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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 June 30, 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.

Yes x      No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o      No x

As of July 31, 2003, there were 17,942,620 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 June 30, 2003 and September 30, 2002   3
    Consolidated Statements of Operations for the Three Months and Nine Months Ended June 30, 2003 and 2002   4
    Consolidated Statement of Stockholders’ Equity for the Nine Months Ended June 30, 2003   5
    Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2003 and 2002   6
    Notes to Consolidated Financial Statements   7
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   17
  Item 3. Quantitative and Qualitative Disclosures About Market Risk   32
  Item 4. Controls and Procedures   32
PART II. OTHER INFORMATION    
  Item 2. Changes in Securities and Use of Proceeds   33
  Item 6. Exhibits and Reports on Form 8-K   33
SIGNATURES       34

2

 

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

MEDCATH CORPORATION

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
                     
June 30, September 30,
2003 2002
(Unaudited)  
Current assets:
               
 
Cash and cash equivalents
  $ 111,075     $ 118,768  
 
Accounts receivable, net
    79,308       70,890  
 
Medical supplies
    16,795       13,566  
 
Due from affiliates
    26       20  
 
Deferred income tax assets
    2,256       1,977  
 
Prepaid expenses and other current assets
    13,487       8,112  
     
     
 
   
Total current assets
    222,947       213,333  
Property and equipment, net
    416,128       368,424  
Investments in and advances to affiliates, net
    4,935       3,234  
Goodwill, net
    133,482       132,168  
Other intangible assets, net
    17,787       19,280  
Other assets
    4,492       4,602  
     
     
 
   
Total assets
  $ 799,771     $ 741,041  
     
     
 
 
Current liabilities:
               
 
Short-term borrowings
  $ —     $ 4,500  
 
Accounts payable
    38,117       31,708  
 
Income tax payable
    543       609  
 
Accrued compensation and benefits
    18,548       15,806  
 
Accrued property taxes
    3,064       3,090  
 
Accrued construction and development costs
    25,825       24,317  
 
Other accrued liabilities
    10,630       7,241  
 
Current portion of long-term debt and obligations under capital leases
    43,231       28,237  
     
     
 
   
Total current liabilities
    139,958       115,508  
 
Long-term debt
    291,714       261,009  
 
Obligations under capital leases
    11,765       10,447  
 
Deferred income tax liabilities
    3,663       2,194  
 
Other long-term obligations
    7,094       5,818  
     
     
 
   
Total liabilities
    454,194       394,976  
Minority interest in equity of consolidated subsidiaries
    18,727       20,375  
 
Stockholders’ equity:
               
 
Preferred stock, $0.01 par value, 10,000,000 share authorized; none issued.
               
 
Common stock, $0.01 par value, 50,000,000 shares authorized; 18,011,520 issued and 17,942,620 outstanding at June 30, 2003 and 18,011,520 issued and outstanding at September 30, 2002.
    180       180  
 
Paid-in capital
    357,707       357,707  
 
Accumulated deficit
    (29,030 )     (30,786 )
 
Accumulated other comprehensive loss
    (1,613 )     (1,411 )
 
Treasury stock, at cost, 68,900 shares held at June 30, 2003
    (394 )     —  
     
     
 
   
Total stockholders’ equity
    326,850       325,690  
     
     
 
   
Total liabilities, minority interest, and stockholders’ equity
  $ 799,771     $ 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 June 30,   Nine Months Ended June 30,
       
 
        2003   2002   2003   2002
       
 
 
 
Net revenue
   $ 142,343     $ 120,483     $ 398,631     $ 367,164  
Operating expenses:
                                
 
Personnel expense
     43,693       35,368       126,845       104,607  
 
Medical supplies expense
     37,722       28,591       98,286       82,972  
 
Bad debt expense
     6,448       5,095       16,585       17,721  
 
Other operating expenses
     32,924       28,173       95,747       81,893  
 
Pre-opening expenses
     1,854       1,969       7,049       4,112  
 
Depreciation
     10,734       8,734       30,121       26,385  
 
Amortization
     282       530       1,156       2,060  
 
Loss (gain) on disposal of property, equipment and other assets
     6       76       94       (992 )
 
    
     
     
     
 
   
Total operating expenses
     133,663       108,536       375,883       318,758  
 
    
     
     
     
 
Income from operations
     8,680       11,947       22,748       48,406  
Other income (expenses):
                                
 
Interest expense
     (6,456 )     (5,723 )     (18,904 )     (17,763 )
 
Interest income
     312       560       1,103       1,774  
 
Other income, net
     93       22       196       66  
 
Equity in net earnings of unconsolidated affiliates
     1,075       704       2,893       2,414  
 
    
     
     
     
 
   
Total other expenses, net
     (4,976 )     (4,437 )     (14,712 )     (13,509 )
 
    
     
     
     
 
Income before minority interest and income taxes
     3,704       7,510       8,036       34,897  
Minority interest share of earnings of consolidated subsidiaries
     (2,288 )     (1,255 )     (4,990 )     (9,220 )
 
    
     
     
     
 
Income before income taxes
     1,416       6,255       3,046       25,677  
Income tax expense
     (638 )     (2,598 )     (1,290 )     (2,722 )
 
    
     
     
     
 
Net income
   $ 778     $ 3,657     $ 1,756     $ 22,955  
 
    
     
     
     
 
Earnings per share, basic and diluted
   $ 0.04     $ 0.20     $ 0.10     $ 1.27  
 
    
     
     
     
 
Weighted average number of shares, basic
     17,990       18,012       18,004       18,012  
 
Dilutive effect of stock options
     11       107       52       110  
 
    
     
     
     
 
Weighted average number of shares, diluted
     18,001       18,119       18,056       18,122  
 
    
     
     
     
 

See notes to consolidated financial statements.

4

 

MEDCATH CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)

                                                                     
                            Accumulated            
        Common Stock                   Other   Treasury Stock        
       
  Paid-in   Accumulated   Comprehensive  
       
        Shares   Par Value   Capital   Deficit   Loss   Shares   Amount   Total
       
 
 
 
 
 
 
 
Balance, September 30, 2002
     18,012     $ 180     $ 357,707     $ (30,786 )   $ (1,411 )     —     $ —     $ 325,690  
 
Purchase of treasury stock
     (69 )     —       —       —       —       69       (394 )     (394 )
 
Comprehensive income:
                                                                
   
Net income
     —       —       —       1,756       —       —       —       1,756  
   
Change in fair value of interest rate swaps, net of income tax benefit
     —       —       —       —       (202 )     —       —       (202 )
 
                                                            
 
 
Total comprehensive income
                                                             1,554  
 
    
     
     
     
     
     
     
     
 
Balance, June 30, 2003
     17,943     $ 180     $ 357,707     $ (29,030 )   $ (1,613 )     69     $ (394 )   $ 326,850  
 
    
     
     
     
     
     
     
     
 

See notes to consolidated financial statements.

5

 

MEDCATH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

                   
      Nine Months Ended June 30,
     
      2003   2002
     
 
Net income
   $ 1,756     $ 22,955  
Adjustments to reconcile net income to net cash provided by operating activities:
                
 
Bad debt expense
     16,585       17,721  
 
Depreciation and amortization expense
     31,277       28,445  
 
Loss (gain) on disposal of property, equipment and other assets
     94       (992 )
 
Amortization of loan acquisition costs
     1,088       956  
 
Equity in net earnings of unconsolidated affiliates
     (2,893 )     (2,414 )
 
Minority interest share of earnings of consolidated subsidiaries
     4,990       9,220  
 
Deferred income taxes
     622       2,480  
 
Change in assets and liabilities that relate to operations:
                
 
  Accounts receivable, net
     (25,003 )     (18,956 )
 
  Medical supplies
     (3,229 )     (3,717 )
 
  Due from affiliates
     (6 )     5  
 
  Prepaid expenses and other current assets
     (5,444 )     (2,412 )
 
  Other assets
     (177 )     (117 )
 
  Accounts payable and accrued liabilities
     12,448       (2,849 )
 
    
     
 
 
      Net cash provided by operating activities
     32,108       50,325  
 
    
     
 
Investing activities:
                
 
Purchases of property and equipment
     (72,145 )     (51,462 )
 
Proceeds from sale of property and equipment
     687       259  
 
Loans under management agreement
     —       (47 )
 
Repayments of loans under management agreement
     125       420  
 
Acquisition of management contracts
     —       (1,514 )
 
Proceeds from settlement of management contract
     —       1,825  
 
Investments in and advances to affiliates, net
     939       4,818  
 
Cash acquired upon consolidation of equity method investee
     —       151  
 
Acquisition of increased ownership in hospital
     (811 )     (17,377 )
 
Other investing activities
     183       133  
 
    
     
 
 
      Net cash used in investing activities
     (71,022 )     (62,794 )
 
    
     
 
Financing activities:
                
 
Net borrowings (repayments) of short-term debt
     (4,500 )     1,500  
 
Proceeds from issuance of long-term debt
     64,079       38,160  
 
Repayments of long-term debt
     (18,205 )     (19,874 )
 
Repayments of obligations under capital leases
     (2,419 )     (1,497 )
 
Payment of loan acquisition costs
     (968 )     (730 )
 
Investments by minority partners
     646       6,259  
 
Distributions to minority partners
     (7,018 )     (7,951 )
 
Purchase of common stock for treasury
     (394 )     —  
 
    
     
 
 
      Net cash provided by financing activities
     31,221       15,867  
 
    
     
 
 
Net (decrease) increase in cash and cash equivalents
 &nb