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_______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________
FORM 10-K
[/] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year ended September 30, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-6639
CHARTER MEDICAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 58-1076937
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 841-9200
See Table of Additional Registrants below.
___________
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock ($0.25 par value) American Stock Exchange
11.25% Series A Senior Subordinated Notes
due 2004 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
___________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes / No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at November 30, 1994 was approximately $605 million.
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes / No
The number of shares of the Registrant's Common Stock outstanding as of
November 30, 1994 was 26,909,259.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's Proxy
Statement for the annual meeting of stockholders (which Proxy Statement will
be filed with the Securities and Exchange Commission on or before January 28,
1995) are incorporated by reference in Part III hereof.
_______________________________________________________________________________
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
Ambulatory Resources, Inc. Georgia 58-1456102 3414 Peachtree Rd., N.E., Suite 1400
Atlanta, GA 30326
(404) 841-9200
Atlanta MOB, Inc. Georgia 58-1558215 3414 Peachtree Rd., N.E., Suite 1400
Atlanta, GA 30326
(404) 841-9200
Beltway Community Hospital, Texas 58-1324281 3414 Peachtree Rd., N.E., Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
C.A.C.O. Services, Inc. Ohio 58-1751511 3414 Peachtree Rd., N.E., Suite 1400
Atlanta, GA 30326
(404) 841-9200
CCM, Inc. Nevada 58-1662418 3414 Peachtree Rd., N.E., Suite 1400
Atlanta, GA 30326
(404) 841-9200
CMCI, Inc. Nevada 88-0224620 1061 East Flamingo Road
Suite One
Las Vegas, NV 89119
(702) 737-0282
CMFC, Inc. Nevada 88-0215629 1061 East Flamingo Road
Suite One
Las Vegas, NV 89119
(702) 737-0282
CMSF, Inc. Florida 58-1324269 3550 Colonial Boulevard
Fort Myers, FL 33912
(813) 939-0403
CPS Associates, Inc. Virginia 58-1761039 3414 Peachtree Rd., N.E., Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Alvarado Behavioral California 58-1394959 7050 Parkway Drive
Health System, Inc. La Mesa, CA 91942-2352
(619) 465-4411
Charter Appalachian Hall North Carolina 58-2097827 60 Caledonia Road
Behavioral Health System, Inc. Asheville, NC 28803
(704) 253-3681
-i-
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
Charter Augusta Behavioral Georgia 58-1615676 3100 Perimeter Parkway
Health System, Inc. Augusta, GA 30909
(404) 868-6625
Charter Arbor Indy Indiana 35-1916340 3414 Peachtree Rd., N.E., Suite 1400
Behavioral Health System, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Bay Harbor Behavioral Florida 58-1640244 3414 Peachtree Rd., N.E., Suite 1400
Health System, Inc. Atlanta, Georgia 30326
(404) 841-9200
Charter Beacon Behavioral Indiana 58-1524996 1720 Beacon Street
Health System, Inc. Fort Wayne, IN 46805
(219) 423-3651
Charter Behavioral Health System New Jersey 58-2097832 19 Prospect Street
at Fair Oaks, Inc. Summit, NJ 07901
(908) 277-9102
Charter Behavioral Health System Maryland 52-1866212 522 Thomas Run Road
at Hidden Brook, Inc. Bel Air, MD 21014
(410) 879-1919
Charter Behavioral Health System California 33-0606642 3414 Peachtree Rd., N.E., Suite 1400
at Los Altos, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System Maryland 52-1866221 14901 Broschart Road
at Potomac Ridge, Inc. Rockville, MD 20850
(301) 251-4500
Charter Behavioral Health System Maryland 52-1866214 3680 Warwick Road, Route 1
at Warwick Manor, Inc. East New Market, MD 21631
(410) 943-8108
Charter Behavioral Health System Georgia 58-1513304 240 Mitchell Bridge Road
of Athens, Inc. Athens, GA 30606
(404) 546-7277
Charter Behavioral Health System Texas 58-1440665 8402 Cross Park Drive
of Austin, Inc. Austin, TX 78754
(512) 837-1800
Charter Behavioral Health System Texas 76-0430571 709 Medical Center Boulevard
of Baywood, Inc. Webster, TX 77598
(713) 332-9550
-ii-
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
Charter Behavioral Health System Florida 58-1527678 1324 37th Avenue, E.
of Bradenton, Inc. Bradenton, FL 34208
(813) 746-1388
Charter Behavioral Health System California 95-4470774 3414 Peachtree Rd., N.E., Suite 1400
of Canoga Park, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System Georgia 58-1408670 3500 Riverside Drive
of Central Georgia, Inc. Macon, GA 31210
(912) 474-6200
Charter Behavioral Health System South Carolina 58-1761157 2777 Speissegger Drive
of Charleston, Inc. Charleston, SC 29405-8299
(803) 747-5830
Charter Behavioral Health System Virginia 58-1616917 2101 Arlington Boulevard
of Charlottesville, Inc. Charlottesville, VA
22903-1593
(804) 977-1120
Charter Behavioral Health System Illinois 58-1315760 4700 North Clarendon Avenue
of Chicago, Inc. Chicago, IL 60640
(312) 728-7100
Charter Behavioral Health System California 58-1473063 3414 Peachtree Rd., N.E., Suite 1400
of Chula Vista, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System Missouri 61-1009977 200 Portland Street
of Columbia, Inc. Columbia, MO 65201
(314) 876-8000
Charter Behavioral Health System Texas 58-1513305 3126 Rodd Field Road
of Corpus Christi, Inc. Corpus Christi, TX 78414
(512) 993-8893
Charter Behavioral Health System Texas 58-1513306 6800 Preston Road
of Dallas, Inc. Plano, TX 75024
(214) 964-3939
Charter Behavioral Health System Indiana 35-1916338 7200 East Indiana
of Evansville, Inc. Evansville, IN 47715
(812) 476-7200
-iii-
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
Charter Behavioral Health System Texas 58-1643151 6201 Overton Ridge Blvd.
of Fort Worth, Inc. Fort Worth, TX 76132
(817) 292-6844
Charter Behavioral Health System Mississippi 58-1616919 East Lakeland Drive
of Jackson, Inc. Jackson, MS 39208
(601) 939-9030
Charter Behavioral Health System Florida 58-1483015 3947 Salisbury Road
of Jacksonville, Inc. Jacksonville, FL 32216
(904) 296-2447
Charter Behavioral Health System Indiana 35-1916342 3414 Peachtree Rd., N.E., Suite 1400
of Jefferson, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System Kansas 58-1603154 8000 West 127th Street
of Kansas City, Inc. Overland Park, KS 66213
(913) 897-4999
Charter Behavioral Health System Louisiana 72-0686492 310 Youngsville Highway
of Lafayettte, Inc. Lafayette, LA 70508
(317) 448-6999
Charter Behavioral Health System Louisiana 62-1152811 4250 Fifth Avenue, South
of Lake Charles, Inc. Lake Charles, LA 70605
(318) 474-6133
Charter Behavioral Health System California 33-0606647 3414 Peachtree Rd., N.E., Suite 1400
of Lakewood, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System Indiana 35-1916343 3714 S. Franklin Street
of Michigan City, Inc. Michigan City, IN 46360
(219) 872-0531
Charter Behavioral Health System Alabama 58-1569921 5800 Southland Drive
of Mobile, Inc. Mobile, AL 36609
(205) 661-3001
Charter Behavioral Health System New Hampshire 02-0470752 29 Northwest Boulevard
of Nashua, Inc. Nashua, NH 03063
(603) 886-5000
Charter Behavioral Health System Nevada 58-1321317 7000 West Spring Mountain Rd.
of Nevada, Inc. Las Vegas, NV 89117
(702) 876-4357
-iv-
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
Charter Behavioral Health System New Mexico 58-1479480 5901 Zuni Road, SE
of New Mexico, Inc. Albuquerque, NM 87108
(505) 265-8800
Charter Behavioral Health System California 58-1857277 101 Cirby Hills Drive
of Northern California, Inc. Roseville, CA 95678
(916) 969-4666
Charter Behavioral Health System Arkansas 58-1449455 4253 Crossover Road
of Northwest Arkansas, Inc. Fayetteville, AR 72703
(501) 521-5731
Charter Behavioral Health System Indiana 58-1603160 101 West 61st Avenue
of Northwest Indiana, Inc. State Road 51
Hobart, IN 46342
(219) 947-4464
Charter Behavioral Health System Kentucky 61-1006115 435 Berger Road
of Paducah, Inc. Paducah, KY 42002-7609
(502) 444-0444
Charter Behavioral Health System Illinois 36-3946945 3414 Peachtree Rd., N.E., Suite 1400
of Rockford, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System California 58-1747020 455 Silicon Valley Boulevard
of San Jose, Inc. San Jose, CA 95138
(408) 224-2020
Charter Behavioral Health System Georgia 58-1750583 1150 Cornell Avenue
of Savannah, Inc. Savannah, GA 31406
(912) 354-3911
Charter Behavioral Health System California 58-1366605 3414 Peachtree Rd., N.E., Suite 1400
of Southern California, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System Florida 58-1616916 4004 North Riverside Drive
of Tampa Bay, Inc. Tampa, FL 33603
(813) 238-8671
Charter Behavioral Health System Arkansas 71-0752815 801 Arkansas Boulevard
of Texarkana, Inc. Texarkana, AR 75502
(501) 773-3131
Charter Behavioral Health System California 95-2685883 2055 Kellogg Drive
of the Inland Empire, Inc. Corona, CA 91719
(714) 735-2910
-v-
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
Charter Behavioral Health System Ohio 58-1731068 1725 Timberline Road
of Toledo, Inc. Maumee, Ohio 43537
(419) 891-9333
Charter Behavioral Health System Arizona 86-0757462 7220 E. Rosewood Street
of Tucson, Inc. Tucson, AZ 85710
(602) 296-2828
Charter Behavioral Health System North Carolina 56-1050502 3637 Old Vineyard Road
of Winston-Salem, Inc. Winston-Salem, NC 27104
(919) 768-7710
Charter Behavioral Health System Virginia 54-1703071 3414 Peachtree Rd., N.E., Suite 1400
of Virginia Beach, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System California 33-0606644 1100 S. Akers
of Visalia, Inc. Visalia, CA 93277
(209) 627-3301
Charter Behavioral Health System Minnesota 41-1775626 109 North Shore Drive
of Waverly, Inc. Waverly, MN 55390
(612) 658-4811
Charter Behavioral Health System California 33-0606646 3414 Peachtree Rd., N.E., Suite 1400
of Yorba Linda, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health Georgia 58-1900736 3414 Peachtree Rd., N.E., Suite 1400
Systems of Atlanta, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Brawner Behavioral Georgia 58-0979827 3414 Peachtree Rd., N.E., Suite 1400
Health System, Inc. Atlanta, GA 30326
(404) 841-9200
Charter By-The-Sea Georgia 58-1351301 2927 Demere Road
Behavioral Health System, Inc. St. Simons Island, GA 31522
(912) 638-1999
Charter Canyon Behavioral Health Utah 58-1557925 175 West 7200 South
System, Inc. Midvale, UT 84047
(801) 561-8181
Charter Canyon Springs California 33-0606640 69696 Ramon Road
Behavioral Health System, Inc. Cathedral City, CA 92234
(619) 321-2000
-vi-
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
Charter Centennial Peaks Colorado 58-1761037 3414 Peachtree Rd., N.E., Suite 1400
Behavioral Health System, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Colonial Institute, Virginia 58-1492652 3414 Peachtree Rd., N.E., Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
Charter Community Hospital, California 58-1398708 21530 South Pioneer Boulevard
Inc. Hawaiian Gardens, CA 90716
(310) 860-0401
Charter Community Hospital Iowa 58-1523702 3414 Peachtree Rd., N.E., Suite 1400
of Des Moines, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Contract Services, Inc. Georgia 58-2100699 3414 Peachtree Rd., N.E., Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Cove Forge Behavioral Pennsylvania 25-1730464 New Beginnings Road
Health System, Inc. Williamsburg, PA 16693
(814) 832-2121
Charter Crescent Pines Behavioral Georgia 58-1249663 3414 Peachtree Rd., N.E., Suite 1400
Health System, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Fairbridge Maryland 52-1866218 14907 Broschart Road
Behavioral Health System, Inc. Rockville, MD 20850
(301) 251-4565
Charter Fairmount Behavioral Pennsylvania 58-1616921 561 Fairthorne Avenue
Health System, Inc. Philadelphia, PA 19128
(215) 487-4000
Charter Fenwick Hall South Carolina 57-0995766 3414 Peachtree Rd., N.E., Suite 1400
Behavioral Health System, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Financial Offices, Inc. Georgia 58-1527680 3414 Peachtree Rd., N.E., Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Forest Behavioral Louisiana 58-1508454 9320 Linwood Avenue
Health System, Inc. Shreveport, LA 71106
(318) 688-3930
-vii-
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
Charter Grapevine Behavioral Texas 58-1818492 2300 William D. Tate Ave.
Health System, Inc. Grapevine, TX 76051
(817) 481-1900
Charter Greensboro Behavioral North Carolina 58-1335184 700 Walter Reed Drive
Health System, Inc. Greensboro, NC 27403
(919) 852-4821
Charter Health Management Texas 58-2025056 3414 Peachtree Rd., N.E., Suite 1400
of Texas, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Ohio 58-1598899 3414 Peachtree Rd., N.E., Suite 1400
Columbus, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Denver, Colorado 58-1662413 3414 Peachtree Rd., N.E., Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Ft. Collins, Colorado 58-1768534 3414 Peachtree Rd., N.E., Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Laredo, Inc. Texas 58-1491620 3414 Peachtree Rd., N.E., Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Miami, Florida 61-1061599 11100 N.W. 27th Street
Inc. Miami, FL 33172
(305) 591-3230
Charter Hospital of Mobile, Alabama 58-1318870 251 Cox Street
Inc. Mobile, AL 36604
(205) 432-4111
Charter Hospital of Northern New Jersey 58-1852138 3414 Peachtree Rd., N.E., Suite 1400
New Jersey, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Santa New Mexico 58-1584861 3414 Peachtree Rd., N.E., Suite 1400
Teresa, Inc. Atlanta, GA 30326
(404) 841-9200
-viii-
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
Charter Hospital of St. Louis, Missouri 58-1583760 3414 Peachtree Rd., N.E., Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Torrance, California 58-1402481 3414 Peachtree Rd., N.E., Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
Charter Indianapolis Behavioral Indiana 58-1674291 5602 Caito Drive
Health System, Inc. Indianapolis, IN 46226
(317) 545-2111
Charter Lafayette Behavioral Indiana 58-1603158 3700 Rome Drive
Health System, Inc. Lafayette, IN 47905
(317) 448-6999
Charter Lakehurst New Jersey 22-3286879 440 Beckerville Road
Behavioral Health System, Inc. Lakehurst, NJ 08733
(908) 657-4800
Charter Lakeside Behavioral Tennessee 62-0892645 2911 Brunswick Road
Health System, Inc. Memphis, TN 38134
(901) 377-4700
Charter Laurel Heights Georgia 58-1558212 3414 Peachtree Rd., N.E., Suite 1400
Behavioral Health System, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Laurel Oaks Behavioral Florida 58-1483014 3414 Peachtree Rd., N.E., Suite 1400
Health System, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Linden Oaks Illinois 36-3943776 852 West Street
Behavioral Health System, Inc. Naperville, IL 60540
(708) 305-5500
Charter Little Rock Behavioral Arkansas 58-1747019 1601 Murphy Drive
Health System, Inc. Maumelle, AR 72113
(501) 851-8700
Charter Louisville Behavioral Kentucky 58-1517503 1405 Browns Lane
Health System, Inc. Louisville, KY 40207
(502) 896-0495
Charter MOB of Virginia 58-1761158 1023 Millmont Avenue
Charlottesville, Inc. Charlottesville, VA 22901
(804) 977-1120
-ix-
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
Charter Meadows Maryland 52-1866216 730 Maryland, Route 3
Behavioral Health System, Inc. Gambrills, MD 21054
(410) 923-6022
Charter Medfield Behavioral Florida 58-1705131 3414 Peachtree Rd., N.E., Suite 1400
Health System, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Medical - California, Georgia 58-1357345 3414 Peachtree Rd., N.E., Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
Charter Medical - Clayton Georgia 58-1579404 3414 Peachtree Rd., N.E., Suite 1400
County, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Medical - Cleveland, Texas 58-1448733 3414 Peachtree Rd., N.E., Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
Charter Medical - Dallas, Texas 58-1379846 3414 Peachtree Rd., N.E., Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
Charter Medical - Long California 58-1366604 6060 Paramount Boulevard
Beach, Inc. Long Beach, CA 90805
(310) 220-1000
Charter Medical - New York, New York 58-1761153 3414 Peachtree Rd., N.E., Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
Charter Medical (Cayman Cayman Islands, BWI 58-1841857 Caledonian Bank & Trust
Islands) Swiss Bank Building
Georgetown-Grand Cayman
Cayman Islands
(809) 949-0050
Charter Medical Executive Georgia 58-1538092 3414 Peachtree Rd., N.E., Suite 1400
Corporation Atlanta, GA 30326
(404) 841-9200
Charter Medical Information Georgia 58-1530236 3414 Peachtree Rd., N.E., Suite 1400
Services, Inc. Atlanta, GA 30326
(404) 841-9200
-x-
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
Charter Medical International, Cayman Islands, BWI N/A Caledonian Bank & Trust
Inc. Swiss Bank Building
Georgetown-Grand Cayman
Cayman Islands
(809) 949-0050
Charter Medical International, Nevada 58-1605110 3414 Peachtree Rd., N.E., Suite 1400
S.A., Inc. Atlanta, GA 30326
(404) 841-9200
Charter Medical Management Georgia 58-1195352 3414 Peachtree Rd., N.E., Suite 1400
Company Atlanta, GA 30326
(404) 841-9200
Charter Medical of East Arizona 58-1643158 2190 N. Grace Boulevard
Valley, Inc. Chandler, AZ 85224-2195
(602) 899-8989
Charter Medical of England, Ltd. United Kingdom N/A 111 Kings Road
SW3 4PB
London, England
44-71-351-1272
Charter Medical of Florida, Inc. Florida 58-2100703 3414 Peachtree Rd., N.E., Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical of North Arizona 58-1643154 6015 W. Peoria Avenue
Phoenix, Inc. Glendale, AZ 85302
(602) 878-7878
Charter Medical of Orange Florida 58-1615673 3414 Peachtree Rd., N.E., Suite 1400
County, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Medical of Puerto Commonwealth of 58-1208667 Caso Building, Suite 1504
Rico, Inc. Puerto Rico 1225 Ponce De Leon Avenue
Santurce, P.R. 00907
(809) 723-8666
Charter Mental Health Florida 58-2100704 3414 Peachtree Rd., N.E., Suite 1400
Options, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Mid-South Behavioral Tennessee 58-1860496 3414 Peachtree Rd., N.E., Suite 1400
Health System, Inc. Atlanta, GA 30326
(404) 841-9200
-xi-
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
Charter Milwaukee Behavioral Wisconsin 58-1790135 11101 West Lincoln Avenue
Health System, Inc. West Allis, WI 53227
(414) 327-3000
Charter Mission Viejo Behavioral California 58-1761156 23228 Madero
Health System, Inc. Mission Viejo, CA 92691
(714) 830-4800
Charter North Behavioral Alaska 58-1474550 2530 DeBarr Road
Health System, Inc. Anchorage, AK 99508-2996
(907) 258-7575
Charter Northbrooke Wisconsin 39-1784461 3414 Peachtree Rd., N.E., Suite 1400
Behavioral Health System, Inc. Atlanta, GA 30326
(404) 841-9200
Charter North Counseling Alaska 58-2067832 2530 DeBarr Road
Center, Inc. Anchorage, AL 99508-2996
(907) 258-7575
Charter Northridge Behavioral North Carolina 58-1463919 400 Newton Road
Health System, Inc. Raleigh, NC 27615
(919) 847-0008
Charter Northside Hospital, Georgia 58-1440656 3414 Peachtree Rd., N.E., Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
Charter Oak Behavioral California 58-1334120 1161 East Covina Boulevard
Health System, Inc. Covina, CA 91724
(818) 966-1632
Charter of Alabama, Inc. Alabama 63-0649546 3414 Peachtree Rd., N.E., Suite 1400
Macon, Georgia 31298
(404) 841-9200
Charter Palms Behavioral Texas 58-1416537 1421 E. Jackson Avenue
Health System, Inc. McAllen, TX 78502
(512) 631-5421
Charter Peachford Behavioral Georgia 58-1086165 2151 Peachford Road
Health System, Inc. Atlanta, GA 30338
(404) 455-3200
Charter Pines Behavioral North Carolina 58-1462214 3621 Randolph Road
Health System, Inc. Charlotte, NC 28211
(704) 365-5368
-xii-
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
Charter Plains Behavioral Texas 58-1462211 801 N. Quaker Avenue
Health System, Inc. Lubbock, TX 79416
(806) 744-5505
Charter-Provo School, Inc. Utah 58-1647690 4501 North University Ave.
Provo, UT 84604
(801) 227-2000
Charter Psychiatric Hospitals, Delaware 58-1852072 3414 Peachtree Rd., N.E., Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
Charter Real Behavioral Texas 58-1485897 8550 Huebner Road
Health System, Inc. San Antonio, TX 78240
(512) 699-8585
Charter Regional Medical Texas 74-1299623 3414 Peachtree Rd., N.E., Suite 1400
Center, Inc. Atlanta, Georgia 30326
(404) 841-9200
Charter Richmond Behavioral Virginia 58-1761160 3414 Peachtree Rd., N.E., Suite 1400
Health System, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Ridge Behavioral Kentucky 58-1393063 3050 Rio Dosa Drive
Health System, Inc. Lexington, KY 40509
(606) 269-2325
Charter Rivers Behavioral South Carolina 58-1408623 2900 Sunset Boulevard
Health System, Inc. West Columbia, SC 29169
(803) 796-9911
Charter San Diego Behavioral California 58-1669160 11878 Avenue of Industry
Health System, Inc. San Diego, CA 92128
(619) 487-3200
Charter Serenity Lodge Virginia 54-1703066 3414 Peachtree Rd., N.E., Suite 1400
Behavioral Health System, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Sioux Falls Behavioral South Dakota 58-1674278 2812 South Louise Avenue
Health System, Inc. Sioux Falls, SD 57106
(605) 361-8111
Charter South Bend Behavioral Indiana 58-1674287 6704 North Main Street
Health System, Inc. Granger, IN 46530
(219) 272-9799
-xiii-
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
Charter Springs Behavioral Florida 58-1517461 3130 S.W. 27th Avenue
Health System, Inc. Ocala, FL 32674
(904) 237-7293
Charter Springwood Virginia 58-2097829 Route 4, Box 50
Behavioral Health System, Inc. Leesburg, VA 22075
(703) 777-0800
Charter Suburban Hospital Texas 75-1161721 3414 Peachtree Rd., N.E., Suite 1400
of Mesquite, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Terre Haute Behavioral Indiana 58-1674293 1400 Crossing Boulevard
Health System, Inc. Terre Haute, IN 47802
(812) 299-4196
Charter Thousand Oaks Behavioral California 58-1731069 150 Via Merida
Health System, Inc. Thousand Oaks, CA 91361
(805) 495-3292
Charter Tidewater Virginia 54-1703069 3414 Peachtree Rd., N.E., Suite 1400
Behavioral Health System, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Treatment Center of Michigan 58-2025057 3414 Peachtree Rd., N.E., Suite 1400
Michigan, Inc. Atlanta, GA 30326
(404) 841-9200
Charter Westbrook Behavioral Virginia 54-0858777 1500 Westbrook Avenue
Health System, Inc. Richmond, VA 23227
(804) 266-9671
Charter White Oak Maryland 52-1866223 Post Office Box 56
Behavioral Health System, Inc. 1441 Taylors Island Road
Woolford, MD 21677
(410) 228-7000
Charter Wichita Behavioral Kansas 58-1634296 8901 East Orme
Health System, Inc. Wichita, KS 67207
(316) 686-5000
Charter Woods Behavioral Alabama 58-1330526 700 Cottonwood Road
Health System, Inc. Dothan, AL 36301
(205) 794-4357
Charter Woods Hospital, Inc. Alabama 58-2102628 3414 Peachtree Rd., N.E., Suite 1400
Atlanta, GA 30326
(404) 841-9200
-xiv-
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
Charterton/LaGrange, Inc. Kentucky 61-0882911 3414 Peachtree Rd., N.E., Suite 1400
Atlanta, GA 30326
(404) 841-9200
Desert Springs Hospital, Inc. Nevada 88-0117696 3414 Peachtree Rd., N.E., Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Employee Assistance Services, Georgia 58-1501282 3414 Peachtree Rd., N.E., Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
Florida Health Facilities, Florida 58-1860493 21808 State Road 54
Inc. Lutz, FL 33549
(813) 948-2441
Gulf Coast EAP Services, Inc. Alabama 58-2101394 3414 Peachtree Rd., N.E., Suite 1400
Atlanta, GA 30326
(404) 841-9200
Gwinnett Immediate Care Georgia 58-1456097 3414 Peachtree Rd., N.E., Suite 1400
Center, Inc. Atlanta, GA 30326
(404) 841-9200
HCS, Inc. Georgia 58-1527679 3414 Peachtree Rd., N.E., Suite 1400
Atlanta, GA 30326
(404) 841-9200
Holcomb Bridge Immediate Georgia 58-1374463 3414 Peachtree Rd., N.E., Suite 1400
Care Center, Inc. Atlanta, GA 30326
(404) 841-9200
Hospital Investors, Inc. Georgia 58-1182191 3414 Peachtree Rd., N.E., Suite 1400
Atlanta, GA 30326
(404) 841-9200
Mandarin Meadows, Inc. Florida 58-1761155 3414 Peachtree Rd., N.E., Suite 1400
Atlanta, GA 30326
(404) 841-9200
Metropolitan Hospital, Inc. Georgia 58-1124268 3414 Peachtree Rd., N.E., Suite 1400
Atlanta, GA 30326
(404) 841-9200
Middle Georgia Hospital, Inc. Georgia 58-1121715 3414 Peachtree Rd., N.E., Suite 1400
Atlanta, GA 30326
(404) 841-9200
-xv-
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
NEPA - Massachusetts, Inc. Massachusetts 58-2116751 #6 Courthouse Lane
Chelmsford, MA 01863
(508) 441-2332
NEPA - New Hampshire, Inc. New Hampshire 58-2116398 29 Northwest Boulevard
Nashua, NH 03063
(603) 886-5000
Pacific-Charter Medical, Inc. California 58-1336537 3414 Peachtree Rd., N.E., Suite 1400
Atlanta, GA 30326
(404) 841-9200
Peachford Professional Georgia 58-2100700 3414 Peachtree Rd., N.E., Suite 1400
Network, Inc. Atlanta, GA 30326
(404) 841-9200
Rivoli, Inc. Georgia 58-1686160 3414 Peachtree Rd., N.E., Suite 1400
Atlanta, GA 30326
(404) 841-9200
Schizophrenia Treatment and Georgia 58-1672912 209 Church Street
Rehabilitation, Inc. Decatur, GA 30030
(404) 377-1986
Shallowford Community Hospital, Georgia 58-1175951 3414 Peachtree Rd., N.E., Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
Sistemas De Terapia Georgia 58-1181077 3414 Peachtree Rd., N.E., Suite 1400
Respiratoria, S.A., Inc. Atlanta, GA 30326
(404) 841-9200
Stuart Circle Hospital Virginia 54-0855184 3414 Peachtree Rd., N.E., Suite 1400
Corporation Atlanta, GA 30326
(404) 841-9200
Western Behavioral California 58-1662416 3414 Peachtree Rd., N.E., Suite 1400
Systems, Inc. Atlanta, GA 30326
(404) 841-9200
(1) The Additional Registrants listed are wholly-owned subsidiaries of the Registrant and are guarantors of
the Registrant's 11 1/4% Series A Senior Subordinated Notes due 2004. The Additional Registrants have
been conditionally exempted, pursuant to Section 12(h) of the Securities Exchange Act of 1934, from
filing reports under Section 13 of the Securities Exchange Act of 1934.
-xvi-
CHARTER MEDICAL CORPORATION
ANNUAL REPORT ON FORM 10-K
For the Year Ended September 30, 1994
Table of Contents
Page
PART I
Item 1. Business....................................... I-3
Item 2. Properties..................................... I-18
Item 3. Legal Proceedings.............................. I-18
Item 4. Submission of Matters to a Vote of
Security Holders.............................. I-18
PART II
Item 5. Market Price for Registrant's Common Equity
and Related Stockholder Matters............... II-1
Item 6. Selected Financial Data........................ II-1
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... II-3
Item 8. Financial Statements and Supplementary Data.... II-13
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........ II-13
PART III
Item 10. Directors and Executive Officers of the
Registrant.................................... III-1
Item 11. Executive Compensation......................... III-1
Item 12. Security Ownership of Certain Beneficial
Owners and Management......................... III-1
Item 13. Certain Relationships and Related Trans-
actions....................................... III-1
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K....................... IV-1
I-2
PART I
Item 1. Business
General
Charter Medical Corporation (the "Company") is a behavioral healthcare
company. As of September 30, 1994, the Company operated 98 acute care
psychiatric hospitals, three residential treatment centers and one physician
outpatient practice with an aggregate capacity of 8,908 licensed beds.
Additionally, 92 of the Company's hospitals operate partial hospitalization
programs, and the Company operates 150 outpatient centers, staffed by mental
health professionals. Between September 30, 1994 and November 30, 1994, the
Company acquired 13 additional facilities. In this report, the Company uses
the term "psychiatric hospitals" or "hospitals" to refer to the 98 facilities
licensed as acute care psychiatric hospitals, the three facilities licensed as
residential treatment centers and the physician outpatient practice. A
residential treatment center offers less intensive and longer stay services
than do acute care psychiatric hospitals.
The Company's business strategy is to develop and operate integrated
behavioral healthcare delivery systems in certain markets in which it
presently operates one or more hospitals and in selected other markets in
which the Company does not presently operate a hospital. The integrated
delivery systems that the Company is developing offer a comprehensive range of
behavioral healthcare services including inpatient treatment, day and partial
hospitalization services, group and individual outpatient treatment, and
residential and other less intensive services. The Company is establishing
such systems by using its hospitals as a base and by arranging for other
services through acquisitions, contracts or affiliations with physicians,
psychologists and other mental health professionals and, in some markets, with
general acute care hospitals and other institutional healthcare providers.
The Company is also developing information systems that will assist in the
integration of the financing and delivery of behavioral healthcare services.
Recent Developments
Acquisition of Hospitals
As of March 29, 1994 the Company entered into two agreements with
National Medical Enterprises, Inc. ("NME") providing for the purchase by the
Company of substantially all of the assets of 36 psychiatric hospitals, eight
chemical-dependency treatment facilities, two residential treatment centers
and one physician outpatient practice, including related outpatient facilities
and other associated assets. Under a consent order that has been
conditionally approved by the Federal Trade Commission, the Company has agreed
not to acquire six of such facilities; the Company and NME subsequently agreed
that the Company will not acquire one facility. The remaining 40 facilities
(the "Acquired Hospitals") have, as of November 30, 1994, been acquired (the
"Acquisition") by subsidiaries of the Company. The purchase price for the
Acquired Hospitals was approximately $120.4 million in cash plus an additional
cash amount of approximately $51 million, subject to adjustment, for the net
working capital of the Acquired Hospitals. The Acquired Hospitals have an
aggregate capacity of 2,873 licensed beds and are located in 19 states. For
their fiscal year ended May 31, 1994, the Acquired Hospitals had net revenue
of approximately $315.1 million.
I-3
On June 30, 1994, the Company completed the purchase of 27 of the
Acquired Hospitals for a cash purchase price of approximately $129.6 million,
which included approximately $39.3 million, subject to adjustment, for the net
working capital of the facilities. On October 31, 1994, the Company completed
the purchase of three additional Acquired Hospitals for a cash purchase price
of approximately $5 million, which included approximately $2.2 million related
to the net working capital of the facilities. On November 30, 1994, the
Company completed the purchase of the remaining ten Acquired Hospitals for a
cash purchase price of approximately $36.8 million, including approximately
$9.5 million related to the net working capital of the ten Acquired
Hospitals. The Company accounted for the Acquisition using the purchase
method of accounting.
Debt Refinancing
In order to finance the Acquisition and to refinance substantially all of
the Company's outstanding long-term debt, on May 2, 1994 the Company entered
into a Second Amended and Restated Credit Agreement with certain financial
institutions for a five-year reducing, revolving credit facility in an
aggregated committed amount of $300 million (the "Revolving Credit Agreement")
and issued $375 million of 11.25% Series A Senior Subordinated Notes which
mature on April 15, 2004 (the "Notes") and are general unsecured obligations
of the Company. (See Note 6 of the Company's Consolidated Financial
Statements.)
Sale of General Hospitals
On September 30, 1993, the Company sold its general hospitals and related
assets to Quorum, Inc., for approximately $338 million. The Company retained
the assets and liabilities relating to these hospitals for professional
liability claims incurred and cost report settlements for periods prior to
September 30, 1993.
For fiscal 1993, the general hospitals had net revenue of approximately
$347 million, a net loss of approximately $15 million, and admissions and
patient days of 39,669 and 205,843, respectively. In 1993, the Company
restated its consolidated financial statements to reflect the sales of the
general hospitals and its interest in a non-hospital subsidiary as
discontinued operations.
Financial Restructuring
In its 1992 fiscal year, the Company completed a restructuring of its
debt and equity capitalization (the "Restructuring") pursuant to a prepackaged
plan of reorganization filed under chapter 11 of the United States Bankruptcy
Code (the "Plan"), which became effective on July 21, 1992. As a result of
the Restructuring, the Company's long-term debt was reduced by approximately
$700 million and its redeemable preferred stock of $233 million was
eliminated. The holders of the debt and preferred stock that were reduced or
eliminated received approximately 97% of the Company's common stock
outstanding on July 21, 1992.
Psychiatric Hospital Operations
The Company's psychiatric hospitals operated on September 30, 1994 are
located in well-populated urban and suburban locations in 31 states and two
I-4
foreign countries. Thirteen of the Company's hospitals are affiliated with
medical schools for residency and other post-graduate teaching programs.
Following are financial and statistical results from operations of
hospitals which are included in the Company's consolidated financial
statements:
Selected Psychiatric Hospital Operating Data
Fiscal Year ended September 30
1990 1991 1992 1993 1994
Number of Psychiatric Hospitals.. 91 80 79 74 101
Bed Capacity:
Licensed Beds.................. 8,124 7,310 7,228 6,902 8,908
Average Licensed Beds.......... 7,660 7,284 7,288 7,145 7,468
Licensed Bed Days................ 2,795,793 2,658,760 2,667,428 2,607,996 2,725,679
Net Revenue (In Thousands)(1).... $893,105 $838,167 $875,776 $853,792 $850,575
Total Patient Days(2)............ 1,768,387 1,494,844 1,430,815 1,373,835 1,383,388
Total Equivalent Patient Days(3). 1,818,634 1,551,180 1,508,716 1,481,221 1,527,855
Net Revenue/Equivalent Patient
Day(3).......................... $491 $540 $580 $576 $557
Admissions....................... 74,254 73,120 81,311 86,794 102,802
Average Length of Stay (Days).... 23.7 20.4 17.8 15.8 13.6
Private Pay and Other Sources/
Gross Revenue(4)................ 74% 70% 65% 56% 49%
Government Programs/Gross
Revenue(4)(5)................... 26% 30% 35% 44% 51%
_____________
(1) Includes inpatient and outpatient revenue.
(2) Provision of care to one patient for one day.
(3) Represents inpatient days adjusted to reflect outpatient utilization,
computed by dividing patient charges by inpatient charges per day.
(4) Gross Revenue is revenue before deducting contractual allowances and
discounts from established billing rates. Gross Revenue is not separately
identified in the Company's Consolidated Statements of Operations;
instead, Net Revenue in the Consolidated Statements of Operations reflects
gross revenue after deductions for contractual allowances and discounts
from established billing rates.
(5) Government Programs include Medicare, Medicaid and the Civilian Health and
Medical Program of the Uniformed Services ("CHAMPUS"), which provides
payment for medical services to military dependents and retired military
personnel.
Most of the Company's hospitals offer a full continuum of behavioral care
in their service area. The continuum includes inpatient hospitalization,
partial hospitalization, intensive outpatient services and, in some markets,
residential treatment services.
The Company's hospitals provide structured and intensive treatment
programs for mental health, and alcohol and drug dependency disorders in
children, adolescents and adults. The specialization of programs enables the
clinical staff to provide care that is specific to the patient's needs and
I-5
facilitates monitoring the patient's progress. A typical treatment program of
the Company integrates physicians and other patient-care professionals with
structured activities, providing patients with testing, adjunctive therapies
(occupational, recreational and other), group therapy, individual therapy and
educational programs. A treatment program includes one or more of the types
of treatment settings provided by the Company's continuum of care. For those
patients who do not have a personal psychiatrist or other specialist, the
hospital refers the patient to a member of its medical staff.
A significant portion of hospital admissions are provided by physician
referrals, and professional relationships are an important aspect of the
Company's ongoing business. Management believes that the quality of the
Company's treatment programs, staff employees and physical facilities are
important factors in maintaining good professional relationships.
The Company's hospitals work closely with mental health professionals,
non-psychiatric physicians, emergency rooms and community agencies that come
in contact with individuals who may need treatment for mental illness or
substance abuse. A portion of the Company's marketing efforts are directed at
increasing general awareness of mental health and addictive disease and the
services offered by the Company's hospitals.
In addition to receiving hospital admissions from physicians, other
healthcare professionals and community agencies, the Company's hospitals also
seek to provide services to persons covered by managed care plans by offering
a continuum of care that is conducive to cost-effective care management and,
in certain cases, a capitated or other at-risk payment methods.
Seasonality
The Company's business is seasonal in nature, with a reduced demand for
certain services generally occurring in the fourth fiscal quarter and around
major holidays, such as Thanksgiving and Christmas.
Related Businesses
As part of the Company's business strategy, the Company in fiscal 1993
and 1994, (i) acquired a company that develops information systems relating to
the financing and delivery of behavioral healthcare services; (ii) acquired a
company that provides outpatient treatment for schizophrenia patients; and
(iii) organized a subsidiary, Group Practice Affiliates, Inc., that acquires
or manages professional group practices. Group Practice Affiliates, Inc. has
acquired one such practice and a related managed behavioral care company and
has entered into agreements or letters of intent to acquire two additional
practices. To date, the activities of these subsidiaries have not been
material to the Company.
I-6
Hospital Properties
The following table provides information relating to the 101 hospitals
operated by the Company as of September 30, 1994. Each hospital is operated
by a wholly-owned subsidiary of the Company, except for the hospital located
in Naperville, Illinois which is 75% owned by the Company.
Number of Date of Acquisition
State/ Licensed or Opening
Name Country City Beds by the Company
Charter Woods Behavioral Health
System ("BHS")(2) Alabama Dothan 75 June 1980
Charter Academy of Mobile(2)(3) Alabama Mobile 72 September 1987
Charter Behavioral Health
System ("CBHS") of Mobile(4) Alabama Mobile 84 June 1978
Charter North BHS(2) Alaska Anchorage 74 May 1984
CBHS of Arizona/East Valley(2) Arizona Chandler 80 June 1987
CBHS of Arizona/Glendale(2) Arizona Glendale 90 May 1987
CBHS of Arizona/Tucson Arizona Tucson 60 June 1994
CBHS of Northwest Arkansas(2) Arkansas Fayetteville 65 March 1983
CBHS of Little Rock(2) Arkansas Maumelle 60 May 1990
CBHS of Texarkana Arkansas Texarkana 60 June 1994
CBHS of Southern California/Palm Springs California Cathedral City 80 June 1994
CBHS of Southern California/Corona(2) California Corona 92 December 1978
CBHS of Southern California/Charter Oak(2) California Covina 95 September 1980
CBHS of Southern California/Mission Viejo(2) California El Toro 80 April 1990
CBHS of San Diego/API California La Mesa 62 June 1994
CBHS of Southern California/Long Beach(4) California Long Beach 227 January 1980
CBHS of Northern California California Roseville 80 August 1988
CBHS of San Diego California San Diego 80 May 1988
CBHS of Northern California/San Jose California San Jose 80 June 1994
CBHS of Southern California/Thousand Oaks(2) California Thousand Oaks 80 March 1990
CBHS of Central California/Visalia California Visalia 64 June 1994
CBHS at Centennial Peaks(4) Colorado Louisville 72 June 1994
Charter Clinic Chelsea(4) England London 45 July 1980
Charter Nightingale England London 78 February 1987
CBHS of Tampa Bay at Manatee Palms Florida Bradenton 72 June 1994
Charter Glade BHS(2) Florida Ft. Myers 154 August 1983
CBHS of Jacksonville(2) Florida Jacksonville 64 January 1987
CBHS Orlando(2) Florida Kissimmee 60 July 1989
CBHS of Tampa Bay at Pasco(2) Florida Lutz 72 March 1990
CBHS of South Florida(2) Florida Miami 88 October 1986
Charter Springs BHS(2) Florida Ocala 92 October 1985
CBHS of Tampa Bay at Tampa(2) Florida Tampa 146 July 1985
CBHS of Athens(2) Georgia Athens 80 July 1985
CBHS of Atlanta at Peachford(2) Georgia Atlanta 224 January 1974
Charter Augusta BHS(2) Georgia Augusta 63 January 1987
CBHS of Central Georgia(2) Georgia Macon 118 September 1982
Charter Savannah BHS(2) Georgia Savannah 112 July 1972
Charter By-the-Sea BHS(2) Georgia St. Simons 101 September 1982
CBHS of Chicago(2) Illinois Chicago 123 March 1978
Linden Oaks(1)(4) Illinois Naperville 92 June 1994
CBHS of Indiana/Evansville Indiana Evansville 60 June 1994
Charter Beacon BHS(2) Indiana Fort Wayne 97 September 1985
Charter South Bend BHS(2) Indiana Granger 60 January 1990
I-7
Number of Date of Acquisition
State/ Licensed or Opening
Name Country City Beds by the Company
CBHS of Northwest Indiana(2) Indiana Hobart 60 January 1990
Charter Indianapolis BHS(2) Indiana Indianapolis 80 March 1990
Charter Lafayette BHS(2) Indiana Lafayette 64 September 1986
CBHS of Indiana/Michigan City Indiana Michigan City 89 June 1994
Charter Terre Haute BHS Indiana Terre Haute 66 March 1988
CBHS of Kansas City(2) Kansas Overland Park 80 November 1986
Charter Wichita BHS(2) Kansas Wichita 80 November 1986
Charter Ridge BHS(2) Kentucky Lexington 110 August 1982
Charter Louisville BHS(2) Kentucky Louisville 66 October 1978
CBHS of Paducah(2) Kentucky Paducah 80 July 1985
CBHS at Acadian Oaks Louisiana Lafayette 70 June 1994
CBHS of Lake Charles(2) Louisiana Lake Charles 60 July 1985
Charter Forest BHS(2) Louisiana Shreveport 83 July 1985
CBHS of Maryland at Hidden Brook Maryland Bel Air 51 June 1994
CBHS of Chesapeake/Warwick(4) Maryland East New Market 42 June 1994
CBHS of Maryland at Meadows Maryland Gambrills 60 June 1994
CBHS of Maryland at Fairbridge(4) Maryland Rockville 60 June 1994
CBHS of Maryland at Potomac Ridge(4) Maryland Rockville 97 June 1994
CBHS of Chesapeake/White Oak(4) Maryland Woolford 40 June 1994
CBHS of Waverly Minnesota Waverly 40 June 1994
CBHS of Mississippi(2) Mississippi Jackson 111 July 1985
CBHS of Columbia(2) Missouri Columbia 96 December 1984
CBHS of Nevada(2) Nevada Las Vegas 84 April 1986
Charter Brookside BHS of New England New Hampshire Nashua 100 June 1994
CBHS of New Jersey/Lakehurst New Jersey Lakehurst 24 June 1994
CBHS of New Jersey/Summit New Jersey Summit 150 June 1994
CBHS of New Mexico(1)(4) New Mexico Albuquerque 80 March 1985
Charter Asheville BHS North Carolina Asheville 139 June 1994
Charter Pines BHS(2) North Carolina Charlotte 60 April 1985
CBHS of Greensboro(2) North Carolina Greensboro 100 July 1981
Charter Northridge BHS(2) North Carolina Raleigh 85 September 1984
CBHS of Winston-Salem(2) North Carolina Winston-Salem 99 July 1981
CBHS of Toledo(2) Ohio Maumee 38 September 1990
Charter Fairmount BHS Pennsylvania Philadelphia 169 July 1985
CBHS at Cove Forge(4) Pennsylvania Williamsburg 96 June 1994
Charter Charleston BHS(2) South Carolina Charleston 102 January 1990
Charter Greenville BHS(2) South Carolina Greer 60 August 1989
Charter Rivers BHS(2) South Carolina West Columbia 80 February 1983
Charter Sioux Falls BHS(2) South Dakota Sioux Falls 60 July 1989
La Metairie Clinic(2) Switzerland Nyon 69 June 1985
Charter Lakeside BHS(2) Tennessee Memphis 204 August 1976
CBHS of Austin(2) Texas Austin 94 January 1986
CBHS of Corpus Christi(2) Texas Corpus Christi 80 June 1986
CBHS of Ft. Worth(2) Texas Ft. Worth 80 January 1987
Charter Grapevine BHS(2) Texas Grapevine 80 September 1989
CBHS of Kingwood(2) Texas Kingwood 80 October 1986
Charter Plains BHS(2) Texas Lubbock 80 February 1984
Charter Palms BHS(2) Texas McAllen 80 May 1983
CBHS of Dallas(2) Texas Plano 116 August 1987
I-8
Number of Date of Acquisition
State/ Licensed or Opening
Name Country City Beds by the Company
Charter Real BHS(2) Texas San Antonio 106 October 1985
CBHS of Sugar Land(2) Texas Sugar Land 68 October 1986
CBHS of Clear Lake Texas Webster 131 June 1994
Charter Provo Canyon School(2)(3) Utah Provo 212 December 1985
Charter Canyon BHS(2) Utah Salt Lake City 62 January 1986
CBHS of Charlottesville(2) Virginia Charlottesville 75 July 1985
CBHS at Springwood(4) Virginia Leesburg 77 June 1994
Charter Westbrook BHS(2) Virginia Richmond 210 April 1970
CBHS of Milwaukee/West Allis Wisconsin West Allis 80 May 1989
______________
(1) Leasehold interest is mortgaged.
(2) Assets of hospital facility are mortgaged.
(3) Licensed as an intensive residential treatment center.
(4) A leased hospital facility or property.
All of the Company's hospitals located in the United States have been
accredited by the Joint Commission on Accreditation of Healthcare
Organizations (the "Joint Commission"). The Joint Commission is a national
commission which establishes standards relating to the physical plant,
administration, quality of patient care, governing body and medical staffs of
hospitals.
The Company operates 13 leased hospitals, including one 150-bed general
hospital, not listed above, which is managed by an unaffiliated third party.
The leased hospitals have terms expiring between 1996 and 2069. The leases
for two hospitals contain options to purchase these hospitals for nominal
consideration at the end of their respective lease terms.
Sixty-seven of the Company's hospitals listed above are subject to
mortgages. The stock of substantially all of the domestic subsidiaries of the
Company has been pledged as collateral for the Company's secured bank
financing.
The Company owns 15 medical office buildings (with an aggregate of
approximately 187,000 square feet) and leases an additional six (with an
aggregate of approximately 19,000 square feet), all of which are located near
certain of the Company's hospitals. These buildings have a total of
approximately 120 tenants. Five of the Company's medical office buildings are
subject to mortgages.
The Company leases office space for approximately 150 outpatient centers
located in 31 states. The leases for these centers aggregate approximately
330,000 square feet of office space, and generally have lease terms of less
than five years.
I-9
Divestitures
During fiscal 1994, the Company sold the following facilities which had
been closed during fiscal 1992 and fiscal 1993:
Location Size/Type of Facility Date
Denver, CO 60-bed psychiatric hospital October 1993
Laredo, TX 64-bed psychiatric hospital December 1993
West Palm Beach, FL 60-bed psychiatric hospital August 1994
In addition, the Company leases, with options to purchase by the lessees,
two facilities which it previously operated prior to fiscal 1991. The Company
is also attempting to sell or lease two other previously operated hospitals
and a related medical office building and certain unimproved real estate.
Competition
Each of the Company's hospitals competes with other hospitals, some of
which are larger and have greater financial resources. Some competing
hospitals are owned and operated by governmental agencies, others by nonprofit
organizations supported by endowments and charitable contributions and others
by proprietary hospital corporations. The hospitals frequently draw patients
from areas outside their immediate locale and, therefore, the Company's
hospitals may, in certain markets, compete with both local and distant
hospitals. In addition, the Company's hospitals compete not only with other
psychiatric hospitals, but also with psychiatric units in general hospitals,
and outpatient services provided by the Company may compete with private
practicing mental health professionals. The competitive position of a
hospital is, to a significant degree, dependent upon the number and quality of
physicians who practice at the hospital and who are members of its medical
staff.
In recent years, the competitive position of hospitals has been affected
by the ability of such hospitals to obtain contracts with Preferred Provider
Organizations ("PPO's"), Health Maintenance Organizations ("HMO's") and other
managed care programs to provide inpatient and other services. Such contracts
normally involve a discount from the hospital's established charges, but
provide a base of patient referrals. These contracts also frequently provide
for pre-admission certification and for concurrent length of stay reviews.
The importance of obtaining contracts with HMO's, PPO's and other managed care
companies varies from market-to-market, depending on the individual market
strength of the managed care companies. The Company's strategy is intended,
in part, to increase the Company's revenues from managed care companies or
managed care employers by offering the continuum of care described above,
information systems that support care management and at-risk pricing
mechanisms.
State certificate of need laws place limitations on the Company's and its
competitors' ability to build new hospitals and to expand existing hospitals.
Protection from new competition is reduced in those states where there is no
certificate of need law. The Company operates 47 hospitals in 12 states
(Arizona, Arkansas, California, Colorado, Indiana, Kansas, Louisiana, Nevada,
New Mexico, South Dakota, Texas and Utah) which do not have certificate of
need laws applicable to hospitals. In most cases, these state laws do not
I-10
restrict the ability of the Company or its competitors to offer new outpatient
services.
Industry Trends
The Company's hospitals have been adversely affected by factors
influencing the entire psychiatric hospital industry. Factors which affect
the Company include (i) the imposition of more stringent length of stay and
admission criteria by payors; (ii) the failure of reimbursement rate increases
from certain payors that reimburse on a per diem or other discounted basis to
offset increases in the cost of providing services; (iii) an increase in the
percentage of its business that the Company derives from payors that reimburse
on a per diem or other discounted basis; (iv) a trend toward higher deductible
and co-insurance for individual patients; (v) a trend toward limiting employee
health benefits, such as reductions in annual and lifetime limits on mental
health coverage; and (vi) a trend toward agreements with payors where the
Company agrees to assume the risk for the provision of treatment to all
members of a particular group for a specified revenue amount. In response to
these conditions, the Company has (i) strengthened controls to reduce cost
increases and capital expenditures, (ii) reviewed its portfolio of hospitals
and sold, closed or leased hospitals or consolidated operations in certain
locations and (iii) developed strategies to increase outpatient services and
partial hospitalization programs to meet the demands of the marketplace.
Healthcare Reform
Between October 1993 and the early fall of 1994, President Clinton and
various U.S. Senators and Representatives introduced in Congress a number of
healthcare reform proposals. The proposals ranged from the Clinton
Administration's comprehensive healthcare reform proposal that would have
restructured the financing and delivery of healthcare services through a
combination of managed competition and mandated employer coverage of employees
to less comprehensive proposals that would have required private health
insurance to be "portable" and eliminated coverage limitations for
pre-existing health conditions. The numerous proposals varied in their
proposed coverage of behavioral healthcare services and in their potential
effect on the Company. No proposal was adopted by either house of Congress.
The Company anticipates that numerous healthcare reform proposals will be
introduced in the next session of Congress beginning in January 1995.
Particularly in light of the change in control of both houses of Congress as
the result of the November 1994 elections, the Company is unable to predict
whether any such proposal will be adopted or the effect on the Company of any
proposal that does become law.
A number of states in which the Company has operations have either
adopted or are considering the adoption of healthcare reform proposals at the
state level. Various reform measures have been adopted in Florida, Minnesota
and Tennessee, among others. These state reform laws have, in many cases, not
been fully implemented. The Company cannot predict the effect of these state
healthcare reform laws on its operations.
Sources of Revenue
Payments are made to the Company's hospitals by patients, by insurance
companies and self-insured employers, by the federal and state governments
I-11
under Medicare, Medicaid, CHAMPUS and other programs and by HMO's, PPO's and
other managed care programs. Amounts received under government programs, HMO,
PPO and other managed health care arrangements, certain self-insured employers
and certain Blue Cross plans are generally less than the hospital's
established charges. The approximate percentages of gross patient revenue
(which is revenue before deducting contractual allowances and discounts from
established billing rates) derived by the Company's hospitals from various
payment sources for the last three fiscal years were as follows:
Percentage of Hospital Gross
Patient Revenue for the Year
ended September 30
1992 1993 1994
Medicare.............................. 18% 23% 27%
Medicaid.............................. 11 15 16
29 38 43
HMO's and PPO's....................... 9 11 14
CHAMPUS............................... 6 6 5
Other Government Programs............. -- -- 3
Other (primarily Blue Cross and
Commercial Insurance)................ 56 45 35
Total.............................. 100% 100% 100%
Most private insurance carriers reimburse their policyholders or make
direct payments to the hospitals for charges at rates specified in their
policies. The patient remains responsible to the hospital for any difference
between the insurance proceeds and the total charges. Certain Blue Cross
programs have negotiated reimbursement rates with certain of the Company's
hospitals which are less than the hospital's charges.
Most of the Company's hospitals have entered into contracts with HMO's,
PPO's, certain self-insured employers and other managed care plans which
provide for reimbursement at rates less than the hospital's normal charges.
In addition to contracts entered into by individual hospitals with such
managed care plans, the Company has entered into regional and national
contracts with HMO's, PPO's, self-insured employers and other managed care
plans that apply to all of the Company's hospitals in the geographic areas
covered by a contract. The Company is seeking to obtain additional regional
and national contracts. The Company expects its percentage of revenue from
these payor sources to increase in the future.
Under the Medicare provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 ("TEFRA"), costs per Medicare case are determined for each of the
Company's hospitals. A target cost per case is established for each year (the
"Target Rate"). If a hospital's costs per case are less than the Target Rate,
the hospital receives a bonus of 50% of the difference between its actual
costs per case and the Target Rate (limited to 5% of the Target Rate).
Hospitals with costs which exceed the Target Rate are paid an additional
amount equal to 50% of the excess, up to 10% of the Target Rate. These limits
apply only to operating costs and do not apply to capital costs, including
lease expense, depreciation and interest associated with capital
expenditures. The Target Rate for each hospital is increased annually by the
application of an "update factor".
I-12
Most of the Company's hospitals participate in state operated Medicaid
programs. Federal law prohibits Medicaid funding for inpatient services in
freestanding psychiatric hospitals for patients between the ages of 21 and
64. Each state is responsible for establishing the Medicaid eligibility and
coverage criteria, payment methodology and funding mechanisms which apply in
that state, subject to federal guidelines. Accordingly, the level of Medicaid
payments received by the Company's hospitals varies from state to state. In
addition to the basic payment level for patient care, several state programs
include a financial benefit for hospitals which treat a disproportionately
large volume of Medicaid patients as a percentage of the total patient
population. These "disproportionate share" benefits are subject to annual
review and revision by the related state governments and could be
substantially reduced or eliminated at any point in the future. The Omnibus
Budget Reconciliation Act of 1993 ("OBRA 93") prohibits disproportionate share
payments to hospitals which have a Medicaid utilization rate of less than 1%
effective for state fiscal years ending in 1994. For state fiscal years
beginning on or after January 1, 1995, the amount of disproportionate share
payments each hospital can receive will be limited through the use of formulas
based generally on the cost of providing services to Medicaid and uninsured
patients. The Company received approximately $13 million, $15 million and $11
million in Medicaid disproportionate share payments in fiscal 1992, 1993 and
1994, respectively.
Within the statutory framework of the Medicare and Medicaid programs,
there are substantial areas subject to administrative rulings and
interpretations which may affect payments made under either or both of such
programs. In addition, federal or state governments could reduce the future
funds available under such programs or adopt additional restrictions on
admissions and more stringent requirements for utilization of services. These
types of measures could adversely affect the Company's operations. Final
determination of amounts payable under Medicare and certain Medicaid programs
are subject to review and audit. The Company's management believes that
adequate provisions have been made for any adjustments that might result from
such reviews or audits.
Most of the Company's hospitals receive revenues from the CHAMPUS
program. Under CHAMPUS, psychiatric hospitals are classified into two groups,
each with different payment methods. The first group, classified as high
volume CHAMPUS hospitals, are those hospitals with 25 or more CHAMPUS
discharges during a federal fiscal year. The Company has 54 hospitals
included within this group. These hospitals receive a per diem payment,
subject to a limitation of $732 per day. The remainder of the Company's
psychiatric hospitals are classified as low volume CHAMPUS hospitals and
receive a per diem based on a wage-adjusted regional rate.
CHAMPUS patients are subject to annual limits on the number of
psychiatric days covered by CHAMPUS. Covered inpatient services are generally
limited to 30 days for adult acute patients, 45 days for child and adolescent
acute patients, and 150 days for residential treatment center patients.
The Company's Medicare revenue has been and may in the future be reduced
under the Balanced Budget and Emergency Deficit Control Act of 1985, as
amended by The Budget Enforcement Act of 1990 and OBRA 93 (the "Budget
Acts"). These laws remain in effect through fiscal year 1998, and require
that federal spending automatically be reduced in amounts determined by
calculations set out in the Budget Acts, if certain requirements relating to
I-13
the amount of the federal deficit are not met. Under the Budget Acts,
Medicare expenditures for a fiscal year can be reduced by no more than 4%.
Medicaid funding is exempt from reductions under the Budget Acts. There were
no reductions in fiscal 1992, 1993 or 1994. Payment reductions under the
Budget Acts, if implemented in future years, could have a material adverse
effect on the Company's net revenue. However, because the actual amount of
the reduction for any fiscal year may vary according to the federal deficit,
the financial impact of the Budget Acts on the Company cannot be predicted.
Regulation and Other Factors
Operations of psychiatric hospitals are subject to substantial federal,
state and local government regulation. Such regulations provide for periodic
inspections or other reviews by state agencies, the United States Department
of Health and Human Services (the "Department") and CHAMPUS to determine
compliance with their respective standards of medical care, staffing,
equipment and cleanliness necessary for continued licensing or participation
in the Medicare, Medicaid or CHAMPUS programs. The admission and treatment of
patients at the Company's hospitals are also subject to substantial state
regulation relating to involuntary admissions, confidentiality and patients'
rights and to federal regulation relating to confidentiality of medical
records of substance abuse patients.
The obtaining of approvals for construction of new hospitals and for
renovation of and additions to existing hospitals is subject to various
governmental requirements, such as approval of sites and findings of community
need for additional hospital facilities and services. In addition, in certain
states, as a practical matter, it is necessary to pledge to provide various
amounts of uncompensated care to indigent persons in order to obtain a
certificate of need. Except for Arizona, Arkansas, California, Colorado,
Indiana, Kansas, Louisiana, Nevada, New Mexico, South Dakota, Texas and Utah,
the states in which the Company presently operates hospitals have adopted
certificate of need or similar statutes.
Federal law contains numerous provisions designed to insure that services
rendered by hospitals to Medicare and Medicaid patients are medically
necessary and are of a quality which meets professionally recognized standards
and to insure that claims for reimbursement under the Medicare and Medicaid
programs are properly filed. Among other things, services provided at the
Company's hospitals are subject to periodic review by Peer Review
Organizations ("PRO's"). All hospitals which participate in the Medicare
program are subject to review by PRO's. PRO activities include reviews of
certain admissions and services to determine medical necessity and to
determine whether quality of care meets professionally recognized standards.
PRO's have the authority to recommend to the Department that a provider who is
in substantial noncompliance with the medical necessity and quality of care
standards of a PRO or who has grossly and flagrantly violated an obligation to
render quality care be excluded from participation in the Medicare program or
be required to reimburse the federal government for certain payments
previously made to the provider under the Medicare program.
The Company's hospitals have been subject to and have complied with
various forms of utilization review since 1970. The Company has implemented a
quality assurance program in each of its hospitals, which includes procedures
for utilization review and retrospective patient care evaluation.
I-14
The Medicare and Medicaid Patient and Program Protection Act of 1987
expanded the authority of the Department to exclude from participation in the
Medicare and Medicaid programs those hospitals which engage in defined
prohibited activities. The Department is required under this Act to exclude
from participation in the Medicare and Medicaid programs any individual or
entity that has been convicted of a criminal offense relating to the delivery
of services under Medicare and Medicaid or to the neglect or abuse of
patients. In addition, the Department has authority to exclude from
participation in the Medicare program individuals or hospitals under certain
other circumstances. These include engaging in illegal remuneration
arrangements with physicians and other healthcare providers, license
revocation, exclusion from some other government programs (such as CHAMPUS),
filing claims for excess charges or for unnecessary services, failure to
comply with conditions of participation and failure to disclose certain
required information or to grant proper access to hospital books and records.
The Department has authority to impose civil monetary penalties against
any participant in the Medicare program which makes claims for payment for
services which were not rendered or were rendered by a person or entity not
properly licensed under state law. The Department also has authority to
impose a penalty of not more than $2,000 for each improperly claimed service
and an assessment equal to not more than twice the amount claimed for each
service not rendered.
Federal law makes it a felony, subject to certain exceptions, for a
hospital to make false statements relating to claims for payments under the
Medicare program, to engage in illegal remuneration arrangements with
physicians and other healthcare providers, to make false statements relating
to compliance with the Medicare conditions of participation, or to make false
claims for Medicare or Medicaid payments. A number of states have adopted
laws that also make illegal under state law certain remuneration and referral
arrangements with physicians and other healthcare providers.
In order to provide guidance to healthcare providers with respect to the
statute that makes certain remuneration arrangements between hospitals and
physicians and other healthcare providers illegal, the Department has issued
regulations outlining certain "safe harbor" practices, which, although
potentially capable of inducing prohibited referrals of business, would not be
subject to enforcement action under the illegal remuneration statute. The
practices covered by the regulations include, among others, certain investment
transactions, lease of space and equipment, personal services and management
contracts, sales of physician practices, payments to employees and waivers of
beneficiary deductibles and co-payments. Additional proposed safe harbors
were published in 1993 by the Department. Certain transactions and agreements
of the Company do not satisfy all the applicable criteria contained in the
final and proposed safe harbor regulations that relate to such transactions
and agreements. However, the Company believes that such leases and contracts
do not violate the statute that makes certain remuneration arrangements
illegal. There can be no assurance that (i) government enforcement agencies
will not assert that certain of these arrangements are in violation of the
illegal remuneration statute or (ii) the statute will ultimately be
interpreted by the courts in a manner consistent with the Company's practices.
CHAMPUS regulations authorize CHAMPUS to exclude from the CHAMPUS program
any provider who has committed fraud or engaged in abusive practices. The
regulations permit CHAMPUS to make its own determination of abusive practices
without reliance on any actions of the Department. The term "abusive
I-15
practices" is defined broadly to include, among other things, the provision of
medically unnecessary services, the provision of care of inferior quality, and
the failure to maintain adequate medical or financial records.
A number of states have adopted hospital rate review legislation, which
generally provides for state regulation of rates charged for various hospital
services. Such laws are in effect in the state of Florida in which the
Company operates eight hospitals. In Florida, the Health Care Board approves
a budget for each hospital, which establishes a permitted level of revenues
per discharge. If this level of permitted revenues per discharge is exceeded
by a hospital in a particular year by more than a specified amount, certain
penalties, including cash penalties, can be imposed.
The Company's subsidiary that owns or manages professional group
practices is subject to the federal and state illegal remuneration statutes
described above. In addition, in some states, practice of medicine and
certain other health professions' laws prohibit the subsidiary from owning,
but not from managing, professional practices.
Medical Staffs and Employees
At September 30, 1994, approximately 1,600 licensed physicians were
active members of the medical staffs of the Company's hospitals. Many of
these physicians also serve on the medical staffs of other hospitals. A
number of these physicians serve in administrative capacities in the Company's
hospitals. Most of these physicians are independent contractors who have
private practices in addition to their duties for the Company, while certain
of these physicians are employees of the Company. The medical and
professional affairs of each hospital are supervised by the medical staff of
the hospital, under the control of its board of trustees. The Company
recruits physicians to serve in administrative capacities at its hospitals and
to engage in private practice in communities where the Company's hospitals are
located. The Company's agreements with recruited physicians generally provide
for, among other things, allowances for reimbursement of relocation and office
start-up expenses and a guarantee of a specified level of physician income
during the recruited physician's first year of practice.
Registered nurses and certain other hospital employees are required to be
licensed under the professional licensing laws of most states. The Company's
hospital subsidiaries require such employees to maintain such professional
licenses as a condition of employment.
At September 30, 1994, the Company had approximately 9,500 full-time and
4,000 part-time employees. The Company's hospitals have had generally
satisfactory labor relations.
Liability Insurance
Effective June 1, 1994, Plymouth Insurance Company, Ltd. ("Plymouth"), a
wholly-owned Bermuda subsidiary of the Company, provides $25 million per
occurrence general and hospital professional liability insurance for the
Company's hospitals. The insurance coverage does not contain a per occurrence
deductible. Between 90% and 100% of the risk of losses from $1.5 million to
$25 million per occurrence has been reinsured with unaffiliated insurers; and
the percentage so insured varies by layer. The Company also insures with an
unaffiliated insurer 100% of the risk of losses between $25 million and $100
million per occurrence. The Company's general and professional liability
coverage is written on a "claims made or circumstances reported" basis.
I-16
For the five years from June 1, 1989, through May 31, 1994, the Company
had a similar general and hospital professional liability insurance program.
For those years, the per occurrence deductible (with respect to which the
Company was self-insured) was $2.5 million for the years ended May 31, 1990
and 1991, $2 million for the years ended May 31, 1992 and 1993 and $1.5
million (relating to the Company's general hospitals sold on September 30,
1993) for the year ended May 31, 1994. For psychiatric hospitals, Plymouth's
coverage did not contain a per occurrence deductible for the year ended
May 31, 1994.
Executive Officers of the Registrant
Name and Age Position with the Company and Principal
of Executive Officer Occupations During the Past Five Years
E. Mac Crawford Chairman of the Board of Directors,
45 President and Chief Executive Officer
(since 1993) President and Chief
Operating Officer (1992-1993) and
Director (since 1990); Executive Vice
President - Hospital Operations (1990-
1992); Assistant to the President and
Chairman (1990); President of Mulberry
Street Investment Co., Macon, Georgia
(1988-1990).
Lawrence W. Drinkard Executive Vice President and Chief
55 Financial Officer (since 1994) and
Director (since 1991); Senior Vice
President (1990-1993); Treasurer
(1986-1991); Vice President (1987-1990).
William E. Hale Senior Vice President - Operations
49 (since 1994); Vice President - Hospital
Operations (1993-1994); Chief Operating
Officer of Behavioral Health Resources
(1987-1993).
C. Clark Wingfield Vice President - Administrative Services
44 (since 1990); Vice President - Human
Resources (1990); Senior Executive
Director - Compensation and Benefits
(1989-1990).
Mulberry Street Investment Company manages the personal investments of
William A. Fickling, Jr., former Chairman of the Board of Directors of the
Company, and his family. As president of Mulberry Street Investment Company,
Mr. Crawford had responsibility for managing real estate and other investments
and related financings.
Behavioral Health Resources is a diversified company which specializes in
patient care, managed care and employee assistance program services. As chief
operating officer of Behavioral Health Resources, Mr. Hale oversaw the
development and operation of a psychiatric hospital and various clinics,
outpatient programs, partial hospitalization programs and employee assistance
programs.
I-17
International Operations
The Company owns and operates two psychiatric hospitals in London,
England (a 45-bed hospital and a 78-bed hospital) and a 69-bed psychiatric
hospital in Nyon, Switzerland. In July 1991, the Company began managing three
psychiatric-substance abuse hospitals in Jeddah, Riyadh and Damman in the
Kingdom of Saudi Arabia (with 180 beds each) pursuant to a fixed-price
contract for a period of approximately three years. This contract was not
renewed during fiscal 1994. These activities do not represent a significant
portion of the Company's operations.
The Company's international operations also include the Bermuda insurance
company that provides the coverages described under "Liability Insurance."
Item 2. Properties
Information relating to the Company's owned and leased operating hospital
facilities, their location, licensed bed capacity and usage is contained under
the caption "Item 1. Business - Hospital Properties." Such information is
incorporated herein by reference.
The Company owns or leases five hospital facilities which are not
operated by the Company. Two of the facilities have been leased to other
operators, with options to purchase by the lessees. Three of the hospitals
are subject to a mortgage.
The Company leases one 150-bed general hospital which is managed by an
unaffiliated third party. The lease and the management agreement expire in
1997.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
I-18
PART II
Item 5. Market Price for Registrant's Common Equity and Related Stockholder
Matters
The Company has one class of Common Stock, which is listed for trading on
the American Stock Exchange (ticker symbol "CMD"). As of November 30, 1994,
there were 10,746 holders of record of the Company's $0.25 par value Common
Stock. The following table sets forth the high and low sales prices of the
Company's Common Stock from October 1, 1992 through the fiscal year ended
September 30, 1994 as reported by the American Stock Exchange:
Common Stock Sales Prices
Calendar Year High Low
1992
Fourth Quarter.................... 8 4 5/8
1993
First Quarter..................... 16 1/8 8
Second Quarter.................... 17 5/8 12 3/4
Third Quarter..................... 24 17 5/8
Fourth Quarter.................... 27 21
1994
First Quarter..................... 28 21 3/8
Second Quarter.................... 26 1/8 21 3/4
Third Quarter..................... 28 1/2 21 1/4
The Company is prohibited from paying dividends (other than dividends
payable in shares of Common Stock) on its Common Stock under the terms of its
Revolving Credit Agreement, except for cash dividends that, in the aggregate
from May 1994, do not exceed 6% of the net cash proceeds from issuances of
capital stock, reduced by the aggregate cost of stock purchases since May 1994
and certain other limited circumstances.
Item 6. Selected Financial Data
The following table sets forth selected historical financial information
of the Company for each of the five years in the period ended September 30,
1994. The information is not comparable because of the consummation of the
Company's Restructuring and the implementation of fresh start accounting in
fiscal 1992, which included the revaluation of the Company's assets and
liabilities and resulted in, among other things, significant reductions in
long-term debt and interest expense and elimination of preferred stock and
preferred stock dividend requirements. In 1993, the Company restated its
consolidated financial statements to reflect the sale of certain subsidiaries
as discontinued operations. The Summary of Operations and Balance Sheet Data
for the five years ended September 30, 1994, presented below, have been
derived from, and should be read in conjunction with, the Company's audited
consolidated financial statements and the related notes thereto. The
following financial information should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company indicated
in the Index on page F-1 of this Annual Report on Form 10-K.
II-1
SUMMARY OF OPERATIONS
(In thousands, except per share amounts)
Ten Months Two Months
ended ended
Year Ended September 30, July 31, September 30, Year ended September 30,
1990 1991 1992 1992 1993 1994
Net revenue....................... $ 954,508 $ 868,264 : $777,855 $142,850 $897,907 $904,646
Salaries, general and admini- :
strative expenses................ 804,897 656,828 : 563,600 107,608 640,847 661,516
Bad debt expense.................. 78,944 51,617 : 50,403 14,804 67,300 70,623
Depreciation and amortization..... 66,571 48,659 : 35,126 3,631 26,382 28,354
Amortization of reorganization :
value in excess of amounts :
allocable to identifiable :
assets........................... -- -- : -- 7,167 42,678 31,200
Interest, net..................... 205,723 232,218 : 169,244 12,690 74,156 39,394
ESOP expense (credit)............. 52,033 (3,962) : 33,714 4,811 45,874 49,197
Stock option expense (credit)..... -- -- : -- (789) 38,416 10,614
Unusual items..................... 105,000 45,000 : -- -- -- 71,287
Deferred compensation expense..... 6,815 5,061 : 3,190 -- -- --
Loss from continuing operations :
before income taxes, :
reorganization items, :
extraordinary item and :
cumulative effect of a change :
in accounting principle......... (365,475) (167,157) : (77,422) (7,072) (37,746) (57,539)
Provision for (Benefit from) :
income taxes..................... (43,132) -- : 4,259 1,054 1,874 (10,536)
Loss from continuing operations :
before reorganization items, :
extraordinary item and :
cumulative effect of a :
change in accounting principle... (322,343) (167,157) : (81,681) (8,126) (39,620) (47,003)
:
Discontinued operations: :
Income (Loss) from discontinued :
operations..................... 18,606 37,115 : 24,211 930 (14,703) --
Gain on disposal of discon- :
tinued operations.............. -- -- : -- -- 10,657 --
Loss before reorganization items, :
extraordinary item and cumula- :
tive effect of a change in :
accounting principle............. (303,737) (130,042) : (57,470) (7,196) (43,666) (47,003)
Reorganization items: :
Professional fees and other :
expenses....................... -- -- : (8,156) -- --
Adjust accounts to fair value... -- -- : 83,004 -- --
Extraordinary item - gain (loss) :
on early extinguishment or :
discharge of debt................ -- -- : 730,589 -- (8,561) (12,616)
Cumulative effect of a change :
in accounting principle.......... (7,567) -- : -- -- -- --
Net income (loss)................. $(311,304) $(130,042) : $747,967 $ (7,196) $(52,227) $(59,619)
Earnings (Loss) per common share: :
Loss from continuing operations :
before extraordinary item...... : $(.33) $(1.59) $(1.78)
Income (Loss) from discontinued :
operations and disposal of :
discontinued operations........ : .04 (.16) --
Loss before extraordinary :
item........................... : (.29) (1.75) (1.78)
Extraordinary loss on early :
extinguishment of debt......... : -- (.35) (.48)
Net loss........................ --(A) --(A) : --(A) $(.29) $(2.10) $(2.26)
(Footnotes on following page)
II-2
BALANCE SHEET DATA
(In thousands)
September 30,
1990 1991 1992 1993 1994
Current assets.................... $ 255,644 $ 320,755 : $ 290,742 $231,915 $ 324,627
Current liabilities............... 1,986,748 2,123,006 : 296,144 272,598 215,048
Working capital................... (1,731,104) (1,802,251) : (5,402) (40,683) 109,579
Working capital ratio............. -- -- : -- -- 1.51:1
Property and equipment -- net..... 696,813 645,173 : 486,762 444,786 494,345
Total assets...................... 1,333,659 1,338,823 : 1,299,198 838,186 961,480
Long-term debt and capital :
lease obligations................ 12,633 5,920 : 844,839 350,205 533,476
Redeemable preferred stock........ 189,989 214,842 : -- -- --
Common stockholders' equity :
(deficit)........................ (984,954) (1,138,279) : 10,424 57,298 56,221
(A) Earnings (loss) per share for periods prior to the two months ended September 30, 1992 are not
presented because they are not meaningful due to the implementation of fresh start accounting and
increase in the number of shares outstanding as a result of the Plan.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
For the fiscal years ended September 30, 1992, 1993 and 1994, the Company
derived approximately 9%, 11% and 14%, respectively, of its gross patient
revenue from HMO's and PPO's; 56%, 45% and 38%, respectively, from other
private payor sources (primarily Blue Cross and commercial insurance); 18%,
23% and 27%, respectively, from Medicare; 11%, 15% and 16%, respectively, from
Medicaid; and 6%, 6% and 5%, respectively, from CHAMPUS. The Company does not
expect its current payor mix to be altered significantly as a result of the
acquisition of 40 behavioral healthcare systems (the "Acquired Hospitals")
from National Medical Enterprises, Inc. Changes in the mix of the Company's
patients among the private-pay, Medicare and Medicaid categories, and among
different types of private-pay sources, can significantly affect the
profitability of the Company's operations. The psychiatric hospital industry
has been adversely affected by the trends described under "Item 1. Business -
Industry Trends."
The Company continues to experience admission increases at its hospitals,
but as a result of the reductions in average length of stay, aggregate patient
days have decreased except for an increase in the fourth quarter due to the
effect of 27 Acquired Hospitals purchased on June 30, 1994. Also an increasing
percentage of the Company's revenue is coming from Medicare, Medicaid and
HMO's and PPO's and less from traditional commercial insurance.
Because of the industry factors referred to previously and the impact of
the 27 facilities purchased on June 30, 1994, the Company's operating margins
declined to 19.1% in fiscal year 1994 from 21.1% for the prior year. Operating
income (net revenue less salaries, general and administrative expenses and bad
debt expenses) was $172.5 million for fiscal 1994, compared with $189.8
million in fiscal 1993. The Company may continue to experience reduced
II-3
margins when compared to prior periods. The Company intends to increase its
outpatient services and to enter new markets, in addition to those the Company
entered as a result of the purchase of the Acquired Hospitals, in response to
this trend. The Company continues to broaden the scope of healthcare services
it provides by offering alternatives to traditional inpatient treatment
settings, such as partial hospitalization, intensive outpatient and
residential treatment programs.
The Company's ability to increase the rates it charges to offset
increased costs is limited because the Company derives a significant portion
of its revenues from patients covered by governmental and managed-care
programs. With respect to governmental programs, the amount the Company is
paid for its services is established by law and regulation. With respect to
managed-care programs, the amount is established by the managed-care
contracts. Although inflation has not been a significant factor in the
Company's results of operations in recent years, a resurgence of inflation
could adversely affect the Company's results of operations because of such
limitations on the Company's ability to increase its rates. It is unlikely
that federal and state governments will increase reimbursement rates under
their programs in amounts sufficient to offset future price increases that
result from general inflationary pressures.
The Company's business is seasonal in nature, with a reduced demand for
certain services generally occurring in the fourth quarter and around major
holidays, such as Thanksgiving and Christmas.
Management believes that the purchase of the Acquired Hospitals will
assist the Company in implementing its strategy by increasing the Company's
size, market position and geographical coverage. For example, the acquisition
permits the Company to enter 16 new markets, including markets in the
mid-Atlantic and northeastern United States. Management believes the
operating results of the Acquired Hospitals will provide sufficient cash flow
for debt service and capital expenditures related to those facilities. The
aggregate purchase price for the Acquired Hospitals was approximately $120.4
million in cash plus approximately $51 million for the related net working
capital. Of this amount, $106.3 million was obtained from the net proceeds of
the Notes issued in May 1994, $39.1 million was borrowed pursuant to the
Revolving Credit Agreement and approximately $26 million of cash on hand was
used. Pro forma results of operations for fiscal 1994 which include the 40
Acquired Hospitals are included in Note 2 of the Company Consolidated
Financial Statements.
As of September 30, 1990, the Company operated 91 psychiatric hospitals
and 12 general hospitals with an aggregate capacity of 9,798 licensed beds.
During fiscal years 1991, 1992, 1993 and 1994, the Company sold nine
psychiatric hospitals for a total of $46.1 million, leased two psychiatric
hospitals, with options to purchase by the lessees, and closed four
psychiatric hospitals. Of these 15 hospitals, 11 were included in the
divestiture plan and written down to net realizable value and their estimated
carrying costs accrued as part of the restructuring charges recorded in fiscal
1990 and 1991; therefore, these eleven facilities had no impact on the
Company's results of operations in subsequent periods. The four hospitals not
in the divestiture plan did not have a material impact on the Company's
results of operations. Of the four psychiatric hospitals that were closed, one
of the closed hospitals was leased, and the lease was terminated, one facility
II-4
is being marketed for sublease and two facilities are now being used for
residential treatment programs by existing Company facilities. During fiscal
year 1992, the Company closed one general hospital, and on September 30, 1993,
it sold ten general hospitals. As a result of these transactions, the
combining into one facility of two psychiatric hospitals formerly licensed
separately and the acquisition of 27 Acquired Hospitals on June 30, 1994, the
Company operated 101 psychiatric hospitals as of September 30, 1994. The
Company leases one general hospital, which is managed by an unrelated third
party. The lease and management agreement expire in 1997.
The ten general hospitals were sold on September 30, 1993, for
approximately $338.0 million. The Company retained the assets and liabilities
for professional liability claims incurred and cost report settlements for
periods prior to September 30, 1993. The results of operations of the general
hospitals sold on September 30, 1993 have been reported as discontinued
operations in the Company's financial statements. For fiscal 1993, the
general hospitals had net revenue of approximately $347 million and a net loss
of approximately $15 million. The sale of the general hospitals enabled the
Company to concentrate its efforts on behavioral healthcare systems and to
reduce its long-term debt by approximately $310.3 million.
During fiscal 1992, the Company filed a voluntary petition for relief
pursuant to chapter 11 of the U.S. Bankruptcy Code. The prepackaged plan of
reorganization (the "Plan") effected a restructuring of the Company's debt and
equity capitalization (the "Restructuring"). The Restructuring, which became
effective on July 21, 1992, resulted in a reduction of approximately $700
million principal amount of long-term debt and the elimination of redeemable
preferred stock having an aggregate liquidation preference of $233 million.
The Company accounted for the Restructuring by using the principles of fresh
start accounting. Accordingly, the Company's total assets were recorded at
their assumed reorganization value, with the reorganization value allocated to
identified tangible assets on the basis of their estimated fair value at
July 31, 1992. The excess of the reorganization value over the value of
identifiable assets is reported as "reorganization value in excess of amounts
allocable to identifiable assets."
Results of Operations
Effect of the Plan and Fresh Start Accounting
As a result of the consummation of the Plan and the implementation of
fresh start accounting, the results of operations of the Company after
consummation of the Plan are not comparable to results of operations for prior
periods. Additionally, under fresh start accounting, the statement of
operations for fiscal 1992 is separated into two statements: one for the
period prior to consummation of the Plan (July 31, 1992 for accounting
purposes) and for the period subsequent to consummation.
Depreciation and amortization expense was reduced due to the write-down
of depreciable property and equipment and the write-off of deferred charges
and goodwill which occurred upon consummation of the Plan and the
implementation of fresh start accounting. This reduction is offset by
additional depreciation expense related to the Acquisition. In addition, the
excess of reorganization value over the value of identifiable assets, recorded
in connection with fresh start accounting, is being amortized over a
three-year period.
II-5
The Company also recognized certain nonrecurring items in fiscal 1992
related to the Plan and fresh start accounting. The Company recognized a net
credit of approximately $83 million representing the adjustment of accounts to
fair value resulting from the implementation of fresh start accounting. The
gain on extinguishment of debt of approximately $731 million includes the
forgiven principal and interest reduced by the value of Common Stock issued to
the holders of certain debt securities outstanding prior to consummation of
the Plan.
Discontinued Operations
The results of operations of the general hospitals sold on September 30,
1993 have been reported as discontinued operations in the Company's financial
statements. Included in these amounts are net interest expenses related to
debt specifically identifiable as debt of the general hospitals.
On September 15, 1993, the Company sold its interest in Beech Street of
California, Inc. ("Beech Street"). Beech Street operates preferred provider
networks and provides utilization review services to third parties.
Immediately prior to the sale, the Company owned 71.1% of the voting stock and
19.8% of the equity ownership of Beech Street. The operations of Beech Street
were consolidated with the Company and have been reported as discontinued
operations in the Company's financial statements. For fiscal 1993, Beech
Street had revenues of approximately $26 million and net income of
approximately $700,000.
The Company recognized after-tax gains from the sale of the general
hospitals and Beech Street of approximately $10.7 million during the fourth
quarter of fiscal 1993.
Psychiatric Hospital Results
The Company's consolidated financial statements include results of
operations for the 27 Acquired Hospitals purchased on June 30, 1994 for the
three months ended September 30, 1994. The comparability of the Company's
psychiatric hospital net revenue, operating expenses and bad debt expense was
not affected by the consummation of the Plan or the sale of the general
hospitals.
The following table summarizes, for the periods indicated, changes in
selected operating indicators.
Percentage of Net Revenue % Change
1992 1993 1994 1993 1994
Net revenue................... 100.0% 100.0% 100.0% (3) 1
Operating expenses:
Salaries and benefits....... 39.9 39.4 41.6 (4) 6
Other operating expenses.... 33.0 32.0 31.5 (6) (1)
Bad debt expenses............. 7.1 7.5 7.8 3 5
Total expenses.............. 80.0 78.9 80.9 (4) 3
Operating margin.............. 20.0 21.1 19.1 3 (9)
II-6
The table below presents "same store" data for facilities in operation on
September 30, 1994.
Selected Psychiatric Hospital Operating Data
Fiscal Year ended September 30
1992 1993 % Change 1994 % Change
Number of Psychiatric Hospitals..... 75 75 -- 101 35%
Average Licensed Beds............... 7,011 7,013 -- 7,468 6
Licensed Bed Days................... 2,565,974 2,559,839 -- 2,725,679 6
Net Revenue (In thousands)(1)....... $851,501 $843,842 (1)% $850,575 1
Total Patient Days(2)............... 1,395,961 1,358,857 (3) 1,383,388 2
Total Equivalent Patient Days(3).... 1,471,389 1,465,368 -- 1,527,855 4
Net Revenue/Equivalent Patient
Day(1)(3).......................... $579 $576 (1) $557 (3)
Admissions.......................... 79,128 86,067 9 102,802 19
Average Length of Stay (Days)....... 17.8 15.7 (12) 13.6 (13)
Private Pay and Other Sources/
Gross Revenue(4)................... 64% 55% (14) 49% (11)
Government Programs/ Gross
Revenue(4)(5)...................... 36% 45% 25 51% 13
_____________
(1) Includes inpatient and outpatient revenue.
(2) Provision of care to one patient for one day.
(3) Represents inpatient days adjusted to reflect outpatient utilization,
computed by dividing patient charges by inpatient charges per day.
(4) Gross Revenue is revenue before deducting contractual allowances and
discounts from established billing rates. Gross revenue is not
separately identified in the Company's Consolidated Statements of
Operations; instead, Net Revenue in the Consolidated Statements of
Operations reflects gross revenue after deductions for contractual
allowances and discounts from established billing rates.
(5) Government Programs include Medicare, Medicaid and CHAMPUS.
Fiscal 1993 Compared to Fiscal 1994. Patient days at the Company's
hospitals increased 24,531 or 2%, to 1,383,388 in fiscal 1994 from 1,358,857
in fiscal 1993. The increase resulted from the Acquired Hospitals, which
provided 92,994 patient days. Patient days at the same store hospitals
decreased 68,463, or 5%, due to a 17% decrease in the average length of stay
from 15.7 days in fiscal 1993 to 13.4 days in fiscal 1994 for the same store
hospitals. Total admissions increased 19%, or 16,735, from 86,067 in fiscal
1993 to 102,802 in fiscal 1994. Of that increase, 5,794 admissions were
provided by the Acquired Hospitals.
The Company's net revenue increased $6,739,000, or 1%, from $897,907,000
in fiscal 1993 to $904,646,000 in fiscal 1994. Net revenue at the Company's
non-psychiatric operations increased $9,648,000, including $3,444,000 at the
Company's general hospital which is managed by a third party and $1,874,000
provided by companies acquired or developed in the Company's expansion of
services pursuant to its business strategy. Net revenue decreased $9,642,000
due to the disposal of hospitals which were considered core hospitals during
II-7
portions of fiscal 1993. Net revenue at the Company's same store hospitals
decreased $45,356,000 from $843,842,000 in fiscal 1993 to $798,486,000 in
fiscal 1994. The Company derived net revenue in fiscal 1994 of $52,089,000
from the Acquired Hospitals. Net revenue per equivalent patient day decreased
3% to $557 in fiscal 1994 from $576 in fiscal 1993. The decreases resulted
primarily from a continued shift in payor mix toward Medicare and Medicaid
programs. Services to Medicare and Medicaid patients have increased due to
increased recognition and treatment of the behavioral illnesses of the elderly
and disabled and, in some states, improved coverage of behavioral services in
psychiatric hospitals for Medicaid beneficiaries. The Company believes that,
at the same time, revenue from Blue Cross and commercial insurance payors has
declined because of a shift by purchasers of health coverage to HMOs and PPOs.
Following is a discussion of changes in operating expenses for fiscal
1993 compared to fiscal 1994.
The Company's salaries, general and administrative expenses increased
$20,669,000, or 3%, to $661,516,000 in fiscal 1994 from $640,847,000 in fiscal
1993, due to expenses incurred by the Acquired Hospitals of $40,173,000. The
same store psychiatric hospitals and other operations of the Company decreased
their salaries, general and administrative expenses primarily by reducing
advertising expenses, purchased services, salaries and benefits and medical
professional fees.
The Company's bad debt expenses increased to $70,623,000 in fiscal 1994
from $67,300,000 in fiscal 1993, an increase of $3,323,000, or 5%. The
Acquisition resulted in additional bad debt expense of $3,727,000 during
fiscal 1994. Bad debt expenses as a percentage of net revenue increased to
7.8% for fiscal 1994 from 7.5% for fiscal 1993. The Company anticipates
future increases in bad debt expenses due to increased deductibles and
co-insurance and reduced annual and lifetime psychiatric maximum payment
limits for individual patients, which will result in the Company not
collecting full charges on an increasing number of patients.
Depreciation and amortization increased $1,972,000, or 7% to $28,354,000
in fiscal 1994. The increase resulted primarily from depreciation of the
Acquired Hospitals, $1,133,000, and the amortization of the related covenant
not to compete and goodwill purchased during fiscal 1994.
Reorganization value in excess of amounts allocable to identifiable
assets (the "Excess Reorganization Value") is being amortized over the
three-year period ending July 1995. During fiscal 1993, Excess Reorganization
Value was reduced by approximately $21 million to reflect the recognition of
tax benefits related to pre-Reorganization tax loss carryforwards and
accordingly, amortization expense for the Excess Reorganization Value
decreased $11,478,000, or 27%, to $31,200,000 in fiscal 1994 from $42,678,000
in fiscal 1993.
Net interest expense for fiscal 1994 decreased 47% from the previous
fiscal year due to the debt reductions resulting from the sale of the general
hospitals on September 30, 1993, mandatory and voluntary prepayments and
scheduled payments in fiscal 1993 and fiscal 1994. Interest expense during
the fourth quarter of fiscal 1994 increased over the first three quarters due
to the issuance of the Notes and to borrowings under the Revolving Credit
Agreement used in the Acquisition.
II-9
Interest expense was significantly reduced by the consummation of the
Plan and as a result of the payments on debt made with proceeds from the sale
of the general hospitals. Interest expense for fiscal 1995 will increase due
to borrowings under the Revolving Credit Agreement and the issuance of the
Notes in connection with the Acquisition.
ESOP expense for fiscal 1994 increased $3,323,000, or 7%, to $49,197,000
from $45,874,000 for fiscal 1993. These increases resulted primarily from
changes in eligibility requirements, which increased the number of employees
who participate in the ESOP.
Stock option expense for fiscal 1994 decreased from the previous year due
to a one-time charge during the second quarter of fiscal 1993 of $21.3 million
related to the vesting of certain options held by a former employee and
director. Under the terms of the 1992 Stock Option Plan (on March 4, 1993),
upon the satisfaction of certain financial targets and the termination of
employment, all of the employee's options vested immediately and the option
prices were reduced to $.25 per share. Prior to March 4, 1993, such options
were accounted for as a variable stock option plan because the option price
was not determinable at the date of grant. Subsequent to March 4, 1993, the
options were accounted for as a fixed plan because both the number of shares
to be issued and the option price were known. Accordingly, on March 4, 1993,
the Company recognized $21.3 million of stock option expense. On December 3
and December 29, 1993, all of the options under the 1992 Stock Option Plan
were exercised by the former employee. On December 3, 1993, 326,000 options
were exercised and the option exercise price was paid by reducing the number
of shares issuable by the number of shares having a fair market value equal to
the option exercise price (3,326 shares). An exercise in this manner triggers
a new measurement date for the options exercised and, since the stock price
had increased since March 4, 1993, additional compensation expense of $3.9
million was recognized in December 1993. The option exercise price for the
1,894,336 options exercised on December 29, 1993, was paid in cash;
accordingly, no additional compensation expense was triggered. For both of
the exercises, the former employee elected to surrender optioned shares
(approximately 570,000 shares) as consideration for the payment of required
withholding taxes of approximately $14.2 million. These withholdings
represent the minimum required tax withholding amounts required in order to
avoid triggering a new measurement date and additional compensation expense.
The Company was required to make withholding tax payments on behalf of the
former employee of approximately $14.2 million which was charged against
additional paid-in capital. This charge was offset by a tax benefit recorded
of approximately $9.4 million related to additional stock option expense
allowable for income tax purposes. The remaining decrease in stock option
expense for fiscal 1994 was due to fluctuations in the market price of the
Company's common stock.
During fiscal 1994 the Company recorded unusual items of approximately
$71.3 million. Included in the unusual charges was the resolution in November
1994 between the Company and a group of insurance carriers of disputes that
arose in the fourth quarter related to claims paid predominantly in the
1980's. As part of the resolution, the Company will pay the insurance
carriers approximately $31 million plus interest, for a total of $37.5 million
in four installments over a three year period. The Company and the insurance
carriers will continue to do business at the same or similar general levels.
Furthermore, the parties will seek additional business opportunities that will
serve to enhance their present relationships.
II-10
As a result of the Acquisition, the Company reassessed its business
strategy in certain markets. The Company plans to consolidate services in
selected markets and close or sell certain facilities owned prior to the
Acquisition. Accordingly, the Company recorded a charge of $23 million in the
fourth quarter of 1994 to write down the assets of those facilities to their
net realizable value. Also recorded as an unusual charge during fiscal 1994
were expenses related to the relocation of the Company's executive offices.
As of September 30, 1994, the Company had estimated tax net operating
loss (NOL) carryforwards of approximately $247 million available to reduce
future federal taxable income. These NOL carryforwards expire in 2006 through
2009 and are subject to examination by the Internal Revenue Service. Due to
the ownership change which occurred as a result of the Reorganization, the
Company's utilization of NOLs generated prior to the consummation of the
Reorganization is significantly limited. The Internal Revenue Service is
currently examining the Company's income tax returns for fiscal 1989 through
1993. Adjustments arising from such examination could reduce or eliminate the
NOL carryforwards. In Management's opinion adequate provisions have been made
for any adjustments which may result from such examinations.
During fiscal 1994 the Company recorded an extraordinary loss of
approximately $12.6 million (net of income tax benefit of approximately $8.4
million) related to the defeasance of the Company's 7.5% Senior Subordinated
Debentures due 2003 and the pay-off of certain subsidiary mortgages. The
extraordinary loss includes the difference between the redemption price and
the carrying value of the debentures and prepayment penalties related to the
subsidiary mortgages.
Fiscal 1992 Compared to Fiscal 1993. The Company had 1,358,857 patient
days in fiscal 1993, a decrease of 37,104, or 3%, from 1,395,961 in fiscal
1992. The decrease in patient days occurred despite an increase of 6,939, or
9%, in admissions from 79,128 in fiscal 1992 to 86,067 in fiscal 1993. The
decline in average length of stay from 17.8 days to 15.7 days was caused by
stringent criteria regarding inpatient treatment by payors and changes in
program mix.
The Company's net revenue decreased $22,798,000, or 2%, from $920,705,000
in fiscal 1992 to $897,907,000 in fiscal 1993. Of this decline, $14,325,000
resulted from the disposal of hospitals in fiscal 1992, and $814,000 was
related to non-psychiatric operations. Net revenue at the "same store" core
hospitals in operation at September 30, 1993 decreased to $843,842,000 in
fiscal 1993 as compared to $851,501,000 for fiscal 1992, a decrease of
$7,659,000, or 1%. Net revenue per equivalent patient day also decreased 1% in
fiscal 1993 from $579 in fiscal 1992 to $576 in fiscal 1993. The decreases
were primarily the result of an increase in the percentage of business the
Company derived from Medicare and Medicaid patients during fiscal 1993.
Services to Medicare and Medicaid patients have increased due to increased
recognition and treatment of the behavioral illnesses of the elderly and
disabled and, in some states, improved coverage of behavioral services in
psychiatric hospitals for Medicaid beneficiaries. The Company believes that,
at the same time, revenue from Blue Cross and commercial insurance payors has
declined because of a shift by purchasers of health coverage to HMOs and
PPOs. Net revenue in 1993 includes approximately $8 million over the prior
year from the normal settlement of reimbursement issues. In fiscal 1993, gross
outpatient revenue increased 53% to $100,376,000 from $65,686,000 in fiscal
1992.
II-11
Following is a discussion of changes in operating expenses for fiscal
1992 compared to fiscal 1993.
The Company's salaries, general and administrative expenses declined from
$671,208,000 in fiscal 1992 to $640,847,000 in fiscal 1993, a decrease of
$30,361,000, or approximately 5%. The decrease in fiscal 1993 resulted
primarily from reductions in salaries and benefits and purchased services and
the sale of two facilities during the year. The reductions in salaries and
benefits and purchased services were the result of the Company's continued
focus on controlling its variable costs including a decrease in the number of
employees and reduced fees for professional services.
The Company's bad debt expense increased $2,093,000, or 3%, from
$65,207,000 in fiscal 1992 to $67,300,000 in fiscal 1993. Bad debt expenses as
a percentage of net revenue were 7.5% for fiscal 1993.
Depreciation and amortization expense decreased $12,375,000, or 32%, in
fiscal 1993 from $38,757,000 in fiscal 1992 to $26,382,000 in fiscal 1993 due
to the writedown of depreciable property and equipment and the write-off of
deferred charges which occurred upon consummation of the Restructuring and the
implementation of fresh start accounting.
Net interest expense decreased $107,778,000, or 59%, in fiscal 1993 to
$74,156,000 as compared to $181,934,000 in fiscal 1992 due to the reduction of
debt upon consummation of the Reorganization and the significant debt
reductions which occurred since consummation of the Restructuring.
ESOP expense for fiscal 1993 increased $7,349,000, or 19% to $45,874,000
as compared to $38,525,000 for fiscal 1992 due primarily to increased
contributions to the ESOP, which were required as a result of larger debt
service requirements in fiscal 1993. Also, the ESOP plan was amended to permit
broader participation in the plan which increased the number of employees
eligible to receive an ESOP contribution in calendar 1993.
Upon consummation of the Reorganization, the Company implemented the 1992
Stock Option Plan. A former employee and director of the Company was granted
options under the 1992 Stock Option Plan to purchase approximately 2.2 million
shares at exercise prices of either $4.36 per share or $9.60 per share. On
March 4, 1993, all of the options issued to the former employee and director
vested and the option prices were reduced to $.25 per share, which resulted in
the Company recognizing approximately $21.3 million in additional stock option
expense during the second quarter of fiscal 1993. The remaining expenses
related to the 1992 Stock Option Plan were due to increases in the market
price of the underlying Common Stock and the impact of additional shares
vesting in fiscal 1993.
The Company's tax provision in fiscal 1993 resulted primarily from the
fact that the amortization of reorganization value in excess of amounts
allocable to identifiable assets is not deductible for tax purposes.
The consolidated statements of operations for the year ended
September 30, 1993 include extraordinary after-tax losses of $8,561,000 on
early extinguishment of debt which includes fees incurred upon the retirement
of the Company's Senior Secured Notes, certain debt under the credit
agreement, mortgages on the general hospitals and the write-off of the
unamortized discount or premium remaining on certain debt.
II-12
See "Business -- Competition," "-- Sources of Revenues," "-- Regulation
and Other Factors," "-- Medical Staffs and Employees," "-- Industry Trends,"
and "-- Liability Insurance" for additional information on trends that may
affect operations.
Liquidity and Sources of Capital
Operational Activities. Management believes that the Company will have
adequate cash flow from operations to fund its operations, capital
expenditures and debt service obligations over the next year. The Company had
working capital deficiencies at September 30, 1992 and 1993 due primarily to
the retention of liabilities for cost report settlements for the general
hospitals sold on September 30, 1993, and $19.5 million and $13.9 million of
long-term debt classified as current at September 30, 1992 and 1993,
respectively, resulting from mandatory payments made in October 1992 and 1993.
Although the Acquired Hospitals have historically provided a negative
cash flow (approximately $4.3 million for the year ended May 31, 1994), the
Company believes that improved operating management along with reductions in
overhead and intercompany allocations will allow the Acquired Hospitals to
provide adequate cash flow to fund their operations.
The number of days of net patient revenue in net patient accounts
receivable was 65 days at September 30, 1994 and 61 days at September 30, 1993.
Investing Activities. During fiscal 1993 and fiscal 1994, the Company
incurred approximately $11 million and $15 million, respectively, in capital
expenditures, primarily for routine capital replacement. During fiscal 1994,
the Company also incurred expenditures of approximately $127 million in
connection with the Acquisition and approximately $3 million for the
acquisitions of businesses related to the implementation of the Company's new
growth and expansion strategy. The capital outlays were financed from
borrowings under the Revolving Credit Agreement, proceeds from the issuance of
the Notes and from cash provided by operations.
Future cash flows provided by investing activities will be reduced by the
amount of cash previously provided by the discontinued operations which was
approximately $42.5 million in fiscal year 1993. However, the sale of the
general hospitals allowed the Company to reduce its debt and save
approximately $32.3 million in annual interest expense. The Company believes
the sale of the general hospitals will not have a material adverse effect on
the financial position, results of operation or liquidity of the Company.
Financing Activities. On May 2, 1994, the Company entered into the
Revolving Credit Agreement and issued the 11.25% Senior Subordinated Notes
(the "Notes"). The net proceeds from the sale of the Notes, together with
borrowings pursuant to the Revolving Credit Agreement, were used to refinance
the indebtedness outstanding pursuant to the Company's previous credit
agreement, to retire the 7 1/2% Senior Subordinated Debentures, to refinance
certain existing mortgage indebtedness of certain of the subsidiaries of the
Company and to finance the Acquisition and to pay related transaction
expenses. Commitments under the Revolving Credit Agreement will automatically
be reduced by $24.5 million on March 31, 1996, $49.1 million each on March 31,
1997 and 1998 and $175 million on March 31, 1999. The Company believes that
its hospitals, including the Acquired Hospitals, will generate sufficient cash
flows from operations to meet its debt service requirements. The Notes mature
II-13
on April 15, 2004. Interest on the Notes is payable each April 15 and
October 15, commencing on October 15, 1994.
The Company obtained increased operational and financial flexibility as a
result of entering into the Revolving Credit Agreement and issuing the Notes
because the covenants contained in the Revolving Credit Agreement and the
indenture for the Notes are less restrictive than those formerly in effect.
However, the Revolving Credit Agreement and the indenture for the Notes
contain a number of restrictive covenants, which, among other things, limit
the ability of the Company to incur other indebtedness, engage in transactions
with affiliates, incur liens, make certain restricted payments, and enter into
certain business combination and asset sale transactions. The Revolving Credit
Agreement also limits the Company's ability to incur capital expenditures and
requires the Company to maintain certain specified financial ratios. A failure
by the Company to maintain such financial ratios or to comply with the
restrictions contained in the Revolving Credit Agreement, the indenture for
the Notes or other agreements relating to the Company's debt could cause such
indebtedness (and by reason of cross-acceleration provisions, other
indebtedness) to become immediately due and payable.
Item 8. Financial Statements and Supplementary Data
Information with respect to this Item is contained in the Company's
consolidated financial statements and financial statement schedules indicated
in the Index on Page F-1 of this Annual Report on Form 10-K and is
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
II-14
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to the Company's executive officers is contained
under "Item 1. Business - Executive Officers of the Registrant." Pursuant to
General Instruction G(3) to Form 10-K, the information required by this item
with respect to directors has been omitted inasmuch as the Company files with
the Securities and Exchange Commission a definitive proxy statement not later
than 120 days subsequent to the end of its fiscal year. Such information is
incorporated herein by reference.
Item 11. Executive Compensation
Pursuant to General Instruction G(3) to Form 10-K, the information
required with respect to this item has been omitted inasmuch as the Company
files with the Securities and Exchange Commission a definitive proxy statement
not later than 120 days subsequent to the end of its fiscal year. Such
information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Pursuant to General Instruction G(3) to Form 10-K, the information
required with respect to this item has been omitted inasmuch as the Company
files with the Securities and Exchange Commission a definitive proxy statement
not later than 120 days subsequent to the end of its fiscal year. Such
information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Pursuant to General Instruction G(3) to Form 10-K, the information
required with respect to this item has been omitted inasmuch as the Company
files with the Securities and Exchange Commission a definitive proxy statement
not later than 120 days subsequent to the end of its fiscal year. Such
information is incorporated herein by reference.
III-1
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of the Report:
1. Financial Statements
Information with respect to this item is contained on Pages F-2 to
F-32 of this Annual Report on Form 10-K.
2. Financial Statement Schedules
Information with respect to this item is contained on pages S-1 to
S-4 of this Annual Report on Form 10-K.
3. Exhibits
Exhibit
No. Description of Exhibit
2(a) - Asset Sale Agreement (First Facilities), dated March 29, 1994,
between National Medical Enterprises, Inc., as Seller, and the
Company, as Buyer, which was filed as Exhibit 2(d) to the
Company's Amendment No. 1 to Registration Statement on Form S-4
(No. 33-53701) filed July 1, 1994, and is incorporated herein
by reference.
2(b) - Asset Sale Agreement (Subsequent Facilities), dated March 29,
1994, between National Medical Enterprises, Inc., as Seller,
and the Company, as Buyer, which was filed as Exhibit 2(e) to
the Company's Amendment No. 1 to Registration Statement on Form
S-4 (No. 33-53701) filed July 1, 1994, and is incorporated
herein by reference.
Exhibit 2(a) and 2(b) do not contain copies of the
exhibits and schedules to such agreements. Such agreement
describe such exhibits and schedules. The Company agrees
to furnish supplementally to the Commission, upon request,
a copy of any omitted exhibit or schedule to such
agreements.
2(c) - Amendment No. 1, dated September 12, 1994, to Asset Sale
Agreement (First Facilities), dated March 29, 1994, between
National Medical Enterprises, Inc., as Seller and the Company,
as Buyer.
2(d) - Amendment No. 1, dated September 12, 1994, to Asset Sale
Agreement (Subsequent Facilities), dated March 29, 1994,
between National Medical Enterprises, Inc., as Seller and the
Company, as Buyer.
2(e) - Amendment No. 2, dated September 29, 1994, to Asset Sale
Agreement (Subsequent Facilities), dated March 29, 1994,
between National Medical Enterprises, Inc., as Seller and the
Company, as Buyer.
2(f) - Amendment No. 3, dated November 15, 1994, to Asset Sale
Agreement (Subsequent Facilities), dated March 29, 1994,
between National Medical Enterprises, Inc., as Seller and the
Company, as Buyer.
IV-1
Exhibit
No. Description of Exhibit
2(g) - Incorporation, Conveyance and Stock Purchase Agreement, dated
August 16, 1993, among Quorum, Inc., the Company and certain
subsidiaries which was filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K, dated as of September 30, 1993, and
which is incorporated herein by reference.
3(a) - Restated Certificate of Incorporation of the Company, as filed
in Delaware on October 16, 1992, which was filed as Exhibit
3(a) to the Company's Annual Report on Form 10-K for the year
ended September 30, 1992, and is incorporated herein by
reference.
3(b) - Bylaws of the Company, as amended, effective July 21, 1994.
4(a) - Indenture, dated as of May 2, 1994, among the Company, the
Guarantors listed therein and Marine Midland Bank, as Trustee,
relating to the 11.25% Senior Subordinated Notes due April 15,
2004 of the Company, which was filed as Exhibit 4(a) to the
Company's Registration Statement on Form S-4 (No. 33-53701)
filed May 18, 1994, and is incorporated herein by reference.
4(b) - Second Amended and Restated Credit Agreement, dated as of
May 2, 1994, among the Company, the financial institutions
listed therein, Bankers Trust Company, as Agent, and First
Union National Bank of North Carolina, as Co-Agent, which was
filed as Exhibit 4(e) to the Company's Registration Statement
on Form S-4 (No. 33-53701) filed May 18, 1994, and is
incorporated herein by reference.
4(c) - Second Amended and Restated Subsidiary Credit Agreement, dated
as of May 2, 1994, among certain subsidiaries of the Company,
the financial institutions listed therein, Bankers Trust
Company, as Agent, and First Union National Bank of North
Carolina, as Co-Agent, which was filed as Exhibit 4(f) to the
Company's Registration Statement on Form S-4 (No. 33-53701)
filed May 18, 1994, and is incorporated herein by reference.
4(d) - Second Amended and Restated Company Stock and Notes Pledge
Agreement, dated as of May 2, 1994, between the Company and
Bankers Trust Company, as Collateral Agent, which was filed as
Exhibit 4(g) to the Company's Registration Statement on Form
S-4 (No. 33-53701) filed May 18, 1994, and is incorporated
herein by reference.
4(e) - Second Amended and Restated Subsidiary Stock and Notes Pledge
Agreement, dated as of May 2, 1994, among various subsidiaries
of the Company and Bankers Trust Company, as Collateral Agent,
which was filed as Exhibit 4(h) to the Company's Registration
Statement on Form S-4 (No. 33-53701) filed May 18, 1994, and is
incorporated herein by reference.
4(f) - Second Amended and Restated Subsidiary Pledge and Security
Agreement, dated as of May 2, 1994, among various subsidiaries
of the Company and Bankers Trust Company, as Collateral Agent,
which was filed as Exhibit 4(i) to the Company's Registration
Statement on Form S-4 (No. 33-53701) filed May 18, 1994, and is
incorporated herein by reference.
4(g) - Second Amended and Restated Subsidiary Pledge and Security
Agreement (ESOP collateral), dated as of May 2, 1994, between
the Company and Bankers Trust Company, as Collateral Agent,
which was filed as Exhibit 4(j) to the Company's Registration
Statement on Form S-4 (No. 33-53701) filed May 18, 1994, and is
incorporated herein by reference.
IV-2
Exhibit
No. Description of Exhibit
4(h) - Second Amended and Restated FINCO Pledge and Security Agreement
I, dated as of May 2, 1994, between CMFC, Inc. and Bankers
Trust Company, as Collateral Agent, which was filed as Exhibit
4(k) to the Company's Registration Statement on Form S-4 (No.
33-53701) filed May 18, 1994, and is incorporated herein by
reference.
4(i) - Second Amended and Restated Subsidiary Guaranty, dated as of
May 2, 1994, executed by various subsidiaries of the Company,
which was filed as Exhibit 4(l) to the Company's Registration
Statement on Form S-4 (No. 33-53701) filed May 18, 1994, and is
incorporated herein by reference.
4(j) - Second Amended and Restated Company Collateral Accounts
Assignment Agreement, dated as of May 2, 1994, between the
Company and Bankers Trust Company, as agent, which was filed as
Exhibit 4(m) to the Company's Registration Statement on Form
S-4 (No. 33-53701) filed May 18, 1994, and is incorporated
herein by reference.
4(k) - Company Pledge and Security Agreement, dated as of May 2, 1994,
between the Company and Bankers Trust Company, as Collateral
Agent, which was filed as Exhibit 4(n) to the Company's
Registration Statement on Form S-4 (No. 33-53701) filed May 18,
1994, and is incorporated herein by reference.
4(l) - Second Amended and Restated FINCO Pledge and Security Agreement
II, dated as of May 2, 1994, between CMCI, Inc. and Bankers
Trust Company, as Collateral Agent, which was filed as Exhibit
4(o) to the Company's Registration Statement on Form S-4 (No.
33-53701) filed May 18, 1994, and is incorporated herein by
reference.
4(m) - Second Amended and Restated Company Guaranty, dated as of
May 2, 1994, executed by the Company, which was filed as
Exhibit 4(p) to the Company's Registration Statement on Form
S-4 (No. 33-53701) filed May 18, 1994, and is incorporated
herein by reference.
4(n) - Second Amended and Restated Subsidiary Collateral Accounts
Assignment Agreement, dated as of May 2, 1994, among various
subsidiaries of the Company and Bankers Trust Company, as
Agent, which was filed as Exhibit 4(q) to the Company's
Registration Statement on Form S-4 (No. 33-53701) filed May 18,
1994, and is incorporated herein by reference.
4(o) - Form of Indenture of Mortgage, Deed to Secure Debt, Deed of
Trust, Security Agreement and Assignment of Leases and Rents;
Amended Indenture of Mortgage, Deed to Secure Debt, Deed of
Trust, Security Agreement and Assignment of Leases and Rents;
and Consolidated Agreement, executed as of May 2, 1994, by 71
subsidiaires of the Company and Bankers Trust Company, as
Agent, and various trustees as shown on individual subsidiary
cover pages attached, which was filed as Exhibit 4(t) to the
Company's Registration Statement on Form S-4 (No. 33-53701)
filed May 18, 1994, and is incorporated herein by reference.
4(p) - Purchase Agreement, dated April 22, 1994, between the Company
and Bear, Stearns & Co. Inc. and BT Securities Corporation,
which was filed as Exhibit 4(u) to the Company's Registration
Statement on Form S-4 (No. 33-53701) filed May 18, 1994, and is
incorporated herein by reference.
IV-3
Exhibit
No. Description of Exhibit
4(q) - Exchange and Registration Rights Agreement, dated April 22,
1994 between the Company and Bear, Stearns & Co. Inc. and BT
Securities Corporation, which was filed as Exhibit 4(v) to the
Company's Registration Statement on Form S-4 (No. 33-53701)
filed May 18, 1994, and is incorporated herein by reference.
4(r) - Amendment No. 1, dated as of June 9, 1994, to Second Amended
and Restated Credit Agreement, dated as of May 2, 1994, among
the Company, the financial institutions listed therein, Bankers
Trust Company, as Agent, and First Union National Bank of North
Carolina, as Co-Agent, which was filed as Exhibit 4(w) to the
Company's Amendment No. 1 to Registration Statement on Form S-4
(No. 33-53701) filed July 1, 1994, and is incorporated herein
by reference.
4(s) - Amendment No. 2, dated September 30, 1994, to Second Amended
and Restated Credit Agreement, dated as of May 2, 1994, among
the Company, the financial institutions listed therein, Bankers
Trust Company, as Agent, and First Union National Bank of North
Carolina, as Co-Agent.
4(t) - Indenture Supplement No. 1, dated June 3, 1994, among the
Company, the Guarantors listed therein and Marine Midland Bank,
as Trustee, relating to the 11.25% Senior Subordinated Notes
due April 15, 2004, together with a schedule identifying
substantially similar documents, pursuant to Instruction 2 to
Item 601 of Regulation S-K.
4(u) - Indenture Supplement No. 3, dated August 30, 1994, among the
Company, the Guarantors listed therein and Marine Midland Bank,
as Trustee, relating to the 11.25% Senior Subordinated Notes
due April 15, 2004.
The Company and the Additional Registrants agree, pursuant
to (b)(4)(iii) of Item 601 of Regulation S-K, to furnish
to the Commission, upon request, a copy of each agreement
relating to long-term debt where the total amount of debt
under each such agreement does not exceed 10% of the
Registrants' respective total assets on a consolidated
basis.
10(a) - Written description of Corporate Annual Incentive Plan for the
year ended September 30, 1994.
10(b) - 1989 Non-Qualified Deferred Compensation Plan of the Company,
adopted January 1, 1989, as amended, which was filed as Exhibit
10(f) to the Company's Annual Report on Form 10-K dated as of
September 30, 1989 and is incorporated herein by reference.
10(c) - 1992 Stock Option Plan of the Company, as amended.
10(d) - Directors' Stock Option Plan of the Company, as amended.
10(e) - 1994 Stock Option Plan of the Company, as amended.
10(f) - Directors' Unit Award Plan of the Company, which was filed as
Exhibit 10(i) to the Company's Registration Statement on Form
S-4 (No. 33-53701) filed May 18, 1994, and is incorporated
herein by reference.
10(g) - Description of Flexible Benefits Plan.
IV-4
Exhibit
No. Description of Exhibit
10(h) - Employment Agreement, dated July 21, 1992, between the Company
and William A. Fickling, Jr., Chairman of the Board of
Directors and Chief Executive Officer of the Company which was
filed as Exhibit 10(e) the Company's Annual Report on Form 10-K
dated September 30, 1992 and is incorporated herein by
reference.
10(i) - Employment Agreement, dated July 21, 1992, between the Company
and E. Mac Crawford, Director, President and Chief Operating
Officer of the Company which was filed as Exhibit 10(f) the
Company's Annual Report on Form 10-K dated September 30, 1992
and is incorporated herein by reference.
10(j) - Employment Agreement, dated July 21, 1992, between the Company
and Lawrence W. Drinkard, Director and Senior Vice President -
Finance (principal financial officer) of the Company which was
filed as Exhibit 10(g) the Company's Annual Report on Form 10-K
dated September 30, 1992 and is incorporated herein by
reference.
21 - List of subsidiaries of the Company.
23 - Consent of independent public accountants.
27 - Financial Data Schedules
(b) Reports on Form 8-K:
On September 20, 1994, the Company filed a Form 8-K/A (Amendment No. 2)
dated June 30, 1994 disclosing the acquisition of substantially all the
assets of 18 psychiatric hospitals, seven chemical-dependency treatment
facilities, one residential treatment facility and one physician
outpatient practice from National Medical Enterprises, Inc., a Nevada
corporation, for a purchase price of approximately $88.7 million in cash,
plus $2 million in cash for a covenant not to compete, plus an additional
amount of cash equal to the net working capital of the facilities
acquired, amounting to approximately $38.4 million.
(c) Exhibits Required by Item 601 of Regulation S-K:
Exhibits required to be filed by the Company pursuant to Item 601 of
Regulation S-K are contained in a separate volume.
(d) Financial Statement Schedules Required By Regulation S-X:
Separate financial statements and schedules of Charter Medical
Corporation (Parent Company) have been omitted since the restricted net
assets as defined by Rule 4-08(e)(3) of Regulation S-X of the Parent
Company's consolidated subsidiaries do not exceed 25% of the consolidated
net assets of the Company as of September 30, 1994.
IV-5
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned thereunto duly authorized.
CHARTER MEDICAL CORPORATION
(Registrant)
Date: December 13, 1994 /s/ Lawrence W. Drinkard
Lawrence W. Drinkard
Executive Vice President and
Chief Financial Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ E. Mac Crawford Chairman of the Board of December 13, 1994
E. Mac Crawford Directors, President and
Chief Executive Officer
/s/ John R. Day Vice President-Controller December 13, 1994
John R. Day
/s/ Edwin M. Banks Director December 13, 1994
Edwin M. Banks
/s/ Andre C. Dimitriadis Director December 13, 1994
Andre C. Dimitriadis
/s/ Raymond H. Kiefer Director December 13, 1994
Raymond H. Kiefer
/s/ Gerald L. McManis Director December 13, 1994
Gerald L. McManis
IV-6
CHARTER MEDICAL CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
The following consolidated financial statements of the Registrant and its
subsidiaries are submitted herewith in response to Item 8 and Item 14(a)1:
Page
Charter Medical Corporation:
Report of independent public accountants....................... F-2
Consolidated balance sheets as of September 30, 1993
and 1994...................................................... F-3
Consolidated statements of operations for the ten months
ended July 31, 1992, the two months ended September 30,
1992 and the years ended September 30, 1993 and 1994.......... F-5
Consolidated statements of changes in stockholders'
equity for the ten months ended July 31, 1992,
the two months ended September 30, 1992 and the years ended
September 30, 1993 and 1994................................... F-6
Consolidated statements of cash flows for the ten months
ended July 31, 1992, the two months ended September 30,
1992, and the years ended September 30, 1993 and 1994......... F-7
Notes to consolidated financial statements..................... F-8
The following financial statement schedules of the Registrant and its
subsidiaries are submitted herewith in response to Item 14(a)2:
Page
Schedule V -- Property and Equipment....................... S-1
Schedule VI -- Accumulated depreciation, depletion and
amortization of property and equipment....... S-2
Schedule VIII -- Valuation and qualifying accounts............ S-3
Schedule X -- Supplemental income statement information.... S-4
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions, are inapplicable or have been
disclosed in the Notes to Consolidated Financial Statements and, therefore,
have been omitted.
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Charter Medical Corporation:
We have audited the accompanying consolidated balance sheets of Charter
Medical Corporation (a Delaware Corporation) and subsidiaries as of
September 30, 1993 and 1994, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the ten months
ended July 31, 1992, the two months ended September 30, 1992 and the years
ended September 30, 1993 and 1994. These financial statements and the
schedules referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Charter Medical
Corporation and subsidiaries as of September 30, 1993 and 1994, and the
results of their operations and their cash flows for the ten months ended July
31, 1992, the two months ended September 30, 1992 and the years ended
September 30, 1993 and 1994, in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 3, the Company's reorganization plan was
confirmed by the U.S. Bankruptcy Court on July 8, 1992 and became effective on
July 21, 1992 (effective on July 31, 1992 for financial reporting purposes).
In accordance with Statement of Position No. 90-7 of the American Institute of
Certified Public Accountants, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," the Company was required to account
for the reorganization using fresh start reporting. Accordingly, all
consolidated financial statements prior to July 31, 1992 are not comparable to
the consolidated financial statements for periods after the implementation of
fresh start reporting.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
financial statements are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
December 2, 1994
F-2
CHARTER MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
September 30,
1993 1994
Current Assets
Cash, including cash equivalents
of $60,242 in 1993 and $68,237
in 1994, at cost which approximates
market.................................... $ 86,002 $ 129,603
Accounts receivable, less allowance
for doubtful accounts of $28,843 in
1993 and $43,555 in 1994.................. 119,638 170,295
Supplies................................... 5,051 6,097
Other current assets....................... 21,224 18,632
Total Current Assets................... 231,915 324,627
Assets Restricted for Settlement
of Unpaid Claims............................ 81,608 74,532
Property and Equipment
Land....................................... 95,886 96,373
Buildings and improvements................. 310,649 360,586
Equipment.................................. 67,421 92,044
473,956 549,003
Accumulated depreciation................... (30,098) (56,967)
443,858 492,036
Construction in progress................... 928 2,309
444,786 494,345
Other Long-Term Assets....................... 22,676 14,355
Reorganization Value in Excess of Amounts
Allocable to Identifiable Assets............ 57,201 26,001
Other Intangible Assets...................... -- 27,620
________ ________
$838,186 $961,480
F-3
CHARTER MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except shares and per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30,
1993 1994
Current Liabilities
Accounts payable........................... $ 52,264 $ 50,745
Accrued salaries and wages................. 28,298 29,110
Other accrued liabilities.................. 109,600 129,791
Current income taxes payable............... 11,479 2,749
Current maturities of long-term debt and
capital lease obligations................. 70,957 2,653
Total Current Liabilities............. 272,598 215,048
Long-Term Debt and Capital Lease
Obligations................................. 350,205 533,476
Deferred Income Tax Liabilities.............. 38,789 12,380
Reserve for Unpaid Claims.................... 99,675 100,250
Deferred Credits and Other
Long-Term Liabilities....................... 19,621 44,105
Stockholders' Equity
Preferred Stock, without par value
Authorized - 10,000,000 shares
Issued and outstanding - none............ -- --
Common Stock, par value $0.25
per share
Authorized - 80,000,000 shares
Issued and outstanding - 25,001,042
shares in 1993 and 26,899,471
shares in 1994.......................... 6,250 6,725
Other Stockholders' Equity
Additional paid-in capital............... 237,581 244,339
Accumulated deficit...................... (59,423) (119,042)
Unearned compensation under ESOP......... (122,724) (73,527)
Warrants outstanding..................... 274 180
Cumulative foreign currency
adjustments............................. (4,660) (2,454)
57,298 56,221
Commitments and Contingencies
________ ________
$838,186 $961,480
The accompanying Notes to Consolidated Financial Statements are an integral
part of these balance sheets.
F-4
CHARTER MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Ten Months Two Months
ended ended
July 31, September 30, Year ended September 30,
1992 1992 1993 1994
Net revenue................................. $ 777,855 : $ 142,850 $ 897,907 $ 904,646
:
Costs and expenses :
Salaries, general and administrative :
expenses................................. 563,600 : 107,608 640,847 661,516
Bad debt expense.......................... 50,403 : 14,804 67,300 70,623
Depreciation and amortization............. 35,126 : 3,631 26,382 28,354
Amortization of reorganization value in :
excess of amounts allocable to identifi- :
able assets.............................. -- : 7,167 42,678 31,200
Interest, net............................. 169,244 : 12,690 74,156 39,394
ESOP expense.............................. 33,714 : 4,811 45,874 49,197
Stock option expense (credit)............. -- : (789) 38,416 10,614
Unusual items............................. -- : -- -- 71,287
Deferred compensation expense............. 3,190 : -- -- --
855,277 : 149,922 935,653 962,185
Loss from continuing operations before :
income taxes, reorganization items :
and extraordinary item..................... (77,422) : (7,072) (37,746) (57,539)
Provision for (Benefit from) income taxes... 4,259 : 1,054 1,874 (10,536)
Loss from continuing operations before :
reorganization items and extraordinary :
item....................................... (81,681) : (8,126) (39,620) (47,003)
Discontinued operations: :
Income (Loss) from discontinued :
operations(1)........................... 24,211 : 930 (14,703) --
Gain on disposal of discontinued :
operations (net of income tax provision :
of $42,838).............................. -- : -- 10,657 --
Loss before reorganization items and :
extraordinary item......................... (57,470) : (7,196) (43,666) (47,003)
Reorganization items: :
Professional fees and other expenses...... (8,156) : -- -- --
Adjust accounts to fair value............. 83,004 : -- -- --
Extraordinary item - gain (loss) on early :
extinguishment or discharge of debt (net :
of income tax benefit of $5,298 :
in 1993 and $8,410 in 1994)................ 730,589 : -- (8,561) (12,616)
:
Net income (loss)........................... $ 747,967 : $ (7,196) $ (52,227) $ (59,619)
Average number of common shares :
outstanding(2)............................. -- : 24,828 24,875 26,394
Earnings (Loss) per common share(2): :
Loss from continuing operations before :
extraordinary item....................... -- : $(.33) $(1.59) $(1.78)
Income (Loss) from discontinued :
operations and gain on disposal of :
discontinued operations.................. -- : .04 (.16) --
Loss before extraordinary item............ -- : (.29) (1.75) (1.78)
Extraordinary loss on early extinguish- :
ment of debt............................. -- : -- (.35) (.48)
Net loss.................................. -- : $(.29) $(2.10) $(2.26)
__________________
(1) Net of income tax provisions of $79, $122 and $10,708 in the ten months
ended July 31, 1992, the two months ended September 30, 1992 and fiscal
1993, respectively.
(2) Share and per share amounts for the period ended July 31, 1992 has not
been presented because it is not meaningful due to the implementation of
fresh start accounting and the substantial change in the number of shares
outstanding subsequent to the consummation of the Plan.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-5
CHARTER MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
Ten Months Two Months
ended ended
July 31, September 30, Year ended September 30,
1992 1992 1993 1994
Common Stock:
Balance, beginning of period............. $ -- : $ 6,207 $ 6,207 $ 6,250
Exercise of options and warrants......... -- : -- 43 475
Consummation of the Restructuring........ 6,207 : -- -- --
Balance, end of period................... 6,207 : 6,207 6,250 6,725
:
Class B Common Stock: :
Balance, beginning of period............. 3,537 : -- -- --
Consummation of the Restructuring........ (3,537) : -- -- --
Balance, end of period................... -- : -- -- --
:
Additional Paid-in Capital: :
Balance, beginning of period............. 39,891 : 199,412 198,623 237,581
Deferred compensation and stock option :
expense (credit)........................ 3,190 : (789) 38,416 10,614
Exercise of options and warrants......... -- : -- 542 (3,856)
Consummation of the Restructuring........ 364,888 : -- -- --
Adjust accounts to fair value............ 3,993 : -- -- --
Fresh start equity reclassifications..... (212,550) : -- -- --
Balance, end of period................... 199,412 : 198,623 237,581 244,339
:
Accumulated Deficit: :
Balance, beginning of period............. (945,222) : -- (7,196) (59,423)
Net income (loss)........................ 747,967 : (7,196) (52,227) (59,619)
Fresh start equity reclassifications..... 215,479 : -- -- --
Cumulative redeemable preferred stock :
dividend requirements................... (18,224) : -- -- --
Balance, end of period................... -- : (7,196) (59,423) (119,042)
:
Unearned Compensation under ESOP: :
Balance, beginning of period............. (240,461) : (193,990) (187,128) (122,724)
ESOP expense............................. 33,714 : 4,811 45,874 49,197
ESOP expense of discontinued operations.. 12,757 : 2,051 18,530 --
Balance, end of period................... (193,990) : (187,128) (122,724) (73,527)
:
Warrants Outstanding: :
Balance, beginning of period............. 3,993 : 283 283 274
Exercise of warrants..................... -- : -- (9) (94)
Consummation of the Restructuring........ 283 : -- -- --
Adjust accounts to fair value............ (3,993) : -- -- --
Balance, end of period................... 283 : 283 274 180
:
Cumulative Foreign Currency Adjustments: :
Balance, beginning of period............. (17) : -- (365) (4,660)
Foreign currency translation gain :
(loss).................................. 3,088 : (365) (4,295) 2,206
Fresh start equity reclassifications..... (3,071) : -- -- --
Balance, end of period................... -- : (365) (4,660) (2,454)
:
Total Stockholders' Equity................. $ 11,912 : $ 10,424 $ 57,298 $ 56,221
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-6
CHARTER MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Ten Months Two Months
ended ended
July 31, September 30, Year ended September 30,
1992 1992 1993 1994
Cash Flows From Operating Activities
Net income (loss)...................................... $ 747,967 : $ (7,196) $ (52,227) $(59,619)
Adjustments to reconcile net income (loss) to net :
cash provided by operating activities: :
(Income) Loss from discontinued operations........ (24,211) : (930) 14,703 --
Gain on sale of discontinued operations........... -- : -- (10,657) --
Depreciation and amortization..................... 35,126 : 10,798 69,060 59,554
Non-cash portion of unusual items................. -- : -- -- 70,207
ESOP expense...................................... 33,714 : 4,811 45,874 49,197
Deferred compensation and stock option expense :
(credit)......................................... 3,190 : (789) 38,416 10,614
Non-cash interest expense......................... 38,245 : 917 7,866 2,005
Cash flows from changes in assets and liabilities, :
net of reorganization items and effects from :
sales and acquisitions of businesses: :
Accounts receivable, net........................ (133) : 10,960 7,909 (7,533)
Other current assets............................ (7,492) : (685) (2,541) 4,563
Other long-term assets.......................... (8,761) : 471 (5,239) 2,860
Accounts payable and other accrued :
liabilities................................... 76,354 : 25,401 (30,443) (13,017)
Income taxes payable and deferred income taxes.. 1,585 : 942 1,482 (26,759)
Reserve for unpaid claims....................... 7,348 : (1,479) 4,119 1,215
Reorganization items: :
Professional fees and other expenses............ (20,208) : (6,161) -- --
Adjust accounts to fair value................... (83,004) : -- -- --
Extraordinary (gain) loss on early :
extinguishment or discharge of debt.............. (730,589) : -- 8,561 12,616
Other............................................. 7,810 : 1,300 (6,925) (7,556)
Total adjustments............................... (671,026) : 45,556 142,185 157,966
Net cash provided by operating activities..... 76,941 : 38,360 89,958 98,347
:
Cash Flows From Investing Activities :
Capital expenditures................................. (8,868) : (1,430) (11,101) (14,626)
Acquisitions of businesses........................... -- : -- -- (130,550)
(Increase) Decrease in assets restricted for :
settlement of unpaid claims........................ (1,629) : (16,438) (14,152) 7,076
Proceeds from sale of assets (including discontinued :
operations)......................................... 3,008 : -- 354,173 16,584
Cash flows from discontinued operations.............. 33,812 : 10,977 42,487 --
Net cash provided by (used in) investing :
activities.................................. 26,323 : (6,891) 371,407 (121,516)
:
Cash Flows From Financing Activities :
Payments on debt and capital lease obligations....... (120,197) : (42,931) (533,942) (311,553)
Proceeds from issuance of debt....................... 1,462 : -- 17,200 381,798
Proceeds from exercise of stock options and :
warrants............................................ -- : -- 576 1,315
Tax benefit related to the exercise of stock :
options............................................. -- : -- -- 9,424
Income tax payments made on behalf of stock :
optionee............................................ -- : -- -- (14,214)
Net cash provided by (used in) financing :
activities.................................. (118,735) : (42,931) (516,166) 66,770
:
Net increase (decrease) in cash and cash equivalents..... (15,471) : (11,462) (54,801) 43,601
Cash and cash equivalents at beginning of period......... 167,736 : 152,265 140,803 86,002
Cash and cash equivalents at end of period............... $ 152,265 : $ 140,803 $ 86,002 $129,603
The accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.
F-7
CHARTER MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements of the Company include the accounts
of the Company and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
On June 2, 1992, the Company filed a voluntary petition under chapter 11
of the United States Bankruptcy Code. The prepackaged plan of reorganization
(the "Plan") effected a restructuring of the Company's debt and equity
capitalization (the "Restructuring"). The Company's Plan was confirmed on
July 8, 1992, and became effective on July 21, 1992 (effective on July 31,
1992 for financial reporting purposes). The consolidated financial statements
as of and for the two months ended September 30, 1992 and the years ended
September 30, 1993 and 1994 are presented for the Company after the
consummation of the Plan. These statements were prepared under the principles
of fresh start accounting and are not comparable to the statements of prior
periods. Accordingly, a line has been used to separate the financial
statements of the Company after the consummation of the Plan from those of the
Company prior to the consummation of the Plan.
Property and Equipment
As a result of the adoption of fresh start accounting, property and
equipment were adjusted to their estimated fair value as of July 31, 1992 and
historical accumulated depreciation was eliminated. Expenditures for renewals
and improvements are charged to the property accounts; however, replacements,
maintenance and repairs which do not improve or extend the life of the
respective assets are expensed currently. The Company removes the cost and
related accumulated depreciation from the accounts for property sold or
retired, and any resulting gain or loss is included in operations.
Amortization of capital lease assets is included in depreciation expense.
Depreciation is provided on a straight-line basis. Upon implementation of
fresh start accounting, the average of the remaining useful lives of buildings
and improvements was approximately 22 years. The general range of estimated
useful lives is three to ten years for equipment.
Excess Reorganization Value
Excess Reorganization Value is being amortized on a straight-line basis
over three years. Amortization expense for the two months ended September 30,
1992 and the years ended September 30, 1993 and 1994 was $7.2 million, $42.7
million and $31.2 million, respectively. The unamortized Excess
Reorganization Value of $58.6 million attributable to the general hospitals
sold on September 30, 1993, reduced the gain from the disposal of such
hospitals. Excess Reorganization Value was reduced by approximately $21
million during fiscal 1993 to reflect the recognition of tax benefits related
to pre-Plan tax loss carryforwards. (See Note 8.)
F-8
Foreign Currency
Changes in the cumulative translation of foreign currency assets and
liabilities are presented as a separate component of stockholders' equity.
Gains and losses resulting from foreign currency transactions, which were not
material, are included in operations as incurred.
Net Revenue
Net revenue is based on established billing rates, less estimated
allowances for patients covered by Medicare and other contractual
reimbursement programs and discounts from established billing rates. Amounts
received by the Company for treatment of patients covered by Medicare and
other contractual reimbursement programs, which may be based on cost of
services provided or predetermined rates, are generally less than the
established billing rates of the Company's hospitals. Final determination of
amounts earned under contractual reimbursement programs is subject to review
and audit by the appropriate agencies. Management believes that adequate
provision has been made for any adjustments that may result from such reviews.
Charity Care
The Company provides care without charge or at amounts less than its
established rates to patients who meet certain criteria under its charity care
policies. Because the Company does not pursue collection of amounts
determined to be charity care, they are not reported as revenue. For the ten
months ended July 31, 1992, the two months ended September 30, 1992 and the
years ended September 30, 1993 and 1994 the Company provided, at its
established billing rates, approximately $30 million, $5.8 million, $33.1
million and $29.3 million, respectively, of such care.
Interest, Net
The Company records interest expense net of capitalized interest and
interest income. Interest income for the ten months ended July 31, 1992, the
two months ended September 30, 1992 and the years ended September 30, 1993 and
1994 was approximately $6.7 million, $.8 million, $3.6 million and $4.4
million, respectively.
Cash and Cash Equivalents
Cash equivalents are short-term, highly liquid interest-bearing
investments with a maturity of three months or less when purchased, consisting
primarily of money market instruments.
Assets Restricted for the Settlement of Unpaid Claims
Assets restricted for the settlement of unpaid claims include marketable
securities which are carried at fair market value. Transfer of such
investments from the insurance subsidiaries to the Company or any of its other
subsidiaries is subject to meeting certain criteria under the Revolving Credit
Agreement and approval by certain regulatory authorities.
During fiscal 1994 the Company adopted Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities ("SFAS 115"). Under SFAS 115, investments are classified into
F-9
three categories: i) held to maturity; ii) available for sale; and iii)
trading. Unrealized holding gains or losses are recorded for trading and
available for sale securities. The Company's investments are classified as
available for sale and the adoption of SFAS 115 did not have a material effect
on the Company's financial statements, financial condition and liquidity or
results of operations.
Net Loss Per Common Share
Net loss per common share for periods subsequent to the Restructuring was
computed based on the weighted average number of shares of Common Stock
outstanding during the period. Common stock equivalents were not dilutive and
therefore were not included in the calculation.
2. Significant Transactions
Acquisitions
As of March 29, 1994 the Company entered into two agreements with
National Medical Enterprises, Inc. ("NME") providing for the purchase by the
Company of substantially all of the assets of 36 psychiatric hospitals, eight
chemical-dependency treatment facilities, two residential treatment centers
and one physician outpatient practice, including related outpatient facilities
and other associated assets. Under a consent order that has been
conditionally approved by the Federal Trade Commission, the Company has agreed
not to acquire six of such facilities; the Company and NME subsequently agreed
that the Company will not acquire one facility. The remaining 40 facilities
(the "Acquired Hospitals") have, as of November 30, 1994, been acquired (the
"Acquisition") by subsidiaries of the Company. The purchase price for the
Acquired Hospitals was approximately $120.4 million in cash plus an additional
cash amount of approximately $51 million, subject to adjustment, for the net
working capital of the Acquired Hospitals.
On June 30, 1994, the Company completed the purchase of 27 of the
Acquired Hospitals for a cash purchase price of approximately $129.6 million,
which included approximately $39.3 million, subject to adjustment, for the net
working capital of the facilities. On October 31, 1994 the Company completed
the purchase of three additional Acquired Hospitals for a cash purchase price
of approximately $5 million which included approximately $2.2 million related
to the net working capital of the facilities. On November 30, 1994, the
Company completed the purchase of the remaining ten Acquired Hospitals for a
cash purchase price of approximtely $36.8 million, including approximately
$9.5 million related to the net working capital of ten Acquired Hospitals.
The Company accounted for the Acquisition using the purchase method of
accounting.
The Company's Consolidated Statement of Operations for the year ended
September 30, 1994 includes results of operations of 27 of the Acquired
Hospitals for the three months ended September 30, 1994. Because all of the
Acquired Hospitals have been purchased as of November 30, 1994, the purchases
have been considered one transaction for pro forma disclosure. Below are
unaudited pro forma results of operations for the years ended September 30,
1993 and 1994 as though the Acquired Hospitals had been purchased on
October 1, 1992 and 1993, respectively. The pro forma information does not
purport to be indicative of the results which would actually have been
F-10
attained had the acquisition been completed on such date or which may be
attained in the future. (In thousands, except for per share data.)
For the Year Ended
September 30, 1993 September 30, 1994
Actual Pro Forma Actual Pro Forma
(Unaudited) (Unaudited)
Net revenue................ $897,907 $1,230,851 $904,646 $1,161,250
Loss from continuing
operations before
discontinued operations
and extraordinary items... $(39,620) $ (5,845) $(47,003) $ (41,733)
Net loss................... $(52,227) $ (18,452) $(59,619) $ (54,349)
Loss per common share:
Loss from continuing
operations before
discontinued
operations and
extraordinary items..... $(1.59) $(.23) $(1.78) $(1.58)
Net loss................. $(2.10) $(.74) $(2.26) $(2.06)
Discontinued Operations
On September 30, 1993, the Company sold its general hospitals and the
related assets for approximately $338 million. The Company retained the
assets and liabilities relating to these subsidiaries for professional
liability claims incurred and cost report settlements for periods prior to
September 30, 1993. On September 15, 1993, the Company sold its interest in
Beech Street of California, Inc. ("Beech Street") (see Note 12). Beech Street
operates preferred provider networks and provides utilization review services
to third parties. Immediately prior to the sale, the Company owned 71.1% of
the voting stock and 19.8% of the equity ownership of Beech Street.
Summarized results of the discontinued operations were as follows (in
thousands):
Ten Months Two Months
ended ended Year ended
July 31, September 30, September 30,
1992 1992 1993
Net revenue..................... $292,266 : $ 61,779 $372,431
Operating and bad debt :
expenses........................ 241,942 : 50,533 308,706
Amortization of reorganiza- :
tion value in excess of :
amounts allocable to identi- :
fiable assets.................. -- : 5,333 32,000
Other expenses(1)............... 26,113 : 4,983 46,428
Net income (loss)............... $ 24,211 : $ 930 $(14,703)
______________
(1) Included in these amounts are income taxes and interest expense related
to debt specifically identifiable as debt of the discontinued
operations. Such interest expense is not material.
F-11
The net assets, results of operations and the gains on the sales of the
general hospitals and Beech Street have been reported in the accompanying
financial statements as discontinued operations. Therefore, the financial
statements for all prior periods presented have been restated to segregate
these amounts from continuing operations.
3. The Restructuring and Fresh Start Reporting
The consummation of the Plan discussed above in Note 1 resulted in, among
other things, (i) a reduction of approximately $700 million in long-term debt,
(ii) elimination of $233 million of preferred stock and (iii) the issuance of
approximately 24.8 million shares of Common Stock to certain holders of debt
securities, the preferred stockholders and common stockholders.
As a result of the consummation of the Plan, the financing under the $880
Million Credit Agreement between the Company and certain banks dated
September 1, 1988, was replaced by new facilities under the Amended and
Restated Credit Agreement dated July 21, 1992, among the Company and certain
banks (the "Credit Agreement").
Upon consummation of the Plan, the Company recognized an extraordinary
gain on debt discharge of approximately $731 million which represented
forgiveness of debt, principal and interest, reduced by the estimated fair
value of common stock issued to certain debtholders of the Company. The
Company's long-term debt was stated at the present value of amounts to be
paid, based on market interest rates on July 31, 1992. This adjustment to
present value resulted in an aggregate carrying amount for the Company's
long-term debt which was less than the aggregate principal amount thereof, and
resulted in the amortization of the difference into interest expense over the
terms of the debt instruments and, upon extinguishment of the debt prior to
scheduled maturity, resulted in a loss on debt extinguishment.
Under the principles of fresh start accounting, the Company's total
assets were recorded at their assumed reorganization value, with the
reorganization value allocated to identifiable tangible assets on the basis of
their estimated fair value. Accordingly, the Company's property and equipment
was reduced and its intangible assets were written off. In addition, the
Company's accumulated deficit, common stock in treasury and cumulative foreign
currency adjustments were eliminated. The excess of the reorganization value
over the value of identifiable assets is reported as "reorganization value in
excess of amounts allocable to identifiable assets" (the "Excess
Reorganization Value").
The total reorganization value assigned to the Company's assets was
estimated by calculating projected cash flows before debt service
requirements, for a five-year period, plus an estimated terminal value of the
Company (calculated using a multiple of approximately six (6) on projected
EBDIT (which is net revenue less operating and bad debt expenses)), each
discounted back to its present value using a discount rate of 12%
(representing the estimated after-tax weighted cost of capital). This amount
was approximately $1.2 billion and was increased by (i) the estimated net
realizable value of assets to be sold and (ii) estimated cash in excess of
normal operating requirements. The above calculations resulted in an
estimated reorganization value of approximately $1.3 billion, of which the
Excess Reorganization Value was $225 million, of which $129 million related to
continuing operations. The Excess Reorganization Value is being amortized
over three years.
F-12
4. Unusual Items
During fiscal 1994 the Company recorded a charge for unusual items of
approximately $71.3 million. Included in the unusual charges is the
resolution in November 1994 between the Company and a group of insurance
carriers of disputes that arose in the fourth quarter of fiscal 1994 related
to claims paid predominantly in the 1980's. As part of the resolution, the
Company will pay the insurance carriers approximately $31 million plus
interest, for a total of $37.5 million in four installments over a three year
period. The Company and the insurance carriers will continue to do business
at the same or similar general levels. Furthermore, the parties will seek
additional business opportunities that will serve to enhance their present
relationships.
As a result of the Acquisition, the Company reassessed its business
strategy in certain markets. The Company plans to consolidate services in
selected markets and close or sell certain facilities owned prior to the
Acquisition. Accordingly, the Company recorded a charge of $23 million in the
fourth quarter of 1994 to write down the assets of those facilities to their
net realizable value. Also recorded as an unusual charge during fiscal 1994
were expenses related to the relocation of the Company's executive offices.
5. Benefit Plans
The Company maintains an Employee Stock Ownership Plan (the "ESOP"), a
noncontributory retirement plan that enables eligible employees to participate
in the ownership of the Company. The ESOP borrowed approximately $455 million
from the Company to acquire its ownership interest. At September 30, 1994,
the ESOP owed the Company approximately $65.6 million.
The Company has recorded unearned compensation to reflect the cost of
Common Stock purchased by the ESOP but not yet allocated to participants'
accounts. In the period that shares are allocated, or projected to be
allocated, to participants, ESOP expense is recorded and unearned compensation
is reduced. Interest expense on the remaining portion of the debt incurred to
finance the ESOP transaction amounted to $2,472,000, $10,380,000 and
$6,197,000 for the two months ended September 30, 1992, fiscal 1993 and 1994,
respectively, and $16,169,000 for the ten months ended July 31, 1992 and is
included in interest expense in the statements of operations.
The Internal Revenue Service has ruled that the ESOP qualifies under
Section 401 of the Internal Revenue Code of 1986, as amended. Such
determination allows the Company to deduct its contributions to the ESOP for
federal income tax purposes.
During fiscal 1992, the Company reinstated a defined contribution plan
(the "401-K Plan"). Effective January 1, 1992, employee participants could
elect to voluntarily contribute up to 5% of their compensation to the 401-K
Plan. Effective October 1, 1992, the Company began making contributions to
the 401-K Plan based on employee compensation and contributions. The Company
makes a discretionary contribution of 2% of each employee's compensation and
matches 50% of each employee's contribution up to 3% of their compensation.
During the years ended September 30, 1993 and 1994, the Company made
contributions of $2,539,000 and $4,870,000, respectively, to the 401-K Plan.
F-13
6. Long-Term Debt and Capital Lease Obligations
Information with regard to the Company's long-term debt and capital lease
obligations at September 30, 1993 and 1994 follows (in thousands):
September 30 September 30
1993 1994
Revolving Credit Agreement due through
1999 (7.0% at September 30, 1994).............. $ -- $ 72,584
Financing under the Credit Agreement............ 161,490 --
11.25% (11.75% at September 30, 1994) Senior
Subordinated Notes due 2004.................... -- 375,000
Debentures due 2003 (net of discount of
$43,997 at September 30, 1993)................. 156,003 --
8% to 10.75% Mortgage and other
collateralized notes payable through
1999........................................... 21,502 6,434
Variable rate secured notes due through
2013 (3.65% to 3.852% at September 30, 1994)... 64,175 63,125
7.5% Swiss Bonds................................ 6,443 6,443
3.65% to 12.5% Capital lease obligations
due through 2014............................... 11,965 12,870
421,578 536,456
Less amounts due within one year.............. 70,957 2,653
Less debt service funds....................... 416 327
$350,205 $533,476
The aggregate scheduled maturities of long-term debt and capital lease
obligations during the five years subsequent to September 30, 1994, follow:
1995 -- $2,653,000; 1996 -- $2,795,000; 1997 -- $2,964,000; 1998 --
$2,519,000; and 1999 -- $74,866,000.
The Company's debt is carried at cost which approximates fair market
value.
Revolving Credit Agreement
On May 2, 1994 the Company entered into a Second Amended and Restated
Credit Agreement with certain financial institutions for a five-year reducing,
revolving credit facility in an aggregate committed amount of $300 million
(the "Revolving Credit Agreement"). Proceeds from the Revolving Credit
Agreement were used (i) to refinance certain mortgage indebtedness of certain
subsidiaries of the Company in the principal amount of approximately $14.7
million and the loans to certain subsidiaries of the Company outstanding under
the Credit Agreement in the principal amount of approximately $46.8 million,
(ii) for continued credit enhancement of certain currently outstanding
variable rate demand notes issued by or for the benefit of certain
subsidiaries of the Company and (iii) for working capital and other general
corporate purposes, including to finance, in part, the Acquisition and to
finance other permitted acquisitions and investments.
F-14
The amounts available under the Revolving Credit Agreement will be
reduced by the amounts and on the dates indicated below:
Amount Date
$ 24,537,446 March 31, 1996
49,074,892 March 31, 1997
49,074,892 March 31, 1998
175,000,000 March 31, 1999
In addition to the scheduled reductions above, the Revolving Credit
Commitment shall be reduced (i) by an amount equal to 70% (or if a default or
an event of default exists, 100%) of the net proceeds of certain asset sales,
(ii) by an amount equal to 25% (or if a default or an event of default exists,
100%) of the net proceeds of certain issuances or sales of the Company's
capital stock or other equity interests, except that no such reduction shall
be required if the Company meets specified financial ratios and no default or
event of default has occurred and is continuing, and (iii) by an amount equal
to the principal amount of permitted subordinated indebtedness subject to a
required repurchase or repurchase offer by the Company as a result of any
asset sale. All such reductions described in the foregoing clauses (i)
through (iii) shall be applied first on a pro rata basis to all scheduled
reductions of the Revolving Credit Agreement other than the last scheduled
reduction of the Revolving Credit Agreement, and thereafter to the last
scheduled reduction.
The loans outstanding under the Revolving Credit Agreement bear interest
(subject to certain potential adjustments) at a rate per annum equal to (a)
the sum of the Base Lending Rate plus 3/4 of 1%, or (b) at the option of the
Company, the sum of the maximum reserve-adjusted one, two, three or six-month
LIBOR plus 1 3/4%. The Base Lending Rate is the higher of (x) the rate
announced from time to time as Bankers Trust Company's prime lending rate, (y)
the Federal Reserve's reported weekly average dealer offering rate for
three-month certificates of deposit, adjusted for maximum reserves, plus 1/2
of 1%, and (z) the Federal Funds Rate plus 1/2 of 1%.
Senior Subordinated Notes
Also on May 2, 1994, the Company issued $375 million of 11.25% Senior
Subordinated Notes which mature on April 15, 2004 (the "Notes") and are
general unsecured obligations of the Company. Interest on the Notes is
payable semi-annually on each April 15 and October 15, commencing on
October 15, 1994. The Notes were originally issued as unregistered securities
and later exchanged for securities which were registered with the Securities
and Exchange Commission. Due to a delay in the registration of the notes to
be exchanged, the Company was required to increase the interest rate on the
Notes by 50 basis points per annum for the period September 1, 1994 through
October 21, 1994, the date of issuance of the notes to be exchanged. Proceeds
of $181.8 million from the sale of the Notes were used to defease, and,
subsequently on June 9, 1994, to redeem the Company's outstanding 7.5% Senior
Subordinated Debentures due 2003 (the "Debentures"). Certain remaining
proceeds were used, along with proceeds from the Revolving Credit Agreement,
to finance the Acquisition. The Notes are guaranteed on an unsecured senior
subordinated basis by substantially all of the Company's existing subsidiaries
and certain subsidiaries created after the issuance of the Notes.
F-15
The Notes are not redeemable at the option of the Company prior to
April 15, 1999. Thereafter, the Notes will be subject to redemption at the
option of the Company, in whole or in part, at the redemption prices
(expressed as a percentage of the principal amount) set forth below, plus
accrued and unpaid interest thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning April 15 of the years
indicated below:
Redemption
Year Price
1999..................... 105.625%
2000..................... 103.750%
2001..................... 101.875%
2002 and thereafter...... 100.000%
Covenants
The Revolving Credit Agreement and the indenture for the Notes contain a
number of restrictive covenants, which, among other things, limit the ability
of the Company and certain of its subsidiaries to incur other indebtedness,
engage in transactions with affiliates, incur liens, make certain restricted
payments, and enter into certain business combination and asset sale
transactions. The Revolving Credit Agreement also limits the Company's
ability to incur capital expenditures and requires the Company to maintain
certain specified financial ratios.
Extraordinary Losses
The consolidated statements of operations for the years ended
September 30, 1993 and 1994 include extraordinary after-tax losses of
$8,561,000 and $12,616,000, respectively, resulting from the early
extinguishment of debt. The loss during fiscal 1993 includes fees incurred
upon the retirement of the Senior Secured Notes, certain debt under the credit
agreement and mortgages on the general hospitals and the write-off of the
unamortized discount or premium remaining on certain debt. The extraordinary
loss in fiscal 1994 was related to the defeasance of the Debentures and the
pay-off of certain subsidiary mortgages and includes the difference between
the redemption price and the carrying value of the Debentures and prepayment
penalties related to the subsidiary mortgages.
Leases
The Company leases certain hospital facilities, some of which may be
purchased during the term or at expiration of the leases. The book value of
capital leased assets was approximately $9.0 million at September 30, 1994.
The leases, which expire through 2069, generally require the Company to pay
all maintenance, property tax and insurance costs.
At September 30, 1994, aggregate amounts of future minimum payments under
operating leases were as follows: 1995 - $6.4 million; 1996 - $4.6 million;
1997 - $2.1 million; 1998 - $1.3 million; 1999 - $.9 million; subsequent to
1999 - $39.8 million.
F-16
Operations for the ten months ended July 31, 1992 included rental expense
on operating leases of $10.4 million. Operations for the two months ended
September 30, 1992, and the years ended September 1993 and 1994 included
rental expenses on operating leases of $1.9 million, $11.3 million and $11.4
million, respectively.
7. Stockholders' Equity
Pursuant to the Company's Restated Certificate of Incorporation, the
Company is authorized to issue 80 million shares of common stock, $.25 par
value per share, and 10 million shares of preferred stock, without par value.
Under the terms of the Plan, approximately 24,828,000 shares of common stock
were issued to certain holders of debt securities, the preferred stockholders,
and common stockholders. No shares of preferred stock have been issued as of
September 30, 1994.
Common Stock
The Company is prohibited from paying dividends (other than dividends
payable in shares of common stock) on its common stock under the terms of the
Revolving Credit Agreement except under certain limited circumstances.
1992 Stock Option Plan
The 1992 Stock Option Plan provides for the issuance of 3,437,939 options
to purchase common stock. A summary of changes in options outstanding and
other related information is as follows:
Ten Months Two Months
ended ended
July 31, September 30, Year Ended September 30,
1992 1992 1993 1994
Balance, beginning of period... -- : 3,416,826 3,416,826 3,228,076
Granted...................... 3,416,826 : -- 21,750 6,000
Cancelled.................... -- : -- (27,000) (24,000)
Exercised.................... -- : -- (183,500) (2,437,560)
Balance, end of period......... 3,416,826 : 3,416,826 3,228,076 772,516
:
Option prices, end of period... $4.36 - $9.60 : $4.36 - $9.60 $.25 - $16.875 $4.36 - $22.75
Price range of exercised :
options....................... -- : -- $ 4.36 $ .25 - $ 4.36
Average exercise price......... -- : -- $ 4.36 $ .62
The exercise price of certain options will be reduced if a change in
control of the Company occurs prior to July 1995 or, in the case of
termination of employment of certain optionees without cause, if certain
financial targets included in the 1992 Stock Option Plan are achieved.
Options issued pursuant to the 1992 Stock Option Plan are exercisable
upon vesting and expire through October 2000. As of September 30, 1994, 70.3%
of the options outstanding were vested. The remaining options vest over the
next fiscal year if the Company achieves certain financial targets. If a
change in control of the Company occurs, all options vest immediately prior to
such event, and upon termination of employment of certain optionees without
F-17
cause, all options granted to such optionees vest immediately, provided
certain financial targets have been met.
Upon the termination of the employment of the Company's former Chairman
of the Board on March 4, 1993, and under the provisions of the 1992 Stock
Option Plan, all of the former employee's options vested and the option prices
were reduced to $.25 per share. Such options totalled 2,220,336 at
September 30, 1993. As a result, the Company recognized approximately $21.3
million in additional stock option expense during the second quarter of fiscal
1993. On December 3 and December 29, 1993, all of the options under the 1992
Stock Option Plan were exercised by the former employee. On December 3, 1993,
326,000 options were exercised and the option exercise price was paid by
reducing the number of shares issueable by the number of shares having a fair
market value equal to the option exercise price (3,326 shares). An exercise
in this manner triggers a new measurement date for the options exercised and,
since the stock price had increased since March 4, 1993, additional
compensation expense of $3.9 million was recognized in December 1993. The
option exercise price for the 1,894,336 options exercised on December 29,
1993, was paid in cash; accordingly, no additional compensation expense was
triggered. For both of the exercises, the former employee elected to
surrender optioned shares (approximately 570,000 shares) as consideration for
the payment of required withholding taxes of approximately $14.2 million.
These withholdings represent the minimum required tax withholding amounts
required in order to avoid triggering a new measurement date and additional
compensation expense. The Company was required to make withholding tax
payments on behalf of the former employee of approximately $14.2 million which
was charged against additional paid-in capital. This charge was offset by a
tax benefit recorded of approximately $9.4 million related to additional stock
option expense allowable for income tax purposes.
1994 Stock Option Plan
During 1994 the Company adopted the 1994 Stock Option Plan covering 1.3
million shares of common stock. Options must be granted on or before
December 31, 1996. Officers and key employees of the Company are eligible to
participate. The options have an exercise price which approximates fair
market value of the common stock at the date of grant. A summary of changes
in options outstanding and other related information is as follows:
Year ended
September 30,
1994
Balance, beginning of period... --
Granted...................... 921,000
Cancelled.................... 44,500
Exercised.................... --
Balance, end of period......... 876,500
Option prices.................. $22.687 - $28.312
Options granted under the 1994 Stock Option Plan are exercisable to the
extent vested. An option vests at the rate of 33-1/3% of the shares covered
by the option on each of the first three anniversary dates of the grant of the
option if the optionee is an employee of the Company on such dates. Options
must be exercised no later than ten years after the date of grant.
F-18
1994 Employee Stock Purchase Plan
During 1994 the Company also adopted the 1994 Employee Stock Purchase
Plan ("ESPP") covering 600,000 shares of common stock that can be purchased by
eligible employees of the Company.
The ESPP consists of three offerings of a maximum of 300,000 shares each,
except that the maximum number of shares offered in the third offering period
may not exceed the then remaining number of shares available under the ESPP.
The first offering period began on April 1, 1994 and will end on March 31,
1995. On the first date of each offering period, a participant will be
granted an option to purchase a certain number of shares of common stock
(85,115 aggregate options granted for the first offering period). The
purchase price for the first offering period is $21.144 per share.
Directors' Stock Option Plan and Directors' Unit Award Plan
The Directors' Stock Option Plan provides for the grant of options to
non-employee members of the Company's Board of Directors to purchase up to
175,000 shares of the Company's common stock, subject to adjustments to
reflect certain changes in capitalization. The options have an exercise price
which approximates the fair market value of the common stock on the date of
grant. During fiscal 1993, 100,000 options were granted at an exercise price
of $14.56 per share. During fiscal 1994, 25,000 of these options were
exercised and an additional 25,000 options were granted at an exercise price
of $23.163 per share.
Options granted can be exercised from the date of vesting until
February 1, 2003. No options can be granted after February 4, 1998. Options
vest 20% when granted and an additional 20% on each successive February 1 for
a period of four years, if the optionee continues to serve as a non-employee
director on the applicable February 1. Unvested options vest in full in
certain instances of termination.
In addition, during 1994, the Company approved the Directors' Unit Award
Plan (the "Unit Plan") which provides for the award of a maximum of 15,000
units (the "Units") that, upon vesting under the terms of the Unit Plan, would
result in the issuance of an aggregate of 15,000 shares of common stock in
settlement of Units.
The Unit Plan provides for the award to each director who is not an
employee of the Company of 2,500 Units. Upon vesting of the Units awarded to
a director, the Company will settle the Units by issuing to the director, with
no exercise price, a number of shares of the Company's common stock equal to
the number of vested Units.
Rights Plan
Also upon consummation of the Plan, the Company adopted a Share Purchase
Rights Plan (the "Rights Plan"). Pursuant to the Rights Plan, each share of
common stock also represents one Share Purchase Right (collectively, the
"Rights"). The Rights trade automatically with the underlying shares of
common stock. Upon becoming exercisable, but prior to the occurrence of
certain events, each Right initially entitles its holder to buy one share of
common stock from the Company at an exercise price of $60.00. The Rights will
be distributed and become exercisable only if a person or group acquires, or
F-19
announces its intention to acquire, common stock exceeding certain levels, as
specified in the Rights Plan. Upon the occurrence of such events, the
exercise price of each Right reduces to one-half of the then current market
price. The Rights also give the holder certain rights in an acquiring
company's common stock. The Company is entitled to redeem the Rights at a
price of $.01 per Right at any time prior to the distribution of the Rights.
The Rights have no voting power until exercised.
Common Stock Warrants
The Company has two series of warrants outstanding, the 2002 Warrants and
the 2006 Warrants.
In connection with the Plan, the Company issued 114,690 of the 2002
Warrants to purchase one share each of the Company's common stock. These
warrants, which expire on June 30, 2002, have an exercise price of $5.24 per
share. During fiscal 1994, 37,395 shares were issued upon the exercise of
these warrants.
The 2006 Warrants, which expire on September 1, 2006, were subject to
certain adjustments as a result of the Plan, and accordingly, 146,791 of such
warrants are currently outstanding with an exercise price of $38.70 per share.
8. Income Taxes
The provision (benefit) for income taxes attributable to continuing
operations consisted of the following (in thousands):
Ten Months Two Months
ended ended
July 31, September 30, Year ended September 30,
1992 1992 1993 1994
Income taxes currently payable: :
Federal................................. $ 14 : $ 3 $ 181 $ --
State................................... 1,055 : 113 315 639
Foreign................................. 803 : 461 986 1,466
Deferred income taxes: :
Federal................................. 2,387 : 477 370 (11,106)
State................................... -- : -- (39) (1,587)
Foreign................................. -- : -- 61 52
$ 4,259 : $ 1,054 $ 1,874 $(10,536)
F-20
The Company's income tax provision (benefit) attributable to continuing
operations differs from that computed based on the statutory federal income
tax rate for the following reasons (in thousands):
Ten Months Two Months
ended ended
July 31, September 30, Year ended September 30,
1992 1992 1993 1994
Income tax benefit at federal statutory
income tax rate............................ $(26,323) : $(2,404) $(13,117) $(20,139)
State income taxes, net of federal income :
tax benefit................................ 699 : 75 180 (616)
Amortization of Excess Reorganization :
Value...................................... -- : 2,437 14,831 10,920
Losses for which no tax benefit has been :
recorded................................... 26,323 : -- -- --
Other -- net.............................. 3,560 : 946 (20) (701)
Income tax provision (benefit).............. $ 4,259 : $ 1,054 $ 1,874 $(10,536)
Under the federal income tax laws, the Company was not required to
include in its federal taxable income any cancellation of debt income as a
result of the debt forgiven pursuant to the Plan. Accordingly, no income
taxes have been provided on the $731 million extraordinary gain on debt
discharge in the statement of operations for the ten months ended July 31,
1992.
As of September 30, 1994, the Company has estimated tax net operating
loss ("NOL") carryforwards of approximately $247 million available to reduce
future federal taxable income. These NOL carryforwards expire in 2006 through
2009 and are subject to examination by the Internal Revenue Service. Due to
the ownership change which occurred as a result of the Restructuring, the
Company's utilization of NOLs generated prior to the Effective Date is
significantly limited. Based on these limitations and certain other factors,
the Company has recorded a valuation allowance against the entire amount of
the NOL deferred tax asset and other deferred tax assets, that in management's
opinion, are not likely to be recovered.
F-21
Components of the net deferred income tax liability at September 30, 1993
and 1994 are as follows (in thousands):
September 30,
1993 1994
Deferred tax liabilities:
Property and depreciation............. $ 14,991 $ 6,636
Long-term debt and interest........... 44,157 26,623
ESOP.................................. 17,013 26,019
Other................................. 22,847 11,200
Total deferred tax liabilities........ 99,008 70,478
Deferred tax assets:
Operating loss carryforwards.......... (66,122) (101,443)
Insurance settlement.................. -- (16,031)
Self-insurance reserves............... (47,307) (48,222)
Restructuring costs................... (25,397) (9,365)
Stock option expense.................. (14,898) (6,649)
Tax capitalization of costs
expensed for book purposes........... (10,030) (5,338)
Accruals.............................. (10,018) (14,504)
Other................................. (19,861) (18,632)
Total deferred tax assets............. (193,633) (220,184)
Valuation allowance................... 133,414 162,086
Deferred tax assets after
valuation allowance.................. (60,219) (58,098)
Net deferred tax liabilities........... $ 38,789 $ 12,380
Effective January 1, 1993, the federal statutory corporate tax rate
increased from 34% to 35%. The effect of the increase was not material to the
Company.
The Internal Revenue Service is currently examining the Company's income
tax returns for fiscal 1989 through 1993. In management's opinion, adequate
provisions have been made for any adjustments which may result from these
examinations.
9. Other Accrued Liabilities
Other accrued liabilities include amounts due health insurance programs
of $59.3 million and $37.6 million at September 30, 1993 and 1994,
respectively. Also included in other accrued liabilities is accrued interest
payable of $2.8 million and $18.5 million as of September 30, 1993 and 1994,
respectively.
10. Supplemental Cash Flow Information
Below is supplemental cash flow information related to the ten months
ended July 31, 1992, the two months ended September 30, 1992 and the years
ended September 30, 1993 and 1994 (see Note 3 for a discussion of the non-cash
financing activities related to the consummation of the Plan) (in thousands):
F-22
Ten Months Two Months
ended ended
July 31, September 30, Year ended September 30,
1992 1992 1993 1994
Federal and state income taxes paid, :
net of refunds received............ $ 2,944 : $ 269 $ 11,136 $ 7,097
Payments to ESOP.................... 40,697 : 23,000 69,123 42,000
Interest paid, net of amounts :
capitalized........................ 69,658 : 6,803 74,167 25,554
Liabilities assumed in connection :
with acquisitions: :
Long-term debt.................... -- : -- -- 4,573
Other liabilities................. -- : -- -- 12,578
11. Commitments and Contingencies
The Company is self-insured for a substantial portion of its general and
professional liability risks. The reserves for self-insured general and
professional liability losses, including loss adjustment expenses, are based
on actuarial estimates using the Company's historical claims experience
adjusted for current industry trends. The reserve for unpaid claims is
adjusted, as such claims mature, to reflect revised actuarial estimates based
on actual experience. While management and its actuaries believe that the
present reserve is reasonable, ultimate settlement of losses may vary from the
amount provided.
In addition to general and professional liability claims, the Company is
subject to other claims, suits, surveys and investigations. The Company has
reached an agreement-in-principle to settle one of such matters upon payment
of an amount that the Company believes will not exceed $2 million. The terms
of such settlement are subject to certain third-party approvals. In the
opinion of management, the ultimate resolution of such other pending matters
will not have a material adverse effect on the Company's financial position or
results of operations.
Subsequent to the resolution of disputes with a group of insurance
carriers, as described in Note 4, the Company was contacted by and began
negotiations with two additional insurance carriers concerning similar
issues. While the ultimate outcome of these discussions can not be predicted
at this time, management believes that it has meritorious defenses to any
related lawsuits which may be filed if satisfactory resolution is not achieved
and that resolution of any disputes with these two additional insurance
carriers would not have a material effect on the consolidated balance sheet or
future results of operations.
The Resolution Trust Corporation ("RTC"), for itself or in its capacity
as conservator or receivor for 12 financial institutions, formerly held
certain debt securities that were issued by the Company in 1988. RTC has
indicated to the Company that it believes that certain financial statements
and other disclosures made by the Company in connection with such debt
securities contained materially misleading statements or material omissions
and that such misleading statements or omissions resulted in an overvaluation
of such debt securities. Specifically, the RTC has indicated its belief that
the Company's financial statements overstated net income for the 1987 fiscal
F-23
year and the first three quarters of the 1988 fiscal year due to
understatement of contractual allowances and the allowance for bad debts and
that the Company believed, but did not disclose, that certain negative
industry factors or trends would occur in the foreseeable future. The Company
believes that the financial institutions represented by RTC purchased in 1988
and 1989 $103.4 million face amount of subordinated debt securities originally
issued by the Company in September 1988. Although the RTC has not disclosed
to the Company its (or its financial institutions') trading losses from the
purchases and sales of these subordinated debt securities, the RTC has
disclosed the dates purchases and sales were made and the face amounts of the
subordinated debt securities involved in these transactions. The Company
believes that the trading losses were approximately $45 million. The Company
has agreed to a tolling of the statute of limitations applicable to RTC's
claims. Based on a review of relevant law and the facts known to the Company,
the Company believes it has a substantial defense to a potential claim by RTC
and that such claim would not have a material adverse effect on the Company's
financial position or results of operations.
12. Certain Relationships and Related Transactions
The Company owns 50% of the Charter Medical Building in Macon, Georgia,
and leases space in such building for certain corporate offices. Through
September 30, 1994 the Company's corporate headquarters were located in the
building and the lease, which expired September 30, 1994, provided for an
average annual rental of approximately $1.2 million. Currently the Company is
paying approximately $45,000 per month in rent on the building. Mr. William
A. Fickling, Jr., a former Director and former Chairman of the Board of
Directors of the Company, and his father's estate own 25% of the building. In
the opinion of management, such office space has been leased on terms as
favorable as could be obtained from an unaffiliated party. As a result of the
Company's interest in the building, the Company received distributions of
approximately $280,000 in fiscal 1994.
On September 15, 1993, the Company sold its ownership interest in Beech
Street to the children of Mr. Fickling for approximately $5.5 million, plus
the right to receive additional consideration, if certain events (e.g. a
public offering of Beech Street stock or if Beech Street sells 50% or more of
its assets) occur within two years. The Company obtained a fairness opinion
by an independent appraisal firm stating that the financial consideration was
fair. The Company acquired its ownership interest in a series of related
transactions beginning in May 1989, for a total purchase price of $2,956,000.
During the period of its ownership, the Company received $1,242,000 in
dividend distributions from Beech Street.
Beech Street was, prior to May 1989, a wholly owned subsidiary of Beech
Street, Inc., in which Mr. Fickling beneficially owns a majority of the
outstanding stock.
The Company also has agreements with Beech Street where certain of the
Company's hospitals provide services to employers (and their related employee
and covered dependent groups) who have entered into agreements with Beech
Street to utilize a Beech Street Preferred Provider Organization ("PPO") for
hospital and other healthcare services. Such agreements provide for covered
services to be rendered under terms (including discounts from the hospital's
normal charges) which management of the Company believes are customary for
hospital PPO agreements. The Beech Street PPO reviews claims and serves as an
F-24
intermediary between the Company's hospitals and the contracting employers.
The Company derived approximately $14.8 million, $21.4 million and $5.2
million in revenue from these agreements during fiscal 1992, 1993 and 1994,
respectively. The aggregate discount from customary charges was 17% in fiscal
1992, 12% in fiscal 1993 and 19% in 1994.
Gerald L. McManis, who was elected director on February 18, 1994, is the
President of McManis Associates, Inc. ("MAI"), a healthcare development and
management consulting firm and a subsidiary of MMI Companies, Inc. ("MMI").
Mr. McManis also serves on the Board of Directors of MMI. During fiscal 1993
and 1994, MAI provided consulting services for the Company related to the
development of strategic plans and a review of the Company's business
processes. The Company incurred $1,003,000 and $1,321,000 in fees for such
services during fiscal 1993 and 1994, respectively, and reimbursed MAI
$128,000 and $244,000, respectively, for expenses.
13. Selected Quarterly Financial Data (Unaudited)
The following is a summary of the quarterly results of operations for the
years ended September 30, 1993 and 1994. Certain amounts presented below
differ from amounts previously reported in the Company's Quarterly Reports on
Form 10-Q due to the restatement of the consolidated financial statements to
reflect as discontinued operations the sale of certain subsidiaries in the
fourth quarter of fiscal 1993. The fourth quarter of fiscal 1994 contained
unusual changes of approximately $71.3 million. See Note 4 for an explanation
of these charges.
Fiscal Quarters
First Second Third Fourth
(In thousands, except per share amounts)
1993
Net revenue...................... $226,390 $233,160 $231,737 $206,620
Loss from continuing operations
before extraordinary item....... (4,028) (16,879) (2,473) (16,240)
Income (Loss) from discontinued
operations and gain on disposal
of discontinued operations...... (3,196) (2,812) (2,872) 4,834
Loss before extraordinary item... (7,224) (19,691) (5,345) (11,406)
Net loss......................... (7,224) (19,691) (5,345) (19,967)
Loss per common share:
Loss from continuing
operations before extra-
ordinary item................. $(0.16) $(0.68) $(0.10) $(0.65)
Net loss....................... (0.29) (0.79) (0.21) (0.80)
1994
Net revenue...................... $208,817 $212,610 $220,857 $262,362
Income (Loss) from continuing
operations before extra-
ordinary item................... (3,866) 1,123 2,110 (46,370)
Net income (loss)................ (3,866) 1,123 (10,506) (46,370)
Income (Loss) per common share:
Income (Loss) from continuing
operations before extra-
ordinary item................. $(.15) $.04 $.08 $(1.72)
Net income (loss).............. (.15) .04 (.39) (1.72)
F-25
14. Guarantor Condensed Consolidating Financial Statements
CHARTER MEDICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(In thousands, except shares and per share amounts)
September 30, 1993
Charter
Medical
Corporation Consolidated
Guarantor Nonguarantor (Parent Elimination Consolidated
ASSETS Subsidiaries Subsidiaries Corporation) Entries Total
Current Assets
Cash and cash equivalents........................ $ 45,147 $ 2,756 $ 38,099 $ -- $ 86,002
Accounts receivable, net......................... 118,398 1,699 (459) -- 119,638
Supplies......................................... 4,641 68 342 -- 5,051
Other current assets............................. 8,138 66 25,799 (12,779) 21,224
Total Current Assets.......................... 176,324 4,589 63,781 (12,779) 231,915
Assets restricted for settlement of unpaid
claims............................................ -- 61,351 20,257 -- 81,608
Property and Equipment
Land............................................. 89,440 5,432 1,014 -- 95,886
Buildings and improvements....................... 304,313 5,000 1,336 -- 310,649
Equipment........................................ 64,621 863 1,937 -- 67,421
458,374 11,295 4,287 -- 473,956
Accumulated depreciation......................... (30,141) (487) 530 -- (30,098)
Construction in progress......................... 924 4 -- -- 928
429,157 10,812 4,817 -- 444,786
Other Long-Term Assets(1).......................... 354,315 2,539 715,993 (1,050,171) 22,676
Reorganization Value in Excess of Amounts
Allocable to Identifiable Assets, net............. -- -- 57,201 -- 57,201
__________ _______ __________ ___________ __________
$ 959,796 $79,291 $ 862,049 $(1,062,950) $ 838,186
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable................................. $ 41,977 $ 421 $ 9,866 $ -- $ 52,264
Accrued expenses and other current liabilities... 86,397 912 62,068 -- 149,377
Current maturities of long-term debt and
capital lease obligations....................... 6,102 28 64,827 -- 70,957
Total Current Liabilities................... 134,476 1,361 136,761 -- 272,598
Long-Term Debt and Capital Lease Obligations....... 137,081 1,094 544,050 (332,020) 350,205
Deferred Income Taxes.............................. -- 946 37,843 -- 38,789
Reserve for Unpaid Claims.......................... -- 45,816 66,638 (12,779) 99,675
Deferred Credits and Other Long-Term
Liabilities(1).................................... 29,895 -- 19,459 (29,733) 19,621
Stockholders' Equity
Common Stock, par value $0.25 per share
Authorized - 80,000,000 shares
Issued and outstanding - 25,001,042 shares..... 2,833 586 6,250 (3,419) 6,250
Other Stockholders' Equity
Additional paid-in capital..................... 713,705 25,079 237,581 (738,784) 237,581
Retained earnings (Accumulated deficit)........ (57,147) 5,580 (59,423) 51,567 (59,423)
Unearned compensation under ESOP............... -- -- (122,724) -- (122,724)
Warrants outstanding........................... -- -- 274 -- 274
Cumulative foreign currency adjustments........ (1,047) (1,171) (4,660) 2,218 (4,660)
658,344 30,074 57,298 (688,418) 57,298
Commitments and Contingencies
__________ _______ __________ ___________ ___________
$ 959,796 $79,291 $ 862,049 $(1,062,950) $ 838,186
(1) Elimination entry related to intercompany receivables and payables and investment in consolidated subsidiaries.
The accompanying Notes to Condensed Consolidating Financial Statements are an integral part of these balance sheets.
F-26
CHARTER MEDICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(In thousands)
September 30, 1994
Charter
Medical
Corporation Consolidated
Guarantor Nonguarantor (Parent Elimination Consolidated
ASSETS Subsidiaries Subsidiaries Corporation) Entries Total
Current Assets
Cash and cash equivalents........................ $ 71,850 $ 8,606 $ 49,147 $ -- $129,603
Accounts receivable, net......................... 166,191 2,780 1,324 -- 170,295
Supplies......................................... 5,713 75 309 -- 6,097
Other current assets............................. 11,461 177 19,018 (12,024) 18,632
Total Current Assets.......................... 255,215 11,638 69,798 (12,024) 324,627
Assets Retricted for Settlement of Unpaid Claims.. -- 61,475 13,057 -- 74,532
Property and Equipment
Land............................................. 89,340 6,019 1,014 -- 96,373
Buildings and improvements....................... 369,518 5,666 (14,598) -- 360,586
Equipment........................................ 88,483 1,262 2,299 -- 92,044
547,341 12,947 (11,285) -- 549,003
Accumulated depreciation......................... (55,505) (1,056) (406) -- (56,967)
Construction in progress......................... 2,143 166 -- -- 2,309
493,979 12,057 (11,691) -- 494,345
Other Long-Term Assets(1)......................... 44,400 11,003 972,059 (1,013,107) 14,355
Reorganization Value in Excess of Amounts
Allocable to Identifiable Assets, net............ -- -- 26,001 -- 26,001
Other Intangibles................................. 8,038 3,382 16,200 -- 27,620
$ 801,632 $99,555 $1,085,424 $(1,025,131) $961,480
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable................................. $ 43,476 $ 1,107 $ 6,162 $ -- $ 50,745
Accrued expenses and other current liabilities... 63,742 1,684 96,224 -- 161,650
Current maturities of long-term debt and
capital lease obligations....................... 2,537 116 -- -- 2,653
Total Current Liabilities..................... 109,755 2,907 102,386 -- 215,048
Long-Term Debt and Capital Lease Obligations...... (258,010) 1,497 789,989 -- 533,476
Deferred Income Taxes............................. -- 647 11,733 -- 12,380
Reserve for Unpaid Claims......................... -- 54,759 57,515 (12,024) 100,250
Deferred Credits and Other Long-Term
Liabilities(1)................................... 349,146 669 67,580 (373,290) 44,105
Stockholders' Equity
Common Stock, par value $0.25 per share
Authorized - 80,000,000 shares
Issued and outstanding - 26,899,486............ 2,866 587 6,725 (3,453) 6,725
Other Stockholders' Equity
Additional paid-in capital..................... 707,744 30,455 244,339 (738,199) 244,339
Retained earnings (Accumulated deficit)........ (109,093) 7,734 (119,042) 101,359 (119,042)
Unearned compensation under ESOP............... -- -- (73,527) -- (73,527)
Warrants outstanding........................... -- -- 180 -- 180
Cumulative foreign currency adjustments........ (776) 300 (2,454) 476 (2,454)
600,741 39,076 56,221 (639,817) 56,221
Commitments and Contingencies
__________ _______ __________ ___________ ___________
$ 801,632 $99,555 $1,085,424 $(1,025,131) $ 961,480
(1) Elimination entry related to intercompany receivables and payables and investment in consolidated subsidiaries.
The accompanying Notes to Condensed Consolidating Financial Statements are an integral part of these balance sheets.
F-27
CHARTER MEDICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(In thousands)
For the Ten Months Ended July 31, 1992
Charter
Medical
Corporation Consolidated
Guarantor Nonguarantor (Parent Elimination Consolidated
Subsidiaries Subsidiaries Corporation) Entries Total
Net revenue....................................... $ 818,308 $14,989 $(32,279) $(23,163) $ 777,855
Costs and expenses
Salaries, general and administrative
expenses....................................... 709,559 10,931 (133,727) (23,163) 563,600
Bad debt expense................................ 55,150 56 (4,803) -- 50,403
Depreciation and amortization................... 39,316 343 (4,533) -- 35,126
Interest, net................................... 2,261 84 166,928 (29) 169,244
ESOP expense.................................... 31,477 -- 2,208 29 33,714
Deferred compensation expense................... -- -- 3,190 -- 3,190
837,763 11,414 29,263 (23,163) 855,277
Income (Loss) from continuing operations
before income taxes, equity in earnings
(loss) of subsidiaries, reorganization
items and extraordinary item..................... (19,455) 3,575 (61,542) -- (77,422)
Provision for income taxes........................ 1,393 372 2,494 -- 4,259
Income (Loss) from continuing operations
before equity in earnings (loss) of subsidiaries,
reorganization items and extraordinary item...... (20,848) 3,203 (64,036) -- (81,681)
Equity in earnings (loss) of continuing
subsidiaries..................................... 614 -- (17,645) 17,031 --
Income (Loss) from discontinued operations........ 25,230 3,362 (4,381) -- 24,211
Equity in earnings (loss) of discontinued
subsidiaries..................................... -- -- 28,592 (28,592) --
Income (Loss) before reorganization items and
extraordinary item............................... 4,996 6,565 (57,470) (11,561) (57,470)
Reorganization items.............................. (206,274) -- 74,848 206,274 74,848
Extraordinary gain (loss) on early discharge of
debt............................................. (2,851) -- 730,589 2,851 730,589
Net income (loss)................................. $(204,129) $ 6,565 $747,967 $197,564 $ 747,967
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash provided by (used in) operating activities... $ 85,616 $ 1,897 $(10,572) $ -- $ 76,941
Cash Flows from Investing Activities:
Cash flows from discontinued operations......... 33,812 -- -- -- 33,812
Cash flows from other investing activities...... (5,506) (618) (1,365) -- (7,489)
Cash provided by (used in) investing activities... 28,306 (618) (1,365) -- 26,323
Cash Flows from Financing Activities:
Payments on debt and capital lease obligations.. (63,494) (1,160) (55,543) -- (120,197)
Cash flows from other financing activities...... 302 1,160 -- -- 1,462
Cash used in financing activities................. (63,192) -- (55,543) -- (118,735)
Net increase (decrease) in cash and cash
equivalents...................................... 50,730 1,279 (67,480) -- (15,471)
Cash and cash equivalents at beginning of period.. 45,779 1,941 120,016 -- 167,736
Cash and cash equivalents at end of period........ $ 96,509 $ 3,220 $ 52,536 $ -- $ 152,265
The accompanying Notes to Condensed Consolidating Financial Statements are an integral part of these statements.
F-28
CHARTER MEDICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(In thousands)
For the Two Months Ended September 30, 1992
Charter
Medical
Corporation Consolidated
Guarantor Nonguarantor (Parent Elimination Consolidated
Subsidiaries Subsidiaries Corporation) Entries Total
Net revenue....................................... $149,152 $ 2,281 $ (3,472) $ (5,111) $142,850
Costs and expenses
Salaries, general and administrative expenses... 136,375 (98) (23,560) (5,109) 107,608
Bad debt expense................................ 15,110 (2) (304) -- 14,804
Depreciation and amortization................... 3,731 74 (172) (2) 3,631
Amortization of reorganization value in excess
of amounts allocable to identifiable assets.... -- -- 7,167 -- 7,167
Interest, net................................... (169) 1 12,829 29 12,690
ESOP expense.................................... 4,306 -- 534 (29) 4,811
Stock option expense (credit)................... -- -- (789) -- (789)
159,353 (25) (4,295) (5,111) 149,922
Income (Loss) from continuing operations before
income taxes and equity in earnings (loss) of
subsidiaries..................................... (10,201) 2,306 823 -- (7,072)
Provision for income taxes........................ 277 625 152 -- 1,054
Income (Loss) from continuing operations before
equity in earnings (loss) of subsidiaries........ (10,478) 1,681 671 -- (8,126)
Equity in earnings (loss) of continuing
subsidiaries..................................... (413) -- (8,797) 9,210 --
Income (Loss) from discontinued operations........ 6,581 1,084 (6,735) -- 930
Equity in earnings (loss) of discontinued
subsidiaries..................................... -- -- 7,665 (7,665) --
Net income (loss)................................. $ (4,310) $ 2,765 $ (7,196) $ 1,545 $ (7,196)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash provided by (used in) operating activities... $ 30,049 $10,491 $ (2,180) $ -- $ 38,360
Cash Flows from Investing Activities:
Increase in assets restricted for the
settlement of unpaid claims.................... -- (11,535) (4,903) -- (16,438)
Cash flows from discontinued operations......... 10,977 -- -- -- 10,977
Cash flows from other investing activities...... (1,374) (36) (20) -- (1,430)
Cash provided by (used in) investing activities... 9,603 (11,571) (4,923) -- (6,891)
Cash Flows from Financing Activities:
Payments on debt and capital lease obligations.. (21,983) -- (20,948) -- (42,931)
Cash used in financing activities................. (21,983) -- (20,948) -- (42,931)
Net increase (decrease) in cash and cash
equivalents...................................... 17,669 (1,080) (28,051) -- (11,462)
Cash and cash equivalents at beginning of period.. 96,509 3,220 52,536 -- 152,265
Cash and cash equivalents at end of period........ $114,178 $ 2,140 $ 24,485 $ -- $140,803
The accompanying Notes to Condensed Consolidating Financial Statements are an integral part of these statements.
F-29
CHARTER MEDICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(In thousands)
For the Year Ended September 30, 1993
Charter
Medical
Corporation Consolidated
Guarantor Nonguarantor (Parent Elimination Consolidated
Subsidiaries Subsidiaries Corporation) Entries Total
Net revenue............................................. $ 922,221 $ 16,911 $ (20,514) $(20,711) $ 897,907
Costs and expenses
Salaries, general and administrative expenses......... 876,792 11,913 (227,147) (20,711) 640,847
Bad debt expense...................................... 68,086 121 (907) -- 67,300
Depreciation and amortization......................... 26,816 411 (845) -- 26,382
Amortization of reorganization value in excess
of amounts allocable to identifiable assets.......... (8) -- 42,686 -- 42,678
Interest, net......................................... (7,465) 36 81,585 -- 74,156
ESOP expense.......................................... 41,563 -- 4,311 -- 45,874
Stock option expense.................................. -- -- 38,416 -- 38,416
1,005,784 12,481 (61,901) (20,711) 935,653
Income (Loss) from continuing operations before
income taxes and extraordinary item and equity
in earnings (loss) of subsidiaries..................... (83,563) 4,430 41,387 -- (37,746)
Provision for (benefit from) income taxes............... (30,313) 520 31,667 -- 1,874
Income (Loss) from continuing operations before
extraordinary item and equity in earnings (loss)
of subsidiaries........................................ (53,250) 3,910 9,720 -- (39,620)
Equity in earnings (loss) of continuing subsidiaries.... 909 -- (49,340) 48,431 --
Discontinued operations:
Income (Loss) from discontinued operations............ 14,734 5,492 (34,929) -- (14,703)
Equity in earnings (loss) of discontinued
subsidiaries......................................... -- -- 104,402 (104,402) --
Gain (Loss) on disposal of discontinued operations.... 84,176 -- (73,519) -- 10,657
Income (Loss) before extraordinary item................. 46,569 9,402 (43,666) (55,971) (43,666)
Extraordinary loss on early extinguishment of debt...... 314 -- 8,561 (314) 8,561
Net income (loss)....................................... $ 46,255 $ 9,402 $ (52,227) $(55,657) $ (52,227)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash provided by (used in) operating activities......... $(404,185) $ 5,066 $ 489,077 $ -- $ 89,958
Cash Flows from Investing Activities:
Capital expenditures.................................. (10,806) (76) (219) -- (11,101)
Increase in assets restricted for the
settlement of unpaid claims.......................... -- (10,084) (4,068) -- (14,152)
Proceeds from the sale of assets...................... 342,781 5,710 5,682 -- 354,173
Cash flows from discontinued operations............... 42,487 -- -- -- 42,487
Cash provided by (used in) investing activities......... 374,462 (4,450) 1,395 -- 371,407
Cash Flows from Financing Activities:
Proceeds from the issuance of debt.................... 17,200 -- -- -- 17,200
Payments on debt and capital lease obligations........ (56,508) -- (477,434) -- (533,942)
Cash flows from other financing activities............ -- -- 576 -- 576
Cash used in financing activities....................... (39,308) -- (476,858) -- (516,166)
Net increase (decrease) in cash and cash equivalents.... (69,031) 616 13,614 -- (54,801)
Cash and cash equivalents at beginning of period........ 114,178 2,140 24,485 -- 140,803
Cash and cash equivalents at end of period.............. $ 45,147 $ 2,756 $ 38,099 $ -- $ 86,002
The accompanying Notes to Condensed Consolidating Financial Statements are an integral part of these statements.
F-30
CHARTER MEDICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(In thousands)
For the Year Ended September 30, 1994
Charter
Medical
Corporation Consolidated
Guarantor Nonguarantor (Parent Elimination Consolidated
Subsidiaries Subsidiaries Corporation) Entries Total
Net revenue....................................... $ 890,737 $24,390 $ 6,931 $(17,412) $904,646
Costs and expenses
Salaries, general and administrative expenses... 794,650 21,187 (136,909) (17,412) 661,516
Bad debt expense................................ 70,856 (2) (231) -- 70,623
Depreciation and amortization................... 26,602 1,027 725 -- 28,354
Amortization of reorganization value in excess
of amounts allocable to identifiable assets.... -- -- 31,200 -- 31,200
Interest, net................................... (20,830) 21 60,203 -- 39,394
ESOP expense.................................... 46,316 -- 2,881 -- 49,197
Stock option expense............................ -- -- 10,614 -- 10,614
Unusual items................................... 787 196 70,304 -- 71,287
918,381 22,429 38,787 (17,412) 962,185
Income (Loss) from continuing operations before
income taxes, equity in earnings (loss) of
subsidiaries and extraordinary item.............. (27,644) 1,961 (31,856) -- (57,539)
Income tax benefit................................ (8,753) (195) (1,588) -- (10,536)
Income (Loss) from continuing operations before
equity in earnings (loss) of subsidiaries and
extraordinary item............................... (18,891) 2,156 (30,268) -- (47,003)
Equity in earnings (loss) of subsidiaries......... 1,889 -- (16,735) 14,846 --
Income (Loss) before extraordinary item........... (17,002) 2,156 (47,003) 14,846 (47,003)
Extraordinary item - loss on early extinguishment
or discharge of debt (net of income tax benefit
of $8,410)....................................... -- -- (12,616) -- (12,616)
Net income (loss)................................. $ (17,002) $ 2,156 $(59,619) $ 14,846 $(59,619)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash provided by (used in) operating activities... $ 153,152 $ 7,097 $(61,902) $ -- $ 98,347
Cash Flows from Investing Activities:
Capital expenditures............................ (14,282) (344) -- -- (14,626)
Proceeds from the sale of assets................ 11,584 -- 5,000 -- 16,584
Acquisitions of businesses...................... (129,816) (734) -- -- (130,550)
(Increase) Decrease in assets restricted for
settlement of unpaid claims.................... -- (124) 7,200 -- 7,076
Cash provided by (used in) investing activities... (132,514) (1,202) 12,200 -- (121,516)
Cash Flows from financing activities:
Proceeds from the issuance of debt.............. 25,862 -- 355,936 -- 381,798
Payments on debt and capital lease obligations.. (19,797) (45) (291,711) -- (311,553)
Cash flows from other financing activities...... -- -- (3,475) -- (3,475)
Cash provided by (used in) financing activities... 6,065 (45) 60,750 -- 66,770
Net increase in cash and cash equivalents......... 26,703 5,850 11,048 -- 43,601
Cash and cash equivalents at beginning of period.. 45,147 2,756 38,099 -- 86,002
Cash and cash equivalents at end of period........ $ 71,850 $ 8,606 $ 49,147 $ -- $129,603
The accompanying Notes to Condensed Consolidating Financial Statements are an integral part of these statements.
F-31
14. Guarantor Condensed Consolidating Financial Statements
Notes to the Condensed Consolidating Fianncial Statements
General - These condensed consolidating financial statements reflect the
Guarantors under the Notes and the Revolving Credit Agreement consummated in
May 1994. The direct and indirect Guarantors are wholly owned by the Company
or a Guarantor Subsidiary of the Company. Separate financial statements of
the Guarantors are not presented because the Guarantors are jointly, severally
and unconditionally liable under the guarantee, and the Company believes the
condensed consolidating financial statements presented are more meaningful in
understanding the financial position of the Guarantor Subsidiaries, and the
separate financial statements are deemed not material to investors.
Distributions - There are no restrictions on the ability of the Guarantor
Subsidiaries to make distributions to the Company.
Transfers from Guarantors to Nonguarantors - The Revolving Credit
Agreement permits the Company to contribute the assets of hospitals and
related medical facilities to joint ventures that conduct a healthcare
business, provided that certain conditions are satisfied and that the
aggregate fair market value or book value, whichever is greater, of all such
facilities contributed to joint ventures with respect to which the Company and
its wholly-owned subsidiaries do not have a majority of the equity interests
or are not entitled to elect or appoint the directors, managers or trustees,
as applicable, does not exceed $100 million. Furthermore, the Revolving
Credit Agreement permits the Company and its Restricted Subsidiaries (as
defined in the Revolving Credit Agreement), subject to the satisfaction of
certain conditions, to invest up to $70 million plus the lesser of $30 million
and an amount equal to "accumulated excess cash flow" (as defined in the
Revolving Credit Agreement), of cash and other assets (other than hospitals
and related medical facilities) in subsidiaries of the Company formed to
pursue strategic investments and joint ventures in clinical services and
management information services and to invest up to $80 million in other types
of investments. The indenture related to the Notes also contains provisions
that permit the Company and its Restricted Subsidiaries (as defined in the
indenture for the Notes) to make investments in non-guarantors. The
provisions contained in the indenture are less restrictive than those
contained in the Revolving Credit Agreement and are, therefore, not relevant
to the ability of the Company and its Restricted Subsidiaries to make
investments in non-guarantors as long as the Revolving Credit Agreement is in
effect.
The Company intends to make investments in Permitted Joint Ventures (as
defined in the Revolving Credit Agreement) and Unrestricted Subsidiaries (as
defined in the Revolving Credit Agreement) to the extent it believes doing so
will be consistent with its business strategy. To the extent the Company or
its Restricted Subsidiaries make investments of the type described above, the
assets available for debt payments and guarantee obligations could be
diminished.
F-32
SCHEDULE V - PROPERTY AND EQUIPMENT
(In thousands)
Balance at Retirements Other Changes Balance at
Beginning Additions and/or Add (Deduct) End of
Classification of Period at Cost Dispositions -- Describe Period
Ten months ended July 31, 1992:
Land........................ $ 93,052 $ -- $ 350 816 (C) $ 101,727
(20)(E)
8,229 (B)
Buildings and improvements.. 575,877 1,227 3,540 12,848 (A) 324,534
1,781 (C)
(1,857)(E)
(261,802)(B)
Equipment................... 147,817 4,021 2,321 472 (A) 61,320
444 (C)
568 (E)
(89,681)(B)
Construction in progress.... 11,091 2,820 -- (13,320)(A) 1,632
29 (C)
1,270 (E)
(258)(B)
$ 827,837 $ 8,068 $ 6,211 $(340,481) $ 489,213
Two months ended September 30,
1992 (See Note 2):
Land........................ $ 101,727 $ -- $ -- $ 165 (C) $ 101,892
Buildings and improvements.. 324,534 469 37 436 (A) 324,921
(477)(C)
(4)(E)
Equipment................... 61,320 1,601 74 68 (A) 62,940
10 (C)
15 (E)
Construction in progress.... 1,632 160 -- (504)(A) 1,322
34 (C)
$ 489,213 $ 2,230 $ 111 $ (257) $ 491,075
Year ended September 30, 1993
Land........................ $ 101,892 $ -- $ 4,824 $ (1,251)(C) $ 95,886
69 (E)
Buildings and improvements.. 324,921 1,909 11,474 1,594 (A) 310,649
(2,182)(C)
103 (E)
(4,222)(F)
Equipment................... 62,940 6,792 3,043 1,001 (A) 67,421
(277)(C)
8 (E)
Construction in progress.... 1,322 2,400 -- (2,595)(A) 928
(116)(C)
(83)(E)
$ 491,075 $ 11,101 $19,341 $ (7,951) $ 474,884
Year ended September 30, 1994:
Land........................ $ 95,886 $ 3,729 $ 3,943 $ 701 (C) $ 96,373
Buildings and improvements.. 310,649 72,223 6,409 1,146 (A) 360,586
966 (C)
87 (E)
(18,076)(F)
Equipment................... 67,421 25,351 2,123 1,284 (A) 92,044
158 (C)
(47)(E)
Construction in progress.... 928 3,973 -- (2,430)(A) 2,309
4 (C)
(166)(E)
$ 474,884 $105,276 (G) $12,475 $ (16,373) $ 551,312
_________________
(A) Reclassification of completed construction to property and equipment.
(B) Adjust accounts to fair value pursuant to the implementation of fresh
start accounting.
(C) Adjustment for foreign currency translation.
(D) Write-off of construction costs of discontinued projects.
(E) Property reclassifications.
(F) Adjustment to net realizable value of assets.
(G) Includes $90.4 million related to the acquisition of assets from National
Medical Enterprises, Inc.
S-1
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY AND EQUIPMENT
(In Thousands)
Balance at Retirements Other Changes Balance at
Beginning and/or Add (Deduct) End of
Classification of Period Additions Dispositions -- Describe Period
Ten months ended July 31, 1992:
Buildings and improvements.. $108,233 $14,799 $ 1,512 $ 2 (A) $ --
357 (B)
(713)(C)
(121,166)(D)
Equipment................... 74,431 12,879 1,184 70 (A) --
279 (B)
(86,475)(D)
$182,664 $27,678 $ 2,696 $(207,646) $ --
Two months ended September 30,
1992 (See Note 2):
Buildings and improvements.. $ -- $ 2,765 $ -- $ (72)(A) $ 3,399
(7)(B)
713 (C)
Equipment................... -- 920 49 43 (B) 914
$ -- $ 3,685 $ 49 $ 677 $ 4,313
Year ended September 30, 1993:
Buildings and improvements.. $ 3,399 $14,402 $ 287 $ (750)(A) $ 16,710
(21)(B)
(33)(C)
Equipment................... 914 11,980 235 750 (A) 13,388
(6)(B)
(15)(C)
$ 4,313 $26,382 $ 522 $ (75) $ 30,098
Year ended September 30, 1994:
Buildings and improvements.. $ 16,710 $15,070 $ 172 $ 72 (B) $ 31,966
286 (C)
Equipment................... 13,388 12,083 445 51 (B) 25,001
(76)(C)
$ 30,098 $27,153 $ 617 $ 333 $ 56,967
_________________
(A) Property reserve reclassifications.
(B) Adjustment for foreign currency translation.
(C) Other reclassifications and adjustments.
(D) Write-off of accumulated depreciation pursuant to the implementation of fresh start accounting.
S-2
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Additions
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts-- Deductions-- End of
Classification of Period Expenses Describe Describe Period
Ten months ended July 31, 1992:
Allowance for doubtful
accounts.................... $30,734 $ 50,403 $15,837 (A) $ 1,540 (B) $31,095
2,513 (B) 66,852 (C)
$30,734 $ 50,403 $18,350 $ 68,392 $31,095
Two months ended September 30,
1992 (See Note 2):
Allowance for doubtful
accounts.................... $31,095 $ 14,804 $ 3,044 (A) $ 18,931 (C) $30,272
260 (B)
$31,095 $ 14,804 $ 3,304 $ 18,931 $30,272
Year ended September 30, 1993:
Allowance for doubtful
accounts................. $30,272 $ 67,300 $19,598 (A) $ 89,272 (C) $28,843
945 (B)
$30,272 $ 67,300 $20,543 $ 89,272 $28,843
Year ended September 30, 1994:
Allowance for doubtful
accounts.................... $28,843 $ 70,623 $19,877 (A) $ 109 (B) $43,555
8,560 (D) 84,239 (C)
$28,843 $ 70,623 $28,437 $ 84,348 $43,555
______________
(A) Recoveries of amounts previously charged to income.
(B) Included in provision for restructuring of operations or reorganization items.
(C) Accounts written off.
(D) Allowance for doubtful accounts purchased in acquisitions.
S-3
SCHEDULE X - SUPPLEMENTAL INCOME STATEMENT INFORMATION
(In thousands)
Ten Months Two Months
ended ended
July 31, September 30, Year ended September 30,
1992 1992 1993 1994
(See Note 2)
Advertising costs............... $31,996 : $ 6,485 $39,393 $35,641
:
:
Amortization of reorganization :
value in excess of amounts :
allocable to identifiable :
assets......................... -- : $ 7,167 $42,678 $31,200
______________
Certain items noted in Rule 12-11 of Regulation S-X have been excluded from the above
schedule on the basis that each is less than 1% of net revenue as reported in the related
Consolidated Statements of Operations.
S-4