UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
---------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________to___________________
Commission file number 33-85458
MEDCATH INCORPORATED
(Exact name of registrant as specified in its charter)
North Carolina 56-1635096
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
7621 Little Avenue, Suite 106, Charlotte, North Carolina 28226
(Address of principal executive officers)
(Zip Code)
(704) 541-3228
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former 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.
Yes X No_____
As of May 15, 1996, there were 11,117,795 Common Shares outstanding.
<PAGE>
MEDCATH INCORPORATED
FORM 10-Q
March 31, 1996
Table of Contents
Page
No.
PART I - FINANCIAL INFORMATION (UNAUDITED)
Item 1. Condensed consolidated financial statements
(Bullet) Condensed consolidated statements of income 3
(Bullet) Condensed consolidated balance sheets 4
(Bullet) Condensed consolidated statements of cash flows 5
(Bullet) Notes to condensed consolidated financial statements 6-8
Item 2. Management's discussion and analysis of
financial condition and results of operations 9-13
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
<PAGE>
MedCath Incorporated
Unaudited Condensed Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
----------------------------------------------------------------
1995 1996 1995 1996
------------ ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue $ 10,142,810 $ 17,283,929 $ 20,055,764 $ 28,492,562
Operating expenses:
Lab operating expenses 3,698,733 6,813,138 7,375,256 11,003,071
Personnel costs 2,148,933 4,747,845 4,459,636 7,124,210
Depreciation 767,353 1,106,632 1,516,584 1,838,790
Amortization 187,327 566,418 376,808 753,327
Bad debt expense -- 132,675 -- 132,675
Marketing, general and administrative 972,594 1,263,780 1,904,228 2,624,027
------------ ------------ ------------ ------------
Total operating expenses 7,774,940 14,630,488 15,632,512 23,476,100
Income from operations 2,367,870 2,653,441 4,423,252 5,016,462
Interest expense (178,832) (562,858) (613,986) (729,955)
Interest income 256,752 70,925 310,780 254,054
Minority interest in partnership earnings (441,028) (30,053) (762,650) (392,174)
Equity in net earnings of unconsolidated joint venture 27,108 39,266 49,462 65,951
------------ ------------ ------------ ------------
Income before income taxes and extraordinary item 2,031,870 2,170,721 3,406,858 4,214,338
Provision for income taxes (802,880) (868,288) (1,341,012) (1,685,735)
------------ ------------ ------------ ------------
Income before extraordinary item 1,228,990 1,302,433 2,065,846 2,528,603
Extraordinary loss on early extinguishment of debt
(net of applicable income tax benefit of $139,700) -- -- (227,951) --
------------ ------------ ------------ ------------
Net income $ 1,228,990 $ 1,302,433 $ 1,837,895 $ 2,528,603
============ ============ ============ ============
Net income per share:
Income before extraordinary item $ 0.14 $ 0.14 $ 0.26 $ 0.28
Extraordinary loss -- -- (0.03) --
============ ============ ============ ============
Net income $ 0.14 $ 0.14 $ 0.23 $ 0.28
============ ============ ============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
<PAGE>
MedCath Incorporated
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, March 31,
1995 1996
-------------- --------------
<S> <C> <C>
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 6,821,728 $ 6,646,053
Short-term investments 11,703,019 3,717,842
Accounts receivable, net of allowance 4,086,146 11,358,799
Medical supplies 365,191 1,057,129
Deferred income taxes 205,000 205,000
Prepaid expenses and other current assets 221,579 375,017
------------ ------------
Total current assets 23,402,663 23,359,840
Property and equipment, net of accumulated depreciation 29,468,644 50,179,307
Other assets 1,347,215 1,878,712
Start-up and organizational costs, net of accumulated amortization 2,489,156 7,264,461
Loans to affiliates 3,370,236 4,927,193
Intangible assets, net of accumulated amortization 18,293,782 19,522,406
------------ ------------
Total assets $ 78,371,696 $107,131,919
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 947,569 $ 2,254,610
Distribution payable to minority interest 811,484 390,531
Accrued liabilities 2,139,873 4,029,510
Income taxes payable 125,694 89,673
Current portion of obligations under capital leases 1,612,165 1,621,134
Current portion of long-term debt 526,402 1,295,233
------------ ------------
Total current liabilities 6,163,187 9,680,691
Deferred income taxes 2,113,800 2,288,800
Long-term debt 13,317,861 34,227,323
Obligations under capital leases 2,415,733 1,728,245
------------ ------------
Total liabilities 24,010,581 47,925,059
Minority interest 3,866,823 4,152,313
Shareholders' equity:
Common stock, $.01 par value, 20,000,000 shares authorized, 8,684,543 shares
issued and outstanding at September 30, 1995
and 8,817,795 issued and outstanding at March 31, 1996 86,845 88,178
Preferred stock, $.01 par value, 2,000,000 shares authorized, none
issued or outstanding at September 30,1995 and March 31, 1996 -- --
Paid-in capital 44,373,923 46,404,242
Retained earnings 6,033,524 8,562,127
------------ ------------
Total shareholders' equity 50,494,292 55,054,547
------------ ------------
Total liabilities, minority interest and shareholders' equity $ 78,371,696 $107,131,919
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE>
MedCath Incorporated
Unaudited Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended March 31,
----------------------------------
1995 1996
-------------- ---------------
<S> <C> <C>
Operating activities
Net income before extraordinary item $ 2,065,846 $ 2,528,603
Adjustments to reconcile net income before extraordinary item to net cash provided
by operating activities:
Depreciation and amortization 1,955,305 2,651,385
Bad debt expense -- 132,675
Equity in net earnings of unconsolidated joint venture (49,462) (65,951)
Current tax benefit of extraordinary loss 139,700 --
Deferred income taxes -- 175,000
Proforma tax provision of pooled entity 211,012 --
(Increase) decrease in current assets:
Accounts receivable (1,661,896) (6,731,286)
Medical supplies 84,270 (662,523)
Prepaid expenses and other current assets 62,453 (153,438)
Increase (decrease) in current liabilities:
Accounts payable (79,399) 1,307,041
Distribution payable to minority interest (91,328) (420,953)
Income taxes payable (643,467) (36,021)
Accrued liabilities 2,251 1,505,639
Increase in other assets (79,891) (136,316)
------------ ------------
Net cash provided by operating activities 1,915,394 93,855
Investing activities
Purchases of property and equipment (4,101,296) (22,348,514)
Additional investment in business (654,800) --
Start-up and organizational costs (408,235) (5,202,116)
Loans and advances to affiliates (2,699,036) (1,751,972)
Repayments of loans and advances to affiliates -- 195,014
Net (purchases) sales of short-term investments (13,253,000) 7,985,177
------------ ------------
Net cash used in investing activities (21,116,367) (21,122,411)
Financing activities
Repayments of obligations under capital leases (820,799) (844,155)
Proceeds from issuance of long-term debt 4,582,345 21,982,481
Repayments of long-term debt (9,750,180) (304,188)
Repayments of subordinated debt (4,225,000) --
Investments by minority partners 300,000 285,490
Proceeds from issuance of common stock 28,927,360 131,652
Payment of loan acquisition costs and deferred loan fees (472,402) (398,399)
------------ ------------
------------ ------------
Net cash provided by financing activities 18,541,324 20,852,881
------------ ------------
Net (decrease) increase in cash and equivalents (659,649) (175,675)
Adjustment for the effect on cash flows of pooled
entity's different fiscal year 195,701 --
Cash and cash equivalents, beginning of period 3,465,805 6,821,728
------------ ------------
Cash and cash equivalents, end of period $ 3,001,857 $ 6,646,053
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5
<PAGE>
MedCath Incorporated
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Month Periods Ended March 31, 1996
Note 1- General
The accompanying unaudited condensed consolidated financial statements of
MedCath Incorporated ("the Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions for Form 10-Q and Article 10 of Regulation S-X.
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, the statements of the unaudited interim periods
include all adjustments necessary for fair presentation of results for the
periods and all such adjustments are of a normal recurring nature. The
accompanying unaudited condensed consolidated results of operations for the
three and six-month periods ended March 31, 1996 are not necessarily indicative
of the results that may be expected for the year ending September 30, 1996. For
further information, refer to the audited consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended September 30, 1995. Unless otherwise specified, capitalized terms
used herein are used as defined in the Annual Report on Form 10-K.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Note 2 - Net Income Per Share
The computation of primary and fully diluted net income per share is based upon
the weighted average number of common shares and common equivalent shares, if
dilutive, outstanding during the period. The computation of fully diluted net
income per share also takes into consideration the use of market price at the
end of the period, when higher than the average market price for the period.
Common stock equivalents represent the dilutive effect of the exercise of all
outstanding stock options. The number of shares used in the primary net income
per share computations were 8,814,067 and 9,132,538 for the three month periods
ended March 31, 1995 and 1996, respectively and 7,892,856 and 9,061,070 for the
six month periods ended March 31, 1995 and 1996, respectively. Fully diluted net
income per share is not presented because it does not differ from primary net
income per share.
Note 3 - Restatement of Prior Year Results of Operations and Cash Flows
In April 1995, the Company acquired all of the outstanding shares of HealthTech,
an operator of ten Mobile Cath Labs, in exchange for one million shares of the
Company's common stock in a transaction accounted for as a pooling-of-interests.
Accordingly, the accompanying condensed consolidated financial statements for
the three and six month periods ended March 31, 1995 have been restated to
include the results of operations and cash flows of HealthTech.
6
<PAGE>
MedCath Incorporated
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Month Periods Ended March 31, 1996
Note 4 - Long-Term Debt
Long term debt consisted of the following:
<TABLE>
<CAPTION>
September 30, March 31,
1995 1996
--------------------------------------
<S> <C> <C>
The Revolver $ 100 $ 5,000,000
McAllen REIT Loan (as defined below) 12,467,339 13,750,000
Arkansas REIT Loan (as defined below) - 5,668,675
Installment notes payable to equipment lenders - 9,987,190
Other notes payable 1,376,824 1,116,691
--------------------------------------
13,844,263 35,522,556
Less current portion (526,402) (1,295,233)
======================================
$ 13,317,861 $ 34,227,323
======================================
</TABLE>
On January 31, 1996, the Company's Credit Agreement was amended to increase the
maximum amount available under the Revolver from $ 11 million to $20 million.
The computed amount available as of March 31, 1996 ("the Borrowing Base") was
approximately $12.9 million. The Company may elect to borrow funds with an
applicable interest rate based on prime (as defined by the lender) or the 30,
60, or 90 day London Interbank Offered Rate ("LIBOR"). The interest rate on
prime-based borrowings can range from prime to prime plus 1/2% and interest is
payable quarterly. The interest rate on LIBOR-based loans can range from LIBOR
plus 1.15% to LIBOR plus 1.8% and is payable as the 30, 60 or 90 day loans
mature. The prime and LIBOR-based interest rates vary based on the Company's
attainment of certain financial objectives. On January 31, 1998, the amount
outstanding under the Revolver converts to a term loan, payable in 16 equal
installments beginning on March 31, 1998 and continuing through December 31,
2001. The commitment fee on the unused portion of the Revolver is 1/4%.
In August 1994, the McAllen Partnership entered into a construction and term
loan agreement with a real estate investment trust ("REIT") for the purpose of
financing the land acquisition and construction costs of the McAllen Heart
Hospital (the "McAllen REIT Loan"). The McAllen REIT Loan provides for maximum
borrowings of $13.75 million. In December 1995, the total amount outstanding of
$13.75 million under the McAllen REIT Loan converted to a seven-year term loan,
and beginning on February 1, 1998 and continuing through January 1, 2003,
becomes due in monthly installments using a 25-year amortization schedule with a
balloon payment due on February 1, 2003. Interest is payable monthly on the
outstanding borrowings. As of March 31, 1996, the interest rate was 10.19%,
which represents 4 1/2% above a rate index tied to seven-year U.S. Treasury
Notes, and will increase by 22 basis points per year.
In December 1995, the Company entered into a construction and term loan
agreement with a REIT for the purpose of financing the land acquisition and
construction costs of the Arkansas Heart Hospital (the "Arkansas REIT Loan").
The Arkansas REIT Loan provides for maximum borrowings of $27 million and
converts to a seven-year term loan upon completion of the Arkansas Heart
Hospital. As of March 31, 1996, the interest rate on the Arkansas REIT Loan was
10.90%, which represents a designated bank's base rate plus 2 1/2%. Upon
completion of construction, the interest rate changes to 4 1/2% above a rate
index tied to seven-year U.S. Treasury Notes, and subsequently increases by 22
basis points per year. Interest is payable monthly on the outstanding
borrowings.
7
<PAGE>
MedCath Incorporated
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Six Month Periods Ended March 31, 1996
Note 4 - Long - Term Debt (continued)
The Credit Agreement, McAllen REIT Loan and the Arkansas REIT Loan contain
certain restrictive covenants which prohibit the payment of dividends and
require the maintenance of specific financial ratios and amounts. The Company
was in compliance with these covenants as of March 31, 1996.
In 1995, the Company obtained financing of up to $12 million in installment
notes payable to equipment lenders for the purpose of purchasing equipment for
the McAllen Heart Hospital. Amounts borrowed under these notes are payable in
monthly installments of principal and interest over five to seven-year terms.
Interest is at fixed rates, to be determined at the closing date of the
respective notes, at 3% to 4.17% above a rate index tied to three to five-year
U.S. Treasury Notes. As of March 31, 1996, the outstanding borrowings under
these installment notes bear interest from 8.54% to 10%.
Note 5 - Acquisitions
MedCath Physician Management of Virginia, Inc.
In February 1996, the Company acquired MedCath Physician Management of Virginia,
Inc. ("MPMV"), a newly formed management services organization. In connection
with this acquisition, the Company issued common stock valued at $1.9 million
for assets with a fair value of $2.3 million and assumed liabilities of
$400,000. MPMV has a 40-year contract to manage Mid-Atlantic Medical
Specialists, Inc. ("Mid-Atlantic"), a nine physician practice, which includes
two cardiologists, located in southwest Virginia.
Note 6 - Subsequent Events
In April 1996, the Company announced it has formed a venture for the purpose of
constructing and operating the Austin Heart Hospital to be located in Austin,
Texas. The Company anticipates the total cost of the Austin Heart Hospital will
be approximately $27.5 million. The Company expects to open the Austin Heart
Hospital in fiscal 1998.
In April 1996, the Company completed a public offering of 2.3 million shares of
its common stock. Gross and net proceeds from the offering were $66.1 and $62.6
million respectively. A portion of the proceeds were used to repay the entire
$5.0 million outstanding under the Revolver and $3.3 million was used to retire
obligations under capital leases. The remainder of the proceeds will be used to
fund (i) a portion of the construction and start-up costs of the Arkansas,
Tucson and Austin Heart Hospitals and the development of new heart hospitals
and Fixed-Site Facilities, (ii) potential future acquisitions, (iii) working
capital and (iv) general corporate purposes.
8
<PAGE>
MedCath Incorporated
Management's Discussion and Analysis of Financial Condition
and Results of Operations
For the Three and Six Month Periods Ended March 31, 1996
The following discussion and analysis is provided to increase the understanding
of, and should be read in conjunction with the Unaudited Condensed Consolidated
Financial Statements and accompanying notes. All References to a "Note" are to
the "Notes to Unaudited Condensed Consolidated Financial Statements" contained
herein. Unless otherwise specified, capitalized terms used herein are used as
defined in the Company's Annual Report on Form 10-K for the year ended September
30, 1995 and all references to the three and six month periods refer to the
respective periods ended March 31, 1995 and 1996.
Acquisitions and New Operations
In January 1996, the Company opened its first heart hospital, the McAllen Heart
Hospital, located in McAllen, Texas. The Company currently has three additional
heart hospitals under development, two of which are expected to open in fiscal
1997 and the third in fiscal 1998. As expected during the initial phase-in
period of heart hospital operations, the McAllen Heart Hospital experienced
operating losses during the three months ended March 31, 1996.
In February 1996, the Company acquired MPMV, a newly-formed management services
organization, which under a 40-year agreement manages Mid-Atlantic, a nine
physician practice that includes two cardiologists, located in southwest
Virginia. This is the second physician practice to which the Company provides
management services.
Results of Operations
The following table sets forth, for the periods presented, the percentage of the
Company's revenue represented by certain items reflected in the Unaudited
Condensed Consolidated Statements of Income:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------------------------------------------
1995 1996 1995 1996
------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Lab operating expense 36.5 39.4 36.8 38.6
Personnel costs 21.2 27.4 22.2 25.0
Depreciation 7.6 6.4 7.5 6.5
Amortization 1.8 3.3 1.9 2.6
Bad debt expense - .8 - .5
Marketing, general and administrative 9.6 7.3 9.5 9.2
------------------------------------------------------
Total operating expenses 76.7 84.6 77.9 82.4
------------------------------------------------------
Income from operations 23.3 15.4 22.1 17.6
Interest expense (1.8) (3.3) (3.0) (2.5)
Interest income 2.5 .4 1.5 .9
Minority interest in partnership earnings (4.3) (.2) (3.8) (1.4)
Equity in net income of unconsolidated joint venture .3 .2 .2 .2
------------------------------------------------------
Income before income taxes and extraordinary item 20.0 12.5 17.0 14.8
Provision for income taxes (7.9) (5.0) (6.7) (5.9)
------------------------------------------------------
Income before extraordinary item 12.1 7.5 10.3 8.9
Extraordinary loss - - (1.1) -
-----------------------------------------------------
======================================================
Net income 12.1% 7.5% 9.2% 8.9%
======================================================
</TABLE>
9
<PAGE>
MedCath Incorporated
Management's Discussion and Analysis of Financial Condition
and Results of Operations
For the Three and Six Month Periods Ended March 31, 1996
Results of Operations (continued)
Revenue
Revenue for the three months ended March 31, 1995 and 1996 was $10.1 million and
$17.3 million, respectively, an increase of $7.2 million, or 70.4%. Revenue for
the six months ended March 31, 1995 and 1996 was $20.0 million and $28.4
million, respectively, an increase of $8.4 million, or 42.1%.
The majority of the increase in total revenue for the three and six month
periods ended March 31, 1996 was attributable to patient revenues at the
McAllen Heart Hospital which opened in January 1996. Revenues from Managed
Practices increased for the three and six month periods due to an increase in
revenue from the contract to manage AMC, primarily as a result of increased
patient volumes and the number of physicians practicing at AMC and due to the
revenues from the recently acquired contract to manage Mid-Atlantic. Revenues
from the management of Fixed-Site Facilities increased during the three and six
month periods due primarily to increased patient volumes at the Sun City
Cardiac Center. Revenues from Mobile Cath Labs increased during the three and
six month periods due to an increase in the number of Mobile Cath Labs
operated by the Company from 21 in 1995 to 23 in 1996. The remaining increases
in revenues are attributable to small volume increases at the Company's
remaining operations.
Lab Operating and Personnel Costs
Lab operating and personnel costs were $5.9 million and $11.6 million for the
three months ended March 31, 1995 and 1996, respectively, an increase of $5.7
million, or 97.7%. Lab operating and personnel costs were $11.8 and $18.1
million for the six months ended March 31, 1995 and 1996, respectively, an
increase of $6.3 million, or 53.2%.
The majority of the increase in total lab operating and personnel costs for
the three and six month periods ending March 31, 1996 is attributable to the
opening of the McAllen Heart Hospital and the acquisition of MPMV and the
related expenses incurred at each of these new operations. The remainder of
the total increase for the three and six month periods is attributable to an
increase in patient volume and physicians practicing at AMC, increased patient
volumes at the Sun City Cardiac Center, an increase in the number of Mobile
Cath Labs operated by the Company and small increases in procedure
volumes at the Company's other operations.
As a percentage of revenue, lab operating and personnel costs were 57.7% and
66.9% for the three months ended March 31, 1995 and 1996, respectively and were
59.0% and 63.6% for the six months ended March 31, 1995 and 1996. The increase
in each period is attributable to (i) the initial phase-in of the McAllen Heart
Hospital operations, (ii) an increase in revenues from the contract to manage
AMC, which includes the reimbursement of expenses incurred in managing the
practice and (iii) the recently acquired contract to manage Mid-Atlantic, which
generates slightly lower margins than some existing operations of the Company.
Depreciation and Amortization
Depreciation and amortization for the three months ended March 31, 1995 and 1996
was $955,000 and $1.7 million, respectively, an increase of $718,000, or 75.2%.
Depreciation and amortization for the six months ended March 31, 1995 and 1996
was $1.9 million and $2.6 million, respectively, an increase of $699,000, or
36.9%. The increases for the three and six month periods ended March 31, 1996
are attributable to depreciation of the hospital building and equipment and the
amortization of start-up and organizational costs of the McAllen Heart Hospital,
which opened in January 1996.
10
<PAGE>
MedCath Incorporated
Management's Discussion and Analysis of Financial Condition
and Results of Operations
For the Three and Six Month Periods Ended March 31, 1996
Bad Debt Expense
Bad debt expense for the three and six months ended March 31, 1996 was $133,000
and was attributable to provisions for receivables at the McAllen Heart
Hospital. MedCath has historically not experienced any significant bad debt
expense at its other operations.
Marketing, General and Administrative Expenses
Marketing, general and administrative expenses for the three months ended March
31, 1995 and 1996 was $973,000 and $1.3 million, respectively, an increase of
$291,000, or 29.9%. Marketing, general and administrative expenses for the six
months ended March 31, 1995 and 1996 was $1.9 million and $2.6 million,
respectively, an increase of $720,000, or 37.8%.
These increases for the three and six months ended March 31, 1996 are
attributable to salaries and other personnel costs incurred by the Company's
Hospital and Physician Practice Management Divisions, as well as its Human
Resources department, all of which were established during fiscal 1996. In
addition, the Company added several development personnel to pursue new business
opportunities and establish new physician relationships and added accounting and
financial personnel to support the growth in management services. The balance of
these increases resulted from higher professional fees associated with pursuing
new business opportunities, bonuses and increases in salaries, and the costs
associated with annual reporting as a public company.
Interest Expense
Interest expense for the three months ended March 31, 1995 and 1996 was $179,000
and $563,000, respectively, an increase of 384,000, or 214.7%. Interest expense
for the six months ended March 31, 1995 and 1996 was $614,000 and $730,000,
respectively, an increase of $116,000, or 18.9%. The increases in each of the
periods is attributable to interest incurred at the McAllen Heart Hospital,
which opened in January 1996. During the six months ended March 31, 1995, the
Company incurred interest on debt that was retired in December 1994 using a
portion of the IPO proceeds.
Interest Income
Interest income for the three months ended March 31, 1995 and 1996 was $257,000
and $71,000, respectively, a decrease of 186,000, or 72.4%. Interest income for
the six months ended March 31, 1995 and 1996 was $311,000 and $254,000,
respectively, a decrease of $57,000, or 18.3%. The decreases in each of the
periods is due to the fact that the Company earned additional interest income in
1995 from the proceeds of the IPO which have since been utilized by the Company.
11
<PAGE>
MedCath Incorporated
Management's Discussion and Analysis of Financial Condition
and Results of Operations
For the Three and Six Month Periods Ended March 31, 1996
Results of Operations (continued)
Minority Interest in Partnership Earnings
Minority interest in partnership earnings for the three months ended March 31,
1995 and 1996 was $441,000 and $30,000, respectively, a decrease of $411,000 or
93.2%. Minority interest in partnership earnings for the six months ended March
31, 1995 and 1996 was $763,000 and $392,000, respectively, a decrease of
$371,000, or 48.6%. The decreases for the three and six months ended March 31,
1996 was entirely attributable to the minority partners share of the operating
losses incurred at the McAllen Heart Hospital, which opened in January 1996.
Liquidity and Capital Resources
Operating Cash Flows
Net cash provided by operating activities was $94,000 for the six months ended
March 31, 1996. At March 31, 1996 accounts receivable was $11.4 million and
increased $7.3 million during the six month period then ended primarily as a
result of opening the McAllen Heart Hospital in January 1996. At March 3l, 1996,
the Company had working capital of $13.7 million, including $10.4 million of
cash and short-term investments.
Investing Cash Flows
During the six months ended March 31, 1996, the Company utilized a net of $21.1
million in investing activities consisting of $16.4 million to complete
construction of and to fund equipment and initial start up costs of the McAllen
Heart Hospital, $3.2 and $2.8 million for the purchase of land as the sites for
the Arkansas and Tucson Heart Hospitals, respectively, $3.3 million to commence
construction and development of the Arkansas Heart Hospital, $3.4 million
primarily for other equipment purchases at the Company's other operations and
working capital advances to affiliates, all of which were partially offset by
$8.0 million generated from sales of short-term investments.
Financing Cash Flows
In January 1996, the Company's Credit Agreement was amended to increase the
maximum amount available under the Revolver from $ 11 million to $20 million.
The proceeds of the Revolver have been and will continue to be used to finance
certain acquisitions approved by the lender, and to meet ongoing working capital
requirements. During the six months ended March 31, 1996, the Company borrowed
$5.0 million under the Revolver for working capital purposes at the McAllen
Heart Hospital and to partially finance the acquisition of land as a site for
the Tucson Heart Hospital. As of March 31, 1996, approximately $12.9 million was
available under the Revolver (see Note 4).
The total cost of constructing and equipping the McAllen Heart Hospital,
including land acquisition costs, was $27.3 million. The land and construction
costs were financed primarily through the McAllen REIT Loan and during the six
months ended March 31, 1996, the Company borrowed $1.3 million to complete
construction of the McAllen Heart Hospital (see Note 4).
12
<PAGE>
MedCath Incorporated
Management's Discussion and Analysis of Financial Condition
and Results of Operations
For the Three and Six Month Periods Ended March 31, 1996
In 1995, the Company obtained financing of up to $12 million in installment
notes payable to equipment lenders for the purpose of purchasing equipment for
the McAllen Heart Hospital. During the six months ended March 31, 1996, the
Company borrowed $10.0 million under these installment notes payable (see Note
4).
The Company anticipates that the total cost of constructing the Arkansas Heart
Hospital and the Tucson Heart Hospital will be approximately $43 million and $31
million, respectively. Construction of the Arkansas Heart Hospital commenced in
January 1996, and the Company expects that construction of the Tucson Heart
Hospital will commence in fiscal 1996.
In December 1995, the Company obtained the Arkansas REIT Loan for the purpose of
financing the land acquisition and construction costs of the Arkansas Heart
Hospital. The Arkansas REIT Loan provides for maximum borrowings of $27 million
and during the six months ended March 31, 1996, the Company borrowed $5.7
million to acquire the land on which the hospital will be constructed and to
begin construction on the hospital.
In April 1996, the Company announced it has formed a venture for the purpose of
constructing and operating the Austin Heart Hospital. The Company anticipates
the total cost of the Austin Heart Hospital will be approximately $27.5 million.
The Company expects to open the Austin Heart Hospital in fiscal 1998.
In April 1996, the Company completed a public offering of 2.3 million shares of
its common stock. Gross and net proceeds from the offering were $66.1 and $62.6
million respectively. A portion of the proceeds were used to repay the entire
$5.0 million outstanding under the Revolver and $3.3 million was used to retire
obligations under capital leases. The remainder of the proceeds are to be used
to fund (i) a portion of the construction and start-up costs of the Arkansas,
Tucson and Austin Heart Hospitals and the development of new heart hospitals and
Fixed-Site Facilities, (ii) potential future acquisitions, (iii) working capital
and (iv) general corporate purposes.
The Company anticipates financing its future operations through a combination of
amounts available under the Revolver, financing from other real estate lenders
and various equipment lenders, cash reserves and operating cash flows. The
Company believes the combination of these sources will be sufficient to meet the
Company's currently anticipated heart hospital development, acquisition and
working capital needs through fiscal 1996. In addition, in order to provide
funds necessary for the continued pursuit of its business strategy, the Company
expects to incur, from time to time, additional indebtedness to banks and other
financial institutions and to issue, in public or private transactions, equity
and debt securities. The availability and terms of any such financing will
depend upon market and other conditions. There can be no assurance that such
additional financing will be available on terms acceptable to the Company.
13
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on February 15, 1996.
(c) The matters voted upon and the results of the voting were as follows:
(1) The shareholders voted 7,570,252 shares in the affirmative and
none in the negative to re-elect each of the members of the
board of directors. There were 4,358 votes withheld in
each instance.
(2) The shareholders voted 7,341,234 shares in the affirmative and
163,289 shares in the negative to increase the number of
shares of Common Stock reserved for issuance under the
Company's Omnibus Stock Plan. There were 70,087 votes
withheld.
(3) The shareholders voted 7,570,950 shares in the affirmative and
1,950 shares in the negative to ratify the Board of
Directors' selection of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending September 30,
1996. There were 1,710 notes withheld.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
(1) The Company filed a Current Report on Form 8-K dated
March 14, 1996 pursuant to Item 5 of that form
reporting that the Company filed a registration
statement with the Securities and Exchange
Commission.
(2) The Company filed a Current Report on Form 8-K dated
March 20, 1996 pursuant to Item 5 of that form
reporting legal proceedings initiated against the
Company.
14
<PAGE>
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.
MEDCATH INCORPORATED
Date Signature and Title
May 15, 1996 /s/ Daniel L. Belongia
--------------------------
Daniel L. Belongia
Secretary and Chief Financial
and Administrative Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Financial Condition at March 31, 1996
(Unaudited) and the Condensed Consolidated Statement of Income for the
six months ended March 31, 1996 (Unaudited) and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000931782
<NAME> MEDCATH INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 6,646,053
<SECURITIES> 3,717,842
<RECEIVABLES> 11,555,467
<ALLOWANCES> (196,668)
<INVENTORY> 1,057,129
<CURRENT-ASSETS> 23,359,840
<PP&E> 60,425,578
<DEPRECIATION> (10,246,271)
<TOTAL-ASSETS> 107,131,919
<CURRENT-LIABILITIES> 9,680,691
<BONDS> 35,955,568
0
0
<COMMON> 88,178
<OTHER-SE> 54,966,369
<TOTAL-LIABILITY-AND-EQUITY> 107,131,919
<SALES> 0
<TOTAL-REVENUES> 28,492,562
<CGS> 0
<TOTAL-COSTS> 18,127,281
<OTHER-EXPENSES> 5,216,144
<LOSS-PROVISION> 132,675
<INTEREST-EXPENSE> 475,901
<INCOME-PRETAX> 4,214,338
<INCOME-TAX> 1,685,735
<INCOME-CONTINUING> 2,528,603
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,528,603
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
