MDTH Medcath Corp. (MM)

CHARLOTTE, N.C., Nov. 13 /PRNewswire-FirstCall/ -- MedCath Corporation (NASDAQ:MDTH), a healthcare provider focused on high acuity healthcare services, predominately the diagnosis and treatment of cardiovascular disease, today announced its operating results for its fourth fiscal quarter, which ended September 30, 2008. In addition, MedCath announced the completion of the syndication of a new $160.0 million, three-year senior secured credit facility. The credit facility consists of a $75.0 million term loan and an $85.0 million revolver. Proceeds of the term loan will be used to repurchase all of MedCath's outstanding 9.875% Senior Notes, while the revolver will replace MedCath's existing revolver. MedCath's EPS from continuing operations equaled $0.02 in the fourth quarter of fiscal 2008. Strong cash flows during the fourth quarter of fiscal 2008 resulted in MedCath's Adjusted Free Cash Flows equaling $0.41 per diluted share. Fourth Quarter 2008 Results MedCath's reported net revenue increased 4.0% to $150.9 million in the fourth quarter of fiscal 2008 from $145.1 million in the fourth quarter of fiscal 2007. Income from operations decreased to $5.2 million from $14.4 million in the fourth quarter of fiscal 2007 and Adjusted EBITDA decreased to $12.5 million from $22.7 million in the same period of the prior year. MedCath's income from continuing operations was $0.4 million, or $0.02 per diluted share, in the fourth quarter of fiscal 2008 compared to $2.5 million, or $0.11 per diluted share, in the fourth quarter of fiscal 2007. MedCath's Adjusted EBITDA for the fourth quarter of fiscal 2008 includes the following significant items related to the resolution of prior years' activities: -- A $0.9 million decrease in Adjusted EBITDA related to settlement expense and legal cost of a non-patient dispute between MedCath Partners and a hospital that receives catheterization management services from a venture in which MedCath Partners is the majority owner; and -- A $1.4 million reduction in net revenue and Adjusted EBITDA related to prior period cost reports and prior period cost report valuation allowances, primarily related to Medicare. In addition, MedCath's Adjusted EBITDA for the fourth quarter of fiscal 2008 reflects the following significant items: -- A $3.0 million reduction in Adjusted EBITDA in comparison to the third quarter of 2008 at two hospitals that experienced a sequential decline in patient volumes; -- A $2.0 million reduction in Adjusted EBITDA due to an increase in reserves for doubtful accounts related to lower collection percentage of certain patient accounts, most notably in the collection of the self-pay portion of commercial insurance contracts and in the collections from patients applying, but not approved for, government assistance; and -- A $0.9 million reduction in Adjusted EBITDA due to an increase in accounts receivable allowance to reflect the expectation of lower reimbursement for commercial non-contract ER business at one of our hospitals. Adjusted EBITDA in this release does not include share-based compensation or pre-opening expenses, but these items are included as a component of income from continuing operations. Share-based compensation expense provided a $0.5 million benefit in the fourth quarter of fiscal 2008, or $0.01 per diluted share, compared to a $0.5 million expense, or $0.01 per diluted share, in the fourth quarter of fiscal 2007. Pre-opening expenses totaled $0.1 million in the fourth quarter of fiscal 2008, compared to $0.6 million in the fourth quarter of fiscal 2007. "During the fourth quarter we experienced an increase in drug-eluting stent and certain surgery volumes," said Ed French, MedCath's President and Chief Executive Officer. "Despite these improved volumes, we were challenged by higher operating expense, especially uncompensated care expense. As we look forward, we see continued near-term challenges from current economic uncertainties and their impact on surgeries that might be delayed and ultimate collections on procedures performed." Capitalized interest totaled $1.1 million in the fourth quarter primarily due to construction projects in Kingman, Arizona and St. Tammany Parish, Louisiana. There was a nominal amount of capitalized interest in the fourth quarter of fiscal 2007. MedCath's annualized effective income tax rate increased to 42.5% at its fiscal year end from 39.0% at its fiscal third quarter of 2008. Operating Statistics, Cash Flow and Capital Expenditures Same facility hospital admissions in the fourth quarter of fiscal 2008 were 6,980, down 1.9% compared to the fourth quarter of fiscal 2007. Total admissions through the emergency department equaled 25.2% of admissions for the fourth quarter of fiscal 2008 in comparison to 26.2% in the fourth quarter of fiscal 2007. Self-pay admissions equaled 2.5% of total admissions in the fourth quarter of fiscal 2008, in comparison to 2.4% of total admissions in the fourth quarter of fiscal 2007. Total uncompensated care, which includes charity care plus bad debt expense, equaled 10.4% of net revenue before the deduction for charity care in the fourth quarter of fiscal 2008 compared to 7.4% in the fourth quarter of fiscal 2007. Same facility hospital outpatient visits totaled 7,542 in the fourth quarter of fiscal 2008, up 22.5% in comparison to the fourth quarter of fiscal 2007. Adjusted admissions of 9,976 were up 3.7% in the fourth quarter of fiscal 2008 in comparison to the fourth quarter of fiscal 2007. Net cash provided by operating activities from continuing operations for the fourth quarter of fiscal 2008 was $13.6 million, down from $15.9 million for the fourth quarter of fiscal 2007. Cash capital expenditures, including $21.4 million in expenditures related to MedCath's growth initiatives, totaled $29.5 million in the fourth quarter of fiscal 2008 in comparison to $17.8 million in the fourth quarter of fiscal 2007. Bank Credit Facility MedCath also announced today the completion of the syndication of a $160.0 million, three-year senior secured credit facility. The syndication was jointly led by Bank of America, N.A. as the administrative agent and Wachovia Bank, National Association, as the syndication agent. The credit facility consists of a $75.0 million term loan and an $85.0 million revolver, and is secured with a lien on the assets of MedCath and its wholly owned subsidiaries. The credit facility is governed by customary financial and non-financial covenants and its interest rate is subject to a pricing grid based on MedCath's total leverage ratio. The initial pricing is at MedCath's option of either the London Interbank Offered Rate (LIBOR) plus 300 bps, or Bank of America's base rate, as defined in the agreement, plus 200 bps. MedCath will use the proceeds of the $75.0 million term loan, along with cash on hand, to repurchase all of the Company's $102.0 million outstanding 9 7/8% senior notes, plus pay the notes' repurchase premium of approximately $5.0 million. The $85.0 million revolver replaces MedCath's current $100.0 million revolver and will be available to support general corporate purposes. In addition to the repurchase premium, MedCath will incur approximately $2.0 million in expense in its first quarter of fiscal 2009, ending December 31, 2008, related to the write-off of previously incurred financing cost. "We are pleased to announce the consummation of our new credit facility and notification of our notes repurchase," said Jeff Hinton, MedCath's Chief Financial Officer. "The facility represents a significant increase in bank commitments despite unprecedented volatility in the credit markets. The facility allows MedCath to significantly reduce borrowing costs, fund previously announced growth capital requirements and selectively pursue hospital acquisitions or limited share repurchases." 2009 Guidance MedCath also announced today that due to its development activities and diversification strategy, which are expected to result in the opening of 150 inpatient beds over the next 12 months, it is eliminating the previous practice of providing annual financial guidance. The decision to end this practice is based on management's belief that its actual performance and the successful execution of its long-term strategy are the best measures of the Company's value. Use of Non-GAAP Financial Measures This release contains measures of MedCath's historical financial performance that are not calculated and presented in conformity with generally accepted accounting principles ("GAAP"), including Adjusted EBITDA and Adjusted Free Cash Flows. Adjusted EBITDA represents MedCath's income from continuing operations before interest expense; interest and other income, net; income tax expense; depreciation; amortization; share-based compensation expense; pre-opening expenses; loss on disposal of property, equipment and other assets; loss on early extinguishment of debt; equity in net earnings of unconsolidated affiliates; and minority interest share of earnings of consolidated subsidiaries. Free Cash Flows is defined as cash flows from continuing operations less non-expansion capital expenditures. Management further adjusts the calculation of Free Cash Flows in arriving at Adjusted Free Cash Flows by adjusting Free Cash Flows to evenly disseminate interest payments paid twice a year. MedCath's management uses Adjusted EBITDA to measure the performance of the company's various operating entities, to compare actual results to historical and budgeted results, and to make capital allocation decisions. Management provides Adjusted EBITDA to investors to assist them in performing their analyses of MedCath's historical operating results. Further, management believes that many investors in MedCath also invest in, or have knowledge of, other healthcare companies that use Adjusted EBITDA as a financial performance measure. Because Adjusted EBITDA is a non- GAAP measure, Adjusted EBITDA, as defined above, may not be comparable to other similarly titled measures of other companies. MedCath has included a supplemental schedule with the financial statements that accompanies this press release that reconciles historical Adjusted EBITDA to MedCath's income from continuing operations. Adjusted Free Cash Flow is utilized by management to measure the quality of MedCath's earnings. Management will discuss and answer questions regarding MedCath's quarterly results Friday, November 14, 2008, during a 9 a.m. ET conference call. In the United States, you may participate by dialing (877) 697-5351. International callers should dial (706) 634-0602. The conference ID for both domestic and international callers is 71798429. A live web cast will also be available on the company's web site, http://www.medcath.com/. This information will be available on the web site on or immediately following the conference call for 30 days. A recorded replay of the call will be available until 11:59 p.m. ET, November 21, 2008. To access the replay, domestic callers should dial (800) 642-1687 and international callers should dial (706) 645-9291. The archived conference ID is 71798429. This press release and the financial information included therewith will be accessible on the web, by going to http://www.medcath.com/, "Investor Relations," then clicking on "News." MedCath Corporation, headquartered in Charlotte, N.C., is a healthcare provider focused on high acuity services with the diagnosis and treatment of cardiovascular disease being a primary service offering. MedCath owns an interest in and operates nine hospitals with a total of 676 licensed beds, located in Arizona, Arkansas, California, Louisiana, New Mexico, South Dakota, and Texas. MedCath is in the process of developing its tenth hospital, which is anticipated to open in fall 2009, in Kingman, Ariz. In addition, MedCath and its subsidiary MedCath Partners provide services in diagnostic and therapeutic facilities in various states. Parts of this announcement contain forward-looking statements that involve risks and uncertainties. Although management believes that these forward- looking statements are based on reasonable assumptions, these assumptions are inherently subject to significant economic, regulatory and competitive uncertainties and contingencies that are difficult or impossible to predict accurately and are beyond our control including, but not limited to, enactment of changes in federal law that would limit physician hospital ownership. Actual results could differ materially from those projected in these forward- looking statements. We do not assume any obligation to update these statements in a news release or otherwise should material facts or circumstances change in ways that would affect their accuracy. The preparation of MedCath's fourth quarter operating results requires management to make estimates and assumptions that affect reported amounts of revenues and expenses. There is a reasonable possibility that actual results may vary significantly from those estimates. These various risks and uncertainties are described in detail in "Risk Factors" in MedCath's Annual Report or Form 10-K for the year ended September 30, 2007 filed with the Securities and Exchange Commission on December 14, 2007. Copies of this form including exhibits are available on the internet site of the Securities and Exchange Commission at http://www.sec.gov/. MEDCATH CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Three Months Ended Twelve Months Ended September 30, September 30, 2008 2007 2008 2007 Net revenue $150,921 $145,084 $613,955 $660,603 Operating expenses: Personnel expense 50,163 47,200 201,685 209,501 Medical supplies expense 44,010 38,768 170,801 176,615 Bad debt expense 11,839 9,011 43,691 51,360 Other operating expenses 31,933 27,851 121,174 129,770 Pre-opening expenses 143 555 786 555 Depreciation 7,670 6,748 30,261 31,236 Amortization 149 126 560 631 (Gain) loss on disposal of property, equipment and other assets (143) 420 248 1,447 Total operating expenses 145,764 130,679 569,206 601,115 Income from operations 5,157 14,405 44,749 59,488 Other income (expenses): Interest expense (2,642) (3,916) (14,300) (22,068) Loss on early extinguishment of debt - (223) - (9,931) Interest and other income, net 100 1,568 2,043 7,843 Equity in net earnings of unconsolidated affiliates 1,049 (2,922) 7,891 5,739 Total other expenses, net (1,493) (5,493) (4,366) (18,417) Income from continuing operations before minority interest and income taxes 3,664 8,912 40,383 41,071 Minority interest share of earnings of consolidated subsidiaries (1,617) (4,437) (15,476) (13,917) Income from continuing operations before income taxes 2,047 4,475 24,907 27,154 Income tax expense 1,670 2,022 10,587 11,903 Income from continuing operations 377 2,453 14,320 15,251 Income (loss) from discontinued operations, net of taxes 344 (1,545) 6,922 (3,724) Net income $721 $908 $21,242 $11,527 Earnings (loss) per share, basic Continuing operations $0.02 $0.11 $0.71 $0.73 Discontinued operations 0.02 (0.07) 0.35 (0.17) Earnings (loss) per share, basic $0.04 $0.04 $1.06 $0.56 Earnings (loss) per share, diluted Continuing operations $0.02 $0.11 $0.71 $0.71 Discontinued operations 0.02 (0.07) 0.35 (0.17) Earnings (loss) per share, diluted $0.04 $0.04 $1.06 $0.54 Weighted average number of shares, basic 19,590 21,202 19,996 20,872 Dilutive effect of stock options and restricted stock 65 579 73 639 Weighted average number of shares, diluted 19,655 21,781 20,069 21,511 MEDCATH CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share data) September 30, September 30, 2008 2007 (Unaudited) Current assets: Cash and cash equivalents $94,174 $140,276 Restricted cash 3,154 - Accounts receivable, net 84,791 85,943 Income tax receivable 3,637 - Medical supplies 16,070 13,928 Deferred income tax assets 7,300 12,389 Prepaid expenses and other current assets 9,893 6,197 Current assets of discontinued operations 19,856 22,832 Total current assets 238,875 281,565 Property and equipment, net 323,780 270,663 Investments in affiliates 15,285 5,718 Goodwill 60,049 62,740 Other intangible assets, net 6,063 6,448 Other assets 8,379 6,531 Long-term assets of discontinued operations - 44,902 Total assets $652,431 $678,567 Current liabilities: Accounts payable $41,739 $30,933 Income tax payable - 10,552 Accrued compensation and benefits 16,885 18,567 Other accrued liabilities 23,663 13,421 Current portion of long-term debt and obligations under capital leases 31,920 4,089 Current liabilities of discontinued operations 10,422 24,962 Total current liabilities 124,629 102,524 Long-term debt 115,628 146,398 Obligations under capital leases 2,087 1,793 Deferred income tax liabilities 10,339 12,018 Other long-term obligations 3,691 460 Long-term liabilities of discontinued components - 13 Total liabilities 256,374 263,206 Minority interest in equity of consolidated subsidiaries 24,543 29,737 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; 21,553,054 issued and 19,598,693 outstanding at September 30, 2008; 21,271,144 issued and 21,202,244 outstanding at September 30, 2007 216 213 Paid-in capital 457,160 447,688 Accumulated deficit (40,886) (61,821) Accumulated other comprehensive loss (179) (62) Treasury stock, at cost; 68,900 shares at September 30, 2007 1,954,361 shares at September 30, 2008 (44,797) (394) Total stockholders' equity 371,514 385,624 Total liabilities and stockholders' equity $652,431 $678,567 MEDCATH CORPORATION SELECTED OPERATING DATA (In thousands, except per share data and selected operating data) (Unaudited) Three Months Ended September 30, 2008 2007 % Change Statement of Operations Data: Net revenue $150,921 $145,084 4.0% Adjusted EBITDA (1) $12,491 $22,743 (45.1)% Income from operations $5,157 $14,405 (64.2)% Income from continuing operations $377 $2,453 (84.6)% Earnings per share from continuing operations, basic $0.02 $0.11 (81.8)% Earnings per share from continuing operations, diluted $0.02 $0.11 (81.8)% Twelve Months Ended September 30, 2008 2007 % Change Statement of Operations Data: Net revenue $613,955 $660,603 (7.1)% Adjusted EBITDA (1) $81,582 $97,672 (16.5)% Income from operations $44,749 $59,488 (24.8)% Income from continuing operations $14,320 $15,251 (6.1)% Earnings per share from continuing operations, basic $0.71 $0.73 (2.7)% Earnings per share from continuing operations, diluted $0.71 $0.71 - (1) See Supplemental Financial Disclosure--Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures. Three Months Ended September 30, 2008 2007 % Change Selected Operating Data (a): Number of hospitals 7 7 Licensed beds ( c ) 509 421 Staffed and available beds ( d ) 464 404 Admissions ( e ) 6,980 7,118 (1.9)% Adjusted admissions ( f ) 9,976 9,622 3.7% Patient days ( g ) 25,500 24,290 5.0% Adjusted patient days ( h ) 36,776 33,011 11.4% Average length of stay (days) ( i ) 3.65 3.41 7.0% Occupancy ( j ) 59.7% 65.4% Inpatient catheterization procedures ( k ) 3,735 3,904 (4.3)% Inpatient surgical procedures ( l ) 2,050 1,959 4.6% Hospital net revenue $139,487 $133,215 4.7% Selected Operating Data - Same Facility (a): Number of hospitals 7 7 Licensed beds ( c ) 509 421 Staffed and available beds ( d ) 464 404 Admissions ( e ) 6,980 7,118 (1.9)% Adjusted admissions ( f ) 9,976 9,622 3.7% Patient days ( g ) 25,500 24,290 5.0% Adjusted patient days ( h ) 36,776 33,011 11.4% Average length of stay (days) ( i ) 3.65 3.41 7.0% Occupancy ( j ) 59.7% 65.4% Inpatient catheterization procedures ( k ) 3,735 3,904 (4.3)% Inpatient surgical procedures ( l ) 2,050 1,959 4.6% Hospital net revenue $139,487 $133,215 4.7% Combined Operating Data (b): Number of hospitals 9 9 Licensed beds ( c ) 676 588 Staffed and available beds ( d ) 629 567 Admissions ( e ) 9,997 9,779 2.2% Adjusted admissions ( f ) 14,791 13,678 8.1% Patient days ( g ) 34,732 32,748 6.1% Adjusted patient days ( h ) 51,281 45,697 12.2% Average length of stay (days) ( i ) 3.47 3.35 3.6% Occupancy ( j ) 60.0% 62.8% Inpatient catheterization procedures ( k ) 4,524 4,719 (4.1)% Inpatient surgical procedures ( l ) 2,666 2,645 0.8% Hospital net revenue $179,296 $171,074 4.8% Twelve Months Ended September 30, 2008 2007 % Change Selected Operating Data (a): Number of hospitals 7 7 Licensed beds ( c ) 509 421 Staffed and available beds ( d ) 464 404 Admissions ( e ) 29,360 35,373 (17.0)% Adjusted admissions ( f ) 40,971 48,306 (15.2)% Patient days ( g ) 107,353 120,556 (11.0)% Adjusted patient days ( h ) 150,559 164,131 (8.3)% Average length of stay (days) ( i ) 3.66 3.41 7.3% Occupancy ( j ) 63.4% 81.8% Inpatient catheterization procedures ( k ) 15,979 17,925 (10.9)% Inpatient surgical procedures ( l ) 8,383 9,481 (11.6)% Hospital net revenue $565,787 $607,551 (6.9)% Selected Operating Data - Same Facility (a): Number of hospitals 7 7 Licensed beds ( c ) 509 421 Staffed and available beds ( d ) 464 404 Admissions ( e ) 29,360 29,893 (1.8)% Adjusted admissions ( f ) 40,971 39,375 4.1% Patient days ( g ) 107,353 104,684 2.5% Adjusted patient days ( h ) 150,559 138,263 8.9% Average length of stay (days) ( i ) 3.66 3.50 4.6% Occupancy ( j ) 63.4% 71.0% Inpatient catheterization procedures ( k ) 15,979 17,299 (7.6)% Inpatient surgical procedures ( l ) 8,383 8,039 4.3% Hospital net revenue $565,787 $546,539 3.5% Combined Operating Data (b): Number of hospitals 9 9 Licensed beds ( c ) 676 588 Staffed and available beds ( d ) 629 567 Admissions ( e ) 40,176 40,871 (1.7)% Adjusted admissions ( f ) 58,669 55,585 5.5% Patient days ( g ) 141,346 139,433 1.4% Adjusted patient days ( h ) 205,032 188,499 8.8% Average length of stay (days) ( i ) 3.52 3.41 3.2% Occupancy ( j ) 61.6% 67.4% Inpatient catheterization procedures ( k ) 19,148 20,557 (6.9)% Inpatient surgical procedures ( l ) 10,954 10,941 0.1% Hospital net revenue $725,188 $695,530 4.3% (a) Selected operating data includes consolidated hospitals in operation as of the end of the period reported in continuing operations but does not include hospitals which are accounted for using the equity method or as discontinued operations in our consolidated financial statements. Same facility for all periods presented excludes Harlingen Medical Center. (b) Combined operating data includes hospitals in operation as of the end of the period reported in continuing operations including hospitals which are accounted for using the equity method in our consolidated financial statements. (c) Licensed beds represent the number of beds for which the appropriate state agency licenses a facility regardless of whether the beds are actually available for patient use. (d) Staffed and available beds represent the number of beds that are readily available for patient use at the end of the period. (e) Admissions represent the number of patients admitted for inpatient treatment. (f) Adjusted admissions is a general measure of combined inpatient and outpatient volume. We computed adjusted admissions by dividing gross patient revenue by gross inpatient revenue and then multiplying the quotient by admissions. (g) Patient days represent the total number of days of care provided to inpatients. (h) Adjusted patient days is a general measure of combined inpatient and outpatient volume. We computed adjusted patient days by dividing gross patient revenue by gross inpatient revenue and then multiplying the quotient by patient days. (i) Average length of stay (days) represents the average number of days inpatients stay in our hospitals. (j) We computed occupancy by dividing patient days by the number of days in the period and then dividing the quotient by the number of staffed and available beds. (k) Inpatients with a catheterization procedure represent the number of inpatients with a procedure performed in one of the hospitals' catheterization labs during the period. (l) Inpatient surgical procedures represent the number of surgical procedures performed on inpatients during the period. MEDCATH CORPORATION SUPPLEMENTAL FINANCIAL DISCLOSURE - RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (Unaudited) The following table reconciles Adjusted EBITDA with MedCath's income from continuing operations as derived directly from MedCath's consolidated financial statements for the three and twelve months ended September 30, 2008 and 2007. Three Months Twelve Months Ended Ended September 30, September 30, 2008 2007 2008 2007 (in thousands) Income from continuing operations $377 $2,453 $14,320 $15,251 Add: Income tax expense 1,670 2,022 10,587 11,903 Minority interest share of earnings of consolidated subsidiaries 1,617 4,437 15,476 13,917 Equity in net earnings of unconsolidated affiliates (1,049) 2,922 (7,891) (5,739) Interest and other income, net (100) (1,568) (2,043) (7,843) Loss on early extinguishment of debt - 223 - 9,931 Interest expense 2,642 3,916 14,300 22,068 (Gain) loss on disposal of property, equipment and other assets (143) 420 248 1,447 Amortization 149 126 560 631 Depreciation 7,670 6,748 30,261 31,236 Pre-opening expenses 143 555 786 555 Share-based compensation expense (485) 489 4,978 4,315 Adjusted EBITDA $12,491 $22,743 $81,582 $97,672 The following table presents MedCath's condensed statement of operations data for the quarter and year ended September 30, 2007 on a pro forma basis to reflect the reclassification of Harlingen Medical Center (HMC) from a consolidated subsidiary to an equity method investment. Three Months Ended September 30, Adjustments to 2007 Deconsolidate 2007 (Actual) HMC (Pro Forma) 2008 (in thousands) Net Revenue $145,084 $- $145,084 $150,921 Income from operations 14,405 - 14,405 5,157 Income from continuing operations before minority interest and income taxes 8,912 - 8,912 3,664 Income from continuing operations before income taxes 4,475 - 4,475 2,047 Income from continuing operations 2,453 - 2,453 377 Net income (loss) $908 $- $908 $721 Earnings (loss) per share, basic $0.04 $- $0.04 $0.04 Earnings (loss) per share, diluted $0.04 $- $0.04 $0.04 Weighted average number of shares, basic 21,202 - 21,202 19,590 Dilutive effect of stock options and restricted stock 579 - 579 65 Weighted average number of shares, diluted 21,781 - 21,781 19,655 Twelve Months Ended September 30, Adjustments to 2007 Deconsolidate 2007 (Actual) HMC (Pro Forma) 2008 (in thousands) Net Revenue $660,603 $(61,012) $599,591 $613,955 Income from operations 59,488 (2,321) 57,167 44,749 Income from continuing operations before minority interest and income taxes 41,071 1,191 42,262 40,383 Income from continuing operations before income taxes 27,154 1,191 28,345 24,907 Income from continuing operations 15,251 1,191 16,442 14,320 Net income (loss) $11,527 $1,191 $12,718 $21,242 Earnings (loss) per share, basic $0.56 $0.06 $0.62 $1.06 Earnings (loss) per share, diluted $0.54 $0.06 $0.60 $1.06 Weighted average number of shares, basic 20,872 - 20,872 19,996 Dilutive effect of stock options and restricted stock 639 - 639 73 Weighted average number of shares, diluted 21,511 - 21,511 20,069 The following table reflects the calculation of adjusted free cash flow and adjusted free cash flow per diluted share. Free Cash Flows is commonly defined as cash flows from continuing operations less capital expenditures. Management further adjusts the calculation of Free Cash Flows in arriving at Adjusted Free Cash Flows by adjusting Free Cash Flows to evenly disseminate interest payments paid twice a year. Three Months Ended September 30, 2008 Adjusted Free Cash Flow Per Share Calculation (in thousands) Cash flow from continuing operations $13,626 Adjustment for semi-annual coupon payment 2,517 Less: Non-expansion capital expenditures (8,022) Adjusted free cash flow $8,121 Diluted shares outstanding 19,655 Adjusted Free Cash Flow per diluted share $0.41 DATASOURCE: MedCath Corporation CONTACT: O. Edwin French, President-Chief Executive Officer, +1-704-708-6600, or Jeff Hinton, Chief Financial Officer, +1-704-708-6600, both of MedCath Corporation Web site: http://www.medcath.com/

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