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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, 1995
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 OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
ENTERGY CORPORATION BUILDING 70113
639 LOYOLA AVENUE, SUITE 1700 (ZIP CODE)
NEW ORLEANS, LOUISIANA
(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
September 22, 1995 was 7,732,328. The aggregate market value of Common Stock
held by non-affiliates on such date was $23,628,536.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrant's definitive Proxy Statement to be filed
for the 1995 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. RHCI 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 1,280 licensed beds (including medical subacute units
and residential treatment units), day hospitals, and outpatient centers. The
Company also operates mental health programs for public sector and private
owners under management contracts.
The Company's business strategy is to develop and operate integrated
behavioral healthcare delivery systems in the markets in which its facilities
are located. The integrated delivery systems being developed offer a
comprehensive range of behavioral healthcare services including inpatient
treatment, day and partial hospitalization services, group and individual
outpatient treatment, and residential and other less intensive services. The
Company is establishing such systems by using its hospitals as a base and by
arranging for other services through contracts or affiliations with physicians,
psychologists and other mental health professionals. Further, in some markets,
the Company is seeking to integrate through a joint venture or other affiliation
agreement with a significant acute-care provider lacking behavioral health
services in the vicinity of the Company's hospital. To date, no such agreements
of significance have been signed.
Effective April 24, 1995, the Company distributed, on a pro rata basis
in the form of a dividend, the common stock of its subsidiary, Ramsay Managed
Care, Inc. ("RMCI"), held by the Company, to the holders of record on April 21,
1995 of the Company's common and preferred stock (the "RMCI Distribution").
RMCI, which was formed in October 1993, manages the delivery of mental health
and substance abuse care and provides employee assistance and mental health and
substance abuse treatment programs for and on behalf of self insured employers,
health maintenance organizations ("HMOs"), insurance companies, government
agencies and other third-party payors. Subsequent to the RMCI Distribution,
RMCI ceased being a subsidiary of the Company.
FACILITY OPERATIONS
The Company's facilities are dedicated to the treatment of psychiatric
and chemical dependency 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. Each facility also conducts outpatient programs within the
facility and within clinics located in the surrounding area. The Company
continues to seek ways to expand its outpatient network in its continued effort
to provide intermediate mental health care for patients who do not require
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
1
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.
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. For children
and adolescents, common disorders include those seen in adult patients, as well
as attention deficit disorders and conduct disorders. Many of these disorders
are often associated with child abuse. 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 units and programs emphasize family involvement in
the evaluation and treatment process.
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 staffs maintain a private practice. 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 fifteen hospitals, three were resurveyed
in fiscal 1995 and 10 were resurveyed in fiscal 1994 and, in each instance, the
facilities retained their JCAHO accreditation for an additional three years.
The following tables summarize certain operating data related to (i)
the facilities currently operated by the Company and which were also operated by
the Company throughout 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"). However, Three Rivers
2
Hospital, which was closed on June 30, 1995, is included in the same facilities
and all facilities statistics.
SAME FACILITIES
YEAR ENDED JUNE 30 /(1)/
----------------------------
1995 1994 1993
-------- -------- --------
Inpatient admissions.................... 13,149 12,019 11,442
Average bed days available.............. 392,740 424,130 425,590
Inpatient days.......................... 216,239 218,173 208,592
Overall inpatient occupancy percentage.. 55% 51% 49%
Partial hospitalization days /(2)/...... 65,280 57,414 33,009
Outpatient visits /(3)/................. 49,043 31,027 (4)
ALL FACILITIES
YEAR ENDED JUNE 30/ (1)/
----------------------------
1995 1994 1993
-------- -------- --------
Inpatient admissions.................... 13,469 12,474 12,917
Average bed days available.............. 422,670 448,585 507,715
Inpatient days.......................... 222,734 225,392 234,294
Overall inpatient occupancy percentage.. 53% 50% 46%
Partial hospitalization days/ (2)/...... 65,280 60,699 40,077
Outpatient visits /(3)/................. 82,240 47,725 (4)
- ----------------------
(1) During fiscal 1994, the Company converted approximately 77 beds available in
four of its facilities from beds utilized by behavioral health patients to
beds utilized by medical subacute patients. Statistics related to subacute
services are included in the all facilities amounts above but are excluded
from the same facilities amounts since such services were not in operation
during all three fiscal years shown above. For fiscal 1995, total inpatient
admissions, inpatient days and occupancy percentage related to subacute
services were 323, 6,548 and 26%, respectively. Operating statistics related
to the subacute units in fiscal 1994 were not material.
(2) Partial hospitalization days refers to treatment of patients which exceed
three hours and do not require an overnight stay at an inpatient facility.
(3) Outpatient visits refer to home health visits and behavioral health patient
services which do not exceed three hours in a given day.
(4) Data not available for fiscal 1993.
3
MANAGED CARE DIVISION
RHCI, through its 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. During fiscal 1995, RMCI expanded its operations to
Hawaii and West Virginia and obtained a license to operate (and began
developing) a health maintenance organization in Louisiana.
In October 1994, RHCI announced plans to distribute its holdings of
common stock of RMCI to the holders of the Company's common and preferred stock.
At that time, the Company also announced that RMCI completed a private placement
of its common stock, which reduced the Company's percentage stock ownership in
RMCI from approximately 97% to approximately 58%. 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 on April 21, 1995 of the
Company's common and preferred stock. Subsequent to this distribution, RMCI
ceased being a subsidiary of the Company.
COMPETITION
At June 30, 1995, 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. 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 Company's outpatient centers are generally located in the areas surrounding
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. The
number of behavioral health service competitors located within each of the
Company's service areas varies significantly. 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 and
chemical dependency care in the communities served by the Company's facilities.
4
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 care.
Prior to the RMCI Distribution, RMCI competed directly with
independent local and national entities that offered managed mental health care
services, as well as with large insurance companies, health maintenance
organizations and other provider groups that have established or acquired
managed mental health care capabilities. In addition, RMCI competed with not-
for-profit health plan corporations, preferred provider organizations, other
provider networks and third party administrators. Certain of these operations
and facilities have substantially greater financial resources than RMCI and
offer a wider range of services than RMCI.
INDUSTRY TRENDS
The Company's hospitals have been adversely affected by factors
influencing the entire psychiatric hospital industry. Factors which affect the
Company include (i) the imposition of more stringent length of stay and
admission criteria by payors; (ii) the failure of reimbursement rate increases
from certain payors that reimburse on a per diem or other discounted basis to
offset increases in the cost of providing services; (iii) an increase in the
percentage of its business that the Company derives from payors that reimburse
on a per diem or other discounted basis; (iv) a trend toward higher deductibles
and co-insurance for individual patients; and (v) a trend by self-insured
employers and managed mental health organizations toward limiting employee
health benefits, including annual and lifetime limits on 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 increase outpatient services and partial hospitalization programs
to meet the demands of the marketplace.
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") and Blue Cross, in addition to payments 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 consolidated gross
patient revenues charged by the Company's facilities derived from various
sources for the periods indicated.
5
YEAR ENDED JUNE 30
---------------------
1995 1994 1993
------ ------ ------
Charge-based programs:
Commercial Insurance.................... 10% 15% 20%
Blue Cross.............................. 1 1 3
Other Private Pay....................... 6 5 2
--- --- ----
Sub-total............................ 17 21 25
--- --- ----
Cost-based and per diem-based programs:
Blue Cross.............................. 6 6 9
CHAMPUS................................. 5 7 10
Medicare................................ 22 21 22
Medicaid................................ 31 32 25
State, HMO and PPO...................... 19 13 9
--- --- ----
Sub-total............................ 83 79 75
--- --- ----
Total............................. 100% 100% 100%
=== === ====
Most commercial insurance carriers reimburse their policyholders or
make direct payment to facilities 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
6
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 the federal fiscal year 1992 and
continuing through June 30, 1995, providers with costs exceeding their target
rates are subject to a payment ceiling of the target amount plus the lesser of
5% of the target amount or 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, 1995, 14 of the Company's
facilities were subject to the TEFRA provisions.
The Health Care Financing Administration ("HCFA") has implemented
changes to Medicare covering inpatient services which are reimbursed under
TEFRA. These changes provide for an increase to the TEFRA payment limitations,
subject to annual revision. However, since 13 of the Company's 14 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 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 14 of the
Company's facilities. During fiscal years 1995, 1994 and 1993, the Company
received significant payments from State Medicaid programs pursuant to enhanced
reimbursement rates under certain state "disproportionate share" programs.
Disproportionate share payments were severely restricted by Congress effective
July 1, 1995. Accordingly, the Company expects that any future payments made
under this program will be minimal. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations."
Acute psychiatric services for CHAMPUS patients are reimbursed on a
prospectively determined per diem basis. For the Company's high volume
facilities (as defined by CHAMPUS), 1991-1992 rates were fixed at 1988 levels
subject to an all-inclusive cap of $714 per day. This capped rate is higher than
the Company's net revenue per patient day for all of the Company's acute
psychiatric services. The Company's low volume facilities (as defined by
CHAMPUS) are reimbursed at prospectively determined per diem rates established
on a regional basis. These regional rates are lower than the hospitals'
established charges. However,
7
CHAMPUS revenues in these low volume facilities were an insignificant portion of
the Company's consolidated gross revenues for the fiscal years ended June 30,
1995, 1994 and 1993.
Residential treatment center ("RTC") reimbursement for CHAMPUS
patients is currently capped on a per diem basis at the lesser of $477 per day
or an inflation adjusted hospital-specific rate based on per diem rates
generally paid as of June 30, 1988. These rates are adjusted annually each
October 1 for inflation. The legislated reimbursement cap is higher than the
Company's CHAMPUS net revenue per patient day for the Company's two CHAMPUS
certified RTC facilities. Consequently, the CHAMPUS RTC reimbursement cap did
not adversely affect the Company's CHAMPUS RTC net revenues in the fiscal years
ended June 30, 1995, 1994 and 1993.
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 hospital psychiatric
services to 30 days for adult patients, 45 days for child and adolescent
patients and 150 days for RTC services, subject to waivers which are available
under limited circumstances if an extension of the length of stay can be
justified. The lengths of stay currently experienced by the Company on CHAMPUS
adult, child and adolescent beneficiaries have generally been within the above
limits. Given that certain of the Company's facilities are located in close
proximity to major military installations, these limits have reduced the volume
of CHAMPUS patients treated at the Company's facilities. As set forth in the
above table, the amount of the Company's patient revenues attributable to
CHAMPUS have decreased from 10% in fiscal 1993 to 5% in fiscal 1995.
Blue Cross plans in all areas in which the Company presently operates
facilities, except Alabama and Michigan, reimburse based on charges or
negotiated rates. 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.
Prior to the RMCI Distribution, the subsidiaries of RMCI typically
charged each customer a monthly fee for each beneficiary enrolled in the
customer's mental health benefit program. Depending upon both the type of
program from which a customer contracted and the benefits covered under such
program, the fee arrangement was designed so that, with respect to both
inpatient and outpatient care, RMCI accepted either full risk (all services
capitated), as is generally the case, partial risk (selected services capitated)
or limited risk (full risk up to a maximum amount) for costs that exceed the
fees attributable to such program. See "Item 1. Business -- Managed Care
Division."
8
MARKETING
The Company's marketing programs are directed to 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 meet the
needs of the referral sources. These needs may be related to a desired treatment
program, the desires of the patient's family, hospital policies or the timely
receipt of 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.
Prior to the RMCI Distribution, marketing of RMCI's services was
provided at both a regional and national level. The RMCI regional offices
employed marketing personnel to interface with existing and potential customers
in the immediate area and surrounding networks. RMCI's offices in Florida
employed a national marketing team which coordinated regional marketing efforts
and directed its national marketing strategies.
RMCI focused its marketing and sales efforts primarily on insurance
carriers, nonprofit health care corporations, HMOs, government employee groups
and self-insured employers. RMCI also targeted employee benefit consulting
firms that represent employers and groups of employers in the selection and
purchase of managed mental health care benefit programs. Typically, RMCI
marketed its services to the potential customer's senior operating and marketing
staff, medical director or health care managers. See "Item 1. Business --
Managed Care Division."
REGULATION
Operations of psychiatric hospitals are subject to extensive federal,
state and local government regulation, including periodic inspection and
licensing requirements. This regulation is 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.
9
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 provide generally 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
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 1995 were less than 2% of
these facilities' gross charges in such fiscal year.
To be covered by CHAMPUS, RTC services must be preauthorized as being
medically necessary. Effective October 1, 1991, hospital psychiatric services
are also required to be preauthorized. If the criteria for establishing medical
necessity are not met or the services are not preauthorized, CHAMPUS will not
pay for the services provided.
The Defense Appropriations Act of 1991 provides that no funds will be
appropriated for CHAMPUS care when a patient is referred to a provider of
inpatient mental health care or residential treatment care by a medical or
health care professional having an economic interest in the facility to which
the patient is referred. 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
10
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 or 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 outlining certain "safe harbor"
practices, which, although potentially capable of inducing prohibited referrals
of business, would not be subject to enforcement action under the illegal
remuneration statute. The practices covered by the regulations include, among
others, certain investment transactions, lease of space and equipment, personal
services and management contracts, sales of physician practices, payments to
employees and waivers of beneficiary deductibles and co-payments. Additional
proposed safe harbors were published in 1993 by the Department.
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
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
11
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
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 and, 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. See
"Ownership Arrangements and Operating Agreements" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations."
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 gives the lessee the option to renew the lease for a specified
period or purchase the facility at a price equal to the current recorded book
value of the facility; however, the lessee failed to timely exercise the renewal
option. The Company is currently in negotiation with the lessee regarding the
terms of this lease. Should the lease not be renewed or the purchase option not
be exercised, the Company would take possession of the building and evaluate its
business alternatives with respect to this property.
In August 1993, the Company sold its inpatient facility (Cumberland
Hospital) in Fayetteville, North Carolina to Cape Fear Valley Medical Center for
approximately $12.3 million. The decision to sell this facility occurred in
June 1993, at which time the facility's basis of accounting was changed from the
going concern basis to the liquidation basis. As a result, the July and August
1993 operating results of Cumberland Hospital were recorded as part of the loss
on sale of this facility in the Company's June 1993 financial statements and the
net revenues and expenses of Cumberland Hospital were not included in the
Company's operating results for the year ended June 30, 1994.
In October 1993, the Company, through its subsidiary RMCI, entered the
managed mental healthcare business by acquiring the stock of FPM. This business
subsequently expanded through an additional acquisition in June 1994 and through
on-going development efforts. As noted elsewhere in this report, in April 1995,
the Company distributed the common stock of RMCI held by it to the holders of
its common and preferred stock.
12
In February 1994, the Company sold its 50-bed Atlantic Shores Hospital
in Daytona Beach, Florida to Halifax Medical Center for $4.8 million.
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, require aggregate annual minimum
rentals of $1.54 million, payable monthly. Beginning April 1, 1996, the lease
payments are subject to any upward adjustment (not to exceed 3% annually) in the
Consumer Price Index over the preceding 12 months.
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.
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. In addition, the lease provides for
percentage rent payments to the lessor equal to 2% of the net revenues of the
facility, payable quarterly.
IMPAIRMENT OF ASSETS
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"). Although the
Statement is effective for fiscal years beginning after December 15, 1995, the
Company elected to adopt the Statement in its fiscal 1995 fourth quarter.
As required by the Statement, the Company reviewed 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 was recoverable, based on the future cash
flows expected to be generated by each facility. Based on this review, the
Company determined that the carrying value of long-lived assets associated with
four facilities was impaired. 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 $20.3 million. See "Item 8.
Financial Statements and Supplementary Data."
13
The Company is a minority stockholder in an enterprise which operates
primary care medical clinics on United States' military bases in Germany. Based
on a reassessment of the future expected cash flows to be realized by the
Company from this business in June 1995, the Company recorded a fourth quarter
impairment to the carrying value of the investment totalling approximately $1.5
million.
OWNERSHIP ARRANGEMENTS AND OPERATING AGREEMENTS
One physician owns a 5% 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
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 for an additional nine years. 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, the Company
exercised its right as general partner to terminate the business and, effective
June 30, 1995, Three Rivers Hospital was closed.
14
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, 1995, the Company employed approximately 1,790 full-
time and 1,520 part-time employees at its facilities, including approximately
790 nurses. In addition, the Company has a corporate headquarters staff of
approximately 30, 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 DURING
NAME OF EXECUTIVE OFFICER AGE THE PAST FIVE YEARS
------------------------- --- -----------------------------
Gregory H. Browne.......... 42 Chief Executive Officer of the Company from January 1992 through
September 1995 and acting Chief Financial Officer from September 1994 through
September 1995; President of the Company from January 1992 until September 1994;
Chief Executive Officer and Chief Financial Officer of Ramsay-HMO, Inc. from
prior to 1990 to January 1992.
Reynold J. Jennings........ 49 President of the Company beginning September 1995; President and Chief Operating
Officer of the Company since September 1994; 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 1990 to October 1993.
Wallace E. Smith........... 52 Senior Vice President--Operations of the Company since June 1992. Vice President--
Regional Operations of the Company from prior to 1990 to June 1992.
John A. Quinn.............. 41 Senior Vice President--Operations of the Company since September 1991; various
administrative and management positions with Community Psychiatric Centers, Inc.
from prior to 1990 to September 1991.
Brent J. Bryson............ 46 Senior Vice President of the Company since October 1994; 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 1990 to November 1991.
Curtis L. Dosch............ 43 Vice President--Finance of the Company since August 1993. Regional controller of the
Company from prior to 1990 to July 1993.
William N. Nyman........... 42 Vice President--Finance of the Company since August 1993. Regional controller of the
Company from prior to 1990 to July 1993.
Effective September 30, 1995, Mr. Browne will resign from his position
as Chief Executive Officer and acting Chief Financial Officer of the Company.
16
Item 2. PROPERTIES.
The following table provides information concerning the 15 inpatient
facilities owned and operated by the Company at June 30, 1995.
DATE OPENED LICENSED
HOSPITAL OR ACQUIRED BEDS
- -------- ------------- --------
Havenwyck Hospital
Auburn Hills, MI............. November 1983 120
Brynn Marr Hospital
Jacksonville, NC............. December 1983 76
Hill Crest Hospital
Birmingham, AL............... January 1984 130
Heartland Hospital
Nevada, MO................... April 1984 128
Greenbrier Hospital
Covington, LA................ October 1984 61
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 56
Desert Vista Hospital
Mesa, AZ (6)................. February 1987 102
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 66
Benchmark Behavioral Hospital
Midvale, UT (4).............. June 1995 80
-----
Total (5) 1,280
=====
(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).
(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 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 -- Ownership Arrangements and Operating
Agreements."
(6) In April 1995, the Company sold and immediately leased back the land,
building and fixed equipment associated with this facility. The leases
have an initial term of 15 years and three successive renewal options of
five years each.
17
The Company leases its corporate headquarters in New Orleans,
Louisiana for a term of five years ending in April 1999, and leases other space
for various clinics and regional offices. The Company believes that its
facilities are well maintained and are of adequate size for present needs.
ITEM 3. LEGAL PROCEEDINGS.
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.
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 22, 1995, there were 677 holders of record of the Company's Common
Stock. No 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. Notwithstanding the foregoing restrictions,
those provisions expressly permit the payment of regular fixed dividends from
time to time on the Company's issued and outstanding Class B Preferred Stock,
Series C, provided that such dividends may not exceed $387,200 in each 12-month
period and provided that no event of default exists or would occur as a result
of the payment. Under these provisions, the Company is permitted to pay the
full amount of the regular fixed dividends on its issued and outstanding Class B
Preferred Stock, Series C.
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, 1995 and 1994, as reported on the NASDAQ National
Market System:
High Low
------ -----
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
Year ended June 30, 1994
First Quarter.............. $8 7/8 $6 3/8
Second Quarter............. 9 3/4 6 3/4
Third Quarter.............. 9 7/16 7 1/8
Fourth Quarter............. 8 1/8 6 5/8
On September 22, 1995, the closing sales price of the Company's Common
Stock was $3 3/4 per share.
* The RMCI Distribution occurred during the Company's fourth fiscal
quarter. See "Item 1. Business--Managed Care Division."
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
------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
(in thousands, except per share data)
Statement of Operations Data:
Net revenues.................................... $136,418 $137,002 $136,354 $136,946 $132,739
Salaries, wages and benefits.................... 72,061 64,805 63,810 60,626 55,524
Other operating expenses........................ 44,741 42,907 40,454 40,161 37,086
Provision for doubtful accounts................. 5,086 5,846 8,148 8,628 6,992
Depreciation and amortization................... 7,290 6,836 6,605 5,439 5,545
Interest and other financing charges............ 8,347 8,906 9,494 10,488 14,462
Loss on sales and closure of facilities......... 6,431 802 7,524 -- --
Asset impairment charges........................ 21,815 -- -- -- --
Restructuring and other charges................. -- -- 1,367 2,283 --
-------- -------- -------- -------- --------
165,771 130,102 137,402 127,625 119,609
-------- -------- -------- -------- --------
Income (loss) before minority interests, income
taxes, extraordinary items and cumulative
effect of accounting change.................... (29,353) 6,900 (1,048) 9,321 13,130
Minority interests.............................. 887 4,824 1,126 -- --
-------- -------- -------- -------- --------
Income (loss) before income taxes, extraordinary
items and cumulative effect of accounting
change......................................... (30,240) 2,076 (2,174) 9,321 13,130
Provision (benefit) for income taxes............ (13,195) 599 159 3,974 5,126
-------- -------- -------- -------- --------
Income (loss) before extraordinary items
and cumulative effect of accounting change..... (17,045) 1,477 (2,333) 5,347 8,004
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.................................... -- -- -- 953 922
Cumulative effect of change in accounting for
income taxes.................................... -- -- 2,353 -- --
-------- -------- -------- -------- --------
Net income (loss)............................... $(17,302) $ 1,322 $ (1,560) $ 5,934 $ 8,926
======== ======== ======== ======== ========
Primary earnings per share:
Income (loss) per common share before
extraordinary items and cumulative effect
of accounting change........................... $(2.25) $.15 $(.29) $.68 $1.57
Net income (loss)............................... $(2.28) $.14 $(.20) $.75 $1.75
Weighted average shares outstanding(1).......... 7,743 9,641 7,932 7,886 5,091
(1) Includes common and dilutive common equivalent shares outstanding.
June 30
------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
(in thousands)
Balance Sheet Data:
Working capital................................ $ 24,098 $ 21,148 $ 23,811 $ 26,718 $ 24,913
Total assets................................... 139,236 183,168 190,370 194,357 196,158
Long-term debt................................. 55,568 67,707 77,429 84,879 119,188
Class B preferred stock, Series 1987........... -- -- -- 2,500 2,537
Stockholders' equity........................... 61,779 80,468 79,997 76,068 40,550
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Operating revenues of the facilities are affected by changes in the
rates the Company charges, changes in reimbursement rates by third-party payors
and changes in the number of patient days in the period. Patient days are
represented by the number of admissions multiplied by the average length of stay
of all patients. Accordingly, increases in admissions can be offset, in whole or
in part, by decreases in average length of stay.
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, 1994, and 1993, the Company recorded
contractual adjustment benefits of approximately $1,000,000, $1,400,000, and
$2,300,000, respectively. The adjustments were made to reflect the combined
effects of intermediary audits and the routine evaluation of prior year
estimated settlements. There can be no assurances that any future adjustments
will be of a favorable nature or of a magnitude comparable to those made in
fiscal 1995, 1994, or 1993.
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, 1994 and 1993, the Company received
significant disproportionate share payments from State Medicaid programs,
particularly in Louisiana. Statutory changes significantly decreased the level
of disproportionate share payments received by the Louisiana facilities in
fiscal year 1995 and the Company expects that any payments made under this
program after fiscal year 1995 will be minimal.
Management determined that the impact of disproportionate share
payments on income from continuing operations in fiscal 1995 was approximately
$3.7 million. The majority of disproportionate share payments were received at
the Company's Three Rivers facility, which treated primarily Medicaid-eligible
adolescents diagnosed with various behavioral disorders.
21
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 the operations of this
facility with the Company's facility located less than five miles away
(Greenbrier Hospital). The Company believes this consolidation will result in
cost savings as well as enhance the operating performance of Greenbrier in
fiscal 1996.
In recent years, approximately 5% to 10% of the Company's patient
revenues have come from CHAMPUS since some of the Company's hospitals are in
close proximity to major military installations in the United States. Congress
has imposed a reduction in the annual reimbursable length of stay for patients
covered by the mental health benefits of CHAMPUS, a federal government health
benefit program for the members (active and retired) of all seven uniformed
services and their families. Effective October 1, 1991, CHAMPUS began to limit
its coverage for hospital psychiatric services to 30 days for adult patients, 45
days for child and adolescent patients and 150 days for RTC services, subject to
waivers which will be available under limited circumstances if an extension of
the length of stay can be justified. The lengths of stay currently experienced
by the Company on CHAMPUS adult, child and adolescent beneficiaries have
generally been within the above limits. Given that certain of the Company's
facilities are located in close proximity to major military installations, these
limits have reduced the volume of CHAMPUS patients treated at the Company's
facilities.
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. The discussion following this table quantifies the
significant fluctuations in amounts reported in the Company's consolidated
statements of operations between periods.
As a Percentage of Net Revenues
Year Ended June 30,
-------------------
1995 1994 1993
------ ------ ------
Net revenues................................ 100.0 % 100.0 % 100.0%
Salaries, wages and benefits................ 52.8 47.3 46.8
Other operating expenses.................... 32.8 31.3 29.7
Provision for doubtful accounts............. 3.7 4.3 6.0
Depreciation and amortization............... 5.4 5.0 4.8
Interest and other financing charges........ 6.1 6.5 7.0
Loss on sales and closure of facilities..... 4.7 0.6 5.5
Asset impairment charges.................... 16.0 -- --
Restructuring and other charges............. -- -- 1.0
----- ----- -----
Income (loss) before minority interests,
income taxes, extraordinary items and
cumulative effect of accounting change..... (21.5)% 5.0 % (0.8)%
===== ===== =====
Net income (loss)........................... (12.7)% 1.0 % (1.1)%
===== ===== =====
22
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
operating expenses of the Company between years as discussed below.
* 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.
* 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 1994 and 1995 due to
negative operating margins. The sale and these closures are
hereinafter referred to as the "sold/closed facilities".
* The Company opened four subacute units throughout the period (one in
the middle of fiscal 1994, two in late fiscal 1994 and one in the
middle of fiscal 1995).
* The Company expanded its contract services division during 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 was closed on June 30, 1995 but is
included in the same facility totals throughout this discussion).
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 by the Federal and State governments to the
Company's two Louisiana facilities treating a disproportionately high volume of
Medicaid patients (relative to other providers). Disproportionate share
payments were severely restricted by Congress effective July 1, 1995.
Accordingly, the Company expects that any future payments made under this
program will be minimal.
23
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 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. Net
revenue per patient day on cost-based and negotiated per-diem rate payors is
generally less than that for charge-based payors. In addition, the rates
received from per-diem rate payors has declined between periods. The percentage
of the Company's net revenues related to charge-based payors decreased from 21%
in 1994 to 17% in 1995.
Same facility net outpatient revenues totalled $17.0 million in 1995
(which comprised 14.6% of total same facility net patient revenues in fiscal
1995) compared to $14.1 million in 1994 (or 11.3% of same facility net patient
revenues in fiscal 1994). This increase is due to demands by third-party payors
for increased outpatient treatment protocols and an expansion of outpatient
service levels, and a market focus by facility administrators on increasing
partial hospitalization day services.
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 (from $56.9 million in fiscal 1994 to $58.6 million
in fiscal 1995), (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 (from $41.9 million in fiscal 1994 to $39.6 million in fiscal
1995), (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
24
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 per-diem rate
payors, particularly state governments and other government agency payors which
administer Medicaid programs. For fiscal 1995, approximately 83% of the
Company's net revenues were related to cost-based and negotiated per-diem rate
payors, compared to 79% in fiscal 1994. See "Item 1. Business--Sources of
Revenue".
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) $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 the 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 reported a loss associated with sales and
closures of facilities of $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 $1.54 million, payable
monthly. Beginning April 1, 1996, 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
25
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 reported 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
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 recorded 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 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 $1,300,000.
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 the year 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 $800,000.
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 facility, which was sold in February 1994. The total net losses
related to these closures and sale was $802,000.
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. The Company elected to adopt the Statement in the
26
fourth quarter of fiscal 1995 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 accompanying 1995 statement of operations.
See "Item 8. Financial Statements and Supplementary Data."
The Company is a minority stockholder in an enterprise which operates
primary care medical clinics on United States' military bases in Germany.
Based on a reassessment in June 1995 of the future expected cash flows to be
realized by the Company from this business, the Company determined its
investment in this venture was impaired. The amount of this impairment, $1.5
million, is reflected as an asset impairment charge in the accompanying 1995
statement of operations.
Minority interests reflects the limited partner's share of net income
of Three Rivers Hospital and, from October 1994 through April 24, 1995, the
minority shareholders' share of net income of RMCI. The amount related to RMCI
was not material in fiscal 1995.
As mentioned previously, effective April 24, 1995, the Company
effected the RMCI Distribution. For the period July 1, 1994 to April 24, 1995,
net revenues of RMCI totalled $12.9 million (9.5% of total consolidated net
revenues of the Company). However, the operating results of RMCI for this
period, which were impacted by management fees payable to the Company totalling
$237,000, were not material to the consolidated operating results of the
Company. Management fees paid to the Company by all of the Company's
subsidiaries, including RMCI, represent reimbursement to the Company of its
indirect costs for providing financial oversight, information systems and other
support. The amount of such fees are determined based upon an estimate of the
amount of time spent by Company employees in providing such services. These
management fees are eliminated upon consolidation and have no effect on the
consolidated results of operations of the Company.
1994 COMPARED TO 1993
Net revenues for fiscal 1994 were $137.0 million, compared to $136.4
million in fiscal 1993. The material changes in net revenues consisted of (a)
an $11.1 million decrease (9%) in net inpatient revenues, (b) a $5.2 million
increase (43%) in net outpatient revenues and (c) $5.5 million of net revenues
associated with managed care businesses acquired during fiscal 1994. The
overall decrease in net inpatient revenues was attributable to the sale of the
Cumberland and Atlantic Shores Hospital facilities during fiscal 1994 and the
lease of the Harbor Oaks Hospital facility during mid-fiscal 1993 (the
"sold/leased facilities"). Same facility net inpatient revenues remained stable
between fiscal years as the increase in net inpatient revenues associated with
the Three Rivers facility, which was fully operational during all of fiscal 1994
but only four and one-half months in fiscal 1993, offset declines in net
inpatient revenues at the Company's other facilities during fiscal 1994. The
increase in net outpatient revenues was attributable to an increase in same
facility and free-standing outpatient clinic net revenue of $4.8 million (of
which $1.3 million relates to the Three Rivers facility) and $1.9 million,
respectively, net of a $1.5 million decrease in net outpatient revenues
associated with the sold/leased facilities. The increase in outpatient revenues
is due to an expansion of partial hospitalization day programs and other
outpatient services by the Company's inpatient facilities.
27
Net outpatient revenues comprised 14.2% of total net patient revenues
for fiscal 1994 compared to 9.5% for the prior year. In addition, with respect
to the Company's inpatient business, same facility admissions in fiscal 1994
increased 5% over fiscal 1993 while same facility average length of stay
decreased from 18.3 days in fiscal 1993 to 17.6 days in fiscal 1994.
Total salaries, wages and benefits in fiscal 1994 were $64.8 million,
compared to $63.8 million in fiscal 1993. The material changes in this expense
item consisted of (a) a $4.3 million increase in same facility salaries, wages
and benefits (from $52.6 million in fiscal 1993 to $56.9 million in fiscal
1994), (b) salaries, wages, and benefits of $1.7 million attributable to managed
care businesses acquired during fiscal 1994, (c) $1.1 million of salaries, wages
and benefits attributable to subacute and management contract operations which
began during fiscal 1994 and (d) a decrease of $6.1 million in salaries, wages
and benefits attributable to the sold/leased facilities. The increase in same
facility salaries, wages and benefits was due primarily to a $3.7 million
increase at the Three Rivers Hospital facility.
Other operating expenses in fiscal 1994 were $42.9 million, compared
to $40.5 million in fiscal 1993. The material changes in other operating
expenses consisted of (a) a $1.7 million increase in same facility other
operating expenses (from $30.5 million in fiscal 1993 to $32.2 million in fiscal
1994), (b) other operating expenses of $3.3 million attributable to managed care
businesses acquired during fiscal 1994, (c) other operating expenses of $0.8
million attributable to subacute and management contract operations and (d) a
decrease of $4.0 million in other operating expenses attributable to the
sold/leased facilities. The increase in same facility other operating expenses
was due to a $2.1 million increase at the Three Rivers Hospital facility, net of
a $0.4 million decrease at the Company's other inpatient facilities.
The provision for doubtful accounts in fiscal 1994 was $5.8 million,
compared to $8.1 million in fiscal 1993. Same facility provision for doubtful
accounts decreased to $5.8 million in fiscal 1994 (from $7.2 million in fiscal
1993) and the provision for doubtful accounts attributable to the sold/leased
facilities was negligible in fiscal 1994 (compared to $0.9 million in fiscal
1993). The provision for doubtful accounts in fiscal 1994 attributable to the
Three Rivers Hospital facility, acquired managed care businesses and subacute
and management contract operations was not material. 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
per diem rate payors, particularly state governments and other governmental
agency payors which administer Medicaid programs. For fiscal 1994,
approximately 80% of the Company's net revenues were related to cost-based and
negotiated per diem rate payors, compared to 75% in fiscal 1993. See "Item 1.
Business--Sources of Revenue."
Depreciation and amortization in fiscal 1994 totalled $6.8 million,
compared to $6.6 million in fiscal 1993. The overall change in this expense
item was primarily due to (a) increased depreciation and amortization of $0.5
million attributable to the same facilities (approximately $0.2 million of
which was due to the Three Rivers Hospital facility, which incurred this expense
for a full year in fiscal 1994), (b) $0.4 million related to managed care
28
businesses acquired during fiscal 1994 and (c) a decrease of $0.9 million in
depreciation and amortization attributable to the sold/leased facilities.
Interest and other financing charges decreased from $9.5 million for
fiscal 1993 to $8.9 million for fiscal 1994. The decrease is attributable to
reduced levels of debt during fiscal 1994.
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 its
Atlantic Shores Hospital facility, which was sold in February 1994. The total
net losses related to these closures and sale was $802,000.
During the first quarter of fiscal 1993, the Company recorded a loss
of $1,109,000 due to the closure of its leased facility, Oak Grove Hospital.
The loss included provisions for severance expense and other expenses incurred
in connection with the termination of this lease. During the fourth quarter of
fiscal 1993, the Company signed a letter of intent to sell its Cumberland
Hospital facility for approximately $12.3 million. In connection with this
decision, the Company recorded a provision for loss relating primarily to the
unamortized amount of cost in excess of net asset value of purchased businesses
of $3.6 million. In addition, the terms and conditions of a lease agreement
pursuant to which the Company agreed to lease its Harbor Oaks Hospital facility
to a third party were satisfied during the fourth quarter of fiscal 1993. As a
result, the Company recorded a loss of $2.8 million, which amount represented
the excess of the facility's net book value over the purchase option price
contained in the lease. Finally, during this quarter the Company decided to
terminate its efforts to develop psychiatric facilities in certain markets and
write-off certain deferred loan costs in connection with the consummation of the
Company's new credit agreement in May 1993. The total losses related to these
decisions ($1,367,000) is included under "Restructuring and other charges" in
the Company's Consolidated Statement of Operations for fiscal 1993.
Minority interests reflects the limited partners of Three Rivers
Hospital's share of income before income taxes at that facility.
The Company recognized an after-tax loss of $155,000 in 1994 from
early extinguishment of the industrial revenue bonds in connection with the sale
of Atlantic Shores Hospital. The Company recognized a loss of $1,580,000 on
early extinguishment of a 16.1% subordinated note in fiscal 1993. These losses
are reflected as extraordinary items in the consolidated statements of
operations.
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
29
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 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, 1995, amounts due from Medicare, Medicaid and Blue
Cross totalled $3,273,000, $1,206,000 and $1,477,000, respectively. Also at
June 30, 1995, amounts due to Medicare, Medicaid and Blue Cross totalled
$4,114,000, $835,000 and $47,000, respectively.
Restricted cash at June 30, 1994 represented remaining proceeds from
the sale of Cumberland Hospital in August 1993. These monies were held in trust
and, during the current fiscal year, were used to fund the September 30, 1994
principal payment and approximately 60% of the March 31, 1995 principal payment
due on the senior secured notes and the subordinated secured notes.
At June 30, 1995, total net cash advances made by the Company to or on
behalf of RMCI, for purposes of partially funding acquisitions and for working
capital and other corporate purposes, totalled $7.4 million. Of this amount, $6
million is represented by an unsecured, interest-bearing (8%), subordinated
promissory note due from RMCI and issued on October 25, 1994. Interest on the
subordinated promissory note is payable quarterly commencing June 30, 1995 and
principal is payable over a four-year period in equal quarterly installments
commencing September 30, 1996. The remaining balance owed by RMCI to RHCI, $1.4
million, is governed by a Distribution Agreement which provides that $600,000 is
payable by RMCI on or before October 21, 1995 (or on such other terms and
conditions as mutually agreed to by RMCI and RHCI), with the balance due and
payable on or before December 31, 1996, together with interest at 7% per annum
beginning October 21, 1995. As of June 30, 1995, RMCI had paid the Company
$275,000 of the amount due on or before October 21, 1995.
As of the date of the RMCI Distribution in April 1995, the assets and
liabilities of RMCI were no longer reflected on the Company's balance sheet.
The significant components of the Company's consolidated balance sheet impacted
by the distribution were: (a) current assets (decrease of $3 million), (b) cost
in excess of net asset value of purchased businesses (decrease of $10 million),
(c) receivable due from RMCI (increase of $8 million), (d) other noncurrent
assets (decrease of $4 million), (e) property and equipment (decrease of $1
million), (f) current liabilities (decrease of $4 million), (g) long-term debt
(decrease of $2 million), (h) minority interests payable (decrease of $3
million) and (i) additional paid-in capital (decrease of $1 million).
30
During the year ended June 30, 1995, amounts owed to minority
interests decreased by $1.9 million. During this period, distributions to the
minority partners in the Three Rivers Hospital Limited Partnership reduced the
amount owed by $2.5 million, compared to the partners' share of the income of
the partnership during this period, which increased the amount owed, by $0.9
million. Also included in amounts owed to minority interests at June 30, 1994
was $0.3 million related to minority stockholders of RMCI. This amount was
removed from the Company's consolidated balance sheet in April 1995 after the
RMCI Distribution.
In March and April 1995, the Company sold certain real estate located
in Flagstaff, Arizona and Houston, Texas, respectively. These properties were
reported as "Real estate held for sale" on the June 1994 balance sheet. Upon
the sale of the properties, the recorded value, totalling $1.15 million, was
removed from the consolidated balance sheet.
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 for a net sale price of $12.1 million and agreed to lease
this property back over a term of 15 years (with three successive renewal
options of 5 years each). The leases are accounted for as operating leases
under generally accepted accounting principles and, accordingly, the Company's
basis in the assets sold, totalling $15.7 million, was removed from its
consolidated balance sheet in April 1995. On May 1, 1995, the Company utilized
certain of the proceeds from this transaction and prepaid $7.5 million of
principal due on its senior secured notes outstanding. The amount prepaid was
applied against the scheduled principal payments due on the senior secured notes
in September 1995 and March 1996. Accordingly, there are no current maturities
associated with this debt obligation as of June 30, 1995.
In June 1995, the Company elected to adopt, prior to the time it was
required to do so, the Statement and recorded a write-down of fixed and
intangible assets associated with four facilities totalling $20.3 million. In
accordance with the Statement, these facilities' carrying amount of cost in
excess of net asset value of purchased businesses, totalling $3.8 million, was
eliminated prior to making a reduction of these facilities' carrying amounts of
impaired property and equipment. This latter impairment, which totalled $16.5
million, 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). The estimated depreciable lives
associated with these assets was then adjusted for future years.
The Company has net deferred tax assets of approximately $8.7 million
at June 30, 1995. Management has considered the effects of implementing tax
planning strategies, consisting of the sales of certain appreciated property, as
the primary basis for not recognizing a valuation allowance related to its
deferred tax assets at June 30, 1995. 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 plans to evaluate the realizability of its deferred tax assets on a
quarterly basis by reviewing its tax planning strategies and assessing the need
for a valuation allowance.
31
LIQUIDITY AND CAPITAL RESOURCES
On February 10, 1994, the Company sold its Atlantic Shores Hospital
for $4.8 million. The $4.3 million outstanding balance of the industrial
revenue bonds associated with this facility was repaid with the proceeds from
such sale.
On August 31, 1993, the Company sold its Cumberland Hospital facility
for $12.3 million. Of the total proceeds, $10.9 million was restricted for the
repayment of principal payments due on the senior and subordinated secured
notes. At June 30, 1994, $5.3 million was still available and included in
restricted cash on the consolidated balance sheet for such use. This amount was
used during fiscal 1995 to fully satisfy principal payments due on September 30,
1994 and partially satisfy principal payments due on March 31, 1995.
The Company's credit facilities include, net of a $7.5 million
prepayment on the senior secured notes in May 1995, $34.2 million in senior
secured notes, approximately $21 million in letters of credit, $2.3 million in
subordinated secured notes and, after the sale/leaseback transaction in April
1995, $2 million in a working capital facility. The senior secured notes bear
interest at 11.6% and, on September 30, 1996, resume semi-annual principal
payments of approximately $3.5 million 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 $1.3 million in years 2001 through
2015. Amounts outstanding under the working capital facility, which bear
interest at a variable rate, totalled $1.5 million at June 30, 1995. The amount
drawn is structured as a revolving credit loan, bearing interest at 8.6% and
renewable in 30, 60 and 90-day increments, at the option of the Company. Under
the provisions of the Company's Credit Agreement, which governs the terms of the
letters of credit and the working capital facility, amounts outstanding under
the working capital facility must be reduced to zero for 30 consecutive days in
each fiscal year. In August 1995, the Company and banks supporting the Credit
Agreement agreed in principle to terms which will extend the expiration date of
the Credit Agreement from May 15, 1996 to February 15, 1997. In connection with
this extension, the Company agreed to reduce the banks' exposure by $2.8 million
on or before December 31, 1995 and an additional $3 million on or before July 1,
1996.
At the current time, the Company does not have any commitments to make
any material capital expenditures. The Company's current primary cash
requirements relate to its normal operating and debt service expenses, routine
capital improvements at its facilities and selective expansion of outpatient
programs and services. In addition, at the current time, the Company's specific
development projects include expansion of its contract services division and its
network of affiliations with medical/surgical hospitals and other healthcare
providers. Construction costs related to the Company's subacute business were
completed during fiscal 1995 and this business began generating positive cash
flow from operations in the fourth quarter of fiscal 1995. Also, in June 1994
and throughout 1995, the Company closed outpatient day treatment centers and
other outpatient clinics which were experiencing negative cash flow.
32
On the basis of its historical cash collection experience and
projected cash needs, the Company believes that its internally generated funds
from operations, together with its working capital facility, remaining proceeds
from the April 1995 sale/leaseback transaction ($4.4 million), and funds derived
from any future asset sales will be sufficient to fund its current cash
requirements, commitments to reduce bank borrowings and future identifiable
needs. The Company does not at this time have any pending agreement to sell any
of its assets.
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 1995 Annual Meeting of Stockholders to be held on November
10, 1995 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, 1995.
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-24 of this Annual Report on Form 10-K.
2. FINANCIAL STATEMENT SCHEDULES
Information with respect to this Item is contained on Page S-1 of
this Annual Report on Form 10-K.
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, 1995.
(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 management
contracts and compensatory plans and arrangements required to be filed
as an Exhibit to this Form 10-K are listed in Exhibits 10.71, 10.72,
10.73, 10.74, 10.75, 10.81, 10.82, 10.83, 10.85 and 10.91.
35
POWER OF ATTORNEY
The registrant, and each person whose signature appears below, hereby
appoints Gregory H. Browne 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.
DATED:
RAMSAY HEALTH CARE, INC.
By /s/ Gregory H. Browne
--------------------------------------------
GREGORY H. BROWNE
CHIEF EXECUTIVE OFFICER, PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER AND DIRECTOR
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: September 28, 1995
By /s/ Paul J. Ramsay
------------------------------------------
PAUL J. RAMSAY
CHAIRMAN OF THE BOARD AND DIRECTOR
DATED: September 28, 1995
By /s/ Gregory H. Browne
------------------------------------------
GREGORY H. BROWNE
CHIEF EXECUTIVE OFFICER, PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER AND DIRECTOR
36
SIGNATURE/TITLE
---------------
DATED: September 28, 1995
By /s/ Aaron Beam, Jr.
----------------------------------------
AARON BEAM, JR.
DIRECTOR
DATED: September 28, 1995
By /s/ Peter J. Evans
----------------------------------------
PETER J. EVANS
DIRECTOR
DATED: September 28, 1995
By /s/ Robert E. Galloway
----------------------------------------
ROBERT E. GALLOWAY
DIRECTOR
DATED: September 28, 1995
By /s/ Thomas M. Haythe
----------------------------------------
THOMAS M. HAYTHE
DIRECTOR
DATED: September 28, 1995
By /s/ Reynold J. Jennings
----------------------------------------
REYNOLD J. JENNINGS
PRESIDENT, CHIEF OPERATING
OFFICER AND DIRECTOR
DATED:
By
----------------------------------------
STEVEN J. SHULMAN
DIRECTOR
DATED: September 28, 1995
By /s/ Michael S. Siddle
----------------------------------------
MICHAEL S. SIDDLE
DIRECTOR
37
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, 1995 and 1994.... F-4
Consolidated Statements of Operations-- For the Years
Ended June 30, 1995, 1994 and 1993..................... F-6
Consolidated Statements of Stockholders' Equity -- For
the Years Ended June 30, 1995, 1994 and 1993........... F-7
Consolidated Statements of Cash Flows -- For the Years
Ended June 30, 1995, 1994 and 1993..................... F-8
Notes to Consolidated Financial Statements............... F-9
The following Financial Statement Schedule of the Registrant and its
subsidiaries is submitted herewith in response to Item 14(a)(2):
VIII -- Valuation and Qualifying Accounts............ S-1
All other schedules have been omitted because they are inapplicable or the
information is provided in the consolidated financial statements including the
notes thereto.
F-1
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-2
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, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1995. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in the Note on Impairment of Assets on page F-12 to the
consolidated financial statements, the Company changed its method of accounting
for the impairment of long-lived assets in 1995. As discussed in the Note on
Income Taxes on page F-17 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1993.
ERNST & YOUNG LLP
New Orleans, Louisiana
September 13, 1995
F-3
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30
--------------------------
1995 1994
------------ ------------
ASSETS
Current assets
Cash and cash equivalents.......................... $ 9,044,000 $ 6,207,000
Restricted cash.................................... -- 5,311,000
Patient accounts receivable, less allowances for
doubtful accounts of $3,886,000 and $3,925,000
at June 30, 1995 and 1994, respectively........... 21,564,000 23,019,000
Amounts due from third-party contractual agencies.. 5,956,000 6,604,000
Other receivables.................................. 3,655,000 2,139,000
Other current assets............................... 2,764,000 3,040,000
------------ ------------
Total current assets.............................. 42,983,000 46,320,000
Other assets
Cash held in trust................................. 1,778,000 1,805,000
Cost in excess of net asset value of purchased
businesses........................................ 663,000 12,042,000
Unamortized preopening and loan costs.............. 2,221,000 3,731,000
Other intangible assets............................ -- 3,048,000
Real estate held for sale.......................... -- 1,150,000
Receivable from affiliated company................. 7,170,000 --
Deferred income taxes.............................. 8,652,000 --
Other non-current assets........................... 2,301,000 4,911,000
------------ ------------
22,785,000 26,687,000
Property and equipment
Land............................................... 5,383,000 9,009,000
Building and improvements.......................... 77,630,000 118,555,000
Equipment, furniture and fixtures.................. 19,611,000 20,626,000
------------ ------------
120,624,000 148,190,000
Less accumulated depreciation...................... 29,156,000 38,039,000
------------ ------------
73,468,000 110,161,000
------------ ------------
$139,236,000 $183,168,000
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30
---------------------------
1995 1994
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable........................................ $ 3,868,000 $ 2,306,000
Accrued salaries and wages.............................. 4,843,000 4,291,000
Other accrued liabilities............................... 1,347,000 4,386,000
Amounts due to third-party contractual agencies......... 4,996,000 4,729,000
Current portion of long-term debt....................... 3,831,000 9,460,000
------------ ------------
Total current liabilities.......................... 18,885,000 25,172,000
Deferred income taxes........................................ -- 4,932,000
Liabilities for unpaid self-insurance claims................. 1,337,000 1,341,000
Long-term debt, less current portion......................... 55,568,000 67,707,000
Minority interests........................................... 1,667,000 3,548,000
Stockholders' equity
Class A convertible preferred stock, $1 par value--
authorized 800,000 shares; issued 22,910 shares
at June 30, 1994...................................... -- 23,000
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 8,290,795 shares at June 30, 1995 and
8,200,760 shares at June 30, 1994..................... 83,000 82,000
Additional paid-in capital.............................. 99,147,000 100,048,000
Retained earnings (deficit)............................. (33,785,000) (16,483,000)
Treasury stock--581,550 common shares at June 30, 1995
and 481,750 common shares at June 30, 1994, at cost... (3,899,000) (3,435,000)
------------ ------------
Total stockholders' equity......................... 61,779,000 80,468,000
------------ ------------
$139,236,000 $183,168,000
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30
------------------------------------------
1995 1994 1993
------------- ------------- -------------
NET REVENUES.............................................. $136,418,000 $137,002,000 $136,354,000
Operating expenses:
Salaries, wages and benefits............................. 72,061,000 64,805,000 63,810,000
Other operating expenses................................. 44,741,000 42,907,000 40,454,000
Provision for doubtful accounts.......................... 5,086,000 5,846,000 8,148,000
Depreciation and amortization............................ 7,290,000 6,836,000 6,605,000
Interest and other financing charges..................... 8,347,000 8,906,000 9,494,000
Loss on sales and closure of facilities.................. 6,431,000 802,000 7,524,000
Asset impairment charges................................. 21,815,000 -- --
Restructuring and other charges.......................... -- -- 1,367,000
------------ ------------ ------------
TOTAL OPERATING EXPENSES.................................. 165,771,000 130,102,000 137,402,000
------------ ------------ ------------
INCOME (LOSS) BEFORE MINORITY INTERESTS,
INCOME TAXES, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE................... (29,353,000) 6,900,000 (1,048,000)
Minority interests........................................ 887,000 4,824,000 1,126,000
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES,
EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE.............................. (30,240,000) 2,076,000 (2,174,000)
Provision (benefit) for income taxes...................... (13,195,000) 599,000 159,000
------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE................... (17,045,000) 1,477,000 (2,333,000)
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) (1,580,000)
Cumulative effect of change in accounting for
income taxes........................................... -- -- 2,353,000
------------ ------------ ------------
NET INCOME (LOSS)......................................... $(17,302,000) $ 1,322,000 $ (1,560,000)
============ ============ ============
Income (loss) per common and dilutive common
equivalent share:
Primary:
Before extraordinary item and cumulative effect of
accounting change...................................... $ (2.25) $ 0.15 $ (0.29)
Extraordinary item:
Loss from early extinguishment of debt................ (0.03) (0.01) (0.20)
Cumulative effect of change in accounting for
income taxes.......................................... -- -- 0.29
------------ ------------ ------------
$ (2.28) $ 0.14 $ (0.20)
============ ============ ============
Fully diluted:
Before extraordinary item and cumulative effect of
accounting change...................................... $ (2.24) $ 0.15 $ (0.29)
Extraordinary item:
Loss from early extinguishment of debt................ (0.03) (0.01) (0.20)
Cumulative effect of change in accounting for
income taxes.......................................... -- -- 0.29
------------ ------------ ------------
$ (2.27) $ 0.14 $ (0.20)
============ ============ ============
Weighted average number of common and dilutive common
equivalent shares outstanding:
Primary.................................................. 7,743,000 9,641,000 7,932,000
Fully diluted............................................ 7,794,000 9,679,000 7,932,000
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
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, 1992...................... $ 23,000 $ -- $81,000 $ 93,794,000 $(16,245,000) $(1,585,000)
Dividends on Class B redeemable
convertible preferred stock............... -- -- -- (150,000) -- --
Purchase of treasury stock (120,000 shares).. -- -- -- -- -- (706,000)
Issuance of Class B preferred stock,
Series C (142,486 shares)................. -- 142,000 -- 6,203,000 -- --
Net loss..................................... -- -- -- -- (1,560,000) --
----------- ----------- -------- ------------ ------------ -----------
BALANCE AT JUNE 30, 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)
Cancellation 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)
=========== =========== ======== ============ ============ ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30
--------------------------------------
1995 1994 1993
------ ------ ------
Cash flows from operating activities
Net income (loss)............................................ $(17,302,000) $ 1,322,000 $(1,560,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of change in accounting for income
taxes................................................... -- -- (2,353,000)
Depreciation and amortization............................. 8,074,000 7,638,000 7,173,000
Asset impairment charges.................................. 21,815,000 -- --
Loss on early extinguishment of debt...................... 463,000 258,000 1,580,000
Write-off of development and other costs.................. 716,000 -- 1,367,000
(Gain) loss on disposal of assets......................... 5,096,000 722,000 (121,000)
Benefit for deferred income taxes......................... (13,584,000) (1,188,000) (696,000)
Provision for doubtful accounts........................... 5,086,000 5,846,000 8,148,000
Provision for loss on sales and closure of facilities..... -- -- 6,415,000
Minority interests........................................ 887,000 4,824,000 1,126,000
Cash flows from (increase) decrease in operating assets:
Patient accounts receivable............................. (4,410,000) (2,169,000) (8,833,000)
Other current assets.................................... (522,000) (2,071,000) 1,233,000
Other non-current assets................................ 616,000 (554,000) 164,000
Cash flows from increase (decrease) in operating
liabilities:
Accounts payable........................................ 2,466,000 (2,484,000) 940,000
Accrued salaries, wages and other liabilities........... (745,000) 3,150,000 (674,000)
Unpaid self-insurance claims............................ (4,000) (1,078,000) (456,000)
Amounts due to third-party contractual agencies......... 267,000 (1,385,000) 724,000
------------ ----------- -----------
Total adjustments..................................... 26,221,000 11,509,000 15,737,000
------------ ----------- -----------
Net cash provided by operating activities........... 8,919,000 12,831,000 14,177,000
------------ ----------- -----------
Cash flows from investing activities:
Proceeds from sales of assets............................. 970,000 16,422,000 300,000
Acquisitions of businesses................................. -- (6,022,000) --
Expenditures for property and equipment................... (2,726,000) (5,070,000) (5,569,000)
Development project costs................................. (2,124,000) (388,000) (1,878,000)
Preopening costs.......................................... (329,000) (2,195,000) (905,000)
Restricted cash (reserved) used for debt payments......... 5,311,000 (5,311,000) --
Cash held in trust........................................ (974,000) 806,000 166,000
------------ ----------- -----------
Net cash provided by (used in) investing activities. 128,000 (1,758,000) (7,886,000)
------------ ----------- -----------
Cash flows from financing activities
Loan costs................................................ (290,000) (220,000) (1,619,000)
Proceeds from sale/leaseback of facilities and equipment.. 12,015,000 -- 1,857,000
Distribution to minority interests........................ (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) -- --
Proceeds from exercise of options and employee
stock purchases......................................... 468,000 566,000 --
Payments on debt.......................................... (17,683,000) (11,734,000) (3,884,000)
Payment of preferred stock dividends...................... (364,000) (273,000) (150,000)
Issuance of Class B preferred stock, Series C............. -- -- 265,000
Cancellation of Class A preferred stock................... (123,000) -- --
Purchase of treasury stock................................ (464,000) (1,144,000) (706,000)
------------ ----------- -----------
Net cash used in financing activities............... (6,210,000) (15,548,000) (4,237,000)
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents........ 2,837,000 (4,475,000) 2,054,000
Cash and cash equivalents at beginning of year.............. 6,207,000 10,682,000 8,628,000
------------ ----------- -----------
Cash and cash equivalents at end of year.................... $ 9,044,000 $ 6,207,000 $10,682,000
============ =========== ===========
See notes to consolidated financial statements.
F-8
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 operates private, free-standing acute care psychiatric hospitals as
well as outpatient day hospitals, subacute units and residential treatment
units. In addition, the Company operates mental health programs for public
sector and private owners under management contracts.
In October 1993, the Company, through its subsidiary Ramsay Managed
Care, Inc. ("RMCI"), entered the managed mental healthcare business through its
acquisition of Florida Psychiatric Management, Inc. In October 1994, the
Company announced its intention to distribute its holdings of common stock of
RMCI to the holders of the Company's common and preferred stock. Also in
October 1994, RMCI completed a private placement of its common stock, which
diluted the Company's percentage stock ownership in RMCI from approximately 97%
to approximately 58%. 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. The distribution of RMCI was recorded at net book
value. In addition, in connection with the "spin-off" of this subsidiary, RMCI
announced a rights offering to the holders of its common stock on the
distribution date. Subsequent to this distribution, 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 include 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 the
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.
AFFILIATED COMPANIES
Ramsay Holdings HSA Limited ("Holdings") owns approximately 18% of the
outstanding Common Stock of the Company and 50% of the outstanding Class B
Convertible Preferred Stock, Series C of the Company. Paul Ramsay Holdings Pty.
Limited owns the remaining 50% of the outstanding Class B Convertible Preferred
Stock, Series C. Together, these two entities affiliated with Paul J. Ramsay
own common stock and preferred stock in the Company which in total represents an
approximate 31% voting interest.
F-9
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
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
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 on
Reimbursement from Third-Party Contractual Agencies.
CHARITY CARE
The Company provides care to patients who meet certain criteria under
its charity care policy without charge or at amounts less than its established
rates. Because the Company does not pursue collection of amounts determined to
qualify as charity care, they are not reported as revenue.
INTANGIBLE ASSETS AND DEFERRED COSTS
Cost in excess of net asset value of purchased businesses includes
amounts related to certain inpatient psychiatric facilities acquired by the
Company from 1983 to 1990 and, at June 30, 1994, amounts related to managed
mental healthcare businesses acquired by RMCI. Cost in excess of net asset
value of purchased businesses related to the psychiatric facilities is being
amortized on a straight-line basis over 40 years whereas amounts related to RMCI
were being amortized on a straight-line basis over periods ranging from 15 to 25
years. Other intangible assets at June 30, 1994 related to RMCI and included
the value assigned to acquired clinical protocols, established provider networks
and existing contracts. These amounts were being amortized on a straight-line
basis over periods generally ranging from 10 to 20 years. In connection with the
spin-off of RMCI in April 1995, the intangible assets of RMCI ceased being
assets of the Company.
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. In connection
with the Company's decision to adopt early the provisions of Financial
Accounting Standards Board (FASB) Statement Number 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of",
the Company determined that cost in excess of net asset value of purchased
businesses associated with three inpatient psychiatric facilities was impaired.
See Impairment of Assets below.
F-10
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
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, 1995 and 1994 was $7,544,000 and $7,094,000,
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.
PROFESSIONAL AND GENERAL LIABILITY INSURANCE
The Company maintains a self-insurance program for its hospital
professional liability insurance and commercial and general liability insurance.
The Company and its facilities are insured for professional and general
liability in the aggregate amount of $25 million with a self-insured retention
of $500,000 per claim. 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.
F-11
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
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. The Company
adopted FASB Statement Number 109 as of July 1, 1992 (See note on Income Taxes.)
LOSS ON SALES AND CLOSURE OF FACILITIES
The Company estimates and records losses on the sales of facilities in
the period in which the Company and buyer reach agreement and commit to the sale
transaction. The Company estimates and records losses on the closure of
facilities and clinics in the period in which the decision is made to close such
operations.
During the third quarter of fiscal 1995, the Company recorded a loss
in connection with the sale and leaseback of two inpatient facilities, totalling
$3,600,000, and a loss in connection with the sale of real estate, totalling
$400,000. 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 one of its inpatient facilities on June 30, 1995.
Losses recorded 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.
During fiscal 1993, the Company terminated operations in a leased
facility in California, leased its Harbor Oaks Hospital facility in Fort Walton
Beach, Florida to a third party, and agreed to sell its Cumberland Hospital
facility in Fayetteville, North Carolina. As a result of these transactions,
the Company recorded a charge against earnings of $7,524,000 in fiscal 1993.
IMPAIRMENT OF ASSETS
In the fourth quarter of fiscal 1995, the Company elected to adopt
early the provisions of FASB Statement Number 121. Statement 121 requires that
a new cost basis be established for impaired assets 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. Based on a comparison of the recorded values of the long-lived
assets (defined as land, buildings, fixed equipment and related cost in excess
of net asset value of purchased businesses) of four of the Company's facilities
which had experienced recent declines in operating performance, against the
expected future cash flows to be generated by
F-12
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
these assets, and after applying the principles of measurement contained in the
Statement, the Company recorded an asset impairment charge of $20.3 million
($11.4 million, after an income tax benefit of $8.9 million, or $1.47 per
share). In accordance with the Statement, these facilities' carrying amount of
cost in excess of net asset value of purchased businesses, totalling $3.8
million, was eliminated prior to recording an impairment to the carrying amount
of property and equipment, which totalled $16.5 million. The fair value of the
impaired assets was estimated using discounted future cash flows expected from
the assets.
The Company is a minority stockholder in an enterprise which operates
primary care medical clinics on United States' military bases in Germany. Based
on a reassessment of the future expected cash flows to be realized by the
Company from this business in June 1995, the Company determined its investment
in this venture was impaired and recorded an asset impairment charge of $1.5
million.
RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of fiscal 1993, the Company recorded a noncash,
non-recurring charge of $1,367,000, of which approximately $800,000 is
attributable to the Company's decision to terminate certain development projects
primarily related to inpatient facilities. In addition, upon consummation of
the Company's new credit agreement in the fourth quarter of fiscal 1993, the
Company determined that approximately $500,000 of deferred loan costs should be
written off.
EARNINGS PER SHARE
Primary earnings per share are calculated by dividing income before
extraordinary items and cumulative effect of accounting change 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 cancelled by the holder 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.
MINORITY INTERESTS
The equity of minority partners in Company 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.
F-13
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
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. The carrying values of
these cash equivalents approximate fair value.
RESTRICTED CASH
Restricted cash at June 30, 1994 represents the remaining proceeds
from the sale of Cumberland Hospital in August 1993. These monies were held in
trust and used to fund the September 30, 1994 principal payment and partially
fund the March 31, 1995 principal payment due on the senior secured and
subordinated secured notes. The carrying value of restricted cash approximated
fair value at June 30, 1994.
CASH HELD IN TRUST
Cash held in trust is revocable by the Company under certain
circumstances and includes cash and short-term investments for payment of self-
insurance losses. The carrying value of cash held in trust approximates fair
value.
LONG-TERM DEBT
- --------------
The Company's long-term debt is as follows:
JUNE 30
------------------------
1995 1994
----------- -----------
11.6% Senior secured notes due
March 31, 2000.......................... $34,169,000 $48,025,000
Variable rate revenue bonds through 2015.. 20,200,000 21,000,000
15.6% Subordinated secured notes due
March 31, 2000.......................... 2,308,000 2,769,000
Acquisition debt on RMCI subsidiaries:
7% debentures........................... --- 2,292,000
8.25% note payable...................... --- 1,000,000
Capital lease obligation.................. 919,000 1,318,000
Working capital facility.................. 1,500,000 ---
Other notes payable....................... 303,000 763,000
----------- -----------
59,399,000 77,167,000
Less amounts due within one year.......... 3,831,000 9,460,000
----------- -----------
$55,568,000 $67,707,000
=========== ===========
The aggregate scheduled maturities of long-term debt during the five
years subsequent to June 30, 1995 are as follows: 1996 -- $3,831,000; 1997 --
$8,037,000; 1998 -- $8,324,000; 1999 -- $10,443,000; and 2000 -- $12,562,000.
F-14
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
The Company has pledged as collateral substantially all of its real
property.
On May 21, 1993, the Company finalized a credit facility (the "1993
Credit Facility") for letters of credit (to support the variable rate demand
revenue bonds) and working capital with a group of banks. The 1993 Credit
Facility included approximately $27.5 million in letters of credit and $4.0
million in a working capital facility. Due to principal payments and the
redemption of the variable rate revenue bonds associated with the Atlantic
Shores Hospital facility, the letters of credit outstanding at June 30, 1995
totalled $21.1 million. In addition, the working capital facility, which was
reduced to a $2.0 million facility in April 1995, had amounts drawn of $1.5
million and zero at June 30, 1995 and 1994, respectively. Amounts outstanding
under the working capital facility bear interest at a variable rate which, at
June 30, 1995, was 8.6%.
The 1993 Credit Facility expires in May 1996. However, in August
1995, the Company and group of banks agreed in principle to a nine-month
extension of the 1993 Credit Facility. In connection with this extension,
certain financial covenants were modified and the Company agreed to reduce the
banks' exposure by $2.8 million on or before December 31, 1995 and an additional
$3.0 million on or before July 1, 1996.
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 $56.5 million in Senior Secured Notes and $3.0
million in Subordinated Secured Notes. On May 1, 1995, the Company utilized a
portion of the proceeds from the sale/leaseback of two facilities and prepaid
$7.5 million of principal due on the Senior Secured Notes as follows:
$3,531,250 due on September 30, 1995, $3,531,250 due on March 31, 1996 and
$437,500 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, 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. The
Senior Secured Notes bear interest at 11.6% and are due in semi-annual
installments that began on March 31, 1993 and, after the May 1, 1995 prepayment,
resume semi-annual installments on September 30, 1996 through March 31, 2000.
The Subordinated Secured Notes bear interest at 15.6% and are due in semi-annual
installments that began on March 31, 1994 and end on March 31, 2000.
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. At June 30, 1995, the Company was in compliance with the terms of the
1993 and 1990 Credit Facilities.
F-15
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
The Company has 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 or treatment facilities within respective states. 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 have a
term generally of 30 years, have an outstanding balance at June 30, 1995
totalling $20.2 million. The interest rate will be the same as the applicable
revenue bonds, which ranged from 4% to 7.2% at June 30, 1995. The Company is
required to deliver an irrevocable standby letter of credit for each bond in an
amount equal to the total principal payments due under the bond, plus a
stipulated number of days interest. Such letters of credit are provided in the
1993 Credit Facility.
FASB Statement No. 107, "Disclosures about Fair Value of Financial
Instruments", requires disclosure of fair value information about financial
instruments. The fair values of the Company's long-term debt (excluding capital
lease obligations) are estimated using discounted cash flow analyses, based on
the Company's estimated current incremental borrowing rates for similar types of
borrowing arrangements. The carrying amounts of all long-term debt are the same
as the estimated fair values with the exception of the Senior Secured Notes and
the Subordinated Secured Notes. The fair values of these two notes are
estimated to be $35,646,000 and $2,580,000, respectively, at June 30, 1995 and
$51,463,000 and $3,227,000, respectively, at June 30, 1994.
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 require aggregate annual minimum rentals of $1.54 million, payable monthly.
Beginning April 1, 1996, 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. In addition, the lease provides for percentage rent payments to the
lessor equal to 2% of the net revenues of the facility, payable quarterly. The
Company leases its Corporate headquarters for a term of five years ending in
April 1999 and various other clinics and outpatient operations over terms
ranging from one to five years. Rent expense related to noncancellable operating
leases amounted to $2,718,000, $2,052,000 and $1,687,000 for the years ended
June 30, 1995, 1994 and 1993, respectively.
Future minimum lease payments required under noncancellable operating
leases as of June 30, 1995 are as follows: 1996--$2,944,000; 1997--$2,689,000;
1998--$2,506,000; 1999--$2,198,000; 2000--$1,715,000; and thereafter--
$15,760,000.
F-16
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
INCOME TAXES
- ------------
During the fourth quarter of fiscal 1993, effective July 1, 1992, the
Company changed its method of accounting for income taxes from the deferred
method to the liability method as required by FASB Statement No. 109,
"Accounting for Income Taxes." As permitted by the Statement, prior years'
financial statements were not restated. The cumulative effect of adopting FASB
Statement No. 109 as of July 1, 1992 was to increase net income in 1993 by
$2,353,000.
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
-------------------------
1995 1994
----------- ------------
Deferred tax liabilities:
Book basis of fixed assets over tax basis..... $ 4,023,000 $ 9,494,000
Change in tax accounting methods.............. 685,000 1,435,000
Economic performance.......................... 316,000 320,000
Other-net..................................... 248,000 679,000
----------- -----------
Total deferred tax liabilities........... 5,272,000 11,928,000
Deferred tax assets:.............................
Allowance for doubtful accounts............... 609,000 723,000
General and professional liability insurance.. 635,000 584,000
Accrued employee benefits..................... 417,000 312,000
Investment in nonconsolidated subsidiaries.... 1,401,000 460,000
Impairment of investment...................... 568,000 --
Other......................................... 604,000 --
Net operating loss carryovers................. 8,146,000 5,752,000
Alternative minimum tax credit carryovers..... 1,544,000 1,668,000
----------- -----------
Total deferred tax assets................ 13,924,000 9,499,000
Valuation allowance for deferred tax assets... -- (2,503,000)
----------- -----------
Net deferred tax assets.................. 13,924,000 6,996,000
----------- -----------
Net deferred tax assets (liabilities).... $ 8,652,000 $(4,932,000)
=========== ===========
F-17
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
-------------------
1995 1994 1993
------------- --------------- --------------
Income taxes currently payable:
Federal................................. $ --- $ 810,000 $ 686,000
State................................... 183,000 874,000 169,000
Deferred income taxes:
Federal................................. (12,154,000) (1,196,000) (621,000)
State................................... (1,430,000) 8,000 (75,000)
------------ ----------- ---------
$(13,401,000) $ 496,000 $ 159,000
============ =========== =========
The provision (benefit) for income taxes is reported in the
consolidated statements of operations as follows:
YEAR ENDED JUNE 30
------------------
1995 1994 1993
------------ ------------ -----------
Provision (benefit) for income taxes..... $(13,195,000) $ 599,000 $ 159,000
Income tax benefit from loss on early
extinguishment of debt.................. (206,000) (103,000) ---
------------ --------- ---------
$(13,401,000) $ 496,000 $ 159,000
============ ========= =========
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
-------------------
1995 1994 1993
------------- --------------- --------------
Income (loss) before income taxes,
extraordinary items and cumulative
effect of accounting change.............. $(30,240,000) $2,076,000 $(2,174,000)
Federal statutory income tax rate......... 34% 34% 34%
------------ ---------- -----------
(10,282,000) 706,000 (739,000)
------------ ---------- -----------
Benefit of net operating loss recognized.. (2,503,000) (921,000) (944,000)
Write-off of cost in excess of net asset
value of purchased businesses............ 956,000 -- 1,357,000
Income tax benefit from loss on early
extinguishment of debt................... (206,000) (103,000) --
State income taxes........................ (1,247,000) 882,000 175,000
Other..................................... (119,000) (68,000) 310,000
------------ ---------- -----------
$(13,401,000) $ 496,000 $ 159,000
============ ========== ===========
F-18
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
The Company's valuation allowance related to deferred tax assets was
reduced from $2,503,000 at June 30, 1994 to zero at June 30, 1995, based on
increases in the underlying values of the properties considered in the Company's
tax planning strategies. At June 30, 1995, net operating loss carryovers of
approximately $21.4 million (of which $17.6 million expires from 2000 to 2003
and $3.8 million expires in 2010) and alternative minimum tax credit carryovers
of approximately $1.5 million, are available to reduce future federal income
taxes, subject to certain annual limitations.
STOCKHOLDERS' EQUITY
- --------------------
The Class A Convertible Preferred Stock, which was not entitled to
receive dividends, did not have any liquidation preference, had no voting rights
and was convertible at any time into Common Stock on a share-for-share basis,
was cancelled by the holder in June 1995 at $5.36 per share. The excess of the
cancellation price over par value was accounted for as a reduction of additional
paid-in capital.
The Certificate of Incorporation of the Company, as amended,
authorizes the issuance of 1,000,000 shares of Class B Convertible Preferred
Stock, $1.00 par value.
In March 1993, the Board of Directors authorized 152,321 shares of
the Class B Convertible Preferred Stock as Class B Preferred Stock, Series C.
These shares are entitled to cumulative dividends at a rate of 5% per annum
payable quarterly in arrears. These shares are entitled 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.
On June 30, 1993, the Company issued 142,486 shares of Class B
Preferred Stock, Series C in a recapitalization of the interests of Paul J.
Ramsay, the Company's chairman. (See note on Related Party Transactions).
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 Class B preferred stock, Series C 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
F-19
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
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.
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. Notwithstanding the foregoing restrictions,
those provisions expressly permit the payment of regular fixed dividends from
time to time on the Company's issued and outstanding Class B Convertible
Preferred Stock, Series C, provided that such dividends may not exceed $387,200
in each 12-month period and provided no event of default exists or would occur
as a result of such payment.
OPTIONS AND WARRANTS
- --------------------
The Company's stock option plans provide incentive 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 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. The number of options granted as well
as the option prices are also subject to antidilution adjustments such as that
which occurred in fiscal 1995 in connection with the Company's spin-off of RMCI.
F-20
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
At June 30, 1995, there were no shares available for grant under the
1990 Stock Option Plan and 39,321 and 123,795 shares available for grant under
the 1991 and 1993 Stock Option Plans, respectively. The table below summarizes
the activity in the plans in fiscal years 1993, 1994 and 1995.
1990 PLAN 1991 PLAN 1993 PLAN
----------- ----------- -----------
PRICE PRICE PRICE
RANGE RANGE RANGE
NUMBER PER NUMBER PER NUMBER PER
OF OPTIONS SHARE OF OPTIONS SHARE OF OPTIONS SHARE
----------- ----------- ----------- ----------- ----------- -----------
Outstanding, June 30, 1992 369,997 $ 5.00 819,838 $ 5.00 -- --
Granted -- -- 377,003 $5.31-$6.25 -- --
Canceled (37,996) $ 5.00 (135,340) $ 5.00 -- --
------- --------- --------
Outstanding, June 30, 1993 332,001 $ 5.00 1,061,501 $5.00-$6.25 -- --
Granted -- -- 173,000 $6.88-$7.88 271,500 $6.88-$7.88
Canceled -- -- (33,991) $5.00-$7.88 (15,505) $ 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-$7.88 255,995 $6.88-$7.88
Granted -- -- -- -- 65,000 $3.75-$6.63
Canceled (52,013) $ 4.01 (66,885) $4.25-$7.88 (101,037) $5.51-$7.88
Exercised (31,999) $ 5.00 (42,167) $5.00-$5.31 -- --
Effect of Distribution
of Subsidiary 64,972 266,924 46,930
------- --------- --------
Outstanding, June 30, 1995,
after certain antidilution
adjustments 274,629 $4.01-$5.00 1,283,880 $3.75-$6.31 266,888 $3.75-$6.31
======= ========= ========
Exercisable, June 30, 1995 274,629 -- 909,390 -- 210,669 --
======= ========= ========
Exercisable, June 30, 1994 293,669 -- 982,669 -- 9,999
======= ========= ========
In connection with a 1988 refinancing, the Company issued to Citibank,
N.A. warrants to purchase 166,667 shares of the Company's Common Stock at $10.50
per share. The warrants contained an antidilution provision requiring
adjustment to the purchase price and the number of shares upon occurrence of
certain transactions. The issuance of the Class B Preferred Stock, Series C and
the granting and repricing of stock options resulted in an adjustment in the
number of warrants and purchase price. These warrants were not exercised and,
on April 1, 1995, the warrants expired. As part of the 1990 refinancing, 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 antidilution provision
adjustments, the purchase price is currently $7.20 per share and warrants for a
total of 124,668 shares are still outstanding. These warrants are exercisable
on or before March 31, 2000.
F-21
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
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 the appropriate intermediaries. 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. During the years ended June 30, 1995, 1994 and 1993, the Company
recorded contractual reimbursement benefits of approximately $1,000,000,
$1,400,000 and $2,300,000, respectively, for the combined effects of
intermediary audits and the routine evaluation of prior year estimated
settlements. Management believes that adequate provision has been made for any
adjustments that may result from future intermediary reviews or audits.
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.
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 contributed $0, $160,000, and $175,000 to the plan during
the years ended June 30, 1995, 1994 and 1993, respectively.
RELATED PARTY TRANSACTIONS
- --------------------------
On June 30, 1993, the interests in the Company controlled by Paul J.
Ramsay, the Company's chairman, were recapitalized. The Company issued 142,486
shares of Class B Preferred Stock, Series C in exchange for all outstanding
shares of the Company's Class B Convertible Preferred Stock, Series 1987, the
Company's $2 million 16.1% subordinated promissory note to affiliate and
$500,000 in cash. The early extinguishment of the $2 million 16.1% subordinated
promissory note resulted in an extraordinary loss of $1,580,000 in 1993.
The Company expensed $716,000, $698,000, and $678,000 in management
fees to a corporate affiliate of Paul J. Ramsay during the years ended June 30,
1995, 1994 and 1993, respectively.
F-22
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
There were no significant amounts due to or from related parties at
June 30, 1994. RMCI, which was distributed to the Company's stockholders in the
form of a dividend in April 1995, is governed by a Board of Directors which is
substantially the same as the Company's Board of Directors. At June 30, 1995,
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 $7.4 million. Of this amount, $6 million is
represented by an unsecured, interest-bearing (8%), subordinated promissory note
due from RMCI and issued on October 25, 1994. Interest on the subordinated
promissory note is payable quarterly commencing June 30, 1995 and principal is
payable over a four-year period in equal quarterly installments commencing
September 30, 1996. The remaining balance owed by RMCI to RHCI, $1.4 million,
is governed by a Distribution Agreement which provides that $600,000 is payable
by RMCI on or before October 21, 1995 (or on such other terms and conditions as
mutually agreed to by RMCI and RHCI), with the balance due and payable on or
before December 31, 1996, together with interest at 7% per annum, beginning
October 21, 1995. As of June 30, 1995, RMCI had paid the Company $275,000 of
the amount due on October 21, 1995.
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
--------------------------------------
1995 1994 1993
------ ------ ------
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 --
Fixed assets acquired under
capital leases.................. -- -- 1,857,000
Issuance of Class B preferred
stock, Series C................. -- -- 6,080,000
Cash paid during the year for:
Interest (net of amount
capitalized).................... $6,518,000 $8,064,000 $8,788,000
Income taxes..................... 1,231,000 398,000 1,780,000
F-23
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
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, 1995 and 1994.
QUARTER ENDED
-------------
SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30(2)
------------ ------------- ------------ -------------
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)
=========== =========== =========== ============
1994
----
Net revenues.................................. $31,983,000 $32,561,000 $36,179,000 $ 36,279,000
Income (loss) before income taxes and
extraordinary items......................... 844,000 563,000 1,163,000 (494,000)
Income (loss) before extraordinary items...... 608,000 475,000 822,000 (428,000)
Net income (loss)............................. 608,000 475,000 667,000 (428,000)
Income (loss) per common and dilutive common
equivalent share(1)
Primary:
Before extraordinary items................ $ 0.06 $ 0.05 $ 0.09 $ (0.04)
Extraordinary items....................... -- -- (0.02) --
----------- ----------- ----------- ------------
Income (loss) per common share............ $ 0.06 $ 0.05 $ 0.07 $ (0.04)
=========== =========== =========== ============
Fully diluted:
Before extraordinary items................ $ 0.06 $ 0.05 $ 0.09 $ (0.04)
Extraordinary items....................... -- -- (0.02) --
----------- ----------- ----------- ------------
Income (loss) per common share............ $ 0.06 $ 0.05 $ 0.07 $ (0.04)
=========== =========== =========== ============
(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 the note on Impairment of Assets, in the fourth
quarter of fiscal 1995, the Company adopted FASB Statement No. 121 and recorded
an asset impairment charge of $20.3 million ($11.4 million after income tax
benefit, or $1.47 per share).
F-24
FINANCIAL STATEMENT SCHEDULE
SCHEDULE VIII
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COST AND OTHER ACCOUNTS DEDUCTIONS END OF
OF PERIOD EXPENSES --DESCRIBE --DESCRIBE PERIOD
------------- ---------- -------------- ---------- -------
Year ended June 30, 1995:
Allowance for doubtful
accounts............... $3,925,000 $5,086,000 $ --- $5,125,000(1) $3,886,000
========== ========== ========== ========== ==========
Year ended June 30, 1994:
Allowance for doubtful
accounts............... $4,955,000 $5,846,000 $ --- $6,876,000(1) $3,925,000
========== ========== ========== ========== ==========
Year ended June 30, 1993:
Allowance for doubtful
accounts............... $4,459,000 $8,148,000 $ --- $7,652,000(1) $4,955,000
========== ========== ========== ========== ==========
_______________
(1) Write-offs of uncollectible patient accounts receivable.
S-1
INDEX OF EXHIBITS
Page
Number
------
2. Agreement and Plan of Merger dated as of June 27, 1991
among the Company, New Ramcorp Inc. and Ramsay Corporation
(incorporated by reference to Exhibit 2 to the Company's
Registration Statement on Form S-2, Registration No. 33-40762). --
2.1 Certificate of Merger of New Ramcorp Inc. into the Company
filed on June 27, 1991 (incorporated by reference to
Exhibit 2.1 to the Company's Registration Statement on
Form S-2, Registration No. 33-40762)........................... --
2.2 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)................................................. --
2.3 Asset Purchase Agreement dated as of August 25, 1993 among the
Company and Cumberland County Hospital System, Inc. and
Cumberland Mental Health, Inc. Pursuant to Reg. S-K,
Item 601(b)(2), the Company agrees to furnish a copy of the
Schedules to such Agreement to the Commission upon request
(incorporated by reference to Exhibit 2.3 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994)... --
2.4 Asset Purchase Agreement dated as of October 22, 1992 among
Louisiana Psychiatric Company, Inc., HCA Psychiatric Company
and Ramsay Louisiana, Inc. Pursuant to Reg. S-K, Item 601(b)(2),
the Company agrees to furnish a copy of the Disclosure Schedule
to such Agreement to the Commission upon request (incorporated
by reference to Exhibit 2.4 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1994).................... --
2.5 Agreement dated as of October 12, 1993 by and among Florida
Psychiatric Management, Inc., the stockholders of Florida
Psychiatric Management, Inc., Ramsay Health Care, Inc. and
Ramsay Managed Mental Health Services, Inc..................... --
2.6 Asset Purchase Agreement dated as of January 14, 1994 between
Halifax Hospital Medical Center and Atlantic Treatment Center,
Inc. 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 (incorporated by reference to
Exhibit 2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1993)........................... --
2.7 Agreement of sale and purchase dated April 12, 1995 by and
between Mesa Psychiatric Hospital, Inc. and Capstone Capital
Corporation. 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.......................
2.8 Agreement of sale and purchase dated April 12, 1995 by and
between RHCI San Antonio, Inc. and Capstone Capital Corporation.
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.................................
E-1
Page
Number
------
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)................................................. --
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).......... --
E-2
Page
Number
------
4.4 Revolving Credit Note of the Company dated May 21, 1993 in the
principal amount of $4,000,000 payable to Societe Generale,
New York Branch (incorporated by reference to Exhibit 4.4 to
the Company's Annual Report on Form 10-K for the year ended
June 30, 1994)............................................... --
4.5 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). --
4.6 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 4.5)..................... --
4.7 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 4.5).................................... --
4.8 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 4.5)..................... --
4.9 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 4.5)..................... --
4.10 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 4.5).................................... --
10.1 Asset Purchase Agreement, effective April 27, 1990, among the
Company, The Haven Hospital, Inc., The Ramsay Hospital
Corporation of Texas, and Ramsay Hospitals (Texas) Limited
(incorporated by reference to Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1990). --
10.2 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 the year ended
June 30, 1990)............................................... --
10.3 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 10.2)................................................ --
E-3
Page
Number
------
10.4 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 10.2)................................................ --
10.5 Pledge and Security Agreement dated as of March 31, 1990,
between the Company and The Citizens and Southern National
Bank (incorporated by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1990)............................................... --
10.6 Pledge and Security Agreement between Michigan Psychiatric
Services, Inc. and The Citizens and Southern National Bank
(substantially identical to Exhibit 10.5).................... --
10.7 Pledge and Security Agreement between Americare of Galax, Inc.
and The Citizens and Southern National Bank (substantially
identical to Exhibit 10.5)................................... --
10.8 Pledge and Security Agreement between Bountiful Psychiatric
Hospital, Inc. and The Citizens and Southern National Bank
(substantially identical to Exhibit 10.5).................... --
10.9 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 10.9 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1990)................................ --
10.10 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 10.9).................... --
10.11 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 10.9)................................................ --
10.12 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)............................................... --
10.13 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)............................................... --
10.14 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 10.13).......... --
E-4
Page
Number
------
10.15 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)................................................ --
10.16 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)......................................... --
10.17 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 10.16 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)................................ --
10.18 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 10.16 above (substantially
identical to Exhibit 10.17).................................. --
10.19 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 10.16 above (substantially identical to
Exhibit 10.17)............................................... --
10.20 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 10.16 above (substantially identical to
Exhibit 10.17)............................................... --
10.21 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 10.16 above (substantially
identical to Exhibit 10.17).................................. --
10.22 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 10.16 above (substantially
identical to Exhibit 10.17).................................. --
10.23 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 10.16 above (substantially identical to Exhibit 10.17) --
E-5
Page
Number
------
10.24 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 10.16 above (substantially
identical to Exhibit 10.17).................................. --
10.25 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
10.16 above (substantially identical to Exhibit 10.17)....... --
10.26 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 10.16 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).................. --
10.27 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 10.16 above
(substantially identical to Exhibit 10.26)................... --
10.28 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
10.16 above (substantially identical to Exhibit 10.26)....... --
10.29 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 10.16 above (substantially identical to
Exhibit 10.26)............................................... --
10.30 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 10.16 above
(substantially identical to Exhibit 10.26)................... --
10.31 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 10.16 above
(substantially identical to Exhibit 10.26)................... --
10.32 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
10.16 above (substantially identical to Exhibit 10.26)....... --
10.33 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 10.16 above (substantially identical to Exhibit
10.26)....................................................... --
E-6
Page
Number
------
10.34 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 10.16 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). --
10.35 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 10.16
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)............................................... --
10.36 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 10.16 above
(substantially identical to Exhibit 10.35)................... --
10.37 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 10.16 above (substantially identical to Exhibit
10.35)....................................................... --
10.38 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 10.16 above
(substantially identical to Exhibit 10.35)................... --
10.39 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
10.16 above (substantially identical to Exhibit 10.35)....... --
10.40 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 10.16 above
(substantially identical to Exhibit 10.35)................... --
10.41 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 10.16 above
(substantially identical to Exhibit 10.35)................... --
10.42 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 10.16 above
(substantially identical to Exhibit 10.35)................... --
10.43 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 10.16 above (substantially identical to Exhibit
10.35)....................................................... --
E-7
Page
Number
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10.44 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 10.16 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)............................ --
10.45 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 10.16 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).................. --
10.46 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 10.16 above, with respect to certain real
property located in Horry County, South Carolina (substantially
identical to Exhibit 10.45).................................. --
10.47 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 10.16 above, with respect to certain real
property located in Vernon County, Missouri (substantially
identical to Exhibit 10.45).................................. --
10.48 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
10.16 above, with respect to certain real property located in
St. Tammany Parish, Louisiana (substantially identical to
Exhibit 10.45)............................................... --
10.49 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 10.16 above, with respect to
certain real property located in Okaloosa County, Florida
(substantially identical to Exhibit 10.45)................... --
10.50 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 10.16 above, with respect to
certain real property located in the City of Houma, Parish
of Terrebonne, Louisiana (substantially identical to Exhibit
10.45)....................................................... --
10.51 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 10.16 above, with respect to
certain real property located in Garfield County, Oklahoma
(substantially identical to Exhibit 10.45)................... --
E-8
Page
Number
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10.52 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 Generale, individually and as agent for the
lenders which are parties to that certain Credit Agreement
described in Exhibit 10.16 above, with respect to certain real
property located in the City of DeSoto, Dallas County, Texas
(substantially identical to Exhibit 10.45)................... --
10.53 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). --
10.54 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) --
10.55 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)................................................. --
10.56 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)............................................... --
10.57 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).............. --
10.58 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)............. --
10.59 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) (incorporated by reference to Exhibit 10.47.3
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1985)..................................... --
10.60 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)................................ --
10.61 Option Agreement dated September 11, 1989, between the Company
and The Ramsay Hospital Corporation of Texas (incorporated by
reference to Exhibit 10.44 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1989).................. --
10.62 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)............................................... --
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10.63 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)............ --
10.64 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)................................................ --
10.65 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) --
10.66 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)......................... --
10.67 Agreement dated January 7, 1992 between the Company and Ralph
J. Watts (incorporated by reference to Exhibit 10(a) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1991)........................................... --
10.68 Warrant Certificate dated January 8, 1992 issued to Ralph J.
Watts (incorporated by reference to Exhibit 10(b) to the
Company's Quarterly Report on form 10-Q for the quarter ended
December 31, 1991)........................................... --
10.69 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).................. --
10.70 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)............... --
10.71 Employment Agreement dated as of January 7, 1992 between the
Company and Gregory H. Browne (incorporated by reference to
Exhibit 10.92 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1992)............................ --
10.72 Employment Agreement dated as of July 7, 1992 between the
Company and Bruce R. Soden (incorporated by reference to
Exhibit 10.93 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1992)................................ --
10.73 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)................................ --
10.74 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)................................ --
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10.75 Employment Agreement dated as of October 7, 1992 between the
Company and Rea A. Oliver (incorporated by reference to
Exhibit 10.75 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1994)............................ --
10.76 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)............................ --
10.77 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).................................... --
10.78 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). --
10.79 Ramsay Health Care, Inc. 1993 Stock Option Plan (incorporated
by reference to Exhibit 10.83 to the Company's Quarterly
Report on Form 10Q for the quarter ended December 31, 1993).. --
10.80 Ramsay Health Care, Inc. 1993 Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.84 to the Company's
Quarterly Report on Form 10Q for the quarter ended December
31, 1993).................................................... --
10.81 Employment Agreement dated as of October 2, 1993 between the
Company and Reynold Jennings (incorporated by reference to
Exhibit 10.81 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1994)............................ --
10.82 Letter Agreement dated May 26, 1994 between the Company and
Reynold Jennings amending Mr. Jennings' Employment Agreement
(incorporated by reference to Exhibit 10.82 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994) --
10.83 Letter Agreement dated June 3,1994 between the Company and
Reynold Jennings amending Mr. Jennings' Employment Agreement
(incorporated by reference to Exhibit 10.83 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994) --
10.84 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)............................................... --
10.85 Employment Agreement dated July 19, 1994 between the Company
and Brent J. Bryson..........................................
10.86 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).............................................. --
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10.87 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)... --
10.88 Lease Agreement dated April 12, 1995 between Capstone Capital
Corporation and Mesa Psychiatric Hospital, Inc...............
10.89 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........................................
10.90 Facility Lease Agreement dated June 26, 1995 by and between
Charter Canyon Behavioral Health System, Inc. and Bountiful
Psychiatric Hospital, Inc....................................
10.91 Employment termination letter dated September 15, 1995 between
the Company and Gregory H. Browne............................
10.92 Stock Purchase Agreement dated September 7, 1995 by and between
Paul Ramsay Holdings Pty. Limited and Ramsay Health Care, Inc.
10.93 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)........................................... --
10.94 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)....... --
10.95 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)....... --
10.96 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).............................................. --
10.97 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).............................................. --
10.98 $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.................. --
11 Computation of Net Income Per Share..........................
21 Subsidiaries of the Company..................................
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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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