1
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, 2001
( ) 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)
4416 Forest Drive, Columbia, SC 29206
(Address of principal executive offices)
(803) 782-4278
(Issuer's telephone number)
1901Main Street, Suite 1200, Mail Code 1105, Columbia, SC 29201
(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 issuer's classes of common
equity, as of the latest practicable date:
9,650,515 shares of $.05 common stock outstanding at August 16, 2001
UCI MEDICAL AFFILIATES, INC.
INDEX
PART I FINANCIAL INFORMATION Page Number
Item 1 Financial Statements
Condensed Consolidated Balance Sheets - June 30, 2001
and September 30, 2000 3
Condensed Consolidated Statements of Operations for the quarters and
the nine months ending June 30, 2001 and June 30, 2000 4
Condensed Consolidated Statements of Cash Flows for the nine months
ending June 30, 2001 and June 30, 2000 5
Notes to Condensed Consolidated Financial Statements 6 - 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9- 13
Item 3 Quantitative and Qualitative Disclosures about Market Risk 14
PART II OTHER INFORMATION
Items 1-6 15
SIGNATURES 16
UCI Medical Affiliates, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
June 30, 2001 September 30, 2000
-------------------- ----------------------
Assets
Current assets
Cash and cash equivalents $ 194,480 $ 302,927
Accounts receivable, less allowance for doubtful accounts
of $1,371,000 and $1,549,000 6,067,597 6,958,745
Inventory 623,497 623,497
Prepaid expenses and other current assets 842,067 933,130
-------------------- ----------------------
Total current assets 7,727,641 8,818,299
Property and equipment, less accumulated depreciation of
$6,856,000 and $6,035,000 4,100,618 4,326,093
Excess of cost over fair value of assets acquired, less
accumulated amortization of $2,950,000 and $2,616,000 4,261,800 4,595,690
Other assets 22,740 41,500
-------------------- ----------------------
Total Assets $16,112,799 $17,781,582
==================== ======================
Liabilities and Stockholders' Equity
Current liabilities
Book overdraft $ 1,627,507 $ 1,184,257
Current portion of long-term debt 4,205,968 6,489,280
Accounts payable 2,723,639 3,511,545
Accrued salaries and payroll taxes 1,799,478 2,544,102
Other accrued liabilities 1,506,626 1,318,362
-------------------- ----------------------
Total current liabilities 11,863,218 15,047,546
Long-term debt, net of current portion 3,690,718 2,463,034
-------------------- ----------------------
Total Liabilities 15,553,936 17,510,580
-------------------- ----------------------
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 (21,647,291) (21,935,152)
-------------------- ----------------------
Total Stockholders' Equity 558,863 271,002
-------------------- ----------------------
Total Liabilities and Stockholders' Equity $16,112,799 $17,781,582
==================== ======================
The accompanying notes are an integral part of these condensed
consolidated financial statements.
UCI Medical Affiliates, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
Three Months Ended June 30, Nine Months Ended June 30,
------------------------------------ ----------------------------------
2001 2000 2001 2000
----------------- --------------- --------------- ---------------
Revenues $9,409,100 $9,815,072 $28,921,736 $30,781,926
Operating costs 8,705,327 9,675,552 26,274,099 29,747,531
----------------- --------------- --------------- ---------------
Operating margin 703,773 139,520 2,647,637 1,034,395
General and administrative expenses 12,015 22,084 38,293 70,426
Realignment and other expenses 0 491,000 0 491,000
Impairment of goodwill 0 0 0 3,567,376
Depreciation and amortization 391,252 395,890 1,154,606 1,332,767
----------------- --------------- --------------- ---------------
Income (loss) from operations 300,506 (769,454) 1,454,738 (4,427,174)
Other expense
Interest expense, net of interest income (370,593) (483,076) (1,166,877) (1,372,929)
Loss on disposal of equipment 0 0 0 0
----------------- --------------- --------------- ---------------
Other expense (370,593) (483,076) (1,166,877) (1,372,929)
Income (loss) before benefit (provision )for
income taxes (70,087) (1,252,530) 287,861 (5,800,103)
Benefit (provision )for income taxes 0 0 0 0
----------------- --------------- --------------- ---------------
Net income (loss) $ (70,087) $(1,252,530) $ 287,861 $(5,800,103)
=============== =============== ===============
=================
Basic earnings (loss) per share $ (.01) $ (.13) $ .03 $ (.60)
================= =============== =============== ===============
Basic weighted average common shares
outstanding 9,650,515 9,650,515 9,650,515 9,650,515
================= =============== =============== ===============
Diluted earnings (loss) per share $ (.01) $ (.13) $ .03 $ (.60)
================= =============== =============== ===============
Diluted weighted average common shares
Outstanding 9,650,515 9,650,515 9,653,778 9,650,515
================= =============== =============== ===============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
UCI Medical Affiliates, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended June 30,
----------------------------------------
2001 2000
------------------ ------------------
Operating activities:
Net income (loss) $ 287,861 $(5,800,103)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Provision for losses on accounts receivable 1,134,449 2,444,356
Depreciation and amortization 1,154,606 1,332,767
Impairment of goodwill 0 3,567,376
Changes in operating assets and liabilities:
Accounts receivable (243,301) (1,892,354)
Inventories 0 (3,709)
Prepaid expenses and other current assets 91,063 (42,440)
Accounts payable and accrued expenses (1,344,266) 1,557,838
------------------
------------------
Cash provided by operating activities 1,080,412 1,163,731
------------------ ------------------
Investing activities:
Purchases of property and equipment (595,241) (677,047)
Disposals of property and equipment 0 0
Acquisitions of goodwill 0 0
Decrease in other assets 18,760 0
------------------
------------------
Cash used in investing activities (576,481) (677,047)
------------------ ------------------
Financing activities:
Net borrowings (payments) under line-of-credit agreement (383,767) 318,422
Increase in book overdraft 443,250 153,837
Payments on long-term debt (671,861) (1,006,008)
------------------ ------------------
Cash used in financing activities (612,378) (533,749)
------------------ ------------------
Decrease in cash and cash equivalents (108,447) (47,065)
Cash and cash equivalents at beginning of period 302,927 66,159
------------------ ------------------
------------------
Cash and cash equivalents at end of period $ 194,480 $ 19,094
================== ==================
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, 2001
are not necessarily indicative of the results that may be expected for the
fiscal year ending September 30, 2001. 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, 2000.
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"), Doctor's Care,
P.A., Doctor's Care of Georgia, P.C., and Doctor's 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.
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, 2000.
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.
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 Company's 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.
As of July 1, 2001, the Company was successful in renegotiating its line of
credit to an 18-month term note with monthly principle payments of $120,000,
plus interest at a rate of prime plus 4%, designed to pay out the note by
December 2002. This has resulted in a portion of this balance being reclassified
to long-term on the June 30, 2001 balance sheet.
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. The Company plans include
the following, although it is not possible to predict the ultimate outcome of
the Company's efforts.
The closure of the Atlanta centers, which were unprofitable, had an immediate
positive effect on the Company in the fourth quarter of fiscal year 2000 and
continued into the first nine months of fiscal year 2001. This improvement is
expected to continue into fiscal year 2001 and beyond. However, there can be no
assurances that such improvement will occur.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, Statement of Financial Accounting Standards ("SFAS") No. 141,
"Business Combinations" was issued. This Statement supersedes APB Opinion No.
16, "Business Combinations" and SFAS No. 38, "Accounting for Pre-acquisition
Contingencies of Purchased Enterprises" and eliminated the pooling method of
accounting for business enterprises. This Statement requires all business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method.
In July 2001, SFAS No. 142 "Goodwill and Other Intangible Assets" was issued.
This Statement supersedes APB No. 17 "Intangible Assets" and addresses how
intangible assets that are acquired individually or with a group of other assets
should be accounted for in financial statements upon their acquisition. This
Statement also addresses how goodwill and other intangible assets should be
accounted for after they have been initially recognized in the financial
statements. Goodwill and intangible assets that have indefinite useful lives
will not be amortized; they will be reviewed for impairment on at least an
annual basis. This Statement is effective for all fiscal years beginning after
December 15, 2001; however, goodwill and intangible assets acquired after June
30, 2001, will be subject immediately to the non-amortization provisions of this
Statement.
The Company is currently evaluating the impact of these Statements on its
financial statements.
The Company's intangible assets consist principally of goodwill. While the
Company has not made any assessment of the impact of FAS 142 on the carrying
value of goodwill, the methodology for the impairment assessment represents a
significant change from the existing goodwill impairment methodology
periodically performed by the Company. The Company believes that, based on
current economic conditions and operating results experienced by the Company and
the overall economic conditions of its industry, the implementation of the
impairment test required under FAS 142 could result in an impairment charge
which could be material to the Company's operating results and financial
position.
PART I
FINANCIAL INFORMATION
ITEM 2
MANAGEMENT'S 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 Company's
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 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. 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
Company's 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, 2001 and 2000, the P.A.'s
employed 114 and 101 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, 2001 as Compared to the Three Months
Ended June 30, 2000
- ----------------------------------------------------------------------------
UCI provides nonmedical management and administrative services for a network of
36 freestanding medical centers (the "Centers"), 34 of which are located
throughout South Carolina and two are located in Knoxville, Tennessee (29
operating as Doctor's Care in South Carolina, two as Doctor's Care in Knoxville,
Tennessee, and five as Progressive Physical Therapy Services in South Carolina).
Revenues of $9,409,000 for the quarter ended June 30, 2001 reflect a decrease of
$406,000 or 4% from those of the quarter ended June 30, 2000. Of this decrease
$402,000 is related to the closure of the company's Atlanta centers to be
discussed below.
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 seven Georgia physician practice centers effective June 30, 2000. The
performance of these centers, which were originally acquired in May 1998, did
not meet the expectations of the Company during fiscal year 2000 and the Company
was no longer committed to the Georgia market. The Company sold the property and
equipment at these centers for an amount approximating the net book value of the
fixed assets or transferred 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 approximately $3,567,000 to
reduce the goodwill to its fair value.
This decrease in revenue is primarily the result of the decrease in the number
of centers in operation from 41 locations during the quarter ended June 30, 2000
to 36 during the quarter ended June 30, 2001. Patient encounters decreased to
approximately 110,000 in the third quarter of fiscal year 2001 from 122,000 in
the third quarter of fiscal year 2000. The difference in the 4% decrease in
revenue and the approximately 10% decrease in patient visits is due to some rate
increases in the Medicare and workers compensation fee schedules.
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 Company's 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
16,000 lives at June 30, 2001. As of June 30, 2001, all of these HMO's 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.
Sustained revenues in the South Carolina and Tennessee centers in fiscal years
2001 and 2000 also reflect the Company's 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 Company's
services for industry. Approximately 25% of the Company's total revenues were
derived from these occupational medicine services in both 2001 and 2000.
The following table breaks out the Company's revenue and patient visits by
revenue source for the third quarter of fiscal years 2001 and 2000.
Percent of Percent of
Payor Patient Visits Revenue
------------------------------------------------ ------------------------ -----------------------
2001 2000 2001 2000
------------ ----------- ------------ ----------
17 17 18 18
Patient Pay
12 14 7 8
Employer Paid
10 12 10 12
HMO
12 8 17 17
Workers Compensation
8 7 7 6
Medicare/Medicaid
38 37 37 32
Managed Care Insurance
3 5 4 7
Other (Commercial Indemnity, Champus, etc.)
An operating margin of $704,000 was earned during the third quarter of fiscal
2001 as compared to an operating margin of $140,000 for the third quarter of
fiscal 2000. If the Atlanta centers had not been operating in the third quarter
of fiscal year 2000, the operating margin for that quarter would have been
$568,000. The remainder of the improvement was achieved by personnel cost
reductions and a significant improvement in the collection of accounts
receivable which reduced bad debt expense from 7% to 4% of revenue.
Depreciation and amortization expense decreased to $391,000 in the third quarter
of fiscal 2001, down from $396,000 in the third quarter of fiscal 2000. The
expense in the two quarters did not vary significantly because the goodwill for
the Atlanta centers was written off in the second quarter of fiscal year 2000.
Interest expense decreased from $483,000 in the third quarter of fiscal 2000 to
$371,000 in the third quarter of fiscal 2001 primarily as a result of a
reduction in long-term debt due to regularly scheduled principal payments and as
a result of the reduction in interest rates over the past months. The
improvement in cash flow has also resulted in a reduction in bank fees.
Income tax expense is zero due to the utilization of NOL's accumulated in prior
years.
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 Company's 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. The Company plans include
the following, although it is not possible to predict the ultimate outcome of
the Company's efforts.
The closure of the Atlanta centers, which were unprofitable, had an immediate
positive effect on the Company in the fourth quarter of fiscal year 2000 and
continued into the third quarter of fiscal year 2001. This improvement is
expected to continue into fiscal year 2001 and beyond. However, there can be no
assurances that such improvement will occur.
For the Nine Months Ended June 30, 2001 as Compared to the Nine Months
Ended June 30, 2000
- -------------------------------------------------------------------------------
Revenues of $28,922,000 reflect a decrease of 6% from the same period in fiscal
year 2000 and is attributable to the Atlanta center closures discussed earlier.
Patient encounters decreased to 349,000 for the nine months ended June 30, 2001
from 387,000 for the nine months ended June 30, 2000. The difference in the 4%
decrease in revenue and the approximately 10% decrease in patient visits is due
to some rate increases in the Medicare and workers compensation fee schedules.
The following table breaks out the Company's revenue and patient visits by
revenue source for the nine months ended June 30, 2001 and June 30, 2000.
Percent of Percent of
Payor Patient Visits Revenue
------------------------------------------------ ------------------------ -----------------------
2001 2000 2001 2000
------------ ----------- ------------ ----------
17 17 16 17
Patient Pay
12 12 7 7
Employer Paid
11 12 11 13
HMO
9 7 15 15
Workers Compensation
9 8 7 6
Medicare/Medicaid
38 39 39 34
Managed Care Insurance
4 5 5 8
Other (Commercial Indemnity, Champus, etc.)
An operating margin of $2,648,000 was earned during the nine months ended June
30, 2001 as compared to an operating margin of $1,034,000 for the nine months
ended June 30, 2000. If the Atlanta centers had not been operating in the fiscal
year 2000, the operating margin for the nine months ended June 30, 2000 would
have been $2,017,000. The remainder of the improvement was achieved by personnel
cost reductions and a significant improvement in the collection of accounts
receivable which reduced bad debt expense from 7% to 4% of revenue.
Depreciation and amortization expense decreased to $1,155,000 in the nine months
ended June 30, 2001, down from $1,333,000 in the nine months ended June 30,
2000. This decrease reflects higher depreciation expense as a result of
leasehold improvements and equipment upgrades at a number of the Company's
medical centers, offset by a greater reduction in amortization expense for fully
amortized acquisitions and the closure of the Atlanta sites. Interest expense
decreased from $1,373,000 for the nine months ended June 30, 2000 to $1,167,000
for the nine months ended June 30, 2001 primarily as a result of a reduction in
long-term debt due to regularly scheduled principal payments and as a result of
the reduction in interest rates over the past months.
Income tax expense is zero due to the utilization of NOL's accumulated in prior
years.
Financial Condition at June 30, 2001
Cash and cash equivalents decreased by $109,000 during the nine months ended
June 30, 2001 mainly as a result of the timing of cash payments to vendors and
salary payments.
Accounts receivable decreased by $891,000 during the nine months, reflecting an
improvement in the billing and collection functions and the elimination of the
Atlanta centers.
The reduction in goodwill is attributable to regularly scheduled amortization.
Long-term debt decreased from $8,952,000 at September 30, 2000 to $7,897,000 at
June 30, 2001. Regular principal pay-downs of approximately $672,000 and a
decrease in the Company's line of credit balance were the cause. The line of
credit has been converted into an 18 month term note effective July 1, 2001,
with monthly principal and interest payments. Management believes that it will
be able to fund debt service requirements out of cash generated through
operations and does not anticipate the availability of additional debt
financing.
Liquidity and Capital Resources
The Company requires capital for working capital needs and for the retirement of
indebtedness. The Company's capital requirements and working capital needs have
been funded through a combination of external financing (primarily bank debt),
and credit extended by suppliers.
As of June 30, 2001, 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 $1,080,000 of cash during the nine months ended
June 30, 2001, compared with $1,164,000 during the same period in the prior
fiscal year. The reduction in operating cash flow as compared to the prior year
resulted primarily from a reduction in accounts payable and accrued expenses,
partially offset by a reduction in accounts receivable.
Investing activities used only $576,000 in cash during the nine months ended
June 30, 2001 to purchase needed equipment to operate existing centers and to
upfit an existing facility to house the Corporate offices.
Financing activities utilized $612,000 in cash during the nine-month period
primarily for debt reduction.
Advisory Note Regarding Forward-Looking Statements
Certain of the statements contained in this PART I, Item 2 (Management's
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 Company's 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
Company's 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 Company's 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 Company's 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
Company's debt may vary as a result of future business requirements, market
conditions and other factors. The definitive extent of the Company's 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 Company's interest rate risk
profile.
Approximately $3,500,000 of the Company's debt at June 30, 2001 was subject to
fixed interest rates and principal payments. Approximately $4,397,000 of the
Company's debt at June 30, 2001 was subject to variable interest rates. Based on
the outstanding amounts of variable rate debt at June 30, 2001, the Company's
interest expense on an annualized basis would increase approximately $44,000 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.
--------
None.
(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 16, 2001