Attached files
file | filename |
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EX-31.2 - EX-31.2 - MEDCATH CORP | g23331exv31w2.htm |
EX-10.1 - EX-10.1 - MEDCATH CORP | g23331exv10w1.htm |
EX-31.1 - EX-31.1 - MEDCATH CORP | g23331exv31w1.htm |
EX-32.1 - EX-32.1 - MEDCATH CORP | g23331exv32w1.htm |
EX-32.2 - EX-32.2 - MEDCATH CORP | g23331exv32w2.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended March 31, 2010
Or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 000-33009
MEDCATH CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 56-2248952 | |
(State or other jurisdiction of | (IRS Employer Identification No.) | |
incorporation or organization) |
10720 Sikes Place, Suite 300
Charlotte, North Carolina 28277
(Address of principal executive offices, including zip code)
Charlotte, North Carolina 28277
(Address of principal executive offices, including zip code)
(704) 815-7700
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
As of May 6, 2010, there were 20,522,678 shares of $0.01 par value common stock outstanding.
MEDCATH CORPORATION
FORM 10-Q
TABLE OF CONTENTS
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Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
MEDCATH CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
March 31, | September 30, | |||||||
2010 | 2009 | |||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 26,113 | $ | 31,883 | ||||
Accounts receivable, net (See Note 4) |
64,375 | 58,913 | ||||||
Income tax receivable |
699 | | ||||||
Medical supplies |
15,779 | 15,459 | ||||||
Deferred income tax assets |
11,783 | 12,161 | ||||||
Prepaid expenses and other current assets |
15,016 | 13,471 | ||||||
Current assets of discontinued operations |
25,071 | 44,978 | ||||||
Total current assets |
158,836 | 176,865 | ||||||
Property and equipment, net (See Note 13) |
320,366 | 341,394 | ||||||
Investments in affiliates |
9,773 | 14,055 | ||||||
Other assets |
7,449 | 10,785 | ||||||
Non-current assets of discontinued operations |
46,762 | 47,349 | ||||||
Total assets |
$ | 543,186 | $ | 590,448 | ||||
Current liabilities: |
||||||||
Accounts payable |
$ | 36,221 | $ | 35,920 | ||||
Income tax payable |
| 297 | ||||||
Accrued compensation and benefits |
18,505 | 16,118 | ||||||
Other accrued liabilities |
17,253 | 23,277 | ||||||
Current portion of long-term debt and obligations
under capital leases |
18,081 | 21,187 | ||||||
Current liabilities of discontinued operations |
17,498 | 19,832 | ||||||
Total current liabilities |
107,558 | 116,631 | ||||||
Long-term debt |
60,000 | 66,563 | ||||||
Obligations under capital leases |
8,527 | 4,596 | ||||||
Deferred income tax liabilities |
6,239 | 13,874 | ||||||
Other long-term obligations |
5,660 | 8,533 | ||||||
Long-term liabilities of discontinued operations |
36,020 | 35,721 | ||||||
Total liabilities |
224,004 | 245,918 | ||||||
Commitments and contingencies (See Note 7) |
||||||||
Redeemable noncontrolling interest (See Note 1) |
5,162 | 7,448 | ||||||
Stockholders equity: |
||||||||
Preferred
stock, $0.01 par value, 10,000,000 shares authorized; none issued |
| | ||||||
Common stock, $0.01 par value, 50,000,000 shares authorized; 22,477,039 issued and 20,522,678 outstanding at March 31, 2010 22,104,917 issued and 20,150,556 outstanding at September 30, 2009 |
216 | 216 | ||||||
Paid-in capital |
456,523 | 455,259 | ||||||
Accumulated deficit |
(105,286 | ) | (91,420 | ) | ||||
Accumulated other comprehensive loss |
(328 | ) | (360 | ) | ||||
Treasury stock, at cost; 1,954,361 shares at March 31, 2010 1,954,361 shares at September 30, 2009 |
(44,797 | ) | (44,797 | ) | ||||
Total MedCath Corporation stockholders equity |
306,328 | 318,898 | ||||||
Noncontrolling interest |
7,692 | 18,184 | ||||||
Total equity |
314,020 | 337,082 | ||||||
Total liabilities and equity |
$ | 543,186 | $ | 590,448 | ||||
See notes to unaudited consolidated financial statements.
1
Table of Contents
MEDCATH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net revenue |
$ | 134,909 | $ | 130,767 | $ | 258,967 | $ | 256,822 | ||||||||
Operating expenses: |
||||||||||||||||
Personnel expense |
46,444 | 44,662 | 91,508 | 88,029 | ||||||||||||
Medical supplies expense |
36,849 | 35,120 | 71,747 | 69,357 | ||||||||||||
Bad debt expense |
11,918 | 8,798 | 22,599 | 18,392 | ||||||||||||
Other operating expenses |
29,743 | 27,342 | 59,355 | 54,502 | ||||||||||||
Pre-opening expenses |
| 380 | 866 | 587 | ||||||||||||
Depreciation |
7,768 | 6,217 | 15,418 | 12,713 | ||||||||||||
Amortization |
8 | 8 | 16 | 16 | ||||||||||||
Impairment of property and equipment |
19,948 | | 19,948 | | ||||||||||||
(Gain) loss on disposal of property, equipment
and other assets |
(76 | ) | 108 | 19 | 181 | |||||||||||
Total operating expenses |
152,602 | 122,635 | 281,476 | 243,777 | ||||||||||||
(Loss) Income from operations |
(17,693 | ) | 8,132 | (22,509 | ) | 13,045 | ||||||||||
Other income (expenses): |
||||||||||||||||
Interest expense |
(1,149 | ) | (581 | ) | (2,207 | ) | (2,678 | ) | ||||||||
Loss on early extinguishment of debt |
| 259 | | (6,702 | ) | |||||||||||
Interest and other income |
23 | 73 | 93 | 172 | ||||||||||||
Loss on note receiveable |
(1,507 | ) | | (1,507 | ) | | ||||||||||
Equity in net earnings of unconsolidated affiliates |
3,092 | 2,714 | 4,608 | 4,779 | ||||||||||||
Total other income (expense), net |
459 | 2,465 | 987 | (4,429 | ) | |||||||||||
(Loss) income from continuing operations before income taxes |
(17,234 | ) | 10,597 | (21,522 | ) | 8,616 | ||||||||||
Income tax (benefit) expense |
(7,386 | ) | 2,610 | (9,287 | ) | 1,115 | ||||||||||
(Loss) income from continuing operations |
(9,848 | ) | 7,987 | (12,235 | ) | 7,501 | ||||||||||
Income from discontinued operations, net of taxes |
1,163 | 2,060 | 1,733 | 7,915 | ||||||||||||
Net (loss) income |
(8,685 | ) | 10,047 | (10,502 | ) | 15,416 | ||||||||||
Less: Net income attributable to noncontrolling interest |
(2,524 | ) | (4,465 | ) | (3,364 | ) | (7,588 | ) | ||||||||
Net (loss) income attributable to MedCath Corporation |
$ | (11,209 | ) | $ | 5,582 | $ | (13,866 | ) | $ | 7,828 | ||||||
Amounts attributable to MedCath Corporation common stockholders: |
||||||||||||||||
(Loss) income from continuing operations, net of taxes |
$ | (11,999 | ) | $ | 4,220 | $ | (15,091 | ) | $ | 1,685 | ||||||
Income from discontinued operations, net of taxes |
790 | 1,362 | 1,225 | 6,143 | ||||||||||||
Net (loss) income |
$ | (11,209 | ) | $ | 5,582 | $ | (13,866 | ) | $ | 7,828 | ||||||
(Loss) earnings per share, basic |
||||||||||||||||
(Loss) income from continuing operations attributable to MedCath |
||||||||||||||||
Corporation common stockholders |
$ | (0.61 | ) | $ | 0.21 | $ | (0.76 | ) | $ | 0.09 | ||||||
Income from discontinued operations attributable to MedCath |
||||||||||||||||
Corporation common stockholders |
0.04 | 0.07 | 0.06 | 0.31 | ||||||||||||
(Loss) earnings per share, basic |
$ | (0.57 | ) | $ | 0.28 | $ | (0.70 | ) | $ | 0.40 | ||||||
(Loss) earnings per share, diluted |
||||||||||||||||
(Loss) income from continuing operations attributable to MedCath |
||||||||||||||||
Corporation common stockholders |
$ | (0.61 | ) | $ | 0.21 | $ | (0.76 | ) | $ | 0.09 | ||||||
Income from discontinued operations attributable to MedCath |
||||||||||||||||
Corporation common stockholders |
0.04 | 0.07 | 0.06 | 0.31 | ||||||||||||
(Loss) earnings per share, diluted |
$ | (0.57 | ) | $ | 0.28 | $ | (0.70 | ) | $ | 0.40 | ||||||
Weighted average number of shares, basic |
19,829 | 19,664 | 19,786 | 19,631 | ||||||||||||
Dilutive effect of stock options and restricted stock |
| 26 | | | ||||||||||||
Weighted average number of shares, diluted |
19,829 | 19,690 | 19,786 | 19,631 | ||||||||||||
See notes to unaudited consolidated financial statements.
2
Table of Contents
MEDCATH CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(In thousands)
(Unaudited)
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(In thousands)
(Unaudited)
Redeemable | ||||||||||||||||||||||||||||||||||||||||
Accumulated | Noncontrolling | |||||||||||||||||||||||||||||||||||||||
Other | Total | Interest | ||||||||||||||||||||||||||||||||||||||
Common Stock | Paid-in | Accumulated | Comprehensive | Treasury Stock | Noncontrolling | Equity | (Temporary | |||||||||||||||||||||||||||||||||
Shares | Par Value | Capital | Deficit | Loss | Shares | Amount | Interest | (Permanent) | Equity) | |||||||||||||||||||||||||||||||
Balance, September 30, 2009 |
22,105 | $ | 216 | $ | 455,259 | $ | (91,420 | ) | $ | (360 | ) | 1,954 | $ | (44,797 | ) | $ | 18,184 | $ | 337,082 | $ | 7,448 | |||||||||||||||||||
Stock awards, including cancelations and
income tax benefit |
399 | | 1,404 | | | | | | 1,404 | | ||||||||||||||||||||||||||||||
Tax withholdings for vested restricted
stock awards |
(27 | ) | | (253 | ) | | | | | | (253 | ) | | |||||||||||||||||||||||||||
Distributions to noncontrolling interest |
| | | | | | | (12,641 | ) | (12,641 | ) | (3,560 | ) | |||||||||||||||||||||||||||
Acquisitions and other transactions
impacting noncontrolling interest |
| | | | | | | 40 | 40 | (8 | ) | |||||||||||||||||||||||||||||
Sale of equity interest |
| | 113 | | | | | 27 | 140 | | ||||||||||||||||||||||||||||||
Comprehensive loss: |
||||||||||||||||||||||||||||||||||||||||
Net loss |
| | | (13,866 | ) | | | | 2,082 | (11,784 | ) | 1,282 | ||||||||||||||||||||||||||||
Change in fair value of interest rate
swap, net of income tax benefit (*) |
| | | | 32 | | | | 32 | | ||||||||||||||||||||||||||||||
Total comprehensive loss |
(11,752 | ) | 1,282 | |||||||||||||||||||||||||||||||||||||
Balance, March 31, 2010 |
22,477 | $ | 216 | $ | 456,523 | $ | (105,286 | ) | $ | (328 | ) | 1,954 | $ | (44,797 | ) | $ | 7,692 | $ | 314,020 | $ | 5,162 | |||||||||||||||||||
(*) | Tax benefits were $22 for the six months ended March 31, 2010. |
See notes to unaudited consolidated financial statements.
3
Table of Contents
MEDCATH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended March 31, | ||||||||
2010 | 2009 | |||||||
Net (loss) income |
$ | (10,502 | ) | $ | 15,416 | |||
Adjustments to reconcile net income to net cash
provided by operating activities: |
||||||||
Income from discontinued operations, net of taxes |
(1,733 | ) | (7,915 | ) | ||||
Bad debt expense |
22,599 | 18,392 | ||||||
Depreciation |
15,418 | 12,713 | ||||||
Amortization |
16 | 16 | ||||||
Loss on disposal of property, equipment and other assets |
19 | 181 | ||||||
Share-based compensation expense |
1,826 | 1,837 | ||||||
Loss on early extinguishment of debt |
| 6,702 | ||||||
Amortization of loan acquisition costs |
498 | 525 | ||||||
Impairment of property and equipment |
19,948 | | ||||||
Impairment of equity method investment |
114 | | ||||||
Equity in earnings of unconsolidated affiliates, net of distributions received |
3,785 | 2,176 | ||||||
Deferred income taxes |
(7,701 | ) | (1 | ) | ||||
Change in assets and liabilities that relate to operations: |
||||||||
Accounts receivable |
(28,061 | ) | (23,528 | ) | ||||
Medical supplies |
(320 | ) | (1,970 | ) | ||||
Prepaid and other assets |
(1,902 | ) | 1,720 | |||||
Accounts payable and accrued liabilities |
1,125 | 5,545 | ||||||
Net cash provided by operating activities of continuing operations |
15,129 | 31,809 | ||||||
Net cash provided by operating activities of discontinued operations |
3,779 | 2,986 | ||||||
Net cash provided by operating activities |
18,908 | 34,795 | ||||||
Investing activities: |
||||||||
Purchases of property and equipment |
(14,858 | ) | (50,052 | ) | ||||
Proceeds from sale of property and equipment |
93 | 511 | ||||||
Sale of interest in equity method investment |
436 | | ||||||
Net cash used in investing activities of continuing operations |
(14,329 | ) | (49,541 | ) | ||||
Net cash (used in) provided by investing activities of discontinued operations |
(1,015 | ) | 3,123 | |||||
Net cash used in investing activities |
(15,344 | ) | (46,418 | ) | ||||
Financing activities: |
||||||||
Proceeds from issuance of long-term debt |
| 83,242 | ||||||
Repayments of long-term debt |
(9,429 | ) | (114,710 | ) | ||||
Repayments of obligations under capital leases |
(953 | ) | (442 | ) | ||||
Distributions to noncontrolling interest |
(7,970 | ) | (9,685 | ) | ||||
Investment by noncontrolling interest |
109 | | ||||||
Sale of equity interest in subsidiary |
140 | | ||||||
Tax withholding of vested restricted stock awards |
(253 | ) | | |||||
Net cash used in financing activities of continuing operations |
(18,356 | ) | (41,595 | ) | ||||
Net cash used in financing activities of discontinued operations |
(9,025 | ) | (3,436 | ) | ||||
Net cash used in financing activities |
(27,381 | ) | (45,031 | ) | ||||
Net decrease in cash and cash equivalents |
(23,817 | ) | (56,654 | ) | ||||
Cash and cash equivalents: |
||||||||
Beginning of period |
61,701 | 112,068 | ||||||
End of period |
$ | 37,884 | $ | 55,414 | ||||
Cash and cash equivalents of continuing operations |
$ | 26,113 | $ | 42,772 | ||||
Cash and
cash equivalents of discontinued operations |
$ | 11,771 | $ | 12,642 |
See notes to unaudited consolidated financial statements
4
Table of Contents
MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
1. Business and Basis of Presentation
MedCath Corporation (the Company) primarily focuses on providing high acuity services,
predominantly the diagnosis and treatment of cardiovascular disease. The Company owns and operates
hospitals in partnership with physicians, most of whom are cardiologists and cardiovascular
surgeons. While each of the Companys majority-owned hospitals (collectively, the Hospital
Division) is licensed as a general acute care hospital, the Company focuses on serving the unique
needs of patients suffering from cardiovascular disease. As of March 31, 2010, the Company and its
physician partners have an ownership interest in and currently operate ten hospitals in seven
states, with a total of 825 licensed beds, 58 of the licensed beds are related to the Heart
Hospital of Austin (HHA), whose assets, liabilities, and operations are included within
discontinued operations. See Note 3 for further discussion related to the divestiture of HHA.
In addition to its hospitals, the Company provides cardiovascular care services in diagnostic
and therapeutic facilities in various locations and through mobile cardiac catheterization
laboratories and also provides management services to non owned facilities (the MedCath Partners
Division). The Company also provides consulting and management services tailored primarily to
cardiologists and cardiovascular surgeons, which is included in corporate and other.
The Company accounts for all but two of its owned and operated hospitals as consolidated
subsidiaries. The Company owns a noncontrolling interest in the Avera Heart Hospital of South
Dakota and Harlingen Medical Center as of March 31, 2010. Therefore, the Company is unable to
consolidate these hospitals results of operations and financial position, but rather is required
to account for its noncontrolling interests in these hospitals as equity method investments.
On March 1, 2010 the Company announced that its Board of Directors formed a Strategic Options
Committee composed solely of independent directors to consider the sale of the Company, the sale of
its individual hospitals and other assets, or the sale of its interest in those assets.
Basis of Presentation Effective October 1, 2009, the Company adopted a new accounting
standard which establishes accounting and reporting standards pertaining to ownership interests in
subsidiaries held by parties other than the parent, the amount of net income attributable to the
parent and to the noncontrolling interests, changes in a parents ownership interest and the
valuation of any retained noncontrolling equity investment when a subsidiary is deconsolidated.
This new accounting standard also establishes disclosure requirements that clearly identify and
distinguish between the interests of the parent and the interests of the noncontrolling owners.
This new accounting standard generally requires the Company to clearly identify and present
ownership interests in subsidiaries held by parties other than the Company in the consolidated
financial statements within the equity section but separate from the Companys equity. However, in
instances in which certain redemption features that are not solely within the control of the issuer
are present, classification of noncontrolling interests outside of permanent equity is required. It
also requires the amounts of consolidated net income attributable to the Company and to the
noncontrolling interests to be clearly identified and presented on the face of the consolidated
statements of operations; changes in ownership interests to be accounted for as equity
transactions; and when a subsidiary is deconsolidated, any retained noncontrolling equity
investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary
to be measured at fair value. The implementation of this accounting standard results in the cash
flow impact of certain transactions with noncontrolling interests being classified within financing
activities. Such treatment is consistent with the view that under this new accounting standard,
transactions between the Company and noncontrolling interests are considered to be equity
transactions. The adoption of this new accounting standard has been applied retrospectively for all
periods presented.
Upon the occurrence of certain fundamental regulatory changes, the Company could be obligated,
under the terms of certain of its investees operating agreements, to purchase some or all of the
noncontrolling interests related to certain of the Companys subsidiaries. While the Company
believes that the likelihood of a change in current law that would trigger such purchases was
remote as of March 31, 2010, the occurrence of such regulatory changes is outside the control of
the Company. As a result, these noncontrolling interests that are subject to this redemption
feature are not included as part of the Companys equity and are carried as redeemable
noncontrolling interests in equity of consolidated subsidiaries on the Companys consolidated
balance sheets.
Profits and losses are allocated to the noncontrolling interest in the Companys subsidiaries
in proportion to their ownership percentages and reflected in the aggregate as net income
attributable to noncontrolling interests. The physician partners of the Companys subsidiaries
typically are organized as general partnerships, limited partnerships or limited liability
companies that are not subject to federal income tax. Each physician partner shares in the pre-tax
earnings of the subsidiary in which it is a partner. Accordingly, the income or loss attributable
to noncontrolling interests in each of the Companys subsidiaries are generally determined on a
pre-tax basis. In accordance with this new accounting standard, total net income attributable to
noncontrolling interests are presented after net (loss) income.
5
Table of Contents
MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
The Companys unaudited interim consolidated financial statements as of March 31, 2010 and for
the three and six months ended March 31, 2010 and 2009 have been prepared in accordance with
accounting principles generally accepted in the United States of America hereafter, (generally
accepted accounting principles) and pursuant to the rules and regulations of the Securities and
Exchange Commission (the SEC). These unaudited interim consolidated financial statements reflect,
in the opinion of management, all material adjustments necessary to fairly state the results of
operations and financial position for the periods presented. All intercompany transactions and
balances have been eliminated.
Certain information and disclosures normally included in the notes to consolidated financial
statements have been condensed or omitted as permitted by the rules and regulations of the SEC,
although the Company believes the disclosures are adequate to make the information presented not
misleading. The unaudited interim consolidated financial statements and notes thereto should be
read in conjunction with the Companys audited consolidated financial statements and notes thereto
included in the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2009.
During the six months ended March 31, 2010, the Company has not made any material changes in the
selection or application of its critical accounting policies that were set forth in its Annual
Report on Form 10-K for the fiscal year ended September 30, 2009.
The Company has evaluated the provisions of the Health Care and Education Reconciliation Act
of 2010 (collectively the Health Reform Laws) which was enacted into law during March 2010. The
Company is unable to predict at this time the full impact of the Health Reform Laws on the Company
and its consolidated financial statements.
Long-Lived Assets Long-lived assets, such as property, and equipment, and purchased
intangible assets subject to amortization, are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable. If
circumstances require a long-lived asset be tested for possible impairment, the Company first
compares undiscounted cash flows expected to be generated by an asset to the carrying value of the
asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash
flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value.
Fair value is determined through various valuation techniques including, but not limited to,
discounted cash flow models, quoted market values and third-party independent appraisals. The
determination of whether or not long-lived assets have become impaired involves a significant level
of judgment in the assumptions underlying the approach used to determine the estimated future cash
flows expected to result from the use of those assets. Changes in the Companys strategy,
assumptions and/or market conditions could significantly impact these judgments and require
adjustments to recorded amounts of long-lived assets.
Due to a decline in operating performance at certain hospitals during fiscal 2009, the Company
performed impairment tests as of September 30, 2009. The results of those tests indicated that no
impairment existed as of that date. Due to continued declines in the operating performance of those
hospitals during the first six months of fiscal 2010, the Company performed impairment tests using
undiscounted cash flows to determine if the carrying value of each hospitals long-lived assets
were recoverable as of March 31, 2010. The results indicated the current carrying value of the
assets at those hospitals were not recoverable. The Company compared the fair value of those
assets to their respective carrying values in order to determine the amount of impairment. The
Company recognized impairment charges based on the amount each group of assets carrying value
exceeded its fair value. The Companys fair value estimates were derived from appraisals,
established market values of comparable assets and internal estimates of future net cash flows.
These fair value estimates could change by material amounts in subsequent periods. Many factors and
assumptions can impact the estimates, including the future financial results of these hospitals,
how the hospitals are operated in the future, changes in health care industry trends and
regulations, and the nature and timing of the ultimate disposition of the assets. The impairments
recognized do not include the costs of closing the hospitals or other future operating costs, which
could be substantial. Accordingly, the ultimate net cash realized from the hospitals could be
significantly less than their impaired value. See Note 13 for the impairment charges recorded to
property and equipment and Note 15 for further discussions as to the Companys determination of
fair value.
6
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MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
2. Recent Accounting Pronouncements
The following is a summary of new accounting pronouncements that have been adopted or that may
apply to the Company.
Recently Adopted Accounting Pronouncements:
In December 2007, the Financial Accounting Standards Board (FASB) issued a new accounting
standard that addresses the recognition and accounting for identifiable assets acquired,
liabilities assumed, and noncontrolling interests in business combinations. This standard will
require more assets and liabilities to be recorded at fair value and will require expense
recognition (rather than capitalization) of certain pre-acquisition costs. This standard also will
require any adjustments to acquired deferred tax assets and liabilities occurring after the related
allocation period to be made through earnings. Furthermore, this standard requires this treatment
of acquired deferred tax assets and liabilities also be applied to acquisitions occurring prior to
the effective date of this standard. The Company adopted this new standard on October 1, 2009 and
we expect this statement will have an impact on our consolidated financial statements for
acquisitions consummated after October 1, 2009, but the nature and magnitude of the specific
effects will depend upon the terms and size of the acquisitions consummated.
In December 2007, the FASB issued a new accounting standard that establishes accounting and
reporting standards pertaining to ownership interests in subsidiaries held by parties other than
the parent, the amount of net income attributable to the parent and to the noncontrolling
interests, changes in a parents ownership interest, and the valuation of any retained
noncontrolling equity investment when a subsidiary is deconsolidated. This new accounting standard
also establishes disclosure requirements that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. The Company adopted this
new standard on October 1, 2009. Upon adoption, a portion of noncontrolling interests was
reclassified to a separate component of total equity within our consolidated balance sheets. See
Note 1 Business and Basis of Presentation above for a more detailed discussion regarding the
adoption of this new standard.
In April 2008, the FASB issued a new accounting standard which amends the list of factors an
entity should consider in developing renewal or extension assumptions used in determining the
useful life of recognized intangible assets. The new accounting standard applies to intangible
assets that are acquired individually or with a group of other assets and intangible assets
acquired in both business combinations and asset acquisitions. The Company adopted this new
standard on October 1, 2009 with no impact to its consolidated financial statements.
Effective the first quarter of fiscal 2009, the Company adopted a new accounting standard
issued by the FASB that defines fair value, establishes a framework for measuring fair value and
enhances disclosures about fair value measures required under other accounting pronouncements, but
does not change existing guidance as to whether or not an instrument is carried at fair value. In
February 2008, the FASB delayed the effective date of this new standard for all nonfinancial assets
and liabilities, except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The Company elected to defer implementation of
this standard until October 1, 2009 as it relates to the Companys non-financial assets and
non-financial liabilities that are not permitted or required to be measured at fair value on a
recurring basis. The Company adopted this standard on October 1, 2009 with no impact to its
consolidated financial statements. See Note 14.
Recent Accounting Pronouncements:
In June 2009, the FASB issued a new accounting standard that amends the consolidation guidance
that applies to variable interest entities (VIE). The amendments will significantly affect the
overall consolidation analysis. The provisions of this new accounting standard revise the
definition and consideration of VIEs, primary beneficiary, and triggering events in which a company
must re-evaluate its conclusions as to the consolidation of an entity. This new accounting standard
is effective as of the beginning of the first fiscal year after November 15, 2009, fiscal 2011 for
the Company. The Company is evaluating the potential impacts the adoption of this new standard will
have on its consolidated financial statements.
3. Divestitures
During February 2010, the Company entered into an agreement to sell certain assets and
liabilities of HHA for approximately $83.6 million. The sale is currently expected to close during
the Companys fourth quarter ending September 30, 2010. The Company has classified the results of
operations of HHA within income from discontinued operations, net of taxes for the three and six
months ended March 31, 2010 and 2009. The assets and liabilities of HHA have been classified
within the current and non-current assets and current and long-term liabilities of discontinued
operations on the consolidated balance sheets as of March 31, 2010 and September 30, 2009.
During September 2009, the MedCath Partners Division of the Company sold the assets of Sun
City Cardiac Center Associates (Sun City) for $16.9 million which resulted in a gain of $3.2
million, net of taxes. The Company has classified the results of operations of Sun City within
income from discontinued operations, net of taxes for the three and six months ended March 31, 2010
and 2009.
7
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MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
During December 2008, the MedCath Partners Division of the Company sold its entire interest in
Cape Cod Cardiology Services, LLC (Cape Cod) for $6.9 million, which resulted in a gain of $4.0
million, net of taxes. The Company has classified the results of operations of Cape Cod within
income from discontinued operations, net of taxes for the three and six months ended March 31,
2009.
During May 2008, the Hospital Division of the Company sold the net assets of Dayton Heart
Hospital (DHH). The Company has classified the results of operations related to the remaining
assets and liabilities associated with DHH within income from discontinued operations, net of taxes
for the three and six months ended March 31, 2010 and 2009.
The results of operations and the assets and liabilities of discontinued operations included
in the consolidated statements of operations and consolidated balance sheets are as follows:
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net revenue |
$ | 24,911 | $ | 28,273 | $ | 48,070 | $ | 57,837 | ||||||||
Gain from sale of Cape Cod |
| | | 6,640 | ||||||||||||
Income before income taxes |
1,655 | 2,927 | 2,498 | 11,889 | ||||||||||||
Income tax expense |
492 | 867 | 765 | 3,974 | ||||||||||||
Net income before income taxes |
1,163 | 2,060 | 1,733 | 7,915 | ||||||||||||
Less: Net income attributable to
noncontrolling interest |
(373 | ) | (698 | ) | (508 | ) | (1,772 | ) | ||||||||
Net income attributable to MedCath Corporation |
$ | 790 | $ | 1,362 | $ | 1,225 | $ | 6,143 | ||||||||
March 31, | September 30, | |||||||
2010 | 2009 | |||||||
Cash and cash equivalents |
$ | 11,771 | $ | 29,818 | ||||
Accounts receivable, net |
9,758 | 11,821 | ||||||
Other current assets |
3,542 | 3,339 | ||||||
Current assets of discontinued operations |
$ | 25,071 | $ | 44,978 | ||||
Property and equipment, net |
$ | 43,555 | $ | 44,532 | ||||
Other assets |
3,207 | 2,817 | ||||||
Long-term assets of discontinued operations |
$ | 46,762 | $ | 47,349 | ||||
Accounts payable |
$ | 13,392 | $ | 14,956 | ||||
Accrued liabilities |
3,907 | 4,820 | ||||||
Current portion of long-term debt
and obligations under capital leases |
199 | 56 | ||||||
Current liabilities of discontinued operations |
$ | 17,498 | $ | 19,832 | ||||
Long-term debt |
$ | 35,165 | $ | 35,359 | ||||
Other long-term obligations |
855 | 362 | ||||||
Long-term liabilities of discontinued operations |
$ | 36,020 | $ | 35,721 | ||||
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MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
4. Accounts Receivable
Accounts receivable, net, consists of the following:
March 31, | September 30, | |||||||
2010 | 2009 | |||||||
Receivables, principally from patients and third-party payors |
$ | 136,588 | $ | 126,577 | ||||
Receivables, principally from billings to hospitals for various
cardiovascular procedures |
1,711 | 1,494 | ||||||
Amounts due under management contracts |
193 | 228 | ||||||
Other |
3,949 | 5,503 | ||||||
142,441 | 133,802 | |||||||
Less allowance for doubtful accounts |
(78,066 | ) | (74,889 | ) | ||||
Accounts receivable, net |
$ | 64,375 | $ | 58,913 | ||||
5. Equity Investments
The Company owns noncontrolling interests in the Avera Heart Hospital of South Dakota,
Harlingen Medical Center, and certain diagnostic ventures and partnerships, for which the Company
neither has substantive control over the ventures nor is the primary beneficiary. Therefore, the
Company does not consolidate the results of operations and financial position of these entities,
but rather accounts for its noncontrolling ownership interest in the hospitals and other ventures
as equity method investments.
During February 2010, MedCath Partners Division of the Company sold its entire 15.0% interest
in Wilmington Heart Services, LLC for $0.4 million, resulting in an immaterial loss.
The Companys MedCath Partners Division currently expects to sell its entire 33.3% interest in
Tri-County Heart New Jersey, LLC (Tri- County) for approximately $0.4 million during the
Companys third quarter ending June 30, 2010. The approximate sales price for its interest in
Tri-County is $0.1 million less than the Companys carrying value of its investment in Tri-County
as of March 31, 2010. As a result of this anticipated sale, the Company recorded a $0.1 million
impairment charge to equity in net earnings of unconsolidated affiliates in the consolidated
statement of operations related to its investment in Tri-County during the second quarter ended
March 31, 2010.
The following tables represent summarized combined financial information of the Companys
unconsolidated affiliates accounted for under the equity method:
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net revenue |
$ | 59,390 | $ | 56,489 | $ | 115,173 | $ | 115,209 | ||||||||
Income from operations |
$ | 15,116 | $ | 11,806 | $ | 23,666 | $ | 25,048 | ||||||||
Net income |
$ | 12,885 | $ | 9,486 | $ | 18,979 | $ | 20,577 |
March 31, | September 30, | |||||||
2010 | 2009 | |||||||
Current assets |
$ | 54,508 | $ | 68,174 | ||||
Long-term assets |
$ | 147,333 | $ | 148,993 | ||||
Current liabilities |
$ | 23,867 | $ | 25,770 | ||||
Long-term liabilities |
$ | 122,652 | $ | 122,629 |
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MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
6. Long-Term Debt
Long-term debt consists of the following:
March 31, | September 30, | |||||||
2010 | 2009 | |||||||
Credit Facility |
$ | 72,188 | $ | 80,000 | ||||
Notes payable to various lenders |
4,437 | 6,054 | ||||||
76,625 | 86,054 | |||||||
Less current portion |
(16,625 | ) | (19,491 | ) | ||||
Long-term debt |
$ | 60,000 | $ | 66,563 | ||||
During November 2008, the Company amended and restated its senior secured credit
facility (the Credit Facility). The Credit Facility provides for a three-year term loan facility
in the amount of $75.0 million (the Term Loan) and a revolving credit facility in the amount of
$85.0 million (the Revolver), which includes a $25.0 million sub-limit for the issuance of
stand-by and commercial letters of credit and a $10.0 million sub-limit for swing-line loans. At
the request of the Company and approval from its lenders, the aggregate amount available under the
Credit Facility may be increased by an amount up to $50.0 million. Borrowings under the Credit
Facility, excluding swing-line loans, bear interest per annum at a rate equal to the sum of LIBOR
plus an applicable margin or the alternate base rate plus an applicable margin. At March 31, 2010
the Term Loan bore interest at 3.23%.
The Credit Facility is guaranteed jointly and severally by the Company and certain of the
Companys existing and future, direct and indirect, wholly owned subsidiaries and is secured by a
first priority perfected security interest in all of the capital stock or other ownership interests
owned by the Company and subsidiary guarantors in each of their subsidiaries, and, subject to
certain exceptions in the Credit Facility, all other present and future assets and properties of
the Company and the subsidiary guarantors and all intercompany notes.
The Credit Facility requires compliance with certain financial covenants including a
consolidated senior secured leverage ratio test, a consolidated fixed charge coverage ratio test
and a consolidated total leverage ratio test. The Credit Facility also contains customary
restrictions on, among other things, the Company and subsidiaries ability to incur liens; engage
in mergers, consolidations and sales of assets; incur debt; declare dividends; redeem stock and
repurchase, redeem and/or repay other debt; make loans, advances and investments and acquisitions;
and enter into transactions with affiliates.
The Credit Facility contains events of default, including cross-defaults to certain
indebtedness, change of control events, and other events of default customary for syndicated
commercial credit facilities. Upon the occurrence of an event of default, the Company could be
required to immediately repay all outstanding amounts under the Credit Facility.
The Company is required to make mandatory prepayments of principal in specified amounts upon
the occurrence of certain events identified in the Credit Facility and is permitted to make
voluntary prepayments of principal under the Credit Facility. The Term Loan is subject to
amortization of principal in quarterly installments which began March 31, 2010. The maturity date
of both the Term Loan and the Revolver is November 10, 2011.
The entire $72.2 million outstanding under the Credit Facility at March 31, 2010 relates to
the Term Loan. The maximum availability under the Revolver is $85.0 million which was reduced by
outstanding letters of credit totaling $1.7 million at March 31, 2010.
During December 2008, the Company redeemed its outstanding 9 7/8% senior notes (the Senior
Notes) issued by MedCath Holdings Corp., a wholly owned subsidiary of the Company, for $111.2
million, which included the payment of a repurchase premium of $5.0 million and accrued interest of
$4.2 million. The Senior Notes were redeemed through borrowings under the Credit Facility and
available cash on hand. In addition to the aforementioned repurchase premium, the Company incurred
$2.0 million in expense related to the write-off of previously incurred financing costs associated
with the Senior Notes. The repurchase premium and write off of previously incurred financing costs
have been included in the consolidated statements of operations as loss on early extinguishment of
debt for the six months ended March 31, 2009.
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MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
Debt CovenantsAt March 31, 2010 and September 30, 2009, the Company was in violation of
financial covenants under equipment loans at its consolidated subsidiary TexSAn Heart Hospital.
Accordingly, the total outstanding balance for these loans of $4.4 million and $6.1 million,
respectively, has been included in the current portion of long-term debt and obligations under
capital leases on the Companys consolidated balance sheets. The covenant violations did not result
in any other non-compliance related to the remaining covenants governing the Companys outstanding
debt; thereby the Company remained in compliance with all other covenants.
Fair Value of Financial InstrumentsThe Company considers the carrying amounts of significant
classes of financial instruments on the consolidated balance sheets to be reasonable estimates of
fair value due either to their length to maturity or the existence of variable interest rates
underlying such financial instruments that approximate prevailing market rates at March 31, 2010
and September 30, 2009. The estimated fair value of long-term debt, including the current portion,
at March 31, 2010 was approximately $116.4 million ($39.6 million related to discontinued
operations) as compared to a carrying value of $111.2 million ($34.6 million related to
discontinued operations). At September 30, 2009, the estimated fair value of long-term debt,
including the current portion, was approximately $127.6 million ($41.4 million related to
discontinued operations) as compared to a carrying value of $121.4 million ($39.6 million related
to discontinued operations). Fair value of the Companys fixed rate debt was estimated using
discontinued cash flow analyses, based on the Companys current incremental borrowing rates for
similar types of arrangements and market information. The fair value of the Companys variable rate
debt was determined to approximate its carrying value due to the underlying variable interest
rates.
7. Contingencies and Commitments
Contingencies The Medicare and Medicaid programs are subject to statutory and regulatory
changes, retroactive and prospective rate adjustments, administrative rulings, court decisions,
executive orders and freezes and funding reductions, all of which may significantly affect the
Company. In addition, reimbursement is generally subject to adjustment following audit by third
party payors, including the fiscal intermediaries who administer the Medicare program, the Centers
for Medicare and Medicaid Services (CMS).
Final determination of amounts due providers under the Medicare program often takes several
years because of such audits, as well as resulting provider appeals and the application of
technical reimbursement provisions. The Company believes that adequate provisions have been made
for any adjustments that might result from these programs; however, due to the complexity of laws
and regulations governing the Medicare and Medicaid programs, the manner in which they are
interpreted and the other complexities involved in estimating net revenue, there is a possibility
that recorded estimates will change by a material amount in the future.
In 2005, CMS began using recovery audit contractors (RAC) to detect Medicare overpayments
not identified through existing claims review mechanisms. The RAC program relies on private
auditing firms to examine Medicare claims filed by healthcare providers. Fees to the RACs are paid
on a contingency basis. The RAC program began as a demonstration project in 2005 in three states
(New York, California and Florida) which was expanded into the three additional states of Arizona,
Massachusetts and South Carolina in July 2007. No RAC audits, however, were initiated at the
Companys Arizona or California hospitals during the demonstration project. The program was made
permanent by the Tax Relief and Health Care Act of 2006 enacted in December 2006. CMS announced in
March 2008 the end of the demonstration project and the commencement of the permanent program by
the expansion of the RAC program to additional states beginning in the summer and fall 2008 and its
plans to have RACs in place in all 50 states by 2010.
RACs perform post-discharge audits of medical records to identify Medicare overpayments
resulting from incorrect payment amounts, non-covered services, incorrectly coded services, and
duplicate services. CMS has given RACs the authority to look back at claims up to three years old,
provided that the claim was paid on or after October 1, 2007. Claims identified as overpayments
will be subject to the Medicare appeals process.
The Company believes the claims for reimbursement submitted to the Medicare program by the
Companys facilities have been accurate, however the Company is unable to reasonably estimate what
the potential result of future RAC audits or other reimbursement matters could be.
The Company is involved in various claims and legal actions in the ordinary course of
business, including malpractice claims arising from services provided to patients that have been
asserted by various claimants and additional claims that may be asserted for known incidents
through March 31, 2010. These claims and legal actions are in various stages, and some may
ultimately be brought to trial. Moreover, additional claims arising from services provided to
patients in the past and other legal actions may be asserted in the future. The Company is
protecting its interests in all such claims and actions and does not expect the ultimate resolution
of these matters to have a material adverse impact on the Companys consolidated financial
position, results of operations or cash flows.
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MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
During the prior fiscal year, the Company refunded certain reimbursements to CMS related to
carotid artery stent procedures performed during prior fiscal years at two of the Companys
consolidated subsidiary hospitals. The U.S. Department of Justice (DOJ) initiated an
investigation related to the Companys return of these reimbursements. As a result of the DOJs
investigation, the Company began negotiating a settlement agreement during the third quarter of
fiscal 2009 with the DOJ whereby the Company is expected to pay approximately $0.8 million to
settle and obtain a release from any federal civil false claims liability related to the DOJs
investigation. The DOJ allegations do not involve patient care, and relate solely to whether the
procedures were properly reimbursable by Medicare. The settlement would not include any finding of
wrong-doing or any admission of liability. As part of the settlement, the Company is also
negotiating with the Department of Health and Human Services, Office of Inspector General (OIG),
to obtain a release from any federal health care program permissive exclusion actions to be
instituted by the OIG. During the quarter ended December 31, 2009 the Company paid $0.6 million of
the $0.8 million initially accrued within other accrued liabilities on the consolidated balance
sheet as of September 30, 2009. As of March 31, 2010 $0.2 million remained accrued within other
accrued liabilities on the consolidated balance sheet.
During October 2009, a purported class action law suit was filed against the Bakersfield Heart
Hospital, a consolidated subsidiary of the Company. In the complaint the plaintiff alleges that
under California law, specifically under the Knox-Keene Healthcare Service Plan Act of 1975 and
under the Health and Safety Code of California, California prohibits the practice of balance
billing for patients who are provided emergency services. A class has not been certified by the
court in this case. Currently the Company is unable to predict with certainty the outcome of this
case or if the plaintiff prevails whether the amount due to the plaintiff could be material.
The Company has a one-year claims-made policy providing coverage for medical malpractice claim
amounts in excess of $2.0 million of retained liability per claim. The Company additionally has
insurance to reduce the retained liability per claim to $250,000 for the MedCath Partners Division.
Because of the Companys self-insured retention levels, the Company is required to recognize an
estimated expense/liability for the amount of retained liability applicable to each malpractice
claim. As of March 31, 2010 and September 30, 2009, the total estimated liability for the Companys
self-insured retention on medical malpractice claims, including an estimated amount for incurred
but not reported claims, was approximately $3.1 million and $4.5 million, respectively, which is
included in other accrued liabilities in the consolidated balance sheets. The Company maintains
this reserve based on actuarial estimates using the Companys historical experience with claims and
assumptions about future events.
In addition to reserves for medical malpractice, the Company also maintains reserves for
self-insured workmans compensation, healthcare and dental coverage. The total estimated reserve
for self-insured liabilities for workmans compensation, employee health and dental claims was $4.5
million and $3.5 million as of March 31, 2010 and September 30, 2009, respectively, which is
included in other accrued liabilities in the consolidated balance sheets. The Company maintains
this reserve based on historical experience with claims. The Company maintains commercial stop loss
coverage for health and dental insurance program of $175,000 per plan participant.
Commitments The Companys consolidated subsidiary hospitals provide guarantees to certain
physician groups for funds required to operate and maintain services for the benefit of the
hospitals patients including emergency care services and anesthesiology services, among other
services. These guarantees extend for the duration of the underlying service agreements. As of
March 31, 2010, the maximum potential future payments that the Company could be required to make
under these guarantees was approximately $30.8 million through October 2012. At March 31, 2010 the
Company had total liabilities of $13.1 million for the fair value of these guarantees, of which
$8.3 million is in other accrued liabilities and $4.8 million is in other long term obligations.
Additionally, the Company had assets of $13.1 million representing the future services to be
provided by the physicians, of which $8.2 million is in prepaid expenses and other current assets
and $4.9 million is in other assets.
8. Earnings per Share Data
Basic The calculation of basic earnings per share includes 177,400 and 95,900 of restricted
stock units that have vested but as of March 31, 2010 and 2009, respectively, have not been
converted into common stock. See Note 9 as it relates to restricted stock units granted to
directors of the Company.
Diluted The calculation of diluted earnings per share considers the potential dilutive
effect of options to purchase 1,302,587 shares of common stock at prices ranging from $4.75 to
$33.05, which were outstanding at March 31, 2009, as well as 463,216 shares of restricted stock
which were outstanding at March 31, 2009. Of the outstanding stock options and restricted stock
1,739,328 and 1,765,803 have not been included in the calculation of diluted earnings per share for
the three and six months ended March 31, 2009, respectively, because the stock options and
restricted stock were anti-dilutive. No options or restricted stock were included in the
calculation of diluted earnings per share for the three and six months ended March 31, 2010, as the
consideration of such shares would be anti-dilutive due to the loss from continuing operations, net
of tax.
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MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
9. Stock Based Compensation
Compensation expense from the grant of equity awards made to employees and directors is
recognized based on the estimated fair value of each award over each applicable awards vesting
period. The Company estimates the fair value of equity awards on the date of grant using, either an
option-pricing model for stock options or the closing market price of the Companys stock for
restricted stock and restricted stock units. Stock based compensation expense is recognized on a
straight-line basis over the requisite service period for the awards that are ultimately expected
to vest. Stock based compensation expense recorded during the three and six months ended March 31,
2010 was $1.2 million and $1.8 million, respectively. The associated tax benefits related to the
compensation expense recognized for the three and six months ended March 31, 2010 was $0.5 million
and $0.7 million, respectively. Stock based compensation expense recorded during the three and six
months ended March 31, 2009 was $0.8 million and $1.8 million, respectively. The associated tax
benefits related to the compensation expense recognized for the three and six months ended March
31, 2009 was $0.3 million and $0.7 million, respectively.
Stock Options
The following table summarizes the Companys stock option activity:
For the Three Months Ended | ||||||||||||||||
March 31, 2010 | March 31, 2009 | |||||||||||||||
Weighted- | Weighted- | |||||||||||||||
Number of | Average | Number of | Average | |||||||||||||
Stock Options | Exercise Price | Stock Options | Exercise Price | |||||||||||||
Outstanding stock options, beginning of period |
986,637 | $ | 22.23 | 1,825,837 | $ | 21.98 | ||||||||||
Cancelled |
(11,000 | ) | 29.49 | (523,250 | ) | 22.93 | ||||||||||
Outstanding stock options, end of period |
975,637 | $ | 22.14 | 1,302,587 | $ | 21.60 | ||||||||||
For the Six Months Ended | ||||||||||||||||
March 31, 2010 | March 31, 2009 | |||||||||||||||
Weighted- | Weighted- | |||||||||||||||
Number of | Average | Number of | Average | |||||||||||||
Stock Options | Exercise Price | Stock Options | Exercise Price | |||||||||||||
Outstanding stock options, beginning of period |
1,027,387 | $ | 22.25 | 1,776,837 | $ | 22.15 | ||||||||||
Granted |
| | 82,000 | 17.46 | ||||||||||||
Cancelled |
(51,750 | ) | 24.33 | (556,250 | ) | 22.74 | ||||||||||
Outstanding stock options, end of period |
975,637 | $ | 22.14 | 1,302,587 | $ | 21.60 | ||||||||||
Restricted Stock Awards
During the three and six months ended March 31, 2010, the Company granted to employees 32,235
and 401,399 shares of restricted stock, respectively. During the three and six months ended March
31, 2009, the Company granted to employees 424,153 shares of restricted stock. Restricted stock
granted to employees, excluding executives of the Company, vest annually on December 31 over a
three year period. Executives of the Company (defined by the Company as vice president or higher)
received two equal grants of restricted stock. The first grant vests annually in equal installments
on December 31 over a three year period. The second grant vests annually on December 31 over a
three year period if certain performance conditions are met. During the three and six months ended
March 31, 2010, the Company granted 89,600 shares of restricted stock units to directors. During
the three and six months ended March 31, 2009, the Company granted 95,900 shares of restricted
stock units to directors. Restricted stock units granted to directors are fully vested at the date
of grant and are paid in shares of common stock upon each applicable directors termination of
service on the board. At March 31, 2010, the Company had $4.8 million of unrecognized compensation
expense associated with restricted stock awards.
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MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
The following table summarizes the Companys restricted stock award activity:
For the Three Months Ended | ||||||||||||||||
March 31, 2010 | March 31, 2009 | |||||||||||||||
Number of | Number of | |||||||||||||||
Restricted | Weighted- | Restricted | Weighted- | |||||||||||||
Stock Awards | Average | Stock Awards | Average | |||||||||||||
and Units | Grant Price | and Units | Grant Price | |||||||||||||
Outstanding restricted stock awards and units, beginning of period |
923,270 | $ | 8.54 | 39,063 | $ | 20.50 | ||||||||||
Granted |
121,835 | 8.01 | 520,053 | 8.94 | ||||||||||||
Vested |
(13,700 | ) | 7.33 | | | |||||||||||
Cancelled |
(5,705 | ) | 9.21 | | | |||||||||||
Outstanding restricted stock awards and units, end of period |
1,025,700 | $ | 8.49 | 559,116 | $ | 9.74 | ||||||||||
For the Six Months Ended | ||||||||||||||||
March 31, 2010 | March 31, 2009 | |||||||||||||||
Number of | Number of | |||||||||||||||
Restricted | Weighted- | Restricted | Weighted- | |||||||||||||
Stock Awards | Average | Stock Awards | Average | |||||||||||||
and Units | Grant Price | and Units | Grant Price | |||||||||||||
Outstanding restricted stock awards and units, beginning of period |
654,327 | $ | 9.64 | 123,982 | $ | 19.28 | ||||||||||
Granted |
490,999 | 7.24 | 520,053 | 8.94 | ||||||||||||
Vested |
(103,895 | ) | 9.04 | (52,106 | ) | 20.50 | ||||||||||
Cancelled |
(15,731 | ) | 9.10 | (32,813 | ) | 15.88 | ||||||||||
Outstanding restricted stock awards and units, end of period |
1,025,700 | $ | 8.49 | 559,116 | $ | 9.74 | ||||||||||
14
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MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
10. Reportable Segment Information
The Companys reportable segments consist of the Hospital Division and the MedCath Partners
Division.
Financial information concerning the Companys operations by each of the reportable segments
as of and for the periods indicated is as follows:
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net revenue: |
||||||||||||||||
Hospital Division |
$ | 131,619 | $ | 126,045 | $ | 251,752 | $ | 247,131 | ||||||||
MedCath Partners Division |
3,180 | 4,619 | 6,993 | 9,490 | ||||||||||||
Corporate and other |
110 | 103 | 222 | 201 | ||||||||||||
Consolidated totals |
$ | 134,909 | $ | 130,767 | $ | 258,967 | $ | 256,822 | ||||||||
(Loss) income from operations: |
||||||||||||||||
Hospital Division |
$ | (13,985 | ) | $ | 10,855 | $ | (16,078 | ) | $ | 18,575 | ||||||
MedCath Partners Division |
(322 | ) | (380 | ) | (575 | ) | (484 | ) | ||||||||
Corporate and other |
(3,386 | ) | (2,343 | ) | (5,856 | ) | (5,046 | ) | ||||||||
Consolidated totals |
$ | (17,693 | ) | $ | 8,132 | $ | (22,509 | ) | $ | 13,045 | ||||||
March 31, | September 30, | |||||||
2010 | 2009 | |||||||
Aggregate identifiable assets: |
||||||||
Hospital Division |
$ | 476,611 | $ | 517,849 | ||||
MedCath Partners Division |
26,736 | 27,205 | ||||||
Corporate and other |
39,839 | 45,394 | ||||||
Consolidated totals |
$ | 543,186 | $ | 590,448 | ||||
Substantially all of the Companys net revenue in its Hospital Division and MedCath
Partners Division is derived directly or indirectly from patient services. The amounts presented
for corporate and other primarily include general overhead and administrative expenses and
financing activities as components of (loss) income from operations and certain cash and cash
equivalents, prepaid expenses, other assets and operations of the business not subject to separate
segment reporting within identifiable assets.
The Hospital Division assets include $70.1 million and $72.4 million of assets related to
discontinued operations as of March 31, 2010 and September 30, 2009, respectively. The MedCath
Partners Division assets included $1.7 million and $19.9 million of assets related to discontinued
operations as of March 31, 2010 and September 30, 2009, respectively.
11. Intangible Assets
As of March 31, 2010 and September 30, 2009, the Companys intangible assets, which are
included in other assets on the consolidated balance sheets, are detailed in the following table:
March 31, 2010 | September 30, 2009 | |||||||||||||||
Gross Carrying | Accumulated | Gross Carrying | Accumulated | |||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
Intangible Assets |
$ | 555 | $ | (242 | ) | $ | 730 | $ | (352 | ) |
The estimated aggregate amortization expense for each of the next five year periods
ending March 31 are $57 for fiscal 2010, $51 for fiscal 2011, and $32 for fiscal 2012, 2013, and
2014.
15
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MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
12. Comprehensive Income
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net (loss) income |
$ | (8,685 | ) | $ | 10,047 | $ | (10,502 | ) | $ | 15,416 | ||||||
Changes in fair value of interest rate swap,
net of tax benefit |
(24 | ) | 175 | 32 | (273 | ) | ||||||||||
Comprehensive (loss) income |
(8,709 | ) | 10,222 | (10,470 | ) | 15,143 | ||||||||||
Less: Net income attributable to noncontrolling interest |
(2,524 | ) | (4,465 | ) | (3,364 | ) | (7,588 | ) | ||||||||
Comprehensive (loss) income attributable to
MedCath Corporation common stockholders |
$ | (11,233 | ) | $ | 5,757 | $ | (13,834 | ) | $ | 7,555 | ||||||
13. Property and Equipment
March 31, | September 30, | |||||||
2010 | 2009 | |||||||
Land |
$ | 33,705 | $ | 32,629 | ||||
Buildings |
251,620 | 263,796 | ||||||
Equipment |
227,675 | 217,362 | ||||||
Construction in progress |
6,723 | 17,434 | ||||||
Total, at cost |
519,723 | 531,221 | ||||||
Less accumulated depreciation |
(199,357 | ) | (189,827 | ) | ||||
Property and equipment, net |
$ | 320,366 | $ | 341,394 | ||||
The Company recorded $19.9 million of impairment charges to the consolidated statement of
operations during the second quarter ended March 31, 2010. See Note 1 for further discussion
related to these impairment charges.
14. Other Assets
The Companys corporate and other division entered into a note receivable agreement with a
third party during 2008. The
note receivable was deemed uncollectable and a loss of $1.5 million was recorded due to the
Companys determination of the third partys inability to
repay the note and the insufficiency of
the value of the collateral securing the note.
16
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MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
15. Fair Value Measurements
As described in Note 2 Recent Accounting Pronouncements the Company adopted the accounting
standard issued by the FASB that defines fair value, establishes a framework for measuring fair
value and enhances disclosures about fair value measures required under other accounting
pronouncements. The FASB delayed the effective date of this new standard for all nonfinancial
assets and liabilities whose fair values are measured on a nonrecurring basis, typically relate to
long-lived assets. The Company is now required to provide additional disclosures about fair value
measurements for each major category of assets and liabilities measured at fair value on a
non-recurring basis. The following table presents this information as of March 31, 2010 and
indicates the fair value hierarchy of the valuation techniques utilized to determine such fair
values. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active
markets for identical assets or liabilities, which generally are not applicable to non-financial
assets and liabilities. Fair values determined by Level 2 inputs utilize data points that are
observable, such as appraisals or established market values of comparable assets. Fair values
determined by Level 3 inputs are unobservable data points for the asset or liability and include
situations where there is little, if any, market activity for the asset or liability, such as
internal estimates of future cash flows.
Significant | ||||||||||||||||
Significant Other | Unobservable | |||||||||||||||
March 31, | Observable Inputs | Inputs | Total | |||||||||||||
2010 | (Level 2) | (Level 3) | Impairments | |||||||||||||
Long-lived assets held and used (1) |
$ | 78,899 | $ | 32,000 | $ | 46,899 | $ | (19,948 | ) | |||||||
Investment in Affiliates (2) |
400 | 400 | | (114 | ) | |||||||||||
$ | 79,299 | $ | 32,400 | $ | 46,899 | $ | (20,062 | ) | ||||||||
(1) | See Notes 1 and 13 | |
(2) | See Note 5 |
17
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with the interim unaudited consolidated financial statements and
related notes included elsewhere in this report, as well as the audited consolidated financial
statements and related notes thereto and Managements Discussion and Analysis of Financial
Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year
ended September 30, 2009.
Overview
General. We are a healthcare provider focused primarily on providing high acuity services,
predominantly the diagnosis and treatment of cardiovascular disease. We own and operate hospitals
in partnership with physicians whom we believe have established reputations for clinical
excellence. We have ownership interests in and operate ten hospitals, with a total of 825 licensed
beds, 58 of which are related to HHA, whose assets, liabilities, and operations are included within
discontinued operations. Our nine hospitals, which currently comprise our continuing operations,
have 767 licensed beds, of which 677 are staffed and available, and are located predominately in
high growth markets in seven states: Arizona, Arkansas, California, Louisiana, New Mexico, South
Dakota, and Texas. During May 2009, we completed our 79 licensed bed expansion at Louisiana
Medical Center and Heart Hospital and built space for an additional 40 beds at that hospital.
During October 2009, we opened a new acute care hospital, Hualapai Mountain Medical Center
(HMMC), in Kingman, Arizona. This hospital is designed to accommodate a total of 106 licensed
beds, with an initial opening of 70 of its licensed beds.
In addition to our hospitals, we currently own and/or manage 14 cardiac diagnostic and
therapeutic facilities. Nine of these facilities are located at hospitals operated by other
parties. These facilities offer invasive diagnostic and, in some cases, therapeutic procedures. The
remaining five facilities are not located at hospitals and offer only diagnostic procedures.
On March 1, 2010, the Company announced that its Board of Directors formed a Strategic Options
Committee composed solely of independent directors to consider the sale of the Company, the sale of
its individual hospitals and other assets, or the sale of its interest in those assets.
Same Facility Hospitals. Our policy is to include, on a same facility basis, only those
facilities that were open and operational during the full current and prior fiscal year comparable
periods. For example, on a same facility basis for our consolidated hospital division for the three
and six months ended March 31, 2010, we exclude the results of operations of Hualapai Mountain
Medical Center, which opened in October 2009.
Revenue Sources by Division. The largest percentage of our net revenue is attributable to our
Hospital Division. The following table sets forth the percentage contribution of each of our
consolidating divisions to consolidated net revenue in the periods indicated below.
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
Division | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Hospital |
97.6 | % | 96.4 | % | 97.2 | % | 96.2 | % | ||||||||
MedCath Partners |
2.3 | % | 3.5 | % | 2.7 | % | 3.7 | % | ||||||||
Corporate and other |
0.1 | % | 0.1 | % | 0.1 | % | 0.1 | % | ||||||||
Net Revenue |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
18
Table of Contents
Revenue Sources by Payor. We receive payments for our services rendered to patients
from the Medicare and Medicaid programs, commercial insurers, health maintenance organizations and
our patients directly. Generally, our net revenue is determined by a number of factors, including
the payor mix, the number and nature of procedures performed and the rate of payment for the
procedures. Since cardiovascular disease disproportionately affects those age 55 and older, the
proportion of net revenue we derive from the Medicare program is higher than that of most general
acute care hospitals. The following table sets forth the percentage of consolidated net revenue we
earned by category of admitting payor in the periods indicated.
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
Payor | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Medicare |
55.4 | % | 57.5 | % | 54.2 | % | 53.3 | % | ||||||||
Medicaid |
4.2 | % | 5.2 | % | 4.2 | % | 3.9 | % | ||||||||
Commercial and other, including
self-pay |
40.4 | % | 37.3 | % | 41.6 | % | 42.8 | % | ||||||||
Total consolidated net revenue |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
A significant portion of our net revenue is derived from federal and state
governmental healthcare programs, including Medicare and Medicaid, and we expect the net revenue
that we receive from the Medicare program as a percentage of total consolidated net revenue to
remain significant in future periods. Our payor mix may fluctuate in future periods due to changes
in reimbursement, market and industry trends with self-pay patients, and other similar factors.
The Medicare and Medicaid programs are subject to statutory and regulatory changes (such as
the recent Health Reform Laws), retroactive and prospective rate adjustments, administrative
rulings, court decisions, executive orders and freezes and funding reductions, all of which may
significantly affect our business. In addition, reimbursement is generally subject to adjustment
following audit by third party payors, including the fiscal intermediaries who administer the
Medicare program, i.e., the CMS. Final determination of amounts due providers under the Medicare
program often takes several years because of such audits, as well as resulting provider appeals and
the application of technical reimbursement provisions. We believe that adequate provision has been
made for any adjustments that might result from these programs; however, due to the complexity of
laws and regulations governing the Medicare and Medicaid programs, the manner in which they are
interpreted and the other complexities involved in estimating our net revenue, there is a
possibility that recorded estimates will change by a material amount in the future.
19
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Results of Operations
Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009
Statement of Operations Data. The following table presents our results of operations in
dollars and as a percentage of net revenue for the periods indicated:
Three Months Ended March 31, | ||||||||||||||||||||||||
(in thousands except percentages) | ||||||||||||||||||||||||
Increase/(Decrease) | % of Net Revenue | |||||||||||||||||||||||
2010 | 2009 | $ | % | 2010 | 2009 | |||||||||||||||||||
Net revenue |
$ | 134,909 | $ | 130,767 | $ | 4,142 | 3.2 | % | 100.0 | % | 100.0 | % | ||||||||||||
Operating expenses: |
||||||||||||||||||||||||
Personnel expense |
46,444 | 44,662 | 1,782 | 4.0 | % | 34.4 | % | 34.2 | % | |||||||||||||||
Medical supplies expense |
36,849 | 35,120 | 1,729 | 4.9 | % | 27.3 | % | 26.9 | % | |||||||||||||||
Bad debt expense |
11,918 | 8,798 | 3,120 | 35.5 | % | 8.9 | % | 6.7 | % | |||||||||||||||
Other operating expenses |
29,743 | 27,342 | 2,401 | 8.8 | % | 22.0 | % | 20.9 | % | |||||||||||||||
Pre-opening expenses |
| 380 | (380 | ) | (100.0 | )% | | 0.3 | % | |||||||||||||||
Depreciation |
7,768 | 6,217 | 1,551 | 24.9 | % | 5.8 | % | 4.7 | % | |||||||||||||||
Amortization |
8 | 8 | | | | 0.0 | % | |||||||||||||||||
Impairment of property and equipment |
19,948 | | 19,948 | 100.0 | % | 14.8 | % | | ||||||||||||||||
(Gain) loss on disposal of property, equipment
and other assets |
(76 | ) | 108 | (184 | ) | (170.4 | )% | | 0.1 | % | ||||||||||||||
(Loss) income from operations |
(17,693 | ) | 8,132 | (25,825 | ) | (317.6 | )% | (13.2 | )% | 6.2 | % | |||||||||||||
Other income (expenses): |
||||||||||||||||||||||||
Interest expense |
(1,149 | ) | (581 | ) | 568 | 97.8 | % | (0.8 | )% | (0.4 | )% | |||||||||||||
Loss on early extinguishment of debt |
| 259 | (259 | ) | (100.0 | )% | | 0.2 | % | |||||||||||||||
Interest and other income |
23 | 73 | (50 | ) | (68.5 | )% | 0.0 | % | 0.1 | % | ||||||||||||||
Loss on note receiveable |
(1,507 | ) | | (1,507 | ) | (100.0 | )% | (1.1 | )% | | ||||||||||||||
Equity in net earnings of unconsolidated affiliates |
3,092 | 2,714 | 378 | 13.9 | % | 2.3 | % | 2.1 | % | |||||||||||||||
(Loss) income from continuing operations before
income taxes |
(17,234 | ) | 10,597 | (27,831 | ) | (262.6 | )% | (12.8 | )% | 8.1 | % | |||||||||||||
Income tax (benefit) expense |
(7,386 | ) | 2,610 | (9,996 | ) | (383.0 | )% | (5.5 | )% | 2.0 | % | |||||||||||||
(Loss) income from continuing operations |
(9,848 | ) | 7,987 | (17,835 | ) | (223.3 | )% | (7.3 | )% | 6.1 | % | |||||||||||||
Income from discontinued operations, net of taxes |
1,163 | 2,060 | (897 | ) | (43.5 | )% | 0.9 | % | 1.6 | % | ||||||||||||||
Net (loss) income |
(8,685 | ) | 10,047 | (18,732 | ) | (186.4 | )% | (6.4 | )% | 7.7 | % | |||||||||||||
Less: Net income attributable to noncontrolling interest |
(2,524 | ) | (4,465 | ) | (1,941 | ) | (43.5 | )% | (1.9 | )% | (3.4 | )% | ||||||||||||
Net (loss) income attributable to MedCath Corporation |
$ | (11,209 | ) | $ | 5,582 | $ | (16,791 | ) | (300.8 | )% | (8.3 | )% | 4.3 | % | ||||||||||
Amounts attributable to MedCath Corporation common
stockholders: |
||||||||||||||||||||||||
(Loss) income from continuing operations, net of taxes |
$ | (11,999 | ) | $ | 4,220 | $ | (16,219 | ) | (384.3 | )% | (8.9 | )% | 3.2 | % | ||||||||||
Income from discontinued operations, net of taxes |
790 | 1,362 | (572 | ) | (42.0 | )% | 0.6 | % | 1.1 | % | ||||||||||||||
Net (loss) income |
$ | (11,209 | ) | $ | 5,582 | $ | (16,791 | ) | (300.8 | )% | (8.3 | )% | 4.3 | % | ||||||||||
HMMC, which is located in Kingman, AZ, opened in October 2009. For comparison
purposes, the selected operating data below are presented on an actual consolidated basis and on a
same facility basis for the periods indicated. Same facility basis excludes HMMC from operations
for the three and six months ended March 31, 2010.
20
Table of Contents
Three Months Ended March 31, | ||||||||||||||||||||
2010 Same | ||||||||||||||||||||
2010 | 2009 | % Change | Facility | % Change | ||||||||||||||||
Selected Operating Data (a): |
||||||||||||||||||||
Number of hospitals |
7 | 6 | 6 | |||||||||||||||||
Licensed beds (b) |
600 | 451 | 530 | |||||||||||||||||
Staffed and available beds (c) |
514 | 404 | 444 | |||||||||||||||||
Admissions (d) |
6,650 | 6,199 | 7.3 | % | 6,191 | (0.1 | )% | |||||||||||||
Adjusted admissions (e) |
9,884 | 8,812 | 12.2 | % | 9,058 | 2.8 | % | |||||||||||||
Patient days (f) |
25,368 | 24,810 | 2.2 | % | 23,531 | (5.2 | )% | |||||||||||||
Adjusted patient days (g) |
37,156 | 34,941 | 6.3 | % | 33,940 | (2.9 | )% | |||||||||||||
Average length of stay (days) (h) |
3.81 | 4.00 | (4.8 | )% | 3.80 | (5.0 | )% | |||||||||||||
Occupancy (i) |
54.8 | % | 68.2 | % | 58.9 | % | ||||||||||||||
Inpatient catheterization procedures (j) |
3,028 | 3,077 | (1.6 | )% | 2,940 | (4.5 | )% | |||||||||||||
Inpatient surgical procedures (k) |
1,876 | 1,842 | 1.8 | % | 1,786 | (3.0 | )% | |||||||||||||
Hospital net revenue (in thousands except percentages) |
$ | 130,645 | $ | 125,652 | 4.0 | % | $ | 123,386 | (1.8 | )% |
(a) | Selected operating data includes consolidated hospitals in operation as of the end of the period reported in continuing operations but does not include hospitals which are accounted for using the equity method or as discontinued operations in our consolidated financial statements. | |
(b) | Licensed beds represent the number of beds for which the appropriate state agency licenses a facility regardless of whether the beds are actually available for patient use. | |
(c) | Staffed and available beds represent the number of beds that are readily available for patient use at the end of the period. | |
(d) | Admissions represent the number of patients admitted for inpatient treatment. | |
(e) | Adjusted admissions are a general measure of combined inpatient and outpatient volume. We compute adjusted admissions by dividing gross patient revenue by gross inpatient revenue and then multiplying the quotient by admissions. | |
(f) | Patient days represent the total number of days of care provided to inpatients. | |
(g) | Adjusted patient days are a general measure of combined inpatient and outpatient volume. We compute adjusted patient days by dividing gross patient revenue by gross inpatient revenue and then multiplying the quotient by patient days. | |
(h) | Average length of stay (days) represents the average number of days inpatients stay in our hospitals. | |
(i) | We compute occupancy by dividing patient days by the number of days in the period and then dividing the quotient by the number of staffed and available beds. | |
(j) | Inpatient catheterization procedures represent the number of inpatients with a procedure performed in one of the hospitals catheterization labs during the period. | |
(k) | Inpatient surgical procedures represent the number of surgical procedures performed on inpatients during the period. |
21
Table of Contents
Net Revenue. Our consolidated net revenue increased 3.2% or $4.1 million to $134.9 million for
the second quarter of fiscal 2010 from $130.8 million for the second quarter of fiscal 2009.
Hospital Division net revenue increased 4.4%, or $5.6 million, for the second quarter of fiscal
2010 compared to the same period of fiscal 2009. Beginning in our first quarter of fiscal 2010, our
MedCath Partners Division renegotiated certain management contracts. As a result, certain expenses
once incurred by our MedCath Partners Division and reimbursed, are no longer being billed nor
incurred by our MedCath Partners Division. There was a $0.5 million decrease in net revenue in our
MedCath Partners Division as well as a $0.5 million reduction in expenses due to this billing
change. Net revenue on a same facility basis was as follows:
Three Months Ended March 31, | ||||||||||||||||||||||||
(in thousands except percentages) | ||||||||||||||||||||||||
Increase/(Decrease) | % of Net Revenue | |||||||||||||||||||||||
2010 | 2009 | $ | % | 2010 | 2009 | |||||||||||||||||||
Net revenue |
$ | 127,651 | $ | 130,767 | $ | (3,116 | ) | (2.4 | )% | 100.0 | % | 100.0 | % |
Same facility inpatient net revenue was 72.3% of the Hospital Divisions total same
facility net patient revenue for the second quarter of fiscal 2010 compared to 73.8% for the second
quarter of fiscal 2009. Although inpatient cases for the second quarter of fiscal 2010 remained
relatively flat, our total inpatient net revenue declined 3.8% as a result of a decline in
procedures with higher net revenue per case such as open heart and AICD procedures. Inpatient open
heart and AICD net revenues were down 9.3% and 25.8%, respectively, during the second quarter of
fiscal 2010 as compared to the comparable period. We believe the decline is indicative that less
invasive cardiac procedures, such as stents, and pharmaceutical treatments have been increasingly
successful in treating patients suffering from cardiovascular disease. In addition, we experienced
a 20.4% reduction in inpatient bare metal stent net revenue. Our other inpatient catheterization
procedures (excluding stent procedures) increased 29.4%, which offset these declines.
Outpatient
cases, excluding emergency department cases, and net revenue increased 2.1% and 5.0%, respectively for the second quarter
of fiscal 2010 compared to the second quarter of fiscal 2009. The increase in outpatient cases and
net revenue was due to an increase in outpatient AICD implants, pacer implants and EP
studies/ablations, which experienced a 45.5% increase in net revenue and a
21.5% increase in cases.
Emergency department visits increased 10.7% while emergency department net revenue remained flat
during the second quarter of fiscal 2010 compared to the same period of the prior year due to the
mix of the procedures performed.
Same facility net revenue for the second quarter of fiscal 2010 included charity care
deductions of $2.0 million compared to charity care deductions of $1.6 million for the second
quarter of fiscal 2009. The increase is the result of more uninsured patients applying and
qualifying for charity care.
Personnel expense. Our consolidated personnel expense increased 4.0% to $46.4 million for the
second quarter of fiscal 2010 from $44.7 million for the second quarter of fiscal 2009. Personnel
expense on a same facility basis was as follows:
Three Months Ended March 31, | ||||||||||||||||||||||||
(in thousands except percentages) | ||||||||||||||||||||||||
Increase/(Decrease) | % of Net Revenue | |||||||||||||||||||||||
2010 | 2009 | $ | % | 2010 | 2009 | |||||||||||||||||||
Personnel expense |
$ | 42,374 | $ | 44,662 | $ | (2,288 | ) | (5.1 | )% | 33.2 | % | 34.2 | % |
The
$2.3 million reduction in same facility personnel expense was primarily due to a
$1.4 million reduction in temporary contract labor and a
$1.8 million reduction in other salaries and
wages. Personnel expense continues to decline as we focus on efforts to better align our expenses
with our reimbursements. These decreases were partially offset by an increase of $0.6 million in
benefits and bonus expense for our Hospital Division and a $0.4 million increase in stock based compensation expense. Our benefits
expense includes our medical claims costs. We experienced a higher cost per claim during the
second quarter of fiscal 2010 compared to fiscal 2009. Certain employees and directors were
granted restricted stock during fiscal 2010 and 2009, thus incrementally increasing our quarterly
expense. We recognize employee restricted stock based compensation expense over the periods in
which they are expected to vest.
22
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Medical supplies expense. Our consolidated medical supplies expense increased 4.9% to $36.8
million for the first quarter of fiscal 2010 from $35.1 million for the second quarter of fiscal
2009. Medical supplies expense on a same facility basis was as follows:
Three Months Ended March 31, | ||||||||||||||||||||||||
(in thousands except percentages) | ||||||||||||||||||||||||
Increase/(Decrease) | % of Net Revenue | |||||||||||||||||||||||
2010 | 2009 | $ | % | 2010 | 2009 | |||||||||||||||||||
Medical supplies expense |
$ | 35,394 | $ | 35,120 | $ | 274 | 0.8 | % | 27.7 | % | 26.9 | % |
The $0.3 million increase in medical supplies expense is a result of a 2.8% increase in
adjusted admissions on a same facility basis and as a result of the mix of procedures performed
during the first quarter of fiscal 2010. We had an 11.4% reduction in open heart surgeries and a
24.6% reduction in AICD implantations, open heart procedures
have a higher net revenue per case as compared
to other procedures performed at our hospitals. With less open heart net revenue, medical
supplies will increase as a percentage of net revenue. Although our
AICD net revenue has declined our cost per AICD has increased due to
the type of devices used to treat our patients. This increase was partially offset by an
increase in the utilization of higher cost per unit devices.
Bad debt expense. Our consolidated bad debt expense increased 35.5% to $11.9 million for the
second quarter of fiscal 2010 from $8.8 million for the second quarter of fiscal 2009. As a
percentage of net revenue, bad debt expense increased to 8.9% for the second quarter of fiscal 2010
as compared to 6.7% for the comparable period of fiscal 2009. Bad debt expense on a same facility
basis was as follows:
Three Months Ended March 31, | ||||||||||||||||||||||||
(in thousands except percentages) | ||||||||||||||||||||||||
Increase/(Decrease) | % of Net Revenue | |||||||||||||||||||||||
2010 | 2009 | $ | % | 2010 | 2009 | |||||||||||||||||||
Bad debt expense |
$ | 11,121 | $ | 8,798 | $ | 2,323 | 26.4 | % | 8.7 | % | 6.7 | % |
Our total same facility uncompensated care including charity care and bad debt
expense was 10.5% of total same facility net patient hospital revenue for the second quarter of
fiscal 2010 compared to 8.2% of total same facility net patient revenue for the second quarter of
fiscal 2009. The total number of patients that applied and qualified for charity care increased
during the second quarter of fiscal 2010 compared to the second quarter of fiscal 2009. We reported
$0.4 million more charity care deductions to net revenue during the second quarter of fiscal 2010
when compared to the second quarter of fiscal 2009. Bad debt expense alone (not including charity
care) increased $2.3 million for the second quarter of fiscal 2010 compared to the same period of
the prior year. This is directly attributable to a $2.4 million increase in our same facility
self-pay revenue for the second quarter of fiscal 2010 compared to the same period of the prior
year. We reserve for self-pay revenue at the time of recognition.
Other operating expenses. Our consolidated other operating expenses increased 8.8% to $29.7
million for the second quarter of fiscal 2010 from $27.3 million for the second quarter of fiscal
2009. Other operating expense on a same facility basis was as follows:
Three Months Ended March 31, | ||||||||||||||||||||||||
(in thousands except percentages) | ||||||||||||||||||||||||
Increase/(Decrease) | % of Net Revenue | |||||||||||||||||||||||
2010 | 2009 | $ | % | 2010 | 2009 | |||||||||||||||||||
Other operating expense |
$ | 26,914 | $ | 27,342 | $ | (428 | ) | (1.6 | )% | 21.1 | % | 20.9 | % |
Our total same facility other operating expense decreased $0.4 million for the
second quarter of fiscal 2010 compared to fiscal 2009. The material and notable increases in
operating expenses were increases in employee benefit expense, legal and professional fees, and
property taxes, mostly offset by reductions in professional liability insurance, bonus, and
temporary labor and recruiting expenses, as reflected below (in millions):
Professional liability insurance |
$ | (1.1 | ) | |
Corporate bonus expense |
$ | (1.0 | ) | |
Temporary labor and recruiting expense |
$ | (0.5 | ) | |
Property taxes |
$ | 0.4 | ||
Legal and professional fees |
$ | 0.7 | ||
Corporate employee benefits expense |
$ | 0.9 | ||
Other |
$ | 0.2 |
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We incurred specific large dollar claims for certain of our hospitals during the second
quarter of fiscal 2009. We have experienced favorable claim experience so far for fiscal 2010. As
a result in the reduction in specific claims during fiscal 2010 and favorable claim experience for
the current policy year, our overall professional liability insurance cost has declined.
Corporate bonuses are accrued based on the expected attainment of operating performance and/or
individual goals. The reduction in corporate bonuses is a result of reducing the accrual for
corporate bonuses to managements current estimate of the attainment of these goals for the 2010
fiscal year.
Temporary labor and recruiting expense has declined as we continue to evaluate our strategic
options. In addition, key positions were filled prior to the second quarter of fiscal 2010 which
has reduced our recruiting expense for fiscal 2010 compared to the same period of the prior year.
Legal and professional fees are incurred as we evaluate our strategic options and fees related
to the pending sale of Heart Hospital of Austin.
Corporate employee benefits expense has increased due to an increase in specific claims
expense for our employees for the second quarter of fiscal 2010 compared to the same period of the
prior year.
Interest expense. Interest expense increased $0.5 million to $1.1 million for the second
quarter of fiscal 2010 from $0.6 million for the second quarter of fiscal 2009. The $0.5 million
increase in interest expense is primarily attributable to the fact that no interest expense was
capitalized during the second quarter of fiscal 2010, whereas $0.8 million of interest expense was
capitalized during the comparable period of fiscal 2009 due to the completion of our expansion
projects and opening of HMMC. The increase in interest expense due to the cessation of capitalized
interest was offset by the overall reduction in our outstanding debt resulting in lower interest
payments during the second quarter of fiscal 2010.
Loss on note receivable. Our corporate and other division entered into a note receivable
agreement with a third party during 2008. The note receivable was deemed
uncollectable and a loss of $1.5 million was recorded due to our determination of the third partys
inability to repay the note and the insufficiency of the value of the collateral securing the
note.
Equity in net earnings of unconsolidated affiliates. The net earnings of unconsolidated
affiliates are comprised of our share of earnings in two unconsolidated hospitals, a hospital
realty investment and several ventures within our MedCath Partners Division.
Net earnings of unconsolidated affiliates in which we have a noncontrolling interest increased
during the second quarter of fiscal 2010 to $3.1 million from $2.7 million for the second quarter
of fiscal 2009. Approximately $0.2 million of the increase in net earnings of unconsolidated
affiliates was from unconsolidated affiliates within our MedCath Partners Division and $0.2 million
of the increase in net earnings of unconsolidated affiliates was from unconsolidated affiliates
within our Hospital Division. The $0.2 million increase for our MedCath Partners Division is
related to increased volumes for one of our managed ventures offset by a $0.1 million impairment
charge related to the anticipated sale of its investment in Tri-County. The remaining $0.2 million
increase associated with our Hospital Division is related to favorable year over year results for
Harlingen Medical Center.
Net income attributable to noncontrolling interest. Noncontrolling interest share of earnings
of consolidated subsidiaries decreased to $2.5 million for the second quarter of fiscal 2010 from
$4.5 million for the comparable period of fiscal 2009. Net income attributable to noncontrolling
interests on a same facility basis was as follows:
Three Months Ended March 31, | ||||||||||||||||||||||||
(in thousands except percentages) | ||||||||||||||||||||||||
Increase/(Decrease) | % of Net Revenue | |||||||||||||||||||||||
2010 | 2009 | $ | % | 2010 | 2009 | |||||||||||||||||||
Net income attributable to noncontrolling interest |
$ | 3,294 | $ | 4,465 | $ | (1,171 | ) | (26.2 | )% | 2.6 | % | 3.4 | % |
On a same facility basis, net income attributable to noncontrolling interest
decreased $1.2 million due to a reduction in net income and an increase in our disproportionate
share of losses from certain of our facilities.
We expect earnings attributable to noncontrolling interests to fluctuate in future periods as
we either recognize disproportionate losses and/or recoveries thereof through disproportionate
profit recognition. For a more complete discussion of our accounting for noncontrolling interests,
including the basis for disproportionate allocation accounting, see Critical Accounting Policies in
our Annual Report on Form 10-K for the fiscal year ended September 30, 2009.
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Income tax (benefit) expense. Income tax benefit was $7.4 million for the second
quarter of fiscal 2010 compared to an expense of $2.6 million for the second quarter of fiscal
2009, which represents an effective tax rate of approximately 38.1% and 38.2% for the respective
periods.
Income from discontinued operations, net of taxes. Income from discontinued operations, net of
taxes, reflects the results of DHH, HHA, Cape Cod, and Sun City for the second quarter of fiscal
2010 and fiscal 2009. Discontinued operations decreased to income of $1.2 million, net of taxes for
the second quarter of fiscal 2010 from income of $2.1 million, net of taxes, for the comparable
period of fiscal 2009. Income from discontinued operations during the second quarter of fiscal 2010
reflected the operations of HHA and the related continued activities associated with previously
divested facilities, which primarily related to accounts receivable and medical malpractice
reserves. Income from discontinued operations from the same quarter of fiscal 2009 reflected the
operating income from HHA and Sun City, offset by losses at DHH.
Results of Operations
Six Months Ended March 31, 2010 Compared to Six Months Ended March 31, 2009
Statement of Operations Data. The following table presents our results of operations in
dollars and as a percentage of net revenue for the periods indicated:
Six Months Ended March 31, | ||||||||||||||||||||||||
(in thousands except percentages) | ||||||||||||||||||||||||
Increase/(Decrease) | % of Net Revenue | |||||||||||||||||||||||
2010 | 2009 | $ | % | 2010 | 2009 | |||||||||||||||||||
Net revenue |
$ | 258,967 | $ | 256,822 | $ | 2,145 | 0.8 | % | 100.0 | % | 100.0 | % | ||||||||||||
Operating expenses: |
||||||||||||||||||||||||
Personnel expense |
91,508 | 88,029 | 3,479 | 4.0 | % | 35.3 | % | 34.3 | % | |||||||||||||||
Medical supplies expense |
71,747 | 69,357 | 2,390 | 3.4 | % | 27.7 | % | 27.0 | % | |||||||||||||||
Bad debt expense |
22,599 | 18,392 | 4,207 | 22.9 | % | 8.7 | % | 7.2 | % | |||||||||||||||
Other operating expenses |
59,355 | 54,502 | 4,853 | 8.9 | % | 23.0 | % | 21.2 | % | |||||||||||||||
Pre-opening expenses |
866 | 587 | 279 | 47.5 | % | 0.3 | % | 0.2 | % | |||||||||||||||
Depreciation |
15,418 | 12,713 | 2,705 | 21.3 | % | 6.0 | % | 5.0 | % | |||||||||||||||
Amortization |
16 | 16 | | | 0.0 | % | 0.0 | % | ||||||||||||||||
Impairment of property and equipment |
19,948 | | 19,948 | 100.0 | % | 7.7 | % | | ||||||||||||||||
Loss on disposal of property, equipment |
| | ||||||||||||||||||||||
and other assets |
19 | 181 | (162 | ) | (89.5 | )% | 0.0 | % | 0.1 | % | ||||||||||||||
(Loss) Income from operations |
(22,509 | ) | 13,045 | (35,554 | ) | (272.5 | )% | (8.7 | )% | 5.0 | % | |||||||||||||
Other income (expenses): |
||||||||||||||||||||||||
Interest expense |
(2,207 | ) | (2,678 | ) | 471 | 17.6 | % | (0.8 | )% | (1.0 | )% | |||||||||||||
Loss on early extinguishment of debt |
| (6,702 | ) | 6,702 | 100.0 | % | | (2.6 | )% | |||||||||||||||
Interest and other income |
93 | 172 | (79 | ) | (45.9 | )% | 0.0 | % | 0.1 | % | ||||||||||||||
Loss on note receiveable |
(1,507 | ) | | (1,507 | ) | (100.0 | )% | (0.6 | )% | | ||||||||||||||
Equity in net earnings of unconsolidated affiliates |
4,608 | 4,779 | (171 | ) | (3.6 | )% | 1.8 | % | 1.8 | % | ||||||||||||||
(Loss) income from continuing operations before |
||||||||||||||||||||||||
income taxes |
(21,522 | ) | 8,616 | (30,138 | ) | (349.8 | )% | (8.3 | )% | 3.3 | % | |||||||||||||
Income tax (benefit) expense |
(9,287 | ) | 1,115 | (10,402 | ) | (932.9 | )% | (3.6 | )% | 0.4 | % | |||||||||||||
(Loss) income from continuing operations |
(12,235 | ) | 7,501 | (19,736 | ) | (263.1 | )% | (4.7 | )% | 2.9 | % | |||||||||||||
Income from discontinued operations, net of taxes |
1,733 | 7,915 | (6,182 | ) | (78.1 | )% | 0.6 | % | 3.1 | % | ||||||||||||||
Net (loss) income |
(10,502 | ) | 15,416 | (25,918 | ) | (168.1 | )% | (4.1 | )% | 6.0 | % | |||||||||||||
Less: Net income attributable to noncontrolling interest |
(3,364 | ) | (7,588 | ) | (4,224 | ) | (55.7 | )% | (1.3 | )% | (3.0 | )% | ||||||||||||
Net (loss) income attributable to MedCath Corporation |
$ | (13,866 | ) | $ | 7,828 | $ | (21,694 | ) | (277.1 | )% | (5.4 | )% | 3.0 | % | ||||||||||
Amounts attributable to MedCath Corporation common
stockholders: |
||||||||||||||||||||||||
(Loss) income from continuing operations, net of taxes |
$ | (15,091 | ) | $ | 1,685 | $ | (16,776 | ) | (995.6 | )% | (5.8 | )% | 0.6 | % | ||||||||||
Income from discontinued operations, net of taxes |
1,225 | 6,143 | (4,918 | ) | (80.1 | )% | 0.4 | % | 2.4 | % | ||||||||||||||
Net (loss) income |
$ | (13,866 | ) | $ | 7,828 | $ | (21,694 | ) | (277.1 | )% | (5.4 | )% | 3.0 | % | ||||||||||
HMMC, which is located in Kingman, AZ, opened in October 2009. For comparison
purposes, the selected operating data below are presented on an actual basis and on a same facility
basis. Same facility basis excludes HMMC from operations for the three and six months ended March
31, 2010. The following table presents selected operating data on a consolidated basis and a same
facility basis for the periods indicated:
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Six Months Ended March 31, | ||||||||||||||||||||
2010 Same | ||||||||||||||||||||
2010 | 2009 | % Change | Facility | % Change | ||||||||||||||||
Selected Operating Data (a): |
||||||||||||||||||||
Number of hospitals |
7 | 6 | 6 | |||||||||||||||||
Licensed beds (b) |
600 | 451 | 530 | |||||||||||||||||
Staffed and available beds (c) |
514 | 404 | 444 | |||||||||||||||||
Admissions (d) |
12,813 | 12,230 | 4.8 | % | 12,127 | (0.8 | )% | |||||||||||||
Adjusted admissions (e) |
18,685 | 16,983 | 10.0 | % | 17,405 | 2.5 | % | |||||||||||||
Patient days (f) |
48,252 | 47,039 | 2.6 | % | 45,488 | (3.3 | )% | |||||||||||||
Adjusted patient days (g) |
70,521 | 65,452 | 7.7 | % | 65,518 | 0.1 | % | |||||||||||||
Average length of stay (days) (h) |
3.77 | 3.85 | (2.1 | )% | 3.75 | (2.6 | )% | |||||||||||||
Occupancy (i) |
51.6 | % | 64.0 | % | 56.3 | % | ||||||||||||||
Inpatients with a catheterization procedure (j) |
5,845 | 6,229 | (6.2 | )% | 5,714 | (8.3 | )% | |||||||||||||
Inpatient surgical procedures (k) |
3,598 | 3,576 | 0.6 | % | 3,468 | (3.0 | )% | |||||||||||||
Hospital net revenue (in thousands except
percentages) |
$ | 249,789 | $ | 245,687 | 1.7 | % | $ | 237,938 | (3.2 | )% |
(a) | Selected operating data includes consolidated hospitals in operation as of the end of the period reported in continuing operations but does not include hospitals which are accounted for using the equity method or as discontinued operations in our consolidated financial statements. | |
(b) | Licensed beds represent the number of beds for which the appropriate state agency licenses a facility regardless of whether the beds are actually available for patient use. | |
(c) | Staffed and available beds represent the number of beds that are readily available for patient use at the end of the period. | |
(d) | Admissions represent the number of patients admitted for inpatient treatment. | |
(e) | Adjusted admissions are a general measure of combined inpatient and outpatient volume. We compute adjusted admissions by dividing gross patient revenue by gross inpatient revenue and then multiplying the quotient by admissions. | |
(f) | Patient days represent the total number of days of care provided to inpatients. | |
(g) | Adjusted patient days are a general measure of combined inpatient and outpatient volume. We compute adjusted patient days by dividing gross patient revenue by gross inpatient revenue and then multiplying the quotient by patient days. | |
(h) | Average length of stay (days) represents the average number of days inpatients stay in our hospitals. | |
(i) | We compute occupancy by dividing patient days by the number of days in the period and then dividing the quotient by the number of staffed and available beds. | |
(j) | Inpatient catheterization procedures represent the number of inpatients with a procedure performed in one of the hospitals catheterization labs during the period. | |
(k) | Inpatient surgical procedures represent the number of surgical procedures performed on inpatients during the period. |
26
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Net Revenue. Our consolidated net revenue increased 0.8% or $2.2 million to $259.0 million for
the six months ended March 31, 2010 from $256.8 million for the six months ended March 31, 2009.
Hospital Division net revenue increased 1.9%, or $4.6 million, for the first six months of fiscal
2010 compared to the same period of fiscal 2009. Beginning in our first quarter of fiscal 2010, our
MedCath Partners Division renegotiated certain management contracts. As a result, certain expenses
once incurred by our MedCath Partners Division and reimbursed, are no longer being billed nor
incurred by our MedCath Partners Division. There was a $1.5 million decrease in net revenue in our
MedCath Partners Division as well as a $1.5 million reduction in expenses due to this billing
change. Net revenue on a same facility basis was as follows:
Six Months Ended March 31, | ||||||||||||||||||||||||
Increase/(Decrease) | % of Net Revenue | |||||||||||||||||||||||
2010 | 2009 | $ | % | 2010 | 2009 | |||||||||||||||||||
Net revenue |
$ | 247,116 | $ | 256,822 | $ | (9,706 | ) | (3.8 | )% | 100.0 | % | 100.0 | % |
Same facility inpatient net revenue was 72.5% of the Hospital Divisions same
facility net patient revenue for the first six months of fiscal 2010 compared to approximately
74.7% for the same period of the prior year. Our total same facility inpatient cases were flat and
inpatient net revenue was down 5.4% for the first six months of fiscal 2010 compared to the first
six months of fiscal 2009. This decline was due primarily to a 5.2% reduction in our core
cardiovascular related cases, resulting in a $15.4 million reduction in total same facility net
patient revenue offset by an increase in our inpatient
non-cardiovascular revenue. Outpatient net revenue
increased 5.0% due to a 45.5% increase in outpatient AICD implants, pacer implants and EP
studies/ablations net revenue. These procedures have increased due to the addition of physicians
performing these procedures at certain of our hospitals. Emergency department net revenue
increased 8.4% due to the mix of the procedures performed and due to the recent expansions at
certain of our hospitals.
Net revenue for the first six months of fiscal 2010 included charity care deductions of $4.2
million compared to charity care deductions of $2.1 million for the first six months of fiscal
2009. The $2.1 million increase is the result of more uninsured patients applying and qualifying
for charity care.
Personnel expense. Our consolidated personnel expense increased 4.0% to $91.5 million for the
first six months ended March 31, 2010 from $88.0 million for the first six months ended March 31,
2009. Personnel expense on a same facility basis was as follows:
Six Months Ended March 31, | ||||||||||||||||||||||||
Increase/(Decrease) | % of Net Revenue | |||||||||||||||||||||||
2010 | 2009 | $ | % | 2010 | 2009 | |||||||||||||||||||
Personnel expense |
$ | 83,977 | $ | 88,029 | $ | (4,052 | ) | (4.6 | )% | 34.0 | % | 34.3 | % |
The $4.1 million reduction in same facility personnel expense was primarily due to a
$4.7 million reduction in salaries and wages, including temporary labor, offset by an increase in
medical benefits expense. We continue to experience reductions in salaries and wages as we focus
on aligning our expenses with our revenues. The total percentage of personnel expense is
approximately the same for the first six months of fiscal 2010 and fiscal 2009. Our benefits
expense increased as the result of an increase in the number of medical claims for the first six
months of fiscal 2010 compared to the first six months of fiscal 2009.
Medical supplies expense. Our consolidated medical supplies expense increased 3.4% to $71.7
million for the first six months of fiscal 2010 from $69.4 million for the first six months of
fiscal 2009. Medical supplies expense on a same facility basis was as follows:
Six Months Ended March 31, | ||||||||||||||||||||||||
Increase/(Decrease) | % of Net Revenue | |||||||||||||||||||||||
2010 | 2009 | $ | % | 2010 | 2009 | |||||||||||||||||||
Medical supplies expense |
$ | 69,496 | $ | 69,357 | $ | 139 | 0.2 | % | 28.1 | % | 27.0 | % |
Our medical supplies expense for the first six months of fiscal 2010 remained
relatively flat compared to the first six months of fiscal 2009. During the first six months of
fiscal 2010 we experienced lower volumes on procedures that have high net revenue per case, such as
open heart procedures. We had a 10.1% reduction in open heart surgeries for the first six months
of fiscal 2010 compared to the same period of the prior year. With less open heart net revenue, the
percentage of medical supplies will increase as a percentage of net revenue.
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Table of Contents
Bad debt expense. Our consolidated bad debt expense increased 22.9% to $22.6 million for the
first six months of fiscal 2010 from $18.4 million for the first six months of fiscal 2009. As a
percentage of net revenue, bad debt expense increased to 8.7% for the fix six months of fiscal 2010
as compared to 7.2% for the comparable period of fiscal 2009. Bad debt expense on a same facility
basis was as follows:
Six Months Ended March 31, | ||||||||||||||||||||||||
Increase/(Decrease) | % of Net Revenue | |||||||||||||||||||||||
2010 | 2009 | $ | % | 2010 | 2009 | |||||||||||||||||||
Bad debt expense |
$ | 20,782 | $ | 18,392 | $ | 2,390 | 13.0 | % | 8.4 | % | 7.2 | % |
Our total same facility uncompensated care including charity care and bad debt
expense was 10.4% of total same facility net patient hospital revenue for the first six months of
fiscal 2010 compared to 8.3% of total same facility net patient revenue for the first six months of
fiscal 2009. The total number of patients which applied and qualified for charity care increased
during first quarter of fiscal 2010 compared to the first quarter of fiscal 2009. We reported $2.1
million more charity deductions to net revenue during the first six months of fiscal 2010 when
compared to the first six months of fiscal 2009. Bad debt expense alone (not including charity
care) increased $2.4 million for the first six months quarter of fiscal 2010 compared to the same
period of the prior year. This is attributable to a $3.2 million increase in self-pay revenue for
the first six months of fiscal 2010 compared to the same period of the prior year offset by
improved collection on accounts receivable during fiscal 2010.
Other operating expenses. Our consolidated other operating expenses increased 8.9% to $59.4
million for the first six months of fiscal 2010 from $54.5 million for the first six months of
fiscal 2009. Other operating expense on a same facility basis was as follows:
Six Months Ended March 31, | ||||||||||||||||||||||||
Increase/(Decrease) | % of Net Revenue | |||||||||||||||||||||||
2010 | 2009 | $ | % | 2010 | 2009 | |||||||||||||||||||
Other operating expense |
$ | 53,984 | $ | 54,502 | $ | (518 | ) | (1.0 | )% | 21.8 | % | 21.2 | % |
Our
same facility other operating expense decreased $0.5 million for the first six
months compared to the same period of the prior year. Our legal and professional fees which were
$1.3 million higher for the first six months of fiscal 2010 compared to the first six months of
fiscal 2009 due to the fees incurred related to the pending sale of Heart Hospital of Austin and
fees incurred related to our strategic initiatives involving the sale of the Company or individual
assets of the Company. Our corporate benefits expense was approximately $0.7 million higher due to
an increase in medical claims during the first six months of fiscal 2010 compared to the same
period of the prior year. We incurred and additional $0.5 million of maintenance expense during
the first six months of fiscal 2010 compared to the first six months of fiscal 2009 as our newer
facilities begin to age. These increases were offset by a $1.7 million reduction in our medical
malpractice insurance expense and a $0.9 million reduction in our corporate bonus expense. Our
medical malpractice expense was higher during the first six months of fiscal 2009 due to specific
high dollar settlements at certain of our hospitals. Our corporate bonuses are accrued based on
managements estimate of the attainment of operating performance and/or personal goals. The
reduction during the first six months of fiscal 2010 reflects managements adjustment to the
accrual.
Interest
expense. Interest expense decreased $0.5 million or 17.6% to $2.2 million for the
first six months of fiscal 2010 from $2.7 million for the first six months of fiscal 2009. The $0.5
million decrease in interest expense is primarily attributable to the overall reduction in our
outstanding debt and interest rates on our outstanding debt.
Loss on note receivable. Our corporate and other division entered into a note receivable
agreement with a third party during 2008. The note receivable was deemed
uncollectable and a loss of $1.5 million was recorded due to our determination of the third partys
inability to repay the note and the insufficiency of the value of the collateral securing the
note.
28
Table of Contents
Equity in net earnings of unconsolidated affiliates. The net earnings of unconsolidated
affiliates are comprised of our share of earnings in two unconsolidated hospitals, a hospital
realty investment and several ventures within our MedCath Partners Division.
Net earnings of unconsolidated affiliates in which we have a noncontrolling interest decreased
during the first six months of fiscal 2010 to $4.6 million from $4.8 million for the same period of
the prior year. The $0.2 million decrease was due to a medical office venture within corporate and
other, and an impairment charge of $0.1 million within our MedCath Partners Division related to the
anticipated sale of its investment in Tri-County.
Net income attributable to noncontrolling interest. Noncontrolling interest share of earnings
of consolidated subsidiaries decreased to $3.4 million for the first six months of fiscal 2010 from
$7.6 million for the comparable period of fiscal 2009. Net income attributable to noncontrolling
interest on a same facility basis was as follows:
Six Months Ended March 31, | ||||||||||||||||||||||||
(in thousands except percentages) | ||||||||||||||||||||||||
Increase/(Decrease) | % of Net Revenue | |||||||||||||||||||||||
2010 | 2009 | $ | % | 2010 | 2009 | |||||||||||||||||||
Net income
attributable to
noncontrolling
interest |
$ | 5,120 | $ | 7,588 | $ | (2,468 | ) | (32.5 | )% | 2.1 | % | 3.0 | % |
On a same facility basis, net income attributable to noncontrolling interest
decreased $2.5 million due to a reduction in net income and an increase in our disproportionate
share of losses from certain of our facilities.
We expect earnings attributable to noncontrolling interests to fluctuate in future periods as
we either recognize disproportionate losses and/or recoveries thereof through disproportionate
profit recognition. For a more complete discussion of our accounting for noncontrolling interests,
including the basis for disproportionate allocation accounting, see Critical Accounting Policies in
our Annual Report on Form 10-K for the fiscal year ended September 30, 2009.
Income tax (benefit) expense. Income tax benefit was $9.3 million for the first six months of
fiscal 2010 compared to an expense of $1.1 million for the first six months of fiscal 2009, which
represents an effective tax rate of approximately 38.1% and 39.8% for the respective periods. The
higher income tax rate for the six months of fiscal 2009 was the result of the impact of higher
nondeductible permanent differences.
Income from discontinued operations, net of taxes. Income from discontinued operations, net of
taxes, reflects the results of DHH, HHA, Cape Cod, and Sun City for the first six months of fiscal
2010 and fiscal 2009. Discontinued operations decreased to income of $1.7 million, net of taxes for
the first six months of fiscal 2010 from income of $7.9 million, net of taxes, for the comparable
period of fiscal 2009. Income from discontinued operations during the first six months of fiscal
2010 reflected the operations of HHA and the related continued activities associated with
previously divested facilities, which primarily related to accounts receivable and medical
malpractice reserves. Income from discontinued operations from the same period of fiscal 2009
reflected the operating income from HHA, Sun City, Cape Cod, and the gain from the divestiture of
Cape Cod, which was sold during the first quarter of fiscal 2009, offset by losses at DHH.
Liquidity and Capital Resources
Working Capital and Cash Flow Activities. Our consolidated working capital from continuing
operations was $43.7 million at March 31, 2010 and $35.1 million at September 30, 2009.
Consolidated working capital from continuing operations increased $8.6 million primarily due to the
increase in patient accounts receivable and as a result of being in an income tax receivable
position of $0.7 million due to our net loss for the first six months of fiscal 2010 versus an
income tax payable position of $0.3 million as of September 30, 2009.
At
March 31, 2010, we continue to carry a reserve of $9.8 million for outlier payments
received in 2004, which is recorded in current liabilities of discontinued operations.
Cash provided by continuing operations from operating activities was $15.1 million for the
first six months of fiscal 2010 compared to $31.8 million for the comparable period of fiscal 2009.
The decrease of $16.7 million in cash provided by continuing operations from operating activities
was due to an overall $8.4 million decrease in cash generated from continuing operations as a
result of the decrease in our net income during the first six months of fiscal 2010 compared to the
comparable period of fiscal 2009. Cash from continuing operations was further decreased by an
increase in accounts receivable of $4.5 million, primarily related to the opening of HMMC, an
increase in payments of $4.4 million related to the timing of payments associated with accounts
payable, and a $1.1 million increase in cash payments related to the timing of prepaid obligations,
such as yearly insurance premiums. These increases in cash payments were offset by a $1.7 million
reduction in cash payments associated with the purchases of and cost of medical supplies.
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Our investing activities from continuing operations used net cash of $14.3 million for the
first six months of fiscal 2010 compared to $49.5 million for the comparable period of fiscal 2009.
The total cash used for capital expenditures decreased by $35.2 million during the first six months
of fiscal 2010 as compared to the comparable period of fiscal 2009, a direct result of the
completion of the expansion of our hospital facilities and the opening of our new acute care
hospital in Kingman, Arizona.
Our financing activities from continuing operations used net cash of $18.4 million for the
first six months of fiscal 2010 compared to $41.6 million for the comparable period of fiscal 2009.
Cash used in financing activities decreased $23.2 million for the first six months of fiscal 2010
as compared to the comparable period of fiscal 2009. The decrease was due to the repayment of our 9
7/8% Senior Notes during December 2008 offset by a $7.8 million payment on our Credit Facility
during the first six months of fiscal 2010.
Capital Expenditures. Cash paid for property and equipment was $14.9 million and $50.1 million
for the first six months of fiscal years 2010 and 2009, respectively. Of the $14.9 million of cash
paid for property and equipment during the first six months of fiscal 2010, $6.8 million related to
maintenance capital expenditures. The $50.1 million cash paid for property and equipment during the
first six months of fiscal 2009 primarily related to the development of HMMC and the expansion
projects at two of our existing hospitals, which began during fiscal 2007. All expansion projects
were substantially complete during fiscal 2009, and our hospital in Kingman, Arizona opened in
October 2009.
Obligations and Availability of Financing. At March 31, 2010, we had $86.6 million of
outstanding long-term debt and obligations under capital leases, of which $18.1 million was
classified as current. Our Term Loan under our Credit Facility had an outstanding amount of $72.2
million. The remaining outstanding long-term debt and obligations under capital leases of $14.4
million was due to various lenders to our hospitals. No amounts were outstanding under our
Revolver. The maximum availability under our Revolver is $85.0 million which was reduced by
outstanding letters of credit totaling $1.7 million as of March 31, 2010.
Covenants related to our long-term debt restrict the payment of dividends and require the
maintenance of specific financial ratios and amounts and periodic financial reporting. At March 31,
2010 and September 30, 2009, TexSAn Heart Hospital was in violation of financial covenants which
govern its equipment loans outstanding. Accordingly, the total outstanding balance for these loans
of $4.4 million and $6.1 million, respectively, has been included in the current portion of
long-term debt and obligations under capital leases in our consolidated balance sheets. The
covenant violations did not result in any other non-compliance related to the covenants governing
our other outstanding debt arrangements.
At March 31, 2010, we guaranteed either all or a portion of the obligations of certain of our
subsidiary hospitals for equipment and other notes payable. We provide these guarantees in
accordance with the related hospital operating agreements, and we receive a fee for providing these
guarantees from either the hospitals or the physician investors. Access to available borrowings
under our Credit Facility is dependent on the Companys ability to maintain compliance with the
financial covenants contained in the Credit Facility. Deterioration in the Companys operating
results could result in failure to maintain compliance with these covenants, which would restrict
or eliminate access to available funds.
We believe that internally generated cash flows and available borrowings under our Credit
Facility will be sufficient to finance our business plan, capital expenditures and our working
capital requirements for the next 12 to 18 months.
Disclosure About Critical Accounting Policies
Our accounting policies are disclosed in our Annual Report on Form 10-K for the year ended
September 30, 2009. During the first six months of fiscal 2010 we adopted new accounting policies
as discussed in Note 2 Recent Accounting Pronouncements to our consolidated financial statements
included herein. The adoption of these new accounting policies did not have a material impact on
our consolidated financial statements.
Forward-Looking Statements
Some of the statements and matters discussed in this report and in exhibits to this report
constitute forward-looking statements. Words such as expects, anticipates, approximates,
believes, estimates, intends and hopes and variations of such words and similar expressions
are intended to identify such forward-looking statements. We have based these statements on our
current expectations and projections about future events. These forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties that could cause actual
results to differ materially from those projected in these statements. Although we believe that
these statements are based upon reasonable assumptions, we cannot assure you that we will achieve
our goals. In light of these risks, uncertainties and assumptions, the forward-looking events
discussed in this report and its exhibits might not occur. Our forward-looking statements speak
only as of the date of this report or the date they were otherwise made. We undertake no obligation
to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. We urge you to review carefully all of the information in
this report and our other filings with the SEC, including the discussion of risk factors in Item
1A. Risk Factors in this report and our Annual Report on Form 10-K for the year ended September 30,
2009 as may be updated by our subsequent filings with the SEC, before making an investment decision
with respect to our equity securities. A copy of this report, including exhibits, is available on
the internet site of the SEC at http://www.sec.gov or through our website at
http://www.medcath.com.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We maintain a policy for managing risk related to exposure to variability in interest rates,
commodity prices, and other relevant market rates and prices which includes considering entering
into derivative instruments (freestanding derivatives), or contracts or instruments containing
features or terms that behave in a manner similar to derivative instruments (embedded derivatives)
in order to mitigate our risks. In addition, we may be required to hedge some or all of our market
risk exposure, especially to interest rates, by creditors who provide debt funding to us. There was
no material change in our policy for managing risk related to variability in interest rates,
commodity prices, other relevant market rates and prices during the first six months of 2010. See
Item 7A in the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2009
for further discussions about market risk.
Interest Rate Risk
Our Credit Facility borrowings expose us to risks caused by fluctuations in the underlying
interest rates. The total outstanding balance of our Credit Facility was $72.2 million at March 31,
2010. A change of 100 basis points in the underlying interest rate would have caused a change in
interest expense of approximately $0.4 million during the six month period ended March 31, 2010.
Item 4. Controls and Procedures
The President and Chief Executive Officer and the Executive Vice President and Chief Financial
Officer of the Company (its principal executive officer and principal financial officer,
respectively) have concluded, based on their evaluation of the Companys disclosure controls and
procedures as of March 31, 2010, that the Companys disclosure controls and procedures were
effective as of March 31, 2010 to ensure that information required to be disclosed by the Company
in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended (the
Exchange Act), is recorded, processed, summarized and reported in a timely manner, and includes
controls and procedures designed to ensure that information required to be disclosed by the Company
in the reports that it files under the Exchange Act is accumulated and communicated to the
Companys management, including the Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure. There were no changes during
the fiscal quarter to the Companys internal controls over financial reporting that materially
affected or is reasonably likely to materially affect, the Companys internal controls over
financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are occasionally involved in legal proceedings and other claims arising out of our
operations in the normal course of business. See Note 7 Contingencies and Commitments to the
consolidated financial statements included in this report.
Item 1A. Risk Factors
Information concerning certain risks and uncertainties appears under the heading
Forward-Looking Statements in Part I, Item 2 of this report and Part I, Item 1A of our Annual
Report on Form 10-K for the year ended September 30, 2009. You should carefully consider these
risks and uncertainties before making an investment decision with respect to our debt and equity
securities. Such risks and uncertainties could materially adversely affect our business, financial
condition or operating results.
During the period covered by this report, there have been no material changes from the risk
factors previously disclosed in our Annual Report on Form 10-K for the year ended September 30,
2009 or filings subsequently made with the Securities and Exchange Commission, except for the
addition of the following risk factor:
Impairment of long-lived assets could have a material adverse effect on our consolidated financial
statements
Long-lived assets, which include finite lived intangible assets, are evaluated for impairment
when events or changes in business circumstances indicate that the carrying amount of the assets
may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted
future cash flows expected to result from the use of an asset and its eventual disposition are less
than its carrying amount. The determination of whether or not long-lived assets have become
impaired involves a significant level of judgment in the assumptions underlying the approach used
to determine the estimated future cash flows expected to result from the use of those assets.
Changes in our strategy, assumptions and/or market conditions could significantly impact these
judgments and require adjustments to recorded amounts of long-lived assets. If impairment is
determined to be present, the resulting non-cash impairment charges could be material to our
consolidated financial statements.
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Health Care Reform
On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care
Act, followed by the Health Care and Education Reconciliation Act of 2010 on March 30, 2010
(collectively referred to as the Health Reform Laws). The Health Reform Laws include many
provisions that will affect our Company, although given the complexity of the laws, the full impact
on the Company and its operations is not known at this time. In addition, implementing regulations
have not been issued which will also have a bearing on how these changes impact the Company. Some
of the provisions in the Health Reform Laws are effective immediately while others will not become
effective for several years.
Significantly, the Health Reform Laws revised the whole hospital exception to the Stark Law
by adding additional requirements for hospitals to qualify for the exception. Because all of our
hospitals have physician ownership and therefore must comply with the whole hospital exception,
these additional requirements will apply to all of our hospitals. These requirements include:
additional reporting and disclosure obligations; prohibitions on the increase in the percentage of
physician ownership over that in place on the date of enactment; prohibitions on expanding the
number of beds, operating rooms, or procedure rooms over the number in place as of the date of
enactment, specifications for physician investment; and patient safety measures. The limitations
on expansion and additional investment by physician owners or investors were effective as to our
hospitals as of March 23, 2010.
The Health Reforms Laws also established a new Independent Payment Advisory Board (the IPAB)
to develop and submit proposals to Congress to reduce Medicare spending. The IPAB could have a
significant impact on Medicare spending, which in turn would affect Medicare payments to our
hospitals and other health care facilities.
Some of the other provisions contained in the Health Reform Laws may have a positive impact on
the Company, such as the expansion in the number of individuals with health insurance and the
expansion of Medicaid eligibility. The Health Reform Laws also tie payment to quality measures by
establishing a value-based purchasing system and adjusting hospital payment rates based on
hospital-acquired conditions and hospital readmissions. Beginning in 2013, hospitals that satisfy
certain performance standards will receive increased payments for discharges during the following
fiscal year. We believe that if we continue to make quality of care improvements, this may have
the effect of reducing costs, increasing payments from Medicare for our services, and increasing
physician and patient satisfaction.
The Health Reform Laws also include enhanced government enforcement tools to identify and
impose remedies for fraud, which may adversely impact entities in the healthcare industry,
including our Company.
In addition, certain provisions of the Health Reform Laws authorize voluntary demonstration
projects beginning not later than 2013 for bundling payments for acute, inpatient hospital
services, physician services, and post acute services for episodes of hospital care. In addition,
beginning no later than January 1, 2012, the Health Reform Laws allows providers organized as
accountable care organizations that voluntarily meet quality thresholds to share in the cost
savings they achieve for the Medicare program.
The Company is unable to predict at this time the full impact of the Health Reform Laws on the
Company and its operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On July 27, 2001, we completed an initial public offering of our common stock pursuant to our
Registration Statement on Form S-1 (File No. 333-60278) that was declared effective by the SEC on
July 23, 2001. We expect to use the remaining proceeds of approximately $13.8 million from the
offering to fund development activities, working capital requirements and other corporate purposes.
Although we have identified these intended uses of the remaining proceeds, we have broad discretion
in the allocation of the net proceeds from the offering. Pending this application, we will continue
to invest the net proceeds of the offering in cash and cash-equivalents, such as money market funds
or short-term interest bearing, investment-grade securities.
The Board of Directors approved a stock repurchase program of up to $59.0 million in August
2007, which was announced November 2007. Stock purchases can be made from time to time in the open
market or in privately negotiated transactions in accordance with applicable federal and state
securities laws and regulations. The repurchase program may be discontinued at any time. Subsequent
to the approval of the stock repurchase program, the Company has purchased 1,885,461 shares of
common stock at a total cost of $44.4 million, with a remaining $14.6 million available to be
repurchased per the approved stock repurchase program. No shares were repurchased during the six
month period ended March 31, 2010.
See Note 6 to our annual financial statements in our Annual Report on Form 10-K for the year
ended September 30, 2009 for a description of restrictions on payments of dividends and stock
repurchases.
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Item 6. Exhibits
Exhibit No. | Description | |
10.1
|
Asset Purchase Agreement by and between St. Davids Healthcare Partnership, L.P., LLP and Heart Hospital IV, L.P. | |
31.1
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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.
MEDCATH CORPORATION |
||||
Dated: May 10, 2010 | By: | /s/ O. EDWIN FRENCH | ||
O. Edwin French | ||||
President and Chief Executive Officer (principal executive officer) |
||||
By: | /s/ JAMES A. PARKER | |||
James A. Parker | ||||
Executive Vice President and Chief Financial Officer (principal financial officer) |
||||
By: | /s/ LORA RAMSEY | |||
Lora Ramsey | ||||
Vice President and Controller (principal accounting officer) |
||||
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INDEX TO EXHIBITS
Exhibit No. | Description | |
10.1
|
Asset Purchase Agreement by and between St. Davids Healthcare Partnership, L.P., LLP and Heart Hospital IV, L.P. | |
31.1
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
34