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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2003
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 0-27750
IMPATH INC.
(exact name of registrant as specified in its charter)
Delaware 8071 13-3459685
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
521 West 57th Street
New York, New York 10019
(212) 698-0300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MARCH 31, 2003
- ----- -----------------------------
Common Stock, par value 16,447,776
$.005 per share
Index
IMPATH Inc. and Subsidiaries
PAGE NUMBER
-----------
PART I. Financial Information
Item 1. Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets at March 31, 2003
and December 31, 2002..................................................3
Consolidated Statements of Operations for the Three ..................4
Months Ended March 31, 2003 and 2002
Consolidated Statement of Stockholders' Equity for the
Three Months Ended March 31, 2003......................................5
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2003 and 2002...................................6
Notes to Consolidated Financial Statements.............................7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations......................18
Item 3. Quantitative and Qualitative Disclosures About Market Risk............22
Item 4. Controls and Procedures...............................................22
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K......................................23
Signatures and Certification..................................................24
2
Part I. Financial Information
Item 1. Consolidated Financial Statements (Unaudited)
IMPATH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2003 and December 31, 2002
2003 2002
------------- -------------
Assets
Current assets:
Cash and cash equivalents ................................................................. $ 2,951,163 $ 1,023,788
Marketable securities ..................................................................... 2,745,966 4,805,251
Accounts receivable, net of allowance for doubtful accounts of $11,458,161
in 2003 and $17,058,136 in 2002 ......................................................... 78,810,545 69,033,544
Prepaid expenses .......................................................................... 2,364,174 2,434,243
Prepaid taxes ............................................................................. 6,559,274 1,684,284
Deferred tax assets ....................................................................... 6,045,406 6,045,406
Other current assets ...................................................................... 22,632,161 21,691,678
------------- -------------
Total current assets ............................................................. 122,108,689 106,718,194
------------- -------------
Fixed assets, less accumulated depreciation and amortization ................................... 75,273,386 93,184,006
Deposits and other non-current assets .......................................................... 530,946 537,032
Goodwill ....................................................................................... 46,540,632 46,540,632
Intangible assets, net of accumulated amortization of $10,448,584 in 2003 and $8,936,460 in 2002 39,166,737 39,224,709
------------- -------------
Total assets ..................................................................... $ 283,620,390 $ 286,204,573
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of capital lease obligations .............................................. $ 12,767,610 $ 14,918,386
Short term borrowings ..................................................................... 4,900,000 4,900,000
Accounts payable .......................................................................... 7,002,718 6,246,275
Deferred revenues ......................................................................... 4,369,158 3,982,427
Accrued expenses .......................................................................... 5,443,899 5,857,077
------------- -------------
Total current liabilities ........................................................ 34,483,385 35,904,165
------------- -------------
Capital lease obligations, net of current portion .............................................. 16,482,780 17,239,125
Notes payable, net of current portion .......................................................... 56,475,000 50,700,000
Deferred tax liabilities ....................................................................... 13,974,655 13,974,655
Commitments and contingencies
Stockholders' equity:
Common stock, $.005 par value, authorized 70,000,000 shares; 18,687,252 and
18,609,380 shares issued in 2003 and 2002, respectively; 16,447,776 and
16,369,904 shares outstanding
in 2003 and 2002, respectively .......................................................... 93,436 93,047
Additional paid-in capital ................................................................ 141,266,337 141,009,994
Retained earnings ......................................................................... 48,282,345 54,722,932
Accumulated other comprehensive loss ...................................................... (23,884) (17,681)
------------- -------------
189,618,234 195,808,292
Less:
Cost of 2,239,476 and 2,239,476 shares of common stock held in treasury in
2003 and 2002, respectively ......................................................... (27,402,470) (27,402,470)
Deferred compensation ................................................................... (11,194) (19,194)
------------- -------------
Total stockholders' equity .............................................................. 162,204,570 168,386,628
------------- -------------
Total liabilities and stockholders' equity .............................................. $ 283,620,390 $ 286,204,573
============= =============
See accompanying notes to unaudited consolidated financial statements
3
IMPATH Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31
---------------------------
2003 2002
---- ----
Revenues:
Net IMPATH Physician Services $ 39,243,346 $ 35,760,435
IMPATH Predictive Oncology 3,188,693 5,969,816
IMPATH Information Services 3,540,685 2,275,252
------------ ------------
Total net revenues 45,972,724 44,005,503
------------ ------------
Operating Expenses:
Cost of services 17,696,489 16,500,282
Selling, general and administrative 16,564,149 15,449,554
Depreciation and amortization 21,859,466 7,924,981
Acquired in process research & development -- 900,000
------------ ------------
Total operating expenses 56,120,104 40,774,817
------------ ------------
(Loss)/income from operations (10,147,380) 3,230,686
Interest Income 24,493 239,872
Interest Expense (1,176,388) (928,676)
------------ ------------
Other expense, net (1,151,895) (688,804)
------------ ------------
(Loss)/income before provision for income tax (11,299,275) 2,541,882
Benefit (Provision) for income tax 4,858,688 (1,093,009)
------------ ------------
Net (loss)/income $ (6,440,587) $ 1,448,873
============ ============
(Loss)/earnings per share:
Basic:
Net (Loss)/income per common share $ (0.39) $ 0.09
============ ============
Weighted average common shares outstanding 16,384,000 16,228,000
============ ============
Diluted:
Net (Loss)/income per common share, assuming
dilution $ (0.39) $ 0.09
============ ============
Weighted average common and common equivalent
shares outstanding, assuming dilution 16,384,000 16,854,000
============ ============
See accompanying notes to unaudited consolidated financial statements
4
IMPATH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 2003
Common Stock Additional
------------------- paid-in Retained
Shares Amount capital earnings
------ ------ ------------- --------
Balance at December 31, 2002 ........... 18,609,380 $93,047 $141,009,994 $ 54,722,932
=========== ======= ============ ============
Common shares issued upon exercise of
stock options ....................... 77,872 389 256,343 --
Amortization of deferred
compensation ........................ -- -- -- --
Comprehensive income:
Change in unrealized net depreciation of
securities, after tax ............... -- -- -- --
Net (loss) for the year ended
March 31, 2003 ...................... -- -- -- (6,440,587)
----------- ------- ------------ ------------
Total comprehensive income .............
----------- ------- ------------ ------------
Balance at March 31, 2003 .............. 18,687,252 $93,436 $141,266,337 $ 48,282,345
=========== ======= ============ ============
Accumulated
other
comprehensive Treasury Deferred
loss stock compensation Total
------------- ----- ------------ -----
Balance at December 31, 2002 ........... $(17,681) $(27,402,470) $(19,194) $ 168,386,628
======== ============ ======== =============
Common shares issued upon exercise of
stock options ....................... -- -- -- 256,732
Amortization of deferred
compensation ........................ -- -- 8,000 8,000
Comprehensive income:
Change in unrealized net depreciation of
securities, after tax ............... (6,203) -- -- (6,203)
Net (loss) for the year ended
March 31, 2003 ...................... -- -- -- (6,440,587)
-------- ------------ -------- -------------
Total comprehensive income ............. (6,446,790)
-------- ------------ -------- -------------
Balance at March 31, 2003 .............. $(23,884) $(27,402,470) $(11,194) $ 162,204,570
======== ============ ======== =============
See accompanying notes to unaudited consolidated financial statements
5
IMPATH Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
----------------------------
2003 2002
---- ----
Cash flows from operating activities:
Net (loss)/income .................................................. $ (6,440,587) $ 1,448,873
Adjustments to reconcile net income to net cash provided by
operating activities:
Acquired in Process R&D ......................................... -- 900,000
Depreciation and amortization ................................... 21,859,466 7,924,981
Provision for uncollectible accounts receivable ................. 1,963,403 2,267,000
Non-cash compensation ........................................... 8,000 33,813
Changes in assets and liabilities (net of the effects from
acquisitions of business):
(Increase) in accounts receivable, net ........................ (11,740,403) (3,806,051)
(Increase) in prepaid expenses and other current assets ....... (870,414) (2,141,880)
(Increase)/decrease in deposits and other non-current assets .. (321,131) 457,712
Increase/(decrease) in accounts payable/accrued expenses ...... 343,266 (67,893)
(Decrease) in prepaid taxes ................................... (4,874,990) (2,418,714)
Increase/(decrease) in deferred revenues ...................... 386,731 (1,344,743)
------------ ------------
Total adjustments ........................................ 6,753,928 1,804,225
------------ ------------
Net cash provided by operating activities ............................. 313,341 3,253,098
------------ ------------
Cash flows from investing activities:
(Purchases) of marketable securities ............................... (410,678) (3,389,135)
Sales/maturities of marketable securities .......................... 2,463,760 4,652,507
Acquisitions of businesses, net of cash acquired ................... -- (28,623,717)
(Purchases) of intangible assets ................................... (1,126,936) (2,933,377)
Capital expenditures ............................................... (745,350) (2,389,930)
------------ ------------
Net cash provided by (used in) investing activities ................... 180,796 (32,683,652)
------------ ------------
Cash flows from financing activities:
Issuance of common stock ........................................... 256,732 1,039,565
Proceeds from bank loans, net ...................................... 5,775,000 33,600,000
Payments of notes payable .......................................... -- (223,845)
Payments of capital lease obligations .............................. (4,598,494) (3,521,487)
------------ ------------
Net cash provided by financing activities ............................. 1,433,238 30,894,233
------------ ------------
Net increase in cash and equivalents .................................. 1,927,375 1,463,679
------------ ------------
Cash and equivalents at beginning of period ........................... 1,023,788 5,854,628
------------ ------------
Cash and equivalents at end of period ................................. 2,951,163 7,318,307
------------ ------------
See accompanying notes to unaudited consolidated financial statements.
6
IMPATH Inc.
Notes to Consolidated Financial Statements
(unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared by management in accordance with the rules and regulations of the
United States Securities and Exchange Commission.
In the opinion of IMPATH Inc. (the "Company"), the accompanying unaudited
consolidated financial statements contain all adjustments, consisting only of
normal recurring adjustments, necessary for the fair presentation of the
financial information for all periods presented. Results for the interim periods
are not necessarily indicative of the results for an entire year and do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States of America ("GAAP") for complete annual
financial statements. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
contained in the Company's Annual Report on Form 10-K, as amended for the year
ended December 31, 2002.
(2) Certain Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all wholly-owned subsidiaries. All material intercompany accounts and
transactions have been eliminated.
Reclassifications
Certain prior year balances have been reclassified to conform with the
2003 presentations.
Comprehensive Income
Comprehensive income consists of net income and net unrealized gains
(losses) on securities and is presented in the consolidated statements of
stockholders' equity.
Revenue Recognition
IMPATH Physician Services generally recognizes revenue for services
rendered upon completion of the testing process. Certain costs incurred by the
Company on uncompleted tests at the end of a reporting period are deferred until
the test is completed and the revenue is recognized.
Billings for services under third-party payor programs, including Medicare
and contracted payors (hospitals, managed care organizations and certain
insurers), are recorded as revenues net of contractual allowances for the
differences between amounts billed and the estimated receipts under such
programs. Adjustments to the estimated receipts, based on final settlement with
the third party contracted payors, are also recorded as a reduction in revenue
upon settlement.
The Company is actively pursuing more contracted payor arrangements, which
reflects an ongoing shift in its reimbursement model. In connection with the
preparation of the 2002 consolidated financial statements, for non-contracted
payors, the Company commenced recording as revenue only the estimated payments
to be received from the payors. Previously, the Company had recognized revenue,
for non-contracted payors, based on amounts billed at its standard billing rate
with differences between these amounts and the amounts ultimately estimated to
be collected recorded in bad debt expense. The receipts are received initially
from the insurance carrier and when payments are made at a lower than invoiced
amount, the Company attempts to collect the difference from the patient
directly. The Company reclassified its historical consolidated financial
statements for non-contracted payor allowances and for certain types of other
disallowances for insurers and Medicare to show them as reductions in revenue
instead of increases to bad debt expense in selling, general and administrative
expense as it had done in the past. The amounts reclassified totaled $8.6
million for the quarter ended March 31, 2002.
7
The Company records bad debt provisions which result from, among other
things, estimates of non-collectible primary and co-pay amounts from patients
and estimates of certain unpaid claims from payors from incorrect patient or
insurance data. These allowances are also estimated and recorded at the date of
the original service as bad debt expense in selling, general and administrative
expenses.
Revenue from IMPATH Predictive Oncology is recognized within the guidance
contained in the provisions of SEC Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements." Revenues are recognized upon completion of
analysis in accordance with the terms of the contract. In cases where the
contract calls for the biological specimen to be shipped, revenue is recognized
upon shipment of the biological material to the customer.
Revenue from a portion of IMPATH Information Services is deferred and
recognized on a straight-line basis over the term of the particular license
agreement. The Company also utilizes the percentage of completion method (AICPA
Statement of Position No. 81-1, "Accounting for Performance of Construction Type
and Certain Production-Type Contracts") in order to recognize certain software
revenue included in this segment, over the three-to-six month period of time for
installation and acceptance testing and when collection of the resulting
receivable is reasonably assured. Many of these license agreements also have
support and maintenance components for which a specific payment is received in
advance but is deferred and revenue is recognized on a straight-line basis over
the term of such agreement.
Marketable Securities
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 115, the Company's portfolio of securities is considered available for sale.
Unrealized gains and losses for available for sale securities are recorded as an
accumulated other comprehensive loss in stockholders' equity, net of related
deferred taxes. Gains and losses on securities sold are based on the average
cost method. At March 31, 2003, approximately $2.2 million of the securities
mature in one to three years, all of which are corporate fixed income
securities, and approximately $500,000 mature in more than three years (of which
approximately $300,000 are corporate fixed income securities and $200,000
are municipal bonds.)
Accounts Receivable and Related Allowances
The process for estimating the collection of receivables involves
significant assumptions and judgments. Receivables are presented on the balance
sheet at net realizable value and include provision for contractual and other
revenue allowances for differences between amounts billed and estimated receipts
for services under third-party payor programs, including Medicare, Medicaid, and
from non-contracted payors, and for bad debts as a result of a variety of
factors. Management specifically analyzes contractual and other revenue
allowances, historical bad debts, customer concentrations, customer
credit-worthiness, current economic trends and changes in the Company's customer
payment terms when evaluating the adequacy of the contractual and other revenue
allowances and allowance for doubtful accounts. Account balances are charged off
against the allowance after all means of collection have been exhausted and the
potential for recovery is considered remote. The Company does not have any
off-balance-sheet credit exposure related to its customers.
Significant management judgment is required in determining these
allowances. In the event that actual collections differ from these estimates,
the Company may need to establish larger reserves which could materially impact
the Company's financial position and results of operations.
Inventories
Inventories, which consist principally of supplies, are valued at the
lower of cost (first in, first out method) or market, and are included in other
current assets on the accompanying balance sheet.
8
Software Development Cost
The Company, through its acquisition of Tamtron Corporation, now
capitalizes certain software development costs incurred related to software
developed for resale subsequent to the establishment of technological
feasibility until the product is released for commercial use. Similarly, costs
incurred to develop upgrades are capitalized until the upgrades are commercially
released. Before technological feasibility has been established, the Company
expenses all costs incurred for the product. These capitalized costs, which
total approximately $1.2 million through March 31, 2003, will be amortized over
the product's estimated life in the marketplace.
Intangible Assets
Payments to acquire tissue and tumor samples for use in GeneBankTM have
been classified as an intangible asset, with total purchases of $1.1 million for
the three months ended March 31, 2003, resulting in a net balance of $16.9
million at March 31, 2003. GeneBank payments are being amortized using the
straight-line method over its estimated useful life of seven years.
The following disclosure presents certain information on the Company's
acquired intangible assets as of March 31, 2003, and December 31, 2002. All
intangible assets are amortized over their estimated useful lives, as indicated
below, with no residual values.
Gross
Acquired Intangible Assets Useful Carrying Accumulated
(In $ Thousands) Lives Amount Amortization Net Balance
- ------------------------------------------------------------------------------------------------------
At March 31, 2003
Amortized acquired intangible assets:
Technology 5 years 4,600 (1,115) 3,485
Customer Lists 15 years 24,349 (6,778) 17,571
-----------------------------------------
28,949 (7,893) 21,056
=========================================
At December 31, 2002
Amortized acquired intangible assets:
Technology 5 years 4,600 (885) 3,715
Customer Lists 15 years 24,349 (6,228) 18,121
=========================================
28,949 (7,113) 21,836
=========================================
The aggregate intangible asset amortization, including Genebank, for the quarter
ended March 31, 2003 was approximately $1.5 million. The estimated intangible
asset amortization expense for the fiscal years ended December 31, 2003 through
2006 is approximately $6.2 million per year.
9
Goodwill
In accordance with SFAS 142, "Goodwill and Other Intangible Assets,"
goodwill will no longer be amortized, but rather tested for impairment annually.
In accordance with the provisions of SFAS 142, the Company assigned all goodwill
to the Company's three reporting units, which are the same as the Company's
reporting segments. Annually, the Company considers whether goodwill is impaired
by comparing the carrying value of the reporting unit, including goodwill, to
the fair market value of the reporting unit. The fair values of the reporting
units are based on management estimates using discounted cash flow assumptions.
Such estimates include a considerable amount of management judgment and there is
potential for a material impact to the Company's financial position and result
of operations in the event that such estimates significantly change.
The Company performed its annual impairment test at December 31, 2002,
upon completion and approval of the Company's financial operating plan for 2003.
The impairment test indicated that no goodwill impairment existed as of that
date.
Stock-Based Compensation
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations including FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation an interpretation of APB Opinion No. 25" to account for its fixed
plan stock options granted to employees and directors and for restricted stock
grants. Under this method, compensation expense is recorded on the date of the
grant only if the current market price of the underlying stock exceeds the
exercise price.
SFAS No. 123, "Accounting for Stock-Based Compensation," established
accounting and disclosure requirements using a fair value-basis method of
accounting for stock-based employee compensation plans. As allowed by SFAS No.
123, the Company has elected to continue to apply the intrinsic value-based
method of accounting described above, and has adopted the disclosure
requirements of SFAS No. 123. The Company uses the fair value method of
accounting for stock-based compensation to non-employees. Under the fair
value-based method, compensation costs are measured based on the value of the
award and is recognized over the vesting period. The Company recorded expense
related to non-employee stock option grants, net of tax benefit, of $5,000 and
$19,000 in the quarters ended March 31, 2003 and 2002, respectively.
10
Had the Company elected to recognize compensation cost based on fair value
of the employee stock options at the date of grant under SFAS 123, such costs
would have been recognized ratably over the vesting period of the underlying
instruments and the Company's net (loss)/income and net (loss)/income per common
share would have decreased to the pro forma amounts indicated in the table
below.
(dollars in thousands except per share amounts) March 31, March 31,
--------- ---------
2003 2002
---- ----
Net (loss)/income as reported $ (6,441) $ 1,449
Less:
Pro forma after-tax impact of employee options at fair value (1,183) (1,108)
--------- ---------
Pro forma net (loss)/income adjusted (7,624) 341
Basic (loss)/earnings per share as reported $ (0.39) $ 0.09
Diluted (loss)/earnings per share as reported $ (0.39) $ 0.09
Pro forma basic (loss)/earnings per share $ (0.47) $ 0.02
Pro forma diluted (loss)/earnings per share $ (0.47) $ 0.02
The fair value of stock options is estimated on the date of grant using
the Black-Scholes option-pricing calculation model. The following table outlines
the assumptions used in the Black-Scholes model.
March 31, March 31,
2003 2002
---- ----
Dividend yield 0.0% 0.0%
Risk-free interest rate 3.0% 3.0%
Expected option life in years 7.0 7.0
Expected volatility 46.0% 46.0%
The weighted-average fair value of stock option grants was $9.40 and
$17.59 for the quarters ended March 31, 2003 and 2002, respectively.
11
(3) Liquidity
The Company's growth strategy in 2003 is anticipated to be financed
through its current cash resources, existing third-party credit facilities, cash
flows from operations or other strategic arrangements. The Company's 2003
planned expenditures include no cash payments for business acquisitions and
decreased investment in capital expenditures and GeneBank purchases compared to
2002, the majority of which are discretionary and are not based on firm
commitments. In terms of financing activities, the Company expects to need
approximately $16 million to fund capital lease obligations and $5 million for
debt service in 2003. Based on the Company's availability under its credit
facility and its projected operating results (which include certain cost
containment measures which have already begun to be implemented), it believes it
will have adequate liquid resources at least through March 31, 2004. However,
the Company will carefully monitor its liquidity situation through March 31,
2004 and if required, has the ability and intent, to further reduce planned
discretionary investing activities. If needed, the Company also has availability
of approximately $14.7 million in capital lease financing which could be used,
if necessary, to assist in financing certain capital expenditures. The Company
will require, over the longer term, new funding to continue its growth strategy
and fund the Company's investment needs, including capital expenditures and
other infrastructure costs. There may be circumstances, in addition, that would
expand the Company's use of cash resources, specifically, acquisitions of
businesses or technologies that could require additional liquidity. Because of
the Company's short and long-term capital requirements, the Company may seek
access to public or private debt, equity markets or other strategic
arrangements. The Company may also seek additional funding through corporate
collaborations and other financing vehicles, potentially including off-balance
sheet financing through limited partnerships or corporations. There can be no
assurance that such funding will be available at all or at terms acceptable to
the Company. If funding is not available, the Company may have to limit its
growth and expansion activities. If the Company obtains funds through
arrangements with collaborative partners or others, the Company may be required
to relinquish rights to certain of its technologies or product candidates.
(4) Accounts Receivable and Related Allowances
In accordance with GAAP and consistent with healthcare industry practices,
the Company presents its accounts receivable at net realizable value. Net
accounts receivable balances are comprised of the following as of March 31, 2003
and December 31, 2002:
March 31, 2003 December 31, 2002
-------------- -----------------
Gross accounts receivable ............ $ 171,048,297 $ 163,988,440
Allowance for doubtful accounts ...... (11,458,161) (17,058,136)
Contractual allowance reserve ........ (80,779,591) (77,896,760)
------------- -------------
$ 78,810,545 $ 69,033,544
============= =============
Bad debt expense for the quarters ended March 31, 2003 and 2002 totaled
$2.0 million and $2.3 million, respectively.
(5) Recent Acquisition
On January 18, 2002, the Company completed its acquisition of Tamtron
Corporation, part of the Company's Information Services segment, for $25.9
million in cash, plus debt repayment of $651,000, as well as acquisition
expenses of $2.6 million for a total purchase price of $29.2 million. Tamtron is
a San Jose, California, based company whose flagship PowerPath(R) software is
designed specifically to assist companies who provide surgical pathology,
cytology and autopsy services (e.g. anatomic pathology) in streamlining
operations and supporting multi-site or multi-entity healthcare networks.
Tamtron's current customer base includes more than 375 sites, including
hospitals and academic medical centers around the country, which process over 5
million cases per year. The source of funds for the acquisition was a
combination of the Company's available cash, as well as advances totaling $25
million under its amended credit facility. The March 31, 2002 quarter results
for the Company did not include 18 days of Tamtron operations, but no proforma
is presented as the effect is not material.
12
The acquisition has been accounted for under the purchase method, in
accordance with SFAS 141, pursuant to which the purchase price is allocated to
the underlying assets and liabilities based on their estimated fair values. The
resulting goodwill from this transaction of $21.4 million will not be amortized,
and intangibles of $11.0 million will be amortized over periods ranging from
five to fifteen years. The following table reflects the allocation of the
purchase price.
Cash $ 580,341
Prepaid expenses and other current assets 151,406
Accounts receivables, net of allowance 907,284
Property and equipment, net of accumulated depreciation 555,244
Intangible assets - customer lists and acquired software 11,000,000
Goodwill 21,408,112
Acquired in process research & development 900,000
Current and other liabilities, including deferred revenue (4,036,394)
Deferred tax liability, net (2,261,934)
------------
$ 29,204,059
============
(6) Debt
Senior Secured Credit Facility
In June 2001, the Company entered into a $50 million Senior Secured Credit
Facility consisting of a five-year commitment for a $25 million revolving credit
line and a $25 million 364-day facility intended for acquisitions. The credit
facility syndicated by Fleet National Bank, which also acts as agent for the
lenders, replaced the Company's previous $15 million unsecured line of credit
that expired on June 28, 2001. In connection with the Tamtron acquisition, on
January 18, 2002, the Company amended its original credit facility and converted
its $25 million 364-day facility to a $28 million term loan. The term loan is to
be repaid over a five-year period, with interest only payable for the first
twelve months. Thereafter, the loan is payable in seventeen payments of
principal plus interest, with principal payments of $4.9 million due quarterly
in each of 2003, 2004, 2005 and 2006 and a final principal payment of $8.4
million due in 2007. Both the revolving credit line and the term loan currently
bear interest at LIBOR plus 2.0%, which was approximately 3.1% at March 31,
2003. On October 18, 2002, the Company amended its Senior Secured Credit
Facility to increase the availability under its revolving credit line from $25
million to $40 million. The amended credit facility continues to be syndicated
by Fleet National Bank, which continues to act as agent for the lenders.
Including the Company's $28 million term loan, the credit facility after giving
effect to the amendment is $68 million. As of March 31, 2003, the Company had
$34.6 million outstanding under the revolving credit line and $28 million drawn
down from the term loan. The Company had fully drawn against the term loan and
had $5.4 million remaining available under the line of credit at March 31, 2003.
The $34.6 million under the revolving credit line is due in full in 2006. In
connection with the amended facility, the Company also amended certain debt
covenants contained in the original facility. As of March 31, 2003, the Company
is compliant with all debt covenants. The covenants are principally related to
current ratios, stockholders equity, and debt to earnings before interest,
taxes, depreciation and amortization ("EBITDA") ratios.
13
(7) Capital Leases
The Company leases equipment pursuant to the terms of capital leases,
which expire through 2007. The present value of future minimum lease payments
(including those cancelable at the Company's option and subject to increases in
the Consumer Price Index and real estate taxes) for the capital leases are as
follows:
For the twelve months ending March 31, Capital leases
-------------------------------------- --------------
2004 .......................................... $ 13,998,847
2005 .......................................... 11,809,641
2006 .......................................... 4,576,020
2007 .......................................... 713,388
------------
31,097,896
============
Amount representing interest
(rates range from 2.47% to 7.6%) ........... (1,847,506)
------------
Total ......................................... $ 29,250,390
------------
Less: Current Portion ......................... 12,767,610
------------
Long Term Portion ............................. $ 16,482,780
============
The Company has lines of credit for financing equipment, leasehold
improvements and hardware and software with various third party lenders in
addition to its Senior Secured Credit Facility. At March 31, 2003, the Company
has several credit lines which aggregate to $84.3 million, of which $69.6
million has been drawn against, of which $14.7 million in capital lease
financing is available. The leases have terms of 48 months at rates between the
yield of 4-year treasury notes and the yield of 4-year treasury notes plus .35%.
(8) Stockholder's Equity
On July 19, 2002, the Company announced that its Board of Directors has
adopted a Stockholder Rights Plan ("Rights Plan") designed to protect Company
stockholders in the event of takeover activity that would deny them the full
value of their investment.
In adopting the Rights Plan, the Board declared a dividend distribution of
one preferred stock purchase right for each outstanding share of common stock of
the Company, payable to stockholders of record at the close of business on
August 1, 2002. The rights will become exercisable only in the event, with
certain exceptions, a person or group of affiliated or associated persons
acquires 15% or more of the Company's voting stock, or a person or group of
affiliated or associated persons commences a tender or exchange offer, which if
successfully consummated, would result in such person or group owning 15% or
more of the Company's voting stock. A stockholder who owns 15% or more of the
Company's voting stock as of July 19, 2002, will not trigger the provision
unless the stockholder thereafter acquires an additional one percent or more of
the outstanding stock. The rights will expire on July 19, 2012.
14
(9) Earnings Per Common Share
"Basic" (loss)/earnings per common share equals net (loss)/income divided
by weighted average common shares outstanding during the period. "Diluted"
(loss)/earnings per common share equals net (loss)/income divided by the sum of
weighted average common shares outstanding during the period plus common stock
equivalents. Common stock equivalents are shares assumed to be issued if
outstanding stock options and warrants were exercised. Common stock equivalents
that are anti-dilutive are excluded from diluted (loss)/earnings per common
share. The number of anti-dilutive shares were 924,142 at March 31, 2003 and
319,887 at March 31, 2002.
The following is a reconciliation of the shares used in calculating basic
and diluted net (loss)/income per common share (all years have been split
adjusted)(net income as reported is the numerator in each calculation):
2003 2002
---- ----
Weighted average common shares outstanding .............. 16,384,000 16,228,000
Effect of diluted securities--options ................... -- 626,000
----------- ----------
Weighted average common and common equivalent shares
outstanding--including diluted effect ................ 16,384,000 16,854,000
=========== ==========
Basic (loss)/earnings per common share $(0.39) $0.09
====== =====
Diluted (loss)/earnings per common share $(0.39) $0.09
====== =====
(10) Goodwill and Intangible Assets
During the course of the Company's strategic review for the quarter ended
March 31, 2002, it was determined that the Company would no longer offer certain
products based on technology which was purchased from Biologic & Immunologic
Science Laboratories, Inc. ("BIS"), an acquisition that was completed in July
1998. As a result, the Company recorded a goodwill write-down of $3,200,000,
which eliminated all remaining goodwill from the BIS acquisition. The goodwill
impairment was necessitated by the Company's decision to completely discontinue
the BIS product offering. Additionally, the Company recorded a total charge of
$2,300,000 to account for severance and related costs, as well as an increase in
allowances for bad-debt expenses related to those accounts the Company will no
longer be servicing.
The aggregate intangible asset amortization, including Genebank, for the
quarter ended March 31, 2003 was approximately $1.5 million. The estimated
intangible asset amortization expense for the fiscal years ended December 31,
2003 through 2006 is approximately $6.2 million per year.
The table below reflects that there have been no changes in the carrying
amount of goodwill, by reporting units, for the period from December 31, 2002 to
March 31, 2003.
IMPATH IMPATH IMPATH
Physician Predictive Information
(in $millions) Services Oncology Services Total
-------------- -------- -------- -------- -----
Balance at December 31, 2002 $1.0 $13.6 $31.9 $46.5
---- ----- ----- -----
Balance March 31, 2003 $1.0 $13.6 $31.9 $46.5
---- ----- ----- -----
15
(11) Segment information
The Company operates in three reportable business segments: (1) IMPATH
Physician Services, (2) IMPATH Predictive Oncology ("IPO") and (3) IMPATH
Information Services. Physician Services derives revenue from performing
specialized cancer analyses. IPO provides (i) contract laboratory services, (ii)
cancer database and pharmacoeconomic information and (iii) clinical trial
support services to genomics, biotechnology and pharmaceutical companies.
Information Services derives revenues by licensing its tumor registry software
to community hospitals and state agencies and provides pathology information
management software, which is licensed to hospitals and academic medical centers
around the country. The Company measures the performance of its operating
segments through "Income (loss) from operations" as defined on the accompanying
consolidated statements of operations.
IMPATH IMPATH IMPATH
Three Months Ended Total Physician Predictive Information
($ in Thousands) IMPATH Inc. Services Oncology Services
- -----------------------------------------------------------------------------------------------
2003
Revenue, net $ 45,973 $ 39,243 $ 3,189 $ 3,541
Operating (loss) income $(10,147) $ (8,334) $(1,573) $ (240)
Depreciation and
Amortization $ 21,859 $ 19,657 $ 1,285 $ 917
- -----------------------------------------------------------------------------------------------
2002
Revenue, net $ 44,005 $ 35,760 $ 5,970 $ 2,275
Operating income (loss) $ 3,231 $ 3,633 $ 1,374 $(1,776)
Depreciation and
Amortization $ 7,925 $ 6,921 $ 857 $ 147
- -----------------------------------------------------------------------------------------------
(12) Commitments and Contingencies
At March 31, 2003 minimum rental commitments under non-cancelable
operating leases which primarily related to real estate are as follows
For the twelve months ending March 31, Operating leases
-------------------------------------- ----------------
2004 ..................................... $ 4,697,043
2005 ..................................... 4,059,412
2006 ..................................... 3,638,529
2007 ..................................... 3,260,193
2008 ..................................... 3,282,876
Thereafter ............................... 7,171,559
-----------
$26,109,612
===========
From time to time, the Company is involved in various legal actions in the
normal course of business, some of which seek monetary damages. While the
Company cannot predict with absolute certainty the outcome of any of the
proceedings in which it is involved, the Company believes any ultimate liability
associated with these contingencies would not have a material adverse effect on
the Company's consolidated financial position or results of operations.
Certain executive officers of the Company have entered into agreements
which provide severance of up to one year's salary in the event of termination
without cause and provide for certain payments to the executive in the event of
a change of control of the Company.
16
(13) Other Matters
Billing System Write Down
During the first quarter of 2003, the Company launched its automated
PowerPath(R) software solution as the Company's new laboratory information and
billing system. Upon implementation of the new system, the Company recorded a
pre-tax non-cash charge of approximately $15.3 million to accelerate the
write-off of the undepreciated capitalized software associated with the
Company's former billing software.
PCRL Discontinuance
Effective March 14, 2003, IMPATH Inc. (the "Company") began the process of
discontinuing its non-core, regional histology services product offering, and is
transferring certain services to its Los Angeles laboratory. As a result of this
decision, the Company will be closing its Cypress, California facility. This
closure will result in a workforce reduction of approximately 80 employees. The
costs associated with the closure are expected to be approximately $2 million to
$2.5 million consisting primarily of existing leasehold improvements, laboratory
supplies and severance costs. The Company expects to incur these costs during
the second quarter of the year. The Cypress facility is expected to be fully
closed on or about May 13, 2003.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q may contain statements that the Company
believes are, or may be considered to be, "forward-looking statements" within
the meaning of various provisions of the Securities Act of 1933 and the
Securities Exchange Act of 1934. These forward-looking statements generally can
be identified by use of statements that include phrases such as the Company
"believes," "expects," "anticipates," "intends," "plans," "foresees" or other
similar words or phrases. Similarly, statements that describe the Company's
projected growth and goals and its plans for expansion also are forward-looking
statements. All of these forward-looking statements are subject to certain risks
and uncertainties, many of which are outside of management's control, and which
could cause the Company's actual results to differ materially from those
contemplated by the relevant forward-looking statement. Some of the most
significant factors that could cause the actual results to differ materially
from the forward-looking statement, alone or in combination, would be the
failure to continue to successfully integrate the businesses acquired by the
Company, unanticipated disagreements with the Company's joint venture or other
partners, unanticipated changes in the healthcare industry (as a result of cost
containment measures, changes in governmental regulation, including
reimbursement programs and patient confidentiality issues, or other factors), an
inability to procure consented, well-characterized tissue specimens, an
inability to successfully integrate the Company's new laboratory and billing
system, the adverse effect of any legal proceedings involving the Company, an
unanticipated failure in the commercialization of the Company's
biopharmaceutical products, or an unanticipated loss of business. In addition,
the September 11, 2001 terrorist attacks and change in international political
conditions as a result of these events may continue to affect the United States
and the global economy and increase other risks. Readers are urged to consider
these factors carefully in evaluating the forward-looking statements. The
forward-looking statements included in this filing on Form 10-Q are made only as
of the date of this filing and the Company undertakes no obligation to publicly
update these forward-looking statements to reflect subsequent events or
circumstances.
Three Months Ended March 31, 2003
Compared with Three Months Ended March 31, 2002
The Company's total net revenues for the three months ended March 31, 2003
and 2002 were $46.0 million and $44.0 million, respectively, representing an
increase of $2.0 million, or 4.5%, in 2003. Physician Services net revenue and
associated case volume was adversely impacted by severe weather conditions in
January and February. Utilizing PowerPath(R), case volume for the quarter
increased 2% from the year ago period. Lymphoma/leukemia analyses continue to be
the Company's fastest growing products with an increase in case volume of 19%
quarter over quarter. IPO revenues decreased 46.7% to $3.2 million, from $6.0
million in the year ago quarter, primarily due to a slowed spending pattern in
the industry and revenue variability from reliance on fee for service contracts.
IMPATH Information Services revenues increased 52% to $3.5 million up from $2.3
million in 2002 primarily due to the acquisition of Tamtron, as well as the
exclusion of prior year accounting entries which decreased the revenue
recognition in the first quarter of 2002.
Cost of services, which represents costs associated with the
transportation and testing of specimens, for the three months ended March 31,
2003 and 2002 were $17.7 and $16.5 million respectively, representing an
increase of $1.2 million, or 7.3% in 2003. The increase in cost of services was
primarily attributable to increased employee compensation related to the
training and implementation of the Company's PowerPath laboratory and billing
information system as well as increased supply costs related to more complex
cases. Additionally, cost of services in 2002 included a charge in the first
quarter of $1.0 million associated with the discontinuation of certain non-core
products from BIS. As a percentage of the total net revenues, cost of services
were 38.5% in 2003 as compared to 37.5% in 2002.
Selling, general and administrative expenses, which represent costs
associated with the sales and marketing force, the billing operations, bad debt,
and general administration, for the three months ended March 31, 2003 and 2002
were $16.6 million and $15.5 million, respectively, representing an increase of
$1.1 million, or 7.1%, in 2003. The increase is primarily attributable to
employee compensation related to the training and implementation of the
Company's PowerPath laboratory and billing information system as well as
increased malpractice insurance costs associated with increased rates in 2003.
Included in the 2002 selling general and administrative expenses is a charge of
$1.3 million associated with the discontinuation of the certain non-core
products from BIS. As a percentage of the total net revenues, selling general
and administrative expenses were 36.1% in 2003 as compared to 35.2% in 2002.
18
Depreciation and amortization expense for the three months ended March 31,
2003 and 2002 was $21.9 million and $7.9 million, respectively, representing an
increase of $14.0 million in 2003. This increase was primarily due to a $15.3
million charge to accelerate the write-off of the undepreciated amounts
associated with the Company's former laboratory and billing software. The
Company also incurred depreciation expense for furniture and lab equipment,
leasehold improvements incurred in connection with the Company's New York and
Los Angeles facilities, the build-out of warehouses in New York and Los Angeles,
the acquisition of Tamtron, and expenses related to the amortization of
GeneBank. As a percentage of total net revenues, depreciation and amortization
expense increased to 47.6% in 2003 from 18.0% in 2002. In January 2002, the
Company recorded a $900,000 charge for acquired in process research and
development as a result of the Tamtron acquisition.
(Loss)/income from operations for the three months ended March 31, 2003
and 2002 was ($10.1) million and $3.2 million, respectively, representing a
decrease of $13.3 million in 2003. As a percentage of total net revenues,
(loss)/income from operations decreased to (22.0)% in 2003 from 7.3% in 2002, as
a result of the aforementioned charges.
Other expense, net for the three months ended March 31, 2003 and 2002, was
$1.1 million and $689,000, respectively, representing an increase of $411,000 in
2003. The increase was primarily due to increased interest expense associated
with capital lease obligations and long-term borrowings, as well as a reduction
in the amount of interest bearing securities on hand and lower interest rates on
the Company's investments.
The tax benefit for the three months ended March 31, 2003 of approximately
$4.9 million reflects federal, state and local income taxes. The effective tax
rate for 2003 and 2002 remained consistent at 43.0%.
PCRL Discontinuance
Effective March 14, 2003, IMPATH Inc. (the "Company") began the process of
discontinuing its non-core, regional histology services product offering, and is
transferring certain services to its Los Angeles laboratory. As a result of this
decision, the Company will be closing its Cypress, California facility. This
closure will result in a workforce reduction of approximately 80 employees. The
costs associated with the closure are expected to be approximately $2 million to
$2.5 million consisting primarily of existing leasehold improvements, laboratory
supplies and severance costs. The Company expects to incur these costs during
the second quarter of the year. The Cypress facility is expected to be fully
closed on or about May 13, 2003.
Liquidity and Capital Resources
Since inception, the Company has raised approximately $103.9 million of
capital through the public offerings of its common stock and $6.6 million from
private placements of preferred stock, all of which was converted into common
stock at the closing of the Company's initial public offering in February 1996.
The Company's working capital, capital expenditure and other investment needs
have increased and are expected to continue to increase as the Company expands
its existing facilities and pursues its growth strategy.
Cash and cash equivalents at March 31, 2003 totaled $3.0 million, an
increase of $2.0 million from the prior year. The Company also had approximately
$2.7 million in marketable securities at March 31, 2003, representing a decrease
of $2.1 million from the $4.8 million at December 31, 2002. The net decrease in
cash, cash equivalents and marketable securities was due to cash used in
investing activities, which included $745,000 in capital expenditures, $1.1
million related to the purchase of GeneBank tissue samples, offset by operating
activities which generated cash in 2002. Financing activities included $7
million drawn against the line of credit, as well as $257,000 from the issuance
of common stock upon exercise of the Company's stock options. There was also
$4.6 million of cash used for capital lease payments, and $1.2 million in note
payments.
19
In June 2001, the Company entered into a $50 million Senior Secured Credit
Facility consisting of a five-year commitment for a $25 million revolving credit
line and a $25 million 364-day facility intended for acquisitions. The credit
facility syndicated by Fleet National Bank, which also acts as agent for the
lenders, replaced the Company's previous $15 million unsecured line of credit
that expired on June 28, 2001. In connection with the Tamtron acquisition, on
January 18, 2002, the Company amended its original credit facility and converted
its $25 million 364-day facility to a $28 million term loan. The term loan is to
be repaid over a five-year period, with interest only payable for the first
twelve months. Thereafter, the loan is payable in seventeen payments of
principal plus interest, with principal payments of $4.9 million due quarterly
in each of 2003, 2004, 2005 and 2006 and a final principal payment of $8.4
million due in 2007. Both the revolving credit line and the term loan currently
bear interest at LIBOR plus 2.0%, which was approximately 3.1% at March 31,
2002. On October 18, 2002, the Company amended its Senior Secured Credit
Facility to increase the availability under its revolving credit line from $25
million to $40 million. The amended credit facility continues to be syndicated
by Fleet National Bank, which continues to act as agent for the lenders.
Including the Company's $28 million term loan, the credit facility after giving
effect to the amendment is $68 million. As of March 31, 2003, the Company had
$34.6 million outstanding under the revolving credit line and $28 million drawn
down from the term loan. The Company had fully drawn against the term loan and
had $5.4 million remaining available under the line of credit at March 31, 2003.
The $34.6 million under the revolving credit line is due in full in 2006. In
connection with the amended facility, the Company also amended certain debt
covenants contained in the original facility. As of March 31, 2003, the Company
was complaint with all debt covenants. The covenants are principally related to
current ratios, stockholder equity and debt to earnings before interest, taxes,
depreciation and amortization ("EBITDA") ratios.
The Company's growth strategy in 2003 is anticipated to be financed
through its current cash resources, existing third-party credit facilities, cash
flows from operations or other strategic arrangements. The Company's 2003
planned expenditures include no cash payments for business acquisitions and
decreased investment in capital expenditures and GeneBank purchases compared to
2002, the majority of which are discretionary and are not based on firm
commitments. In terms of financing activities, the Company expects to need
approximately $16 million to fund capital lease obligations and $5 million for
debt service in 2003. Based on the Company's availability under its credit
facility described above and its projected operating results (which include
certain cost containment measures which have already begun to be implemented),
it believes it will have adequate liquid resources at least through March 31,
2004. However, the Company will carefully monitor its liquidity situation
through March 31, 2004 and if required, has the ability and intent, to further
reduce planned discretionary investing activities. If needed, the Company also
has availability of approximately $14.7 million in capital lease financing which
could be used, if necessary, to assist in financing certain capital
expenditures. The Company will require, over the longer term, new funding to
continue its growth strategy and fund the Company's investment needs, including
capital expenditures and other infrastructure costs. There may be circumstances,
in addition, that would expand the Company's use of cash resources,
specifically, acquisitions of businesses or technologies that could require
additional liquidity. Because of the Company's short and long-term capital
requirements, the Company may seek access to public or private debt, equity
markets or other strategic arrangements. The Company may also seek additional
funding through corporate collaborations and other financing vehicles,
potentially including off-balance sheet financing through limited partnerships
or corporations. There can be no assurance that such funding will be available
at all or at terms acceptable to the Company. If funding is not available, the
Company may have to limit its growth and expansion activities. If the Company
obtains funds through arrangements with collaborative partners or others, the
Company may be required to relinquish rights to certain of our technologies or
product candidates. See "Forward-Looking Statements"
Contractual Obligations and Commitments
The Company is obligated to make future payments under various contracts
such as debt agreements and capital and operating lease agreements. There have
been no material changes to contractual cash obligations and other commitments
as reflected in the Management's Discussion and Analysis in the Company's 2002
Annual Report on Form 10-K, as amended. Refer to Note 9 of the consolidated
financial statements in the Company's Annual Report on Form 10-K, as amended for
additional information on long-term debt and leases and Note 16 for information
on commitments and contingencies
20
Critical Accounting Policies and Estimates
The significant accounting policies of the Company are described in Note 2
to the consolidated financial statements and the critical accounting policies
and estimates are described in the Management's Discussion and Analysis included
in the 2002 Annual Report on Form 10-K, as amended. Information concerning the
Company's implementation of new accounting standards issued by the Financial
Accounting Standards Board ("FASB") is included in the notes to the consolidated
financial statements. Otherwise, the Company did not adopt an accounting policy
in the current period that had a material impact on the Company's financial
condition, change in financial condition, liquidity or results of operations.
Management's Discussion and Analysis of the Company's financial condition
and results of operations is based on the consolidated financial statements and
accompanying notes that have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these
financial statements requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Impact of Inflation and Changing Prices.
The impact of inflation and changing prices on the Company has been
primarily limited to salary, laboratory and operating supplies and rent
increases and to date has not been material to the Company's operations. In the
future, the Company's revenue realization per case may not be sufficient to
cover the cost of inflation, although the Company believes that continued growth
in the Company's businesses and advancements in science and technology (and the
resulting impact on the Company's product mix and sales and marketing efforts)
will reduce the potential impact of inflation or changing prices.
21
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
The following discussion about the Company's exposure to market risk of
financial instruments contains forward-looking statements, see "Forward Looking
Statements." Actual results may differ materially from those described.
The Company's holdings of financial instruments are comprised primarily of
U.S. corporate debt, U.S. government debt and commercial paper. All such
instruments are classified as securities available for sale. The Company does
not invest in portfolio equity securities or commodities or use financial
derivatives for trading purposes. The Company's debt security portfolio
represents funds held temporarily pending use in its business and operations.
The Company manages these funds accordingly. The Company seeks reasonable
assuredness of the safety of principal and market liquidity by investing in
rated fixed income securities while at the same time seeking to achieve a
favorable rate of return. The Company's market risk exposure consists
principally of exposure to changes in interest rates. The Company's holdings are
also exposed to the risks of changes in the credit quality of issuers. The
Company typically invests in the shorter-end of the maturity spectrum, and at
March 31, 2003, approximately 64% of its holdings were in instruments maturing
in two years or less.
In the normal course of business, the Company is exposed to fluctuations
in interest rates on the Company's debt and credit facilities. The Company has
cash and cash equivalents at March 31, 2003, which are exposed to the impact of
interest rate changes and its interest income fluctuates as the interest rates
change. In general, the Company does not use derivative instruments or hedging
to manage its exposures and does not currently hold any material market risk
sensitive instruments for trading purposes at March 31, 2003.
At March 31, 2003 and December 31, 2002, the fair value of the Company's
Senior Secured Credit Facility was estimated at $61.4 million and $55.6 million,
respectively. Fair value included herein has been estimated taking into
consideration the nature and term of the debt instrument and the prevailing
economic and market conditions at the balance sheet date. The variable interest
rate disclosed represents the rate at March 31, 2003. Changes in the rate in
future years will have a positive or negative effect on interest expense. At
March 31, 2003 and December 31, 2002, the Company believes the estimated fair
value was equal to the carrying value of the debt at $61.4 million and $55.6
million, respectively. Each 1% fluctuation in the interest rate will increase or
decrease the Company's interest expense on the Company's Senior Secured Credit
Facility by approximately $614,000 based on the debt outstanding at March 31,
2003. Further information on the Company's debt is presented in Note 6 to the
Consolidated Financial Statements.
ITEM 4. Controls and Procedures.
a) Based on their evaluation as of a date within 90 days of the filing date
of this Quarterly Report on Form 10-Q, the Company's Chief Executive
Officer and Chief Financial Officer have concluded that the Company's
disclosure controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act) are effective to ensure that
information required to be disclosed by the Company in reports that it
files or submits under the Securities Exchange Act are recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms.
b) There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
22
PART II. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
99.1 Statement under Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
A current report on Form 8-K dated May 1, 2003 was filed on May 1, 2003 by
the registrant in connection with the adjustment of certain quarterly case
volume amounts, and the press release issued on April 28, 2003.
A current report on Form 8-K dated April 21, 2003 was filed on April 21,
2003 by the registrant in connection with the pre-announcement of the
results of operations for the first quarter of 2003.
A current report on Form 8-K dated March 31, 2003 was filed on March 31,
2003 by the registrant in connection with a workforce reduction.
A current report on Form 8-K dated March 31, 2003 was filed on March 31,
2003 by the registrant in connection with the reclassification of revenue
associated with non-contracted payors.
A current report on Form 8-K dated March 14, 2003 was filed on March 14,
2003 by the registrant in connection with the closure of the registrant's
Cypress facility.
A current report on Form 8-K dated February 11, 2003 was filed on February
12, 2003 by the registrant in connection with the naming of Carter H.
Eckert as Chairman and Chief Executive Officer, replacing Anu D. Saad.
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 12, 2003 By /s/ CARTER H. ECKERT
------------------------------------
Carter H. Eckert
Chairman and Chief Executive Officer
Dated: May 12, 2003 By /s/ JAMES V. AGNELLO
------------------------------------
James V. Agnello
Chief Financial Officer and Senior
Vice President
24
SECTION 302 CERTIFICATIONS
I, Carter H. Eckert, certify that:
1. I have reviewed this quarterly report on Form 10-Q of IMPATH Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;.
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: May 12, 2003
By /s/ CARTER H. ECKERT
- ------------------------------------
Carter H. Eckert
Chairman and Chief Executive Officer
25
I, James V. Agnello, certify that:
1. I have reviewed this quarterly report on Form 10-Q of IMPATH Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;.
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 12, 2003
By /s/ JAMES V. AGNELLO
- -------------------------------------------------
James V. Agnello
Chief Financial Officer and Senior Vice President
26