<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ending December 31, 1998.
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____________ to
_______________.
Commission File No.: 001-14397
NEW AMERICAN HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 62-1750169
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
109 WESTPARK DRIVE, SUITE 440
NASHVILLE, TENNESSEE 37027
(Address of principal executive offices) (Zip Code)
(615) 221-5070
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT FEBRUARY 10, 1999
----- --------------------------------
Common stock, $.01 par value 17,595,370
<PAGE> 2
NEW AMERICAN HEALTHCARE CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets
December 31, 1998 (unaudited) and March 31, 1998 1
Condensed Consolidated Statements of Operations
Three Months and Nine Months Ended
December 31, 1998 and 1997 2
Condensed Consolidated Statements of Cash Flows
Nine Months Ended December 31, 1998 and 1997 3
Notes to Condensed Consolidated Financial Statements 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
SIGNATURE 23
<PAGE> 3
NEW AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
December 31, 1998 (unaudited) and March 31, 1998
(In thousands, except per share information)
<TABLE>
<CAPTION>
December 31, March 31,
Assets 1998 1998
------------ ---------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents 734 6,119
Patient accounts receivable, net of allowance for doubtful accounts of
$11,673 and $9,172 at December 31, 1998 and March 31, 1998 38,034 21,933
Other receivables 1,744 1,290
Inventories 3,558 2,720
Prepaid expenses and other current assets 3,713 1,409
-------- --------
Total current assets 47,783 33,471
Property and equipment, net 119,965 84,404
Goodwill, net of accumulated amortization of $664 and $299 at
December 31, 1998 and March 31, 1998 41,048 16,672
Other assets 1,423 1,673
-------- --------
Total assets 210,219 136,220
======== ========
Liabilities, Redeemable Preferred Stock and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses 18,672 14,522
Estimated third-party payor settlements 5,955 3,118
Current portion of capital lease obligations 512 525
-------- --------
Total current liabilities 25,139 18,165
Capital lease obligations, excluding current portion 5,596 4,865
Long-term debt 93,300 37,550
Subordinated notes payable to affiliates -- 24,769
Deferred income taxes 2,630 1,339
Redeemable preferred stock, Series A, $.01 par value, 250 shares authorized, no
shares and 250 shares issued and outstanding at December 31, 1998 and
March 31, 1998 -- 25,617
Stockholders' equity:
Preferred stock, Series B, $.01 par value, 235 shares authorized, no
shares and 235 shares issued and outstanding at December 31, 1998 and March 31, 1998 -- 2
Common stock, $.01 par value; 50,000 shares authorized; 16,172 and 8,027 shares issued
and outstanding at December 31, 1998 and March 31, 1998 162 80
Non-voting common stock, $.01 par value: 1,500 shares authorized; 1,423 and no shares
issued and outstanding at December 31, 1998 and March 31, 1998 14 --
Additional paid-in capital 82,082 24,264
Common stock warrants 235 235
Deferred compensation (534) --
Retained earnings (deficit) 1,595 (666)
-------- --------
Total stockholders' equity 83,554 23,915
-------- --------
Total liabilities, redeemable preferred stock and stockholders' equity 210,219 136,220
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
1
<PAGE> 4
NEW AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three months and nine months ended December 31, 1998 and 1997
(In thousands, except per share information)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
--------------------- ------------------------
1998 1997 1998 1997
------ ------ -------- ------
<S> <C> <C> <C> <C>
Revenue:
Net patient service revenue 46,891 18,549 118,617 44,671
Other revenue 1,264 310 3,398 825
------ ------ -------- ------
Net operating revenue 48,155 18,859 122,015 45,496
------ ------ -------- ------
Expenses:
Salaries and benefits 21,947 7,259 55,093 18,063
Professional fees 6,174 2,463 15,802 5,540
Supplies 5,366 1,817 13,305 4,998
Provision for doubtful accounts 3,520 2,272 9,618 4,493
Other 4,575 2,186 12,456 5,582
General and administrative 1,086 899 2,518 2,424
Depreciation and amortization 1,825 723 4,459 2,069
Interest 1,674 579 4,772 1,347
------ ------ -------- ------
Operating expenses 46,167 18,198 118,023 44,516
------ ------ -------- ------
Income from operations before
income taxes and extraordinary item 1,988 661 3,992 980
Income taxes 795 195 1,597 263
------ ------ -------- ------
Income from operations before
extraordinary item 1,193 466 2,395 717
Extraordinary item - loss on early extinguishment
of debt (net of tax of $89,000) -- -- 134 --
------ ------ -------- ------
Net income 1,193 466 2,261 717
Cumulative preferred dividend -- 132 710 291
------ ------ -------- ------
Net income available to common shareholders 1,193 334 1,551 426
====== ====== ======== ======
Net income (loss) per share:
Basic
Continuing operations 0.07 0.04 0.13 0.05
Extraordinary -- -- (0.01) --
------ ------ -------- ------
0.07 0.04 0.12 0.05
====== ====== ======== ======
Diluted
Continuing operations 0.07 0.03 0.11 0.03
Extraordinary -- -- (0.01) --
------ ------ -------- ------
0.07 0.03 0.10 0.03
====== ====== ======== ======
Weighted average number of shares and
dilutive share equivalents outstanding:
Basic 17,596 8,406 12,849 8,406
====== ====== ======== ======
Diluted 18,093 12,628 15,521 12,530
====== ====== ======== ======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
2
<PAGE> 5
NEW AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine months ended December 31, 1998 and 1997
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
December 31,
------------------------
1998 1997
------- -------
<S> <C> <C>
Cash flows provided by (used in) operating activities 2,290 (2,560)
------- -------
Cash flows from investing activities:
Purchase of property and equipment (8,916) (1,793)
Sale of property 250 47
Cash paid for acquisitions (60,716) (32,736)
------- -------
Net cash used by investing activities (69,382) (34,482)
------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 70,250 20,500
Repayment of long-term debt (14,500) --
Repayment of notes payable to affiliates (25,000) --
Repayment of capital lease obligations (443) (469)
Issuance of common stock 58,013 --
Issuance of preferred stock -- 8,204
Issuance of redeemable preferred stock -- 7,572
Repayment of redeemable preferred stock (26,327) --
Deferred financing costs (286) --
Bank overdraft -- 538
------- -------
Net cash provided by financing activities 61,707 36,345
------- -------
Net decrease in cash and cash equivalents (5,385) (697)
Cash and cash equivalents- beginning of period 6,119 697
------- -------
Cash and cash equivalents- end of period 734 --
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest 4,056 1,317
Cash paid during the period for income taxes 1,928 23
Noncash investing and financing activities:
Assets acquired and liabilities assumed in hospital acquisitions:
Receivables 11,715 6,575
Inventory 566 802
Prepaid expenses and other assets 964 179
Accounts payable and accrued expenses 4,568 4,427
Estimated third-party payor settlements 108 (213)
Capital lease obligations 1,161 620
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
3
<PAGE> 6
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except per share information)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial reporting and the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. Interim results
are not necessarily indicative of results that may be expected for the
full year.
In the opinion of management, the accompanying unaudited interim
financial statements contain all material adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the
consolidated financial position, results of operation and cash flows of
New American Healthcare Corporation (the "Company") for the interim
periods presented.
For further information, refer to the consolidated financial statements
and footnotes thereto as of and for the year ended March 31, 1998,
included in the Company's Form S-1 which became effective on August 17,
1998.
Certain prior year amounts have been reclassified to conform to current
year presentation.
(2) ACQUISITIONS
During the nine months ended December 31, 1998 and the year ended March
31, 1998, the Company acquired the following hospitals:
<TABLE>
<CAPTION>
HOSPITAL EFFECTIVE DATE LOCATION
-------- -------------- --------
<S> <C> <C>
NINE MONTHS ENDED DECEMBER 31, 1998:
Puget Sound Hospital September 1, 1998 Tacoma, Washington
Crosby Memorial Hospital November 1, 1998 Picayune, Mississippi
Memorial Hospital of Adel November 1, 1998 Adel, Georgia
YEAR ENDED MARCH 31, 1998:
Memorial Hospital of Center May 1, 1997 Center, Texas
Delta Medical Center - Memphis May 16, 1997 Memphis, Tennessee
Dolly Vinsant Hospital August 1, 1997 San Benito, Texas
Woodland Park Hospital February 1, 1998 Portland, Oregon
Eastmoreland Hospital February 1, 1998 Portland, Oregon
Lander Valley Medical Center February 1, 1998 Lander, Wyoming
Davenport Medical Center February 1, 1998 Davenport, Iowa
</TABLE>
4
<PAGE> 7
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except per share information)
The Company has acquired hospitals primarily in exchange for cash and
assumption of associated liabilities for the nine months ended December
31, as follows:
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
---------------------
1998 1997
------ ------
<S> <C> <C>
Purchase price 62,635 32,900
Add: liabilities assumed 5,767 4,834
Less: assets acquired 43,816 31,239
------ ------
Costs in excess of fair value of net assets acquired 24,586 6,495
====== ======
</TABLE>
The acquisitions were accounted for as purchases and the accompanying
consolidated financial statements include the results of the hospitals'
operations from the respective dates of the acquisitions.
The following unaudited pro forma results of operations for the three and
nine months ended December 31, 1998 and 1997 give effect to the
acquisitions as if the respective transactions had occurred as of April
1, 1997. The unaudited pro forma results are not necessarily indicative
of what actually might have occurred if the acquisitions had been
completed at the beginning of the periods presented. In addition, they
are not intended to be a projection of future results of operations and
do not reflect any of the synergies that might be achieved in hospital
operations.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
--------------------------- -----------------------------
1998 1997 1998 1997
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net operating revenue 51,015 53,401 155,861 156,601
Net income available to common shareholders 1,003 (19) 1,312 (289)
Basic earnings per share 0.06 (0.00) 0.10 (0.03)
Diluted earnings per share 0.06 (0.00) 0.08 (0.02)
</TABLE>
5
<PAGE> 8
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except per share information)
(3) STOCKHOLDERS' EQUITY
REINCORPORATION
On August 20, 1998, the Company reincorporated as a Delaware corporation
pursuant to a merger of New American Healthcare Corporation, a Tennessee
corporation, with and into a newly created Delaware corporation. The name
of the surviving entity is New American Healthcare Corporation. As a
result of the merger, the Company increased the authorized number of
shares of Common Stock from 20,000 to 50,000 and created a class of
Non-Voting Common Stock with 1,500 authorized shares, caused all
outstanding Series B Preferred Stock to be exchanged for Common Stock and
Non-Voting Common Stock, and caused all outstanding shares of Series A
Preferred Stock and accrued dividends to be redeemed for cash. As a
result of the Reincorporation, each share of common stock in the
Tennessee corporation was converted into 1.0473 shares of common stock in
the Delaware corporation. All prior period share and per share
information has been adjusted for the conversion.
INITIAL PUBLIC OFFERING OF COMMON STOCK
On August 20, 1998, the Company completed its initial public offering of
common stock. In connection with the offering, the Series B preferred
stock was converted into 1,423 and 2,766 shares of non-voting and voting
common stock, respectively. The net proceeds from the offering were used
to redeem the outstanding balance of the Series A redeemable senior
preferred stock plus accrued dividends, repay the Subordinated notes
payable to affiliates, and reduce the balance of the revolving credit
agreement.
The following table sets forth the changes in the stockholders' equity
accounts (in thousands):
6
<PAGE> 9
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except per share information)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------- ADDITIONAL SERIES B COMMON RETAINED TOTAL
NON-VOTING VOTING PAID-IN PREFERRED STOCK DEFERRED EARNING STOCKHOLDERS'
SHARES SHARES AMOUNT CAPITAL STOCK WARRANTS COMPENSATION (DEFICIT) EQUITY
---------- ------ ------ -------- --------- -------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1998 -- 8,027 $ 80 $ 24,264 $ 2 $235 $ -- $ (666) $ 23,915
Stock split prior to initial
public offering -- 379 4 (4) -- -- -- -- --
Conversion of preferred stock 1,423 2,766 42 (40) (2) -- -- -- --
Initial public offering of
common stock -- 5,000 50 57,963 -- -- -- -- 58,013
Cumulative dividends on
Series A preferred
stock -- -- -- (710) -- -- -- -- (710)
Deferred compensation
associated with issuance
of stock options -- -- -- 609 -- -- (609) -- --
Amortization of deferred
compensation -- -- -- -- -- -- 75 -- 75
Net income -- -- -- -- -- -- -- 2,261 2,261
--------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1998 1,423 16,172 $176 $ 82,082 $ -- $235 $ (534) $1,595 $ 83,554
==================================================================================================
</TABLE>
EARNINGS PER SHARE
The following table sets forth the components used in the computation of
basic and diluted earnings per share:
7
<PAGE> 10
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except per share information)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------ --------------------
1998 1997 1998 1997
------ ------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
Income from operations before extraordinary item 1,193 466 2,395 717
Cumulative preferred dividends -- (132) (710) (291)
------ ------- ------- -------
Continuing operations 1,193 334 1,685 426
Extraordinary items -- -- (134) --
------ ------- ------- -------
Net income available to common shareholders 1,193 334 1,551 426
====== ======= ======= =======
Denominator:
Denominator for basic earnings per share -
weighted-average shares outstanding 17,596 8,406 12,849 8,406
Effect of dilutive securities
Stock options 136 33 138 30
Warrants 361 -- 370 --
Series B preferred stock -- 4,189 2,164 4,094
------ ------- ------- -------
Denominator for diluted earnings per share 18,093 12,628 15,521 12,530
====== ======= ======= =======
</TABLE>
DEFERRED COMPENSATION
In April and May 1998, the Company issued 389 stock options that had
exercise prices below the fair market value of the common stock at the
time of issuance. This resulted in the Company recording $2,417 of
deferred compensation that is being amortized over the five-year vesting
period. In August 1998, the Company cancelled 322 of such options, which
resulted in the reversal of $1,808 of deferred compensation related to
such options.
(4) ACCOUNTING PRONOUNCEMENTS
Effective April 1, 1998, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 130, Reporting Comprehensive Income.
Comprehensive income generally includes all changes to income during a
period excluding those resulting from investments by stockholders and
distributions to stockholders. Net income was the same as comprehensive
income for the three and nine months ended December 31, 1998 and 1997.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OVERVIEW
New American acquires and operates acute care hospitals throughout the
United States. The Company was formed to capitalize on opportunities to be the
principal provider of health care services in those non-urban communities which
it targets.
The Company acquired its first hospital in August 1996 and through
December 1998 has acquired ten additional hospitals. These eleven acute care
hospitals are located in nine states and have a total of 1,347 licensed beds.
IMPACT OF ACQUISITIONS
An integral part of the Company's strategy is to acquire non-urban
acute care hospitals. Because of the financial impact of the Company's recent
acquisitions, it is difficult to make meaningful comparisons between the
Company's financial statements for the fiscal periods presented. In addition,
due to the relatively small number of hospitals currently operated, each
hospital can materially affect the overall operating margins of the Company.
Upon the acquisition of a hospital, the Company typically takes a number of
steps intended to lower operating costs. The impact of such actions may be
offset by the cost of revenue enhancing initiatives such as expanding services,
strengthening medical staff, and improving market position. The benefits of
these investments and of other activities to improve operating margins generally
do not occur immediately. Consequently, the financial performance of a newly
acquired hospital may initially have an adverse effect on the Company's overall
operating margins. The Company believes that the short-term negative impact on
overall margins will decrease with subsequent acquisitions as the Company
expands its financial base.
In August 1996, the Company acquired Doctors Hospital in Wentzville,
Missouri in an asset purchase transaction for $14.0 million. In May 1997, the
Company acquired Memorial Hospital of Center, Center, Texas in a stock purchase
transaction for $11.5 million. Also in May 1997, the Company purchased Eastwood
Hospital, Memphis, Tennessee (later renamed Delta Medical Center - Memphis) in
an asset purchase transaction for $13.3 million. In August 1997, the Company
acquired Dolly Vinsant Memorial Hospital, San Benito, Texas in an asset purchase
for $8.1 million. In January 1998, the Company acquired in a single transaction
the assets of Lander Valley Medical Center, Lander, Wyoming; Davenport Medical
Center, Davenport, Iowa; Woodland Park Hospital, Portland, Qregon; and
Eastmoreland Hospital, Portland, Oregon for an aggregate purchase price of
approximately $57.0 million. Lander Valley Medical Center is built on property
subject to a ground lease from the City of Lander, which expires December 31,
2073. Woodland Park Hospital is leased pursuant to a long term lease, which
expires December 31, 2029.
Effective September 1, 1998, the Company acquired Puget Sound Hospital,
Tacoma, Washington, for approximately $27.9 million. The acquisition of Puget
Sound Hospital was accounted for as a purchase business combination and
included the acquisition of certain net assets and the assumption of certain
liabilities. To finance the Puget Sound Hospital acquisition, the Company
borrowed $28.5 million under its revolving credit facility.
Effective November 1, 1998, the Company acquired the assets of Crosby
Memorial Hospital, in Picayune, Mississippi, for approximately $18.5 million.
Crosby Memorial Hospital is leased pursuant to a long-term
9
<PAGE> 12
lease which expires upon completion of a replacement hospital. To finance the
Crosby Memorial Hospital acquisition, the Company borrowed $18.8 million under
its revolving credit facility.
Effective November 1, 1998, the Company acquired Memorial Hospital of
Adel, in Adel, Georgia, for approximately $16.5 million. The acquisition of
Memorial Hospital of Adel was accounted for as a purchase business combination.
To finance the Memorial Hospital of Adel acquisition, the Company borrowed $18.0
million under its revolving credit facility.
The operating results of each of the above acquisitions are included in
the Company's results of operations from the respective dates of purchase.
RESULTS OF OPERATIONS
Net operating revenue is comprised of net patient service revenue and
other revenue. Net patient service revenue is reported net of contractual
adjustments and policy discounts. The adjustments principally result from
differences between the hospitals' customary charges and payment rates under the
Medicare and Medicaid programs and other third-party payors. Customary charges
have generally increased at a faster rate than the rate of increase for Medicare
and Medicaid payments. Other revenue includes cafeteria sales, medical office
building rental income and other miscellaneous revenue. Operating expenses
primarily consist of hospital related costs of operation and include salaries
and benefits, professional fees (includes medical professionals and consulting
services), supplies, provision for doubtful accounts, and other operating
expenses (principally consisting of utilities, insurance, property taxes,
travel, freight, postage, telephone, advertising, repairs and maintenance).
General and administrative expenses primarily relate to corporate overhead.
The following table presents, for the periods indicated, information
expressed as a percentage of net operating revenue. Such information has been
derived from the Condensed Consolidated Statement of Operations of the Company
included elsewhere in the report.
10
<PAGE> 13
<TABLE>
<CAPTION>
THREE MONTHS PERCENTAGE
ENDED INCREASE (DECREASE)
DECEMBER 31, OF DOLLAR AMOUNTS
------------------------------- -------------------
1998 1997
<S> <C> <C> <C>
Net operating revenue 100.0% 100.0% 155.0%
Operating expenses before depreciation
and amortization and interest 88.6% 89.4% 152.7%
-------------------------------
EBITDA (1) 11.4% 10.6% 175.0%
Depreciation and amortization 3.7% 3.7% 157.1%
Interest 3.5% 3.2% 183.3%
-------------------------------
Income before income taxes and
extraordinary item 4.2% 3.7% 185.7%
Income taxes 1.7% 1.1% 300.0%
-------------------------------
Income before cumulative preferred
dividend 2.5% 2.6% 140.0%
Cumulative preferred dividend 0.0% 1.1% -100.0%
-------------------------------
Net income available to common shareholders 2.5% 1.5% 300.0%
===============================
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS PERCENTAGE
ENDED INCREASE (DECREASE)
DECEMBER 31, OF DOLLAR AMOUNTS
------------------------------- -------------------
1998 1997
<S> <C> <C> <C>
Net operating revenue 100.0% 100.0% 168.1%
Operating expenses before depreciation
and amortization and interest 89.1% 90.3% 164.5%
-------------------------------
EBITDA (1) 10.9% 9.7% 202.3%
Depreciation and amortization 3.7% 4.4% 125.0%
Interest 3.9% 3.1% 242.9%
-------------------------------
Income before income taxes and
extraordinary item 3.3% 2.2% 300.0%
Income taxes 1.3% 0.7% 433.3%
-------------------------------
Income before extraordinary item and
cumulative preferred dividend 2.0% 1.5% 242.9%
Extraordinary item 0.1% 0.0% N/A
Cumulative preferred dividend 0.6% 0.7% 133.3%
-------------------------------
Net income available to common shareholders 1.3% 0.8% 300.0%
===============================
</TABLE>
11
<PAGE> 14
(1) EBITDA represents the sum of income before income tax expense,
interest, and depreciation and amortization. Management understands
that industry analysts generally consider EBITDA to be one measure of
the financial performance of a company that is presented to assist
investors in analyzing the operating performance of the company and its
ability to service debt. Management believes that an increase in EBITDA
level is an indicator of the Company's improved ability to service
existing debt, to sustain potential future increases in debt and to
satisfy capital requirements. However, EBITDA is not a measure of
financial performance under generally accepted accounting principles
and should not be considered an alternative (i) to net income as a
measure of operating performance or (ii) to cash flows from operating,
investing, or financing activities as a measure of liquidity. Given
that EBITDA is not a measurement determined in accordance with
generally accepted accounting principles and is thus susceptible to
varying calculation, EBITDA, as presented, may not be comparable to
other similarly titled measures of other companies.
SELECTED OPERATING STATISTICS
The following table sets forth certain operating statistics for the
Company's hospitals for each of the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------- ----------------------
1998 1997 1998 1997
-------- ------- -------- -------
<S> <C> <C> <C> <C>
All Hospitals:
Total hospital revenue $ 48,155 $18,859 $122,015 $45,496
EBITDA $ 5,487 $ 1,963 $ 13,223 $ 4,396
Admissions 5,380 1,915 14,498 5,030
Adjusted Admissions (1) 9,286 3,099 25,212 8,251
Patient Days 27,900 11,551 78,064 31,919
Adjusted Patient Days (2) 48,157 18,691 135,755 52,360
Occupancy Rates (beds in service) 27.75% 38.18% 26.01% 35.15%
Average Length of Stay 5.19 6.03 5.38 6.35
Number of Hospitals 11 4 11 4
Same Hospitals (3)
Total hospital revenue $ 16,424 $18,859 $ 51,420 $52,417
EBITDA $ 1,637 $ 2,766 $ 6,432 $ 6,803
Admissions 1,923 1,915 5,717 5,656
Adjusted Admissions (1) 3,293 3,099 9,986 9,163
Patient Days 10,352 11,551 31,910 35,062
Adjusted Patient Days (2) 17,728 18,691 55,740 56,802
Average Length of Stay 5.38 6.03 5.58 6.20
Number of Hospitals 4 4 4 4
</TABLE>
(1) Adjusted admissions are calculated as admissions for the period
multiplied by the ratio obtained by dividing gross patient service
revenue by gross inpatient service revenue.
(2) Adjusted patient days are calculated based on a revenue-based formula
(multiplying actual patient days by the sum of gross inpatient revenue
and gross outpatient revenue and dividing the result by gross inpatient
revenue for each hospital) to reflect an approximation of the volume of
service provided to inpatient and outpatient by converting total
patient revenue to equivalent patient days.
12
<PAGE> 15
(3) Same hospitals are Doctors Hospital, Memorial Hospital of Center, Delta
Medical Center-Memphis, and Dolly Vinsant Memorial Hospital and include
results of operations prior to acquisition in the quarter acquired.
THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1997.
Net operating revenue was $48.2 million for the three months ended
December 31, 1998 compared to $18.9 million for the comparable period of 1997,
an increase of $29.3 million or 155.0%. The majority of the revenue increase was
attributable to acquisitions offset in part by higher managed care discounts at
two hospitals and lower capital reimbursement by Medicare. Revenue generated by
hospitals owned during both periods ("same hospitals") decreased by $2.5 million
or 13.2%, to $16.4 million from $18.9 million, due in large part to the two
effects mentioned above.
Operating expenses less depreciation and amortization and interest were
$42.7 million, or 88.6% of net operating revenue, for the three months ended
December 31, 1998 compared to $16.9 million or 89.4% of net operating revenue
for the comparable period of 1997. Of the increase, $27.9 million was
attributable to acquisitions. Operating expenses less depreciation and
amortization for the same store hospitals were down $1.3 million for the same
three month period.
EBITDA was $5.5 million, or 11.4% of net operating revenue, for the
three months ended December 31, 1998 compared to $2.0 million or 10.6% of net
operating revenue for the comparable period of 1997. The increase in EBITDA was
due to acquisitions and reduced operating expenses.
Depreciation and amortization expense was $1.8 million for the three
months ended December 31, 1998 compared to $0.7 million for the three months
ended December 31, 1997, an increase of $1.1 million or 157.1%. The increase is
due to the additional depreciation and amortization expense associated with the
fact that nine of the Company's hospitals were owned for the entire three months
ended December 31, 1998 versus only four of the Company's hospitals having been
owned for the entire three months ended December 31, 1997.
Interest expense was $1.7 million for the three months ended December
31, 1998, compared to $0.6 million for the three months ended December 31, 1997,
an increase of $1.1 million or 183.3%. The increase was due to the increase in
average outstanding indebtedness associated with the nine hospitals owned during
the entire three months ended December 31, 1998 versus only four of the
Company's hospitals having been owned for the entire three months ended December
31, 1997.
Net income available to the common shareholders was $1.2 million for
the three months ended December 31, 1998, compared to $0.3 million for the three
months ended December 31, 1997, an increase of $0.9 million or 300.0%. Net
income available to the common shareholders was 2.5% of net operating revenue in
the 1998 period compared to 1.5% for the same period in 1997.
NINE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1997
Net operating revenue was $122.0 million for the nine months ended
December 31, 1998, compared to $45.5 million for the comparable period of 1997,
an increase of $76.5 million or 168.1%. Most of the increase was attributable to
acquisitions. Revenue generated by hospitals owned during both periods ("same
hospitals") decreased $1.0 million or 1.9%, to $51.4 million from $52.4 million,
due in large part from the two effects mentioned above.
13
<PAGE> 16
Operating expenses less depreciation and amortization and interest were
$108.7 million, or 89.1% of net operating revenue, for the nine months ended
December 31, 1998 compared to $41.1 million, or 90.3% of net operating revenue,
for the comparable period of 1997. The majority of the increase was attributable
to acquisitions.
EBITDA was $13.3 million, or 10.9% of net operating revenue, for the
nine months ended December 31, 1998, compared to $4.4 million, or 9.7% of net
operating revenue for the comparable period of 1997. The increase in EBITDA was
due to acquisitions.
Depreciation and amortization expense was $4.5 million for the nine
months ended December 31, 1998, compared to $2.0 million for the nine months
ended December 31, 1997, an increase of $2.5 million or 125.0%. The increase is
due to the additional depreciation and amortization expense associated with the
fact that eight of the Company's hospitals were owned for the entire nine months
ended December 31, 1998 versus only one of the Company's hospitals having been
owned for the entire nine months ended December 31, 1997.
Interest expense was $4.8 million for the nine months ended December
31, 1998, compared to $1.4 million for the nine months ended December 31, 1997,
an increase of $3.4 million or 242.9%. The increase was due to the increase in
average outstanding indebtedness associated with the eight hospitals owned
during the entire nine months ended December 31, 1998 versus only one of the
Company's hospitals having been owned for the entire nine months ended December
31, 1997.
The $0.1 million extraordinary item for the nine months ended December
31, 1998 related to the early retirement of the subordinated debt.
Net income available to the common shareholder was $1.6 million for the
nine months ended December 31, 1998 compared to $0.4 million for the same period
in 1997, an increase of $1.2 million or 300%. Net income available to the common
shareholder was 1.3% of net operating revenue in the 1998 period compared to
0.8% for the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had working capital of $22.6 million
including cash and cash equivalents of $0.7 million. The ratio of current assets
to current liabilities was 1.9 to 1.0 at December 31, 1998 and 1.8 to 1.0 and
March 31, 1998.
On August 20, 1998, the Company completed its initial public offering
("IPO") of common stock, selling 5 million shares at $13.00 per share netting
the Company approximately $58.0 million. Net proceeds of the offering were used
to pay dividends on and to redeem all of the Series A preferred stock ($26.3
million), to pay interest on and prepay all of the subordinated debt ($26.4
million) and to reduce indebtedness under the Company's revolving credit
facility ($5.0 million). Concurrent with the IPO, the then outstanding Series B
convertible preferred stock was converted into 1.4 million and 2.8 million
shares of non-voting and voting common stock, respectively.
The Company maintains a credit agreement which provides for a revolving
credit facility in the amount of $132.5 million (the "Credit Facility"). At
December 31, 1998, $93.3 million of the Credit Facility was drawn, an increase
of $55.7 million from March 31, 1998. The increase was related to the
acquisition of Puget Sound Hospital, Crosby Memorial Hospital, and Memorial
Hospital of Adel, offset in
14
<PAGE> 17
part by a reduction in debt from the application of IPO proceeds. At December
31, 1998, the average borrowing rate on the Credit Facility was 6.9%.
Cash flows provided by operating activities were $2.3 million for the
nine months ended December 31, 1998 compared to cash flows used in operating
activities of $2.6 million for the nine months ended December 31, 1997. This
increase is primarily related to acquisitions. Cash used by investing activities
was $69.4 million for the nine months ended December 31, 1998, primarily related
to the acquisition of Puget Sound Hospital, Crosby Memorial Hospital, and
Memorial Hospital of Adel. Cash used by investing activities was $34.5 million
for the nine-month period ended December 31, 1997, primarily related to the
acquisitions of Dolly Vinsant Memorial Hospital, Delta Medical Center - Memphis
and Memorial Hospital of Center. Net cash provided by financing activities was
$61.7 million for the nine months ended December 31, 1998, primarily from the
IPO and borrowings related to the acquisition of Puget Sound Hospital, Crosby
Memorial Hospital, and Memorial Hospital of Adel, net of repayment of
subordinated debt and redemption of preferred stock. Net cash provided by
financing activities was $36.3 million for the nine-month period ended December
31, 1997, primarily from bank borrowings related to the Dolly Vinsant Memorial
Hospital, Delta Medical Center - Memphis and Memorial Hospital of Center
acquisitions and issuance of preferred stock.
The Company intends to acquire additional acute care facilities, and is
actively seeking out such acquisitions. There can be no assurance that the
Company will not require additional debt or equity financing or that such
financing will be available on acceptable terms for any particular acquisition.
Also, the Company continually reviews its capital needs and financing
opportunities and may seek additional equity or debt financing for its
acquisition program or other needs.
Capital expenditures, excluding acquisitions, for the nine-month
periods ended December 31, 1998 and 1997 were $8.9 million and $1.8 million,
respectively. Capital expenditures related to management information systems
("MIS") (both financial and clinical) were approximately $4.0 million for the
nine-month period ended December 31, 1998. Capital expenditures for the
Company's hospitals will vary from year to year depending on facility
improvements and service enhancements undertaken. Generally, capital
expenditures are not expected to exceed $1.25 million per fiscal year per
hospital.
YEAR 2000 ISSUES
Many currently installed computer systems and software products are
coded to accept only two-digit entries in the date code field. By the year 2000,
these date code fields will need to accept four-digit entries to distinguish
21st century dates from 20th century dates. These products include software
applications running on desktop computers and network servers as well as in
microchips and microcontrollers incorporated into equipment. Certain of the
Company's computer hardware and software, building infrastructure components
(e.g. alarm systems and HVAC systems) and medical devices that are date
sensitive, may contain programs with the Year 2000 problem. Computer systems,
which do not include four-digit entries, could fail or produce erroneous results
causing disruptions of operations or affect patient diagnosis and treatment. As
a result, many software and computer systems may need to be upgraded or replaced
in order to comply with such Year 2000 requirements.
STATUS OF THE COMPANY'S YEAR 2000 COMPLIANCE
MIS. The Company is in the process of converting all of its hospitals
to a new MIS, which it believes is Year 2000 compliant. As of December 31,
15
<PAGE> 18
1998, eight of the Company's eleven hospitals had been converted to the new
system. The Company expects the remaining three hospitals to be converted by
August 31, 1999. The provider of the management information system has
represented to the Company that the new system is Year 2000 compliant and the
Company has done some initial testing of the system to verify its compliance.
Non-MIS Equipment. Various clinical and non-clinical equipment
currently in use at the Company's hospitals incorporate time/date elements. The
Company has substantially completed an itemized inventory of all of its
hospitals and identified substantially all equipment with potential Year 2000
problems. The Company has instructed each hospital to contact all vendors of
such equipment prior to March 31, 1999 to assess Year 2000 compliance. Each
hospital will report the current status of its non-MIS equipment problems to the
corporate office at a meeting currently scheduled for February 22, 1999. The
Company believes it will have completed this process and established a time
frame for repairing or replacing any non-compliant equipment by September 30,
1999. The Company is also in the process of contracting its group purchasing
agent to determine any Year 2000 compliance problems with respect to its sources
of supplies. The Company has not received sufficient information from its group
purchasing agent to determine any Year 2000 compliance problems with respect to
its sources of supplies or to establish an estimated date for completing
subsequent phases with respect to its supplies. In addition, the Company has
established a plan to inventory the infrastructure in each of its hospitals to
determine any Year 2000 compliance problems. The Company expects to complete its
Year 2000 compliance plan with respect to the hospital's infrastructure by
December 31, 1999.
Third Party Relationships. In addition, the Company has ongoing
relationships with third-party suppliers, vendors, payors and others, which may
have computer systems with Year 2000 compliance problems that the Company does
not control. Medicare is a significant source of revenues to the Company.
According to the Health Care Financing Administration ("HCFA") web page, the
Medicare program will be ready to process acceptable claims in the Year 2000.
However, there can be no assurance that the fiscal intermediaries and
governmental agencies with which the Company transacts business and which are
responsible for payment to the Company under Medicare and Medicaid programs, as
well as other payors, will not experience problems with Year 2000 compliance. In
addition, the Company depends upon other vendors such as utilities which provide
electricity, water, natural gas and telephone services and vendors of medical
supplies and pharmaceuticals used in patient care. As a part of its Year 2000
strategy, the Company intends to seek assurances from these parties that their
services and products will not be interrupted or malfunction due to the Year
2000 problem and expects to complete the initial contacting of these parties by
September 30, 1999. The failure of such third parties to remedy Year 2000
problems could have a material adverse effect on the Company's business,
financial condition and results of operations and ability to provide health care
services.
COSTS OF YEAR 2000 COMPLIANCE.
The Company expects to make capital expenditures of approximately $10.0
million which includes (i) approximately $6.0 million for the new MIS software
and hardware and (ii) certain non-MIS costs associated with Year 2000
compliance. The Company does not expect to incur any other additional material
Year 2000 compliance costs. In addition, the Company expects to spend
approximately $0.5 million on Year 2000 compliant MIS for each hospital acquired
in the future. The failure of the Company's management information system to be
Year 2000 compliant could have a material adverse effect on the Company's
business, financial conditions and results of operations.
16
<PAGE> 19
RISKS RELATED TO YEAR 2000 ISSUES.
The Company believes that it will be able to resolve its Year 2000
compliance problems before December 31, 1999; however, the Company has not yet
completed all of the phases of its Year 2000 compliance program. The failure of
the new MIS program, the non-MIS equipment or the hospital infrastructure to be
Year 2000 compliant could have a material adverse effect on the Company's
business, financial condition and results of operations. The failure of any of
the foregoing could result in the Company's inability to diagnose or treat
patients, bill for patient services, or collect payment from patients or
third-party payors. Finally, if there are such disruptions generally in the
economy as a result of Year 2000 compliance problems, such disruptions could
have a material adverse effect on the Company. The Company is unable to estimate
the amount of the potential liability or lost revenue at this time.
The Company believes that the most likely worst case scenario of Year
2000 compliance problems is that some third-party payors will not be Year 2000
compliant. The failure of such third-party payors to be Year 2000 compliant
could result in delays and difficulties in receiving payments from such payors
for services provided by the Company. These problems could result from the
inability to file claims with certain payors by electronic filings as well as
such payors inability to process either electronic or paper filings. These
problems could seriously impact the Company's cash flows. The Company intends to
develop a contingency plan to address this scenario. It is expected that such a
plan would involve establishing procedures whereby the Company would revert to
manual billing processes and ensuring access to additional capital in case of
cash flow problems.
CONTINGENCY PLANS FOR YEAR 2000 ISSUES.
The Company intends to complete an initial contingency plan by August
31, 1999. However, in some instances (e.g. loss of water supply), the Company
may not be able to develop contingency plans which allow the affected hospital
to continue to operate. Each of the Company's hospitals has a disaster plan,
which will be reviewed as a part of the Company's contingency planning process.
The foregoing is based on information currently available to the Company. The
Company will revise its strategy as it completes its assessment of Year 2000
issues. The Company can provide no assurances that applications and equipment
the Company believes to be Year 2000 compliant will not experience difficulties
or that the Company will not experience difficulties obtaining resources needed
to make modifications to or replace the Company's affected systems and
equipment. Failure by the Company or third parties on which it relies to resolve
Year 2000 issues could have a material adverse effect on the Company's results
of operations and its ability to provide health care services. Consequently, the
Company can give no assurances that issues related to Year 2000 will not have a
material adverse effect on the Company's financial condition or results of
operations.
17
<PAGE> 20
INFLATION
The health care industry is labor intensive. Wages and other expenses
increase, especially during periods of inflation and labor shortages. In
addition, suppliers pass along rising costs to the Company in the form of higher
prices. The Company has generally been able to offset such increases in
operating costs by its cost containment activities and expanding services. In
light of reimbursement measures imposed by government agencies and private
insurance companies, the Company is unable to predict its ability to offset or
control future cost increases, or its ability to pass on the increased costs
associated with providing health care services to patients with government or
managed care payors, unless such payors correspondingly increase reimbursement
rates.
GENERAL
Hospital revenue is received primarily from Medicare, Medicaid and
commercial insurance. The federal Medicare program accounted for approximately
46.4% and 66.9% of hospital patient days for the nine months ended December 31,
1998 and 1997, respectively. The state Medicaid programs accounted for
approximately 12.3% and 15.8% of hospital patient days for the nine months ended
December 31, 1998 and 1997, respectively. The Company's percentage of revenue
received from the Medicare program is expected to increase due to the general
aging of the population. The payment rates under the Medicare program for
inpatients are prospective, based upon the diagnosis of a patient. The Medicare
payment rate increases have historically been less than actual inflation. In
addition, numerous states, insurance companies and employers are actively
negotiating discounts to the Company's standard rates. The trend towards
increased managed care, including a shift in payor mix toward health maintenance
organizations, preferred provider organizations and other managed care payors,
may also adversely affect payment rates for the Company's services and the
Company's ability to achieve targeted growth rates in net patient service
revenue.
Both federal and state legislators are continuing to scrutinize the
health care industry for the purpose of reducing health care costs. While the
Company is unable to predict what, if any, future health reform legislation may
be enacted at the federal or state level, the Company expects continuing
pressure to limit expenditures by governmental health care programs. Payments
for Medicare outpatient services provided at acute care hospitals and home
health services historically have been paid based on costs, subject to certain
limits. The 1997 Act requires that the payment for those services be converted
to a prospective payment system, which will be phased in over time. The 1997 Act
also includes a managed care option, which could direct Medicare patients to
managed care organizations. Further changes in the Medicare or Medicaid programs
and other proposals to limit health care spending could have a material adverse
impact upon the health care industry and the Company.
The Company's acute care hospitals, like most acute care hospitals in
the United States, have significant unused capacity. The result is substantial
competition for patients and physicians. Inpatient utilization continues to be
negatively affected by payor-required pre-admission authorization and by payor
pressure to maximize outpatient and alternative health care delivery services
for less acutely ill patients. The Company expects increased competition and
admission constraints to continue in the future. The ability to respond
successfully to these trends, as well as spending reductions in governmental
health care programs, will play a significant role in determining the hospitals'
ability to maintain their current rate of net revenue growth and operating
margins.
The Company expects the industry trend from inpatient to outpatient
services to continue due to the increased focus on managed care and advances in
technology. Outpatient revenue of the Company's
18
<PAGE> 21
hospitals was approximately 42.5% and 39.0% of gross patient service revenue for
the nine months ended December 31, 1998 and 1997, respectively.
The complexity of the Medicare and Medicaid regulations, increases in
managed care, hospital personnel turnover, the dependence of hospitals on
physician documentation of medical records and the subjective judgment involved
complicates the billing and collections of accounts receivable by hospitals.
There can be no assurance that this complexity will not negatively impact the
Company's future cash flow or results of operations.
The Company's historical financial trend has been favorably impacted by
the Company's ability to successfully acquire acute care hospitals. While the
Company believes that trends in the health care industry described above may
create possible future acquisition opportunities, there can be no assurances
that it can continue to maintain its current growth rate through hospital
acquisitions and successfully integrate the hospitals into its system.
The federal government and a number of states are rapidly increasing
the resources devoted to investigating allegations of fraud and abuse in the
Medicare and Medicaid programs. At the same time, regulatory and law enforcement
authorities are taking an increasingly strict view of the requirements imposed
on providers by the Social Security Act and Medicare and Medicaid regulations.
Although the Company believes that it is in material compliance with such laws,
a determination that the Company has violated such laws, or even the public
announcement that the Company was being investigated concerning possible
violations, could have a material adverse effect on the Company.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
133, Accounting for Derivative Instruments and Hedging Activities, which is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
This statement establishes accounting and reporting standards for derivative
instruments, including derivative instruments imbedded in other contracts and
for hedging activities. It requires that entities recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company does not presently have any
derivative financial instruments and does not believe that this statement will
have a material impact on its financial position or results of operations.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this discussion, including without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects," and words of similar import, constitute forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company or industry results to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions, both nationally and in
regions where the Company operates; demographic changes; the effect of existing
or future governmental regulation and federal and state legislative and
enforcement initiatives on the Company's business, including the recently
enacted Balanced Budget Act of 1997; changes in Medicare and Medicaid
reimbursement levels; the Company's ability to implement successfully its
acquisition and development strategy and changes in such strategy; the
availability and terms of financing to fund the expansion of the Company's
business, including the acquisition of additional hospitals; the
19
<PAGE> 22
Company's ability to attract and retain qualified management personnel and to
recruit and retain physicians and other health care personnel to the markets it
serves; the effect of managed care initiatives on the markets served by the
Company's hospitals and the Company's ability to enter into managed care
provider arrangements on acceptable terms; the effect of liability and other
claims asserted against the Company; the effect of competition in the markets
served by the Company's hospitals; and other factors referenced in the Company's
prospectus dated August 17, 1998. The Company claims the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995 with respect to such statements contained herein.
There can be no assurance that the forward-looking statements included in this
report will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.
Given these uncertainties, prospective investors are cautioned not to place
undue reliance on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to publicly announce the result of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments.
20
<PAGE> 23
PART II.
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On January 21, 1999, the Board of Directors of the Company elected
Thomas W. Singleton to be President, Chief Operating Officer and a Director of
the Company. In connection with Mr. Singleton joining the Board of Directors,
the size of the Board was increased from seven to eight members as provided in
section 2.2 of the Company's bylaws.
Mr. Singleton has 25 years of health care experience with an extensive
background in hospital financial management and multi-hospital operation. He was
most recently president of The Intensive Resource Group, LLC, a subsidiary of
Quorum Health Group, Inc. ("Quorum"), which owns acute care hospitals and health
systems nationwide. Prior to joining Quorum, he was chief financial officer and
a board member of Hospital Management Professionals, Inc., which managed 70
hospitals. Earlier in his career, he was an officer at Hospital Affiliates
International, one of the first public companies engaged in the operation of
hospitals. Mr. Singleton received a BA degree in Economics from Vanderbilt
University and an MBA in Finance from the University of Chicago.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT INDEX
Exhibit No.
-----------
3.1 Certificate of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 of the Company's Report on Form 10-Q for
the quarter ended September 30, 1998).
3.2 Bylaws of the Registrant (incorporated by reference to Exhibit 3.2
of the Company's Report on Form 10-Q for the quarter ended
September 30, 1998).
10.1 Agreement to Lease and Purchase dated October 29, 1998 among
Lucius O. Crosby Memorial Hospital ("Seller") and NAHC of
Mississippi, Inc. and New American Healthcare Corporation
(incorporated by reference to Exhibit 2.1 of the Company's Current
Report on Form 8-K filed November 16, 1998).
10.2 Stock Purchase Agreement dated as of October 31, 1998 among NAHC
Georgia Holdings, Inc. (as "Buyer"), the shareholders of
Memorial Hospital of Adel, Inc. (the "Shareholders") and New
American Healthcare Corporation (incorporated by reference to
Exhibit 2.1 of the Company's Current Report on Form 8-K filed
November 18, 1998).
10.3 Third Amendment to Amended and Restated Credit Agreement, dated
as of October 27, 1998, by and among New American Healthcare
Corporation, as Borrower, Toronto Dominion (Texas), Inc., as
Agent, The Toronto-Dominion Bank, as Issuing Bank, and various
lenders thereto.
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
During the three months ended December 31, 1998, the Company filed
the following reports on Form 8-K:
(i) Form 8-K dated November 16, 1998, in connection with the Company's
agreement on October 29, 1998 to lease and purchase Crosby
Memorial Hospital in Picayune, Mississippi. On January 14, 1999,
the Company filed an Amendment No. 1 to such Current Report on
Form 8-K/A, containing the financial statements of Crosby Memorial
Hospital and certain pro forma financial information.
21
<PAGE> 24
(ii) Form 8-K dated November 18, 1998, in connection with the Company's
acquisition on October 31, 1998 of the stock of Memorial Hospital
of Adel in Adel, Georgia. On January 19, 1999, the Company filed
Amendment No. 1 to such Current Report on Form 8-K/A, containing
the financial statements of Memorial Hospital of Adel and certain
pro forma financial information.
22
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 16, 1999 NEW AMERICAN HEALTHCARE CORPORATION
-----------------
By: /s/ Robert M. Martin
----------------------------------
Chief Executive Officer
23
<PAGE> 1
Exhibit 10.3
================================================================================
THIRD AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
By and Among
NEW AMERICAN HEALTHCARE CORPORATION,
as Borrower,
TORONTO DOMINION (TEXAS), INC.,
as Agent,
THE TORONTO-DOMINION BANK,
as Issuing Bank
and
THE FINANCIAL INSTITUTIONS PARTY HERETO
Dated as of October 27, 1998
Amending the Amended and Restated Credit Agreement dated as of
January 30, 1998 among the above-named parties
================================================================================
<PAGE> 2
THIRD AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (the
"Third Amendment") dated October 27, 1998 amends the Amended and Restated Credit
Agreement entered into as of January 30, 1998 as amended by that certain First
Amendment dated July 31, 1998 and that certain Second Amendment dated August 31,
1998 (as so amended, the "Original Agreement"), by and among NEW AMERICAN
HEALTHCARE CORPORATION, a Tennessee corporation (the "Borrower"), TORONTO
DOMINION (TEXAS), INC., as agent for the financial institutions party hereto
(in such capacity, the "Agent"), THE TORONTO-DOMINION BANK, as Issuing Bank and
THE FINANCIAL INSTITUTIONS PARTY THERETO (collectively, the "Banks";
individually, a "Bank").
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Certain Definitions. Capitalized terms used herein and not otherwise
used defined shall have the meanings ascribed to them in the Original Agreement.
2. Amendment of Original Agreement.
a. Definitions. The following definitions are hereby amended
and restated or added to Article I of the Original Agreement.
"Base Rate" means on any day the greater of the rate (rounded
upwards if necessary to the nearest whole one-sixteenth of one percent
(0.0625%)) equal to (a) the Prime Rate in effect on that day or
(b) the Federal Funds Rate plus 50 basis points in effect on that day,
plus (in either case) the applicable margin based upon the Borrower's
ratio of Funded Indebtedness to EBITDAR as calculated in accordance
with Section 7.18(a)(i) as follows:
<TABLE>
<CAPTION>
Funded Indebtedness/EBITDAR Applicable Margin (bps)
--------------------------- -----------------------
<S> <C>
> 4.0 75.00
-
> 3.5 < 4.0 50.00
-
> 3.0 < 3.5 25.00
-
> 2.5 < 3.0 0
-
> 2.0 < 2.5 0
-
< 2.0 0
</TABLE>
<PAGE> 3
"CAPITAL EXPENDITURE" means any expenditure for the maintenance of
existing physical plants, furniture, fixtures and equipment and any other
expenditure that would be capitalized on the balance sheet of the Borrower
(consolidated with its Subsidiaries) as of the end of that period, in
conformity with GAAP, other than payment of the purchase price of any fixed
assets in connection with a Permitted Acquisition and/or Permitted Construction.
"DAYS SALES OUTSTANDING" Intentionally omitted.
"EXTENSION OPTION" means the option of the Borrower to extend the
Revolving Termination Date to October 31, 2004, provided that:
(i) the Borrower provides a written request to the Agent not less than
ninety (90) days prior to October 31, 2000; and
(ii) all of the Banks shall have approved such request in writing.
"FINAL MATURITY DATE" means October 31, 2003 or October 31, 2004, if
the Extension Option has been exercised pursuant to this Agreement.
"FIXED CHARGE COVERAGE RATIO" means the ratio of (a) EBITDAR, to (b)
the sum of (i) Maintenance Capital Expenditure Limit, (ii) Interest Expense,
(iii) scheduled principal payments actually made or coming due during the period
of measure and (iv) any payments of the Borrower and/or its Subsidiaries for
Hospital Operating Leases actually made or coming due during the period of
measure.
"FUNDED INDEBTEDNESS" means, without duplication, all obligations,
liabilities and indebtedness of the Borrower and its Subsidiaries of the types
described in clauses (a) through (g) of the definition of Indebtedness.
"HOSPITAL OPERATING LEASE" means an operating lease of a hospital
and/or other healthcare facility with an annual lease expense in excess of
Seventy Five Thousand Dollars ($75,000).
"INDEBTEDNESS" of any Person means, without duplication (a) any
obligation for borrowed money. (b) any obligation evidenced by bonds,
debentures, notes or other similar instruments; (c) any obligation to pay the
deferred purchase price of property or services (other than in the ordinary
course of business); (d) any Capitalized
-2-
<PAGE> 4
Lease Obligation; (e) any obligation or liability of others secured by a Lien on
property owned by such Person, whether or not such obligation or liability is
assumed; (f) obligations and amounts owed under synthetic or off-balance sheet
leases; (g) eight (8) times the annualized amounts payable on any Hospital
Operating Lease; (h) any Obligation under any Rate Contract; (i) any Guaranty;
and (j) any other obligation or liability which is required by GAAP to be shown
as part of the Consolidated Liabilities on a consolidated balance sheet of the
Borrower and its Subsidiaries.
"INTEREST COVERAGE RATIO" Intentionally omitted.
"LIBOR Rate" means the rate (rounded upwards if necessary to the
nearest whole one-sixteenth of one percent (0.0625%)) equal to (a) the product
of Base LIBOR times Statutory Reserves, plus (b) the applicable LIBOR margin
based upon the Borrower's ratio of Funded Indebtedness to EBITDAR as calculated
in accordance with Section 7.18(a)(i) as follows:
<TABLE>
<CAPTION>
Funded Indebtedness/EBITDAR LIBOR (bps)
--------------------------- -----------
<S> <C>
> 4.0 200.00
-
> 3.5 < 4.0 175.00
-
> 3.0 < 3.5 150.00
-
> 2.5 < 3.0 125.00
-
> 2.0 < 2.5 100.00
-
< 2.0 75.00
</TABLE>
"MAINTENANCE CAPITAL EXPENDITURE LIMIT" means an amount equal to
thirty percent (30%) of Capital Expenditures.
"MAJORITY BANKS" means at any time Banks holding at least fifty-one
percent (51%) of the then aggregate outstanding principal amount of the Loans,
or, if no such principal amount is then outstanding, Banks having at least
fifty-one percent (51%) of the Commitment Percentages.
"PERMITTED ACQUISITIONS" means any acquisition by the Borrower or one
of its Subsidiaries of all or substantially all of the Capital Stock of a
corporation, all or substantially all of the ownership interests in any
partnership or joint venture, all or substantially all of the operating assets
of any Person, or assets which constitute all or substantially all of the
assets of a division or a separate or separable line of business, provided that:
-3-
<PAGE> 5
(i) the Borrower or its Subsidiary, as the case may be, is the
surviving entity in any acquisition involving a merger, reorganization or
recapitalization:
(ii) the corporation, partnership, operating assets or line of
business acquired is in a line of business consistent with the business plan of
the Borrower and its then current Subsidiaries;
(iii) no Event of Default or Incipient Default shall exist at the
time of such acquisition or would result on a pro forma basis after completion
of such acquisition;
(iv) not less than ten (10) days prior to such acquisition, the
Agent shall have received an Environmental Report with respect to any real
property to be so acquired;
(v) contemporaneously with the closing of such acquisition, the
Agent shall have received such documents and instruments as may be necessary to
grant or confirm to the Agent a Lien on or security interest in all of the
assets so acquired and all proceeds and revenues therefrom, including, one or
more Mortgages with respect to any real property or leasehold interest in real
property so acquired and (in case a Subsidiary is created or acquired in
connection with such Permitted Acquisition) a Stock Pledge Agreement (or
addendum to a previously executed Stock Pledge Agreement), a Subsidiary
Guaranty, a Security Agreement and (to the extent applicable) a Subsidiary Note,
and shall have received a title insurance policy with respect to any real
property so acquired which is substantially similar to the title insurance
policies delivered pursuant to Section 5.1(j)(ii)(B) hereof and, to the extent
applicable, landlord's waivers from landlords in any ground leases so acquired
which shall be in form and substance satisfactory to the Agent;
(vi) the Agent shall have received a certificate of an Authorized
Representative (to be delivered to the Agent not less than ten (10) days prior
to such acquisition) setting forth in reasonable detail the calculations
necessary to show compliance with the financial ratios set forth in Section 7.18
hereof for the twelve (12) months immediately preceding the date of the
acquisition, assuming that the proposed acquisition had occurred on the first
day of the first month of such twelve (12) month period;
(vii) not less than ten (10) days prior to such acquisition, the
Agent shall have received historical and pro forma financial statements for the
entity or line of business to be acquired;
-4-
<PAGE> 6
(viii) the Agent and the Banks shall have had the opportunity to
conduct an inspection of the entity or line of business to be acquired;
(ix) the Purchase Price of the acquisition is not in excess of
Thirty Million Dollars ($30,000,000);
(x) the Purchase Price of any acquisition of a leased hospital is
not in excess of Thirty Million Dollars ($30,000,000); provided, however, that
in no event may the Borrower enter into more than two such acquisitions of
leased hospitals without the approval of the Majority Banks;
(xi) in the event that the Purchase Price of the acquisition causes
the aggregate Purchase Price of all Permitted Acquisitions, which close after
the date of this Third Amendment, but on or before December 31, 1998, to exceed
Thirty Million Dollars ($30,000,000), and all acquisitions subsequent thereto
which close on or before December 31, 1998, the Majority Banks shall approve
each such acquisition; and
(xii) after December 31, 1998, in the event that the Purchase Price
of the acquisition causes the aggregate Purchase Price of all Permitted
Acquisitions during any calendar year to exceed Fifty Million Dollars
($50,000,000), and all acquisitions subsequent thereto during such calendar
year, the Majority Banks approve each such acquisition.
"PERMITTED CONSTRUCTION" means any new construction of an acute
care facility or hospital after the date hereof; provided however, that the
Borrower has provided to the Agent all documentation regarding the construction
of the new acute care facility or hospital as reasonably requested by the Agent
and the Majority Banks approve such new construction.
"PERMITTED PURPOSES" means the purposes for which Loans may be used
or Letters of Credit issued. The Permitted Purposes are as follows: (a) to make
Permitted Acquisitions; (b) to provide for Permitted Construction; and (c) to
provide funds for general corporate purposes, including (but not limited to)
initial and ongoing working capital, the completion of any construction or
development projects at acute care facilities or related businesses acquired by
the Borrower or any of its Subsidiaries which are in progress on the date of
acquisition, and capital improvements to acute care facilities or related
businesses acquired by the Borrower or
-5-
<PAGE> 7
any of its Subsidiaries which are made after the date of acquisition;
provided that the aggregate face amount of all Letters of Credit shall
not exceed Five Million Dollars ($5,000,000) at any one time, as
certified by the Borrower as a condition for the making of any Loan for
working capital purposes or the issuance of any Letter of Credit.
"PURCHASE PRICE" as used in the definition of Permitted
Acquisitions, means (i) cash paid to the seller in consideration of such
acquisition, (ii) long-term indebtedness of the seller assumed by the
Borrower or its Subsidiary in consideration of such acquisition, (iii)
initial working capital, (iv) initial capital expenditures identified as
such on the purchase date and made within twelve months of such date,
and (v) with respect to the acquisition of a leased hospital, the net
present value of all lease payments under the underlying lease(s) and
all other consideration paid in connection with the acquisition of the
leased hospital.
"REVOLVING TERMINATION DATE" means October 31, 2003 or such
earlier date, if any, that the Total Commitment Amount is reduced to
zero pursuant to SECTION 2.1(b); provided, however, that the Revolving
Termination Date shall be October 31, 2004 if the Extension Option is
granted.
"TOTAL COMMITMENT AMOUNT" means, as of any date, subject to
SECTION 2.1(b) hereof, an amount equal to One Hundred Thirty-Two Million
Five Hundred Thousand Dollars ($132,500,000); provided, however, that
beginning [December 31, 2001], the Total Commitment Amount means,
subject to SECTION 2.1(b) hereof, the amount set forth on Schedule A set
forth opposite the applicable quarter.
b. SECTION 2.2(c)/Commitment Fee. Section 2.2(c) of the Original
Agreement is amended and restated to read as follows:
Commitment Fee. The Borrower shall pay to the Agent for the
account of the Banks, in accordance with the Banks' Commitment
Percentages, a Commitment Fee equal to the amount listed below based
upon the Borrower's ratio of Funded Indebtedness to EBITDAR as
calculated in accordance with Section 7.18(a)(i) of the average daily
Available Commitment Amount as follows:
-6-
<PAGE> 8
<TABLE>
<CAPTION>
Funded Indebtedness/ Commitment Fee
EBITDAR (bps)
-------------------- --------------
<S> <C>
> 4.0 37.50
-
> 3.5 < 4.0 37.50
-
> 3.0 < 3.5 31.25
-
> 2.5 < 3.0 31.25
-
> 2.0 < 2.5 31.25
-
< 2.0 25.00
</TABLE>
The Commitment Fee shall (i) accrue from the Closing Date to the
Revolving Termination Date and (ii) be payable quarterly in arrears on the
last day of each quarter commencing with the quarter ending September 30,
1998 and on the Revolving Termination Date.
c. SECTION 2.3(a) PAYMENT OF LOANS. Section 2.3(a) of the Original
Agreement is amended and restated to read as follows:
(a) Payment of Loans. The Borrower shall repay all Loans which are
outstanding on the Revolving Termination Date by paying those amounts set
forth on Schedule A set forth the applicable quarter.
d. SECTION 2.3(c)(iv). Section 2.3(c)(iv) of the Original Agreement
is amended and restated to read as follows:
(iv) In the event that the Borrower shall issue Equity Interests
to a Person in exchange for cash, or shall incur subordinated
Indebtedness, Borrower shall apply the proceeds so received in prepayment
of the Loans as follows:
(A) If the ratio of Senior Indebtedness to EBITDA,
calculated in accordance with this Agreement is greater than
2.5 : 1 on a pro-forma basis, then the Borrower shall prepay the
Loans in an amount necessary to reduce the ratio of Senior
Indebtedness to EBITDA to less than or equal to 2.5 : 1.
(B) Intentionally omitted.
e. SECTION 5.2(d). Section 5.2(d) of the Original Agreement is
amended and restated to read as follows:
(d) Loan Request. The Agent shall have received a Loan Request
which shall (i) describe the Permitted Purposes for which such Loan is
being requested and the amount of such Loan to be applied to each such
Permitted Purpose and (ii) constitute a certification by the
-7-
<PAGE> 9
Borrower that the conditions set forth in this SECTION 5.2 are or will be
satisfied on and as of the date of such Borrowing;
f. SECTION 7.2(a). Section 7.2(a) of the Original Agreement is
amended and restated to read as follows:
(a) To the Agent, with sufficient copies for distribution by the
Agent to each of the Banks, within forty-five (45) days after the end of
each month, commencing with the month ending October 31, 1998: an unaudited
monthly Board of Director package which should include, but not be limited
to, a statement of revenues and EBITDA and EBITDAR. All such statements
shall be prepared on a consolidated and consolidating basis for the
Borrower and its Subsidiaries, in reasonable detail, subject to year-end
audit adjustments and without footnotes, shall include appropriate
comparisons to the same period for the prior year, and shall be certified
by the Senior Vice President, Finance and Administration, of the Borrower
to have been prepared in accordance with GAAP consistently applied, subject
to year-end audit adjustments;
g. SECTION 7.2(b). Section 7.2(b) of the Original Agreement is
amended and restated to read as follows:
(b) To the Agent, with sufficient copies for distribution by the
Agent to each of the Banks, within forty-five (45) days after the end of
each fiscal quarter of the Borrower commencing with the fiscal quarter
ending September 30, 1998, the Company's most recent report on Form 10-Q
filed with the Securities and Exchange Commission. All such statements
shall be prepared on a consolidated and consolidating basis for the
Borrower and its Subsidiaries, in reasonable detail, subject to year-end
audit adjustments and without footnotes, shall include appropriate
comparisons to the same period for the prior year, and shall be certified
by the Senior Vice President, Finance and Administration, of the Borrower
to have been prepared in accordance with GAAP consistently applied, subject
to year-end audit adjustments;
h. SECTION 7.2(c), Section 7.2(c) of the Original Agreement is
amended and restated to read as follows:
(c) To the Agent, with sufficient copies for distribution by the
Agent to each of the Banks, within ninety (90) days after the close of each
fiscal year of the Borrower, commencing with the fiscal year ending
December 31, 1998, for the Borrower and its Subsidiaries on a consolidated
and consolidating basis the Borrower's most recent report on Form 10-K
filed with the Securities and Exchange Commission. All
-8-
<PAGE> 10
statements required by this SECTION 7.2(c) shall include appropriate
comparisons to the prior fiscal year. Such consolidated financial
statements shall be audited by KPMG Peat Marwick LLP or another independent
certified public accounting firm acceptable to the Majority Banks and shall
include a report of such accounting firm, which report shall be unqualified
and shall state that such financial statements fairly present the financial
position of the Borrower and its Subsidiaries as at the dates indicated and
the results of their operations and their cash flows for the periods
indicated in conformity with GAAP, consistently applied. Such accounting
firm shall also certify to the Agent and the Banks that in the course of
the regular annual examination of the business of the Borrower and its
Subsidiaries, which examination was conducted by such accounting firm in
accordance with generally accepted auditing standards, such accounting firm
has obtained no knowledge that an Event of Default or an Incipient Default
has occurred and is continuing as of the date of certification, or if, in
the opinion of such accounting firm, an Event of Default or an Incipient
Default has occurred and is continuing, a statement as to the nature
thereof. Such accounting firm shall also prepare a letter to management of
the Borrower in connection with the preparation of such audit report which
the Borrower shall deliver to the Agent and each Bank within five Banking
Days of receipt thereof;
i. SECTION 7.2(d). Section 7.2(d) of the Original Agreement is
amended and restated to read as follows:
(d) To the Agent, with sufficient copies for distribution by the
Agent to each of the Banks, (i) contemporaneously with each quarterly and
year-end financial report required by the foregoing SUBPARAGRAPHS (b) AND
(c), a certificate of a Responsible Officer (A) stating that, to the best
of such officer's knowledge after due inquiry, no Event of Default or
Incipient Default exists on the date of such certificate, or if any Event
of Default or Incipient Default then exists, setting forth the details
thereof and the action that the Borrower is taking or proposes to take with
respect thereto, (B) stating whether, since the date of the most recent
financial statements previously delivered pursuant to the foregoing
SUBPARAGRAPH (b) OR (c), there has been a change in the generally accepted
accounting principles applied in preparing the financial statements then
being delivered from those applied in preparing the most recent audited
financial statements so delivered which is material to the financial
statements then being delivered, (C) furnishing calculations demonstrating
compliance with the covenants contained in SECTION 7.18 hereof, and (D)
attaching management's summary of the results contained in such financial
statements, and (ii) contemporaneously with each such quarterly and annual
financial
-9-
<PAGE> 11
report, a certificate of a Responsible Officer furnishing calculations
demonstrating compliance with the covenant set forth in Section 8.11
hereof;
j. SECTION 7.2(o). Section 7.2(o) of the Original Agreement is amended
and restated to read as follows:
(o) To the Agent, with sufficient copies for distribution by the
Agent to each of the Banks, prior to commencement of each fiscal year of
the Borrower, a copy of the Borrower's annual budget for such fiscal year;
k. SECTION 7.18(a)(i). Section 7.18(a)(i) of the Original Credit
Agreement is amended and restated to read as follows:
(i) Maintain a ratio of Funded Indebtedness to EBITDAR of 5.00:1
through the Final Maturity Date.
l. SECTION 7.18(a)(ii). Section 7.18(a)(ii) of the Original Agreement
is amended and restated to read as follows:
(ii) Intentionally omitted.
m. SECTION 7.18(a)(iii). Section 7.18(a)(iii) of the Original Agreement
is amended and restated to read as follows:
(iii) Maintain the following Fixed Charge Coverage Ratio for each
of the applicable quarters ending during each of the periods set forth
below, such ratio to be calculated for the twelve (12) month period
preceding and including such mouth:
<TABLE>
<CAPTION>
Fixed Charge
Period Coverage Ratio
------ --------------
<S> <C>
October 31, 1998 to and
including December 31, 1999 1.50x
January 1, 2000 to and
including December 31, 2000 1.75x
January 1, 2001 and thereafter 2.00x
</TABLE>
n. SECTION 7.18(a)(iv). Section 7.18(a)(iv) of the Original Agreement
is amended and restated to read as follows:
(iv) Intentionally omitted.
-10-
<PAGE> 12
o. SECTION 7.18(a)(v). Section 7.18(a)(v) of the Original Agreement is
amended and restated to read as follows:
(v) Prior to the Revolving Termination Date, maintain a minimum
Net Worth in an amount not less than (A) ninety percent (90%) of the actual
Net Worth as of September 30, 1998, plus (B) eighty-five percent (85%) of
Consolidated Net Income during the period from and including October 1,
1998 through and including the date of calculation, plus (C) ninety percent
(90%) of the aggregate amount of all increases in the stated capital and
additional paid in capital amounts of the Borrower resulting from the
issuance of equity securities or other capital investments during such
period.
p. SECTION 7.18(a)(vi). Section 7.18(a)(vi) of the Original Agreement
is amended and restated to read as follows:
(iv) Maintain the following ratio of Senior Indebtedness to
EBITDAR for each of the applicable quarters ending during each of the
periods set forth below:
<TABLE>
<CAPTION>
SENIOR
PERIOD INDEBTEDNESS/EBITDAR
------ --------------------
<S> <C>
October 31, 1998 to and <4.50x
including March 30, 2000
March 31, 2000 to and <4.00x
including March 30, 2001
March 31, 2001 and thereafter <3.50x
</TABLE>
q. SECTION 7.18(b)(ii). Section 7.18(b)(ii) of the Original
Agreement is amended and restated to read as follows:
(ii) For purposes of calculating compliance with the
covenants set forth in SECTION 7.18(a) hereof, prior to the
Revolving Termination Date, EBITDAR of the Borrower and its
Subsidiaries for any twelve (12) month period shall be calculated
on the basis of EBITDAR of the Borrower and its Subsidiaries an
adjusted annualized rolling two (2) quarter basis; provided that
EBITDAR of any acute care facility or related business which the
Borrower or any of its Subsidiaries acquires (or proposes to
acquire in the case of calculating EBITDAR pursuant to
SUBPARAGRAPH (vi) of the definition of Permitted Acquisitions) on
or after the Closing Date shall be calculated on the basis of
EBITDAR of such acute care facility or related business as if
such acute care
-11-
<PAGE> 13
facility or related business was purchased on the first day of
the quarter in which such acute care facility or related business
was acquired; provided that with respect to the EBITDAR of any
acute care facility or related business acquired by the Borrower
or any of its Subsidiaries on or after the Closing Date, such
EBITDAR shall be calculated by excluding any profits or losses
associated with any business segments or such acute care facility
or related business which are sold immediately prior to the date
such acute care facility or related business is acquired by the
Borrower or which are to be sold immediately thereafter. Any such
business segments so excluded will be identified in the
compliance certificate delivered to the Agent and the Banks
pursuant to Section 7.2(d) hereof.
r. SECTION 7.21 / OPERATING LEASES. Section 7.21 of the Original
Agreement is amended and restated to read as follows:
Neither the Borrower nor any of its Subsidiaries shall
create, incur, assume, or suffer to exist, any obligation for the
payment of rent or hire for property or assets of any kind
whatsoever, whether real or personal, under leases or lease
agreements (other than Capitalized Lease Obligations and Hospital
Operating Leases) which would cause the aggregate amount of all
payments made by the Borrower and its Subsidiaries pursuant to
such leases or lease agreements to exceed five percent (5%) of
Net Revenues during any fiscal year. Any such leases referred to
in this Section 7.21 shall not be deemed to constitute
Indebtedness and shall not be subject to Section 8.6 hereof.
s. SECTION 8.5 / INVESTMENTS. Section 8.5 of the Original Agreement
is amended and restated to read as follows:
Neither the Borrower nor any of its Subsidiaries shall
make (or acquire as part of an acquisition) any Investment,
except Investments (a) in connection with a Permitted
Acquisition; (b) made by the Borrower in any of its Wholly-Owned
Subsidiaries, by any of its Subsidiaries in the Borrower or by
any of its Subsidiaries in any of its Wholly-Owned Subsidiaries
(provided, however, that Investments in Partial Subsidiaries must
be in the ordinary course of business and shall not exceed Two
Million Dollars ($2,000,000) per year); (c) constituting seller
financing undertaken on commercially reasonable terms,
-12-
<PAGE> 14
which Investments shall not in the aggregate exceed Two Hundred Fifty
Thousand Dollars ($250,000); (d) in connection with a purchase of land,
which shall not exceed a purchase price of Four Million Five Hundred
Thousand Dollars ($4,500,000), provided, however, that the Borrower,
working with the Agent, on behalf of the Banks, shall grant a first
lien on such property in such form and substance satisfactory to the
Agent and (e) Investments made in accordance with the Borrower's
corporate investment policy attached to the Original Agreement as
SCHEDULE 8.5.
t. SECTION 8.11 / CAPITAL EXPENDITURES. Section 8.11 of the Original
Agreement is amended and restated to read as follows:
The Borrower and its Subsidiaries, considered in the aggregate, shall
not during any fiscal year make Consolidated Capital Expenditures in excess of
the amount equal to (a) One Million Two Hundred Fifty Thousand Dollars
($1,250,000) multiplied by (b) the number of acute care facilities owned by the
Borrower and its Subsidiaries during such fiscal year. In the event that the
Borrower has budgeted an acute care facility to receive funds from Consolidated
Capital Expenditures in its annual budget provided to the Agent ("Budgeted
Consolidated Capital Expenditure") and such acute care facility did not utilize
the budgeted amount in the budgeted fiscal year, the Borrower may carryover for
the following fiscal year only the Budgeted Consolidated Capital Expenditure
for such acute care facility in an amount less than or equal to Five Hundred
Thousand Dollars ($500,000) ("Budgeted Carryover"). In the event that the
Borrower does not utilize the Budgeted Carryover in the fiscal year immediately
following the actual budgeted fiscal year, Borrower shall forfeit the Budgeted
Carryover. Notwithstanding anything above to the contrary, the Borrower and its
Subsidiaries, considered in the aggregate, shall be permitted to make
Consolidated Capital Expenditures in an amount less than or equal to Four
Million Five Hundred Thousand Dollars ($4,500,000) for the one-time purpose of
converting its management information system.
u. NEW SECTION 9.1(q) / DELISTING. There is hereby added to the
Original Agreement the following Section 9.l(q):
(q) Delisting from the Borrower's Primary Exchange. Any class
of the Borrower's equity securities shall be delisted from the
Borrower's primary exchange.
-13-
<PAGE> 15
3. RATIFICATION OF CREDIT AGREEMENT. Except as hereby amended, the
provisions of the Credit Agreement are hereby in all respects ratified and
confirmed.
4. COUNTERPARTS. This Third Amendment may be executed in any number of
counterparts, each of which shall be an original with the same effect as if the
signatures thereto and hereto were upon the same instrument.
[The next page is the signature page.]
-14-
<PAGE> 16
IN WITNESS WHEREOF, each of the parties hereto has executed this First
Amendment to Credit Agreement by its duly authorized officers as of the date and
year first above written.
BORROWER: NEW AMERICAN HEALTHCARE CORPORATION
By: Dana McLendon, Jr.
--------------------------------------
Dana McLendon, Jr. Senior Vice
President Finance and Administration
AGENT/BANK: TORONTO DOMINION (TEXAS), INC.,
as Agent and as a Bank
By:
--------------------------------------
Jano Mott, Vice President
OTHER BANKS: NATIONSBANK, N.A.
By:
--------------------------------------
Ashley Crabtree, Senior Vice President
FIRST UNION NATIONAL BANK
By:
--------------------------------------
Its:
----------------------------------
-15-
<PAGE> 17
FIRST AMERICAN NATIONAL BANK
By:
--------------------------------------
Sandy Hamrick, Senior Vice President
PARIBAS
By:
--------------------------------------
Brian M. Malone, Director
By:
--------------------------------------
Roger A. May, Vice President
NATIONAL CITY BANK OF KENTUCKY
By:
--------------------------------------
Deroy Scott, Vice President
BANK ONE, N.A.
By:
--------------------------------------
Glenn T. Campbell, Vice President
-16-
<PAGE> 18
AMSOUTH BANK
By:
--------------------------------------
Cathy M. Wind, Vice President
-17-
<PAGE> 19
SCHEDULE A
IF EXTENSION OPTION IS NOT EXERCISED IN ACCORDANCE WITH AGREEMENT
<TABLE>
<CAPTION>
AMOUNT OF
PAY OFF COMMITMENT
QUARTER PER QUARTER (END OF PERIOD)
- ------- ----------- --------------
<S> <C> <C>
12/31/01 10,000,000 S 122,500,000
03/31/02 10,000,000 $ 112,500,000
06/20/02 10,000,000 $ 102,500,000
09/30/02 15,000,000 $ 87,500,000
12/31/02 15,000,000 $ 72,500,000
03/31/03 15,000,000 $ 57,500,000
06/30/03 15,000,000 $ 42,500,000
10/31/03 42,500,000 0
</TABLE>
SCHEDULE A
IF EXTENSION OPTION IS EXERCISED IN ACCORDANCE WITH AGREEMENT
<TABLE>
<CAPTION>
AMOUNT OF
PAY OFF COMMITMENT
QUARTER PER QUARTER (END OF PERIOD)
- ------- ----------- --------------
<S> <C> <C>
12/31/02 10,000,000 $ 122,500,000
03/31/03 10,000,000 $ 112,500,000
06/20/03 10,000,000 $ 102,500,000
09/30/03 15,000,000 $ 87,500,000
12/31/03 15,000,000 $ 72,500,000
03/31/04 15,000,000 $ 57,500,000
06/30/04 15,000,000 $ 42,500,000
10/31/04 42,500,000 0
</TABLE>
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 734
<SECURITIES> 0
<RECEIVABLES> 49,707
<ALLOWANCES> 11,673
<INVENTORY> 3,558
<CURRENT-ASSETS> 47,783
<PP&E> 125,167
<DEPRECIATION> 5,202
<TOTAL-ASSETS> 210,219
<CURRENT-LIABILITIES> 25,139
<BONDS> 0
0
0
<COMMON> 176
<OTHER-SE> 83,378
<TOTAL-LIABILITY-AND-EQUITY> 210,219
<SALES> 0
<TOTAL-REVENUES> 122,015
<CGS> 0
<TOTAL-COSTS> 118,023
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,618
<INTEREST-EXPENSE> 4,772
<INCOME-PRETAX> 3,992
<INCOME-TAX> 1,597
<INCOME-CONTINUING> 2,395
<DISCONTINUED> 0
<EXTRAORDINARY> 134
<CHANGES> 0
<NET-INCOME> 2,261
<EPS-PRIMARY> .12
<EPS-DILUTED> .10
</TABLE>
