Attached files
file | filename |
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EX-31 - HEALTHTRONICS, INC. | exh312.htm |
EX-32 - HEALTHTRONICS, INC. | exh322.htm |
EX-31 - HEALTHTRONICS, INC. | exh311.htm |
EX-32 - HEALTHTRONICS, INC. | exh321.htm |
_______________________________________________________
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 March 31, 2010
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from
______ to ______
Commission File Number: 000-30406
HEALTHTRONICS, INC.
(Exact name of registrant as specified in its charter)
GEORGIA | 58-2210668 | ||||
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
9825 Spectrum Drive, Building 3, Austin, Texas 78717
(Address of principal executive office) (Zip code)
(512) 328-2892
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.
YES X NO __ |
Large accelerated filer __ | Accelerated filer X | Non-accelerated filer __ (do not check if a smaller reporting company) |
Smaller reporting company __ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES __ NO X |
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date. |
Title of Each Class Common Stock, no par value |
Number of Shares Outstanding at May 1, 2010 45,572,663 |
PART IFINANCIAL INFORMATIONItem 1 - Financial Statements |
-2- |
HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) |
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($ in thousands, except per share data) |
Three Months Ended March 31, |
|||||||
---|---|---|---|---|---|---|---|---|
2010 |
2009 | |||||||
Revenues | $ | 48,389 | $ | 43,612 | ||||
Cost of revenues (exclusive of depreciation and | ||||||||
amortization shown separately below) | 22,468 | 21,307 | ||||||
Gross profit | 25,921 | 22,305 | ||||||
Operating expenses | ||||||||
Selling, general and administrative | 6,317 | 4,556 | ||||||
Depreciation and amortization | 4,009 | 3,478 | ||||||
Total operating expenses | 10,326 | 8,034 | ||||||
Operating income | 15,595 | 14,271 | ||||||
Other income (expenses): | ||||||||
Interest and dividends | 36 | 50 | ||||||
Interest expense | (506 | ) | (290 | ) | ||||
(470 | ) | (240 | ) | |||||
Income from continuing operations before | ||||||||
provision for income taxes | 15,125 | 14,031 | ||||||
Provision for income taxes | 315 | 313 | ||||||
Consolidated net income | 14,810 | 13,718 | ||||||
Less: Net income attributable to noncontrolling interest | (12,489 | ) | (13,328 | ) | ||||
Net income attributable to HealthTronics, Inc. | $ | 2,321 | $ | 390 | ||||
Basic earnings per share attributable to HealthTronics, Inc.: | ||||||||
Net income attributable to HealthTronics, Inc. | $ | 0.05 | $ | 0.01 | ||||
Weighted average shares outstanding | 43,665 | 35,892 | ||||||
Diluted earnings per share attributable to HealthTronics, Inc.: | ||||||||
Net income attributable to HealthTronics, Inc. | $ | 0.05 | $ | 0.01 | ||||
Weighted average shares outstanding | 44,038 | 35,966 |
See accompanying notes to condensed consolidated financial statements. |
-3- |
HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) |
($ in thousands) |
March 31, 2010 |
December 31, 2009 | ||||||
---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 5,618 | $ | 8,412 | ||||
Accounts receivable, less allowance for doubtful | ||||||||
accounts of $2,577 in 2010 and $2,722 in 2009 | 31,216 | 32,580 | ||||||
Other receivables | 1,476 | 1,207 | ||||||
Prepaid expenses and other current assets | 4,640 | 3,306 | ||||||
Inventory | 11,216 | 12,498 | ||||||
Total current assets | 54,166 | 58,003 | ||||||
Property and equipment: | ||||||||
Equipment, furniture and fixtures | 61,696 | 60,696 | ||||||
Building and leasehold improvements | 9,170 | 9,139 | ||||||
70,866 | 69,835 | |||||||
Less accumulated depreciation and | ||||||||
amortization | (39,592 | ) | (36,954 | ) | ||||
Property and equipment, net | 31,274 | 32,881 | ||||||
Other investments | 1,850 | 1,850 | ||||||
Goodwill | 103,282 | 103,282 | ||||||
Intangible assets, net | 48,110 | 48,993 | ||||||
Other noncurrent assets | 3,628 | 4,110 | ||||||
$ | 242,310 | $ | 249,119 |
See accompanying notes to condensed consolidated financial statements. |
-4- |
HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (Unaudited) |
($ in thousands, except share data) |
March 31, 2010 |
December 31, 2009 | ||||||
---|---|---|---|---|---|---|---|---|
LIABILITIES | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt | $ | 1,931 | $ | 2,556 | ||||
Accounts payable | 3,406 | 4,679 | ||||||
Accrued expenses | 11,078 | 13,130 | ||||||
Total current liabilities | 16,415 | 20,365 | ||||||
Long-term debt, net of current portion | 42,895 | 45,963 | ||||||
Other long term obligations | 1,865 | 3,373 | ||||||
Deferred income taxes | 6,503 | 6,002 | ||||||
Total liabilities | 67,678 | 75,703 | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Preferred stock, $.01 par value, 30,000,000 shares authorized: none outstanding | ||||||||
Common stock, no par value, 70,000,000 shares authorized: 47,561,034 shares | ||||||||
issued and 45,573,358 shares outstanding in 2010 and 47,556,430 shares | ||||||||
issued and 45,584,108 shares outstanding in 2009 | 227,190 | 226,722 | ||||||
Accumulated deficit | (89,447 | ) | (91,768 | ) | ||||
Treasury stock, at cost, 1,987,676 shares in 2010 and 1,972,322 shares in 2009 | (4,609 | ) | (4,564 | ) | ||||
Total HealthTronics, Inc. shareholders' equity | 133,134 | 130,390 | ||||||
Noncontrolling interest | 41,498 | 43,026 | ||||||
Total equity | 174,632 | 173,416 | ||||||
$ | 242,310 | $ | 249,119 |
See accompanying notes to condensed consolidated financial statements. |
-5- |
HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the Period ended March 31, 2010 (Unaudited) |
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($ in thousands, except share data) | Issued Common Stock | Accumulated | Treasury Stock | Non- Controlling |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shares |
Amount |
Deficit |
Shares |
Amount |
Interest |
Total | |||||||||||||||||
Balance, December 31, 2009 | 47,556,430 | $ | 226,722 | $ | (91,768 | ) | (1,972,322 | ) | $ | (4,564 | ) | $ | 43,026 | $ | 173,416 | ||||||||
Net income | -- | -- | 2,321 | -- | -- | 12,489 | $ | 14,810 | |||||||||||||||
Distributions paid to | |||||||||||||||||||||||
noncontrolling interest | -- | -- | -- | -- | -- | (14,262 | ) | $ | (14,262 | ) | |||||||||||||
Sale of subsidiary interest to | |||||||||||||||||||||||
noncontolling interest | -- | -- | -- | -- | -- | 698 | $ | 698 | |||||||||||||||
Purchase of subsidiary interest from | |||||||||||||||||||||||
noncontrolling interest | -- | (77 | ) | -- | -- | -- | (453 | ) | $ | (530 | ) | ||||||||||||
Purchase of treasury stock | -- | -- | -- | (15,354 | ) | (45 | ) | -- | $ | (45 | ) | ||||||||||||
Share-based compensation | 4,604 | 545 | -- | -- | -- | -- | $ | 545 | |||||||||||||||
Balance, March 31, 2010 | 47,561,034 | $ | 227,190 | $ | (89,447 | ) | (1,987,676 | ) | $ | (4,609 | ) | $ | 41,498 | $ | 174,632 |
See accompanying notes to condensed consolidated financial statements. |
-6- |
HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
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Three Months Ended March 31, |
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($ in thousands) |
2010 |
2009 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Fee and other revenue collected | $ | 50,125 | $ | 42,207 | ||||
Cash paid to employees, suppliers of goods and others | (33,163 | ) | (25,885 | ) | ||||
Interest received | 36 | 50 | ||||||
Interest paid | (489 | ) | (338 | ) | ||||
Taxes paid | (198 | ) | (259 | ) | ||||
Net cash provided by operating activities | 16,311 | 15,775 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of entities, net of cash acquired | -- | (29 | ) | |||||
Purchases of equipment and leasehold improvements | (1,707 | ) | (2,214 | ) | ||||
Proceeds from sales of assets | 402 | 39 | ||||||
Other | -- | 23 | ||||||
Net cash used in investing activities | (1,305 | ) | (2,181 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Borrowings on notes payable | 1,784 | 203 | ||||||
Payments on notes payable, exclusive of interest | (5,665 | ) | (4,686 | ) | ||||
Distributions to noncontrolling interest | (14,041 | ) | (18,183 | ) | ||||
Contributions by noncontrolling interest, net of buyouts | 167 | 7 | ||||||
Purchase of treasury stock | (45 | ) | (18 | ) | ||||
Net cash used in financing activities | (17,800 | ) | (22,677 | ) | ||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (2,794 | ) | (9,083 | ) | ||||
Cash and cash equivalents, beginning of period | 8,412 | 22,854 | ||||||
Cash and cash equivalents, end of period | $ | 5,618 | $ | 13,771 |
See accompanying notes to condensed consolidated financial statements. |
-7- |
HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited) |
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Three Months Ended March 31, |
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($ in thousands) |
2010 |
2009 | ||||||
Reconciliation of net income to net cash provided by operating activities: | ||||||||
Net income | $ | 14,810 | $ | 13,718 | ||||
Adjustments to reconcile net income | ||||||||
to net cash provided by operating activities | ||||||||
Depreciation and amortization | 4,009 | 3,478 | ||||||
Provision for uncollectible accounts | 272 | 120 | ||||||
Provision for deferred income taxes | 501 | 721 | ||||||
Non-cash share based compensation | 545 | 776 | ||||||
Other | (216 | ) | 73 | |||||
Changes in operating assets and liabilities, | ||||||||
net of effect of purchase transactions | ||||||||
Accounts receivable | 1,093 | (1,124 | ) | |||||
Other receivables | (269 | ) | (162 | ) | ||||
Inventory | 1,283 | 216 | ||||||
Other assets | (1,113 | ) | (1,801 | ) | ||||
Accounts payable | (1,273 | ) | 1,692 | |||||
Accrued expenses | (3,331 | ) | (1,932 | ) | ||||
Total adjustments | 1,501 | 2,057 | ||||||
Net cash provided by operating activities | $ | 16,311 | $ | 15,775 |
See accompanying notes to condensed consolidated financial statements. |
-8- |
HEALTHTRONICS, INC. AND SUBSIDIARIES |
1. General
The accompanying unaudited condensed 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 condensed consolidated financial statements reflect all adjustments which are, in our
opinion, necessary for a fair presentation of the statement of financial position as of March 31, 2010 and the
results of operations and cash flows for the periods presented. Such adjustments are of a normal recurring
nature unless otherwise noted herein. The operating results for the interim periods are not necessarily
indicative of results for the full fiscal year. |
2. Debt
Senior Credit Facility
|
-9- |
HEALTHTRONICS, INC. AND SUBSIDIARIES |
Other |
3. Earnings per share
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, non-vested stock awards, and warrants. A reconciliation of such EPS data is as follows: |
($ in thousands, except per share data) |
Basic earnings per share |
Diluted earnings per share | |||||||
---|---|---|---|---|---|---|---|---|---|
Three Months Ended March 31, 2010 | |||||||||
Net income attributable to HealthTronics, Inc. | $ | 2,321 | $ | 2,321 | |||||
Weighted average shares outstanding | 43,665 | 43,665 | |||||||
Effect of dilutive securities | -- | 373 | |||||||
Shares for EPS calculation | 43,665 | 44,038 | |||||||
Net income per share attributable to HealthTronics, Inc. | $ | 0.05 | $ | 0.05 | |||||
Three Months Ended March 31, 2009 | |||||||||
Net income attributable to HealthTronics, Inc. | $ | 390 | $ | 390 | |||||
Weighted average shares outstanding | 35,892 | 35,892 | |||||||
Effect of dilutive securities | -- | 74 | |||||||
Shares for EPS calculation | 35,892 | 35,966 | |||||||
Net income per share attributable to HealthTronics, Inc. | $ | 0.01 | $ | 0.01 |
We did not include in our computation of diluted EPS unexercised stock options and non-vested stock awards to purchase 2,855,000 and 2,712,000 shares of our common stock as of March 31, 2010 and 2009, respectively, because the effect would be antidilutive. |
4. Stock-Based Compensation
On January 1, 2006, we adopted ASC 718, Stock Compensation (ASC 718), (formerly SFAS 123(R), Share-Based Payment), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including stock option grants based on estimated fair values. ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the awards portion that is ultimately expected to vest is recognized as expense over the requisite service periods. Prior to the adoption of ASC 718, we accounted for share-based awards to employees and directors using the intrinsic value method. Under the intrinsic value method, share-based compensation expense was only recognized by us if the exercise price of the stock option was less than the fair market value of the underlying stock at the date of grant. We have elected to use the modified prospective application method such that ASC 718 applies to new awards, the unvested portion of existing awards and to awards modified, repurchased or canceled after the effective date. |
-10- |
HEALTHTRONICS, INC. AND SUBSIDIARIES |
Under ASC 718, nonvested stock awards are awards that the employee has not yet earned the right to sell and are
subject to forfeiture if the terms of service are not satisfied. These awards should be measured based on the
market prices of otherwise identical (i.e., identical except for the vesting condition) common stock at the grant
date. A nonvested equity share awarded to an employee shall be measured at its fair value as if it were vested
and issued on the grant date. The vesting restrictions are taken into account by recognizing compensation cost
only for awards for which the employee has rendered the requisite service (i.e., vested). |
5. Inventory
As of March 31, 2010 and December 31, 2009, inventory consisted of the following: |
($ in thousands) |
March 31, 2010 |
December 31, 2009 |
|||||||
---|---|---|---|---|---|---|---|---|---|
Raw Materials | $ | 7,230 | $ | 7,381 | |||||
Work in process | 346 | 414 | |||||||
Finished Goods | 3,640 | 4,703 | |||||||
$ | 11,216 | $ | 12,498 | ||||||
-11- |
HEALTHTRONICS, INC. AND SUBSIDIARIES |
6. New Pronouncements
In January 2010, the Financial Accounting Standards Board (FASB) issued ASU 2010-06, Improving
Disclosures about Fair Value Measurements (ASU 2010-06). ASU 2010-06 requires additional
disclosures about fair value measurements including transfers in and out of Levels 1 and 2 and more
disaggregation for the different types of financial instruments. This ASU is effective for annual and interim
reporting periods beginning after December 15, 2009 for most of the new disclosures and for periods beginning
after December 15, 2010 for the new Level 3 disclosures. Comparative disclosures are not required in the first
year the disclosures are required. We did not have any significant transfers in or out of Level 1 and Level 2
fair value measurements during the three months ended March 31, 2010. |
-12- |
HEALTHTRONICS, INC. AND SUBSIDIARIES |
In May 2009, the FASB issued ASC 855, Subsequent Events (ASC 855), (formerly SFAS No. 165, Subsequent Events). ASC 855 should be applied to the accounting for and disclosure of subsequent events. This Statement does not apply to subsequent events or transactions that are within the scope of other applicable GAAP that provide different guidance on the accounting treatment for subsequent events or transactions. ASC 855 would apply to both interim financial statements and annual financial statements. The objective of ASC 855 is to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this Statement sets forth: 1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; 2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and, 3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. ASC 855 is effective for interim or annual financial periods ending after June 15, 2009. We adopted ASC 855 during the second quarter of 2009 and its application did not affect our consolidated financial position, results of operations, or cash flows. We evaluated subsequent events through the date the accompanying financial statements were issued. |
7. Acquisitions
On July 27, 2009, we completed our acquisition of Endocare, Inc. (Endocare), pursuant to the
Agreement and Plan of Merger (Merger Agreement), dated as of June 7, 2009, among us, HT Acquisition,
Inc., a wholly-owned subsidiary of ours, and Endocare. Endocare is a medical device company focused on
developing, manufacturing and selling cryoablation products which have the potential to assist physicians in
improving and extending life by use in the treatment of cancer and other tumors. In accordance with the terms and
conditions of the Merger Agreement, Endocare shareholders had the option to receive the following consideration
for each share of Endocare common stock they owned: (i) $1.35 in cash, without interest, or (ii) 0.7764 of a
share of our common stock, in each case subject to proration. The aggregate amount of cash paid was
approximately $4.2 million and the aggregate number of shares of our common stock issued was approximately
7.3 million shares. Based upon our allocation of the purchase price, we recognized $6.8 million of goodwill
related to this transaction, none of which is tax deductible. |
-13- |
HEALTHTRONICS, INC. AND SUBSIDIARIES |
Our unaudited proforma combined income data for the periods ended March 31, 2009, assuming the acquisitions were effective January 1 of each period, is as follows: |
($ in thousands, except per share data) |
Three Months Ended March 31, 2009 | |||||
---|---|---|---|---|---|---|
Total revenues | $ | 49,474 | ||||
Total expenses | (50,272 | ) | ||||
Net income (loss) attributable to HealthTronics, Inc. | $ | (798 | ) | |||
Diluted earnings per share | $ | (0.02 | ) |
8. Fair Value of Financial Instruments
The carrying amounts and estimated fair values of our significant financial instruments as of March 31, 2010 and December 31, 2009 are as follows: |
March 31, 2010 |
December 31, 2009 |
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
( $ in thousands) |
Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value | |||||||||||||
Financial assets: | |||||||||||||||||
Cash and cash equivalents | $ | 5,618 | $ | 5,618 | $ | 8,412 | $ | 8,412 | |||||||||
Financial liabilities: | |||||||||||||||||
Debt | $ | 44,826 | $ | 44,826 | $ | 48,519 | $ | 48,519 | |||||||||
Other long-term obligations | 1,865 | 1,760 | 3,373 | 3,305 |
The following methods and assumptions were used by us in estimating our fair value disclosures for financial
instruments. |
-14- |
HEALTHTRONICS, INC. AND SUBSIDIARIES |
Limitations |
9. Variable Interest Entities
We have determined that one of our consolidated partnerships, acquired in the HSS merger and in which we have a 20% interest, has certain related party relationships with two Variable Interest Entities (VIE), and in accordance with ASC 810, has consolidated those entities. As a result of consolidating the VIEs, of which the partnership is the primary beneficiary, we have recognized noncontrolling interest of approximately $800,000 on our consolidated balance sheets at March 31, 2010 and December 31, 2009, which represents the difference between the assets and the liabilities recorded upon the consolidation of the VIEs. The liabilities recognized as a result of consolidating the VIEs do not represent additional claims on our general assets. Rather, they represent claims against the specific assets of the consolidated VIEs. Conversely, assets recognized as a result of consolidating these VIEs do not represent additional assets that could be used to satisfy claims against our general assets. Reflected on our consolidated balance sheet as of March 31, 2010 and December 31, 2009 are $4.7 million and $4.3 million, respectively, of VIE assets, representing all of the assets of the VIEs. The VIEs assist the partnership in providing urological services, minimally invasive prostate treatments, and other services in the Greater New York metropolitan area. |
10. Subsequent Events
On May 5, 2010, we entered into an Agreement and Plan of Merger (the Merger Agreement) with Endo
Pharmaceuticals Holdings Inc. (Endo) and HT Acquisition Corp., a wholly-owned subsidiary of Endo
(Purchaser), pursuant to which Endo will acquire us. |
-15- |
HEALTHTRONICS, INC. AND SUBSIDIARIES |
The Offer, if successful, will be followed by a merger (the Merger) of Purchaser with and into us,
with us as the surviving corporation and a wholly-owned subsidiary of Endo. In the Merger, any Shares not
tendered into the Offer, other than Shares held by us, Endo, Purchaser or shareholders who have validly exercised
their appraisal rights under the Georgia Business Corporation Code, will be cancelled and automatically converted
into the right to receive the same per share consideration paid to shareholders in the Offer. |
-16- |
Item 2
Managements 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 review the risk factors
described in our most recent Annual Report 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. |
| 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; | |
| the effects of competition and technological changes; | |
| the availability (or lack thereof) of acquisition or combination opportunities; | |
| the integration of acquired business; and | |
| general economic, market or business conditions. |
General
We provide healthcare services and medical devices, primarily to the urology marketplace.
|
-17- |
Item 2
Managements Discussion and Analysis
|
We have two types of contracts, retail and wholesale, that we enter into in providing our lithotripsy services.
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 portion of the total non-physician fee. |
-18- |
Item 2
Managements Discussion and Analysis
|
Anatomical pathology services. We also provide anatomical pathology services primarily to the urology
community. We have one pathology lab located in Georgia, Claripath Laboratories, that provides laboratory
detection and diagnosis services to urologists throughout the United States. In addition, in July 2008, we
acquired Uropath LLC, which managed pathology laboratories located at Uropath sites for physician practice groups
located in Texas, Florida and Pennsylvania. Through Uropath, we continue to provide administrative services to
in-office pathology labs for practice groups and provide pathology services to physicians and practice groups
with our lab equipment and personnel at our Uropath laboratory sites. |
| Fees for urology treatments . A substantial majority of our revenue is derived from fees related to lithotripsy treatments performed using our lithotripters. For lithotripsy and prostate treatment services, we, through our partnerships and 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. We recognize revenue for these services when the services are provided. IGRT technical services are billed monthly and the related revenues are recognized as the related services are provided. |
| Fees for managing the operation of our lithotripters and prostate treatment devices. Through our partnerships and otherwise directly by us, we provide services related to operating our lithotripters and prostate treatment equipment and receive a management fee for performing these services. We recognize revenue for these services as the services are provided. |
| Fees for maintenance services . We provide equipment maintenance services to our partnerships as well as outside parties. These services are billed either on a time and material basis or at a fixed contractual rate, payable monthly, quarterly, or annually. Revenues from these services are recorded when the related maintenance services are performed. |
| Fees for equipment sales, consumable sales and licensing applications . We manufacture and sell medical devices focused on minimally invasive technologies for tissue and tumor ablation through cryosurgery, and their related consumables. We also sell and maintain lithotripters and manufacture and sell consumables related to the lithotripters. We distribute the Revolix laser and consumables related to the laser. With respect to some lithotripter sales, in addition to the original sales price, we receive a licensing fee from the buyer of the lithotripter for each patient treated with such lithotripter. In exchange for this licensing fee, we provide the buyer of the lithotripter with certain consumables. All the sales for equipment and consumables are recognized when the related items are delivered. Revenues from licensing fees are recorded when the patient is treated. In some cases, we lease certain equipment to our partnerships as well as third parties. Revenues from these leases are recognized on a monthly basis or as procedures are performed. |
| Fees for anatomical pathology services . We provide anatomical pathology services primarily to the urology community. Revenues from these services are recorded when the related laboratory procedures are performed. |
Recent Developments |
-20- |
Item 2
Managements Discussion and Analysis
|
Pursuant to the Merger Agreement and subject to certain exceptions, we granted to Purchaser an irrevocable option
(the Top-Up Option) to purchase, at a per Share price equal to the Offer Price, newly-issued Shares
in an amount up to the lowest number of Shares that, when added to the number of Shares owned by Purchaser at the
time of exercise of the Top-Up Option, will constitute one Share more than 90% of the total Shares outstanding on
a fully-diluted basis. The price per share to be paid for the Top-Up shares will be the Offer Price. |
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Item 2
Managements Discussion and Analysis
|
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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Item 2
Managements Discussion and Analysis
|
Our cost of revenues increased $1,161,000 in the first quarter of 2010 as compared to the same period in 2009.
The primary causes of this increase relate to the cost of revenues attributable to our new Endocare subsidiary,
the costs from which totaled $424,000, growth in our lab operations, which had increased costs totaling $408,000
in the first quarter of 2010 as compared to the same period in 2009, and costs at our partnerships which
increased $452,000 in 2010 as compared to the same quarter in 2009. The increase in partnership costs was
approximately 2% and related primarily to compensation related expenses. Our selling, general and administrative
costs for the quarter ended March 31, 2010 increased $1,761,000 over the same period in 2009. This increase was
primarily driven by approximately $1,213,000 in increased costs for our new Endocare subsidiary sales and
marketing efforts and $604,000 for increase sales and marketing efforts at our Lab in 2010 as compared with the
same quarter in 2009. |
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Item 2
Managements Discussion and Analysis
|
Cash provided by our operating activities, after noncontrolling interest, was $16,311,000 for the period ended
March 31, 2010 and $15,775,000 for the period ended March 31, 2009. From 2009 to 2010, fee and other revenue
collected increased by $7,918,000 due primarily to increased revenues from our acquisitions as well as timing of
the collections of accounts receivable. Cash paid to employees, suppliers of goods and others increased by
$7,278,000 in 2010. This fluctuation is primarily attributable to increased operating expenses from our
acquisitions and timing of payments, primarily related to certain Endocare related severance payments and our
annual bonus program payments. |
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Item 2
Managements Discussion and Analysis
|
As of March 31, 2010 we have drawn $40.5 million on the revolver. Our senior credit facility contains covenants
that, among other things, limit our ability to incur debt, create liens, make investments, sell assets, pay
dividends, make capital expenditures, make restricted payments, enter into transactions with affiliates, and make
acquisitions. In addition, our facility requires us to maintain certain financial ratios. Our assets and the
stock of our subsidiaries collateralize the revolving credit facility. We were in compliance with the covenants
under our senior credit facility as of March 31, 2010. |
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) | $ | 44,826 | $ | 1,931 | $ | 42,396 | $ | 113 | $ | 386 | |||||||
Operating leases (2) | 10,231 | 2,974 | 4,242 | 2,519 | 496 | ||||||||||||
Other contracts (3) | 266 | 171 | 95 | -- | -- | ||||||||||||
Total | $ | 55,323 | $ | 5,076 | $ | 46,733 | $ | 2,632 | $ | 882 | |||||||
(1) | Represents long term debt as discussed above. | ||||
(2) | Represents operating leases in the ordinary course of our business. | ||||
(3) | Represents non-compete obligations of $266, as described above. |
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Item 2
Managements Discussion and Analysis
|
In addition, the scheduled principal repayments for all long term debt as of March 31, 2010 are payable as follows: |
($ in thousands) | ||||||
---|---|---|---|---|---|---|
2010 | $ | 1,931 | ||||
2011 | 1,188 | |||||
2012 | 41,208 | |||||
2013 | 77 | |||||
2014 | 36 | |||||
Thereafter | 386 | |||||
Total | $ | 44,826 | ||||
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 discussed under Risk Factors under Part I of our 2009 Annual Report on Form 10-K.
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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Item 2
Managements Discussion and Analysis
|
Recently Issued Accounting Pronouncements |
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Item 2
Managements Discussion and Analysis
|
In May 2009, the FASB issued ASC 855, Subsequent Events (ASC 855), (formerly SFAS No. 165, Subsequent Events). ASC 855 should be applied to the accounting for and disclosure of subsequent events. This Statement does not apply to subsequent events or transactions that are within the scope of other applicable GAAP that provide different guidance on the accounting treatment for subsequent events or transactions. ASC 855 would apply to both interim financial statements and annual financial statements. The objective of ASC 855 is to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this Statement sets forth: 1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; 2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and, 3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. ASC 855 is effective for interim or annual financial periods ending after June 15, 2009. We adopted ASC 855 during the second quarter of 2009 and its application did not affect our consolidated financial position, results of operations, or cash flows. We evaluated subsequent events through the date the accompanying financial statements were issued. |
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Item 3 Quantitative and Qualitative Disclosures |
Interest Rate Risk
As of March 31, 2010, we had long-term debt (including current portion) totaling $44,826,000, of which $2,361,000 had fixed rates of 5% to 8%, and $42,465,000 incurred interest at a variable rate equal to a specified prime rate. We are exposed to some market risk due to the remaining floating interest rate debt totaling $42,465,000. We make monthly or quarterly payments of principal and interest on $1,735,000 of the floating rate debt. An increase in interest rates of 1% would result in a $425,000 annual increase in interest expense on this existing principal balance. |
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Item 4 Controls and Procedures |
As of March 31, 2010, 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 March 31, 2010, our
disclosure controls and procedures were effective. |
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PART IIOTHER INFORMATION |
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Item 1A. Risk Factors.
Except as provided below, in addition to the other information set forth in this report, you should carefully
consider the factors discussed under Risk Factors in Part I, Item 1 in our Annual Report on Form 10-K
for the year ended December 31, 2009, which could materially affect our business, financial condition or future
results. There are no material changes from the risk factors disclosed in our Form 10-K for the year ended
December 31, 2009. |
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If the tender offer and the merger are not completed for any reason, we may be subject to a number of risks, including the following: |
| we may be required to pay a termination fee of $8 million upon termination of the merger agreement in certain circumstances; | |
| the price of our common stock may decline; and | |
| costs related to the tender offer and the merger must be paid even if the tender offer and the merger are not completed. |
The completion of the tender offer may adversely affect the liquidity and value of the shares not tendered. |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities (a)
Period |
Total Number of Shares Purchased |
Average Price Paid Per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number (or Approximate Dollar Value) of Shares That May Yet be Purchased Under the Plans or Programs | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Month 1 (1/1/2010 1/31/2010) | 7,440 | (b) | $ | 2.48 | -- | |||||||||
Month 2 (2/1/2010 2/28/2010) | -- | $ | -- | -- | ||||||||||
Month 3 (3/1/2010 3/31/2010) | 7,914 | (b) | $ | 3.37 | -- | |||||||||
Total | 15,354 | $ | 2.94 | -- | 6,260,000 |
(a) | On October 6, 2008, our Board of Directors authorized the repurchase of up to $10 million of our common stock. We anticipate that the stock will be repurchased through privately-negotiated transactions or on the open market. We intend to comply with the SECs Rule 10b-18, and the repurchases will be subject to market conditions, applicable legal requirements, and other factors. We are not obligated to repurchase shares under the program, and our Board of Directors may suspend or terminate the program at any time. The repurchase program has no expiration date. We have no repurchase plans or programs that expired during the period covered by the above table, and we have no repurchase plans or programs that we intend to terminate prior to expiration or under which we no longer intend to make further purchases. |
|
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(b) | Represents shares used by 9 employees to pay their federal tax withholding obligation related to the vesting of certain restricted stock awards in January and March 2010. |
Item 6. Exhibits.
31.1* 31.2* 32.1* 32.2* |
Certification of Chief Executive Officer Certification of Chief Financial Officer Certification of Chief Executive Officer Certification of Chief Financial Officer |
* Filed herewith. |
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SIGNATURES |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. |
Date: May 10, 2010 |
HEALTHTRONICS, INC. By: /s/ Richard A. Rusk Richard A. Rusk Chief Financial Officer |
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