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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2003

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)

(704) 708-6600
(Registrant’s 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.

[ X ] Yes [   ] No

As of April 30, 2003, there were 18,011,520 shares of $0.01 par value common stock outstanding.

 

 

MEDCATH CORPORATION

FORM 10-Q

TABLE OF CONTENTS

               
          Page
         
PART I.     FINANCIAL INFORMATION
        
  Item 1.
Financial Statements
       
   
Consolidated Balance Sheets as of March 31, 2003 and September 30, 2002
     3  
   
Consolidated Statements of Operations for the Three Months and Six Months Ended March 31, 2003 and 2002
     4  
   
Consolidated Statement of Stockholders’ Equity for the Six Months Ended March 31, 2003
     5  
   
Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2003 and 2002
     6  
   
Notes to Consolidated Financial Statements
     7  
  Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
     15  
  Item 3.
Quantitative and Qualitative Disclosures About Market Risk
     28  
  Item 4.
Controls and Procedures
     29  
PART II.     OTHER INFORMATION
        
  Item 2.
Changes in Securities and Use of Proceeds
     30  
  Item 4.
Submission of Matters to a Vote of Security Holders
     30  
  Item 6.
Exhibits and Reports on Form 8-K
     30  
SIGNATURES
     31  
CERTIFICATES
     32  

2

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MEDCATH CORPORATION

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
                     
        March 31,   September 30,
        2003   2002
       
 
Current assets:
                
 
Cash and cash equivalents
   $ 105,520     $ 118,768  
 
Accounts receivable, net
     78,753       70,890  
 
Medical supplies
     15,358       13,566  
 
Due from affiliates
     14       20  
 
Deferred income tax assets
     2,256       1,977  
 
Prepaid expenses and other current assets
     8,899       8,112  
 
 
    
     
 
   
Total current assets
     210,800       213,333  
Property and equipment, net
     406,196       368,424  
Investments in and advances to affiliates, net
     3,832       3,234  
Goodwill, net
     132,747       132,168  
Other intangible assets, net
     18,316       19,280  
Other assets
     4,440       4,602  
 
 
    
     
 
   
Total assets
   $ 776,331     $ 741,041  
 
 
    
     
 
Current liabilities:
                
 
Short-term borrowings
   $ —     $ 4,500  
 
Accounts payable
     33,465       31,708  
 
Income tax payable
     474       609  
 
Accrued compensation and benefits
     17,095       15,806  
 
Accrued property taxes
     2,638       3,090  
 
Accrued construction and development costs
     27,229       24,317  
 
Other accrued liabilities
     8,215       7,241  
 
Current portion of long-term debt and obligations under capital leases
     55,756       28,237  
 
 
    
     
 
   
Total current liabilities
     144,872       115,508  
Long -term debt
     265,603       261,009  
Obligations under capital leases
     11,998       10,447  
Deferred income tax liabilities
     3,382       2,194  
Other long-term obligations
     6,198       5,818  
 
 
    
     
 
   
Total liabilities
     432,053       394,976  
Minority interest in equity of consolidated subsidiaries
     17,665       20,375  
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; 18,011,520 shares issued and outstanding at March 31, 2003 and September 30, 2002.
     180       180  
 
Paid-in capital
     357,707       357,707  
 
Accumulated deficit
     (29,808 )     (30,786 )
 
Accumulated other comprehensive loss
     (1,466 )     (1,411 )
 
 
    
     
 
   
Total stockholders’ equity
     326,613       325,690  
 
 
    
     
 
   
Total liabilities, minority interest, and stockholders’ equity
   $ 776,331     $ 741,041  
 
 
    
     
 

See notes to consolidated financial statements.

3

 

MEDCATH CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
                                     
        Three Months Ended March 31,   Six Months Ended March 31,
       
 
        2003   2002   2003   2002
       
 
 
 
Net revenue
   $ 135,187     $ 131,731     $ 256,288     $ 246,681  
Operating expenses:
                                
 
Personnel expense
     43,402       35,205       83,151       69,239  
 
Medical supplies expense
     32,616       27,653       60,564       54,381  
 
Bad debt expense
     4,903       6,666       10,136       12,626  
 
Other operating expenses
     33,601       27,097       62,823       53,720  
 
Pre-opening expenses
     2,789       1,194       5,195       2,143  
 
Depreciation
     9,870       8,825       19,387       17,651  
 
Amortization
     437       580       874       1,530  
 
Loss (gain) on disposal of property, equipment and other assets
     18       (66 )     88       (1,068 )
 
    
     
     
     
 
   
Total operating expenses
     127,636       107,154       242,218       210,222  
 
    
     
     
     
 
Income from operations
     7,551       24,577       14,070       36,459  
Other income (expenses):
                                
 
Interest expense
     (6,242 )     (5,726 )     (12,449 )     (12,040 )
 
Interest income
     339       482       790       1,214  
 
Other income, net
     80       21       103       44  
 
Equity in net earnings of unconsolidated affiliates
     1,064       896       1,818       1,710  
 
    
     
     
     
 
   
Total other expenses, net
     (4,759 )     (4,327 )     (9,738 )     (9,072 )
 
    
     
     
     
 
Income before minority interest and income taxes
     2,792       20,250       4,332       27,387  
Minority interest share of earnings of consolidated subsidiaries
     (1,811 )     (6,178 )     (2,702 )     (7,965 )
 
    
     
     
     
 
Income before income taxes
     981       14,072       1,630       19,422  
Income tax expense
     (393 )     (69 )     (652 )     (124 )
 
    
     
     
     
 
Net income
   $ 588     $ 14,003     $ 978     $ 19,298  
 
    
     
     
     
 
Earnings per share, basic:
   $ 0.03     $ 0.78     $ 0.05     $ 1.07  
 
    
     
     
     
 
Earnings per share, diluted:
   $ 0.03     $ 0.77     $ 0.05     $ 1.06  
 
    
     
     
     
 
Weighted average number of shares, basic
     18,012       18,012       18,012       18,012  
 
Dilutive effect of stock options
     45       118       61       111  
 
    
     
     
     
 
Weighted average number of shares, diluted
     18,057       18,130       18,073       18,123  
 
    
     
     
     
 

See notes to consolidated financial statements.

4

 

MEDCATH CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
                                                 
                                    Accumulated        
    Common Stock                   Other        
   
  Paid-in   Accumulated   Comprehensive        
    Shares   Par Value   Capital   Deficit   Loss   Total
   
 
 
 
 
 
Balance, September 30, 2002
     18,012     $ 180     $ 357,707     $ (30,786 )   $ (1,411 )   $ 325,690  
    Comprehensive income:
                                                
        Net income
                     —       978       —       978  
        Change in fair value of interest rate
        swaps, net of income tax benefit
                     —       —       (55 )     (55 )
 
                                            
 
    Total comprehensive income
                                             923  
 
    
     
     
     
     
     
 
Balance, March 31, 2003
     18,012     $ 180     $ 357,707     $ (29,808 )   $ (1,466 )   $ 326,613  
 
    
     
     
     
     
     
 

See notes to consolidated financial statements.

5

 

MEDCATH CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
                       
          Six Months Ended March 31,
         
          2003   2002
         
 
Net income
   $ 978     $ 19,298  
Adjustments to reconcile net income to net cash provided by operating activities:
                
 
Bad debt expense
     10,136       12,626  
 
Depreciation and amortization
     20,261       19,181  
 
Loss (gain) on disposal of property, equipment and other assets
     88       (1,068 )
 
Amortization of loan acquisition costs
     715       607  
 
Equity in net earnings of unconsolidated affiliates
     (1,818 )     (1,710 )
 
Minority interest share of earnings of consolidated subsidiaries
     2,702       7,965  
 
Deferred income taxes
     367       —  
 
Change in assets and liabilities that relate to operations:
                
   
Accounts receivable
     (17,999 )     (21,129 )
   
Medical supplies
     (1,792 )     (3,201 )
   
Due from affiliates
     6       2  
   
Prepaid expenses and other current assets
     (1,165 )     (596 )
   
Other assets
     (83 )     (144 )
   
Accounts payable and accrued liabilities
     3,433       (763 )
 
    
     
 
     
Net cash provided by operating activities
     15,829       31,068  
 
    
     
 
Investing activities:
                
 
Purchases of property and equipment
     (50,407 )     (36,219 )
 
Proceeds from sale of property and equipment
     372       169  
 
Loans under management agreements
     —       (32 )
 
Repayments of loans under management agreements
     80       367  
 
Acquisition of management contracts
     —       (1,514 )
 
Proceeds from settlement of management contracts
     —       1,825  
 
Investments in and advances to affiliates, net
     1,044       3,157  
 
Cash acquired upon consolidation of equity method investee
     —       151  
 
Acquisition of increased ownership in hospital
     —       (17,377 )
 
Other investing activities
     148       72  
 
    
     
 
     
Net cash used in investing activities
     (48,763 )     (49,401 )
 
    
     
 
Financing activities:
                
 
Net short-term borrowings
     (4,500 )     —  
 
Proceeds from issuance of long-term debt
     44,378       26,451  
 
Repayments of long-term debt
     (12,538 )     (13,630 )
 
Repayments of obligations under capital leases
     (1,463 )     (953 )
 
Payment of loan acquisition costs
     (792 )     (462 )
 
Investments by minority partners
     47       5,292  
 
Distributions to minority partners
     (5,446 )     (5,946 )
 
    
     
 
   
Net cash provided by financing activities
     19,686       10,752  
 
    
     
 
 
Net decrease in cash and cash equivalents
     (13,248 )     (7,581 )
 
Cash and cash equivalents:
                
   
Beginning of period
     118,768       114,357  
 
    
     
 
   
End of period
   $ 105,520     $ 106,776  
 
    
     
 
Supplemental schedule of noncash investing and financing activities:
                
 
Capital expenditures financed by capital leases
   $ 3,590     $ 628  
 
Capital expenditures included in accrued construction and development costs
     9,272       2,897  
 
Notes received for minority interest in development hospitals
     —       1,754  

See notes to consolidated financial statements.

6