-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TuDGieq6AXTbi+PTijFxrPGrOv4p/vTpRxu57OqaXie35IYYfs4O7Q/2nZJgK5TC VqkzFBAlmxs5W3Gyiiw4qA== 0000891618-99-002258.txt : 19990517 0000891618-99-002258.hdr.sgml : 19990517 ACCESSION NUMBER: 0000891618-99-002258 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAYTEL MEDICAL CORP CENTRAL INDEX KEY: 0001002017 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 942787342 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27186 FILM NUMBER: 99623355 BUSINESS ADDRESS: STREET 1: 2755 CAMPUS DR STREET 2: STE 200 CITY: SAN MATEO STATE: CA ZIP: 94403 BUSINESS PHONE: 4153490800 MAIL ADDRESS: STREET 1: 2755 CAMPUS DRIVE STREET 2: SUITE 200 CITY: SAN MATEO STATE: CA ZIP: 94403 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the Quarterly period ended March 31, 1999; 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: 0-27186 RAYTEL MEDICAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 94-2787342 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2755 CAMPUS DRIVE, SUITE 200, SAN MATEO, CALIFORNIA 94403 (Address of principal executive offices) (Zip code) (650) 349-0800 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
CLASS SHARES OUTSTANDING AS OF APRIL 30, 1999 ----- --------------------------------------- COMMON STOCK ($.001 PAR VALUE) 8,716,630
2 RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES INDEX
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of March 31, 1999 and September 30, 1998............................... 3 Condensed Consolidated Statements of Operations for the three months and the six months ended March 31, 1999 and 1998 4 Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 1999 and 1998.................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................ 7 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders................... 13 Item 6. Exhibits and Reports on Form 8-K...................................... 13 SIGNATURE...................................................................... 14
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 1999 AND SEPTEMBER 30, 1998 (000'S OMITTED) ASSETS
MARCH 31, SEPTEMBER 30, 1999 1998 --------- ------------- (UNAUDITED) Current assets: Cash and cash equivalents $ 8,077 $ 7,463 Receivables, net 37,295 35,504 Prepaid expenses and other 3,533 3,996 --------- --------- Total current assets 48,905 46,963 Property and equipment, less accumulated depreciation and amortization 23,378 19,681 Intangible assets, less accumulated amortization 53,862 55,497 Other 52 45 --------- --------- Total assets $ 126,197 $ 122,186 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt and capital lease obligations $ 2,394 $ 1,962 Accounts payable 4,434 4,649 Accrued compensation and benefits 3,396 2,920 Accrued liabilities 5,553 6,264 --------- --------- Total current liabilities 15,777 15,795 Long-term debt and capital lease obligations, net of current portion 37,929 35,035 Deferred liabilities 154 1,405 Minority interest in consolidated entities 3,031 3,460 --------- --------- Total liabilities 56,891 55,695 --------- --------- Stockholders' equity: Common stock 9 9 Additional paid-in capital 61,922 61,790 Common stock to be issued 1,114 1,124 Retained earnings 9,883 7,190 --------- --------- 72,928 70,113 Less treasury stock, at cost (3,622) (3,622) --------- --------- Total stockholders' equity 69,306 66,491 --------- --------- Total liabilities and stockholders' equity $ 126,197 $ 122,186 ========= =========
3 4 RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED) (000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31, --------------------------- ------------------------- 1999 1998 1999 1998 --------- --------- -------- -------- Revenues: Pacing, CEDS and Holter $ 11,024 $ 11,610 $ 22,741 $ 22,962 Diagnostic imaging service 4,990 5,053 9,770 9,344 Heart center, practice management and other 11,042 10,488 20,350 20,709 -------- -------- -------- -------- Total revenues 27,056 27,151 52,861 53,015 -------- -------- -------- -------- Costs and expenses: Operating costs 12,704 12,471 24,548 24,819 Selling, general and administrative 9,451 8,882 18,566 17,116 Depreciation and amortization 2,063 2,171 4,132 4,324 -------- -------- -------- -------- Total costs and expenses 24,218 23,524 47,246 46,259 -------- -------- -------- -------- Operating income 2,838 3,627 5,615 6,756 Interest expense 614 780 1,286 1,509 Other expense (income) (360) (128) (537) (198) Minority interest 382 318 451 578 -------- -------- -------- -------- Income before income taxes 2,202 2,657 4,415 4,867 Provision for income taxes 859 1,063 1,722 1,947 -------- -------- -------- -------- Net income $ 1,343 $ 1,594 $ 2,693 $ 2,920 ======== ======== ======== ======== Net income per share: Basic $ .15 $ .18 $ .31 $ .33 ======== ======== ======== ======== Diluted $ .15 $ .17 $ .30 $ .31 ======== ======== ======== ======== Weighted average shares: Basic 8,709 8,919 8,688 8,919 ======== ======== ======== ======== Diluted 9,076 9,401 9,076 9,470 ======== ======== ======== ========
4 5 RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED) (000'S OMITTED)
MARCH 31, ----------------------- 1999 1998 ------- ------- Cash flows from operating activities: Net income $ 2,693 $ 2,920 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,132 4,324 Minority interest 451 578 Pay out of deferred compensation (1,245) -- Other, net (22) 187 Changes in operating accounts: Receivables, net (1,791) (4,920) Prepaid expenses and other 463 19 Accounts payable (215) (1,556) Accrued liabilities and other (235) (1,120) ------- ------- Net cash provided by operating activities 4,231 432 ------- ------- Cash flows from investing activities: Capital expenditures (6,165) (3,077) Other, net (20) (265) ------- ------- Net cash used in investing activities (6,185) (3,342) ------- ------- Cash flows from financing activities: Repurchase of company stock -- (488) Income distributions to noncontrolling investors (881) (865) Proceeds from line of credit 356 4,830 Proceeds from (principal repayments of) debt 2,974 (841) Other, net 119 261 ------- ------- Net cash provided by financing activities 2,568 2,897 ------- ------- Net increase (decrease) in cash and cash equivalents 614 (13) Cash and cash equivalents at beginning of period 7,463 7,873 ------- ------- Cash and cash equivalents at end of period $ 8,077 $ 7,860 ======= =======
5 6 The accompanying unaudited condensed consolidated financial statements of Raytel Medical Corporation (the "Company") have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three months and six months ended March 31, 1999 are not necessarily indicative of results that may be expected for the year ending September 30, 1999. For further information, refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended September 30, 1998. For the three months and six months ended March 31, 1999 and 1998, basic and diluted earnings per share are calculated as follows:
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED MARCH 31, ENDED MARCH 31, -------------------- -------------------- 1999 1998 1999 1998 ------ ------ ------ ------ (000's omitted, except per share amounts) BASIC EARNINGS PER SHARE: Net income $1,343 $1,594 $2,693 $2,920 ====== ====== ====== ====== Weighted average shares outstanding 8,709 8,919 8,688 8,919 ====== ====== ====== ====== Per share $ .15 $ .18 $ .31 $ .33 ====== ====== ====== ====== DILUTED EARNINGS PER SHARE: Net income $1,343 $1,594 $2,693 $2,920 ====== ====== ====== ====== Weighted average shares outstanding 8,709 8,919 8,688 8,919 Shares to be issued 151 132 151 132 Options 216 310 237 363 Warrants -- 40 -- 56 ------ ------ ------ ------ 9,076 9,401 9,076 9,470 ====== ====== ====== ====== Per share $ .15 $ .17 $ .30 $ .31 ====== ====== ====== ======
Certain options and warrants to purchase shares of common stock were outstanding during the three months and six months ended March 31, 1999 and 1998, but were not included in the computation of diluted earnings per share because their exercise prices were greater than the average market price of the common shares for the period. The options and warrants outstanding and their exercise prices are as follows:
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED MARCH 31, ENDED MARCH 31, -------------------------------------- -------------------------------------- 1999 1998 1999 1998 --------------- --------------- --------------- --------------- Options and warrants outstanding 481,456 109,725 482,135 55,313 Range of exercise prices $4.625 - $13.50 $10.50 - $13.50 $4.625 - $13.50 $10.50 - $13.50
6 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion and analysis includes a number of forward-looking statements which reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including those discussed under "Business Environment and Future Results" and elsewhere in this Item, that could cause actual results to differ materially from historical results or those anticipated. In this Item, the words "anticipates," "believes," "expects," "intends," "future" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. OVERVIEW The Company generates the majority of its revenues from the provision of transtelephonic monitoring services for cardiac pacemaker patients ("Pacing"), cardiac event detection services ("CEDS") and Holter, diagnostic imaging services and cardiac catheterization procedures. Following the Company's initial public offering in December 1995, the Company has entered into a series of transactions which have expanded its heart center and physician practice management businesses. As a result, revenue is also being provided from: Raytel Heart Center at Granada Hills ("RHCGH") beginning on February 1, 1996; the management of Southeast Texas Cardiology Associates II P.A. ("SETCA") beginning on September 18, 1996; the management of Comprehensive Cardiology Consultants, a Medical Group, Inc. ("CCMG") beginning on November 1, 1996; and Cardiovascular Ventures, Inc. ("CVI") beginning on August 15, 1997, which included the multi-specialty medical practice, Heart and Family Health Institute ("HFHI") and seven cardiovascular diagnostic facilities. Under certain practice management contracts, revenues are recognized pursuant to long-term arrangements with physician groups under which the Company provides the physician group with a full range of services, including, but not limited to, office space, specialized clinical and procedural facilities, medical equipment, data processing and medical record keeping, billing and collection procedures and services, non-physician licensed personnel, such as nurses and technicians, as well as office staff and administrative personnel. In the case of SETCA and CCMG, the Company's practice management revenues are derived from the physician groups' revenues, generally as a purchased service, except for certain physician compensation and employment benefits, which are paid by the physician group on a priority basis. Under the above management services arrangements, the Company's practice management revenues represent approximately 68.4% and 52.0% of the revenues of the physician groups for the three months ended March 31, 1999 and 1998, respectively and approximately 67.1% and 53.6% for the six months ended March 31, 1999 and 1998, respectively. For HFHI, the Company recognizes 100% of all medical revenue as the physicians are employees of the Company. On October 9, 1997, the Company announced it had entered into an agreement with The Baptist Hospital of Southeast Texas ("Baptist") to develop a Raytel Cardiovascular Center at the hospital. Under the agreement, Raytel was to manage the cardiovascular center, which will provide the entire continuum of cardiovascular services, including diagnostic, therapeutic and patient management programs. Among other duties, Raytel was to be responsible for the day-to-day operations of the heart center, including administrative support, information systems management, marketing and public relations activities. The Company began operations at Baptist during its fourth quarter of fiscal 1998. Due to the recent merger between Baptist and the Memorial Hermann Hospital System, a modified agreement became effective March 1, 1999. Therefore, during the first five months of fiscal 1999, the Company only recognized revenue to the extent of expenses. Effective March 1, 1999, the Company is recognizing revenue based on the modified agreement which calls for the Company to manage portions of the cardiovascular surgery and cardiology programs at Baptist and to develop and manage specialty clinics to support the cardiovascular program. 7 8 RESULTS OF OPERATIONS Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998. Revenues. Pacing, CEDS and Holter revenues decreased by $586,000, or 5.0%, from $11,610,000 for the three months ended March 31, 1998 to $11,024,000 for the three months ended March 31, 1999, due primarily to slight decreases in CEDS and Pacing revenue. Diagnostic imaging service revenues decreased slightly by $63,000, or 1.2%, from $5,053,000 for the three months ended March 31, 1998 to $4,990,000 for the three months ended March 31, 1999. Heart Center, practice management and other revenues increased by $554,000, or 5.3%, from $10,488,000 for the three months ended March 31, 1998 to $11,042,000 for the three months ended March 31, 1999 due primarily to slightly increased revenue at HFHI. As a result of the foregoing factors, total revenues decreased by $95,000, or 0.3%, from $27,151,000 for the three months ended March 31, 1998 to $27,056,000 for the three months ended March 31, 1999. Operating Expenses. Operating costs and selling, general and administrative expenses increased by $802,000, or 3.8%, from $21,353,000 for the three months ended March 31, 1998 to $22,155,000, for the three months ended March 31, 1999 due primarily to slight increases in costs and expenses in Pacing and CEDS and diagnostic imaging services. Operating costs and selling, general and administrative expenses as a percentage of total revenues increased from 78.6% for the three months ended March 31, 1998 to 81.9% for the three months ended March 31, 1999. At RHCGH, operating expenses were slightly in excess of revenues for both periods. Depreciation and Amortization. Depreciation and amortization expense decreased by $108,000, from $2,171,000 for the three months ended March 31, 1998 to $2,063,000 for the three months ended March 31, 1999, and decreased as a percentage of revenues from 8.0% for the three months ended March 31, 1998 to 7.6% for the three months ended March 31, 1999. Operating Income. As a result of the foregoing factors, operating income decreased by $789,000, or 21.8%, from $3,627,000 for the three months ended March 31, 1998 to $2,838,000 for the three months ended March 31, 1999. Interest Expense. Interest expense decreased by $166,000, or 21.2%, from $780,000 for the three months ended March 31, 1998 to $614,000 for the three months ended March 31, 1999 due primarily to lower interest rates and to a decrease in the average amount of debt outstanding. Other expense (income). Other income increased by $232,000, from $128,000 for the three months ended March 31, 1998 to $360,000 for the three months ended March 31, 1999 due primarily to a series of insignificant items. Minority interest. Minority interest increased by $64,000, or 20.1%, from $318,000 for the three months ended March 31, 1998 to $382,000 for the three months ended March 31, 1999 due primarily to the increased income in certain cardiovascular diagnostic facilities. Income Taxes. The provision for income taxes decreased by $204,000, or 19.2%, from $1,063,000 for the three months ended March 31, 1998 to $859,000 for the three months ended March 31, 1999 as a result of decreased taxable income and a lower effective tax rate. Net Income. As a result of the foregoing factors, net income decreased by $251,000, or 15.8%, from $1,594,000 for the three months ended March 31, 1998 to $1,343,000 for the three months ended March 31, 1999. 8 9 Six Months Ended March 31, 1999 Compared to Six Months Ended March 31, 1998. Revenues. Pacing, CEDS and Holter revenues decreased by $221,000, or 1.0%, from $22,962,000 for the six months ended March 31, 1998 to $22,741,000 for the six months ended March 31, 1999, due primarily to a slight decrease in CEDS revenue partially offset by a slight increase in Pacing revenue. Diagnostic imaging service revenues increased by $426,000, or 4.6%, from $9,344,000 for the six months ended March 31, 1998 to $9,770,000 for the six months ended March 31, 1999, due primarily to increases in revenues at certain centers due to an increase in volume. Heart Center, practice management and other revenues decreased by $359,000, or 1.7%, from $20,709,000 for the six months ended March 31, 1998 to $20,350,000 for the six months ended March 31, 1999 due primarily to lower volumes at the cardiovascular diagnostic facilities and at RHCGH partially offset by an increase in revenues at HFHI. As a result of the foregoing factors, total revenues decreased by $154,000, or 0.3%, from $53,015,000 for the six months ended March 31, 1998 to $52,861,000 for the six months ended March 31, 1999. Operating Expenses. Operating costs and selling, general and administrative expenses increased by $1,179,000, or 2.8%, from $41,935,000 for the six months ended March 31, 1998 to $43,114,000 for the six months ended March 31, 1999, due primarily to increases in costs and expenses in Pacing and CEDS and diagnostic imaging services. Operating costs and selling, general and administrative expenses as a percentage of total revenues increased from 79.1% for the six months ended March 31, 1998 to 81.6% for the six months ended March 31, 1999. At RHCGH, operating expenses were slightly in excess of revenues for both periods. Depreciation and Amortization. Depreciation and amortization expense decreased by $192,000, from $4,324,000 for the six months ended March 31, 1998 to $4,132,000 for the six months ended March 31, 1999, and decreased as a percentage of revenues from 8.2% for the six months ended March 31, 1998 to 7.8% for the six months ended March 31, 1999. Operating Income. As a result of the foregoing factors, operating income decreased by $1,141,000, or 16.9%, from $6,756,000 for the six months ended March 31, 1999 to $5,615,000 for the six months ended March 31, 1999. Interest Expense. Interest expense decreased by $223,000, or 14.8%, from $1,509,000 for the six months ended March 31, 1998 to $1,286,000 for the six months ended March 31, 1998 due primarily to lower interest rates and to a decrease in the average amount of debt outstanding. Other expense (income). Other income increased by $339,000 from $198,000 for the six months ended March 31, 1998 to $537,000 for the six months ended March 31, 1999 due primarily to a series of insignificant items. Minority interest. Minority interest decreased by $127,000, or 22%, from $578,000 for the six months ended March 31, 1998 to $451,000 for the six months ended March 31, 1999 due primarily to decreased incomes in certain cardiovascular diagnostic facilities. Income Taxes. The provision for income taxes decreased by $225,000, or 11.6%, from $1,947,000 for the six months ended March 31, 1998 to $1,722,000 for the six months ended March 31, 1999 as a result of decreased taxable income and a lower effective tax rate. Net Income. As a result of the foregoing factors, net income decreased by $227,000, or 7.8%, from $2,920,000 for the six months ended March 31, 1998 to $2,693,000 for the six months ended March 31, 1999. 9 10 BUSINESS ENVIRONMENT AND FUTURE RESULTS The Company's future operating results may be affected by various trends in the healthcare industry as well as by a variety of other factors, some of which are beyond the Company's control. The healthcare industry is undergoing significant change as third-party payors attempt to control the cost, utilization and delivery of healthcare services. Substantially all of the Company's revenues are derived from Medicare, HMOs, and commercial insurers and other third-party payors. Both government and private payment sources have instituted cost containment measures designed to limit payments made to healthcare providers by reducing reimbursement rates, limiting services covered, increasing utilization review of services, negotiating prospective or discounted contract pricing, adopting capitation strategies and seeking competitive bids. Although the Company's total revenues have increased in each of the last three fiscal years, revenue of the Company's Pacing operations during that period has been negatively impacted by Medicare reimbursement rate reductions. Additional reimbursement rate reductions applicable to the Company's Pacing procedures became effective on January 1, 1997. These reductions had a negative effect on the Company's operating results for the first quarter of fiscal 1998. The Company's Pacing operations have been favorably impacted for the period January 1, 1998 to December 31, 1998 due to an increase in Medicare reimbursement rates effective on January 1, 1998. However, a slight decrease in these rates became effective on January 1, 1999. The Company cannot predict with any certainty whether or when additional reductions or changes in Medicare or other third-party reimbursement rates or policies will be implemented. There can be no assurance that future changes, if any, will not adversely affect the amounts or types of services that may be reimbursed to the Company, or that future reimbursement of any service offered by the Company will be sufficient to cover the costs and overhead allocated to such service. From time to time Congress considers legislation to reduce Medicare and Medicaid expenditures. Future legislation of this type could have a material adverse effect on the Company's business, financial condition and operating results. Governmental agencies promulgate regulations which mandate changes in the method of delivering services which could have a material adverse effect on the Company's business. A key element of the Company's long-range strategy is the development and operation of integrated heart centers and the acquisition of healthcare providers specializing in cardiology related services and the assets of physician practices and other businesses related to its current operations. The success of the Company's existing and future heart centers and physician practices will depend upon several factors, including the Company's ability to: obtain and operate in compliance with appropriate licenses; control costs and realize operating efficiencies; educate patients, referring physicians and third-party payors about the benefits of such heart centers; and provide cost-effective services that meet or exceed existing standards of care. An element of the Company's strategy is to expand, in part, through acquisitions and investments in complementary healthcare businesses. The implementation of this strategy may place significant strain on the Company's administrative, operational and financial resources and increase demands on its systems and controls. There can be no assurances that businesses acquired by the Company, either recently or in the future, will be integrated successfully and profitably into the Company's operations, that suitable acquisitions or investment opportunities will be identified, or that any such transactions can be consummated. Providers of healthcare services are subject to numerous federal, state and local laws and regulations that govern various aspects of their business. There can be no assurance that the Company will be able to obtain regulatory approvals that may be required to expand its services or that new laws or regulations will not be enacted or adopted that will have a material adverse effect on the Company's business, financial condition or operating results. 10 11 The healthcare businesses in which the Company is engaged are highly competitive. The Company expects competition to increase as a result of ongoing consolidations and cost-containment pressures, among other factors. The trading price of the Company's Common Stock could be subject to wide fluctuations in response to quarterly variations in the Company's operating results, shortfalls in such operating results from levels forecasted by securities analysts and other events or factors. In addition, the stock market has, from time to time, experienced extreme price and volume fluctuations that have particularly affected the market prices of companies in the healthcare service industries and that have often been unrelated to the operating performance of the affected companies. Announcements of changes in reimbursement policies of third-party payors, legislative or regulatory developments, economic news and other external factors may have a significant impact on the market price of healthcare stocks. LIQUIDITY AND CAPITAL RESOURCES The Company acquired CDS in June 1996 for cash in the amount of $14,254,000, SETCA in September 1996 for cash in the amount of $4,010,000 and CCMG in November 1996 for cash in the amount of $427,000 and CVI in August 1997 for cash in the amount of $16,980,000 plus $280,000 paid during fiscal 1998. At March 31, 1999, the Company had working capital of $33,128,000, compared to $31,168,000 at September 30, 1998. At March 31, 1999, the Company had cash and temporary cash investments of $8,077,000. At March 31, 1999, $28,582,000 was outstanding under the Company's line of credit. The Company batch-bills Medicare insurance carriers for most cardiac testing services performed during the first few months of each calendar year. This practice results in a temporary build-up of accounts receivable during the Company's second and third fiscal quarters and the collection of these receivables primarily during the subsequent fourth fiscal quarter. The Company has a revolving line of credit with two banks in the amount of $45,000,000 to fund working capital needs, future acquisitions, equipment purchases and other business needs. Amounts outstanding under the line of credit bear interest based on a defined formula and are subject to certain covenants. The line of credit expires in August 1999 at which time any outstanding balance will be converted to a five-year term loan. The Company's long-term capital requirements will depend on numerous factors, including the rate at which the Company develops and opens new heart centers or acquires existing heart centers, physician practices or other businesses, if any. The Company believes that its cash and cash equivalent balances, together with amounts available from bank borrowings and cash generated by its operating activities, will be adequate to meet the Company's anticipated needs for working capital and capital expenditures through fiscal 1999. YEAR 2000 COMPLIANCE The Company is aware of the issues associated with the programming code in existing computer systems as the Year 2000 approaches. Many existing computer programs use only two digits instead of four to identify a year in the date field. The Company has completed a thorough review of its material computer applications. The Company has begun installation of a new billing and collection system as well as a new accounting system. These new systems are Year 2000 compliant. The Company had planned on replacing them regardless of the Year 2000 issue. There are other systems at certain cardiovascular diagnostic facilities recently acquired by the Company which may not be Year 2000 compliant, however, the Company anticipates that all such systems will be replaced by its new systems before the Year 2000. 11 12 There can be no assurances that any systems at companies purchased by or affiliated with the Company in the future will be Year 2000 compliant or, if not, will be converted on a timely basis. At the present time, the Company does not anticipate that the cost for it to become Year 2000 compliant will have a material impact on the Company's financial statements. The Company has initiated a program to determine whether the computer applications of its significant vendors will be upgraded in a timely manner. The Company has also initiated a program to determine whether embedded applications which control medical and other equipment will be affected. The Company has not yet completed these reviews. The Company has begun discussions with its payors to determine the status of their systems. The nature of the Company's business is such that any failure to these types of applications may have a material adverse effect on its business. Because of the many uncertainties associated with Year 2000 compliance issues, and because the Company's assessment is necessarily based on information from third-party vendors, payors and suppliers, there can be no assurance that the Company's assessment is correct or as to the materiality or effect of any failure of such assessment to be correct. At the present time, the Company has not developed a contingency plan relative to Year 2000 compliance. 12 13 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a. The Company's annual meeting of stockholders was held on February 25, 1999. b. The following person nominated by management was elected to serve as director:
Shares ----------------------- Name For Withheld ---- --------- -------- Thomas J. Fogarty, M.D. 7,308,174 193,112
The following directors remained in office; Richard F. Bader, Joseph T. Sebastianelli, David E. Wertheimer, M.D., and Allan Zinberg. c. The following additional matters voted upon at the meeting and the results of the voting were as follows: 1. To ratify the appointment of Arthur Andersen LLP as the independent accountants of the Company for the fiscal year ending September 30, 1999.
Shares ------------------------------- For Against Abstain --- ------- ------- 7,419,713 74,406 7,167
2. To approve an amendment to the Company's 1990 Stock Option Plan to increase the number of shares of Common Stock reserved for issuance thereunder by 400,000 shares, to a total of 1,684,000 shares.
Shares ------------------------------- For Against Abstain --- ------- ------- 2,643,290 4,833,484 24,512
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. EXHIBITS: The following exhibits are filed as a part of this Report:
Exhibit Number Title ------ ----- 27 Financial data schedule
b. REPORTS ON FORM 8-K: The Company filed no reports on Form 8-K during the quarter ended March 31, 1999. However, on April 27, 1999, the Company filed a report on Form 8-K announcing that E. Payson Smith, Jr. had resigned as Chief Financial Officer and John F. Lawler, Jr. had been appointed Interim Chief Financial Officer. 13 14 SIGNATURE 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. RAYTEL MEDICAL CORPORATION Dated: May 11, 1999 By:/s/ JOHN F. LAWLER, JR. --------------------------- John F. Lawler, Jr. Vice President and Chief Financial Officer (duly authorized officer and principal financial officer) 14 15
Exhibit Number Description ------ ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS 1,000 6-MOS SEP-30-1999 OCT-01-1998 MAR-31-1999 8,077 0 37,295 0 0 48,905 46,050 22,672 126,197 15,777 0 0 0 9 69,297 126,197 0 52,861 0 47,246 (86) 0 1,286 4,415 1,722 2,693 0 0 0 2,693 0.31 0.30 (RECEIVABLES) Represents net receivables (LOSS-PROVISIONS) Included in (TOTAL-COSTS)
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