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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
May 17, 2001
HealthTronics Surgical Services, Inc.
(Exact name of the Registrant as specified in its charter)
Georgia 001-14921 58-2210668
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation and organization) identification No.)
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1841 West Oak Parkway, Suite A
Marietta, Georgia 30062
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
770-419-0691
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Item 2. Acquisition or Disposition of Assets.
On May 17, 2001, HealthTronics Surgical Services, Inc. (formerly
HealthTronics, Inc.) ("HealthTronics") purchased all of the issued and
outstanding capital stock of Heritage Medical Services of Texas, Inc. and HSC of
Gulf Coast, Inc. (collectively the "Corporations") for $565,000 in cash,
pursuant to a Stock Purchase Agreement by HealthTronics and HEALTHSOUTH
Corporation and Surgical Health Corporation. The acquisitions are given
financial effect as of April 1, 2001. The Corporations own a 52.07% interest in
and Heritage is the general partner of Gulf Coast Lithotripsy Associates, L.P.
("GCLA"). GCLA owns a 70% interest in and is the general partner of Lithotripsy
Associates of Texas, Limited Partnership ("LAT").
The purchase price was determined and negotiated by the parties
based on the expected annual cash flow to be generated by the Corporations and
subsidiaries. HealthTronics financed the acquisitions with working capital
generated by its business.
Earlier this year, HealthTronics announced that it had agreed with
HEALTHSOUTH Corporation that HealthTronics would be able to use HEALTHSOUTH's
surgery centers to provide OssaTron(R) orthopaedic shock wave treatment for
chronic plantar fasciitis. Two HealthTronics directors, Russell Maddox and
Michael D. Martin, are former executive officers of HEALTHSOUTH Corporation.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
a. Financial Statements of Business Acquired
The following combined consolidated audited financial statements of
Heritage Medical Services of Texas, Inc. and HSC of Gulf Coast, Inc.
and subsidiaries (collectively the "Company") as of and for the year
ended December 31, 2000 are provided herein:
(1) Independent Auditor's Report dated July 31, 2001
(2) Balance Sheet as of December 31, 2000
(3) Statement of Income for the year ended December 31,
2000
(4) Statement of Shareholder's Equity for the year ended
December 31, 2000
(5) Statement of Cash Flows for the year ended December
31, 2000
(6) Notes to Financial Statements for the year ended
December 31, 2000
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b. Pro Forma Financial Information
The following unaudited combined consolidated pro forma financial
statements relative to the acquisition are provided herein as follows:
(1) Balance Sheet as of December 31, 2000
(2) Statement of Income for the year ended December 31,
2000
(3) Statement of Income for the three months ended March
31, 2001
The unaudited combined consolidated pro forma statement of income give
effect to the acquisition by HealthTronics of the Company, as if the
acquisition had occurred on January 1 of the periods presented. The
unaudited combined consolidated pro forma balance sheet gives effect to
the acquisition by HealthTronics of the Company, as if the acquisition
had occurred on December 31, 2000. The pro forma adjustments are based
upon estimates, currently available information and certain assumptions
management deems appropriate. The unaudited combined consolidated pro
forma financial data presented herein are not necessarily indicative of
the results that HealthTronics would have obtained had such events
occurred at the beginning of the periods, as assumed, or of the future
results of HealthTronics.
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INDEPENDENT AUDITORS' REPORT
The Shareholders of Heritage Medical Services of Texas, Inc. and HSC of Gulf
Coast, Inc. and subsidiaries
We have audited the accompanying combined consolidated balance sheet of Heritage
Medical Services of Texas, Inc. and HSC of Gulf Coast, Inc. and subsidiaries as
of December 31, 2000, and the related combined consolidated statements of
income, shareholder's equity and cash flows for the year then ended. These
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined consolidated financial position of Heritage
Medical Services of Texas, Inc. and HSC of Gulf Coast, Inc. and subsidiaries as
of December 31, 2000, and the combined consolidated results of their operations
and their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.
Atlanta, Georgia
July 31, 2001 /s/ Ernst & Young LLP
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Heritage Medical Services of Texas, Inc. and
HSC of Gulf Coast, Inc. and Subsidiaries
Combined Consolidated Balance Sheet
December 31, 2000
ASSETS
Current assets:
Cash $ 79,011
Accounts receivable, net of allowance for doubtful accounts
of $13,614 665,576
Prepaid expenses and other current assets 3,990
----------
Total current assets 748,577
Equipment, net of accumulated depreciation of $3,539,453 299,622
----------
Total assets $1,048,199
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LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 69,644
Salary and wages payable 24,897
Payable to related party 345,975
Other current liabilities 38,051
Current portion of note payable to
related party 78,939
----------
Total current liabilities 557,506
Note payable to related party, net of
current portion 203,926
Minority interest 120,098
Shareholder's equity:
Common stock - Heritage Medical Services of Texas, Inc., no par
value, 10,000 shares authorized, 1,110 shares issued and
outstanding --
Common stock - HSC of Gulf Coast, Inc., no par value, 10,000
shares authorized, 1,000 shares issued and outstanding --
Retained earnings 166,669
----------
Total shareholder's equity 166,669
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Total liabilities and shareholder's equity $1,048,199
==========
See accompanying notes.
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Heritage Medical Services of Texas, Inc. and HSC of Gulf Coast, Inc.
and Subsidiaries
Combined Consolidated Statement of Income
Year ended December 31, 2000
Revenues $ 4,146,936
Operating expenses 1,062,826
Provision for doubtful accounts 6,674
Depreciation expense 112,498
Management fee 81,361
-----------
Operating income 2,883,577
Interest expense (33,467)
Other income 3,108
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Income before minority interest 2,853,218
Minority interest 1,484,198
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Net income $ 1,369,020
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Supplemental unaudited proforma information:
Net income, as above $ 1,369,020
Pro forma adjustment to income tax expense 533,918
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Pro forma net income $ 835,102
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See accompanying notes.
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Heritage Medical Services of Texas, Inc. and
HSC of Gulf Coast, Inc. and Subsidiaries
Combined Consolidated Statement of Shareholder's Equity
Year ended December 31, 2000
Balance at January 1, 2000 $ 146,055
Net income 1,369,020
Distributions (1,348,406)
-----------
Balance at December 31, 2000 $ 166,669
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See accompanying notes.
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Heritage Medical Services of Texas, Inc. and
HSC of Gulf Coast, Inc. and Subsidiaries
Combined Consolidated Statement of Cash Flows
Year ended December 31, 2000
OPERATING ACTIVITIES
Net income $ 1,369,020
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 112,498
Minority interest in income of subsidiaries, net of
distributions to minority interest 423,603
Changes in operating assets and liabilities:
Accounts receivable 68,257
Prepaid expenses and other current
assets 5,361
Accounts payable 35,024
Payable to related party (452,479)
Accrued expenses (53,964)
-----------
Net cash provided by operating activities 1,507,320
INVESTING ACTIVITIES
Purchase of property and equipment, net (20,360)
Distributions to related party (1,348,406)
-----------
Net cash used in investing activities (1,368,766)
FINANCING ACTIVITIES
Repayment of debt (78,939)
-----------
Net cash used in financing activities (78,939)
-----------
Net increase in cash 59,615
Cash at beginning of year 19,396
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Cash at end of year $ 79,011
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See accompanying notes.
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Heritage Medical Services of Texas, Inc. and
HSC of Gulf Coast, Inc. and Subsidiaries
Notes to Combined Consolidated Financial Statements
December 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL STATEMENT PRESENTATION AND ORGANIZATION
On May 17, 2001, HealthTronics Surgical Services, Inc. (formerly HealthTronics,
Inc.) ("HealthTronics") purchased all of the issued and outstanding capital
stock of Heritage Medical Services of Texas, Inc. and HSC of Gulf Coast, Inc.
(collectively the "Corporations"). The Corporations own a 52.07% interest in and
Heritage is the general partner of Gulf Coast Lithotripsy Associates, L.P.
("GCLA"). GCLA owns a 70% interest in and is the general partner of Lithotripsy
Associates of Texas, Limited Partnership ("LAT"). GCLA and LAT own and operate
lithotripters in Houston, Texas. Lithotripters provide non-invasive treatment
services for certain urologic conditions.
Profits and losses of GCLA and LAT are allocated to and between the partners of
GCLA and LAT in proportion to their respective partnership interests.
Distributions and appropriations of the profits and losses are made to the
partners quarterly as defined by the partnership agreement.
The Corporations are under common ownership by HEALTHSOUTH Corporation
("HEALTHSOUTH").
PRINCIPLES OF CONSOLIDATION
The accompanying combined consolidated financial statements include the accounts
of the Corporations, GCLA and LAT (collectively "the Company"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the combined consolidated financial statements
and accompanying notes. Actual results could differ from those estimates.
EQUIPMENT
Equipment is recorded at cost. Upon sale or retirement of equipment, the cost
and related accumulated depreciation is eliminated from the respective accounts
and the resulting gain or loss is included in the results of operations.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which range from 3-10 years.
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Heritage Medical Services of Texas, Inc. and
HSC of Gulf Coast, Inc. and Subsidiaries
Notes to Combined Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MINORITY INTEREST
The equity of minority investors in the Company is reported on the combined
consolidated balance sheet as minority interest. Minority interest reported in
the combined consolidated income statement reflects the respective interest in
the income of the limited partnerships attributable to the minority investors.
REVENUES
Revenues are reported at the estimated net realizable amounts from patients,
third-party payors and others for services rendered and are recognized at the
date of service.
ACCOUNTS RECEIVABLE
An allowance for doubtful accounts is established for revenue estimated to be
uncollectible and is adjusted periodically based upon management's evaluation of
current economic conditions, historical collection experience, and other
relevant factors which, in the opinion of management, deserve recognition in
estimating such allowance.
Credit is extended based on an evaluation of the customer's financial condition
and collateral is generally not required.
INCOME TAXES
Certain of the entities comprising the Company are partnerships. For these
entities, the partners, including the Corporations, assume responsibility for
the income tax of such entities. The Corporations file a consolidated tax return
with HEALTHSOUTH. HEALTHSOUTH does not charge the Corporations for their income
taxes. Accordingly, the accompanying financial statements do not reflect any
provision for income taxes. Unaudited pro forma income tax expense is shown on
the accompanying financial statements related to the Corporations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments are comprised principally of cash, accounts
receivable, accounts payable, and long-term debt. The carrying amounts of these
financial instruments approximate their fair values.
2. RELATED PARTY TRANSACTIONS
The information below summarizes related party transactions with HEALTHSOUTH as
of and for the year ended December 31, 2000:
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Heritage Medical Services of Texas, Inc. and
HSC of Gulf Coast, Inc. and Subsidiaries
Notes to Combined Consolidated Financial Statements (continued)
2. RELATED PARTY TRANSACTIONS (CONTINUED)
Payable to related party $345,975
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Note payable to related party $282,865
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Related party interest expense $ 33,467
Related party management fees 81,361
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$114,828
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The payable to related party represents normal cash transactions between
HEALTHSOUTH and the Company. HEALTHSOUTH provides cash management and certain
other services for the Company. Distributions to HEALTHSOUTH are also recorded
in this account. No interest is charged by HEALTHSOUTH on these accounts.
Fluctuations in this account reflect cash flow from operations in excess of
expenses for the current year. The note payable to related party represents a
note with HEALTHSOUTH related to a machine the Company acquired. This machine is
collateralized against the note. See footnote 4 for the terms of note. The
Company also pays a management fee to HEALTHSOUTH for general management
services. The Company believes such amounts are no less favorable than amounts
that would be incurred for similar services with outside parties.
3. CONTINGENCIES
The Corporations participate in HEALTHSOUTH's self-insured plans for
professional liability and comprehensive general liability. In addition,
HEALTHSOUTH purchased underlying insurance which would cover all claims once
established limits have been exceeded. It is the opinion of HEALTHSOUTH's
management that, at December 31, 2000, HEALTHSOUTH has adequate reserves to
cover losses on asserted and unasserted claims. The Company accrues for any
claims through intercompany receivables/payables when management estimates that
a loss is probable.
4. NOTE PAYABLE TO RELATED PARTY
As of December 31, 2000, note payable to related party consists of a note
payable between LAT and HEALTHSOUTH. The note bears interest at a rate of 9.86%
per annum and is payable in monthly principal installments of $6,678 plus
interest. The note is collateralized by equipment.
The note is payable as follows:
2001 $ 78,939
2002 78,939
2003 78,939
2004 46,048
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$282,865
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Interest paid during 2000 was $33,467.
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Heritage Medical Services of Texas, Inc. and
HSC of Gulf Coast, Inc. and Subsidiaries
Notes to Combined Consolidated Financial Statements (continued)
5. EMPLOYEE BENEFIT PLANS
Employees of the Company are eligible to participate in a HEALTHSOUTH 401(k)
savings plan once they have completed one year of service with a minimum of
1,000 hours worked. Contributions to the plan by the Company were not
significant in 2000.
6. SUBSEQUENT EVENTS
In February 2001, the Company made distributions to its owners totaling
$657,972. Of this amount, $288,415 was paid to its minority owners.
Item 7(b) -- Pro Forma Financial Information
On May 17, 2001 HealthTronics Surgical Services, Inc. (formerly HealthTronics,
Inc.) ("HealthTronics") purchased all of the issued and outstanding capital
stock of Heritage Medical Services of Texas, Inc. and HSC of Gulf Coast, Inc.
The following unaudited pro forma information includes the unaudited pro forma
balance sheet as of December 31, 2000 as if the acquisition of Heritage Medical
Services of Texas, Inc. and HSC of Gulf Coast, Inc. and subsidiaries
(collectively the "Company") had occurred on that date, and includes the
unaudited pro forma statements of operations for the year ended December 31,
2000 and for the three months ended March 31, 2001 as if the acquisition of the
Company had occurred as of December 31, 2000. Due to the nature of the assets
acquired, HealthTronics believes that it is more informative to provide all
balance sheet amounts as of December 31, 2000 rather than March 31, 2001. These
pro forma statements do not necessarily reflect the results of operations, as
they would have been if HealthTronics had completed the acquisition on the dates
indicated above. The acquisition of the Company was accounted for as a purchase.
This unaudited pro forma information should be read in conjunction with the
separate financial statements and notes of HealthTronics Surgical Services, Inc.
and the Company.
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Heritage Medical Services of Texas, Inc. and
HSC of Gulf Coast, Inc. and Subsidiaries
Pro Forma Combined Condensed Balance Sheet
AS OF DECEMBER 31, 2000
(UNAUDITED)
HISTORICAL
HEALTHTRONICS PRO FORMA PRO FORMA
SURGICAL SERVICES COMPANY (1) ADJUSTMENTS COMBINED
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CURRENT ASSETS
Cash and cash equivalents $ 5,822,626 $ 79,011 $(565,000)(2) $ 5,336,637
Trade accounts receivable, net 5,158,775 665,576 -- 5,824,351
Income taxes receivable 894,763 -- -- 894,763
Inventory 2,702,392 -- -- 2,702,392
Due from affiliated partnerships 210,157 -- -- 210,157
Vendor deposits 337,151 -- -- 337,151
Prepaid expenses 314,563 3,990 -- 318,553
Deferred income taxes 278,967 -- -- 278,967
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TOTAL CURRENT ASSETS 15,719,394 748,577 (565,000) 15,902,971
Property and equipment, at cost:
Medical devices placed in
service 13,123,439 3,839,075 28,066(2) 16,990,580
Office equipment, furniture
and fixtures 539,735 -- -- 539,735
Vehicles and accessories 1,723,679 -- -- 1,723,679
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Less accumulated depreciation (4,742,163) (3,539,453) -- (8,281,616)
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NET PROPERTY AND EQUIPMENT 10,644,690 299,622 28,066 10,972,378
Partnership investments 473,757 -- -- 473,757
Goodwill, net 3,422,490 -- 24,290(2) 3,446,780
Patent license 45,010 -- -- 45,010
Other assets 127,477 -- -- 127,477
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TOTAL ASSETS $ 30,432,818 $ 1,048,199 $(512,644) $ 30,968,373
============================================================================
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HISTORICAL
HEALTHTRONICS PRO FORMA PRO FORMA
SURGICAL SERVICES COMPANY(1) ADJUSTMENTS COMBINED
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CURRENT LIABILITIES
Trade accounts payable $ 1,235,435 $ 69,644 $ -- $ 1,305,079
Customer deposits 760,779 -- -- 760,779
Income taxes payable -- -- -- --
Warranty accrual 287,716 -- -- 287,716
Other accrued expenses 841,025 408,923 (345,975)(2) 903,973
Deferred profit on service contracts 25,417 -- -- 25,417
Short-term borrowings 596,114 -- -- 596,114
Current portion of long-term debt 1,521,164 78,939 -- 1,600,103
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TOTAL CURRENT LIABILITIES 5,267,650 557,506 (345,975) 5,479,181
Long-term debt, less current portion 1,967,859 203,926 -- 2,171,785
Deferred income taxes 664,193 -- -- 664,193
Deferred profit on medical device sales
to related parties 251,867 -- -- 251,867
Minority interest 3,945,355 120,098 -- 4,065,453
Other liabilities 151,627 -- -- 151,627
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TOTAL LIABILITIES 12,248,551 881,530 (345,975) 12,784,106
SHAREHOLDERS' EQUITY
Common stock 13,744,704 -- -- 13,744,704
Retained earnings 4,439,563 166,669 (166,669)(2) 4,439,563
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TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $30,432,818 $ 1,048,199 $(512,644) $30,968,373
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1. Represents the December 31, 2000 balance sheet of the Company.
2. Represents the adjustments required to record the purchase accounting
related to the acquisition of the Company. Such adjustments include
removal of the payable to related party not assumed in the
acquisition, recording of equipment at fair value and recording of
goodwill.
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Heritage Medical Services of Texas, Inc. and
HSC of Gulf Coast, Inc. and Subsidiaries
Pro Forma Combined Condensed Statement of Income
FOR THE YEAR ENDED DECEMBER 31, 2000
(UNAUDITED)
HISTORICAL
-------------------------------------
HEALTHTRONICS PRO FORMA PRO FORMA
SURGICAL SERVICES COMPANY(1) ADJUSTMENTS COMBINED
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Net revenue $ 33,846,015 $ 4,146,936 $ -- $ 37,992,951
Cost of devices, service parts,
consumables 14,174,272 -- -- 14,174,272
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19,671,743 4,146,936 -- 23,818,679
Salaries, general and administrative
expenses 9,301,247 1,263,359 7,232 (3) 10,571,838
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10,370,496 2,883,577 (7,232) 13,246,841
Equity in earnings of unconsolidated
partnerships 164,516 -- -- 164,516
Partnership distributions from cost based
investments 387,997 -- -- 387,997
Gain on sale of investment interest 739,851 -- -- 739,851
Interest expense (378,523) (33,467) -- (411,990)
Interest income 235,355 3,108 -- 238,463
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Income before minority
interest and income taxes 11,519,692 2,853,218 (7,232) 14,365,678
Minority interest (7,038,613) (1,484,198) -- (8,522,811)
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Income before income taxes 4,481,079 1,369,020 (7,232) 5,842,867
Provision for income taxes (1,860,221) -- (561,298)(2) (2,421,519)
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Net income $ 2,620,858 $ 1,369,020 $(568,530) $ 3,421,348
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Basic and diluted income per
common share:
Basic $ 0.24 $ 0.32
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Diluted $ 0.24 $ 0.31
==============================================================================
Weighted average common shares
outstanding:
Basic 10,826,228 10,826,228
==============================================================================
Diluted 11,098,480 11,098,480
==============================================================================
1. The historical amounts represent the results of the Company for the
year ended December 31, 2000 adjusted to conform with HealthTronics
presentation of revenue and expenses.
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2. Adjustment represents pro forma income tax expense recorded as a result
of the acquisition. The amounts are recorded as if the acquisition had
occurred as of January 1, 2000.
3. Adjustment to record amortization expense related to the goodwill
acquired and depreciation expense related to recording equipment at its
fair value. Amortization of goodwill is computed using a period of 15
years.
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Heritage Medical Services of Texas, Inc. and
HSC of Gulf Coast, Inc. and Subsidiaries
Pro Forma Combined Condensed Statement of Income
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(UNAUDITED)
HISTORICAL
-------------------------------------
HEALTHTRONICS PRO FORMA PRO FORMA
SURGICAL SERVICES COMPANY(1) ADJUSTMENTS COMBINED
------------------------------------------------------------------------------
Net revenue $ 10,157,998 $ 585,786 $ -- $ 10,743,784
Cost of devices, service parts,
consumables 2,814,783 -- -- 2,814,783
Salaries, general and administrative
expenses 3,828,426 283,290 4,111,716
Depreciation and amortization 937,681 63,515 1,528 (3) 1,002,724
------------------------------------------------------------------------------
2,577,108 238,981 (1,528) 2,814,561
Equity in earnings of unconsolidated
partnerships 47,713 -- -- 47,713
Partnership distributions from cost
based investments 114,281 -- -- 114,281
Gain on sale of investment interest 1,009,613 -- -- 1,009,613
Interest expense (100,924) (6,476) -- (107,400)
Interest income 74,870 3,088 -- 77,958
------------------------------------------------------------------------------
Income before minority interest and
income taxes 3,722,661 235,593 (1,528) 3,956,726
Minority interest (2,484,754) (113,570) -- (2,598,324)
------------------------------------------------------------------------------
Income before income taxes 1,237,907 122,023 (1,528) 1,358,402
Provision for income taxes (507,542) -- $(64,620)(2) (572,162)
------------------------------------------------------------------------------
Net income $ 730,365 $ 122,023 $(66,148) $ 786,240
==============================================================================
Basic and diluted income per common
share:
Basic $ 0.07 $ 0.07
==============================================================================
Diluted $ 0.07 $ 0.07
==============================================================================
Weighted average common shares
outstanding:
Basic 10,973,181 10,973,181
==============================================================================
Diluted 11,197,003 11,197,003
==============================================================================
1. The historical amounts represent the results of the Company for the
three months ended March 31, 2001 adjusted to conform with
HealthTronics' presentation of revenue and expenses.
2. Adjustment represents pro forma income tax expense recorded as a result
of the acquisition. The amounts are recorded as if the acquisition had
occurred as of January 1, 2001.
3. Adjustment to record amortization expense related to the goodwill
acquired and depreciation expense related to recording equipment at its
fair value. Amortization of goodwill is computed using a period of 15
years.
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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.
HealthTronics Surgical Services, Inc.
Dated:
August 1, 2001 By: /s/ Victoria W. Beck
------------------------------------
Victoria W. Beck
Chief Accounting Officer
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