Attached files
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended March 31, 2012
Or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 333-171386
USMD Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 27-2866866 | |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
6333 North State Highway 161, Suite 200 Irving, Texas |
75038 | |
(Address of principal executive offices) | (zip code) |
(214) 493-4000
(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 x No ¨
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
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 | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes x No ¨
The registrant had 35,800 shares of common stock outstanding as of May 8, 2012.
Table of Contents
Page | ||||||
PART I FINANCIAL INFORMATION | ||||||
Item 1. |
Financial Statements (Unaudited): | 3 | ||||
3 | ||||||
Unaudited Financial Statements of USMD Holdings, Inc. |
||||||
Supplemental Information: Unaudited Financial Statements of USMD Inc. |
9 | |||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations | 19 | ||||
Item 4. |
Controls and Procedures | 24 | ||||
PART II OTHER INFORMATION | ||||||
Item 1. |
Legal Proceedings | 25 | ||||
Item 2. |
Sale of Unregistered Securities | 25 | ||||
Item 6. |
Exhibits | 25 | ||||
26 |
Table of Contents
Item 1. | Financial Statements |
USMD Holdings, Inc., a Delaware corporation (Holdings), was formed on May 7, 2010 to facilitate the business combination of USMD Inc., a Texas corporation (USMD), Urology Associates of North Texas, LLP, a Texas limited liability partnership (UANT), and UANT Ventures, L.L.P., a Texas limited liability partnership (Ventures). On August 19, 2010, Holdings, USMD, Ventures and UANT entered into a Contribution and Purchase Agreement (such agreement, the Original Contribution Agreement) pursuant to which the entities would combine into a single integrated health services company (such transaction, the Contribution). Immediately prior to the Contribution, a subsidiary of Ventures would merge with and into UANT, resulting in UANT becoming a wholly-owned subsidiary of Ventures, and certain of the USMD shareholders would contribute all or a portion of their shares of USMD common stock to Ventures in exchange for partnership interests in Ventures. When the Contribution is consummated, Ventures would contribute its assets, which would include its equity interests in USMD and UANT, and the remaining USMD shareholders would contribute their USMD shares to Holdings in exchange for shares of Holdings common stock. Holdings described the Contribution in its Registration Statement on Form S-4 filed with the Securities and Exchange Commission (the SEC) on December 23, 2010 (File No. 333-171386) and declared effective by the SEC on July 25, 2011. On August 23, 2011, the shareholders of USMD and the partners of Ventures voted on and approved the Original Contribution Agreement.
Prior to the consummation of the Contribution, on December 1, 2011, Ventures and Holdings entered into a merger agreement with The Medical Clinic of North Texas, P.A., a Texas professional association (MCNT), and on December 15, 2011, Ventures and Holdings entered into a merger agreement with Impel Management Services, L.L.C., a Texas limited liability company (Impel). These merger agreements provide that subsidiaries of Ventures will merge with and into each of MCNT and Impel, resulting in these businesses becoming wholly-owned subsidiaries of Ventures prior to the closing of the Contribution. As a result of these merger agreements, on February 9, 2012, Holdings, USMD, UANT and Ventures executed an amendment to the Original Contribution Agreement (the Amendment) to reflect, among other changes, that Ventures will contribute to Holdings, in addition to its equity interests in USMD and UANT, its equity interests in MCNT and Impel as part of the Contribution. Holdings expects the Contribution to close in mid-2012.
Through March 31, 2012, Holdings had no operations or cash flows except for the expenses associated with share based payment and periodic reporting to the SEC. Holdings only assets, liabilities and equity are related to these items. However, should the Contribution be consummated, Holdings will be comprised of the businesses currently conducted by UANT, USMD, Ventures, MCNT and Impel. The predecessor company to Holdings for accounting purposes will be USMD.
3
Table of Contents
USMD HOLDINGS, INC.
CONDENSED BALANCE SHEETS
(In thousands, except share data)
March 31, 2012 |
December 31, 2011 |
|||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Income tax receivable |
$ | | $ | 44 | ||||
|
|
|
|
|||||
Total current assets |
| 44 | ||||||
Deferred federal income tax, noncurrent |
251 | 62 | ||||||
|
|
|
|
|||||
Total assets |
$ | 251 | $ | 106 | ||||
|
|
|
|
|||||
LIABILITIES AND EQUITY |
||||||||
Current liabilities: |
||||||||
Due to related party |
$ | 392 | $ | 81 | ||||
Accrued liabilities |
65 | 44 | ||||||
|
|
|
|
|||||
Total current liabilities |
457 | 125 | ||||||
|
|
|
|
|||||
Total liabilities |
457 | 125 | ||||||
Commitments and contingencies |
||||||||
Stockholders deficit: |
||||||||
Common stock, $0.01 par value, 49,000,000 shares authorized; 35,800 and 37,900 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively |
| | ||||||
Additional paid-in capital |
260 | 178 | ||||||
Accumulated deficit |
(466 | ) | (197 | ) | ||||
|
|
|
|
|||||
Total stockholders deficit |
(206 | ) | (19 | ) | ||||
|
|
|
|
|||||
Total liabilities and stockholders deficit |
$ | 251 | $ | 106 | ||||
|
|
|
|
See accompanying notes to condensed financial statements.
4
Table of Contents
USMD HOLDINGS, INC.
CONDENSED STATEMENT OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended March 31, 2012 |
||||
Revenue: |
||||
Net operating revenue |
$ | | ||
|
|
|||
Operating expenses: |
||||
Share-based payment expense |
82 | |||
Other operating expenses |
333 | |||
|
|
|||
Total operating expenses |
415 | |||
|
|
|||
Loss from operations |
(415 | ) | ||
Other income: |
||||
Total other income |
| |||
|
|
|||
Loss before benefit for income taxes |
(415 | ) | ||
Income tax benefit |
146 | |||
|
|
|||
Net loss |
$ | (269 | ) | |
|
|
|||
Net loss per common share: |
||||
Basic |
$ | (7.51 | ) | |
Diluted |
$ | (7.51 | ) | |
Weighted average common shares outstanding: |
||||
Basic |
35,800 | |||
Diluted |
35,800 |
See accompanying notes to condensed financial statements.
5
Table of Contents
USMD HOLDINGS, INC.
CONDENSED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31, 2012 |
||||
Cash flows from operating activities: |
||||
Net loss |
$ | (269 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: |
||||
Share-based payment expense |
82 | |||
Deferred income tax benefit |
(189 | ) | ||
Change in operating assets and liabilities: |
||||
Income tax receivable |
44 | |||
Due to related party and accrued liabilities |
332 | |||
|
|
|||
Net cash used in operating activities |
| |||
Cash flows from investing activities: |
||||
Net cash used in investing activities |
| |||
|
|
|||
Cash flows from financing activities: |
||||
Net cash used in financing activities |
| |||
|
|
|||
Net increase in cash and cash equivalents |
| |||
Cash and cash equivalents at beginning of year |
| |||
|
|
|||
Cash and cash equivalents at end of period |
$ | | ||
|
|
See accompanying notes to condensed financial statements.
6
Table of Contents
USMD HOLDINGS, INC.
Notes to Condensed Financial Statements
March 31, 2012
(Unaudited)
Note 1 Description of Business and Basis of Presentation
USMD Holdings, Inc. (Holdings) is a Delaware corporation formed on May 7, 2010 to facilitate the business combination of USMD Inc., a Texas corporation (USMD), Urology Associates of North Texas, LLP, a Texas limited liability partnership (UANT), and UANT Ventures, L.L.P., a Texas limited liability partnership (Ventures). Holdings was a dormant company with no activity until July 2011. On August 19, 2010, Holdings, USMD, Ventures and UANT entered into a Contribution and Purchase Agreement (such agreement, the Original Contribution Agreement, and such transaction, the Contribution). Immediately prior to the Contribution, a subsidiary of Ventures would merge with and into UANT, resulting in UANTs becoming a wholly-owned subsidiary of Ventures, and certain of the USMD shareholders will contribute all or a portion of their shares of USMD common stock to Ventures in order to become partners in Ventures. When the Contribution is consummated, Ventures would contribute its assets, which would include its equity interests in USMD and UANT, and the USMD shareholders who continue to own shares of USMD common stock would contribute those USMD shares, to Holdings in exchange for shares of Holdings common stock. Holdings described the Contribution in its Registration Statement on Form S-4 filed with the Securities and Exchange Commission (the SEC) on December 23, 2010 (File No. 333-171386) and declared effective by the SEC on July 25, 2011. On August 23, 2011, the shareholders of USMD and the partners of Ventures voted on and approved the Original Contribution Agreement.
On December 1, 2011 and December 15, 2011, Ventures and Holdings entered into definitive agreements (the Merger Agreements) with The Medical Clinic of North Texas, P.A., a Texas professional association (MCNT) and Impel Management Services, L.L.C., a Texas limited liability company (Impel), respectively. The Merger Agreements provide that subsidiaries of Ventures will merge with and into each of MCNT and Impel (the Mergers) as part of the Contribution, resulting in each of MCNT and Impel becoming wholly-owned subsidiaries of Ventures. In exchange for their equity interests in MCNT and Impel, the owners of MCNT and Impel will receive partnership interests in Ventures.
As a result of these Merger Agreements, on February 9, 2012, Holdings, USMD, UANT and Ventures entered into an amendment to the Original Contribution Agreement (the Amendment) to reflect, among other changes, that Ventures will contribute to Holdings in addition to its equity interests in USMD and UANT, its equity interests in MCNT and Impel as part of the Contribution. Holdings expects the Contribution to close in mid-2012.
The unaudited condensed financial statements of Holdings have been prepared in conformity with accounting principles generally accepted in the United States (GAAP) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although Holdings believes that the disclosures made are adequate to make the information not misleading. These condensed financial statements reflect all adjustments that, in the opinion of Holdings management, are necessary for fair presentation of the condensed financial statements. The operating results for the interim periods are not necessarily indicative of results for the full fiscal year. These condensed financial statements should be read in conjunction with Holdings Annual Report on Form 10-K for the fiscal year ended December 31, 2011 filed with the SEC.
Note 2 Share Based Payment
Pursuant to its 2010 Equity Compensation Plan (2010 Plan), Holdings may grant equity awards to officers, key employees, nonemployee directors and nonemployee service providers in the form of stock options, restricted stock and stock appreciation rights. The terms of the 2010 Plan provide for the reservation of up to 1,000,000 shares of common stock for issuance under the 2010 Plan, including a maximum of 900,000 shares issued pursuant to stock options and 100,000 shares issued pursuant to restricted stock and stock appreciation rights. At March 31, 2012, Holdings had reserved 964,200 shares for grant under the 2010 Plan.
In July 2011, in accordance with the 2010 Plan, Holdings awarded 100 restricted shares of its common stock to each of 389 employees of USMD and UANT. The restrictions lapse upon the earlier of the completion of the Contribution described in Holdings post-effective amendment to its Registration Statement on Form S-4 or the second anniversary date of the award. Until the restrictions lapse, the shares cannot be sold, assigned, pledged or otherwise transferred, voluntarily or involuntarily and are subject to forfeiture upon termination of employment.
At March 31, 2012, in accordance with FASB Accounting Standards Codification (ASC) 505-50, Holdings determined the total current lowest aggregate fair value of the restricted shares to be $0.7 million. The per-share fair value is based on the estimated fair value of Holdings as calculated in the valuation prepared as of December 31, 2011 and as discussed in the associated fairness opinion and Holdings post-effective amendment to its Registration Statement on Form S-4. At each reporting period until the restrictions lapse, Holdings will remeasure the awards at their then-current lowest aggregate fair value and recognize the requisite amortized share-based payment expense. Holdings recorded stock compensation expense of $0.1 million through March 31, 2012 related to this issuance, which is included in share-based payment expense on the statement of operations. The fairness opinion contemplates the successful completion of the Contribution as described in the post-effective amendment to the Form S-4 and accompanying prospectus. If the Contribution does not close or otherwise fails to occur, the estimated fair value of the restricted common shares is likely zero. The valuation and accompanying fairness opinion do not take into account any subsequent changes in the results of operations or financial condition of the underlying business entities; however, Holdings does not believe the fair value of the shares has materially changed from that date.
Note 3 Loss per Share
Basic loss per share is based on the weighted-average number of common shares outstanding and diluted loss per share is based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued. The following table presents a reconciliation of the numerators and denominators of basic and diluted loss per share and the computation of basic and diluted loss per share attributable to USMD (in thousands, except share and per share data):
7
Table of Contents
USMD HOLDINGS, INC.
Notes to Condensed Financial Statements
March 31, 2012
(Unaudited)
Three Months Ended March 31, 2012 |
||||
Numerator : |
||||
Net loss attributable to Holdings |
$ | (269 | ) | |
|
|
|||
Denominator : |
||||
Weighted-average common shares outstanding |
35,800 | |||
Effect of potentially dilutive securities: |
| |||
|
|
|||
Weighted-average common shares outstanding assuming dilution |
35,800 | |||
|
|
|||
Loss per share attributable to Holdings |
||||
Basic |
$ | (7.51 | ) | |
Diluted |
$ | (7.51 | ) |
The only shares issued and outstanding are the restricted common shares, which include a continued service vesting requirement resulting in contingently issuable shares. As of March 31, 2012, 31 holders of Holdings restricted common shares had terminated employment with USMD or UANT, reducing contingently issuable common shares from 37,300 to 35,800.
Note 4 Commitments and Contingencies
Shareholder and Partner Votes and Commitment to Enter into a Businesses Combination
As discussed in Note 1, on August 23, 2011, the shareholders of USMD and the partners of UANT and Ventures voted on and approved the Contribution transaction described in Holdings Form S-4 registration statement and accompanying prospectus. In December 2011, Ventures and Holdings entered into Merger Agreements with MCNT and Impel. On February 10, 2012, Holdings filed a post-effective amendment to its Form S-4 registration statement describing the transaction. The post-effective amendment to the Form S-4 registration statement was declared effective by the SEC on April 30, 2012. Holdings expects to close the Contribution in mid 2012, subject to the satisfaction of certain closing conditions.
Note 5 Related Party Transactions
USMD currently pays for Holdings expenses, which are recorded on Holdings balance sheet as due to related party. These expenses consist of expenses associated with the preparation and filing of periodic reports and the post-effective amendment to Form S-4 with the SEC. If the Contribution fails to occur, Holdings will not have the ability to pay amounts due to USMD. At March 31, 2012, $392,000 is due to USMD and is recorded in related party payables on Holdings balance sheet.
8
Table of Contents
SUPPLEMENTAL FINANCIAL INFORMATION OF USMD INC.
Holdings is presenting as supplemental financial information, the financial statements of USMD, which will be considered the accounting acquirer in the event the Contribution transaction is consummated. Following are the unaudited condensed consolidated financial statements of USMD for the three month interim periods ended March 31, 2012 and 2011.
USMD INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, 2012 |
December 31, 2011 |
|||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 9,483 | $ | 10,822 | ||||
Accounts receivable, net of allowance for doubtful accounts of $534 at |
||||||||
March 31, 2012 and $428 at December 31, 2011 |
3,886 | 3,624 | ||||||
Affiliate accounts receivable |
1,508 | 1,174 | ||||||
Deferred tax assets, current |
63 | 116 | ||||||
Prepaid expenses and other current assets |
214 | 235 | ||||||
|
|
|
|
|||||
Total current assets |
15,154 | 15,971 | ||||||
Property and equipment, net |
2,982 | 3,070 | ||||||
Investments in nonconsolidated affiliates |
12,099 | 11,930 | ||||||
Goodwill |
8,335 | 8,335 | ||||||
Intangible assets, net |
297 | 306 | ||||||
Deferred tax assets, less current portion |
1,364 | 808 | ||||||
|
|
|
|
|||||
Total assets |
$ | 40,231 | $ | 40,420 | ||||
|
|
|
|
|||||
LIABILITIES AND EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 273 | $ | 243 | ||||
Accrued payroll |
1,195 | 1,534 | ||||||
Other accrued liabilities |
2,157 | 2,742 | ||||||
Other current liabilities |
| 278 | ||||||
Current portion of long-term debt |
1,159 | 886 | ||||||
Current portion of related party long-term debt |
480 | 469 | ||||||
Current portion of capital lease obligations |
244 | 239 | ||||||
|
|
|
|
|||||
Total current liabilities |
5,508 | 6,391 | ||||||
Other long-term liabilities |
| 1,057 | ||||||
Long-term debt, less current portion |
1,101 | | ||||||
Related party long-term debt, less current portion |
6,665 | 6,789 | ||||||
Capital lease obligations, less current portion |
758 | 821 | ||||||
Deferred tax liabilities |
4,491 | 3,914 | ||||||
|
|
|
|
|||||
Total liabilities |
18,523 | 18,972 | ||||||
Commitments and contingencies |
||||||||
Equity: |
||||||||
USMD Inc. stockholders' equity: |
||||||||
Common stock, $0.01 par value, 50,000,000 shares authorized; 30,982,196 shares issued and 29,707,912 shares outstanding at March 31, 2012 and December 31, 2011 |
310 | 310 | ||||||
Additional paid-in capital |
7,494 | 7,404 | ||||||
Retained earnings |
10,954 | 10,571 | ||||||
Accumulated other comprehensive loss |
(13 | ) | (19 | ) | ||||
Treasury stock at cost, 1,274,284, shares at March 31, 2012 and |
||||||||
December 31, 2011 |
(1,184 | ) | (1,184 | ) | ||||
|
|
|
|
|||||
Total USMD Inc. stockholders' equity |
17,561 | 17,082 | ||||||
Noncontrolling interests in subsidiaries |
4,147 | 4,366 | ||||||
|
|
|
|
|||||
Total equity |
21,708 | 21,448 | ||||||
|
|
|
|
|||||
Total liabilities and equity |
$ | 40,231 | $ | 40,420 | ||||
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
9
Table of Contents
USMD INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
Revenue: |
||||||||
Management services revenue |
$ | 6,020 | $ | 5,912 | ||||
Lithotripsy revenue |
5,205 | 4,968 | ||||||
|
|
|
|
|||||
Net operating revenue |
11,225 | 10,880 | ||||||
|
|
|
|
|||||
Operating expenses: |
||||||||
Salaries, wages and employee benefits |
5,476 | 4,766 | ||||||
Medical supplies and services expense |
102 | 68 | ||||||
Provision for doubtful accounts |
36 | 42 | ||||||
Other operating expenses |
2,060 | 1,779 | ||||||
Depreciation and amortization |
265 | 277 | ||||||
|
|
|
|
|||||
Total operating expenses |
7,939 | 6,932 | ||||||
|
|
|
|
|||||
Income from operations |
3,286 | 3,948 | ||||||
Other income (expense): |
||||||||
Interest expense, net |
(206 | ) | (217 | ) | ||||
Equity in income of nonconsolidated affiliates |
301 | 479 | ||||||
Other income, net |
16 | 8 | ||||||
|
|
|
|
|||||
Total other income, net |
111 | 270 | ||||||
|
|
|
|
|||||
Income before provision for income taxes |
3,397 | 4,218 | ||||||
Provision for income taxes |
(288 | ) | (545 | ) | ||||
|
|
|
|
|||||
Net income |
3,109 | 3,673 | ||||||
Less: net income attributable to noncontrolling interests |
(2,726 | ) | (2,961 | ) | ||||
|
|
|
|
|||||
Net income attributable to USMD Inc |
$ | 383 | $ | 712 | ||||
|
|
|
|
|||||
Earnings per share attributable to USMD Inc. |
||||||||
Basic |
$ | 0.01 | $ | 0.02 | ||||
Diluted |
$ | 0.01 | $ | 0.02 | ||||
Weighted average common shares outstanding |
||||||||
Basic |
29,708 | 29,708 | ||||||
Diluted |
29,780 | 30,245 |
See accompanying notes to condensed consolidated financial statements.
10
Table of Contents
USMD INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(unaudited)
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
Net income |
$ | 3,109 | $ | 3,673 | ||||
Other comprehensive income, net of tax: |
||||||||
Foreign currency translation adjustments, net of tax of $4 |
6 | | ||||||
|
|
|
|
|||||
Total other comprehensive income |
6 | | ||||||
|
|
|
|
|||||
Comprehensive income |
3,115 | 3,673 | ||||||
Less: comprehensive income attributable to noncontrolling interests |
(2,726 | ) | (2,961 | ) | ||||
|
|
|
|
|||||
Comprehensive income attributable to USMD Inc. common stockholders |
$ | 389 | $ | 712 | ||||
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
11
Table of Contents
USMD INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(In thousands)
(unaudited)
USMD Inc. Common Stockholders Equity | ||||||||||||||||||||||||||||||||||||||||
Common Stock | Additional | Accumulated Other |
Treasury Stock | Total USMD Inc. |
Noncontrolling Interests in Subsidiaries |
|||||||||||||||||||||||||||||||||||
Shares Outstanding |
Par Value | Paid-in Capital |
Retained Earnings |
Comprehensive Loss |
Shares | Cost | Total Equity |
|||||||||||||||||||||||||||||||||
Balance at December 31, 2011 |
30,982 | $ | 310 | $ | 7,404 | $ | 10,571 | $ | (19) | 1,274 | $ | (1,184 | ) | $ | 17,082 | $ | 4,366 | $ | 21,448 | |||||||||||||||||||||
Net income |
| | | 383 | | | 383 | 2,726 | 3,109 | |||||||||||||||||||||||||||||||
Foreign currency translation adjustment, net of tax |
| | | | 6 | | | 6 | 6 | |||||||||||||||||||||||||||||||
Stock compensation expense |
| | 90 | | | | | 90 | | 90 | ||||||||||||||||||||||||||||||
Consolidation of Investment |
| | | | | | | | 209 | 209 | ||||||||||||||||||||||||||||||
Capital contributions from noncontrolling interests |
| | | | | | | | 44 | 44 | ||||||||||||||||||||||||||||||
Distributions to noncontrolling interests |
| | | | | | | | (3,198 | ) | (3,198 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Balance at March 31, 2012 |
30,982 | $ | 310 | $ | 7,494 | $ | 10,954 | $ | (13 | ) | 1,274 | $ | (1,184 | ) | $ | 17,561 | $ | 4,147 | 21,708 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
12
Table of Contents
USMD INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 3,109 | $ | 3,673 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Provision for doubtful accounts |
36 | 42 | ||||||
Depreciation and amortization |
265 | 277 | ||||||
Gain on sale of assets |
| (56 | ) | |||||
Equity in earnings of nonconsolidated affiliates |
(301 | ) | (479 | ) | ||||
Distributions from nonconsolidated affiliates |
128 | 182 | ||||||
Stock compensation expense |
90 | | ||||||
Impairment of investment in nonconsolidated affiliates |
14 | 48 | ||||||
Deferred income tax provision |
70 | 74 | ||||||
Change in operating assets and liabilities, net of effects of consolidation of subsidiaries: |
||||||||
Accounts receivable |
(465 | ) | (108 | ) | ||||
Prepaid expenses and other assets |
21 | 67 | ||||||
Accounts payable |
8 | 49 | ||||||
Accrued liabilities |
(934 | ) | (222 | ) | ||||
|
|
|
|
|||||
Net cash provided by operating activities |
2,041 | 3,547 | ||||||
|
|
|
|
|||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(144 | ) | (78 | ) | ||||
Increase in cash due to consolidation of investment |
50 | | ||||||
|
|
|
|
|||||
Net cash used in investing activities |
(94 | ) | (78 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Proceeds from debt |
96 | | ||||||
Repayments of long-term debt and capital lease obligations |
(115 | ) | (113 | ) | ||||
Repayments of related party long-term debt |
(113 | ) | (104 | ) | ||||
Capital contributions from noncontrolling interests |
44 | 171 | ||||||
Distributions to noncontrolling interests |
(3,198 | ) | (3,213 | ) | ||||
|
|
|
|
|||||
Net cash used in financing activities |
(3,286 | ) | (3,259 | ) | ||||
|
|
|
|
|||||
Net increase (decrease) in cash and cash equivalents |
(1,339 | ) | 210 | |||||
Cash and cash equivalents at beginning of year |
10,822 | 7,477 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of period |
$ | 9,483 | $ | 7,687 | ||||
|
|
|
|
|||||
Supplemental cash flow information: |
||||||||
Cash paid for |
||||||||
Interest, net of related parties |
$ | (39 | ) | $ | (50 | ) | ||
Interest to related parties |
$ | (162 | ) | $ | (172 | ) | ||
Income tax |
$ | (300 | ) | $ | (675 | ) |
See accompanying notes to condensed consolidated financial statements.
13
Table of Contents
USMD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)
Note 1 Description of Business and Basis of Presentation
USMD Inc. and its wholly-owned subsidiaries (USMD or the Company) provide finance, revenue cycle, centralized business office, clinical, operational and business development services, or a selection of these management services to healthcare providers. USMD owns and operates three healthcare management subsidiaries Mat-RX Development, L.L.C. (USMD Hospital Division), USMD Cancer Treatment Centers, L.L.C. (USMD CTC Division) and U.S. Lithotripsy, L.P. (USMD Lithotripsy Division) that were formed principally to establish, invest in or acquire, operate and/or manage acute-care hospitals, cancer treatment centers and lithotripsy service providers.
| USMD Hospital Division is a healthcare management services company that has a beneficial partnership interest of 5% in USMD Hospital at Arlington, L.P., a Texas limited partnership (USMD Arlington Hospital) which owns a general acute care hospital in Arlington, Texas. USMD Hospital Division also has a beneficial partnership interest of 20% in USMD Hospital at Fort Worth, L.P., a Texas limited partnership (USMD Fort Worth Hospital) which owns a general acute care hospital in Fort Worth, Texas. USMD Hospital Division beneficially owns 100% of the equity interests of the general partners of both of these partnerships and manages their hospital operations pursuant to long-term contractual management agreements. |
| USMD CTC Division is a healthcare management services company formed to develop, invest in, operate and/or manage cancer treatment centers providing radiotherapy solutions to advance cancer care. As of March 31, 2012, USMD CTC Division had seven contractual agreements under which it provided development, management, and/or related consulting and physics services to ten operating or planned cancer treatment centers located in Texas, Florida, Missouri, Arizona and Alaska. USMD CTC Division also has an equity method investment in a cancer treatment center in Monterrey, Mexico. |
| USMD Lithotripsy Division is a healthcare management services partnership formed to establish, invest in, operate and/or manage joint venture entities that provide lithotripsy services to hospitals, ambulatory surgery centers, and/or physician offices. As of March 31, 2012, USMD Lithotripsy Division provided management services to 23 lithotripsy service providers, either pursuant to a management agreement or in its capacity as a general partner or managing member of such providers. The lithotripsy service providers are primarily located in the South Central United States. The balance sheets and results of operations of the entities for which USMD serves as the general partner are included in USMDs consolidated financial statements. |
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (GAAP) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although USMD believes that the disclosures made are adequate to make the information not misleading. These condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary for fair presentation of the condensed consolidated financial statements. The operating results for the interim periods are not necessarily indicative of results for the full fiscal year. These condensed financial statements should be read in conjunction with USMDs audited financial statements and notes thereto included in the USMD Holdings, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2011 filed with the SEC. There have been no significant changes in the information reported in those notes, other than from normal business activities and as discussed herein.
14
Table of Contents
USMD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
March 31, 2012
(Unaudited)
Note 2 Investments in Nonconsolidated Affiliates
The net carrying values and ownership percentages of nonconsolidated affiliates accounted for under the equity method are as follows (dollars in thousands):
March 31, 2012 | December 31, 2011 | |||||||||||||||
Carrying Value |
Ownership Percentage |
Carrying Value |
Ownership Percentage |
|||||||||||||
USMD Arlington |
$ | 5,623 | 5.000 | % | $ | 5,513 | 5.000 | % | ||||||||
USMD Fort Worth |
6,293 | 20.024 | % | 6,203 | 20.024 | % | ||||||||||
Other |
183 | 4%-34 | % | 214 | 4%-34 | % | ||||||||||
|
|
|
|
|||||||||||||
$ | 12,099 | $ | 11,930 | |||||||||||||
|
|
|
|
On December 31, 2011, three managed lithotripsy partnerships were scheduled to terminate. On January 1, 2012, USMD extended the duration of these partnerships and entered into amended partnership agreements with those entities. USMD continues to account for two of these investments under the equity method of accounting. Terms of the new agreement for the other entity necessitate consolidation accounting and beginning January 1, 2012 USMD consolidates the entitys balance sheet and results of operations. Two additional entities are included in USMDs consolidated financial statements as they were under the previous partnership agreements.
Effective September 30, 2011, Willowbrook Cancer Centers, LLC (Willowbrook) sold its operating assets (excluding cash and accounts receivable) to a third party, and as part of the same transaction, paid to USMD CTC a fee to terminate the management agreement and Facility Development and Management Agreement between Willowbrook and USMD CTC. USMD CTC realized income of $3.7 million on termination of these contracts, which is recorded in other operating revenue. Willowbrook is in the process of closing its books and dissolving the partnership as of March 31, 2012.
Note 3 Long-Term Debt
Effective late December 2011, three consolidated lithotripsy entities purchased equipment totaling $1.3 million. Financing agreements were not finalized at December 31, 2011; however, the entities executed agreements in the first quarter of 2012 to finance the full amount of the purchased equipment and an additional $0.1 million of purchased equipment. As such, at March 31, 2012 USMD has recorded $1.1 million in long-term debt, less current portion on the consolidated balance sheet and $0.3 million in current portion of long-term debt on the consolidated balance sheet. At December 31, 2011, USMD had classified the estimated $1.0 million long-term portion of amounts due as other long-term liabilities on the consolidated balance sheet and the estimated $0.3 million current amount due was included in other current liabilities on the consolidated balance sheet.
Interest expense consists of the following (in thousands):
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
Debt interest and commitment fees |
$ | 206 | $ | 219 | ||||
Interest income |
| (2 | ) | |||||
|
|
|
|
|||||
Total interest expense, net |
$ | 206 | $ | 217 | ||||
|
|
|
|
15
Table of Contents
USMD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
March 31, 2012
(Unaudited)
Note 4 Fair Value Measurements
Financial Instruments Measured at Fair Value on a Nonrecurring Basis
USMD measures its nonfinancial assets including goodwill, other intangible assets and investments in nonconsolidated affiliates at fair value on a nonrecurring basis and the assets are subject to fair value adjustment in certain circumstances. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges or similar adjustments made to the carrying value of the applicable assets.
Fair Value of Other Financial Instruments
Other financial instruments consist mainly of cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings and long-term debt. The carrying value and estimated fair value of USMDs other financial instruments that do not approximate fair value due to their short-term or variable-rate nature are as follows (in thousands):
March 31, 2012 | December 31, 2011 | |||||||||||||||
Carrying Value |
Fair Value |
Carrying Value |
Fair Value |
|||||||||||||
USMD Inc. subordinated notes payable |
$ | 731 | $ | 731 | $ | 731 | $ | 743 | ||||||||
USMD Lithotripsy Division subordinated notes payable |
7,145 | 9,194 | 7,258 | 9,388 | ||||||||||||
Lithotripsy entity notes payable |
1,460 | 1,460 | 59 | 60 | ||||||||||||
Capital lease obligations |
1,002 | 1,021 | 1,060 | 1,067 | ||||||||||||
Other long-term liabilities |
| | 1,335 | 1,335 |
USMD determines the fair value of its long-term debt using discounted cash flows based primarily on borrowing rates currently available to it for similar debt or debt for which the Company could use the proceeds to retire existing debt. Quoted market prices are not available for USMDs long-term debt. USMDs consolidated lithotripsy entities enter into capital leases for equipment; borrowing rates are based on individual partnership creditworthiness. At March 31, 2012, USMD estimated current borrowing rates for the capital leases by adjusting the discount factor of the capital lease obligation at March 31, 2012 by the variance in borrowing rates between the inception dates and balance sheet date. Management noted no significant events that would otherwise affect the borrowers creditworthiness. At March 31, 2012, the carrying value of lithotripsy entity notes payable approximates fair value due to recent inception or due to the short-term remaining life of the obligation. At December 31, 2011, the carrying value of other long-term liabilities approximates fair value due to recent inception.
Note 5 Share-Based Compensation
Issuance of Stock Options
Effective September 1, 2011, pursuant to USMDs 2007 Long Term Incentive Plan, USMD granted a newly hired executive, options to purchase 1,050,000 shares of USMDs common stock at an exercise price of $3.00. These options expire eight years from the grant date with vesting of 210,000 on September 1, 2011 and on January 1st of the succeeding four years, beginning in 2012. The exercise price is equal to or in excess of the estimated fair value of USMDs common stock on the date of grant. The fair value of stock options vested and stock-based compensation expense recognized for the three months ended March 31, 2012 and 2011, respectively, was $90,000 and $0, and is included in salaries, wages and employee benefits on the consolidated statements of operations. As of March 31, 2012, there was $0.8 million of unrecognized compensation cost related to unvested share-based compensation awards. This cost is expected to be recognized over a weighted-average period of 33 months.
16
Table of Contents
USMD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
March 31, 2012
(Unaudited)
Note 6 Earnings per Share
Basic earnings per share is based on the weighted-average number of common shares outstanding and diluted earnings per share is based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued. The following table presents a reconciliation of the numerators and denominators of basic and diluted earnings per share and the computation of basic and diluted earnings per share attributable to USMD (in thousands, except per share data):
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
Numerator : |
||||||||
Net earnings attributable to USMD Inc |
$ | 383 | $ | 712 | ||||
|
|
|
|
|||||
Denominator : |
||||||||
Weighted-average common shares outstanding |
29,708 | 29,708 | ||||||
Effect of potentially dilutive securities: |
||||||||
Stock options |
72 | 537 | ||||||
|
|
|
|
|||||
Weighted-average common shares outstanding assuming dilution |
29,780 | 30,245 | ||||||
|
|
|
|
|||||
Earnings per share attributable to USMD Inc. |
||||||||
Basic |
$ | 0.01 | $ | 0.02 | ||||
Diluted |
$ | 0.01 | $ | 0.02 |
At March 31, 2012 and 2011, the computation of dilutive shares excludes 1,519,384 and 469,384 stock options, respectively, with a weighted-average exercise price of $3.00 per share, because the exercise price of these outstanding options was greater than the average estimated market price of USMDs common shares and, therefore, was anti-dilutive to the computation.
Note 7 Commitments and Contingencies
Financial Guarantees
As of March 31, 2012, USMD had issued guarantees to third parties of the indebtedness and other obligations of certain of its nonconsolidated investees. Should the investees fail to pay the obligations due, USMD could potentially be required to make maximum aggregate payments totaling $4.2 million. The guarantees provide for recourse against the investee; however, if USMD were required to perform under the guarantee, recovery of any amount would be unlikely. The remaining terms of these guarantees range from four to 58 months. USMD records a liability for performance under financial guarantees, when, upon review of available financial information of the nonconsolidated affiliate and in consideration of pertinent factors, management determines that it is probable it will have to perform under the guarantee and the liability is reasonably estimable. To date, USMD has not recorded a liability for these guarantees, as USMD believes it is not probable that USMD will have to perform under these agreements.
Commitment to Enter into a Businesses Combination
On August 19, 2010, USMD entered into a Contribution and Purchase Agreement (such agreement, the Original Contribution Agreement) with USMD Holdings, Inc., a Delaware corporation (Holdings), Urology Associates of North Texas, LLP, a Texas limited liability partnership (UANT), and UANT Ventures, L.L.P., a Texas limited liability partnership (Ventures) pursuant to which the entities would combine into a single integrated health services company (such transaction, the Contribution). Immediately prior to the Contribution, certain of the USMD shareholders would contribute all or a portion of their shares of USMD common stock to Ventures in exchange for partnership interests in Ventures. When the Contribution is consummated, Ventures would contribute its assets, which would include among other things the shares of USMD common stock it received from the former USMD shareholders, and the remaining USMD shareholders would contribute their USMD shares, to Holdings in exchange for shares of Holdings common stock. Holdings described the Contribution in its Registration Statement on Form S-4 filed with the Securities and Exchange Commission (the SEC) on December 23, 2010 (File No. 333-171386) and declared effective by the SEC on July 25, 2011. On August 23, 2011, the shareholders of USMD and the partners of Ventures voted on and approved the Original Contribution Agreement.
Prior to the consummation of the Contribution, Ventures and Holdings entered into merger agreements with The Medical Clinic of North Texas, P.A., a Texas professional association (MCNT), and Impel Management Services, L.L.C., a Texas limited liability company (Impel). As a result of these merger agreements, on February 9, 2012, Holdings, USMD, UANT and Ventures executed an amendment to the Original Contribution Agreement (the Amendment) to reflect, among other changes, the effects of the merger agreements on the Contribution. USMD expects the Contribution to close in mid 2012.
17
Table of Contents
USMD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
March 31, 2012
(Unaudited)
Guaranty of Investee Debt
On March 22, 2012, USMD issued a guaranty to a third party lender for the indebtedness of Anchorage Cancer Treatment Center, LLC, an equity method investee, for a construction loan to build out and equip a cancer treatment center and leasehold. The loan is a 7 year, $6.2 million loan at 5.5% interest per annum. USMD holds a 20% equity interest in this investee and its guaranty on this debt is a pro rata 20% or $1.2 million of the original principal of the loan. As of March 31, 2012, no proceeds had been drawn down on this loan obligation.
Litigation
USMD is, from time to time, subject to claims and litigation arising in the ordinary course of business. In certain of these actions, plaintiffs request payment for damages, including punitive damages that may not be covered by insurance. USMD is currently not a party to any pending or threatened proceeding, which, in managements opinion, would have a material adverse effect on USMDs business, financial condition, results of operations or cash flows.
Note 8 Related Party Transactions
USMD currently pays for Holdings expenses, which primarily consist of expenses associated with the preparation and filing of Holding periodic reports and the post-effective amendment to Form S-4 with the SEC. If the Contribution fails to occur, Holdings will not have the ability to repay USMD for these expenses. At March 31, 2012, $392,000 is due from Holdings and recorded in affiliate accounts receivable on USMDs balance sheet. USMD provides management, clinical and support services to seven nonconsolidated affiliates in which it has limited partnership or ownership interests. At March 31, 2012, $1,116,000 is due from these entities and recorded in affiliate accounts receivable on USMDs balance sheet.
18
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains, and from time to time management may make, statements that may constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts but instead represent managements current expectations regarding future events, many of which, by their nature, are inherently uncertain and outside its control. The forward-looking statements contained in this Quarterly Report are based on information as of the date of this quarterly report. Many of these forward-looking statements relate to future industry trends, actions, future performance or results of current and anticipated initiatives and the outcome of contingencies and other uncertainties that may have a significant impact on Holdings business, future operating results and liquidity. Whenever possible, Holdings identifies these statements by using words such as anticipate, believe, estimate, continue, intend, expect, plan, forecast, project and similar expressions, for future-tense or conditional constructions (will, may, should, could, etc.). Holdings cautions you that these statements are only predictions and are not guarantees of future performance. These forward-looking statements and Holdings actual results, developments and business are subject to certain risks and uncertainties that could cause actual results and events to differ materially from those anticipated by these statements. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Holdings assumes no obligation to update or revise any forward-looking statements, whether as a result of new information or future events, except as required by law. Many factors that could cause actual results to differ from those in the forward-looking statements including, among others, those discussed under Risk Factors, in Holdings Form S-4 registration statement and those described elsewhere in this Quarterly Report on Form 10-Q and from time to time in Holdings future reports filed with the Securities and Exchange Commission.
Executive Overview
Holdings is a Delaware corporation formed on May 7, 2010 to facilitate the business combination of USMD, UANT and Ventures. On August 19, 2010, Holdings, USMD, Ventures and UANT entered into the Original Contribution Agreement pursuant to which the entities would combine into a single integrated health services company. Immediately prior to the Contribution, a subsidiary of Ventures would merge with and into UANT, resulting in UANTs becoming a wholly-owned subsidiary of Ventures, and certain of the USMD shareholders would contribute all or a portion of their shares of USMD common stock to Ventures in exchange for partnership interests in Ventures. When the contribution is consummated, Ventures would contribute all of its assets, which would include its equity interests in USMD and UANT, and the remaining USMD shareholders would contribute their USMD shares, to Holdings in exchange for shares of Holdings common stock. Holdings described the Contribution in its Registration Statement on Form S-4 filed with the SEC on December 23, 2010 (File No. 333-171386) and declared effective by the SEC on July 25, 2011. On August 23, 2011, the shareholders of USMD and the partners of Ventures voted on and approved the Original Contribution Agreement.
On December 1, 2011, Ventures and Holdings entered into a merger agreement with MCNT, and on December 15, 2011, Ventures and Holdings entered into a merger agreement with Impel. These merger agreements provide that subsidiaries of Ventures will merge with and into each of MCNT and Impel, with MCNT and Impel surviving as wholly-owned subsidiaries of Ventures. As a result of these merger agreements, on February 9, 2012, Holdings, USMD, UANT and Ventures executed the Amendment to reflect, among other changes, that Ventures will contribute to Holdings, in addition to its equity interests in USMD and UANT, its equity interests in MCNT and Impel as part of the Contribution. Holdings expects the Contribution to close in mid-2012.
Through March 31, 2012, Holdings had no operations or cash flows except for the expenses associated with a share-based payment and periodic reporting to the SEC. Holdings only assets, liabilities and equity are related to these items. As such, except for certain forward-looking discussions, Holdings has not presented significant discussions of its results of operations or liquidity and capital resources.
Holdings expects to operate the businesses that are currently owned and operated by USMD, UANT, Ventures, MCNT and Impel. The growth and success of Holdings in the near term largely depends on Holdings ability to:
| consummate the Contribution; |
| increase the number of patients served by its subsidiaries and the health care providers it manages; |
| successfully open new facilities or expand existing facilities; |
| successfully integrate its acquired and/or managed facilities into existing operations; and |
| maintain productive relationships with physician and hospital partners. |
In addition, Holdings intends to vertically expand its business in the North Texas service area by developing or acquiring complementary physician group practices and ancillary healthcare service providers. Holdings plans to horizontally expand its business in other strategic service areas by developing strategic alliances with large integrated practices and expanding the medical service lines of those medical groups in those service areas. Holdings believes that the opportunity to execute its business combination with USMD, UANT, Ventures, MCNT and Impel and to develop or acquire targeted physician group practices and ancillary healthcare service providers will place it in a position to achieve its goal of becoming a regional or national integrated health services company.
Key Developments
| On August 19, 2010, Holdings, USMD, Ventures and UANT entered into the Original Contribution Agreement pursuant to which the entities agreed to combine their separate businesses into a single integrated health services company. Immediately prior to the Contribution, a subsidiary of Ventures would merge with and into UANT, with UANT surviving as a wholly-owned subsidiary of Ventures, and certain of the USMD shareholders would contribute all or a portion of their shares of USMD common stock to Ventures in exchange for partnership interests in Ventures. When the contribution is consummated, Ventures would contribute its assets, which would include its equity interests in USMD and UANT, and the remaining USMD shareholders would contribute their USMD shares, to Holdings in exchange for shares of Holdings common stock. The Original Contribution Agreement was approved by the USMD shareholders and Ventures partners on August 23, 2011. |
| On December 1, 2011, Ventures and Holdings entered into a merger agreement with MCNT and on December 15, 2011, Ventures and Holdings entered into a merger agreement with Impel. These merger agreements provide that subsidiaries of Ventures will merge with and into each of MCNT and Impel, with MCNT and Impel surviving as wholly-owned subsidiaries of Ventures prior to the closing of the Contribution. |
| As a result of these merger agreements, on February 9, 2012, Holdings, USMD, UANT and Ventures entered into the Amendment to reflect, among other changes, that Ventures will contribute to Holdings, in addition to its equity interests in USMD and UANT, its equity interests in MCNT and Impel as part of the Contribution. |
19
Table of Contents
| If the Contribution is completed, Holdings has agreed to pay for the reasonable and documented out of pocket costs and expenses of MCNT and Impel incurred in connection with the Contribution in an aggregate amount not to exceed $500,000. Such costs shall include without limitation fees paid by MCNT and Impel to attorneys and valuation, financial and investment banking advisors. Holdings has been advised that the maximum amount of such reimbursable aggregate expenses has been exceeded by MCNT and Impel. |
Results of Operations
As of March 31, 2012 and for the three month periods ending March 31, 2012 and 2011, Holdings had no operations or revenues. Expenses were limited to activity associated with the issuance of restricted common shares and expenses associated with the preparation and filing of periodic reports with the SEC. USMD, the entity that will be the accounting acquirer in the event the Contribution is consummated, is paying those expenses, and Holdings records related party payables to USMD for those expenses.
Liquidity and Capital Resources
As of March 31, 2012 and for the three month periods ending March 31, 2012 and 2011, Holdings had no net cash flows.
In the event the Contribution is consummated, Holdings expects to utilize cash flows from the operations of its subsidiaries to fund operations and meet principal and interest payment obligations. Holdings will consider restructuring and consolidating the existing credit facilities of its subsidiaries.
Holdings currently has no commitments for capital expenditures. In the future, as part of Holdings overall business strategy, it intends to make strategic acquisitions of complementary healthcare facilities and physician practice groups, and Holdings may rely heavily on financing in order to fulfill this strategy. To the extent Holdings is unable to secure the necessary acquisition financing, it may be hampered or delayed in its ability to acquire such entities and, thus, may be unable to fulfill timely its acquisition strategy.
Supplemental USMD Managements Discussion and Analysis of Financial Condition and Results of Operations
Holdings is presenting supplemental managements discussion and analysis of financial condition and results of operations of USMD (the USMD MD&A), the predecessor entity that will be considered the accounting acquirer in the event the Contribution transaction is consummated. Following is the USMD MD&A for the three months interim periods ended March 31, 2012 and 2011.
Executive Overview
USMD provides finance, revenue cycle, centralized business office, clinical, operational and business development services, or a selection of these management services, to healthcare providers. USMD owns and operates three healthcare management companies USMD Hospital Division, USMD CTC Division and USMD Lithotripsy Division formed principally to establish, invest in, operate and/or manage acute-care hospitals, cancer treatment centers and lithotripsy service providers. USMDs revenues are comprised of management, operational and clinical services revenue received from contracts with certain health care providers and the revenue of consolidated lithotripsy entities. In addition, USMD generates income from equity in income of nonconsolidated affiliates that results from the allocation to USMD of its proportionate share of income of its nonconsolidated affiliates.
USMD Hospital Division is a healthcare management services company that has beneficial partnership interests of 5% and 20% in hospital partnerships located in Arlington and Fort Worth, Texas, respectively. USMD Hospital Division owns 100% of the general partners of both of these partnerships and manages their hospital operations pursuant to long-term contractual management agreements.
USMD Arlington Hospital owns and operates an acute care hospital that has 34 inpatient licensed beds. Its surgery unit is comprised of 18 day surgery beds, two procedure rooms and nine operating rooms. The hospital performs inpatient and outpatient surgeries in a variety of specialties that include urology, neurosurgery, general surgery, gynecology, podiatry, plastic surgery, pain management and orthopedics. Other services include an in-house laboratory, diagnostic radiology, computed tomography, magnetic resonance imaging, nuclear medicine and ultrasound. The hospital also has an emergency department. A wholly-owned subsidiary of USMD Hospital Division is the general partner of USMD Arlington Hospital.
USMD Fort Worth Hospital owns and operates an acute care hospital that opened in March 2008 and has six operating rooms and eight licensed inpatient beds. The hospital performs inpatient and outpatient surgeries in a variety of specialties that include urology, ENT, general surgery, gynecology, podiatry, plastic surgery, oral surgery and orthopedics. Other services include an in-house laboratory, diagnostic radiology, computed tomography scans and ultrasound. A wholly-owned subsidiary of USMD Hospital Division is the general partner of USMD Fort Worth Hospital.
USMD CTC Division is a healthcare management services company formed to develop, invest in, operate and/or manage cancer treatment centers providing radiotherapy solutions to advance cancer care. As of March 31, 2012, USMD CTC Division had seven contractual agreements under which USMD CTC Division provided development, management, and/or consulting and physics services to ten operating or planned cancer treatment centers located in Texas, Florida, Missouri, Arizona and Alaska. USMD CTC Division also has an equity method investment in a cancer treatment center in Monterrey, Mexico.
USMD Lithotripsy Division is a healthcare management services partnership formed to establish, invest in or acquire, operate and/or manage joint venture entities that provide lithotripsy services to hospitals, ambulatory surgery centers, and/or physician offices. As of March 31, 2012, USMD Lithotripsy Division provided management services to 23 lithotripsy service providers, either pursuant to a management agreement or in its capacity as general partner or managing member of such providers. In addition, USMD Lithotripsy Division owns equity interests in substantially all of these lithotripsy service providers. The lithotripsy service providers are primarily located in the South Central United States. The balance sheets and results of operations of the entities for which USMD served as the general partner are included in USMDs consolidated financial statements.
20
Table of Contents
Sources of Revenue
USMD Hospital Division primarily generates revenue from management services provided by USMD Hospital Division to USMD Arlington Hospital and USMD Fort Worth Hospital. Management fees are based on a percentage of each hospitals adjusted net patient revenues, i.e., net patient service revenues and medical office building base rent minus bad debt expense. Hospital net patient service revenue depends on a variety of factors, such as surgical case volume, the case mix or intensity of utilization of services and the mix of third-party payer sources. USMD Hospital Division provides the hospitals with management, information technology and revenue cycle staff, and the hospitals pay USMD Hospital Division for the labor costs associated with staffing these functions. Billings for these services are included in management services revenue. For the three months ended March 31, 2012 and 2011, USMD Arlington Hospital and USMD Fort Worth Hospital accounted for 35% and 33%, of net operating revenue.
USMD CTC Division primarily earns revenue through the provision of broad-based management and clinical (physics) services to cancer treatment centers. In addition, USMD CTC Division recognizes revenue that represents payment for certain operating expenses such as operations and revenue cycle staffing. Billings for these services are included in management services revenue.
USMD Lithotripsy Division primarily generates revenue through the provision of lithotripsy services to hospitals in ten states by its consolidated entities. USMD typically provides these lithotripsy services to its hospital, ambulatory surgery center and physician office clients based on contracted fee-for-service arrangements. USMD Lithotripsy Division also recognizes revenue that represents payment for certain operating expenses such as operations staffing and revenue cycle staffing and accounting services.
Key Developments
| Effective September 30, 2011, Willowbrook Cancer Center, L.L.C. (Willowbrook), a nonconsolidated investee of USMD, sold its operating assets (excluding cash and accounts receivable) to a third party for approximately $3.9 million. As part of the same transaction, the third party paid a $3.7 million fee to USMD CTC Division to terminate the management agreement and Facility Development and Management Agreement between Willowbrook and USMD CTC Division. The termination fees were recorded in other operating revenue. Willowbrook is in the process of dissolving the partnership as of March 31, 2012. |
| In connection with the Contribution, USMD conducted a valuation of its business units as of December 31, 2011. The valuation indicated that the fair market value of its investment in USMD Arlington Hospital had declined from the values established at December 31, 2010, the date of the previous valuation. There were no prior material indicators of impairment. The decline in USMD Arlington Hospitals fair value resulted from a reduction in estimated patient volumes, particularly high acuity patients. Discount rates used in the 2011 valuations did not change from the 2010 valuations. At December 31, 2011, USMD recorded an impairment charge of $0.7 million to record its investment in USMD Arlington Hospital at its estimated fair value. |
Key Drivers and Challenges
| Given the current contracted managed care reimbursement rates at USMD Arlington Hospital and USMD Fort Worth Hospital, USMD believes the management fee revenue it receives is sufficient to fund its working capital and routine capital expenditure requirements with cash flow from operations. However, USMD may seek additional financing in order to fund its operations and business strategy and to refinance certain of its existing credit facilities. USMDs debt capacity is currently constrained by its ability to service additional debt, the tight credit markets and limitations on indebtedness contained in its existing credit facility. See further discussion in the Liquidity and Capital Resources section of the USMD MD&A. |
| As the ongoing economic climate has increased the number of underinsured patients, and as the prevalence of high deductible insurance plans has increased, USMD anticipates that a higher percentage of revenues of USMD Arlington Hospital and USMD Fort Worth Hospital will be comprised of the patients share of cost. This shift in payer mix may have an unfavorable impact on hospital collection rates, which could have an unfavorable impact on USMDs revenue-based management fees. |
21
Table of Contents
Supplemental Results of Operations for USMD
The following table summarizes USMDs results of operations for the periods indicated and is used in the discussions that follow (in thousands):
Three Months Ended March 31, | Three Months Variance | |||||||||||||||||||||||
2012 | 2011 | 2012 vs. 2011 | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
Revenues: |
||||||||||||||||||||||||
Management services revenue |
$ | 6,020 | 53.6 | % | $ | 5,912 | 54.3 | % | $ | 108 | 1.8 | % | ||||||||||||
Lithotripsy revenue |
5,205 | 46.4 | % | 4,968 | 45.7 | % | 237 | 4.8 | % | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Net operating revenue |
11,225 | 100.0 | % | 10,880 | 100.0 | % | 345 | 3.2 | % | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||
Salaries, wages and employee benefits |
5,476 | 48.8 | % | 4,766 | 43.8 | % | 710 | 14.9 | % | |||||||||||||||
Medical supplies and services expense |
102 | 0.9 | % | 68 | 0.6 | % | 34 | 50.0 | % | |||||||||||||||
Provision for doubtful accounts |
36 | 0.3 | % | 42 | 0.4 | % | (6 | ) | -14.3 | % | ||||||||||||||
Other operating expenses |
2,060 | 18.4 | % | 1,779 | 16.4 | % | 281 | 15.8 | % | |||||||||||||||
Depreciation and amortization |
265 | 2.4 | % | 277 | 2.5 | % | (12 | ) | -4.3 | % | ||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
7,939 | 70.7 | % | 6,932 | 63.7 | % | 1,007 | 14.5 | % | ||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Income from operations |
3,286 | 29.3 | % | 3,948 | 36.3 | % | (662 | ) | -16.8 | % | ||||||||||||||
Other income (expense), net |
111 | 1.0 | % | 270 | 2.5 | % | (159 | ) | -58.9 | % | ||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Income before provision for income taxes |
3,397 | 30.3 | % | 4,218 | 38.8 | % | (821 | ) | -19.5 | % | ||||||||||||||
Provision for income taxes |
(288 | ) | -2.6 | % | (545 | ) | -5.0 | % | 257 | -47.2 | % | |||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Net income |
3,109 | 27.7 | % | 3,673 | 33.8 | % | (564 | ) | -15.4 | % | ||||||||||||||
Less: net income attributable to noncontrolling interests |
(2,726 | ) | -24.3 | % | (2,961 | ) | -27.2 | % | 235 | -7.9 | % | |||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Net income attributable to USMD |
$ | 383 | 3.4 | % | $ | 712 | 6.5 | % | $ | (329 | ) | -46.2 | % | |||||||||||
|
|
|
|
|
|
Revenues
Net operating revenue increased 3.2% to $11.2 million for the three months ended March 31, 2012 from $10.9 million for the same period in 2011, due to a 1.8% increase in management services revenue and a 4.8% increase in lithotripsy revenue.
Management services revenue includes revenue earned through the provision of management and staffing services to USMDs managed entities and increased 1.8% to $6.0 million for the three months ended March 31, 2012 from $5.9 million for the same period in 2011. USMD Hospital Division management services revenue increased $0.3 million as a result of higher acuity case mix and volume at the two managed hospitals as well as inflation adjustments to the reimbursable management costs associated with the two managed hospitals. USMD Lithotripsy Division management services revenue remained flat while USMD CTC Division management services revenue decreased $0.2 million. The decrease in the USMD CTC Division occurred due to the loss of two existing cancer treatment centers in the second and third quarter of 2011 partially offset by the opening of two cancer treatment centers in the fourth quarter of 2011. CTC fractions remained flat for the three months ended March 31, 2012 compared to the same period in 2011. USMD is actively pursuing domestic and international investments and management contracts with radiation treatment centers.
Lithotripsy revenue consists of revenue of the consolidated lithotripsy partnerships, which increased 4.8%, to $5.2 million for the three months ended March 31, 2012 from $5.0 million for the same period in 2011. This increase in revenue coincides with the lithotripsy partnership case count increase of 4.2% as compared to the same period in 2011.
Operating Expenses
Salaries, wages and employee benefits as a percentage of revenue increased to 48.8% for the three months ended March 31, 2012 from 43.8% for the same period in 2011. The $0.7 million increase is primarily due to a $0.2 million increase in contracted labor costs, benefits and certain 2012 variable bonuses accrued in the USMD Hospital Division as well as an increase of $0.4 million at the corporate offices for share compensation expense, 2012 variable bonuses accrued and staffing expense increase related to the expansion of centralized financial reporting staff and other departments.
Other operating expenses consist primarily of professional fees, rent and lease expenses, facilities expense, travel expense and other expense. Other operating expenses increased $0.3 million to $2.1 million for the three months ended March 31, 2012 from $1.8 million for the same period in 2011 due to a $0.1 million increase in other expenses related to the filing of the Registration Statement on Form S-4. In addition, facilities expenses increased $0.1 million across the USMD Lithotripsy Division.
Other Income (Expense)
Other income decreased $0.2 million to $0.1 million for the three months ended March 31, 2012, compared to the same period in 2011. The variance is primarily due to a $0.1 decrease in equity in income of the USMD Hospital Division and a combined $0.1 decrease in equity in income of the USMD CTC Division and the USMD Lithotripsy Division.
The income tax provision decreased $0.2 million to $0.3 million for the three months ended March 31, 2012, from $0.5 million for the same period in 2011. USMDs effective tax rates were 8.5% and 12.9% for the three months ended March 31, 2012 and 2011, respectively. The decrease is primarily due to the impact of net income attributable to noncontrolling interests.
Net income attributable to noncontrolling interests decreased $0.3 million to $2.7 million for the three months ended March 31, 2012, from $3.0 million for the same period in 2011, due to a $0.3 million decrease related to lithotripsy partnership interests.
22
Table of Contents
Supplemental Liquidity and Capital Resources of USMD
The following table summarizes USMDs cash flows for the periods indicated and is used in the discussions that follow (in thousands):
Three Months Ended March 31, | Three
Months Variance |
|||||||||||
2012 | 2011 | 2012 vs. 2011 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 3,109 | $ | 3,673 | $ | (564 | ) | |||||
Net income to net cash reconciliation adjustments |
302 | 88 | 214 | |||||||||
Change in operating assets and liabilities |
(1,370 | ) | (214 | ) | (1,156 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
2,041 | 3,547 | (1,506 | ) | ||||||||
|
|
|
|
|
|
|||||||
Cash flows from investing activities: |
||||||||||||
Capital expenditures |
(144 | ) | (78 | ) | (66 | ) | ||||||
Investments in nonconsolidated affiliates |
50 | | 50 | |||||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
(94 | ) | (78 | ) | (16 | ) | ||||||
|
|
|
|
|
|
|||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from debt |
96 | | 96 | |||||||||
Repayments of long-term debt and capital lease obligations |
(228 | ) | (217 | ) | (11 | ) | ||||||
Distributions to noncontrolling interests, net of contributions |
(3,154 | ) | (3,042 | ) | (112 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash used in financing activities |
(3,286 | ) | (3,259 | ) | (27 | ) | ||||||
|
|
|
|
|
|
|||||||
Net increase (decrease) in cash and cash equivalents |
(1,339 | ) | 210 | (1,549 | ) | |||||||
Cash and cash equivalents at beginning of year |
10,822 | 7,477 | 3,345 | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents at end of period |
$ | 9,483 | $ | 7,687 | $ | 1,796 | ||||||
|
|
|
|
|
|
Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011
Net cash provided by operating activities decreased $1.5 million for the three months ended March 31, 2012 as compared to the same period in 2011 primarily due to a $1.2 million decrease in cash flow from working capital accounts and a $0.3 million decrease in net income after net income to net cash reconciliation adjustments.
Net cash provided by investing activities remained flat due to the consolidation of a lithotripsy entity previously treated as an equity investment, offset by an increase in capital expenditures. On December 31, 2011, this managed lithotripsy partnership was scheduled to terminate. On January 1, 2012, USMD extended the duration of this partnership and entered into an amended partnership agreement with this entity. Terms of the new agreement for this entity necessitate consolidation accounting and beginning January 1, 2012 USMD consolidates the entitys balance sheet and results of operations. USMD expects to incur approximately $1.0 million additional capital expenditures for 2012, primarily attributable to the replacement of lithotripters at its consolidated lithotripsy entities.
Net cash used in financing activities was flat for the three months ended March 31, 2012 as compared to the same period in 2011. A $0.1 million increase in proceeds from debt to finance equipment purchased by a lithotripsy entity was offset by a $0.1 million increase in distributions to noncontrolling interests.
Capital Resources and Debt Obligations
USMD expects to continue to fund operations and meet principal and interest payment obligations utilizing cash flows from operations. Routine distributions from both managed hospitals serve as a critical source of cash flows for USMD. USMD Fort Worth Hospital made its first distribution in the third quarter of 2011. Hospital managed care contracted reimbursement rates that went into effect in mid-2010 have improved managed hospital profitability and may permit continued future routine distributions from USMD Arlington Hospital and USMD Fort Worth Hospital, subject to credit facility restrictions. USMD plans to secure equity financing, mezzanine financing and/or debt financing for acquisitions and potential restructuring of existing credit facilities. Part of USMDs overall business strategy is to make strategic acquisitions of complementary healthcare facilities and physician practice groups and USMD may rely heavily on financing in order to fulfill this strategy. To the extent USMD is unable to secure the necessary acquisition financing, it may be hampered or delayed in its ability to acquire such entities and, thus, may be unable to fulfill timely its acquisition strategy. On January 10, 2011, USMD executed a $1.0 million working capital line of credit with JPMorgan Chase Bank, N.A. that accrued interest at the Chase Bank Floating Rate plus one percent and matured on July 1, 2011. USMD did not draw any funds on this line of credit and chose not to renew the line of credit at maturity.
USMD believes it has reached its corporate debt capacity. No significant additional debt funding is available under existing corporate credit facilities and notes payable; however, USMD believes that demonstrated and sustained increases in profitability and cash reserves will permit lenders to extend credit in the future. Lithotripsy entities have demonstrated the ability to obtain financing to fund equipment purchases. The following table illustrates the components of USMDs debt structure (in thousands):
23
Table of Contents
March 31, 2012 |
December 31, 2011 |
|||||||
USMD Inc. |
||||||||
Subordinated notes payable |
$ | 731 | $ | 731 | ||||
USMD Lithotripsy Division subordinated notes payable |
7,145 | 7,258 | ||||||
|
|
|
|
|||||
7,876 | 7,989 | |||||||
Lithotripsy entities |
||||||||
Notes payable |
1,529 | 155 | ||||||
Capital lease obligations |
1,002 | 1,060 | ||||||
|
|
|
|
|||||
2,531 | 1,215 | |||||||
|
|
|
|
|||||
Total long-term debt |
10,407 | 9,204 | ||||||
Less: current portion |
(1,883 | ) | (1,594 | ) | ||||
|
|
|
|
|||||
Long-term debt, less current portion |
$ | 8,524 | $ | 7,610 | ||||
|
|
|
|
The lithotripsy entities notes payable have certain debt covenant requirements. Events beyond the entities control can affect their ability to meet covenant requirements and a breach of any of these covenants could result in a default of the note(s) payable. Upon the occurrence of an event of default, amounts outstanding under those notes payable may become due and payable. As of March 31, 2012, one of the entities was not in compliance with all such covenants. The entity subsequently received a waiver for the March 31, 2012 covenant violation. All other entities were in compliance with their covenants.
Maturities of USMD long-term debt and future minimum capital lease payments are as follows at March 31, 2012 (in thousands):
Long-Term Debt |
Capital Leases (1) |
Total | ||||||||||
April 2012 through December 2012 |
$ | 1,433 | $ | 238 | $ | 1,671 | ||||||
Year Ending December 31, |
||||||||||||
2013 |
848 | 318 | 1,166 | |||||||||
2014 |
911 | 318 | 1,229 | |||||||||
2015 |
856 | 282 | 1,138 | |||||||||
2016 |
882 | 9 | 891 | |||||||||
2017 |
780 | | 780 | |||||||||
Thereafter |
3,695 | | 3,695 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 9,405 | $ | 1,165 | $ | 10,570 | ||||||
|
|
|
|
|
|
(1) | includes related interest of $163. |
Supplemental Critical Accounting Policies of USMD
USMD discusses its significant accounting policies in Note 2, Summary of Significant Accounting Policies, to the December 31, 2011 consolidated financial statements included in USMD Holdings, Inc. Annual Report on Form 10-K filed with the SEC. Those significant accounting policies that USMD considers to be the most critical to aid in fully understanding and evaluating reported financial results, as they require managements most difficult, subjective, or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain, are disclosed in USMDs Managements Discussion and Analysis of Financial Condition and Results of Operations, Critical Accounting Policies, in the USMD Holdings, Inc. Form S-4 registration statement filed with the SEC.
Since the issuance of the USMD December 31, 2011 consolidated financial statements, there have been no material changes to USMDs critical accounting policies.
Recent Accounting Pronouncements
For information regarding recently issued and adopted accounting pronouncements, see Note 2, Summary of Significant Accounting Policies, to the December 31, 2011 condensed consolidated financial statements included in USMD Holdings, Inc. Annual Report on Form 10-K filed with the SEC.
Item 4. | Controls and Procedures. |
Holdings maintains disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act). Holdings disclosure controls and procedures are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to its management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Holdings conducted an evaluation under the supervision and with the participation of its Principal Executive Officer and Principal Financial Officer, of the effectiveness of the
24
Table of Contents
design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. There have been no significant changes in Holdings internal controls over financial reporting (as defined by applicable SEC rules) that occurred during the fiscal quarter ended March 31, 2012 that have materially affected or are reasonably likely to materially affect Holdings internal controls over financial reporting.
This Quarterly Report on Form 10-Q does not include and Holdings has not previously performed or provided a report of managements assessment regarding internal control over financial reporting due to a transition period established by rules of the Securities and Exchange Commission (SEC) for newly public companies. Under the rules of the SEC, managements first assessment regarding internal control over financial reporting will be included in its Annual Report on Form 10-K for the year ended December 31, 2012.
Item 1. | Legal Proceedings |
From time to time Holdings may be a party to legal claims and proceedings in the ordinary course of business. Holdings management is not aware of any claims or proceedings that might have a material impact on Holdings operations or financial condition.
Item 2. | Unregistered Sales of Equity Securities |
In July 2011, Holdings initiated an employee stock grant program in accordance with the Holdings 2010 Equity Compensation Plan. Under this stock grant program, on September 2, 2011, Holdings awarded an aggregate of 38,900 restricted shares of its common stock to 389 employees of USMD and UANT. Until the restrictions lapse, the shares cannot be sold, assigned, pledged, or otherwise transferred, and are subject to forfeiture upon termination of employment. The shares were granted in consideration of services provided by such employees, and were valued above the market value of such shares on the date of grant. The offer and sale of such shares of Holdings common stock were effected in reliance on the exemption for offers and sales of securities pursuant to certain compensatory benefit plans, as set forth in Rule 701 promulgated under the Securities Act of 1933.
Item 6. | Exhibits |
Exhibit No. |
Description | |
2.1 | Contribution and Purchase Agreement, dated as of August 19, 2010, by and among the Registrant, USMD Inc., Urology Associates of North Texas, L.L.P. and UANT Ventures, L.L.P. (incorporated by reference to Annex A of registrants Registration Statement on Form S-4/A filed on April 29, 2012) | |
2.2 | Amendment to the Contribution and Purchase Agreement, dated as of February 9, 2012, by and among the Registrant, USMD Inc., Urology Associates of North Texas, L.L.P. and UANT Ventures, L.L.P. (incorporated by reference to Annex A of registrants Registration Statement on Form S-4 filed on April 29,, 2012) | |
3.1 | Certificate of Incorporation of USMD Holdings, Inc. (incorporated by reference to Exhibit 3.1 of Registrants Registration Statement on Form S-4/A filed on February 16, 2011) | |
3.2 | Bylaws of USMD Holdings, Inc. (incorporated by reference to Exhibit 3.2 of registrants Registration Statement on Form S-4/A filed on February 16, 2011) | |
10.1 | 2010 Equity Compensation Plan of Registrant (incorporated by reference to Exhibit 10.1 of the Registrants Current Report on Form 10-K filed on March 30, 2012) | |
10.2 | Agreement and Plan of Merger dated as of December 1, 2011 by and among Registrant, UANT Ventures, L.L.P., UANT Acquisition Company Inc. and The Medical Clinic of North Texas, P.A. (incorporated by reference to Exhibit 2.1 of the Registrants Current Report on Form 8-K filed on December 7, 2011) | |
10.3 | Agreement and Plan of Merger dated as of December 15, 2011 by and among Registrant, UANT Ventures, L.L.P., UANT Acquisition Company No. 2, L.L.C. and Impel Management Services, L,L.C. (incorporated by reference to Exhibit 2.1 of the Registrants Current Report on Form 8-K filed on December 19, 2011) | |
31.1 | Certification of John House, M.D., Chairman and Chief Executive Officer, pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.. | |
31.2 | Certification of Christopher Dunleavy, Chief Financial Officer, pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of John House, M.D., Chief Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of Christopher Dunleavy, Chief Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Schema Document | |
101.CAL | XBRL Calculation Linkbase Document | |
101.DEF | XBRL Definition Linkbase Document | |
101.LAB | XBRL Label Linkbase Document | |
101.PRE | XBRL Presentation Linkbase Document |
25
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, Holdings has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
USMD HOLDINGS, INC. |
/s/ Christopher Dunleavy |
Christopher Dunleavy, Chief Financial Officer |
(On behalf of registrant and as Principal Financial Officer) |
Date: May 15, 2012
26