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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, 1998 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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
COLUMBUS CENTER
ONE ALHAMBRA PLAZA, SUITE 750
CORAL GABLES, FLORIDA 33134
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (305) 569-6993
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
(TITLE OF CLASS)
Indicate by a check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K./ /
The number of shares of the registrant's Common Stock outstanding as of
October 2, 1998 was 10,877,982. The aggregate market value of Common Stock held
by non-affiliates on such date was $9,232,121.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrant's definitive Proxy Statement to be
filed for the 1998 Annual Meeting of Stockholders are incorporated by reference
into Part III.
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FORWARD-LOOKING STATEMENTS
In connection with the "safe-harbor" provisions of the Private
Securities Litigation Reform Act of 1995, Ramsay Health Care, Inc. ("RHCI" or
the "Company") notes that this report contains forward-looking statements about
the Company. The Company is hereby setting forth cautionary statements
identifying important factors that may cause the Company's actual results to
differ materially from those set forth in any forward-looking statements or
information made by or on behalf of or concerning the Company. Some of the most
significant factors include (i) accelerating changes occurring in the at-risk
youth industry, including competition from consolidating and integrated provider
systems and limitations on reimbursement rates, (ii) federal and state
governmental budgetary constraints which could have the effect of limiting the
amount of funds available to support governmental programs, (iii) statutory,
regulatory and administrative changes or interpretations of existing statutory
and regulatory provisions affecting the conduct of the Company's business and
affecting current and prior reimbursement for the Company's services, (iv) the
Company's inability to successfully implement its new strategic direction of
providing treatment and education programs for at-risk and troubled youth and
(v) the Company's inability to obtain working capital and acquisition financing
on commercially reasonable terms. There can be no assurance that any anticipated
future results will be achieved. As a result of the factors identified above and
other factors, the Company's actual results or financial or other condition
could vary significantly from the performance or financial or other condition
set forth in any forward-looking statements or information.
PART I
ITEM 1. BUSINESS.
GENERAL
The Company is a leading operator and manager of diversified
treatment and education programs for at-risk and troubled youth in residential
and non-residential settings nationwide. During the fiscal year ended June 30,
1998, the Company also operated as a provider and manager of behavioral
healthcare services. See "Recent Developments".
OVERVIEW
On February 19, 1998, the Company announced a change in
strategic direction in order to focus on becoming a leader in the at-risk youth
industry. To that end, in February 1998, management identified for divestiture
those businesses and facilities which were not essential to its strategic
objectives in the youth services field. In June 1998, the Company sold its
behavioral managed care business and in September 1998, the Company completed
the sales of non-strategic inpatient psychiatric hospitals. The net proceeds for
these divestitures were applied to reduce indebtedness and to redeem preferred
stock, all held by an unaffiliated financial institution. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations". The remaining business represents the Company's youth service
operations and is comprised of seven youth facilities with 713 beds and six
group homes with 66 beds. The Company also provides a range of outpatient
services and day treatment programs tailored for the at-risk and troubled youth
population.
Throughout its youth facilities and group homes, the Company
offers specialized services to those adolescents affected with behavioral
disorders, psychoses, emotional disorders, as well as sexual and juvenile
offenders. Within these environments, clinical and program teams incorporate
therapeutic, educational and vocational services with cognitive, behavioral and
social rehabilitation programs. These highly structured programs assist troubled
youth in learning how to change ineffective or violent behavior and cope with
the difficulties and stresses of life. The Company's specialized services and
programs are geared toward the following populations: (i) juvenile offenders,
(ii) adolescent females, (iii) children and adolescents with emotional and
behavioral disorders, (iv) sexual offenders, (v) substance abusers and (vi)
youth with developmental disabilities. In response to state, community and
agencies' needs to secure
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appropriate placements for special needs youth, the Company offers the following
specialized programs and services:
o RESIDENTIAL TREATMENT FACILITIES - Residential Treatment Facilities provide
a safe, secure and highly structured environment for the evaluation and
development of programs for troubled youth. Certain Residential Treatment
Facilities offer specific services such as:
- Intensive Treatment Units which provide crisis stabilization for
severely behaviorally and emotionally disturbed youth.
- Residential Treatment Centers which focus on a cognitive behavioral
model with family, group and individual counseling, social and life
skills, and educational and recreational programs.
- Assignment Centers which conduct in-depth academic, mental health,
behavioral and medical assessments with the primary purpose of placing
adjudicated juveniles in the proper residential facility within the
restrictiveness level ordered by the court.
- Day Treatment Programs which are designed to meet the special needs of
troubled youth and their families, while enabling the youth to remain
living in his or her home.
The Company also has the ability to manage and develop programs and
services for youth in facilities not owned by the Company through service
contracts.
o GROUP HOMES - Group homes provide shelter care for youth in a family-like
setting in residential neighborhoods. These adolescents typically are in
need of a step-down or transition phase back to their home environment. The
primary focus is to teach independent living skills to decrease
institutional dependency. Youth in group homes attend public education
programs or educators are brought into the home, where they receive
vocational and work training programs in order to gradually transition them
back into their communities.
o SPECIAL EDUCATION PROGRAMS - Special Education Programs are designed to
educate at-risk youth in a manner that promotes public safety by reducing
disruptive and delinquent behaviors of students. The principal components
of the special education programs include an academic curriculum, daily
computer assisted learning, behavioral counseling, job placement, family
services and community service.
o COMMUNITY-BASED SERVICES - Community-Based Services are provided in the
youth's home or in another community setting. These community-based
services provide supportive, mental health care and counseling to youth and
their families whose condition does not warrant more intensive treatment
programs.
The primary objective of the Company's programs is to provide
the optimal opportunity for habilitation and integration of at-risk and troubled
youth into their communities as responsible individuals and productive citizens.
RECENT DEVELOPMENTS
On May 4, 1998, the Company sold its Three Rivers facility,
which had been closed since June 30, 1995, for $2.0 million. Proceeds from the
sale included a $0.5 million cash payment at closing and a $1.5 million, 12%
promissory note, due and payable on May 1, 1999.
On June 2, 1998, the Company sold FPM Behavioral Health, Inc.
("FPM"), its wholly owned managed behavioral health care business for a cash
purchase price of $20.0 million, subject to certain future potential purchase
price adjustments. On June 2, 1998, the Company also sold its Greenbrier
facility for a cash purchase price of $1.6 million.
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On September 28, 1998, the Company consummated a
sale/leaseback transaction whereby the Company sold the land, building and fixed
equipment of its Havenwyck facility in Auburn Hills, Michigan for the land,
building and fixed equipment of its leased Desert Vista facility in Mesa,
Arizona and $1.3 million in cash. In connection with the sale/leaseback, the
Company agreed to lease the Havenwyck facility back over a term of approximately
12 years with current annual minimum lease payments of $1.3 million, payable
monthly.
On September 28, 1998, the Company completed the sale of its
management contract services subsidiary, and behavioral health care facilities
in Conway, South Carolina, Houma, Louisiana, Mesa, Arizona and DeSoto, Texas for
a cash purchase price of $13.5 million. In connection with the sale, the Company
agreed to sell its medical subacute and behavioral health care facility in San
Antonio, Texas to the purchaser for no additional consideration other than the
assumption of liabilities if the purchaser obtains consent for the sale from the
lessor of the facility within 90 days.
On September 30, 1998, the Company completed the sale of its
behavioral health care facility in Morgantown, West Virginia for a cash purchase
price of $14.8 million.
STRATEGY
The Company's current youth service operations are the solid
platform from which management intends to pursue growth within its current
geographic markets, as well as new geographic markets, where the Company is or
can be a dominant player in the industry. The Company intends to grow through
(i) expansion of services, markets and products, (ii) aggressive response to
requests for proposals ("RFP's") and (iii) selected strategic acquisitions.
Through these avenues, management intends to capitalize on the youth services
industry's size, fragmentation and multiple payor sources.
o EXPANSION OF SERVICES - Management believes significant opportunities exist
to further penetrate the Company's existing geographic markets. Management
will continue to capitalize on the Company's reputation for delivering high
quality, cost-effective solutions to expand the breadth of service provided
to existing customers and to attract new customers. In addition, the
Company will continue to develop new programs which respond to state and
local agencies' needs to secure appropriate placements for special needs
youth.
o AGGRESSIVE RESPONSE TO RFPS - The Company is well positioned to expand into
new markets as state and local agencies increasingly seek providers with
the capability to provide a broader continuum of services to at-risk youth.
Further, management believes this trend will intensify as state and local
governments desire to keep spending in their respective home states and
look to develop local services. Typically, the solicitation of providers
for new and broader service offerings is accomplished by state agencies
through RFPs, a process in which the Company actively competes in markets
management has targeted for growth. Management believes the Company's
history of providing high quality, cost-effective services gives it a
significant competitive advantage in responding to RFP's. The Company
prioritizes its target markets based on the needs of each state, the
diversification of funding sources, state and local legislation, existing
relationships and in-state competition.
o SELECTED STRATEGIC ACQUISITIONS - The Company intends to pursue strategic
acquisitions of other youth services providers to further penetrate
existing markets and enter new geographic markets. The youth services
industry is highly fragmented with what the Company estimates to be
approximately 10,000 to 15,000 providers. The Company continually reviews
acquisition opportunities and management believes that a number of
acquisition opportunities currently exist at reasonable valuations.
Further, management believes it can enhance the performance of acquired
facilities by selectively implementing the Company's programs to expand
services. Management believes that the Company's current infrastructure is
capable of supporting a number of acquisitions affording the opportunity to
spread certain fixed operational expenses over a broader revenue base.
Acquisitions will depend, in
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part, on the Company obtaining acquisition financing on commercially
reasonable terms. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations".
COMPETITION
The fragmented at-risk youth industry is comprised largely of
small providers that operate in relatively limited geographic areas and provide
services to a specific type of juvenile. The Company competes with both public
and private for-profit and not-for-profit companies.
Competition generally is based upon program quality, range and
price of services provided, operational experience and facility location. The
strength and depth of a provider's relationship with the various payors plays a
significant role in the selection process. The Company believes that its
facilities compete favorably on the basis of, among other things, the range and
quality of programs offered and the expertise of its management team in the
development and implementation of new programs.
MARKETING
The Company's marketing activities are directed primarily
toward local and state governmental entities responsible for juvenile justice,
social services providers, education and mental health providers, as well as
school districts and juvenile courts responsible for special programs for
at-risk and troubled youth. Marketing efforts are coordinated by the Company's
Vice President of Youth Services and other senior management personnel in
concert with field management at the local level.
REGULATION
The at-risk youth industry is subject to federal, state and
local regulations, which are administered by a variety of regulatory
authorities. Operators of residential and day facilities for juveniles are
typically expected to provide education programs and, in some instances, health
care services. As providers of such services, operators of at-risk youth
facilities are required to comply with applicable state and local regulations.
In addition, some programs require accreditation from the Joint Commission on
Accreditation of Healthcare Organizations or Commission on Accreditation of
Rehabilitation Facilities.
As a behavioral healthcare provider, the Company is subject to
extensive and frequently changing government regulations. These regulations are
primarily concerned with licensure, conduct of operations, reimbursement,
financial solvency, standards of medical care, the dispensing of drugs, patient
rights (including the confidentiality of medical records) and the direct
employment of psychiatrists, psychologists, and other licensed professionals.
Regulatory activities affect the Company's business directly by controlling its
operations, restricting licensure of the business entity or by controlling the
reimbursement for services provided, and indirectly by regulating its customers.
In certain cases, more than one regulatory agency may have authority over the
activities of the Company. State licensing laws and other regulations are
subject to amendment and to interpretation by regulatory agencies with broad
discretionary powers. Any new regulations or licensing requirements, or
amendments or interpretations of existing regulations or requirements, could
require the Company to modify its operations materially in order to comply with
applicable regulatory requirements and may have a material adverse effect on the
Company's business, financial condition or results of operations.
Federal law contains a number of provisions designed to ensure
that services rendered by providers of healthcare services 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 a facility 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
facility 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 facilities 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.
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The Social Security Act imposes civil sanctions and criminal
penalties upon persons who make or receive kickbacks, bribes or rebates in
connection with federally-funded healthcare programs. The Social Security Act
also provides for exclusion from the Medicare and Medicaid programs for
violations of the anti-kickback rules. The anti-kickback rules prohibit
providers and others from soliciting, offering, receiving or paying, directly or
indirectly, any remuneration in return for either making a referral for a
federally-funded healthcare service or item or ordering any such covered service
or item. In order to provide guidance with respect to the anti-kickback rules,
the Office of the Inspector General of the U.S. Department of Health and Human
Service has issued regulations outlining certain "safe harbor" practices, which
although potentially capable of including prohibited referrals, would not be
prohibited if all applicable requirements were met. A relationship which fails
to satisfy a safe harbor is not necessarily illegal, but could be scrutinized on
a case-by-case basis. Since the anti-kickback rules have been broadly
interpreted, they could limit the manner in which the Company conducts its
business. The Company believes that it currently complies with the anti-kickback
rules in planning its activities, and believes that its activities, even if not
within a safe harbor, do not violate the anti-kickback rules. 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, (ii) the statute will ultimately be interpreted by the courts in a
manner consistent with the Company's practices or (iii) the federal government
or other states in which the Company operates will not enact similar or more
restrictive legislation or restrictions that could, under certain circumstances,
impact the Company's operations.
Under another federal provision, known as the "Stark" law or
"self-referral" prohibition, physicians who have an investment or compensation
relationship with an entity furnishing certain designated health services
(including inpatient and outpatient facility services) may not, subject to
certain exceptions, refer Medicare patients for designated health services to
that entity. Similarly, facilities may not bill Medicare or any other party for
services furnished pursuant to a prohibited referral. Violation of these
provisions may result in disallowance of Medicare claims for the affected
services, as well as the imposition of civil monetary penalties and program
exclusion. In addition, the Stark law prevents states from receiving federal
Medicaid matching payments for designated health services that are provided as a
result of a prohibited referral. Often as a result of this requirement, a number
of states have enacted prohibitions similar to the Stark law covering referrals
of non-Medicare business. The following states in which the Company conducts
business have passed legislation which, under certain circumstances, either may
prohibit the referral of private pay patients to healthcare entities in which
the physician has an ownership or investment interest or with which the
physician has a compensation arrangement or may require the disclosure of such
interest to the patient: Arizona, Florida, Georgia, Louisiana, Michigan,
Missouri, Nevada, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee,
Utah and West Virginia. All of these rules are very restrictive, prohibit
submission of claims for payment related to prohibited referrals and provide for
the imposition of civil monetary penalties and criminal prosecution. The Company
is unable to predict how these laws may be applied in the future, or whether the
federal government or states in which the Company operates will enact more
restrictive legislation or restrictions that could under certain circumstances
impact the Company's operations.
In 1996, Congress enacted the Mental Health Parity Act of 1996
which generally requires that group health plans which provide benefits for
mental health care must treat mental health benefits on a similar basis as
benefits for any other illness for purposes of imposing annual or lifetime
benefit limits. The law provides that, if the plan imposes limits on medical or
surgical benefits on the basis of different categories of benefits, the plan may
do the same with regard to different categories of mental health benefits, in
accordance with regulations to be issued by the United States Department of
Labor. The impact of this legislation on employee health benefits is unknown and
the Company cannot predict the effect of this legislation on its financial
condition or results of operations.
In certain states, the employment of psychiatrists,
psychologists and certain other behavioral healthcare professionals by business
corporations, such as the Company, is a permissible practice. However, other
states have legislation or regulations or have interpreted existing medical
practice licensing laws to restrict business corporations from providing
behavioral healthcare services or from the
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direct employment of psychiatrists and, in a few states, psychologists and other
behavioral healthcare professionals. Management believes that the Company is in
compliance with these laws.
In certain states where the Company intends to manage the
provision of educational services for troubled youth, state and local regulation
exists governing such areas as compensatory arrangements between for-profit
service providers such as the Company and not-for-profit schools and other
educational entities, conflicts of interest and standards governing the quality
of educational services.
State certificate of need or similar statutes generally
provide that prior to the construction or acquisition 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. In most cases, 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.
The Company believes that it is currently in compliance in all
material respects with applicable current statutes and regulations governing its
business. The Company monitors its compliance with applicable statutes and
regulations and works with regulators concerning various compliance issues that
arise from time to time. Notwithstanding the foregoing, the regulatory approach
to behavioral healthcare services is extensive and evolving and there can be no
assurance that a regulatory agency will not take the position, under existing or
future statutes or regulations, or as a result of a change in the manner in
which existing statutes or regulations are or may be interpreted or applied,
that the conduct of all or a portion of the Company's operation within a given
jurisdiction is or will be subject to further licensure and regulation.
Expansion of the Company's businesses to cover additional geographic areas or to
different types of products or customers could also subject it to additional
licensure and regulatory requirements.
INDUSTRY TRENDS
The Company believes that the at-risk youth market is highly
fragmented and experiencing rapid growth. The market is comprised of three major
segments: juvenile justice, education and child welfare. The population of
at-risk youth include youth who are abused and neglected, emotionally disturbed,
behaviorally disordered, developmentally delayed, learning disabled and/or
adjudicated. According to published industry statistics, the overall market is
expected to grow in excess of 7% per annum over the next five years and the
for-profit portion of the industry is expected to grow 30% annually over the
same time period. Contributing factors to the rapid industry growth include (i)
a substantive increase in the youth population, (ii) the proliferation of single
parent households, (iii) the increase in the number of families living at the
poverty level, (iv) the rise in drug use among juveniles and (v) an increase in
organized gang activities.
SOURCES OF REVENUE
In fiscal 1998, the Company received payments from various
sources, including commercial insurance carriers (which provide coverage to
insured patients on both an indemnity basis and through various managed care
plans), Medicaid, Medicare and various governmental agencies (including state
judicial systems). In addition, payments were received directly from
individuals, including copayments and deductibles related to services covered by
these individuals' benefit plans. The Company also received payments under
management contracts from its various clients.
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The following table sets forth the approximate percentages of
the Company's fiscal year 1998 revenues derived from these various sources.
YEAR ENDED
JUNE 30, 1998
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Medicare............................................ 33%
Other government programs........................... 22%
Medicaid............................................ 16%
Blue Cross and other commercial insurance........... 15%
Managed care organizations.......................... 10%
Contract management customers....................... 2%
Self-pay and other.................................. 2%
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100%
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o MEDICARE - Medicare is the federal health insurance program for the aged
and disabled. Medicare reimburses providers of psychiatric care for
inpatient, partial hospitalization and hospital-based outpatient services
on a cost-based reimbursement system. Medicare reimburses for certain other
outpatient services based on an area-wide fee schedule or other blended
rates. Medicare reimbursement is typically less than the Company's
established charges for services provided to Medicare patients. Patients
are not responsible for the difference between the reimbursed amount and
the 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. Facilities providing
psychiatric care are currently exempt from the DRG reimbursement system.
However, both Congress and the agency responsible for administering the
Medicare program, the Health Care Financing Administration, have been
investigating a revision to the payment system for inpatient psychiatric,
partial hospitalization and hospital-based outpatient services, including
certain of the services provided by the Company, which would eliminate the
cost-based structure of the current system. Under current proposals,
reimbursement for inpatient, partial hospitalization and outpatient
psychiatric services would be transitioned to a prospective payment system
in which payment for services may be unrelated to the provider's costs.
Medicare reimbursement to exempt psychiatric and chemical dependency
facilities is currently subject to the payment limitations and incentives
established in the Tax Equity and Fiscal Responsibility Act of 1982
("TEFRA"). These facilities are currently 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. Facilities with costs less
than their respective target rate per discharge are currently reimbursed
based on allowable Medicare costs, plus an additional incentive payment.
Medicare reimbursement under TEFRA to facilities exempt from prospective
payment, such as the Company's facilities, have been adversely affected by
the Balanced Budget Act of 1997, passed by Congress in July 1997. Under
certain provisions of this Act, effective July 1, 1998 for the Company,
target rates per discharge were capped, the formula by which incentive
payments are calculated was modified to reduce these payments and allowable
Medicare capital costs were reduced by 15%.
o OTHER GOVERNMENT PROGRAMS - The Company's facilities are reimbursed for
certain services on a per-diem basis by various state agencies. The
per-diem rate is generally based on the nature and scope of services
provided to these patients.
o MEDICAID - Medicaid is the federal/state health insurance program for
low-income individuals, including welfare recipients. 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 by the Company.
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o MANAGED CARE ORGANIZATIONS AND OTHER COMMERCIAL PAYORS - The Company's
facilities are reimbursed for behavioral healthcare services by health
maintenance organizations ("HMO's"), commercial insurance companies and
self-insured employers either on a fee-for-service basis or under
contractual arrangements which include per-diem, per-diagnosis or
sub-capitated arrangements.
For inpatient and partial hospitalization services, Blue Cross plans
reimburse based on charges or negotiated rates in all areas in which the
Company presently operates facilities, except Alabama and Michigan. In
certain states in which the Company operates, Blue Cross reimbursement is
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 facilities typically is lower than the facility's charges,
and patients are not responsible for the difference between the amount
reimbursed by Blue Cross and the facility's charges.
Most commercial insurance carriers reimburse their policyholders or
reimburse the Company directly for charges at rates and limits specified in
their policies. Patients generally remain responsible for any amounts not
covered under their insurance policies. Generally, reimbursement for
psychiatric inpatient and chemical dependency care by commercial insurance
carriers is limited to a maximum number of inpatient days per year or
during the patient's lifetime, or to a maximum dollar amount expended for a
patient in a given period.
OWNERSHIP ARRANGEMENTS
One physician owns a 4% interest in the subsidiary which owns
Gulf Coast Treatment Center. 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 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 is material.
INSURANCE
The Company maintains self-insured retentions related to its
professional and general liability insurance program. The Company's operations
are insured for professional liability on a claims-made basis and for general
liability on an occurrence basis. 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.
EMPLOYEES
As of June 30, 1998, the Company employed approximately 1,622
full-time and 1,215 part-time employees, including a corporate headquarters
staff of approximately 17 full-time employees. The Company considers its
relationship with its employees to be good. After giving effect to the
divestitures of businesses and facilities in September 1998, the Company employs
933 full-time and 773 part-time employees, including a corporate headquarters
staff of approximately 17 full-time employees.
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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 OCCUPATION
NAME OF EXECUTIVE OFFICER AGE DURING THE PAST FIVE YEARS
- ------------------------------- --------- ---------------------------------------------------------------------
Luis E. Lamela................ 48 Chief Executive Officer of the Company since January 1998; Vice
Chairman of the Board of the Company since January 1996; Chief
Executive Officer of CAC Medical Centers, a division of United
HealthCare of Florida, since May 1994; President and CEO of
Ramsay-HMO, Inc. from prior to 1993 to May 1994.
Bert G. Cibran................ 44 President and Chief Operating Officer of the Company since August
1996; President, Summa Healthcare Group, Inc. from February
1996 through August 1996; President and Chief Operating Officer
for the Florida operations of Physician Corporation of America
from February 1994 to February 1996; Executive Vice President
of Operations with Ramsay-HMO, Inc. from prior to 1993 to
February 1994.
Isabel M. Diaz................ 33 Vice President of the Company since October 1997; Executive Vice
President of Corporate Relations for United HealthCare of
Florida, Inc. and the CAC Medical Centers, Inc., a division of
United HealthCare of Florida, Inc., from May 1994 to September
1997; Vice President of Investor and Public Relations for
Ramsay-HMO, Inc. from prior to 1993 to May 1994.
Marcio C. Cabrera............. 34 Executive Vice President and Chief Financial Officer of the Company
since July 1998; Vice President of Finance for CAC Medical
Centers, a division of United HealthCare of Florida, Inc. from
June 1997 to May 1998; Vice President of Finance for United
HealthCare of Florida, Inc. from May 1994 to May 1997;
Corporate Controller for Ramsay-HMO from prior to 1993 to May
1994.
William N. Nyman.............. 45 Vice President of the Company since August 1993; Regional
Controller of the Company from prior to 1993 to July 1993.
Jorge Rico.................... 33 Vice President of the Company since February 1997; Vice President
of Administration and Information Technology for United
HealthCare of Florida, Inc. from 1994 to January 1997 and for
Ramsay-HMO, Inc. from prior to 1993 to 1994.
Marianne L. Finizio........... 39 Vice President of the Company since January 1997; Vice President of
United HealthCare of Florida, Inc. from May 1994 to December
1996; Vice President for Ramsay-HMO, Inc. from prior to 1993 to
May 1994.
9
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ITEM 2. PROPERTIES.
The following table provides information concerning 14 inpatient
facilities owned and operated or leased and operated by the Company as of June
30, 1998.
DATE OPENED TOTAL
FACILITY (7) OR ACQUIRED BEDS
- ------------------------------------- ------------------------- ------------
Havenwyck Facility
Auburn Hills, MI(1).............. November 1983 139
Brynn Marr Facility
Jacksonville, NC................. December 1983 76
Hill Crest Facility
Birmingham, AL................... January 1984 103
Heartland Facility
Nevada, MO....................... April 1984 134
Coastal Carolina Facility
Conway, SC(2).................... November 1984 98
Bayou Oaks Facility
Houma, LA(2).................... November 1985 98
Benchmark Regional Facility
Woods Cross, UT................. August 1986 68
Desert Vista Facility
Mesa, AZ(2)..................... February 1987 100
Chestnut Ridge Facility
Morgantown, WV(2)............... November 1987 70
The Haven Facility
DeSoto, TX(2).................. April 1990 102
Mission Vista Facility
San Antonio, TX(3)............. November 1991 61
Benchmark Behavioral Facility
Midvale, UT(4)................. June 1995 80
Gulf Coast Treatment Center
Fort Walton Beach, FL(5)...... December 1996 118
Dothan Facility
Dothan, Alabama............... April 1998 75
------------
Total (6)................ 1,380
============
(1) In September 1998, the Company sold and immediately leased back the
land, building and fixed equipment associated with this facility. The
lease has an initial term of approximately 12 years. See "Item 1.
Business - Recent Developments".
(2) These facilities were sold in September 1998. See "Item 1. Business -
Recent Developments".
(3) In April, 1995, the Company sold and immediately leased back the land,
building and fixed equipment associated with this facility. The lease
has an initial term of 15 years and three successive renewal options of
five years each. In connection with the sale of certain facilities, the
Company has agreed to sell its interest in Mission Vista to an
unrelated third party if the unrelated third party obtains consent for
the transfer from the facility's lessor. See "Item 1. Business - Recent
Developments".
(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) The Company resumed operations at this facility in December 1996. For
the previous four years, this facility was leased to another healthcare
provider.
(6) Excludes Meadowlake facility, which was leased to an independent
healthcare provider in August 1997, Bethany Pavilion, a 43-bed unit
managed by the Company under a joint venture agreement during fiscal
1998, and the Palm Bay facility which was leased in July 1998.
(7) The Company believes that its facilities are well maintained and are of
adequate size for present needs.
Statement of Financial Accounting Standards (SFAS) No. 121
addresses the accounting for the impairment of long-lived assets and long-lived
assets to be disposed of, certain identifiable intangible assets and goodwill
relating to those assets, and provides guidance for recognizing and
10
12
measuring impairment losses. The statement requires that the carrying amount of
impaired assets be reduced to fair value.
As required by SFAS No. 121, the Company periodically reviews
its long-lived assets (land, buildings, fixed equipment, cost in excess of net
asset value of purchased businesses and other intangible assets) to determine if
the carrying value of these assets is recoverable, based on the future cash
flows expected from the assets. Based on this review, the Company determined
that the carrying value of certain long-lived assets were impaired (within the
meaning of the Statement) at June 30, 1998 and 1996. The amount of the
impairment, calculated as (i) the excess of carrying value of the long-lived
assets over the discounted future cash flows expected from the assets, or (ii)
the excess of the carrying value of the long-lived assets over the selling
values, totalled approximately $18.3 million and $5.5 million at June 30, 1998
and 1996, respectively. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Item 8. Financial Statements
and Supplementary Data".
The Company leases office space for its corporate headquarters
in Coral Gables, Florida, (through August 1999) and its former corporate
headquarters in New Orleans, Louisiana (through March 1999) and various regional
offices and clinics. These leases have terms which generally range from three to
five years, with renewal options.
ITEM 3. LEGAL PROCEEDINGS.
The Company is party to certain claims, suits and complaints,
whether arising from the acts or omissions of its employees, providers or
others, which arise in the ordinary course of business. The Company has
established reserves for the estimated amounts which might be recovered from the
Company as a result of all outstanding legal proceedings. In the opinion of
management, the ultimate resolution of these pending legal proceedings is not
expected to have a material adverse effect on the Company's financial position,
results of operations or liquidity.
During fiscal 1996, the State of Louisiana requested repayment
of disproportionate share payments received by two of the Company's facilities
in fiscal years 1995 and 1994 totalling approximately $5.5 million. However, the
Company believes that this matter may be settled for an amount significantly
less than the State's initial request. The Company intends to vigorously contest
any position by Louisiana which it considers adverse.
In March 1997, a former executive vice president of the
Company commenced arbitration and court proceedings (in the United States
District Court for the Eastern District of Louisiana) against the Company in
which he claims his employment was wrongfully terminated by the Company and
seeks damages of approximately $2.3 million. The Company intends to vigorously
defend the proceedings.
Prior to its merger with the Company, a subsidiary of the
Company sold one of its wholly owned subsidiaries, a licensed health maintenance
organization in Louisiana, Alabama and Mississippi. On September 29, 1997, the
Company received a demand for indemnification by the purchaser of this
subsidiary in an amount totalling approximately $5.8 million, an amount in
excess of the purchase price paid by the purchaser for the HMO subsidiary. The
Company intends to vigorously defend any proceedings which may result from this
matter. In addition, on September 30, 1997, the Company demanded indemnification
from the purchaser for various matters in an amount exceeding $2.0 million.
See footnote 15 to the consolidated financial statements set
forth under "Item 8. Financial Statements and Supplementary Data".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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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 October 2, 1998, there were 504 holders of record of the Company's Common
Stock. No cash dividends have been declared on the Common Stock since the
Company was organized. Also, the Company's credit facilities include provisions
which prohibit the payment of cash dividends to its common shareholders.
In connection with a recapitalization of the interests of Mr.
Paul J. Ramsay, Chairman of the Board of the Company and a significant
shareholder, in June 1993, the Company issued 142,486 shares of Class B
Preferred Stock, Series C (the "Series C Preferred Stock"), which are
convertible into 1,424,860 shares of Common Stock (subject to adjustment). Each
share of Series C Preferred Stock is entitled to (i) cumulative dividends at a
rate of 5% per annum (or an aggregate of $362,200 per year), (ii) a liquidation
preference of $50.84 under certain circumstances and (iii) ten votes on all
matters put to a vote of the shareholders of the Company.
On June 10, 1997, as partial consideration for the acquisition
of Ramsay Managed Care, Inc. ("RMCI"), the Company issued 100,000 shares of
Series 1996 Preferred Stock, which are convertible into 1,000,000 shares of
Common Stock (subject to adjustment), to a corporate affiliate of Mr. Ramsay.
Each share of Series 1996 Preferred Stock is entitled to (i) cumulative
dividends at a rate of 5% per annum (or an aggregate of $150,000 per year), (ii)
a liquidation preference of $30.00 under certain circumstances and (iii) ten
votes on all matters put to a vote of the shareholders of the Company.
On September 30, 1997, in connection with a refinancing of the
Company's then existing indebtedness, the Company entered into an agreement with
a corporate affiliate of Mr. Ramsay pursuant to which the corporate affiliate
purchased 4,000 shares of non-convertible, non-voting Series 1997-A Preferred
Stock at $1,000 per share. The shares are entitled to cumulative dividends at a
rate of 9% per annum (or an aggregate of $360,000 per year) and to a liquidation
preference of $1,000 per share under certain circumstances. The Series 1997-A
Preferred Stock is mandatorily redeemable at a price of $1,000 per share,
together with all accrued and unpaid dividends, under certain circumstances.
The Company's credit documentation generally prohibits the
payment of dividends in respect of the Series C Preferred Stock, Series 1996
Preferred Stock and Series 1997-A Preferred Stock.
On September 30, 1997, the Company also sold to a financial
institution, which effected the refinancing, $2.5 million of Series 1997
Preferred Stock. On September 30, 1998, the Series 1997 Preferred Stock was
redeemed by the Company.
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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, 1998 and 1997, as reported on the
NASDAQ National Market System:
HIGH LOW
----------------- -----------------
Year ended June 30, 1998
First Quarter..................................... $5 3/4 $3 1/4
Second Quarter.................................... 5 9/16 2 3/4
Third Quarter..................................... 4 1/4 2 13/16
Fourth Quarter.................................... 3 1/4 1 5/8
Year ended June 30, 1997
First Quarter..................................... $3 5/16 $1 7/8
Second Quarter.................................... 3 1/4 1 25/64
Third Quarter..................................... 4 5/8 2 1/8
Fourth Quarter.................................... 4 1/8 2 5/8
On October 2, 1998, the closing sales price of the Company's
Common Stock was $1 1/4 per share.
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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
--------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Statement of Operations Data:
Total revenues.............................. $155,453 $136,719 $117,423 $136,418 $137,002
Salaries, wages and benefits................ 82,740 67,793 66,259 72,061 64,805
Other operating expenses.................... 64,252 46,819 42,387 44,741 42,907
Provision for doubtful accounts............. 6,649 5,688 5,805 5,086 5,846
Depreciation and amortization............... 5,714 5,473 5,490 7,290 6,836
Interest and other financing charges........ 7,230 5,942 6,892 8,347 8,906
Restructuring and other charges............. 2,349 -- -- -- --
Losses related to asset sales and closed
businesses............................... 12,483 -- 4,473 6,431 802
Asset impairment charges.................... 18,316 -- 5,485 21,815 --
------------ ------------ ------------ ------------ ------------
199,733 131,715 136,791 165,771 130,102
------------ ------------ ------------ ------------ ------------
Income (loss) before minority interest,
income taxes and extraordinary item....... (44,280) 5,004 (19,368) (29,353) 6,900
Minority interest........................... -- -- -- 887 4,824
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes and
extraordinary losses..................... (44,280) 5,004 (19,368) (30,240) 2,076
Provision (benefit) for income taxes........ 9,981 1,726 (2,887) (13,195) 599
------------ ------------ ------------ ------------ ------------
Income (loss) before extraordinary item..... (54,261) 3,278 (16,481) (17,045) 1,477
Extraordinary item:
Loss from early extinguishment of debt,
net of income tax benefit................. (4,322) -- -- (257) (155)
============ ============ ============ ============ ============
Net income (loss)........................... $(58,583) $ 3,278 $(16,481) $(17,302) $ 1,322
============ ============ ============ ============ ============
Income (loss) per common share:
Basic:
Before extraordinary item............ $(5.12) $.35 $(2.12) $(2.25) $0.14
Extraordinary item:
Loss from early extinguishment of
debt............................. (.40) -- -- (0.03) (0.02)
============ ============ ============ ============ ============
$(5.52) $.35 $(2.12) $(2.28) $0.12
============ ============ ============ ============ ============
Diluted:
Before extraordinary item............ $(5.12) $.32 $(2.12) $(2.25) $0.13
Extraordinary item:
Loss from early extinguishment of
debt........................... (.40) -- -- (0.03) (0.02)
============ ============ ============ ============ ============
$(5.52) $.32 $(2.12) $(2.28) $0.11
============ ============ ============ ============ ============
Weighted average number of common
shares outstanding:
Basic.................................... 10,784 8,404 7,928 7,740 7,751
============ ============ ============ ============ ============
Diluted.................................. 10,784 10,228 7,928 7,756 8,695
============ ============ ============ ============ ============
JUNE 30
--------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
Balance Sheet Data:
Working capital.................. $1,340 $9,960 $11,715 $24,098 $21,148
Total assets..................... 85,091 141,189 132,758 139,236 183,168
Long-term debt................... 14,398 47,254 44,664 55,568 67,707
Stockholders' equity............. 1,188 59,182 46,053 61,779 80,468
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
On February 19, 1998, the Company announced a change in
strategic direction in order to focus on becoming a leader in the youth services
industry. The company's strategic plan is now focused on repositioning the
Company for growth in the at-risk youth industry and strengthening the Company's
financial position. The Company has engaged an investment banking firm to assist
in the execution of this growth strategy. The firm will advise the Company in
connection with acquisitions and other strategic initiatives necessary to expand
the Company's existing youth services business. In addition, the investment
banking firm has rendered advisory services in association with the divestiture
of the Company's non-youth services businesses. See "Item 1. Business - Recent
Developments".
In addition to the facilities that the Company is retaining as
part of its youth service business (the "Retained Assets"), during the fiscal
years ended June 30, 1998, 1997 and 1996, the Company was also a provider and
manager of behavioral healthcare services (the "Divested Assets"). See "Item 1.
Business Recent Developments".
Revenues of the Company's facilities are affected by changes
in the rates the Company charges, changes in reimbursement rates by third-party
payors, the volume of individuals treated and changes in the mix of payors. The
Company's facilities provide services to individuals requiring intensive care,
less intensive residential treatment care and outpatient treatment. Also, at
four of the Company's facilities, medical subacute services are provided. (Three
of these facilities which provide medical subacute services were sold in
September 1998. See "Item 1. Business - Recent Developments".) The reimbursement
rates for intensive inpatient care are generally greater than the rates paid for
residential treatment care. However, the average length of stay for individuals
in residential treatment programs is greater than that for individuals in
intensive inpatient programs.
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 revenues in the period in which the final determination is made.
During fiscal 1997 and 1998 the Company also received
capitated amounts for behavioral healthcare services provided to individuals
covered by certain managed care contracts. Capitated revenues are recognized
during the period in which enrolled lives are covered for capitated payments
received. Revenue received from the management of facilities not owned by the
Company and for case management, utilization review and quality assurance
oversight on the delivery of behavioral healthcare services by independent
providers on behalf of clients is recognized at the time the services are
provided.
1998 COMPARED TO 1997
Total revenues increased from $136.7 million in 1997 to $155.5
million in 1998. Of this amount, revenues related to Retained Assets totalled
$50.9 million in 1998 as compared to $44.7 million in 1997. Revenues related to
Divested Assets totalled $104.5 million in 1998 as compared to $85.1 million in
1997. Excluded from Divested and Retained Asset revenues in 1997 are (i) a $2.9
million favorable cash judgment awarded by the courts of the State of Missouri
related to one of the Company's Retained Assets, (ii) a $1.5 million benefit
related to intermediary audits of prior year cost reports (approximately $1.0
million of this amount related to Divested Assets and $0.5 million related to
Retained Assets), and (iii) a $1.3 million derivative transaction entered into
in connection with a refinancing effort. No similar such items occurred in 1998.
15
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The increase in revenues related to Retained Assets from 1997
to 1998 of $6.2 million is attributable to an increase in revenues from
residential treatment centers from $15.4 million in 1997 to $23.1 million in
1998, which is offset by a decrease in revenues from intensive treatment units
of $1.3 million. The increase in residential treatment center revenues from
fiscal 1997 to fiscal 1998 was primarily due to an increase in total census
between years of 58% (from 65,316 days to 103,450 days).
The increase in revenues related to Divested Assets from 1997
to 1998 of $19.4 million is attributable to (i) an increase in managed
behavioral healthcare services revenues of $22.3 million related to RMCI, (ii)
an increase in the Company's medical subacute unit revenues of $9.2 million
attributable to an increase in total census between years, (iii) a decrease in
revenues at the Company's Greenbrier facility of $2.7 million due to the closure
and sale of the facility in fiscal 1998, (iv) a decrease in revenues generated
from the Company's Meadowlake facility which closed in May 1997 of $2.7 million,
(v) decreases in revenues in the Company's facilities located in Houma,
Louisiana, Midvale, Utah and Mesa, Arizona by $2.5 million, $1.3 million and
$1.5 million, respectively, due to a decrease in census between years, and (vi)
a decrease in revenues at the Company's management contracts division of $.9
million due to the loss of certain contracts.
Total salaries, wages and benefits increased from $67.8
million in 1997 to $82.7 million in 1998. Of this amount, salaries, wages and
benefits related to Retained Assets totalled $28.0 million in 1998 as compared
to $23.1 million in 1997. Salaries, wages and benefits related to Divested
Assets totalled $48.9 million in 1998 as compared to $42.0 million in 1997.
Corporate salaries, wages and benefits totalled $5.8 million in 1998 as compared
to $2.7 million in 1997.
The increase in salaries, wages and benefits related to
Retained Assets from 1997 to 1998 of $4.9 million is attributable to (i) an
increase in salaries, wages and benefits of $1.5 million at Gulf Coast Treatment
Center due to a full year of operation in fiscal 1998, (ii) an increase of $0.5
million due to the start-up of the Dothan and Palm Bay facilities, and (iii) an
increase in salaries, wages and benefits in other Retained Assets facilities of
$3.0 million due to an increase in total census between years.
The increase in salaries, wages and benefits related to the
Divested Assets from 1997 to 1998 of $6.9 million is attributable to (i) an
increase in salaries, wages and benefits of the Company's managed care
operations of $7.0 million, (ii) an increase of $3.9 million attributable to an
increase in total census between years at the Company's medical subacute units,
(iii) a decrease in contract management salaries, wages and benefits of $0.8
million due to the loss of contracts, (iv) a decrease in salaries, wages and
benefits at the Meadowlake facility of $1.4 million, (v) a decrease in salaries,
wages and benefits of the Company's facilities located in Houma, Louisiana,
Mesa, Arizona and Midvale, Utah by $2.0 million due to reductions in total
census, (vi) a decrease in the Greenbrier facility of $1.0 million due to both a
reduction in census and its sale on June 2, 1998 and (vii) an increase in
self-insurance reserves of $1.4 million due primarily to negative development of
self-insured workers' compensation claims.
The increase in salaries, wages and benefits related to the
corporate office from 1997 to 1998 of $3.1 million is attributable to an
increase of $1.2 million in incentive bonuses accruals during 1998 and an
increase of $2.0 million due to the hiring of new personnel in fiscal 1998
(primarily related to the acquisition of RMCI and Summa).
Other operating expenses increased from $46.8 million in 1997
to $64.3 million in 1998. Of this amount, other operating expenses related to
Retained Assets totalled $14.1 million in 1998 as compared to $11.2 million in
1997. Other operating expenses related to Divested Assets totalled $41.4 million
in 1998 as compared to $31.2 million in 1997. Other operating expenses related
to the Company's corporate office totalled $8.8 million in 1998 as compared to
$4.4 million in 1997.
The increase in other operating expenses related to Retained
Assets from 1997 to 1998 of $2.9 million is attributable to (i) an increase in
other operating expenses of $0.5 million at Gulf Coast Treatment Center, (ii)
other operating expenses of the new Dothan and Palm Bay facilities and start-up
expenses related to a new contract in Puerto Rico of $1.0 million and (iii) an
increase in other operating
16
18
expenses of $1.4 million due to an increase in total census between years at the
remainder of the Company's Retained Assets.
The increase in other operating expenses related to Divested
Assets from 1997 to 1998 of $10.2 million is primarily attributable to (i) an
increase of $12.5 million in other operating expenses of the Company's managed
care operations, (ii) an increase of $1.0 million attributable to an increase in
census at the Company's medical subacute units, (iii) a decrease in other
operating expenses at the Meadowlake facility of $0.9 million and (iv) a
decrease of $2.4 million in other Divested Assets due to decreases in census
between years.
The increase in corporate other operating expenses of $4.4
million from fiscal 1997 to fiscal 1998 is attributable to (i) an increase of
$2.8 million in legal reserves due to the Company's outstanding litigation (see
"Item 3. Legal Proceedings"), (ii) an increase of $0.6 million in self-insurance
reserves due to negative development of self-insured malpractice claims and
(iii) an increase in professional fees of approximately $1.0 million due
primarily to the integration of the managed care operations during fiscal 1998.
The provision for doubtful accounts increased from $5.7
million in 1997 to $6.6 million in 1998. Provision for doubtful accounts as a
percentage of total revenues approximated 4.2% for 1997 and 1998.
Depreciation and amortization increased from $5.5 million in
1997 to $5.7 million in 1998 primarily due to the current year amortization of
intangible assets recorded in connection with the managed care acquisition in
June 1997 offset by curtailing of depreciation on assets held for sale.
Interest and other financing charges increased from $5.9
million in 1997 to $7.2 million in 1998. The increase was primarily attributable
to a $1.3 million non-refundable fee charged by a financial institution in
connection with an amendment to the Company's credit facility. See "Item 8.
Financial Statements and Supplementary Data".
In connection with the Company's change in strategic
direction, the Company initiated a restructuring of personnel at its corporate
headquarters, including the identification and communication of severance
arrangements with individual personnel. These amounts, which in the aggregate
totalled $2.3 million, are reflected as restructuring charges in the
accompanying statement of operations.
During the year ended June 30, 1998, the Company recorded
losses of approximately $12.5 million related to the sale of the managed care
operations and the Three Rivers and Greenbrier facilities. See "Item 8.
Financial Statements and Supplementary Data".
During fiscal 1998, the Company recorded asset impairment
charges of $18.3 million relating to (i) the difference in the carrying values
and the selling price of the Divested Assets held as of June 30, 1998 ($17.6
million) (See "Item 1. Business - Recent Developments") and (ii) the write-off
of cost in excess of net asset value of purchased businesses due to an asset
impairment resulting from the change in strategic direction ($0.7 million). See
"Item 8. Financial Statements and Supplementary Data".
The Company recorded a provision for income taxes in 1998 of
$10.0 million, which primarily represents a full valuation allowance on its
previously recorded deferred tax assets. The realizability of these assets had
been based on the implementation of tax planning strategies that contemplated
the sales of certain appreciated property. In connection with the Company's
change in strategic direction, the Company determined that those tax planning
strategies would not be realized and a full valuation allowance was considered
necessary.
1997 COMPARED TO 1996
For purposes of comparing the Company's statements of
operations between 1997 and 1996, same facilities exclude Meadowlake Hospital,
which the Company decided in fiscal 1997 to lease to
17
19
another healthcare provider (and which lease commenced in August 1997), and Gulf
Coast Treatment Center, which resumed operations in December 1996.
Total revenues increased from $117.4 million in 1996 to $136.7
million in 1997. The change in revenues between years consisted of (a) increases
in revenues related to contract management and subacute services of $2.3 million
and $7.8 million, respectively, (b) the impact of intermediary audits of prior
year cost reports, which increased revenues in 1997 by $1.5 million but
decreased revenues in 1996 by $5.4 million, (c) a decrease in same facility net
inpatient revenues (excluding the impact of prior year cost report settlements)
of $2.0 million, or 2.4%, (d) a decrease in revenues of Meadowlake Hospital of
$1.7 million, (e) managed behavioral services revenues realized subsequent to
the acquisition of RMCI of $2.0 million and (f) other revenues recorded in 1997
of $4.2 million. Net outpatient revenues remained stable between years and net
patient revenues in 1997 related to Gulf Coast Treatment Center approximated the
revenues realized by the Company from the lease of this facility in 1996.
During the year ended June 30, 1996, the Company recorded
contractual adjustment expenses of approximately $1.9 million related to
intermediary audits during 1996 of its prior year cost reports. The overall
negative adjustment to the Company's estimated cost report settlements was
principally due to an audit of its Havenwyck facility's Blue Cross cost reports
for years 1992, 1993, 1994 and 1995. As a result of its negative experience in
the fourth quarter of 1996 with respect to estimated cost report settlements,
the Company recorded additional contractual adjustment expenses at June 30, 1996
totalling $3.5 million related to possible future adjustments of its cost report
settlements by intermediaries. During the year ended June 30, 1997, the Company
recorded contractual adjustment benefits of approximately $1.5 million related
to intermediary audits of its prior year cost reports. Management believes that
its revenues in future periods will not be negatively impacted by future
intermediary audits of cost report settlements recorded at June 30, 1997 and
1996.
Same facility net inpatient revenues decreased slightly due to
a 6% decline in acute psychiatric patient days between years, continued
pressures from managed care organizations and other payors to reduce
reimbursement rates for acute psychiatric services, and the continued shift of
the Company's inpatient business from acute psychiatric patients to less
intensive (and consequently lower paying) residential treatment patients. For
the year ended June 30, 1997, approximately 45% of the Company's behavioral
health same facility patient days related to residential treatment patients,
compared to 40% in the prior year.
Contract management revenues increased by $2.3 million in 1997
due to additional contracts signed and subacute revenues increased by $7.8
million due to additional patient volume, which was possible because of an
expansion of the subacute units at two facilities. Also, other revenues included
$1.28 million of income recorded on a derivative transaction entered into
earlier in fiscal 1997 in connection with a previous refinancing effort and $2.9
million related to a favorable cash judgement awarded the Company by the courts
of the State of Missouri. In this matter, the courts ruled that the Company's
facility in Nevada, Missouri had received insufficient reimbursement from the
Missouri Department of Social Services for the provision of behavioral
healthcare to Medicaid patients from 1990 to 1996.
Total salaries, wages and benefits increased from $66.3
million in 1996 to $67.8 million in 1997 as a result of (a) a $3.0 million
(5.5%) decrease in same facility salaries, wages and benefits, primarily as a
result of the continued shift in the Company's business to residential treatment
services, which are less intensive and, consequently, require less staffing, (b)
an increase in contract management salaries, wages and benefits, due to
additional contracts, of $1.0 million, (c) an increase of $2.6 million related
to increased volume in the Company's subacute units and (d) a decrease in
salaries, wages and benefits at Meadowlake Hospital of $0.4 million, which was
offset by increases at Gulf Coast Treatment Center and managed behavioral
services of $0.6 million and $0.8 million, respectively.
Other operating expenses in 1997 were $46.8 million, compared
to $42.4 million in 1996. This increase is primarily related to (a) a $3.7
million increase in other operating expenses of the subacute units, (b) a
decrease in same facility other operating expenses of $1.0 million (3.3%), (c)
an increase in
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20
other operating expenses associated with Meadowlake Hospital of
$0.3 million and (d) other operating expenses of Gulf Coast Treatment Center and
managed behavioral services of $0.5 million and $0.9 million, respectively.
The provision for doubtful accounts, which consist primarily
of commercial and self-pay accounts receivable deemed uncollectible, remained
stable between years, including the percentage of same facility bad debts to
same facility revenues, which totalled 4.5% in 1997 and 4.4% in 1996. The
provision for bad debts of Meadowlake Hospital did not change significantly from
the prior year and the provision for bad debts of Gulf Coast Treatment Center
was not material in 1997.
Depreciation and amortization did not change significantly
between years.
Interest expense decreased from $6.9 million in 1996 to $5.9
million in 1997. This decrease related to debt reductions made in 1996 and 1997
on the Company's senior and subordinated secured notes and variable rate demand
revenue bonds outstanding. As stated elsewhere, this debt was refinanced by the
Company on September 30, 1997.
Primarily in the fourth quarter of 1996, the Company recorded
losses totalling approximately $4.5 million related to additional asset
write-downs, cost report settlements and other adjustments related to businesses
which closed at various times prior to 1996, a reserve for disproportionate
share payments which the State of Louisiana has contended were improperly paid
to two of the Company's Louisiana facilities in fiscal 1995 and 1994 (see
"Results of Operations" above) and lease commitments and other costs incurred in
connection with the Company's decision to relocate its corporate headquarters.
Pursuant to the principles of measurement contained in SFAS
No. 121 and the Company's expectations, the Company recorded asset impairment
charges in its 1996 statement of operations of approximately $5.5 million. This
amount includes an asset impairment charge related to the Company's investment
in another healthcare enterprise of approximately $1.5 million, based on an
assessment of the future cash flows expected to be realized by the Company from
this business. The Company reviewed the value of its long-lived assets
throughout 1997 and determined there were no impairment indicators in 1997.
The Company recorded a $1.7 million provision for income taxes
in 1997, which approximated the statutory tax rate, and a $2.9 million benefit
for income taxes in 1996. The income tax benefit recorded in fiscal year 1996
was recorded at an effective tax rate significantly less than the statutory tax
rate due to a deferred tax valuation allowance of $4.4 million at June 30, 1996.
IMPACT OF INFLATION
The at-risk youth industry is labor intensive, and wages and
related expenses increase in inflationary periods. Additionally, suppliers
generally seek to pass along rising costs to the Company in the form of higher
prices. The Company monitors the operations of its facilities to mitigate the
effect of inflation and increases in the costs of health care. To the extent
possible, the Company seeks to offset increased costs through increased rates,
new programs and operating efficiencies. However, reimbursement arrangements may
hinder the Company's ability to realize the full effect of rate increases. To
date, inflation has not had a significant impact on operations.
IMPACT OF YEAR 2000
The Company has determined that it will be required to upgrade
certain portions of its software, hardware and equipment so that its systems and
equipment will function properly with respect to dates in the year 2000 and
thereafter. Affected systems do not include those used within the Company for
purposes of individual care. The Company will utilize both internal and external
resources to upgrade and test certain software for year 2000 readiness. The
Company anticipates substantially completing the Year 2000 project by June 1999.
The total cost of the Year 2000 project is estimated at $450,000, primarily for
the purchase of new software that will be capitalized. To date, the Company has
incurred approximately
19
21
$300,000 related to the assessment of, and preliminary efforts on, developing
its Year 2000 compliance project plan, purchase of new software and equipment,
and installation of vendor supplied upgrades.
The costs for the Year 2000 project and the date on which the
Company believes it will complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources. The
Company's operating results could be materially impacted if actual costs of the
Year 2000 project are significantly higher than management estimates or if the
systems and equipment of the Company or those of other companies on which it
relies are not compliant in a timely manner.
FINANCIAL CONDITION
The Company's consolidated balance sheet as of June 30, 1998
reflects the impact of the sale of the Three Rivers facility in May 1998, and
Greenbrier facility and managed care operations in June 1998. Net proceeds form
the sales were used to partially prepay the Company's debt. In addition, net
assets held for sale at June 30, 1998 include the expected net realizable value
of the Company's non-youth service assets which the Company sold in September
1998. See "Item 1. Business - Recent Developments" and "Item 8. Financial
Statements and Supplementary Data".
The Company records amounts due to or from third-party
contractual agencies (Medicare, Medicaid and Blue Cross) based on its best
estimate, using the principles of cost reimbursement, of amounts to be
ultimately received or paid under current and prior years' cost reports filed
(or to be filed) with the appropriate intermediaries. Ultimate settlements and
other lump sum adjustments due from and paid to these intermediaries occur at
various times during the fiscal year. At June 30, 1998, amounts due from
Medicare, Medicaid and Blue Cross totalled approximately $4.9 million, $1.0
million and $1.2 million, respectively. Also, at June 30, 1998, amounts due to
Medicare, Medicaid and Blue Cross totalled approximately $7.3 million, $1.0
million and $0.6 million, respectively. Changes in these amounts since June 30,
1997 are the result of fiscal intermediary lump sum adjustments, prior year cost
report settlements and current year estimated settlements recorded during the
year ended June 30, 1998.
In connection with the merger of RMCI in June 1997, the
Company recorded cost in excess of net asset value of purchased businesses of
approximately $18.8 million and identifiable intangible assets of approximately
$4.7 million, which included the value of RMCI's established clinical protocols
and existing managed care contracts. The cost in excess of net asset value of
purchased businesses recorded in connection with RMCI was increased during the
year ended June 30, 1998, based on changes (during the one year period after the
RMCI merger) to a litigation matter concerning RMCI. In connection with the
previously discussed sale of the Company's managed care business, which closed
on June 2, 1998 and which include all operating entities of RMCI, the Company
recorded a loss of $8.9 million. As a result of the sale, the balances of cost
in excess of net value of purchased businesses and other intangible assets
relating to RMCI were written-off.
On October 9, 1997, the Company acquired Summa Healthcare
Group, Inc. ("Summa") and recorded cost in excess of net asset value of
purchased businesses of approximately $1.8 million, which included (i) cash
consideration of $0.3 million, (ii) the issuance of Common Stock, which had a
market value as of July 1, 1997, the date of the Agreement and Plan of Merger,
of $0.8 million and (iii) the issuance of warrants, which had an estimated fair
value of approximately $0.7 million (using a Black-Scholes pricing model). The
issuance of Common Stock and warrants increased the Company's additional paid-in
capital by $1.5 million on the date of the acquisition.
The principal assets of Summa, whose principal stockholder is
Luis E. Lamela, the Vice Chairman, a director and, as of January 1, 1998, the
Chief Executive Officer of the Company, consist of projects in the specialty
managed care and health services industry. These projects were undertaken by the
Company on October 9, 1997, the effective date of the merger. As a result of the
Company's change in strategic direction, several projects were abandoned and the
Company recorded an asset impairment charge of approximately $0.7 million during
fiscal 1998.
20
22
Other current accrued liabilities increased from $5.2 million
at June 30, 1997 to $9.6 million at June 30, 1998 primarily as a result of (i)
an increase in accrued expenses associated with the sale of the Divested Assets
of approximately $3.5 million, (ii) a $2.3 million increase due to restructuring
accruals recorded during fiscal 1998, (iii) an increase in fees due to a
financial institution of $1.3 million as a result of an amendment to the
Company's credit facility and (iv) a decrease of $2.3 million relating to assets
held for sale at June 30, 1998 and the sale of the managed care operation on
June 2, 1998.
Other noncurrent accrued liabilities increased from $6.6
million to $13.0 million primarily as a result of (i) an increase of $2.8
million in the Company's legal reserves as a result of outstanding legal cases
and (ii) an increase of $1.0 million in accrued expenses relating to the sale of
the Divested Assets.
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 1997, the Company refinanced its then
existing credit facilities with proceeds from a credit facility from a financial
institution consisting of (i) a term loan of $12.5 million and a term loan of
$10.0 million (the "Term Loans"), (ii) a revolving credit facility of up to
$16.5 million (the "Revolving Credit Loan") and (iii) subordinated bridge notes,
of which $15.0 million was purchased by the financial institution ("Series A
Bridge Notes") and $2.5 million was purchased by Ramsay Holdings, a corporate
affiliate of Mr. Ramsay (collectively known as "Subordinated Note Purchase
Agreement").
In addition, on September 30, 1997, the Company entered into
an agreement with Ramsay Holdings and the financial institution pursuant to
which (i) Ramsay Holdings purchased $4.0 million of non-convertible, non-voting
Class B Preferred Stock, Series 1997-A (the "Series 1997-A Preferred Stock") and
(ii) the financial institution purchased $2.5 million of Class B Preferred
Stock, Series 1997 (the "Series 1997 Preferred Stock").
In connection with the Company's change in strategic direction
and asset sales, the Credit Agreement and Subordinated Note Purchase Agreements
were amended and restated on March 27, 1998, May 20, 1998, June 29, 1998, and
July 29, 1998 and amended and restated as of September 30, 1998 (the "Amended
and Restated Credit Facility").
As required by the Amended and Restated Credit Facility, in
September 1998 the Company used the net proceeds from the sale of the Divested
Asset to (i) repay in full the Term Loans, (ii) repay in full the Series A
Bridge Notes, (iii) redeem all of the outstanding shares of the Series 1997
Preferred Stock, (iv) pay certain fees payable to the financial institution in
connection with the Amended and Restated Credit Facility and (v) repay a portion
of the Revolving Credit Loan. Subsequent to the allocation of the aforementioned
proceeds, the balance of the Revolving Credit Loan was $7.9 million.
In addition, the Amended and Restated Credit Facility extended
the maturity of the Revolving Credit Loan to September 30 1999, and adjusted the
amount of the Revolving Credit Loan to an amount up to the lesser of $9.0
million or the borrowing base of the Company's receivables (defined as 85% of
the Company's net receivables less certain adjustments as set forth in the
agreement).
Interest on the Revolving Credit Loan is equal to an index
rate (8.25% at September 30, 1998) plus 2%. Also, the Company is obligated to
pay an amount equal to one half of 1% of the unused portion of the Revolving
Credit Loan.
In addition to the payments to the financial institution previously
discussed, the Amended and Restated Credit Facility provides for the following
fees (i) $130,000 on October 31, 1998 if the Revolving Credit Loan and accrued
interest has not been paid in full, (ii) $1.3 million on December 31, 1998 if
the Company has not repaid $3.5 million of the Revolving Credit Loan with
proceeds from the issuance of subordinated debt or equity, and (iii) $250,000 on
March 31, 1999 and $25,000 per month each month thereafter, if the Revolving
Credit Loan and accrued interest has not been paid in full.
21
23
The Company's current cash requirements relate to its normal
operating expenses and routine capital improvements at its youth service
facilities, the expansion of its youth service business, the payment of
restructuring changes, principally severance, and the payment of liabilities
associated with the sales of its Divested Assets.
The Company's short term liquidity is also affected by the
amounts and timing of collections received on accounts receivable balances.
In order to finance its current operations and expansion
activities and repay the remaining debt on the Revolving Credit Loan, the
Company has entered into a letter of intent with a new financial institution for
a credit facility of up to $22.0 million (the "New Credit Facility"). When
consummated, the New Credit Facility is expected to provide a $8.0 million term
loan payable over five years, a revolving credit facility of up to $8.0 million
and a $6.0 million acquisition facility. The Company continues to pursue
negotiations to obtain other debt or equity capital in the event that the New
Credit Facility is not completed.
Management of the Company believes that it can meet its
current cash requirements and future identifiable needs with (i) internally
generated funds from operations, (ii) the Amended and Restated Credit Facility
(until the New Credit Facility is entered into) or the New Credit Facility and
(iii) its ability to obtain debt or equity capital through other sources. There
can be no assurance that the Company will enter into the New Credit Facility or
that it will be able to obtain other debt or equity capital in the event that
the New Credit Facility is not completed.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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.
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 "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 1998 Annual Meeting of Stockholders to be held on November
19, 1998 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, 1998.
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.
22
24
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.
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-27 of this Annual Report
on Form 10-K.
2. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they
are inapplicable or the information is provided in
the consolidated financial statements, including the
notes thereto.
3. EXHIBITS
Information with respect to this Item is
contained in the attached Index to Exhibits.
(B) REPORTS ON FORM 8-K:
On June 24, 1997, the Company filed with the
Commission a Current Report on Form 8-K related to
the merger with RMCI. In addition, on August 22,
1997, the Company filed a Current Report on Form
8-K/A to include the financial statements and pro
forma financial information related to the merger
with RMCI. Also, on June 17, 1998, the Company filed
with the Commission a Current Report on Form 8-K
related to the sale of all of the issued and
outstanding shares of common stock of FPMBH and the
sale of the Greenbrier facility. Also, on October 9,
1998, the Company filed with the Commission a Current
Report or Form 8-K related to the sale of its
behavioral health facilities.
(C) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K:
Exhibits required to be filed by the Company pursuant
to Item 601 of Regulation S-K are contained in
Exhibits listed in response to Item 14(a)3, and are
incorporated herein by reference. The agreements,
management contracts and compensatory plans and
arrangements required to be filed as an Exhibit to
this Form 10-K are listed in Exhibits 10.64, 10.66,
10.69, 10.71, 10.72, 10.76, 10.77, 10.79, 10.91,
10.97, 10.99, 10.101, 10.102, 10.104 and 10.105.
23
25
POWER OF ATTORNEY
The Registrant, and each person whose signature appears below, hereby
appoints Bert G. Cibran and Thomas M. Haythe as attorneys-in-fact with full
power of substitution, severally, to execute in the name and on behalf of the
registrant and each such person, individually and in each capacity stated below,
one or more amendments to the annual report which amendments may make such
changes in the report as the attorney-in-fact acting deems appropriate and to
file any such amendment to the report with the Securities and Exchange
Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto fully authorized.
RAMSAY HEALTH CARE, INC.
Dated: 10/9/98 By \s\ Bert G. Cibran
------------- ----------------------------------
Bert G. Cibran
President And Chief Operating Officer
Dated: 10/9/98 By \s\ Marcio C. Cabrera
------------- ----------------------------------
Marcio C. Cabrera
Executive Vice President And
Chief Financial Officer
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
SIGNATURE/TITLE
---------------
Dated: 10/6/98 By /s/ Paul J. Ramsay
------------- ----------------------------------
Paul J. Ramsay
Chairman of the Board of Directors
Dated: 10/12/98 By \s\ Luis E. Lamela
------------- ----------------------------------
Luis E. Lamela
Chief Executive Officer, Executive
Vice Chairman of The Board and
Director
24
26
SIGNATURE/TITLE
---------------
Dated: By
------------- ----------------------------------
Aaron Beam, Jr.
Director
Dated: 10/6/98 By \s\ Peter J. Evans
------------- ----------------------------------
Peter J. Evans
Director
Dated: 10/9/98 By \s\ Thomas M. Haythe
------------- ----------------------------------
Thomas M. Haythe
Director
Dated: By
------------- ----------------------------------
Steven J. Shulman
Director
Dated: 10/5/98 By \s\ Michael S. Siddle
------------- ----------------------------------
Michael S. Siddle
Director
25
27
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
The following consolidated financial statements of the Registrant and
its subsidiaries are submitted herewith in response to Item 8 and Item 14(a)(1):
PAGE
NUMBER
------
Report of Independent Certified Public Accountants.................. F-2
Consolidated Balance Sheets - June 30, 1998 and 1997................ F-3
Consolidated Statements of Operations - For the Years
Ended June 30, 1998, 1997 and 1996............................. F-5
Consolidated Statements of Redeemable Preferred Stock and
Stockholders' Equity - For the Years Ended
June 30, 1998, 1997 and 1996.................................. F-6
Consolidated Statements of Cash Flows - For the Years
Ended June 30, 1998, 1997 and 1996............................ F-7
Notes to Consolidated Financial Statements.......................... F-8
All schedules have been omitted because they are inapplicable or the
information is provided in the consolidated financial statements, including the
notes thereto.
F-1
28
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Ramsay Health Care, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Ramsay
Health Care, Inc. and subsidiaries as of June 30, 1998 and 1997, and the related
consolidated statements of operations, redeemable preferred stock and
stockholders' equity, and cash flows for each of the three years in the period
ended June 30, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1998, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Miami, Florida
October 1, 1998
F-2
29
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30
----------------------------------
1998 1997
--------------- --------------
ASSETS
Current assets
Cash and cash equivalents................................. $2,907,000 $1,723,000
Accounts receivable, less allowances for doubtful
accounts of $2,395,000 and $4,386,000 at June 30,
1998 and 1997, respectively.............................. 12,023,000 25,802,000
Amounts due from third-party contractual agencies......... 7,114,000 5,653,000
Other receivables......................................... 2,138,000 3,139,000
Other current assets...................................... 1,084,000 1,699,000
Net assets held for sale.................................. 25,768,000 --
--------------- --------------
Total current assets.................................. 51,034,000 38,016,000
Other assets
Cash held in trust......................................... 1,964,000 827,000
Cost in excess of net asset value of purchased businesses.. 1,318,000 19,281,000
Other intangible assets.................................... -- 4,680,000
Unamortized loan costs..................................... 2,397,000 1,837,000
Deferred income taxes...................................... -- 9,411,000
Other noncurrent assets.................................... -- 1,155,000
--------------- --------------
Total other assets.................................... 5,679,000 37,191,000
Property and equipment
Land........................................................ 2,648,000 5,025,000
Buildings and improvements.................................. 29,698,000 71,190,000
Equipment, furniture and fixtures........................... 11,422,000 22,294,000
--------------- --------------
43,768,000 98,509,000
Less accumulated depreciation............................... 15,390,000 32,527,000
--------------- --------------
28,378,000 65,982,000
--------------- --------------
$85,091,000 $141,189,000
=============== ==============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
30
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30
----------------------------------
1998 1997
-------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable......................................... $6,040,000 $7,284,000
Accrued salaries and wages............................... 3,973,000 6,282,000
Hospital and medical claims payable...................... -- 1,975,000
Other accrued liabilities................................ 9,609,000 5,218,000
Amounts due to third-party contractual agencies.......... 8,853,000 7,075,000
Current portion of long-term debt........................ 21,219,000 222,000
-------------- ---------------
Total current liabilities.......................... 49,694,000 28,056,000
Noncurrent liabilities
Other accrued liabilities................................ 13,046,000 6,617,000
Long-term debt, less current portion..................... 14,398,000 35,632,000
Short term debt expected to be refinanced................ -- 11,622,000
Minority interests....................................... 25,000 80,000
-------------- ---------------
Total noncurrent liabilities....................... 27,469,000 53,951,000
Commitments and contingencies
Class B convertible redeemable preferred stock, Series
1997, $1 par value - authorized 100,000 shares; issued
100,000 shares (liquidation value of $2,500,000 plus
accrued dividends), net of issuance costs of $100,000
and including accrued dividends of $69,000 at June 30,
1998.................................................... 2,469,000 --
Class B redeemable preferred stock Series 1997-A,
$1 par value - authorized 4,000 shares; issued 4,000
shares (liquidation value of $4,000,000 plus accrued
dividends) including accrued dividends of $271,000 at
June 30, 1998........................................... 4,271,000 --
Stockholders' equity
Class B convertible preferred stock, Series C, $1 par
value - authorized 152,321 shares; issued 142,486 shares
(liquidation value of $7,244,000), including accrued
dividends of $272,000 at June 30, 1998 and $362,000 at
June 30, 1997........................................... 414,000 504,000
Class B convertible preferred stock, Series 1996, $1 par
value - authorized 100,000 shares; issued 100,000 shares
(liquidation value of $3,000,000), including accrued
dividends of $113,000 at June 30, 1998 and $121,000 at
June 30, 1997........................................... 3,113,000 3,121,000
Common stock $.01 par value--authorized 30,000,000 shares;
issued 11,453,400 shares at June 30, 1998 and 11,150,640
shares at June 30, 1997................................. 115,000 112,000
Additional paid-in capital............................... 107,016,000 106,332,000
Retained earnings (deficit).............................. (105,571,000) (46,988,000)
Treasury stock--581,550 common shares at
June 30, 1998 and June 30, 1997, at cost................ (3,899,000) (3,899,000)
-------------- ---------------
Total stockholders' equity....................... 1,188,000 59,182,000
-------------- ---------------
$85,091,000 $141,189,000
============== ===============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
31
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30
------------------------------------------------------
1998 1997 1996
---- ---- ----
Revenues:
Provider-based revenue.................................... $130,884,000 $132,705,000 $116,305,000
Managed care revenue...................................... 24,313,000 1,964,000 --
Investment income and other............................... 256,000 2,050,000 1,118,000
------------ ------------ ------------
TOTAL REVENUES............................................... 155,453,000 136,719,000 117,423,000
------------ ------------ ------------
Expenses:
Salaries, wages and benefits.............................. 82,740,000 67,793,000 66,259,000
Other operating expenses.................................. 53,486,000 45,115,000 42,387,000
Managed care patient costs................................ 10,766,000 1,704,000 --
Provision for doubtful accounts........................... 6,649,000 5,688,000 5,805,000
Depreciation and amortization............................. 5,714,000 5,473,000 5,490,000
Interest and other financing charges...................... 7,230,000 5,942,000 6,892,000
Restructuring charges..................................... 2,349,000 -- --
Losses related to asset sales and closed businesses....... 12,483,000 -- 4,473,000
Asset impairment charges.................................. 18,316,000 -- 5,485,000
------------ ------------ ------------
TOTAL EXPENSES............................................... 199,733,000 131,715,000 136,791,000
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM........................................ (44,280,000) 5,004,000 (19,368,000)
Provision (benefit) for income taxes......................... 9,981,000 1,726,000 (2,887,000)
------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM...................... (54,261,000) 3,278,000 (16,481,000)
Extraordinary Item:
Loss from early extinguishment of debt................... (4,322,000) -- --
------------ ------------ ------------
NET INCOME (LOSS)........................................... $(58,583,000) $ 3,278,000 $(16,481,000)
============ ============ ============
Income (loss) attributable to common stockholders before
extraordinary item....................................... $(55,226,000) $ 2,916,000 $(16,843,000)
Extraordinary item........................................... (4,322,000) -- --
------------ ------------ ------------
Income (loss) attributable to common stockholders............ $(59,548,000) $ 2,916,000 $(16,843,000)
============ ============ ============
Income (loss) per common share:
Basic:
Before extraordinary item............................ $(5.12) $0.35 $(2.12)
Extraordinary item: (.40) -- --
------------ ------------ ------------
Loss from early extinguishment of debt............ $(5.52) $0.35 $(2.12)
============ ============ ============
Diluted:
Before extraordinary item............................ $(5.12) $0.32 $(2.12)
Extraordinary item:
Loss from early extinguishment of debt............ $ (.40) -- --
------------ ------------ ------------
$(5.52) $0.32 $(2.12)
============ ============ ============
Weighted average number of common shares outstanding:
Basic................................................... 10,784,000 8,404,000 7,928,000
============ ============ ============
Diluted............................................ 10,784,000 10,228,000 7,928,000
============ ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
32
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
CONVERTIBLE CLASS B
REDEEMABLE REDEEMABLE CLASS B CONVERTIBLE
PREFERRED PREFERRED CONVERTIBLE PREFERRED
STOCK STOCK PREFERRED STOCK ADDITIONAL RETAINED
SERIES SERIES STOCK SERIES COMMON PAID-IN EARNINGS TREASURY
1997 1997-A SERIES C 1996 STOCK CAPITAL (DEFICIT) STOCK
---------- ---------- ----------- ----------- -------- ------------ ------------- -----------
BALANCE AT JUNE 30, 1995 $ -- $ -- $233,000 $ -- $ 83,000 $ 99,147,000 $ (33,785,000) $(3,899,000)
Exercise of stock
options (3,000 shares) -- -- -- -- -- 10,000 -- --
Shares issued in
connection with
employee stock
purchase plan (21,760
shares)................ -- -- -- -- -- 70,000 -- --
Other shares issued
(289,553 shares)....... -- -- -- -- 3,000 1,034,000 -- --
Dividends on Class B
convertible preferred
stock, Series C........ -- -- -- -- -- (362,000) -- --
Net loss................. -- -- -- -- -- -- (16,481,000) --
---------- ---------- -------- ---------- -------- ------------ ------------- -----------
BALANCE AT JUNE 30, 1996 -- -- 233,000 -- 86,000 99,899,000 (50,266,000) (3,899,000)
Shares issued in
connection with
employee stock
purchase plan (15,860
shares)................ -- -- -- -- -- 40,000 -- --
Shares issued in
connection with
management and
directors' fees
(393,846 shares)....... -- -- -- -- 4,000 918,000 -- --
Issuance of common stock
(2,135,826 shares) and
Series 1996 preferred
stock (100,000 shares
and accrued dividends
of $121,000) in
connection with
merger, net of costs... -- -- -- 3,121,000 22,000 5,625,000 -- --
Issuance of warrants
(250,000 shares)....... -- -- -- -- -- 212,000 -- --
Dividends on Class B
convertible preferred
stock, Series C........ -- -- 271,000 -- -- (362,000) -- --
Net income............... -- -- -- -- -- -- 3,278,000 --
---------- ---------- -------- ---------- -------- ------------ ------------- -----------
BALANCE AT JUNE 30, 1997 -- -- 504,000 3,121,000 112,000 106,332,000 (46,988,000) (3,899,000)
Issuance of preferred
stock.................. 2,400,000 4,000,000 -- -- -- -- -- --
Dividends on Series 1997
Preferred Stock........ 69,000 -- -- -- -- (181,000) -- --
Dividends on Series
1997-A Preferred Stock. -- 271,000 -- -- -- (271,000) -- --
Dividends on Class B
convertible preferred
stock, Series C........ -- -- 362,000 -- -- (362,000) -- --
Dividends on Class B
convertible preferred
stock, Series 1996..... -- -- -- 150,000 -- (150,000) -- --
Accrued dividends
exchanged for
preferred stock,
Series 1997-A.......... -- -- (452,000) (158,000) -- -- -- --
Issuance of common
stock (250,000
shares) in connection
with merger............ -- -- -- -- 2,000 811,000 -- --
Issuance of warrants
(500,000 shares) in
connection with merger. -- -- -- -- -- 657,000 -- --
Issuance of common stock
in connection with
employee stock
purchase plan (19,459
shares)................ -- -- -- -- -- 46,000 -- --
Exercise of stock
options (33,301 shares) -- -- -- -- 1,000 111,000 -- --
Issuance of options to
purchase common stock.. -- -- -- -- -- 23,000 -- --
Net loss................. -- -- -- -- -- -- (58,583,000) --
---------- ---------- -------- ---------- -------- ------------ ------------- -----------
BALANCE AT JUNE 30, 1998 $2,469,000 $4,271,000 $414,000 $3,113,000 $115,000 $107,016,000 $(105,571,000) $(3,899,000)
========== ========== ======== ========== ======== ============ ============= ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
33
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30
-------------------------------------------------
1998 1997 1996
------------ ------------- ------------
Operating activities
Net income (loss)......................................... $(58,583,000) $ 3,278,000 $(16,481,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization, including loan costs.... 6,352,000 5,833,000 6,003,000
Asset impairment charges............................... 18,316,000 -- 5,485,000
Loss from early extinguishment of debt................. 4,322,000 -- --
Write-off of development and other costs............... -- 571,000 381,000
Loss related to asset sales and closed businesses...... 12,483,000 -- --
Provision (benefit) for deferred income taxes.......... 9,411,000 1,222,000 (2,887,000)
Provision for doubtful accounts........................ 6,649,000 5,688,000 5,805,000
Management and director fees paid in common stock...... -- 922,000 600,000
Expenses paid with equity instruments.................. 23,000 212,000 --
Change in operating assets and liabilities
Accounts receivable.................................... (5,031,000) (6,992,000) (7,651,000)
Other current assets................................... (876,000) 1,287,000 (1,632,000)
Accounts payable....................................... 1,011,000 1,505,000 1,105,000
Accrued salaries, wages and other liabilities.......... 5,713,000 (2,536,000) 9,202,000
Amounts due to third-party contractual agencies........ 1,778,000 (1,360,000) 3,439,000
--------------- -------------- ---------------
Total adjustments................................. 60,151,000 6,352,000 19,850,000
--------------- -------------- ---------------
Net cash provided by operating activities..................... 1,568,000 9,630,000 3,369,000
--------------- -------------- ---------------
Investing activities
Proceeds from sale of subsidiary and property and equipment 21,505,000 -- --
Expenditures for property and equipment.................... (7,777,000) (3,490,000) (1,467,000)
Preopening costs........................................... -- (386,000) --
Acquisition of business.................................... (300,000) -- --
Cash held in trust......................................... (1,137,000) 268,000 1,033,000
Other noncurrent assets.................................... (892,000) 237,000 225,000
--------------- -------------- ---------------
Net cash provided by (used in) investing activities........... 11,399,000 (3,371,000) (209,000)
--------------- -------------- ---------------
Financing activities
Loan costs................................................. (3,231,000) (1,755,000) (217,000)
Payment of costs related to acquisition.................... -- (365,000) --
Amounts received from affiliate............................ 6,429,000 1,124,000 --
Distributions to minority interests........................ -- (900,000) (742,000)
Proceeds from acquisition of subsidiary.................... --- 1,474,000 --
Net proceeds from exercise of options and stock purchases.. 158,000 40,000 517,000
Proceeds from issuance of debt............................. 50,786,000 -- --
Payments on debt........................................... (68,768,000) (10,906,000) (3,795,000)
Payments of costs related to early extinguishment of debt.. (2,229,000) -- --
Payment of preferred stock dividends....................... (112,000) (91,000) (362,000)
Proceeds from issuance of preferred stock.................. 5,284,000 -- --
Payment of costs related to issuance of stock.............. (100,000) (762,000) --
--------------- -------------- ---------------
Net cash used in financing activities......................... (11,783,000) (12,141,000) (4,599,000)
--------------- -------------- ---------------
Net increase (decrease) in cash and cash equivalents.......... 1,184,000 (5,882,000) (1,439,000)
Cash and cash equivalents at beginning of year................ 1,723,000 7,605,000 9,044,000
=============== ============== ===============
Cash and cash equivalents at end of year...................... $2,907,000 $ 1,723,000 $ 7,605,000
=============== ============== ===============
Cash paid during the year for:
Interest (net of amount capitalized)..................... $6,276,000 $4,663,000 $5,260,000
Income taxes.............................................. 773,000 129,000 249,000
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
34
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INDUSTRY
The Company is an operator and manager of diversified treatment and
education programs for at-risk and troubled youth in residential and
non-residential settings nationwide. The Company offers its specialized
treatment and education programs primarily at its seven facilities and six group
homes located in Alabama, Florida, Missouri, Michigan, North Carolina, South
Carolina and Utah.
For the years ended June 30, 1998, 1997 and 1996, the Company was also
a provider and manager of behavioral healthcare services. As a provider of
behavioral healthcare, the Company offered a comprehensive range of services at
14 hospitals and various freestanding outpatient clinics. As a manager of
behavioral healthcare, the Company coordinated and managed the delivery of
services to patients under contracts with self-insured employers, health
maintenance organizations ("HMOs"), government agencies and other purchasers of
healthcare services. The Company also managed behavioral healthcare programs
under contracts with other hospitals and community mental health centers.
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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company carries accounts receivable at the amount it deems to be
collectible. Accordingly, the Company provides allowances for accounts it deems
to be uncollectible based on management's best estimates. Recoveries are
recognized in the period they are received. The ultimate amount of accounts
receivable that become uncollectible could differ from those estimated.
CASH EQUIVALENTS
Cash equivalents include short-term, highly liquid interest-bearing
investments consisting primarily of money market mutual funds. Deposits in banks
may exceed the amount of insurance provided on such deposits. The Company
performs reviews of the credit worthiness of its depository banks. The Company
has not experienced any losses on its deposits of cash in banks.
CASH HELD IN TRUST
Cash held in trust includes cash and short-term investments set-aside
for the payment of losses in connection with the Company's self-insured
retentions for hospital professional and general liability claims. In addition,
at June 30, 1998, cash held in trust includes $1,000,000 of cash held in escrow
from
F-8
35
the June 2, 1998 sale of its managed care business and $350,000 from the
April 1, 1997 sale of an HMO subsidiary by the entity which was acquired by the
Company on June 10, 1997 (see Note 2 and Note 15).
CONCENTRATIONS OF CREDIT RISK
The Company provides services to individuals without insurance and
accepts assignments of individuals' third party benefits without requiring
collateral. Exposure to losses on receivables due from these individuals is
principally dependent on each individual's financial condition. The Company
monitors its exposure for credit losses and maintains allowances for anticipated
losses.
INTANGIBLE ASSETS AND DEFERRED COSTS
Cost in excess of net asset value of purchased businesses relates to
certain acquisitions made by the Company (see Note 5). These amounts are being
amortized on a straight-line basis over a term ranging from 3 to 40 years with a
weighted average life of approximately 20 years. During fiscal year 1998, the
Company sold the operations of FPM Behavioral Health, Inc. (FPM), and disposed
of approximately $20,993,000 of cost in excess of net asset value of purchased
businesses.
The Company periodically reviews its intangible assets to assess
recoverability. The carrying value of cost in excess of net asset value of
purchased businesses is reviewed by the Company's 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 carrying
value of these costs is reduced by the estimated shortfall of cash flows (see
Note 3).
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 paid in advance of scheduled maturity, 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 cost in excess of net asset
value of purchased businesses, other intangible assets and loan costs as of June
30, 1998 and 1997 was $4,560,000 and $7,671,000, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, except for assets considered
to be impaired pursuant to Statement of Financial Accounting Standards (SFAS)
No. 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.
Depreciation is not recorded on assets determined to be impaired during the
period they are held for sale. 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. For the years ended June 30, 1998, 1997 and 1996,
depreciation expense recorded on the Company's property and equipment totaled
$4,123,000, $4,681,000 and $4,491,000 , respectively.
MEDICARE, MEDICAID AND OTHER CONTRACTED REIMBURSEMENT PROGRAMS
Revenues are recognized at the time services are provided. Net revenues
include estimated reimbursable amounts from Medicare, Medicaid and other
contracted reimbursement programs. Amounts received by the Company for treatment
of individuals 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 facilities. Final determination of
amounts earned under contracted reimbursement
F-9
36
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 13).
During the year ended June 30,1998, the Company also received capitated
amounts for behavioral healthcare services provided to individuals covered by
certain managed care contracts. Capitated revenues are recognized during the
period in which enrolled lives are covered for capitated payments received.
Revenue received from the management of facilities not owned by the Company and
for case management, utilization review and quality assurance oversight on the
delivery of behavioral healthcare services by independent providers on behalf of
clients is recognized at the time the services are provided.
MEDICAL EXPENSES
The Company records the cost of medical services when such
services are provided, including a provision for claims incurred but not yet
reported based on past experience.
PROFESSIONAL AND GENERAL LIABILITY INSURANCE
The Company maintains self-insured retentions related to its
professional and general liability insurance program. The Company's operations
are insured for professional liability on a claims-made basis and for general
liability on an occurrence basis. The Company records the liability for
uninsured professional and general liability losses related to asserted and
unasserted claims arising from reported and unreported incidents based on
independent valuations which consider claim development factors, the specific
nature of the facts and circumstances giving rise to each reported incident and
the Company's history with respect to similar claims. The development factors
are based on a blending of the Company's actual experience with industry
standards.
INCOME TAXES
Income taxes are accounted for in accordance with SFAS No. 109. SFAS
No. 109 requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, EARNINGS PER SHARE, which simplifies and replaces the
standards for computing earnings per share previously required in APB Opinion
No. 15, EARNINGS PER SHARE, and makes them comparable to international earnings
per share standards. SFAS No. 128, which became effective for financial
statements issued for periods ending after December 15, 1997, requires
restatement of prior year earnings (loss) per share calculations. Accordingly,
the Company changed the method used to compute earnings per share and has
restated all prior periods.
STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares on the
date of grant. The Company adopted SFAS No. 123, ACCOUNTING FOR STOCK BASED
COMPENSATION, during fiscal 1997, and will continue to account for stock option
grants in accordance with Accounting Principles Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES, and, accordingly, recognizes no compensation
expense for stock options granted.
F-10
37
FINANCIAL INSTRUMENTS
The carrying amount of financial instruments including cash and cash
equivalents, accounts receivable from services, and accounts payable approximate
fair value as of June 30, 1998 due to the short maturity of the instruments and
reserves for potential losses, as applicable. The carrying amounts of the
Company's borrowings approximate their fair value due to the recent issuance of
such borrowings which represent current market value. It is not practicable to
estimate the fair value of the Company's preferred stock because of the lack of
a quoted market price and the inability to estimate fair value without incurring
excessive costs.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform with the 1998 presentation.
2. CHANGE IN STRATEGIC DIRECTION AND ASSET SALES
During the quarter ended March 31, 1998, the Company changed its
strategic direction from an organization which provides and manages a full range
of behavioral healthcare services to an organization engaged in providing
services for at-risk and adjudicated youth with special needs. In connection
with its revised strategic initiative, the Company identified for divestiture
certain of its psychiatric inpatient facilities, its managed care operations and
other non-youth service businesses.
On May 4, 1998, the Company sold its Three Rivers facility, which had
been closed since June 30, 1995, for $2,000,000. Proceeds from the sale included
a $500,000 cash payment at closing and a $1,500,000, 12% promissory note, due
and payable on May 1, 1999. The note receivable is reflected in other
receivables in the accompanying balance sheet.
On June 2, 1998, the Company sold FPM Behavioral Health, Inc. ("FPM"),
its wholly owned managed behavioral health care business, for a cash purchase
price of $20,000,000, subject to certain future potential purchase price
adjustments. Management believes that any adjustment to purchase price will not
have a material adverse effect on the Company's financial position, results of
operations or liquidity. For the eleven-month period ended May 31, 1998, net
income before taxes of the managed care business was $2,468,000 on revenues of
$24,314,000.
On June 2, 1998, the Company also sold its Greenbrier facility to an
unrelated third party for a cash purchase price of $1,600,000. The Greenbrier
facility had a pre-tax net loss of $1,205,000 on revenues of $5,571,000 for the
eleven-month period ended May 31, 1998.
The Company recorded losses related to the foregoing asset sales of
$12,483,000 during the year ended June 30, 1998.
On September 28, 1998, the Company consummated a sale/leaseback
transaction whereby the Company sold the land, building and fixed equipment of
its Havenwyck facility in Auburn Hills, Michigan for the land, building and
fixed equipment of its leased Desert Vista facility in Mesa, Arizona and
$1,350,000 in cash. In connection with the sale/leaseback, the Company agreed to
leaseback the Havenwyck facility over a term of approximately 12 years. The
lease, which will be treated as an operating lease under generally accepted
accounting principles, currently requires annual minimum lease payments of
approximately $1,263,000, payable monthly.
On September 28, 1998, the Company completed its previously announced
sale of its management contract services division and behavioral health care
facilities in Conway, South Carolina, Houma, Louisiana, Mesa, Arizona and
DeSoto, Texas for a cash purchase price of $13,500,000 to an unrelated third
party. In connection with the sale, the Company agreed to sell its medical
subacute and behavioral healthcare facility in San Antonio, Texas, to the
purchaser for no additional consideration other than the
F-11
38
assumption of liabilities if the purchaser obtains consent for the sale from the
lessor of the facility within 90 days.
On September 30, 1998, the Company completed its previously announced
sale of its behavioral health care facility in Morgantown, West Virginia for a
cash purchase price of $14,800,000 also to an unrelated third party. The Company
expects to realize a gain on this transaction of approximately $2,300,000 which
it will record in the first quarter of fiscal 1999.
The assets and liabilities relating to the aforementioned transactions,
which were consummated on September 28 and 30, 1998, are reflected in the
accompanying balance sheet as net assets held for sale at June 30, 1998. The
following is a summary of these assets and liabilities:
Patient accounts receivable, less allowance for
doubtful accounts of $1,742,000 $11,005,000
Other receivables 1,264,000
Other current assets 732,000
Other noncurrent assets 2,016,000
Property and equipment 49,895,000
Less: accumulated depreciation (17,124,000)
Less: valuation allowance on property and equipment (17,576,000)
Accounts payable (1,889,000)
Accrued salaries and wages (1,796,000)
Other accrued liabilities (703,000)
Notes payable (56,000)
================
Total $25,768,000
================
For the year ended June 30, 1998, revenues and net income before taxes
for the aforementioned assets totalled $67,130,000 and $2,863,000, respectively.
During the fourth quarter of fiscal 1998, the Company recorded asset impairment
charges of $17,576,000 relating to these sales (see Note 3).
During fiscal 1996, the Company recorded losses totaling approximately
$4,500,000 related to additional asset write-downs, cost report settlements and
other adjustments related to businesses which closed at various times prior to
fiscal 1996, a reserve for disproportionate share payments which the State of
Louisiana has contended were improperly paid to two of the Company's Louisiana
facilities in fiscal 1995 and 1994 (see Note 15), and lease commitments and
other costs incurred in connection with the Company's decision to relocate its
corporate headquarters.
3. IMPAIRMENT OF ASSETS
As required by SFAS No. 121, the Company periodically reviews its
long-lived assets (land, buildings, fixed equipment, cost in excess of net asset
value of purchased businesses and other intangible assets) to determine if the
carrying value of these assets is recoverable, based on the future cash flows
expected from the assets. SFAS No. 121 addresses the accounting for the
impairment of long-lived assets and long-lived assets to be disposed of, certain
identifiable intangible assets and goodwill relating to these assets, and
provides guidance for recognizing and measuring impairment losses. The statement
requires that the carrying amount of impaired assets be reduced to fair value.
As discussed in Note 2, during fiscal 1998, the Company recorded asset
impairment charges of $17,576,000 in connection with the assets held for sale at
June 30, 1998. The asset impairment charge was determined based on the
difference between the carrying value of the assets and the expected net
proceeds form the sales. In addition, as a result of the change in strategic
direction, during the year ended June 30, 1998, the Company abandoned certain
projects acquired in the Summa Healthcare Group, Inc. ("Summa") purchase. As a
result, the Company recorded an asset impairment charge of approximately
$740,000 which represents the unamortized value assigned to these projects at
the date of acquisition. The asset impairment charge was determined based on the
difference between the carrying value of the assets and the expected discounted
future cash flows (see Note 5).
F-12
39
The Company determined that the carrying value of certain long-lived
assets was impaired (within the meaning of SFAS No. 121) at June 30, 1996. The
amount of the impairment, calculated as the excess of carrying value of the
long-lived assets over the fair value of assets (estimated using discounted
future cash flows expected for the assets), totaled approximately $4,000,000 at
June 30, 1996. In 1996, the Company also recorded additional asset impairment
charges totaling approximately $1,500,000 related to its investments in other
healthcare enterprises. The amount of the impairment charges was based on an
assessment of the future expected cash flows to be realized by the Company from
these enterprises.
4. RESTRUCTURING CHARGES
In connection with the Company's change in strategic direction, the
Company initiated a restructuring at its corporate headquarters, including the
identification and communication of termination and severance arrangements to
approximately 15 employees. Amounts relating to these agreements, which in the
aggregate totalled $2.3 million, are reflected as restructuring charges in the
accompanying statement of operations. No payments have been made against this
liability at June 30, 1998.
5. TRANSACTIONS WITH AFFILIATES
On October 1, 1996, the Company and Ramsay Managed Care, Inc. ("RMCI")
entered into a merger agreement providing for the acquisition of RMCI by a
wholly owned subsidiary of the Company. The transaction was approved by the
shareholders of both companies on April 18, 1997 and became effective on June
10, 1997, at which time the results of operations of RMCI are included in the
Company's statement of operations. The merger was structured as a tax-free
exchange recorded using the purchase method of accounting and, accordingly, the
purchase price has been primarily allocated to the assets purchased and the
liabilities assumed based upon their fair values at the date of acquisition. The
total consideration (including acquisition costs of approximately $400,000) was
approximately $24,000,000. During fiscal year 1998, the Company recorded
additional cost in excess of net asset value of purchased businesses of
$3,200,000, related to certain contingencies, in accordance with SFAS No. 38,
PREACQUISITION CONTINGENCIES OF PURCHASED ENTERPRISES.
In exchange for all of the outstanding shares of RMCI common and
preferred stock, the Company issued 2,135,826 shares of Common Stock (valued
based on the closing price of the Company's Common Stock on June 10, 1997 of
$3.00 per share) and 100,000 shares of Series 1996 Preferred Stock, which are
convertible into 1,000,000 shares of Common Stock. In addition, amounts owed by
RMCI to the Company, totalling approximately $7,000,000 on June 10, 1997, were
included as a portion of the consideration for the acquisition of RMCI. The
Company also assumed $7,388,000 of liabilities of RMCI.
The operations of RMCI have been included in the Company's consolidated
operations, subsequent to the effective date of the transaction of June 10,
1997.
The following unaudited pro forma information as of June 30, 1997 has
been prepared assuming the merger had been consummated on July 1, 1996 and
accounted for under the purchase method of accounting. This unaudited pro forma
combined summary information may not be indicative of the actual results which
may be realized in the future. Neither expected benefits nor cost reductions
anticipated by the Company have been reflected in the accompanying unaudited pro
forma combined financial data.
Year Ended
June 30, 1997
-------------
Net revenues.............................................. $158,734,000
Net loss.................................................. (1,371,000)
Basic and diluted loss per share.......................... $(0.17)
Basic and diluted pro forma net loss per share does not include common
stock equivalents since their effect is anti-dilutive.
F-13
40
Included in liabilities assumed was a $2,750,000 obligation owed by
RMCI to a corporate affiliate of Paul J. Ramsay, the Chairman of the Board of
the Company, along with unpaid accrued interest and commitment fees of
approximately $300,000. The loan bore interest at 15%, was due and payable on
demand, and was refinanced in September 1997 (see Note 6). No amounts were paid
with respect to this loan facility from June 10, 1997 to the date of the
refinancing.
On October 9, 1997, pursuant to an Agreement and Plan of Merger dated
as of July 1, 1997, the Company acquired Summa for $300,000 in cash, 250,000
shares of the Company's Common Stock and fully exercisable warrants to purchase
500,000 shares of the Company's Common Stock, with an exercise price of $3.25
per share and an expiration date of July 2007. The transaction was recorded
under the purchase method of accounting. The Company recorded cost in excess of
net asset value of the business of approximately $1,800,000. The principal
assets of Summa, whose principal stockholder was Luis E. Lamela, the Vice
Chairman, a director and, as of January 1, 1998, the Chief Executive Officer of
the Company, consist of projects in the specialty managed care and health
services industry. These projects were undertaken by the Company on July 1,
1997. As previously mentioned, due to the Company's change in strategic
direction, several projects were abandoned by the Company and the Company
recorded an asset impairment charge of approximately $740,000 which represents
the unamortized value assigned to these projects at the date of acquisition (see
Note 3). The remaining goodwill is being amortized over approximately three
years. During 1997, Summa rendered consulting services to the Company, for which
it was paid $237,500.
At June 30, 1998, three corporate affiliates of Mr. Ramsay owned an
aggregate voting interest in the Company of approximately 42%, as follows: (a)
Ramsay Holdings HSA Limited owned 15% of the outstanding Common Stock of the
Company and 50% of the outstanding Series C Preferred Stock of the Company, (b)
Paul Ramsay Holdings Pty. Limited ("Pty. Limited") owned approximately 6% of the
outstanding Common Stock of the Company and the remaining 50% of the outstanding
Series C Preferred Stock and (c) Paul Ramsay Hospitals Pty. Limited ("Ramsay
Hospitals") owned approximately 8% of the outstanding Common Stock of the
Company and 100% of the outstanding Series 1996 Preferred Stock of the Company.
In August 1996, Pty. Limited acquired through a private placement
275,546 shares of Common Stock of the Company at a price of $2.75 per share. The
acquired shares were issued for management fees due under the Company's
management agreement with another corporate affiliate (the "Management Fee
Affiliate") of Mr. Ramsay during fiscal 1997.
In October 1996, the Company issued 118,300 shares of Common Stock
valued at $164,000 to its board of directors in lieu of cash payment for fiscal
1997 director fees. The Common Stock was awarded at fair market value on the
date of issuance ($1.39 per share) and the amount was included in other
operating expenses.
On September 10, 1996, the Company entered into a letter agreement with
the Management Fee Affiliate and Pty. Limited which terminated the management
agreement effective July 1, 1997. In consideration for this termination, the
Company issued warrants to Pty. Limited to purchase 250,000 shares of Common
Stock at an exercise price of $2.63 per share. These warrants are fully
exercisable as of September 10, 1996, expire on September 10, 2006 and had a
weighted average fair value on the date of issuance of $0.85 per warrant. As a
result, the Company recorded other operating expenses of $212,000 related to
these warrants.
During the years ended June 30, 1997 and 1996, pursuant to the
management agreement, the Company incurred management fee expenses of $758,000
and $737,000, respectively, which are included in other operating expenses.
The Company recorded interest income of $440,000 and $600,000 during
fiscal 1997 (prior to the merger) and 1996, respectively, on interest-bearing
amounts owed by RMCI.
F-14
41
6. BORROWINGS
The Company's long-term debt is as follows:
JUNE 30
-------------------------------------
1998 1997
------------------ ------------------
Variable rate Term Loan A........................... $4,567,000 $ --
Variable rate Term Loan B........................... 3,608,000 --
Revolver, due September 30, 1999.................... 6,000,000 --
Series A bridge note to financial institution....... 15,000,000 --
Bridge facility to affiliate, due September 30, 2005 2,500,000 --
Junior Subordinated Note Agreement to affiliate,
due September 30, 2006........................... 3,929,000 --
11.6% senior secured notes.......................... -- 27,544,000
Variable rate revenue bonds......................... -- 15,700,000
15.6% subordinated secured notes.................... -- 1,385,000
15% demand note to affiliate........................ -- 2,750,000
Other............................................... 13,000 97,000
------------------ ------------------
35,617,000 47,476,000
Less current portion................................ 21,219,000 222,000
------------------ ------------------
$14,398,000 $ 47,254,000
================== ==================
On September 30, 1997, the Company refinanced its then existing credit
facilities with proceeds from a credit facility from a financial institution
consisting of (i) a term loan of $12,500,000 and a term loan of $10,000,000 (the
"Term Loans"), (ii) a revolving credit facility of up to the lesser of
$16,500,000 or the borrowing base of the Company's receivables (the "Revolving
Credit Loan") (collectively referred to as the "Senior Credit Facility") and
(iii) subordinated bridge notes, of which $15,000,000 was purchased by the
financial institution ("Series A Bridge Notes") and $2,500,000 was purchased by
Ramsay Holdings, a corporate affiliate of Mr. Ramsay (collectively referred to
as the Bridge Facility).
In addition, on September 30, 1997, the Company entered into an
agreement with Ramsay Holdings and the financial institution pursuant to which
(i) Ramsay Holdings purchased $4,000,000 of non-convertible, non-voting Class B
Preferred Stock, Series 1997-A (the "Series 1997-A Preferred Stock") and (ii)
the financial institution purchased $2,500,000 of Class B Preferred Stock,
Series 1997 (the "Series 1997 Preferred Stock").
The September 30,1997 proceeds from the Senior Credit Facility, the
Bridge Facility, the Series 1997 Preferred Stock and the Series 1997-A Preferred
Stock were used as follows: a) principal repayments of $27,544,000 of 11.6%
senior secured notes and $1,385,000 of 15.6% subordinated secured notes held by
a group of insurance companies, b) repayment of $3,400,000 of bank debt created
on September 2, 1997 upon the redemption of one of the Company's variable rate
revenue bonds, c) repayment of approximately $900,000 of accrued interest on the
above obligations, d) creation of a cash collateral account in an amount
totaling approximately $12,900,000 which was used to redeem the remaining
variable rate revenue bonds and to pay accrued interest thereon on their
redemption dates of November 3, 1997 and December 1, 1997, e) repayment of
$2,500,000 of the $2,750,000 loan from Ramsay Hospitals, f) payment of a
$2,200,000 prepayment penalty to the group of insurance companies holding the
senior and subordinated secured notes and g) transaction costs totaling
approximately $2,800,000. In order to satisfy these payments, the amount drawn
down on the Revolver totaled approximately $8,300,000 on September 30, 1997. In
conjunction with the refinancing, the Company recorded a loss on extinguishment
of debt of approximately $3.4 million in the first quarter of fiscal year 1998.
In connection with the Company's change in strategic direction and
asset sales, the Credit Agreement and Subordinated Note Purchase Agreements were
amended and restated on March 27, 1998, May 20, 1998, and June 29, 1998 and
amended and restated as of September 30, 1998 (the "Amended and Restated Credit
Facility"). During the fourth quarter of fiscal 1998, the Company prepaid a
portion of the Senior Credit Facility and recorded a loss on extinguishment of
$922,000.
F-15
42
As required by the Amended and Restated Credit Facility, in September
1998 the Company used the net proceeds from the sales of the assets to (i) repay
in full the Term Loan, (ii) repay in full the Series A Bridge Note, (iii) redeem
all of the outstanding shares of the Series 1997 Preferred Stock, including
accrued dividends (iv) pay $1,500,000 in previously incurred fees to the
financial institution and (v) repay a portion of the Revolving Credit Loan. At
September 30, 1998, after the allocation of the aforementioned proceeds, the
balance of the Revolving Credit Loan was $7,900,000.
The Amended and Restated Credit Facility also extended the maturity of
the Revolving Credit Loan to September 30, 1999, and adjusted the amount of the
Revolving Credit commitment to an amount up to the lesser of $9,000,000 or the
borrowing base of the Company's receivables (defined as 85% of the Company's net
receivables less certain adjustments as stipulated in the agreement).
Interest on the Revolving Credit Loan is equal to an index rate (8.25%
at September 30, 1998) plus 2%. Also, the Company is obligated to pay an amount
equal to one half of 1% of the unused portion of the Revolving Credit
Commitment.
In addition to the payments to the financial institution previously
discussed, the Amended and Restated Credit Facility provides for the following
fees: (i) $130,000 on October 31, 1998 if the Revolving Credit Loan and accrued
interest has not been paid in full, (ii) $1,300,000 on December 31, 1998 if the
Company has not repaid $3,500,000 of the Revolving Credit Loan with proceeds
from the issuance of subordinated debt or equity, and (iii) $250,000 on March
31, 1999 and $25,000 per month each month thereafter, if the Revolving Credit
Loan and accrued interest has not been paid in full.
The Company has pledged substantially all of its real property,
receivables and other assets as collateral for the Amended and Restated Credit
Agreement. The Amended and Restated Credit Agreement prohibits the payment of
cash dividends to the common and preferred shareholders of the Company and
requires that the Company meet certain financial covenants including (i) the
maintenance of certain fixed charge, interest coverage and accounts receivable
turnover ratios and (ii) a limitation on capital expenditures.
In connection with the aforementioned payments on the Amended and
Restated Credit Facility, the Company expects to incur a loss on extinguishment
of debt of approximately $2,400,000, which will be recorded in the first quarter
of fiscal year 1999.
On March 25, 1998, the Company entered into a Junior Subordinated Note
Purchase Agreement (the "Note"), with a corporate affiliate of Mr. Ramsay in an
aggregate principal amount of $5,000,000, plus accrued interest. Proceeds from
any borrowings made under the Note are restricted, and may be used by the
Company solely to (i) acquire and renovate a youth services facility in Dothan,
Alabama, (ii) acquire and renovate a youth services facility in Palm Bay,
Florida and (iii) meet the working capital needs of these facilities. On March
31, 1998, the Company borrowed $1,475,000 under the Note to fund the purchase
price ($1,400,000) and sales commission ($75,000) of the facility in Palm Bay,
Florida. On April 1, 1998, the Company borrowed an additional $1,916,000 under
the Note to fund the purchase price ($1,900,000) and closing costs ($16,000) of
the facility in Dothan, Alabama. Subsequent to June 30, 1998, the Company
requested and received the remaining $1,071,000 of the Note in order to fund the
working capital needs of the Dothan, Alabama and Palm Bay, Florida facilities.
The Note is unsecured and is subordinated and junior in right of
payment to the Senior Credit Facility, the Bridge Facility and the Amended and
Restated Credit Facility or to any refinancing thereof. Borrowings under the
Note bear interest at a rate per annum equal to 50 basis points greater than the
interest rate then in effect on the Bridge Facility, provided that if the Bridge
Facility is paid in full, the interest rate is fixed at 12.5%. Interest due
under the Note will be accrued and added to the unpaid principal balance until
March 25, 1999. Thereafter, interest is payable quarterly in arrears.
Outstanding principal and accrued interest due under the Note must be prepaid by
the Company prior to its September 30, 2006 maturity date with proceeds from any
asset sales.
F-16
43
In fiscal 1997, the Company contemplated a separate refinancing of its
credit facilities and in connection therewith, the Company entered into a
derivative transaction in March 1997 to fix the interest rate on the underlying
debt instrument. As a result of the Company's decision to refinance its credit
facilities as described above, in the fourth quarter of fiscal 1997, the Company
recorded income on the derivative transaction of approximately $1,280,000 and
wrote-off approximately $600,000 of costs directly related to this previous
refinancing effort.
7. OPERATING LEASES
On September 28, 1998, the Company sold and leased back the land,
buildings and fixed equipment of its Havenwyck facility in Auburn Hills,
Michigan (see Note 2). The lease has a term of 12 years and currently requires
annual minimum lease payments of approximately $1,263,000, payable monthly.
Effective April 1 of each year, the lease payments are subject to upward
adjustments (not to exceed 3% annually) in the consumer price index over the
preceding twelve months.
In April 1995, the Company sold and leased back the land, buildings and
fixed equipment of its Desert Vista facility in Mesa, Arizona and its Mission
Vista facility in San Antonio, Texas. The leases have a primary term of 15 years
(with three successive renewal options of 5 years each) and at June 30, 1998 had
aggregate annual minimum rentals of $1,645,000, payable monthly. The lease of
the Desert Vista facility was sold and/or released and the facility was sold
with the asset sale transactions described in Note 2.
Effective April 1995, the Company agreed to lease an 80-bed facility
near Salt Lake City, Utah for four years, with an option to renew for an
additional three years. The lease requires annual base rental payments of
$456,000, payable monthly, and percentage rental payments equal to 2% of the net
revenues of the facility, payable quarterly. The Company leases office space for
various other purposes over terms ranging from one to five years. Rent expense
related to noncancellable operating leases amounted to $2,431,000, $2,837,000
and $3,269,000 for the years ended June 30, 1998, 1997 and 1996, respectively.
Future minimum lease payments required under noncancellable operating
leases as of June 30, 1998 are as follows: 1999 -- $2,586,000; 2000 --
$2,120,000; 2001 -- $2,055,000; 2002 -- $1,851,000; 2003 -- $1,821,000; and
thereafter -- $12,335,000. These amounts include the minimum lease payments
associated with the Company's Havenwyck facility and exclude the minimum lease
payments associated with the Desert Vista facility.
In August 1997, the Company leased its Meadowlake facility in Oklahoma
to an independent healthcare provider for an initial term of three years, with
four three-year renewal options. Lease payments during the initial term total
$360,000 per year and at each renewal option are subject to adjustment based on
the change in the consumer price index during the preceding lease period. In
accordance with the terms of the lease agreement, the tenant is responsible for
all costs of ownership, including taxes, insurance, maintenance and repairs. In
addition, the tenant has the option to purchase the facility at any time during
the initial term for $3,000,000, less $15,417 for each month of occupancy.
Subsequent to the initial term, the tenant has the option to purchase the
facility at any time for $2,500,000. The book value of the facility was
$2,191,000 on June 30, 1998.
8. STOCKHOLDERS' EQUITY
The Certificate of Incorporation of the Company, as amended, authorizes
the issuance of 30,000,000 shares of Common Stock, $.01 par value, 800,000
shares of Class A Preferred Stock, $1.00 par value, and 2,000,000 shares of
Class B Preferred Stock, $1.00 par value, of which 333,333 shares have been
designated as Class B Preferred Stock, Series 1987, $1.00 par value, 152,321
shares have been designated as Series C Preferred Stock, $1.00 par value,
100,000 shares have been designated as Series 1996 Preferred Stock, $1.00 par
value, 100,000 shares have been designated as Series 1997 Preferred Stock, $1.00
par value and 4,000 shares have been designated as Series 1997-A Preferred Stock
(see Note 9).
F-17
44
Outstanding capital stock at June 30, 1998 included 11,453,400 shares
of Common Stock, of which 581,550 shares are held in treasury, 142,486 shares of
Series C Preferred Stock, 100,000 shares of Series 1996 Preferred Stock and
4,000 shares of Series 1997-A Preferred Stock and 100,000 shares of Series 1997
Preferred Stock.
The shares of Series C Preferred Stock were issued in June 1993 in
connection with a recapitalization of the interests of Paul J. Ramsay, the
Company's chairman. The shares are entitled to cumulative dividends at a rate of
5% per annum ($362,200 per year, $2.54 per preferred share) and to a liquidation
preference of $50.84 per share under certain circumstances. The shares are
convertible into that number of fully paid and nonassessable shares of Common
Stock that results from dividing the conversion price in effect at conversion
into $50.84 and multiplying the quotient obtained by the number of shares of
Series C Preferred Stock being converted. The current conversion price is $5.084
per share and, as a result, the Series C Preferred Stock are convertible into
1,424,860 shares of Common Stock. Each share of Series C Preferred Stock is
entitled to ten (10) votes on all matters put to a vote of the shareholders of
the Company and otherwise has voting rights and powers equal to the voting
rights and powers of the Common Stock.
The shares of Series 1996 Preferred Stock were issued to Ramsay
Hospitals in June 1997 in connection with the merger of RMCI. The shares are
entitled to cumulative dividends at a rate of 5% per annum ($150,000 per year,
$1.50 per preferred share) and to a liquidation preference of $30.00 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 $30.00 and multiplying the
quotient obtained by the number of shares of Series 1996 Preferred Stock being
converted. The current conversion price is $3.00 per share and, as a result, the
Series 1996 Preferred Stock are convertible into 1,000,000 shares of Common
Stock. Each share of Series 1996 Preferred Stock is entitled to ten (10) votes
on all matters put to a vote of the shareholders of the Company and otherwise
has voting rights and powers equal to the voting rights and powers of the Common
Stock.
The Company's Board of Directors has adopted a Stockholders Rights
Plan, under which the Company distributed a dividend of one common share
purchase right for each outstanding share of the Company's Common Stock
(calculated as if all outstanding shares of Series C Preferred Stock were
converted into shares of Common Stock). Each right becomes exercisable upon the
occurrence of certain events for a number of shares of the Company's Common
Stock having a market price totaling $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
(25% or more in the case of certain persons, including investment companies and
investment advisors) of the Company's Common Stock or announces a tender offer
resulting in ownership of 20% or more of the Company's Common Stock. The rights,
which expire on August 14, 2005, are redeemable in whole or in part at the
Company's option at any time before a 20% or greater position has been acquired,
for a price of $.01 per right.
9. REDEEMABLE PREFERRED STOCK
The shares of Series 1997-A Preferred Stock were issued on September
30, 1997 to a corporate affiliate of Mr. Ramsay in connection with the
refinancing of the Company's credit facility. The Series 1997-A Preferred Stock
is non-convertible, non-voting Class B Preferred Stock with a $1.00 par value
issued at $1,000 per share. The shares are entitled to cumulative dividends at a
rate of 9% per annum ($360,000 per year) and to a liquidation preference of
$1,000 per share under certain circumstances. The purchase price, which totaled
$4,000,000, was paid by (i) offset against approximately $600,000 in dividends
accrued through September 30, 1997 on the Series C Preferred Stock and the
Series 1996 Preferred Stock, (ii) offset against approximately $350,000 in
unpaid accrued interest and commitment fees, (iii) $250,000 in principal due to
a corporate affiliate of Mr. Ramsay and (iv) approximately $2,800,000 in cash.
The Series 1997-A Preferred Stock shall be redeemed at a price of $1,000 per
share and dividends on the Series C Preferred Stock, Series 1996 Preferred Stock
and Series 1997-A Preferred Stock (all of which are held by corporate affiliates
of Mr. Ramsay) shall be paid provided (i) the Company's EBITDA (as defined in
the Company's credit documentation) for its fiscal year ended June 30, 1998 is
equal or greater than $16,500,000, (ii) the Company has availability under the
Revolver in excess
F-18
45
of $4,000,000, (iii) the financial institution syndicates a portion of the
Revolver and (iv) the Bridge Facility is refinanced or paid. The Company did not
meet these conditions for its fiscal year ending June 30, 1998.
In connection with the refinancing (see Note 6) of the Company's debt,
the Series 1997 Preferred Stock was redeemed on September 30, 1998 for
$2,625,000 including accrued dividends.
10. EARNINGS PER SHARE
The following table sets for the computation of basic and diluted
earnings per share:
1998 1997 1996
------------------ ----------------- -----------------
Numerator:
Net income (loss) before extraordinary
item, as reported........................ $(54,261,000) $3,278,000 $(16,481,000)
Dividends, Class B convertible preferred
stock, Series C.......................... 362,000 362,000 362,000
Dividends, Class B convertible preferred
stock, Series 1996....................... 150,000 -- --
Dividends, Class B convertible preferred
stock, Series 1997....................... 182,000 -- --
Dividends, Class B convertible preferred
stock, Series 1997-A..................... 271,000 -- --
------------------ ----------------- -----------------
Numerator for basic earnings (loss) per
share - income (loss) attributable
to common Stockholders, before
extraordinary item.................. (55,226,000) 2,916,000 (16,843,000)
Effect of dilutive securities:
Class B convertible preferred stock,
Series C............................ -- 362,000 --
------------------ ----------------- -----------------
-- 362,000 --
------------------ ----------------- -----------------
Numerator for diluted earnings (loss)
per share - income (loss)
attributable to common stockholders
after assumed conversions........... $(55,226,000) $3,278,000 $(16,843,000)
================== ================= =================
Denominator:
Denominator for basic earnings (loss) per
share - weighted-average shares........ 10,784,495 8,403,570 7,927,644
Effect of dilutive securities:
Employee stock options and warrants.... -- 344,364 --
Convertible preferred stock............ -- 1,479,655 --
------------------ ----------------- -----------------
Dilutive potential common shares.......... -- 1,824,019 --
------------------ ----------------- -----------------
Denominator for diluted earnings (loss)
per share - adjusted weighted-
average shares and assumed
conversions......................... 10,784,495 10,227,589 7,927,644
================== ================= =================
Basic earnings (loss) per share, before
extraordinary item........................ $(5.12) $.35 $(2.12)
Extraordinary item........................... (.40) -- --
================== ================= =================
Basic earnings (loss) per share.............. $(5.52) $.35 $(2.12)
================== ================= =================
Diluted earnings (loss) per share before
Extraordinary item........................ $(5.12) $.32 $(2.12)
Extraordinary item........................... (.40) -- --
------------------ ----------------- -----------------
Diluted earnings (loss) per share............ $(5.52) $.32 $(2.12)
================== ================= =================
Options and warrants were not included in the computation for fiscal
1998 and 1996 because their effect would have been antidilutive for these
periods. For additional disclosures regarding the outstanding preferred stock
and options and warrants, see Notes 8 and 11, respectively.
F-19
46
11. OPTIONS AND WARRANTS
The Company's Stock Option Plans provide for options to various key
employees and non-employee directors to purchase shares of Common Stock at no
less than the fair market value of the stock on the date of grant. Options
granted become exercisable in varying increments including (a) 100% one year
after the date of grant, (b) 50% each year beginning one year after the date of
grant (c) 33% each year beginning on the date of grant and (d) 33% each year
beginning one year from the date of grant. Options issued to employees and
directors are subject to anti-dilution adjustments and generally expire the
earlier of 10 years after the date of grant or 60 days after the employee's
termination date or the director's resignation. The weighted average remaining
contractual life of all outstanding options at June 30, 1998 is approximately 6
years.
On October 14, 1997, the Board of Directors adopted the Ramsay Health
Care, Inc. 1997 Long Term Incentive Plan (the "1997 Long Term Incentive Plan").
Under the 1997 Long Term Incentive Plan, 500,000 shares of Common Stock will be
available for issuance of awards. Shares distributed under the 1997 Long Term
Incentive Plan may be either newly issued shares or treasury shares. Awards
granted under the plan may be in the form of stock appreciation rights,
restricted stock, performance awards and other stock-based awards. As of June
30, 1998, no awards have been granted under the 1997 Long Term Incentive Plan.
In connection with a repricing opportunity authorized by the Company's
Board of Directors on November 10, 1995, approximately 1,500,000 options (of
which approximately 412,000 are still outstanding at June 30, 1998) were
voluntarily repriced by the option holders. Under this repricing opportunity,
the exercise prices of the holders' outstanding options were reduced to $2.50
per share, the closing price for the Common Stock on the NASDAQ National Market
System on November 10, 1995. The Company granted 690,000 options in fiscal 1997
(including former RMCI options which became options to purchase an aggregate of
314,000 shares of the Company's Common Stock on the date of the merger). These
options, along with the options repriced on November 10, 1995, are not
exercisable until the closing price of the Common Stock, as quoted on the NASDAQ
National Market System, equals or exceeds $7.00 per share for at least 15
trading days, which need not be consecutive. As of June 30, 1998, none of these
options are exercisable.
On September 10, 1996, the Company entered into an Exchange Agreement
whereby Mr. Ramsay exchanged 476,070 options with an exercise price of $2.50 per
share (pursuant to the repricing opportunity discussed above), for warrants to
purchase an aggregate of 500,000 shares of Common Stock at $2.75 per share. The
warrants, which expire in June 2003, are not exercisable until the closing price
of the Common Stock, as quoted on the NASDAQ National Market System, equals or
exceeds $7.00 per share for at least 15 trading days, which need not be
consecutive, subsequent to September 10, 1996. Most of the options exchanged
were originally granted under the Company's 1991 Stock Option Plan.
The Company has additional warrants outstanding to purchase an
aggregate of 213,000 shares of the Company's Common Stock (133,000 of which are
owned by corporate affiliates of Mr. Ramsay). These warrants were issued in
exchange for warrants to purchase common stock of RMCI, and became warrants of
the Company as part of the merger with RMCI.
As part of the Company's previous senior and subordinated notes (which
were refinanced on September 30, 1997), the Company issued warrants to Aetna
Life Insurance Company and Monumental Life Insurance Company. As of June 30,
1998, these warrants entitle their holders to purchase an aggregate of 202,165
shares of the Company's Common Stock at $4.44 per share. These warrants are
exercisable on or before March 31, 2000 and contain anti-dilution provisions.
The Company has frozen its 1990 Stock Option Plan, and authorized
1,516,924, 396,930, 500,000 and 500,000 shares under its 1991, 1993, 1995 and
1996 Stock Option Plans, respectively. At June 30, 1998, 157,536 shares were
available for issuance under these Plans.
F-20
47
Summarized information regarding the Company's Stock Option Plans is as
follows:
Options exercisable based solely on employees rendering additional
service:
Weighted
Number Average
of Option Exercise
Shares Price Price
----------------- ---------------- -----------------
Options outstanding at June 30, 1995 1,825,397
Granted 430,608 $2.50-$4.01
Exercised (3,000) $3.38
Modified/Canceled (1,630,959) $2.50-$7.88
-----------
Options outstanding at June 30, 1996 622,046 $2.50-$6.31 $3.72
Granted 1,210,500 $2.44-$2.75 $2.72
Exercised --
Canceled (43,689) $2.50-$4.25 $3.18
-------------
Options outstanding at June 30, 1997 1,788,857 $2.44-$6.31 $3.02
Granted 105,000 $4.38 $4.38
Exercised (20,817) $3.38-$4.25 $3.83
Canceled (57,385) $2.75-$6.31 $3.93
--------------
Options outstanding at June 30, 1998 1,815,655 $2.44-$6.31 $3.04
===========
Exercisable at June 30, 1998 743,749
============
Exercisable at June 30, 1997 484,008
============
Exercisable at June 30, 1996 302,148
============
Weighted average fair value of options $2.41
granted during fiscal 1998 =====
F-21
48
Options not exercisable until the closing price for the Common Stock as
quoted on the NASDAQ National Market System equals or exceeds $7.00 per share
for at least 15 trading days:
Weighted
Number Average
of Option Exercise
Shares Price Price
----------------- ---------------- -----------------
Options outstanding at June 30, 1995 --
Granted 1,430,582 $ 2.50
Exercised --
Canceled --
---------------
Options outstanding at June 30, 1996 1,430,582 $2.50 $2.50
Granted 597,851 $2.75 $2.75
Exchanged in connection with RMCI merger 314,414 $3.00 $3.00
Exercised --
Canceled (990,940) $2.50 $2.50
------------
Options outstanding at June 30, 1997 1,351,907 $2.50-$3.00 $2.72
Granted --
Exercised (12,484) $2.50 $2.50
Cancelled (45,316) $2.50-$3.00 $2.86
--------------
Options outstanding at June 30, 1998 1,294,107 $2.50-$3.00 $2.79
===========
Exercisable at June 30, 1998 --
===========
Exercisable at June 30, 1997 --
===========
Weighted average fair value of options
granted during fiscal 1998 $ --
======
Shares of common stock reserved for future issuance at June 30, 1998
are as follows:
Options.................................... 3,109,764
Warrants................................... 1,665,503
Conversion of Preferred Stock.............. 2,424,860
===============
7,200,127
===============
Pro forma information regarding net income and earnings per share has
been determined as if the Company had accounted for its employee stock options
under the fair value method of SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions: risk-free interest rates of 6%; dividend yields of
0%; volatility factors of the expected market price of the Company's Common
Stock of .506; and a weighted-average expected life of the options based on the
vesting period of the options (ranging from one to three years).
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effect of
compensation expense from stock option awards on
F-22
49
pro forma net income reflects only the vesting of fiscal year ended 1996 awards
in 1996 and the vesting of fiscal year ended 1997 and 1996 awards in 1997, in
accordance with SFAS No. 123. Because compensation expense associated with a
stock option award is recognized over the vesting period, the initial impact of
applying SFAS No. 123 may not be indicative of compensation expense in future
years, when the effect of the amortization of multiple awards will be reflected
in pro forma net income. The Company's pro forma information follows:
YEAR ENDED JUNE 30
1998 1997 1996
----------------- ---------------- ----------------
Pro forma net income (loss) $(59,733,000) $2,713,000 $(16,798,000)
================= ================ ================
Basic pro forma net income (loss) per share $(5.45) $ 0.28 $(2.16)
================= ================ ================
Diluted pro forma net income (loss) per
share $(5.45) $0.27 $(2.16)
================= ================ ================
12. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets are as follows:
JUNE 30
-----------------------------------------------
1998 1997 1996
-------------- --------------- --------------
Deferred tax liabilities:
Book basis of fixed assets over tax basis.............. $2,938,000 $2,068,000 $2,710,000
Economic performance................................... 513,000 72,000 237,000
Specifically identifiable intangibles.................. -- 661,000 --
Other.................................................. 55,000 1,402,000 --
-------------- --------------- --------------
Total deferred tax liabilities................... 3,506,000 4,203,000 2,947,000
Deferred tax assets:
Allowance for doubtful accounts........................ 740,000 1,269,000 1,211,000
General and professional liability insurance........... 1,074,000 778,000 899,000
Accrued employee benefits.............................. 1,817,000 874,000 374,000
Investment in nonconsolidated subsidiaries............. 294,000 1,320,000 1,644,000
Capital loss carryovers................................ 605,000 597,000 677,000
Impairment of assets................................... 6,712,000 -- --
Other accrued liabilities.............................. 4,507,000 2,782,000 2,280,000
Other.................................................. -- 43,000 1,307,000
Net operating loss carryovers.......................... 6,996,000 10,187,000 8,962,000
Alternative minimum tax credit carryovers.............. 1,139,000 1,138,000 1,544,000
-------------- --------------- --------------
Total deferred tax assets........................ 23,884,000 18,988,000 18,898,000
Valuation allowance for deferred tax assets............... (20,378,000) (5,374,000) (4,412,000)
-------------- --------------- --------------
Deferred tax assets, net of valuation allowance.. 3,506,000 13,614,000 14,486,000
-------------- --------------- --------------
Net deferred tax assets.......................... $ -- $9,411,000 $11,539,000
============== =============== ==============
F-23
50
The provision (benefit) for income taxes consists of the following:
YEAR ENDED JUNE 30
--------------------------------------------------------
1998 1997 1996
----------------- ------------------ ------------------
Income taxes currently payable:
Federal.................................. $60,000 $204,000 $ --
State.................................... 240,000 300,000 --
Deferred income taxes:
Federal.................................. 8,676,000 1,039,000 (2,577,000)
State.................................... 1,005,000 183,000 (310,000)
================= ================== ==================
$9,981,000 $1,726,000 $(2,887,000)
================= ================== ==================
A reconciliation from the U.S. statutory federal income tax rate to the
effective income tax rate (benefit) follows:
1998 1997 1996
----------------- ------------------ ------------------
U.S. Federal statutory rate................. (34.0%) 34.0% (34.0%)
Increase in valuation allowance............. 30.5 19.2 22.8
Non-deductible intangible assets............ 20.4 -- --
State income taxes, net of federal benefit.. (4.0) (3.7) (1.6)
Benefit of net operating loss recognized.... -- (8.5) --
Other....................................... 7.1 (7.0) (2.1)
================= ================== ==================
Effective income tax rate................... 20.0% 34.0% (14.9%)
================= ================== ==================
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Previously, the Company evaluated the
realizability of its deferred tax assets and the need for a valuation allowance
by considering the effects of implementing tax planning strategies that
contemplated the sales of certain appreciated property. In connection with the
Company's change in strategic direction, announced on February 19, 1998, the
Company re-evaluated its tax planning strategies and determined that such
strategies will not be realized. Consequently, the Company's net operating loss
carryforwards were no longer considered realizable, pursuant to the provisions
of SFAS No. 109.
The Company has no net deferred tax assets at June 30, 1998. Net
deferred tax assets at June 30, 1997 were $9,411,000. The Company's valuation
allowance related to deferred tax assets was increased by $15,004,000 at June
30, 1998.
At June 30, 1998, the Company had net operating loss carryovers of
approximately $18,411,000, and alternative minimum tax credit carryovers of
approximately $1,140,000 available to reduce future federal income taxes,
subject to certain annual limitations. The net operating loss carryovers expire
in the years 2001 through 2003.
13. REIMBURSEMENT FROM THIRD-PARTY CONTRACTUAL AGENCIES
The Company records amounts due to or from third-party contractual
agencies based on its best estimates of amounts to be ultimately received or
paid under cost reports filed with the appropriate intermediaries. Final
determination of amounts earned under contractual reimbursement programs is
subject to review and audit by these intermediaries. Differences between amounts
recorded as estimated settlements and the audited amounts are reflected as
adjustments to net revenues in the period the final determination is made.
F-24
51
During fiscal 1996, the Company recorded contractual adjustment
expenses of approximately $1,900,000 related to intermediary audits of prior
year cost reports. As a result of this negative experience, the Company recorded
reserves in the fourth quarter of fiscal 1996 totaling $3,500,000 related to
possible future adjustments of its cost report estimates by intermediaries.
During the year ended June 30, 1997, the Company received a favorable
cash judgment totaling approximately $2,900,000, net of related costs, by the
courts of the State of Missouri. In this matter, the courts ruled that the
Company's facility in Nevada, Missouri had received insufficient reimbursement
from the Missouri Department of Social Services for the provision of behavioral
healthcare to Medicaid patients from 1990 to 1996. The Company also recorded in
fiscal 1997, a $1,500,000 benefit related to intermediary audits of prior year
cost reports.
During the fourth quarter of fiscal 1998, the Company increased its
estimated reimbursement for fiscal 1998 by $1,700,000, primarily as a result of
increased Corporate expenses by the Company during the year ended June 30, 1998.
Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation. The Company believes that it is in
compliance with all applicable laws and regulations. Management believes that
adequate provision has been made for any adjustments that may result from future
intermediary reviews and audits and is not aware of any claims, disputes or
unsettled matters concerning third-party reimbursement that would have a
material adverse effect on the Company's financial statements.
The Company derived approximately 71%, 65% and 70% of its net revenues
from services provided to individuals covered by various federal and state
governmental programs in fiscal 1998, 1997 and 1996, respectively.
14. SAVINGS PLAN
The Company has a 401(k) tax deferred savings plan, administered by an
independent trustee, covering substantially all employees over age twenty-one
meeting a one-year minimum service requirement. The plan was adopted for the
purpose of supplementing employees' retirement, death and disability benefits.
The Company may, at its option, contribute to the plan through an Employer
Matching Account, but is under no obligation to do so. An employee becomes
vested in his Employer Matching Account over a four-year period.
The Company did not contribute to the plan in 1998, 1997 or 1996.
15. COMMITMENTS AND CONTINGENCIES
The Company has an employment agreement dated as of October 1, 1997
with the Chief Executive Officer (the "Employment Agreement"). Base compensation
under the Employment Agreement is $400,000 per year, subject to annual
adjustment for inflation and increases by the Board of Directors. In addition,
the Company may terminate the Chief Executive Officer's employment at any time
and for any reason; provided that if his employment is terminated without cause
(as defined in the Employment Agreement) or as a result of his becoming
permanently disabled, the Company must pay the Chief Executive Officer a
severance amount determined in accordance with a formula contained in the
Employment Agreement.
The Chief Executive Officer is entitled to a bonus equal to the greater
of (i) $400,000 or (ii) 5% of the increase in operating income (as defined in
the Employment Agreement) which has been accrued at June 30, 1998. The Company
is prohibited from paying bonuses to the executive officers under the terms of
the Amended and Restated Credit Agreement.
The Company is party to certain claims, suits and complaints, including
those matters described below, whether arising from the acts or omissions of its
employees, providers or others, which arise in the ordinary course of business.
The Company has established reserves at June 30, 1998 for the estimated
F-25
52
amounts which might be recovered from the Company as a result of all outstanding
legal proceedings. In the opinion of management, the ultimate resolution of
these pending legal proceedings is not expected to have a material adverse
effect on the Company's financial position, results of operations or liquidity.
In March 1997, a former executive vice president of the Company
commenced arbitration and court proceedings against the Company in which he
claims his employment was wrongfully terminated by the Company and seeks damages
of approximately $2,300,000. Subsequently, the court proceedings have been
stayed and arbitration proceedings are pending. The Company intends to
vigorously defend the proceedings.
Prior to the merger with the Company, RMCI sold its subsidiary which,
as a licensed HMO in Louisiana, Alabama and Mississippi, managed and provided
prepaid healthcare services to its members. On September 29, 1997, RMCI received
a demand for indemnification by the purchaser of this subsidiary in an amount
totalling approximately $5,800,000. The Company intends to vigorously defend any
proceedings which may result from this matter. In addition, on September 30,
1997, the Company demanded indemnification from the purchaser for various
matters in an amount exceeding $2,000,000.
During fiscal 1996, the State of Louisiana requested repayment of
disproportionate share payments received by two of the Company's Louisiana
facilities in fiscal years 1995 and 1994 totaling approximately $5.5 million.
The repayment requested related primarily to alleged overpayments received by a
former facility of the Company. The Company believes that this matter may be
settled for an amount less than Louisiana's initial request. The Company intends
to vigorously contest any position by Louisiana which it considers adverse.
16. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Activity in the Company's allowance for doubtful accounts consists of
the following:
YEAR ENDED JUNE 30
--------------------------------------------------------
1998 1997 1996
----------------- ------------------ ------------------
Balance at beginning of year............... $4,386,000 $ 4,573,000 $ 3,886,000
Provision for doubtful accounts............. 6,649,000 5,688,000 5,805,000
Write-offs of uncollectible accounts
receivable............................... (6,368,000) (6,323,000) (5,118,000)
Allowance recorded in connection with the
acquisition of RMCI...................... -- 448,000 --
Allowance eliminated in connection with the
sale of FPMBH............................ (530,000) -- --
Allowance related to assets held for sale... (1,742,000) -- --
----------------- ------------------ ------------------
Balance at end of year...................... $2,395,000 $ 4,386,000 $ 4,573,000
================= ================== ==================
F-26
53
17. SUPPLEMENTAL CASH FLOW INFORMATION
The Company's non-cash investing and financing activities were as
follows:
YEAR ENDED JUNE 30
--------------------------------------------------------
1998 1997 1996
----------------- ------------------ ------------------
Note received in connection with sale of
property and equipment................... $1,500,000 $ -- $ --
Issuance of stock in lieu of cash payment
for accrued liabilities.................. 355,000 -- --
Issuance of warrants in connection with
Summa merger............................. 657,000 -- --
Issuance of stock in connection with Summa
merger................................... 813,000 -- --
Issuance of stock in lieu of debt payment... 250,000 -- --
Issuance of stock in lieu of dividend
payments................................. 610,000 -- --
Merger with RMCI:
Cost in excess of net asset value of
purchased businesses................... -- 18,048,000 --
Other intangible assets.................. -- 4,740,000 --
Issuance of Common Stock................. -- 6,408,000 --
Issuance of Series 1996 Preferred Stock.. -- 3,000,000 --
Noncurrent liabilities................... -- 750,000 --
Issuance of stock in lieu of cash payment
for management and directors' fees....... -- 922,000 600,000
F-27
54
INDEX OF EXHIBITS
PAGE
NUMBER
------
2.1 Recapitalization Agreement dated as of June 30, 1993 by and among the Company,
Ramsay Holdings HSA Limited and Paul Ramsay Holdings Pty. Limited (incorporated
by reference to Exhibit 2.2 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1994)......................................................... --
2.2 Agreement of sale and purchase dated April 12, 1995 by and between Mesa
Psychiatric Hospital, Inc. and Capstone Capital Corporation (incorporated by
reference to Exhibit 2.7 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1995). Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees
to furnish a copy of the Schedules and Exhibits to such Agreement to the
Commission upon request........................................................... --
2.3 Agreement of sale and purchase dated April 12, 1995 by and between RHCI San
Antonio, Inc. and Capstone Capital Corporation (incorporated by reference to
Exhibit 2.8 to the Company's Annual Report on Form 10-K for the year ended June
30, 1995). Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to furnish a
copy of the Schedules and Exhibits to such Agreement to the Commission upon
request........................................................................... --
2.4 Agreement and Plan of Merger dated as of October 1, 1996 among Ramsay Managed
Care, Inc., the Company and RHCI Acquisition Corp. (incorporated by reference to
Exhibit 2 to the Company's Current Report on Form 8-K dated October 2, 1996).
Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of the
Disclosure Schedules to such Agreement to the Commission upon request............. --
2.5 Agreement and Plan of Merger dated as of July 1, 1997 among Summa Healthcare
Group, Inc., the Company and Ramsay Acquisition Corporation (incorporated by
reference to Exhibit 2.5 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1997).............................................................. --
2.6 Agreement of Purchase and Sale dated as of March 18, 1998 by and between Ramsay
Louisiana, Inc. and Health-One Properties, LLC (incorporated by reference to
Exhibit 2.6 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998). Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to
furnish a copy of the Disclosure Schedules and attachments to such Agreement to
the Commission upon request ...................................................... --
2.7 Stock Purchase Agreement dated as of May 1, 1998 by and among the Company, Ramsay
Managed Care, Inc. and Horizon Health Corporation (incorporated by reference to
Exhibit 2.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998). Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to
furnish a copy of the Disclosure Schedules and attachments to such Agreement to
the Commission upon request....................................................... --
2.8 Asset Purchase Agreement dated as of May 15, 1998 by and among Greenbrier
Hospital, Inc., the Company and Provider Options Holdings, L.L.C (incorporated by
reference to Exhibit 2.8 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998). Pursuant to Reg. S- K, Item 601(b)(2), the
Company agrees to furnish a copy of the Disclosure Schedules and attachments to
such Agreement to the Commission upon request..................................... --
2.9 Purchase Agreement dated as of June 24, 1998 among Charter Behavioral Health
Systems, LLC, the Company, Carolina Treatment Center, Inc., Houma Psychiatric
Hospital, Inc., Mesa Psychiatric Hospital, Inc., RHCI San Antonio, Inc., The
Haven Hospital, Inc., Transitional Care Ventures (Arizona), Inc., Transitional
Care Ventures (North Texas), Inc. and Transitional Care Ventures (Texas), Inc.
(incorporated by reference to Exhibit 2.9 to the Company's Current Report on
Form 8-K dated October 9, 1998). Pursuant to Reg. S-K, Item 601(b)(2), the
Company agrees to furnish a copy of the Disclosure Schedules and attachments
to such Agreement to the Commission upon request.................................. --
E-1
55
2.10 Purchase and Sale Contract dated as of June 25, 1998 among Charter
Behavioral Health Systems, LLC, Carolina Treatment Center, Inc. and
Mesa Psychiatric Hospital, Inc. (incorporated by reference to Exhibit
2.10 to the Company's Current Report on Form 8-K dated October 9,
1998). Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to
furnish a copy of the Disclosure Schedules and attachments to such
Agreement to the Commission upon request.......................................... --
2.11 Purchase and Sale Contract dated as of June 26, 1998 among Crescent
Real Estate Equities Limited Partnership and The Haven Hospital, Inc.
(incorporated by reference to Exhibit 2.11 to the Company's Current
Report on Form 8-K dated October 9, 1998). Pursuant to Reg. S-K, Item
601(b)(2), the Company agrees to furnish a copy of the Disclosure
Schedules and attachments to such Agreement to the Commission upon
request............................................................................ --
2.12 Asset Purchase Agreement dated as of July 2, 1998 among West Virginia University
Hospitals, Inc., Psychiatric Institute of West Virginia, Inc. and the Company
(incorporated by reference to Exhibit 2.12 to the Company's Current Report on
Form 8-K dated October 9, 1998). Pursuant to Reg. S-K, Item 601(b)(2), the Company
agrees to furnish a copy of the Disclosure Schedules and attachments to such
Agreement to the Commission upon request........................................... --
2.13 Amendment No. 1 dated as of September 28, 1998 Purchase Agreement dated as of
June 24, 1998 among Charter Behavioral Health Systems, LLC, the Company, Carolina
Treatment Center, Inc., Houma Psychiatric Hospital, Inc., Mesa Psychiatric
Hospital, Inc., RHCI San Antonio, Inc., The Haven Hospital, Inc., Transitional
Care Ventures (Arizona), Inc., Transitional Care Ventures (North Texas), Inc. and
Transitional Care Ventures (Texas), Inc. (incorporated by reference to Exhibit 2.13
to the Company's Current Report on Form 8-K dated October 9, 1998)................. --
2.14 Agreement of Sale and Purchase dated as of September 28, 1998 by and among
Havenwyck Hospital, Inc., Michigan Psychiatric Services, Inc. and Capstone
Capital Corporation (incorporated by reference to Exhibit 2.14 to the Company's
Current Report on Form 8-K dated October 9, 1998). Pursuant to Reg. S-K,
Item 601(b)(2), the Company agrees to furnish a copy of the Disclosure Schedules
and attachments to such Agreement to the Commission upon request.................. --
3.1 Restated Certificate of Incorporation of the Company, as amended (incorporated
by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1990)......................................................... --
3.2 Certificate of Amendment of Restated Certificate of Incorporation of the Company
filed on April 17, 1991 (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-2, Registration No. 33-40762).......... --
3.3 Certificate of Correction to Certificate of Amendment of Restated Certificate of
Incorporation of the Company filed on April 18, 1991 (incorporated by reference
to Exhibit 3.3 to the Company's Registration Statement on Form S-2, 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)................................. --
E-2
56
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)....................................... --
3.8 Certificate of Designation of Preferred Stock of the Company with respect to its
Class B Preferred Stock, Series 1996 filed on June 10, 1997 (incorporated by
reference to Exhibit 3.8 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1997).............................................................. --
3.9 Certificate of Designation of Preferred Stock of the Company with respect to its
Class B Preferred Stock, Series 1997 filed on September 30, 1997 (incorporated by
reference to Exhibit 3.9 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1997).............................................................. --
3.10 Certificate of Designation of Preferred Stock of the Company with respect to its
Class B Preferred Stock, Series 1997-A filed on September 30, 1997 (incorporated
by reference to Exhibit 3.10 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1997).............................................................. --
3.11 Preferred Stock Purchase Agreement dated as of September 30, 1997 between the
Company and General Electric Capital Corporation (incorporated by
reference to Exhibit 3.11 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1997).............................................................. --
3.12 Preferred Stock Purchase Agreement dated as of September 30, 1997 between the
Company and Paul Ramsay Holdings Pty. Limited (incorporated by
reference to Exhibit 3.12 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1997).............................................................. --
3.13 Common Stock Purchase Agreement dated as of September 30, 1997 between the
Company and Paul Ramsay Holdings Pty. Limited (incorporated by
reference to Exhibit 3.13 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1997).............................................................. --
3.14 Schedules to Preferred Stock Purchase Agreement described in exhibit 3.11 above
(incorporated by reference to Exhibit 3.14 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997)............................... --
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-3
57
4.4 Third Supplemental Trust Indenture dated as of April 12, 1995 between the
Company, Bountiful Psychiatric Hospital, Inc., Cumberland Mental Health, Inc.,
East Carolina Psychiatric Services Corporation, Havenwyck Hospital, Inc., Mesa
Psychiatric Hospital, Inc. and Psychiatric Hospital of West Virginia, Inc., and
NationsBank of Georgia, National Association, and Elizabeth Talley, as Trustee
(incorporated by reference to Exhibit 4.4 to the Company's Annual Report on Form
10-K for the year ended June 30, 1996)............................................ --
4.5 Fourth Supplemental Trust Indenture dated as of September 15, 1995 between the
Company, Bountiful Psychiatric Hospital, Inc., Cumberland Mental Health, Inc.,
East Carolina Psychiatric Services Corporation, Havenwyck Hospital, Inc., Mesa
Psychiatric Hospital, Inc. and Psychiatric Institute of West Virginia, Inc. and
NationsBank of Georgia, National Association, and Elizabeth Talley, as Trustee
(incorporated by reference to Exhibit 10.100 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995)............................... --
4.6 Fifth Supplemental Trust Indenture dated as of June 1, 1997 between the Company,
Bountiful Psychiatric Hospital, Inc., Cumberland Mental Health, Inc., East
Carolina Psychiatric Services Corporation, Havenwyck Hospital, Inc. and
Psychiatric Institute of West Virginia, Inc. and The Bank of New York and Thomas
Zakrzewski, as Trustees (incorporated by reference to Exhibit 4.6 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1997)...................... --
4.7 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)............................. --
4.8 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 4.7).............................. --
4.9 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 4.7).................................... --
4.10 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 4.7)........................... --
4.11 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 4.7)............................... --
4.12 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 4.7).................................... --
10.1 Note Purchase Agreement dated as of March 31, 1990, among the Company, Bountiful
Psychiatric Hospital, Inc., Cumberland Mental Health, Inc., East Carolina
Psychiatric Services Corporation, Havenwyck Hospital, Inc., Mesa Psychiatric
Hospital, Inc., Psychiatric Institute of West Virginia, Inc., and Aetna Life
Insurance Company regarding the purchase by Aetna Life Insurance Company of
$26,000,000 principal amount of 11.6% Senior Secured Notes, $1,000,000 principal
amount of 15.6% Subordinated Secured Notes and Warrants to Purchase Common Stock
of the Company (incorporated by reference to Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1990).............................. --
E-4
58
10.2 Note Purchase Agreement pursuant to which Monumental Life Insurance Company
purchased $15,500,000 principal amount of 11.6% Senior Secured Notes, $2,000,000
principal amount of 15.6% Subordinated Secured Notes and Warrants to Purchase
Common Stock of the Company (substantially identical to Exhibit 10.1)..............
--
10.3 Note Purchase Agreement pursuant to which Connecticut Mutual Life Insurance
Company purchased $15,000,000 principal amount of 11.6% Senior Secured Notes
(substantially identical to Exhibit 10.1).......................................... --
10.4 Pledge and Security Agreement between Bountiful Psychiatric Hospital, Inc. and The
Citizens and Southern National Bank (incorporated by reference to Exhibit 10.4 to
the Company's Annual Report on Form 10-K for the year ended June 30, 1996).........
--
10.5 Pledge and Security Agreement dated as of March 31, 1990 between the
Company and The Citizens and Southern National Bank (substantially
identical to Exhibit 10.4)......................................................... --
10.6 Pledge and Security Agreement between Michigan Psychiatric Services, Inc. and The
Citizens and Southern National Bank (substantially identical to Exhibit 10.4)...... --
10.7 Pledge and Security Agreement between Americare of Galax, Inc. and The Citizens
and Southern National Bank (substantially identical to Exhibit 10.4)............... --
10.8 Deed of Trust, Security Agreement, and Financing Statement dated as of March 31,
1990 from Bountiful Psychiatric Hospital, Inc. to Merrill Title Company for the
benefit of The Citizens and Southern National Bank and Susan L. Adams covering
certain property in Woods Cross, Utah (incorporated by reference to Exhibit 10.10
to the Company's Annual Report on Form 10-K for the year ended June 30, 1990)...... --
10.9 Deed of Trust and Security Agreement from Cumberland Mental Health, Inc. to First
American Title Insurance Company for the benefit of The Citizens and Southern
National Bank and Susan L. Adams covering certain property in Fayetteville, North
Carolina (substantially identical to Exhibit 10.8)................................. --
10.10 Deed of Trust and Security Agreement from East Carolina Psychiatric Services
Corporation to First American Title Insurance Company for the benefit of The
Citizens and Southern National Bank and Susan L. Adams covering certain property
in Jacksonville, North Carolina (substantially identical to Exhibit 10.8).......... --
10.11 Mortgage and Security Agreement dated as of March 31, 1990 from Havenwyck
Hospital, Inc. to The Citizens and Southern National Bank and Susan L. Adams
covering certain property in Auburn Hills, Michigan (incorporated by reference to
Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended June
30, 1990).......................................................................... --
10.12 Leasehold Deed of Trust, Assignment of Rents and Security Agreement with Financing
Statement dated as of March 31, 1990 from Mesa Psychiatric Hospital, Inc. to
Transamerica Title Insurance Company for the benefit of The Citizens and Southern
National Bank and Susan L. Adams covering certain property in Mesa, Arizona
(incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form
10-K for the year ended June 30, 1990)............................................. --
E-5
59
10.13 Leasehold Deed of Trust and Security Agreement from Psychiatric Institute of West
Virginia, Inc. to J. Nicholas Barth, Esq., for the benefit of The Citizens and
Southern National Bank and Susan L. Adams covering certain property in Morgantown,
West Virginia (substantially identical to Exhibit 10.12)........................... --
10.14 Obligor Subrogation and Contribution Agreement dated as of April 30, 1990 among
The Citizens and Southern National Bank, Susan L. Adams, the Company, Bountiful
Psychiatric Hospital, Inc., Cumberland Mental Health, Inc., East Carolina
Psychiatric Services Corporation, Havenwyck Hospital, Inc., Mesa Psychiatric
Hospital, Inc., and Psychiatric Institute of West Virginia, Inc. (incorporated by
reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1990).......................................................... --
10.15 Credit Agreement dated as of May 15, 1993 among the Company and
certain of its subsidiaries named therein, Societe Generale, New York
Branch, First Union National Bank of North Carolina and Hibernia
National Bank, as lenders, and Societe Generale, as issuing bank and
agent (incorporated by reference to Exhibit 10.16 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994) ...................... --
10.16 Second Amendment to Credit Agreement dated as of September 15, 1995 among the
Company and certain of its subsidiaries named therein, Societe Generale, New York
Branch, First Union National Bank of North Carolina and Hibernia National Bank, as
lenders, and Societe Generale, as issuing bank and agent (incorporated by
reference to Exhibit 10.99 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995................................................... --
10.17 Third Amendment to Credit Agreement dated as of August 15, 1996 among
the Company and certain subsidiaries named therein, Societe Generale,
New York Branch, First Union National Bank of North Carolina and
Hibernia National Bank, as lenders, and Societe Generale, as issuing
bank and agent (incorporated by reference to Exhibit 10.93 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1996.............. --
10.18 Fourth Amendment to Credit Agreement, First Amendment to Waiver, Consent to Merger
and Extension Agreement dated as of May 15, 1997 among the Company and certain
subsidiaries named therein, Societe Generale, New York Branch, First Union
National Bank of North Carolina and Hibernia National Bank, as lenders, and
Societe Generale, as issuing bank and agent (incorporated by reference to
Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended
June 30, 1997)..................................................................... --
10.19 Fifth Amendment to Credit Agreement, Amendment to Fourth Amendment and Amendment
to Waiver dated as of June 4, 1997 among the Company and certain subsidiaries
named therein, Societe Generale, New York Branch, First Union National Bank of
North Carolina, as lenders, and Societe Generale, as issuing bank and agent
(incorporated by reference to Exhibit 10.19 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1997)........................................ --
10.20 Security Agreement dated as of May 15, 1993 by Atlantic Treatment Center, Inc. in
favor of Societe Generale, as agent for the lenders which are parties to that
certain Credit Agreement described in Exhibit 10.15 above, and covering certain
property in Daytona Beach, Florida (incorporated by reference to Exhibit 10.17 to
the Company's Annual Report on Form 10-K for the year ended June 30, 1994)......... --
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10.21 Security Agreement dated as of May 15, 1993 by Carolina Treatment Center, Inc. in
favor of Societe Generale, as agent for the lenders which are parties to that
certain Credit Agreement described in Exhibit 10.15 above (substantially identical
to Exhibit 10.20).................................................................. --
10.22 Security Agreement dated as of May 15, 1993 by Great Plains Hospital, Inc., in
favor of Societe Generale, as agent for the lenders which are parties to that
certain Credit Agreement described in Exhibit 10.15 above (substantially identical
to Exhibit 10.20).................................................................. --
10.23 Security Agreement dated as of May 15, 1993 by Greenbrier Hospital, Inc. in favor
of Societe Generale, as agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above (substantially identical to
Exhibit 10.20)..................................................................... --
10.24 Security Agreement dated as of May 15, 1993 by Gulf Coast Treatment Center, Inc.
in favor of Societe Generale, as agent for the lenders which are parties to that
certain Credit Agreement described in Exhibit 10.15 above (substantially identical
to Exhibit 10.20).................................................................. --
10.25 Security Agreement dated as of May 15, 1993 by Houma Psychiatric Hospital, Inc. in
favor of Societe Generale, as agent for the lenders which are parties to that
certain Credit Agreement described in Exhibit 10.15 above (substantially identical
to Exhibit 10.20).................................................................. --
10.26 Security Agreement dated as of May 15, 1993 by HSA of Oklahoma, Inc. in favor of
Societe Generale, as agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above (substantially identical to
Exhibit 10.20)..................................................................... --
10.27 Security Agreement dated as of May 15, 1993 by The Haven Hospital, Inc. in favor
of Societe Generale, as agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above (substantially identical to
Exhibit 10.20)..................................................................... --
10.28 Security Agreement dated as of May 15, 1993 by the Company in favor of Societe
Generale, as agent for the lenders which are parties to that certain Credit
Agreement described in Exhibit 10.15 above (substantially identical to Exhibit
10.20)............................................................................. --
10.29 Accounts Receivable Security Agreement dated as of May 15, 1993 by Americare of
Galax, Inc. in favor of Societe Generale, as agent for the lenders which are
parties to that certain Credit Agreement described in Exhibit 10.15 above
(incorporated by reference to Exhibit 10.26 to the Company's Annual Report on Form
10-K for the year ended June 30, 1994)............................................. --
10.30 Accounts Receivable Security Agreement dated as of May 15, 1993 by Bountiful
Psychiatric Hospital, Inc. in favor of Societe Generale, as agent for the lenders
which are parties to that certain Credit Agreement described in Exhibit 10.15
above (substantially identical to Exhibit 10.29)................................... --
10.31 Accounts Receivable Security Agreement dated as of May 15, 1993 by Cumberland
Mental Health, Inc. in favor of Societe Generale, New York Branch, as agent for
the lenders which are parties to that certain Credit Agreement described in
Exhibit 10.15 above (substantially identical to Exhibit 10.29)..................... --
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10.32 Accounts Receivable Security Agreement dated as of May 15, 1993 by East Carolina
Psychiatric Services Corporation in favor of Societe Generale, New York Branch, as
agent for the lenders which are parties to that certain Credit Agreement described
in Exhibit 10.15 above (substantially identical to Exhibit 10.29).................. --
10.33 Accounts Receivable Security Agreement dated as of May 15, 1993 by Havenwyck
Hospital, Inc. in favor of Societe Generale, New York Branch as agent for the
lenders which are parties to that certain Credit Agreement described in Exhibit
10.15 above (substantially identical to Exhibit 10.29)............................. --
10.34 Accounts Receivable Security Agreement dated as of May 15, 1993 by Mesa
Psychiatric Hospital, Inc. in favor of Societe Generale, New York Branch, as agent
for the lenders which are parties to that certain Credit Agreement described in
Exhibit 10.15 above (substantially identical to Exhibit 10.29)..................... --
10.35 Accounts Receivable Security Agreement dated as of May 15, 1993 by Michigan
Psychiatric Services, Inc. in favor of Societe Generale, New York Branch, as agent
for the lenders which are parties to that certain Credit Agreement described in
Exhibit 10.15 above (substantially identical to Exhibit 10.29)..................... --
10.36 Accounts Receivable Security Agreement dated as of May 15, 1993 by Psychiatric
Institute of West Virginia, Inc. in favor of Societe Generale, New York Branch, as
agent for the lenders which are parties to that certain Credit Agreement described
in Exhibit 10.15 above (substantially identical to Exhibit 10.29).................. --
10.37 Stock Pledge Agreement dated as of May 15, 1993, among the Company in favor of
Societe Generale, New York Branch, as agent for the lenders which are parties to
that certain Credit Agreement described in Exhibit 10.15 above (incorporated by
reference to Exhibit 10.34 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1994).......................................................... --
10.38 Revolving Credit Guarantee dated as of May 15, 1993 by Americare of Galax, Inc. in
favor of Societe Generale, New York Branch, as agent for the lenders which are
parties to that certain Credit Agreement described in Exhibit 10.15 above
(incorporated by reference to Exhibit 10.35 to the Company's Annual Report on Form
10-K for the year ended June 30, 1994)............................................. --
10.39 Revolving Credit Guarantee dated as of May 15, 1993 by Bethany Psychiatric
Hospital, Inc. in favor of Societe Generale, New York Branch, as agent for the
lenders which are parties to that certain Credit Agreement described in Exhibit
10.15 above (substantially identical to Exhibit 10.38)............................. --
10.40 Revolving Credit Guarantee dated as of May 15, 1993 by Bountiful Psychiatric
Hospital, Inc. in favor of Societe Generale, New York Branch, as agent for the
lenders which are parties to that certain Credit Agreement described in Exhibit
10.15 above (substantially identical to Exhibit 10.38)............................. --
10.41 Revolving Credit Guarantee dated as of May 15, 1993 by Cumberland Mental Health,
Inc. in favor of Societe Generale, New York Branch, as agent for the lenders which
are parties to that certain Credit Agreement described in Exhibit 10.15 above
(substantially identical to Exhibit 10.38)......................................... --
10.42 Revolving Credit Guarantee dated as of May 15, 1993 by East Carolina Psychiatric
Services Corporation in favor of Societe Generale, New York Branch, as agent for
the lenders which are parties to that certain Credit Agreement described in
Exhibit 10.15 above (substantially identical to Exhibit 10.38)..................... --
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10.43 Revolving Credit Guarantee dated as of May 15, 1993 by Havenwyck Hospital, Inc. in
favor of Societe Generale, New York Branch, as agent for the lenders which are
parties to that certain Credit Agreement described in Exhibit 10.15 above
(substantially identical to Exhibit 10.38) ....................................... --
10.44 Revolving Credit Guarantee dated as of May 15, 1993 by Mesa Psychiatric Hospital,
Inc. in favor of Societe Generale, New York Branch, as agent for the lenders
which are parties to that certain Credit Agreement described in Exhibit 10.15
above (substantially identical to Exhibit 10.38) .................................. --
10.45 Revolving Credit Guarantee dated as of May 15, 1993 by Michigan Psychiatric
Services, Inc. in favor of Societe Generale, New York Branch, as agent for the
lenders which are parties to that certain Credit Agreement described in Exhibit
10.15 above (substantially identical to Exhibit 10.38) ............................ --
10.46 Revolving Credit Guarantee dated as of May 15, 1993 by Psychiatric Institute of
West Virginia, Inc. in favor of Societe Generale, New York Branch, as agent for
the lenders which are parties to that certain Credit Agreement described in
Exhibit 10.15 above (substantially identical to Exhibit 10.38) .................... --
10.47 Management Fee Subordination Agreement dated May 15, 1993, among Paul J. Ramsay
and Ramsay Health Care Pty. Ltd. in favor of Societe Generale, New York Branch, as
agent for the lenders which are parties to that certain Credit Agreement described
in Exhibit 10.15 above (incorporated by reference to Exhibit 10.44 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1994) ............ --
10.48 Mortgage and Fixture Filing and Assignment of Leases and Rents dated as of May 15,
1993 granted by Atlantic Treatment Center, Inc. to Societe Generale, individually
and as agent for the lenders which are parties to that certain Credit Agreement
described in Exhibit 10.15 above, with respect to certain real property located in
Volusia County, Florida (incorporated be reference to Exhibit 10.45 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1994) ............ --
10.49 Mortgage and Fixture Filing and Assignment of Leases and Rents dated as of May 15,
1993 granted by Carolina Treatment Center, Inc. to Societe Generale, individually
and as agent for the lenders which are parties to that certain Credit Agreement
described in Exhibit 10.15 above, with respect to certain real property located in
Horry County, South Carolina (substantially identical to Exhibit 10.48)............ --
10.50 Deed of Trust and Fixture Filing and Assignment of Leases and Rents dated as of
May 15, 1993 granted by Great Plains Hospital, Inc. to Jacob W. Bayer, Jr. as
Trustee for the benefit of Societe Generale, individually and as agent for the
lenders which are parties to that certain Credit Agreement described in Exhibit
10.15 above, with respect to certain real property located in Vernon County,
Missouri (substantially identical to Exhibit 10.48)................................ --
10.51 Mortgage, Security and Assignment of Leases and Rents dated as of May 15, 1993 by
Greenbrier Hospital, Inc. to Societe Generale individually as agent for the
lenders which are parties to that certain Credit Agreement described in Exhibit
10.15 above, with respect to certain real property located in St. Tammany Parish,
Louisiana (substantially identical to Exhibit 10.48) .............................. --
10.52 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 an agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above, with respect to certain real
property located in Okaloosa County, Florida (substantially identical to Exhibit
10.48) ........................................................................... --
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10.53 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 an agent for the lenders which are parties to that Certain
Credit Agreement described in Exhibit 10.15 above, with respect to certain real
property located in the City of Houma, Parish of Terrebonne, Louisiana
(substantially identical to Exhibit 10.48) ....................................... --
10.54 Mortgage with Power of Sale and Fixture Filing and Assignment of Leases and Rents
dated as of May 15, 1993 granted by HSA of Oklahoma, Inc. to Societe Generale,
individually and as agent for the lenders which are parties to that certain Credit
Agreement described in Exhibit 10.15 above, with respect to certain real property
located in Garfield County, Oklahoma (substantially identical to Exhibit 10.48) ... --
10.55 Deed of Trust and Fixture Filing and Assignment of Leases and Rents dated as of
May 15, 1993 granted by the Haven Hospital, Inc. to Societe Generate, individually
and as agent for the lenders which are parties to that certain Credit Agreement
described in Exhibit 10.15 above, with respect to certain real property located in
the City of DeSoto, Dallas County, Texas (substantially identical to Exhibit
10.48) ............................................................................ --
10.56 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. 2-98921) ........... --
10.57 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) ........... --
10.58 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) ........... --
10.59 Loan Agreement between Louisiana Public Facilities Authority and Houma Psychiatric
Hospital, Inc. dated September 1, 1985, relating to the issuance of bonds for
Houma Psychiatric Hospital, Inc. (incorporated by reference to Exhibit 10.56 to
the Company's Annual Report on Form 10-K for the year ended June 30, 1994) ........ --
10.60 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)........................................ --
10.61 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) .................................. --
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10.62 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 10.58 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1996) ............................. --
10.63 Loan Agreement between The Enid Development Authority and HSA of Oklahoma, Inc.
dated as of October 1, 1985, relating to The Enid Development Authority Variable
Rate Demand Revenue Bonds (Meadowlake Hospital Project) (incorporated by reference
to Exhibit 10.60 to the Company's Annual Report on Form 10-K for the year ended
June 30, 1994) .................................................................... --
10.64 Ramsay Health Care, Inc. 1990 Stock Option Plan, as amended to date (incorporated
by reference Exhibit 4.3 to the Company's Registration Statement on Form S-8 filed
on March 6, 1991) ................................................................. --
10.65 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) .................... --
10.66 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) ...................................................... --
10.67 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) ......................................................................... --
10.68 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) .................... --
10.69 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 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) ................................... --
10.72 Employment Agreement dated January 23, 1992 between the Company and John A. Quinn
(incorporated by reference to Exhibit 10.95 to the Company's Annual Report on Form
10-K for the year ended June 30, 1992) ............................................ --
10.73 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) .................................... --
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10.74 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) ............................................ --
10.75 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) ............................................................................. --
10.76 Ramsay Health Care, Inc. 1993 Stock Option Plan (incorporated by reference to
Exhibit 10.83 to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993) ............................................................... --
10.77 Ramsay Health Care, Inc. 1993 Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.84 to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1993) .................................................. --
10.78 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) ........................................................ --
10.79 Employment Agreement dated July 19, 1994 between the Company and Brent J. Bryson
(incorporated by reference to Exhibit 10.85 to the Company's Annual Report on Form
10-K for the year ended June 30, 1995) ............................................ --
10.80 Rights Agreement dated as of August 1, 1995 between the Company and First Union
National Bank of North Carolina, as Rights Agent, which includes the form of Right
Certificate as Exhibit A and the Summary Rights to Purchase Common Shares as
Exhibit B (incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K dated August 1, 1995) .......................................... --
10.81 Amendment to Rights Agreement, dated October 3, 1995 between the Company and First
Union National Bank of North Carolina, as Rights Agent (incorporated by reference
to Exhibit 10.102 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995).......................................................... --
10.82 Amendment No. 2 to Rights Agreement, dated as of November 1, 1996 between the
Company and First Union National Bank of North Carolina, as Rights Agent
(incorporated by reference to Exhibit 10.101 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996)................................ --
10.83 Letter Agreement dated June 30, 1995 among the Company, 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 ...... --
10.84 Lease Agreement dated April 12, 1995 between Capstone Capital Corporation and Mesa
Psychiatric Hospital, Inc. (incorporated by reference to Exhibit 10.88 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1995) ............ --
10.85 Lease Agreement dated April 12, 1995 between Capstone Capital of San Antonio,
LTD, d/b/a Cahaba of San Antonio, LTD. and RHCI San Antonio, Inc. (incorporated by
reference to Exhibit 10.89 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1995) ......................................................... --
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10.86 Facility Lease Agreement dated June 26, 1995 by and between Charter Canyon
Behavioral Health Systems, Inc. and Bountiful Psychiatric Hospital, Inc.
(incorporated by reference to Exhibit 10.90 to the Company's Annual Report on Form
10-K for the year ended June 30, 1995 ............................................. --
10.87 Employment termination letter dated September 15, 1995 between the Company and
Gregory H. Browne (incorporated by reference to Exhibit 10.91 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1995) ...................... --
10.88 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) ..................................................... --
10.89 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) ............................................................................. --
10.90 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) ............................................ --
10.91 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) ............................................................................ --
10.92 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 ........................ --
10.93 $6,000,000 Subordinated Promissory Note of RMCI, as amended (incorporated by
reference to Exhibit 10.13 to RMCI's Registration Statement on Form S-1
(Registration No.33-78034) filed with the Commission on April 24, 1995) .......... --
10.94 Consent and Amendment dated April 12, 1996 among the Company and certain of its
subsidiaries named therein, Societe Generale, New York Branch, First Union
National Bank of North Carolina and Hibernia National Bank, as lenders, and
Societe Generale, as issuing bank and agent (incorporated by reference to Exhibit
10.88 to the Company's Annual Report on Form 10-K for the year ended June 30,
1996 )............................................................................ --
10.95 Amended and Restated Stock Purchase Agreement dated October 12, 1995 by and among
Paul Ramsay Holdings Pty. Limited, Ramsay Health Care, Inc. and, solely for the
purpose of Section I, III and VI of the agreement, Ramsay Health Care Pty.
Limited (incorporated by reference to Exhibit 10.101 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995 ..................... --
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10.96 Amendment to Rights Agreement, date October 3, 1995 between Ramsay Health Care,
Inc. and First Union National Bank of North Carolina, as Rights Agent
incorporated by reference to Exhibit 10.102 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995) ............................ --
10.97 Ramsay Health Care, Inc. 1995 Long Term Incentive Plan (incorporated by reference
to Exhibit 10.103 to the Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1995) ......................................................... --
10.98 Stock Purchase Agreement dated as of August 13, 1996 by and among Paul Ramsay
Holdings Pty. Limited, the Company and, solely for purposes of Sections I, III
and IV thereof, Ramsay Health Care Pty. Limited (incorporated by reference to
Exhibit 10.94 to the Company's Annual Report on Form 10-K for the year ended June
30, 1996 ......................................................................... --
10.99 Amended and Restated Employment Agreement dated as of August 15, 1996 by
and between Reynold Jennings and the Company (incorporated by reference to
Exhibit 10.95 to the Company's Annual Report on Form 10-K for the year ended
June 30, (1996)................................................................... --
10.100 Exchange Agreement dated September 10, 1996, by and among the Company, Paul
Ramsay Hospitals Pty. Limited and Paul J. Ramsay, including a relates Warrant
Certificate dated September 10, 1996 issued to Ramsay Hospitals Pty. Limited
(incorporated by reference to Exhibit 10.96 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1996)....................................... --
10.101 Consulting Agreement dated as of January 1, 1996 between the Company and Summa
Healthcare Group, Inc. (incorporated by reference to Exhibit 10.97 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1996)............ --
10.102 Consulting Agreement dated as of February 1, 1997 between the Company and Summa
Healthcare Group, Inc............................................................. --
10.103 Letter Agreement dated as of September 10, 1996 by and among the Company, Ramsay
Health Care Pty. Limited Paul Ramsay Holdings Pty. Limited, including a related
Warrant Certificate dated September 10, 1996 issued to Paul Ramsay Holdings Pty.
Limited (incorporated by reference to Exhibit 10.98 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1996) ............................ --
10.104 Employment Agreement dated August 12, 1996 by and between the Company and
Remberto Cibran (incorporated by reference to Exhibit 10.99 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996............ --
10.105 Services Agreement dated August 12, 1996 by and between the Company
and HealthLink Enterprises, Inc. (incorporated by reference to
Exhibit 10.100 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.................................................. --
10.106 Credit Agreement, including all Annexes thereto, dated September 30, 1997 among
the Company, The Lenders from Time to Time Party Thereto, General Electric
Capital Corporation, as Administrative Agent, and GECC Capital Markets Group, as
Syndication Agent................................................................. --
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10.107 Subordinated Note Purchase Agreement dated as of September 30, 1997 among the
Company, as Issuer, and General Electric Capital Corporation and Paul Ramsay
Holdings Pty. Limited, as Purchasers.............................................. --
10.108 Registration Rights Agreement dated as of September 30, 1997 between the Company
and General Electric Capital Corporation.......................................... --
10.109 Release of Collateral, Termination and Cash Collateral Agreement dated as of
September 30, 1997 among the Company and certain subsidiaries named therein,
Societe Generale, New York Branch, First Union National Bank of North Carolina
and Hibernia National Bank, as lenders, and Societe Generale, as issuing bank and
agent............................................................................. --
10.110 Employment Agreement dated as of October 1, 1997 by and between the Company and
Luis E. Lamela (incorporated by reference to Exhibit 10.110 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997)........... --
10.111 Schedules to Credit Agreement described in Exhibit 10.106 above (incorporated by
reference to Exhibit 10.111 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997)............................................. --
10.112 Schedules to Subordinated Note Purchase Agreement described in Exhibit 10.107
above (incorporated by reference to Exhibit 10.112 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997) .................... --
10.113 First Amendment to Credit Agreement dated as of March 27, 1998 by and among the
Company, certain subsidiaries of the Company on the signature pages thereto,
General Electric Capital Corporation, as Administrative Agent and Lender, and The
ING Capital Senior Secured High Income Fund, L.P., as Lender (incorporated by
reference to Exhibit 10.113 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998) ................................................ --
10.114 First Amendment to Subordinated Note Purchase Agreement dated as of March 27,
1998 by and among the Company, General Electric Capital Corporation and Paul
Ramsay Holdings Pty. Limited (incorporated by reference to Exhibit 10.114 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998)..... --
10.115 Junior Subordinated Note Purchase Agreement dated as of March 25, 1998 by and
between the Company and Paul Ramsay Holdings Pty. Limited (incorporated by
reference to Exhibit 10.115 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998) ................................................ --
10.116 Lease Agreement dated as of September 28, 1998 between Capstone Capital
Corporation and Havenwyck Hospital, Inc. (incorporated by reference to
Exhibit 10.116 to the Company's Current Report on Form 8-K dated
October 9, 1998).................................................................. --
10.117 Guaranty of Obligations Pursuant to Lease Agreement described in Exhibit 10.116
above dated as of September 28, 1998 by the Company in favor of Capstone
Capital Corporation (incorporated by reference to Exhibit 10.117 to the Company's
Current Report on Form 8-K dated October 9, 1998)................................. --
10.118 Second Amendment to Credit Agreement dated as of May 20, 1998 by and among the
Company, certain subsidiaries of the Company on the signature pages thereto,
General Electric Capital Corporation, as Administrative Agent and Lender, and
The ING Capital Senior Secured High Income Fund, L.P., as Lender..................
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69
21 Subsidiaries of the Company......................................................
23 Consent of Ernst & Young LLP.....................................................
27 Financial Data Schedule..........................................................
Copies of exhibits filed with this Annual Report on Form 10-K or incorporated
herein by reference do not accompany copies hereof for distribution to
stockholders of the Company. The Company will furnish a copy of such exhibits to
any stockholder requesting it.
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