<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, 1999.
[ ] 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
BRENTWOOD, 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 1, 2000
----- -------------------------------
Common stock, $.01 par value 17,442,455
<PAGE> 2
NEW AMERICAN HEALTHCARE CORPORATION
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets
December 31, 1999 (unaudited) and March 31, 1999 1
Consolidated Statements of Operations
Three Months and Nine Months Ended
December 31, 1999 and 1998 2
Condensed Consolidated Statements of Cash Flows
Nine Months Ended December 31, 1999 and 1998 3
Notes to Condensed Consolidated Financial Statements 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 18
</TABLE>
<PAGE> 3
NEW AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 (unaudited) and March 31, 1999
(In thousands, except per share information)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
ASSETS 1999 1999
-------- --------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents 1,897 5,971
Patient accounts receivable, net of allowance for doubtful accounts of
$8,085 and $10,005 27,641 39,986
Other receivables 2,434 2,113
Inventories 2,314 3,824
Prepaid expenses and other current assets 1,213 2,393
Assets held for sale 8,399 --
-------- --------
Total current assets 43,898 54,287
Property and equipment, net 81,187 122,199
Goodwill, net of accumulated amortization of $920 and $927 22,261 41,919
Other assets 2,156 1,359
-------- --------
Total assets 149,502 219,764
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses 19,189 20,014
Estimated third-party payor settlements 7,443 7,188
Current portion of capital lease obligations 340 447
Current portion of long-term debt 104,048 --
-------- --------
Total current liabilities 131,020 27,649
Capital lease obligations, excluding current portion 5,230 5,499
Long-term debt -- 103,300
Deferred income taxes 262 1,473
Stockholders' equity:
Common stock, $.01 par value; 50,000 shares authorized; 16,019 and 16,172 shares issued
and outstanding 160 162
Non-voting common stock, $.01 par value: 1,500 shares authorized; 1,423 shares
issued and outstanding 14 14
Treasury stock, 153 and 92 shares of common stock at cost (16) (5)
Additional paid-in capital 81,760 82,082
Common stock warrants 235 235
Deferred compensation (207) (507)
Accumulated deficit (68,956) (138)
-------- --------
Total stockholders' equity 12,990 81,843
-------- --------
Total liabilities and stockholders' equity 149,502 219,764
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
1
<PAGE> 4
NEW AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three months and nine months ended December 31, 1999 and 1998
(In thousands, except per share information)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------- --------------------
1999 1998 1999 1998
------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Net patient service revenue 37,015 46,891 129,350 118,617
Other revenue 425 1,264 2,129 3,398
------- -------- -------- --------
Net operating revenue 37,440 48,155 131,479 122,015
------- -------- -------- --------
Expenses:
Salaries and benefits 19,465 21,947 63,842 55,093
Professional fees 5,851 6,174 19,484 15,802
Supplies 4,782 5,366 16,338 13,305
Provision for doubtful accounts 3,893 3,520 15,133 9,618
General and administrative 1,127 1,086 3,567 2,518
Asset write-down, transition and other related costs 6,181 -- 54,756 --
Other 4,851 4,575 14,644 12,456
Depreciation and amortization 1,446 1,825 5,259 4,459
Interest 2,841 1,674 8,110 4,772
------- -------- -------- --------
50,437 46,167 201,133 118,023
------- -------- -------- --------
Income (loss) before income taxes and
extraordinary item (12,997) 1,988 (69,654) 3,992
Income taxes -- 795 (836) 1,597
------- -------- -------- --------
Income (loss) before extraordinary item (12,997) 1,193 (68,818) 2,395
Extraordinary item - loss on early extinguishment of debt
(net of tax of $89) -- -- -- 134
------- -------- -------- --------
(12,997) 1,193 (68,818) 2,261
Cumulative preferred dividend -- -- -- 710
------- -------- -------- --------
Net income (loss) attributable to common stockholders (12,997) 1,193 (68,818) 1,551
======= ======== ======== ========
Net income (loss) per share:
Basic
Continuing operations (0.75) 0.07 (3.94) 0.13
Extraordinary -- -- -- (0.01)
------- -------- -------- --------
(0.75) 0.07 (3.94) 0.12
======= ======== ======== ========
Diluted
Continuing operations (0.75) 0.07 (3.94) 0.11
Extraordinary -- -- -- (0.01)
------- -------- -------- --------
(0.75) 0.07 (3.94) 0.10
======= ======== ======== ========
Weighted average number of shares and dilutive
share equivalents outstanding:
Basic 17,442 17,596 17,462 12,849
======= ======== ======== ========
Diluted 17,442 18,093 17,462 15,521
======= ======== ======== ========
</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, 1999 and 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
-----------------
1999 1998
------ -------
<S> <C> <C>
Cash flows provided by (used in) operating activities (3,542) 2,290
------ -------
Cash flows from investing activities:
Purchase of property and equipment (5,755) (8,916)
Sale of property 289 250
Cash paid for acquisitions -- (60,716)
Cash proceeds from dispositions 5,318 --
------ -------
Net cash provided by (used in) investing activities (148) (69,382)
------ -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 7,400 70,250
Repayment of long-term debt (6,652) (14,500)
Repayment of notes payable to affiliates -- (25,000)
Repayment of capital lease obligations (363) (443)
Purchase of treasury stock (11) --
Issuance of common stock -- 58,013
Repayment of redeemable preferred stock -- (26,327)
Deferred financing costs (758) (286)
------ -------
Net cash provided by (used in) financing activities (384) 61,707
------ -------
Net decrease in cash (4,074) (5,385)
Cash and cash equivalents at beginning of period 5,971 6,119
------ -------
Cash and cash equivalents at end of period 1,897 734
====== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest 6,523 4,056
Cash paid during the period for income taxes 81 1,928
NONCASH INVESTING AND FINANCING ACTIVITIES:
Assets acquired and liabilities assumed in hospital acquisitions:
Receivables -- 11,715
Inventory -- 566
Prepaid expenses and other assets -- 964
Accounts payable and accrued expenses -- 4,568
Estimated third-party payor settlements -- 108
Capital lease obligations -- 1,161
Notes receivable issued in hospital disposition 3,484 --
</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 interim financial reporting
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 operations 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 included in the Company's Annual Report on Form
10-K for the year ended March 31, 1999.
(2) ASSET WRITE-DOWN, TRANSITION AND OTHER RELATED COSTS
Asset write-down, transition and other related costs totaling
approximately $6,181, $18,947 and $29,628 were recorded during the
quarters ended December 31, 1999, September 30, 1999 and June 30, 1999,
respectively. These charges were comprised of approximately $54,023 of
asset write-down costs, $703 of severance costs and $30 of other related
costs. The asset write-down costs related to four hospitals, two of which
were disposed of during the quarter ended September 30, 1999, as
discussed below, and two of which are held for sale as of December 31,
1999.
Assets held for sale totaled approximately $8,399 at December 31, 1999,
and consisted of current assets, property and equipment and other assets
from two hospitals associated with the asset write-downs during the nine
months ended December 31, 1999. The Company expects to dispose of the
assets by June 30, 2000. Net revenue and pre-tax losses from the
hospitals disposed of and held for sale totaled $7,948 and $2,847,
respectively, for the three months ended December 31, 1999 and $40,255
and $7,332, respectively, for the nine months ended December 31, 1999.
Net revenue and pre-tax income from the hospitals disposed of and held
for sale totaled $18,213 and $111, respectively, for the three months
ended December 31, 1998 and $51,493 and $2,091, respectively, for the
nine months ended December 31, 1998.
Effective August 1, 1999, the Company sold substantially all of the
assets of Davenport Medical Center, with the exception of patient
accounts receivable and estimated third-party payor settlements. The
facility had 149 licensed beds. The sales price of approximately $5,236
was received in cash. The value received approximated the net carrying
value of the assets sold.
Effective September 1, 1999, the Company sold substantially all of the
assets of Delta Medical Center, with the exception of estimated
third-party payor settlements. The facility had 243 licensed
4
<PAGE> 7
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except per share information)
beds. During the quarter ended September 30, 1999, the Company increased
the asset write-down recorded in the quarter ended June 30, 1999 for
Delta Medical Center to reflect a decrease in the anticipated purchase
price due to generally poor market conditions related to the sale of
hospitals. The sales price of approximately $3,584 was received through a
combination of $100 in cash and promissory notes totaling $3,484. The
promissory notes were secured by a $400 certificate of deposit held in
escrow and a lien on the property. On October 31, 1999, the purchaser of
Delta Medical Center was unable to pay a scheduled $2,000 promissory
note. The note was extended for sixty days in return for a $150 principle
payment and payment of all interest owed on the $2,000 promissory note as
of October 31, 1999. The purchasers were also unable to meet the
sixty-day extension so the note was extended for another thirty days.
During February 2000, the Company received $2,500 in full settlement of
all outstanding promissory notes.
(3) LONG-TERM DEBT
At December 31, 1999, the Company is in default of certain debt covenants
under the credit agreement and, beginning in December 1999, the Company
suspended interest payments on its credit agreement. The Company is
currently in discussions with its senior bank lenders with respect to the
bank lenders' response to the foregoing. There can be no assurance that
the bank lenders will not call the loans in default and demand the full
repayment of the loans. If the credit agreement is called, the Company
does not have sufficient assets to repay the entire outstanding balance
under the credit agreement.
On October 28, 1999, the Company amended the credit agreement to extend
the payment date of $5,348, originally due October 31, 1999, to February
28, 2000. In addition $8,000 is due October 31, 2000. Due to the debt
covenant violations and the uncertainty of being able to restructure the
credit agreement, the entire $104,048 of debt is considered current. The
Company plans to make a portion of this payment from the proceeds of the
hospitals held for sale. If the Company is unable to close the sale of
the hospitals for sufficient cash prior to February 28, 2000, the Company
does not expect to have sufficient cash available to pay the amount due
on February 28, 2000. There can be no assurance that the Company will be
able to obtain another extension from its lender.
(4) EARNINGS (LOSS) PER SHARE
The following table sets forth the components used in the computation of
basic and diluted earnings (loss) per share:
5
<PAGE> 8
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,
----------------- ------------------
1999 1998 1999 1998
------- ------ ------- -------
<S> <C> <C> <C> <C>
Numerator:
Income (loss) from operations before
extraordinary item (12,997) 1,193 (68,818) 2,395
Cumulative preferred dividends -- -- -- (710)
------- ------ ------- -------
Continuing operations (12,997) 1,193 (68,818) 1,685
Extraordinary item -- -- -- (134)
------- ------ ------- -------
Net income (loss) available to common
shareholders (12,997) 1,193 (68,818) 1,551
======= ====== ======= =======
Denominator:
Denominator for basic earnings per
share - weighted-average shares
outstanding 17,442 17,596 17,462 12,849
Effect of dilutive securities
Stock options -- 136 -- 138
Warrants -- 361 -- 370
Series B preferred stock -- -- -- 2,164
------- ------ ------- -------
Denominator for diluted earnings
per share 17,442 18,093 17,462 15,521
======= ====== ======= =======
</TABLE>
(5) CONTINGENCIES
On January 28, 2000, the Company announced the execution of a letter of
intent with respect to the sale of Crosby Memorial Hospital. Pursuant to
the letter of intent, the buyer would assume the Company's obligations
under a Lease Agreement dated October 29, 1998. In this lease agreement,
the Company is obligated to build a new, replacement facility for Crosby
Memorial Hospital within 30 months of the October 7, 1999 date that it
obtained a certificate of need for the new facility. If the Company fails
to meet this commitment, the Company must purchase the existing facility
for $15,000. In addition, the Company is obligated to post a performance
bond or other financial instrument within ninety days after obtaining the
certificate of need for the new facility to guarantee the construction of
the facility. The obligation for such bond became due in January 2000. As
of the date of this filing, the Company has not posted such bond or other
financial instrument. The Company has not been able to obtain such
performance bond or other financial instrument on reasonable commercial
terms. The failure to post such financial instrument is a default under
the agreement and may subject the Company to the payment of damages to
the seller. There can be no assurance that the seller will waive this
requirement nor can there be any assurance that if the bond requirement
is waived that the Company can fund either the new facility or the
$15,000 penalty payment under the terms of the agreement.
Effective immediately prior to the opening of the market on
February 3, 2000, the New York Stock Exchange ("NYSE") suspended trading
of the Company's common stock and applied to delist the Company's stock
from the NYSE. As a result, beginning February 3, 2000, trading of
6
<PAGE> 9
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except per share information)
the Company's common stock is conducted on the over-the-counter market
("OTC") or, upon application by broker-dealers, may be included the
NASD's Electronic Bulletin Board. To the Company's knowledge, no
broker-dealer has applied to become a market maker of the Company's
stock, which is required in order for the Company to be listed on the
"pink sheets" of the OTC or on the Electronic Bulletin Board.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
FORWARD-LOOKING STATEMENTS
Certain statements in this Report constitute forward-looking
statements. Such forward-looking statements (which may be identified by words
such as "anticipate," "believe," "estimate," "expect," "intend" and similar
expressions) involve known and unknown risks, uncertainties and other factors
that may cause the actual results, performance or achievements of New American
Healthcare Corporation (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:
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 affecting the Company's business, including the Balanced Budget Act
of 1997; changes in Medicare and Medicaid reimbursement levels; the Company's
ability to implement successfully its business strategy and changes in such
strategy; the ability to comply with the Company's existing bank covenants or
obtain amendments to such covenants; the availability and terms of financing to
fund the operation of the Company's business; the Company's liquidity and
capital resources; the Company's ability to attract and retain qualified
management personnel and to recruit and retain physicians and other health care
personnel to the non-urban markets it serves; the effect of managed care
initiatives on the non-urban 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 this Report. Certain of these factors are discussed
in more detail elsewhere in this Report. 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.
OVERVIEW
The Company operates nine acute care hospitals, two of which are held
for sale, with a total of 955 licensed beds and located in seven states
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 1999 has acquired ten additional hospitals
and disposed of two hospitals.
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,
8
<PAGE> 11
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 Consolidated Statements of Operations of the Company included
elsewhere in the report.
<TABLE>
<CAPTION>
THREE MONTHS PERCENTAGE
ENDED INCREASE
DECEMBER 31, (DECREASE)
--------------- OF DOLLAR
1999 1998 AMOUNTS
------ ------ ----------
<S> <C> <C> <C>
Net operating revenue 100.0% 100.0% (22.4%)
Operating expenses before depreciation
and amortization and interest 123.5% 88.6% 8.2%
------ ------
EBITDA(1) (23.5%) 11.4% (260.0%)
Depreciation and amortization 3.7% 3.7% (22.2%)
Interest 7.5% 3.5% 64.7%
------ ------
Income (loss) before income taxes and
extraordinary item (34.7%) 4.2% (750.0%)
Income taxes 0.0% 1.7% (100.0%)
------ ------
Net income (loss) attributable to common
stockholders (34.7%) 2.5% (1183.3%)
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS PERCENTAGE
ENDED INCREASE
DECEMBER 31, (DECREASE)
--------------- OF DOLLAR
1999 1998 AMOUNTS
------ ------ ----------
<S> <C> <C> <C>
Net operating revenue 100.0% 100.0% 7.8%
Operating expenses before depreciation
and amortization and interest 142.8% 89.2% 72.6%
------ ------
EBITDA(1) (42.8%) 10.8% (526.5%)
Depreciation and amortization 4.0% 3.7% 17.8%
Interest 6.2% 3.9% 68.8%
------ ------
Income (loss) before income taxes and
extraordinary item (53.0%) 3.2% (1887.2%)
Income taxes (0.7%) 1.3% (156.3%)
------ ------
Income (loss) before extraordinary item (52.3%) 1.9% (3091.3%)
Extraordinary item 0.0% 0.1% (100.0%)
Cumulative preferred dividend 0.0% 0.6% (100.0%)
------ ------
Net income (loss) attributable to common
stockholders (52.3%) 1.2% (4686.7%)
====== ======
</TABLE>
(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
9
<PAGE> 12
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.
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1998
Net operating revenue was $37.4 million for the three months ended
December 31, 1999, compared to $48.2 million for the comparable period of 1998,
a decrease of $10.8 million or 22.4%. Net operating revenue for the hospitals
owned during both three months ended December 31, 1999 and 1998, excluding the
hospital held for sale, was $25.0 million and $27.1 million, respectively. Net
operating revenue for the hospital held for sale owned during both three months
ended December 31, 1999 and 1998 was $3.4 million and $5.2 million,
respectively. The decrease for hospitals owned during both periods, excluding
the hospital held for sale, is primarily due to the effects of the Balanced
Budget Act of 1997. In addition, several markets have experienced managed care
pricing pressures.
Operating expenses less depreciation and amortization and interest were
$46.2 million, or 123.5% of net operating revenue, for the three months ended
December 31, 1999, compared to $42.7 million, or 88.6% of net operating revenue,
for the comparable period of 1998. During the three months ended December 31,
1999, the Company recorded asset write-down costs of $6.2 million. Operating
expenses less depreciation and amortization and interest for the hospitals owned
during both three months ended December 31, 1999 and 1998, excluding the
hospital held for sale and asset write-down costs, was $25.6 and $23.6 million,
respectively. Operating expenses less depreciation and amortization and interest
for the hospital held for sale owned during both three months ended December 31,
1999 and 1998 was $5.3 and $4.5 million, respectively. The increase for
hospitals owned during both periods, excluding the hospital held for sale, is
primarily due to an increase in corporate overhead costs and salary and
professional fees.
Depreciation and amortization expense was $1.4 million for the three
months ended December 31, 1999, compared to $1.8 million for the comparable
period of 1998, a decrease of $0.4 million or 22.2%. The decrease is primarily
due to a decrease in depreciation expense relating to dispositions. In addition,
the Company no longer records depreciation and amortization expense on the
assets held for sale.
Interest expense was $2.8 million for the three months ended December
31, 1999, compared to $1.7 million for the comparable period of 1998, an
increase of $1.1 million or 64.7%. The increase was primarily due to the
increase in average outstanding indebtedness associated with borrowings to
acquire two hospitals since September 1998 and an increase in the Company's
interest rate. The average debt outstanding for the three months ended December
31, 1999 and 1998 was $103.6 million and $86.6 million, respectively, bearing
interest at an average rate of 10.1% and 6.9% at the end of each respective
period.
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<PAGE> 13
NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1998
Net operating revenue was $131.5 million for the nine months ended
December 31, 1999, compared to $122.0 million for the comparable period of 1998,
an increase of $9.5 million or 7.8%. Net operating revenue for the hospitals
owned during both nine months ended December 31, 1999 and 1998, excluding the
hospital held for sale, remained steady at $58.4 million and $58.6 million,
respectively. Net operating revenue for the hospital held for sale owned during
both nine months ended December 31, 1999 and 1998 was $13.0 million and $15.9
million, respectively.
Operating expenses less depreciation and amortization and interest were
$187.8 million, or 142.8% of net operating revenue, for the nine months ended
December 31, 1999, compared to $108.8 million, or 89.2% of net operating
revenue, for the comparable period of 1998. During the nine months ended
December 31, 1999, the Company recorded asset write-down, transition and other
related costs of $54.8 million. Operating expenses less depreciation and
amortization and interest for the hospitals owned during both nine months ended
December 31, 1999 and 1998, excluding the hospital held for sale and asset
write-down costs, was $56.5 million and $52.3 million, respectively. Operating
expenses less depreciation and amortization and interest for the hospital held
for sale owned during both nine months ended December 31, 1999 and 1998 was
$15.7 million and $13.9 million, respectively. The increase for hospitals owned
during both periods, excluding the hospital held for sale, is primarily due to
an increase in corporate overhead costs and salary and professional fees.
Depreciation and amortization expense was $5.3 million for the nine
months ended December 31, 1999, compared to $4.5 million for the comparable
period of 1998, an increase of $0.8 million or 17.8%. The increase is primarily
due to an increase in depreciation expense relating to acquisitions.
Interest expense was $8.1 million for the nine months ended December
31, 1999, compared to $4.8 million for the comparable period of 1998, an
increase of $3.3 million or 68.8%. The increase was primarily due to the
increase in average outstanding indebtedness associated with borrowings to
acquire two hospitals since September 1998 and an increase in the Company's
interest rate. The average debt outstanding for the nine months ended December
31, 1999 and 1998 was $103.7 and $52.7 million, respectively, bearing interest
at an average rate of 10.1% and 6.9% at the end of each respective period.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had working capital (deficit) of
$(87.1) million including cash and cash equivalents of $1.9 million. The ratio
of current assets to current liabilities was 0.3 to 1.0 at December 31, 1999 and
2.0 to 1.0 at March 31, 1999.
Cash flows used in operating activities were $3.5 million for the nine
months ended December 31, 1999 compared to cash flows provided by operating
activities of $2.3 million for the comparable period of 1998. Cash flows used in
investing activities were $0.1 million for the nine months ended December 31,
1999, primarily related to the purchase of capital and equipment net of proceeds
from the disposition of Davenport Medical Center. Cash flows used in investing
activities were $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. Net cash used in financing activities
was $0.4 million for the nine months ended December 31, 1999, primarily due to
the repayment of long-term debt from the sale proceeds of Davenport Medical
Center. In addition, the Company had bank borrowings of $7.4 million related to
working capital expenditures. Net cash provided by financing activities was
$61.7 million for the nine
11
<PAGE> 14
months ended December 31, 1998, primarily from the Company's initial public
offering and borrowings related to the Puget Sound Hospital acquisition, net of
repayment of subordinated debt and preferred stock.
Capital expenditures, excluding acquisitions, for the nine months ended
December 31, 1999 and 1998 were $5.8 million and $8.9 million, respectively.
Capital expenditures related to management information systems ("MIS") (both
financial and clinical) were approximately $1.0 million for the nine months
ended December 31, 1999. Capital expenditures for the Company's hospitals will
vary from year to year depending on facility improvements and service
enhancements undertaken.
The Company's credit agreement provided for a revolving credit limit of
$116.0 million, which as of December 31, 1999 has been reduced to $110.0 million
as a result of a permanent reduction due to the application of the proceeds of
an asset sale. Borrowings under the facility bear interest of (i) a base rate
equal to the greater of the Prime Rate or the Federal Funds rate, plus in either
case, a margin of up to 2.75% or (ii) London Interbank Offered Rate as of the
date of borrowing plus a margin of up to 4%. The applicable margin is determined
by a ratio of indebtedness to EBITDAR, as defined in the Credit Agreement,
calculated on a monthly basis. The facility is due and payable November 30,
2002, and requires a permanent reduction of $12.0 million, which was extended
(see below), and an $8.0 million permanent reduction by October 31, 2000.
Additionally, the Company is required to pay down outstanding indebtedness upon
the sale of any facilities and beginning with the year ended March 31, 2000, by
the amount of any excess cash flow for the year, as defined within the
agreement, less $4.0 million of cash and cash equivalents to be maintained by
the Company.
At December 31, 1999, the Company is in default of certain debt
covenants under the credit agreement and, beginning in December 1999, the
Company suspended interest payments on its credit agreement. The Company is
currently in discussions with its senior bank lenders with respect to the bank
lenders' response to the foregoing. There can be no assurance that the bank
lenders will not call the loans in default and demand the full repayment of the
loans. If the credit agreement is called, the Company does not have sufficient
assets to repay the entire outstanding balance under the credit agreement.
On October 28, 1999, the Company amended the credit agreement to extend
the payment date of $5.3 million, originally due October 31, 1999, to February
28, 2000. In addition $8.0 million is due October 31, 2000. Due to the debt
covenant violations and the uncertainty of being able to restructure the credit
agreement, the entire $104.0 million of debt is considered current. The Company
plans to make a portion of this payment from the proceeds of the hospitals held
for sale. If the Company is unable to close the sale of the hospitals for
sufficient cash prior to February 28, 2000, the Company does not expect to have
sufficient cash available to pay the amount due on February 28, 2000. There can
be no assurance that the Company will be able to obtain another extension from
its lenders.
At December 31, 1999, $104.0 million of the credit agreement was
outstanding, an increase of $0.7 million from March 31, 1999. This increase is
comprised of $7.4 million of working capital draws, a $4.4 million repayment
from Davenport sale proceeds, and a $2.3 million repayment primarily from the
collections of Davenport accounts receivable and interest on notes receivable.
At December 31, 1999, the average borrowing rate on the credit agreement was
10.1%. As of December 31, 1999, there is $7.6 million available on the credit
agreement; however, the Company's ability to access these funds is contingent on
compliance with the terms of the credit agreement, some of the terms of which
the Company is not currently in compliance. The Company does not expect that
internally generated cash flows from earnings, existing
12
<PAGE> 15
cash balances, and proceeds from the sale of the two hospitals held for sale
will be sufficient to fund existing debt payments or future capital and working
capital requirements through fiscal year 2000.
Effective August 1, 1999, the Company sold substantially all of the
assets of Davenport Medical Center, with the exception of patient accounts
receivable and estimated third-party payor settlements. The facility had 149
licensed beds. The sales price of approximately $5.2 million was received in
cash. The value received approximated the net carrying value of the assets sold.
Effective September 1, 1999, the Company sold substantially all of the
assets of Delta Medical Center, with the exception of estimated third-party
payor settlements. The facility had 243 licensed beds. During the quarter ended
September 30, 1999, the Company increased the asset write-down recorded in the
quarter ended June 30, 1999 for Delta Medical Center to reflect a decrease in
the anticipated purchase price due to generally poor market conditions related
to the sale of hospitals. The sales price of approximately $3.6 million was
received through a combination of $0.1 million in cash and promissory notes
totaling $3.5 million. The promissory notes were secured by a $0.4 million
certificate of deposit held in escrow and a lien on the property. On October 31,
1999, the purchaser of Delta Medical Center was unable to pay a scheduled $2.0
million promissory note. The note was extended for sixty days in return for a
$0.2 million principle payment and payment of all interest owed on the $2.0
million promissory note as of October 31, 1999. The purchasers were also unable
to meet the sixty-day extension so the note was extended for another thirty
days. During February 2000, the Company received $2.5 million in full settlement
of all outstanding promissory notes.
On January 28, 2000, the Company announced the execution of a letter of
intent with respect to the sale of Crosby Memorial Hospital. Pursuant to the
letter of intent, the buyer would assume the Company's obligations under a Lease
Agreement dated October 29, 1998. In this lease agreement, the Company is
obligated to build a new, replacement facility for Crosby Memorial Hospital
within 30 months of the October 7, 1999 date that it obtained a certificate of
need for the new facility. If the Company fails to meet this commitment, the
Company must purchase the existing facility for $15.0 million. In addition, the
Company is obligated to post a performance bond or other financial instrument
within ninety days after obtaining the certificate of need for the new facility
to guarantee the construction of the facility. The obligation for such bond
became due in January 2000. As of the date of this filing, the Company has not
posted such bond or other financial instrument. The Company has not been able to
obtain such performance bond or other financial instrument on reasonable
commercial terms. The failure to post such financial instrument is a default
under the agreement and may subject the Company to the payment of damages to the
seller. There can be no assurance that the seller will waive this requirement
nor can there be any assurance that if the bond requirement is waived that the
Company can fund either the new facility or the $15.0 million penalty payment
under the terms of the agreement.
In addition to Crosby Memorial Hospital, the Company announced its
intentions to sell an additional hospital. The Company expects to dispose of
these assets by June 30, 2000. The funds provided by any dispositions will be
used to pay down outstanding indebtedness on the revolving credit facility.
DELISTING BY THE NEW YORK STOCK EXCHANGE
Effective immediately prior to the opening of the market on February 3,
2000, the New York Stock Exchange ("NYSE") suspended trading of the Company's
common stock and applied to delist the Company's stock from the NYSE. As a
result, beginning February 3, 2000, trading of the Company's common stock is
conducted on the over-the-counter market ("OTC") or, upon application by
broker-dealers,
13
<PAGE> 16
may be included the NASD's Electronic Bulletin Board. To the Company's
knowledge, no broker-dealer has applied to become a market maker of the
Company's stock, which is required in order for the Company to be listed on the
"pink sheets" of the OTC or on the Electronic Bulletin Board.
YEAR 2000 ISSUES
The inability of programming code in existing computer systems to
properly recognize dates and related potential date sensitive problems are
referred to as the Year-2000 situation. The Year-2000 situation could
potentially have an adverse impact on the Company's internal information systems
infrastructure, Company products which either contain or utilize digital devices
and the internal information systems of suppliers to the Company.
As of the date of this filing, the Company has not incurred any
significant business interruptions as a result of the Year-2000 situation.
However, while no such occurrence has developed as of the date of this filing,
Year-2000 problems may surface throughout the calendar year 2000. Therefore,
there is no assurance that the Company will not be negatively impacted by the
Year-2000 situation in the future. The Company will continue to monitor this
situation and expeditiously remediate any issues that may arise.
Based on the Company's readiness efforts, the Company currently does
not reasonably foresee any material Year-2000 issues, and therefore the costs
associated with potential Year-2000 issues that may arise during calendar year
2000 are not expected to have a material adverse effect on either the financial
condition or results of operations of the Company. However, there is no
guarantee that the Company will not incur significant business interruptions due
to the Year-2000 situation, whether due to the Company's own Year-2000 problems
or that of its customers or suppliers.
ENVIRONMENTAL MATTERS
The Company acquired Puget Sound Hospital in Tacoma, Washington in
September 1998. During its due diligence process, the Company discovered certain
environmental contamination involving underground storage tanks no longer in
use. Environmental consultants have developed a work plan to remediate such
existing contamination, which must be approved by the Washington State
Department of Ecology. Once the work plan is approved, remediation may begin.
The prior owner has agreed to fund all costs of such remediation.
Although the Company is not currently aware of any other material
environmental claims pending or threatened against it or any of its hospitals,
no assurances can be given that a material environmental claim will not be
asserted against the Company or against any of its hospitals. The costs of
defending against claims of liability, or of remediating a contaminated
property, could have a material adverse effect on the Company's business,
financial condition and results of operations.
14
<PAGE> 17
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
52.2% and 46.4% of hospital patient days for the nine months ended December 31,
1999 and 1998, respectively. The state Medicaid programs accounted for
approximately 20.5% and 12.3% of hospital patient days for the nine months ended
December 31, 1999 and 1998, 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 Balanced Budget Act of 1997 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 continue operations.
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
15
<PAGE> 18
hospitals was approximately 40.4% and 42.5% of gross patient service revenue for
the nine months ended December 31, 1999 and 1998, 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 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 was
amended by FAS 137 and is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. FAS 133 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.
16
<PAGE> 19
PART II.
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(i) Exhibits
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
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 Sixth Amendment and Waiver to the Second Amended and Restated
Credit Agreement dated as of January 6, 2000 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.
10.2 Seventh Amendment and Waiver to the Second Amended and Restated
Credit Agreement dated as of February 2, 2000 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).
</TABLE>
(b) Reports on Form 8-K
During the three months ended December 31, 1999, the
Company filed the following reports on Form 8-K:
(i) Form 8-K dated December 20, 1999, to inform the market of
the two press releases issued on December 9, 1999 and
December 15, 1999.
17
<PAGE> 20
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 21, 2000 NEW AMERICAN HEALTHCARE CORPORATION
By: /s/ Thomas W. Singleton
---------------------------------------
Chief Executive Officer
By: /s/ Timothy S. Hill
---------------------------------------
Chief Financial Officer
18
<PAGE> 1
EXHIBIT 10.1
SIXTH AMENDMENT AND WAIVER TO SECOND
AMENDED AND RESTATED CREDIT AGREEMENT
THIS SIXTH AMENDMENT AND WAIVER (this "Amendment") to the Second Amended
and Restated Credit Agreement referred to below is made as of January 6, 2000
by and among NEW AMERICAN HEALTHCARE CORPORATION, a Delaware 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 HERETO
(collectively, the "Banks"; individually, a "Bank").
W I T N E S S E T H
WHEREAS, the Borrower, the Agent, the Issuing Bank and the Banks are party
to that certain Second Amended and Restated Credit Agreement, dated as of May
14, 1999 (as amended, supplemented or otherwise modified from time to time,
prior to the date hereof, the "Credit Agreement"); and
WHEREAS, the Agent, the Issuing Bank and the Majority Banks have agreed to
amend certain provisions, and to waive certain violations, of the Credit
Agreement in the manner, and on the terms and conditions, set forth herein.
NOW, THEREFORE, 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
defined shall have the meanings ascribed to them in the Credit Agreement.
2. Amendment to Section 2.1. Section 2.1 of the Credit Agreement is hereby
amended by inserting the following new sentence at the end of such Section:
"Notwithstanding anything to the contrary, no Loan shall be made
hereunder at any time without the prior written consent of each Bank
other than Loans to fund Capital Expenditures in accordance with the
Capital Expenditures Budget attached hereto as Schedule 8.11."
3. Amendment to Section 8.11. Section 8.11 of the Credit Agreement is
hereby amended and restated in its entirety to read as follows:
<PAGE> 2
"The Borrower and its Subsidiaries shall not during any fiscal year
make Capital Expenditures other than in the amounts, at the times and
for the purposes identified in the Capital Expenditures Budget
attached hereto as Schedule 8.11."
4. Amendment to Section 11.3. Section 11.3 of the Credit Agreement is
hereby amended by deleting clause (e) thereof and inserting in lieu thereof a
new clause to read as follows:
"(e) amend (i) Section 2.1, (ii) this Section 11.3 or (iii) Schedule
8.11;"
5. Amendment to Schedule 8.11. Schedule 8.11 to the Credit Agreement is
hereby amended by deleting such Schedule in its entirety and inserting in lieu
thereof a new Schedule in attached hereto as Schedule 8.11.
6. Waiver. The Majority Banks hereby waive until January 15, 2000 any
Event of Default which arises solely from (a) the failure of the Borrower to
maintain a minimum Net Worth of at least $25,085,000 for the month ended
October 31, 1999, as required by Section 7.18(a)(iii) of the Credit Agreement,
(b) the failure of the Borrower to have EBITDAR of at least $990,000 for the
month ended October 31, 1999 and $1,008,000 for the month ended November 30,
1999, in each case, as required by Section 7.18(a)(iv) of the Credit Agreement,
and (c) the failure of the Borrower to maintain Accounts Payable and Accrued
Expenses Days Outstanding of not more than 45 for the month ended October 31,
1999, as required by Section 7.18(a)(vi) of the Credit Agreement.
7. Ratification of Credit Agreement. The Credit Agreement and the other
Loan Documents shall continue to be in full force and effect in accordance with
their respective terms and, except as expressly provided herein, shall be
unmodified. In addition, except as expressly provided herein, this Amendment
shall not be deemed a waiver of any term or condition of any Loan Document by
the Agent or the Banks with respect to any right or remedy which the Agent or
the Banks may now or in the future have under the Loan Documents, at law or in
equity or otherwise or be deemed to prejudice any rights or remedies which the
Agent or the Banks may now have or may have in the future under or in
connection with any Loan Document or under or in connection with any Incipient
Default or Event of Default which may now exist or which may occur after the
date hereof. Except as expressly provided herein, the Credit Agreement and all
other Loan Documents are hereby in all respects ratified and confirmed.
8. Representations and Warranties. The Borrower hereby represents and
warrants to the Banks that it is not aware of any Incipient Default or Event of
Default except for those expressly waived pursuant hereto or otherwise disclosed
in writing to Agent. The Borrower acknowledges that the Banks are relying on the
foregoing representation and warranty in making their decision to enter into
this Amendment.
<PAGE> 3
9. Outstanding Indebtedness: Waiver of Claims. The Borrower hereby
acknowledges and agrees that as of January 6, 2000 the outstanding principal
amount of the Loan is $104,048,336.15 and that such principal amount is payable
pursuant to the Credit Agreement without defense, offset, withholding,
counterclaim or deduction of any kind. The Borrower hereby further acknowledges
that it has no Claims (as hereinafter defined) against the Agent, the Issuing
Bank or the Banks and their respective employees, agents, representatives,
consultants, attorneys, fiduciaries, servants, officers, directors, partners,
predecessors, subsidiary corporations, parent corporations and related corporate
divisions and their respective successors and assigns (all of the foregoing
being the "Indemnified Persons") and hereby waives, releases, remises and
forever discharges Agent, the Issuing Bank, each Bank and each other Indemnified
Person from any and all Claims of any and every character, known or unknown,
direct and/or indirect, at law or in equity, of whatsoever kind or nature,
whether heretofore or hereafter arising, for or because of any matter or things
done, omitted or suffered to be done by any Indemnified Person prior to and
including the date hereof, and in any way directly or indirectly arising out of
or in any way connected to the Credit Agreement or any other Loan Document. For
purposes hereof, "Claims" shall mean all liabilities, obligations, losses,
damages, penalties, actions, judgements, suits or claims which may be instituted
or asserted against or incurred by such Indemnified Person as the result of
credit having been extended under the Credit Agreement or any other Loan
Document or otherwise arising in connection with the transactions contemplated
thereunder.
10. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
11. Effectiveness. This Amendment shall become effective upon receipt by
the Agent of nine original copies of this Amendment duly executed and delivered
by the borrower, the Agent, the Issuing Bank and the Majority Banks and
acknowledged by the Guarantors listed on the signature pages hereto.
12. Counterparts. This 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.
[SIGNATURE PAGES FOLLOW]
<PAGE> 4
IN WITNESS WHEREOF, each of the parties hereto has executed this Amendment
as of date and year first above written.
NEW AMERICAN HEALTHCARE CORPORATION
By:
------------------------------------
Name:
Title:
TORONTO DOMINION (TEXAS), INC.,
As Agent and a Bank
By: /s/ Jano Mott
------------------------------------
Name: Jano Mott
Title: Vice President
THE TORONTO-DOMINION BANK,
as Issuing Bank
By: /s/ Jano Mott
-------------------------------------
Name: Jano Mott
Title: Mgr. Syndications & Credit Admin.
BANK OF AMERICA, N.A. f/k/a
NATIONSBANK, N.A.
By: /s/ Charles A. Kerr
-------------------------------------
Name: Charles A Kerr
Title: Managing Director
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE> 5
By:
-------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK
By: /s/ Harvey R. Horowitz
-------------------------------------
Name: Harvey R. Horowitz
Title: Vice President
FIRST AMERICAN NATIONAL BANK
By:
-------------------------------------
Name:
Title:
NATIONAL CITY BANK OF KENTUCKY
By:
-------------------------------------
Name:
Title:
BANK ONE, N.A.
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE> 6
FIRST UNION NATIONAL BANK
By:
-------------------------------------
Name:
Title:
FIRST AMERICAN NATIONAL BANK
By: /s/ Samuel Ballesteros
-------------------------------------
Name: Samuel Ballesteros
Title: Senior Vice President
NATIONAL CITY BANK OF KENTUCKY
By: /s/ Jerrol Z. Miles
-------------------------------------
Name: Jerrol Z. Miles
Title: Senior Vice President
BANK ONE, N.A.
By:
-------------------------------------
Name:
Title:
AMSOUTH BANK
By: /s/ Samuel Ballesteros
-------------------------------------
Name: Samuel Ballesteros
Title: Senior Vice President
<PAGE> 7
The undersigned Guarantors hereby (i) acknowledge and consent to the amendments
and the waivers to the Credit Agreement effected by this Amendment and (ii)
confirm and agree that their obligations under their respective Guarantors shall
continue without any diminution thereof and shall remain in full force and
effect on and after the effectiveness of this Amendment.
NAHC OF MISSOURI, INC.
NAHC OF TEXAS, INC.
NAHC II OF TEXAS, INC.
NAHC FINANCIAL, INC.
NAHC OF IOWA, INC.
NAHC OF OREGON, INC.
NAHC II OF OREGON, INC.
NAHC III OF OREGON, INC.
NAHC OF WYOMING, INC.
NAHC COMPANY, INC.
NAHC GEORGIA HOLDINGS, INC.
NAHC OF MISSISSIPPI, INC.
NAHC OF WASHINGTON, INC.
MEMORIAL HOSPITAL OF ADEL, INC.
By: /s/ Dana C. McLendon, Jr.
--------------------------------
Name: Dana C. McLendon, Jr.
Title: Vice President-Secretary
NAHC LIMITED PARTNERSHIP
By: New American Healthcare Corporation,
Its General Partner
By: /s/ Dana C. McLendon, Jr.
---------------------------------
Senior Vice President - CAO
<PAGE> 8
IN WITNESS WHEREOF, each of the parties hereto has executed this Amendment
as of date and year first above written.
NEW AMERICAN HEALTHCARE CORPORATION
By: /s/ Dana C. McLendon, Jr.
-------------------------------------
Name: Dana C. McLendon, Jr.
Title: Senior Vice President - CAO
TORONTO DOMINION (TEXAS), INC.
As Agent and a Bank
By:
-------------------------------------
Name:
Title:
THE TORONTO-DOMINION BANK,
as Issuing Bank
By:
-------------------------------------
Name:
Title:
BANK OF AMERICA, N.A. f/k/a
NATIONSBANK, N.A.
<PAGE> 9
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
By: WCAS VII Partners,
as General Partner
By: /s/ Paul Queally
----------------------------------
Name: Paul Queally
Title: General Partner
<PAGE> 1
EXHIBIT 10.2
SEVENTH AMENDMENT AND WAIVER UNDER
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS SEVENTH AMENDMENT AND WAIVER (this "Amendment") to the Second Amended
and Restated Credit Agreement referred to below is made as of February 2, 2000
by and among NEW AMERICAN HEALTHCARE CORPORATION, a Delaware 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 HERETO (collectively,
the "Banks"; individually, a "Bank").
W I T N E S S E T H
WHEREAS, the Borrower, the Agent, the Issuing Bank and the Banks are party
to that certain Second Amended and Restated Credit Agreement, dated as of May
14,1999 (as amended, supplemented or otherwise modified from time to time, prior
to the date hereof, the "Credit Agreement"); and
WHEREAS, the Agent, the Issuing Bank and the Banks have agreed to amend the
Credit Agreement and to defer certain interest payments thereunder in the
manner, and on the terms and conditions, provided for herein.
NOW, THEREFORE, 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 defined shall have the meanings ascribed to them in the Credit
Agreement.
2. AMENDMENT TO SECTION 2.1(A). Section 2.1(a) of the Credit
Agreement is hereby amended by deleting the last sentence thereof and inserting
the following new sentence in lieu thereof:
"Notwithstanding anything to the contrary, no Loan shall be made
hereunder at any time without the prior written consent of each
Bank."
3. DELIVERIES OF REQUIRED INFORMATION. On or before the dates set
forth on Schedule 1, the Borrower shall deliver to the Agent, in form and
substance satisfactory to the Agent, the information identified in Schedule I
(the "Required Information").
4. DEFERRAL OF INTEREST PAYMENTS. The Borrower hereby acknowledges
that, as of the date hereof, interest was payable by the Borrower under the
Credit Agreement and the Notes on the following dates and in the following
amounts:
<PAGE> 2
<TABLE>
<CAPTION>
Payment Date Amount of Interest Payment
------------ --------------------------
<S> <C>
December 13, 1999 $752,115.91
December 22, 1999 $ 16,041.67
December 29, 1999 $ 61,359.38
January 6, 2000 $ 18,083.33
January 13, 2000 $836,791.21
</TABLE>
Notwithstanding anything to the contrary, the parties hereto agree
that the foregoing scheduled interest payments on the Loans, together with any
other fees, expenses and interest, due under the Credit Agreement shall be
deferred until February 10, 2000 on which date such amounts shall be due and
payable in full, provided, however, if the Required Information is not delivered
on or before the dates set forth in Schedule I, such deferral shall
automatically terminate on the date such Required Information was due. Any
failure to pay such amounts on February 10, 2000, or such earlier due date in
the event any Required Information is not delivered on or before the date such
Required Information is due, shall constitute an immediate Event of Default for
any and all purposes under the Credit Agreement and the other Loan Documents.
5. RATIFICATION OF CREDIT AGREEMENT. Except as expressly provided,
herein, the Credit Agreement and the other Loan Documents shall continue to be
in full force and effect in accordance with their respective terms and shall be
unmodified. In addition, except as expressly provided herein, this Amendment
shall not be deemed a waiver of any term or condition of any Loan Document by
the Agent or the Banks with respect to any right or remedy which the Agent or
the Banks may now or in the future have under the Loan Documents, at law or in
equity or otherwise or be deemed to prejudice any rights or remedies which the
Agent or the Banks may now have or may have in the future under or in connection
with any Loan Document or under or in connection with any Incipient Default or
Event of Default which may now exist or which may occur after the date hereof.
Except as expressly provided herein, the Credit Agreement and all other Loan
Documents are hereby in all respects ratified and confirmed.
6. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents
and warrants to the Banks that it is not aware of any Incipient Default or Event
of Default other than those expressly waived pursuant hereto or otherwise
disclosed in writing to the Agent. The Borrower acknowledges that the Banks are
relying on the foregoing representation and warranty in making their decision to
enter into this Amendment.
7. OUTSTANDING INDEBTEDNESS; WAIVER OF CLAIMS. The Borrower hereby
acknowledges and agrees that as of February 1, 2000 the outstanding principal
amount of the Loan is $107,057,121.15 and that such principal amount is payable
pursuant to the Credit Agreement without defense, offset, withholding,
counterclaim or deduction of any kind. The Borrower hereby further acknowledges
that it has no Claims (as hereinafter defined) against the Agent, the Issuing
Bank or the Banks and their respective employees, agents, representatives,
consultants, attorneys, fiduciaries, servants, officers, directors, partners,
predecessors,
<PAGE> 3
subsidiary corporations, parent corporations and related corporate divisions and
their respective successors and assigns (all of the foregoing being the
"Indemnified Persons") and hereby waives, releases, remises and forever
discharges Agent, the Issuing Bank, each Bank and each other Indemnified Person
from any and all Claims of any and every character, known or unknown, direct
and/or indirect, at law or in equity, of whatsoever kind or nature, whether
heretofore or hereafter arising, for or because of any matter or things done,
omitted or suffered to be done by any Indemnified Person prior to and including
the date hereof, and in any way directly or indirectly arising out of or in any
way connected to the Credit Agreement or any other Loan Document. For purposes
hereof, "Claims" shall mean all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits or claims which may be instituted or
asserted against or incurred by such Indemnified Person as the result of credit
having been extended under the Credit Agreement or any other Loan Document or
otherwise arising in connection with the transactions contemplated thereunder.
8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
9. EFFECTIVENESS. This Amendment shall become effective upon
receipt by the Agent of nine original copies of this Amendment duly executed and
delivered by the Borrower, the Agent, the Issuing Bank and the Banks and
acknowledged by the Guarantors listed on the signatures pages hereto.
10. COUNTERPARTS. This 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.
[SIGNATURE PAGES FOLLOW]
<PAGE> 4
IN WITNESS WHEREOF, each of the parties hereto has executed this Amendment
as of date and year first above written.
NEW AMERICAN HEALTHCARE CORPORATION
By: /s/ Thomas W. Singleton
--------------------------------------
Name: Thomas W. Singleton
Title: President
TORONTO DOMINION (TEXAS), INC.,
As Agent and a Bank
By:
--------------------------------------
Name:
Title:
THE TORONTO-DOMINION BANK,
as Issuing Bank
By:
--------------------------------------
Name:
Title:
BANK OF AMERICA., N.A. f/k/a
NATIONSBANK, N.A.
By:
---------------------------------------
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE> 5
FIRST UNION NATIONAL BANK
By:
-----------------------------------
Name:
Title:
FIRST AMERICAN NATIONAL BANK
By:
------------------------------------
Name:
Title:
NATIONAL CITY BANK OF KENTUCKY
By:
------------------------------------
Name:
Title:
BANK ONE, N.A.
By:
------------------------------------
Name:
Title:
AMSOUTH BANK
By:
------------------------------------
Name:
Title:
<PAGE> 6
The undersigned Guarantors hereby (i) acknowledge and consent to the amendment
of the Credit Agreement and the waiver of payment default and deferral of
interest payments effected by this Amendment and (ii) confirm and agree that
their obligations under their respective Guaranties shall continue without any
diminution thereof and shall remain in full force and effect on and after the
effectiveness of this Amendment.
NAHC OF MISSOURI, INC.
NAHC OF TEXAS, INC.
NAHC II OF TEXAS, INC.
NAHC FINANCIAL, INC.
NAHC OF IOWA, INC.
NAHC OF OREGON, INC.
NAHC II OF OREGON, INC.
NAHC III OF OREGON, INC.
NAHC OF WYOMING INC.
NAHC COMPANY INC.
NAHC GEORGIA HOLDINGS, INC.
NAHC OF MISSISSIPPI, INC.
NAHC OF WASHINGTON INC.
MEMORIAL HOSPITAL OF ADEL, INC.
By: /s/ Thomas W. Singleton
--------------------------------
Name: Thomas W. Singleton
Title: President
NAHC LIMITED PARTNERSHIP
By: Now American Healthcare Corporation,
Its General Partner
By: /s/ Thomas W. Singleton
--------------------------------
Name: Thomas W. Singleton
Title: President
<PAGE> 7
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
By: WCAS VII Partners,
as General Partner
By:
---------------------------------
Name:
Title:
<PAGE> 8
SCHEDULE I
INFORMATION DUE JANUARY 31, 2000
1. Management Contract. The Borrower shall deliver a term sheet regarding
management's proposal for managing and selling the Hospitals, including any
proposed compensation and commission terms.
2. Cash Flow Projections. The Borrower and its Subsidiaries shall deliver
thirteen (13) week rolling cash flow projections, broken down by each Hospital
and the corporate office and reconciled with the Borrower's long-term
projections. Updates of such cash flow projections shall be delivered on a
weekly basis, with each update providing an explanation of any variances with
the prior week.
3. Bank Accounts. The Borrower and its Subsidiaries shall supplement the
bank account information set forth in Schedule 7.20 to the Credit Agreement by
providing Agent with the current balance of each account set forth in such
Schedule. Upon request of Agent, the Borrower and its Subsidiaries shall update
such Schedule and account balance information and provide such supporting detail
and documentation as shall be requested by Agent.
4. Reimbursement/Government Claims. The Borrower and its Subsidiaries shall
identify and quantify all known and/or projected third party reimbursement
settlements (payables and receivables) or government claims by Hospital,
together with the expected date of payment or receipt of such payables and/or
receivables, as the case may be.
5. Reserves. The Borrower and its Subsidiaries shall provide an estimate of
reserves, on a Hospital by Hospital basis, expected to be required for third
party settlements insurance obligations and any other reserve items to be
retained subsequent to the sale of any Hospital.
6. Capital Expenditures. The Borrower and its Subsidiaries shall provide a
detailed budget of essential Capital Expenditures, on a Hospital by Hospital
basis, as well as an aggregate basis, for the six-month period ending June 30,
2000. Updates of such Capital Expenditures budget shall be delivered to the
Agent on the last Business Day of each Fiscal Quarter, commencing with the
Fiscal Quarter ending March 31, 2000.
7. Public Relations Plan. The Borrower and its Subsidiaries shall provide a
Plan describing the method and timing of communicating the plan described below
to all relevant parties, including trade creditors, doctors, employees,
community leaders and regulators.
<PAGE> 9
INFORMATION DUE FEBRUARY 3, 2000
1. Plan. The Agent acknowledges receipt from the Borrower and its
Subsidiaries of a comprehensive operating plan (the "Plan"), including time
frames for proposed sales of hospitals and healthcare facilities (collectively,
the "Hospitals"), staffing and expense projections, as well as management and
key employee retention and incentive proposals. The Borrower and its
Subsidiaries shall deliver to the Agent a revised copy of such plan,
incorporating all comments previously provided by the Agent.
2. Severance Agreements/Incentive Bonuses. The Agent acknowledges receipt
from the Borrower and its Subsidiaries of a plan proposing severance agreements,
stay bonuses and similar employee retention arrangements at the corporate and
local hospital levels. The Borrower and its Subsidiaries shall deliver to the
Agent a revised copy of such plan, incorporating all comments previously
provided by the Agent
ADDITIONAL REPORTING REQUIREMENTS
1. Monthly Financial Projections. On the first day of each calendar month,
the Borrower and its Subsidiaries shall deliver monthly financial projections,
including income statements, balance sheets and statements of cash flow,
together with appropriate supporting details and a statement of underlying
assumptions, for each month remaining in the estimated sale period. Such
projections shall be prepared for each Hospital, the corporate office and the
Borrower and its Subsidiaries on a consolidated basis.
2. Monthly Financials. The Borrower and its Subsidiaries shall deliver
monthly income statements, balance sheets and statements of cash flow within
thirty-five (35) days after each month's end for the period commencing on
January 1, 2000 through and including July 31, 2001. Such financials shall be
prepared for each Hospital, the corporate office and each Subsidiary.
3. Capital Expenditure Reconciliations. Upon request of Agent, and in no
event less frequently than Friday of each calendar week, the Borrower shall
provide a reconciliation of actual Capital Expenditures made by Borrower and its
Subsidiaries and Loans made to fund Capital Expenditures (which Capital
Expenditures have not yet been made) with the Capital Expenditures Budget, which
reconciliation shall be in form and substance satisfactory to Agent and
accompanied by such supporting detail and documentation as shall be requested by
Agent.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,897
<SECURITIES> 0
<RECEIVABLES> 35,726
<ALLOWANCES> 8,085
<INVENTORY> 2,314
<CURRENT-ASSETS> 43,898
<PP&E> 89,283
<DEPRECIATION> 8,096
<TOTAL-ASSETS> 149,502
<CURRENT-LIABILITIES> 131,020
<BONDS> 0
0
0
<COMMON> 174
<OTHER-SE> 12,816
<TOTAL-LIABILITY-AND-EQUITY> 149,502
<SALES> 0
<TOTAL-REVENUES> 131,479
<CGS> 0
<TOTAL-COSTS> 201,133
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 15,133
<INTEREST-EXPENSE> 8,110
<INCOME-PRETAX> (69,654)
<INCOME-TAX> (836)
<INCOME-CONTINUING> (68,818)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (68,818)
<EPS-BASIC> (3.94)
<EPS-DILUTED> (3.94)
</TABLE>
