UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: June 30, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
For the transition period from: to
Commission file number: 0-13265
UCI MEDICAL AFFILIATES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 59-2225346
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
1901 Main Street, Suite 1200, Mail Code 1105, Columbia, SC 29201
(Address of principal executive offices)
(803) 252-3661
Issuers telephone number
(Former name, address or fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. ( X )Yes ( ) No
State the number of shares outstanding of each of the issuers classes of
common equity, as of the latest practicable date:
9,650,515 shares of $.05 common stock outstanding at August 18, 2000
UCI MEDICAL AFFILIATES, INC.
INDEX
<TABLE>
<S> <C> <C>
Page
Number
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets - June 30, 2000
and September 30, 1999 3
Condensed Consolidated Statements of Operations for the quarters and
the nine months ending June 30, 2000 and June 30, 1999 4
Condensed Consolidated Statements of Cash Flows for the nine months
ending June 30, 2000 and June 30, 1999 5
Notes to Condensed Consolidated Financial Statements 6 - 8
Item 2 Managements Discussion and Analysis of Financial
Condition and Results of Operations 9- 14
Item 3 Quantitative and Qualitative Disclosures about Market Risk 15
PART II OTHER INFORMATION
Items 1-6 16
SIGNATURES 17
EXHIBIT INDEX 18
</TABLE>
UCI Medical Affiliates, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
June 30, 2000 September 30, 1999
-------------------- ----------------------
(unaudited) (audited)
Assets
Current assets
Cash and cash equivalents $ 19,094 $ 66,159
Accounts receivable, less allowance for doubtful accounts
of $1,304,726 and $1,482,522 7,857,059 8,399,743
Inventory 594,027 590,318
Prepaid expenses and other current assets 784,809 748,467
-------------------- ----------------------
Total current assets 9,254,989 ---------------------
9,804,687
Property and equipment, less accumulated depreciation of
$5,794,848 and $4,921,458 4,600,300 4,796,643
Excess of cost over fair value of assets acquired, less
accumulated amortization of $2,512,437 and $2,650,249 4,699,707 8,711,255
Other assets 41,500 41,500
-------------------- ----------------------
Total Assets $18,596,496 $ 23,354,085
==================== ======================
Liabilities and Stockholders Equity
Current liabilities
Book overdraft $ 957,094 $ 803,257
Current portion of long-term debt 4,391,445 4,557,797
Accounts payable 3,861,841 3,341,712
Accrued salaries and payroll taxes 3,364,486 2,292,542
Other accrued liabilities 1,083,050 ---------------------
1,098,859
----------------------
--------------------
Total current liabilities 13,657,916 12,094,167
Long-term debt, net of current portion 4,365,199 4,886,435
-------------------- ----------------------
Total Liabilities 18,023,115 16,980,602
-------------------- ----------------------
Commitments and contingencies
Stockholders Equity
Preferred stock, par value $.01 per share:
Authorized shares - 10,000,000; none issued 0 0
Common stock, par value $.05 per share:
Authorized shares - 10,000,000
Issued and outstanding- 9,650,515 and 9,650,515 shares 482,526 482,526
Paid-in capital 21,723,628 21,723,628
Accumulated deficit (21,632,773) (15,832,671)
-------------------- ----------------------
Total Stockholders Equity 573,381 6,373,483
-------------------- ----------------------
Total Liabilities and Stockholders Equity $18,596,496 $ 23,354,085
==================== ======================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
UCI Medical Affiliates, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended June 30, Nine Months Ended June 30,
------------------------------------- -------------------------------------
2000 1999 2000 1999
---------------- ----------------- ----------------- ----------------
Revenues $9,815,072 $9,956,512 $30,781,926 $ 30,110,753
Operating costs 9,675,552 8,852,797 29,747,531 26,069,237
---------------- ----------------- ----------------- ----------------
Operating margin 139,520 1,103,715 1,034,395 4,041,516
General and administrative expenses 22,084 24,777 70,426 68,428
Realignment and other expenses 491,000 0 491,000 0
Impairment of goodwill 0 0 3,567,376 0
Depreciation and amortization 395,890 495,532 1,332,767 1,467,715
---------------- ----------------- ----------------- ----------------
Income (loss) from operations (769,454) 583,406 (4,427,174) 2,505,373
Other expense
Interest expense, net of interest income (483,076) (311,849) (1,372,929) (1,059,763)
Loss on disposal of equipment 0 (3,468) 0 (65,245)
---------------- ----------------- ----------------- ----------------
Other expense (483,076) (315,317) (1,372,929) (1,125,008)
Income (loss) before benefit (provision )for
income taxes (1,252,530) 268,089 (5,800,103) 1,380,365
Benefit (provision )for income taxes 0 0 0 0
---------------- ----------------- ----------------- ----------------
Net income (loss) $(1,252,530) $ 268,089 $(5,800,103) $ 1,380,365
================= ================= ================
================
Basic earnings (loss) per share $ (.13) $ .03 $ (.60) $ .17
================ ================= ================= ================
Basic weighted average common shares
outstanding 9,650,515 9,650,515 9,650,515 8,161,360
================ ================= ================= ================
Diluted earnings (loss) per share $ (.13) $ .03 $ (.60) $ .17
================ ================= ================= ================
Diluted weighted average common shares
outstanding 9,657,675 9,657,734 9,657,016 8,167,747
================ ================= ================= ================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
UCI Medical Affiliates, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<S> <C>
<C>
Nine Months Ended June 30,
----------------------------------------
2000 1999
------------------ ------------------
Operating activities:
Net income (loss) $(5,800,103) $1,380,365
Adjustments to reconcile net income (loss) to net
cash provided by (used-in) operating activities:
(Gain) loss on disposal of equipment 0 65,245
Provision for losses on accounts receivable 2,444,356 1,270,585
Depreciation and amortization 1,332,767 1,467,714
Impairment of goodwill 3,567,376 0
Changes in operating assets and liabilities:
Accounts receivable (1,892,354) (1,233,060)
Inventories (3,709) 0
Prepaid expenses and other current assets (42,440) 146,007
Accounts payable and accrued expenses 1,557,838 (1,086,511)
------------------
------------------
Cash provided by operating activities 1,163,731 2,010,345
------------------ ------------------
Investing activities:
Purchases of property and equipment (677,047) (359,114)
Disposals of property and equipment 0 41,083
Acquisitions of goodwill 0 (79,743)
(Increase) decrease in other assets 0 202,177
------------------
------------------
Cash used in investing activities (677,047) (195,597)
------------------ ------------------
Financing activities:
Net borrowings (payments) under line-of-credit agreement 318,422 (209,206)
Increase (decrease) in book overdraft 153,837 (847,819)
Payments on long-term debt (1,006,008) (1,019,883)
------------------ ------------------
Cash used in financing activities (533,749) (2,076,908)
------------------ ------------------
Decrease in cash and cash equivalents (47,065) (262,160)
Cash and cash equivalents at beginning of period 66,159 335,923
------------------ ------------------
------------------
Cash and cash equivalents at end of period $ 19,094 $ 73,763
================== ==================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
UCI MEDICAL AFFILIATES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting only of those of a normal recurring
nature) considered necessary for a fair presentation have been included.
Operating results for the three-month and nine-month periods ended June 30, 2000
are not necessarily indicative of the results that may be expected for the
fiscal year ending September 30, 2000. For further information, refer to the
audited consolidated financial statements and footnotes thereto included in the
Companys annual report on Form 10-K for the year ended September 30, 1999.
The consolidated financial statements include the accounts of UCI Medical
Affiliates, Inc. (UCI), UCI Medical Affiliates of South Carolina, Inc.
(UCI-SC), UCI Medical Affiliates of Georgia, Inc. (UCI-GA), Doctors Care,
P.A., Doctors Care of Georgia, P.C., and Doctors Care of Tennessee, P.C. (the
three together as the P.A.). (As used herein, the term Company refers to
UCI, UCI-SC, UCI-GA, and the P.A., collectively.) Because of the corporate
practice of medicine laws in the states in which the Company operates, the
Company does not own medical practices but instead enters into an exclusive
long-term management services agreements with the P.A. which operate the medical
practices. Consolidation of the financial statements is required under Emerging
Issues Task Force (EITF) 97-2 as a consequence of the nominee shareholder
arrangement that exists with respect to each of the P.A.s. In each case, the
nominee (and sole) shareholder of the P.A. has entered into an agreement with
UCI-SC or UCI-GA, as applicable, which satisfies the requirements set forth in
footnote 1 of EITF 97-2. Under the agreement, UCI-SC or UCI-GA, as applicable,
in its sole discretion, can effect a change in the nominee shareholder at any
time for a payment of $100 from the new nominee shareholder to the old nominee
shareholder, with no limits placed on the identity of any new nominee
shareholder and no adverse impact resulting to any of UCI-SC, UCI-GA or the P.A.
resulting from such change.
In addition to the nominee shareholder arrangements described above, each
of UCI-SC and UCI-GA has entered into Administrative Service Agreements with the
P.A.s. As a consequence of the nominee shareholder arrangements and the
Administrative Service Agreements, the Company has a long-term financial
interest in the affiliated practices of the P.A.s. Through the Administrative
Services Agreement, the Company has exclusive authority over decision making
relating to all major on-going operations. The Company establishes annual
operating and capital budgets for the P.A. and compensation guidelines for the
licensed medical professionals. The Administrative Services Agreements have an
initial term of forty years. According to EITF 97-2, the application of FASB
Statement No. 94 (Consolidation of All Majority-Owned Subsidiaries), and APB No.
16 (Business Combinations), the Company must consolidate the results of the
affiliated practices with those of the Company. All significant intercompany
accounts and transactions are eliminated in consolidation, including management
fees.
The method of computing the management fees is based on billings of the
affiliated practices less the amounts necessary to pay professional compensation
and other professional expenses. In all cases, these fees are meant to
compensate the Company for expenses incurred in providing covered services, plus
a profit. These interests are unilaterally salable and transferable by the
Company and fluctuate based upon the actual performance of the operations of the
professional corporation. The P.A. enters into employment agreements with
physicians for terms ranging from one to ten years. All employment agreements
have clauses that allow for early termination of the agreement if certain events
occur such as the loss of a medical license. Over 79% of the physicians employed
by the P.A. are paid on an hourly basis for time scheduled and worked at the
medical centers, while other physicians are salaried. Approximately 25 of the
physicians have incentive compensation arrangements, which are contractually
based upon factors such as productivity, collections and quality. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and revenues and expenses
and the disclosure of contingent assets and liabilities. Actual results could
differ from those estimates and assumptions. Significant estimates are discussed
in the footnotes, as applicable, of the Form 10-K for the year ended September
30, 1999. The Company operates as one segment.
EARNINGS PER SHARE
The computation of basic earnings (loss) per share and diluted earnings
(loss) per share is in conformity with the provisions of Statement of Financial
Accounting Standards No. 128.
ASSET IMPAIRMENTS AND SUBSEQUENT EVENTS
The Company continually evaluates the operations of its physician practice
centers and assesses the centers for impairment when certain indicators of
impairment are present. In May 2000, the Company announced its intention to
close its Georgia physician practice centers effective June 30, 2000. The
performance of these centers, which were originally acquired in May 1998, have
not met the expectations of the Company during fiscal year 2000 and the Company
is no longer committed to the Georgia market. The Company expects to either sell
the property and equipment at these centers for an amount approximating the net
book value of the fixed assets or to transfer the property and equipment to
other Company locations. The long-lived assets and related goodwill for these
centers was assessed for impairment under a held for use model as of March 31,
2000. As a result of the decision to close these centers coupled with the fact
that the remaining projected undiscounted cash flows were less than the carrying
value of the long-lived assets and goodwill for these centers, the Company
recorded an impairment in the quarter ended March 31, 2000 of $3,567,376 to
reduce the goodwill to its fair value.
Additionally, the Company has incurred additional costs associated with the
decision to close the Georgia centers in the third quarter of fiscal year 2000.
These costs related primarily to exiting certain lease obligations and paying
severance benefits to certain employees at the closed locations. Since
management did not commit to an exit plan until May 2000, these costs were
recognized in the third quarter. The estimated severance costs are $185,000 and
the lease obligations, net of estimated sub-lease income, are $306,000.
The Company has a $4,000,000 bank line of credit with an outstanding
indebtedness of approximately $3,100,000 at June 30, 2000. The line of credit
bears interest of prime plus 3.5% and has been extended for one year until
August 2001. (Prime rate was 8.75% as of June 30, 2000.) The line of credit is
used to fund the working capital needs of the Company. This debt was classified
as current at June 30, 2000 due to the fact that it was renewed for only a
one-year term.
GOING CONCERN MATTERS
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company has a working capital deficiency and an accumulated
deficit. Ultimately, the Companys viability as a going concern is dependent
upon its ability to continue to generate positive cash flows from operations,
maintain adequate working capital and obtain satisfactory long-term financing.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
PART I
FINANCIAL INFORMATION
ITEM 2
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis provides information which the
Company believes is relevant to an assessment and understanding of the Companys
consolidated results of operations and financial condition. This discussion
should be read in conjunction with the consolidated financial statements and
notes thereto.
The consolidated financial statements of the Company include the accounts
of UCI, UCI-SC, UCI-GA and the P.A.s. Such consolidation is required under
Emerging Issues Task Force (EITF) 97-2 as a consequence of the nominee
shareholder arrangement that exists with respect to each of the PAs. In each
case, the nominee (and sole) shareholder of the P.A. has entered into an
agreement with UCI-SC or UCI-GA, as applicable, which satisfies the requirements
set forth in footnote 1 of EITF 97-2. Under the agreement, UCI-SC or UCI-GA, as
applicable, in its sole discretion, can effect a change in the nominee
shareholder at any time for a payment of $100 from the new nominee shareholder
to the old nominee shareholder, with no limits placed on the identity of any new
nominee shareholder and no adverse impact resulting to any of UCI-SC, UCI-GA or
the P.A. resulting from such change.
In addition to the nominee shareholder arrangements described above, each
of UCI-SC and UCI-GA has entered into Administrative Service Agreements with the
P.A.s. As a consequence of the nominee shareholder arrangements and the
Administrative Service Agreements, the Company has a long-term financial
interest in the affiliated practices of the P.A.s. According to EITF 97-2, the
application of FASB Statement No. 94 (Consolidation of All Majority-Owned
Subsidiaries), and APB No. 16 (Business Combinations), the Company must
consolidate the results of the affiliated practices with those of the Company.
The P.A.s enter into employment agreements with physicians for terms
ranging from one to ten years. All employment agreements have clauses that allow
for early termination of the agreement if certain events occur such as the loss
of a medical license. Over 79% of the physicians employed by the P.A.s are paid
on an hourly basis for time scheduled and worked at the medical centers. The
other physicians are salaried. Approximately 25 of the physicians have incentive
compensation arrangements; however, no amounts were accrued or paid during the
Companys three prior fiscal years that were significant. Any incentive
compensation is based upon a percentage of non-ancillary collectible charges for
services performed by a provider. Percentages range from 3% to 17% and vary by
individual employment contract. As of June 30, 2000 and 1999, the P.A.s
employed 101 and 93 medical providers, respectively.
The net assets of the P.A.s are not material for any period presented, and
intercompany accounts and transactions have been eliminated.
The Company does not allocate all indirect costs incurred at the corporate
offices to the Centers on a center-by-center basis. Therefore, all discussions
below are intended to be in the aggregate for the Company as a whole.
Results of Operations
For the Three Months Ended June 30, 2000 as Compared to the Three Months
Ended June 30, 1999
Revenues of $9,815,000 for the quarter ending June 30, 2000 reflect a
decrease of 1% from those of the quarter ending June 30, 1999.
This small decrease in revenue is attributed to the wind-down of the
Atlanta operations to be discussed later. The same 40 locations were operating
at both June 30, 2000 and at June 30, 1999. Patient encounters were
approximately 122,000 and 123,000 in the third quarter of fiscal year 2000 and
1999, respectively.
During the past three fiscal years, the Company has continued its services
provided to members of HMOs. In these arrangements, the Company, through the
P.A., acts as the designated primary caregiver for members of HMOs who have
selected one of the Companys centers or providers as their primary care
provider. In fiscal year 1994, the Company began participating in an HMO
operated by Companion HealthCare Corporation (CHC), a wholly owned subsidiary
of Blue Cross Blue Shield of South Carolina (BCBS). BCBS, through CHC, is a
primary stockholder of UCI. Including its arrangement with CHC, the Company now
participates in four HMOs and is the primary care gatekeeper for more than
18,000 lives at June 30, 2000. As of June 30, 2000, all of these HMOs use a
discounted fee-for-service basis for payment. HMOs do not, at this time, have a
significant penetration into the South Carolina market. The Company is not
certain if there will be growth in the market share of HMOs in the areas in
which it operates clinics.
Increased and sustained revenues in fiscal years 2000 and 1999 also reflect
the Companys heightened focus on occupational medicine and industrial health
services (these revenues are referred to as employer paid on the table below).
Focused marketing materials, including quarterly newsletters for employers, were
developed to spotlight the Companys services for industry.
The following table breaks out the Companys revenue and patient visits by
revenue source for the third quarter of fiscal years 2000 and 1999.
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Percent of Percent of
Payor Patient Visits Revenue
------------------------------------------------ ------------------ ----------------
2000 1999 2000 1999
-------- --------- ------- --------
17 18 18 18
Patient Pay
14 15 8 9
Employer Paid
12 11 14 9
HMO
8 8 17 16
Workers Compensation
7 7 6 6
Medicare/Medicaid
36 34 30 31
Managed Care Insurance
6 7 7 11
Other (Commercial Indemnity, Champus, etc.)
</TABLE>
An operating margin of $139,000 was earned during the third quarter of
fiscal 2000 as compared to an operating margin of $1,104,000 for the third
quarter of fiscal 1999.
Management believes that the decline in margin was the result of personnel
and supply costs overruns that it is in the process of reducing. However, the
personnel cost increases are, in part, attributable to increased cost-cutting
pressures applied by managed care insurance payors that cover many of the
Companys patients. As managed care plans attempt to cut costs, they typically
increase the administrative burden of providers such as the Company by requiring
referral approvals and by requesting hard copies of medical records before they
will pay claims. Additionally, the Atlanta centers, which were closed effective
June 30, 2000, posted approximately $201,000 in losses during the quarter ending
June 30, 2000. The allowance for bad debts was increased by approximately
$470,000, partially to accrue for any collectibility issues on the Atlanta
accounts receivable after center closure. The number of patients at the
Companys Centers that are covered by a managed care plan versus a traditional
indemnity plan continues to grow. Management expects this trend to continue.
The Company continually evaluates the operations of its physician practice
centers and assesses the centers for impairment when certain indicators of
impairment are present. In May 2000, the Company announced its intention to
close its Georgia physician practice centers effective June 30, 2000. The
performance of these centers, which were originally acquired in May 1998, have
not met the expectations of the Company during fiscal year 2000 and the Company
is no longer committed to the Georgia market. The Company expects to either sell
the property and equipment at these centers for an amount approximating the net
book value of the fixed assets or to transfer the property and equipment to
other Company locations. The long-lived assets and related goodwill for these
centers was assessed for impairment under a held for use model as of March 31,
2000. As a result of the decision to close these centers coupled with the fact
that the remaining projected undiscounted cash flows were less than the carrying
value of the long-lived assets and goodwill for these centers, the Company
recorded an impairment in the quarter ended March 31, 2000 of $3,567,376 to
reduce the goodwill to its fair value.
Additionally, the Company expects to incur additional costs associated with
the decision to close the Georgia centers after the third quarter of fiscal year
2000. These costs related primarily to exiting certain lease obligations and
paying severance benefits to certain employees at the closed locations. Since
management did not commit to an exit plan until May 2000, these costs were
recognized in the third quarter. The estimated severance costs are $185,000 and
the lease obligations, net of estimated sub-lease income, are expected to be
approximately $306,000.
When the Company acquires medical practices, the excess of cost over fair
value of assets acquired (goodwill) is recorded as an asset and is amortized on
a straight-line basis over 15 years. Subsequent to an acquisition, the Company
periodically evaluates whether later events and circumstances have occurred that
indicate that the remaining balance of goodwill may not be recoverable. When
external factors indicate that goodwill should be evaluated for possible
impairment, the Company uses an estimate of the related centers undiscounted
cash flows to determine if impairment exists. If impairment exists, it is
measured based on the difference between the carrying amount and fair value, for
which discounted cash flows are used. Examples of external factors that are
considered in evaluation for possible impairment include significant changes in
the third party payor reimbursement rates and unusual turnover or licensure
difficulties of clinical staff at a center.
During the second quarter of fiscal year 2000, the above analysis resulted
in an impairment change of approximately $3,570,000 to goodwill for centers that
will be closed (i.e., the Atlanta Centers). This is recorded as Impairment of
Goodwill.
Depreciation and amortization expense decreased to $396,000 in the third
quarter of fiscal 2000, down from $496,000 in the third quarter of fiscal 1999.
This decrease reflects higher depreciation expense as a result of leasehold
improvements and equipment upgrades at a number of the Companys medical
centers, offset by a greater reduction in amortization expense for fully
amortized acquisitions. Interest expense increased from $312,000 in the third
quarter of fiscal 1999 to $483,000 in the third quarter of fiscal 2000 primarily
as a result of increases to the prime rate and to fees associated with the
renewal of the Companys primary line-of-credit.
Going Concern Matters
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company has a working capital deficiency and an accumulated
deficit. Ultimately, the Companys viability as a going concern is dependent
upon its ability to continue to generate positive cash flows from operations,
maintain adequate working capital and obtain satisfactory long-term financing.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
For the Nine Months Ended June 30, 2000 as Compared to the Nine Months
Ended June 30, 1999
Revenues of $30,782,000 reflect an increase of 2% from the same period in
fiscal year 1999 and is attributable to same store growth in patient charges.
Patient encounters increased to 387,000 for the nine months ended June 30, 2000
from 384,000 for the nine months ended June 30, 1999.
Financial Condition at June 30, 2000
Cash and cash equivalents decreased by $47,000 during the nine months ended
June 30, 2000 mainly as a result of the timing of cash payments to vendors and
salary payments.
Accounts receivable decreased by $543,000 during the nine months,
reflecting an improvement in the billing and collection functions and the
wind-down of the Atlanta centers.
The reduction in goodwill is attributable to regularly scheduled
amortization and the realignment write-off of the Atlanta Centers previously
discussed.
Long-term debt decreased from $9,444,000 at September 30, 1999 to
$8,756,000 at June 30, 2000. Regular principal pay-downs were the cause. The
line of credit balance fluctuates daily. Management believes that it will be
able to fund debt service requirements out of cash generated through operations.
Liquidity and Capital Resources
The Company requires capital principally to fund growth (acquire new
Centers), for working capital needs and for the retirement of indebtedness. The
Companys capital requirements and working capital needs have been funded
through a combination of external financing (including bank debt and proceeds
from the sale of common stock to CHC and CP&C), and credit extended by
suppliers.
The Company has a $4,000,000 bank line of credit with an outstanding
indebtedness of approximately $3,100,000 at June 30, 2000. The line of credit
bears interest of prime plus 3.5% and has been extended for one year until
August 2001. (Prime rate was 8.75% as of June 30, 2000.) The line of credit is
used to fund the working capital needs of the Company. This debt was classified
as current at June 30, 2000 due to the fact that it was renewed for only a
one-year term.
As of June 30, 2000, the Company had no material commitments for capital
expenditures and expects to continue to fund any required expenditure from
working capital. There can be no assurance that operations will continue to
provide adequate cash needed in the future.
Operating activities produced $1,164,000 of cash during the nine months
ended June 30, 2000, compared with $2,010,000 during the same period in the
prior fiscal year. This decrease was mainly the result of the decline in the
operating margin.
Investing activities used only $677,000 in cash during the nine months
ended June 30, 2000 to purchase needed equipment to operate existing centers.
Financing activities utilized $534,000 in cash during the nine-month period
primarily for debt reduction.
The Year 2000
During the years leading up to the Year 2000, an important business issue
arose over the concern that the Companys computer systems, or other business
systems, or those of the Companys vendors, working either alone or in
conjunction with other software or systems, would fail to, or work incorrectly,
accept input of, store, manipulate or output dates in the years 1999, 2000 or
thereafter (commonly known as the Year 2000 problem). In response, the Company
conducted a review of its business systems, including its computer systems, on a
system-by-system basis, and queried third parties with whom it conducts business
as to their progress in identifying and addressing problems that their computer
systems might face in correctly processing date information. The Company
reviewed its information technology (IT) hardware and software, including
personal computers, application and network software for Year 2000 compliance
readiness. The review process entailed evaluation of hardware/software and
testing. The cost to bring the Companys IT systems into Year 2000 compliance
was approximately $25,000.
The Company determined that its general accounting systems (which includes
invoicing, accounts receivable, payroll, etc.) needed to be upgraded to make the
systems Year 2000 compliant. The Company has upgraded their system at a cost of
approximately $20,000.
The Company also reviewed its non-IT systems (including voice
communications). The costs to remedy non-IT systems were not material. The
source of funds for evaluation and remediation of Year 2000 compliance issues
was cash flow from operations.
The third parties whose Year 2000 problems could have the greatest effect
on the Company are believed by the Company to be banks that maintain the
Companys depository accounts credit card processing systems (including related
telecommunication systems), the companies which supply the Company with medical
supplies, and the insurance company payors for the Companys patients medical
claims. To date, however, the Company is not aware of the failure of any of the
systems of these third parties relating to Year 2000 problems.
Evidence of system performance in the IT and non-IT systems of the Company
and third parties with whom it conducts business following January 1, 2000
indicates that most of the areas of exposure to system malfunctions associated
with Year 2000 issues have been properly addressed. Nevertheless, there can be
no assurance that the Company has identified all Year 2000 problems in its
computer systems or those of third parties in advance of their occurrence or
that the Company will be able to successfully remedy any problems that are
discovered. The expenses of the Companys efforts to identify and address such
problems, or the expenses or liabilities to which the Company may become subject
as a result of such problems, could have a material adverse effect on the
Companys business, financial condition and results of operations. Any
additional maintenance or modification costs will be expensed as incurred.
Advisory Note Regarding Forward-Looking Statements
Certain of the statements contained in this PART I, Item 2 (Managements
Discussion and Analysis of Financial Condition and Results of Operations) that
are not historical facts are forward-looking statements subject to the safe
harbor created by the Private Securities Litigation Reform Act of 1995. The
Company cautions readers of this Quarterly Report on Form 10-Q that such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from those expressed or implied by such
forward-looking statements. Although the Companys management believes that
their expectations of future performance are based on reasonable assumptions
within the bounds of their knowledge of their business and operations, there can
be no assurance that actual results will not differ materially from their
expectations. Factors which could cause actual results to differ from
expectations include, among other things, the difficulty in controlling the
Companys costs of providing healthcare and administering its network of
Centers; the possible negative effects from changes in reimbursement and
capitation payment levels and payment practices by insurance companies,
healthcare plans, government payors and other payment sources; the difficulty of
attracting primary care physicians; the increasing competition for patients
among healthcare providers; possible government regulations negatively impacting
the existing organizational structure of the Company; the possible negative
effects of prospective healthcare reform; the challenges and uncertainties in
the implementation of the Companys expansion and development strategy; the
dependence on key personnel, the ability to successfully integrate the
management structures and consolidate the operations of recently acquired
entities or practices with those of the Company, and other factors described in
this report and in other reports filed by the Company with the Securities and
Exchange Commission.
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to changes in interest rates primarily as a result
of its borrowing activities, which includes credit facilities with financial
institutions used to maintain liquidity and fund the Companys business
operations, as well as notes payable to various third parties in connection with
certain acquisitions of property and equipment. The nature and amount of the
Companys debt may vary as a result of future business requirements, market
conditions and other factors. The definitive extent of the Companys interest
rate risk is not quantifiable or predictable because of the variability of
future interest rates and business financing requirements. The Company does not
currently use derivative instruments to adjust the Companys interest rate risk
profile.
Approximately $4,000,000 of the Companys debt at June 30, 2000 was subject
to fixed interest rates and principal payments. Approximately $4,000,000 of the
Companys debt at June 30, 2000 was subject to variable interest rates. Based on
the outstanding amounts of variable rate debt at June 30, 2000, the Companys
interest expense on an annualized basis would increase approximately $40,000 for
each increase of one percent in the prime rate.
The Company does not utilize financial instruments for trading or other
speculative purposes, nor does it utilize leveraged financial instruments.
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
The Company is not a party to any pending litigation other than routine
litigation incidental to the business or that, which is immaterial in amount of
damages sought.
Item 2 Changes in Securities
This item is not applicable
Item 3 Defaults upon Senior Securities
This item is not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
This item is not applicable.
Item 5 Other Information
This item is not applicable.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits. The exhibits included on the attached Exhibit Index are filed
as part of this report.
(b) Reports on Form 8-K.
None.
SIGNATURE
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 hereunto duly authorized.
UCI Medical Affiliates, Inc.
(Registrant)
/s/ M.F. McFarland, III, M.D. /s/ Jerry F. Wells, Jr., CPA
Marion F. McFarland, III, M.D. Jerry F. Wells, Jr., CPA
President, Chief Executive Officer, Executive Vice President of Finance,
and Chairman of the Board Chief Financial Officer, and
Principal Accounting Officer
Date: August 18, 2000
UCI MEDICAL AFFILIATES, INC.
EXHIBIT INDEX
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DESCRIPTION PAGE NUMBER
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27 Financial Data Schedule Filed separately as Article Type 5
via Edgar
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