................... 13
4. Submission of Matters to a Vote of Security Holders..................... 13
4(A). Executive Officers of the Registrant.................................. 13
PART II
5. Market for the Registrant's Common Stock and Related Stockholder Matters.14
6. Selected Financial Data................................................. 14
7. Management's Discussion and Analysis of Financial Condition and Results.
of Operations........................................................... 15
8. Financial Statements and Supplementary Data............................. 15
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.............................................................. 15
PART III
10. Directors and Executive Officers of the Registrant...................... 15
11. Executive Compensation.................................................. 15
12. Security Ownership of Certain Beneficial Owners and Management.......... 15
13. Certain Relationships and Related Transactions.......................... 16
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........ 16
SIGNATURES................................. 20
INDEX TO FINANCIAL STATEMENT SCHEDULES................... S-1
Page 2
PART I
ITEM 1. BUSINESS
GENERAL
Pediatric Services of America, Inc., a Delaware corporation, ("PSA" or the
"Registrant"; unless the context otherwise requires, all references herein to
the "Company" refer to PSA and its consolidated subsidiaries) has become the
nation's largest focused pediatric home health care provider, specializing in
home nursing, respiratory therapy, infusion therapy and related services for
infants and children. PSA's pediatric home health care services are designed to
provide a high quality, lower cost alternative to prolonged hospitalization for
medically fragile children. As a complement to its pediatric respiratory and
infusion therapy services, the Company also provides respiratory and infusion
therapy and related services for adults. For the fiscal year ended September
30, 1996 ("fiscal 1996") pediatric patients accounted for approximately 57% of
the Company's net revenue. The Company currently offers its home health care
services through a network of 97 branch offices located in 27 states operated
through various subsidiaries.
According to industry sources, the market for home health care services in the
United States is estimated at $30 billion with the market for pediatrics
estimated at over $5 billion. The Company believes that pediatric patients
accounted for a significant portion of U.S. home health care service revenue.
The pediatric home health care market is currently served primarily by a large
number of small entities operating on a local or regional basis that generally
provide a limited range of services. The Company believes that there are
significant opportunities to acquire and consolidate entities operating in the
pediatric home health care market.
PSA's services are designed to comprehensively address the full range of home
health care needs of pediatric patients, particularly the needs of medically
fragile children dependent on sophisticated nursing care and medical technology.
Many pediatric patients suffer from complex medical problems, most of which
result from premature births or genetic abnormalities. These medical problems
include bronchopulmonary dysplasia, digestive and absorptive diseases, cystic
fibrosis and neurologically related respiratory problems. Patients suffering
from these disorders typically require intensive and specialized treatment over
an extended period of time by specially trained professionals in neonatal and
pediatric care. Substantially all of the Company's nurses have received
specialized training in neonatal and pediatric care and generally are required
to have had at least one year of prior experience in a neonatal critical care
unit. PSA also provides technically advanced equipment for medically fragile
children at home, such as ventilators, apnea monitors, aerosol generators and
other specialized medical equipment. Additionally, the Company has developed
case administration procedures that enable it to efficiently manage all aspects
of patient care by coordinating the efforts of third-party payors, physicians,
case managers and referral sources.
The Company believes that payors and referral sources recognize the specialized
needs of medically fragile children and the high cost of rehospitalization
associated with inadequate care. The Company believes further that payors and
referral sources find the Company's services to be a high quality, cost
effective alternative to prolonged hospitalization of such children. For
example, the Company and a leading pediatric children's hospital, Miami
Children's Hospital ("MCH"), have formed a joint venture to provide pediatric
home health care services in conjunction with MCH's operations in Miami and
surrounding counties. This joint venture will enable MCH to offer highly
specialized pediatric home health care services to its clients and will provide
PSA with access to a significant base of potential patients. Similarly, PSA is
one of a limited number of companies which have been designated by Metropolitan
Life Insurance Company and certain of its affiliates (collectively, "MetLife")
as a preferred provider of pediatric home health care services in selected
geographic areas. PSA also has entered into preferred provider contracts with
several local and regional insurance companies and managed care companies.
The Company has expanded its operations primarily through strategic
acquisitions, new office openings and internal growth. Since fiscal 1991, the
Company has completed 14 acquisitions acquiring an aggregate of 54 branch
offices in 20 states and opened seven additional start-up branch offices with
the goal of becoming a national pediatric home health care provider. The
Company has also experienced growth in revenue and profitability as a result of
its sales and marketing efforts,
Page 3
introduction of new services and improved operating controls. See "Letter to
Stockholders" incorporated by reference to the 1996 Annual Report which is filed
as Exhibit 13 hereto.
RECENT DEVELOPMENTS
In October 1996, the Company acquired the assets and assumed certain liabilities
of IntensiCare, Inc. and Pediatric Specialists, Inc., a pediatric nursing and a
pediatric phototherapy company located in Elmhurst, Illinois and San Dimas,
California, respectively. The total purchase price for both companies was
$4,175,000, consisting of cash and assumption of indebtedness.
BUSINESS STRATEGY
The Company's strategy is to be a national provider of pediatric home health
care services through continued acquisitions of local and regional pediatric
home health care companies and through the opening of additional branch offices.
The Company believes this strategy enables it to continue to meet the needs of
managed care payors while providing high quality, cost effective services to its
patients. The Company intends to implement this strategy by taking the
following actions:
Expand Through Acquisitions, Internal Development and Strategic Alliances. The
Company is pursuing a strategy of consolidation on a nationwide basis within the
fragmented pediatric home health care industry. To achieve this goal, the
Company intends to expand its business primarily through acquiring local and
regional home health care companies, opening branch offices in both new and
existing markets and expanding the services currently provided at its existing
branch offices. The Company's expansion strategy is to acquire pediatric home
health care providers, as well as adult home health care companies, in select
markets particularly if such companies provide attractive opportunities to
expand pediatric services.
The Company's expansion strategy also involves opening new branch offices or
satellite facilities in select markets. The Company typically attempts to
acquire or establish new offices in areas located near major medical centers or
pediatric hospitals where a high number of pediatric patients are discharged.
The Company then generally seeks to expand into surrounding areas by opening new
branch offices or satellite facilities, primarily with the assistance of
referrals from the initial branch office, and to accommodate patients discharged
from the medical centers or pediatric hospitals into those areas. Additionally,
the Company introduces new services to existing locations to expand its market
penetration.
The Company also will seek to establish strategic alliances with hospitals, home
health agencies, physician organizations and other health-related entities in
furtherance of its expansion strategy. For example, the Company seeks to
arrange preferred provider contracts with various managed care companies. These
contracts typically designate the Company as a preferred provider of services in
select areas but do not establish an exclusive relationship. Management intends
to take into account managed care contracts in executing its expansion strategy
by targeting acquisitions, opening new branch offices or expanding services in
markets not currently fully served by the Company where managed care contracts
cover a large number of individuals. Other strategic alliances include either a
fee-for-service contract or equity sharing arrangement, such as a joint venture
partnership with hospitals, home health agencies and other health-related
entities to further expand services into new or existing markets. There can be
no assurance, however, that the Company's expansion through acquisitions,
internal development and strategic alliances will be successfully integrated
into the Company's operations.
Develop a National Organization. The Company believes that operating
efficiencies can be obtained through the development of a national organization.
The Company also believes that by developing a national organization it will be
in a better position to receive referrals and new business from certain large
insurance companies and other third-party payors. The Company recognizes,
however, that the provision of home health care services historically has been a
local business in which both patients and referral sources are based in the
immediate geographic area in which services are provided. The Company plans to
continue to address the local needs of its markets by providing its branch
offices with sufficient autonomy to address the sales and marketing needs of
their specific markets.
Meet the Needs of Pediatric Patients. Management believes that pediatric home
health care services are
Page 4
becoming recognized as a distinct specialty within the home health care
industry. Management believes that its focus on pediatric home health care
services combined with its experience in rendering these services provide the
Company with a significant sales and marketing advantage. The Company endeavors
to maintain its position as a leading provider of comprehensive pediatric home
health care services, particularly with respect to children dependent on
sophisticated medical technology or nursing care. The Company's management has
substantial experience in pediatric care, which has enabled the Company to
provide technically advanced products and services for medically fragile
children at home, such as ventilators, apnea monitors, aerosol generators and
in-home private duty nursing.
Provide Quality and Cost Effective Health Care to Pediatric Patients. Quality
of service is emphasized throughout the Company's organization, both in the
hiring and training of its clinical personnel and the manner in which its home
health care services are delivered. Quality assurance and training are directed
and monitored by a Director of Quality Improvement, who is an experienced health
care professional. All of the Company's offices, other than those recently
acquired or established, have received accreditation from the Joint Commission
on Accreditation of Healthcare Organizations ("JCAHO"), with most of the offices
receiving accreditation with commendation. JCAHO is a nationally recognized,
not-for-profit organization that develops standards for various health care
providers and monitors compliance with such standards. The Company believes
that it provides more cost effective home health care services than its local
competitors. In the Company's experience, seriously ill patients of the Company
encounter a lower rate of rehospitalization due to the Company's quality care
and substantial treatment expertise. Additionally, the Company commits
experienced case managers to schedule subsequent lower modalities of care as
the patient's health improves, and the Company provides case social workers who
train and educate the patient's family to care for the patient. This lowers
both the amount of care required by the improving patient and the levels of
reimbursement required from managed care payors.
Provide Efficient Case Administration. The Company has developed case
administration controls to enable it to manage and coordinate patient care in an
efficient manner. The Company manages cases by assigning case managers to work
closely with third party payors prior to accepting a patient and during a
patient's care. The Company also assigns clinical coordinators to work with
physicians, case managers and other referral sources to arrange all of the home
health care service needs of a patient. Management believes that its efficient
case administration enables the Company to develop relationships with third
party payors, physicians, case managers and other referral sources, generating
important feedback and increased referrals for the Company.
Page 5
SERVICES PROVIDED
The Company provides comprehensive home health care services to children and
respiratory and infusion therapy services and related equipment and other
services to adults. In connection with the merger on February 29, 1996 with
Premier Medical Services, Inc. ("Premier"), the Company provides medical
examinations for the insurance industry through a subsidiary Insurance Medical
Reporter, Inc. These services have been categorized under the caption "Medical
Testing Services" in the table below. The following table summarizes the net
revenue and percentages of net revenue of each major category of service offered
by PSA for the periods indicated:
YEAR ENDED SEPTEMBER 30,
------------------------
1996 1995 1994
------------------- ------------------ ------------------
(In thousands) Revenue % Total Revenue % Total Revenue % Total
- -------------- --------- -------- -------- -------- -------- --------
PEDIATRIC HOME HEALTH CARE
Nursing $ 52,025 31.7 $ 33,715 30.1 $22,071 31.2
Respiratory Therapy Equipment 17,458 10.7 13,166 11.8 9,573 13.5
Home Medical Equipment 1,394 0.8 1,315 1.2 - -
Pharmacy and Other 22,819 14.0 10,152 9.1 2,024 2.9
-------- ---- -------- ---- ------- ----
Total Pediatric Home Health Care 93,696 57.2 58,348 52.2 33,668 47.6
ADULT HOME HEALTH CARE
Nursing 17,683 10.8 13,354 11.9 10,027 14.2
Respiratory Therapy Equipment 22,085 13.5 19,367 17.3 12,095 17.1
Home Medical Equipment 5,385 3.3 4,928 4.4 2,677 3.8
Pharmacy and Other 5,975 3.6 3,729 3.3 1,473 2.1
-------- ---- -------- ---- ------- ----
Total Adult Home Health Care 51,128 31.2 41,378 36.9 26,272 37.2
-------- ---- -------- ---- ------- ----
Total Medical Testing Services 18,980 11.6 12,134 10.9 10,746 15.2
-------- ---- -------- ---- ------- ----
Total $163,804 100% $111,860 100% $70,686 100%
======== ==== ======== ==== ======= ====
Pediatric Home Nursing Services. The Company provides private duty care and
intermittent nursing visits in the home setting for pediatric illnesses and
conditions, including bronchopulmonary dysplasia, digestive and absorptive
diseases, congenital heart defects, cancer, cerebral palsy, cystic fibrosis,
handicaps, orthopedic conditions and post surgical needs. The Company has over
4,000 registered or licensed pediatric nurses on its active nursing registries.
Although nursing services have traditionally provided the Company with lower
profit margins than the Company's other lines of business, management
anticipates that the Company will continue to increase the number of its branch
offices that provide pediatric nursing services as the Company continues to
focus on developing its pediatric business. Based on management's experience,
referral sources generally will make arrangements for pediatric home nursing
services before making arrangements for other pediatric home health care
services necessary for the release from the hospital of a medically fragile
child or an adult patient. As a result, management believes that its pediatric
home nursing business facilitates the Company's ability to market its other
pediatric services.
Respiratory Therapy Equipment Services. The Company's respiratory therapy
equipment services involve the (i) delivery and setup of equipment, such as
ventilators, apnea monitors, aerosol generators and intravenous infusion
equipment, in accordance with physicians' prescriptions and standard operating
procedures, (ii) periodic evaluation and maintenance of such equipment and (iii)
delivery and setup of supplies necessary for the operation of such equipment.
The Company provides such service and equipment to patients in the home with a
variety of conditions, including obstructive pulmonary disease (e.g., emphysema,
chronic bronchitis and asthma), neurologically related respiratory problems,
cystic fibrosis, congenital heart defects and cancer. The Company hires skilled
registered respiratory therapists and certified respiratory therapy technicians
to provide these services. The Company also offers training to the patient and
the family in equipment use and provides a 24-hour repair service through
emergency on-call technicians.
Home Medical Equipment. The Company provides rentals and service of home
medical equipment, which consists of wheelchairs, beds, walkers and other
equipment primarily to adult patients. These services and equipment are
typically provided at low profit margins in connection with other adult
Page 6
home health care services provided by the Company. As a result of management's
focus on more profitable portions of the Company's business, revenue associated
with adult home medical equipment has declined as a percentage of the Company's
total net revenue to 3.3% in fiscal 1996.
Pharmacy. The Company provides home infusion therapy for its patients. The
Company's infusion therapy services involve the in-home administration of
nutrients, antibiotics and other medications intravenously or through feeding
tubes. Infusion therapies offered by the Company include parenteral and enteral
nutrition, antibiotic therapy, pain management, chemotherapy and other infusion
therapies.
The Company's mail order medication service provides unit dose medications to
respiratory therapy patients based upon physicians' prescriptions. The Company
is able to offer its patients medication in a premixed unit dose form,
professional clinical support and claims processing. The Company employs
licensed pharmacists to assist with its unit dose medication services business.
Sleep Disorder Studies. The Company's sleep disorder services involve providing
sleep studies on its patients in the Company's sleep laboratory, the hospital
(as an outpatient procedure) or in the patient's home. The Company employs
registered polysomnographic technicians experienced in sleep disorders. The
Company administers sleep disorder studies that are scored and interpreted by a
physician who is experienced in sleep disorder medicine.
Medical Testing Services. In connection with the merger of Premier, the
Company's services expanded to include services categorized as "Medical Testing
Services" under the operating subsidiary of Insurance Medical Reporter ("IMR").
IMR is the fourth largest company providing comprehensive medical and
paramedical testing, such as health histories, phlebotomy services and
electrocardiograms to over 800 life, health and disability insurance companies.
The testing services are provided through a network of over 80 field offices in
strategic geographical locations. Licensed professionals administer the tests
and provide the test results to the underwriting departments of the insurance
companies for their risk assessment. IMR provides the testing services in all
50 states including Puerto Rico.
The Company's services are provided by more than 4,000 licensed or credentialed
nurses and therapists. All of the Company's offices, other than those recently
acquired or established, have received accreditation from the JCAHO.
OPERATIONS.
Local Office Network. The Company currently provides home health care services
through a network of 97 branch offices located in 27 states. The Company seeks
to address the local market needs of the home health care industry through its
branch office network. Each branch office conducts local marketing efforts,
negotiates contracts with local referral sources, recruits personnel and
coordinates patient care. Since the provision of home health care service is
generally a local business, the Company provides its branch office managers with
training, comprehensive policies and procedures and standardized operating
systems, while allowing them sufficient autonomy to address local needs.
The Company's branch offices are divided into six divisions. Each division has
its own Divisional Vice President who coordinates all activities within his or
her division. Under the Company's management structure, branch office managers
report directly to the Divisional Vice President.
Case Administration. Before the Company provides services to a patient, the
Company coordinates with third-party payors, physicians, case managers and other
referral sources. In order to accomplish this coordination, the Company has
developed case management and clinical coordination functions.
Case Management. Prior to accepting certain patients, the Company assigns a
case manager to review the patient's insurance status to determine coverage and
relevant reimbursement criteria. The case manager contacts the relevant third-
party payors to negotiate the services that will be covered and the applicable
rates. The case manager then communicates with the billing and collection
department to assist in accurate billing. The case manager also assists in
resolving disputes that may arise between the Company and third-party payors.
Clinical Coordination. The Company assigns a clinical coordinator as a case is
referred to the
Page 7
Company, typically before the patient leaves the hospital. The clinical
coordinator works with the physician, case manager or other referral source to
arrange all home healthcare services needed by the patient.
Sales, Marketing and Strategic Alliances. PSA's products and services are
marketed primarily through its branch office personnel and various media
formats. Sales and marketing activities at the branch office level are
conducted through the office directors. These directors generally have a
clinical background as registered nurses and/or therapists, and, as such, they
are able to describe and promote the Company's products and services. The
branch office directors attempt to cultivate relationships with their local
referral sources through quality service, personal contacts and education about
the appropriate role of home health care in the treatment of patients.
The Company obtains patients primarily through referrals from physicians (e.g.,
neonatologists, pediatricians, pulmonologists and internists), hospital
discharge planners, case managers, community based health care institutions and
social service agencies. The Company maintains a case management service
department that develops and services formal relationships with large insurance
companies and case managers. This department acts as the central point for
coordination of services and benefits for patients referred by such
organizations.
The Company also seeks to arrange preferred provider contracts with various
managed care companies. These contracts typically designate the Company as a
preferred provider of certain services in select areas but does not establish an
exclusive relationship. The Company has preferred provider contracts that are
both national and regional in scope. These preferred provider contracts
typically set forth a range of services that the Company may provide and
applicable rates payable to the Company for the provision of such services, as
well as specifying required billing and claims procedures, record maintenance
policies and other requirements.
As part of its sales and marketing strategy, the Company actively attempts to
enter into relationships with payors and referral sources, such as managed care
companies, as a preferred provider. The Company believes that payors and
referral sources find the Company's services to be a high quality, cost
effective alternative to prolonged hospitalization or rehospitalization of
medically fragile children. Strategic alliances with large established payors
and referral sources can significantly expand the Company's base of potential
clients. Such strategic alliances include the formation of joint ventures and
fee-for-service contracts to provide pediatric home health care service with
other healthcare companies who have access to a significant base of potential
patients.
The Company believes that JCAHO accreditation of its branch offices is an
important factor in its sales and marketing efforts. Accreditation by JCAHO is
one of the few indicators that referral sources have for judging the standard of
quality of a home health care provider. The Company also believes that its
focus on pediatric home care services combined with management's experience in
rendering these services provides the Company with a significant sales and
marketing advantage.
Billing and Collection. The Company derives substantially all of its net
revenue from commercial insurance and private payors, Medicare and Medicaid.
The current reimbursement environment is a complicated process, involving
multiple payors with differing coverage and reimbursement policies. Management
of accounts receivable, through effective billing, collection and reimbursement
procedures, is critical to the financial success of medical service providers
due to lengthy reimbursement periods. The billing, collection and reimbursement
process involves the collection, review and approval of a significant number of
required documents. PSA reimbursement specialists work closely with the branch
offices and third-party payors. Each specialist is responsible for ensuring the
adequacy of the documentation, submitting the documentation and claims to third-
party payors and expediting payment. The Company's billing and collection
process is substantially centralized. As of September 30, 1996, PSA's days of
sales outstanding ("DSO") in accounts receivable was 101 days. See "Liquidity
and Capital Resources" incorporated by reference to the 1996 Annual Report which
is filed as Exhibit 13 hereto.
Recruiting, Training and Retention of Professional Staff. As of September 30,
1996, the Company had over 4,000 licensed or credentialed nurses and therapists
on its staff and active registries. The Company hires skilled pediatric nurses
and skilled respiratory therapists to provide its services. Nurses generally
have a minimum of one year prior pediatric or neonatal intensive care unit
experience, a nursing
Page 8
license and current CPR certification, and each nurse must pass a written
pediatric and medication exam and provide employment references. Therapists
generally have a minimum of one year prior experience and current CPR
certification, and must provide employment references.
To provide a qualified, reliable nursing and therapy services staff, the Company
continuously recruits professional nurses and technical specialists and trains
and offers benefits and other programs to encourage retention of these
professionals. Recruiting is conducted primarily through advertising,
employment fairs, direct contact with community groups and employment programs,
and the use of bonus and other benefit programs designed to encourage new
employee referrals by existing employees. The Company has in the past recruited
pediatric nurses who have cared for a patient in the hospital to continue to
provide care for such patient in the home through part-time or full-time
employment with the Company. Under the Company's pediatric nursing training
program, nurses are required to attend an orientation program where they are
trained in aspects of home health care, such as equipment use, which differ from
institutionally provided health care. If qualified, nurses receive additional
training in the use of ventilators and other home respiratory equipment. The
Company requires that nurses attend continuing education sessions on safety and
techniques in home health care. Further, the Company offers its nurses periodic
continuing education courses and professional seminars on various topics in home
health care to assist in the retention of qualified personnel.
Quality Assurance. The Company has established a quality assurance program for
the implementation and monitoring of service standards. All of the Company's
branch offices, other than those recently acquired or established, have received
accreditation from JCAHO, a nationally recognized, not-for-profit organization
that develops standards for various health care providers and monitors
compliance with such standards. JCAHO's objective standards are one of the few
methods by which referring health care professionals may assess the quality of
services of a home health care provider. The Company adheres to JCAHO
guidelines and standards in all aspects of patient care delivery.
The Company's quality assurance program includes periodic quality audits and
other measures designed to ensure compliance with the documentation and
operating procedures required by state law, JCAHO standards and internal
standards. The Company's officers oversee the results of these quality
assurance audits and implements changes where necessary.
REIMBURSEMENT
During the past decade, federal and state governments and third-party payors
have taken extensive steps intended to contain or reduce the costs of health
care. These steps have included, among others, reduced reimbursement rates,
changes in services covered, increased utilization review of services,
negotiated prospective or discounted contract pricing and adoption of a
competitive bid approach to service contracts. Cost containment efforts are
expected to continue in the future. Home health care, which is generally less
costly than hospital-based care, has generally benefitted from many of these
cost containment efforts. As expenditures in the home health care market
continue to grow, however, initiatives aimed at reducing the cost of health care
delivery at non-hospital sites are increasing. Many state Medicaid programs,
in an effort to contain the cost of health care and in light of state budgetary
constraints, have reduced their payment rates and have narrowed the scope of
covered services. Likewise, the federal 1990 Omnibus Budget Reconciliation Act
("OBRA 1990") imposed reimbursement limits and a national rate system for home
medical equipment, including respiratory equipment. Similar initiatives have
been implemented in the past and such initiatives are expected to continue in
the future. A significant change in coverage or a reduction in payment rates
for the types of health care services provided by the Company could have a
material adverse effect upon the Company's business.
Medicare Program. Medicare is a federally funded health insurance program which
provides health insurance coverage for certain disabled persons, persons age 65
and older and those with chronic renal disease. The Secretary of the United
States Department of Health and Human Services (the "Secretary") is charged with
administering the program. In turn, the Secretary has delegated much of that
responsibility to the Health Care Financing Administration ("HCFA"). The
Medicare program was enacted in 1965 as Title XVIII of the Social Security Act
and consists of two separate insurance programs. "Hospital Insurance",
established in Part A of the Social Security Act provides certain benefits
covering inpatient hospital, nursing facility, home health and hospice services.
"Supplementary Medical Insurance", established in Part B of the Social Security
Act, provides benefits
Page 9
in the areas of outpatient hospital visits, physician services, other types of
outpatient services, respiratory therapy, infusion therapy, home medical
equipment and prosthetic devices. Individuals age 65 and older who qualify for
Social Security or Railroad Retirement Benefits automatically qualify for
Medicare Part A. Medicare Part B is a voluntary program and all individuals who
are eligible for Part A coverage may elect to enroll in Part B. The Company is
an authorized supplier eligible to receive direct reimbursement under Medicare
Part A and B in certain geographic locations.
Health care providers must meet "conditions of participation" to receive
Medicare payments. The conditions of participation are federal requirements
intended to ensure the quality of the medical services provided. Part A
providers are required to sign provider agreements to participate in Medicare.
Medicare Part A is a cost based reimbursement program that requires the Company
to file an annual operating report of those branch offices performing services
under this program.
Under Part B, there is an annual deductible amount that the beneficiary must pay
before Medicare will make any payments. After the Part B deductible is
satisfied, Medicare will ordinarily pay 80% of the Medicare approved payment
amount, and the beneficiary is responsible for paying the remaining 20%.
Medicare has developed approved forms for submission of bills and claims.
Medicaid Program. Medicaid (Title XIX of the Social Security Act) is a
cooperative state-federal program for medical assistance to the poor. States
have great flexibility in determining the services which will be paid for under
their Medicaid programs. Beyond mandatory services, states can provide a wide
range of medical services, including services not otherwise covered under
Medicare, such as long-term nursing care.
The following are the approximate percentages of the Company's net revenue
attributable to various payors for the periods presented:
Year Ended Year Ended
Payor September 30, 1996 September 30, 1995
----- ------------------- -------------------
Commercial Insurance and Self Payors............ 64% 62%
Medicaid and Other state Programs............... 26% 26%
Medicare and Other federal Programs............. 10% 12%
---- ----
Total.................................... 100% 100%
==== ====
COMPETITION
The home health care market is highly competitive and is divided among a large
number of providers, some of which are national providers but most of which are
either regional or local providers. Home health providers compete for referrals
primarily based on quality of care and service, reputation with referring health
care professionals and with the provider, ability to develop and maintain
contacts with referral sources and price of services. The Company believes that
its specialization in pediatric home health care as well as its coordinated care
approach to home health care service broadens its appeal to local health care
professionals and to managed care organizations.
In addition to its traditional competitors, other types of health care
providers, including hospitals, physician groups and home health agencies, have
entered, and may continue to enter, the Company's business. Certain of the
Company's competitors and potential competitors have significantly greater
financial, technical and marketing and sales resources than the Company and may,
in certain locations, possess licenses or certificates that permit them to
provide services that the Company cannot currently provide. There can be no
assurance that the Company will not encounter increased competition in the
future that could limit the Company's ability to maintain or increase its
business and could adversely affect the Company's operating results.
REGULATION
The Company's business is subject to extensive and frequently changing state and
federal regulation. The Company is subject to state laws governing and
regulating several aspects of its business, including the dispensing,
distributing and compounding of prescription products, the providing of home
health care services and home infusion services (including certificate of need
and licensure
Page 10
requirements in states where applicable), the licensing of branch offices and
the licensing of professionals under contract with the Company. The Company
also is subject to certain state laws prohibiting the payment of remuneration
for patient or business referrals.
Federal laws governing the Company's activities include regulations concerning
pharmacy operations and regulations under the Medicare and Medicaid programs
relating to, among other things, certification of home health agencies and
reimbursement. In addition, federal fraud and abuse laws prohibit, among other
things, the payment of remuneration for patient or business referrals.
New laws and regulations are enacted from time-to-time to regulate new and
existing services and products in the home health care industry. Changes in the
law or new interpretations of existing laws also could have an adverse effect on
the Company's methods and costs of doing business. Further, failure of the
Company to comply with such laws could adversely affect the Company's ability to
continue to provide, or receive reimbursement for, its equipment and services,
and also could subject the Company and its officers to civil and criminal
penalties. There can be no assurance that the Company will not encounter
regulatory impediments that could adversely affect its ability to open new
branch offices and to expand the services currently provided at its existing
branch offices. There can be no assurance that current or future government
regulation will not have an adverse effect upon the Company's business.
Set forth below is a more detailed discussion of certain factors related to
federal and state regulation of the Company and its business.
Medicare and Medicaid Regulations. As a provider of services under the Medicare
and Medicaid programs, the Company is subject to federal laws and regulations
governing reimbursement procedures and practices. These laws include the
Medicare and Medicaid fraud and abuse statutes and regulations, which prohibit
the payment or receipt of any form of remuneration in return for referring
business or patients to providers of services for which Medicare and Medicaid
payments are made. Violation of these laws may result in civil and criminal
penalties, including substantial fines, loss of the right to participate in the
Medicare and Medicaid programs and imprisonment. Several states also have
statutes prohibiting financial arrangements with health care providers which,
while similar in many respects to the federal laws, vary from state to state,
are often vague, and have been interpreted inconsistently by courts or
regulatory agencies. Various federal and state laws impose civil and criminal
penalties against participants in the Medicare or Medicaid programs who make
false claims for payment for services or otherwise engage in false billing
practices. The Company has accounting and verification procedures designed to
prevent such practices.
Medicare Certification. Federal regulations governing the Medicare program are
also applicable to the Company. Regulations for Medicare reimbursement include
an annual review of health care facilities and personnel and provide criteria
for coverage and reimbursement. The Company is Medicare certified to provide
nursing services in two states and Washington, D.C.
Licensure. Many states require companies providing pharmacy services, home
health care services, home infusion therapy products and services and other
products and services offered by the Company to be licensed. The Company
currently is licensed as a home health agency in 14 states and is licensed as a
home care agency in three states. The Company is licensed as a pharmacy in 36
states. The Company provides unit dose medications by mail order to various
states. The Company has obtained or, in certain cases, is in the process of
obtaining, licenses for its mail order services from such states.
Certificates of Need. Certain states require companies providing home health
care services, home infusion therapy products and services and other products
and services offered by the Company to have a certificate of need issued by a
state health planning agency. Certificates of need are often difficult to
obtain and in many instances a certificate of need is not obtainable at all
(because an area is determined adequately served by existing providers or for
other reasons). The Company, through the merger with Premier, acquired a
certificate of need which allows it to provide home care services in eleven
counties in Maryland, Washington, D.C. and Washington state. If the Company
commences operations in a state, or expands its operations within a state in
which it is currently operating, and those operations require a certificate of
need, the Company will be required to obtain a certificate of need with respect
to those operations. There can be no assurance that the Company will be able to
Page 11
obtain any required certificate of need, and, if so required, the Company will
incur expenses in connection with attempting to obtain any required certificate
of need.
HEALTH CARE REFORM
Political, economic and regulatory influences are subjecting the health care
industry in the United States to fundamental change, and many competing
proposals have been introduced in Congress and various state legislatures to
reform the present health care system. The Clinton Administration proposal and
other legislation introduced in the last Congress provided for insurance market
reforms to increase coverage to employees. Although Congress enacted no such
legislation, it is not possible to predict if any of these proposals will be
reintroduced, or if any other proposal will be introduced in Congress or in any
state legislature, or if and when any such proposal may be enacted. The
adoption of a publicly financed, single-payor, national health plan not
requiring the type of services currently delivered by the Company would have a
material adverse effect on the Company's business. Additionally, it is possible
that health care reform at the federal or state level, whether implemented
through legislation or through action by federal or state administrative
agencies, would require the Company to make significant changes in the way it
conducts business. Certain aspects of health care reform such as proposed
reductions in Medicare and Medicaid payments, if successfully developed and
adopted, could have a material adverse effect upon the Company's business. The
Company anticipates that Congress and state legislatures will continue to review
and assess alternative health care delivery systems and payment methodologies,
and public debate of these issues will likely continue in the future. It is not
possible at this time to predict what, if any, reforms will be adopted, or when
such reforms will be adopted and implemented. No assurance can be given that
any such reforms will not have a material adverse effect upon the Company's
business.
MEDICARE REIMBURSEMENT FOR THE PROVISION OF OXYGEN THERAPY AND OTHER HOME
MEDICAL SERVICES
A proposal is currently under discussion for a reduction in the reimbursement
for oxygen therapy and various other reductions for home medical services. The
Company had approximately $11.4 million in net revenue derived from Medicare
oxygen therapies for the fiscal year ended September 30, 1996. If enacted, a
reduction in payment rates for these types of health care services that are
provided by the Company would have an impact upon the Company's business.
EMPLOYEES
As of September 30, 1996, the Company had over 4,000 licensed or credentialed
nurses, therapists and pharmacists on its staff and active registries and
employed approximately 926 full-time employees. The nurses and respiratory
therapists are reflected as employees of the Company for federal income tax
purposes.
ENVIRONMENTAL MATTERS
Medical facilities are subject to a wide variety of federal, state and local
environmental and occupational health and safety laws and regulations, such as
air and water quality control requirements, waste management requirements and
requirements for training employees in the proper handling and management of
hazardous materials and wastes. The typical branch office facility operations
include, but are not limited to, the handling, use, storage, transportation,
disposal and/or discharge of hazardous, toxic, infectious, flammable and other
hazardous materials, waste, pollutants or contaminants. These activities may
result in injury to individuals or damage to property or the environment and may
result in legal liability damages, injunctions, fires, penalties or other
governmental agency actions. PSA is not aware of any pending or threatening
claim, investigation or enforcement action regarding environmental issues which,
if determined adversely to PSA, would have an adverse effect upon the capital
expenditures, earnings, or competitive position of the Company.
ITEM 2. PROPERTIES
PSA's principal executive offices are located in Norcross, Georgia. These
offices currently utilize approximately 36,000 square feet of office and
warehouse space. The Company currently has 97 branch offices in 27 states.
Branch offices are typically located in office parks or complexes and
Page 12
average approximately 2,500 square feet. Each facility is a combination
warehouse and office. The Company believes that its current facilities are
suitable for and adequate to support the levels of its present operations.
The Company leases its facilities in Norcross, Georgia pursuant to a lease
agreement that expires in June 2000. Lease terms on branch offices are
generally two years or less.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to certain claims and lawsuits, the outcomes of which are
not determinable at this time. In the opinion of management, any liability that
might be incurred upon the resolution of these claims and lawsuits will not, in
the aggregate, have a material adverse effect on the consolidated financial
condition or results of operations of PSA.
In recent years, physicians, hospitals and other participants in the health care
industry have become subject to an increasing number of lawsuits alleging
malpractice, product liability or related legal theories, many of which involve
large claims and significant defense costs. The Company currently maintains
liability insurance intended to cover any claims. This insurance coverage is
provided under a "claims-made" policy which provides, subject to the terms of
the policy, coverage for certain claims made against the Company during the term
of the policy and does not provide coverage for losses occurring during the term
of the policy for which a claim is made subsequent to the termination of the
policy. There can be no assurance that the coverage limits of the Company's
insurance policies will be adequate. In addition, while the Company has been
able to obtain liability insurance in the past, such insurance varies in cost,
is difficult to obtain and may not be available in the future on acceptable
terms or at all. In addition, the Company is subject to accident claims arising
out of the normal operation of its fleet of vans and small trucks and maintains
insurance intended to cover these claims. The Company also is named as an
additional insured in the product liability policies maintained by certain
manufacturers of health care equipment utilized by the Company in connection
with its business and operations. A successful claim against the Company in
excess of the insurance coverage could have a material adverse effect upon the
Company's business. Claims against the Company, regardless of their merits or
eventual outcome, also may have a material adverse effect upon the Company's
reputation and business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of PSA's fiscal year ended September 30, 1996, no
matter was submitted to a vote of PSA's shareholders through the solicitation of
proxies or otherwise.
ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below, in accordance with General Instruction G(3) of Form 10-K and
Instruction 3 to Item 401(b) of Regulation S-K, is certain information regarding
the executive officers of PSA, including their ages as of October 25, 1996,
their principal occupations for at least the past five years, the year in which
each was elected and any directorships held by them in other public companies.
Joseph D. Sansone (53) has been Chairman of the Board of Directors, President
and Chief Executive Officer of PSA since its formation in 1989. From 1987 until
the formation of PSA, Mr. Sansone was President of Ambulatory Services of
America, Inc. ("ASA"), a wholly-owned subsidiary of Charter Medical, PSA's
former parent. Prior to joining Charter Medical, Mr. Sansone was employed by
American Medical International, Inc. ("AMI"). Mr. Sansone is also a director of
the National Association of Medical Equipment Suppliers.
Stephen M. Mengert (47) has been Senior Vice President and Chief Financial
Officer of PSA since July 1996. Mr. Mengert was Senior Vice President and Chief
Financial Officer of Arbor Health Care Company from November 1995 to July 1996.
From July 1990 until joining Arbor Health Care Company, Mr. Mengert was employed
in a similar capacity at Rehability Corporation.
Charles P. Gaetano (45) has served as PSA's Senior Vice President of Development
since March 1996 and as Vice President of Development beginning March 31, 1995
when the Company acquired PPI.
Page 13
Mr. Gaetano served as Chief Executive Officer of PPI from 1990 to 1995.
James R. Henderson (51) joined ASA in 1987 as a Senior Regional Director and in
1989 became a Divisional Vice President of PSA. In 1996, Mr Henderson became
Senior Vice President of Operations of PSA. From 1985 until joining ASA, Mr.
Henderson was Director of Operations and President of Healthfocus Medical
Equipment, Inc. in Houston, Texas, a wholly-owned subsidiary of Healthfocus,
Inc.
Set forth below is certain information relating to certain corporate officers of
PSA, including their ages as of October 25, 1996, their principal occupations
for at least the past five years, the year in which each was elected and any
directorships held by them in other public companies.
Pamela H. Barrow (45) joined ASA in October 1987 as a consultant and became
Administrative Director of Nursing in December 1987. In 1988, Ms. Barrow became
a Regional Director of Nursing and served in such capacity for PSA from its
formation until she was appointed Vice President of Pediatric Specialties in
1990. Ms. Barrow was appointed Vice President of Managed Care in 1994.
Julie A. Bowman (49) joined ASA in 1985 as Director of Operations of the Denver,
Colorado branch office and in 1986 became a Divisional Vice President of ASA.
She has served in such capacity for PSA since its formation in 1989. Prior to
joining ASA, Ms. Bowman was the President and founder of Rocky Mountain
Respiratory Services, a respiratory services company located in Denver,
Colorado, which was acquired by ASA in 1985.
Thomas E. D'Anna (41) has been Vice President of Marketing since October 1995.
He was a Divisional Vice President of PSA from March 31, 1995 when the Company
acquired Pediatric Partners, Inc. ("PPI") until October 1995. Mr. D'Anna served
as President of PPI from 1990 to 1995 and was Chief Operating Officer of Hug
Centers of America, a division of Healthfield, Inc., from 1988 through 1990.
Joseph M. Harrelson (40) joined ASA in 1984 as Director of Operations of the
Atlanta, Georgia branch office and in 1989 became a Divisional Vice President of
PSA. Mr. Harrelson also directs the Company's sleep disorders program in
Atlanta, Georgia.
Lisa A. Palmer (37) a registered nurse, has been a Divisional Vice President of
PSA since 1992 when APM Home Healthcare, Inc. ("APM") was acquired by the
Company. In 1988, Ms. Palmer was a co-founder and Corporate Director of Nursing
of Children's Healthcare, Inc., which was subsequently acquired by APM. Ms.
Palmer served as Vice President of Operations of APM.
Susan E. Dignan (43) joined PSA as Vice President and General Counsel in
January, 1996. From May 1993 through January 1996, Ms. Dignan worked as a
corporate lawyer specializing in health care mergers and acquisitions at Long
Aldridge & Norman in Atlanta, Georgia.
Linda K. Duval (54) has served as a Divisional Vice President of PSA beginning
February 29, 1996 when the Company merged with Premier Medical Services, Inc.
("Premier"). Ms. Duval served as Chief Operating Officer of Premier from
October 1, 1993 to February 29, 1996. Prior to joining Premier, Ms. Duval
served in several capacities at The Olsten Corporation from January 1980 to
October 1993. Ms. Duval is a Registered Nurse.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
Information concerning the market for, holders of and dividends paid on the
Company's Common Stock is set forth on the inside back cover page of the
Company's 1996 Annual Report, which information is incorporated herein by
reference. The Company intends to retain any future earnings to finance the
growth and development of its business and, therefore, does not anticipate
paying any cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
Page 14
The information set forth under the caption "Selected Consolidated Financial
Data" on page 5 of the Company's 1996 Annual Report is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information set forth under the caption "Managements' Discussion and
Analysis of Financial Condition and Results of Operations" on pages 6-9 of the
Company's 1996 Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and the notes thereto as of
September 30, 1996 and 1995, and for each of the years in the three year period
ended September 30, 1996, together with the report thereon of Ernst & Young LLP
(which as to the years 1995 and 1994 is based in part on the report of Deloitte
& Touche LLP independent auditors for the operations of Premier, included
herein), set forth on pages 10-21 of the Company's 1996 Annual Report is
incorporated herein by reference. Supplemental schedules, together with the
independent auditors' reports thereon, are included beginning on page S-1
hereof. Such additional financial data should be read in conjunction with the
consolidated financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
During the past two fiscal years and the period from October 1, 1996 to the date
hereof, the Company has not changed its independent auditors, and there have
been no reportable disagreements with the Company's auditors regarding
accounting principles or practices or financial disclosure matters.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the directors of the Company set forth under the
captions "Proposal 1 - Election of Directors - Nominees for Reelection as
Directors at the 1997 Annual Meeting" and "Proposal 1 -Election of Directors -
Continuing Directors of the Company" in the Company's Proxy Statement for its
1997 Annual Meeting of Shareholders ("1997 Proxy Statement") is incorporated
herein by reference. Information relating to the executive officers of the
Company is, pursuant to Instruction 3 of Item 401(b) of Regulation S-K and
General Instruction G(3) of Form 10-K, set forth at Part I, Item 4(A) of this
report under the caption "Executive Officers of the Registrant." Information
regarding compliance by the directors and executive officers of the Company and
owners of more than ten percent of the Company's Common Stock with the reporting
requirements of Section 16(a) of the Securities Exchange Act of 1934, as
amended, set forth under the caption "Section 16(a) of the Securities Exchange
Act Beneficial Ownership Reporting Compliance" in the 1997 Proxy Statement is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to management compensation set forth under the captions
"Proposal 1 - Election of Directors - Directors' Compensation and Attendance",
"Executive Compensation" and "Stock Performance Graph" in the Company's 1997
Proxy Statement is incorporated herein by reference, except for the information
set forth in the sections entitled "Executive Compensation - Report of the
Compensation Committee of the Board of Directors on Executive Compensation" and
"Stock Performance Graph" which specifically is not so incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Information regarding ownership of the Company's $0.01 par value Common Stock by
certain persons
Page 15
is set forth under the caption "Stock Ownership" in the Company's 1997 Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and transactions between the Company
and certain of its affiliates set forth under the caption "Certain Relationships
and Related Transactions" in the Company's 1997 Proxy Statement is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT.
(1) Financial Statements
The consolidated financial statements of the Company and the related
reports of independent auditors thereon which are required to be filed
as part of this report are included in the Company's 1996 Annual
Report and are incorporated by reference in Item 8 hereof or are
included herein. These consolidated financial statements are as
follows:
. Consolidated Balance Sheets as of September 30, 1996 and 1995.
. Consolidated Statements of Operations for the years ended
September 30, 1996, 1995, and 1994.
. Consolidated Statements of Redeemable Preferred Stock, Common
Stock and Other Stockholders' Equity for the years ended
September 30, 1996, 1995 and 1994.
. Consolidated Statements of Cash Flows for the years ended
September 30, 1996, 1995 and 1994.
. Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules
The financial statement schedules referred to in Item 8 are described
in the "Index to Financial Statement Schedules" included in this
report on page S-1. All other schedules for which provision is made in
the applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are
inapplicable and therefore have been omitted.
(3) Exhibits
The following exhibits are filed with or incorporated by reference in
this report. Where such filing is made by incorporation by reference
to a previously filed registration statement or report, such
registration statement or report is identified in parentheses. The
Company will furnish any exhibit upon request to Pediatric Services of
America, Inc., 3159 Campus Drive, Norcross, Georgia 30071-1042. There
is a charge of $.50 per page to cover expenses for copying and
mailing.
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (Registration No. 33-77880) filed
on May 31, 1994).
3.2 Bylaws of the Company, as amended and restated (incorporated by
reference to Exhibit 3.2 to the Company's Registration Statement on
Form S-1 (Registration No. 33-77880) filed on May 31, 1994).
Page 16
10.1 Asset Purchase Agreement, dated August 20, 1993, by and among the
Registrant, County Respiratory Products, Inc., Hyman Juter and Arlene
Juter (incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-1 (Registration No. 33-77880) filed
on May 31, 1994).
10.2 Loan and Security Agreement, dated January 14, 1993, by and among
Pediatric Services of America, Inc., a Georgia corporation ("PSA-
Georgia"), and Creditanstalt-Bankverein (incorporated by reference to
Exhibit 10.3 to the Company's Registration Statement on Form S-1
(Registration No. 33-77880) filed on May 31, 1994).
10.3 First Amendment to Loan and Security Agreement, dated July 29, 1994,
by and among PSA- Georgia, PSA and Creditanstalt-Bankverein
(incorporated by reference to Exhibit 10.3 to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1994).
10.4 Second Amendment to Loan and Security Agreement, dated as of March 31,
1995 by and among PSA-Georgia, PSA and Creditanstalt-Bankverein
(incorporated by reference to Exhibit 10 to the Company's Current
Report on Form 8-K (Date of Report: March 31, 1995)).
10.5 First Amended and Restated Loan and Security Agreement, dated as of
December 4, 1996, by and among PSA-Georgia, PSA and Creditanstalt-
Bankverein and Nationsbank, N.A., as Lenders, filed herewith.
10.6 Amended and Restated Warrant Agreement, dated July 29, 1994, by and
among the Company and Creditanstalt-Bankverein (incorporated by
reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1994).
10.7 Preferred Stock Rights Agreement, dated October 2, 1992, among the
Company and the preferred stockholders of the Company named therein
(incorporated by reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-1 (Registration No. 33-77880) filed
on May 31, 1994).
10.8 Stock Purchase and Stockholders Agreement, dated September 25, 1989,
by and among the Company and the stockholders of the Company named
therein, as amended on October 16, 1991 and January 14, 1993
(incorporated by reference to Exhibit 10.6 of the Company's
Registration Statement on Form S-1 (Registration No. 33-77880) filed
on May 31, 1994).
10.9 Executive Compensation Plans and Arrangements:
(a) Pediatric Services of America, Inc. Amended and Restated Stock
Option Plan, as amended (incorporated by reference to Exhibit
10.7 of the Company's Registration Statement on Form S-1
(Registration No. 33-77880) filed on May 31, 1994).
(b) Amendment to the Pediatric Services of America, Inc. Amended and
Restated Stock Option Plan (incorporated by reference to Exhibit
10.8(b) of the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1995).
(c) Pediatric Services of America, Inc. Director's Stock Option
Plan, (incorporated by reference to Exhibit 10.12 of the
Company's Registration Statement on Form S-1 (Registration No.
33-77880) filed on May 31, 1994).
(d) Amendment to the Pediatric Services of America, Inc. Directors'
Stock Option Plan, (incorporated by reference to Exhibit 10.8(d)
of the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995) .
Page 17
(e) Pediatric Services of America, Inc. 401(k) Savings Plan
(incorporated by reference to Exhibit 10.8 of the Company's
Registration Statement of Form S-1 (Registration No. 33-77880)
filed on May 31, 1994).
(f) Pediatric Services of America, Inc. Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.8(f) of the Company's
Annual Report Form 10-K for the fiscal year ended September 30,
1995).
(g) Form of Employment Agreement between Company and certain other
executive officers (incorporated by reference to Exhibit 10.10
of the Company's Registration Statement on Form S-1
(Registration No. 33-77880) filed on May 31, 1994).
(h) Employment Agreement, dated October 1, 1996, between the Company
and Joseph D. Sansone, filed herewith.
(i) Employment Agreement, dated July 22, 1996, between the Company
and Stephen M. Mengert, filed herewith.
10.10 Stock Purchase Agreement, dated October 1, 1994, among the Company,
Dean Elazab and Oxygen Specialties, Inc. (incorporated by reference
to Exhibit 2 to the Company's Current Report on Form 8-K (Date of
Report: October 1, 1994)).
10.11 Stock Purchase Agreement, among the Company and Joseph Balskus, Lisa
Balskus, Celia Winkelman, Herman Winkelman and Balwink Enterprises,
Inc. effective as of January 13, 1995 (incorporated by reference to
Exhibit 1 to the Company's Current Report on Form 8-K (Date of
Report: January 13, 1995)).
10.12 Stock Purchase Agreement, dated as of March 31, 1995, among the
Company, T/2/ Medical, Inc., Charles Gaetano, Thomas D'Anna, Coram
Healthcare Corporation and Consulting Agent & Employment Agreement,
Chuck Gaetano and Thomas D'Anna, Pediatric Partners, Inc.
(incorporated by reference to Exhibit 2 to the Company's Current
Report on Form 8-K (Date of Report: March 31, 1995)).
10.13 Stock Exchange Agreement, dated February 29, 1996, among the Company
and Premier Medical Services, Inc. (incorporated by reference to
Exhibit 1 to the Company's Current Report on Form 8-K (Date of
Report: February 29, 1996)).
11 Computation of Earnings per Share, filed herewith.
13 1996 Annual Report.
Except for the portions of the 1996 Annual Report that are
specifically incorporated into this Form 10-K by reference, the 1996
Annual Report is not deemed to be "filed" with the Securities and
Exchange Commission or subject to the liabilities of Section 18 of
the Securities Exchange Act of 1934, as amended.
21 Subsidiaries of Company, filed herewith.
23.1 Consent and Report as to Schedules of Independent Auditors, Ernst &
Young LLP, filed herewith.
23.2 Consent of Independent Auditors, Deloitte & Touche LLP, filed
herewith.
23.3 Report of Independent Auditors, Deloitte & Touche LLP, filed
herewith.
25 Powers of Attorney, filed herewith.
Page 18
(b) The following Current Reports on Form 8-K were filed by the Company during
the quarter ended September 30, 1996.
Financial
Date of Form 8-K Statements
Report Item No. Description Filed
------ -------- ----------- -----
July 12, 1996 5 Resignation of Senior Vice President and Chief no
Financial Officer and Appointment of Replacement
dated on June 21, 1996.
Page 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Pediatric Services of America, Inc.
(Registrant)
By: /s/ Joseph D. Sansone
----------------------------------------
Joseph D. Sansone
Chairman of the Board of Directors,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Joseph D. Sansone Chairman of the Board of December 13, 1996
- -------------------------------------- Directors, President and
Joseph D. Sansone Chief Executive Officer
* Chief Financial Officer, December 13, 1996
- --------------------------------------
Stephen M. Mengert Senior Vice President,
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
* Director December 13, 1996
- --------------------------------------
Michael J. Finn
* Director December 13, 1996
- --------------------------------------
Adam O. Holzhauer
* Director December 13, 1996
- --------------------------------------
Robert P. Pinkas
* Director December 13, 1996
- --------------------------------------
Irving S. Shapiro
* Director December 13, 1996
- --------------------------------------
Richard S. Smith
*By: /s/ Stephen M. Mengert
----------------------------------
(Attorney in Fact)
Page 20
PEDIATRIC SERVICES OF AMERICA, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedules
- ---------
Schedules numbered in accordance with Rule 5.04 of Regulation S-X
II Valuation and Qualifying Accounts..................................S-2
All schedules except Schedules VIII and X have been omitted because the required
information is shown in the consolidated financial statements, or notes thereto,
or the amounts involved are not significant or the schedules are not applicable.
S-1
Page 21
================================================================================
SCHEDULE II---VALUATION AND QUALIFYING ACCOUNTS
PEDIATRIC SERVICES OF AMERICA, INC. AND SUBSIDIARY
COL. A COL. B COL. C COL. D COL. E
------ ------ ------------------------------ ------ ------
ADDITIONS
------------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER
BEGINNING COSTS AND ACCOUNTS DEDUCTIONS BALANCE AT END
DESCRIPTIONS OF PERIOD EXPENSES -DESCRIBE -DESCRIBE OF PERIOD
------------ ---------- ---------- ---------- ---------- --------------
Year ended September 30, 1994:
Deducted from asset accounts:
Valuation allowance for deferred
tax assets............................. $ 56,000 $ - $ - $ 49,000(2) $ 7,000
Allowance for doubtful accounts.......... 1,646,000 1,411,068 301,980(3) 1,079,048(1) 2,280,000
---------- ----------- -------------- ----------------- ------------
Total................................. $1,702,000 $ 1,411,068 $ 301,980 $ 1,128,048 $ 2,287,000
========== =========== ============== ================= ============
Year ended September 30, 1995:
Deducted from asset accounts:
Valuation allowance for deferred tax
assets.................................. $ 7,000 $ - $ - $ 7,000(2) $ -
Allowance for doubtful accounts.......... 2,280,000 3,163,799 2,939,690(4) 1,513,489(1) 6,870,000
---------- ----------- -------------- ----------------- -----------
$2,287,000 $ 3,163,799 $2,939,690 $ 1,520,489 6,870,000
========== =========== ============== ================= ===========
Year ended September 30, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts.......... $6,870,000 $ 4,707,989 $ 264,000(5) $3,318,989(1) $ 8,523,000
========== =========== ============== ================= ===========
(1) Uncollectible accounts written off, net of recoveries.
(2) Utilization of net operating loss carryforwards.
(3) Allowance for doubtful accounts acquired in connection with the purchases
of Peters Pediatric Nursing Team, Inc.
(4) Allowance for doubtful accounts acquired in connection with the purchases
of Oxygen Specialties, Inc., Balwink Enterprises, Inc., Pediatric Partners,
Inc. and Echo Medical, Inc.
(5) Allowance for doubtful accounts acquired in connection with the purchases
of Maternal Infant Homecare, Case Management Systems, Inc. and Primary
Health Services, Inc.
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================================================================================
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INDEX TO EXHIBITS
The following exhibits are filed with or incorporated by reference in this
report:
Page No.
--------
Exhibits
(3)
The following exhibits are filed with or incorporated by
reference in this report. Where such filing is made by
incorporation by reference to a previously filed
registration statement or report, such registration
statement or report is identified in parentheses. The
Company will furnish any exhibit upon request to Pediatric
Services of America, Inc., 3159 Campus Drive, Norcross,
Georgia 30071-1042. There is a charge of $.50 per page to
cover expenses for copying and mailing.
3.1 Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (Registration
No. 33-77880) filed on May 31, 1994).
3.2 Bylaws of the Company, as amended and restated (incorporated
by reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (Registration No. 33-77880) filed on
May 31, 1994).
10.1 Asset Purchase Agreement, dated August 20, 1993, by and
among the Registrant, County Respiratory Products, Inc.,
Hyman Juter and Arlene Juter (incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form
S-1 (Registration No. 33-77880) filed on May 31, 1994).
10.2 Loan and Security Agreement, dated January 14, 1993, by and
among Pediatric Services of America, Inc., a Georgia
corporation ("PSA-Georgia"), PSA and Creditanstalt-
Bankverein (incorporated by reference to Exhibit 10.3 to the
Company's Registration Statement on Form S-1 (Registration
No. 33-77880) filed on May 31, 1994).
10.3 First Amendment to Loan and Security Agreement, dated July
29, 1994, by and among PSA-Georgia, PSA and Creditanstalt-
Bankverein (incorporated by reference to Exhibit to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994).
10.4 Second Amendment to Loan and Security Agreement, dated as of
March 31, 1995 by and among PSA-Georgia, PSA and
Creditanstalt-Bankverein (incorporated by reference to
Exhibit 10 to the Company's Current Report on Form 8-K (Date
of Report: March 31, 1995)).
10.5 First Amended and Restated Loan and Security Agreement, dated
as of December 4, 1996, by and among PSA-Georgia, PSA and
Creditanstalt-Bankverein and Nationsbank, N.A., as Lenders,
filed herewith.
10.6 Amended and Restated Warrant Agreement, dated July 29, 1994,
by and among the Company and Creditanstalt-Bankverein
(incorporated by reference to Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1994).
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Page 23
10.7 Preferred Stock Rights Agreement, dated October 2, 1992, among
the Company and the preferred stockholders of the Company named
therein (incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement on Form S-1 (Registration No.
33-77880) filed on May 31, 1994).
10.8 Stock Purchase and Stockholders Agreement, dated September 25,
1989, by and among the Company and the stockholders of the
Company named therein, as amended on October 16, 1991 and
January 14, 1993 (incorporated by reference to Exhibit 10.6 of
the Company's Registration Statement on Form S-1 (Registration
No. 33-77880) filed on May 31, 1994).
10.9 Executive Compensation Plans and Arrangements:
(a) Pediatric Services of America, Inc. Amended and Restated
Stock Option Plan, as amended (incorporated by reference
to Exhibit 10.7 of the Company's Registration Statement
on Form S-1 (Registration No. 33-7880) filed on May 31,
1994)).
(b) Amendment to be the Pediatric Services of America, Inc.
Amended and Restated Stock Option Plan (incorporated by
reference to Exhibit 10.8(b) of the Company's Annual
Report on Form 10-K for the fiscal year ended September
30, 1995).
(c) Pediatric Services of America, Inc. Director's Stock
Option Plan, (incorporated by reference to Exhibit 10.12
of the Company's Registration Statement on Form S-1
(Registration No. 33-77880) filed on May 31, 1994).
(d) Amendment to the Pediatric Services of America, Inc.
Directors' Stock Option Plan (incorporated by reference
to Exhibit 10.8(d) of the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1995).
(e) Pediatric Services of America, Inc. 401(k) Savings Plan
(incorporated by reference to Exhibit 10.8 of the
Company's Registration Statement of Form S-1
(Registration No. 33-77880) filed on May 31, 1994).
(f) Pediatric Services of America, Inc. Employee Stock
Purchase Plan (incorporated by reference to Exhibit
10.8(f) of the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1995).
(g) Form of Employment Agreement between Company and certain
other executive officers (incorporated by reference to
Exhibit 10.10 of the Company's Registration Statement on
Form S-1 (Registration No. 33-77880) filed on May 31,
1994).
(h) Employment Agreement, dated October 1, 1996, between the
Company and Joseph D. Sansone, filed herewith.
(i) Employment Agreement, dated July 22, 1996, between the
Company and Stephen M. Mengert, filed herewith.
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Page 24
Page No.
--------
10.10 Stock Purchase Agreement, dated October 1, 1994, among the
Company, Dean Elazab and Oxygen Specialties, Inc.
(incorporated by reference to Exhibit 2 to the Company's
Current Report on Form 8-K (Date of Report: October 1, 1994)).
10.11 Stock Purchase Agreement, among the Company and Joseph
Balskus, Lisa Balskus, Celia Winkelman, Herman Winkelman and
Balwink Enterprises, Inc. effective as of January 13, 1995
(incorporated by reference to Exhibit 1 to the Company's
Current Report on Form 8-K (Date of Report: January 13,
1995)).
10.12 Stock Purchase Agreement, dated as of March 31, 1995, among
the Company, T/2/ Medical, Inc., Charles Gaetano, Thomas
D'Anna, Coram Healthcare Corporation and Pediatric Partners,
Inc. (incorporated by reference to Exhibit 2 to the Company's
Current Report on Form 8-K (Date of Report: March 31, 1995)).
10.13 Stock Exchange Agreement, dated February 29, 1996, among the
Company and Premier Medical Services, Inc. (incorporated by
reference to Exhibit 1 to the Company's Current Report on Form
8-K (Date of Report: February 29, 1996)).
11 Computation of Earnings per Share, filed herewith.
13 1996 Annual Report.
Except for the portions of the 1996 Annual Report that are
specifically incorporated into this Form 10-K by reference,
the 1996 Annual Report is not deemed to be "filed" with the
Securities and Exchange Commission or subject to the
liabilities of Section 18 of the Securities Exchange Act of
1934, as amended.
21 Subsidiaries of Company, filed herewith.
23.1 Consent and Report as to Schedules of Independent Auditors ,
Ernst & Young LLP, filed herewith.
23.2 Consent of Independent Auditors, Deloitte & Touche LLP, filed
herewith.
23.3 Report of independent Auditors, Deloitte & Touche LLP, filed
herewith.
25 Powers of Attorney, filed herewith.
(b) The following Current Reports on Form 8-K were filed by
the Company during the quarter ended September 30, 1996.
Financial
Date of Form 8-K Statements
Report Item No. Description Filed
------ -------- ----------- ----------
July 12, 1996 5 Resignation of Senior Vice no
President and Chief Financial
Officer and Appointment of
Replacement dated on June 21,
1996
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