UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A NO. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
------------------------------
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 0-25176
- -------------------------------------------------------------------------------
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 February 10, 1998, there were 11,669,359 Common Shares outstanding.
<PAGE>
MEDCATH INCORPORATED
FORM 10-Q/A NO. 1
DECEMBER 31, 1997
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 6-7
Item 2. Management's discussion and analysis of
financial condition and results of operations 8-11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
<PAGE>
MEDCATH INCORPORATED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
-----------------------------
1996 1997
-----------------------------
<S> <C> <C>
Net revenue $ 22,854 $ 40,798
Operating expenses:
Medical supplies and other 8,595 16,853
Personnel costs 6,145 11,478
Depreciation 1,490 3,071
Amortization 750 2,006
Provision for doubtful accounts 451 1,433
Marketing, general and administrative 1,902 1,938
-----------------------------
Total operating expenses 19,333 36,779
-----------------------------
Income from operations 3,521 4,019
Interest expense (702) (2,357)
Interest income 675 509
Minority interest in earnings of consolidated entities (570) (186)
-----------------------------
Income before income taxes 2,924 1,985
Provision for income taxes (1,170) (774)
-----------------------------
Net income $ 1,754 $ 1,211
=============================
Net income per share: $ 0.16 $ 0.10
=============================
Net income per share assuming dilution: $ 0.15 $ 0.10
=============================
Weighted average number of common and common
equivalent shares outstanding (in thousands): 11,135 11,669
=============================
Weighted average number of common and common
equivalent shares outstanding assuming dilution (in thousands): 11,669 12,204
=============================
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
MEDCATH INCORPORATED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
September 30, December 31,
------------------------ -----------------------
1997 1997
------------------------ -----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,607 $ 14,000
Short-term investments 25,344 23,318
Accounts receivable, net of allowance 22,360 30,105
Medical supplies 3,168 3,779
Prepaid expenses and other current assets 668 645
------------------------ -----------------------
Total current assets 69,147 71,847
Property, plant and equipment, net of accumulated depreciation 139,185 170,666
Other assets 2,470 2,871
Organization and start-up costs, net of accumulated amortization 13,737 16,129
Advances to physician groups 8,194 10,144
Intangible assets, net of accumulated amortization 26,275 34,181
------------------------ -----------------------
Total assets $ 259,008 $ 305,838
======================== =======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,818 $ 5,272
Distribution payable to minority interests 1,081 1,299
Accrued liabilities 9,648 14,021
Current portion of long-term debt 5,503 11,195
Current portion of obligations under capital leases 599 606
------------------------ -----------------------
Total current liabilities 21,649 32,393
Deferred income taxes 3,731 3,998
Long-term debt 96,703 124,464
Obligations under capital leases 2,160 2,007
------------------------ -----------------------
Total liabilities 124,243 162,862
Minority interests in equity of consolidated entities 7,628 7,617
Shareholders' equity:
Common stock, $.01 par value, 20,000,000 shares authorized, and 11,168,603
and 11,669,359 shares issued and outstanding
at September 30, 1997 and December 31, 1997, respectively 112 117
Paid-in capital 109,065 116,071
Retained earnings 17,960 19,171
------------------------ -----------------------
Total shareholders' equity 127,137 135,359
------------------------ -----------------------
Total liabilities, minority interests and shareholders' equity $ 259,008 $ 305,838
======================== =======================
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
MEDCATH INCORPORATED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
---------------------------------------
1996 1997
------------------- ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 1,754 $ 1,211
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,277 5,086
Minority interest (23) (376)
Deferred income taxes 50 267
(Increase) decrease in current assets:
Accounts receivable (2,787) (6,545)
Medical supplies (19) (611)
Prepaid expenses and other current assets (247) 94
Increase (decrease) in current liabilities:
Accounts payable (479) 454
Distribution payable to minority interest 185 218
Accrued liabilities 1,455 4,373
Other (9) 15
------------------- ------------------
Net cash provided by operating activities 2,157 4,186
INVESTING ACTIVITIES
Purchases of property, plant and equipment (12,027) (33,843)
Start-up and organization costs (1,489) (3,990)
Advances to physician groups (429) (1,969)
Repayments of advances to physician groups 412 19
Net sales of short-term investments 5,327 2,026
Acquisition of management contracts - (1,417)
Other investing activities - (345)
------------------- ------------------
Net cash used in investing activities (8,206) (39,519)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 9,204 33,664
Repayments of long-term debt (525) (2,027)
Repayments of convertible subordinated debt (1,908) -
Repayments of obligations under capital leases (82) (146)
Investments by minority partners 1,366 565
Other financing activities 90 (330)
------------------- ------------------
Net cash provided by financing activities 8,145 31,726
------------------- ------------------
Net increase (decrease) in cash and equivalents 2,096 (3,607)
Cash and cash equivalents, beginning of period 5,026 17,607
------------------ ------------------
Cash and cash equivalents, end of period $ 7,122 $ 14,000
=================== ==================
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
MEDCATH INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997
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 month period ended December 31, 1997, are not necessarily indicative of
the results that may be expected for the year ending September 30, 1998. For
further information, refer to the audited consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K (as
amended) for the year ended September 30, 1997. Unless otherwise specified,
capitalized terms used herein are used as defined in such Annual Report on Form
10-K (as amended).
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 and assumptions.
NOTE 2 - NET INCOME PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earnings per Share ("SFAS 128"). SFAS 128 replaced
the previously reported primary and fully diluted earnings per share with basic
and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where necessary, restated to
conform to the SFAS 128 requirements.
NOTE 3 - LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consisted of the following (in thousands):
SEPTEMBER 30, DECEMBER 31,
1997 1997
------------------- -------------------
<S> <C> <C>
The REIT Loans (as defined below) $ 58,781 $ 67,580
The Phoenix Loan (as defined below) 11,133 23,020
Convertible Subordinated Debt 4,452 4,452
Notes payable to various equipment lenders 27,638 40,439
Other notes payable 202 168
------------------- -------------------
102,206 135,659
Less current portion (5,503) (11,195)
------------------- -------------------
$ 96,703 $ 124,464
=================== ===================
</TABLE>
6
<PAGE>
MEDCATH INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997
NOTE 3 - LONG - TERM DEBT (CONTINUED)
The Company entered into mortgage loans with real estate investment trusts
("REITs") from 1994 to 1997 for the purpose of financing the land acquisition
and construction costs of the McAllen, Arkansas, and Tucson Heart Hospitals and
the Heart Hospital of Austin (collectively the "REIT Loans"). The Company
entered into the REIT Loan for the Heart Hospital of Austin in November of 1997.
The interest rates on the REIT Loans are based on a fixed premium above the
seven-year Treasury note rate and the principal and interest is payable monthly
over a seven year term using extended period amortization schedules. As of
December 31, 1997, the interest rates on the REIT Loans ranged from 9.50% to
11.54%.
In December 1997, the Company obtained financing from an equipment lender in the
amount of $7 million for the purpose of financing certain medical equipment and
fixtures in the Diagnostics Division. The term of the borrowing is for six years
and the interest rate is based on a fixed premium above the average weekly yield
of 30-Day Commercial Paper. The principal and interest is payable monthly. As of
December 31, 1997, the interest rate was 8.09%. Borrowings under the financing
agreement are secured by a pledge of the Company's interest in the financed
medical equipment and fixtures.
NOTE 4 - BUSINESS COMBINATIONS AND NEW OPERATIONS
In October 1997, the Company acquired a management service organization, through
the issuance of common stock valued at approximately $7 million, which changed
its name to MedCath Physician Management, Inc., ("MPM"). MPM has a 40-year
contract to manage Pima Heart Associates ("Pima Heart"), the Company's fourth
Managed Practice. Pima Heart is a 17-member cardiologist group located in
Tucson, Arizona. Pima Heart is a full service cardiology group that comprises
more than half of the cardiologists in the Tucson market place. The intangible
asset represented by the management contract acquired is being amortized over a
40-year period, which is the remaining term of the management contract. The
Company accounted for the acquisition as a purchase business combination. The
Company's consolidated results of operations and financial position include the
operating results, which are not significant, of MPM from the date of
acquisition.
In October 1996, the Company agreed to issue a contingent convertible
subordinated promissory note in connection with the acquistion of a 40-year
contract to manage Heart Clinic, P.A. ("Heart Clinic") a multi-physician
cardiologist group located in McAllen, Texas. The $1,567,000 note was issued in
January 1998. The amount of this note was calculated based on "Standard Net
Production Levels" for each physician practicing in Heart Clinic and was
required to be made regardless of the employment status with the practice at the
time of payment, assuming that the production levels were met, and was not a
profit sharing agreement. Accordingly, this additional amount was considered an
addition to the acquisition cost of the management contract, will be recorded as
an intangible asset and will be amortized over the remaining term of the
management contract.
The Tucson Heart Hospital, located in Tucson, Arizona, is owned and operated by
MedCath of Tucson L.L.C. (the "Tucson Company"), in which MedCath owns a
majority interest and serves as manager. The Tucson Heart Hospital, which was
completed and opened in October 1997 after a Medicare and Medicaid certification
survey was completed, is a 66-bed hospital with three surgery suites. The Tucson
Heart Hospital has four cardiac catheterization laboratories that are separately
owned and operated by CCT, L.L.C. (the "Tucson Cath Lab Company"). The Company
owns a majority interest in and manages the Tucson Cath Lab Company. The
remaining interests in the Tucson Cath Lab Company are owned by local
cardiologists.
7
<PAGE>
MEDCATH INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997
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, 1997, and all references to the first quarter of 1997, and the first quarter
of 1998, refer to the quarter ended December 31, 1996, and 1997, respectively.
ACQUISITIONS AND NEW OPERATIONS
In October 1997, the Company acquired a management service organization which
changed its name to MedCath Physician Management, Inc., ("MPM"). MPM has a
40-year contract to manage Pima Heart Associates ("Pima Heart"), the Company's
fourth managed practice. Pima Heart is a 17-member cardiologist group located in
Tucson, Arizona. Pima Heart is a full service cardiology group that comprises
more than half of the cardiologists in the Tucson market place.
The Tucson Heart Hospital, located in Tucson, Arizona, is owned and operated by
MedCath of Tucson L.L.C. (the "Tucson Company"), in which MedCath owns a
majority interest and serves as manager. The Tucson Heart Hospital, which was
completed and opened in October 1997 after a Medicare and Medicaid certification
survey was completed, is a 66-bed hospital with three surgery suites. The Tucson
Heart Hospital has four cardiac catheterization laboratories that are separately
owned and operated by CCT, L.L.C. (the "Tucson Cath Lab Company"). The Company
owns a majority interest in and manages the Tucson Cath Lab Company. The
remaining interests in the Tucson Cath Lab Company are owned by local
cardiologists.
In January 1998, the Company announced that it had entered into an agreement
with Franciscan Health System of Ohio Valley, Inc. ("FHSOV") to locate the
Company's previously announced Dayton Heart Hospital on the grounds of the
Franciscan Medical Center - Dayton Campus. FHSOV will become a 30% investor in
the hospital, with the Company and local physician partners holding the
remaining interest. Under the terms of the agreement, the Company will be
managing partner, with responsibility for the day-to-day operations of the
hospital.
In January 1998, MPM acquired a 40-year contract to manage a seven-physician
cardiology practice, Valley Cardiology, Inc., located in McAllen, Texas. With
this acquisition, the Company's Practice Management Division now manages five
physician practices comprised of over 100 physicians.
The Company has announced plans to open two new fixed-site cath labs by the end
of fiscal year 1998. The labs will be located in Colorado Springs, Colorado, and
Dakota Dunes, South Dakota, and will further strengthen the Company's
Diagnostics Division. The Company has agreed to partner with local cardiologists
and own a majority interest in the Colorado Springs facility and has entered
into a long-term agreement to develop and manage the Dakota Dunes facility.
These two cath labs, in addition to the previously announced cath lab under
development in Montgomery, Alabama, will bring the total number of mobile and
fixed-site cath labs operated by the Company to 33.
8
<PAGE>
MEDCATH INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, the percentage of the
Company's net revenue represented by the net revenue of each of the Company's
operating divisions and by certain items reflected in the Unaudited Condensed
Consolidated Statements of Income:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------------------
1996 1997
--------------- -------------
<S> <C> <C>
Net revenue:
Diagnostics Division 40.9% 20.4%
Practice Management Division 21.2 17.5
Hospital Division 37.9 61.1
Other - 1.0
---------------- -----------
Total net revenue 100.0% 100.0%
Operating Expenses:
Medical supplies, personnel & other operating expense 64.5 69.4
Depreciation and amortization expense 9.8 12.4
Provision for doubtful accounts 2.0 3.5
Marketing, general and administrative expense 8.3 4.8
----------------- ----------
Total operating expenses 84.6 90.1
------------------ ---------
Income from operations 15.4 9.9
Interest expense (3.1) (5.8)
Interest income 3.0 1.3
Minority interest in earnings of consolidated entities (2.5) (0.5)
------------------- -------
Income before income taxes 12.8 4.9
Provision for income taxes (5.1) (1.9)
----------------- ---------
Net income 7.7% 3.0%
================= =========
</TABLE>
9
<PAGE>
MEDCATH INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997
RESULTS OF OPERATIONS (CONTINUED)
NET REVENUE
Consolidated net revenue increased 78.5% to $40.8 million in the first quarter
of 1998 from $22.9 million in the first quarter of 1997. Of this $17.9 million
increase, $16.2 million was attributable to increased net revenue in the
Hospital Division, which nearly tripled to $24.9 million in the first quarter of
1998 from $8.7 million in the first quarter of 1997. The increase in the
Hospital Division is primarily due to the March 1997 opening of the Company's
second Heart Hospital, the Arkansas Heart Hospital, which generated net revenue
of $12.0 million. The McAllen Heart Hospital's net revenue increased $1.5
million to $10.2 million in the first quarter of 1998. This increase was
attributable to increased procedure volumes and higher patient census levels.
The Tucson Heart Hospital, which opened in October 1997, generated net revenue
of $2.7 million in the first quarter of 1998.
Net revenue in the Practice Management Division increased $2.2 million, or 47.0%
to $7.1 million in the first quarter of 1998 from $4.9 million in the first
quarter of 1997. This increase was primarily attributable to the October 1997
acquisition of the contract to manage Pima Heart. All other changes in net
revenue of individual Managed Practices over the prior period were not
significant.
Net revenue in the Diagnostics Division decreased $1.0 million or 11.0% to $8.3
million in the first quarter of 1998 from $9.3 million in the first quarter of
1997. This decrease was partially due to the scheduled July 1997 closing of the
Fixed-Site Facility located in Tucson, Arizona, and also due to lower procedure
volumes at several of the Company's diagnostic facilities.
OPERATING EXPENSES AND INCOME FROM OPERATIONS
Consolidated operating expenses increased 90.2% to $36.8 million in the first
quarter of 1998 from $19.3 million in the first quarter of 1997. The increase
was attributable primarily to operating expenses in the Hospital Division.
Income from operations increased 14.1% to $4.0 million in the first quarter of
1998 from $3.5 million in the first quarter of 1997 due to an overall increase
in consolidated net revenue. Operating margins decreased to 9.9% in the first
quarter of 1998 from 15.4% in the first quarter of 1997. This decrease was
primarily attributable to the substantial growth in the Practice Management and
Hospital Divisions which operate at lower margins than those realized in the
Diagnostics Division. Consolidated EBITDA increased $3.3 million, or 57.9% to
$5.8 million in the first quarter of 1998 due to the Hospital Division's
operations.
Income from operations at the Hospital Division increased $758,000 or 74.2% to
$1.8 million in the first quarter of 1998. This increase is primarily due to the
opening of the Arkansas Heart Hospital in March 1997. Operating and EBITDA
margins in the Hospital Division decreased to 7.1% and 21.8%, respectively, in
the first quarter of 1998, from 11.8% and 24.5%, respectively, in the first
quarter of 1997. As expected, the Tucson Heart Hospital, which opened in October
1997, experienced an operating loss during the initial months of operation
resulting in the decrease in the Hospital Division's EBITDA and operating
margins. The McAllen and Arkansas Heart Hospitals both had positive operating
income during the period and had EBITDA margins of 25.1% and 30.8%,
respectively.
Income from operations in the Practice Management Division increased $12,000 or
2.3% to $543,000 in the first quarter of 1998. The increase is attributable
primarily to income from the contract to manage Pima Heart, which was acquired
in October 1997. Operating and EBITDA margins in the Practice Management
Division decreased to 7.6% and 10.2%, respectively, in the first quarter of
1998, from 10.9% and 13.2%, respectively, in the first quarter of 1997. These
decreases are due to the structure of the contract to manage Pima Heart which
includes in its revenue the reimbursement of expenses incurred in managing the
practice thus impacting the overall margins of the Division.
Income from operations in the Diagnostics Division decreased $468,000 or 14.2%
to $2.8 million in the first quarter of 1998. Operating margins in the
Diagnostics Division decreased to 34.0% in the first quarter
10
<PAGE>
MEDCATH INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997
of 1998 from 34.6% in 1997. This decrease is primarily due to the additional
depreciation expense taken on new equipment added throughout the prior fiscal
year. EBITDA margins increased to 48.0% in the first quarter of 1998 as compared
to 45.0% in the first quarter of 1997 due primarily to an increase in consulting
and management fee income.
Marketing, general and administrative expenses in the first quarter of 1998
increased 1.9% over the first quarter of 1997 primarily as a result of the
Company's continued investment in corporate infrastructure to accommodate
growth. In the first quarter of 1998, the Company continued to add personnel to
the Human Resources, Information Systems and Accounting departments.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense in the first quarter of 1998 increased $1.7 million over the
first quarter of 1997 primarily as the result of interest incurred on borrowings
at the Tucson and Arkansas Heart Hospitals. Substantially all of the property,
plant and equipment at the hospitals was financed using borrowings that bear
interest at rates ranging from 8.50% to 11.54%. Interest income decreased by
$165,000 in the first quarter of 1998 compared with the first quarter of 1997
due to a decrease in average short-term investment balances.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING CASH FLOWS
Net cash provided by operating activities was $4.2 million for the three months
ended December 31, 1997. Accounts receivable increased $7.7 million during the
three months ended December 31, 1997, primarily as a result of the opening of
the Tucson Heart Hospital and increased revenue at the McAllen and Arkansas
Heart Hospitals. At December 31, 1997, the Company had working capital of $39.2
million, including $37.3 million of cash and short-term investments and $30.1
million in accounts receivable.
INVESTING CASH FLOWS
During the three months ended December 31, 1997, the Company utilized a net of
$39.5 million in investing activities primarily for the construction, purchase
of equipment and start-up costs for the Company's Heart Hospitals; consisting of
$10.1 million for the Tucson Heart Hospital, $18.1 million for the Arizona Heart
Hospital and $6.1 million for the Company's other Heart Hospitals under
construction. Additional physician advances totaled $2.0 million in the quarter,
and $5.2 million was utilized in the Company's other operations. Offsetting
these outflows was $2.0 million from the sale of short term investments.
FINANCING CASH FLOWS
Financing activities provided $31.7 million during the three month period ended
December 31, 1997, primarily from loan proceeds utilized for the construction
and development of the Arizona and Tucson Heart Hospitals, and the Heart
Hospital of Austin. In addition, the Company's Diagnostics Division borrowed
$7.0 million for the purpose of financing certain medical equipment and
fixtures.
11
<PAGE>
MEDCATH INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997
In November 1997, the Company entered into a mortgage loan with a REIT for the
purpose of financing the land acquisition and construction costs of the Heart
Hospital of Austin. The interest rate is based on a fixed premium above the
seven-year treasury note rate and the principal and interest is payable monthly
over a seven year term using an extended period amortization schedule. As of
December 31, 1997, the interest rate on the REIT was 9.50%. The Heart Hospital
of Austin's REIT provided $7.8 million of the total loan proceeds during the
first quarter of 1998.
In December 1997, the Company obtained a financing commitment for up to $29
million for the purpose of financing the land acquisition, construction and a
portion of the working capital costs of the Bakersfield Heart Hospital. The
interest rate will be at a fixed premium above LIBOR and the outstanding
principal balance will be due and payable in full three years from closing of
the note, if the Company's optional extension of one year is not exercised.
The Company expects that each of its Heart Hospitals will require working
capital advances to fund a portion of the pre-opening costs and to fund the
operations subsequent to opening in the initial start-up phase of the hospital.
Substantial investments will be required during the development phase, and the
Company expects operating losses and negative cash flow will be incurred during
the initial months of operation of each Heart Hospital.
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, capital contributions by minority partners, 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 year
1998. 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.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits*
10.1 Note dated as of November 11, 1997 from Heart Hospital IV,
L.P. to HCPI Mortgage, Inc. in the amount of $35,100,000.
10.2 Construction and Term Loan Agreement dated November 11, 1997
between Heart Hospital IV, L.P. and HCPI Mortgage, Inc.
10.3 Unconditional and Continuing Limited Guaranty dated as of
November 11, 1997 by the Company in favor of HCPI Mortgage,
Inc.
11 Statement re-computation of per share earnings
27 Financial Data Schedule (EDGAR version only)
* All exhibits have been included on Form 10-Q for the
quarterly period ended December 31, 1997, as previously
filed on February 11, 1998.
(b) Reports on Form 8-K filed during the three months ended December 31,
1997 are as follows:
Date of Report Items Reported
None
13
<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
July 7, 1998 /s/ Richard J. Post
-----------------------
Richard J. Post
Chief Financial Officer, Secretary and
Treasurer
14
