Attached files
file | filename |
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EX-10 - HEALTHTRONICS, INC. | exh102.htm |
EX-31 - HEALTHTRONICS, INC. | exh312.htm |
EX-32 - HEALTHTRONICS, INC. | exh321.htm |
EX-32 - HEALTHTRONICS, INC. | exh322.htm |
EX-31 - HEALTHTRONICS, INC. | exh311.htm |
EX-10 - HEALTHTRONICS, INC. | exh101.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 September 30, 2009
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 November 1, 2009 45,420,552 |
PART IFINANCIAL INFORMATIONItem 1 - Financial Statements |
-2- |
HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) |
---|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
($ in thousands, except per share data) |
2009 |
2008 |
2009 |
2008 | ||||||||||
Revenues | $ | 47,283 | $ | 44,771 | $ | 135,051 | $ | 121,305 | ||||||
Cost of revenues (exclusive of depreciation and | ||||||||||||||
amortization shown separately below) | 22,452 | 19,954 | 65,015 | 54,257 | ||||||||||
Gross profit | 24,831 | 24,817 | 70,036 | 67,048 | ||||||||||
Operating expenses | ||||||||||||||
Selling, general and administrative | 7,290 | 4,600 | 16,706 | 14,186 | ||||||||||
Depreciation and amortization | 3,737 | 3,073 | 10,613 | 8,770 | ||||||||||
Total operating expenses | 11,027 | 7,673 | 27,319 | 22,956 | ||||||||||
Operating income | 13,804 | 17,144 | 42,717 | 44,092 | ||||||||||
Other income (expenses): | ||||||||||||||
Interest and dividends | 13 | 806 | 95 | 1,098 | ||||||||||
Interest expense | (299 | ) | (182 | ) | (887 | ) | (591 | ) | ||||||
(286 | ) | 624 | (792 | ) | 507 | |||||||||
Income from operations before provision | ||||||||||||||
for income taxes | 13,518 | 17,768 | 41,925 | 44,599 | ||||||||||
Provision for income taxes | 1,348 | 889 | 1,967 | 1,730 | ||||||||||
Consolidated net income | 12,170 | 16,879 | 39,958 | 42,869 | ||||||||||
Less: Net income attributable to noncontrolling interest | (14,472 | ) | (15,552 | ) | (41,541 | ) | (40,380 | ) | ||||||
Net income (loss) attributable to HealthTronics, Inc. | $ | (2,302 | ) | $ | 1,327 | $ | (1,583 | ) | $ | 2,489 | ||||
Basic earnings per share attributable to HealthTronics, Inc.: | ||||||||||||||
Net income (loss) attributable to HealthTronics, Inc. | $ | (0.06 | ) | $ | 0.04 | $ | (0.04 | ) | $ | 0.07 | ||||
Weighted average shares outstanding | 41,043 | 37,503 | 37,666 | 36,666 | ||||||||||
Diluted earnings per share attributable to HealthTronics, Inc.: | ||||||||||||||
Net income (loss) attributable to HealthTronics, Inc. | $ | (0.06 | ) | $ | 0.04 | $ | (0.04 | ) | $ | 0.07 | ||||
Weighted average shares outstanding | 41,043 | 37,604 | 37,666 | 36,734 |
See accompanying notes to condensed consolidated financial statements. |
-3- |
HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) |
($ in thousands) |
September 30, 2009 |
December 31, 2008 | ||||||
---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 11,154 | $ | 22,854 | ||||
Accounts receivable, less allowance for doubtful | ||||||||
accounts of $2,462 in 2009 and $2,485 in 2008 | 31,289 | 27,687 | ||||||
Other receivables | 948 | 1,410 | ||||||
Prepaid expenses and other current assets | 3,650 | 2,895 | ||||||
Inventory | 13,382 | 8,843 | ||||||
Total current assets | 60,423 | 63,689 | ||||||
Property and equipment: | ||||||||
Equipment, furniture and fixtures | 57,866 | 55,050 | ||||||
Building and leasehold improvements | 8,332 | 8,254 | ||||||
66,198 | 63,304 | |||||||
Less accumulated depreciation and | ||||||||
amortization | (35,246 | ) | (30,535 | ) | ||||
Property and equipment, net | 30,952 | 32,769 | ||||||
Other investments | 1,876 | 1,819 | ||||||
Goodwill | 103,000 | 93,620 | ||||||
Intangible assets, net | 49,636 | 40,278 | ||||||
Other noncurrent assets | 5,778 | 2,211 | ||||||
$ | 251,665 | $ | 234,386 |
See accompanying notes to condensed consolidated financial statements. |
-4- |
HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (Unaudited) |
($ in thousands, except share data) |
September 30, 2009 |
December 31, 2008 | ||||||
---|---|---|---|---|---|---|---|---|
LIABILITIES | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt | $ | 46,958 | $ | 2,490 | ||||
Accounts payable | 5,815 | 6,468 | ||||||
Accrued expenses | 12,855 | 9,316 | ||||||
Total current liabilities | 65,628 | 18,274 | ||||||
Long-term debt, net of current portion | 2,069 | 43,897 | ||||||
Other long term obligations | 2,853 | 1,765 | ||||||
Deferred income taxes | 5,430 | 3,355 | ||||||
Total liabilities | 75,980 | 67,291 | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Preferred stock, $.01 par value, 30,000,000 shares authorized: none outstanding | ||||||||
Common stock, no par value, 70,000,000 authorized: 47,310,616 | ||||||||
issued and 45,418,667 outstanding in 2009 and | ||||||||
39,494,314 issued and 37,618,206 outstanding in 2008 | 226,209 | 211,667 | ||||||
Accumulated deficit | (89,435 | ) | (87,852 | ) | ||||
Treasury stock, at cost, 1,891,949 shares in 2009 and 1,876,108 shares in 2008 | (4,464 | ) | (4,443 | ) | ||||
Total HealthTronics, Inc. shareholders' equity | 132,310 | 119,372 | ||||||
Noncontrolling interest | 43,375 | 47,723 | ||||||
Total Equity | 175,685 | 167,095 | ||||||
$ | 251,665 | $ | 234,386 |
See accompanying notes to condensed consolidated financial statements. |
-5- |
HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the Period ended September 30, 2009 (Unaudited) |
---|
($ in thousands, except share data) | Issued Common Stock | Accumulated | Treasury Stock | Non- Controlling |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shares |
Amount |
Deficit |
Shares |
Amount |
Interest |
Total | |||||||||||||||||
Balance, December 31, 2008 | 39,494,314 | $ | 211,667 | $ | (87,852 | ) | (1,876,108 | ) | $ | (4,443 | ) | $ | 47,723 | $ | 167,095 | ||||||||
Net income (loss) | -- | -- | (1,583 | ) | -- | -- | 41,541 | $ | 39,958 | ||||||||||||||
Distributions paid to | |||||||||||||||||||||||
noncontrolling interest | -- | -- | -- | -- | -- | (47,077 | ) | $ | (47,077 | ) | |||||||||||||
Sale of subsidiary interest to | |||||||||||||||||||||||
noncontolling interest | -- | -- | -- | -- | -- | 4,585 | $ | 4,585 | |||||||||||||||
Purchase of subsidiary interest from | |||||||||||||||||||||||
noncontrolling interest | -- | (1,041 | ) | -- | -- | -- | (3,397 | ) | $ | (4,438 | ) | ||||||||||||
Stock issued for acquisitions | 7,398,396 | 13,217 | -- | -- | -- | -- | $ | 13,217 | |||||||||||||||
Purchase of treasury stock | -- | -- | -- | (15,841 | ) | (21 | ) | -- | $ | (21 | ) | ||||||||||||
Share-based compensation | 417,906 | 2,366 | -- | -- | -- | -- | $ | 2,366 | |||||||||||||||
Balance, September 30, 2009 | 47,310,616 | $ | 226,209 | $ | (89,435 | ) | (1,891,949 | ) | $ | (4,464 | ) | $ | 43,375 | $ | 175,685 |
See accompanying notes to condensed consolidated financial statements. |
-6- |
HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
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Nine Months Ended September 30, |
||||||||
---|---|---|---|---|---|---|---|---|
($ in thousands) |
2009 |
2008 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Fee and other revenue collected | $ | 137,095 | $ | 122,053 | ||||
Cash paid to employees, suppliers of goods and others | (80,917 | ) | (69,375 | ) | ||||
Cash paid for acquisition related costs | (9,922 | ) | -- | |||||
Interest received | 96 | 374 | ||||||
Interest paid | (869 | ) | (560 | ) | ||||
Taxes paid | (1,171 | ) | (1,187 | ) | ||||
Net cash provided by operating activities | 44,312 | 51,305 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of entities, net of cash acquired | (3,427 | ) | (17,270 | ) | ||||
Purchases of equipment and leasehold improvements | (5,712 | ) | (8,762 | ) | ||||
Proceeds from sales of assets | 404 | 8,755 | ||||||
Other | (57 | ) | (236 | ) | ||||
Net cash used in investing activities | (8,792 | ) | (17,513 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Borrowings on notes payable | 12,672 | 13,547 | ||||||
Payments on notes payable, exclusive of interest | (10,144 | ) | (10,561 | ) | ||||
Distributions to noncontrolling interest | (47,103 | ) | (42,797 | ) | ||||
Contributions by noncontrolling interest, net of buyouts | (2,624 | ) | (534 | ) | ||||
Purchase of treasury stock | (21 | ) | (211 | ) | ||||
Net cash used in financing activities | (47,220 | ) | (40,556 | ) | ||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (11,700 | ) | (6,764 | ) | ||||
Cash and cash equivalents, beginning of period | 22,854 | 25,198 | ||||||
Cash and cash equivalents, end of period | $ | 11,154 | $ | 18,434 |
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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Nine Months Ended September 30, |
||||||||
---|---|---|---|---|---|---|---|---|
($ in thousands) |
2009 |
2008 | ||||||
Reconciliation of net income to net cash provided by operating activities: | ||||||||
Net income | $ | 39,958 | $ | 42,869 | ||||
Adjustments to reconcile net income | ||||||||
to net cash provided by operating activities | ||||||||
Depreciation and amortization | 10,613 | 8,770 | ||||||
Provision for uncollectible accounts | 285 | (42 | ) | |||||
Provision for deferred income taxes | 2,076 | 918 | ||||||
Non-cash share based compensation | 2,366 | 2,470 | ||||||
Other | 241 | (910 | ) | |||||
Changes in operating assets and liabilities, | ||||||||
net of effect of purchase transactions | ||||||||
Accounts receivable | 1,002 | (493 | ) | |||||
Other receivables | 509 | 1,106 | ||||||
Inventory | 2,461 | 596 | ||||||
Other assets | (1,058 | ) | (694 | ) | ||||
Accounts payable | (4,511 | ) | (2,534 | ) | ||||
Accrued expenses | (9,630 | ) | (751 | ) | ||||
Total adjustments | 4,354 | 8,436 | ||||||
Net cash provided by operating activities | $ | 44,312 | $ | 51,305 |
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 September 30, 2009 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 | |||||||
---|---|---|---|---|---|---|---|---|---|
Nine Months Ended September 30, 2009 | |||||||||
Net loss attributable to HealthTronics, Inc. | $ | (1,583 | ) | $ | (1,583 | ) | |||
Weighted average shares outstanding | 37,666 | 37,666 | |||||||
Effect of dilutive securities | -- | -- | |||||||
Shares for EPS calculation | 37,666 | 37,666 | |||||||
Net loss per share attributable to HealthTronics, Inc. | $ | (0.04 | ) | $ | (0.04 | ) | |||
Nine Months Ended September 30, 2008 | |||||||||
Net income attributable to HealthTronics, Inc. | $ | 2,489 | $ | 2,489 | |||||
Weighted average shares outstanding | 36,666 | 36,666 | |||||||
Effect of dilutive securities | -- | 68 | |||||||
Shares for EPS calculation | 36,666 | 36,734 | |||||||
Net income per share attributable to HealthTronics, Inc. | $ | 0.07 | $ | 0.07 |
-10- |
HEALTHTRONICS, INC. AND SUBSIDIARIES |
($ in thousands, except per share data) |
Basic earnings per share |
Diluted earnings per share | |||||||
---|---|---|---|---|---|---|---|---|---|
Three Months Ended September 30, 2009 | |||||||||
Net loss attributable to HealthTronics, Inc. | $ | (2,302 | ) | $ | (2,302 | ) | |||
Weighted average shares outstanding | 41,043 | 41,043 | |||||||
Effect of dilutive securities | -- | -- | |||||||
Shares for EPS calculation | 41,043 | 41,043 | |||||||
Net loss per share attributable to HealthTronics, Inc. | $ | (0.06 | ) | $ | (0.06 | ) | |||
Three Months Ended September 30, 2008 | |||||||||
Net income attributable to HealthTronics, Inc. | $ | 1,327 | $ | 1,327 | |||||
Weighted average shares outstanding | 37,503 | 37,503 | |||||||
Effect of dilutive securities | -- | 101 | |||||||
Shares for EPS calculation | 37,503 | 37,604 | |||||||
Net income per share attributable to HealthTronics, Inc. | $ | 0.04 | $ | 0.04 |
We did not include in our computation of diluted EPS unexercised stock options and non-vested stock awards to purchase 3,160,000 and 2,997,000 shares of our common stock as of September 30, 2009 and 2008, respectively, because the effect would be antidilutive. |
4. Segment Reporting
In the fourth quarter of 2008, our Medical Products division relocated from Kennesaw, Georgia to our corporate headquarters in Austin, Texas. Concurrent with this relocation, we made certain changes within our Medical Products management team so that these operations now report to the President of our Urology Services operations. After making these changes, we redesigned our internal financial reporting materials provided to our chief operating decision maker, as well as our executive management team. As of the first quarter of 2009, we do not have any operating segments, except our Urology Services operations, that meet the quantitative requirements of ASC 280, Segment Reporting (ASC 280), (formerly Statement of Financial Accounting Standards (SFAS) 131, Disclosures about Segments of an Enterprise and Related Information). |
5. 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. |
-11- |
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). |
6. Inventory
As of September 30, 2009 and December 31, 2008, inventory consisted of the following: |
($ In thousands) |
September 30, 2009 |
December 31, 2008 |
|||||||
---|---|---|---|---|---|---|---|---|---|
Raw Materials | $ | 7,392 | $ | 5,993 | |||||
Work in process | 525 | -- | |||||||
Finished Goods | 5,465 | 2,850 | |||||||
$ | 13,382 | $ | 8,843 | ||||||
-12- |
HEALTHTRONICS, INC. AND SUBSIDIARIES |
7. New Pronouncements
In October 2009, the FASB updated FASB ASC 605, Revenue Recognition (ASC 605) that amended the
criteria for separating consideration in multiple-deliverable arrangements. The amendments establish a selling
price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable
will be based on vendor-specific objective evidence if available, thirdparty evidence if vendor-specific
objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor
third-party evidence is available. The amendments will eliminate the residual method of allocation and require
that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the
relative selling price method. The relative selling price method allocates any discount in the arrangement
proportionally to each deliverable on the basis of each deliverables selling price. This update will be
effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on
or after June 15, 2010. Early adoption is permitted. We are currently evaluating the requirements of this update
and have not yet determined the impact on our consolidated financial statements. |
-13- |
HEALTHTRONICS, INC. AND SUBSIDIARIES |
In April 2009, the FASB issued ASC 825, Financial Instruments (ASC 825), (formerly FASB Staff
Position 107-1, Interim Disclosures about Fair Value of Financial Instruments). ASC 825 requires
disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements. This standard also requires those disclosures in summarized financial
information at interim reporting periods beginning after March 15, 2009. The adoption of this ASC did not affect
our consolidated financial position, results of operations, or cash flows. |
-14- |
HEALTHTRONICS, INC. AND SUBSIDIARIES |
In December 2007, the FASB issued accounting guidance contained within ASC 810, Consolidation (ASC 810-10-65), (formerly SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements) regarding noncontrolling interests. ASC 810-10-65 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The adoption of ASC 810-10-65 revised our presentation of consolidated financial statements and further impact will continue to be dependent on our future changes in ownership in subsidiaries after the effective date. |
8. 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. |
-15- |
HEALTHTRONICS, INC. AND SUBSIDIARIES |
On July 15, 2008, we acquired UroPath, LLC (UroPath) for $7.5 million in cash. Founded in 2003,
UroPath is a leading provider of anatomical pathology laboratory services in the U.S. with locations in Florida,
Texas, and Pennsylvania. Based on our allocation of the purchase price, we recorded approximately $7.4 million
of goodwill related to this transaction, all of which is tax deductible. |
-16- |
HEALTHTRONICS, INC. AND SUBSIDIARIES |
Nine Months Ended September 30, | |||||||||
---|---|---|---|---|---|---|---|---|---|
($ in thousands, except per share data) |
2009 |
2008 | |||||||
Total revenues | $ | 147,260 | $ | 152,364 | |||||
Total expenses | (154,997 | ) | (151,651 | ) | |||||
Net income (loss) attributable to HealthTronics, Inc. | $ | (7,737 | ) | $ | 713 | ||||
Diluted earnings per share | $ | (0.17 | ) | $ | 0.02 |
9. Fair Value of Financial Instruments
The carrying amounts and estimated fair values of our significant financial instruments as of September 30, 2009 and December 31, 2008 are as follows: |
September 30, 2009 |
December 31, 2008 |
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
( $ in thousands) |
Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value | |||||||||||||
Financial assets: | |||||||||||||||||
Cash and cash equivalents | $ | 11,154 | $ | 11,154 | $ | 22,854 | $ | 22,854 | |||||||||
Warrants/common stock | -- | -- | 290 | 290 | |||||||||||||
Financial liabilities: | |||||||||||||||||
Debt | $ | 49,027 | $ | 49,027 | $ | 46,387 | $ | 46,387 | |||||||||
Other long-term obligations | 2,853 | 2,803 | 1,765 | 1,727 |
The following methods and assumptions were used by us in estimating our fair value disclosures for financial
instruments. |
-17- |
HEALTHTRONICS, INC. AND SUBSIDIARIES |
Warrants |
-18- |
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; and | |
| general economic, market or business conditions. |
Segment Reporting
In the fourth quarter of 2008, our Medical Products division relocated from Kennesaw, Georgia to our corporate headquarters in Austin, Texas. Concurrent with this relocation, we made certain changes within our Medical Products management team so that these operations now report to the President of our Urology Services operations. After making these changes, we redesigned our internal financial reporting materials provided to our chief operating decision maker, as well as our executive management team. As of the first quarter of 2009, we do not have any operating segments, except our Urology Services operations, that meet the quantitative requirements of ASC 280, Segment Reporting (ASC 280), (formerly Statement of Financial Accounting Standards (SFAS) 131, Disclosures about Segments of an Enterprise and Related Information). |
-19- |
Item 2
Managements Discussion and Analysis
|
General |
-20- |
Item 2
Managements Discussion and Analysis
|
Radiation therapy services. We provide image guided radiation therapy (IGRT) technical services for
cancer treatment centers. Our IGRT technical services may relate to providing the technical (non-physician)
personnel to operate a physician practice groups IGRT equipment, leasing IGRT equipment to a physician
practice group, providing services related to helping a physician practice group establish an IGRT treatment
center, or managing an IGRT treatment center. |
| 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. |
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Item 2
Managements Discussion and Analysis
|
| 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. |
| 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 |
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Item 2
Managements Discussion and Analysis
|
Critical Accounting Policies and Estimates |
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Item 2
Managements Discussion and Analysis
|
Nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 |
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Item 2
Managements Discussion and Analysis
|
Provision for income taxes in the first nine months of 2009 increased $237,000 compared to the same period in
2008 although our taxable net income during the same periods significantly decreased. Our income tax expense for
2009 reflects $1,967,000 of expense even though we have a loss for financial statement purposes because we
recorded a full valuation allowance for all deferred tax assets since we are in a cumulative loss position for
the last three years due to non-cash goodwill impairments recorded in prior years. For the next several years,
we will only be an alternative minimum tax payer as we will utilize our existing net operating loss carryforwards
to offset any current taxes payable. |
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Item 2
Managements Discussion and Analysis
|
Net income attributable to noncontrolling interest for the three month period ended September 30, 2009 decreased
$1,080,000 compared to the same period in 2008, primarily related to a decrease in income at one of our existing
partnerships combined with repurchases of noncontrolling interests. |
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Item 2
Managements Discussion and Analysis
|
Cash used in our financing activities for the nine months ended September 30, 2009, was $47,220,000, primarily
due to distributions to noncontrolling interests of $47,103,000 and payments on notes payable of $10,144,000
partially offset by borrowings on notes payable of $12,672,000. Cash used in our financing activities for the
nine months ended September 30, 2008, was $40,556,000, primarily due to distributions to noncontrolling interests
of $42,797,000 and payments on notes payable of $10,561,000 partially offset by borrowings on notes payable of
$13,547,000. |
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Item 2
Managements Discussion and Analysis
|
On November 8, 2005, Endocare entered into a commercialization agreement with CryoDynamics, LLC to design and
develop a cryoablation system utilizing nitrogen gas. The parties will jointly own all inventions made or
conceived by CryoDynamics in performing the commercialization agreement. To assist CryoDynamics in its research
and development efforts, Endocare advances CryoDynamics $42,500 per month until such time as either party enters
into a license agreement based upon the nitrogen system with an independent third party that results in
CryoDynamics receiving an amount sufficient to repay the advances and fund CryoDynamics monthly operating
expenses of $42,500. |
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) | $ | 49,027 | $ | 46,958 | $ | 1,665 | $ | 19 | $ | 385 | |||||||
Operating leases (2) | 10,438 | 2,452 | 4,149 | 2,770 | 1,067 | ||||||||||||
Other contracts (3) | 3,024 | 698 | 1,178 | 1,020 | 128 | ||||||||||||
Total | $ | 62,489 | $ | 50,108 | $ | 6,992 | $ | 3,809 | $ | 1,580 | |||||||
(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 $346 and payments due per the terms of a commercialization agreement totaling $2,678, as described above. |
In addition, the scheduled principal repayments for all long term debt as of September 30, 2009 are payable as follows: |
($ in thousands) | ||||||
---|---|---|---|---|---|---|
2010 | $ | 46,958 | ||||
2011 | 1,266 | |||||
2012 | 399 | |||||
2013 | 19 | |||||
2014 | - | |||||
Thereafter | 385 | |||||
Total | $ | 49,027 | ||||
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Item 2
Managements Discussion and Analysis
|
Our primary sources of cash are cash flows from operations and borrowings under our senior credit facility which
is due in March 2010. 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 in our most recent 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
|
In June 2009, the FASB issued Accounting Standards Codification (ASC) 105, Generally Accepted
Accounting Principles (ASC 105), (formerly SFAS No. 168, The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles). ASC 105 establishes the FASB ASC as the single
source of authoritative nongovernmental U.S. generally accepted accounting principles (GAAP). The
standard is effective for interim and annual periods ending after September 15, 2009. The adoption of ASC 105 did
not have a material impact on our financial statements. |
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Item 2
Managements Discussion and Analysis
|
In April 2009, the FASB issued ASC 825, Financial Instruments (ASC 825), (formerly FASB Staff
Position 107-1, Interim Disclosures about Fair Value of Financial Instruments ). ASC 825 requires
disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements. This standard also requires those disclosures in summarized financial
information at interim reporting periods beginning after March 15, 2009. The adoption of this ASC did not affect
our consolidated financial position, results of operations, or cash flows. |
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Item 2
Managements Discussion and Analysis
|
In December 2007, the FASB issued accounting guidance contained within ASC 810, Consolidation (ASC 810-10-65), (formerly SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements ) regarding noncontrolling interests. ASC 810-10-65 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The adoption of ASC 810-10-65 revised our presentation of consolidated financial statements and further impact will continue to be dependent on our future changes in ownership in subsidiaries after the effective date. |
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Item 3 Quantitative and Qualitative Disclosures |
Interest Rate Risk
As of September 30, 2009, we had long-term debt (including current portion) totaling $49,027,000, of which $4,243,000 had fixed rates of 5% to 9%, and $44,784,000 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 $44,784,000. We make monthly or quarterly payments of principal and interest on $151,000 of the floating rate debt. An increase in interest rates of 1% would result in a $448,000 annual increase in interest expense on this existing principal balance. |
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Item 4 Controls and Procedures |
As of September 30, 2009, under the supervision and with the participation of our management, including our Chief
Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial
officer), we evaluated the effectiveness of our disclosure controls and procedures (as defined under Rule
13a-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based on this
evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of September 30, 2009,
our disclosure controls and procedures were effective. |
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PART IIOTHER INFORMATION |
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Item 1A. Risk Factors.
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, 2008, 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, 2008, except
for the following additional risk factors resulting from our acquisition of Endocare: |
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The risks described in our Annual Report on Form 10-K and above are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On September 25, 2009, we acquired US Surgical Services, LLC (US Surgical) for $400,000 in cash and an earn-out
provision pursuant to which we could issue up to $1,350,000 in shares of our common stock. The actual number of
shares issued, if any, cannot be determined until it is determined whether the earn-out provision requirements
are met. Randy Wheelock, who is the brother of Argil Wheelock, one of the members of our Board of Directors, was
one of the two 50% owners of US Surgical. Thus, in exchange for his 50% ownership interest in US Surgical, Randy
Wheelock was paid $200,000 in cash and will be entitled to 50% of any earn-out consideration paid. In addition,
in connection with this acquisition, we entered into a consulting agreement with Randy Wheelock pursuant to which
he will provide consulting services to us for 15 months following closing in exchange for a payment of $10,000
per month. |
|
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Item 6. Exhibits.
10.1* 10.2* 31.1* 31.2* 32.1* 32.2* |
Executive Employment Agreement, effective July 30, 2009, by and between HealthTronics, Inc. and Clint B. Davis.
Second Amendment to Lease Agreement, dated as of August 20, 2009, between HEP-Davis Spring, L.P. as landlord and HealthTronics, Inc. as tenant. 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: November 6, 2009 |
HEALTHTRONICS, INC. By: /s/ Richard A. Rusk Richard A. Rusk Chief Financial Officer |
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