Continucare Corporation
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008 |
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-12115
CONTINUCARE CORPORATION
(Exact name of registrant as specified in its charter)
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Florida
(State or other jurisdiction
of incorporation or organization)
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59-2716023
(I.R.S. Employer Identification No.) |
7200 Corporate Center Drive
Suite 600
Miami, Florida 33126
(Address of principal executive offices)
(Zip Code)
(305) 500-2000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2)
has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer o
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Accelerated filer x
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No x
At April 23, 2008, the Registrant had 67,741,803 shares of $0.0001 par value common stock
outstanding.
CONTINUCARE CORPORATION
INDEX
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONTINUCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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March 31, |
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June 30, |
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2008 |
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2007 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
12,724,322 |
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$ |
7,262,247 |
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Other receivables, net |
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109,089 |
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308,111 |
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Due from HMOs, net of a liability for incurred but not reported
medical claims of approximately $23,374,000 and $23,618,000 at
March 31, 2008 and June 30, 2007, respectively |
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13,233,829 |
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13,525,092 |
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Prepaid expenses and other current assets |
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941,241 |
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1,273,593 |
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Deferred tax assets, net |
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554,486 |
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740,264 |
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Total current assets |
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27,562,967 |
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23,109,307 |
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Certificates of deposit, restricted |
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1,263,312 |
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1,176,635 |
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Property and equipment, net |
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8,578,686 |
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8,509,454 |
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Goodwill, net of accumulated amortization of approximately $7,610,000 |
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73,204,582 |
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73,670,225 |
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Intangible assets, net of accumulated amortization of approximately
$1,858,000 and $929,000 at March 31, 2008 and June 30, 2007,
respectively |
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6,802,000 |
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7,731,000 |
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Managed care contracts, net of accumulated amortization of
approximately $3,390,000 and $3,126,000 at March 31, 2008 and June
30, 2007, respectively |
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119,811 |
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384,422 |
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Deferred tax assets, net |
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2,466,653 |
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2,289,811 |
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Other assets, net |
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153,957 |
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66,694 |
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Total assets |
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$ |
120,151,968 |
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$ |
116,937,548 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
159,721 |
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$ |
1,007,869 |
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Accrued expenses and other current liabilities |
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3,633,001 |
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4,542,097 |
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Income taxes payable |
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1,450,776 |
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67,398 |
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Total current liabilities |
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5,243,498 |
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5,617,364 |
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Capital lease obligations, less current portion |
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130,068 |
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165,191 |
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Deferred tax liabilities |
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6,351,633 |
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6,215,483 |
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Other liabilities |
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843,341 |
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881,125 |
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Total liabilities |
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12,568,540 |
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12,879,163 |
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Commitments and contingencies |
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Shareholders equity: |
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Common stock, $0.0001 par value: 100,000,000 shares authorized; |
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67,741,803 shares issued and outstanding at March 31, 2008 and
70,043,086 shares issued and |
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outstanding at June 30, 2007 |
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6,774 |
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7,004 |
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Additional paid-in capital |
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120,032,681 |
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124,616,091 |
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Accumulated deficit |
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(12,456,027 |
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(20,564,710 |
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Total shareholders equity |
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107,583,428 |
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104,058,385 |
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Total liabilities and shareholders equity |
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$ |
120,151,968 |
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$ |
116,937,548 |
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
CONTINUCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
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Three Months Ended |
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March 31, |
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2008 |
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2007 |
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Revenue |
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$ |
65,936,165 |
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$ |
60,371,155 |
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Operating expenses: |
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Medical services: |
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Medical claims |
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45,132,244 |
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45,287,174 |
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Other direct costs |
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6,902,514 |
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6,775,987 |
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Total medical services |
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52,034,758 |
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52,063,161 |
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Administrative payroll and employee benefits |
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3,489,077 |
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2,538,479 |
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General and administrative |
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4,341,247 |
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3,935,456 |
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Total operating expenses |
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59,865,082 |
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58,537,096 |
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Income from operations |
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6,071,083 |
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1,834,059 |
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Other income (expense): |
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Interest income |
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147,799 |
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64,422 |
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Interest expense |
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(5,079 |
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(5,817 |
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Income before income tax provision |
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6,213,803 |
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1,892,664 |
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Income tax provision |
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2,538,302 |
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744,225 |
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Net income |
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$ |
3,675,501 |
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$ |
1,148,439 |
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Net income per common share: |
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Basic |
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$ |
.05 |
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$ |
.02 |
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Diluted |
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$ |
.05 |
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$ |
.02 |
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Weighted average common shares outstanding: |
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Basic |
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68,352,586 |
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70,014,831 |
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Diluted |
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69,473,743 |
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71,328,916 |
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
CONTINUCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
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Nine Months Ended |
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March 31, |
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2008 |
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2007 |
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Revenue |
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$ |
188,344,274 |
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$ |
151,704,360 |
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Operating expenses: |
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Medical services: |
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Medical claims |
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133,856,761 |
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112,471,473 |
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Other direct costs |
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20,436,307 |
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16,480,682 |
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Total medical services |
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154,293,068 |
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128,952,155 |
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Administrative payroll and employee benefits |
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8,912,191 |
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6,903,862 |
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General and administrative |
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12,272,352 |
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9,704,488 |
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Total operating expenses |
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175,477,611 |
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145,560,505 |
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Income from operations |
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12,866,663 |
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6,143,855 |
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Other income (expense): |
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Interest income |
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508,302 |
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269,165 |
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Interest expense |
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(17,033 |
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(44,938 |
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Income before income tax provision |
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13,357,932 |
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6,368,082 |
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Income tax provision |
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5,249,249 |
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2,441,848 |
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Net income |
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$ |
8,108,683 |
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$ |
3,926,234 |
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Net income per common share: |
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Basic |
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$ |
.12 |
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$ |
.06 |
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Diluted |
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$ |
.11 |
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$ |
.06 |
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Weighted average common shares outstanding: |
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Basic |
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69,402,996 |
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63,451,322 |
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Diluted |
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70,559,450 |
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64,694,489 |
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
CONTINUCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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Nine Months Ended |
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March 31, |
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2008 |
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2007 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income |
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$ |
8,108,683 |
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$ |
3,926,234 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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1,904,069 |
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1,375,002 |
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Loss on disposal of fixed assets |
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35,924 |
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Provision for bad debts |
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181,081 |
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120,934 |
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Compensation expense related to issuance of stock options |
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1,036,002 |
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1,253,217 |
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Deferred tax expense |
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(134,130 |
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2,324,328 |
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Changes in operating assets and liabilities: |
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Other receivables, net |
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17,941 |
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(293,579 |
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Due from HMOs, net |
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840,297 |
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1,930,500 |
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Prepaid expenses and other current assets |
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317,352 |
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(924,151 |
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Other assets, net |
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(87,263 |
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890,885 |
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Accounts payable |
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(848,148 |
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651,166 |
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Accrued expenses and other current liabilities |
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(682,033 |
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(778,598 |
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Income taxes payable |
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1,383,378 |
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(142,573 |
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Net cash provided by operating activities |
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12,037,229 |
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10,369,289 |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Proceeds from sales of certificates of deposit |
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15,000 |
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Purchase of certificates of deposit |
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(101,677 |
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(43,395 |
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Proceeds from sales of fixed assets |
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25,000 |
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Acquisition of MDHC Companies, net of cash acquired |
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(6,121,722 |
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Purchase of property and equipment |
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(777,415 |
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(703,412 |
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Acquisition costs related to MDHC Companies |
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(359,147 |
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Net cash used in investing activities |
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(864,092 |
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(7,202,676 |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Proceeds from note payable |
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1,813,317 |
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Repayments on note payable |
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(1,813,317 |
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Proceeds from long-term debt |
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6,917,808 |
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Repayment on long-term debt |
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(6,083 |
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(14,684,848 |
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Principal repayments under capital lease obligations |
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(85,351 |
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(74,020 |
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Proceeds from exercise of stock options |
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64,375 |
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41,699 |
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Payment of fees related to issuance of stock |
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(45,000 |
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(44,401 |
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Repurchase of common stock |
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(5,639,003 |
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Net cash used in financing activities |
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(5,711,062 |
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(7,843,762 |
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Net increase (decrease) in cash and cash equivalents |
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5,462,075 |
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(4,677,149 |
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Cash and cash equivalents at beginning of period |
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7,262,247 |
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10,681,685 |
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Cash and cash equivalents at end of period |
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$ |
12,724,322 |
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$ |
6,004,536 |
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SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: |
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Purchase of property and equipment with proceeds of capital lease obligations |
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$ |
38,922 |
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$ |
81,736 |
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Retirement of treasury stock |
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$ |
5,564,998 |
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$ |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
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Cash paid for taxes |
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$ |
4,000,000 |
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$ |
266,000 |
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Cash paid for interest |
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$ |
17,033 |
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$ |
44,938 |
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008
(UNAUDITED)
NOTE 1 UNAUDITED INTERIM INFORMATION
The accompanying unaudited condensed consolidated financial statements of Continucare Corporation
(Continucare or the Company) have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted in the United States
for complete financial statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine-month periods ended March 31, 2008 are not necessarily
indicative of the results that may be reported for the remainder of the fiscal year ending June 30,
2008 or future periods. Except as otherwise indicated by the context, the terms the Company or
Continucare mean Continucare Corporation and its consolidated subsidiaries. All references to a
fiscal year refer to the Companys fiscal year which ends June 30. As used herein, Fiscal 2008
refers to the fiscal year ending June 30, 2008, Fiscal 2007 refers to the fiscal year ended June
30, 2007, and Fiscal 2006 refers to the fiscal year ended June 30, 2006.
The balance sheet at June 30, 2007 has been derived from the audited financial statements at that
date but does not include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements.
For further information, refer to the consolidated financial statements and footnotes thereto
included in the Companys Annual Report on Form 10-K for Fiscal 2007. These interim condensed
consolidated financial statements should be read in conjunction with the consolidated financial
statements and notes to consolidated financial statements included in that report.
Certain reclassifications have been made to the prior year amounts to conform to the current year
presentation.
NOTE 2 GENERAL
The Company is a provider of primary care physician services on an outpatient basis in Florida.
The Company provides medical services to patients through employee physicians, advanced registered
nurse practitioners and physicians assistants. Additionally, the Company provides practice
management services to independent physician affiliates (IPAs). Substantially all of the
Companys revenue is derived from managed care agreements with three health maintenance
organizations, Humana Medical Plans, Inc. (Humana), Vista Healthplan of South Florida, Inc. and
its affiliated companies (Vista) and Wellcare Health Plans, Inc. and its affiliated companies
(Wellcare) (collectively, the HMOs). The Company was incorporated in 1996 as the successor to
a Florida corporation formed earlier in 1996.
NOTE 3 ACQUISITION
Effective October 1, 2006, the Company completed its acquisition (the Acquisition) of Miami Dade
Health Centers, Inc. and its affiliated companies (collectively, the MDHC Companies). In
connection with the completion of the Acquisition and in consideration for the assets acquired
pursuant to the Acquisition, the Company paid the MDHC Companies approximately $5.7 million in
cash, issued to the MDHC Companies 20.0 million shares of the Companys common stock and assumed or
repaid certain indebtedness and liabilities of the MDHC Companies. The 20.0 million shares of the
Companys common stock issued in connection with the Acquisition were issued pursuant to an
exemption under the Securities Act of 1933, as amended, and 1.5 million of such 20.0 million shares
were placed in escrow as security for indemnification obligations of the MDHC Companies and their
principal owners, and, in Fiscal 2007, 264,142 of such shares were cancelled in connection with
post-closing purchase price adjustments. The balance of the shares held in escrow were released to
the principal owners of the MDHC Companies in April 2008 in accordance with the terms of the escrow
agreement. Pursuant to the terms of the Acquisition, the Company paid the principal owners of the
MDHC Companies an additional $1.0 million in cash in October 2007. The Company will also make
certain other payments to the principal owners of the MDHC Companies not expected to exceed $0.1
million depending on the collection of certain receivables that were fully reserved on the books of
the MDHC Companies as of December 31, 2005.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008
(UNAUDITED)
The purchase price, including acquisition costs, of approximately $66.2 million has been allocated
to the estimated fair value of acquired tangible assets of $13.9 million, identifiable intangible
assets of $8.7 million and assumed liabilities of $15.3 million as of October 1, 2006, resulting in
goodwill totaling $58.9 million. The identifiable intangible assets of $8.7 million consist of
estimated fair values of $1.6 million assigned to the trade name, $6.2 million to customer
relationships and $0.9 million to a noncompete agreement. The trade name was determined to have an
estimated useful life of six years and the customer relationships and noncompete agreements were
each determined to have an estimated useful life of eight and five years, respectively. The fair
values of the customer relationships and other identifiable intangible assets are amortized over
their estimated lives using the straight-line method. The customer relationships are
non-contractual. The fair value of the identifiable intangible assets was determined, with the
assistance of an outside valuation firm, based on standard valuation techniques. The Acquisition
consideration of $66.2 million includes the estimated fair value of Continucares common stock
issued to the MDHC Companies of $58.5 million, cash paid to the principal owners of $5.7 million at
the closing of the Acquisition, cash paid to the principal owners of $1.0 million in October 2007,
and acquisition costs of approximately $1.0 million. The estimated fair value of the 20.0 million
shares of Continucares common stock issued effective October 1, 2006 to the MDHC Companies was
based on a per share consideration of $2.96, which was calculated based upon the average of the
closing market prices of Continucares common stock for the period two days before through two days
after the announcement of the execution of the Asset Purchase Agreement for the Acquisition. The
fair value of the 264,142 shares cancelled in Fiscal 2007 in connection with post-closing purchase
price adjustments was approximately $0.7 million based upon the closing market price of
Continucares common stock on the dates the shares were cancelled.
On September 26, 2006, the Company entered into two term loan facilities funded out of lines of
credit (the Term Loans) with maximum loan amounts of $4.8 million and $1.0 million, respectively.
Each of the Term Loans require mandatory monthly payments that reduce the lines of credit under the
Term Loans. Subject to the terms and conditions of the Term Loans, any prepayments made to the Term
Loans may be re-borrowed on a revolving basis so long as the line of credit applicable to such Term
Loan, as reduced by the mandatory monthly payment, is not exceeded. The $4.8 million and $1.0
million Term Loans mature on October 31, 2011 and October 31, 2010, respectively. Each of the Term
Loans (i) has variable interest rates at a per annum rate equal to the sum of 2.4% and the
One-Month LIBOR rate (2.70% at March 31, 2008), (ii) requires the Company and its subsidiaries, on
a consolidated basis, to maintain a tangible net worth of $12 million and a debt coverage ratio of
1.25 to 1 and (iii) are secured by substantially all of the assets of the Company and its
subsidiaries, including those assets acquired pursuant to the Acquisition. Effective October 1,
2006, the Company fully drew on these Term Loans to fund certain portions of the cash payable upon
the closing of the Acquisition and these drawings were repaid during Fiscal 2007. As of March 31,
2008, the Company had no outstanding principal balance on its Term Loans.
Also effective September 26, 2006, the Company amended the terms of its existing credit facility
that provides for a revolving loan to the Company of $5.0 million (the Credit Facility). As a
result of this amendment, the Company, among other things, eliminated the financial covenant which
previously required the Companys EBITDA to exceed $1,500,000 on a trailing 12-month basis any time
during which amounts are outstanding under the Credit Facility and replaced such covenant with
covenants requiring the Company and its subsidiaries, on a consolidated business, to maintain a
tangible net worth of $12 million and a debt coverage ratio of 1.25 to 1. Effective October 1,
2006, the Company drew approximately $1.8 million under the Credit Facility to fund portions of the
cash payable upon the closing of the Acquisition and this drawing was repaid during Fiscal 2007.
The Credit Facility has a maturity date of December 31, 2009. As of March 31, 2008, the Company
had no outstanding principal balance on its Credit Facility.
As a result of the Acquisition of the MDHC Companies, the Company became a party to two lease
agreements for office space owned by certain of the principal owners of the MDHC Companies, one of
which the Company terminated effective September 30, 2007. For the three and nine-month periods
ended March 31, 2008, expenses related to these two leases were approximately $0.1 million and $0.3
million, respectively.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008
(UNAUDITED)
The following unaudited pro forma consolidated financial information is presented for illustrative
purposes only and presents the actual operating results for the Company for the nine-month period
ended March 31, 2008 and the pro forma operating results for the Company for the nine-month period
ended March 31, 2007 as though the Acquisition of the MDHC Companies occurred at the beginning of
the period. The unaudited pro forma consolidated financial information is not intended to be
indicative of the operating results that actually would have occurred if the transaction had been
consummated on the date indicated, nor is the information intended to be indicative of future
operating results. The unaudited pro forma consolidated financial information does not give effect
to any integration expenses or cost savings or unexpected acquisition costs that may be incurred or
realized in connection with the Acquisition. For the nine-month period ended March 31, 2007,
pre-tax non-continuing compensation expenses incurred by the MDHC Companies of approximately $8.3
million are included in the unaudited pro forma consolidated net income. The unaudited pro forma
financial information reflects adjustments for the amortization of intangible assets established as
part of the Acquisition consideration allocation in connection with the Acquisition, additional
depreciation expense resulting from the property adjustment to reflect estimated fair value,
additional rent expense related to a lease for a warehouse building excluded from the Acquisition,
a reduction in interest income resulting from the use of cash for payment of the cash consideration
in the Acquisition and the income tax effect on the pro forma adjustments. In addition,
adjustments to goodwill subsequent to the Acquisition may result primarily from adjustments to
amounts due from HMOs, other receivables and accrued expenses as additional information is
obtained.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
Revenue |
|
$ |
188,344,274 |
|
|
$ |
174,947,144 |
|
Net income (loss) |
|
|
8,108,683 |
|
|
|
(2,114,115 |
) |
Diluted earnings (loss) per share |
|
|
.11 |
|
|
|
(.03 |
) |
The Acquisition was accounted for by the Company under the purchase method of accounting in
accordance with SFAS No. 141, Business Combinations. Accordingly, the results of operations of
the MDHC Companies have been included in the Companys consolidated statements of income from the
date of acquisition.
NOTE 4 RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines
fair value, establishes a framework for measuring fair value in accordance with accounting
principles generally accepted in the United States, and expands disclosures about fair value
measurements. The provisions of SFAS 157 are effective for fiscal years beginning after November
15, 2007. The Company is currently evaluating the impact SFAS 157 will have, if any, on the
Companys financial position, results of operations and cash flows.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities, Including an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159
permits companies to voluntarily choose to measure many financial assets and financial liabilities
at fair value. Upon initial adoption, SFAS No. 159 permits companies with a one-time chance to
elect the fair value option for existing eligible items. The effect of the first measurement to
fair value is reported as a cumulative-effect adjustment to the opening balance of retained
earnings in the year SFAS No. 159 is adopted. SFAS No. 159 is effective as of the beginning of
fiscal years starting after November 15, 2007. The Company is currently assessing the potential
impact, if any, that the adoption of SFAS No. 159 will have on its consolidated financial position,
results of operations and cash flows.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS No.
141R). SFAS No. 141R expands the definition of a business combination and requires the fair value
of the purchase price of an acquisition, including the issuance of equity securities, to be
determined on the acquisition date. SFAS No. 141R also requires that all assets, liabilities,
contingent consideration, and contingencies of an acquired business be recorded at fair value at
the acquisition date. In addition, SFAS No. 141R requires that acquisition costs generally be
expensed as incurred, restructuring costs generally be expensed in periods subsequent to the
acquisition date and
changes in accounting for deferred tax asset valuation allowances and acquired income tax
uncertainties after the measurement period impact income tax expense. SFAS No. 141R is effective
for the Companys fiscal years beginning on or after December 15, 2008, with early adoption
prohibited.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008
(UNAUDITED)
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements, an Amendment of ARB No. 51 (SFAS No. 160). SFAS No. 160 requires minority interests
to be recharacterized as noncontrolling interests and reported as a component of equity. In
addition, SFAS No. 160 requires that purchases or sales of equity interests that do not result in a
change in control be accounted for as equity transactions and, upon a loss of control, requires the
interests sold, as well as any interests retained, to be recorded at fair value with any gain or
loss recognized in earnings. SFAS No. 160 is effective for fiscal years beginning on or after
December 15, 2008, with early adoption prohibited. No material impact on the Companys financial
statements is expected from the adoption of this standard.
NOTE 5 STOCK-BASED COMPENSATION
Effective July 1, 2005, the Company adopted SFAS No. 123(R), Share-Based Payment, which is a
revision of SFAS No. 123 (SFAS 123(R)), using the modified prospective transition method.
The Company calculates the fair value for employee stock options using a Black-Scholes option
pricing model at the time the stock options are granted and that amount is amortized over the
vesting period of the stock options, which is generally up to four years. The fair value for
employee stock options granted during the three and nine month periods ended March 31, 2008 was
calculated based on the following assumptions: risk-free interest rate ranging from 1.61% to 2.71%
and 1.61% to 4.22%, respectively; dividend yield of 0%; volatility factor of the expected market
price of the Companys common stock of 59.6% and 59.5%, respectively; and weighted-average expected
life of the options ranging from 2 to 6 years depending on the vesting provisions of each option.
The fair value for employee stock options granted during the three and nine-month periods ended
March 31, 2007 was calculated based on the following assumptions: risk-free interest rate ranging
from 5.08% to 5.18%; dividend yield of 0%; volatility factor of the expected market price of the
Companys common stock of 61.9% and 63.7%, respectively; and weighted-average expected life of the
options ranging from 3 to 6 years depending on the vesting provisions of each option. The expected
life of the options is based on the historical exercise behavior of the Companys employees. The
expected volatility factor is based on the historical volatility of the market price of the
Companys common stock as adjusted for certain events that management deemed to be non-recurring
and non-indicative of future events.
The Company recognized share-based compensation expense of $0.4 million and $1.0 million for the
three and nine-month periods ended March 31, 2008, respectively, and $0.5 million and $1.3 million
for the three and nine-month periods ended March 31, 2007, respectively. For the three and
nine-month periods ended March 31, 2008 and 2007, the Company did not recognize any excess tax
benefits resulting from the exercise of stock options.
NOTE 6 DEBT
The Company has in place a Credit Facility that provides for a revolving loan to the Company of
$5.0 million and two Term Loans with maximum loan amounts available for borrowing totaling $5.1
million as of March 31, 2008 (see Note 3). At March 31, 2008, there was no outstanding principal
balance on the Credit Facility or the Term Loans. The Credit Facility and Term Loans have variable
interest rates at a per annum rate equal to the sum of 2.5% and the 30-day Dealer Commercial Paper
Rate (2.63% at March 31, 2008) and the sum of 2.4% and the one-month LIBOR (2.70% at March 31,
2008), respectively. All assets, excluding capitalized lease assets, of the Company serve as
collateral for the Credit Facility and Term Loans.
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008
(UNAUDITED)
NOTE 7 EARNINGS PER SHARE
A reconciliation of the denominator of the basic and diluted earnings per share computation is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Basic weighted average number
of shares outstanding |
|
|
68,352,586 |
|
|
|
70,014,831 |
|
|
|
69,402,996 |
|
|
|
63,451,322 |
|
Dilutive effect of stock options |
|
|
1,121,157 |
|
|
|
1,314,085 |
|
|
|
1,156,454 |
|
|
|
1,243,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive weighted average
number of shares outstanding |
|
|
69,473,743 |
|
|
|
71,328,916 |
|
|
|
70,559,450 |
|
|
|
64,694,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not included in calculation of
diluted earnings per share as
impact is antidilutive: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding |
|
|
2,982,000 |
|
|
|
|
|
|
|
2,982,000 |
|
|
|
|
|
Warrants |
|
|
|
|
|
|
760,000 |
|
|
|
|
|
|
|
760,000 |
|
NOTE 8 INCOME TAXES
The Company accounts for income taxes under FASB Statement No. 109, Accounting for Income Taxes
(SFAS 109). Deferred income tax assets and liabilities are determined based upon differences
between the financial reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The Company recorded an income tax provision of $2.5 million and $5.2 million for the three and
nine-month periods ended March 31, 2008, respectively, and $0.7 million and $2.4 million for the
three and nine-month periods ended March 31, 2007, respectively.
In July 2006, the FASB issued Interpretation 48 (FIN 48), Accounting for Uncertainty in Income
Taxes An Interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprises financial statements in accordance with
SFAS 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax
return.
Effective July 1, 2007, the Company adopted the provisions of FIN 48. The implementation of FIN 48
had no impact on our liability for unrecognized tax benefits which was approximately $0.8 million
at March 31, 2008 and July 1, 2007 and is included in other liabilities on the condensed
consolidated balance sheet. The total amount of unrecognized tax benefits that if recognized would
affect the effective tax rate is $0.8 million, which includes accrued interest and penalties of
approximately $20,000 at March 31, 2008 and July 1, 2007. The Company recognizes interest accrued
related to unrecognized tax benefits in interest expense and penalties in operating expense. The
Company does not currently anticipate that the total amount of unrecognized tax benefits will
significantly increase or decrease by the end of Fiscal 2008. The Company is no longer subject to
tax examinations by tax authorities for fiscal years ended on or prior to June 30, 2004.
NOTE 9 CONTINGENCIES
The Company is involved in legal proceedings incidental to its business that arise from time to
time out of the ordinary course of business including, but not limited to, claims related to the
alleged malpractice of employed and contracted medical professionals, workers compensation claims
and other employee-related matters, and minor disputes with equipment lessors and other vendors.
The Company has recorded an accrual for claims related to legal proceedings, which includes amounts
for insurance deductibles and projected exposure, based on managements estimate of the ultimate
outcome of such claims.
11
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise indicated or the context otherwise requires, all references in this Form 10-Q
to we, us, our, Continucare or the Company refers to Continucare Corporation and its
consolidated subsidiaries. All references to the MDHC Companies refer to Miami Dade Health
Centers, Inc. and its affiliated companies.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We caution our investors that certain important factors may affect our actual results and
could cause such results to differ materially from any forward-looking statement which is made or
may be deemed to have been made in this report or which is otherwise made by us or on our behalf.
For this purpose, any statements contained in this report that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the generality of the
foregoing, words such as may, will, expect, believe, anticipate, intend, plan,
predict, should, potential, could, would, estimate, continue or pursue, or the
negative other variations thereof or comparable terminology are intended to identify
forward-looking statements. Such statements include, but are not limited to the following:
|
|
|
Our ability to make capital expenditures and respond to capital needs; |
|
|
|
|
Our ability to enhance the services we provide to our patients; |
|
|
|
|
Our ability to strengthen our medical management capabilities; |
|
|
|
|
Our ability to improve our physician network; |
|
|
|
|
Our ability to enter into or renew our managed care agreements and negotiate terms
which are favorable to us and affiliated physicians; |
|
|
|
|
The estimated increase in, or fair value of, our intangible assets as a result of
our acquisition of the MDHC Companies (the Acquisition), and its impact on us; |
|
|
|
|
Our ability to respond to future changes in Medicare and Medicaid reimbursement
levels and reimbursement rates from other third parties; |
|
|
|
|
Our compliance with applicable laws and regulations; |
|
|
|
|
Our ability to establish relationships and expand into new geographic markets; |
|
|
|
|
Our ability to timely open additional Continucare ValuClinic health centers; |
|
|
|
|
Our ability to expand our network through additional medical centers or other
facilities; |
|
|
|
|
The potential impact on our claims loss ratio as a result of the Medicare Risk
Adjustments (MRA), the Medicare Prescription Drug, Improvement and Modernization Act
of 2003 (the Medicare Modernization Act) and the enhanced benefits our affiliated
health maintenance organizations (HMOs) offer under their Medicare Advantage Plans; |
|
|
|
|
Changes in the component of our medical claims expense attributable to the Medicare
Prescription Drug program; |
|
|
|
|
The ability of our stop-loss insurance coverage to limit the financial risk to us of
our risk arrangements with the HMOs; |
|
|
|
|
Our ability to utilize our net operating losses for Federal income tax purposes; |
|
|
|
|
The impact of the newly effective Medicare prescription drug plan on our results of
operations; and |
|
|
|
|
Our intent to repurchase our common stock under our stock repurchase program. |
Forward-looking statements involve risks and uncertainties that cannot be predicted or
quantified and, consequently, actual results may differ materially from those expressed or implied
by such forward-looking statements. Such risks and uncertainties include, but are not limited to
the following:
|
|
|
Our dependence on three HMOs for substantially all of our revenues; |
|
|
|
|
Our ability to achieve expected levels of patient volumes and control the costs of
providing services; |
|
|
|
|
Pricing pressures exerted on us by managed care organizations; |
|
|
|
|
The level of payments we receive from governmental programs and other third party
payors; |
|
|
|
|
Our and our HMO affiliates ability to improve efficiencies in utilization with
respect to the Medicare Prescription Drug program; |
12
|
|
|
Inflationary trends in healthcare costs; |
|
|
|
|
Our ability to successfully integrate the MDHC Companies operations and personnel; |
|
|
|
|
The realization of the expected synergies and benefits of the MDHC Acquisition; |
|
|
|
|
Our ability to maintain compliance with Section 404 of the Sarbanes-Oxley Act of 2002; |
|
|
|
|
Our ability to serve a significantly larger patient base; |
|
|
|
|
Trends in patient enrollment and retention; |
|
|
|
|
Our ability to successfully recruit and retain qualified medical professionals; |
|
|
|
|
Future legislative or regulatory changes, including possible changes in Medicare and
Medicaid programs that may impact reimbursements to health care providers and insurers
or the benefits we expect to realize from the MDHC Acquisition; |
|
|
|
|
Our ability to comply with applicable laws and regulations; |
|
|
|
|
The impact of the Medicare Modernization Act and MRA on payments we receive for our
respective managed care operations; including the risk that any additional premiums we
may receive as a result of the Medicare prescription drug plan will not be sufficient
to compensate us for the expenses that we incur as a result of that plan; |
|
|
|
|
Technological and pharmaceutical improvements that increase the cost of providing,
or reduce the demand for, health care; |
|
|
|
|
Changes in our revenue mix and claims loss ratio; |
|
|
|
|
Changes in the range of medical services we provide or for which our HMO affiliates
offer coverage; |
|
|
|
|
Our ability to enter into and renew managed care provider agreements on acceptable
terms; |
|
|
|
|
Loss of significant contracts with HMOs; |
|
|
|
|
The ability of our compliance program to detect and prevent regulatory compliance
problems; |
|
|
|
|
Delays in receiving payments; |
|
|
|
|
Increases in the cost of insurance coverage, including our stop-loss coverage, or
the loss of insurance coverage; |
|
|
|
|
The collectibility of our uninsured accounts and deductible and co-pay amounts; |
|
|
|
|
Federal and state investigations; |
|
|
|
|
Lawsuits for medical malpractice and the outcome of any such litigation; |
|
|
|
|
Our estimate of the proportion of our total assets comprised by intangible assets
immediately following the MDHC Acquisition; |
|
|
|
|
Our liability for medical claims incurred but not reported in a period exceeding our
estimates; |
|
|
|
|
Changes in estimates and judgments associated with our critical accounting policies; |
|
|
|
|
Market acceptance of our Continucare ValuClinic health centers; |
|
|
|
|
Our dependence on our information processing systems and the management information
systems of our HMO affiliates; |
|
|
|
|
Impairment charges that could be required in future periods, including with respect
to the goodwill resulting from the MDHC acquisition; |
|
|
|
|
The impact on our liquidity of any repurchases of our common stock; |
|
|
|
|
The inherent uncertainty in financial forecasts which are based upon assumptions
which may prove incorrect or inaccurate; |
|
|
|
|
General economic conditions; and |
|
|
|
|
Uncertainties generally associated with the health care business. |
We assume no responsibility to update our forward-looking statements as a result of new
information, future events or otherwise. Additional information concerning these and other risks
and uncertainties is contained in our filings with the Securities and Exchange Commission,
including the section entitled Risk Factors in our Annual Report on Form 10-K for Fiscal 2007 and
in Item 1A of Part Two of this Form 10-Q and our other Quarterly Reports on Form 10-Q filed after
our Form 10-K for Fiscal 2007.
13
General
We are a provider of primary care physician services. Through our network of 18 medical
centers, we provide primary care medical services on an outpatient basis. We also provide practice
management services to independent physician affiliates (IPAs) at 20 medical offices. All of our
medical centers and IPAs are located in Miami-Dade, Broward and Hillsborough Counties, Florida. As
of March 31, 2008, we provided services to or for approximately 26,700 patients on a risk basis and
approximately 9,600 patients on a non-risk basis. Additionally, we also provided services to over
2,500 patients as of March 31, 2008 on a non-risk fee-for-service basis. For the nine-month period
ended March 31, 2008, approximately 89% and 9% of our revenue was generated by providing services
to Medicare-eligible and Medicaid-eligible members, respectively, under risk arrangements that
require us to assume responsibility to provide and pay for all of our patients medical needs in
exchange for a capitated fee, typically a percentage of the premium received by an HMO from various
payor sources.
Effective October 1, 2006, we completed the Acquisition of the MDHC Companies. Accordingly,
the revenues, expenses and results of operations of the MDHC Companies have been included in our
consolidated statements of income from the date of acquisition. See Note 3 to the condensed
consolidated financial statements included herein for unaudited pro forma financial information for
the nine-month period ended March 31, 2007 presenting our operating results as though the
Acquisition occurred at the beginning of that accounting period.
Medicare and Medicaid Considerations
Substantially all of our revenue is generated by providing services to Medicare-eligible
members and Medicaid-eligible members. The federal government and state governments, including
Florida, from time to time explore ways to reduce medical care costs through Medicare and Medicaid
reform, specifically, and through health care reform generally. Any changes that would limit,
reduce or delay receipt of Medicare or Medicaid funding or mandate increased benefit levels or any
developments that would disqualify us from receiving Medicare or Medicaid funding could have a
material adverse effect on our business, results of operations, prospects, financial results,
financial condition and cash flows. Due to the diverse range of medical care related proposals put
forth and the uncertainty of any proposals adoption, we cannot predict what impact any Medicare
reform proposal ultimately adopted may have on our business, financial position or results of
operations.
On January 1, 2006, the Medicare Prescription Drug Plan created by the Medicare Modernization
Act became effective. As a result, our HMO affiliates have established or expanded prescription
drug benefit plans for their Medicare Advantage members. Under the terms of our risk arrangements,
we are financially responsible for a substantial portion of the cost of the prescription drugs our
patients receive, and, in exchange, our HMO affiliates have agreed to provide us with an additional
per member capitated fee related to prescription drug coverage. However, there can be no assurance
that the additional fee that we receive will be sufficient to reimburse us for the additional costs
that we may incur under the new Medicare Prescription Drug Plan.
In addition, the premiums our HMO affiliates receive from the Centers for Medicare and
Medicaid Services (CMS) for their Medicare Prescription Drug Plans is subject to periodic
adjustment, positive or negative, based upon the application of risk corridors that compare their
plans revenues targeted in their bids to actual prescription drug costs. Variances exceeding
certain thresholds may result in CMS making additional payments to the HMOs or require the HMOs to
refund to CMS a portion of the payments they received. Our contracted HMO affiliates estimate and
periodically adjust premium revenues related to the risk corridor payment adjustment, and a portion
of the HMOs estimated premium revenue adjustment is allocated to us. As a result, the revenues
recognized under our risk arrangements with our HMO affiliates are net of the portion of the
estimated risk corridor adjustment allocated to us. The portion of any such risk corridor
adjustment that the HMOs allocate to us may not directly correlate to the historical utilization
patterns of our patients or the costs that we may incur in future periods. Our HMO affiliates
allocated to us adjustments related to their risk corridor payments which had the effect of
reducing our operating income by approximately $1.1 million and $2.8 million, respectively, during
the three and nine-month periods ended March 31, 2008 and by approximately $0.5 million and $2.5
million, respectively, during the three and nine-month periods ended March 31, 2007.
14
The Medicare Prescription Drug Plan has also been subject to significant public criticism and
controversy, and members of Congress have discussed possible changes to the program as well as ways
to reduce the programs cost to the federal government. We cannot predict what impact, if any,
these developments may have on the Medicare Prescription Drug Plan or on our future financial
results.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 2 to the consolidated financial
statements included in our Annual Report on Form 10-K for Fiscal 2007. Included within these
policies are certain policies which contain critical accounting estimates and, therefore, have been
deemed to be critical accounting policies. Critical accounting estimates are those which require
management to make assumptions about matters that were uncertain at the time the estimate was made
and for which the use of different estimates, which reasonably could have been used, or changes in
the accounting estimates that are reasonably likely to occur from period to period, could have a
material impact on the presentation of our financial condition, changes in financial condition or
results of operations.
We base our estimates and assumptions on historical experience, knowledge of current events
and anticipated future events, and we continuously evaluate and update our estimates and
assumptions. However, our estimates and assumptions may ultimately prove to be incorrect or
incomplete and our actual results may differ materially. We believe the following critical
accounting policies involve the most significant judgments and estimates used in the preparation of
our consolidated financial statements.
Revenue Recognition
Under our risk contracts with HMOs, we receive a percentage of premium or other capitated fee
for each patient that chooses one of our physicians as their primary care physician. Revenue under
these agreements is generally recorded in the period we assume responsibility to provide services
at the rates then in effect as determined by the respective contract. As part of the Medicare
Advantage program, CMS periodically recomputes the premiums to be paid to the HMOs based on updated
health status of participants and updated demographic factors. We record any adjustments to this
revenue at the time that the information necessary to make the determination of the adjustment is
received from the HMO or CMS.
Under our risk agreements, we assume responsibility for the cost of all medical services
provided to the patient, even those we do not provide directly, in exchange for a percentage of
premium or other capitated fee. To the extent that patients require more frequent or expensive
care, our revenue under a contract may be insufficient to cover the costs of care provided. When
it is probable that expected future health care costs and maintenance costs under a contract or
group of existing contracts will exceed anticipated capitated revenue on those contracts, we
recognize losses on our prepaid health care services with HMOs. No contracts were considered loss
contracts at March 31, 2008 because we have the right to terminate unprofitable physicians and
close unprofitable centers under our managed care contracts.
Under our limited risk and non-risk contracts with HMOs, we receive a capitation fee based on
the number of patients for which we are providing services on a monthly basis. The capitation fee
is recorded as revenue in the period in which services are provided as determined by the respective
contract.
Payments under both our risk contracts and our non-risk contracts (for both the Medicare
Advantage program as well as Medicaid) are also subject to reconciliation based upon historical
patient enrollment data. We record any adjustments to this revenue at the time that the
information necessary to make the determination of the adjustment is received from the HMO or the
applicable governmental body.
15
Medical Claims Expense Recognition
The cost of health care services provided or contracted for is accrued in the period in which
the services are provided. This cost includes our estimate of the related liability for medical
claims incurred in the period but not yet reported, or IBNR. IBNR represents a material portion of
our medical claims liability which is presented in the balance sheet netted against amounts due
from HMOs. Changes in this estimate can materially affect, either favorably or unfavorably, our
results of operations and overall financial position.
We develop our estimate of IBNR primarily based on historical claims incurred per member per
month. We adjust our estimate if we have unusually high or low utilization or if benefit changes
provided under the HMO plans are expected to significantly increase or reduce our claims exposure.
We also adjust our estimate for differences between the estimated claims expense recorded in prior
months to actual claims expense as claims are paid by the HMOs and reported to us. We use an
actuarial analysis as an additional tool to further corroborate our estimate of IBNR. Based on our
analysis as of March 31, 2008, we recorded a liability of approximately $23.4 million for IBNR
which was relatively unchanged from the liability of $23.6 million recorded as of June 30, 2007.
The increase in the liability for IBNR of $7.8 million or 54.6% to $22.0 million as of March 31,
2007 from $14.2 million as of June 30, 2006 was primarily due to the additional IBNR recorded
related to the MDHC Companies.
Consideration of Impairment Related to Goodwill and Other Intangible Assets
Our balance sheet includes intangible assets, including goodwill and other separately
identifiable intangible assets, which represented approximately 67% of our total assets at March
31, 2008. The most significant component of the intangible assets consists of the intangible
assets recorded in connection with the MDHC Acquisition. The purchase price, including acquisition
costs, of approximately $66.2 million was allocated to the estimated fair value of acquired
tangible assets of $13.9 million, identifiable intangible assets of $8.7 million and assumed
liabilities of $15.3 million as of October 1, 2006, resulting in goodwill totaling $58.9 million.
Under Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets, goodwill and intangible assets with indefinite useful lives are no longer amortized, but
are reviewed for impairment on an annual basis or more frequently if certain indicators of
permanent impairment arise. Intangible assets with definite useful lives are amortized over their
respective useful lives to their estimated residual values and also reviewed for impairment
annually or more frequently if certain indicators of permanent impairment arise. Indicators of a
permanent impairment include, among other things, a significant adverse change in legal factors or
the business climate, the loss of a key HMO contract, an adverse action by a regulator,
unanticipated competition, and the loss of key personnel or allocation of goodwill to a portion of
business that is to be sold.
Because we operate in a single segment of business, we have determined that we have a single
reporting unit and we perform our impairment test for goodwill on an enterprise level. In
performing the impairment test, we compare the total current market value of all of our outstanding
common stock, to the current carrying value of our total net assets, including goodwill and
intangible assets. Depending on the market value of our common stock at the time that an
impairment test is required, there is a risk that a portion of our intangible assets would be
considered impaired and must be written-off during that period. We completed our annual impairment
test as of May 1, 2007 and determined that no impairment existed. In addition, no indicators of
impairment were noted for the three and nine-month periods ended March 31, 2008 and, accordingly,
no impairment charges were recognized. Should we later determine that an indicator of impairment
exists, we would be required to perform an additional impairment test.
Realization of Deferred Tax Assets
We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes
(SFAS 109), which requires that deferred tax assets and liabilities be recognized using enacted
tax rates for the effect of temporary differences between the book and tax bases of recorded assets
and liabilities. SFAS No. 109 also requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all of the deferred tax asset will not
be realized.
16
As part of the process of preparing our consolidated financial statements, we estimate our
income taxes based on our actual current tax exposure together with assessing temporary differences
resulting from differing treatment of items for tax and accounting purposes. We also recognize as
deferred tax assets the future tax benefits from net operating loss carryforwards. We evaluate the
realizability of these deferred tax assets by assessing their valuation allowances and by adjusting
the amount of such allowances, if necessary. Among the factors used to assess the likelihood of
realization are our projections of future taxable income streams, the expected timing of the
reversals of existing temporary differences, and the impact of tax planning strategies that could
be implemented to avoid the potential loss of future tax benefits. However, changes in tax codes,
statutory tax rates or future taxable income levels could materially impact our valuation of tax
accruals and assets and could cause our provision for income taxes to vary significantly from
period to period. At March 31, 2008, we had deferred tax liabilities in excess of deferred tax
assets of approximately $3.3 million.
Stock-Based Compensation Expense
We use the modified prospective transition method under SFAS No. 123 (R), Share-Based
Payment (SFAS 123 (R)). SFAS 123(R) requires us to recognize compensation costs in our
financial statements related to our share-based payment transactions with employees and directors.
SFAS 123(R) requires us to calculate this cost based on the grant date fair value of the equity
instrument.
Consistent with our practices prior to adopting SFAS 123(R), we have elected to calculate the
fair value of our employee stock options using the Black-Scholes option pricing model. Using this
model we calculated the fair value for employee stock options granted during the three and
nine-month periods ended March 31, 2008 based on the following assumptions: risk-free interest rate
ranging from 1.61% to 2.71% and 1.61% to 4.22%, respectively; dividend yield of 0%;
weighted-average volatility factor of the expected market price of our common stock of 59.6% and
59.5%, respectively, and weighted-average expected life of the options ranging from 2 to 6 years
depending on the vesting provisions of each option. The fair value for employee stock options
granted during the three and nine-month periods ended March 31, 2007 was calculated based on the
following assumptions: risk-free interest rate ranging from 5.08% to 5.18%; dividend yield of 0%;
volatility factor of the expected market price of the Companys common stock of 61.9% and 63.7%,
respectively; and weighted-average expected life of the option ranging from 3 to 6 years depending
on the vesting provisions of each option. The expected life of the options is based on the
historical exercise behavior of our employees. The expected volatility factor is based on the
historical volatility of the market price of our common stock as adjusted for certain events that
management deemed to be non-recurring and non-indicative of future events.
As a result of adopting SFAS 123(R), we recognized share-based compensation expense of $0.4
million and $1.0 million, respectively, for the three and nine-month periods ended March 31, 2008
and $0.5 million and $1.3 million, respectively, for the three and nine-month periods ended March
31, 2007. For the three and nine-month periods ended March 31, 2008 and 2007, the Company did not
recognize any excess tax benefits resulting from the exercise of stock options.
SFAS 123(R) does not require the use of any particular option valuation model. Because our
stock options have characteristics significantly different from traded options and because changes
in the subjective input assumptions can materially affect the fair value estimate, in managements
opinion, it is possible that existing models may not necessarily provide a reliable measure of the
fair value of our employee stock options. We selected the Black-Scholes model based on our prior
experience with it, its wide use by issuers comparable to us, and our review of alternate option
valuation models.
The effect of applying the fair value method of accounting for stock options on reported net
income for any period may not be representative of the effects for future periods because our
outstanding options typically vest over a period of several years and additional awards may be made
in future periods.
17
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto appearing elsewhere in this Form
10-Q.
COMPARISON OF THE THREE-MONTH PERIOD ENDED MARCH 31, 2008 TO THE THREE- MONTH PERIOD ENDED MARCH 31, 2007
Revenue
Revenue increased by $5.5 million, or 9.2%, to $65.9 million for the three-month period ended
March 31, 2008 from $60.4 million for the three-month period ended March 31, 2007 due primarily to
increases in our Medicare revenue.
The most significant component of our revenue is the revenue we generate from Medicare
patients under risk arrangements which increased by $4.8 million, or 8.9%, during the three-month
period ended March 31, 2008. During the three-month period ended March 31, 2008, revenue generated
by our Medicare risk arrangements increased approximately 5.7% on a per patient per month basis and
Medicare patient months increased by approximately 3.0% over the comparable period of Fiscal 2007.
The increase in the per member per month Medicare revenue was primarily due to a rate increase in
Medicare premiums and an increase in premiums resulting from the Medicare risk adjustment program.
Under the Medicare risk adjustment program, the health status and demographic factors of
Medicare Advantage participants are taken into account in determining premiums paid for each
participant. CMS periodically recomputes the premiums to be paid to the HMOs based on the updated
health status and demographic factors of the Medicare Advantage participants. In addition, the
premiums paid to the HMOs for their Medicare Prescription Drug Plan are subject to periodic
adjustment based upon CMSs risk corridor adjustment methodology. The net effect of these premium
adjustments included in revenue for each of the three-month periods ended March 31, 2008 and 2007
were favorable retroactive Medicare adjustments of $0.4 million. Future Medicare risk adjustments
may result in reductions of revenue depending on the future health status and demographic factors
of our patients as well as the application of CMSs risk corridor methodology to the HMOs Medicare
Prescription Drug Programs.
Revenue generated by our managed care entities under contracts with Humana accounted for
approximately 73% and 74% of our total revenue for the three-month periods ended March 31, 2008 and
2007, respectively. Revenue generated by our managed care entities under contracts with Vista
accounted for approximately 17% and 20% of our total revenue for the three-month periods ended
March 31, 2008 and 2007, respectively.
Operating Expenses
Medical services expenses are comprised of medical claims expense and other direct costs
related to the provision of medical services to our patients. Because our risk contracts with HMOs
provide that we are financially responsible for the cost of substantially all medical services
provided to our patients under those contracts, our medical claims expense includes the costs of
prescription drugs these patients receive as well as medical services provided to patients under
our risk contracts by providers other than us. Other direct costs consist primarily of salaries,
taxes and benefits of our health professionals providing primary care services including a portion
of our stock-based compensation expense, medical malpractice insurance costs, capitation payments
to our IPA physicians and fees paid to independent contractors providing medical services to our
patients.
Medical services expenses remained relatively unchanged at $52.0 million and $52.1 million for
the three-month periods ended March 31, 2008 and 2007, respectively. Medical claims expense, which
is the largest component of medical services expense, also remained relatively unchanged at $45.1
million and $45.3 million for the three-month periods ended March 31, 2008 and 2007, respectively.
On a per patient per month basis, Medicare claims expense, which is the largest component of
medical claims expense, decreased 3.0% due primarily to higher than usual favorable adjustments
relating to prior period medical claims expenses and a general improvement in medical claims
expense management and utilization outcomes for the three-month period ended March 31, 2008.
This decrease was offset by a 3.0% increase in Medicare patient months. Actual utilization
outcomes and the impact of medical claims adjustments are difficult to predict, however, we do not
expect a similar decrease in Medicare claims expense on a per patient per month basis in future
periods.
18
As a percentage of revenue, medical services expenses decreased to 78.9% of revenue for the
three-month period ended March 31, 2008 as compared to 86.2% for the three-month period ended March
31, 2007. Our claims loss ratio (medical claims expense as a percentage of revenue) decreased to
68.4% for the three-month period ended March 31, 2008 from 75.0% for the three-month period ended
March 31, 2007. This decrease was primarily due to an increase in revenue at a greater rate than
the increase in both our medical services expenses and our medical claims expense. As noted above,
our medical claims expense in the 2008 quarter was relatively unchanged from the comparable 2007
quarter primarily as a result of favorable adjustments relating to prior period medical claims
expenses and a general improvement in medical claims expense management and utilization outcomes
during the three-month period ended March 31, 2008. HMOs, however, are under continuous
competitive pressure to offer enhanced, and possibly more expensive benefits to their Medicare
Advantage members. The premiums CMS pays to HMOs for Medicare Advantage members are generally not
increased as a result of those benefit enhancements. This could increase our claims loss ratio in
future periods, which could reduce our profitability and cash flows.
Other direct costs increased by $0.1 million, or 1.9%, to $6.9 million for the three-month
period ended March 31, 2008 from $6.8 million for the three-month period ended March 31, 2007. As
a percentage of revenue, other direct costs decreased to 10.5% for the three-month period ended
March 31, 2008 from 11.2% for the three-month period ended March 31, 2007. The increase in the
amount of other direct costs was primarily due to an increase in payroll expense and related
benefits for physicians and medical support personnel at our medical centers.
Administrative payroll and employee benefits expenses increased by $1.0 million, or 37.4%, to
$3.5 million for the three-month period ended March 31, 2008 from $2.5 million for the three-month
period ended March 31, 2007. As a percentage of revenue, administrative payroll and employee
benefits expenses increased to 5.3% for the three-month period ended March 31, 2008 from 4.2% for
the three-month period ended March 31, 2007. The increase in administrative payroll and employee
benefits expenses was primarily due to an increase in incentive plan accruals related to our
earnings during the 2008 quarter.
General and administrative expenses increased by $0.4 million, or 10.3%, to $4.3 million for
the three-month period ended March 31, 2008 from $3.9 million for the three-month period ended
March 31, 2007. As a percentage of revenue, general and administrative expenses increased to 6.6%
for the three-month period ended March 31, 2008 from 6.5% for the three-month period ended March
31, 2007. The increase in general and administrative expenses was primarily due to an increase in
marketing expenses.
Income from Operations
Income from operations for the three-month period ended March 31, 2008 increased by $4.3
million to $6.1 million from $1.8 million for the three-month period ended March 31, 2007.
Taxes
An income tax provision of $2.5 million and $0.7 million was recorded for the three-month
periods ended March 31, 2008 and 2007, respectively. The effective income tax rates were 40.8% and
39.3% for the three-month periods ended March 31, 2008 and 2007, respectively. The increase in the
effective tax rate was primarily due to an increase in the statutory federal income tax rate
resulting from an increase in taxable income.
Net Income
Net income for the three-month period ended March 31, 2008 increased by $2.5 million, or
220.0%, to $3.7 million from $1.1 million for the three-month period ended March 31, 2007.
19
COMPARISON OF THE NINE-MONTH PERIOD ENDED MARCH 31, 2008 TO THE NINE-MONTH PERIOD ENDED MARCH 31, 2007
Revenue
Revenue increased by $36.6 million, or 24.2%, to $188.3 million for the nine-month period
ended March 31, 2008 from $151.7 million for the nine-month period ended March 31, 2007 due
primarily to increases in our Medicare revenue.
The most significant component of our revenue is the revenue we generate from Medicare
patients under risk arrangements which increased by $30.3 million, or 22.2%, during the nine-month
period ended March 31, 2008. During the nine-month period ended March 31, 2008, revenue generated
by our Medicare risk arrangements increased approximately 8.3% on a per patient per month basis and
Medicare patient months increased by approximately 12.8% over the comparable period of Fiscal
2007. The increase in Medicare patient months was primarily due to the operations associated with
the MDHC Companies which we acquired effective October 1, 2006 and which were included in our
results for only part of the nine-month period ended March 31, 2007. The increase in the per
member per month Medicare revenue was primarily due to a rate increase in Medicare premiums and the
increased phase-in of the Medicare risk adjustment program. Included in revenue for the nine-month
periods ended March 31, 2008 and 2007 were unfavorable retroactive Medicare adjustments of $1.1
million and $1.2 million, respectively, related to Medicare premiums and risk corridor adjustments.
Future Medicare risk adjustments may result in reductions of revenue depending on the future
health status and demographic factors of our patients as well as the application of CMSs risk
corridor methodology to the HMOs Medicare Prescription Drug Programs.
During the nine-month periods ended March 31, 2008 and 2007, we received payments and recorded
amounts due from our HMO affiliates of approximately $0.5 million and $3.2 million, respectively,
related primarily to Medicare risk adjustments relating to the operations of the MDHC Companies for
periods prior to completion of the Acquisition. While these transactions ordinarily are reflected
in our results of operations, since they related to periods prior to our acquisition of the MDHC
Companies, they were instead recorded as purchase accounting adjustments which decreased the amount
of goodwill we recorded for the Acquisition.
Revenue generated by our managed care entities under contracts with Humana accounted for
approximately 72% and 76% of our total revenue for the nine-month periods ended March 31, 2008 and
2007, respectively. Revenue generated by our managed care entities under contracts with Vista
accounted for approximately 19% and 20% of our total revenue for the nine-month periods ended March
31, 2008 and 2007, respectively.
Operating Expenses
Medical services expenses for the nine-month period ended March 31, 2008 increased by $25.3
million, or 19.7%, to $154.3 million from $129.0 million for the nine-month period ended March 31,
2007. Medical claims expense, which is the largest component of medical services expense,
increased by $21.4 million, or 19.0%, to $133.9 million for the nine-month period ended March 31,
2008 from $112.5 million for the nine-month period ended March 31, 2007 primarily due to an
increase in Medicare claims expense of $17.4 million, or 17.0%. The increase in Medicare claims
expense resulted from a 3.7% increase in medical claims expense on a per patient per month basis
and a 12.8% increase in Medicare patient months. The increase in Medicare per patient per month
medical claims expense is primarily attributable to enhanced benefits offered by our HMO affiliates
and inflationary trends in the health care industry, partially offset by a general improvement in
medical claims expense management and utilization outcomes. The increase in Medicare patient
months is primarily attributable to the acquisition of the MDHC Companies effective October 1,
2006.
As a percentage of revenue, medical services expenses decreased to 81.9% of revenue for the
nine-month period ended March 31, 2008 as compared to 85.0% for the nine-month period ended March
31, 2007. Our claims loss ratio (medical claims expense as a percentage of revenue) decreased to
71.1% for the nine-month ended March 31, 2008 from 74.1% for the nine-month period ended March 31,
2007. This decrease was primarily due to an increase in revenue at a greater rate than the increase in both our medical services expenses
and our medical claims expense.
20
Other direct costs increased by $3.9 million, or 24.0%, to $20.4 million for the nine-month
period ended March 31, 2008 from $16.5 million for the nine-month period ended March 31, 2007. As
a percentage of revenue, other direct costs remained unchanged at 10.9% for the nine-month periods
ended March 31, 2008 and 2007. The increase in the amount of other direct costs was primarily due
to the expenses related to the operations of the MDHC Companies being included in our results for
the entire nine-month period ended March 31, 2008.
Administrative payroll and employee benefits expenses increased by $2.0 million, or 29.1%, to
$8.9 million for the nine-month period ended March 31, 2008 from $6.9 million for the nine-month
period ended March 31, 2007. As a percentage of revenue, administrative payroll and employee
benefits expenses increased to 4.7% for the nine-month period ended March 31, 2008 from 4.6% for
the nine-month period ended March 31, 2007. The increase in administrative payroll and employee
benefits expenses was primarily due to an increase in incentive plan accruals and an increase in
personnel in connection with the acquisition of the MDHC Companies which were reflected in our
results for the entire nine-month period ended March 31, 2008.
General and administrative expenses increased by $2.6 million, or 26.5%, to $12.3 million for
the nine-month period ended March 31, 2008 from $9.7 million for the nine-month period ended March
31, 2007. As a percentage of revenue, general and administrative expenses increased to 6.5% for
the nine-month period ended March 31, 2008 from 6.4% for the nine-month period ended March 31,
2007. The increase in general and administrative expenses was primarily due to expenses related to
the operations of the MDHC Companies and an increase in amortization expense resulting from the
intangible assets recorded in connection with the acquisition of the MDHC Companies which were
reflected in our results for the entire nine-month period ended March 31, 2008 as well as an
increase in marketing expenses.
Income from Operations
Income from operations for the nine-month period ended March 31, 2008 increased by $6.8
million to $12.9 million from $6.1 million for the nine-month period ended March 31, 2007.
Taxes
An income tax provision of $5.2 million and $2.4 million was recorded for the nine-month
periods ended March 31, 2008 and 2007, respectively. The effective income tax rates were 39.3% and
38.3% for the nine-month periods ended March 31, 2008 and 2007, respectively. The increase in the
effective tax rates was primarily due to an increase in the statutory federal income tax rate
resulting from an increase in taxable income.
Net Income
Net income for the nine-month period ended March 31, 2008 increased by $4.2 million, or
106.5%, to $8.1 million from $3.9 million for the nine-month period ended March 31, 2007.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2008, working capital was $22.3 million, an increase of $4.8 million from $17.5
million at June 30, 2007. Cash and cash equivalents increased by $5.4 million to $12.7 million at
March 31, 2008 compared to $7.3 million at June 30, 2007. The increase in working capital and cash
and cash equivalents at March 31, 2008 as compared to June 30, 2007 was primarily due to net income
of $8.1 million for the nine-month period ended March 31, 2008, partially offset by $5.6 million of
cash used to repurchase our common stock.
Net cash of $12.0 million was provided by operating activities from continuing operations for
the nine-month period ended March 31, 2008 compared to $10.4 million for the nine-month period
ended March 31, 2007. This $1.6 million increase in cash provided by operating activities was
primarily due to an increase in net income of $4.2 million partially offset by a net decrease in
deferred tax expense of $2.5 million.
21
Net cash of approximately $0.9 million was used for investing activities for the nine-month
period ended March 31, 2008 compared to approximately $7.2 million for the nine-month period ended
March 31, 2007. The $6.3 million decrease in net cash used for investing activities primarily
related to cash used for the acquisition of the MDHC Companies during the nine-month period ended
March 31, 2007.
Net cash of approximately $5.7 million was used for financing activities for the nine-month
period ended March 31, 2008 compared to approximately $7.8 million for the nine-month period ended
March 31, 2007. The $2.1 million decrease in cash used for financing activities for the nine-month
period ended March 31, 2008 was primarily due to approximately $7.8 million of cash used for the
repayment of long-term debt related to the acquisition of the MDHC Companies, net of proceeds from
long-term debt, during the nine-month period ended March 31, 2007, as compared to approximately
$5.6 million of cash used for the repurchase of our common stock during the nine-month period ended
March 31, 2008.
Pursuant to the terms of our managed care agreements with certain of our HMO affiliates, we
posted irrevocable standby letters of credit amounting to $1.1 million to secure our payment
obligations to those HMOs. We are required to maintain these letters of credit throughout the term
of the managed care agreements.
In February 2008, our Board of Directors increased our previously announced program to
repurchase shares of our common stock by 3,000,000 to a total of 5,500,000 shares. Any such
repurchases will be made from time to time at the discretion of our management in the open market
or in privately negotiated transactions subject to market conditions and other factors. We
anticipate that any such repurchases of shares will be funded through cash from operations. During
the three and nine-month periods ended March 31, 2008, we repurchased 1,806,633 and 2,385,033
shares, respectively, of our common stock for approximately $4.2 million and $5.6 million,
respectively. As of April 28, 2008, we had repurchased an aggregate of 3,542,500 shares of our
common stock under this program for approximately $8.6 million.
We believe that we will be able to fund our capital commitments and our anticipated operating
cash requirements for the foreseeable future and satisfy any remaining obligations from our working
capital, anticipated cash flows from operations, our Credit Facility and our Term Loans. At March
31, 2008, approximately $10.1 million was available for future borrowing under the Term Loans and
the Credit Facility.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At March 31, 2008, we held certificates of deposit and cash equivalent investments in high
grade, short-term securities, which are not typically subject to material market risk. At March
31, 2008, we had capital lease obligations outstanding at fixed rates. For loans with fixed
interest rates, a hypothetical 10% change in interest rates would have no material impact on our
future earnings and cash flows related to these instruments and would have an immaterial impact on
the fair value of these instruments. Our Term Loans and Credit Facility accrue interest at
variable rates and are therefore interest rate sensitive, however, we had no amount outstanding
under these facilities at March 31, 2008. We have no material risk associated with foreign
currency exchange rates or commodity prices.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) or Rule 15d-15(e)) as of the end of the period covered by this report.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded
that, as of March 31, 2008, our disclosure controls and procedures were effective to ensure that
information required to be disclosed by us in the reports that we file or submit under the Exchange
Act (i) is recorded, processed, summarized and reported, within the time periods specified in the
SECs rules and forms and (ii) is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
22
Our Chief Executive Officers and Chief Financial Officers conclusion regarding the
effectiveness of our disclosure controls and procedures should be considered in light of the
following limitations on the effectiveness of our disclosure controls and procedures, some of which
pertain to most, if not all, business enterprises, and some of which arise as a result of the
nature of our business. Our management, including our Chief Executive Officer and our Chief
Financial Officer, does not expect that our disclosure controls and procedures will prevent all
errors or improper conduct. A control system, no matter how well conceived and operated, can
provide only reasonable, but not absolute, assurance that the objectives of the control system will
be met. Further, the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of improper conduct, if any, will be detected.
These inherent limitations include the realities that judgments in decision-making can be faulty
and that breakdowns can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more people or by
management override of the controls. Further, the design of any control system is based, in part,
upon assumptions about the likelihood of future events, and there can be no assurance that any
control system design will succeed in achieving its stated goals under all potential future
conditions. Additionally, over time, controls may become inadequate because of changes in
conditions or the degree of compliance with the policies or procedures may deteriorate. Because of
the inherent limitations in a cost-effective control system, misstatements due to error or fraud
may occur and not be detected. In addition, we depend on our HMO affiliates for certain financial
and other information that we receive concerning the revenue and expenses that we earn and incur.
Because our HMO affiliates generate that information for us, we have less control over the manner
in which that information is generated.
Changes in Internal Control over Financial Reporting
In connection with its evaluation of the effectiveness of our internal control over financial
reporting, our management did not identify any changes in our internal control over financial
reporting that occurred during our most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
Section 302 Certifications
Provided with this report are certifications of our Chief Executive Officer and Chief
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and the SECs
implementing regulations. This Item 4 contains the information concerning the evaluations referred
to in those certifications, and you should read this information in conjunction with those
certifications for a more complete understanding of the topics presented.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
See Note 9 of our Condensed Consolidated Financial Statements.
Item 1A. Risk Factors
There have been no material changes to the risk factors previously disclosed in our Form 10-K
for Fiscal 2007 and in other reports filed from time to time with the SEC since the date we filed
our Form 10-K. Readers are urged to carefully review our risk factors since they may cause our
results to differ from the forward-looking statements made in this report or otherwise made by or
on our behalf. Those risk factors are not the only ones we face. Additional risks not presently
known to us or other factors not perceived by us to present significant risks to our business at
this time also may impair our business operation.
23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In February 2008, we increased our previously announced stock repurchase program to authorize
the buy back of up to 5,500,000 shares of our common stock from the previously authorized 2,500,000
shares. Any such repurchases will be made from time to time at the discretion of our management in
the open market or in privately negotiated transactions subject to market conditions and other
factors. We anticipate that any such repurchases of shares will be funded through cash from
operations. There is no expiration date specified for this program. The following table provides
information with respect to our stock repurchases during the third quarter of Fiscal 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Maximum Number of |
|
|
|
Total Number of |
|
|
|
|
|
|
Shares Purchased as |
|
|
Shares that May Yet |
|
|
|
Shares |
|
|
Average Price |
|
|
Part of Publicly |
|
|
Be Purchased Under |
|
Period |
|
Purchased |
|
|
Paid per Share |
|
|
Announced Plan |
|
|
the Plan |
|
January 1 to January 31, 2008 |
|
|
688,900 |
|
|
$ |
2.36 |
|
|
|
688,900 |
|
|
|
3,075,233 |
|
February 1 to February 29, 2008 |
|
|
938,533 |
|
|
$ |
2.40 |
|
|
|
938,533 |
|
|
|
2,136,700 |
|
March 1 to March 31, 2008 |
|
|
179,200 |
|
|
$ |
2.23 |
|
|
|
179,200 |
|
|
|
1,957,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
1,806,633 |
|
|
$ |
2.32 |
|
|
|
1,806,633 |
|
|
|
|
|
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
At our Annual Meeting of Shareholders held on February 5, 2008, our shareholders voted to
re-elect each of the Director nominees and to ratify the appointment of Ernst & Young LLP as our
independent registered public accounting firm.
The number of votes cast for or withheld, with respect to each of the nominees, were as
follows:
|
|
|
|
|
|
|
|
|
Nominee |
|
For |
|
|
Withheld |
|
|
Richard C. Pfenniger, Jr. |
|
|
60,833,727 |
|
|
|
192,454 |
|
|
|
|
|
|
|
|
|
|
Luis Cruz, M.D. |
|
|
60,832,127 |
|
|
|
194,054 |
|
|
|
|
|
|
|
|
|
|
Robert J. Cresci |
|
|
60,802,527 |
|
|
|
223,654 |
|
|
|
|
|
|
|
|
|
|
Neil Flanzraich |
|
|
56,405,504 |
|
|
|
4,620,677 |
|
|
|
|
|
|
|
|
|
|
Phillip Frost, M.D. |
|
|
56,433,621 |
|
|
|
4,592,560 |
|
|
|
|
|
|
|
|
|
|
Jack Nudel, M.D. |
|
|
60,844,802 |
|
|
|
181,379 |
|
|
|
|
|
|
|
|
|
|
A. Marvin Strait |
|
|
60,842,827 |
|
|
|
183,354 |
|
There were no other nominees for director.
24
The number of votes cast for, against or abstain with respect to the ratification of the
appointment of Ernst & Young LLP were as follows:
|
|
|
|
|
|
|
|
|
For |
|
Against |
|
Abstain |
60,979,533
|
|
|
10,853 |
|
|
35,795 |
|
Item 5. Other Information
Not Applicable
Item 6. Exhibits
|
|
|
|
|
|
|
|
|
Exhibits |
|
|
|
|
|
|
|
|
|
|
31.1 |
|
|
Section 302 Certification of the Chief Executive Officer. |
|
|
|
|
|
|
|
|
|
|
31.2 |
|
|
Section 302 Certification of the Chief Financial Officer. |
|
|
|
|
|
|
|
|
|
|
32.1 |
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
|
|
|
32.2 |
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
|
|
|
|
CONTINUCARE CORPORATION
|
|
Dated: May 7, 2008 |
By: |
/s/ Richard C. Pfenniger, Jr.
|
|
|
|
Richard C. Pfenniger, Jr. |
|
|
|
Chairman of the Board, Chief Executive
Officer and President |
|
|
|
|
|
|
|
|
|
|
|
By: |
/s/ Fernando L. Fernandez
|
|
|
|
Fernando L. Fernandez |
|
|
|
Senior Vice President -- Finance, Chief Financial
Officer, Treasurer and Secretary |
|
|
26