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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-13849
RAMSAY HEALTH CARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 63-0857352
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
Entergy Corporation Building
639 Loyola Avenue, Suite 1700 70113
New Orleans, Louisiana (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (504) 525-2505
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
(Title of Class)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
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 number of shares of the registrant's Common Stock outstanding as of
October 2, 1996 was 8,307,131. The aggregate market value of Common Stock held
by non-affiliates on such date was $14,952,713.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrant's definitive Proxy Statement to be filed
for the 1996 Annual Meeting of Stockholders are incorporated by reference into
Part III.
PART I
Item 1. Business.
General
Ramsay Health Care, Inc. ("RHCI" or the "Company") is one of
the leading providers of behavioral health services in the country. The Company
offers a continuum of patient care through integrated networks of mental health
delivery systems in 11 states, principally in the southeast and southwest,
organized around 15 inpatient hospitals with 1,369 licensed beds (including 77
medical subacute beds) and outpatient centers. The Company also manages the
mental health programs of certain public and private health care providers under
management contracts.
Overview
The Company currently offers a comprehensive range of
behavioral health services, including acute psychiatric inpatient treatment,
less intensive inpatient treatment (including residential), partial
hospitalization treatment and group and individual outpatient treatment
programs. Each of the Company's integrated delivery systems is centered around a
core hospital facility from which market-responsive mental health services are
arranged with and provided by physicians, psychologists and other mental health
professionals under contract or affiliated with the Company. Certain of these
systems also manage behavioral health services on behalf of other providers and
offer medical subacute services.
Recent Developments
On October 1, 1996, the Company and Ramsay Managed Care, Inc.
("RMCI") entered into an agreement and plan of merger providing for the
acquisition of RMCI by the Company. The merger has been approved by the Board of
Directors of each of the Company and RMCI following the recommendation by a
special committee of the Board of Directors of each company. Upon consummation
of the merger, (i) each share of common stock of RMCI will be converted into
one- third (1/3) of a share of common stock of the Company, and (ii) each share
of Preferred Stock, Series 1996, of RMCI (each of which is convertible into 30
shares of RMCI common stock) will be converted into one share of Class B
Preferred Stock, Series 1996, of the Company (each of which will be convertible
into 10 shares of RHCI common stock). The merger is intended to qualify for
federal income tax purposes as a tax-free reorganization within the meaning of
Section 368 (a) of the Internal Revenue Code of 1986, as amended.
The merger is subject to the approval of (i) the holders of a
majority of the shares of RHCI common stock and RHCI Class B Preferred Stock,
Series C (voting on an as converted basis into RHCI common stock and voting
together with the RHCI common stock as a single class) voting at a meeting of
shareholders at which a quorum is present, and (ii) the holders of a majority of
the issued and outstanding shares of RMCI common stock and RMCI Preferred Stock,
Series 1996 (voting on an as converted basis into RMCI common stock and voting
together with the RMCI common stock as a single class). Affiliates of Paul J.
Ramsay, the Chairman of the Board of the Company and RMCI, hold an approximate
35% voting interest in the Company and an approximate 69% voting interest in
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RMCI, and have indicated that they will vote their shares of capital stock of
each company in favor of the merger. The merger is also subject to various other
conditions, including the expiration of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, the receipt of necessary
lender and other consents, and the declaration of effectiveness by the
Securities and Exchange Commission of a registration statement to be filed by
the Company. Subject to the satisfaction of these conditions, it is expected
that the merger will be consummated in March, 1997.
Strategy
The Company's strategy is to maintain its reputation as a
high-quality provider of behavioral health services, meeting the needs of its
patients for therapeutic care in the least restrictive setting, its payors for
cost-effective and accountable treatment programs, and its shareholders for
consistent earnings and business growth.
Additional Management Resources Strengthen Organizational Structure
In January 1996, the Company announced the appointment of Luis
Lamela as Vice Chairman of the Board, followed in August 1996 by the
appointments of Bert Cibran as President and Chief Operating Officer and Carol
Lang as Chief Financial Officer. Reynold Jennings became Executive Vice
President of the Company and President of the recently restructured Behavioral
Hospital Division, assuring his continued leadership over the core behavioral
health business. The new management team has over 40 years of healthcare
operations, management and financing experience and a demonstrated history of
success in the industry. With this leadership infrastructure, the Company
believes it has the resources to seek and execute diversification opportunities,
expand the delivery of health care, and establish a capital structure
appropriate for a long-term, high-quality health care company.
Decreasing Dependence on Revenue from Acute Psychiatric Inpatient Care
The behavioral health industry in the United States has
experienced severe cost- containment pressures imposed by managed care
organizations, governmental and other third-party payors. Under increasingly
stringent admissions guidelines, restrictive length of stay criteria, and other
treatment constraints imposed by payors, the Company's acute inpatient care
programs have generated less revenue, even though admissions to these programs
have increased.
To mitigate the revenue declines of acute inpatient treatment,
the Company is expanding its inpatient behavioral care programs which require
longer lengths of stay but less intensive treatment to accomplish effective
outcomes, including residential treatment and youth- oriented correctional
service programs. This will allow the Company to capitalize on its national
recognition as a leading provider of certain youth offender treatment programs.
To this end, the Company is seeking contracts with state agencies and judicial
systems in a number of states to provide these services.
2
Reformation and Expansion of Outpatient Programs
The Company's outpatient services consist primarily of partial
hospitalization and group and individual therapy sessions based in or nearby its
inpatient facilities. These services were originally developed as ancillary
sites to deliver patient care, without specific regard to outpatient care
protocols being developed and encouraged by managed care organizations. As the
influence of managed care organizations increased in certain of the Company's
markets, certain of the Company's outpatient programs which did not deliver care
protocols consistent with managed care requirements suffered declines in patient
volumes and, in some cases, were closed due to their unprofitability. In
recognition of the marketplace need to satisfy both patient and payor, the
Company has begun a restructuring of its outpatient product lines in markets,
including markets in which managed care is a dominant payor, to provide
screening, therapeutic protocols, and outcome reviews which are consistent with
managed care requirements. Also, in suitable markets, the Company will look to
open and/or reopen previously closed outpatient care delivery sites. This
restructuring is designed to strengthen existing relationships and foster new
relationships with managed care organizations.
Maintain Dominance in Selected Markets
The Company is the sole or primary provider of behavioral
health services in certain of its markets, particularly those markets with
populations of fewer than 200,000 people. The Company's strategy is to dominate
the provision of behavioral health care in these markets by expanding its
delivery network within a 50-mile geographic area surrounding its inpatient
hospital facility and by aggressively pursuing joint ventures, contract
arrangements and alliances to serve public and private sector behavioral health
care needs. The Company believes that recognition as the dominant provider of
behavioral health care in particular markets enhances the viability of its
facilities and increases the potential for business expansion opportunities in
these markets.
Strengthen Alliances with General Medical/Surgical Hospitals
In certain markets, the Company has initiated discussions with
significant local medical/surgical (acute-care) hospitals to explore possible
"vertical" integration with the Company's inpatient facilities. This integration
strategy is designed to appeal to managed care organizations which seek to
develop relationships with large, acute-care hospitals that provide a full
spectrum of health care services, including behavioral health care. The Company
believes that in certain markets a joint venture, partnership or other form of
alliance with the medical/surgical hospital enhances the long-term viability of
the Company's facility. To date, no such agreements of significance have been
signed.
Asset Utilization
Of the Company's 15 inpatient facilities, four currently
operate medical subacute units. These units were opened in late fiscal
1994/early fiscal 1995 after a determination was made that the demand for
inpatient behavioral health services would not be sufficient to fully utilize
the existing bed capacity of the facility. Also, two of the currently
operational subacute units are being expanded to meet increased market demand
for the subacute service.
3
Restructure Lending Relationships
The Company's capital structure currently involves two lending
groups and a real estate investment trust. A bank group consisting of three
banks currently provides letter of credit support for five variable rate demand
revenue bonds which total approximately $19 million and have been outstanding
since 1985. Also, a consortium of three life insurance companies has loans
outstanding to the Company totalling approximately $36 million. The Company has
no short-term access to a working capital facility at the present time. The
Company intends to refinance its debt during the next fiscal year to provide
funds for growth and working capital, as well as to reschedule the current level
of principal repayment required under the life insurance company debt.
In connection with the "safe-harbor" provision of the Private
Securities Litigation Reform Act of 1995, the Company notes that this Annual
Report on Form 10-K contains forward- looking statements about the Company. The
Company is hereby setting forth cautionary statements identifying important
factors that may cause the Company's actual results to differ materially from
any forward-looking statement. Some of the most significant factors include (i)
accelerating changes occurring in the health care industry, including
competition from consolidating and integrated health care provider systems, the
imposition of more stringent admission criteria by payors, increased payor
pressures to limit lengths of stay, limitations on reimbursement rates and
limitations on annual and lifetime patient health benefits, (ii) federal and
state governmental budgetary constraints which could have the effect of limiting
the amount of funds available to support governmental health care programs,
including Medicare and Medicaid, and (iii) statutory, regulatory and
administrative changes or interpretations of existing statutory and regulatory
provisions affecting the conduct of the Company's business and affecting current
and prior reimbursement for the Company's services. While the Company believes
that implementing the above-described strategies will enable the Company to
improve its operations and financial condition, there can be no assurance that
the Company will be successful in doing so.
Facility Operations
The Company's facilities specialize in the treatment of
behavioral disorders. Substance abuse treatment is provided to patients who have
a primary diagnosis of alcohol or substance abuse; however, many of these
patients have a secondary diagnosis of, and are treated for, mental illness.
Also, almost all of the Company's facilities conduct outpatient programs within
the facility and/or at clinics located in the surrounding area. In response to
the demands of payors, particularly managed care companies, the Company
anticipates expanding its outpatient network in its continued effort to provide
a less costly, yet effective level of mental health care for patients whose
illness does not require intensive inpatient care.
The initial goal of acute psychiatric hospitalization
treatment is to evaluate and stabilize the patient so that effective treatment
can be continued either on an inpatient, partial hospitalization or an
outpatient basis. Under the direction of a psychiatrist, the patient's condition
is assessed, a diagnosis is made and prescribed treatment follows. The treatment
regimen utilizes, where appropriate, medication, individual and group therapy,
adjunctive therapy and family therapy.
4
The most common disorders for which adult patients are
admitted to the Company's hospitals are mood and affective disorders (such as
depression), schizophrenia, situational crises and alcohol and drug dependency.
These disorders are also common in children and adolescents admitted to the
Company's facilities. The Company has evaluation and treatment programs designed
specifically for adults, adolescents and children. Specialized programs focusing
upon neuropsychiatric disorders and pain and sleep disorders have also been
developed. All programs emphasize family involvement in the evaluation and
treatment process.
Residential treatment programs are provided by nine of the
Company's facilities for low-functioning and troubled youths affected by conduct
disorders, psychiatric illness, substance abuse and sexual dysfunction. These
programs provide long-term inpatient care within a safe, therapeutic environment
for youths displaying an inability to function at home, school, with peers or in
the community in general. The highly structured programs assist the youth in
learning how to change ineffective or violent behavior and cope with the
difficulties and stresses of life. The primary objective of the program is
behavioral awareness and self-control, leading the youth to a successful return
to his/her home setting.
Each psychiatric hospital has a multidisciplinary team of
health care professionals, including psychiatrists, psychologists, social
workers, nurses, mental health and substance abuse counselors and therapists.
Generally, physician members of the professional staff maintain private
practices. In certain situations, the Company guarantees minimum incomes,
usually for one year, to psychiatrists willing to relocate to certain
facilities. All of the Company's hospitals have a medical director who acts as
liaison between the professional staff and the hospital administration staff. In
addition, each clinical program has a medical unit administrator.
Each of the Company's hospitals has a consulting board,
comprised of hospital executives, consulting physicians and other members of the
local community, which is responsible for standards of patient care. A hospital
CEO supervises and is responsible for the day-to-day operations of each
hospital. The Company emphasizes frequent communication, the setting of
operational and financial goals and the monitoring of actual results against
targeted goals. To this end, the Company collects and analyzes information on
key indicators such as admissions by treatment program and payor category, daily
census, full-time equivalent employees per patient day and average length of
stay. On the basis of this information, the administrative staff of each
hospital, together with the corporate staff of the Company, adopts new programs
and modifies existing programs to improve performance.
All of the Company's hospitals have been accredited by the
Joint Commission on Accreditation of Healthcare Organizations ("JCAHO"). The
JCAHO is a voluntary national organization which undertakes a comprehensive
review for purposes of accreditation of health care facilities. In general,
hospitals and certain other health care facilities are initially surveyed by
JCAHO within 12 months after the commencement of operations and resurveyed at
appropriate intervals thereafter. Of the Company's 15 hospitals, one was
resurveyed in fiscal 1996 and three were resurveyed in fiscal 1995 and, in each
instance, the facilities retained their JCAHO accreditation for an additional
three years.
5
The following table summarizes certain operating data related
to (i) the facilities currently operated by the Company and which were also
operated by the Company during each of the fiscal years referred to below ("same
facilities") and (ii) all facilities operated by the Company during the fiscal
years referred to below ("all facilities"). The difference between the same
facilities amounts and the all facilities amounts relates to Three Rivers
Hospital, which was closed on June 30, 1995, two facilities which were sold
during fiscal 1994, Benchmark Behavioral Hospital, which commenced operations in
May 1995, and the Company's subacute units, which commenced operations in late
fiscal 1994 and early fiscal 1995.
Same Facilities
Year Ended June 30
1996 1995 1994
Acute psychiatric admissions ......... 12,875 12,221 11,136
Residential treatment admissions ..... 537 551 471
Total inpatient admissions ........... 13,412 12,772 11,607
Acute psychiatric inpatient days ..... 130,522 139,571 153,444
Residential treatment inpatient days . 87,257 63,633 40,973
Total inpatient days ................. 217,779 203,204 194,417
Average bed days available ........... 392,352 369,380 400,770
Overall inpatient occupancy percentage 56% 55% 49%
Partial hospitalization days (1) ..... 54,041 65,280 57,414
Outpatient visits (2) ................ 37,005 44,218 30,984
All Facilities
Acute psychiatric admissions ......... 13,333 12,304 11,545
Residential treatment admissions(3) .. 588 948(3) 883(3)
Subacute admissions .................. 692 323 46
Total admissions ..................... 14,613 13,575 12,474
Acute psychiatric inpatient days ..... 135,037 140,064 159,602
Residential treatment inpatient days (3) 93,038 77,509(3) 64,729(3)
Subacute inpatient days .............. 15,378 6,548 1,061
Total inpatient days ................. 243,453 224,121 225,392
Average bed days available ........... 449,814 422,670 448,585
Overall inpatient occupancy percentage 54% 53% 50%
Partial hospitalization days (1) ..... 54,463 65,280 60,699
Outpatient visits (2) ................ 84,438 82,240 47,725
_______________________
(1) Partial hospitalization days refer to behavioral health patient services
which generally exceed three hours but do not require an overnight stay at
an inpatient facility.
(2) Outpatient visits refer to behavioral health patient services which
generally do not exceed three hours in a given day. Also, the "All
Facilities" amounts include visits related to a facility-based home health
agency.
(3) 1995 and 1994 statistics for the "All Facilities" include significant
residential treatment admissions and inpatient days related to Three Rivers
Hospital, which was closed on June 30, 1995.
6
Competition
At June 30, 1996, the Company operated 15 inpatient facilities
in 11 states. The Company's facilities are located in rural areas and in
suburban areas of large metropolitan cities. Each facility competes with other
facilities, including proprietary free-standing hospitals, not-for-profit
hospitals, governmental free-standing hospitals and psychiatric units of acute
care hospitals. The number of behavioral health service competitors located
within each of the Company's service areas varies significantly. Some of these
other facilities are larger and have greater financial resources than the
Company's hospitals. In addition, some of these competing hospitals are
substantially exempt from income and property taxation. The impact of
competition on the Company's facilities varies depending on the proximity of the
competing facility and its referral sources to the Company's facility.
The Company's outpatient centers are generally located in
areas near its inpatient facilities and compete with private practitioners,
community mental health centers, and other companies which provide outpatient
services in the markets in which the Company's outpatient centers are doing
business. Also, in certain markets, the Company treats certain patient
populations (e.g., adolescents or geriatrics) or provides services which are
different from those provided by the Company's competitors in the particular
market. The Company does not consider any of the behavioral health service
competitors in its markets as dominant providers that place the Company at a
competitive disadvantage.
The ability of a psychiatric facility to compete with other
facilities depends on the number and quality of psychiatrists and clinical
psychologists practicing at the facility, and the number, type and quality of
other psychiatric facilities in the area. Another factor affecting the
competitiveness of psychiatric facilities is the extent to which the facility's
clinical programs satisfy community needs in an effective manner from both a
clinical and an economic standpoint. The Company believes that the quality of
its professional staff as well as the quality and effectiveness of its programs
permit it to compete effectively with the other providers of psychiatric,
residential treatment, and chemical dependency care in the communities served by
the Company's facilities. In addition, the Company's facilities actively seek
relationships with managed care companies, which are increasingly responsible
for steering patients to high quality, cost-effective providers of behavioral
health services.
Industry Trends
The Company's inpatient facilities have been adversely
affected by factors influencing the entire psychiatric hospital industry.
Factors which have affected the Company's acute psychiatric inpatient business
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 payors that reimburse on a per diem or other discounted basis; (iv) the trend
toward higher deductibles and co-insurance for individual patients; and (v) the
trend by self-insured employers and managed mental health organizations toward
limiting employee health benefits, including annual and lifetime limits on
7
mental health coverage. In response to these conditions, the Company has (i)
tightened its staffing levels within its facilities, particularly in the areas
which are not directly responsible for the provision of patient care, (ii)
renegotiated contracts to reduce other operating expenses within its facilities
and (iii) developed strategies to restructure its outpatient services and
partial hospitalization programs to meet the demands of the marketplace.
Further, the Company's business strategy includes reducing its dependence on
acute psychiatric inpatient services through an expansion of residential
treatment and outpatient services. See also "Strategy" above.
Sources of Revenue
The Company's facilities receive payments from third-party
reimbursement sources, including commercial insurance carriers (which provide
coverage to insureds on both an indemnity basis and through various managed care
plans), Medicare, Medicaid, the Civilian Health and Medical Program of the
Uniformed Services ("CHAMPUS"), Blue Cross and, for residential treatment
services, various state agencies (including state judicial systems). In
addition, certain payments are received directly from patients.
Third-party reimbursement programs generally reimburse
facilities either on the basis of facility charges (charge-based), on the basis
of the facility's costs as audited or projected by the third-party payor
(cost-based), or on the basis of negotiated rates (per diem-based). Generally,
charge-based programs are more profitable to the Company. The following table
sets forth, by category, the approximate percentages of the Company's inpatient
days derived from various sources for the periods indicated.
Year Ended June 30
1996 1995 1994
Charge-based programs:
Commercial Insurance .......................... 8% 10% 15%
Blue Cross .................................... 1 1 1
Private Pay ................................... 5 6 5
Sub-total ................................ 14 17 21
Cost-based and per diem-based programs:
Blue Cross .................................... 4 6 6
CHAMPUS ....................................... 3 5 7
Medicare ...................................... 24 22 21
Medicaid ...................................... 30 31 32
State, HMO and PPO ............................ 25 19 13
Sub-total ................................ 86 83 79
Total ............................... 100% 100% 100%
8
Most commercial insurance carriers reimburse their
policyholders or reimburse the Company's facilities directly for charges at
rates and limits specified in their policies. Patients generally remain
responsible to the facilities for any amounts not covered under their insurance
policies. The trend in reimbursement for psychiatric inpatient and chemical
dependency care by commercial insurance carriers is to limit inpatient days to a
maximum number per year or for the patient's lifetime, or to limit the maximum
dollar amount expended for a patient in a given period.
Most third-party payors and other commercial carriers have
also expanded benefit coverage to include partial hospitalization and other
outpatient services. Partial hospitalization is formally recognized by Medicare
and CHAMPUS as a covered service. In addition, managed care companies are
seeking to contract with providers that offer the full spectrum of psychiatric
care.
Medicare is the federal health insurance program for the aged
and disabled. Medicare reimbursement is typically less than the Company's
facilities' established charges for services provided to Medicare patients.
Patients are not responsible for the difference between the reimbursed amount
and the facilities' established charges other than for applicable noncovered
charges, coinsurance and deductibles. In 1983, Congress changed the Medicare law
applicable to Medicare reimbursement for medical/surgical services from a
retrospectively determined reasonable cost system to a prospectively determined
diagnosis-related grouping ("DRG") system. Psychiatric and chemical dependency
hospitals and units are exempt from the DRG reimbursement system.
Medicare reimbursement to exempt psychiatric and chemical
dependency hospitals and units is currently subject to the payment limitations
and incentives established in the Tax Equity and Fiscal Responsibility Act of
1982 ("TEFRA"). These facilities are paid on the basis of each facility's
historical costs trended forward, with a limit placed on the rate of increase in
per case reimbursable costs. These TEFRA "target" rates are updated annually.
Facilities with costs less than the target rate per discharge are reimbursed
based on allowable Medicare costs plus an additional incentive payment.
Beginning in federal fiscal year 1992, providers with costs exceeding their
target rates are subject to a payment ceiling of the target amount plus the
lesser of a percentage (currently 10%) of the target amount or a percentage
(currently 50%) of the amount in excess of the target amount. Exemptions and
exceptions are available to hospitals when events beyond the hospitals' control
result in an increase in costs for a reporting period. Moreover, "new hospitals"
are eligible to be exempt from the limits until they have been in operation for
three years. At June 30, 1996, all of the Company's facilities were subject to
the TEFRA provisions.
The Health Care Financing Administration ("HCFA") has
implemented changes to Medicare covering inpatient psychiatric services which
are reimbursed under TEFRA. These changes provide for an increase to the TEFRA
payment limitations, subject to annual revision. However, since 14 of the
Company's 15 facilities which are subject to the TEFRA payment limitations are
currently operating at cost levels below their respective TEFRA payment
limitations, any increase in the TEFRA payment limitations has a minimal effect
on the Company's results of operations. In addition, each year HCFA modifies the
fee reimbursement schedules related to physician services. While these changes
affect Medicare reimbursement paid directly to physicians, they do not affect
the rate of Medicare reimbursement to the Company's facilities. These changes in
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physician reimbursement have had only a minimal effect on the Company's results
of operations since most of the physicians practicing at the Company's
facilities bill their fees directly.
Medicaid is the federal/state health insurance program for the
underprivileged. Subject to certain minimum federal requirements, each state
defines the extent and duration of the services covered by its Medicaid program.
Moreover, although there are certain federal requirements governing the payment
levels for Medicaid services, each state has its own methodology for making
payment for services provided to Medicaid patients. Various state Medicaid
programs cover payment for services provided to Medicaid patients at all of the
Company's facilities. During fiscal years 1995 and 1994, the Company received
significant payments from the Louisiana Medicaid program pursuant to enhanced
reimbursement rates under the State's "disproportionate share" program.
Disproportionate share payments from the State of Louisiana were virtually
eliminated effective July 1, 1995. Accordingly, the Company expects that any
future payments made under this program will be minimal. See "Item 3. Legal
Proceedings" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations."
In 1991, Congress imposed a reduction in the annual
reimbursable length of stay for patients covered under the CHAMPUS program.
Effective October 1, 1991, CHAMPUS began to limit its coverage for inpatient
psychiatric services to 30 days for adult patients, 45 days for child and
adolescent patients and 150 days for residential treatment services, subject to
waivers which are available under limited circumstances if an extension of the
length of stay can be justified. Although the lengths of stay experienced by the
Company on CHAMPUS adult, child and adolescent beneficiaries have generally been
within these limits, the volume of CHAMPUS patients treated at the Company's
facilities has declined. As set forth in the above table, the amount of the
Company's patient revenues attributable to CHAMPUS have decreased from 7% in
fiscal 1994 to 3% in fiscal 1996.
Blue Cross plans reimburse based on charges or negotiated
rates in all areas in which the Company presently operates facilities, except
Alabama and Michigan. In many states in which the Company operates, Blue Cross
charges are approved through a rate-setting process and, therefore, Blue Cross
may reimburse the Company at a rate less than billed charges. Under cost-based
Blue Cross programs, such as those in Alabama and Michigan, direct reimbursement
to hospitals typically is lower than the hospital's charges, and patients are
not responsible for the difference between the amount reimbursed by Blue Cross
and the hospital's charges.
Marketing
The Company's marketing programs are aimed at referral sources
within a selected service area rather than to the general public and are
designed to increase awareness of a facility's programs and services. Referral
sources include psychiatrists, medical practitioners, managed mental health
organizations, courts and probationary officers, law enforcement agencies,
schools and clergy. Each facility's marketing staff, together with other
facility personnel, maintains direct contact with referral sources to support
their needs. These needs may be related to a particular treatment program, the
desires of the patient's family, hospital policies or the timely receipt of
10
accurate information. Each facility establishes admission targets for each
referral source and results are monitored and evaluated at the facility and by
the corporate staff.
Regulation
Operations of psychiatric hospitals are subject to extensive
federal, state and local government regulations, including periodic inspection
and licensing requirements. These regulations are primarily concerned with the
fitness and adequacy of the facility, equipment and personnel, standards of
medical care provided, the dispensing of drugs and the adequacy of fire
prevention measures and other building standards. In addition, the admission and
treatment of patients at the Company's hospitals are subject to certain state
regulation regarding involuntary admissions, patient rights and the
confidentiality of patient medical records.
The Company believes that federal and state regulation may
become more comprehensive and restrictive in the future, particularly with
respect to reimbursement rates. In addition, numerous healthcare reform
proposals have been and are expected to continue to be introduced in Congress.
The Company cannot predict the form or timing of any prospective legislation or
regulation, nor the effect which any legislation or regulation might have on its
revenues or profitability.
Capital expenditures for the construction of new facilities,
the addition of beds or the acquisition of facilities or medical equipment are
reviewable by governmental authorities in certain states in which approximately
half the Company's facilities are located. State certificate of need or similar
statutes generally provide that prior to the construction of new beds or
facilities or the introduction of a new service, a state agency must determine
that a need exists for those beds, facilities or services. A certificate of need
is generally issued for a specific maximum amount of expenditures, number of
beds or services to be provided and the holder is generally required to
implement the approved project within a specific time period. In most cases,
state certificate of need or similar statutes do not restrict the ability of the
Company or its competitors from offering new or expanded outpatient services.
Except for Arizona, Texas, Louisiana and Utah, all of the states in which the
Company operates facilities have adopted certificate of need or similar
statutes.
Federal law contains a number of provisions designed to ensure
that services rendered by health care facilities to Medicare and Medicaid
patients are medically necessary, meet professionally recognized standards and
are billed properly. These provisions include a requirement that admissions of
Medicare and Medicaid patients to hospitals must be reviewed in a timely manner
to determine the medical necessity of the admissions. In addition, the Peer
Review Improvement Act of 1982 ("Peer Review Act") provides that a hospital may
be required by the federal government to reimburse the government for the cost
of Medicare paid services determined by a peer review organization to have been
medically unnecessary. Each of the Company's hospitals has developed and
implemented a quality assurance program and implemented procedures for
utilization review and retrospective patient care evaluation to meet its
obligations under the Peer Review Act. As a result of legislation passed in
Texas in September 1993 and as described below, Peer Review Organizations
("PRO's") in that state began applying extremely restrictive interpretations to
11
the medical necessity of admissions and other services. Consequently,
significant amounts of the Texas facilities' charges in fiscal 1994 were denied
by such organizations until the facilities gained a full understanding of the
PRO's interpretations and modified their internal systems accordingly. Charges
denied in the Company's Texas facilities in fiscal 1996 and 1995 were less than
2% of these facilities' gross charges in these years.
The Medicare and Medicaid Anti-Fraud and Abuse Amendments (the
"Amendments") to the Social Security Act prohibit individuals or entities
participating in the Medicare or Medicaid programs from knowingly and willfully
offering, paying, soliciting, or receiving remuneration in order to induce
referrals for items or services reimbursed under those programs. The policy
objective of the Amendments is to ensure that the purpose for a referral is
quality of care and not monetary gain by the referring individual. The
Amendments' prohibitions only apply to Medicare and Medicaid patients and impose
felony criminal penalties and civil sanctions, as well as exclusion from the
Medicare and Medicaid programs. In 1989, CHAMPUS adopted regulations authorizing
it to exclude from the CHAMPUS program any provider who has committed fraud or
engaged in abusive practices. The term "abusive 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
financial or medical records. The Company believes that it is in compliance with
all aspects of these regulations.
The Company has entered into various types of agreements with
physicians and other health care providers in the ordinary course of operating
its facilities, many of which provide for payments to physicians or other health
care providers by the Company as compensation for services or other
consideration by the 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 United States Department of Health and Human Services (the
"Department") issued regulations in 1991 and 1993 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.
Although a relationship that fails to satisfy a safe harbor is not necessarily
illegal, that relationship will not be exempt from scrutiny under the
Amendments. The Company believes that its agreements and arrangements in this
area comply with the Amendments or are otherwise protected under the safe
harbors provided. However, 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.
Several states and the Federal government have been
investigating whether psychiatric hospitals have engaged in fraudulent practices
such as inflating bills for medications and services, billing for services never
rendered and admitting patients, especially children, who do not require
hospitalization. In 1991, the Texas Attorney General disclosed that several of
the Company's competitors doing business in Texas were under investigation for
12
fraudulent practices and a lawsuit seeking injunctive relief was filed against
one of those competitors. This led to the passage of legislation in Texas,
effective September 1, 1993, that placed severe restrictions on the marketing of
behavioral health care services. In general, the legislation prohibits certain
advertisement and solicitation techniques. Specifically, advertisements may not
promise a cure or guarantee treatment results that cannot be substantiated, and
mental health intervention and assessment services must be available and
properly credentialed before they are advertised. The legislation also requires
disclosure of any relationship between the treatment facility and its referral
sources and prohibits a referral service from holding itself out as a qualified
mental health referral service without complying with the legislation's
definition of such (which requires, among other things, compliance with
regulations regarding confidentiality, participation in and staffing of the
referral service and payments to referral sources). Violation of the legislation
may result in injunctive relief and civil penalties of up to $25,000 per
violation. In June 1993, the Company signed an agreement with the Texas Attorney
General whereby it agreed to continue to comply with Texas statutes regarding
marketing and operating standards applicable to all psychiatric hospital
companies.
Acquisitions, Sales and Lease Commitments
* Three Rivers Hospital. In November 1992, the Company purchased a 64-bed
hospital facility in Covington, Louisiana for $2,000,000. The facility, Three
Rivers Hospital, opened in January 1993. On June 30, 1995, the hospital was
closed due to reduced patient volume and projected negative operating margins,
and its operations were consolidated with the Company's facility located less
than five miles away. In May 1996, the Company signed a letter of intent to sell
Three Rivers Hospital to an independent party for approximately $2.2 million
(net of transaction costs). This sale is expected to close during October 1996.
See "Ownership Arrangements and Operating Agreements" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."
* Harbor Oaks Hospital. In January 1993, the Company leased Harbor Oaks Hospital
in Fort Walton Beach, Florida to another health care provider for a period of
three years. The lease was extended to October 1996, at which time the Company
anticipates resuming operations at the facility.
* Cumberland Hospital. In August 1993, the Company sold its 175-bed Cumberland
Hospital in Fayetteville, North Carolina for approximately $12 million.
* Ramsay Managed Care, Inc. RHCI, through its former subsidiary RMCI, entered
the managed mental health business in October 1993 with the acquisition of
Florida Psychiatric Management, Inc. ("FPM") for a purchase price of $6.5
million. The managed care division expanded in June 1994 with the acquisition of
a Phoenix, Arizona-based managed mental health business and, in fiscal 1995,
through the award of contracts in Hawaii and West Virginia.
For a variety of reasons deemed by management to be reasonable at the time, on
April 24, 1995, the Company distributed, on a pro rata basis in the form of a
dividend, the common stock of RMCI held by the Company to the holders of record
13
on April 21, 1995 of the Company's common and preferred stock (the "RMCI
Distribution"). Subsequent to this distribution, RMCI became a separate,
publicly traded Company and ceased being a subsidiary of the Company.
On October 1, 1996, the Company and RMCI entered in a merger agreement pursuant
to which RMCI would merge into a wholly-owned subsidiary of the Company. See
"Recent Developments" above.
* Atlantic Shores Hospital. In February 1994, the Company sold its 50-bed
Atlantic Shores Hospital in Daytona Beach, Florida for approximately $4.8
million.
* Sale/Leaseback. In April 1995, the Company consummated a sale/leaseback
transaction whereby the Company sold the land, buildings and fixed equipment of
two of its inpatient facilities (Desert Vista Hospital in Mesa, Arizona and
Mission Vista Hospital in San Antonio, Texas) for $12.5 million and agreed to
lease this property back over a term of 15 years (with three successive renewal
options of five years each). The leases, which are treated as operating leases
under generally accepted accounting principles, currently require aggregate
annual minimum rentals of $1.58 million, payable monthly. Effective April 1 of
each year, the lease payments are subject to any upward adjustment (not to
exceed 3% annually) in the Consumer Price Index over the preceding 12 months.
* Sale of Land. In March and April 1995, the Company sold certain real estate
located in Flagstaff, Arizona and Houston, Texas. These properties were
initially acquired for development approximately 10 years ago and, as of the
date of sale, the properties had an aggregate book value of $1.15 million. Total
net proceeds from the sales of this real estate approximated $0.75 million.
* Benchmark Behavioral Hospital. Effective April 1995, the Company agreed to
lease an 80-bed facility near Salt Lake City, Utah from Charter Medical
Corporation for four years, with an option to renew for an additional three
years. The lease, which is treated as an operating lease under generally
accepted accounting principles, requires annual base rental payments of
$456,000, payable monthly. In addition, the lease provides for percentage rent
payments to the lessor equal to 2% of the net revenues of the facility, payable
quarterly.
Ownership Arrangements and Operating Agreements
One physician owns a 4% interest in the subsidiary which owns
the Company's Harbor Oaks Hospital. The Company may be required to repurchase,
and the minority shareholder may be required to sell, the minority interest at a
formula price dependent upon many factors, including the earnings per share of
the subsidiary which owns the subject hospital and the price/earnings multiple
of the Company, after a fixed period of time. Although the amount of the
Company's repurchase obligation cannot be precisely determined, the Company does
not believe that this obligation will require a material payment by the Company
in the foreseeable future.
In 1985, the Company and Bethany General Hospital in Bethany,
Oklahoma entered into a joint development project. The general hospital and the
Company hold a joint certificate of need by which they have converted 23
medical/surgical beds to psychiatric beds, and constructed a psychiatric
14
pavilion containing an additional 20 psychiatric beds. Pursuant to a joint
venture agreement entered into in December 1985, the Company began managing the
23 existing beds in December 1985 and completed construction of the 20-bed
pavilion in October 1986. Under the joint venture agreement, the Company is
obligated to provide working capital to operate the 43-bed psychiatric unit. The
Company may, at its option, continue to operate and manage the unit in three-
year terms through 2004. The Company is entitled to an annual management fee of
5% of the unit's gross revenues and 65% of the net profits or losses of the
unit. The agreement also provides that the Company will recover construction
costs amortized over 15 years and working capital advances from operating
revenue, unless the Company does not renew or breaches the agreement.
In November 1992, the Company formed a limited partnership to
operate Three Rivers Hospital, a 64-bed facility located in Covington,
Louisiana. Pursuant to the terms of the partnership agreement, the Company, as
general partner, had a 55% interest in the operations of the business and
limited partners maintained a 45% interest. A wholly-owned subsidiary of the
Company owns the facility and leased it to the partnership at $276,000 per
annum. Due to reduced patient volume and projected negative operating margins,
effective June 30, 1995, Three Rivers Hospital was closed. The Company has
signed a letter of intent and expects to sell Three Rivers Hospital to an
independent party in October 1996. See "Acquisitions, Sales and Lease
Commitments" above. Further, in July 1996, the Three Rivers Hospital Limited
Partnership was dissolved.
Insurance
The Company and its facilities are insured on a "claims-made"
basis for professional and general liability incidents in the aggregate amount
of $25,000,000, with a self-insured retention of $500,000 per claim. The
Company's self-insurance program also includes "tail" coverage for prior acts
retroactive to the date on which the Company could become responsible for such
acts. This prior occurrence coverage operates with the same self-insured
retention level. It is the Company's policy to record the liability for
uninsured professional and general liability losses related to asserted and
unasserted claims arising from reported and unreported incidents based on
independent valuations which consider claim development factors, the specific
nature of the facts and circumstances giving rise to each reported incident and
the Company's history with respect to similar claims.
Employees
As of June 30, 1996, the Company employed approximately 1,625
full-time and 1,540 part-time employees in its facilities and contract services
operations, including approximately 400 full- time equivalent nurses. In
addition, the Company has a corporate headquarters staff of approximately 25,
which includes individuals who specialize in various areas of hospital
operations to assist facilities with particular management issues. The Company
considers its relationship with its employees to be good.
15
Executive Officers of the Registrant
Certain information with respect to the executive officers of the Company is set
forth below:
Position With the Company and Principal Occupations
Name of Executive Officer During the Past Five Years
Luis E. Lamela....... 46 Vice Chairman of the Board of the Company since
January 1996; President and CEO of CAC Medical
Centers, a division of United Health Care of
Florida, since May 1994; President and CEO of
Ramsay - HMO, Inc. from prior to 1991 to May
1994.
Bert G. Cibran....... 42 President and Chief Operating Officer of the Company
since August 1996; President, Summa Healthcare
Group, Inc. (a healthcare consulting firm) from
February 1996 through August 1996; President and
Chief Operating Officer for the Florida
operations of Physician Corporation of America
from February 1994 to February 1996; Executive
Vice President of Operations with Ramsay- HMO,
Inc. from 1991 to February 1994.
Reynold J. Jennings.. 50 Executive Vice President of the Company and
President of its Behavioral Hospital Division
since August 1996; President, President/Chief
Operating Officer or President/CEO of the Company
from September 1994 to August 1996; Executive
Vice President and Chief Operating Officer of the
Company from November 1993 until September 1994;
various management and administrative positions
with National Medical Enterprises, Inc. from
prior to 1991 to October 1993.
Carol C. Lang........ 49 Chief Financial Officer of the Company since August
1996; President of HealthLink Enterprises, Inc.
(a healthcare consulting firm) from prior to 1991
to August 1996.
Brent J. Bryson...... 47 Vice President of the Company since October 1994;
(including medical leave from January 1996
through August 1996); Senior Vice President,
Southern Region, with National Medical
Enterprises, Inc. from November 1991 to October
1994; Vice President with National Medical
Enterprises, Inc. from prior to 1991 to November
1991.
John A. Quinn........ 42 Vice President of the Company since September 1991;
various administrative and management positions
with Community Psychiatric Centers, Inc. from
prior to 1991 to September 1991.
Wallace E. Smith..... 53 Vice President of the Company since prior to 1991.
William N. Nyman..... 43 Vice President of the Company since August 1993.
Regional Controller of the Company from prior to
1991 to July 1993.
Daniel A. Sims....... 36 Corporate Controller of the Company since December
1993; Chief Financial Officer of a 175-bed
medical/surgical hospital from prior to 1991 to
December 1993.
16
Item 2. Properties.
The following table provides information concerning the 15
inpatient facilities owned and operated or leased and operated by the Company at
June 30, 1996.
Total
Date Opened Licensed
Hospital (7) or Acquired Beds
Havenwyck Hospital
Auburn Hills, MI ......................... November 1983 166
Brynn Marr Hospital
Jacksonville, NC ......................... December 1983 76
Hill Crest Hospital
Birmingham, AL ........................... January 1984 130
Heartland Hospital
Nevada, MO ............................... April 1984 152
Greenbrier Hospital
Covington, LA ............................ October 1984 67
Coastal Carolina Hospital
Conway, SC ............................... November 1984 98
Bayou Oaks Hospital
Houma, LA(1) ............................. November 1985 98
The Bethany Pavilion
Bethany, OK(2) ........................... December 1985 43
Meadowlake Hospital
Enid, OK ................................. February 1986 50
Benchmark Regional Hospital
Woods Cross, UT .......................... August 1986 76
Desert Vista Hospital
Mesa, AZ (6) ............................. February 1987 100
Chestnut Ridge Hospital
Morgantown, WV(3) ........................ November 1987 70
The Haven Hospital
DeSoto, TX ............................... April 1990 102
Mission Vista Hospital
San Antonio, TX (6) ...................... November 1991 61
Benchmark Behavioral Hospital
Midvale, UT (4) .......................... June 1995 80
Total (5) ........................... 1,369
(1) The building in which the Company's facility in Houma, Louisiana is located
is leased for an initial period ending January 31, 2005 (with an option to
renew for 20 years).
(2) The Bethany, Oklahoma facility is operated as a joint venture in which the
Company operates and manages the behavioral health services of Bethany
General Hospital. See "Item 1. Business --Ownership Arrangements and
Operating Agreements."
(3) The Company has entered into a 50-year ground lease for the property on
which its 70-bed facility in Morgantown, West Virginia is located.
(4) The building in which the Company's facility in Midvale, Utah is located is
leased for an initial period ending June 24, 1999 (with an option to renew
for an additional three years). See "Item 1. Business-Acquisitions, Sales
and Lease Commitments."
(5) Excludes Harbor Oaks Hospital and Three Rivers Hospital. Harbor Oaks
Hospital, a 98-bed facility in Fort Walton Beach, Florida is owned by the
Company but, as of June 30, 1996, was leased to another health care
provider. Three Rivers Hospital, a 64-bed facility located in Covington,
Louisiana, was closed on June 30, 1995. See "Item 1. Business --
Acquisitions, Sales and Lease Commitments and Ownership Arrangements and
Operating Agreements."
(6) In April 1995, the Company sold and immediately leased back the land,
buildings and fixed equipment associated with these facilities. The leases
have an initial term of 15 years and three successive renewal options of
five years each. See "Item 1. Business -- Acquisitions, Sales and Lease
Commitments."
(7) The Company believes that its facilities are well maintained and are of
adequate size for present needs.
17
In March 1995, the Financial Accounting Standards Board (FASB)
issued Statement Number 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" (the "Statement"). As required by
the Statement, the Company periodically reviews the long-lived assets (land,
buildings, fixed equipment and related cost in excess of net asset value of
purchased businesses) of each of its inpatient facilities to determine if the
carrying value of these assets is recoverable, based on the future cash flows
expected from the assets. Based on this review, the Company determined that the
carrying value of certain long-lived assets was impaired (within the meaning of
the Statement) at June 30, 1996 and 1995. The amount of the impairment,
calculated as the excess of carrying value of the long-lived assets over the
discounted future cash flows expected from the assets, totalled approximately $4
million and $20 million at June 30, 1996 and 1995, respectively. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations." and "Item 8. Financial Statements and Supplementary Data."
In connection with the Company's decision to relocate its
corporate headquarters from New Orleans, Louisiana to Coral Gables, Florida, the
Company has entered into an office lease in Coral Gables for a term of three
years ending in August 1999. Upon relocation, the Company's lease in New Orleans
will be terminated.
Item 3. Legal Proceedings.
The Company is subject to claims and suits arising in the
ordinary course of business. In addition, during fiscal 1996, the State of
Louisiana requested repayment of disproportionate share payments received by the
Company in fiscal years 1995 and 1994 totalling approximately $5,000,000. On the
basis of discussions to date between the Company and the State, the Company
believes that this matter may be settled for an amount significantly less than
the State's initial request. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Results of Operations."
The Company has established reserves at June 30, 1996 for the
estimated amounts which might be recovered from the Company as a result of all
outstanding legal proceedings. In the opinion of management, the ultimate
resolution of these pending legal proceedings is not expected to have a material
adverse effect on the Company's financial position, results of operations or
liquidity. See "Item 8. Financial Statements and Supplementary Data."
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
18
PART II
Item 5. Market For The Registrant's Common Equity and Related
Stockholder Matters.
The Company's Common Stock is traded in the over-the-counter
market and is quoted on the NASDAQ National Market System under the symbol RHCI.
On September 27, 1996, there were 660 holders of record of the Company's Common
Stock. No cash dividends have been declared on the Common Stock since the
Company was organized. The Company's credit documents governing its credit
facilities include provisions which prohibit the payment of dividends unless the
sum of (i) all dividends, redemptions and all other distributions in respect of
its capital stock and (ii) all restricted investments (as defined) during the
applicable fiscal year would not exceed an amount equal to 50% of the
consolidated net income of the Company for the immediately preceding fiscal year
and provided that, at the time of such dividend and after giving effect thereto,
certain specified financial ratio covenants would not be violated and no other
default or event of default would occur. Further, in connection with waivers
received from the Company's lenders as of June 30, 1996, the Company agreed not
to pay future cash dividends in respect of its Class B Preferred Stock, Series
C. Prior to this time, the Company's credit facilities permitted the payment of
the full amount of regular fixed dividends on the Class B Preferred Stock,
Series C, provided that such dividends did not exceed $387,200 in each 12-month
period and provided that no event of default existed or occurred as a result of
the payment.
The following table sets forth the range of high and low
closing sales prices per share of the Company's Common Stock for each of the
quarters during the years ended June 30, 1996 and 1995, as reported on the
NASDAQ National Market System:
High Low
Year ended June 30, 1996
First Quarter ...................... $4 5/8 $3 3/8
Second Quarter ..................... 3 3/4 2 1/2
Third Quarter ...................... 3 15/16 2 7/8
Fourth Quarter ..................... 4 3/8 2 7/8
Year ended June 30, 1995
First Quarter ...................... $8 1/8 $6
Second Quarter ..................... 8 1/8 6 1/4
Third Quarter ...................... 7 7/8 5 3/4
Fourth Quarter * ................... 7 1/2 3 5/8
On October 2, 1996, the closing sales price of the Company's
Common Stock was $2 3/8 per share.
* The distribution of Ramsay Managed Care, Inc. occurred
during the fourth quarter of fiscal 1995. See "Item 1. Business--Acquisitions,
Sales and Lease Commitments".
19
Item 6. Selected Financial Data.
The following table sets forth selected consolidated financial
information for the periods shown and is qualified by reference to, and should
be read in conjunction with, the Consolidated Financial Statements and Notes
thereto and "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this Annual Report on Form
10-K.
Year Ended June 30
1996 1995 1994 1993 1992
(in thousands, except per share data)
Statement of Operations
Data:
Net revenues ......... $ 117,423 $136,418 $137,002 $136,354 $136,946
Salaries, wages and
benefits .......... 66,259 72,061 64,805 63,810 60,626
Other operating
expenses .......... 42,387 44,741 42,907 40,454 40,161
Provision for
doubtful accounts . 5,805 5,086 5,846 8,148 8,628
Depreciation and
amortization ...... 5,490 7,290 6,836 6,605 5,439
Interest and other
financing charges . 6,892 8,347 8,906 9,494 10,488
Losses related to
asset sales and
closed businesses . 4,473 6,431 802 7,524 --
Asset impairment
charges ........... 5,485 21,815 -- -- --
Restructuring and
other charges ..... -- -- -- 1,367 2,283
136,791 165,771 130,102 137,402 127,625
Income (loss) before
minority interests,
income taxes,
extraordinary items
and cumulative
effect of accounting
change ............ (19,368) (29,353) 6,900 (1,048) 9,321
Minority interests ... -- 887 4,824 1,126 --
Income (loss) before
income taxes,
extraordinary items
and cumulative effect
of accounting change (19,368) (30,240) 2,076 (2,174) 9,321
Provision (benefit) for
income taxes ...... (2,887) (13,195) 599 159 3,974
Income (loss) before
extraordinary items
and cumulative effect
of accounting change (16,481) (17,045) 1,477 (2,333) 5,347
Extraordinary items:
Loss from early
extinguishment of debt,
net of income tax benefit -- (257) (155) (1,580) (366)
Income tax benefit from
net operating loss
carryovers ........ -- -- -- -- 953
Cumulative effect of change
in accounting for
income taxes ....... -- -- -- 2,353 --
Net income (loss) .... $ (16,481)$(17,302) 1,322 $(1,560) $ 5,934
Primary earnings per share:
Income (loss) per common
and dilutive common
equivalent share before
extraordinary items and
cumulative effect of
accounting change .. $ (2.12) $ (2.25) $ 0.15 $ (0.29) $ 0.68
Net income (loss) ... $ (2.12) $ (2.28) $ 0.14 $ (0.20) $ 0.75
Weighted average shares
outstanding(1) ..... 7,929 7,743 9,641 7,932 7,886
(1) Includes common and dilutive common equivalent shares outstanding.
June 30
1996 1995 1994 1993 1992
(in thousands)
Balance Sheet Data:
Working capital $ 11,715 $ 24,098 $ 21,148 $ 23,811 $ 26,718
Total assets 132,758 139,236 183,168 190,370 194,357
Long-term debt 44,664 55,568 67,707 77,429 84,879
Class B preferred
stock, Series 1987 --- --- --- --- 2,500
Stockholders' equity 46,053 61,779 80,468 79,997 76,068
20
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
Patient revenues of the Company's inpatient facilities are
affected by changes in the rates the Company charges, changes in reimbursement
rates by third-party payors, the volume of patients treated and changes in the
mix of payors and patient types. The Company's facilities provide services to
patients requiring intensive inpatient care, less intensive residential
treatment care and outpatient treatment. Also, at four of the Company's
facilities, medical subacute services are provided. The reimbursement rates for
intensive inpatient care are generally greater than the rates paid for
residential treatment care. However, the average length of stay for patients in
residential treatment programs is significantly greater than that for patients
in intensive inpatient programs.
Generally, charges for each facility's services are reimbursed
under third-party reimbursement programs at the amount billed or at rates which
are less than the facility's charges. These lower rates can be based on a
negotiated per diem amount or based on the facility's costs as audited or
projected by the third-party payors. When operating revenues (charges) per
patient day are higher than the negotiated per diem rate or the facility's
costs, the difference is recorded as a reduction of gross revenues. Bad debts
consist primarily of commercial and self-pay accounts receivable deemed
uncollectible.
The Company records amounts due to or from third-party
reimbursement sources based on its best estimates of amounts to be ultimately
received or paid under cost reports filed with appropriate intermediaries. The
final determination of amounts earned under reimbursement programs is subject to
review and audit by these intermediaries. Differences between amounts recorded
as estimated settlements and the audited amounts are reflected as adjustments to
the Company's net revenues in the period in which the final determination is
made. During the years ended June 30, 1995, and 1994, the Company recorded
contractual adjustment benefits related to intermediary audits of prior year
cost reports of approximately $1,000,000 and $1,400,000, respectively. During
the year ended June 30, 1996, the Company recorded contractual adjustment
expenses related to intermediary audits of prior year cost reports of
approximately $1,900,000. As a result of this negative experience, the Company
recorded reserves totalling $3,500,000 in its June 30, 1996 financial statements
related to possible future adjustments of its cost report estimates by
intermediaries. Management believes that adequate provision has been made for
any adjustments that may result from future intermediary reviews and audits.
Several years ago, the Federal Government established a
funding mechanism, known as disproportionate share, which was meant to
adequately reimburse facilities serving a disproportionately high volume of
Medicaid patients, relative to other providers. Disproportionate share funding
was established under Title XIX of the Social Security Act, administered at the
State level and approved/overseen by the Health Care Financing Administration,
since Medicaid services are jointly funded by each State as well as the Federal
Government. In fiscal years 1995 and 1994, the Company received significant
disproportionate share payments from the Louisiana Medicaid program. Statutory
changes virtually eliminated the disproportionate share funding mechanism in
21
Louisiana and, for the year ended June 30 1996, disproportionate share payments
received by the Company's Louisiana facilities were not material.
The impact of Louisiana disproportionate share payments on net
revenues and income from continuing operations in fiscal 1995 was approximately
$5,600,000 and $3,700,000, respectively, and the impact of Louisiana
disproportionate share payments on net revenues and income from continuing
operations in fiscal 1994 was approximately $14,300,000 and $9,300,000,
respectively. The majority of Louisiana disproportionate share payments was
received at the Company's Three Rivers Hospital facility, which treated
primarily Medicaid-eligible adolescents diagnosed with various behavioral
disorders. This facility was further adversely impacted by the State of
Louisiana's application of significantly more restrictive admission criteria in
December 1994 for adolescents seeking inpatient psychiatric treatment in the
State. Due to a negative operating margin in the fourth quarter of fiscal 1995
and a significant decrease in admissions since December 1994, on June 30, 1995,
the Company closed Three Rivers Hospital and consolidated its operations with
the Company's Greenbrier Hospital facility located less than five miles away.
During fiscal 1996, the State of Louisiana requested repayment
of disproportionate share payments received by two of the Company's Louisiana
facilities in fiscal years 1995 and 1994 totalling approximately $5,000,000. The
repayment requests related to a) alleged overpayments made to Three Rivers
Hospital because the State believed Three Rivers' actual annual inpatient volume
was less than its projection of annual inpatient volume made at the beginning of
its 1994 cost reporting year and b) alleged improper teaching hospital payments
made to Three Rivers Hospital and Bayou Oaks Hospital because the State believed
these facilities were not qualifying teaching hospitals at the time these
payments were made. The Company believes that certain of the calculations which
support the State's calculation of annual inpatient volume in 1994 are in error
and that other relevant factors affecting the State's calculation have not been
considered. Further, the Company believes that, based on its understanding of
the rules and regulations in place at the time the teaching hospital payments
were made, payments received as a result of the teaching classification were
appropriate.
On the basis of discussions to date between the Company and
the State, the Company believes that this matter may be settled for an amount
significantly less than the State's initial requests. Any settlement of this
matter will be contingent upon the execution of settlement documentation, the
terms of which have not been agreed upon. Further, there can be no assurance
that the Company and the State will agree on a settlement amount or the terms
and conditions of settlement documentation. The Company intends to vigorously
contest any position by the State of Louisiana which the Company considers
adverse and believes that adequate provision has been made at June 30, 1996 for
the estimated amount which might be recovered from the Company as a result of
this matter. See "Item 8. Financial Statements and Supplementary Data."
The following table sets forth, for the periods indicated,
certain items of the Company's consolidated statements of operations as a
percentage of the Company's net revenues. For comparison purposes, the prior
year percentages exclude the operations of RMCI which, as discussed elsewhere,
was distributed in the form of a dividend to the Company's stockholders in April
1995, and the amount of Louisiana disproportionate share payments recorded as
net revenues in 1995 and 1994. The discussion following this table quantifies
the significant fluctuations in amounts reported in the Company's consolidated
statements of operations between periods.
22
As a Percentage of Net Revenues
Year Ended June 30,
1996 1995 1994
Net revenues ........................................ 100.0% 100.0% 100.0%
Salaries, wages and benefits ......................... 56.4 56.4 54.1
Other operating expenses ............................. 36.1 32.6 33.8
Provision for doubtful accounts ...................... 4.9 4.3 5.0
Depreciation and amortization ........................ 4.7 5.4 5.5
Interest and other financing charges ................. 5.9 6.9 7.5
Losses related to asset sales and closed businesses .. 3.8 5.5 0.7
Asset impairment charges ............................. 4.7 18.5 --
Loss before minority interests,
income taxes and extraordinary item ................(16.5)% (29.6)% (6.6)%
1996 Compared to 1995
The following are the significant changes in the Company's
operations between fiscal 1996 and 1995. These changes affect the comparison of
revenues and expenses of the Company between years as discussed below.
* The RMCI Distribution on April 24, 1995.
* Virtual elimination of Louisiana disproportionate share
payments to the Company, as discussed above.
* The closure of Three Rivers Hospital on June 30, 1995.
* Commencement of operations in April 1995 at an 80-bed leased
facility near Salt Lake City, Utah (Benchmark South).
* The closure of several day treatment centers and
outpatient clinics during fiscal 1996 and 1995 due to
negative operating margins.
* Significant increase in occupancy at the Company's subacute
units, as well as an expansion of the Company's contract
services division.
* Significant asset impairment charges and losses related to
asset sales and closed businesses in fiscal 1996 and 1995.
________________________
Net revenues decreased from $136.4 million in 1995 to $117.4
million in 1996 primarily because $12.9 million of revenues related to RMCI were
included in the prior year total and because same facility net inpatient
revenues decreased $7.3 million between years. During fiscal 1996, the Company
replaced approximately $6.4 million in patient revenues related to Three Rivers
Hospital and $5.5 million in disproportionate share revenues recorded in fiscal
23
1995 with a $4.7 million increase in revenues from Benchmark South, a $6.6
million increase in subacute revenues and a $1.6 million increase in contract
services revenues. Net outpatient revenues remained stable between 1996 and
1995, increasing $0.3 million, or 2%.
Same facility net inpatient revenues decreased $7.3 million
between periods primarily due to the impact of intermediary audits of prior year
cost reports, which reduced same facility net inpatient revenues by $5.4 million
in 1996 (including the establishment of a $3.5 million reserve for possible
future adjustments) and increased same facility net inpatient revenues in 1995
by $1 million. In addition, the Company's same facility net inpatient revenue
per patient day decreased 8% between years due to the growth in residential
treatment services, which are less intensive and generally reimbursed at rates
which are less than the rates received for acute psychiatric inpatient services.
During fiscal 1996, same facility residential treatment patient days comprised
40% of same facility patient days, compared to 31% in fiscal 1995. Further, in
1996 and 1995, the Company's residential treatment net revenue per patient day
was approximately $200 less than its acute psychiatric net revenue per patient
day (excluding disproportionate share revenues).
Total salaries, wages and benefits in fiscal 1996 were $66.3
million, compared to $72.1 million in fiscal 1995. The material changes in
salaries, wages and benefits included (a) a $1.1 million increase in same
facility salaries, wages and benefits, (b) a $4.8 million decrease related to
the closure of the Three Rivers facility, (c) a $2.6 million increase related to
the opening of Benchmark South, (d) an increase of $1.4 million related to
increased volume in the Company's subacute units and e) salaries, wages and
benefits of $5.5 million in fiscal 1995 related to RMCI.
Other operating expenses in fiscal 1996 were $42.4 million,
compared to $44.7 million in fiscal 1995. The material changes in other
operating expenses between periods included (a) a $3.0 million decrease related
to the closure of the Three Rivers facility, (b) a $2.5 million increase related
to the opening of Benchmark South, (c) an increase of $2.4 million related to
increased volume in the Company's subacute units, and (d) other operating
expenses in fiscal 1995 related to RMCI of $6.2 million. The Company's same
facility other operating expenses remained stable between periods, increasing
$0.3 million, or 1%. And, during 1996, the Company increased its liability for
self-insurance claims and incurred certain other expenses which were not present
in fiscal 1995.
The provision for doubtful accounts increased from $5.1
million in fiscal 1995 to $5.8 million in fiscal 1996. This increase primarily
related to the same facilities, which recorded additional provisions on per-diem
based residential treatment business in 1996. These provisions were necessary as
doubt arose with respect to the ability of certain payors to repay the Company
for services rendered in fiscal 1996.
Depreciation and amortization in fiscal 1996 totalled $5.5
million, compared to $7.3 million in fiscal 1995. Depreciation expense decreased
by $0.4 million on two facilities which were sold and leased back in April 1995.
Also, in June 1995, the book values of four facilities were considered impaired
pursuant to the provisions of FASB Statement Number 121, which reduced
depreciation expense in fiscal 1996 by an additional $0.6 million. Finally,
depreciation and amortization expense in fiscal 1995 related to RMCI totalled
$0.9 million.
24
Interest expense decreased from $8.3 million in 1995 to $6.9
million in 1996. This decrease related to debt reductions made in fiscal 1995 on
the Company's senior and subordinated secured notes (including a $7.5 million
prepayment in April 1995), which reduced interest expense in 1996 by $1.2
million. Also, interest expense in fiscal 1995 related to RMCI totalled $0.2
million.
Primarily in the fourth quarter of fiscal 1996, the Company
recorded losses totalling approximately $4.5 million related to additional asset
write-downs, cost report settlements and other adjustments related to businesses
which closed at various times prior to fiscal 1996, a reserve for
disproportionate share payments which the State of Louisiana has contended were
improperly paid to two of the Company's Louisiana facilities in fiscal 1995 and
1994 (see "Results of Operations" above) and lease commitments and other costs
incurred in connection with the Company's decision to relocate its corporate
headquarters. In fiscal 1995, the Company recorded losses totalling
approximately $6.4 million related to a sale/leaseback transaction, the sale of
real estate, the closure of Three Rivers Hospital, the closure of other
outpatient operations and the abandonment of certain development projects. See
"1995 Compared to 1994" below.
In March 1995, the Financial Accounting Standards Board (FASB)
issued Statement Number 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of " (the "Statement"). The Statement
requires companies to compare the recorded values of long-lived assets (defined
as land, buildings, fixed equipment and related cost in excess of net asset
value of purchased businesses) against the expected future cash flows to be
generated by these assets. Pursuant to the principles of measurement contained
in the Statement and the Company's expectations, the Company recorded asset
impairment charges in its 1996 and 1995 statement of operations totalling
approximately $4 million and $20 million, respectively.
In June 1996 and 1995, the Company recorded additional asset
impairment charges related to its investment in other healthcare enterprises of
approximately $1.5 million, based on an assessment of the future cash flows
expected to be realized by the Company from these businesses.
Minority interests in 1995 primarily reflects the limited
partners' share of net income of Three Rivers Hospital prior to its closure on
June 30, 1995.
The Company recorded a $2.9 million benefit for income taxes
in fiscal year 1996 compared to a $13.2 million benefit for income taxes in
fiscal year 1995. The income tax benefit recorded in fiscal year 1996 was
recorded at an effective tax rate significantly less than the statutory tax rate
due to a deferred tax valuation allowance of $4.4 million at June 30, 1996.
1995 Compared to 1994
The following are the significant changes in the Company's
operations between 1995 and 1994. These changes affect the comparison of
revenues and expenses of the Company between years as discussed below.
25
* In October 1993, the Company, through its subsidiary
RMCI, entered the managed mental health business
through its acquisition of FPM. This business was
expanded in June 1994 with the acquisition of an
Arizona-based managed mental health business and, in
succeeding months, with the execution of additional
contracts for the provision of managed mental health
care. The revenues and expenses of RMCI and its
subsidiaries were included in the Company's revenues
and expenses from October 1993 to April 24, 1995,
when the RMCI Distribution was effected.
* Louisiana disproportionate share payments received by
the Company during fiscal 1995 were approximately
$8.7 million less than the amount received in fiscal
1994.
* In February 1994, the Company sold its Atlantic
Shores facility in Daytona Beach, Florida. In
addition, the Company closed several day treatment
centers and outpatient clinics during 1995 and 1994
due to negative operating margins. The sale and these
closures are referred to in this section as the
"sold/closed facilities".
* The Company opened four subacute units in late fiscal
1994/early fiscal 1995.
* The Company expanded its contract services division
during fiscal 1995.
* Significant asset impairment charges and losses
related to asset sales and closed businesses in
fiscal 1995.
__________________________
Net revenues for fiscal 1995 were $136.4 million, compared to
$137.0 million in fiscal 1994. The material changes in net revenues consisted of
(a) a $12.6 million decrease (11%) in same facility net inpatient revenues, (b)
a $2.9 million increase (21%) in same facility net outpatient revenues, (c) a
$4.5 million increase in net revenues attributable to the Company's subacute
operations, (d) a $7.1 million increase (from $5.8 million to $12.9 million) in
net revenues related to RMCI, (e) a $0.6 million increase (from $0.5 million to
$1.1 million) in revenues associated with contract services and (f) a $3.1
million decrease in net patient revenues related to the sold/closed facilities
(excluding the Three Rivers facility which, for purposes of comparing 1995 to
1994, is included in the same facility totals).
Same facility net inpatient revenues decreased $12.6 million
between years. Of this amount, $8.7 million was related to a reduction in
disproportionate share payments to Three Rivers Hospital and Bayou Oaks
Hospital. Excluding the change in disproportionate share payments between
periods, same facility net inpatient revenues decreased approximately $3.9
million. Of this amount, $3.6 million is attributable to the decline in
admissions at the Three Rivers facility, which decline resulted from the State
of Louisiana's application of significantly more restrictive admission criteria
to facilities in the State treating the behavioral disorders of adolescents. The
26
inpatient census at this facility decreased from an average of 65 patients in
fiscal 1994 to 36 patients in fiscal 1995, with an average of 20 patients
subsequent to December 1, 1994 when the new admission rules became effective. As
stated earlier, on June 30, 1995, the Company closed Three Rivers Hospital and
consolidated the operations of this facility with its Greenbrier facility
located less than five miles away.
Excluding the above factors, net inpatient revenues related to
all other inpatient facilities were stable and patient days and admissions
related to these facilities increased 4.5% and 10%, respectively, between
periods. The growth rate in admissions exceeded that in patient days due to an
overall decline in the inpatient average length of stay from 17.6 days in 1994
to 15.7 days in 1995. In addition, these facilities experienced a decrease in
net inpatient revenue per patient day due to a continued shift in patient mix
from charge-based payors to cost-based and negotiated per-diem rate payors, as
well as an increase in same facility residential treatment days as a percentage
of total same facility patient days. Net revenue per patient day on cost-based
and negotiated per-diem rate payors is generally less than that for charge-based
payors.
Same facility net outpatient revenues totalled $17.0 million
in 1995 compared to $14.1 million in 1994. This increase is primarily due to an
expansion of partial hospitalization day services because of an increased market
focus by facility administrators.
Total salaries, wages and benefits in fiscal 1995 were $72.1
million, compared to $64.8 million in fiscal 1994. The material changes in this
expense item consisted of (a) a $1.7 million (or 3.0%) increase in same facility
salaries, wages and benefits, (b) an increase in salaries, wages and benefits of
$2.1 million attributable to the Company's subacute operations, (c) a $3.9
million increase (from $1.6 million to $5.5 million) in salaries, wages and
benefits related to RMCI, (d) a $0.7 million increase in salaries, wages and
benefits associated with contract services and (e) a $1.2 million decrease in
salaries, wages and benefits attributable to the sold/closed facilities.
Other operating expenses in fiscal 1995 were $44.7 million,
compared to $42.9 million in fiscal 1994. The material changes in other
operating expenses consisted of (a) a $2.3 million decrease (6%) in same
facility other operating expenses, (b) an increase in other operating expenses
of $3.4 million attributable to the subacute operations, (c) a $2.8 million
increase (from $3.4 million to $6.2 million) in other operating expenses related
to RMCI, (d) a $0.2 million increase in other operating expenses associated with
contract services and (e) a decrease of $2.2 million in other operating expenses
attributable to the sold/closed facilities. The decrease in same facility other
operating expenses was due to focused cost-cutting initiatives within these
facilities during the year.
The provision for doubtful accounts in fiscal 1995 was $5.1
million, compared to $5.8 million in fiscal 1994. A $1.2 million decrease in
same facility provision for doubtful accounts (from $5.7 million in fiscal 1994
to $4.5 million in fiscal 1995) was offset by increases in the provision for
doubtful accounts associated with subacute and contract services of $0.1 million
and $0.3 million, respectively. The decrease in same facility provision for
doubtful accounts was primarily the result of a continued shift in patient mix
and the corresponding shift from charge-based payors (which requires a larger
amount to be paid by the patient) to cost-based and negotiated commercial
insurance per-diem rate payors.
27
Depreciation and amortization in fiscal 1995 totalled $7.3
million, compared to $6.8 million in fiscal 1994. The overall change in this
expense item was primarily due to (a) a $0.5 million increase in depreciation
and amortization related to subacute operations, (b) a $0.5 million increase in
depreciation and amortization related to RMCI and (c) a $0.5 million decrease in
depreciation and amortization attributable to the sold/closed facilities.
Interest expense decreased from $8.9 million in 1994 to $8.3
million in 1995. Debt levels were reduced between periods through scheduled
principal payments of (a) $5.65 million on the Company's senior secured notes,
(b) $0.5 million on the Company's subordinated secured notes and (c) $0.8
million on the Company's variable rate demand revenue bonds. In addition, on May
1, 1995, the Company prepaid $7.5 million of principal on the senior secured
notes and, in connection with the sale of Atlantic Shores Hospital in February
1994, the variable rate demand revenue bonds associated with that facility,
totalling $4.3 million, were redeemed. The reduction in interest as a result of
these principal payments was offset by an increase in interest rates on the
variable rate demand revenue bonds, interest on a working capital facility
drawing and interest incurred in fiscal 1995 prior to the RMCI Distribution on
debt incurred in connection with RMCI acquisitions made during the second half
of fiscal 1994.
In fiscal 1995, the Company recorded losses associated with
asset sales and closed businesses of approximately $6.4 million. This amount is
comprised of the following significant items:
1. Sale/Leaseback Transaction: On April 12, 1995, the Company
consummated a sale/leaseback transaction whereby the Company sold the land,
buildings and fixed equipment of two of its inpatient facilities for $12.5
million and agreed to lease these properties back over a term of 15 years (with
three successive renewal options of five years each). The leases, which are
treated as operating leases under generally accepted accounting principles,
require aggregate annual minimum rental payments of approximately $1.5 million,
payable monthly. Each April 1, the lease payments are subject to any upward
adjustment (not to exceed 3% annually) to the Consumer Price Index over the
preceding 12 months.
Net sale proceeds associated with this transaction totalled
$12.1 million which, when compared to the net book value of assets sold of $15.7
million, resulted in a loss of $3.6 million. On May 1, 1995, the Company
utilized a portion of the proceeds from the above transaction and prepaid $7.5
million of principal due on the senior secured notes as follows: $3.5 million
due on September 30, 1995, $3.5 million due on March 31, 1996 and $0.5 million
due on September 30, 1996. In connection with this prepayment, the Company wrote
down a proportionate amount of unamortized loan costs related to the senior
secured notes, totalling $229,000, and incurred a yield maintenance charge from
the holders of the senior secured notes, totalling $234,000. These amounts are
recorded as a loss from early extinguishment of debt, net of applicable income
taxes, in the 1995 statement of operations.
2. Real Estate Sales: In March and April 1995, the Company
sold certain real estate located in Flagstaff, Arizona and Houston, Texas,
respectively. These properties were acquired for development approximately 10
28
years ago and had an aggregate book value of $1.15 million. Net proceeds from
the sale of this real estate totalled approximately $0.75 million, resulting in
a loss of $0.4 million.
3. Closure of Day Treatment and Other Outpatient Operations:
During 1995, the Company closed its remaining day treatment centers as well as
certain outpatient clinics which were producing negative operating margins. In
addition, the Company recorded cost report settlements and asset write-downs
totalling $380,000 and $190,000, respectively, which became evident in 1995
subsequent to these closures and subsequent to the closure of day treatment
centers in late fiscal 1994. Finally, the Company sold an outpatient
rehabilitation clinic in San Antonio, Texas in June 1995. The total losses
incurred related to these events was approximately $1.3 million.
4. Closure of Three Rivers Hospital: The Company recorded
certain losses, totalling approximately $0.2 million, resulting from its
decision to close Three Rivers Hospital on June 30, 1995 and consolidate the
operations of this facility with its Greenbrier facility.
5. Development Projects: The Company pursued several
development opportunities during 1995 including the potential acquisition of a
competitor, the development of rural health clinics and the potential
acquisition of a contract management company. These efforts were abandoned or
otherwise terminated during the year resulting in a charge against earnings of
approximately $0.8 million.
In the fourth quarter of fiscal 1994, the Company decided to
terminate its development activities related to its day treatment division and
to close certain of these centers due to the poor operating performance of this
division. In addition, the Company also decided to close four outpatient clinics
related to its Heartland Hospital facility during this quarter. Finally, certain
adjustments were made which resulted in gain recognition on the sale of Atlantic
Shores Hospital, which was sold in February 1994. The total net losses related
to these closures and sale in fiscal 1994 was $0.8 million.
In the fourth quarter of fiscal 1995, the Company elected to
adopt FASB Statement Number 121 and, after applying the principles of
measurement contained in the Statement and the Company's expectations, recorded
a charge against earnings, before taxes, of $20.3 million. This amount is
reflected as an asset impairment charge in the 1995 consolidated statement of
operations.
In June 1995, the Company recorded an additional asset
impairment charge related to its investment in a healthcare enterprise in
Germany of approximately $1.5 million, based on a reassessment of the future
expected cash flows to be realized by the Company from this business.
Minority interests primarily reflects the limited partner's
share of net income of Three Rivers Hospital prior to its closure on June 30,
1995.
29
Impact of Inflation
The psychiatric hospital industry is labor intensive, and
wages and related expenses increase in inflationary periods. Additionally,
suppliers generally seek to pass along rising costs to the Company in the form
of higher prices. The Company monitors the operations of its facilities to
mitigate the effect of inflation and increases in the costs of health care. To
the extent possible, the Company seeks to offset increased costs through
increased rates, new programs, and operating efficiencies. However,
reimbursement arrangements may hinder the Company's ability to realize the full
effect of rate increases. To date, inflation has not had a significant impact on
operations.
FINANCIAL CONDITION
The Company records amounts due to or from third-party
contractual agencies (Medicare, Medicaid and Blue Cross) based on its best
estimate, using the principles of cost reimbursement, of amounts to be
ultimately received or paid under current and prior years' cost reports filed
(or to be filed) with the appropriate intermediaries. Ultimate settlements and
other lump-sum adjustments due from and paid to these intermediaries occur at
various times during the fiscal year. At June 30, 1996, amounts due from
Medicare, Medicaid and Blue Cross totalled $3.6 million, $2.4 million and $0.5
million, respectively. Also, at June 30, 1996, amounts due to Medicare, Medicaid
and Blue Cross totalled $6.3 million, $1.0 million and $1.1 million,
respectively. See "Results of Operations" above.
At June 30, 1996, net cash advances made by the Company to or
on behalf of RMCI totalled $8.2 million. Of this amount, $6 million primarily
related to the funding of certain RMCI acquisitions and is represented by an
unsecured, interest-bearing (8%), subordinated promissory note due from RMCI and
issued on October 25, 1994. The remaining amount includes $0.36 million of
accrued interest on the promissory note since October 1, 1995 and $1.85 million
of additional amounts paid by RHCI on behalf of RMCI and charges by RHCI to RMCI
for certain administrative services (the "Additional Amount"). Of the $6 million
due on the promissory note, approximately $1.4 million is due on or before June
30, 1997 and the remainder is payable in 13 quarterly installments of
approximately $353,000, beginning September 30, 1997. RHCI has agreed that the
payment of interest on the promissory note for the period October 1, 1995
through June 30, 1996, as well as the Additional Amount will not be required
until after July 1, 1997, all on terms and conditions to be mutually agreed to
by RHCI and RMCI.
In June 1996 and 1995, the Company recorded a write-down of
fixed and intangible assets associated with certain of its inpatient facilities
totalling approximately $4 million and $20 million, respectively. In accordance
with FASB Statement Number 121, the facilities' carrying amount of cost in
excess of net asset value of purchased businesses, if applicable, was eliminated
prior to making a reduction of these facilities' carrying amounts of impaired
property and equipment. The property and equipment impairment, which totalled
approximately $4.0 million and $16.5 million, respectively, was recorded
pursuant to the Statement as a direct reduction in the cost basis of the related
property and equipment (rather than as an increase to accumulated depreciation
on these assets).
30
The Company has net deferred tax assets totalling
approximately $11.5 million, which includes a valuation allowance of $4.4
million, at June 30, 1996. Management has considered the effects of implementing
tax planning strategies, consisting of the sales of certain appreciated
property, as the primary basis for recognizing deferred tax assets at June 30,
1996. The ultimate realization of deferred tax assets may be affected by changes
in the underlying values of the properties considered in the Company's tax
planning strategies, which values are dependent upon the operating results and
cash flows of the individual properties. The Company evaluates the realizability
of its deferred tax assets on a quarterly basis by reviewing its tax planning
strategies and the adequacy of its valuation allowance.
At June 30, 1996, the current portion of long-term debt was
$10.9 million, compared to $3.8 million at June 30, 1995. This increase was due
to (a) the Company's commitment during 1996 to reduce the credit exposure of its
bank group by $3.0 million by December 31, 1996 (see "Liquidity and Capital
Resources" below) and (b) principal payments on the senior secured notes of $6.6
million which came due within one year during fiscal 1996. These increases were
offset by payments during 1996 of $1.5 million on the amount outstanding at June
30, 1995 under the Company's former working capital facility and payments of
$0.9 million on a former capital lease obligation. At June 30, 1995, no amounts
were classified as current on the senior secured notes based on a prepayment of
principal on these notes in April 1995.
Noncurrent other accrued liabilities increased from $1.3
million at June 30, 1995 to $7.2 million at June 30, 1996 due to the
establishment of reserves as discussed in "Results of Operations" above.
During 1996, amounts owed to minority interests decreased by
$0.7 million based on distributions to the minority partners in the Three Rivers
Hospital Limited Partnership. In July 1996, the Three Rivers Limited Partnership
was dissolved.
In October 1995 and August 1996, a corporate affiliate of Paul
J. Ramsay, the Chairman of the Board of the Company, acquired through private
placements 275,863 shares and 275,546 shares, respectively, of Common Stock of
the Company at a price of $3.625 and $2.75 per share, respectively. Of the total
shares acquired in October 1995, 121,363 were issued for cash and 154,500 were
issued for management fees due during the remainder of fiscal 1996 under the
Company's management agreement with another corporate affiliate of Mr. Ramsay.
The shares acquired in August 1996 were issued for management fees due under the
management agreement during fiscal 1997. With the issuance of the additional
shares, the voting the interest in the Company held by Mr. Ramsay increased from
approximately 30.9% to approximately 34.8%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's credit facilities include $34.2 million in
senior secured notes, approximately $20 million in letters of credit and $1.8
million in subordinated secured notes. The senior secured notes bear interest at
11.6% and require a principal payment of approximately $3.1 million on September
30, 1996, semi-annual principal payments of approximately $3.5 million from
31
March 31, 1997 through September 30, 1998 and semi-annual principal payments of
$5.65 million from March 31, 1999 through March 31, 2000. The subordinated
secured notes bear interest at 15.6% and require semi-annual principal payments
of $0.2 million through March 31, 2000. Required annual principal payments on
the variable rate demand revenue bonds total $0.8 million through year 2000 and
$0.9 million to $1.2 million in years 2001 through 2015. In December 1995, the
Company fully paid down and terminated its working capital facility with its
bank group. In September 1995, and again in August 1996, the Company and banks
supporting the Credit Agreement agreed to terms which extended the expiration
date of the Credit Agreement from May 15, 1996 to February 15, 1997 and from
February 15, 1997 to August 15, 1997, respectively. In connection with the
initial extension, the Company agreed to reduce the banks' exposure by an
additional $3 million on or before July 1, 1996. This requirement was extended
by the bank group to December 31, 1996 as part of the August 1996 extension.
The Company's credit facilities require that the Company meet
certain convenants, including (a) the maintenance of a minimum level of
consolidated tangible net worth, (b) the maintenance of a working capital ratio
and (c) the maintenance of certain fixed charge coverage and debt service
ratios. From time to time, the lenders have agreed to waive or otherwise adjust
certain of these ratios and levels. In connection with these waivers and
adjustments, the Company pays additional fees and expenses. Further, as part of
the waivers and adjustments obtained as of June 30, 1996, the Company agreed to
provide its Hillcrest Hospital facility and related assets as additional
collateral to the lenders and agreed not to pay future cash dividends in respect
of its Class B Preferred Stock, Series C.
In connection with the Company's business strategy, the
Company is currently pursuing a transaction involving one of its facilities
which has been financed, in part, by variable rate revenue bonds, which bonds
are supported by the letter of credit from the Company's bank group. Under the
current structure of the proposed transaction, the Company would contribute the
facility and its operations to a new entity which would be jointly owned by the
Company and a medical/surgical facility in the same market area. The
medical/surgical facility would contribute cash and other consideration to the
new entity. Through economies of scale, infrastructure savings and new business
opportunities of the new entity, the Company believes its income from the new
entity could approximate the income currently realized from this facility. In
connection with this transaction, the revenue bonds outstanding on the facility
would be redeemed or a substitute letter of credit would be issued, thereby
achieving the Company's commitment to reduce the exposure of its bank group by
the required $3.0 million.
In May 1996, the Company signed a letter of intent to sell its
Three Rivers facility to an independent party. The Company expects to receive
approximately $2.2 million from the sale of this facility prior to October 31,
1996.
In response to market demands, the Company is currently
converting an additional 37 beds at its Texas facilities from psychiatric care
to subacute care. Renovation costs associated with this project, which is
expected to be completed by January 1, 1997, will approximate $1.1 million. No
other commitments to make material capital expenditures exists at this time.
The Company's current primary cash requirements relate to its
normal operating expenses, the requirement to reduce its banks' credit exposure
as discussed above, principal payments on its senior secured notes (which resume
on September 30, 1996), routine capital improvements at its facilities and the
above mentioned renovation project. Also, the State of Louisiana has taken the
position that certain disproportionate share payments were improperly paid to
two of the Company's Louisiana facilities. See "Results of Operations" above and
"Item 3. Legal Proceedings."
32
On the basis of its historical cash collection experience and
projected cash needs, the Company believes that its existing cash resources,
internally generated funds from operations, proceeds from the sale of Three
Rivers Hospital, debt reductions derived from its business strategy and a
refinancing of the Company's outstanding debt will be sufficient to meet its
current cash requirements and future identifiable needs. At this time, the
Company has not entered into a definitive agreement to sell its Three Rivers
Hospital and does not have any commitment to refinance its outstanding debt.
Further, the Company believes that the resolution of the matter with the State
of Louisiana will not have a material adverse effect on its liquidity.
Item 8. Financial Statements and Supplementary Data.
Financial statements of the Company and its consolidated
subsidiaries are set forth herein beginning on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
33
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information with respect to the Company's executive officers
is contained in Part I under "Item 1. Business -- Executive Officers of the
Registrant." The information required by this Item with respect to directors
will be contained in the Company's definitive Proxy Statement ("Proxy
Statement") for its 1996 Annual Meeting of Stockholders to be held on November
21, 1996 and is incorporated herein by reference. Such Proxy Statement will be
filed with the Securities and Exchange Commission not later than 120 days
subsequent to June 30, 1996.
Item 11. Executive Compensation.
The information required with respect to this Item will be
contained in the Proxy Statement, and such information is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required with respect to this Item will be
contained in the Proxy Statement, and such information is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions.
The information required with respect to this Item will be
contained in the Proxy Statement, and such information is incorporated herein by
reference.
34
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-1 to F-26 of this Annual Report on Form 10-K.
2. Financial Statement Schedules
All schedules have been omitted because they are
inapplicable or the information is provided in the consolidated
financial statements, including the notes thereto.
3. Exhibits
Information with respect to this Item is contained in
the attached Index to Exhibits.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed by the Company for
the quarter ended June 30, 1996. On October 2, 1996, the Company
filed a Current Report on Form 8-K relating to a proposed merger
between the Company and Ramsay Managed Care, Inc.
(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 Exhibits listed in response
to Item 14(a)3, and are incorporated herein by reference. The
agreements, management contracts and compensatory plans and
arrangements required to be filed as an Exhibit to this Form 10-K
are listed in Exhibits 4.4, 10.4, 10.58, 10.88, 10.93, 10.94,
10.95, 10.96, 10.97 and 10.98.
35
POWER OF ATTORNEY
The Registrant, and each person whose signature appears below, hereby
appoints Bert G. Cibran and Thomas M. Haythe as attorneys-in-fact with full
power of substitution, severally, to execute in the name and on behalf of the
registrant and each such person, individually and in each capacity stated below,
one or more amendments to the annual report which amendments may make such
changes in the report as the attorney-in-fact acting deems appropriate and to
file any such amendment to the report with the Securities and Exchange
Commission.
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 fully authorized.
RAMSAY HEALTH CARE, INC.
Dated: 10/7/96 By /s/ Bert G. Cibran
Bert G. Cibran
President and Principal Executive Officer
Dated: 10/7/96 By /s/ Carol C. Lang
Carol C. Lang
Principal Financial Officer
Pursuant to the requirements of the Securities and 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
Dated: 10/8/96 By /s/ Paul J. Ramsay
Paul J. Ramsay
Chairman of the Board and Director
Dated: 10/7/96 By /s/ Luis E. Lamela
Luis E. Lamela
Executive Vice Chairman of the Board and
Director
36
Signature/Title
Dated: 10/7/96 By /s/ Aaron Beam, Jr.
Aaron Beam, Jr.
Director
Dated: 10/7/96 By /s/ Peter J. Evans
Peter J. Evans
Director
Dated: __________________ By__________________________________________
Robert E. Galloway
Director
Dated: 10/7/96 By /s/ Thomas M. Haythe
Thomas M. Haythe
Director
Dated: 10/7/96 By /s/ Steven J. Shulman
Steven J. Shulman
Director
Dated: 10/8/96 By /s/ Michael S. Siddle
Michael S. Siddle
Director
37
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RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
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
Number
Report of Independent Auditors........................... F-3
Consolidated Balance Sheets -- June 30, 1996 and 1995.... F-4
Consolidated Statements of Operations-- For the Years
Ended June 30, 1996, 1995 and 1994.................. F-6
Consolidated Statements of Stockholders' Equity -- For
the Years Ended June 30, 1996, 1995 and 1994........ F-7
Consolidated Statements of Cash Flows -- For the Years
Ended June 30, 1996, 1995 and 1994.................. F-8
Notes to Consolidated Financial Statements............... F-9
All schedules have been omitted because they are inapplicable or the
information is provided in the consolidated financial statements, including the
notes thereto.
F1
[THIS PAGE INTENTIONALLY LEFT BLANK]
F2
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Ramsay Health Care, Inc.
We have audited the accompanying consolidated balance sheets of Ramsay
Health Care, Inc. and Subsidiaries as of June 30, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Ramsay Health Care, Inc. and Subsidiaries at June 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, the
Company changed its method of accounting for the impairment of long-lived assets
in 1995.
ERNST & YOUNG LLP
New Orleans, Louisiana
October 8, 1996
F3
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30
1996 1995
ASSETS
Current assets
Cash and cash equivalents ......................... $ 7,605,000 $ 9,044,000
Patient accounts receivable, less allowances for
doubtful accounts of $4,573,000 and $3,886,000
at June 30, 1996 and 1995, respectively ......... 23,410,000 21,564,000
Amounts due from third-party contractual agencies . 6,479,000 5,956,000
Current portion of receivable from affiliated
company ......................................... 1,412,000 325,000
Other receivables ................................. 2,985,000 3,330,000
Deferred income taxes ............................. 1,398,000 --
Other current assets .............................. 2,372,000 2,764,000
Total current assets ............................ 45,661,000 42,983,000
Other assets
Cash held in trust ................................ 745,000 1,778,000
Cost in excess of net asset value of purchased
businesses ...................................... 591,000 663,000
Unamortized preopening and loan costs ............. 1,040,000 2,221,000
Receivable from affiliated company, less current
portion 6,795,000 7,170,000
Deferred income taxes ............................. 10,141,000 8,652,000
Other noncurrent assets ........................... 1,392,000 2,301,000
20,704,000 22,785,000
Property and equipment
Land .............................................. 5,025,000 5,383,000
Buildings and improvements ........................ 69,200,000 77,630,000
Equipment, furniture and fixtures ................. 20,325,000 19,611,000
94,550,000 102,624,000
Less accumulated depreciation ..................... 28,157,000 29,156,000
66,393,000 73,468,000
$ 132,758,000 $139,236,000
See notes to consolidated financial statements.
F4
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable........................ $ 4,990,000 $ 3,868,000
Accrued salaries and wages.............. 5,169,000 4,843,000
Other accrued liabilities............... 4,412,000 1,347,000
Amounts due to third-party
contractual agencies.................. 8,435,000 4,996,000
Current portion of long-term debt....... 10,940,000 3,831,000
Total current liabilities.......... 33,946,000 18,885,000
Noncurrent liabilities
Other accrued liabilities .............. 7,170,000 1,337,000
Long-term debt, less current portion.... 44,664,000 55,568,000
Minority interests...................... 925,000 1,667,000
Total noncurrent liabilities....... 52,759,000 58,572,000
Stockholders' equity
Class B convertible preferred stock,
Series C, $1 par value--authorized
152,321 shares; issued 142,486
shares (liquidation value of
$7,244,000) including accrued
dividends of $91,000 ................. 233,000 233,000
Common stock, $.01 par value--
authorized 20,000,000 shares;
issued 8,605,108 shares at
June 30, 1996 and 8,290,795
shares at June 30, 1995............... 86,000 83,000
Additional paid-in capital.............. 99,899,000 99,147,000
Retained earnings (deficit) ............ (50,266,000) (33,785,000)
Treasury stock--581,550 common
shares at June 30, 1996
and June 30, 1995, at cost............ ( 3,899,000) (3,899,000)
Total stockholders' equity......... 46,053,000 61,779,000
$ 132,758,000 $ 139,236,000
See notes to consolidated financial statements.
F5
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended June 30
1996 1995 1994
NET REVENUES ...................... $ 117,423,000 $ 136,418,000 $ 137,002,000
Expenses:
Salaries, wages and benefits ..... 66,259,000 72,061,000 64,805,000
Other operating expenses ......... 42,387,000 44,741,000 42,907,000
Provision for doubtful accounts .. 5,805,000 5,086,000 5,846,000
Depreciation and amortization .... 5,490,000 7,290,000 6,836,000
Interest and other financing
charges ........................ 6,892,000 8,347,000 8,906,000
Losses related to asset sales
and closed businesses ........... 4,473,000 6,431,000 802,000
Asset impairment charges ......... 5,485,000 21,815,000 --
TOTAL EXPENSES .................... 136,791,000 165,771,000 130,102,000
INCOME (LOSS) BEFORE MINORITY
INTERESTS, INCOME TAXES AND
EXTRAORDINARY ITEM ............... (19,368,000) (29,353,000) 6,900,000
Minority interests ................ -- 887,000 4,824,000
INCOME (LOSS) BEFORE INCOME
TAXES AND EXTRAORDINARY ITEM ..... (19,368,000) (30,240,000) 2,076,000
Provision (benefit) for income
taxes ............................ (2,887,000) (13,195,000) 599,000
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM ............... (16,481,000) (17,045,000) 1,477,000
Extraordinary item:
Loss from early extinguishment
of debt, less applicable income
tax benefit of $206,000 in 1995
and $103,000 in 1994 ............. -- (257,000) (155,000)
NET INCOME (LOSS) ................. $ (16,481,000) $ (17,302,000) $ 1,322,000
Income (loss) per common and
dilutive common equivalent
share:
Primary:
Before extraordinary item ........ $ (2.12) $ (2.25) $ 0.15
Extraordinary item:
Loss from early
extinguishment of debt .......... -- (0.03) (0.01)
$ (2.12) $ (2.28) $ 0.14
Fully diluted:
Before extraordinary
item ........................... $ (2.12) $ (2.24) $ 0.15
Extraordinary item:
Loss from early
extinguishment of debt ........ -- (0.03) (0.01)
$ (2.12) $ (2.27) $ 0.14
Weighted average number of
common and dilutive common
equivalent shares
outstanding:
Primary .......................... 7,929,000 7,743,000 9,641,000
Fully diluted .................... 7,929,000 7,794,000 9,679,000
See notes to consolidated financial statements.
F6
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Class B
Class A Convertible
Convertible Preferred Additional Retained
Preferred Stock Common Paid-In Earnings Treasury
Stock Series C Stock Capital (Deficit) Stock
BALANCE AT
JULY 1,
1993 $ 23,000 $142,000 $ 81,000 $ 99,847,000 $(17,805,000) $(2,291,000)
Exercise
of stock
options
(112,834
shares) .... -- -- 1,000 565,000 -- --
Dividends
on
Class B
convertible
preferred
stock,
Series C ... -- 91,000 -- (364,000) -- --
Purchase of
treasury
stock
(160,000
shares) .... -- -- -- -- -- (1,144,000)
Net income .. -- -- -- -- 1,322,000 --
BALANCE AT
JUNE 30,
1994 ....... 23,000 233,000 82,000 100,048,000 (16,483,000) (3,435,000)
Exercise of
stock
options
(74,166
shares) .... -- -- 1,000 378,000 -- --
Shares
issued in
connection
with
employee
stock
purchase
plan
(15,869
shares) .... -- -- -- 89,000 -- --
Dividends on
Class B
convertible
preferred
stock,
Series C ... -- -- -- (364,000) -- --
Purchase of
treasury
stock
(99,800
shares) ... -- -- -- -- -- (464,000)
Redemption
of Class A
convertible
preferred
stock ...... (23,000) -- -- (100,000) -- --
Distribution
of
subsidiary
to
stockholders -- -- -- (904,000) -- --
Net loss .... -- -- -- -- (17,302,000) --
BALANCE AT
JUNE 30,
1995 ........ -- 233,000 83,000 99,147,000 (33,785,000) (3,899,000)
Exercise of
stock
options
(3,000
shares) .... -- -- -- 10,000 -- --
Shares issued
in
connection
with
employee
stock
purchase
plan
(21,760
shares) ... -- -- -- 70,000 -- --
Other shares
issued
(289,553
shares) .... -- -- 3,000 1,034,000 -- --
Dividends on
Class B
convertible
preferred
stock,
Series C ... -- -- -- (362,000) -- --
Net loss .... -- -- -- -- (16,481,000) --
BALANCE AT
JUNE 30,
1996 ........ $ -- $233,000 $86,000 $ 99,899,000 $(50,266,000) $(3,899,000)
See notes to consolidated financial statements.
F7
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30
1996 1995 1994
Cash flows from
operating activities
Net income (loss) ............. $(16,481,000) $(17,302,000 $ 1,322,000
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:
Depreciation and
amortization .............. 6,003,000 8,074,000 7,638,000
Asset impairment
charges ................... 5,485,000 21,815,000 --
Loss on early
extinguishment of
debt ...................... -- 463,000 258,000
Write-off of
development and
other costs ............... 381,000 716,000 --
Loss on disposal
of assets ................. -- 5,096,000 722,000
Deferred income tax
benefit ................... (2,887,000) (13,584,000) (1,188,000)
Provision for
doubtful accounts ......... 5,805,000 5,086,000 5,846,000
Management and
director fees paid
in common stock ........... 600,000 -- --
Minority interests ......... -- 887,000 4,824,000
Cash flows from
(increase) decrease
in operating assets:
Patient accounts
receivable .............. (7,651,000) (4,410,000) (2,169,000)
Other current
assets .................. (1,632,000) (522,000) (2,071,000)
Other noncurrent
assets .................. 225,000 616,000 (554,000)
Cash flows from
increase (decrease)
in operating
liabilities:
Accounts payable ......... 1,105,000 2,466,000 (2,484,000)
Accrued salaries,
wages and other
liabilities ............. 9,202,000 (749,000) 2,072,000
Amounts due to
third-party
contractual
agencies ................ 3,439,000 267,000 (1,385,000)
Total
adjustments ........... 20,075,000 26,221,000 11,509,000
Net cash
provided by
operating
activities ........... 3,594,000 8,919,000 12,831,000
Cash flows from
investing activities
Proceeds from sales
of assets ................... -- 970,000 16,422,000
Acquisitions of
businesses .................. -- -- (6,022,000)
Expenditures for
property and
equipment ................... (1,467,000) (2,726,000) (5,070,000)
Development project
costs ....................... -- (2,124,000) (388,000)
Preopening costs ............. -- (329,000) (2,195,000)
Restricted cash
(reserved) used for
debt payments ............... -- 5,311,000 (5,311,000)
Cash held in trust ........... 1,033,000 (974,000) 806,000
Net cash
provided by
(used in)
investing
activities ........... (434,000) 128,000 (1,758,000)
Cash flows from
financing activities
Loan costs ................... (217,000) (290,000) (222,000)
Proceeds from
sale/leaseback of
facilities and
equipment ................... -- 12,015,000 --
Distributions to
minority interests .......... (742,000) (2,466,000) (2,741,000)
Proceeds from
working capital
facility .................... -- 2,500,000 --
Proceeds from
private placement
of shares of
subsidiary .................. -- 3,320,000 --
Reduction in cash
due to distribution
of subsidiary ............... -- (1,427,000) --
Payment of costs
related to
distribution of
subsidiary .................. -- (1,696,000) --
Net proceeds from
exercise of options
and stock purchases ......... 517,000 468,000 566,000
Payments on debt ............. (3,795,000) (17,683,000) (11,734,000)
Payment of preferred
stock dividends ............. (362,000) (364,000) (273,000)
Cancellation of
Class A preferred
stock ...................... -- (123,000) --
Purchase of treasury
stock ...................... -- (464,000) (1,144,000)
Net cash used
in financing
activities ........... (4,599,000) (6,210,000) (15,548,000)
Net increase (decrease)
in cash and cash
equivalents .................... (1,439,000) 2,837,000 (4,475,000)
Cash and cash
equivalents at
beginning of year .............. 9,044,000 6,207,000 10,682,000
Cash and cash
equivalents at
end of year .................... $ 7,605,000 $ 9,044,000 $ 6,207,000
See notes to consolidated financial statements.
F8
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Ramsay Health
Care, Inc. and its majority-owned subsidiaries (the "Company"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
Industry
The Company is a provider of a full continuum of behavioral health
services. It offers patient care through integrated networks of mental health
delivery systems in eleven states, principally in the southeast and southwest,
built around 15 inpatient hospitals with 1,369 licensed beds (including 77
medical subacute beds), outpatient centers and management contracts. Nine of the
Company's facilities also provide less intensive residential treatment services.
During fiscal years 1995 and 1994, the Company operated a managed mental health
business through a subsidiary, the stock of which was distributed in the form of
a dividend to the Company's stockholders in April 1995. See Note 2.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. See Notes
4, 9 and 11.
Reclassifications
Certain amounts in the fiscal 1995 and 1994 financial statements have been
reclassified to conform with the fiscal 1996 presentation.
Cash Equivalents
Cash equivalents include short-term, highly liquid interest-bearing
investments consisting primarily of certificates of deposit, commercial paper,
money market mutual funds and demand revenue bonds.
Cash Held in Trust
Cash held in trust is revocable by the Company under certain circumstances
and includes cash and short-term investments set aside for the payment of losses
in connection with the Company's self-insurance program for hospital
professional and general liability claims.
F9
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Intangible Assets and Deferred Costs
Cost in excess of net asset value of purchased businesses is amortized on a
straight- line basis over 40 years. The carrying value of cost in excess of net
asset value of purchased businesses is reviewed by Company management if the
facts and circumstances suggest that it may be impaired. If this review
indicates that these costs will not be recoverable, as determined based on the
undiscounted cash flows of the entity over the remaining amortization period,
the Company's carrying value of these costs is reduced by the estimated
shortfall of cash flows.
Preopening costs, principally salaries and other costs incurred prior to
opening a new facility, program or business, are deferred and amortized on a
straight-line basis over two years.
Loan costs are deferred and amortized ratably over the life of the loan and
are included in interest and other financing charges. When a loan or a portion
thereof is prepaid, a proportionate amount of deferred loan costs associated
with the borrowing is written off and reported as an extraordinary loss from
early extinguishment of debt in the Company's statement of operations.
Accumulated amortization of the Company's intangible assets and deferred
costs as of June 30, 1996 and 1995 was $6,880,000 and $7,544,000, respectively.
Property and Equipment
Property and equipment are stated at cost, except for assets considered to
be impaired pursuant to FASB Statement Number 121, which are stated at fair
value of the assets as of the date the assets are determined to be impaired.
Upon the sale or retirement of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and the resulting gain or
loss is included in operations.
Depreciation is computed substantially on the straight-line method for
financial reporting purposes and on accelerated methods for income tax purposes.
The general range of estimated useful lives for financial reporting purposes is
twenty to forty years for buildings and five to twenty years for equipment.
Medicare, Medicaid and Other Contracted Reimbursement Programs
Net revenues include estimated reimbursable amounts from Medicare, Medicaid
and other contracted reimbursement programs. Amounts received by the Company for
treatment of patients covered by such programs, which may be based on the cost
of services provided or predetermined rates, are generally less than the
established billing rates of the Company's hospitals. Final determination of
F10
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
amounts earned under contracted reimbursement programs is subject to review and
audit by the appropriate agencies. Differences between amounts recorded as
estimated settlements and the audited amounts are reflected as adjustments to
net revenues in the period the final determination is made. See Note 11.
Professional and General Liability Insurance
The Company maintains a self-insurance program for its hospital
professional and general liability insurance. The Company and its facilities are
insured for professional and general liability in the aggregate amount of $25
million with self-insured retentions of $500,000 per claim and $1,500,000
aggregate per year. The Company records the liability for uninsured professional
and general liability losses related to asserted and unasserted claims arising
from reported and unreported incidents based on independent valuations which
consider claim development factors, the specific nature of the facts and
circumstances giving rise to each reported incident and the Company's history
with respect to similar claims. The development factors are based on a blending
of the Company's actual experience with industry standards.
Income Taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109. SFAS 109 requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Minority Interests
The equity of minority partners in subsidiaries is reported on the balance
sheet as minority interests. Minority interests reflect changes for the
respective share of income of the subsidiaries attributable to the minority
partners, the effect of which is also reflected in the results of operations of
the Company, and for distributions made to the minority partners.
Earnings Per Share
Primary earnings per share are calculated by dividing income before
extraordinary items and net income by the weighted average number of common and
dilutive common equivalent shares outstanding during each period. The Company's
common stock equivalents include Class A convertible preferred stock (which was
redeemed by the Company in June 1995), Class B convertible preferred stock,
Series C and stock options and warrants to purchase Common Stock. Fully diluted
earnings per share are calculated as if all conversions and exercises had
occurred at the beginning of the year.
F11
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Stock Options
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly,
recognizes no compensation expense for the stock option grants.
2. Transactions with Affiliated Companies
In October 1993, the Company, through its subsidiary Ramsay Managed Care,
Inc. ("RMCI"), entered the managed mental health business through an acquisition
of Florida Psychiatric Management, Inc. The managed care division expanded in
June 1994 with the acquisition of a Phoenix, Arizona-based managed mental health
business and, in fiscal 1995, through the award of contracts in Hawaii and West
Virginia. On April 24, 1995, the Company distributed the stock of RMCI held by
it to the holders of record on April 21, 1995 of the Company's Common and
Preferred Stock. Subsequent to this distribution, which was recorded at net book
value, RMCI ceased being a subsidiary of the Company.
The distribution of RMCI reduced additional paid-in capital of the Company
by $904,000. In addition, costs related to the distribution of RMCI, which
included accounting, legal, printing, investment banking and distribution agent
fees and expenses, were charged to the operations of RMCI (and not the Company)
effective on the date of the distribution and costs related to a private
placement and rights offering by RMCI were deducted from additional paid-in
capital of RMCI (and not the Company) on the effective date of the distribution.
RMCI is governed by a Board of Directors which is substantially the same
as the Company's Board of Directors. At June 30, 1996, total net cash advances
made by the Company to or on behalf of RMCI, including for purposes of partially
funding acquisitions and for working capital and other corporate purposes,
totalled $8,207,000. Of this amount, $6,000,000 is represented by an unsecured,
interest-bearing (8%), subordinated promissory note due from RMCI and issued on
October 25, 1994. The remaining amount, which is also unsecured, includes
$360,000 of accrued interest on the promissory note since October 1, 1995 and
$1,847,000 (of which approximately $1,600,000 was outstanding on the
distribution date) of additional amounts paid by RHCI on behalf of RMCI or
charges by RHCI to RMCI for certain administrative services. Of the $6,000,000
due on the promissory note, approximately $1,412,000 is due on or before June
30, 1997 and the remainder is payable in 13 quarterly installments of
approximately $353,000, beginning September 30, 1997. RHCI has agreed that the
payment of interest on the promissory note for the period October 1, 1995
through June 30, 1996, as well as the $1,847,000 of additional amounts owed,
will not be required until after July 1, 1997, all on terms and conditions to be
mutually agreed to by RHCI and RMCI. During fiscal 1996 and 1995, total income
F12
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
recorded on amounts advanced to RMCI were approximately $600,000 and $110,000,
respectively.
On October 1, 1996, the Company and RMCI entered into an agreement and plan
of merger providing for the acquisition of RMCI by the Company. Upon
consummation of the merger, in exchange for all of the outstanding shares of
common and preferred stock of RMCI, the Company will issue approximately
2,130,000 shares of Common Stock and 100,000 shares of Class B Preferred Stock,
Series 1996, which will be convertible into 1,000,000 shares of Common Stock of
the Company. In addition, following the merger, all amounts owed by RMCI to the
Company will become an intercompany payable and receivable between RMCI and
RHCI, respectively. The merger is subject to approval by the shareholders of
each company, the receipt of lender, governmental and other consents and the
declaration of effectiveness by the Securities and Exchange Commission of a
registration statement to be filed by the Company. Subject to the satisfaction
of these conditions, it is expected that the merger will be consummated in
March, 1997.
At June 30, 1996, Ramsay Holdings HSA Limited owns approximately 17.5% of
the outstanding Common Stock of the Company and 50% of the outstanding Class B
Preferred Stock, Series C of the Company. Paul Ramsay Holdings Pty. Limited
("Pty. Limited") owns approximately 3.4% of the outstanding Common Stock of the
Company and the remaining 50% of the outstanding Class B Preferred Stock, Series
C.
In October 1995 and August 1996, Pty. Limited, a corporate affiliate of
Paul J. Ramsay, the Chairman of the Board of the Company, acquired through
private placements 275,863 shares and 275,546 shares, respectively, of Common
Stock of the Company at a price of $3.625 and $2.75 per share, respectively. Of
the total shares acquired in October 1995, 121,363 were issued for cash and
154,500 were issued for management fees due during the remainder of fiscal 1996
under the Company's management agreement with another corporate affiliate (the
"Management Fee Affiliate") of Mr. Ramsay. The shares acquired in August 1996
were issued for management fees due under the management agreement during fiscal
1997. With the issuance of the additional shares, the voting interest in the
Company held by Mr. Ramsay increased to approximately 34.8%.
On September 10, 1996, the Company entered into a letter agreement with
the Management Fee Affiliate and Pty. Limited which terminates the management
agreement effective July 1, 1997. In consideration for this termination, the
Company issued warrants to Pty. Limited to purchase 250,000 shares of Common
Stock at an exercise price of $2.63 per share. These warrants are fully
exercisable as of September 10, 1996 and expire on September 10, 2006.
F13
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
During the years ended June 30, 1996, 1995 and 1994, pursuant to the
management agreement, the Company incurred management fee expenses of $737,000,
$716,000 and $698,000, respectively.
3. Impairment of Assets
In the fourth quarter of fiscal 1995, the Company elected to adopt early
the provisions of FASB Statement Number 121 (the "Statement"). The Statement
requires that a new cost basis be established for impaired assets (within the
meaning of the Statement) based on the fair value of the assets as of the date
the assets are determined to be impaired, and that previously recorded
accumulated depreciation related to the impaired assets be eliminated.
As required by the Statement, the Company periodically reviews the
long-lived assets (land, buildings, fixed equipment and related cost in excess
of net asset value of purchased businesses) of each of its inpatient facilities
to determine if the carrying value of these assets is recoverable, based on the
future cash flows expected from the assets. Based on this review, the Company
determined that the carrying value of certain long-lived assets was impaired
(within the meaning of the Statement) at June 30, 1996 and 1995. The amount of
the impairment, calculated as the excess of carrying value of the long-lived
assets over the fair value of the assets (estimated using discounted future cash
flows expected from the assets), totalled approximately $4,000,000 ($3,400,000
after tax) and $20,300,000 ($11,400,000 after tax) at June 30, 1996 and 1995,
respectively. In accordance with the Statement, the facilities' carrying amount
of cost in excess of net asset value of purchased businesses, totalling
$3,800,000 in 1995 (zero in 1996), was written off prior to recording an
impairment to the carrying amount of property and equipment.
In 1996 and in 1995, the Company recorded additional asset impairment
charges totalling approximately $1,500,000 related to its investments in other
healthcare enterprises. The amount of the impairment charges was based on an
assessment of the future expected cash flows to be realized by the Company from
these enterprises.
4. Losses Related to Asset Sales and Closed Businesses
Primarily in the fourth quarter of fiscal 1996, the Company recorded
losses totalling approximately $4,500,000 related to additional asset
write-downs, cost report settlements and other adjustments related to businesses
which closed at various times prior to fiscal 1996, a reserve for
disproportionate share payments which the State of Louisiana has contended were
improperly paid to two of the Company's Louisiana facilities in fiscal 1995 and
1994, and lease commitments and other costs incurred in connection with the
Company's decision to relocate its corporate headquarters.
F14
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
During fiscal 1996, the State of Louisiana requested repayment of
disproportionate share payments received by two of the Company's Louisiana
facilities in fiscal years 1995 and 1994 totalling approximately $5,000,000. The
repayment requests related to a) alleged overpayments made to Three Rivers
Hospital because the State believed Three Rivers' actual annual inpatient volume
was less than its projection of annual inpatient volume made at the beginning of
its 1994 cost reporting year and b) alleged improper teaching hospital payments
made to Three Rivers Hospital and Bayou Oaks Hospital because the State believed
these facilities were not qualifying teaching hospitals at the time these
payments were made. The Company believes that certain of the calculations which
support the State's calculation of annual inpatient volume in 1994 are in error
and that other relevant factors affecting the State's calculation have not been
considered. Further, the Company believes that, based on its understanding of
the rules and regulations in place at the time the teaching hospital payments
were made, payments received as a result of the teaching classification were
appropriate.
On the basis of discussions to date between the Company and the State, the
Company believes that this matter may be settled for an amount significantly
less than the State's initial requests. Any settlement of this matter will be
contingent upon the execution of settlement documentation, the terms of which
have not been agreed upon. Further, there can be no assurance that the Company
and the State will agree on a settlement amount or the terms and conditions of
settlement documentation. The Company intends to vigorously contest any position
by the State of Louisiana which the Company considers adverse and believes that
adequate provision has been made at June 30, 1996 for the estimated amount which
might be recovered from the Company as a result of this matter.
During the third quarter of fiscal 1995, the Company recorded a $3,600,000
loss in connection with the sale and leaseback of two inpatient facilities and a
$400,000 loss in connection with the sale of real estate. In addition, the
Company closed certain outpatient operations during fiscal 1995, incurred
additional losses in 1995 on outpatient operations closed in fiscal 1994, and
closed Three Rivers Hospital on June 30, 1995. Losses recorded in 1995 as a
result of these closures totalled approximately $1,500,000.
During the fourth quarter of fiscal 1994, the Company terminated its plan
to develop additional outpatient treatment centers and closed or made the
decision to close certain of these centers already in operation. The losses
associated with these actions, which totalled approximately $1.3 million, were
offset by a $500,000 gain recognized on the sale of the Company's Atlantic
Shores Hospital facility.
F15
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
5. Long-Term Debt
The Company's long-term debt is as follows:
June 30
1996 1995
11.6% senior secured notes
due in semi-annual
installments through
March 31, 2000 ................... $ 34,169,000 $ 34,169,000
Variable rate revenue
bonds through 2015 .............. 19,400,000 20,200,000
15.6% subordinated secured
notes due in semi-annual
installments through
March 31, 2000 .................. 1,846,000 2,308,000
Capital lease obligation .......... -- 919,000
Working capital facility .......... -- 1,500,000
Other ............................. 189,000 303,000
55,604,000 59,399,000
Less amounts due within
one year ......................... 10,940,000 3,831,000
$ 44,664,000 $ 55,568,000
The aggregate scheduled maturities of long-term debt during the five years
subsequent to June 30, 1996 are as follows: 1997 -- $10,940,000; 1998 --
$8,260,000; 1999 -- $10,343,000; 2000 -- $12,462,000; and 2001 -- $800,000.
The Company has pledged substantially all of its real property as
collateral on the Company's long-term debt.
In 1984 and 1985, the Company entered into loan agreements with various
state and local governmental agencies for the purpose of financing or providing
reimbursement for the construction costs of certain of the Company's psychiatric
hospitals. Each state governmental agency funded its loan with proceeds of
tax-exempt variable rate demand revenue bonds in the same amount as its loan.
These loans, which generally have a term of 30 years, have an outstanding
balance at June 30, 1996 of $19,400,000. The interest rates on the loans are the
same as the applicable revenue bonds and ranged from 3.4% to 6.6% at June 30,
1996. The Company is required to maintain an irrevocable standby letter of
credit for each bond in an amount equal to the total principal payments due
under the bond, plus approximately one quarter's interest. Such letters of
credit are provided in a credit facility with a group of banks finalized in May
1993 (the "1993 Credit Facility").
The 1993 Credit Facility originally included approximately $27,500,000 in
letters of credit and $4,000,000 in a working capital facility. Due to principal
payments and the redemption of the variable rate revenue bonds associated with
the sale of a facility in 1994, the letters of credit outstanding at June 30,
1996 totalled $20,300,000. In addition, the Company fully paid down and
terminated its working capital facility with its bank group in December 1995.
F16
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
In September 1995, and again in August 1996, the Company and banks
supporting the 1993 Credit Facility agreed to terms which extended its
expiration date from May 15, 1996 to February 15, 1997 and from February 15,
1997 to August 15, 1997, respectively. In connection with the initial extension,
the Company agreed to reduce the bank group's exposure under the 1993 Credit
Facility by an additional $3 million on or before July 1, 1996. This requirement
was extended by the bank group to December 31, 1996 as part of the August 1996
extension.
On April 30, 1990, the Company entered into credit facilities (the "1990
Credit Facilities") with a group of insurance companies and banks. The 1990
Credit Facilities included $56,500,000 in senior secured notes and $3,000,000 in
subordinated secured notes. The senior secured notes bear interest at 11.6% and
require a principal payment of $3,093,250 on September 30, 1996, semi-annual
principal payments of $3,531,250 from March 31, 1997 through September 30, 1998
and semi-annual principal payments of $5,650,000 from March 31, 1999 through
March 31, 2000. The subordinated secured notes bear interest at 15.6% and are
due in semi-annual installments of $230,769 that began on March 31, 1994 and end
on March 31, 2000. In connection with a $7,500,000 prepayment of principal on
the senior secured notes in May 1995, the Company wrote down a proportionate
amount of unamortized loan costs related to the senior secured notes, totalling
$229,000, and incurred a yield maintenance charge from the holders of the senior
secured notes, totalling $234,000. These amounts, net of an applicable income
tax benefit of $206,000, are reported as a loss from early extinguishment of
debt in the 1995 statement of operations.
Under the 1993 and 1990 Credit Facilities, the Company is required to meet
certain covenants, including: (1) the maintenance of a minimum level of
consolidated tangible net worth; (2) the maintenance of a working capital ratio;
and (3) the maintenance of certain fixed charge coverage and debt service
ratios. From time to time, the lenders under the 1993 and 1990 Credit Facilities
have agreed to waive or otherwise adjust certain of these ratios and levels. In
connection with these waivers and adjustments, the Company pays additional fees
and expenses. Further, as part of the waivers and adjustments obtained as of
June 30, 1996, the Company agreed to provide its Hillcrest Hospital facility and
related assets as additional collateral to the lenders and agreed not to pay
future cash dividends in respect of its Class B Preferred Stock, Series C.
6. Operating Leases
In April 1995, the Company sold and leased back the land, buildings and
fixed equipment of two of its inpatient facilities. The leases have a primary
term of 15 years (with three successive renewal options of 5 years each) and
currently require aggregate annual minimum rentals of $1.58 million, payable
monthly. Effective April 1 of each year, the lease payments are subject to any
upward adjustment (not to exceed 3% annually) in the consumer price index over
the preceding twelve months. Effective April 1995, the Company agreed to lease
an 80-bed facility near Salt Lake City, Utah for four years, with an option to
renew for an additional three years. The lease requires annual base rental
payments of $456,000, payable monthly, and percentage rental payments equal to
2% of the net revenues of the facility, payable quarterly. The Company leases
office space for various other purposes over terms ranging from one to five
years. Rent expense related to noncancellable operating leases amounted to
F17
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
$3,269,000, $2,718,000 and $2,052,000 for the years ended June 30, 1996, 1995
and 1994, respectively.
Future minimum lease payments required under noncancellable operating
leases as of June 30, 1996 are as follows: 1997--$2,993,000; 1998--$2,699,000;
1999--$2,464,000; 2000-- $1,783,000; 2001--$1,770,000; and
thereafter--$14,520,000.
7. Stockholders' Equity
The Certificate of Incorporation of the Company, as amended, authorizes
the issuance of 20,000,000 shares of Common Stock, $.01 par value, 800,000
shares of Class A Preferred Stock, $1.00 par value, and 1,000,000 shares of
Class B Preferred Stock, $1.00 par value, of which 333,333 shares have been
designated as Class B Preferred Stock, Series 1987, $1.00 par value, and 152,321
shares have been designated as Class B Preferred Stock, Series C, $1.00 par
value ("Series C Preferred Stock").
Outstanding capital stock at June 30, 1996 included 8,605,108 shares of
Common Stock, of which 581,550 shares are held in treasury, and 142,486 shares
of Series C Preferred Stock. The shares of Series C Preferred Stock were issued
in June 1993 in connection with a recapitalization of the interests of Paul J.
Ramsay, the Company's chairman. The shares are entitled to cumulative dividends
at a rate of 5% per annum, payable quarterly in arrears, and to a liquidation
preference of $50.84 per share under certain circumstances. The shares are
convertible into that number of fully paid and nonassessable shares of Common
Stock that results from dividing the conversion price in effect at conversion
into $50.84 and multiplying the quotient obtained by the number of shares of
Series C Preferred Stock being converted. The current conversion price is $5.084
per share. Each share of Series C Preferred Stock is entitled to ten (10) votes
on all matters put to a vote of the shareholders of the Company and otherwise
has voting rights and powers equal to the voting rights and powers of the Common
Stock.
The Board of Directors has adopted a Stockholders Rights Plan, under which
the Company distributed a dividend of one common share purchase right for each
outstanding share of the Company's Common Stock (calculated as if all
outstanding shares of Series C Preferred Stock were converted into shares of
Common Stock). Each right becomes exercisable upon the occurrence of certain
events for a number of shares of the Company's Common Stock having a market
price totalling $24 (subject to certain anti-dilution adjustments which may
occur in the future). The rights currently are not exercisable and will be
exercisable only if a new person acquires 20% or more of the Company's Common
Stock or announces a tender offer resulting in ownership of 20% or more of the
Company's Common Stock. The rights, which expire on August 14, 2005, are
redeemable in whole or in part at the Company's option at any time before a 20%
or greater position has been acquired, for a price of $.01 per right.
F18
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The Company's credit documents governing its credit facilities include
provisions which prohibit the payment of dividends unless the sum of (i) all
dividends, redemptions and all other distributions in respect of its capital
stock and (ii) all restricted investments (as defined) during the applicable
fiscal year would not exceed an amount equal to 50% of the consolidated net
income of the Company for the immediately preceding fiscal year and provided
that, at the time of such dividend and after giving effect thereto, certain
specified financial ratio covenants would not be violated and no other default
or event of default would occur. Further, in connection with waivers received
from the Company's lenders under the 1993 and 1990 Credit Facilities as of June
30, 1996, the Company agreed not to pay future cash dividends in respect of its
Series C Preferred Stock. Prior to this time, the Company's credit facilities
permitted the payment of regular fixed dividends on the Series C Preferred
Stock, provided that such dividends did not exceed $387,200 in each 12-month
period and provided that no event of default existed or occurred as a result of
such payment.
8. Options and Warrants
The Company's stock option plans provide for options to various key
employees and non-employee directors to purchase shares of Common Stock at no
less than the fair market value of the stock on the date of grant. Options
granted become exercisable in varying increments including (a) 100% one year
after the date of grant, (b) 50% each year beginning one year after the date of
grant and (c) 33% each year beginning on the date of grant. Options issued to
employees and directors are subject to anti-dilution adjustments and generally
expire the earlier of 10 years after the date of grant or 60 days after the
employee's termination date or the director's resignation date. At June 30,
1996, the weighted average remaining life of all outstanding options was seven
years.
During 1996, in connection with a repricing opportunity authorized by the
Company's Board of Directors on November 10, 1995, approximately 1,500,000 of
options were voluntarily repriced by the optionholders. Under the repricing
opportunity, the exercise prices of the holders' outstanding options were
reduced to $2.50 per share, the closing price for the Common Stock on the NASDAQ
National Market System on November 10, 1995. The repriced options are not
exercisable until the closing price for the Common Stock, as quoted on the
NASDAQ National Market System, equals or exceeds $7.00 per share for at least 15
trading days, which need not be consecutive, subsequent to November 10, 1995.
The closing price for the Company's Common Stock has not exceeded $7.00 per
share since November 10, 1995 and, therefore, none of the repriced options were
exercisable at June 30, 1996.
F19
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
At June 30, 1996, there were no shares available for grant under the 1990
Stock Option Plan and 79,057, 64,802 and 178,142 shares available for grant
under the 1991, 1993 and 1995 Stock Option Plans, respectively. The table below
summarizes the activity in the plans in fiscal years 1996, 1995 and 1994.
1990 Plan 1991 Plan
Number Price Range Number Price Range
of Options Per Share of Options Per Share
Outstanding,
July 1, 1993 ......... 332,001 $5.00 1,061,501 $5.00-$6.25
Granted .............. -- -- 173,000 $6.88-$7.88
Canceled ............. -- -- (33,991) $5.00-$7.88
Exercised ............ (38,332) $5.00 (74,502) $5.00-$5.31
Outstanding,
June 30, 1994 ....... 293,669 $5.00 1,126,008 $5.00-$7.88
Granted .............. -- -- -- --
Canceled ............. (52,013) $4.01 (66,885) $4.25-$7.88
Exercised ............ (31,999) $5.00 (42,167) $5.00-$5.31
Effect of
Distribution
of Subsidiary ....... 64,972 266,924
Outstanding,
June 30, 1995 ....... 274,629 $4.01-$5.00 1,283,880 $3.75-$6.31
Granted .............. -- --
Canceled/expired (110,885) $4.01 (39,736) $4.01-$6.31
Exercised ............ -- --
Outstanding,
June 30, 1996 ....... 163,744 $2.50-$4.01 1,244,144 $2.50-$6.31
Exercisable,
June 30, 1996 ....... 63,252 166,961
Exercisable,
June 30, 1995 ....... 274,629 909,390
Exercisable,
June 30, 1994 ....... 293,669 982,669
1993 Plan 1995 Plan
Number Price Range Number Price Range
of Options Per Share of Options Per Share
Outstanding,
July 1, 1993 ........ -- -- -- --
Granted .............. 271,500 $6.88-$7.88 -- --
Canceled ............. (15,505) $7.88 --
Exercised ............ -- -- -- --
Outstanding,
June 30, 1994 ....... 255,995 $6.88-$7.88 -- --
Granted .............. 65,000 $3.75-$6.63 -- --
Canceled ............. (101,037) $5.51-$7.88 -- --
Exercised ............ -- -- -- --
Effect of
Distribution
of Subsidiary ....... 46,930 -- --
Outstanding,
June 30, 1995 ....... 266,888 $3.75-$6.31 -- --
Granted .............. 108,750 $3.38 321,858 $2.50-$4.01
Canceled ............. (49,756) $2.50-$6.31 -- --
Exercised ............ (3,000) $3.38 -- --
Outstanding,
June 30, 1996 ....... 322,882 $2.50-$6.31 321,858 $2.50-$4.01
Exercisable,
June 30, 1996 ....... 67,774 4,161
Exercisable,
June 30, 1995 ....... 210,669 --
Exercisable,
June 30, 1994 ....... 9,999 N/A
F20
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
On September 10, 1996, the Company entered into an Exchange
Agreement with a corporate affiliate of Paul J. Ramsay whereby Mr. Ramsay
exchanged 476,070 options with an exercise price of $2.50 per share (pursuant to
the repricing opportunity discussed above), for warrants to purchase an
aggregate of 500,000 shares for Common Stock at $2.75 per share. The warrants,
which expire in June 2003, are not exercisable until the closing price for the
Common Stock, as quoted on the NASDAQ National Market System, equals or exceeds
$7.00 per share for at least 15 trading days, which need not be consecutive,
subsequent to September 10, 1996. Most of the options exchanged were originally
granted under the 1991 Plan.
As part of the 1990 Credit Facilities, the Company issued warrants
to Aetna Life Insurance Company and Monumental Life Insurance Company to
purchase an aggregate of 113,301 shares of the Company's Common Stock at $9.61
per share. As a result of anti-dilution adjustments, at June 30, 1996, the
purchase price is $6.43 per share and a total of 139,597 warrants are
outstanding. These warrants are exercisable on or before March 31, 2000.
9. Income Taxes
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets are as follows:
June 30
1996 1995
Deferred tax liabilities:
Book basis of fixed assets over tax basis ....... $ 2,710,000 $ 4,023,000
Change in tax accounting methods ................ -- 685,000
Economic performance ............................ 237,000 316,000
Total deferred tax liabilities ............... 2,947,000 5,024,000
Deferred tax assets:
Allowance for doubtful accounts ................. 1,211,000 609,000
General and professional liability insurance .... 899,000 635,000
Accrued employee benefits ....................... 374,000 417,000
Investment in nonconsolidated subsidiaries ...... 1,644,000 1,401,000
Impairment of investment ........................ 677,000 568,000
Other accrued liabilities ....................... 2,280,000 --
Other ........................................... 1,307,000 356,000
Net operating loss carryovers ................... 8,962,000 8,146,000
Alternative minimum tax credit carryovers ....... 1,544,000 1,544,000
Total deferred tax assets .................... 18,898,000 13,676,000
Valuation allowance for deferred tax assets ..... (4,412,000) --
Deferred tax assets, net of valuation allowance 14,486,000 13,676,000
Net deferred tax assets ...................... $11,539,000 $ 8,652,000
F21
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The provision (benefit) for income taxes consists of the following:
Year Ended June 30
1996 1995 1994
Income taxes currently payable:
Federal .......... $ -- $ -- $ 810,000
State ............ -- 183,000 874,000
Deferred income taxes:
Federal .......... (2,577,000) (12,154,000) (1,196,000)
State ............ (310,000) (1,430,000) 8,000
$ (2,887,000) $(13,401,000) $ 496,000
The provision (benefit) for income taxes is reported in the
consolidated statements of operations as follows:
Year Ended June 30
1996 1995 1994
Provision (benefit) for income
taxes...... $ (2,887,000) $(13,195,000) $ 599,000
Income tax benefit from loss
on early extinguishment
of debt................. -- (206,000) (103,000)
$ (2,887,000) $(13,401,000) $ 496,000
The provision (benefit) for income taxes included in the consolidated
statements of operations differs from the amounts computed by applying the
statutory rate to income (loss) before income taxes, as follows:
Year Ended June 30
1996 1995 1994
Income (loss) before income
taxes,extraordinary items
and cumulative effect of
accounting change............ $(19,368,000) $(30,240,000) $ 2,076,000
Federal statutory income tax
rate......... 34% 34% 34%
(6,585,000) (10,282,000) 706,000
Benefit of net operating loss
recognized --- (2,503,000) (921,000)
Increase in valuation allowance 4,412,000 --- ---
Write-off of cost in excess of
net asset value of purchased
businesses.......... --- 956,000 ---
Income tax benefit from loss
on early extinguishment of
debt ................ --- (206,000) (103,000)
State income taxes............. (310,000) (1,247,000) 882,000
Other.......................... (404,000) (119,000) (68,000)
$ (2,887,000) $(13,401,000) $ 496,000
The Company has net deferred tax assets of $11,539,000 and
$8,652,000 at June 30, 1996 and 1995, respectively. In evaluating the
realizability of its deferred tax assets and the need for a valuation allowance,
management has considered the effects of implementing tax planning strategies,
consisting of the sales of certain appreciated property. The Company's valuation
F22
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
allowance related to deferred tax assets was increased from zero at June 30,
1995 to $4,412,000 at June 30, 1996, based on increases in the Company's
deferred tax assets which are not considered realizable given the estimated
effects of management's tax planning strategies.
At June 30, 1996, net operating loss carryovers of approximately
$23,600,000 (of which $17,600,000 expires from 2000 to 2003, $3,800,000 expires
in 2010 and $2,200,000 expires in 2011) and alternative minimum tax credit
carryovers of approximately $1,500,000 are available to reduce future federal
income taxes, subject to certain annual limitations.
10. Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating the fair values of its financial instruments:
Cash and cash equivalents and cash held in trust: The carrying amount reported
in the balance sheet for cash and cash equivalents and cash held in trust
approximates its fair value.
Receivable from affiliated company: It was not practicable to estimate the fair
value of the receivable from affiliated company as the borrowing rate of the
affiliate was not determinable. Management believes this receivable is not
impaired at June 30, 1996 and 1995.
Debt: The fair value of the Company's senior secured and subordinated secured
notes is estimated using discounted cash flow analyses, based on the Company's
estimated current incremental borrowing rate for similar types of borrowing
arrangements. The carrying amounts of all other debt instruments approximate
estimated fair value.
The carrying amounts and estimated fair values of the Company's
financial instruments at June 30, 1996 and 1995 are as follows:
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash
equivalents ........... $ 7,605,000 $ 7,605,000 $ 9,044,000 $ 9,044,000
Cash held in trust ..... 745,000 745,000 1,778,000 1,778,000
Receivable from
affiliated company .... 8,207,000 (see above) 7,495,000 (see above)
Debt:
Senior and
subordinated
notes .............. 36,015,000 36,904,000 36,477,000 38,226,000
Other ............... 19,589,000 19,589,000 22,922,000 22,922,000
11. Reimbursement from Third-Party Contractual Agencies
The Company records amounts due to or from third-party contractual
agencies based on its best estimates of amounts to be ultimately received or
paid under cost reports filed with the appropriate intermediaries. Final
determination of amounts earned under contractual reimbursement programs is
subject to review and audit by these intermediaries. Differences between amounts
recorded as estimated settlements and the audited amounts are reflected as
F23
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
adjustments to net revenues in the period the final determination is made.
During the years ended June 30, 1995 and 1994, the Company recorded contractual
reimbursement benefits of approximately $1,000,000 and $1,400,000, respectively,
related to intermediary audits of prior year cost reports. During the year ended
June 30, 1996 the Company recorded contractual adjustment expenses of
approximately $1,900,000 related to intermediary audits of prior year cost
reports. As a result of this negative experience, the Company recorded reserves
in the fourth quarter of fiscal 1996 totalling $3,500,000 related to possible
future adjustments of its cost report estimates by intermediaries. Management
believes that adequate provision has been made for any adjustments that may
result from future intermediary reviews and audits.
During the fiscal year ended June 30, 1996, the Company derived
approximately 70% of its net revenues from services provided to patients covered
by various federal and state governmental programs. Management believes it is
reasonably possible that the volume of patients or amount of reimbursement
received under these programs could be curtailed, resulting in decreases in the
Company's net revenues.
12. Savings Plan
The Company has a 401(k) tax deferred savings plan, administered by an
independent trustee, covering substantially all employees over age twenty-one
meeting a one-year minimum service requirement. The plan was adopted for the
purpose of supplementing employees' retirement, death and disability benefits.
The Company may, at its option, contribute to the plan through an Employer
Matching Account, but is under no obligation to do so. An employee becomes
vested in his Employer Matching Account over a four-year period.
The Company did not contribute to the plan in 1996 and 1995. In 1994, the
Company contributed $160,000 to the plan.
13. Litigation
The Company is subject to claims and suits arising in the ordinary course
of business. In the opinion of management, the ultimate resolution of such
pending legal proceedings will not have a material adverse effect on the
Company's financial position, results of operations or liquidity. See Note 4.
14. Allowance for Doubtful Accounts
Activity in the Company's allowance for doubtful accounts consists of the
following:
Year Ended June 30
1996 1995 1994
Balance at beginning of year....... $ 3,886,000 $ 3,925,000 $ 4,955,000
Provision for doubtful accounts ... 5,805,000 5,086,000 5,846,000
Write-offs of uncollectible
patient accounts receivable...... (5,118,000) (5,125,000) (6,876,000)
Balance at end of year............. $ 4,573,000 $ 3,886,000 $ 3,925,000
F24
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
15. Supplemental Cash Flow Information
The Company's non-cash investing and financing activities and cash
payments for interest and income taxes were as follows:
Year Ended June 30
1996 1995 1994
Distribution of subsidiary to
stockholders ...................... $ -- $ 904,000 $ --
Receivable from subsidiary
distributed to
stockholders ...................... -- 7,600,000 --
Issuance of debt in connection
with acquisitions ................. -- -- 3,500,000
Issuance of stock in lieu of
cash payment for management
and director fees ................. 600,000 -- --
Cash paid during the year for:
Interest (net of amount
capitalized) ...................... $ 5,260,000 $ 6,518,000 $8,064,000
Income taxes ......................... 249,000 1,231,000 398,000
F25
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
16. Quarterly Results of Operations and Other Supplemental Information
(Unaudited)
Following is a summary of the Company's quarterly results of operations for
the years ended June 30, 1996 and 1995.
Quarter Ended
September 30 December 31 March 31(2) June 30(3)
1996
Net revenues .... $ 29,129,000 $ 31,815,000 $ 31,888,000 $ 24,591,000
Income (loss)
before income
taxes .......... (631,000) 1,336,000 1,040,000 (21,113,000)
Net income
(loss) ......... (391,000) 835,000 638,000 (17,563,000)
Income (loss)
per common
and dilutive
common
equivalent
share(1)
Primary:
Income
(loss) per
common
share ........ $(0.06) $0.09 $0.07 $(2.23)
Fully diluted:
Income (loss)
per common
share ........ $(0.06) $0.09 $0.07 $(2.23)
1995
Net revenues .... $ 35,823,000 $ 35,634,000 $ 33,547,000 $ 31,414,000
Income (loss)
before income
taxes and
extraordinary
items ......... 939,000 613,000 (5,315,000) (26,477,000)
Income (loss)
before
extraordinary
items ......... 588,000 437,000 (3,960,000) (14,110,000)
Net income
(loss) ........ 588,000 437,000 (4,321,000) (14,006,000)
Income (loss)
per common
and dilutive
common
equivalent
share(1)
Primary:
Before
extraordinary
items ........ $0.06 $0.05 $(0.52) $(1.83)
Extraordinary
items ....... -- -- (0.05) 0.01
Income (loss)
per common
share ....... $0.06 $0.05 $(0.57) $(1.82)
Fully diluted:
Before
extraordinary
items ....... $0.06 $0.05 $(0.52) $(1.83)
Extraordinary
items ....... -- -- (0.05) 0.01
Income (loss)
per common
share ...... $0.06 $0.05 $(0.57) $(1.82)
(1) The quarterly earnings per share amounts may not equal the annual amounts
due to changes in the average common and dilutive common equivalent shares
outstanding during the year.
(2) As further described in Note 4, during the third quarter of fiscal 1995,
the Company recorded losses totalling $4.0 million ($2.9 million after
estimated income tax benefit) related to a sale/leaseback transaction and
the sale of real estate.
(3) As further described in Note 3, in the fourth quarter of fiscal 1996 and
1995, the Company recorded asset impairment charges primarily related to
the application of the principles of FASB Statement No. 121 of $5.5 million
($4.7 million after estimated income tax benefit) and $21.8 million ($12.3
million after estimated income tax benefit), respectively. As further
described in Notes 4 and 11, in the fourth quarter of fiscal 1996, the
Company recorded losses related to asset sales and closed businesses of
approximately $4.5 million ($3.8 million after estimated income tax
benefit) and contractual adjustment expenses related to cost report
settlements/reserves of approximately $7 million ($6 million after
estimated income tax benefit). Also, the Company recorded additional asset
write- downs/reserves of approximately $2.9 million ($2.4 million after
estimated income tax benefit) in the fourth quarter of fiscal 1996.
F26
INDEX OF EXHIBITS
Page
Number
2.1 Recapitalization Agreement dated as of June 30, 1993 by and
among the Company, Ramsay Holdings HSA Limited and Paul
Ramsay Holdings Pty. Limited (incorporated by reference
to Exhibit 2.2 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1994) ......................... --
2.2 Agreement of sale and purchase dated April 12, 1995 by
and between Mesa Psychiatric Hospital, Inc. and Capstone
Capital Corporation (incorporated by reference to
Exhibit 2.7 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1995). Pursuant to Reg. S-K, Item
601(b)(2), the Company agrees to furnish a copy of the
Schedules and Exhibits to such Agreement to the Commission
upon request .............................................. --
2.3 Agreement of sale and purchase dated April 12, 1995 by
and between RHCI San Antonio, Inc. and Capstone Capital
Corporation (incorporated by reference to Exhibit 2.8 to
the Company's Annual Report on Form 10-K for the year ended
June 30, 1995). Pursuant to Reg. S-K, Item 601(b)(2), the
Company agrees to furnish a copy of the Schedules and
Exhibits to such Agreement to the Commission upon request . --
2.4 Agreement and Plan of Merger dated as of October 1, 1996
among Ramsay Managed Care, Inc., the Company and RHCI
Acquisition Corp. (incorporated by reference to Exhibit 2
to the Company's Current Report on Form 8-K dated
October 2, 1996). Pursuant to Reg. S-K, Item 601(b)(2), the
Company agrees to furnish a copy of the Disclosure
Schedules to such Agreement to the Commission upon request --
3.1 Restated Certificate of Incorporation of the Company, as
amended (incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1990)............................................. --
3.2 Certificate of Amendment of Restated Certificate of
Incorporation of the Company filed on April 17, 1991
(incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-2,
Registration No. 33-40762) ................................ --
3.3 Certificate of Correction to Certificate of Amendment
of Restated Certificate of Incorporation of the Company
filed on April 18, 1991 (incorporated by reference to
Exhibit 3.3 to the Company's Registration Statement on
Form Registration No. 33-40762) ........................... --
3.4 By-Laws of the Company, as amended to date (incorporated
by reference to Exhibit 3.4 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1994) ..... --
3.5 Certificate of Designation of Preferred Stock of the Company
filed on June 27, 1991 (incorporated by reference to
Exhibit 3.5 to the Company's Registration Statement on
Form S-2, Registration No. 33-40762) ................... --
3.6 Certificate of Designation of Preferred Stock of the Company
filed on July 9, 1991 (incorporated by reference to
Exhibit 3.6 to the Company's Registration Statement on
Form S-2, Registration No. 33-40762) ................... --
3.7 Certificate of Designation of Preferred Stock of the Company
filed on June 29, 1993(incorporated by reference to
Exhibit 3.7 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1994) ......................... --
E-1
Page
Number
4.1 Trust Indenture dated as of March 31, 1990, between the
Company, Bountiful Psychiatric Hospital, Inc., Cumberland
Mental Health, Inc., East Carolina Psychiatric Services
Corporation, Havenwyck Hospital, Inc., Mesa Psychiatric
Hospital, Inc., Psychiatric Institute of West Virginia, Inc.,
and The Citizens and Southern National Bank and Susan L.
Adams (incorporated by reference to Exhibit 4.1 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1990) --
4.2 First Supplemental Trust Indenture dated as of June 15, 1991
between the Company, Bountiful Psychiatric Hospital, Inc.,
Cumberland Mental Health, Inc., East Carolina Psychiatric
Services Corporation, Havenwyck Hospital, Inc., Mesa
Psychiatric Hospital, Inc. and Psychiatric Hospital of
West Virginia, Inc. and The Citizens and Southern National
Bank, a national banking association, and an individual
trustee, as Trustees (incorporated by reference to Exhibit
4.4 to the Company's Registration Statement on Form S-2,
Registration No.33-40762) ................................. --
4.3 Second Supplemental Trust Indenture dated as of May 15, 1993
between the Company, Bountiful Psychiatric Hospital, Inc.,
Cumberland Mental Health, Inc., East Carolina Psychiatric
Services Corporation, Havenwyck Hospital, Inc., Mesa
Psychiatric Hospital,Inc. and Psychiatric Hospital of West
Virginia, Inc. and NationsBank of Georgia, National
Association and Susan L. Adams (incorporated by reference
to Exhibit 4.3 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1994) ......................... --
4.4 Third Supplemental Trust Indenture dated as of April 12,
1995 between the Company, Bountiful Psychiatric Hospital,
Inc., Cumberland Mental Health, Inc., East Carolina
Psychiatric Services Corporation, Havenwyck Hospital, Inc.,
Mesa Psychiatric Hospital, Inc. and Psychiatric Hospital of
West Virginia, Inc., and NationsBank of Georgia,
National Association and Elizabeth Talley, as Trustee .....
4.5 Fourth Supplemental Trust Indenture dated as of
September 15, 1995 between the Company, Bountiful
Psychiatric Hospital, Inc., Cumberland Mental Health,
Inc., East Carolina Psychiatric Services, Havenwyck
Hospital, Inc., Mesa Psychiatric Hospital, Inc. and
Psychiatric Institute of West Virginia, Inc. and NationsBank
of Georgia, National Association and Elizabeth Talley,
as Trustee (incorporated by reference to Exhibit 10.100 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995) ................................. --
4.6 Subsidiary Borrower Note of Atlantic Treatment Center, Inc.
dated May 21, 1993 in the principal amount of $4,607,945
payable to the order of Societe Generale, New York Branch
(incorporated by reference to Exhibit 4.5 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994) --
4.7 Subsidiary Borrower Note of Carolina Treatment Center, Inc.
dated May 21, 1993 in the principal amount of $5,030,000
payable to the order of Societe Generale, New York Branch
(substantially identical to Exhibit 4.6) ................. --
4.8 Subsidiary Borrower Note of Greenbrier Hospital, Inc.
dated May 21, 1993 in the principal amount of $5,973,125
payable to the order of Societe Generale, New York Branch
(substantially identical to Exhibit 4.6) .................. --
4.9 Subsidiary Borrower Note of Gulf Coast Treatment Center,
Inc. dated May 21, 1993 in the principal amount of
$4,392,500 payable to the order of Societe Generale,
New York Branch (substantially identical to Exhibit 4.6) .. --
E-2
Page
Number
4.10 Subsidiary Borrower Note of Houma Psychiatric Hospital, Inc.
dated May 21, 1993 in the principal amount of $3,979,589
payable to the order of Societe Generale, New York Branch
(substantially identical to Exhibit 4.6) .................. --
4.11 Subsidiary Borrower Note of HSA of Oklahoma, Inc. dated
May 21, 1993 in the principal amount of $3,445,562 payable
to the order of Societe Generale, New York Branch
(substantially identical to Exhibit 4.6) ................... --
10.1 Note Purchase Agreement dated as of March 31, 1990, among
the Company, Bountiful Psychiatric Hospital, Inc.,
Cumberland Mental Health, Inc., East Carolina Psychiatric
Services Corporation, Havenwyck Hospital, Inc., Mesa
Psychiatric Hospital, Inc., Psychiatric Institute of West
Virginia, Inc., and Aetna Life Insurance Company regarding
the purchase by Aetna Life Insurance Company of
$26,000,000 principal amount of 11.6% Senior Secured
$1,000,000 principal amount of 15.6% Subordinated Secured
Notes, and Warrants to Purchase Common Stock of the Company
(incorporated by reference to Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1990) --
10.2 Note Purchase Agreement pursuant to which Monumental Life
Insurance Company purchased $15,500,000 principal amount of
11.6% Senior Secured Notes, $2,000,000 principal amount
of 15.6% Subordinated Secured Notes, and Warrants to
Purchase Common Stock of the Company (substantially identical
to Exhibit 10.1) .......................................... --
10.3 Note Purchase Agreement pursuant to which Connecticut
Mutual Life Insurance Company purchased $15,000,000
principal amount of 11.6% Senior Secured Notes(substantially
identical to Exhibit 10.1) ................................ --
10.4 Pledge and Security Agreement between Bountiful Psychiatric
Hospital, Inc. and The Citizens and Southern National Bank
10.5 Pledge and Security Agreement dated as of March 31, 1990,
between the Company and The Citizens and Southern National
Bank (substantially identical to Exhibit 10.4) ........... --
10.6 Pledge and Security Agreement between Michigan Psychiatric
Services, Inc. and The Citizens and Southern National
Bank (substantially identical to Exhibit 10.4) ............. --
10.7 Pledge and Security Agreement between Americare of Galax,
Inc. and The Citizens and Southern National Bank
(substantially identical to Exhibit 10.4) ............... --
10.8 Deed of Trust, Security Agreement, and Financing Statement
dated as of March 31, 1990 from Bountiful Psychiatric
Hospital, Inc. to Merrill Title Company for the benefit
of The Citizens and Southern National Bank and Susan L. Adams
covering certain property in Woods Cross, Utah
(incorporated by reference to Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1990) --
10.9 Deed of Trust and Security Agreement from Cumberland
Mental Health, Inc. to First American Title Insurance
Company for the benefit of The Citizens and Southern
National Bank and Susan L. Adams covering certain
property in Fayetteville, North Carolina (substantially
identical to Exhibit 10.8) ................................ --
10.10 Deed of Trust and Security Agreement from East Carolina
Psychiatric Services Corporation to First American Title
Insurance Company for the benefit of The Citizens and
Southern National Bank and Susan L. Adams covering certain
property in Jacksonville, North Carolina (substantially
identical to Exhibit 10.8) ................................ --
E-3
Page
Number
10.11 Mortgage and Security Agreement dated as of March 31,
1990 from Havenwyck Hospital, Inc. to The Citizens and
Southern National Bank and Susan L. Adams covering certain
property in Auburn Hills, Michigan (incorporated by reference
to Exhibit 10.12 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1990) .......................... --
10.12 Leasehold Deed of Trust, Assignment of Rents and Security
Agreement with Financing Statement dated as of March 31,
1990 from Mesa Psychiatric Hospital, Inc. to Transamerica
Title Insurance Company for the benefit of The Citizens and
Southern National Bank and Susan L. Adams covering certain
property in Mesa, Arizona (incorporated by reference to
Exhibit 10.13 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1990) ............................. --
10.13 Leasehold Deed of Trust and Security Agreement from
Psychiatric Institute of West Virginia, Inc. to J. Nicholas
Barth, Esq., for the benefit of The Citizens and Southern
National Bank and Susan L. Adams covering certain property
in Morgantown, West Virginia (substantially identical to
Exhibit 10.12) ............................................ --
10.14 Obligor Subrogation and Contribution Agreement dated as of
April 30, 1990 among The Citizens and Southern National
Bank, Susan L. Adams, the Company, Bountiful Psychiatric
Hospital, Inc., Cumberland Mental Health, Inc., East
Carolina Psychiatric Services Corporation, Havenwyck
Hospital, Inc., Mesa Psychiatric Hospital, Inc., and
Psychiatric Institute of West Virginia, Inc. (incorporated
by reference to Exhibit 10.15 to the Company's Annual Report
on Form 10-K for the year ended June 30, 1990) ............ --
10.15 Credit Agreement dated as of May 15, 1993 among the
Company and certain of its subsidiaries named therein,
Societe Generale, New York Branch, First Union National
Bank of North Carolina and Hibernia National Bank, as
lenders, and Societe Generale, as issuing bank and agent
(incorporated by reference to Exhibit 10.16 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994) --
10.16 Security Agreement dated as of May 15, 1993 by Atlantic
Treatment Center, Inc. in favor of Societe Generale, as
agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above, and
covering certain property in Daytona Beach, Florida
(incorporated by reference to Exhibit 10.17 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994) --
10.17 Security Agreement dated as of May 15, 1993 by Carolina
Treatment Center, Inc. in favor of Societe Generale, as
agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above
(substantially identical to Exhibit 10.16) ................ --
10.18 Security Agreement dated as of May 15, 1993 by Great Plains
Hospital, Inc. in favor of Societe Generale, as agent for
the lenders which are parties to that certain Credit
Agreement described in Exhibit 10.15 above (substantially
identical to Exhibit 10.16) ............................... --
10.19 Security Agreement dated as of May 15, 1993 by Greenbrier
Hospital, Inc. in favor of Societe Generale, as agent for
the lenders which are parties to that certain Credit
Agreement described in Exhibit 10.15 above (substantially
identical to Exhibit 10.16) ............................... --
10.20 Security Agreement dated as of May 15, 1993 by Gulf Coast
Treatment Center, Inc. in favor of Societe Generale, as
agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above
(substantially identical to Exhibit 10.16) ................ --
E-4
Page
Number
10.21 Security Agreement dated as of May 15, 1993 by Houma
Psychiatric Hospital, Inc. in favor of Societe Generale,
as agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above
(substantially identical to Exhibit 10.16) ............... --
10.22 Security Agreement dated as of May 15, 1993 by HSA of
Oklahoma, Inc. in favor of Societe Generale, as agent for
the lenders which are parties to that certain Credit
Agreement described in Exhibit 10.15 above (substantially
identical to Exhibit 10.16) ................................ --
10.23 Security Agreement dated as of May 15, 1993 by The
Haven Hospital, Inc. in favor of Societe Generale, as
agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above
(substantially identical to Exhibit 10.16) ................ --
10.24 Security Agreement dated as of May 15, 1993 by the Company in
favor of Societe Generale, as agent for the lenders which are
parties to that certain Credit Agreement described in
Exhibit 10.15 above (substantially identical to Exhibit 10.16) --
10.25 Accounts Receivable Security Agreement dated as of
May 15, 1993 by Americare of Galax, Inc. in favor of
Societe Generale, as agent for the lenders which are parties
to that certain Credit Agreement described in Exhibit 10.15
above (incorporated by reference to Exhibit 10.26 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1994) ............................................ --
10.26 Accounts Receivable Security Agreement dated as
May 15, 1993 by Bountiful Psychiatric Hospital, Inc. in
favor of Societe Generale, as agent for the lenders which
are parties to that certain Credit Agreement described in
Exhibit 10.15 above (substantially identical to
Exhibit 10.25) ............................................ --
10.27 Accounts Receivable Security Agreement dated as of
May 15, 1993 by Cumberland Mental Health, Inc. in favor of
Societe Generale, New York Branch, as agent for the lenders
which are parties to that certain Credit Agreement described
in Exhibit 10.15 above (substantially identical to
Exhibit 10.25) ............................................ --
10.28 Accounts Receivable Security Agreement dated as of
May 15, 1993 by East Carolina Psychiatric Services
Corporation in favor of Societe Generale, New York Branch,
as agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above
(substantially identical to Exhibit 10.25) ................ --
10.29 Accounts Receivable Security Agreement dated as of
May 15, 1993 by Havenwyck Hospital, Inc. in favor of
Societe Generale, New York Branch as agent for the
lenders which are parties to that certain Credit Agreement
described in Exhibit 10.15 above (substantially identical
to Exhibit 10.25) ......................................... --
10.30 Accounts Receivable Security Agreement dated as of
May 15, 1993 by Mesa Psychiatric Hospital, Inc. in favor
of Societe Generale, New York Branch, as agent for the
lenders which are parties to that certain Credit Agreement
described in Exhibit 10.15 above (substantially identical to
Exhibit 10.25) ............................................ --
10.31 Accounts Receivable Security Agreement dated as of
May 15, 1993 by Michigan Psychiatric Services, Inc.
in favor of Societe Generale, New York Branch, as agent
for the lenders which are parties to that certain Credit
Agreement described in Exhibit 10.15 above (substantially
identical to Exhibit 10.25) ............................... --
E-5
Page
Number
10.32 Accounts Receivable Security Agreement dated as of
May 15, 1993 by Psychiatric Institute of West Virginia,
Inc. in favor of Societe Generale, New York Branch, as
agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above
(substantially identical to Exhibit 10.25) ................ --
10.33 Stock Pledge Agreement dated as of May 15, 1993, among the
Company in favor of Societe Generale, New York Branch, as
agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above
(incorporated by reference to Exhibit 10.34 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994) --
10.34 Revolving Credit Guarantee dated as of May 15, 1993 by
Americare of Galax, Inc. in favor of Societe Generale,
New York Branch, as agent for the lenders which are parties
to that certain Credit Agreement described in Exhibit 10.15
above (incorporated by reference to Exhibit 10.35 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1994) ............................................ --
10.35 Revolving Credit Guarantee dated as of May 15, 1993 by
Bethany Psychiatric Hospital, Inc. in favor of Societe
Generale, New York Branch, as agent for the lenders which
are parties to that certain Credit Agreement described
in Exhibit 10.15 above (substantially identical to
Exhibit 10.34) ............................................ --
10.36 Revolving Credit Guarantee dated as of May 15, 1993 by
Bountiful Psychiatric Hospital, Inc. in favor of Societe
Generale, New York Branch, as agent for the lenders which
are parties to that certain Credit Agreement described
in Exhibit 10.15 above (substantially identical to
Exhibit 10.34) ............................................ --
10.37 Revolving Credit Guarantee dated as of May 15, 1993 by
Cumberland Mental Health, Inc. in favor of Societe Generale,
New York Branch, as agent for the lenders which are parties
to that certain Credit Agreement described in Exhibit 10.15
above (substantially identical to Exhibit 10.34) .......... --
10.38 Revolving Credit Guarantee dated as of May 15, 1993 by
East Carolina Psychiatric Services Corporation in favor
of Societe Generale, New York Branch, as agent for the
lenders which are parties to that certain Credit Agreement
described in Exhibit 10.15 above (substantially identical to
Exhibit 10.34) ............................................ --
10.39 Revolving Credit Guarantee dated as of May 15, 1993
by Havenwyck Hospital, Inc. in favor of Societe Generale,
New York Branch, as agent for the lenders which are parties
to that certain Credit Agreement described in Exhibit
10.15 above (substantially identical to Exhibit 10.34) .. --
10.40 Revolving Credit Guarantee dated as of May 15, 1993
by Mesa Psychiatric Hospital, Inc. in favor of Societe
Generale, New York Branch, as agent for the lenders which
are parties to that certain Credit Agreement described
in Exhibit 10.15 above (substantially identical to
Exhibit 10.34) ............................................ --
10.41 Revolving Credit Guarantee dated as of May 15, 1993
by Michigan Psychiatric Services, Inc. in favor of Societe
Generale, New York Branch, as agent for the lenders which
are parties to that certain Credit Agreement described
in Exhibit 10.15 above (substantially identical to
Exhibit 10.34) ............................................ --
E-6
Page
Number
10.42 Revolving Credit Guarantee dated as of May 15, 1993 by
Psychiatric Institute of West Virginia, Inc. in favor of
Societe Generale, New York Branch, as agent for the
lenders which are parties to that certain Credit Agreement
described in Exhibit 10.15 above (substantially identical
to Exhibit 10.34) ......................................... --
10.43 Management Fee Subordination Agreement dated May 15, 1993,
among Paul J. Ramsay and Ramsay Health Care Pty. Ltd.
in favor of Societe Generale, New York Branch, as agent
for the lenders which are parties to that certain Credit
Agreement described in Exhibit 10.15 above (incorporated
by reference to Exhibit 10.44 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1994) ..... --
10.44 Mortgage and Fixture Filing and Assignment of Leases and
Rents dated as of May 15, 1993 granted by Atlantic
Treatment Center, Inc. to Societe Generale, individually
and as agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above, with
respect to certain real property located in Volusia
County, Florida (incorporated by reference to Exhibit 10.45
to the Company's Annual Report on Form 10-K for the year
ended June 30, 1994) ..................................... --
10.45 Mortgage and Fixture Filing and Assignment of Leases and
Rents dated as of May 15, 1993 granted by Carolina
Treatment Center, Inc. to Societe Generale, individually
and as agent for the lenders which are parties to that
certain Credit Agreement described in Exhibit 10.15
above, with respect to certain real property located in
Horry County, South Carolina (substantially identical to
Exhibit 10.44) ............................................ --
10.46 Deed of Trust and Fixture Filing and Assignment of Leases
and Rents dated as of May 15, 1993 granted by Great Plains
Hospital, Inc. to Jacob W. Bayer, Jr. as Trustee for the
benefit of Societe Generale, individually and as agent for
the lenders which are parties to that certain Credit
Agreement described in Exhibit 10.15 above, with respect to
certain real property located in Vernon County, Missouri
(substantially identical to Exhibit 10.44) ................ --
10.47 Mortgage, Security and Assignment of Leases and Rents dated
as of May 15, 1993 by Greenbrier Hospital, Inc. to Societe
Generale individually and as agent for the lenders which are
parties to that certain Credit Agreement described in
Exhibit 10.15 above, with respect to certain real property
located in St. Tammany Parish, Louisiana (substantially
identical to Exhibit 10.44) ............................... --
10.48 Mortgage and Fixture Filing and Assignment of Leases and
Rents dated as of May 15, 1993 granted by Gulf Coast
Treatment Center, Inc. to Societe Generale, individually
and as agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above, with
respect to certain real property located in Okaloosa
County, Florida (substantially identical to Exhibit 10.44) --
10.49 Mortgage, Security Agreement and Assignment of Leases and
Rents dated as of May 15, 1993 granted by Houma Psychiatric
Hospital, Inc. to Societe Generale, individually and as
agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above, with
respect to certain real property located in the City of
Houma, Parish of Terrebonne, Louisiana (substantially
identical to Exhibit 10.44) ............................... --
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10.50 Mortgage with Power of Sale and Fixture Filing and
Assignment of Leases and Rents dated as of May 15, 1993
granted by HSA of Oklahoma, Inc. to Societe Generale,
individually and as agent for the lenders which are parties
to that certain Credit Agreement described in Exhibit 10.15
above, with respect to certain real property located in
Garfield County, Oklahoma (substantially identical to
Exhibit 10.44) ............................................ --
--
10.51 Deed of Trust and Fixture Filing and Assignment of Leases
and Rents dated as of May 15, 1993 granted by The Haven
Hospital, Inc. to Societe Generate, individually and as
agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above, with
respect to certain real property located in the City of
DeSoto, Dallas County, Texas (substantially identical to
Exhibit 10.44) ............................................ --
10.52 Loan Agreement between Okaloosa County, Florida and
Gulf Coast Treatment Center, Inc. dated October 1, 1984,
relating to the issuance of bonds for Gulf Coast Treatment
Center, Inc. (incorporated by reference to Exhibit 10.16
to the Company's Registration Statement on Form S-1,
Registration No. 2-9892) .................................. --
10.53 Loan Agreement between Louisiana Public Facilities
Authority and Greenbrier Hospital, Inc. dated
November 1, 1984, relating to the issuance of bonds for
Greenbrier Hospital, Inc. (incorporated by reference to
Exhibit 10.17 to the Company's Registration Statement on
Form S-1, Registration No. 2-98921) ....................... --
10.54 Loan Agreement between Horry County, South Carolina
and Carolina Treatment Center, Inc. dated December 1, 1984,
relating to the issuance of bonds for Carolina Treatment
Center, Inc. (incorporated by reference to Exhibit 10.18
to the Company's Registration Statement on Form S-1,
Registration No. 2-98921) ................................. --
10.55 Loan Agreement between Louisiana Public Facilities Authority
and Houma Psychiatric Hospital, Inc. dated as of
September 1, 1985, relating to the issuance of bonds for HSA
Bayou Oaks Hospital (incorporated by reference to
Exhibit 10.56 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1994) ......................... --
10.56 Ground Lease between Facilities Management Corporation,
as landlord, and Psychiatric Institute of West Virginia,
Inc., as tenant, dated as of September 30, 1985
(incorporated by reference to Exhibit 10.57 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1994) ............................................ --
10.57 Lease Agreement between Houma Psychiatric Hospital, Inc.
and Hospital Service District No. 1 of the Parish of
Terrebonne, State of Louisiana, effective February 1, 1985
(incorporated by reference to Exhibit 10.38 to the Company's
Registration Statement on Form S- 1, Registration No. 2-98921) --
10.58 Lease among Bethany Psychiatric Hospital, Inc., Bethany
General Hospital, the City of Bethany, Oklahoma and the
Bethany General Hospital Trust dated December 9, 1985
(ground lease) ............................................
10.59 Loan Agreement between The Enid Development Authority
and HSA of Oklahoma,Inc. dated as of October 1, 1985,
relating to The Enid Development Authority Variable Rate
Demand Revenue Bonds (Meadowlake Hospital Project)
(incorporated by reference to Exhibit 10.60 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1995) --
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10.60 Ramsay Health Care, Inc. 1990 Stock Option Plan, as amended
to date (incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-8 filed on
March 6, 1991) ............................................ --
10.61 Lease Agreement dated August 30, 1988 between the Company
and Ayshire Land Dome Joint Venture relating to office space
at One Poydras Plaza, New Orleans, Louisiana (incorporated
by reference to Exhibit 10.78 to the Company's Registration
Statement on Form S-2, Registration No. 33-40762) ....... --
10.62 Ramsay Health Care, Inc. Deferred Compensation and
Retirement Plan (incorporated by reference to
Exhibit 10.79 to the Company's Registration Statement on
Form S-2,Registration No. 33-40762) ....................... --
10.63 Personnel and Facility Sharing Agreement dated as of
June 27, 1991 between the Company and Ramsay Holdings HSA
Limited (incorporated by reference to Exhibit 10.83 to
the Company's Registration Statement on Form S-2,
Registration No.33-40762) ................................. --
10.64 Indemnity Agreement dated as of June 1991 between the
Company and Ramsay Holdings HSA Limited (incorporated
by reference to Exhibit 10.84 to the Company's
Registration Statement on Form S-2, Registration
No. 33-40762) ............................................. --
10.65 Management Agreement dated as of June 25, 1992 between the
Company and Ramsay Health Care Pty. Limited (incorporated by
reference to Exhibit 10.90 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1992) ............... --
10.66 Ramsay Health Care, Inc. 1991 Stock Option Plan
(incorporated by reference to Exhibit 10.91 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1992) --
10.67 Employment Agreement dated January 23, 1992 between the
Company and Wallace E. Smith (incorporated by reference to
Exhibit 10.94 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1992) .......................... --
10.68 Employment Agreement dated January 23, 1992 between the
Company and John A. Quinn (incorporated by reference to
Exhibit 10.95 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1992) .......................... --
10.69 Lease dated April 4, 1992 between The Union Labor Life
Insurance Company and the Company (incorporated by reference
to Exhibit 10.98 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1992) ........................ --
10.70 Lease dated May 27, 1992 between Gail Buy and Bountiful
Psychiatric Hospital (incorporated by reference to Exhibit
10.99 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1992) ................................. --
10.71 Lease Agreement dated as of February 12, 1993 by and
between Gulf Coast Treatment Center, Inc and Vendell of
Florida, Inc. (incorporated by reference to Exhibit 10.82
to the Company's Annual Report on Form 10-K for the year
ended June 30, 1994) ...................................... --
10.72 Ramsay Health Care, Inc. 1993 Stock Option Plan
(incorporated by reference to Exhibit 10.83 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1993) .................................. --
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10.73 Ramsay Health Care, Inc. 1993 Employee Stock
Purchase Plan (incorporated by reference to Exhibit 10.84
to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1993 ........................... --
10.74 Fourth Modification, Extension and Amendment of Lease
Agreement dated November 15, 1993 between the Company and
One Poydras Plaza Venture relating to the Company's office
space at One Poydras Plaza, New Orleans, Louisiana
(incorporated by reference to Exhibit 10.84 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1994) ............................................ --
10.75 Employment Agreement dated July 19, 1994 between the
Company and Brent J. Bryson (incorporated by reference
to Exhibit 10.85 to the Company's Annual Report on Form
10-K for the year ended June 30, 1995) .................... --
10.76 Rights Agreement dated as of August 1, 1995 between
Ramsay Health Care, Inc. and First Union National Bank of
North Carolina, as Rights Agent, which includes the form
of Right Certificate as Exhibit A and the Summary of
Rights to Purchase Common Shares as Exhibit B (incorporated
by reference to Exhibit 4.1 to the Company's Current Report
on Form 8-K dated August 1, 1995) ......................... --
10.77 Letter Agreement dated June 30, 1995 among Ramsay Health
Care, Inc., Ramsay Holdings HSA Limited and Paul Ramsay
Holdings Pty. Limited (incorporated by reference to Exhibit
4.2 to the Company's Current Report on Form 8-K dated
August 1, 1995) ........................................... --
10.78 Lease Agreement dated April 12, 1995 between Capstone
Capital Corporation and Mesa Psychiatric Hospital, Inc.
(incorporated by reference to Exhibit 10.88 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1995) ............................................ --
10.79 Lease Agreement dated April 12, 1995 between Capstone
Capital of San Antonio,LTD, d/b/a Cahaba of San Antonio,
LTD. and RHCI San Antonio, Inc. (incorporated by reference
to Exhibit 10.89 to the Company's Annual Report on Form
10-K for the year ended June 30, 1995) .................... --
10.80 Facility Lease Agreement dated June 26, 1995 by and between
Charter Canyon Behavioral Health System, Inc. and Bountiful
Psychiatric Hospital, Inc. (incorporated by reference to
Exhibit 10.90 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1995) ......................... --
10.81 Employment termination letter dated September 15, 1995
between the Company and Gregory H. Browne (incorporated by
reference to Exhibit 10.91 to the Company's Annual Report
on Form 10-K for the year ended June 30, 1995) ............ --
10.82 Second Amended and Restated Distribution Agreement between
the Company and Ramsay Managed Care, Inc. ("RMCI")
(incorporated by reference to Exhibit 10.1 to RMCI's
Registration Statement on Form S-1 (Registration
No. 33-78034) filed with the Commission on April 24, 1995) --
10.83 Employee Benefit Agreement dated as of February 1, 1995
between the Company and RMCI (incorporated by reference to
Exhibit 10.4 to RMCI's Registration Statement on Form S-1
(Registration No. 33-78034) filed with the Commission on
April 24, 1995) ........................................... --
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10.84 Tax Sharing Agreement dated as of October 25, 1994 between
the Company and RMCI(incorporated by reference to Exhibit
10.5 to RMCI's Registration Statement on Form S-1
(Registration No. 33-78034) filed with the Commission
on April 24, 1995) ........................................ --
10.85 Corporate Services Agreement dated as of January 2, 1995
between the Company and RMCI (incorporated by reference to
Exhibit 10.6 to RMCI's Registration Statement on Form S-1
(Registration No. 33-78034) filed with the Commission on
April 24, 1995) ........................................... --
10.86 Form of Withholding Tax Agreement between the Company,
Ramsay Holdings HSA Limited, Paul Ramsay Holdings Pty.
Limited and Ramsay Health Care Pty. Limited (incorporated
by reference to Exhibit 10.7 to RMCI's Registration
Statement on Form S-1 (Registration No. 33-78034) filed
with the Commission on April 24, 1995) .................... --
10.87 $6,000,000 Subordinated Promissory Note of RMCI,
as amended (incorporated by reference to Exhibit 10.13
to RMCI's Registration Statement on Form S-1 (Registration
No. 33-78034) filed with the Commission on April 24, 1995) --
10.88 Consent and Amendment dated April 12, 1996 among the
Company and certain of its subsidiaries named therein,
Societe Generale, New York Branch, First Union National
Bank of North Carolina and Hibernia National Bank, as
lenders, and Societe Generale, as issuing bank and agent ..
10.89 Second Amendment to Credit Agreement dated as of
September 15, 1995 among the Company and certain of its
subsidiaries named therein, Societe Generale, New York
Branch, First Union National Bank of North Carolina and
Hibernia National Bank, as lenders, and Societe Generale,
as issuing bank and agent (incorporated by reference to
Exhibit 10.99 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995) ............ --
10.90 Amended and Restated Stock Purchase Agreement dated
October 12, 1995 by and among Paul Ramsay Holdings Pty.
Limited, Ramsay Health Care, Inc. and, solely for the
purpose of Section I, III and VI of the agreement,
Ramsay Health Care Pty. Limited (incorporated by reference
to Exhibit 10.101 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995) ....... --
10.91 Amendment to Rights Agreement, dated October 3, 1995
between Ramsay Health Care, Inc. and First Union Bank
of North Carolina, as Rights Agent (incorporated by
reference to Exhibit 10.102 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1995) ..................................................... --
10.92 Ramsay Health Care, Inc. 1995 Long Term Incentive Plan
(incorporated by reference to Exhibit 10.103 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1995) .................................. --
10.93 Third Amendment to Credit Agreement dated as of August 15,
1996 among the Company and certain subsidiaries named
therein, Societe Generale, New York Branch, First Union
National Bank of North Carolina and Hibernia National
Bank, as lenders, and Societe Generale, as issuing bank
and agent .................................................
10.94 Stock Purchase Agreement dated as of August 13, 1996 by and
among Paul Ramsay Holdings Pty. Limited, the Company and,
solely for purposes of Sections I, III and IV thereof,
Ramsay Health Care Pty. Limited ...........................
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10.95 Amended and Restated Employment Agreement dated as of
August 15, 1996 by and between Reynold Jennings and the
Company ...............................................
10.96 Exchange Agreement dated September 10, 1996, by and among
the Company, Paul Ramsay Hospitals Pty. Limited and
Paul J. Ramsay, including a related Warrant Certificate
dated September 10, 1996 issued to Ramsay Hospital Pty.
Limited ...................................................
10.97 Consulting Agreement dated as of January 1, 1996 between
the Company and Summa Healthcare Group, Inc. ..............
10.98 Letter Agreement dated as of September 10, 1996 by and
among the Company, Ramsay Health Care Pty. Limited and Paul
Ramsay Holdings Pty. Limited, included a related Warrant
Certificate dated September 10, 1996 issued to Paul Ramsay
Holdings Pty. Limited .....................................
11 Computation of Net Income Per Share .......................
21 Subsidiaries of the Company ...............................
23 Consent of Ernst & Young LLP ..............................
27 Financial Data Schedule ...................................
Copies of exhibits filed with this Annual Report on Form 10-K or
incorporated herein by reference do not accompany copies hereof
for distribution to stockholders of the Company. The Company
will furnish a copy of any of such exhibits to any stockholder
requesting it.
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