UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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For the quarterly period ended June 30, 2010
Or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File Number 000-33009
MEDCATH CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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56-2248952
(IRS Employer Identification No.)
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10720 Sikes Place, Suite 300
Charlotte, North Carolina 28277
(Address of principal executive offices, including zip code)
(704) 815-7700
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer
o
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Accelerated filer
þ
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
o
No
þ
As of August 5, 2010, there were 20,492,366 shares of $0.01 par value common stock outstanding.
MEDCATH CORPORATION
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
MEDCATH CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
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June 30,
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September 30,
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2010
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2009
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Current assets:
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Cash and cash equivalents
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$
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27,396
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$
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31,883
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Accounts receivable, net (See Note 4)
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61,230
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58,913
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Income tax receivable
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1,192
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Medical supplies
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15,888
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15,459
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Deferred income tax assets
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12,272
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12,161
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Prepaid expenses and other current assets
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13,711
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13,471
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Current assets of discontinued operations
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26,172
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44,978
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Total current assets
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157,861
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176,865
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Property and equipment, net (See Note 13)
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289,861
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341,394
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Investments in affiliates
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10,301
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14,055
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Other assets
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7,460
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10,785
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Deferred income tax assets
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603
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Non-current assets of discontinued operations
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46,741
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47,349
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Total assets
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$
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512,827
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$
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590,448
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Current liabilities:
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Accounts payable
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$
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27,559
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$
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35,920
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Income tax payable
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297
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Accrued compensation and benefits
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17,148
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16,118
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Other accrued liabilities
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20,647
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23,277
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Current portion of long-term debt and obligations
under capital leases
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15,808
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21,187
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Current liabilities of discontinued operations
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19,062
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19,832
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Total current liabilities
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100,224
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116,631
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Long-term debt
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56,250
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66,563
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Obligations under capital leases
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7,459
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4,596
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Deferred income tax liabilities
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13,874
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Other long-term obligations
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5,262
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8,533
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Long-term liabilities of discontinued operations
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35,872
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35,721
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Total liabilities
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205,067
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245,918
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Commitments and contingencies (See Note 7)
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Redeemable noncontrolling interest (See Note 1)
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6,095
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7,448
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Stockholders equity:
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Preferred stock, $0.01 par value, 10,000,000 shares authorized;
none issued
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Common stock, $0.01 par value, 50,000,000 shares authorized;
22,446,727 issued and 20,492,366 outstanding at June 30, 2010
22,104,917 issued and 20,150,556 outstanding at September 30, 2009
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216
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216
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Paid-in capital
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457,058
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455,259
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Accumulated deficit
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(118,102
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)
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(91,420
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)
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Accumulated other comprehensive loss
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(395
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)
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(360
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)
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Treasury stock, at cost;
1,954,361 shares at June 30, 2010
1,954,361 shares at September 30, 2009
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(44,797
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)
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(44,797
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)
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Total MedCath Corporation stockholders equity
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293,980
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318,898
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Noncontrolling interest
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7,685
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18,184
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Total equity
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301,665
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337,082
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Total liabilities and equity
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$
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512,827
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$
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590,448
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See notes to unaudited consolidated financial statements.
1
MEDCATH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
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Three Months Ended June 30,
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Nine Months Ended June 30,
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2010
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2009
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2010
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2009
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Net revenue
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$
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131,847
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$
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124,588
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$
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390,815
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$
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381,410
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Operating expenses:
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Personnel expense
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44,546
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43,854
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136,055
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131,884
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Medical supplies expense
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35,706
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36,472
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107,453
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105,829
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Bad debt expense
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13,642
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10,406
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36,241
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28,798
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Other operating expenses
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29,935
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26,537
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89,292
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81,039
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Pre-opening expenses
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|
754
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866
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1,340
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Depreciation
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7,636
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6,466
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23,054
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19,179
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Amortization
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8
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8
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24
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|
24
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Impairment of property and equipment
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22,813
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42,761
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Loss (gain) on disposal of property, equipment
and other assets
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20
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(54
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)
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|
39
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|
|
|
127
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|
|
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|
|
|
|
|
|
|
|
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Total operating expenses
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154,306
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|
124,443
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435,785
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368,220
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(Loss) income from operations
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(22,459
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)
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|
145
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(44,970
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)
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|
|
13,190
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Other income (expenses):
|
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|
|
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|
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Interest expense
|
|
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(1,131
|
)
|
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|
(396
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)
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(3,337
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)
|
|
|
(3,074
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)
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Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(6,702
|
)
|
Interest and other income
|
|
|
62
|
|
|
|
48
|
|
|
|
156
|
|
|
|
220
|
|
Loss on note receiveable
|
|
|
|
|
|
|
|
|
|
|
(1,507
|
)
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|
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Equity in net earnings of unconsolidated affiliates
|
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|
2,262
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|
|
|
2,265
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|
|
|
6,870
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|
|
|
7,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total other income (expense), net
|
|
|
1,193
|
|
|
|
1,917
|
|
|
|
2,182
|
|
|
|
(2,512
|
)
|
|
|
|
|
|
|
|
|
|
|
|
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(Loss) income from continuing operations before income
taxes
|
|
|
(21,266
|
)
|
|
|
2,062
|
|
|
|
(42,788
|
)
|
|
|
10,678
|
|
Income tax (benefit) expense
|
|
|
(8,642
|
)
|
|
|
171
|
|
|
|
(17,929
|
)
|
|
|
1,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(12,624
|
)
|
|
|
1,891
|
|
|
|
(24,859
|
)
|
|
|
9,391
|
|
Income from discontinued operations, net of taxes
|
|
|
2,163
|
|
|
|
878
|
|
|
|
3,895
|
|
|
|
8,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(10,461
|
)
|
|
|
2,769
|
|
|
|
(20,964
|
)
|
|
|
18,184
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
(2,355
|
)
|
|
|
(2,273
|
)
|
|
|
(5,718
|
)
|
|
|
(9,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to MedCath Corporation
|
|
$
|
(12,816
|
)
|
|
$
|
496
|
|
|
$
|
(26,682
|
)
|
|
$
|
8,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to MedCath Corporation common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations, net of taxes
|
|
$
|
(14,155
|
)
|
|
$
|
23
|
|
|
$
|
(29,246
|
)
|
|
$
|
1,708
|
|
Income from discontinued operations, net of taxes
|
|
|
1,339
|
|
|
|
473
|
|
|
|
2,564
|
|
|
|
6,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(12,816
|
)
|
|
$
|
496
|
|
|
$
|
(26,682
|
)
|
|
$
|
8,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share, basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to
MedCath
Corporation common stockholders
|
|
$
|
(0.71
|
)
|
|
$
|
|
|
|
$
|
(1.48
|
)
|
|
$
|
0.09
|
|
Income from discontinued operations attributable to MedCath
Corporation common stockholders
|
|
|
0.07
|
|
|
|
0.03
|
|
|
|
0.13
|
|
|
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share, basic
|
|
$
|
(0.64
|
)
|
|
$
|
0.03
|
|
|
$
|
(1.35
|
)
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share, diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to
MedCath
Corporation common stockholders
|
|
$
|
(0.71
|
)
|
|
$
|
|
|
|
$
|
(1.48
|
)
|
|
$
|
0.09
|
|
Income from discontinued operations attributable to MedCath
Corporation common stockholders
|
|
|
0.07
|
|
|
|
0.03
|
|
|
|
0.13
|
|
|
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share, diluted
|
|
$
|
(0.64
|
)
|
|
$
|
0.03
|
|
|
$
|
(1.35
|
)
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares, basic
|
|
|
19,897
|
|
|
|
19,733
|
|
|
|
19,823
|
|
|
|
19,665
|
|
Dilutive effect of stock options and restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares, diluted
|
|
|
19,897
|
|
|
|
19,733
|
|
|
|
19,823
|
|
|
|
19,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited consolidated financial statements.
2
MEDCATH CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Interest
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Treasury Stock
|
|
|
Noncontrolling
|
|
|
Equity
|
|
|
(Temporary
|
|
|
|
Shares
|
|
|
Par Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Loss
|
|
|
Shares
|
|
|
Amount
|
|
|
Interest
|
|
|
(Permanent)
|
|
|
Equity)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2009
|
|
|
22,105
|
|
|
$
|
216
|
|
|
$
|
455,259
|
|
|
$
|
(91,420
|
)
|
|
$
|
(360
|
)
|
|
|
1,954
|
|
|
$
|
(44,797
|
)
|
|
$
|
18,184
|
|
|
$
|
337,082
|
|
|
$
|
7,448
|
|
Stock awards, including cancelations and
income tax benefit
|
|
|
374
|
|
|
|
|
|
|
|
1,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,979
|
|
|
|
|
|
Tax withholdings for vested restricted
stock awards
|
|
|
(32
|
)
|
|
|
|
|
|
|
(293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(293
|
)
|
|
|
|
|
Distributions to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,005
|
)
|
|
|
(14,005
|
)
|
|
|
(3,560
|
)
|
Acquisitions and other transactions
impacting noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
11
|
|
|
|
(43
|
)
|
Sale of equity interest
|
|
|
|
|
|
|
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
140
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,468
|
|
|
|
(23,214
|
)
|
|
|
2,250
|
|
Change in fair value of interest rate
swap, net of income tax benefit (*)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,249
|
)
|
|
|
2,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2010
|
|
|
22,447
|
|
|
$
|
216
|
|
|
$
|
457,058
|
|
|
$
|
(118,102
|
)
|
|
$
|
(395
|
)
|
|
|
1,954
|
|
|
$
|
(44,797
|
)
|
|
$
|
7,685
|
|
|
$
|
301,665
|
|
|
$
|
6,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*)
|
|
Tax benefits were $23 for the nine months ended June 30, 2010.
|
See notes to unaudited consolidated financial statements.
3
MEDCATH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
Net (loss) income
|
|
$
|
(20,964
|
)
|
|
$
|
18,184
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of taxes
|
|
|
(3,895
|
)
|
|
|
(8,793
|
)
|
Bad debt expense
|
|
|
36,241
|
|
|
|
28,798
|
|
Depreciation
|
|
|
23,054
|
|
|
|
19,179
|
|
Amortization
|
|
|
24
|
|
|
|
24
|
|
Loss on disposal of property, equipment and other assets
|
|
|
39
|
|
|
|
127
|
|
Share-based compensation expense
|
|
|
2,380
|
|
|
|
2,068
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
6,702
|
|
Amortization of loan acquisition costs
|
|
|
745
|
|
|
|
774
|
|
Impairment of property and equipment
|
|
|
42,761
|
|
|
|
|
|
Equity in earnings of unconsolidated affiliates, net of distributions received
|
|
|
3,259
|
|
|
|
1,777
|
|
Deferred income taxes
|
|
|
(14,966
|
)
|
|
|
58
|
|
Change in assets and liabilities that relate to operations:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(38,557
|
)
|
|
|
(22,427
|
)
|
Medical supplies
|
|
|
(429
|
)
|
|
|
(2,173
|
)
|
Prepaid and other assets
|
|
|
(1,379
|
)
|
|
|
(2,230
|
)
|
Accounts payable and accrued liabilities
|
|
|
(3,526
|
)
|
|
|
3,597
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities of continuing operations
|
|
|
24,787
|
|
|
|
45,665
|
|
Net cash provided by operating activities of discontinued operations
|
|
|
6,394
|
|
|
|
8,163
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
31,181
|
|
|
|
53,828
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(16,842
|
)
|
|
|
(68,038
|
)
|
Proceeds from sale of property and equipment
|
|
|
110
|
|
|
|
836
|
|
Sale of interest in equity method investment
|
|
|
436
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities of continuing operations
|
|
|
(16,296
|
)
|
|
|
(67,202
|
)
|
Net cash (used in) provided by investing activities of discontinued operations
|
|
|
(1,044
|
)
|
|
|
2,554
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(17,340
|
)
|
|
|
(64,648
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
|
|
|
|
83,479
|
|
Repayments of long-term debt
|
|
|
(16,678
|
)
|
|
|
(115,515
|
)
|
Repayments of obligations under capital leases
|
|
|
(1,381
|
)
|
|
|
(827
|
)
|
Distributions to noncontrolling interest
|
|
|
(9,334
|
)
|
|
|
(10,312
|
)
|
Investment by noncontrolling interest
|
|
|
109
|
|
|
|
|
|
Sale of equity interest in subsidiary
|
|
|
140
|
|
|
|
|
|
Proceeds from the exercise of stock options
|
|
|
|
|
|
|
77
|
|
Tax withholding of vested restricted stock awards
|
|
|
(293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities of continuing operations
|
|
|
(27,437
|
)
|
|
|
(43,098
|
)
|
Net cash used in financing activities of discontinued operations
|
|
|
(9,063
|
)
|
|
|
(5,241
|
)
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(36,500
|
)
|
|
|
(48,339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(22,659
|
)
|
|
|
(59,159
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
61,701
|
|
|
|
112,068
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
39,042
|
|
|
$
|
52,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents of continuing operations
|
|
|
27,396
|
|
|
|
42,725
|
|
Cash and cash equivalents of discontinued operations
|
|
|
11,646
|
|
|
|
10,184
|
|
See notes to unaudited consolidated financial statements
4
MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
1. Business and Basis of Presentation
MedCath Corporation (the Company) primarily focuses on providing high acuity services,
predominantly the diagnosis and treatment of cardiovascular disease. The Company owns and operates
hospitals in partnership with physicians, most of whom are cardiologists and cardiovascular
surgeons. While each of the Companys hospitals (collectively, the Hospital Division) is licensed
as a general acute care hospital, the Company focuses on serving the unique needs of patients
suffering from cardiovascular disease. As of June 30, 2010, the Company and its physician partners
have an ownership interest in and currently operate ten hospitals in seven states, with a total of
825 licensed beds, 58 of which are related to the Heart Hospital of Austin (HHA), whose assets,
liabilities, and operations are included within discontinued operations. See Note 3 for further
discussion related to the divestiture of HHA.
In addition to its hospitals, the Company provides cardiovascular care services in diagnostic
and therapeutic facilities in various locations and through mobile cardiac catheterization
laboratories and also provides management services to non owned facilities (the MedCath Partners
Division). The Company also provides consulting and management services tailored primarily to
cardiologists and cardiovascular surgeons, which is included in Corporate and other.
The Company accounts for all but two of its owned and operated hospitals as consolidated
subsidiaries. The Company owns a noncontrolling interest in the Avera Heart Hospital of South
Dakota and Harlingen Medical Center as of June 30, 2010. Therefore, the Company is unable to
consolidate these hospitals results of operations and financial position, but rather is required
to account for its noncontrolling interests in these hospitals as equity method investments.
In March, 2010, the Companys Board of Directors decided to begin a strategic alternatives
review (the Strategic Alternatives Review) to consider the sale of either the Company or the sale of its individual hospitals and
other assets. The Strategic Alternatives Review process is continuing. The Company cannot provide any assurance
regarding the result of this process.
Basis of Presentation
Effective October 1, 2009, the Company adopted a new accounting
standard which establishes accounting and reporting standards pertaining to ownership interests in
subsidiaries held by parties other than the parent, the amount of net income attributable to the
parent and to the noncontrolling interests, changes in a parents ownership interest and the
valuation of any retained noncontrolling equity investment when a subsidiary is deconsolidated.
This new accounting standard also establishes disclosure requirements that clearly identify and
distinguish between the interests of the parent and the interests of the noncontrolling owners.
This new accounting standard generally requires the Company to clearly identify and present
ownership interests in subsidiaries held by parties other than the Company in the consolidated
financial statements within the equity section but separate from the Companys equity. However, in
instances in which certain redemption features that are not solely within the control of the issuer
are present, classification of noncontrolling interests outside of permanent equity is required. It
also requires the amounts of consolidated net income attributable to the Company and to the
noncontrolling interests to be clearly identified and presented on the face of the consolidated
statements of operations; changes in ownership interests to be accounted for as equity
transactions; and when a subsidiary is deconsolidated, any retained noncontrolling equity
investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary
to be measured at fair value. The implementation of this accounting standard results in the cash
flow impact of certain transactions with noncontrolling interests being classified within financing
activities. Such treatment is consistent with the view that under this new accounting standard,
transactions between the Company and noncontrolling interests are considered to be equity
transactions. The adoption of this new accounting standard has been applied retrospectively for all
periods presented.
Upon the occurrence of certain fundamental regulatory changes, the Company could be obligated,
under the terms of certain of its investees operating agreements, to purchase some or all of the
noncontrolling interests related to certain of the Companys subsidiaries. While the Company
believes that the likelihood of a change in current law that would trigger such purchases was
remote as of June 30, 2010, the occurrence of such regulatory changes is outside the control of the
Company. As a result, these noncontrolling interests that are subject to this redemption feature
are not included as part of the Companys equity and are carried as redeemable noncontrolling
interests in equity of consolidated subsidiaries on the Companys consolidated balance sheets.
5
MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
Profits and losses are allocated to the noncontrolling interest in the Companys subsidiaries
in proportion to their ownership percentages and reflected in the aggregate as net income
attributable to noncontrolling interests. The physician partners of the Companys subsidiaries
typically are organized as general partnerships, limited partnerships or limited liability
companies that are not subject to federal income tax. Each physician partner shares in the pre-tax
earnings of the subsidiary in which it is a partner. Accordingly, the income or loss attributable
to noncontrolling interests in each of the Companys subsidiaries are generally determined on a
pre-tax basis. In accordance with this new accounting standard, total net income attributable to
noncontrolling interests are presented after net (loss) income.
The Companys unaudited interim consolidated financial statements as of June 30, 2010 and for
the three and nine months ended June 30, 2010 and 2009 have been prepared in accordance with
accounting principles generally accepted in the United States of America hereafter, (generally
accepted accounting principles) and pursuant to the rules and regulations of the Securities and
Exchange Commission (the SEC). These unaudited interim consolidated financial statements reflect,
in the opinion of management, all material adjustments necessary to fairly state the results of
operations and financial position for the periods presented. All intercompany transactions and
balances have been eliminated.
Certain information and disclosures normally included in the notes to consolidated financial
statements have been condensed or omitted as permitted by the rules and regulations of the SEC,
although the Company believes the disclosures are adequate to make the information presented not
misleading. The unaudited interim consolidated financial statements and notes thereto should be
read in conjunction with the Companys audited consolidated financial statements and notes thereto
included in the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2009.
During the nine months ended June 30, 2010, the Company has not made any material changes in the
selection or application of its critical accounting policies that were set forth in its Annual
Report on Form 10-K for the fiscal year ended September 30, 2009.
The Company has evaluated the provisions of the Patient Protection and Affordable Care Act, as
enacted on March 23, 2010 and the Health Care and Education Reconciliation Act of 2010 as enacted
on March 30, 2010 (collectively the Health Reform Laws). The Company is unable to predict at this
time the full impact of the Health Reform Laws on the Company and its consolidated financial
statements.
Long-Lived Assets
Long-lived assets, such as property, and equipment, and purchased
intangible assets subject to amortization, are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable. If
circumstances require a long-lived asset be tested for possible impairment, the Company first
compares undiscounted cash flows expected to be generated by an asset to the carrying value of the
asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash
flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value.
Fair value is determined through various valuation techniques including, but not limited to,
discounted cash flow models, quoted market values, and third-party independent appraisals. The
determination of whether or not long-lived assets have become impaired involves a significant level
of judgment in the assumptions underlying the approach used to determine the estimated future cash
flows expected to result from the use of those assets. Changes in the Companys strategy,
assumptions and/or market conditions could significantly impact these judgments and require
adjustments to recorded amounts of long-lived assets.
Due to a decline in operating performance at certain hospitals during fiscal 2009, the Company
performed impairment tests utilizing undiscounted cash flows as of September 30, 2009. The results
of those tests indicated that no impairment existed as of that date. Due to continued declines in
the operating performance of certain hospitals during the first six months of fiscal 2010, the
Company performed impairment tests using undiscounted cash flows to determine if the carrying value
of these hospitals long-lived assets were recoverable as of March 31, 2010. The results indicated
the current carrying value of the assets at certain hospitals were not recoverable. The Company
compared the fair value of those assets to their respective carrying values in order to determine
the amount of impairment. The Company recognized impairment charges based on the amount each group
of assets carrying value exceeded its fair value. The Companys fair value estimates were derived
by management using independent appraisals, established market values
of comparable assets, and
internal estimates of future discounted net cash flows.
6
MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
During the three months ended June 30, 2010, additional information became available relative
to the fair market value of certain assets as a result of the Companys ongoing Strategic
Alternatives Review. As a result, it was determined that additional impairment may have occurred
related to assets within its Hospital Division and Corporate and other. The Company performed
impairment tests using undiscounted cash flows to determine if the carrying value of the long-lived
assets were recoverable as of June 30, 2010. The results indicated the current carrying value of
the assets were not recoverable. The Company compared the fair value of those assets to their
respective carrying values in order to determine the amount of impairment. The Company recognized
an impairment charge based on the amount each group of assets carrying value exceeded its fair
value. The Companys fair value estimates were derived by
management from independent third party market offers and internal estimates of future discounted net cash
flows.
These fair value estimates could change by material amounts in subsequent periods. Many
factors and assumptions can impact the estimates, including the future financial results of these
hospitals, how the hospitals are operated in the future, changes in health care industry trends and
regulations, the impact of future decisions relative to the
Companys Strategic Alternatives Review, and the impact on the nature and timing of the ultimate disposition of the assets. The impairments
recognized do not include the costs of closing the hospitals or other future operating costs, which
could be substantial. Accordingly, the ultimate net cash realized from the hospitals could be
significantly less than their impaired value. See Note 13 for the impairment charges recorded to
property and equipment and Note 15 for further discussions as to the Companys determination of
fair value.
2. Recent Accounting Pronouncements
The following is a summary of new accounting pronouncements that have been adopted or that may
apply to the Company.
Recently Adopted Accounting Pronouncements:
In December 2007, the FASB issued a new accounting standard that establishes accounting and
reporting standards pertaining to ownership interests in subsidiaries held by parties other than
the parent, the amount of net income attributable to the parent and to the noncontrolling
interests, changes in a parents ownership interest, and the valuation of any retained
noncontrolling equity investment when a subsidiary is deconsolidated. This new accounting standard
also establishes disclosure requirements that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. The Company adopted this
new standard on October 1, 2009. Upon adoption, a portion of noncontrolling interests was
reclassified to a separate component of total equity within our consolidated balance sheets. See
Note 1
Business and Basis of Presentation
above for a more detailed discussion regarding the
adoption of this new standard
.
In April 2008, the FASB issued a new accounting standard which amends the list of factors an
entity should consider in developing renewal or extension assumptions used in determining the
useful life of recognized intangible assets. The new accounting standard applies to intangible
assets that are acquired individually or with a group of other assets and intangible assets
acquired in both business combinations and asset acquisitions. The Company adopted this new
standard on October 1, 2009 with no impact to its consolidated financial statements.
Effective the first quarter of fiscal 2009, the Company adopted a new accounting standard
issued by the FASB that defines fair value, establishes a framework for measuring fair value and
enhances disclosures about fair value measures required under other accounting pronouncements, but
does not change existing guidance as to whether or not an instrument is carried at fair value. In
February 2008, the FASB delayed the effective date of this new standard for all nonfinancial assets
and liabilities, except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The Company elected to defer implementation of
this standard until October 1, 2009 as it relates to the Companys non-financial assets and
non-financial liabilities that are not permitted or required to be measured at fair value on a
recurring basis. The Company adopted this standard on October 1, 2009 with no impact to its
consolidated financial statements.
7
MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
Recent Accounting Pronouncements:
In June 2009, the FASB issued a new accounting standard that amends the consolidation guidance
that applies to variable interest entities (VIE). The amendments will significantly affect the
overall consolidation analysis. The provisions of this new accounting standard revise the
definition and consideration of VIEs, primary beneficiary, and triggering events in which a company
must re-evaluate its conclusions as to the consolidation of an entity. This new accounting standard
is effective as of the beginning of the first fiscal year after November 15, 2009, fiscal 2011 for
the Company. The Company is evaluating the potential impacts the adoption of this new standard will
have on its consolidated financial statements.
3. Divestitures
During August 2010, the Company entered into a definitive agreement to sell substantially all
of the assets, and to assign certain of the liabilities, of Arizona Heart Hospital, LLC for
approximately $32.0 million. The transaction is expected to
close after finalization of certain closing conditions.
During February 2010, the Company entered into an agreement to sell certain assets and
liabilities of HHA for approximately $83.6 million. The sale is
expected to close after all regulatory approvals are
obtained. The Company has classified the results of operations of HHA within income from discontinued
operations, net of taxes for the three and nine months ended June 30, 2010 and 2009. The assets and
liabilities of HHA have been classified within current and non-current assets and current and
long-term liabilities of discontinued operations on the consolidated balance sheets as of June 30,
2010 and September 30, 2009.
During September 2009, the MedCath Partners Division of the Company sold the assets of Sun
City Cardiac Center Associates (Sun City) for $16.9 million, which resulted in a gain of $3.2
million, net of taxes. The Company has classified the results of operations of Sun City within
income from discontinued operations, net of taxes for the three and nine months ended June 30, 2010
and 2009. The assets and liabilities of Sun City have been classified within current assets and
current liabilities of discontinued operations on the consolidated balance sheets as of June 30,
2010 and September 30, 2009.
During December 2008, the MedCath Partners Division of the Company sold its entire interest in
Cape Cod Cardiology Services, LLC (Cape Cod) for $6.9 million, which resulted in a gain of $4.0
million, net of taxes. The Company has classified the results of operations of Cape Cod within
income from discontinued operations, net of taxes for the three and nine months ended June 30,
2009.
During May 2008, the Hospital Division of the Company sold the net assets of Dayton Heart
Hospital (DHH). The Company has classified the results of operations related to the remaining
assets and liabilities associated with DHH within income from discontinued operations, net of taxes
for the three and nine months ended June 30, 2010 and 2009. The assets and liabilities of DHH have
been classified within current assets and current liabilities of discontinued operations on the
consolidated balance sheets as of June 30, 2010 and September 30, 2009.
The results of operations and the assets and liabilities of discontinued operations included
in the consolidated statements of operations and consolidated balance sheets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Nine Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
23,415
|
|
|
$
|
26,797
|
|
|
$
|
71,482
|
|
|
$
|
84,634
|
|
Gain from sale of Cape Cod
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,640
|
|
Income before income taxes
|
|
|
3,070
|
|
|
|
1,182
|
|
|
|
5,567
|
|
|
|
13,071
|
|
Income tax expense
|
|
|
907
|
|
|
|
304
|
|
|
|
1,672
|
|
|
|
4,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before noncontrolling interest
|
|
|
2,163
|
|
|
|
878
|
|
|
|
3,895
|
|
|
|
8,793
|
|
Less: Net income attributable to
noncontrolling interest
|
|
|
(824
|
)
|
|
|
(405
|
)
|
|
|
(1,331
|
)
|
|
|
(2,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to MedCath Corporation
|
|
$
|
1,339
|
|
|
$
|
473
|
|
|
$
|
2,564
|
|
|
$
|
6,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,646
|
|
|
$
|
29,818
|
|
Accounts receivable, net
|
|
|
10,182
|
|
|
|
11,821
|
|
Other current assets
|
|
|
4,344
|
|
|
|
3,339
|
|
|
|
|
|
|
|
|
Current assets of discontinued operations
|
|
$
|
26,172
|
|
|
$
|
44,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
43,612
|
|
|
$
|
44,532
|
|
Other assets
|
|
|
3,129
|
|
|
|
2,817
|
|
|
|
|
|
|
|
|
Long-term assets of discontinued operations
|
|
$
|
46,741
|
|
|
$
|
47,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
14,369
|
|
|
$
|
14,956
|
|
Accrued liabilities
|
|
|
4,484
|
|
|
|
4,820
|
|
Current portion of long-term debt
and obligations under capital leases
|
|
|
209
|
|
|
|
56
|
|
|
|
|
|
|
|
|
Current liabilities of discontinued operations
|
|
$
|
19,062
|
|
|
$
|
19,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt and obligations under capital leases
|
|
$
|
35,117
|
|
|
$
|
35,359
|
|
Other long-term obligations
|
|
|
755
|
|
|
|
362
|
|
|
|
|
|
|
|
|
Long-term liabilities of discontinued operations
|
|
$
|
35,872
|
|
|
$
|
35,721
|
|
|
|
|
|
|
|
|
4. Accounts Receivable
Accounts receivable, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
Receivables, principally from patients and third-party payors
|
|
$
|
140,281
|
|
|
$
|
126,577
|
|
Receivables, principally from billings to hospitals for various
cardiovascular procedures
|
|
|
1,368
|
|
|
|
1,494
|
|
Amounts due under management contracts
|
|
|
217
|
|
|
|
228
|
|
Other
|
|
|
5,186
|
|
|
|
5,503
|
|
|
|
|
|
|
|
|
|
|
|
147,052
|
|
|
|
133,802
|
|
Less allowance for doubtful accounts
|
|
|
(85,822
|
)
|
|
|
(74,889
|
)
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
61,230
|
|
|
$
|
58,913
|
|
|
|
|
|
|
|
|
9
MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
5. Equity Investments
The Company owns noncontrolling interests in the Avera Heart Hospital of South Dakota,
Harlingen Medical Center, and certain diagnostic ventures and partnerships, for which the Company
neither has substantive control nor is the primary beneficiary. Therefore, the
Company does not consolidate the results of operations and financial position of these entities,
but rather accounts for its noncontrolling ownership interest in the hospitals and other ventures
as equity method investments.
During the second and third quarters of fiscal 2010, the MedCath Partners Division sold its
entire interest in two ventures, resulting in an immaterial loss.
The following tables represent summarized combined financial information of the Companys
unconsolidated affiliates accounted for under the equity method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
56,368
|
|
|
$
|
56,196
|
|
|
$
|
167,199
|
|
|
$
|
171,405
|
|
Income from operations
|
|
$
|
11,161
|
|
|
$
|
12,070
|
|
|
$
|
34,102
|
|
|
$
|
37,118
|
|
Net income
|
|
$
|
8,871
|
|
|
$
|
9,750
|
|
|
$
|
27,280
|
|
|
$
|
30,326
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
September 30,
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
56,270
|
|
|
$
|
68,174
|
|
Long-term assets
|
|
$
|
146,207
|
|
|
$
|
148,993
|
|
Current liabilities
|
|
$
|
23,547
|
|
|
$
|
25,770
|
|
Long-term liabilities
|
|
$
|
122,869
|
|
|
$
|
122,629
|
|
6. Long-Term Debt
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Credit Facility
|
|
$
|
69,375
|
|
|
$
|
80,000
|
|
Notes payable to various lenders
|
|
|
|
|
|
|
6,054
|
|
|
|
|
|
|
|
|
|
|
|
69,375
|
|
|
|
86,054
|
|
Less current portion
|
|
|
(13,125
|
)
|
|
|
(19,491
|
)
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
56,250
|
|
|
$
|
66,563
|
|
|
|
|
|
|
|
|
10
MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
During November 2008, the Company amended and restated its senior secured credit facility (the
Credit Facility). The Credit Facility provides for a three-year term loan facility in the amount
of $75.0 million (the Term Loan) and a revolving credit facility in the amount of $85.0 million
(the Revolver), which includes a $25.0 million sub-limit for the issuance of stand-by and
commercial letters of credit and a $10.0 million sub-limit for swing-line loans. At the request of
the Company and approval from its lenders, the aggregate amount available under the Credit Facility
may be increased by an amount up to $50.0 million. Borrowings under the Credit Facility, excluding
swing-line loans, bear interest per annum at a rate equal to the sum of LIBOR plus an applicable
margin or the alternate base rate plus an applicable margin.
The Credit Facility is guaranteed jointly and severally by the Company and certain of the
Companys existing and future, direct and indirect, wholly owned subsidiaries and is secured by a
first priority perfected security interest in all of the capital stock or other ownership interests
owned by the Company and subsidiary guarantors in each of their subsidiaries, and, subject to
certain exceptions in the Credit Facility, all other present and future assets and properties of
the Company and the subsidiary guarantors and all intercompany notes.
The Credit Facility requires compliance with certain financial covenants including a
consolidated senior secured leverage ratio test, a consolidated fixed charge coverage ratio test
and a consolidated total leverage ratio test. The Credit Facility also contains customary
restrictions on, among other things, the Company and subsidiaries ability to incur liens; engage
in mergers, consolidations and sales of assets; incur debt; declare dividends; redeem stock and
repurchase, redeem and/or repay other debt; make loans, advances and investments and acquisitions;
and enter into transactions with affiliates.
The Credit Facility contains events of default, including cross-defaults to certain
indebtedness, change of control events, and other events of default customary for syndicated
commercial credit facilities. Upon the occurrence of an event of default, the Company could be
required to immediately repay all outstanding amounts under the Credit Facility.
The Company is required to make mandatory prepayments of principal in specified amounts upon
the occurrence of certain events identified in the Credit Facility and is permitted to make
voluntary prepayments of principal under the Credit Facility. The Term Loan is subject to
amortization of principal in quarterly installments, which began March 31, 2010. The maturity date
of both the Term Loan and the Revolver is November 10, 2011.
The $69.4 million outstanding under the Credit Facility at June 30, 2010 related to the Term
Loan. At June 30, 2010 the Term Loan bore interest at 3.35%. The maximum availability under the
Revolver is $85.0 million which was reduced by outstanding letters of credit totaling $1.7 million
at June 30, 2010.
During the third quarter ended June 30, 2010, the Company repaid the remaining $4.2 million
note payable obligations to certain equipment lenders on behalf of its consolidated subsidiary,
TexSAn Heart Hospital.
During December 2008, the Company redeemed its outstanding 9 7/8% senior notes (the Senior
Notes) issued by MedCath Holdings Corp., a wholly owned subsidiary of the Company, for $111.2
million, which included the payment of a repurchase premium of $5.0 million and accrued interest of
$4.2 million. The Senior Notes were redeemed through borrowings under the Credit Facility and
available cash on hand. In addition to the aforementioned repurchase premium, the Company incurred
$2.0 million in expense related to the write-off of previously incurred financing costs associated
with the Senior Notes. The repurchase premium and write off of previously incurred financing costs
have been included in the consolidated statements of operations as loss on early extinguishment of
debt for the nine months ended June 30, 2009.
11
MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
Debt Covenants
At September 30, 2009, the Company was in violation of financial covenants
under equipment loans at its consolidated subsidiary TexSAn Heart Hospital. Accordingly, the total
outstanding balance for these loans of $6.1 million was included in the current portion of
long-term debt and obligations under capital leases on the Companys consolidated balance sheet.
These loans were paid in-full as of June 30, 2010. As of June 30, 2010, the Company was in
compliance with all covenants governing its outstanding debt.
Fair Value of Financial Instruments
The Company considers the carrying amounts of significant
classes of financial instruments on the consolidated balance sheets to be reasonable estimates of
fair value due either to their length to maturity or the existence of variable interest rates
underlying such financial instruments that approximate prevailing market rates at June 30, 2010 and
September 30, 2009. The estimated fair value of long-term debt, including the current portion, at
June 30, 2010 was approximately $110.2 million ($40.8 million related to discontinued operations)
as compared to a carrying value of $104.0 million ($34.6 million related to discontinued
operations). At September 30, 2009, the estimated fair value of long-term debt, including the
current portion, was approximately $127.6 million ($41.4 million related to discontinued
operations) as compared to a carrying value of $121.4 million ($35.3 million related to
discontinued operations). Fair value of the Companys fixed rate debt was estimated using
discontinued cash flow analyses, based on the Companys current incremental borrowing rates for
similar types of arrangements and market information. The fair value of the Companys variable rate
debt was determined to approximate its carrying value due to the underlying variable interest
rates.
7. Contingencies and Commitments
Contingencies
The Medicare and Medicaid programs are subject to statutory and regulatory
changes, retroactive and prospective rate adjustments, administrative rulings, court decisions,
executive orders, freezes, and funding reductions, all of which may significantly affect the
Company. In addition, reimbursement is generally subject to adjustment following audit by third
party payors, including the fiscal intermediaries who administer the Medicare program, the Centers
for Medicare and Medicaid Services (CMS).
Final determination of amounts due providers under the Medicare program often takes several
years because of such audits, as well as resulting provider appeals and the application of
technical reimbursement provisions. The Company believes that adequate provisions have been made
for any adjustments that might result from these programs; however, due to the complexity of laws
and regulations governing the Medicare and Medicaid programs, the manner in which they are
interpreted and the other complexities involved in estimating net revenue, there is a possibility
that recorded estimates will change by a material amount in the future.
In
2005, the CMS began using recovery audit contractors (RAC) to detect Medicare overpayments
not identified through existing claim review mechanisms. RACs perform post-discharge audits of
medical records to identify Medicare overpayments resulting from incorrect payment amounts,
non-covered services, incorrectly coded services, and duplicate
services. The CMS has given RACs the
authority to look back at claims up to three years old, provided that the claim was paid on or
after October 1, 2007. Claims identified as overpayments will be subject to the Medicare appeals
process. The Company believes the claims for reimbursement submitted to the Medicare program by the
Companys facilities have been accurate, however the Company is unable to reasonably estimate what
the potential result of future RAC audits or other reimbursement matters could be.
12
MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
The Company is involved in various claims and legal actions in the ordinary course of
business, including malpractice claims arising from services provided to patients that have been
asserted by various claimants and additional claims that may be asserted for known incidents
through June 30, 2010. These claims and legal actions are in various stages, and some may
ultimately be brought to trial. Moreover, additional claims arising from services provided to
patients in the past and other legal actions may be asserted in the future. The Company is
protecting its interests in all such claims and actions and does not expect the ultimate resolution
of these matters to have a material adverse impact on the Companys consolidated financial
position, results of operations or cash flows.
During the prior fiscal year, the Company refunded certain reimbursements to CMS related to
carotid artery stent procedures performed during prior fiscal years at two of the Companys
consolidated subsidiary hospitals. The U.S. Department of Justice (DOJ) initiated an
investigation related to the Companys return of these reimbursements. As a result of the DOJs
investigation, the Company negotiated a settlement agreement during the third quarter of
fiscal 2009 with the DOJ whereby the Company was expected to pay approximately $0.8 million to
settle and obtain a release from any federal civil false claims liability related to the DOJs
investigation. The DOJ allegations do not involve patient care, and relate solely to whether the
procedures were properly reimbursable by Medicare. The settlement would not include any finding of
wrong-doing or any admission of liability. As part of the settlement, the Company
negotiated with the Department of Health and Human Services, Office of Inspector General (OIG),
to obtain a release from any federal health care program permissive exclusion actions to be
instituted by the OIG. During the quarter ended December 31, 2009 the Company paid $0.6 million of
the $0.8 million initially accrued within other accrued liabilities on the consolidated balance
sheet as of September 30, 2009. As of June 30, 2010, $0.2 million remained accrued within other
accrued liabilities on the consolidated balance sheet.
During October 2009, a purported class action law suit was filed against the Bakersfield Heart
Hospital, a consolidated subsidiary of the Company. In the complaint the plaintiff alleges that
under California law, specifically under the Knox-Keene Healthcare Service Plan Act of 1975 and
under the Health and Safety Code of California, California prohibits the practice of balance
billing for patients who are provided emergency services. A class has not been certified by the
court in this case. Currently the Company is unable to predict with certainty the outcome of this
case or if the plaintiff prevails whether the amount due to the plaintiff could be material.
The Company has a one-year claims-made policy providing coverage for medical malpractice claim
amounts in excess of $2.0 million of retained liability per claim. The Company additionally has
insurance to reduce the retained liability per claim to $250,000 for the MedCath Partners Division.
Because of the Companys self-insured retention levels, the Company is required to recognize an
estimated expense/liability for the amount of retained liability applicable to each malpractice
claim. As of June 30, 2010 and September 30, 2009, the total estimated liability for the Companys
self-insured retention on medical malpractice claims, including an estimated amount for incurred
but not reported claims, was $3.0 million and $4.5 million, respectively, which is
included in other accrued liabilities in the consolidated balance sheets. The Company maintains
this reserve based on actuarial estimates using the Companys historical experience with claims and
assumptions about future events.
In addition to reserves for medical malpractice, the Company also maintains reserves for
self-insured workmans compensation, healthcare and dental coverage. The total estimated reserve
for self-insured liabilities for workmans compensation, employee health and dental claims was $3.4
million and $3.5 million as of June 30, 2010 and September 30, 2009, respectively, which is
included in other accrued liabilities in the consolidated balance sheets. The Company maintains
this reserve based on historical experience with claims. The Company maintains commercial stop loss
coverage for health and dental insurance program of $175,000 per plan participant.
Commitments
The Companys consolidated subsidiary hospitals provide guarantees to certain
physician groups for funds required to operate and maintain services for the benefit of the
hospitals patients including emergency care services and anesthesiology services, among other
services. These guarantees extend for the duration of the underlying service agreements. As of June
30, 2010, the maximum potential future payments that the Company could be required to make under
these guarantees was approximately$31.6 million ($0.6 million related to discontinued operations)
through June 2013. At June 30, 2010 the Company had total liabilities of $14.0 million ($0.6
million related to discontinued operations) for the fair value of these guarantees, of which $8.7
million is in other accrued liabilities and $0.2 million in current liabilities of discontinued
operations, and $4.7 million is in other long term obligations and $0.4 million in long-term
liabilities of discontinued operations. Additionally, the Company had assets of $14.2 million ($0.6
million related to discontinued operations) representing the future services to be provided by the
physicians, of which $8.4 million is in prepaid expenses and other current assets and $0.2 million
in current assets of discontinued operations, and $5.2 million is in other assets and $0.4 million
in non-current assets of discontinued operations.
13
MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
8. Earnings per Share Data
Basic
The calculation of basic earnings per share includes 150,900 and 95,900 of restricted
stock units that have vested but as of June 30, 2010 and 2009, respectively, have not been
converted into common stock. See Note 9 as it relates to restricted stock units granted to
directors of the Company.
Diluted
The calculation of diluted earnings per share considers the potential dilutive
effect of options to purchase 1,205,587 shares of common stock at prices ranging from $4.75 to
$33.05, which were outstanding at June 30, 2009, as well as 487,335 shares of restricted stock
which were outstanding at June 30, 2009. Of the outstanding stock options and restricted stock
1,692,922 and 1,637,260 have not been included in the calculation of diluted earnings per share for
the three and nine months ended June 30, 2009, respectively, because the stock options and
restricted stock were anti-dilutive. No options or restricted stock were included in the
calculation of diluted earnings per share for the three and nine months ended June 30, 2010, as the
consideration of such shares would be anti-dilutive due to the loss from continuing operations, net
of taxes.
9. Stock Based Compensation
Compensation expense from the grant of equity awards made to employees and directors is
recognized based on the estimated fair value of each award over each applicable awards vesting
period. The Company estimates the fair value of equity awards on the date of grant using, either an
option-pricing model for stock options or the closing market price of the Companys stock for
restricted stock and restricted stock units. Stock based compensation expense is recognized on a
straight-line basis over the requisite service period for the awards that are ultimately expected
to vest. Stock based compensation expense recorded during the three and nine months ended June 30,
2010 was $0.6 million and $2.4 million, respectively. The associated tax benefits related to the
compensation expense recognized for the three and nine months ended June 30, 2010 was $0.2 million
and $1.0 million, respectively. Stock based compensation expense recorded during the three and nine
months ended June 30, 2009 was $0.2 million and $2.1 million, respectively. The associated tax
benefits related to the compensation expense recognized for the three and nine months ended June
30, 2009 was $0.1 million and $0.8 million, respectively.
Stock Options
The following table summarizes the Companys stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
June 30, 2010
|
|
June 30, 2009
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
Number of
|
|
Average
|
|
Number of
|
|
Average
|
|
|
Stock Options
|
|
Exercise Price
|
|
Stock Options
|
|
Exercise Price
|
Outstanding stock options, beginning of period
|
|
|
975,637
|
|
|
$
|
22.14
|
|
|
|
1,302,587
|
|
|
$
|
21.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(7,000
|
)
|
|
|
10.95
|
|
Cancelled
|
|
|
(4,000
|
)
|
|
|
16.91
|
|
|
|
(90,000
|
)
|
|
|
21.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding stock options, end of period
|
|
|
971,637
|
|
|
$
|
22.17
|
|
|
|
1,205,587
|
|
|
$
|
21.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
June 30, 2010
|
|
June 30, 2009
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
Number of
|
|
Average
|
|
Number of
|
|
Average
|
|
|
Stock Options
|
|
Exercise Price
|
|
Stock Options
|
|
Exercise Price
|
Outstanding stock options, beginning of period
|
|
|
1,027,387
|
|
|
$
|
22.25
|
|
|
|
1,776,837
|
|
|
$
|
22.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
82,000
|
|
|
|
17.46
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(7,000
|
)
|
|
|
10.95
|
|
Cancelled
|
|
|
(55,750
|
)
|
|
|
23.80
|
|
|
|
(646,250
|
)
|
|
|
22.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding stock options, end of period
|
|
|
971,637
|
|
|
$
|
22.17
|
|
|
|
1,205,587
|
|
|
$
|
21.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Awards
During the nine months ended June 30, 2010, the Company granted to employees 401,399 shares of
restricted stock. No shares of restricted stock were granted during the three months ended June
30, 2010. During the three and nine months ended June 30, 2009, the Company granted to employees
96,725 and 520,878 shares of restricted stock, respectively. Restricted stock granted to employees,
excluding executives of the Company, vest annually on December 31 over a three year period.
Executives of the Company (defined by the Company as vice president or higher) received two equal
grants of restricted stock. The first grant vests annually in equal installments on December 31
over a three year period. The second grant vests annually on December 31 over a three year period
if certain performance conditions are met. During the nine months ended June 30, 2010, the Company
granted 89,600 shares of restricted stock units to directors. During the nine months ended June 30,
2009, the Company granted 95,900 shares of restricted stock units to directors. No restricted stock
units were granted during the three months ended June 30, 2010 and 2009. Restricted stock units
granted to directors are fully vested at the date of grant and are paid in shares of common stock
upon each applicable directors termination of service on the board. At June 30, 2010, the Company
had $3.8 million of unrecognized compensation expense associated with restricted stock awards
.
15
MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
The following table summarizes the Companys restricted stock award activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
June 30, 2010
|
|
June 30, 2009
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
Restricted
|
|
Weighted-
|
|
Restricted
|
|
Weighted-
|
|
|
Stock Awards
|
|
Average
|
|
Stock Awards
|
|
Average
|
|
|
and Units
|
|
Grant Price
|
|
and Units
|
|
Grant Price
|
Outstanding restricted stock awards and units, beginning of period
|
|
|
1,025,700
|
|
|
$
|
8.49
|
|
|
|
559,116
|
|
|
$
|
9.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
96,725
|
|
|
|
9.42
|
|
Vested
|
|
|
(37,800
|
)
|
|
|
7.56
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(52,870
|
)
|
|
|
8.04
|
|
|
|
(72,606
|
)
|
|
|
9.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding restricted stock awards and units, end of period
|
|
|
935,030
|
|
|
$
|
8.63
|
|
|
|
583,235
|
|
|
$
|
9.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Nine Months Ended
|
|
|
June 30, 2010
|
|
June 30, 2009
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
Restricted
|
|
Weighted-
|
|
Restricted
|
|
Weighted-
|
|
|
Stock Awards
|
|
Average
|
|
Stock Awards
|
|
Average
|
|
|
and Units
|
|
Grant Price
|
|
and Units
|
|
Grant Price
|
Outstanding restricted stock awards and units, beginning of period
|
|
|
654,327
|
|
|
$
|
9.64
|
|
|
|
123,982
|
|
|
$
|
19.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
490,999
|
|
|
|
7.24
|
|
|
|
616,778
|
|
|
|
9.01
|
|
Vested
|
|
|
(141,695
|
)
|
|
|
8.65
|
|
|
|
(52,106
|
)
|
|
|
20.50
|
|
Cancelled
|
|
|
(68,601
|
)
|
|
|
8.28
|
|
|
|
(105,419
|
)
|
|
|
11.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding restricted stock awards and units, end of period
|
|
|
935,030
|
|
|
$
|
8.63
|
|
|
|
583,235
|
|
|
$
|
9.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
10. Reportable Segment Information
The Companys reportable segments consist of the Hospital Division and the MedCath Partners
Division.
Financial information concerning the Companys operations by each of the reportable segments
as of and for the periods indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Nine Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospital Division
|
|
$
|
128,622
|
|
|
$
|
119,838
|
|
|
$
|
380,374
|
|
|
$
|
366,969
|
|
MedCath Partners Division
|
|
|
3,117
|
|
|
|
4,643
|
|
|
|
10,109
|
|
|
|
14,133
|
|
Corporate and other
|
|
|
108
|
|
|
|
107
|
|
|
|
332
|
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated totals
|
|
$
|
131,847
|
|
|
$
|
124,588
|
|
|
$
|
390,815
|
|
|
$
|
381,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospital Division
|
|
$
|
(17,775
|
)
|
|
$
|
2,030
|
|
|
$
|
(33,854
|
)
|
|
$
|
20,606
|
|
MedCath Partners Division
|
|
|
(452
|
)
|
|
|
(62
|
)
|
|
|
(1,141
|
)
|
|
|
(548
|
)
|
Corporate and other
|
|
|
(4,232
|
)
|
|
|
(1,823
|
)
|
|
|
(9,975
|
)
|
|
|
(6,868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated totals
|
|
$
|
(22,459
|
)
|
|
$
|
145
|
|
|
$
|
(44,970
|
)
|
|
$
|
13,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
Aggregate identifiable assets:
|
|
|
|
|
|
|
|
|
Hospital Division
|
|
$
|
446,702
|
|
|
$
|
517,849
|
|
MedCath Partners Division
|
|
|
25,013
|
|
|
|
27,205
|
|
Corporate and other
|
|
|
41,112
|
|
|
|
45,394
|
|
|
|
|
|
|
|
|
Consolidated totals
|
|
$
|
512,827
|
|
|
$
|
590,448
|
|
|
|
|
|
|
|
|
Substantially all of the Companys net revenue in its Hospital Division and MedCath Partners
Division is derived directly or indirectly from patient services. The amounts presented for
Corporate and other primarily includes general overhead and administrative expenses and financing
activities as components of (loss) income from operations and certain cash and cash equivalents,
prepaid expenses, other assets, and operations of the business not subject to separate segment
reporting within identifiable assets.
The Hospital Division assets include $71.3 million and $72.4 million of assets related
to discontinued operations as of June 30, 2010 and September 30, 2009, respectively. The MedCath
Partners Division assets included $1.6 million and $19.9 million of assets related to
discontinued operations as of June 30, 2010 and September 30, 2009, respectively.
11. Intangible Assets
As of June 30, 2010 and September 30, 2009, the Companys intangible assets, which
are included in other assets on the consolidated balance sheets, are detailed in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
September 30, 2009
|
|
|
Gross Carrying
|
|
Accumulated
|
|
Gross Carrying
|
|
Accumulated
|
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amortization
|
Intangible Assets
|
|
$
|
555
|
|
|
$
|
(256
|
)
|
|
$
|
555
|
|
|
$
|
(213
|
)
|
The estimated aggregate amortization expense for each of the next five year periods
ending June 30 are $57 for fiscal 2010, $45 for fiscal 2011, and $32 for fiscal 2012, 2013, and
2014.
17
MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
12. Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Nine Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Net (loss) income
|
|
$
|
(10,461
|
)
|
|
$
|
2,769
|
|
|
$
|
(20,964
|
)
|
|
$
|
18,184
|
|
Changes in fair value of interest rate swap,
net of tax benefit
|
|
|
(67
|
)
|
|
|
126
|
|
|
|
(35
|
)
|
|
|
(147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
|
|
(10,528
|
)
|
|
|
2,895
|
|
|
|
(20,999
|
)
|
|
|
18,037
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
(2,355
|
)
|
|
|
(2,273
|
)
|
|
|
(5,718
|
)
|
|
|
(9,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income attributable to
MedCath Corporation common stockholders
|
|
$
|
(12,883
|
)
|
|
$
|
622
|
|
|
$
|
(26,717
|
)
|
|
$
|
8,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. Property and Equipment
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
30,558
|
|
|
$
|
32,629
|
|
Buildings
|
|
|
234,194
|
|
|
|
263,796
|
|
Equipment
|
|
|
225,385
|
|
|
|
217,362
|
|
Construction in progress
|
|
|
1,077
|
|
|
|
17,434
|
|
|
|
|
|
|
|
|
Total, at cost
|
|
|
491,214
|
|
|
|
531,221
|
|
Less accumulated depreciation
|
|
|
(201,353
|
)
|
|
|
(189,827
|
)
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
289,861
|
|
|
$
|
341,394
|
|
|
|
|
|
|
|
|
During the three and nine months ended June 30, 2010 the Company recorded $22.8
million and $42.8 million of impairment charges to the consolidated statement of operations,
respectively. See Note 1 for further discussion related to these impairment charges.
14. Other Assets
The Companys Corporate and other division entered into a note receivable agreement with a
third party during 2008. During the second quarter ended March 31, 2010, the Company deemed the
note receivable to be uncollectable due to the third partys inability to repay the note and the
insufficiency of the value of the collateral securing the note. As a result a loss of $1.5 million
was recorded on the consolidated statement of operations during the nine months ended June 30,
2010.
18
MEDCATH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except percentages and per share data)
15. Fair Value Measurements
As described in Note 2
Recent Accounting Pronouncements
the Company adopted the accounting
standard issued by the FASB that defines fair value, establishes a framework for measuring fair
value and enhances disclosures about fair value measures required under other accounting
pronouncements. The FASB delayed the effective date of this new standard for all nonfinancial
assets and liabilities whose fair values are measured on a nonrecurring basis, typically relate to
long-lived assets. The Company is now required to provide additional disclosures about fair value
measurements for each major category of assets and liabilities measured at fair value on a
non-recurring basis. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active
markets for identical assets or liabilities, which generally are not applicable to non-financial
assets and liabilities. Fair values determined by Level 2 inputs utilize data points that are
observable, such as independent third party market offers. Fair values determined by Level 3 inputs
are unobservable data points for the asset or liability and include situations where there is
little, if any, market activity for the asset or liability, such as
internal estimates of discounted future
cash flows or third party appraisals.
As of March 31, 2010 the fair values of certain longed lived assets within the Hospital
Division were $78.9 million, $32.0 million was derived from Level
2 inputs and $46.9 million was derived from Level 3 inputs, resulting in an impairment of $19.9
million for the three and six month period ended March 31, 2010.
As of June 30, 2010 the fair values of certain long lived assets within the Hospital
Division and Corporate and other were $54.3 million, all of which was derived from Level 2
inputs, resulting in an impairment of $22.8 million for the three month period ended June 30,
2010 and $42.8 million for the nine months ended June 30, 2010. See Notes 1 and 13 for further
disclosure regarding these impairments.
16. Income Taxes
As of June 30, 2010 the Company had a net deferred tax asset of $12.9 million, $12.3 million
were current deferred tax assets and $0.6 million were long term deferred tax assets. As of
September 30, 2009 the Company had a net deferred tax liability of $1.7 million, $12.2 million
were current deferred tax assets and $13.9 million were long term deferred tax liabilities. The
change in the Companys net deferred tax position was primarily due to the recording of $8.8
million and $16.4 million in deferred tax assets in connection with the Companys impairments of
property and equipment during the three and nine month periods ended June 30, 2010, respectively.
19
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with the interim unaudited consolidated financial statements and
related notes included elsewhere in this report, as well as the audited consolidated financial
statements and related notes thereto and Managements Discussion and Analysis of Financial
Condition and Results of Operations included in our Annual Report on
Form 10-K
for the fiscal
year ended September 30, 2009.
Overview
General
. We are a healthcare provider focused primarily on providing high acuity services,
predominantly the diagnosis and treatment of cardiovascular disease. We own and operate hospitals
in partnership with physicians whom we believe have established reputations for clinical
excellence. We have ownership interests in and operate ten hospitals, with a total of 825 licensed
beds, 58 of which are related to HHA, whose assets, liabilities, and operations are included within
discontinued operations. Our nine hospitals that currently comprise our continuing operations have
767 licensed beds, of which 678 are staffed and available, and are located in seven states:
Arizona, Arkansas, California, Louisiana, New Mexico, South Dakota, and Texas
.
During May 2009, we
completed our 79 licensed bed expansion at Louisiana Medical Center and Heart Hospital (LMCHH)
and built space for an additional 40 beds at that hospital. During October 2009, we opened a new
acute care hospital, Hualapai Mountain Medical Center (HMMC), in Kingman, Arizona. This hospital
is designed to accommodate a total of 106 licensed beds, with an initial opening of 70 of its
licensed beds.
In addition to our hospitals, we currently own and/or manage 12 cardiac diagnostic and
therapeutic facilities. Nine of these facilities are located at hospitals operated by other
parties. These facilities offer invasive diagnostic and, in some cases, therapeutic procedures.
The remaining three facilities are not located at hospitals and offer only diagnostic
procedures.
In
March, 2010, the Companys Board of Directors began the
Strategic Alternatives Review to consider the sale of either the Company or the sale of its individual hospitals and
other assets. The Strategic Alternatives Review
process is continuing. The Company cannot provide any assurance
regarding the result of this process. As a result, the Companys Strategic Alternatives Review process may collect
information relative to the fair market value of our assets which could result in additional
impairments. However, generally accepted accounting principles do not allow us to recognize a gain
if the fair value of our assets exceeds their carrying value until the disposition of those assets
occurs.
Same Facility Hospitals.
Our policy is to include, on a same facility basis, only those
facilities that were open and operational during the full current and prior fiscal year
comparable periods. For example, on a same facility basis for our consolidated Hospital Division
for the three and nine months ended June 30, 2010, we exclude the results of operations of
Hualapai Mountain Medical Center, which opened in October 2009.
Revenue Sources by Division.
The largest percentage of our net revenue is attributable to
our Hospital Division. The following table sets forth the percentage contribution of each of our
consolidating divisions to consolidated net revenue in the periods indicated below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
Division
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
Hospital
|
|
|
97.5
|
%
|
|
|
96.2
|
%
|
|
|
97.3
|
%
|
|
|
96.2
|
%
|
MedCath Partners
|
|
|
2.4
|
%
|
|
|
3.7
|
%
|
|
|
2.6
|
%
|
|
|
3.7
|
%
|
Corporate and other
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Revenue Sources by Payor.
We receive payments for our services rendered to patients from
the Medicare and Medicaid programs, commercial insurers, health maintenance organizations and our
patients directly. Generally, our net revenue is determined by a number of factors, including the
payor mix, the number and nature of procedures performed and the rate of payment for the
procedures. Since cardiovascular disease disproportionately affects those age 55 and older, the
proportion of net revenue we derive from the Medicare program is higher than that of most general
acute care hospitals. The following table sets forth the percentage of consolidated net revenue we
earned by category of admitting payor in the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
Payor
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
Medicare
|
|
|
49.9
|
%
|
|
|
50.1
|
%
|
|
|
52.9
|
%
|
|
|
52.5
|
%
|
Medicaid
|
|
|
5.0
|
%
|
|
|
2.8
|
%
|
|
|
4.7
|
%
|
|
|
3.5
|
%
|
Commercial and other, including self-pay
|
|
|
45.1
|
%
|
|
|
47.1
|
%
|
|
|
42.4
|
%
|
|
|
44.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated net revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A significant portion of our net revenue is derived from federal and state governmental
healthcare programs, including Medicare and Medicaid, and we expect the net revenue that we
receive from the Medicare program as a percentage of total consolidated net revenue to remain
significant in future periods. Our payor mix may fluctuate in future periods due to changes in
reimbursement, market and industry trends with self-pay patients, and other similar factors.
The Medicare and Medicaid programs are subject to statutory and regulatory changes (such as
the Health Reform Laws), retroactive and prospective rate adjustments, administrative rulings,
court decisions, executive orders and freezes and funding reductions, all of which may
significantly affect our business. In addition, reimbursement is generally subject to adjustment
following audit by third party payors, including the fiscal intermediaries who administer the
Medicare program, i.e., the CMS. Final determination of amounts due providers under the Medicare
program often takes several years because of such audits, as well as resulting provider appeals and
the application of technical reimbursement provisions. We believe that adequate provision has been
made for any adjustments that might result from these programs; however, due to the complexity of
laws and regulations governing the Medicare and Medicaid programs, the manner in which they are
interpreted and the other complexities involved in estimating our net revenue, there is a
possibility that recorded estimates will change by a material amount in the future.
21
Results of Operations
Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009
Statement of Operations Data
.
The following table presents our results of operations in
dollars and as a percentage of net revenue for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
(in thousands except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease)
|
|
|
% of Net Revenue
|
|
|
|
2010
|
|
|
2009
|
|
|
$
|
|
|
%
|
|
|
2010
|
|
|
2009
|
|
Net revenue
|
|
$
|
131,847
|
|
|
$
|
124,588
|
|
|
$
|
7,259
|
|
|
|
5.8
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel expense
|
|
|
44,546
|
|
|
|
43,854
|
|
|
|
692
|
|
|
|
1.6
|
%
|
|
|
33.8
|
%
|
|
|
35.2
|
%
|
Medical supplies expense
|
|
|
35,706
|
|
|
|
36,472
|
|
|
|
(766
|
)
|
|
|
(2.1
|
)%
|
|
|
27.1
|
%
|
|
|
29.3
|
%
|
Bad debt expense
|
|
|
13,642
|
|
|
|
10,406
|
|
|
|
3,236
|
|
|
|
31.1
|
%
|
|
|
10.3
|
%
|
|
|
8.3
|
%
|
Other operating expenses
|
|
|
29,935
|
|
|
|
26,537
|
|
|
|
3,398
|
|
|
|
12.8
|
%
|
|
|
22.7
|
%
|
|
|
21.3
|
%
|
Pre-opening expenses
|
|
|
|
|
|
|
754
|
|
|
|
(754
|
)
|
|
|
(100.0
|
)%
|
|
|
|
|
|
|
0.6
|
%
|
Depreciation
|
|
|
7,636
|
|
|
|
6,466
|
|
|
|
1,170
|
|
|
|
18.1
|
%
|
|
|
5.8
|
%
|
|
|
5.2
|
%
|
Amortization
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of property and equipment
|
|
|
22,813
|
|
|
|
|
|
|
|
22,813
|
|
|
|
100.0
|
%
|
|
|
17.3
|
%
|
|
|
|
|
Loss (gain) on disposal of property, equipment
and other assets
|
|
|
20
|
|
|
|
(54
|
)
|
|
|
74
|
|
|
|
137.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(22,459
|
)
|
|
|
145
|
|
|
|
(22,604
|
)
|
|
|
N/M
|
|
|
|
(17.0
|
)%
|
|
|
0.1
|
%
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,131
|
)
|
|
|
(396
|
)
|
|
|
(735
|
)
|
|
|
185.6
|
%
|
|
|
(0.8
|
)%
|
|
|
(0.3
|
)%
|
Interest and other income
|
|
|
62
|
|
|
|
48
|
|
|
|
14
|
|
|
|
29.2
|
%
|
|
|
|
|
|
|
|
|
Equity in net earnings of unconsolidated affiliates
|
|
|
2,262
|
|
|
|
2,265
|
|
|
|
(3
|
)
|
|
|
(0.1
|
)%
|
|
|
1.7
|
%
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before
income taxes
|
|
|
(21,266
|
)
|
|
|
2,062
|
|
|
|
(23,328
|
)
|
|
|
N/M
|
|
|
|
(16.1
|
)%
|
|
|
1.6
|
%
|
Income tax (benefit) expense
|
|
|
(8,642
|
)
|
|
|
171
|
|
|
|
(8,813
|
)
|
|
|
N/M
|
|
|
|
(6.6
|
)%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(12,624
|
)
|
|
|
1,891
|
|
|
|
(14,515
|
)
|
|
|
(767.6
|
)%
|
|
|
(9.5
|
)%
|
|
|
1.5
|
%
|
Income from discontinued operations, net of taxes
|
|
|
2,163
|
|
|
|
878
|
|
|
|
1,285
|
|
|
|
146.4
|
%
|
|
|
1.6
|
%
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(10,461
|
)
|
|
|
2,769
|
|
|
|
(13,230
|
)
|
|
|
(477.8
|
)%
|
|
|
(7.9
|
)%
|
|
|
2.2
|
%
|
Less: Net income attributable to noncontrolling interest
|
|
|
(2,355
|
)
|
|
|
(2,273
|
)
|
|
|
(82
|
)
|
|
|
3.6
|
%
|
|
|
(1.8
|
)%
|
|
|
(1.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to MedCath Corporation
|
|
$
|
(12,816
|
)
|
|
$
|
496
|
|
|
$
|
(13,312
|
)
|
|
|
N/M
|
|
|
|
(9.7
|
)%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to MedCath Corporation common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations, net of taxes
|
|
$
|
(14,155
|
)
|
|
$
|
23
|
|
|
$
|
(14,178
|
)
|
|
|
N/M
|
|
|
|
(10.7
|
)%
|
|
|
|
|
Income from discontinued operations, net of taxes
|
|
|
1,339
|
|
|
|
473
|
|
|
|
866
|
|
|
|
183.1
|
%
|
|
|
1.0
|
%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(12,816
|
)
|
|
$
|
496
|
|
|
$
|
(13,312
|
)
|
|
|
N/M
|
|
|
|
(9.7
|
)%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HMMC, which is located in Kingman, AZ, opened in October 2009. For comparison purposes,
the selected operating data below are presented on an actual consolidated basis and on a same
facility basis for the periods indicated. Same facility basis excludes HMMC from operations for
the three and nine months ended June 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Same
|
|
|
|
|
2010
|
|
2009
|
|
% Change
|
|
Facility
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Operating Data (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of hospitals
|
|
|
7
|
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
Licensed beds (b)
|
|
|
600
|
|
|
|
530
|
|
|
|
|
|
|
|
530
|
|
|
|
|
|
Staffed and available beds (c)
|
|
|
514
|
|
|
|
484
|
|
|
|
|
|
|
|
444
|
|
|
|
|
|
Admissions (d)
|
|
|
6,526
|
|
|
|
5,653
|
|
|
|
15.4
|
%
|
|
|
6,042
|
|
|
|
6.9
|
%
|
Adjusted admissions (e)
|
|
|
9,741
|
|
|
|
8,594
|
|
|
|
13.3
|
%
|
|
|
8,837
|
|
|
|
2.8
|
%
|
Patient days (f)
|
|
|
24,276
|
|
|
|
22,795
|
|
|
|
6.5
|
%
|
|
|
22,582
|
|
|
|
(0.9
|
)%
|
Adjusted patient days (g)
|
|
|
36,474
|
|
|
|
34,803
|
|
|
|
4.8
|
%
|
|
|
33,284
|
|
|
|
(4.4
|
)%
|
Average length of stay (days) (h)
|
|
|
3.72
|
|
|
|
4.03
|
|
|
|
(7.7
|
)%
|
|
|
3.74
|
|
|
|
(7.2
|
)%
|
Occupancy (i)
|
|
|
51.9
|
%
|
|
|
51.8
|
%
|
|
|
|
|
|
|
55.9
|
%
|
|
|
|
|
Inpatient catheterization procedures (j)
|
|
|
2,971
|
|
|
|
2,735
|
|
|
|
8.6
|
%
|
|
|
2,903
|
|
|
|
6.1
|
%
|
Inpatient surgical procedures (k)
|
|
|
1,865
|
|
|
|
1,809
|
|
|
|
3.1
|
%
|
|
|
1,769
|
|
|
|
(2.2
|
)%
|
Hospital net revenue (in thousands except percentages)
|
|
$
|
127,613
|
|
|
$
|
118,104
|
|
|
|
8.1
|
%
|
|
$
|
120,148
|
|
|
|
1.7
|
%
|
22
(a)
|
|
Selected operating data includes consolidated hospitals in operation as of the end of
the period reported in continuing operations but does not include hospitals which are accounted
for using the equity method or as discontinued operations in our consolidated financial
statements.
|
|
(b)
|
|
Licensed beds represent the number of beds for which the appropriate state agency licenses
a facility regardless of whether the beds are actually available for patient use.
|
|
(c)
|
|
Staffed and available beds represent the number of beds that are readily available for
patient use at the end of the period.
|
|
(d)
|
|
Admissions represent the number of patients admitted for inpatient treatment.
|
|
(e)
|
|
Adjusted admissions are a general measure of combined inpatient and outpatient volume. We
compute adjusted admissions by dividing gross patient revenue by gross inpatient revenue and
then multiplying the quotient by admissions.
|
|
(f)
|
|
Patient days represent the total number of days of care provided to inpatients.
|
|
(g)
|
|
Adjusted patient days are a general measure of combined inpatient and outpatient volume. We
compute adjusted patient days by dividing gross patient revenue by gross inpatient revenue
and then multiplying the quotient by patient days.
|
|
(h)
|
|
Average length of stay (days) represents the average number of days inpatients stay in our
hospitals.
|
|
(i)
|
|
We compute occupancy by dividing patient days by the number of days in the period and
then dividing the quotient by the number of staffed and available beds.
|
|
(j)
|
|
Inpatient catheterization procedures represent the number of inpatients with a procedure
performed in one of the hospitals catheterization labs during the period.
|
|
(k)
|
|
Inpatient surgical procedures represent the number of surgical procedures performed on
inpatients during the period.
|
Net Revenue.
Our consolidated net revenue increased 5.8% or $7.2 million to $131.8 million for the
third quarter of fiscal 2010 from $124.6 million for the third quarter of fiscal 2009. Hospital
Division net revenue increased 7.3%, or $8.8 million, for the third quarter of fiscal 2010
compared to the same period of fiscal 2009. Beginning in our first quarter of fiscal 2010, our
MedCath Partners Division renegotiated certain management contracts, joint ventures, and
management agreements. As a result, our MedCath Partners Division net revenue declined $1.5
million during the third quarter of fiscal 2010 compared to the same
period of fiscal 2009. Net
revenue on a same facility basis was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
(in thousands except percentages)
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease)
|
|
% of Net Revenue
|
|
|
2010
|
|
2009
|
|
$
|
|
%
|
|
2010
|
|
2009
|
Net revenue
|
|
$
|
124,382
|
|
|
$
|
124,588
|
|
|
$
|
(206
|
)
|
|
|
(0.2
|
)%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
23
Same facility inpatient net revenue was 69.5% of the Hospital Divisions total same
facility net patient revenue for the third quarter of fiscal 2010 compared to 65.9% for the third
quarter of fiscal 2009. Inpatient cases for the third quarter of fiscal 2010 increased 6.9%
compared to the third quarter of the prior year, however our total inpatient net revenue remained
relatively flat as a result of a decline in procedures with higher net revenue per case such as
open heart and AICD procedures. Inpatient open heart and AICD net revenues were down 12.9% and
18.2%, respectively, during the third quarter of fiscal 2010 as
compared to the comparable period of fiscal 2009.
We believe the decline is indicative that less invasive cardiac procedures, such as stents, and
pharmaceutical treatments have been increasingly successful in treating patients suffering from
cardiovascular disease. These decreases were offset by a 10.3% increase in inpatient bare metal
and drug eluting stent procedures and a 48.1% increase in non-core procedure related net revenue.
Inpatient stent revenues have increased as a result of the utilization of an independent third
party to assist with the determination of patient clinical setting. The increase in non-cardiac
related net revenue is due to the Hospital Divisions focus on diversifying the business from a
dependence on cardiac cases and increasing cases in emergency department visits due to several of
our hospital expansions.
Outpatient cases, excluding emergency department cases, and net revenue decreased 2.3% and
3.2%, respectively for the third quarter of fiscal 2010 compared to the third quarter of fiscal
2009. As noted above, the decrease in outpatient cases and net revenue was primarily due to the
use of an independent third party to assist with the proper classification of patients as
inpatient or outpatient. Emergency department visits and net revenue increased 5.9% and 8.1%,
respectively for the third quarter of fiscal 2010 compared to the
same period of fiscal 2009 due to the mix of the procedures performed.
Same facility net revenue for the third quarter of fiscal 2010 included charity care
deductions of $1.9 million compared to charity care deductions of $0.6 million for the third
quarter of fiscal 2009. The increase is the result of more uninsured patients applying and
qualifying for charity care.
Personnel expense.
Our consolidated personnel expense increased 1.6% to $44.5 million for
the third quarter of fiscal 2010 from $43.9 million for the third quarter of fiscal 2009.
Personnel expense on a same facility basis was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
(in thousands except percentages)
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease)
|
|
% of Net Revenue
|
|
|
2010
|
|
2009
|
|
$
|
|
%
|
|
2010
|
|
2009
|
Personnel expense
|
|
$
|
41,208
|
|
|
$
|
43,854
|
|
|
$
|
(2,646
|
)
|
|
|
(6.0
|
)%
|
|
|
33.1
|
%
|
|
|
35.2
|
%
|
The $2.6 million reduction in same facility personnel expense was primarily due to
an overall reduction in the majority of all personnel related expenses to better align our
expenses with the level of care required for our patients. We also incurred a
$0.6 million reduction in other salaries and wages expense attributable to our MedCath Partners
Division due to a decrease in the staff related to fewer ventures. These decreases were partially
offset by an increase of $0.4 million in stock based compensation. Certain employees and directors
were granted restricted stock during fiscal 2010 and 2009, thus incrementally increasing our
quarterly expense. We recognize employee restricted stock based compensation expense over the
periods in which they are expected to vest.
Medical supplies expense.
Our consolidated medical supplies expense decreased 2.1% to $35.7
million for the third quarter of fiscal 2010 from $36.5 million for the third quarter of fiscal
2009. Medical supplies expense on a same facility basis was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
(in thousands except percentages)
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease)
|
|
% of Net Revenue
|
|
|
2010
|
|
2009
|
|
$
|
|
%
|
|
2010
|
|
2009
|
Medical supplies expense
|
|
$
|
34,363
|
|
|
$
|
36,472
|
|
|
$
|
(2,109
|
)
|
|
|
(5.8
|
)%
|
|
|
27.6
|
%
|
|
|
29.3
|
%
|
The majority of the $2.1 million decrease in medical supplies for the third quarter of
fiscal 2010 compared to the same period of the prior year is attributable to the decline in open
heart and AICD cases. Cardiac related cases such as open heart and AICD procedures have higher
supply related costs compared to the supply costs of our non-cardiac related cases. In addition,
we have negotiated a decline in the unit cost of our drug-eluting stents and our utilization of
stents per case has declined.
24
Bad debt expense.
Our consolidated bad debt expense increased 31.1% to $13.6 million for the
third quarter of fiscal 2010 from $10.4 million for the third quarter of fiscal 2009. As a
percentage of net revenue, bad debt expense increased to 10.3% for the third quarter of fiscal 2010
as compared to 8.3% for the comparable period of fiscal 2009. Bad debt expense on a same facility
basis was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
(in thousands except percentages)
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease)
|
|
% of Net Revenue
|
|
|
2010
|
|
2009
|
|
$
|
|
%
|
|
2010
|
|
2009
|
Bad debt expense
|
|
$
|
12,506
|
|
|
$
|
10,406
|
|
|
$
|
2,100
|
|
|
|
20.2
|
%
|
|
|
10.1
|
%
|
|
|
8.3
|
%
|
Our total same facility uncompensated care including charity care and bad debt
expense was 11.8% of total same facility net patient hospital revenue for the third quarter of
fiscal 2010 compared to 9.2% of total same facility net patient revenue for the third quarter of
fiscal 2009. The total number of patients that applied and qualified for charity care increased
during the third quarter of fiscal 2010 compared to the third quarter of fiscal 2009. We reported
$1.3 million more charity care deductions to net revenue during the third quarter of fiscal 2010
when compared to the third quarter of fiscal 2009. Bad debt expense alone (not including charity
care) increased $2.1 million for the third quarter of fiscal 2010 compared to the same period of
fiscal 2009. The increase in bad debt expense is directly attributable to an increase in the
patient account receivable balance after insurance plan payments. Our self-pay accounts receivable
after insurance balance prior to bad debt reductions has increased approximately 15.3% for the
third quarter of fiscal 2010 compared to the balance for the third quarter of fiscal 2009.
Other operating expenses.
Our consolidated other operating expenses increased 12.8% to $29.9
million for the third quarter of fiscal 2010 from $26.5 million for the third quarter of fiscal
2009. Other operating expense on a same facility basis was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
(in thousands except percentages)
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease)
|
|
% of Net Revenue
|
|
|
2010
|
|
2009
|
|
$
|
|
%
|
|
2010
|
|
2009
|
Other operating expense
|
|
$
|
27,673
|
|
|
$
|
26,537
|
|
|
$
|
1,136
|
|
|
|
4.3
|
%
|
|
|
22.2
|
%
|
|
|
21.3
|
%
|
Our total same facility other operating expense increased $1.1 million for the third
quarter of fiscal 2010 compared to fiscal 2009. The material and notable increases in operating
expenses were as reflected below (in millions):
|
|
|
|
|
Salaries, wages and bonus expense of corporate division
|
|
$
|
0.7
|
|
Primary care practice expenses
|
|
$
|
0.6
|
|
Property tax
|
|
$
|
0.3
|
|
Purchased services
|
|
$
|
0.4
|
|
Repairs and maintenance
|
|
$
|
0.3
|
|
Professional fees
|
|
$
|
(0.4
|
)
|
Fees and penalties
|
|
$
|
(0.8
|
)
|
Corporate salaries and wages have declined $1.0 million due to natural attrition related to
our Strategic Alternatives Review and a reduction in hiring of
new employees as we explore these alternatives. In addition, we incurred $0.4 million in
severance during the third quarter of fiscal 2009 compared to no severance during the third quarter
of fiscal 2010. The decrease in salaries and wages was offset by a $1.7 million increase in bonus
expense. Bonuses are accrued based on the expected attainment of operating performance and/or
individual goals. During the third quarter of fiscal 2009 it was managements estimate that the
attainment of goals required for bonus payout was unlikely and a reduction in bonus expense was
recorded at that time. A similar reduction was taken during the
second quarter of fiscal 2010 versus the third quarter of fiscal 2010 based on managements current estimate of the attainment of
these goals for fiscal 2010.
25
We have a primary care practice at one of our hospitals, which was first organized during
fiscal 2009. The $0.6 million increase in expense is a result of the addition of physicians to the
practice during the third quarter of fiscal 2010 and 2009.
The $0.3 million increase in property taxes is directly attributable to the recent expansions
at several of our hospitals, which has increased the tax value of our property at these locations.
Purchased services have increased $0.4 million as a result of an increase in the use of
outside clinical and non-clinical providers for services such as anesthesiologist, hospitalist and
emergency department personnel. The increases are the result of entering into new contracts with
these vendors to ensure 24 hour coverage at our hospitals.
Repair and maintenance expense for our Hospital Division increased $0.3 million for the third
quarter of fiscal 2010 when compared to the same period of fiscal 2009 to the fact that our
hospitals are aging and in need of higher maintenance.
Professional fees for the third quarter of fiscal 2010 include charges of approximately $1.7
million related to legal, audit, consulting and board of director expenses in connection with the
review of our Strategic Alternatives Review. Conversely, we incurred $1.1 million in professional fees
during the third quarter of fiscal 2009 associated with an internal assessment of certain controls
and procedures, resulting in a $0.6 million year over year increase in professional fees related to
special projects. Offsetting this increase is a decline in professional fees related to recurring
professional fees as a direct result of the reduction in new corporate initiatives and an overall
reduction in outstanding legal matters (see fees and licenses reduction discussion below).
During the third quarter of fiscal 2009 we incurred $0.8 million related to the anticipated
settlement of regulatory claims at two of our hospitals related to the identification, return, and
self-reporting of $0.7 million in reimbursement for certain procedures performed at those hospitals
in prior fiscal years. We did not
incur any fees or penalties during the third quarter of fiscal 2010.
Interest expense.
Interest expense increased $0.7 million to $1.1 million for the third
quarter of fiscal 2010 from $0.4 million for the third quarter of fiscal 2009. The $0.7 million
increase in interest expense is primarily attributable to the fact that no interest expense was
capitalized during the third quarter of fiscal 2010, whereas $0.8 million of interest expense was
capitalized during the comparable period of fiscal 2009 due to our expansion projects and
construction of HMMC. The increase in interest expense due to the cessation of capitalized interest
was offset by the overall reduction in our outstanding debt resulting in lower interest payments
during the third quarter of fiscal 2010.
Equity in net earnings of unconsolidated affiliates.
The net earnings of unconsolidated
affiliates are comprised of our share of earnings in two unconsolidated hospitals, a hospital
realty investment and several ventures within our MedCath Partners Division.
Net earnings of unconsolidated affiliates in which we have a noncontrolling interest remained
flat from the third quarter of fiscal 2009 to the third quarter of fiscal 2010.
Net income attributable to noncontrolling interest.
Noncontrolling interest share of earnings
of consolidated subsidiaries increased to $2.4 million for the third quarter of fiscal 2010 from
$2.3 million for the third quarter of fiscal 2009. Net income attributable to noncontrolling
interests on a same facility basis was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
(in thousands except percentages)
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease)
|
|
% of Net Revenue
|
|
|
2010
|
|
2009
|
|
$
|
|
%
|
|
2010
|
|
2009
|
Net income attributable to noncontrolling interest
|
|
$
|
2,886
|
|
|
$
|
2,273
|
|
|
$
|
613
|
|
|
|
27.0
|
%
|
|
|
2.3
|
%
|
|
|
1.8
|
%
|
On a same facility basis, net income attributable to noncontrolling interest
increased $0.6 million due to a reduction in net income and an increase in our disproportionate
share of losses from certain of our facilities.
We expect earnings attributable to noncontrolling interests to fluctuate in future periods as
we either recognize disproportionate losses and/or recoveries thereof through disproportionate
profit recognition. For a more complete discussion of our accounting for noncontrolling interests,
including the basis for disproportionate allocation accounting, see
Critical Accounting Policies
in
our Annual Report on Form 10-K for the fiscal year ended September 30, 2009.
Income tax (benefit) expense.
Income tax benefit was $8.6 million for the third quarter of
fiscal 2010 compared to income tax expense of $0.2 million for the comparable period of fiscal
2009, which represents an effective tax rate of approximately 37.9% and 87.7% for the respective
periods. The higher income tax rate for the three months of fiscal 2009 was the result of
nondeductible permanent differences related to Medicare settlements as discussed in Note 7 of this
report.
Income from discontinued operations, net of taxes.
Income from discontinued operations
primarily includes HHA for the third quarter of fiscal 2010 and 2009.
Income generated by HHA has increased as a result of not recording depreciation since the asset was
classified as held for sale during the second quarter of fiscal 2010.
26
Results of Operations
Nine Months Ended June 30, 2010 Compared to Nine Months Ended June 30, 2009
Statement of Operations Data
.
The following table presents our results of operations in
dollars and as a percentage of net revenue for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
|
|
(in thousands except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease)
|
|
|
% of Net Revenue
|
|
|
|
2010
|
|
|
2009
|
|
|
$
|
|
|
%
|
|
|
2010
|
|
|
2009
|
|
Net revenue
|
|
$
|
390,815
|
|
|
$
|
381,410
|
|
|
$
|
9,405
|
|
|
|
2.5
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel expense
|
|
|
136,055
|
|
|
|
131,884
|
|
|
|
4,171
|
|
|
|
3.2
|
%
|
|
|
34.8
|
%
|
|
|
34.6
|
%
|
Medical supplies expense
|
|
|
107,453
|
|
|
|
105,829
|
|
|
|
1,624
|
|
|
|
1.5
|
%
|
|
|
27.5
|
%
|
|
|
27.7
|
%
|
Bad debt expense
|
|
|
36,241
|
|
|
|
28,798
|
|
|
|
7,443
|
|
|
|
25.8
|
%
|
|
|
9.3
|
%
|
|
|
7.6
|
%
|
Other operating expenses
|
|
|
89,292
|
|
|
|
81,039
|
|
|
|
8,253
|
|
|
|
10.2
|
%
|
|
|
22.9
|
%
|
|
|
21.2
|
%
|
Pre-opening expenses
|
|
|
866
|
|
|
|
1,340
|
|
|
|
(474
|
)
|
|
|
(35.4
|
)%
|
|
|
0.2
|
%
|
|
|
0.4
|
%
|
Depreciation
|
|
|
23,054
|
|
|
|
19,179
|
|
|
|
3,875
|
|
|
|
20.2
|
%
|
|
|
5.9
|
%
|
|
|
5.0
|
%
|
Amortization
|
|
|
24
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of property and equipment
|
|
|
42,761
|
|
|
|
|
|
|
|
42,761
|
|
|
|
100.0
|
%
|
|
|
10.9
|
%
|
|
|
|
|
Loss on disposal of property, equipment
and other assets
|
|
|
39
|
|
|
|
127
|
|
|
|
(88
|
)
|
|
|
(69.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(44,970
|
)
|
|
|
13,190
|
|
|
|
(58,160
|
)
|
|
|
(440.9
|
)%
|
|
|
(11.5
|
)%
|
|
|
3.5
|
%
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(3,337
|
)
|
|
|
(3,074
|
)
|
|
|
(263
|
)
|
|
|
8.6
|
%
|
|
|
(0.9
|
)%
|
|
|
(0.8
|
)%
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
(6,702
|
)
|
|
|
6,702
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
(1.8
|
)%
|
Interest and other income
|
|
|
156
|
|
|
|
220
|
|
|
|
(64
|
)
|
|
|
(29.1
|
)%
|
|
|
|
|
|
|
0.1
|
%
|
Loss on note receivable
|
|
|
(1,507
|
)
|
|
|
|
|
|
|
(1,507
|
)
|
|
|
100.0
|
%
|
|
|
(0.4
|
)%
|
|
|
|
|
Equity in net earnings of unconsolidated affiliates
|
|
|
6,870
|
|
|
|
7,044
|
|
|
|
(174
|
)
|
|
|
(2.5
|
)%
|
|
|
1.8
|
%
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before
income taxes
|
|
|
(42,788
|
)
|
|
|
10,678
|
|
|
|
(53,466
|
)
|
|
|
(500.7
|
)%
|
|
|
(11.0
|
)%
|
|
|
2.8
|
%
|
Income tax (benefit) expense
|
|
|
(17,929
|
)
|
|
|
1,287
|
|
|
|
(19,216
|
)
|
|
|
N/M
|
|
|
|
(4.6
|
)%
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(24,859
|
)
|
|
|
9,391
|
|
|
|
(34,250
|
)
|
|
|
(364.7
|
)%
|
|
|
(6.4
|
)%
|
|
|
2.5
|
%
|
Income from discontinued operations, net of taxes
|
|
|
3,895
|
|
|
|
8,793
|
|
|
|
(4,898
|
)
|
|
|
(55.7
|
)%
|
|
|
1.0
|
%
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(20,964
|
)
|
|
|
18,184
|
|
|
|
(39,148
|
)
|
|
|
(215.3
|
)%
|
|
|
(5.4
|
)%
|
|
|
4.8
|
%
|
Less: Net income attributable to noncontrolling interest
|
|
|
(5,718
|
)
|
|
|
(9,860
|
)
|
|
|
4,142
|
|
|
|
(42.0
|
)%
|
|
|
(1.4
|
)%
|
|
|
(2.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to MedCath Corporation
|
|
$
|
(26,682
|
)
|
|
$
|
8,324
|
|
|
$
|
(35,006
|
)
|
|
|
(420.5
|
)%
|
|
|
(6.8
|
)%
|
|
|
2.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to MedCath Corporation common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations, net of taxes
|
|
$
|
(29,246
|
)
|
|
$
|
1,708
|
|
|
$
|
(30,954
|
)
|
|
|
N/M
|
|
|
|
(7.5
|
)%
|
|
|
0.4
|
%
|
Income from discontinued operations, net of taxes
|
|
|
2,564
|
|
|
|
6,616
|
|
|
|
(4,052
|
)
|
|
|
(61.2
|
)%
|
|
|
0.7
|
%
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(26,682
|
)
|
|
$
|
8,324
|
|
|
$
|
(35,006
|
)
|
|
|
(420.5
|
)%
|
|
|
(6.8
|
)%
|
|
|
2.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For comparison
purposes, the selected operating data below are presented on an actual basis and on a same facility
basis. Same facility basis excludes HMMC from operations for the nine months ended June
30, 2010. The following table presents selected operating data on a consolidated basis and a same
facility basis for the periods indicated:
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Same
|
|
|
|
|
2010
|
|
2009
|
|
% Change
|
|
Facility
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Operating Data (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of hospitals
|
|
|
7
|
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
Licensed beds ( b )
|
|
|
600
|
|
|
|
530
|
|
|
|
|
|
|
|
530
|
|
|
|
|
|
Staffed and available beds ( c )
|
|
|
514
|
|
|
|
484
|
|
|
|
|
|
|
|
444
|
|
|
|
|
|
Admissions ( d )
|
|
|
19,347
|
|
|
|
17,883
|
|
|
|
8.2
|
%
|
|
|
18,176
|
|
|
|
1.6
|
%
|
Adjusted admissions ( e )
|
|
|
28,436
|
|
|
|
25,621
|
|
|
|
11.0
|
%
|
|
|
26,252
|
|
|
|
2.5
|
%
|
Patient days ( f )
|
|
|
72,536
|
|
|
|
69,841
|
|
|
|
3.9
|
%
|
|
|
68,073
|
|
|
|
(2.5
|
)%
|
Adjusted patient days ( g )
|
|
|
107,012
|
|
|
|
100,167
|
|
|
|
6.8
|
%
|
|
|
98,809
|
|
|
|
(1.4
|
)%
|
Average length of stay (days) ( h )
|
|
|
3.75
|
|
|
|
3.91
|
|
|
|
(4.1
|
)%
|
|
|
3.75
|
|
|
|
(4.1
|
)%
|
Occupancy ( i )
|
|
|
51.7
|
%
|
|
|
52.9
|
%
|
|
|
|
|
|
|
56.2
|
%
|
|
|
|
|
Inpatients with a catheterization procedure (j)
|
|
|
8,824
|
|
|
|
8,993
|
|
|
|
(1.9
|
)%
|
|
|
8,624
|
|
|
|
(4.1
|
)%
|
Inpatient surgical procedures (k)
|
|
|
5,463
|
|
|
|
5,394
|
|
|
|
1.3
|
%
|
|
|
5,237
|
|
|
|
(2.9
|
)%
|
Hospital net revenue (in thousands except percentages)
|
|
$
|
377,402
|
|
|
$
|
363,790
|
|
|
|
3.7
|
%
|
|
$
|
358,086
|
|
|
|
(1.6
|
)%
|
(a)
|
|
Selected operating data includes consolidated hospitals in operation as of the end of the period reported in continuing
operations but does not include hospitals which are accounted for using the equity method or as discontinued operations in
our consolidated financial statements.
|
|
(b)
|
|
Licensed beds represent the number of beds for which the appropriate state agency licenses a facility regardless of whether
the beds are actually available for patient use.
|
|
(c)
|
|
Staffed and available beds represent the number of beds that are readily available for patient use at the end of the period.
|
|
(d)
|
|
Admissions represent the number of patients admitted for inpatient treatment.
|
|
(e)
|
|
Adjusted admissions are a general measure of combined inpatient and outpatient volume. We compute adjusted admissions by
dividing gross patient revenue by gross inpatient revenue and then multiplying the quotient by admissions.
|
|
(f)
|
|
Patient days represent the total number of days of care provided to inpatients.
|
|
(g)
|
|
Adjusted patient days are a general measure of combined inpatient and outpatient volume. We compute adjusted patient days
by dividing gross patient revenue by gross inpatient revenue and then multiplying the quotient by patient days.
|
|
(h)
|
|
Average length of stay (days) represents the average number of days inpatients stay in our hospitals.
|
|
(i)
|
|
We compute occupancy by dividing patient days by the number of days in the period and then dividing the quotient by the
number of staffed and available beds.
|
|
(j)
|
|
Inpatient catheterization procedures represent the number of inpatients with a procedure performed in one of the hospitals
catheterization labs during the period.
|
|
(k)
|
|
Inpatient surgical procedures represent the number of surgical procedures performed on inpatients during the period.
|
28
Net Revenue.
Our consolidated net revenue increased 2.5% or $9.4 million to $390.8
million for the nine months ended June 30, 2010 from $381.4 million for the nine months ended June
30, 2009. Hospital Division net revenue increased 3.7% or $13.4 million, for the first nine months
of fiscal 2010 compared to the same period of fiscal 2009. Beginning in our first quarter of
fiscal 2010, our MedCath Partners Division renegotiated certain management contracts and several
joint ventures. Consequently, certain management agreements
within our MedCath Partners Division were terminated. As a
result, our MedCath Partners Division net revenue declined $4.0 million during the nine months of
fiscal 2010 compared to the same period of fiscal 2009. Net revenue on a same facility basis
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
|
(in thousands except percentages)
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease)
|
|
% of Net Revenue
|
|
|
2010
|
|
2009
|
|
$
|
|
%
|
|
2010
|
|
2009
|
Net revenue
|
|
$
|
371,499
|
|
|
$
|
381,410
|
|
|
$
|
(9,911
|
)
|
|
|
(2.6
|
)%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Same facility inpatient net revenue was 73.6% of the Hospital Divisions same facility net
patient revenue for the nine months of fiscal 2010 compared to approximately 73.0% for the
same period of fiscal 2009. Our total same facility inpatient cases increased 1.6% and
inpatient net revenue was down 3.6% for the nine months of fiscal 2010 compared to the comparable
period of fiscal 2009.
This decline in net revenue was due primarily to a 1.8% reduction in our core cardiovascular
related cases, resulting in a $14.7 million reduction in total same facility core cardiovascular
net patient revenue offset by a 26.5% increase in our inpatient non-core procedure related net
revenue. Total outpatient net revenue, excluding emergency department net revenue, increased 6.1%
due to a 22.2% increase in outpatient AICD implants, pacer implants and EP studies/ablations net
revenue. These procedures have increased due to the addition of physicians performing these
procedures at certain of our hospitals. Emergency department net revenue increased 8.4% due to the
mix of the procedures performed and the recent expansions at certain of our hospitals.
Net revenue for the nine months of fiscal 2010 included charity care deductions of $6.1
million compared to charity care deductions of $2.7 million for the comparable period of fiscal
2009. The $3.4 million increase is the result of more uninsured patients applying and qualifying
for charity care.
Personnel expense.
Our consolidated personnel expense increased 3.2% to $136.1 million for the
nine months ended June 30, 2010 from $131.9 million for the comparable period of fiscal 2009.
Personnel expense on a same facility basis was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
|
(in thousands except percentages)
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease)
|
|
% of Net Revenue
|
|
|
2010
|
|
2009
|
|
$
|
|
%
|
|
2010
|
|
2009
|
Personnel expense
|
|
$
|
125,590
|
|
|
$
|
131,884
|
|
|
$
|
(6,294
|
)
|
|
|
(4.8
|
)%
|
|
|
(33.8
|
)%
|
|
|
34.6
|
%
|
The $6.3 million reduction in same facility personnel expense was primarily due to a
$7.2 million reduction in salaries and wages, including temporary labor and bonuses, offset by a
$0.9 million increase in employee benefits expense. We continue to experience reduction in
salaries and wages as we focus on aligning our expenses with the level of care required for our
patients. The total percentage of personnel expense is approximately the same for the nine months
of fiscal 2010 and fiscal 2009. Our benefits expense increased as the result of an increase in
the number of medical claims for the nine months of fiscal 2010 compared to the comparable period
of fiscal 2009.
Medical supplies expense.
Our consolidated medical supplies expense increased 1.5% to $107.5
million for the nine months of fiscal 2010 from $105.8 million for the comparable period of
fiscal 2009. Medical supplies expense on a same facility basis was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
|
(in thousands except percentages)
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease)
|
|
% of Net Revenue
|
|
|
2010
|
|
2009
|
|
$
|
|
%
|
|
2010
|
|
2009
|
Medical supplies expense
|
|
$
|
103,866
|
|
|
$
|
105,829
|
|
|
$
|
(1,963
|
)
|
|
|
(1.9
|
)%
|
|
|
(28.0
|
)%
|
|
|
27.7
|
%
|
The $2.0 million decrease to medical supplies expense for the nine months of fiscal 2010
was due to lower volumes on procedures that have high net revenue per case, such as open heart
procedures. We had an 11.6% reduction in open heart surgeries for the nine months of fiscal 2010
compared to the comparable period of fiscal 2009. With less open heart net revenue, the
percentage of medical supplies increases as a percentage of net revenue. In addition, we have
negotiated a decline in the unit cost of our drug-eluting stents and our utilization of stents per
case has declined.
29
Bad debt expense.
Our consolidated bad debt expense increased 25.8% to $36.2 million
for the nine months of fiscal 2010 from $28.8 million for the comparable period of fiscal 2009.
As a percentage of net revenue, bad debt expense increased to 9.3% for the nine months of fiscal
2010 as compared to 7.6% for the comparable period of fiscal 2009. Bad debt expense on a same
facility basis was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
|
(in thousands except percentages)
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease)
|
|
% of Net Revenue
|
|
|
2010
|
|
2009
|
|
$
|
|
%
|
|
2010
|
|
2009
|
Bad debt expense
|
|
$
|
33,288
|
|
|
$
|
28,798
|
|
|
$
|
4,490
|
|
|
|
15.6
|
%
|
|
|
9.0
|
%
|
|
|
7.6
|
%
|
Our total same facility Hospital Division uncompensated care including charity care and
bad debt expense was 10.9% of total same facility net patient hospital revenue for the nine months
of fiscal 2010 compared to 8.6% of total same facility net patient revenue for the comparable
period of fiscal 2009. The total number of patients which applied and qualified for charity care
increased during first quarter of fiscal 2010 compared to the first quarter of fiscal 2009. We
reported $3.4 million more charity deductions to net revenue during the nine months of fiscal 2010
when compared to the comparable period of fiscal 2009. Bad debt expense alone (not including
charity care) increased $4.5 million for the nine months of fiscal 2010 compared to the comparable
period of fiscal 2009. This is attributable to an increase in the self-pay portion of accounts
balance after insurance plans and a corresponding increase in the percent of these accounts we
believe are uncollectible for the nine months of fiscal 2010 compared to the same period of fiscal
2009.
Other operating expenses.
Our consolidated other operating expenses increased 10.2% to
$89.3 million for the nine months of fiscal 2010 from $81.0 million for the comparable period
of fiscal 2009. Other operating expense on a same facility basis was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
|
(in thousands except percentages)
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease)
|
|
% of Net Revenue
|
|
|
2010
|
|
2009
|
|
$
|
|
%
|
|
2010
|
|
2009
|
Other operating expense
|
|
$
|
82,112
|
|
|
$
|
81,039
|
|
|
$
|
1,073
|
|
|
|
1.3
|
%
|
|
|
22.1
|
%
|
|
|
21.2
|
%
|
Our same facility other operating expense increased $1.1 million for the nine months
of fiscal 2010 compared to the comparable period of fiscal 2009. The material and notable
increases in operating expenses were as reflected below (in millions):
|
|
|
|
|
Employee benefits
|
|
$
|
1.4
|
|
Purchased contract services
|
|
$
|
1.2
|
|
Professional fees
|
|
$
|
0.8
|
|
Repairs and maintenance
|
|
$
|
0.7
|
|
Travel
|
|
$
|
(0.5
|
)
|
Fees and penalties
|
|
$
|
(0.8
|
)
|
Corporate salaries, wages, bonus, recruitment and temporary labor
|
|
$
|
(0.9
|
)
|
Advertising expense
|
|
$
|
(1.2
|
)
|
Professional liability expense
|
|
$
|
(1.6
|
)
|
Our corporate benefits expense was approximately $1.4 million higher due to an increase in
employee medical claims during the nine months of fiscal 2010 compared to the same period of
fiscal 2009.
Purchased contract services have increased $1.2 million as a result of an increase in the
use of outside clinical and non-clinical providers for services such as anesthesiologist,
hospitalist and emergency department personnel. The increases are the result of entering into
new contracts with these vendors to ensure 24 hour coverage at our hospitals.
Our professional fees were $0.8 million higher for the nine months of fiscal 2010 compared
to the comparable period of fiscal 2009 due to fees incurred related to the pending sale of HHA
and fees related to our Strategic Alternatives Review.
We incurred an additional $0.7 million of repairs and maintenance expense during the nine
months of fiscal 2010 compared to the comparable period of fiscal 2009 as our newer facilities
begin to age.
Travel expense has declined during the nine months of fiscal 2010 compared to the comparable
period of fiscal 2009 due to the reduction in the number of managed ventures in our MedCath
Partners Division, which required travel to these facilities during fiscal 2009, and a reduction
in corporate travel as we have ceased any travel related to new initiatives.
30
During the nine months of fiscal 2009 we incurred $0.8 million related to penalty
expense for the anticipated settlement of regulatory claims at two of our hospitals related to the
identification, return and self-reporting of $0.7 million in reimbursement for certain procedures
performed at those hospitals in prior fiscal years. We did not incur any fees or penalties during the nine months of fiscal 2010.
Our corporate salary related expenses including bonuses, recruitment and temporary labor
has declined $0.9 million for the nine months of fiscal 2010 compared to the comparable period
for fiscal 2009. The decline is primarily due to the attrition we have experienced as a result
of Strategic Alternatives Review as well as a reduction in
temporary labor and recruiting expense as new initiatives have declined.
Advertising expense was $1.2 million lower during the nine months of fiscal 2010 compared
to the same period of fiscal 2009. We ran several advertising campaigns during the nine
months of fiscal 2009 to promote our expanded facilities and to increase volumes in our
emergency departments.
Our medical malpractice expense was $1.6 million lower for the nine months of fiscal 2010
compared to the same period of fiscal 2009 due to specific high dollar claims incurred in
fiscal 2009.
Interest expense.
Interest expense increased $0.2 million or 8.6% to $3.3 million for the nine
months of fiscal 2010 from $3.1 million for the comparable period of fiscal 2009. The $0.2 million increase in interest
expense is primarily attributable to the fact that no interest was capitalized during the nine
months of fiscal 2010, whereas $2.3 million of interest was capitalized during the comparable
period of fiscal 2009. This increase was offset by our overall reduction in our outstanding debt
and interest rates on our outstanding debt.
Loss on note receivable.
Our corporate and other division entered into a note receivable
agreement with a third party during 2008. The note receivable was deemed uncollectable and a loss
of $1.5 million was recorded during the three month period ended March 31, 2010, due to our
determination of the third partys inability to repay the note and the insufficiency of the value
of the collateral securing the note.
Equity in net earnings of unconsolidated affiliates.
The net earnings of
unconsolidated affiliates are comprised of our share of earnings in two unconsolidated
hospitals, a hospital realty investment and several ventures within our MedCath Partners
Division.
Net earnings of unconsolidated affiliates in which we have a noncontrolling interest
decreased during the nine months of fiscal 2010 to $6.9 million from $7.0 million for the same
period of the prior year. The $0.1 million decrease was primarily due to hospitals in our
Hospital Division in which we hold a noncontrolling interest.
Net income attributable to noncontrolling interest.
Noncontrolling interest share of
earnings of consolidated subsidiaries decreased to $5.7 million for the nine months of fiscal
2010 from $9.9 million for the comparable period of fiscal 2009. Net income attributable to
noncontrolling interest on a same facility basis was as follows:
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Nine Months Ended June 30,
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(in thousands except percentages)
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Increase/(Decrease)
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% of Net Revenue
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2010
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2009
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$
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%
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2010
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|
2009
|
Net income attributable to noncontrolling interest
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|
$
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8,004
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$
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9,860
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$
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(1,856
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)
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|
(18.8
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)%
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|
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2.2
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%
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|
|
2.6
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%
|
On a same facility basis, net income attributable to noncontrolling interest decreased
$1.9 million due to a reduction in net income and an increase in our disproportionate share of
losses from certain of our facilities.
We expect earnings attributable to noncontrolling interests to fluctuate in future periods
as we either recognize disproportionate losses and/or recoveries thereof through
disproportionate profit recognition. For a more complete discussion of our accounting for
noncontrolling interests, including the basis for disproportionate allocation accounting, see
Critical Accounting Policies
in our Annual Report on Form 10-K for the fiscal year ended
September 30, 2009.
Income tax (benefit) expense.
Income tax benefit was $17.9 million for the nine months of
fiscal 2010 compared to income tax expense of $1.3 million for the comparable period of fiscal
2009, which represents an effective tax rate of approximately 38.0% and 43.0% for the respective
periods. The higher income tax rate for the nine months of fiscal 2009 was the result of
nondeductible permanent differences related to Medicare settlements as discussed in Note 7 of
this report.
Income from discontinued operations, net of taxes.
Discontinued operations decreased
to income of $2.6 million, net of taxes for the nine months of fiscal 2010 from income of
$6.6 million, net of taxes, for the comparable period of fiscal 2009. Income from discontinued
operations during the nine months of fiscal 2010 reflected the operations of HHA and the related
continued activities associated with DHH, which primarily related to accounts receivable and
medical malpractice reserves. Income from discontinued operations from the same period of fiscal
2009 reflected the operating income from HHA, Sun City, Cape Cod, and the gain from the
divestiture of Cape Cod, which was sold during the first quarter of fiscal 2009, offset by losses
at DHH.
31
Liquidity and Capital Resources
Working Capital and Cash Flow Activities
. Our consolidated working capital from continuing
operations was $50.5 million at June 30, 2010 and $35.1 million at September 30, 2009.
Consolidated working capital from continuing operations increased $15.4 million due to an $8.4
million reduction in accounts payable due to a decrease in overall operating expenses, a $2.6
million decrease in other accrued liabilities primarily due to the final payments of our
development costs associated with HMMC and
LMCHH, and a decrease in the current portion of long-term debt of $6.1 million due to the payment of notes payable related to our
consolidated subsidiary, TexSAn Heart Hospital.
At June 30, 2010, we continue to carry a reserve of $9.8 million for outlier payments received
in 2004, which is recorded in current liabilities of discontinued operations.
Cash provided by continuing operations from operating activities was $24.8 million for the
nine months of fiscal 2010 compared to $45.7 million for the comparable period of fiscal 2009. The
decrease of $20.9 million in cash provided by continuing operations from operating activities was
due to an overall increase in bad debt reserves and final payments of $2.3 million and $0.6 million
related to our development costs associated with HMMC and LMCHH, respectively, during the nine
months of fiscal 2010 compared to the comparable period of fiscal 2009.
Our investing activities from continuing operations used net cash of $16.3 million for the
nine months of fiscal 2010 compared to $67.2 million for the comparable period of fiscal 2009. The
total cash used for capital expenditures decreased by $50.9 million during the nine months of
fiscal 2010 as compared to the comparable period of fiscal 2009, a direct result of the completion
of the expansion of our hospital facilities and the opening of HMMC.
Our financing activities from continuing operations used net cash of $27.4 million for the
nine months of fiscal 2010 compared to $43.1 million for the comparable period of fiscal 2009.
Cash used in financing activities decreased $15.7 million for the nine months of fiscal 2010 as
compared to the comparable period of fiscal 2009. The decrease was due to the repayment of our 9
7/8% Senior Notes during December 2008 offset by a $10.6 million payment on our Credit Facility
during the nine months of fiscal 2010.
Capital Expenditures.
Cash paid for property and equipment was $16.8 million and $68.0 million
for the nine months of fiscal years 2010 and 2009, respectively. Of the $16.8 million of cash paid
for property and equipment during the nine months of fiscal 2010, $8.8 million related to
maintenance capital expenditures. The $68.0 million cash paid for property and equipment during the
nine months of fiscal 2009 primarily related to the development of HMMC and the expansion projects
at two of our existing hospitals. All expansion projects were
substantially complete during fiscal 2009, and HMMC opened in October 2009.
Obligations and Availability of Financing.
At June 30, 2010, we had $79.5 million of
outstanding long-term debt and obligations under capital leases, of which $15.8 million was
classified as current. Our Term Loan under our Credit Facility had an outstanding amount of $69.4
million as of June 30, 2010. The remaining outstanding long-term debt and obligations under
capital leases of $10.1 million was due to various lenders to our Hospital Division and MedCath
Partners Division. No amounts were outstanding under our Revolver. The maximum availability under
our Revolver is $85.0 million which was reduced by outstanding letters of credit totaling $1.7
million as of June 30, 2010.
Covenants related to our long-term debt restrict the payment of dividends and require the
maintenance of specific financial ratios and amounts and periodic financial reporting. At
September 30, 2009, TexSAn Heart Hospital was in violation of financial covenants which govern its
equipment loans outstanding. Accordingly, the total outstanding balance for these loans of $6.1
million has been included in the current portion of long-term debt and obligations under capital
leases in our consolidated balance sheet. These loans were fully repaid as of June 30, 2010. The
covenant violations did not result in any other non-compliance related to the covenants governing
our other outstanding debt arrangements. As of June 30, 2010 we were in compliance with all of our
covenants.
At June 30, 2010, we guaranteed either all or a portion of the obligations of certain of our
subsidiary hospitals for equipment and other notes payable. We provide these guarantees in
accordance with the related hospital operating agreements, and we receive a fee for providing
these guarantees from either the hospitals or the physician investors. Access to available
borrowings under our Credit Facility is dependent on the Companys ability to maintain compliance
with the financial covenants contained in the Credit Facility. Deterioration in the Companys
operating results could result in failure to maintain compliance with these covenants, which
would restrict or eliminate access to available funds.
We believe that internally generated cash flows and available borrowings under our Credit
Facility will be sufficient to finance our business plan, capital expenditures and our working
capital requirements for the next 12 to 18 months.
Disclosure About Critical Accounting Policies
Our accounting policies are disclosed in our Annual Report on Form 10-K for the year ended
September 30, 2009. During the nine months of fiscal 2010 we adopted new accounting policies
as discussed in Note 2
Recent Accounting Pronouncements
to our consolidated financial
statements included herein. The adoption of these new accounting policies did not have a material
impact on our consolidated financial statements.
32
Forward-Looking Statements
Some of the statements and matters discussed in this report and in exhibits to this report
constitute forward-looking statements, including statements relating to the impact of statutory and
regulatory changes, including reimbursement rates, our payor mix, earnings attributable to
noncontrolling interests in hospitals, the consummation of asset dispositions, and our boards
consideration of strategic alternatives to maximize stockholders value. Words such as expects,
anticipates, approximates, believes, estimates, intends and hopes and variations of
such words and similar expressions are intended to identify such forward-looking statements. We
have based these statements on our current expectations and projections about future events. These
forward- looking statements are not guarantees of future performance and are subject to risks and
uncertainties that could cause actual results to differ materially from those projected in these
statements. Although we believe that these statements are based upon reasonable assumptions, we
cannot assure you that we will achieve our goals. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this report and its exhibits might not occur.
Our forward-looking statements speak only as of the date of this report or the date they were
otherwise made. We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise. We urge you to
review carefully all of the information in this report and our other filings with the SEC,
including the discussion of risk factors in
Item 1A. Risk Factors
in this report and our Annual
Report on Form 10-K for the year ended September 30, 2009 as may be updated by our subsequent
filings with the SEC. A copy of this report, including exhibits, is available on the internet site
of the SEC at
http://www.sec.gov
or through our website at
http://www.medcath.com
.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We maintain a policy for managing risk related to exposure to variability in interest rates,
commodity prices, and other relevant market rates and prices which includes considering entering
into derivative instruments (freestanding derivatives), or contracts or instruments containing
features or terms that behave in a manner similar to derivative instruments (embedded
derivatives) in order to mitigate our risks. In addition, we may be required to hedge some or all
of our market risk exposure, especially to interest rates, by creditors who provide debt funding
to us. There was no material change in our policy for managing risk related to variability in
interest rates, commodity prices, other relevant market rates and prices during the first nine
months of 2010. See Item 7A in the Companys Annual Report on Form 10-K for the fiscal year ended
September 30, 2009 for further discussions about market risk.
Interest Rate Risk
Our Credit Facility borrowings expose us to risks caused by fluctuations in the underlying
interest rates. The total outstanding balance of our Credit Facility was $69.4 million at June
30, 2010. A change of 100 basis points in the underlying interest rate would have caused a
change in interest expense of approximately $0.5 million during the nine month period ended June
30, 2010.
Item 4. Controls and Procedures
The President and Chief Executive Officer and the Executive Vice President and Chief
Financial Officer of the Company (its principal executive officer and principal financial
officer, respectively) have concluded, based on their evaluation of the Companys disclosure
controls and procedures as of June 30, 2010, that the Companys disclosure controls and
procedures were effective as of June 30, 2010 to ensure that information required to be disclosed
by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934,
as amended (the Exchange Act), is recorded, processed, summarized and reported in a timely
manner, and includes controls and procedures designed to ensure that information required to be
disclosed by the Company in the reports that it files under the Exchange Act is accumulated and
communicated to the Companys management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There
were no changes during the fiscal quarter to the Companys internal control over financial
reporting that materially affected, or are reasonably likely to materially affect, the Companys
internal control over financial reporting.
33
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are occasionally involved in legal proceedings and other claims arising out of our
operations in the normal course of business. See Note 7
Contingencies and Commitments
to the
consolidated financial statements included in this report.
Item 1A. Risk Factors
Information concerning certain risks and uncertainties appears under the heading
Forward-Looking Statements in Part I, Item 2 of this report and Part I, Item 1A of our Annual
Report on Form 10-K for the year ended September 30, 2009. You should carefully consider these
risks and uncertainties. Such risks and uncertainties could materially adversely affect our
business, financial condition or operating results.
During the period covered by this report, there have been no material changes from the risk
factors previously disclosed in our Annual Report on Form 10-K for the year ended September 30,
2009 or filings subsequently made with the Securities and Exchange Commission, except for the
addition of the following risk factors:
Impairment of long-lived assets could have a material adverse effect on our consolidated financial
statements
Long-lived assets, which include finite lived intangible assets, are evaluated for impairment
when events or changes in business circumstances indicate that the carrying amount of the assets
may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted
future cash flows expected to result from the use of an asset and its eventual disposition are less
than its carrying amount. The determination of whether or not long-lived assets have become
impaired involves a significant level of judgment in the assumptions underlying the approach used
to determine the estimated future cash flows expected to result from the use of those assets.
Changes in our strategy, assumptions and/or market conditions could significantly impact these
judgments and require adjustments to recorded amounts of long-lived assets. If impairment is
determined to be present, the resulting non-cash impairment charges could be material to our
consolidated financial statements.
Health Reform Laws may have a material adverse impact on our financial condition and results of
operations
On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care
Act, followed by the Health Care and Education Reconciliation Act of 2010 on March 30, 2010
(collectively referred to as the Health Reform Laws). The Health Reform Laws include many
provisions that will affect our Company, although given the complexity of the laws, the full impact
on the Company and its operations is not known at this time. In addition, implementing regulations
have not been issued which will also have a bearing on how these changes impact the Company. Some
of the provisions in the Health Reform Laws are effective immediately while others will not become
effective for several years.
Significantly, the Health Reform Laws revised the whole hospital exception to the Stark Law
by adding additional requirements for hospitals to qualify for the exception. Because all of our
hospitals have physician ownership and therefore must comply with the whole hospital exception,
these additional requirements will apply to all of our hospitals. These requirements include:
additional reporting and disclosure obligations; prohibitions on the increase in the percentage of
physician ownership over that in place on the date of enactment; prohibitions on expanding the
number of beds, operating rooms, or procedure rooms over the number in place as of the date of
enactment, specifications for physician investment; and patient safety measures. The limitations
on expansion and additional investment by physician owners or investors were effective as to our
hospitals as of March 23, 2010.
The Health Reforms Laws also established a new Independent Payment Advisory Board (the
IPAB) to develop and submit proposals to Congress to reduce Medicare spending. The IPAB could
have a significant impact on Medicare spending, which in turn would affect Medicare payments to
our hospitals and other health care facilities.
Some of the other provisions contained in the Health Reform Laws may have a positive impact
on the Company, such as the expansion in the number of individuals with health insurance and the
expansion of Medicaid eligibility. The Health Reform Laws also tie payment to quality measures by
establishing a value-based purchasing system and adjusting hospital payment rates based on
hospital-acquired conditions and hospital readmissions. Beginning in 2013, hospitals that satisfy
certain performance standards will receive increased payments for discharges during the following
fiscal year. We believe that if we continue to make quality of care improvements, this may have
the effect of reducing costs, increasing payments from Medicare for our services, and increasing
physician and patient satisfaction.
34
The Health Reform Laws also include enhanced government enforcement tools to identify
and impose remedies for fraud, which may adversely impact entities in the healthcare industry,
including our Company.
In addition, certain provisions of the Health Reform Laws authorize voluntary demonstration
projects beginning not later than 2013 for bundling payments for acute, inpatient hospital
services, physician services, and post acute services for episodes of hospital care. In addition,
beginning no later than January 1, 2012, the Health Reform Laws allows providers organized as
accountable care organizations that voluntarily meet quality thresholds to share in the cost
savings they achieve for the Medicare program.
|
|
The Company is unable to predict at this time the full impact of the Health Reform Laws on the
Company and its operations.
|
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On July 27, 2001, we completed an initial public offering of our common stock pursuant to our
Registration Statement on Form S-1 (File No. 333-60278) that was declared effective by the SEC on
July 23, 2001. We expect to use the remaining proceeds of approximately $13.8 million from the
offering to fund development activities, working capital requirements and other corporate purposes.
Although we have identified these intended uses of the remaining proceeds, we have broad discretion
in the allocation of the net proceeds from the offering. Pending this application, we will continue
to invest the net proceeds of the offering in cash and cash-equivalents, such as money market funds
or short-term interest bearing, investment-grade securities.
The Board of Directors approved a stock repurchase program of up to $59.0 million in August
2007, which was announced November 2007. Stock purchases can be made from time to time in the open
market or in privately negotiated transactions in accordance with applicable federal and state
securities laws and regulations. The repurchase program may be discontinued at any time.
Subsequent to the approval of the stock repurchase program, the Company has purchased 1,885,461
shares of common stock at a total cost of $44.4 million, with a remaining $14.6 million available
to be repurchased per the approved stock repurchase program. No shares were repurchased during the
nine month period ended June 30, 2010.
See Note 6 to our annual financial statements in our Annual Report on Form 10-K for the
year ended September 30, 2009 for a description of restrictions on payments of dividends and
stock repurchases.
35
Item 6. Exhibits
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Exhibit No.
|
|
Description
|
|
|
|
31.1
|
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
31.2
|
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
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|
|
|
MEDCATH CORPORATION
|
|
Dated: August 9, 2010
|
By:
|
/s/ O. EDWIN FRENCH
|
|
|
|
O. Edwin French
|
|
|
|
President and Chief Executive Officer
(principal executive officer)
|
|
|
|
|
|
|
By:
|
/s/ JAMES A. PARKER
|
|
|
|
James A. Parker
|
|
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|
Executive Vice President and
Chief Financial Officer
(principal financial officer)
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By:
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/s/ LORA RAMSEY
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Lora Ramsey
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Vice President and Controller
(principal accounting officer)
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36
INDEX TO EXHIBITS
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
31.1
|
|
Certification of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
31.2
|
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
37
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