METROPOLITAN HEALTH NETWORKS INC

CIK:0001009379|SEC Filings

Sale of Sleep Diagnostic Business	9 Months Ended
Sep. 30, 2012
Sale of Sleep Diagnostic Business	NOTE 5 – SALE OF SLEEP DIAGNOSTIC BUSINESS The sleep diagnostic business was operated as a wholly-owned subsidiary of Continucare and was included in the acquisition of Continucare. We do not consider the sleep diagnostic business a core business of the ongoing organization and we determined that we should focus our management efforts and resources on expanding and growing our core PSN business. On February 27, 2012, the Board of Directors approved a plan to sell the sleep diagnostic business, and we have retained an investment banking firm to assist us with the sale process. We expect to complete the sale of a significant portion of this business before the end of 2012 and sell the remaining portion of the business in either the fourth quarter of 2012 or the first portion of 2013. As a result, the sleep diagnostic business is reflected as a discontinued operation in the accompanying condensed consolidated financial statements and the December 31, 2011 balance sheet has been retrospectively reclassified to reflect the assets and liabilities of this business as held for sale. We did not operate the sleep diagnostic business prior to October 4, 2011, the date of the Continucare acquisition. Therefore, the condensed consolidated statements of income and comprehensive income for the three and nine month periods ended September 30, 2011 have not been retrospectively reclassified. The current assets held for sale at September 30, 2012 consist primarily of $1.0 million in cash, accounts receivable of $2.3 million and inventory of $1.0 million. Non-current assets held for sale at September 30, 2012 consist primarily of property and equipment of $1.3 million and intangible assets of $2.9 million. Current liabilities held for sale consist primarily of accounts payable and accrued payroll and payroll taxes.

Sale of Sleep Diagnostic Business

9 Months Ended

Sep. 30, 2012

NOTE 5 – SALE OF SLEEP DIAGNOSTIC BUSINESS

The sleep diagnostic business was operated as a wholly-owned subsidiary of Continucare and was included in the acquisition of Continucare. We do not consider the sleep diagnostic business a core business of the ongoing organization and we determined that we should focus our management efforts and resources on expanding and growing our core PSN business. On February 27, 2012, the Board of Directors approved a plan to sell the sleep diagnostic business, and we have retained an investment banking firm to assist us with the sale process. We expect to complete the sale of a significant portion of this business before the end of 2012 and sell the remaining portion of the business in either the fourth quarter of 2012 or the first portion of 2013.

As a result, the sleep diagnostic business is reflected as a discontinued operation in the accompanying condensed consolidated financial statements and the December 31, 2011 balance sheet has been retrospectively reclassified to reflect the assets and liabilities of this business as held for sale. We did not operate the sleep diagnostic business prior to October 4, 2011, the date of the Continucare acquisition. Therefore, the condensed consolidated statements of income and comprehensive income for the three and nine month periods ended September 30, 2011 have not been retrospectively reclassified.

The current assets held for sale at September 30, 2012 consist primarily of $1.0 million in cash, accounts receivable of $2.3 million and inventory of $1.0 million. Non-current assets held for sale at September 30, 2012 consist primarily of property and equipment of $1.3 million and intangible assets of $2.9 million. Current liabilities held for sale consist primarily of accounts payable and accrued payroll and payroll taxes.

Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 20,102	$ 19,889
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	12,310	1,062
Amortization of debt issuance costs and original issue discount	3,877
Share-based compensation expense	2,749	1,941
Excess tax benefits from stock-based compensation	(1,485)	(600)
Deferred income taxes	(3,308)	300
Other	106	12
Changes in operating assets and liabilities:
Due from HMOs, net	9,934	(3,751)
Prepaid income taxes	210
Prepaid expenses and other current assets	(32)	347
Change in net assets held for sale	82
Other assets	(250)	111
Accounts payable	(133)	742
Accrued payroll and payroll taxes	(1,448)	(2,208)
Due to HMO, net	7,265
Accrued expenses	(1,375)	712
Income taxes payable		88
Accrued interest payable	4,269
Net cash provided by operating activities	52,873	18,645
CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES:
Capital expenditures	(3,548)	(3,162)
Cash paid for physician practices acquired, net of cash acquired		(975)
Sale (purchase) of short-term investments	(7)	37,970
Net cash (used in) provided by investing activities	(3,555)	33,833
CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES:
Repayments of long-term debt	(13,820)	(418)
Excess tax benefits from stock-based compensation	1,485	600
Deferred financing costs		(1,760)
Reduction of restricted cash and investments		1,385
Stock issue costs		(127)
Stock repurchases		(321)
Proceeds from exercise of stock options, net	(475)	(52)
Net cash (used in) financing activities	(12,810)	(693)
NET INCREASE IN CASH AND EQUIVALENTS	36,508	51,785
CASH AND EQUIVALENTS - beginning of period	17,277	10,596
CASH AND EQUIVALENTS - end of period	53,785	62,381
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Issuances of notes payable for physician practice acqusitions		$ 670

Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
CURRENT ASSETS
Cash and equivalents	$ 53,785	$ 17,277
Investments, at fair value	1,010	1,003
Due from HMOs, net	30,306	40,241
Deferred income taxes	1,358	949
Prepaid income taxes	4,992	3,717
Prepaid expense and other current assets	4,968	4,936
Current assets held for sale	4,552	4,017
TOTAL CURRENT ASSETS	100,971	72,140
PROPERTY AND EQUIPMENT, net	21,091	20,296
OTHER INTANGIBLE ASSETS, net	89,171	98,731
GOODWILL	262,610	262,610
DEFERRED FINANCING COSTS	7,735	9,882
OTHER ASSETS	1,350	1,100
NON-CURRENT ASSETS HELD FOR SALE	4,519	4,987
TOTAL ASSETS	487,447	469,746
CURRENT LIABILITIES
Accounts payable	774	907
Accrued payroll and payroll taxes	5,039	6,488
Due to HMO, net	7,265
Accrued expenses	4,201	5,575
Accrued interest payable	6,703	2,434
Current portion of long-term debt	16,400	12,538
Current liabilities held for sale	1,107	956
TOTAL CURRENT LIABILITIES	41,489	28,898
LONG-TERM DEBT, net of current portion and original issue discount of $10.0 million and $12.1 million at September 30, 2012 and December 31, 2011, respectively	280,510	296,025
DEFERRED INCOME TAXES	37,105	40,175
NON-CURRENT LIABILITIES HELD FOR SALE	2	4
TOTAL LIABILITIES	359,106	365,102
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $.001 per share; 10,000,000 shares authorized; Series A preferred stock, stated value $100 per share; 5,000 issued and outstanding	500	500
Common stock, par value $.001 per share; 80,000,000 shares authorized; 44,206,000 and 43,751,000 issued and outstanding at September 30, 2012 and December 31, 2011, respectively	44	44
Additional paid-in capital	40,498	36,740
Accumulated other comprehensive (loss)	(378)	(110)
Retained earnings	87,572	67,470
Non-controlling interests	105
TOTAL STOCKHOLDERS' EQUITY	128,341	104,644
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 487,447	$ 469,746