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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Htetf (MM) | NASDAQ:HTRN | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 4.84 | 0 | 01:00:00 |
_______________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
_____________________________
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2007
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.) |
1301 Capital of Texas
Highway, Suite B-200, Austin, Texas 78746
(Address of principal executive office) (Zip code)
(512) 328-2892
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES __
NO
X
Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES __ NO
X
Aggregate Market Value at June 30, 2007: $ 125,167,000 |
Indicate the number of shares outstanding of each of the registrants classes of common stock, as of the latest practicable date. |
Title of Each Class
Common Stock, no par value |
Number of Shares Outstanding at
February 28, 2008
35,783,811 |
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the Registrants definitive proxy material for the 2008 annual meeting of stockholders are incorporated by reference into Part III of the Form 10-K. |
HEALTHTRONICS, INC.
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007 |
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General
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2 |
Although the non-physician fee under both retail and wholesale contracts varies widely based on
geographical markets and the identity of the third party payor, we estimate that nationally, on average,
our share of the non-physician fee was roughly $2,100, respectively, for both 2007 and 2006. At this
time, we do not anticipate a material shift between our retail and wholesale arrangements.
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Fees for urology services . A substantial majority of our urology revenue is derived from fees related to lithotripsy treatments performed using our lithotripters. We, through our partnerships or 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. Benign prostate disease and prostate cancer treatment services are billed in the same manner as our lithotripsy services under either retail or wholesale contracts. These services are also primarily performed through limited partnerships, which we manage. |
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Fees for operating our lithotripters . Through our partnerships and otherwise directly by us, we provide services related to operating our lithotripters and receive a management fee for performing these services. |
Medical Products
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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 monthly contractual rate. |
3 |
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Fees for equipment sales, consumable sales and licensing applications . We manufacture, sell and maintain lithotripters and certain medical tables, we distribute the Revolix laser and we also manufacture and sell consumables related to the lithotripters. 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. |
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Fees for Claripath anatomical pathology services . We provide anatomical pathology services primarily to the urology marketplace. Revenues from these services are recorded when the related laboratory procedures are performed. |
Specialty Vehicle Manufacturing
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4 |
Competition
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the federal False Claims Act; |
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the federal Medicare and Medicaid Anti-Kickback Law, and state anti-kickback prohibitions; |
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federal and state billing and claims submission laws and regulations; |
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the federal Health Insurance Portability and Accountability Act of 1996 and state laws relating to patient privacy; |
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5 |
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the federal physician self-referral prohibition commonly known as the Stark Law and the state law equivalents of the Stark Law; |
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state laws that prohibit the practice of medicine by non-physicians, and prohibit fee-splitting arrangements involving physicians; and |
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federal and state laws governing the equipment we use in our business concerning patient safety and equipment operating specifications. |
Practices prohibited by these statutes include, but are not limited to, the payment, receipt, offer, or
solicitation of money or other consideration in connection with the referral of patients for services
covered by a federal or state health care program. We contract with physicians under a variety of
financial arrangements, and physicians have ownership interests in some entities in which we also have
an interest. If our operations are found to be in violation of any of the laws and regulations to which
we or our Customers are subject, we may be subject to the applicable penalty associated with the
violation, including civil and criminal penalties, damages, fines, exclusion from the Medicare,
Medicaid, and other governmental healthcare programs, loss of licenses, and the curtailment of our
operations. While we believe that we are in compliance with all applicable laws, we cannot assure that
our activities will be found to be in compliance with these laws if scrutinized by regulatory
authorities. Any penalties, damages, fines or curtailment of our operations, individually or in the
aggregate, could adversely affect our ability to operate our business and our financial results. The
risks of us being found in violation of these laws and regulations is increased by the fact that many of
them have not been fully interpreted by the regulatory authorities or in the courts, and their
provisions are open to a variety of interpretations. Any action brought against us for violation of
these laws or regulations, even if we were to successfully defend against it, could cause us to incur
significant legal expenses and divert our managements attention from the operation of our business.
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6 |
Risk Factors
|
7 |
Recent legislation and several regulatory initiatives at the state and federal levels address patient
privacy concerns. New federal legislation extensively regulates the use and disclosure of individually
identifiable health-related information and the security and standardization of electronically
maintained or transmitted health-related information. We do not yet know the total financial or other
impact of these regulations on our business. Continuing compliance with these regulations will likely
require us to spend substantial sums, including, but not limited to, purchasing new computer systems,
which could negatively impact our financial results. Additionally, if we fail to comply with the privacy
regulations, we could suffer civil penalties of up to $25,000 per calendar year per standard (with well
over fifty standards with which to comply) and criminal penalties with fines of up to $250,000 for
willful and knowing violations. In addition, health care providers will continue to remain subject to
any state laws that are more restrictive than the federal privacy regulations. These privacy laws vary
by state and could impose additional penalties.
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8 |
Our success will depend partly on our ability to operate without infringing on or utilizing the
proprietary rights of others.
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future announcements concerning us, our competition or the health care services market generally; |
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developments relating to our relationships with hospitals, other health care facilities, or physicians; |
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developments relating to our sources of supply; |
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claims made or litigation filed against us; |
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changes in, or new interpretations of, government regulations; |
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changes in operating results from quarter to quarter; |
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sales of stock by insiders; |
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9 |
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news reports relating to trends in our markets; |
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acquisitions and financings in our industry; and |
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overall volatility of the stock market. |
Furthermore, stock prices for many companies fluctuate widely for reasons that may be unrelated to their
operating results. These fluctuations, coupled with changes in our results of operations and general
economic, political and market conditions, may adversely affect the market price of our common stock.
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diversion of managements attention; |
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the need to integrate acquired operations; |
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potential loss of key employees of the acquired companies; and |
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an increase in our expenses and working capital requirements. |
Any of these factors could adversely affect our ability to achieve anticipated levels of cash flows from
our acquired businesses or realize other anticipated benefits from those acquisitions.
|
10 |
Our manufacturing operations are partially dependent upon third-party suppliers, making us vulnerable to
a supply shortage.
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the need to comply with applicable federal Food and Drug Administration and foreign regulations relating to good manufacturing practices and medical device approval requirements, and with state licensing requirements; |
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the need for special non-governmental certifications and registrations regarding product safety, product quality and manufacturing procedures in order to market products in the European Union; |
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potential product liability claims for any defective goods that are distributed; and |
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the need for research and development expenditures to develop or enhance products and compete in the equipment markets. |
Our indebtedness may limit our financial and operating flexibility.
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11 |
We must comply with various covenants contained in our revolving credit facility and any other future debt arrangements that, among other things, limit our ability to: |
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incur additional debt or liens; |
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make payments in respect of or redeem or acquire any debt or equity issued by us; |
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sell assets; |
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make loans or investments; |
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acquire or be acquired by other companies; and |
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amend some of our contracts. |
Although we have no monies drawn on our revolving line of credit, that could change and the level of indebtedness could have important consequences to you. For example, it could: |
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increase our vulnerability to general adverse economic and industry conditions; |
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limit our ability to fund future working capital and capital expenditures, to engage in future acquisitions, or to otherwise realize the value of our assets and opportunities fully because of the need to dedicate a portion of our cash flow from operations to payments on our debt or to comply with any restrictive terms of our debt; |
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limit our flexibility in planning for, or reacting to, changes in the industry in which we operate; and |
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place us at a competitive disadvantage as compared to our competitors that have less debt. |
In addition, if we fail to comply with the terms of any of our debt, our lenders will have the right to
accelerate the maturity of that debt and foreclose upon the collateral, if any, securing that debt.
Realization of any of these factors could adversely affect our business, financial condition and results
of operations.
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12 |
Although our management will continue to periodically review and evaluate the effectiveness of our
internal controls, we can give you no assurance that there will be no material weaknesses in our
internal control over financial reporting. We may in the future have material weaknesses in our internal
control over financial reporting as a result of our controls becoming inadequate due to changes in
conditions, the degree of compliance with our internal control policies and procedures deteriorating, or
for other reasons. If we have significant deficiencies or material weaknesses in our internal control
over financial reporting, our ability to record, process, summarize and report financial information
within the time periods specified in the rules and forms of the SEC will be adversely affected. This
failure could materially and adversely impact our business, our financial condition and the market value
of our securities.
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Name | Age | Position | |
---|---|---|---|
James S.B. Whittenburg | 36 | Chief Executive Officer and President | |
Ross A. Goolsby | 40 | Chief Financial Officer and Senior Vice President | |
Richard A. Rusk | 46 | Vice President, Corporate Controller, Treasurer and Secretary |
The foregoing does not include positions held in our subsidiaries. Our officers are elected for annual
periods. There are no family relationships between any of our executive officers and/or directors.
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13 |
Available Information
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14 |
PART II |
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The following table sets forth the high and low closing prices per share for our common stock on the Nasdaq Global Select Market for the years ended December 31, 2007 and 2006 (NASDAQ Symbol HTRN). |
2007
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2006
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High
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Low
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High
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Low
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||||||||||||
First Quarter | $ | 6 | .60 | $ | 5 | .06 | $ | 8 | .60 | $ | 7 | .08 | |||
Second Quarter | $ | 5 | .47 | $ | 4 | .35 | $ | 8 | .50 | $ | 6 | .67 | |||
Third Quarter | $ | 5 | .25 | $ | 3 | .66 | $ | 7 | .60 | $ | 5 | .97 | |||
Fourth Quarter | $ | 5 | .30 | $ | 4 | .03 | $ | 7 | .38 | $ | 6 | .10 |
On February 12, 2008, we had 617 holders of record of our common stock.
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(a)
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(b)
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(c)
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Plan Category |
Number of shares of our common stock to be issued upon exercise of outstanding options |
Weighted-average exercise price of outstanding options |
Number of shares of our
common stock remaining available for future issuance under equity compensation plans (exceeding securities reflected in column (a)) |
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Prime 1993 stock option plan | 105,666 | $ | 7 | .79 | -- | |||||||
Prime 2003 stock option plan | 129,000 | $ | 5 | .84 | -- | |||||||
HSS equity incentive plan and stock | ||||||||||||
option plans | 2,959,499 | $ | 7 | .10 | 1,005,944 | |||||||
Other equity compensation plans | ||||||||||||
approved by our security holders | N/A | N/A | N/A |
15 |
Performance Graph
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The following tables set forth our summary consolidated historical financial information that has been derived from (a) our audited consolidated statements of income and cash flows for each of the years ended December 31, 2007, 2006, 2005, 2004 and 2003, (b) our audited consolidated balance sheets as of December 31, 2007, 2006, 2005, and 2004, (c) our unaudited consolidated balance sheet as of December 31, 2003, and (d) our unaudited consolidated statements of income and cash flows for each of the three months ended December 31, September 30, June 30, and March 31, for 2007 and 2006. As discussed under Business-General under Part I, Item 1 of this Annual Report on Form 10-K, the merger of Prime and HSS was accounted for as a reverse acquisition under the purchase method of accounting for business combinations in accordance with U.S. generally accepted accounting principles. As a result, the financial information presented below reflects the results of operations of Prime and HSS on a consolidated basis after November 10, 2004 and the results of operations of Prime for the periods prior to November 10, 2004. In addition, the financial information presented below reflects our financial condition on a consolidated basis as of December 31, 2007, 2006, 2005 and 2004 and Primes financial condition as of December 31, 2003. You should read this financial information in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and our historical financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. The historical results are not necessarily indicative of results to be expected in any future period. |
16 |
(In thousands, except per share data) |
Years Ended December 31,
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2007
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2006
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2005
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2004
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2003
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Revenues: | |||||||||||||||||||||||
Urology Services | $ | 122,736 | $ | 123,265 | $ | 133,360 | $ | 75,361 | $ | 58,702 | |||||||||||||
Medical Products | 17,101 | 19,080 | 18,202 | 10,846 | 1,714 | ||||||||||||||||||
Other | 581 | 546 | 705 | 936 | 1,022 | ||||||||||||||||||
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Revenues from continuing operations | $ | 140,418 | $ | 142,891 | $ | 152,267 | $ | 87,143 | $ | 61,438 | |||||||||||||
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Income (loss) from: | |||||||||||||||||||||||
Continuing Operations | $ | (14,485 | ) | $ | (16,446 | ) | $ | 10,933 | $ | 5,261 | $ | 6,301 | |||||||||||
Discontinued Operations | (147 | ) | 25,129 | (1,745 | ) | (3,908 | ) | 121 | |||||||||||||||
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Net income (loss) | $ | (14,632) | (1) | $ | 8,683 | (2) | $ | 9,188 | $ | 1,353 | (3) | $ | 6,422 | ||||||||||
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Diluted earnings (loss) per share: | |||||||||||||||||||||||
Continuing Operations | $ | (0.41 | ) | $ | (0.47 | ) | $ | 0.31 | $ | 0.24 | $ | 0.36 | |||||||||||
Discontinued Operations | -- | 0.72 | (0.05 | ) | (0.18 | ) | 0.01 | ||||||||||||||||
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Total | $ | (0.41 | ) | $ | 0.25 | $ | 0.26 | $ | 0.06 | $ | 0.37 | ||||||||||||
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Dividends per share | None | None | None | None | None | ||||||||||||||||||
Total assets | $ | 336,056 | $ | 346,733 | $ | 483,037 | $ | 474,158 | $ | 279,378 | |||||||||||||
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Long-term obligations (a) | $ | 4,269 | $ | 6,063 | $ | 129,980 | $ | 114,442 | $ | 113,125 | |||||||||||||
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(a) Includes long term debt, other long term obligations and deferred compensation liability. |
Quarterly Data
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Quarter Ended
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(in thousands, except per share data)
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March 31
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June 30
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Sept. 30
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Dec. 31
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2007 | (unaudited) | |||||||||||||
Revenues | $ | 32,751 | $ | 35,563 | $ | 35,955 | $ | 36,149 | ||||||
Net income (loss) | $ | (30 | ) | $ | 179 | $ | 745 | $ | (15,526 | ) (1) | ||||
Per share amounts (basic): | ||||||||||||||
Net income (loss) | $ | -- | $ | 0.01 | $ | 0.02 | $ | (0.44 | ) | |||||
Weighted average shares outstanding | 35,406 | 35,425 | 35,425 | 35,425 | ||||||||||
Per share amounts (diluted): | ||||||||||||||
Net income (loss) | $ | -- | $ | 0.01 | $ | 0.02 | $ | (0.44 | ) | |||||
Weighted average shares outstanding | 35,417 | 35,426 | 35,425 | 35,425 |
17 |
Quarterly Data
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Quarter Ended
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(in thousands, except per share data) |
March 31
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June 30
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Sept. 30
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Dec. 31
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2006 | (unaudited) | ||||||||||||||||
Revenues | $ | 37,106 | $ | 36,474 | $ | 35,863 | $ | 33,448 | |||||||||
Net income (loss) | $ | 1,273 | $ | 1,368 | $ | 31,177 | $ | (25,135 | ) (2) | ||||||||
Per share amounts (basic): | |||||||||||||||||
Net income (loss) | $ | 0.04 | $ | 0.04 | $ | 0.88 | $ | (0.71 | ) | ||||||||
Weighted average shares outstanding | 34,906 | 35,056 | 35,286 | 35,373 | |||||||||||||
Per share amounts (diluted): | |||||||||||||||||
Net income (loss) | $ | 0.04 | $ | 0.04 | $ | 0.88 | $ | (0.71 | ) | ||||||||
Weighted average shares outstanding | 35,251 | 35,361 | 35,370 | 35,373 | |||||||||||||
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(1) In the fourth quarter of 2007, in connection with our annual goodwill impairment test, we recorded
an impairment to our urology services segment goodwill totaling $20.8 million. This impairment was
due to a decrease in our estimated future discounted cash flows for this segment. This decrease
was primarily caused by lower projected growth rates for our laser operations as well as the timing
of certain future growth for our IGRT operations.
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Forward-Looking Statements
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18 |
Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as will, would, should, plans, likely, expects, anticipates, intends, believes, estimates, thinks, may, and similar expressions, are forward-looking statements. The following important factors, in addition to those discussed under Risk Factors under Part I, Item 1, could affect the future results of the health care industry in general, and us in particular, and could cause those results to differ materially from those expressed in such forward-looking statements. |
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uncertainties in our establishing or maintaining relationships with physicians and hospitals; |
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the impact of current and future laws and governmental regulations; |
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uncertainties inherent in third party payors attempts to limit health care coverages and levels of reimbursement; |
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the effects of competition and technological changes; |
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the availability (or lack thereof) of acquisition or combination opportunities; and |
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general economic, market or business conditions. |
General
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19 |
As the general partner of the limited partnerships, we also provide services relating to operating our
lithotripters, including scheduling, staffing, training, quality assurance, regulatory compliance, and
contracting with payors, hospitals and surgery centers.
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Fees for urology services . A substantial majority of our urology revenue is derived from fees related to lithotripsy treatments performed using our lithotripters. We, through our partnerships or 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. (For a further discussion on our partnerships, see Urology and Government Regulation and Supervision in Part I.) The professional fee payable to the physician performing the procedure is generally billed and collected by the physician. Benign prostate disease and prostate cancer treatment services are billed in the same manner as our lithotripsy services under either retail or wholesale contracts. These services are also primarily performed through limited partnerships, which we manage. |
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Fees for operating our lithotripters . Through our partnerships and otherwise directly by us, we provide services related to operating our lithotripters and receive a management fee for performing these services. |
Medical Products
. We manufacture, sell and maintain lithotripters and their related consumables. We also manufacture,
sell and maintain intra-operative X-ray imaging systems and other mobile patient management tables, and
are the exclusive U.S. distributor of the Revolix branded laser. The operations of our Claripath
pathology laboratory are also included in our medical products segment at this time.
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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 monthly contractual rate. |
|
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Fees for equipment sales, consumable sales and licensing applications . We manufacture, sell and maintain lithotripters and certain medical tables, we distribute the Revolix laser and we also manufacture and sell consumables related to the lithotripters. 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. |
20 |
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Fees for Claripath anatomical pathology services . We provide anatomical pathology services primarily to the urology marketplace. Revenues from these services are recorded when the related laboratory procedures are performed. |
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Recent Developments
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21 |
A second critical accounting policy and estimate which requires judgment of management is the estimated
allowance for doubtful accounts and contractual adjustments. We have based our estimates on historical
collection amounts, current contracts with payors, current changes of the facts and circumstances
relating to these matters and certain negotiations with related payors.
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22 |
In the fourth quarter of 2007, in connection with our annual goodwill impairment test, we recorded an
impairment to our urology services segment goodwill totaling $20.8 million. This impairment was due to
a decrease in our estimated future discounted cash flows for this segment. This decrease was primarily
caused by lower projected growth rates for our laser operations as well as the timing of certain future
growth for our IGRT operations. In the fourth quarter of 2006, we recorded an impairment to our
goodwill totaling $12.2 million related to our urology services segment and $8.4 million related to our
medical products segment. The impairment to our urology services segment was due primarily to a
decrease in the number of overall procedures during 2006, primarily across our western region
partnerships, combined with the loss of certain partnerships and contracts late in 2006 to competitors.
The impairment in our medical products segment relates primarily to our decision to reduce or exit
certain product lines, specifically patient management tables and orthopedic consumables during the
fourth quarter of 2006 along with the closing of our European operations.
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23 |
Year ended December 31, 2006 compared to the year ended December 31, 2005
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24 |
Depreciation and amortization expense decreased $169,000 in 2006 compared to 2005.
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25 |
Cash used in our financing activities for the year ended December 31, 2007, was $45,581,000, primarily
due to distributions to minority interests of $42,736,000 and payments on notes payable of $5,760,000
partially offset by borrowings on notes payable of $2,546,000. Cash used in our financing activities for
the year ended December 31, 2006, was $175,369,000, primarily due to distributions to minority interests
of $46,969,000 and net payments on notes payable of $129,600,000 which included repayment in full of our
term loan B. We also received $1,907,000 in proceeds from the exercise of stock options in 2006.
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26 |
Unrecognized Tax Benefits
: As of December 31, 2007, we had $2.3 million of unrecognized tax benefits.
This represents the tax benefits associated with various tax positions taken, or expected to be taken,
on domestic and international tax returns that have not been recognized in our financial statements due
to uncertainty regarding their resolution. The resolution or settlement of these tax positions with the
taxing authorities is at various stages and therefore we are unable to make a reliable estimate of the
eventual cash flows by period that will be required to settle these matters. In addition, certain of
these matters may not require cash settlement due to the existence of credit and operating loss
carryforwards as well as other offsets, including the indirect benefit from other taxing jurisdictions
that may be available.
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Payments due by period
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Contractual Obligations
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Total
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Less than
1 year |
1-3 years
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3-5 years
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More than 5 years
|
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Long Term Debt (1) | $ | 8,526 | $ | 4,332 | $ | 3,667 | $ | 496 | $ | 31 | |||||||
Operating Leases (2) | 6,397 | 1,652 | 2,715 | 1,524 | 506 | ||||||||||||
Non-compete contracts (3) | 233 | 165 | 68 | -- | -- | ||||||||||||
Unrecognized tax benefit (4) | 2,294 | -- | -- | -- | 2,294 | ||||||||||||
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Total | $ | 17,450 | $ | 6,149 | $ | 6,450 | $ | 2,020 | $ | 2,831 | |||||||
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(1) | Represents long term debt as discussed above. |
(2) | Represents operating leases in the ordinary course of our business. |
(3) | Represents an obligation of $75 due to the previous owner of one of our subsidiaries, at a rate of $75 per quarter until March 2008, an obligation of $58 due to an employee of Medstone, at a rate of $4 per month continuing until February 28, 2009, and an obligation of $100 due to a previous employee of ours, at a rate of $3 per month until June 15, 2010. |
(4) | Represents unrecognized tax benefits as discussed above. |
In addition, the scheduled principal repayments for all long term debt as of December 31, 2007 are payable as follows: |
($ in thousands)
|
||||||
---|---|---|---|---|---|---|
2008 | $ | 4,332 | ||||
2009 | 2,406 | |||||
2010 | 1,261 | |||||
2011 | 426 | |||||
2012 | 70 | |||||
Thereafter | 31 | |||||
|
||||||
Total | $ | 8,526 | ||||
|
Our primary sources of cash are cash flows from operations and borrowings under our senior credit
facility. 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.
|
27 |
Based upon the current level of our operations and anticipated cost savings and revenue growth, we
believe that cash flows from our operations and available cash, together with available borrowings under
our senior credit facility, will be adequate to meet our future liquidity needs both for the short term
and for at least the next several years. However, there can be no assurance that our business will
generate sufficient cash flows from operations, that we will realize our anticipated revenue growth and
operating improvements or that future borrowings will be available under our senior credit facility in
an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs.
|
28 |
In September 2006, the FASB issued SFAS No. 157, " Fair Value Measurements " (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. In December 2007, the FASB released a proposed FASB Staff Position (FSP FAS 157-b-Effective Date of FASB Statement No. 157) which, if adopted as proposed, would delay the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Based on our current operations, we do not expect that the adoption of SFAS 157 will have a material impact on our financial position or results of operations. |
29 |
Interest Rate Risk
|
The information required by this item is contained in Appendix A attached hereto. |
None. |
(a) Disclosure Controls and Procedures
|
30 |
Ernst & Young, LLP, our independent registered public accounting firm, has issued an audit report on
managements assessment of our internal control over financial reporting. The report of Ernst & Young,
LLP is included herein.
|
In the fourth quarter of 2007, in connection with our annual goodwill impairment test, we recorded an impairment to our urology services segment goodwill totaling $20.8 million. This impairment was due to a decrease in our estimated future discounted cash flows for this segment. This decrease was primarily caused by lower projected growth rates for our laser operations as well as the timing of certain future growth for our IGRT operations. For further discussion of this impairment, see footnote C to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. |
31 |
Report of Independent Registered Public Accounting Firm |
The Board of Directors and Shareholders of HealthTronics, Inc.
|
32 |
PART III |
---|
The information required by this item will be contained in our definitive proxy statement to be filed in connection with our 2008 annual meeting of stockholders, except for the information regarding our executive officers, which is presented in Part I of this Form 10-K. The information required by this item contained in our definitive proxy statement is incorporated herein by reference. |
The information required by this item will be contained in our definitive proxy statement to be filed in connection with our 2008 annual meeting of stockholders and is incorporated herein by reference. |
The information required by this item will be contained in our definitive proxy statement to be filed in connection with our 2008 annual meeting of stockholders and is incorporated herein by reference. |
The information required by this item will be contained in our definitive proxy statement to be filed in connection with our 2008 annual meeting of stockholders and is incorporated herein by reference. |
The information required by this item will be contained in our definitive proxy statement to be filed in connection with our 2008 annual meeting of stockholders and is incorporated herein by reference. |
33 |
PART IV |
---|
(a) 1.
Financial Statements.
The information required by this item is contained in Appendix A attached hereto. |
(b) Exhibits. (1)
3.1
3.2 3.3 4.1 10.1 10.2 10.3* 10.4* 10.5* 10.6* 10.7* 10.8* 10.9* 10.10* 10.11* 10.12* 10.13 |
Amended and Restated Articles of Incorporation of the Company (Incorporated by
reference to Annex D to the Rule 424(b)(3) joint proxy statement/prospectus, dated October 6, 2004, filed by HealthTronics with the SEC on October 7, 2004) Amended and Restated Bylaws of the Company (Incorporated by reference to Annex E to the Rule 424(b)(3) joint proxy statement/prospectus, dated October 6, 2004, filed by HealthTronics with the SEC on October 7, 2004) First Amendment to Bylaws of HealthTronics, Inc. (incorporated by reference to Exhibit 3.1 of HealthTronics Current Report Form 8-K filed on December 17, 2007.) Specimen of Common Stock Certificate (Filed as an Exhibit to the HSS Registration Statement on Form S-4 (Registration No. 33-56900)) Form of Indemnification Agreement dated October 11, 1993 between the Company and certain of its officers and directors (Filed as an Exhibit to the Current Report on Form 8-K of Prime dated October 18, 1993) Release and Severance Agreement dated December 30, 2001 by and between Prime Medical Services Inc. and Kenneth S. Shifrin (Filed as an Exhibit to the Annual Report on Form 10-K of Prime for the year ended December 31, 2001) Amended and Restated 1993 Stock Option Plan, as amended June 18, 2002 (Filed as an Exhibit to the Annual Report on Form 10-K of Prime for the year ended December 31, 2002) Prime Medical Services, Inc., 2003 Stock Option Plan (Incorporated by reference to Annex D of the Rule 424(b)(3) joint proxy statement/prospectus, dated January 7, 2004, filed by Prime with the SEC on January 8, 2004) HealthTronics 2004 Equity Incentive Plan (Incorporated by reference to Exhibit 10.2 to HealthTronics current report on Form 8-K filed on January 25, 2005) Form of Board Service and Release Agreement by and between HealthTronics and Argil J. Wheelock, M.D. (Filed as Exhibit 10.22 to the HSS Registration Statement on Form S-4 (Registration No. 333-117102)) Board Service, Amendment and Release Agreement by and between HealthTronics and Kenneth S. Shifrin (Incorporated by reference to the HSS Registration Statement on Form S-4 (Registration No. 333-117102)) HSS Stock Option Plan - 2002 (Incorporated by reference to Exhibit 10.1 of HealthTronics Current Report on Form 8-K filed on January 25, 2005) HSS Stock Option Plan - 2001 (Incorporated by reference to Appendix A to HSS proxy statement filed with the SEC on April 18, 2001) HSS Stock Option Plan - 2000 (Incorporated by reference to Appendix A to HSS proxy statement filed with the SEC on April 25, 2000) Form of Incentive Stock Option Agreement Form of Nonstatutory Stock Option Agreement Credit Agreement, dated as of March 23, 2005, among HealthTronics, Inc. the lenders party thereto, Bank of America, N.A., as Syndication Agent, and JPMorgan Chase Bank, National Association, as Administrative Agent for the lenders (Incorporated by reference to Exhibit 10.1 of the Companys 10-Q filed with the Securities and Exchange Commission on November 8, 2005). |
34 |
10.14*
10.15* 10.16 10.17* 10.18* 10.19* 10.20* 10.21* 10.22 10.23 10.24 10.25 10.26* 10.27* |
Executive Employment Agreement, effective October 1, 2005, by and between
HealthTronics, Inc. and James S. B. Whittenburg (incorporated by reference to Exhibit 99.4 to the Companys Form 8-K filed with the Securities and Exchange Commission on September 27, 2005). First Amendment to the HealthTronics, Inc. 2004 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to HealthTronics Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, filed on August 5, 2005). Form of Indemnification Agreement for directors and certain officers of HealthTronics (incorporated by reference to Exhibit 99.1 to HealthTronics Current Report on Form 8-K filed on June 1, 2005). First Amendment to Board Service and Release Agreement, dated as of March 2, 2006, by and between HealthTronics and Argil J. Wheelock, M.D. (incorporated by reference to Exhibit 10.1 of HealthTronics Current Report Form 8-K filed on March 8, 2006.) Second Amendment to the Companys 2004 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on June 14, 2006.) Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on June 14, 2006). Executive Employment Agreement, effective January 8, 2007, by and between HealthTronics and Ross A. Goolsby (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on December 11, 2006). Second Amendment to Executive Employment Agreement, dated as of October 26, 2007, by and between HealthTronics, Inc. and James S. B. Whittenburg (incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed with the Securities and Exchange Commission on November 1, 2007). Stock Purchase Agreement, dated as of February 13, 2007, by and among HealthTronics, Inc., Lithotripters, Inc., Keystone ABG Inc., Keystone Kidney Associates, PC, David Arsht, D.O., P. Kenneth Brownstein, M.D., Larry E. Goldstein, M.D. and Michael Dernoga (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on February 20, 2007). Interest Purchase Agreement, dated as of February 13, 2007, by and among HealthTronics, Inc., Lithotripters, Inc., David Arsht, D.O., P. Kenneth Brownstein, M.D., Larry E. Goldstein, M.D. and Michael Dernoga (incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on February 20, 2007). Amended and Restated Distribution Agreement, dated as of February 28, 2007, by and among HealthTronics, Inc., Lisa Laser USA, Inc., and LISA laser products OHG (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on March 6, 2007). First Amendment to Interest Purchase Agreement, dated as of May 25, 2007, by and among HealthTronics, Inc., Lithotripters, Inc., David Arsht, D.O., P. Kenneth Brownstein, M.D., Larry E. Goldstein, M.D. and Michael Dernoga (incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on May 31, 2007). Termination and Consulting Agreement, dated July 9, 2007, by and between HealthTronics, Inc. and Christopher B. Schneider. (incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on July 12, 2007). First Amendment to Executive Employment Agreement, dated as of August 10, 2007, by and between HealthTronics, Inc. and James S. B. Whittenburg (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on August 15, 2007). |
35 |
21.1
23.1 23.2 31.1 31.2 32.1 32.2 |
List of subsidiaries of the Company. (Filed herewith)
Consent of Independent Registered Public Accounting Firm. (Filed herewith) Consent of Independent Registered Public Accounting Firm. (Filed herewith) Certification of Chief Executive Officer. (Filed herewith) Certification of Chief Financial Officer. (Filed herewith) Certification of Chief Executive Officer. (Filed herewith) Certification of Chief Financial Officer. (Filed herewith) |
_____________________
|
(1) |
The exhibits listed above will be furnished to any security holder upon written request for such exhibit to Ross A. Goolsby, HealthTronics, Inc., 1301 Capital of Texas Highway, Suite 200B, Austin, Texas 78746. The Securities and Exchange Commission (the SEC) maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC at http://www.sec.gov. |
36 |
SIGNATURES |
Pursuant to the requirements of Section 13 or 15(d) 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, INC.
By: /s/ James S. B. Whittenburg James S. B. Whittenburg, Chief Executive Officer and President (Principal Executive Officer) Date: March 11, 2008 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. |
By:
Date: By: Date: By: Date: By: Date: By: Date: By: Date: |
/s/
James S. B. Whittenburg
James S. B. Whittenburg, Chief Executive Officer and President (Principal Executive Officer) and Director March 11, 2008 /s/ Ross A. Goolsby Ross A. Goolsby, Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) March 11, 2008 /s/ R. Steven Hicks R. Steven Hicks, Non-executive Chairman of the Board March 11, 2008 /s/ Donny R. Jackson Donny R. Jackson, Director March 11, 2008 /s/ Timothy J. Lindgren Timothy J. Lindgren, Director March 11, 2008 /s/ Kevin A. Richardson II Kevin A. Richardson II, Director March 11, 2008 |
37 |
By:
Date: By: Date: By: Date: By: Date: |
/s/
Kenneth S. Shifrin
Kenneth S. Shifrin, Director March 11, 2008 /s/ Perry M. Waughtal Perry M. Waughtal, Director March 11, 2008 /s/ Argil J. Wheelock, M.D. Argil J. Wheelock, M.D., Director March 11, 2008 /s/ Mark G. Yudof Mark G. Yudof, Director March 11, 2008 |
38 |
APPENDIX A |
INDEX |
Page | |
---|---|
Reports of Independent Registered Public Accounting Firms
Consolidated Financial Statements: Consolidated Statements of Income for the years ended December 31, 2007, 2006 and 2005. Consolidated Balance Sheets at December 31, 2007 and 2006. Consolidated Statements of Stockholders Equity for the years ended December 31, 2007, 2006 and 2005. Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005. Notes to Consolidated Financial Statements. |
A-2
A-4 A-5 A-7 A-8 A-11 |
A-1 |
Report of Independent Registered Public Accounting Firm |
The Board of Directors and Stockholders
|
A-2 |
Report of Independent Registered Public Accounting Firm |
The Board of Directors and Stockholders
|
A-3 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME |
---|
($ in thousands, except per share data) |
Years Ended December 31,
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2007
|
2006
|
2005
|
|||||||||
Revenue: | |||||||||||
Urology Services | $ | 122,736 | $ | 123,265 | $ | 133,360 | |||||
Medical Products | 17,101 | 19,080 | 18,202 | ||||||||
Other | 581 | 546 | 705 | ||||||||
|
|
|
|||||||||
Total revenue | 140,418 | 142,891 | 152,267 | ||||||||
|
|
|
|||||||||
Cost of services and general and administrative expenses: | |||||||||||
Urology Services | 53,490 | 51,262 | 51,164 | ||||||||
Medical Products | 11,225 | 16,797 | 9,225 | ||||||||
Selling, general and administrative | 15,884 | 20,298 | 14,492 | ||||||||
Impairment charges | 20,800 | 20,600 | -- | ||||||||
Depreciation and amortization | 11,107 | 11,275 | 11,444 | ||||||||
|
|
|
|||||||||
112,506 | 120,232 | 86,325 | |||||||||
|
|
|
|||||||||
Operating income | 27,912 | 22,659 | 65,942 | ||||||||
Other income (expenses): | |||||||||||
Interest and dividends | 1,146 | 755 | 448 | ||||||||
Interest expense | (829 | ) | (1,146 | ) | (1,139 | ) | |||||
|
|
|
|||||||||
317 | (391 | ) | (691 | ) | |||||||
|
|
|
|||||||||
Income from continuing operations before provision | |||||||||||
for income taxes and minority interest | 28,229 | 22,268 | 65,251 | ||||||||
Minority interest in consolidated income | 45,568 | 43,277 | 47,816 | ||||||||
Provision (benefit) for income taxes | (2,854 | ) | (4,563 | ) | 6,502 | ||||||
|
|
|
|||||||||
Income (loss) from continuing operations | (14,485 | ) | (16,446 | ) | 10,933 | ||||||
Income (loss) from discontinued operations, net of tax | (147 | ) | 25,129 | (1,745 | ) | ||||||
|
|
|
|||||||||
Net income (loss) | $ | (14,632 | ) | $ | 8,683 | $ | 9,188 | ||||
|
|
|
|||||||||
Basic earnings per share: | |||||||||||
Income (loss) from continuing operations | $ | (0.41 | ) | $ | (0.47 | ) | $ | 0.32 | |||
Income (loss) from discontinued operations | $ | -- | $ | 0.72 | $ | (0.05 | ) | ||||
|
|
|
|||||||||
Net income (loss) | $ | (0.41 | ) | $ | 0.25 | $ | 0.27 | ||||
|
|
|
|||||||||
Weighted average shares outstanding | 35,421 | 35,157 | 34,311 | ||||||||
|
|
|
|||||||||
Diluted earnings per share: | |||||||||||
Income (loss) from continuing operations | $ | (0.41 | ) | $ | (0.47 | ) | $ | 0.31 | |||
Income (loss) from discontinued operations | $ | -- | $ | 0.72 | $ | (0.05 | ) | ||||
|
|
|
|||||||||
Net income (loss) | $ | (0.41 | ) | $ | 0.25 | $ | 0.26 | ||||
|
|
|
|||||||||
Weighted average shares outstanding | 35,421 | 35,347 | 35,182 | ||||||||
|
|
|
See accompanying notes to consolidated financial statements. |
A-4 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS |
($ in thousands)
|
December 31,
|
|||||||
---|---|---|---|---|---|---|---|---|
2007
|
2006
|
|||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 25,198 | $ | 27,857 | ||||
Accounts receivable, less allowance for doubtful | ||||||||
accounts of $2,368 in 2007 and $2,166 in 2006 | 21,889 | 22,752 | ||||||
Other receivables | 2,703 | 1,201 | ||||||
Deferred income taxes | 12,547 | 6,825 | ||||||
Prepaid expenses and other current assets | 1,656 | 1,716 | ||||||
Inventory | 10,221 | 11,474 | ||||||
|
|
|||||||
Total current assets | 74,214 | 71,825 | ||||||
|
|
|||||||
Property and equipment: | ||||||||
Equipment, furniture and fixtures | 47,751 | 46,155 | ||||||
Building and leasehold improvements | 12,437 | 12,710 | ||||||
|
|
|||||||
60,188 | 58,865 | |||||||
Less accumulated depreciation and | ||||||||
amortization | (27,169 | ) | (24,595 | ) | ||||
|
|
|||||||
Property and equipment, net | 33,019 | 34,270 | ||||||
|
|
|||||||
Assets held for sale | -- | 1,258 | ||||||
Other investments | 1,353 | 1,348 | ||||||
Goodwill, at cost | 217,505 | 229,261 | ||||||
Intangible assets | 5,220 | 5,669 | ||||||
Other noncurrent assets | 4,745 | 3,102 | ||||||
|
|
|||||||
$ | 336,056 | $ | 346,733 | |||||
|
|
See accompanying notes to consolidated financial statements. |
A-5 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued) |
($ in thousands, except share data) |
December 31,
|
|||||||
---|---|---|---|---|---|---|---|---|
2007
|
2006
|
|||||||
LIABILITIES | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt | $ | 4,332 | $ | 5,664 | ||||
Accounts payable | 5,859 | 6,295 | ||||||
Accrued distributions to minority interests | 226 | 7,687 | ||||||
Accrued expenses | 7,275 | 10,477 | ||||||
|
|
|||||||
Total current liabilities | 17,692 | 30,123 | ||||||
Liabilities held for sale | -- | 258 | ||||||
Long-term debt, net of current portion | 4,194 | 5,673 | ||||||
Other long term obligations | 75 | 134 | ||||||
Deferred income taxes | 30,024 | 24,924 | ||||||
|
|
|||||||
Total liabilities | 51,985 | 61,112 | ||||||
Minority interest | 41,653 | 30,104 | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Preferred stock, $.01 par value, 30,000,000 shares authorized: none outstanding | -- | -- | ||||||
Common stock, no par value, 70,000,000 authorized: 35,610,236 issued | ||||||||
and 35,560,097 outstanding in 2007; 35,475,236 issued and 35,379,831 | ||||||||
outstanding in 2006 | 202,049 | 200,941 | ||||||
Accumulated earnings | 40,841 | 55,473 | ||||||
Treasury stock, at cost, 50,139 shares in 2007 and 95,405 shares in 2006 | (472 | ) | (897 | ) | ||||
|
|
|||||||
Total stockholders' equity | 242,418 | 255,517 | ||||||
|
|
|||||||
$ | 336,056 | $ | 346,733 | |||||
|
|
See accompanying notes to consolidated financial statements. |
A-6 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the years ended December 31, 2007, 2006 and 2005 |
---|
($ in thousands, except share data) |
Issued Common Stock
|
Accumulated |
Treasury Stock
|
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shares
|
Amount
|
Earnings
|
Shares
|
Amount
|
Total
|
|||||||||||||||||||
Balance, December 31, 2004 | 33,196,565 | $ | 179,510 | $ | 37,602 | -- | $ | -- | $ | 217,112 | ||||||||||||||
Net income | -- | -- | 9,188 | -- | -- | 9,188 | ||||||||||||||||||
Purchase of treasury stock | -- | -- | -- | (143,921 | ) | (1,388 | ) | (1,388 | ) | |||||||||||||||
Issuance of stock for acquisitions | 89,200 | 1,236 | -- | -- | -- | 1,236 | ||||||||||||||||||
Exercise of stock options, including | ||||||||||||||||||||||||
tax benefit totaling $2,509 | 1,675,207 | 15,334 | -- | -- | -- | 15,334 | ||||||||||||||||||
Exercise of stock warrants | 49,684 | -- | -- | -- | -- | -- | ||||||||||||||||||
|
||||||||||||||||||||||||
Balance, December 31, 2005 | 35,010,656 | 196,080 | 46,790 | (143,921 | ) | (1,388 | ) | 241,482 | ||||||||||||||||
Net income | -- | -- | 8,683 | -- | -- | 8,683 | ||||||||||||||||||
Purchase of treasury stock | -- | -- | -- | (10,000 | ) | (73 | ) | (73 | ) | |||||||||||||||
Contribution of treasury stock | -- | -- | -- | 58,516 | 564 | 564 | ||||||||||||||||||
Issuance of stock for acquisitions | 166,666 | 1,095 | -- | -- | -- | 1,095 | ||||||||||||||||||
Exercise of stock options, including | ||||||||||||||||||||||||
tax benefit totaling $69 | 297,914 | 1,978 | -- | -- | -- | 1,978 | ||||||||||||||||||
Share-based compensation | -- | 1,788 | -- | -- | -- | 1,788 | ||||||||||||||||||
|
||||||||||||||||||||||||
Balance, December 31, 2006 | 35,475,236 | 200,941 | 55,473 | (95,405 | ) | (897 | ) | 255,517 | ||||||||||||||||
Net loss | -- | -- | (14,632 | ) | -- | -- | (14,632 | ) | ||||||||||||||||
Contribution of treasury stock | -- | -- | -- | 45,266 | 425 | 425 | ||||||||||||||||||
Share-based compensation | 135,000 | 1,108 | -- | -- | -- | 1,108 | ||||||||||||||||||
|
||||||||||||||||||||||||
Balance, December 31, 2007 | 35,610,236 | $ | 202,049 | $ | 40,841 | (50,139 | ) | $ | (472 | ) | $ | 242,418 | ||||||||||||
|
See accompanying notes to consolidated financial statements. |
A-7 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS |
---|
($ in thousands)
|
Years Ended December 31,
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2007
|
2006
|
2005
|
|||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
Fee and other revenue collected | $ | 144,821 | $ | 146,658 | $ | 158,739 | |||||
Cash paid to employees, suppliers of goods and others | (82,361 | ) | (83,235 | ) | (96,638 | ) | |||||
Interest received | 1,146 | 755 | 448 | ||||||||
Interest paid | (835 | ) | (1,296 | ) | 1,140 | ||||||
Taxes paid | (538 | ) | (475 | ) | (407 | ) | |||||
Discontinued operations | (356 | ) | (13,515 | ) | (7,022 | ) | |||||
|
|
|
|||||||||
Net cash provided by operating activities | 61,877 | 48,892 | 56,260 | ||||||||
|
|
|
|||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
Purchase of entities, net of cash acquired | (11,829 | ) | -- | 2,417 | |||||||
Purchases of equipment and leasehold improvements | (9,469 | ) | (11,902 | ) | (10,578 | ) | |||||
Proceeds from sales of assets | 1,224 | 1,365 | 2,198 | ||||||||
Distributions from investments | -- | -- | 992 | ||||||||
Other | (18 | ) | (25 | ) | -- | ||||||
Discontinued operations | 1,335 | 138,971 | (2,122 | ) | |||||||
|
|
|
|||||||||
Net cash (used in) provided by investing activities | (18,757 | ) | 128,409 | (7,093 | ) | ||||||
|
|
|
|||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
Borrowings on notes payable | 2,546 | 4,657 | 163,814 | ||||||||
Payments on notes payable, exclusive of interest | (5,760 | ) | (134,257 | ) | (173,265 | ) | |||||
Distributions to minority interest | (42,736 | ) | (46,969 | ) | (46,434 | ) | |||||
Contributions by minority interest, net of buyouts | 389 | (314 | ) | 963 | |||||||
Exercise of stock options | -- | 1,907 | 12,825 | ||||||||
Purchase of treasury stock | -- | (73 | ) | (1,388 | ) | ||||||
Discontinued operations | (20 | ) | (320 | ) | (1,915 | ) | |||||
|
|
|
|||||||||
Net cash used in financing activities | (45,581 | ) | (175,369 | ) | (45,400 | ) | |||||
|
|
|
|||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (2,461 | ) | 1,932 | 3,767 | |||||||
Cash and cash equivalents, beginning of period, includes cash | |||||||||||
from discontinued operations of $(198), $4,650 | |||||||||||
and $2,292 for 2007, 2006 and 2005, respectively | 27,659 | 25,727 | 21,960 | ||||||||
|
|
|
|||||||||
Cash and cash equivalents, end of period, includes cash | |||||||||||
from discontinued operations of $(198) and $4,650 | |||||||||||
for 2006 and 2005 respectively | $ | 25,198 | $ | 27,659 | $ | 25,727 | |||||
|
|
|
See accompanying notes to consolidated financial statements. |
A-8 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) |
---|
($ in thousands)
|
Years Ended December 31,
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2007
|
2006
|
2005
|
|||||||||
Reconciliation of net income to net cash | |||||||||||
provided by operating activities: | |||||||||||
Net income (loss) | $ | (14,632 | ) | $ | 8,683 | $ | 9,188 | ||||
Adjustments to reconcile net income (loss) to cash provided | |||||||||||
by operating activities: | |||||||||||
Minority interest in consolidated income | 45,568 | 43,277 | 47,816 | ||||||||
Depreciation and amortization | 11,107 | 11,275 | 11,444 | ||||||||
Provision for uncollectible accounts | (108 | ) | 581 | 835 | |||||||
Equity in earnings of affiliates | -- | -- | (987 | ) | |||||||
Provision for deferred income taxes | (624 | ) | (4,997 | ) | 3,975 | ||||||
Proceeds from termination of interest rate swap | -- | -- | (564 | ) | |||||||
Non-cash share-based compensation | 1,534 | 2,352 | -- | ||||||||
Impairment charges | 20,800 | 20,600 | -- | ||||||||
Other | 70 | (636 | ) | (134 | ) | ||||||
Discontinued Operations | (117 | ) | (38,643 | ) | (2,294 | ) | |||||
Changes in operating assets and liabilities, | |||||||||||
net of effect of purchase transactions: | |||||||||||
Accounts receivable | 1,008 | 1,821 | 1,823 | ||||||||
Other receivables | (1,124 | ) | 2,094 | (2,273 | ) | ||||||
Other assets | 2,026 | 1,036 | (5,360 | ) | |||||||
Accounts payable | (579 | ) | 482 | (103 | ) | ||||||
Accrued expenses | (3,052 | ) | 967 | (7,106 | ) | ||||||
|
|
|
|||||||||
Total adjustments | 76,509 | 40,209 | 47,072 | ||||||||
|
|
|
|||||||||
Net cash provided by operating activities | $ | 61,877 | $ | 48,892 | $ | 56,260 | |||||
|
|
|
See accompanying notes to consolidated financial statements. |
A-9 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) |
---|
($ in thousands)
|
Years Ended December 31,
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2007
|
2006
|
2005
|
|||||||||
SUPPLEMENTAL INFORMATION OF NON-CASH | |||||||||||
INVESTING AND FINANCING ACTIVITIES: | |||||||||||
At December 31, the Company had accrued distributions payable | |||||||||||
to minority interests. The effect of this transaction was as follows: | |||||||||||
Current liabilities increased by | $ | 226 | $ | 7,687 | $ | 8,250 | |||||
Minority interest decreased by | 226 | 7,687 | 8,250 | ||||||||
In 2007, the Company acquired two lithotripsy partnerships and sold | |||||||||||
three lithotripsy partnerships. The net assets and | |||||||||||
liabilities acquired/sold were as follows: | |||||||||||
Current assets increased by | 580 | -- | -- | ||||||||
Noncurrent assets increased by | 1,816 | -- | -- | ||||||||
Goodwill increased by | 9,044 | -- | -- | ||||||||
Current liabilities increased by | 380 | -- | -- | ||||||||
Other long-term obligations decreased by | 354 | -- | -- | ||||||||
Minority interest increased by | 802 | -- | -- | ||||||||
In 2005, the Company acquired two lithotripsy partnerships and made | |||||||||||
residual adjustments for 2004 acquisitions. The acquired | |||||||||||
assets and liabilities were as follows: | |||||||||||
Current assets increased by | -- | -- | 356 | ||||||||
Noncurrent assets increased by | -- | -- | (4,973 | ) | |||||||
Goodwill increased by | -- | -- | 10,295 | ||||||||
Current liabilities increased by | -- | -- | 3,272 | ||||||||
Other long-term obligations increased by | -- | -- | 83 | ||||||||
Stockholders' equity increased by | -- | -- | 1,236 |
See accompanying notes to consolidated financial statements. |
A-10 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
|
---|
A.
ORGANIZATION AND OPERATION OF THE COMPANY
|
A-11 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
Cash Equivalents
|
A-12 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
Revenue Recognition
|
A-13 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
Income Tax
|
($ in thousands) |
Balance at
Beginning of Year |
Costs and
Expenses |
Deductions
|
Other
|
Balance at
End of Year |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Allowance for Doubtful Accounts: | |||||||||||||||||
2007 | $ | 2,166 | $ | 329 | $ | 127 | $ | -- | $ | 2,368 | |||||||
2006 | $ | 1,491 | $ | 776 | $ | 101 | $ | -- | $ | 2,166 | |||||||
2005 | $ | 812 | $ | 835 | $ | 156 | $ | -- | $ | 1,491 |
Inventory
|
A-14 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
As of December 31, 2007 and 2006, inventory consists of the following (in thousands): |
2007
|
2006
|
||||||||
---|---|---|---|---|---|---|---|---|---|
Raw Materials | $ | 6,144 | $ | 7,070 | |||||
Finished Goods | 4,077 | 4,404 | |||||||
|
|
||||||||
$ | 10,221 | $ | 11,474 | ||||||
|
|
Stock-Based Compensation
|
A-15 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
Reclassification
|
(In thousands, except per share data)
|
Net Income
(loss) |
No. of Shares
|
Per Share Amounts
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
For the year ended December 31, 2007 | |||||||||||
Basic | $ | (14,632 | ) | 35,421 | $ | (0.41 | ) | ||||
Effect of dilutive securities: | |||||||||||
Options | -- | ||||||||||
|
|
|
|||||||||
Diluted | $ | (14,632 | ) | 35,421 | $ | (0.41 | ) | ||||
|
|
|
|||||||||
For the year ended December 31, 2006 | |||||||||||
Basic | $ | 8,683 | 35,157 | $ | 0.25 | ||||||
Effect of dilutive securities: | |||||||||||
Options | 190 | ||||||||||
|
|
|
|||||||||
Diluted | $ | 8,683 | 35,347 | $ | 0.25 | ||||||
|
|
|
|||||||||
For the year ended December 31, 2005 | |||||||||||
Basic | $ | 9,188 | 34,311 | $ | 0.27 | ||||||
Effect of dilutive securities: | |||||||||||
Options | 871 | ||||||||||
|
|
|
|||||||||
Diluted | $ | 9,188 | 35,182 | $ | 0.26 | ||||||
|
|
|
Unexercised employee stock options and warrants to purchase 3,329,000, 3,223,000 and 751,000 shares of
our common stock as of December 31, 2007, 2006 and 2005, respectively, were not included in the
computations of diluted EPS because the exercise prices were greater than the average market price of
our common stock during the respective periods.
|
A-16 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statementsan 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 parents 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 will revise our
presentation of the consolidated financial statements and further impact will be dependent on our future
changes in ownership in subsidiaries after the effective date.
|
A-17 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
The net carrying value of goodwill as of December 31, 2007 and 2006 is comprised of the following: |
Total
|
Urology Services
|
Medical Products
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Balance, December 31, 2005 | $ | 255,817 | $ | 238,298 | $ | 17,519 | |||||
Additions | 402 | 402 | -- | ||||||||
Deletions | (6,358 | ) | (6,358 | ) | -- | ||||||
Impairments | (20,600 | ) | (12,200 | ) | (8,400 | ) | |||||
|
|
|
|||||||||
Balance, December 31, 2006 | $ | 229,261 | $ | 220,142 | $ | 9,119 | |||||
Additions | 11,735 | 11,735 | -- | ||||||||
Deletions | (2,691 | ) | (2,691 | ) | -- | ||||||
Impairments | (20,800 | ) | (20,800 | ) | -- | ||||||
|
|
|
|||||||||
Balance, December 31, 2007 | $ | 217,505 | $ | 208,386 | $ | 9,119 | |||||
|
|
|
In the fourth quarter of 2007, in connection with our annual goodwill impairment test, we recorded an
impairment to our urology services segment goodwill totaling $20.8 million. This impairment was due to
a decrease in our estimated future discounted cash flows for this segment. This decrease was primarily
caused by lower projected growth rates for our laser operations as well as the timing of certain future
growth for our IGRT operations. In the fourth quarter of 2006, we recorded an impairment to our
goodwill totaling $12.2 million related to our urology services segment and $8.4 million related to our
medical products segment. The impairment to our urology services segment was due primarily to a
decrease in the number of overall procedures during 2006, primarily across our western region
partnerships, combined with the loss of certain partnerships and contracts late in 2006 to competitors.
The impairment in our medical products segment relates primarily to our decision to reduce or exit
certain product lines, specifically patient management tables and orthopedic consumables, during the
fourth quarter of 2006 along with the closing of our European operations.
|
A-18 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
Our discounted cash flow projections for each reporting unit were based on five-year financial
forecasts. The five-year forecasts were based on annual financial forecasts developed internally by
management for use in managing our business and through discussions with an independent valuation firm
engaged by us. The significant assumptions of these five-year forecasts included annual revenue growth
rates ranging from -5.0% to 8.1% and from -19.3% to 23.5% for the urology services and medical products
reporting units, respectively. The future cash flows were discounted to present value using a mid-year
convention and a discount rate of 11.0% for the urology services reporting unit and 12.0% for the
medical products reporting unit. Terminal values for both reporting units were calculated using a
Gordon growth methodology with a long-term growth rate of 5.0%. The future terminal values of the
urology services and medical products reporting units were $283,660 and $45,158 respectively at December
31, 2007. The future terminal values of the urology services and medical products reporting units were
$299,995 and $51,547 respectively at December 31, 2006.
|
Gross
Carrying Amount |
Accumulated
Amortization |
Net
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2007 | |||||||||||
Urology Services | $ | 2,590 | $ | 1,759 | $ | 831 | |||||
Medical Products | 2,776 | 2,387 | 389 | ||||||||
|
|
|
|||||||||
Total | $ | 5,366 | $ | 4,146 | $ | 1,220 | |||||
|
|
|
|||||||||
December 31, 2006 | |||||||||||
Urology Services | $ | 2,130 | $ | 1,215 | $ | 915 | |||||
Medical Products | 2,656 | 1,902 | 754 | ||||||||
|
|
|
|||||||||
Total | $ | 4,786 | $ | 3,117 | $ | 1,669 | |||||
|
|
|
Amortization expense for other intangible assets with finite lives was $1,028,000, $1,431,000 and $1,261,000 for the years ended December 31, 2007, 2006 and 2005, respectively. We estimate annual amortization expense for each of the five succeeding fiscal years as follows: |
Year
|
Amount
|
|||||||
---|---|---|---|---|---|---|---|---|
2008 | $ | 598,000 | ||||||
2009 | 304,000 | |||||||
2010 | 153,000 | |||||||
2011 | 82,000 | |||||||
2012 | 82,000 |
A-19 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
D.
ACQUISITIONS
|
($ in thousands, except per share data) | 2007 | 2006 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||||
Total revenues | $ | 145,387 | $ | 152,603 | ||||||||
Total expenses | 158,921 | 166,493 | ||||||||||
Discontinued Operations | (147 | ) | 25,129 | |||||||||
|
|
|||||||||||
Net income (loss) | $ | (13,681 | ) | $ | 11,239 | |||||||
|
|
|||||||||||
Diluted earnings per share | $ | (0.39) | $ | 0.32 | ||||||||
|
|
E.
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
2007
|
2006
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
( $ in thousands)
|
Carrying
Amount |
Fair Value |
Carrying
Amount |
Fair Value | ||||||||||
|
|
|
|
|||||||||||
Financial assets: | ||||||||||||||
Cash and cash equivalents | $ | 25,198 | $ | 25,198 | $ | 27,857 | $ | 27,857 | ||||||
Warrants/Common Stock | 450 | 360 | 150 | 544 | ||||||||||
Financial liabilities: | ||||||||||||||
Debt | $ | 8,526 | $ | 8,526 | $ | 11,337 | $ | 11,337 | ||||||
Other long-term obligations | 75 | 67 | 134 | 130 |
A-20 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
The following methods and assumptions were used by us in estimating our fair value disclosures for
financial instruments.
|
A-21 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
F.
ACCRUED EXPENSES
|
December 31,
|
|||||||||
---|---|---|---|---|---|---|---|---|---|
($ in thousands)
|
2007
|
2006
|
|||||||
Accrued group insurance costs | $ | 393 | $ | 321 | |||||
Compensation and payroll related expense | 3,840 | 3,339 | |||||||
Accrued interest | 7 | 13 | |||||||
Accrued taxes | 871 | 2,937 | |||||||
Accrued professional fees | 170 | 480 | |||||||
Unearned revenues | 913 | 1,325 | |||||||
Other | 1,081 | 2,062 | |||||||
|
|
||||||||
$ | 7,275 | $ | 10,477 | ||||||
|
|
G.
INDEBTEDNESS
|
($ in thousands) |
December31,
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Interest Rates
|
Maturities
|
2007
|
2006
|
||||||||
Floating | 2007-20 | 12 | $ | 2,394 | $ | 3,712 | |||||
1%-11% | 2007-20 | 12 | 6,132 | 7,625 | |||||||
|
|
||||||||||
$ | 8,526 | $ | 11,337 | ||||||||
Less current portion of long-term debt | 4,332 | 5,664 | |||||||||
|
|
||||||||||
$ | 4,194 | $ | 5,673 | ||||||||
|
|
Senior Credit Facility
|
A-22 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
8.75% Notes
|
Year
|
Amount
|
|||||||
---|---|---|---|---|---|---|---|---|
2008 | $ | 4,332 | ||||||
2009 | 2,406 | |||||||
2010 | 1,261 | |||||||
2011 | 426 | |||||||
2012 | 70 | |||||||
Thereafter | 31 |
H. COMMITMENTS AND CONTINGENCIES
|
A-23 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
We sponsor a partially self-insured group medical insurance plan. The plan is designed to provide a
specified level of coverage, with stop-loss coverage provided by a commercial insurer. Our maximum claim
exposure is limited to $100,000 per person per policy year. At December 31, 2007, we had 244 employees
enrolled in the plan. The plan provides non-contributory coverage for employees and contributory
coverage for dependents. Our contributions totaled $2,852,000, $2,351,000 and $2,586,000, in 2007, 2006
and 2005 respectively.
|
($ in thousands)
Year |
Amount
|
|||||||
---|---|---|---|---|---|---|---|---|
2008 | $ | 1,652 | ||||||
2009 | 1,462 | |||||||
2010 | 1,253 | |||||||
2011 | 946 | |||||||
2012 | 578 | |||||||
Thereafter | 506 |
I.
STOCK BASED COMPENSATION
|
A-24 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
As of December 31, 2007, total unrecognized share-based compensation cost related to unvested stock
options was approximately $2.8 million, which is expected to be recognized over a weighted average
period of approximately 1.8 years. As of December 31, 2007, there was $612,000 of total unrecognized
compensation cost related to nonvested share-based compensation arrangements granted under the Plan.
That cost is expected to be recognized over a weighted-average period of 4 years. For the years ended
December 31, 2007 and 2006, we have included approximately $1,108,000 and $1,788,000, respectively, for
share-based compensation cost (in 2006 $167,000 of cost were included in discontinued operations) in the
accompanying consolidated statement of income.
|
A-25 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
(a)
|
(b)
|
(c)
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Plan Category |
Number of shares of our common stock to be issued upon exercise of outstanding options |
Weighted-average exercise price of outstanding options |
Number of shares of our
common stock remaining available for future issuance under equity compensation plans (exceeding securities reflected in column (a)) |
||||||||
Prime 1993 stock option plan | 105,666 | $ | 7 | .79 | -- | ||||||
Prime 2003 stock option plan | 129,000 | $ | 5 | .84 | -- | ||||||
HSS equity incentive plan and stock | |||||||||||
option plans | 2,959,499 | $ | 7 | .10 | 1,005,944 | ||||||
Other equity compensation plans | |||||||||||
approved by our security holders | N/A | N/A | N/A |
Share-Based Compensation Cost under SFAS No. 123
|
($ in thousands)
|
December 31, 2005
|
|||||
---|---|---|---|---|---|---|
Net income, as reported | $ | 9,188 | ||||
Share-based compensation recorded, net of tax | 72 | |||||
Share-based compensation proforma, net of tax | (2,607 | ) | ||||
|
||||||
Pro forma net income | $ | 6,653 | ||||
|
||||||
Pro forma earnings per share: | ||||||
Basic | $ | 0.19 | ||||
|
||||||
Diluted | $ | 0.19 | ||||
|
To estimate compensation expense which would have been recognized under SFAS No. 123 for the year ended
December 31, 2005 and to calculate the compensation cost that was recognized under SFAS No. 123(R) for
the years ended December 31, 2007 and 2006, we used the Black-Scholes option-pricing model with the
following weighted-average assumptions for equity awards granted. For December 31, 2007, 2006 and 2005,
respectively: risk-free interest rates were 4.6%, 4.9% and 3.9%; dividend yields were 0%, 0% and 0%;
volatility factors of the expected market price of our common stock were 47%, 47% and 46%; and a
weighted-average expected life of the option of 6 years, 6 years and 4 years.
|
A-26 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
Activity and pricing information regarding all stock options to purchase shares of our common stock are summarized as follows: |
2007
|
2006
|
2005
|
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Options (000)
|
Weighted
Average Price |
Options (000)
|
Weighted
Average Price |
Options (000)
|
Weighted
Average Price |
|||||||||||||||
Outstanding at beginning of year | 3,908 | $ | 7.32 | 3,048 | $ | 7.65 | 4,327 | $ | 7.39 | |||||||||||
Granted | 245 | 5.82 | 1,992 | 7.05 | 652 | 8.75 | ||||||||||||||
Exercised | -- | -- | (298 | ) | 6.40 | (1,675 | ) | 7.59 | ||||||||||||
Cancelled | (552 | ) | 8.07 | (588 | ) | 8.78 | (256 | ) | 6.53 | |||||||||||
Forfeited | (407 | ) | 7.38 | (246 | ) | 6.94 | -- | -- | ||||||||||||
|
|
|
|
|
|
|||||||||||||||
Outstanding at end of year | 3,194 | $ | 7.07 | 3,908 | $ | 7.32 | 3,048 | $ | 7.65 | |||||||||||
|
|
|
||||||||||||||||||
Exercisable at end of year | 2,049 | $ | 7.35 | 2,450 | $ | 7.51 | 2,813 | $ | 7.71 | |||||||||||
Weighted-average fair value of | ||||||||||||||||||||
options granted during the period | $2.99 | $3.38 | $ | 5.44 |
During the year ended December 31, 2007, there were no exercises of options to purchase common stock and
the total fair value of shares vested during 2007 was $966,000. During the year ended December 31,
2006, the total intrinsic value of options exercised to purchase common stock was approximately $353,000
and the total fair value of shares vested during 2006 was $1.7 million.
|
A-27 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
Outstanding Options
|
Exercisable Options
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Range of Exercise Prices |
Options (000)
|
Weighted Average Remaining Contractual Life
|
Weighted Average Exercise Price
|
Options(000)
|
Weighted Average Remaining Contractual Life
|
Weighted Average Exercise Price
|
|||||||||||||||
$4.49 - $6.49 | 422 | 7.4 years | $ | 5 | .93 | 212 | 5.6 years | $ | 5 | .98 | |||||||||||
$6.50 - $6.99 | 1,640 | 7.0 years | 6 | .66 | 781 | 4.9 years | 6 | .62 | |||||||||||||
$7.00 - $7.50 | 547 | 6.9 years | 7 | .37 | 472 | 6.7 years | 7 | .40 | |||||||||||||
$7.51 - $9.20 | 383 | 6.0 years | 7 | .98 | 383 | 6.0 years | 8 | .00 | |||||||||||||
$9.21 - $14.25 | 202 | 5.2 years | 10 | .25 | 201 | 5.2 years | 10 | .25 | |||||||||||||
|
|
|
|
||||||||||||||||||
3,194 | $ | 7 | .07 | 2,049 | $ | 7. | 35 | ||||||||||||||
|
|
|
|
||||||||||||||||||
Aggregate intrinsic value (in thousands) | $ | 12 | $ | -- | |||||||||||||||||
|
|
The aggregate intrinsic value in the table above is based on our closing stock price of $4.59 per share
as of December 31, 2007.
|
Nonvested Shares
|
Shares (000)
|
Weighted-Average
Grant-Date Fair Value |
|||||||
---|---|---|---|---|---|---|---|---|---|
Nonvested at January 1, 2007 | -- | $ | -- | ||||||
Granted | 135 | 4.75 | |||||||
Vested | -- | -- | |||||||
Forfeited | -- | -- | |||||||
|
|
||||||||
Nonvested at December 31, 2007 | 135 | $ | 4.75 | ||||||
|
|
J.
INCOME TAXES
|
Years Ended December 31,
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
($ in thousands)
|
2007
|
2006
|
2005
|
|||||||||
United States | $ | (17,881 | ) | $ | (19,947 | ) | $ | 15,944 | ||||
Foreign | 542 | (1,062 | ) | 1,491 | ||||||||
|
|
|
||||||||||
$ | (17,339 | ) | $ | (21,009 | ) | $ | 17,435 | |||||
|
|
|
A-28 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
Income tax expense (benefit) consists of the following: |
Years Ended December 31,
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
($ in thousands)
|
2007
|
2006
|
2005
|
|||||||||
Federal: | ||||||||||||
Current | $ | -- | $ | 681 | $ | -- | ||||||
Deferred | (2,878 | ) | (4,877 | ) | 5,611 | |||||||
State: | ||||||||||||
Current | 212 | 456 | 154 | |||||||||
Deferred | (401 | ) | (582 | ) | 398 | |||||||
Foreign | ||||||||||||
Current | -- | -- | 339 | |||||||||
Deferred | 213 | (241 | ) | -- | ||||||||
|
|
|
||||||||||
$ | (2,854 | ) | $ | (4,563 | ) | $ | 6,502 | |||||
|
|
|
A reconciliation of expected income tax expense (computed by applying the United States statutory income tax rate of 35% to earnings before income taxes) to total income tax expense in the accompanying consolidated statements of income follows: |
Years Ended December 31,
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
($ in thousands)
|
2007
|
2006
|
2005
|
|||||||||
Expected federal income tax | $ | (6,069 | ) | $ | (7,353 | ) | $ | 6,102 | ||||
State taxes | (123 | ) | (82 | ) | 359 | |||||||
Foreign rate differential | 17 | 130 | (183 | ) | ||||||||
Goodwill impairment | 3,589 | 3,090 | -- | |||||||||
Other | (268 | ) | (348 | ) | 224 | |||||||
|
|
|
||||||||||
$ | (2,854 | ) | $ | (4,563 | ) | $ | 6,502 | |||||
|
|
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2007 and 2006 are presented below: |
($ in thousands)
|
2007
|
2006
|
||||||
---|---|---|---|---|---|---|---|---|
Deferred tax assets: | ||||||||
Net operating loss carryforward | $ | 9,193 | $ | 3,754 | ||||
Allowance for bad debts | 123 | 328 | ||||||
FAS 123(R) expense | 552 | 295 | ||||||
AMT Credit | 578 | 783 | ||||||
Capitalized costs | 1,105 | 707 | ||||||
Accrued expenses deductible for tax purposes when paid | 996 | 958 | ||||||
|
|
|||||||
Total gross deferred tax assets | 12,547 | 6,825 | ||||||
Less valuation allowance | -- | -- | ||||||
|
|
|||||||
Net deferred tax assets | 12,547 | 6,825 | ||||||
|
|
|||||||
Deferred tax liabilities: | ||||||||
Property and equipment, principally due to differences in depreciation | (894 | ) | (292 | ) | ||||
Intangible assets, principally due to differences in amortization periods for tax purposes | (26,683 | ) | (24,632 | ) | ||||
|
|
|||||||
Total gross deferred tax liability | (27,577 | ) | (24,924 | ) | ||||
|
|
|||||||
Net deferred tax liability | $ | (15,030 | ) | $ | (18,099 | ) | ||
|
|
A-29 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
In assessing the realizablity of deferred tax assets, management considers whether it is more likely
than not that some portion or all of the deferred tax assets will be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the scheduled reversals of
deferred tax liabilities, projected future taxable income and tax planning strategies in making this
assessment. In order to fully realize the deferred tax assets, we will need to generate future taxable
ordinary income approximating $26.1 million prior to the expiration of net operating loss. Based on
projections of future taxable income over the periods in which the deferred tax assets are deductible
and tax planning strategies, management believes it is more likely than not that we will realize the
benefits of these deductible differences at December 31, 2007. At December 31, 2007, we have federal
net operating loss carry forwards of approximately $26.1 million which are available to offset federal
taxable income in future years through 2027.
|
A-30 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
($ in thousands) | ||||||
Balance at beginning of year | $ | 2,294 | ||||
Additions based on tax positions related to the current year | -- | |||||
Additions for tax positions of prior years | -- | |||||
Reductions for tax provisions for prior years | -- | |||||
Settlements | -- | |||||
Reductions for lapse of statute of limitations | -- | |||||
|
||||||
Balance at end of year | $ | 2,294 | ||||
|
Our continuing practice is to recognize interest accrued related to unrecognized tax benefits in
interest expense and penalties in operating expenses. We had approximately $153,000 of accrued interest
and no accrued penalties at December 31, 2007. The accrued interest is included as a component of the
deferred tax liabilities noted above.
|
A-31 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
Our segments are divisions that offer different services, and require different technology and marketing
approaches. The majority of the urology services segment is comprised of acquired entities.
|
($ in thousands)
|
Urology Services | Medical Products | ||||||
---|---|---|---|---|---|---|---|---|
|
|
|||||||
2007 | ||||||||
Revenue from external customers | $ | 122,736 | $ | 17,101 | ||||
Intersegment revenues | -- | 9,039 | ||||||
Interest income | 523 | 38 | ||||||
Interest expense | 767 | -- | ||||||
Depreciation and amortization | 8,116 | 2,322 | ||||||
Impairment of Goodwill | 20,800 | -- | ||||||
Segment profit (loss) | (10,991 | ) | 738 | |||||
Segment assets | 285,239 | 37,732 | ||||||
Capital expenditures | 3,321 | 5,775 | ||||||
2006 | ||||||||
Revenue from external customers | $ | 123,265 | $ | 19,080 | ||||
Intersegment revenues | -- | 9,296 | ||||||
Interest income | 294 | 55 | ||||||
Interest expense | 872 | 1 | ||||||
Depreciation and amortization | 8,535 | 1,972 | ||||||
Impairment of Goodwill | 12,200 | 8,400 | ||||||
Segment profit (loss) | 1,346 | (11,586 | ) | |||||
Segment assets | 293,119 | 37,065 | ||||||
Capital expenditures | 8,743 | 4,315 | ||||||
2005 | ||||||||
Revenue from external customers | $ | 133,360 | $ | 18,202 | ||||
Intersegment revenues | -- | 9,250 | ||||||
Interest income | 230 | 64 | ||||||
Interest expense | 834 | -- | ||||||
Depreciation and amortization | 9,707 | 855 | ||||||
Segment profit | 18,233 | 5,164 | ||||||
Segment assets | 314,887 | 43,319 | ||||||
Capital expenditures | 10,207 | 382 |
A-32 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
The following is a reconciliation of revenues per above to the consolidated revenues per the consolidated statements of income: |
($ in thousands)
|
2007 | 2006 | 2005 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|||||||||
Total revenues for reportable segments | $ | 148,876 | $ | 151,641 | $ | 160,812 | |||||
Corporate revenue | 581 | 546 | 705 | ||||||||
Elimination of intersegment revenues | (9,039 | ) | (9,296 | ) | (9,250 | ) | |||||
|
|
|
|||||||||
Total consolidated revenues | $ | 140,418 | $ | 142,891 | $ | 152,267 | |||||
|
|
|
The following is a reconciliation of profit per above to income before taxes per the consolidated statements of income: |
($ in thousands)
|
2007 | 2006 | 2005 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|||||||||
Total profit (loss) for reportable segments | $ | (10,253 | ) | $ | (10,240 | ) | $ | 23,397 | |||
Corporate revenue | 581 | 546 | 705 | ||||||||
Unallocated corporate expenses: | |||||||||||
General and administrative | (7,519 | ) | (10,680 | ) | (5,634 | ) | |||||
Net interest expense | 522 | 133 | (150 | ) | |||||||
Other, net | (670 | ) | (768 | ) | (883 | ) | |||||
|
|
|
|||||||||
Unallocated corporate expenses total | (7,667 | ) | (11,315 | ) | (6,667 | ) | |||||
|
|
|
|||||||||
Income (loss) before income taxes | $ | (17,339 | ) | $ | (21,009 | ) | $ | 17,435 | |||
|
|
|
The following is a reconciliation of segment assets per above to the consolidated assets per the consolidated balance sheets: |
($ in thousands)
|
2007 | 2006 | 2005 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|||||||||
Total assets for reportable segments | $ | 322,971 | $ | 330,184 | $ | 358,206 | |||||
Unallocated corporate assets | 13,085 | 16,549 | 124,831 | ||||||||
|
|
|
|||||||||
Consolidated total | $ | 336,056 | $ | 346,733 | $ | 483,037 | |||||
|
|
|
A-33 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
The reconciliation of the other significant items to the amounts reported in the consolidated financial statements is as follows: |
($ in thousands)
|
Segments
|
Corporate
|
Eliminating Entries
|
Consolidated
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2007 | ||||||||||||||
Interest and dividends | $ | 561 | $ | 585 | $ | -- | $ | 1,146 | ||||||
Interest expense | 767 | 62 | -- | 829 | ||||||||||
Depreciation and amortization | 10,438 | 669 | -- | 11,107 | ||||||||||
Capital expenditures | 9,096 | 373 | -- | 9,469 | ||||||||||
2006 | ||||||||||||||
Interest and dividends | $ | 349 | $ | 406 | $ | -- | $ | 755 | ||||||
Interest expense | 873 | 273 | -- | 1,146 | ||||||||||
Depreciation and amortization | 10,507 | 768 | -- | 11,275 | ||||||||||
Capital expenditures | 13,058 | 202 | (1,358 | ) | 11,902 | |||||||||
2005 | ||||||||||||||
Interest and dividends | $ | 294 | $ | 250 | $ | (96 | ) | $ | 448 | |||||
Interest expense | 834 | 401 | (96 | ) | 1,139 | |||||||||
Depreciation and amortization | 10,562 | 882 | -- | 11,444 | ||||||||||
Capital expenditures | 10,589 | 535 | (546 | ) | 10,578 |
The amounts in 2007, 2006 and 2005 for interest income and expense, depreciation and amortization and
capital expenditures represent amounts recorded by the operations of our corporate functions, which have
not been allocated to the segments.
|
A-34 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
During the second quarter 2006, we committed to a plan to sell our specialty vehicle manufacturing
segment. On June 22, 2006, we entered into an Interest and Stock Purchase Agreement pursuant to which
Oshkosh agreed to acquire our specialty vehicle manufacturing segment for $140 million in cash. We
completed this sale on July 31, 2006, and recognized a gain on the sale totaling $53.6 million. This
gain utilized approximately $20.4 million of our deferred tax assets. Our specialty vehicle
manufacturing segment has been reported in discontinued operations for all periods presented.
|
|
|
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
($ in thousands)
|
2007
|
2006
|
2005
|
||||||||
For the Year Ended December 31 | |||||||||||
Revenue | |||||||||||
Specialty Vehicles Manufacturing | $ | -- | $ | 57,526 | $ | 109,447 | |||||
CryoSurgery | -- | 1,490 | 2,589 | ||||||||
Rocky Mountain Prostate Thermotherapies | 3,268 | 4,289 | 3,391 | ||||||||
Orthotripsy | -- | -- | 6,613 | ||||||||
HIFU | -- | -- | -- | ||||||||
Cost of services | |||||||||||
Specialty Vehicles Manufacturing | -- | (51,616 | ) | (98,170 | ) | ||||||
CryoSurgery | -- | (1,235 | ) | (1,780 | ) | ||||||
Rocky Mountain Prostate Thermotherapies | (3,739 | ) | (4,587 | ) | (2,976 | ) | |||||
Orthotripsy | -- | -- | (7,714 | ) | |||||||
HIFU | (216 | ) | (1,233 | ) | (192 | ) | |||||
Depreciation and amortization | |||||||||||
Specialty Vehicles Manufacturing | -- | (542 | ) | (1,215 | ) | ||||||
CryoSurgery | -- | (512 | ) | (558 | ) | ||||||
Rocky Mountain Prostate Thermotherapies | -- | (224 | ) | (84 | ) | ||||||
Orthotripsy | -- | -- | (280 | ) | |||||||
HIFU | (3 | ) | (17 | ) | (3 | ) | |||||
Other | |||||||||||
Specialty Vehicles Manufacturing | -- | (72 | ) | (109 | ) | ||||||
CryoSurgery | -- | (118 | ) | (229 | ) | ||||||
Rocky Mountain Prostate Thermotherapies | -- | (4 | ) | -- | |||||||
Orthotripsy | -- | -- | (1,077 | ) | |||||||
HIFU | -- | -- | -- | ||||||||
|
|
|
|||||||||
Income (loss) from discontinued operations | $ | (690 | ) | $ | 3,145 | $ | 7,653 | ||||
|
|
|
A-35 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
($ in thousands)
|
Year Ended December 31,
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2007
|
2006
|
2005
|
|||||||||
Gain on sale of specialty vehicle manufacturing | $ | -- | $ | 53,551 | $ | -- | |||||
Gain on Sale of Rocky Mountain Prostate Thermotherapy | 451 | ||||||||||
Loss from disposal of cryosurgery operations | -- | (3,729 | ) | -- | |||||||
Impairment of Rocky Mountain Prostate Thermotherapy | -- | (4,263 | ) | -- | |||||||
Income from discontinued operations | (690 | ) | 3,145 | 7,653 | |||||||
Interest allocated to discontinued operations | -- | (4,830 | ) | (10,648 | ) | ||||||
Income tax (expense) benefit on discontinued operations | 92 | (18,745 | ) | 1,250 | |||||||
|
|
|
|||||||||
Income (loss) from discontinued operations, net of tax | $ | (147 | ) | $ | 25,129 | $ | (1,745 | ) | |||
|
|
|
Assets and liabilities held for sale as of December 31, 2006 relate entirely to our RMPT operations and
primarily consist of accounts receivable, supplies and accrued expenses.
|
A-36 |
HEALTHTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) |
---|
We purchased debt of HMT AG in the first quarter of 2005. We paid $1.3 million and incurred certain
contingent obligations in the amount of $350,000 in return for assignment of a $5.1 million claim
against HMT AG held by a foreign bank. In addition to the claim, we also received an assignment from the
bank of a pledge of HMT AGs accounts receivable that secured the $5.1 million claim. Through
December 31, 2007, we had recovered approximately $2.8 million. Any additional recoveries in the future
will be recorded as income when received.
|
A-37 |
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