_______________________________________________________
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, 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
(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 __ |
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 issuer’s 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, 2009 37,906,777 |
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, | |||||||
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2009 | 2008 | |||||||
Revenues | $ | 43,612 | $ | 33,954 | ||||
Cost of revenues | 21,307 | 15,168 | ||||||
Gross profit | 22,305 | 18,786 | ||||||
Operating expenses | ||||||||
Selling, general and administrative | 4,556 | 4,317 | ||||||
Depreciation and amortization | 3,478 | 2,628 | ||||||
Total operating expenses | 8,034 | 6,945 | ||||||
Operating income | 14,271 | 11,841 | ||||||
Other income (expenses): | ||||||||
Interest and dividends | 50 | 191 | ||||||
Interest expense | (290 | ) | (163 | ) | ||||
(240 | ) | 28 | ||||||
Income from continuing operations before | ||||||||
provision for income taxes | 14,031 | 11,869 | ||||||
Provision for income taxes | 313 | 370 | ||||||
Consolidated net income | 13,718 | 11,499 | ||||||
Less: Net income attributable to noncontrolling interest | (13,328 | ) | (11,047 | ) | ||||
Net income attributable to HealthTronics, Inc. | $ | 390 | $ | 452 | ||||
Basic earnings per share attributable to HealthTronics, Inc.: | ||||||||
Net income attributable to HealthTronics, Inc. | $ | 0.01 | $ | 0.01 | ||||
Weighted average shares outstanding | 35,892 | 35,425 | ||||||
Diluted earnings per share attributable to HealthTronics, Inc.: | ||||||||
Net income attributable to HealthTronics, Inc. | $ | 0.01 | $ | 0.01 | ||||
Weighted average shares outstanding | 35,966 | 35,425 |
See accompanying notes to condensed consolidated financial statements. |
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HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) |
($ in thousands) | March 31, 2009 | December 31, 2008 | ||||||
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ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 13,771 | $ | 22,854 | ||||
Accounts receivable, less allowance for doubtful | ||||||||
accounts of $2,819 in 2009 and $2,485 in 2008 | 28,690 | 27,687 | ||||||
Other receivables | 1,572 | 1,410 | ||||||
Prepaid expenses and other current assets | 4,107 | 2,895 | ||||||
Inventory | 8,627 | 8,843 | ||||||
Total current assets | 56,767 | 63,689 | ||||||
Property and equipment: | ||||||||
Equipment, furniture and fixtures | 56,615 | 55,050 | ||||||
Building and leasehold improvements | 8,263 | 8,254 | ||||||
64,878 | 63,304 | |||||||
Less accumulated depreciation and | ||||||||
amortization | (32,842 | ) | (30,535 | ) | ||||
Property and equipment, net | 32,036 | 32,769 | ||||||
Other investments | 1,796 | 1,819 | ||||||
Goodwill | 93,703 | 93,620 | ||||||
Intangible assets | 39,659 | 40,278 | ||||||
Other noncurrent assets | 2,799 | 2,211 | ||||||
$ | 226,760 | $ | 234,386 |
See accompanying notes to condensed consolidated financial statements. |
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HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (Unaudited) |
($ in thousands, except share data) | March 31, 2009 | December 31, 2008 | ||||||
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LIABILITIES | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt | $ | 39,444 | $ | 2,490 | ||||
Accounts payable | 8,161 | 6,468 | ||||||
Accrued expenses | 7,258 | 9,316 | ||||||
Total current liabilities | 54,863 | 18,274 | ||||||
Long-term debt, net of current portion | 2,479 | 43,897 | ||||||
Other long term obligations | 1,899 | 1,765 | ||||||
Deferred income taxes | 4,076 | 3,355 | ||||||
Total liabilities | 63,317 | 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: 39,789,220 | ||||||||
issued and 37,904,271 outstanding in 2009 and | ||||||||
39,494,314 issued and 37,618,206 outstanding in 2008 | 212,282 | 211,667 | ||||||
Accumulated deficit | (87,462 | ) | (87,852 | ) | ||||
Treasury stock, at cost, 1,884,949 shares in 2009 and 1,876,108 shares in 2008 | (4,461 | ) | (4,443 | ) | ||||
Total HealthTronics, Inc. shareholders' equity | 120,359 | 119,372 | ||||||
Noncontrolling interest | 43,084 | 47,723 | ||||||
Total Equity | 163,443 | 167,095 | ||||||
$ | 226,760 | $ | 234,386 |
See accompanying notes to condensed consolidated financial statements. |
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HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the Period ended March 31, 2009 (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, 2008 | 39,494,314 | $ | 211,667 | $ | (87,852 | ) | (1,876,108 | ) | $ | (4,443 | ) | $ | 47,723 | $ | 167,095 | ||||||||
Net income | -- | -- | 390 | -- | -- | 13,328 | $ | 13,718 | |||||||||||||||
Distributions paid to | |||||||||||||||||||||||
noncontrolling interest | -- | -- | -- | -- | -- | (18,157 | ) | $ | (18,157 | ) | |||||||||||||
Sale of subsidiary interest to | |||||||||||||||||||||||
noncontolling interest | -- | -- | -- | -- | -- | 1,268 | $ | 1,268 | |||||||||||||||
Purchase of subsidiary interest from | |||||||||||||||||||||||
noncontrolling interest | -- | -- | -- | -- | -- | (1,078 | ) | $ | (1,078 | ) | |||||||||||||
(Gain) loss on net sales of subsidiary | |||||||||||||||||||||||
interest to noncontrolling interest | -- | (184 | ) | -- | -- | -- | -- | $ | (184 | ) | |||||||||||||
Purchase of Treasury Stock | -- | -- | -- | (8,841 | ) | (18 | ) | -- | $ | (18 | ) | ||||||||||||
Stock option expense 123R | 294,906 | 799 | -- | -- | -- | -- | $ | 799 | |||||||||||||||
Balance, March 31, 2009 | 39,789,220 | $ | 212,282 | $ | (87,462 | ) | (1,884,949 | ) | $ | (4,461 | ) | $ | 43,084 | $ | 163,443 |
See accompanying notes to condensed consolidated financial statements. |
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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) | 2009 | 2008 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Fee and other revenue collected | $ | 42,207 | $ | 36,846 | ||||
Cash paid to employees, suppliers of goods and others | (25,885 | ) | (20,497 | ) | ||||
Interest received | 50 | 191 | ||||||
Interest paid | (338 | ) | (149 | ) | ||||
Taxes paid | (259 | ) | (317 | ) | ||||
Net cash provided by operating activities | 15,775 | 16,074 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of entities, net of cash acquired | (29 | ) | (1,220 | ) | ||||
Purchases of equipment and leasehold improvements | (2,214 | ) | (4,671 | ) | ||||
Proceeds from sales of assets | 39 | 1,195 | ||||||
Other | 23 | -- | ||||||
Net cash used in investing activities | (2,181 | ) | (4,696 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Borrowings on notes payable | 203 | 213 | ||||||
Payments on notes payable, exclusive of interest | (4,686 | ) | (1,002 | ) | ||||
Distributions to noncontrolling interest | (18,183 | ) | (13,924 | ) | ||||
Contributions by noncontrolling interest, net of buyouts | 7 | (156 | ) | |||||
Purchase of treasury stock | (18 | ) | -- | |||||
Net cash used in financing activities | (22,677 | ) | (14,869 | ) | ||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (9,083 | ) | (3,491 | ) | ||||
Cash and cash equivalents, beginning of period | 22,854 | 25,198 | ||||||
Cash and cash equivalents, end of period | $ | 13,771 | $ | 21,707 |
See accompanying notes to condensed consolidated financial statements. |
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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) | 2009 | 2008 | ||||||
Reconciliation of net income to net cash provided by operating activities: | ||||||||
Net income | $ | 13,718 | $ | 11,499 | ||||
Adjustments to reconcile net income | ||||||||
to net cash provided by operating activities | ||||||||
Depreciation and amortization | 3,478 | 2,628 | ||||||
Provision for uncollectible accounts | 120 | (13 | ) | |||||
Provision for deferred income taxes | 721 | 373 | ||||||
Non-cash share based compensation | 776 | 423 | ||||||
Other | 73 | (79 | ) | |||||
Changes in operating assets and liabilities, | ||||||||
net of effect of purchase transactions | ||||||||
Accounts receivable | (1,124 | ) | 1,906 | |||||
Other receivables | (162 | ) | 620 | |||||
Inventory | 216 | 1,063 | ||||||
Other assets | (1,801 | ) | (1,043 | ) | ||||
Accounts payable | 1,692 | 1,018 | ||||||
Accrued expenses | (1,932 | ) | (2,321 | ) | ||||
Total adjustments | 2,057 | 4,575 | ||||||
Net cash provided by operating activities | $ | 15,775 | $ | 16,074 |
See accompanying notes to condensed consolidated financial statements. |
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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, 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 |
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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, 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 | $ | 0.01 | $ | 0.01 | |||||
Three Months Ended March 31, 2008 | |||||||||
Net income attributable to HealthTronics, Inc. | $ | 452 | $ | 452 | |||||
Weighted average shares outstanding | 35,425 | 35,425 | |||||||
Effect of dilutive securities | -- | -- | |||||||
Shares for EPS calculation | 35,425 | 35,425 | |||||||
Net income per share | $ | 0.01 | $ | 0.01 |
We did not include in our computation of diluted EPS unexercised stock options and non-vested stock awards to purchase 2,712,000 and 3,558,000 shares of our common stock as of March 31, 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 SFAS 131, Disclosures about Segments of an Enterprise and Related Information. |
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HEALTHTRONICS, INC. AND SUBSIDIARIES |
5. Stock-Based Compensation
On January 1, 2006, we adopted SFAS No. 123(R), Share-Based Payment (“SFAS 123(R)”), 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. SFAS 123(R) 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 award’s portion that is ultimately expected to vest is recognized as expense over the requisite service periods. Prior to the adoption of SFAS 123(R), we accounted for share-based awards to employees and directors using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25 as allowed under SFAS No. 123, Accounting for Stock-Based Compensation. 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. |
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HEALTHTRONICS, INC. AND SUBSIDIARIES |
6. Inventory
As of March 31, 2009 and December 31, 2008, inventory consisted of the following: |
($ In thousands) | March 31, 2009 | December 31, 2008 | |||||||
---|---|---|---|---|---|---|---|---|---|
Raw Materials | $ | 6,046 | $ | 5,993 | |||||
Finished Goods | 2,581 | 2,850 | |||||||
$ | 8,627 | $ | 8,843 | ||||||
7. New Pronouncements
In April 2008, the FASB issued FASB Staff Position No. 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No.142, Goodwill and Other Intangible Assets. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The adoption of FSP 142-3 did not have a material impact on our financial position or results of operations. |
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HEALTHTRONICS, INC. AND SUBSIDIARIES |
8. Acquisitions
On October 10, 2008, we entered into a Stock Purchase Agreement with Atlantic Urological Associates (“AUA”), pursuant to which we purchased the outstanding shares of capital stock of Ocean Radiation Therapy, Inc., a wholly-owned subsidiary of AUA (“Ocean”), for a purchase price of approximately $35 million in cash. Ocean provides image guided radiation therapy (“IGRT”) technical services to AUA’s IGRT cancer treatment center. The Ocean entity was formed concurrent with and as a result of the purchase. Ocean’s only asset was the IGRT services agreement valued at approximately $35 million which is recorded in intangible assets. We have estimated that this service agreement has a 20 year useful life and we are amortizing that asset over that life. |
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HEALTHTRONICS, INC. AND SUBSIDIARIES |
Our unaudited proforma combined income data for the period ended March 31, 2008, assuming the acquisitions were effective January 1, is as follows: |
Three Months Ended | ||||||
---|---|---|---|---|---|---|
($ in thousands, except per share data) | March 31, 2008 | |||||
Total revenues | $ | 44,126 | ||||
Total expenses | (43,013 | ) | ||||
Net income attributable to HealthTronics, Inc. | $ | 1,113 | ||||
Diluted earnings per share | $ | 0.03 |
9. Subsequent Events
On April 9, 2009, we made a proposal (subject to negotiation of a definitive merger agreement and due diligence) to Endocare, Inc. to acquire all of Endocare’s outstanding common stock for $1.25 per share, with Endocare stockholders having the ability to elect to receive either cash or our common stock as consideration. Endocare has entered into a merger agreement with Galil Medical Ltd. pursuant to which Endocare would acquire Galil. Concurrently with the closing of the Endocare-Galil merger, Endocare would issue up to 16,250,000 shares of its common stock for $1.00 per share to certain Galil and Endocare stockholders. Immediately following such transactions, the Galil stockholders would own approximately 61.5%, and the existing Endocare stockholders would own approximately 38.5%, of the combined company. The Endocare Board has determined that our proposal could reasonably be expected to lead to a “superior proposal” as defined in such merger agreement, and the Endocare Board is in the process of further evaluating our proposal. Based on Endocare’s Amendment No. 6 to its Registration Statement on Form S-4 filed with the Securities and Exchange Commission on May 5, 2009, (1) as of the time of such filing, the Endocare Board continues to believe the Endocare-Galil merger is in the best interests of the Endocare stockholders and (2) in accordance with its fiduciary duties, the Endocare Board believes a full assessment of our proposal should be conducted before making a final determination regarding our proposal. The Endocare stockholders’ meeting to approve the Endocare-Galil merger has been set for June 5, 2009. We can give you no assurances that (1) the Endocare Board will determine our proposal is superior to the proposed Endocare-Galil merger or (2) if such a determination is made, that a transaction with Endocare will be completed. |
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Item 2 — Management’s 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. |
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Item 2 — Management’s Discussion and Analysis |
Segment Reporting |
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Item 2 — Management’s Discussion and Analysis |
Prostate treatment services. We provide treatments for benign and cancerous conditions of the prostate. In treating benign prostate disease, we deploy three technologies: (1) photo-selective vaporization of the prostate (PVP), (2) trans-urethral needle ablation (TUNA), and (3) trans-urethral microwave therapy (TUMT) in certain partnerships. All three technologies apply an energy source which reduces the size of the prostate gland. For treating prostate and other cancers, we use a procedure called cryosurgery, a process which uses a double freeze thaw cycle to destroy cancers cells. In April 2008, we acquired Advanced Medical Partners, Inc. (“AMPI”), which significantly expanded our cryosurgery partnership base. Our prostate treatment services are also provided principally through limited partnerships and other entities that we manage, which use equipment to perform the treatments. Benign prostate disease and cryosurgery cancer treatment services are billed in the same manner as our lithotripsy services under either retail or wholesale contracts. We also provide services relating to operating the equipment, including scheduling, training, quality assurance, regulatory compliance, and contracting. |
• | 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 — Management’s 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 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 — Management’s Discussion and Analysis |
Critical Accounting Policies and Estimates |
-19- |
Item 2 — Management’s Discussion and Analysis |
A third critical accounting policy is consolidation of our investments in partnerships or limited liability companies (LLCs) where we, as the general partner or managing member, exercise effective control, even though our ownership is less than 50%. The consolidated financial statements include our accounts, our wholly-owned subsidiaries, and entities more than 50% owned and limited partnerships or LLCs where we, as the general partner or managing member, exercise effective control, even though our ownership is less than 50%. The related agreements provide us with broad powers. The other parties do not participate in the management of the entity and do not have the substantial ability to remove us. Investment in entities in which our investment is less than 50% ownership and we do not have significant control are accounted for by the equity method if ownership is between 20%–50%, or by the cost method if ownership is less than 20%. We have reviewed each of the underlying agreements and determined we have effective control; however, if it was determined this control did not exist, these investments would be reflected on the equity method of accounting. Although this would change individual line items within our consolidated financial statements, it would have no effect on our net income and/or total stockholders’ equity. |
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Item 2 — Management’s Discussion and Analysis |
Provision for income taxes in the first quarter of 2009 decreased $57,000 compared to the same period in 2008 due to the decrease in our taxable net income during the same periods, offset by an increase in the effective tax rate. 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 — Management’s Discussion and Analysis |
Senior Credit Facility |
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) | $ | 41,923 | $ | 39,444 | $ | 1,997 | $ | 98 | $ | 384 | |||||||
Operating Leases (2) | 14,314 | 2,756 | 7,989 | 2,825 | 744 | ||||||||||||
Non-compete contracts (3) | 50 | 50 | - | - | - | ||||||||||||
Total | $ | 56,287 | $ | 42,250 | $ | 9,986 | $ | 2,923 | $ | 1,128 | |||||||
(1) | Represents long term debt as discussed above. | ||||
(2) | Represents operating leases in the ordinary course of our business. | ||||
(3) | Represents an obligation of $50 due to a previous employee of ours, at a rate of $3 per month until June 15, 2010. |
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Item 2 — Management’s Discussion and Analysis |
In addition, the scheduled principal repayments for all long term debt as of March 31, 2009 are payable as follows: |
($ in thousands) | ||||||
---|---|---|---|---|---|---|
2010 | $ | 39,444 | ||||
2011 | 1,462 | |||||
2012 | 535 | |||||
2013 | 93 | |||||
2014 | 5 | |||||
Thereafter | 384 | |||||
Total | $ | 41,923 | ||||
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” under Part I. 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 — Management’s Discussion and Analysis |
Recently Issued Accounting Pronouncements |
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Item 2 — Management’s Discussion and Analysis |
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements–an amendment of ARB No. 51 (“SFAS 160”). This Statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 requires companies to report a noncontrolling interest in a subsidiary as equity. Additionally, companies are required to include amounts attributable to both the parent and the noncontrolling interest in the consolidated net income and provide disclosure of net income attributable to the parent and to the noncontrolling interest on the face of the consolidated statement of income. This Statement clarifies that after control is obtained, transactions which change ownership but do not result in a loss of control are accounted for as equity transactions. Prior to this Statement being issued, decreases in a parent’s ownership interest in a subsidiary could be accounted for as equity transactions or as transactions with gain or loss recognition in the income statement. A change in ownership of a consolidated subsidiary that results in a loss of control and deconsolidation would result in a gain or loss in net income. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008 with earlier adoption prohibited. The adoption of SFAS 160 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 March 31, 2009, we had long-term debt (including current portion) totaling $41,923,000, of which $4,536,000 had fixed rates of 4% to 9%, and $37,387,000 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 $37,387,000. We make monthly or quarterly payments of principal and interest on $387,000 of the floating rate debt. An increase in interest rates of 1% would result in a $374,000 annual increase in interest expense on this existing principal balance. |
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Item 4 – Controls and Procedures |
As of March 31, 2009, under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive officer) and our Interim 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 Interim Chief Financial Officer concluded that, as of March 31, 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. The risks described in our Annual Report on Form 10-K 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.
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 (1/1/2009 – 1/31/2009) | 6,392 | (b) | $ | 2 | .30 | -- | -- | ||||||||||
Month 2 (2/1/2009 – 2/28/2009) | -- | -- | -- | -- | |||||||||||||
Month 3 (3/1/2009 – 3/31/2009) | 2,449 | (b) | 1 | .48 | -- | -- | |||||||||||
Total | 8,841 | $ | 2 | .07 | -- | $ | 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 SEC’s 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. | ||||
(b) | Represents shares used by two officers to pay federal tax withholding obligations related to the vesting of restricted stock awards. |
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 8, 2009 | HEALTHTRONICS, INC. By:/s/ Richard A. Rusk Richard A. Rusk Interim Chief Financial Officer |
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