HEALTHTRONICS SURGICAL SERVICES INC - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended September 30, 2004

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-30406

HealthTronics Surgical Services, 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.)

1841 West Oak Parkway, Suite A Marietta, Georgia		30062
(Address of principal executive offices)		(Zip Code)

(770) 419-0691

(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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock.

12,282,000 Shares of No Par Value Common Stock as of October 31, 2004

HEALTHTRONICS SURGICAL SERVICES, INC.

INDEX TO FORM 10-Q


		Page

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003	3

	Condensed Consolidated Statements of Operations for the three- month and the nine-month periods ended September 30, 2004 and 2003	5

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 and 2003	6

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosure of Market Risk	33

Item 4.	Controls and Procedures	33

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	33

Item 5.	Other Information	34

Item 6.	Exhibits and Reports on Form 8-K	35

	Signatures	36

Part 1. Financial Information

Item 1. Financial Statements

HealthTronics Surgical Services, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(000’s omitted)


	September 30, 2004			December 31, 2003
		*(Unaudited)*
Assets
Current assets:
Cash and cash equivalents	$	9,326		$	9,040
Trade accounts receivable, less allowance for doubtful accounts of $1,637 and $1,264 at September 30, 2004 and December 31, 2003, respectively		16,460			14,484
Other receivables		1,377			—
Inventory		11,341			7,819
Prepaid expenses and other current assets		2,085			1,224
Deferred income taxes		569			774

Total current assets		41,158			33,341

Property and equipment, at cost:
Land		349			349
Building and leasehold improvements		2,333			1,182
Medical devices placed in service		25,887			24,420
Office equipment, furniture and fixtures		1,890			1,646
Vehicles and accessories		4,064			3,604

		34,523			31,201
Less accumulated depreciation		(14,149	)		(11,768	)

Net property and equipment		20,374			19,433

Investments in unconsolidated entities		517			2,207
Goodwill		66,401			48,317
Other assets		3,676			3,585

Total assets	$	132,126		$	106,883


	September 30, 2004		December 31, 2003
	*(Unaudited)*
Liabilities and shareholders’ equity
Current liabilities:
Trade accounts payable	$	6,642	$	5,035
Income taxes payable		1,787		1,605
Other accrued expenses		12,490		5,507
Deferred profit on service contracts		1,025		375
Short-term borrowings		23,233		11,714
Current portion of capital lease obligations		326		281
Current portion of long-term debt		2,001		5,906

Total current liabilities		47,504		30,423

Deferred profit on medical device sales to related parties (subject to debt guarantees)		256		248
Noncurrent deferred income taxes		270		669
Capital lease obligations, less current portion		683		409
Long-term debt, less current portion		8,232		4,718
Minority interest in consolidated subsidiaries		27,805		28,085
Other liabilities		2,606		1,953

Total liabilities		87,356		66,505

Shareholders’ equity:
Common stock – no par value, voting:
Authorized – 30,000 shares at September 30, 2004 and December 31, 2003; Issued – 12,277 and 11,639 shares at September 30, 2004 and December 31, 2003, respectively; Outstanding – 12,277 and 11,584 at September 30, 2004 and December 31, 2003, respectively		23,316		19,034
Accumulated other comprehensive expense		—		(32	)
Retained earnings		21,454		21,376

Total shareholders’ equity		44,770		40,378

Total liabilities and shareholders’ equity	$	132,126	$	106,883

See accompanying notes.

HealthTronics Surgical Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(000’s omitted except per share information)


	Three months ended September 30,						Nine months ended September 30,
	2004			2003			2004			2003
Net revenue	$	27,285		$	22,963		$	76,359		$	65,306
Cost of devices, service parts and consumables		5,722			5,074			15,629			13,887
Salaries, general and administrative expenses		14,467			10,847			38,883			30,219
Depreciation and amortization		1,421			1,414			4,482			4,218
Gain on sale of subsidiary and investment interest		(3	)		(2,129	)		(258	)		(4,344	)

		5,678			7,757			17,623			21,326
Equity in earnings of unconsolidated partnerships		91			351			580			831
Partnership distributions from cost based investments		170			130			545			408
Gain (loss) on sale of property and equipment		(51	)		358			189			372
Interest expense		(608	)		(521	)		(1,714	)		(1,564	)
Interest income		53			57			164			132

Income before minority interest and income taxes		5,333			8,132			17,387			21,505
Minority interest in consolidated subsidiaries		(6,064	)		(5,233	)		(16,613	)		(13,962	)

Income (loss) before income taxes		(731	)		2,899			774			7,543
Benefit (provision) for income taxes		234			(1,133	)		(696	)		(2,950	)

Net income (loss)	$	(497	)	$	1,766		$	78		$	4,593

Income (loss) per common share:
Basic	$	(0.04	)	$	0.15		$	0.01		$	0.40

Diluted	$	(0.04	)	$	0.15		$	0.01		$	0.39

Weighted average common shares outstanding:
Basic		12,413			11,567			12,205			11,479

Diluted		12,413			11,764			12,265			11,744

See accompanying notes.

HealthTronics Surgical Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(000’s omitted)


	Nine months ended September 30,
	2004			2003
Operating activities
Net income	$	78		$	4,593
Adjustments to reconcile net income to cash provided by operating activities:
Net change in fair value of interest rate swap		32			206
Depreciation and amortization		4,482			4,218
Amortization of loan costs		496			196
Provision for doubtful accounts		66			110
Deferred profit on medical device sales and service contracts		70			479
Deferred income taxes		9			(398	)
Equity in earnings of unconsolidated partnerships, net of dividends		(241	)		(51	)
Minority interest in subsidiaries, net of distributions to minority interests		(286	)		(2,055	)
Net gain on sale of subsidiary and investment interest		(258	)		(4,344	)
Net gain on sale of property and equipment		(189	)		(372	)
Changes in operating assets and liabilities, net of businesses acquired:
Trade accounts receivable		1,394			(874	)
Other receivables		(367	)		675
Inventory		(169	)		(1,887	)
Prepaid expenses and other assets		(1,458	)		254
Trade accounts payable		(2,545	)		(420	)
Income taxes payable		182			(706	)
Accrued expenses and other liabilities		(1,112	)		694

Net cash provided by operating activities	$	184		$

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