- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-K
Amendment No. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995
[ ] 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. 1-6639
MAGELLAN HEALTH SERVICES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 58-1076937
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 841-9200
See Table of Additional Registrants below.
---------------------------
Securities registered pursuant to Section 12(b)
of the Act: Name of each exchange
on which registered
Title of each class
Common Stock ($0.25 par value) American Stock Exchange
11 1/4% Series A Senior Subordinated Notes due 2004 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
---------------------------
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any mendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at November 30, 1995 was approximately $510 million.
Indicate by check mark whether the Registrant has filed all documents and
eports required to be filed by Section 12, 13 or 15(d) of the Securities
xchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
The number of shares of the Registrant's Common Stock outstanding as of November
30, 1995 was 28,415,081.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's Proxy
Statement for the annual meeting of stockholders (which Proxy Statement will be
filed with the Securities and Exchange Commission on or before January 29, 1996)
are incorporated by reference in Part III hereof.
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PAGE>
<TABLE>
<CAPTION>
ADDITIONAL REGISTRANTS(1)
State or Address including zip code,
Exact name of jurisdiction I.R.S. Employer including area code,
registrant as specified of incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- -----------------------
<S> <C> <C> <C>
Beltway Community Texas 58-1324281 3414 Peachtree Rd., N.E.
Hospital, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
C.A.C.O. Services, Inc. Ohio 58-1751511 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
CCM, Inc. Nevada 58-1662418 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
CMCI, Inc. Nevada 88-0224620 1061 East Flamingo Road
Suite One
Las Vegas, NV 89119
(702) 737-0282
CMFC, Inc. Nevada 88-0215629 1061 East Flamingo Road
Suite One
Las Vegas, NV 89119
(702) 737-0282
CMSF, Inc. Florida 58-1324269 3550 Colonial Boulevard
Fort Myers, FL 33912
(813) 939-0403
CPS Associates, Inc. Virginia 58-1761039 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Alvarado California 58-1394959 7050 Parkway Drive
Behavioral Health La Mesa, CA 91942-2352
System, Inc. 619) 465-4411
Charter Appalachian Hall North Carolina 58-2097827 60 Caledonia Road
Behavioral Health Asheville, NC 28803
System, Inc. (704) 253-3681
Charter Arbor Indy Indiana 35-1916340 11075 N. Pennsylvania
Behavioral Health Indianapolis, IN 46280
System, Inc. (317) 575-1000
Charter Augusta Georgia 58-1615676 3100 Perimeter Parkway
Behavioral Health P.O. Box 14939
System, Inc. Augusta, GA 30909
(404) 868-6625
i
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- -----------------------
Charter Bay Harbor Behavioral Florida 58-1640244 3414 Peachtree Rd., N.E.
Health System, Inc. Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Beacon Behavioral Indiana 58-1524996 1720 Beacon Street
Health System, Inc. Fort Wayne, IN 46805
(219) 423-3651
Charter Behavioral Health New Jersey 58-2097832 19 Prospect Street
System at Fair Oaks, Inc. Summit, NJ 07901
(908) 277-9102
Charter Behavioral Health Maryland 52-1866212 522 Thomas Run Road
System at Hidden Brook, Inc. Bel Air, MD 21014
(410) 879-1919
Charter Behavioral Health California 33-0606642 3340 Los Coyotes Diagonal
System at Los Altos, Inc. Long Beach, CA 90808
(310) 421-9311
Charter Behavioral Health Florida 65-0519663 1324 37th Avenue, East
System at Manatee Adolescent Bradenton, FL 4208
Treatment Services, Inc. (813) 746-1388
Charter Behavioral Health Maryland 52-1866221 14901 Broschart Road
System at Potomac Ridge, Inc. Rockville, MD 20850
(301) 251-4500
Charter Behavioral Health Georgia 58-1513304 240 Mitchell Bridge Road
System of Athens, Inc. Athens, GA 30606
(404) 546-7277
Charter Behavioral Health Texas 58-1440665 8402 Cross Park Drive
System of Austin, Inc. Austin, TX 78754
(512) 837-1800
Charter Behavioral Health Texas 76-0430571 3414 Peachtree Rd., N.E.
System of Baywood, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health Florida 58-1527678 4480 51st Street, West
System of Bradenton, Inc. Bradenton, FL 34210
(813) 746-1388
Charter Behavioral Health Georgia 58-1408670 3500 Riverside Drive
System of Central Georgia, Inc. Macon, GA 31210
(912) 474-6200
Charter Behavorial Health Virginia 54-1765921 1500 Westbrook Avenue
System of Central Virginia, Inc. Richmond, VA 23227
(804) 266-9671
ii
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- -----------------------
Charter Behavioral Health South Carolina 58-1761157 2777 Speissegger Drive
System of Charleston, Inc. Charleston, SC 29405-8299
(803) 747-5830
Charter Behavioral Health Virginia 58-1616917 2101 Arlington Boulevard
System of Charlottesville, Inc. Charlottesville, VA 22903-1593
(804) 977-1120
Charter Behavioral Health Illinois 58-1315760 4700 North Clarendon Avenue
System of Chicago, Inc. Chicago, IL 60640
(312) 728-7100
Charter Behavioral Health California 58-1473063 3414 Peachtree Rd., N.E.
System of Chula Vista, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health Missouri 61-1009977 200 Portland Street
System of Columbia, Inc. Columbia, MO 65201
(314) 876-8000
Charter Behavioral Health Texas 58-1513305 3126 Rodd Field Road
System of Corpus Christi, Inc. Corpus Christi, TX 78414
(512) 993-8893
Charter Behavioral Health Texas 58-1513306 6800 Preston Road
System of Dallas, Inc. Plano, TX 75024
(214) 964-3939
Charter Behavioral Health Maryland 52-1866214 3680 Warwick Road, Route 1
System of Delmarva, Inc. East New Market, MD 21631
(410) 943-8108
Charter Behavioral Health Indiana 35-1916338 7200 East Indiana
System of Evansville, Inc. Evansville, IN 47715
(812) 476-7200
Charter Behavioral Health Texas 58-1643151 3414 Peachtree Rd., N.E.
System of Fort Worth, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health Mississippi 58-1616919 3531 Lakeland Drive
System of Jackson, Inc. Jackson, MS 39208
(601) 939-9030
Charter Behavioral Health Florida 58-1483015 3947 Salisbury Road
System of Jacksonville, Inc. Jacksonville, FL 32216
(904) 296-2447
Charter Behavioral Health Indiana 35-1916342 2700 River City Park Drive
System of Jefferson, Inc. Jeffersonville, IN 47130
(812) 284-3400
iii
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Behavioral Health Kansas 58-1603154 8000 West 127th Street
System of Kansas City, Inc. Overland Park, KS 66213
(913) 897-4999
Charter Behavioral Health Louisiana 72-0686492 302 Dulles Drive
System of Lafayette, Inc. Lafayette, LA 70506
(318) 233-9024
Charter Behavioral Health Louisiana 62-1152811 4250 Fifth Avenue, South
System of Lake Charles, Inc. Lake Charles, LA 70605
(318) 474-6133
Charter Behavioral Health Indiana 35-1916343 3714 S. Franklin Street
System of Michigan City, Inc. Michigan City, IN 46360
(219) 872-0531
Charter Behavioral Health Alabama 58-1569921 3414 Peachtree Rd., N.E.
System of Mobile, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health New Hampshire 02-0470752 29 Northwest Boulevard
System of Nashua, Inc. Nashua, NH 03063
(603) 886-5000
Charter Behavioral Health Nevada 58-1321317 7000 West Spring Mountain Rd.
System of Nevada, Inc. Las Vegas, NV 89117
(702) 876-4357
Charter Behavioral Health New Mexico 58-1479480 5901 Zuni Road, SE
System of New Mexico, Inc. Albuquerque, NM 87108
(505) 265-8800
Charter Behavioral Health California 58-1857277 101 Cirby Hills Drive
System of Northern California, Roseville, CA 95678
Inc. (916) 969-4666
Charter Behavioral Health Arkansas 58-1449455 4253 Crossover Road
System of Northwest Arkansas, Fayetteville, AR 72703
Inc. (501) 521-5731
Charter Behavioral Health Indiana 58-1603160 101 West 61st Avenue
System of Northwest Indiana, State Road 51
Inc. Hobart, IN 46342
(219) 947-4464
Charter Behavioral Health Kentucky 61-1006115 435 Berger Road
System of Paducah, Inc. Paducah, KY 42002-7609
(502) 444-0444
Charter Behavioral Health Georgia 66-0523678 Caso Bldg., Suite 1504
of Puerto Rico, Inc. 1225 Ponce de Leon Avenue
Santurce, PR 00907
iv
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Behavioral Health California 58-1747020 455 Silicon Valley Boulevard
System of San Jose, Inc. San Jose, CA 95138
(408) 224-2020
Charter Behavioral Health Georgia 58-1750583 1150 Cornell Avenue
System of Savannah, Inc. Savannah, GA 31406
(912) 354-3911
Charter Behavioral Health Florida 58-1616916 4004 North Riverside Drive
System of Tampa Bay, Inc. Tampa, FL 33603
(813) 238-8671
Charter Behavioral Health Arkansas 71-0752815 3414 Peachtree Rd., N.E.
System of Texarkana, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health California 95-2685883 2055 Kellogg Drive
System of the Inland Empire, Corona, CA 91719
Inc. (714) 735-2910
Charter Behavioral Health Ohio 58-1731068 1725 Timberline Road
System of Toledo, Inc. Maumee, Ohio 43537
(419) 891-9333
Charter Behavioral Health Arizona 86-0757462 3414 Peachtree Rd., N.E.
System of Tucson, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health California 33-0606644 3414 Peachtree Rd., N.E.
System of Visalia, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health Minnesota 41-1775626 109 North Shore Drive
System of Waverly, Inc. Waverly, MN 55390
(612) 658-4811
Charter Behavioral Health North Carolina 56-1050502 3637 Old Vineyard Road
System of Winston-Salem, Inc. Winston-Salem, NC 27104
(919) 768-7710
Charter Behavioral Health California 33-0606646 16850 Bastanchury Avenue
System of Yorba Linda, Inc. Yorba Linda, CA 92686
(714) 993-3002
Charter Behavioral Health Georgia 58-1900736 811 Juniper St., N.E.
Systems of Atlanta, Inc. Atlanta, GA 30308
(404) 881-5800
v
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- -----------------------
Charter Brawner Behavioral Georgia 58-0979827 3414 Peachtree Rd., N.E.
Health System, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter By-The-Sea Georgia 58-1351301 2927 Demere Road
Behavioral Health System, St. Simons Island, GA 31522
Inc. (912) 638-1999
Charter Canyon Behavioral Utah 58-1557925 3414 Peachtree Rd., N.E.
Health System, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Canyon Springs California 33-0606640 69696 Ramon Road
Behavioral Health System, Cathedral City, CA 92234
Inc. (619) 321-2000
Charter Centennial Peaks Colorado 58-1761037 2255 South 88th Street
Behavioral Health System, Louisville, CO 80027
Inc. (303) 673-9990
Charter Community Hospital, California 58-1398708 21530 South Pioneer Boulevard
Inc Hawaiian Gardens, CA 90716
(310) 860-0401
Charter Contract Services, Georgia 58-2100699 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Cove Forge Behavioral Pennsylvania 25-1730464 New Beginnings Road
Health System, Inc. Williamsburg, PA 16693
(814) 832-2121
Charter Fairbridge Maryland 52-1866218 14907 Broschart Road
Behavioral Health System, Rockville, MD 20850
Inc. (301) 251-4565
Charter Fairmount Behavioral Pennsylvania 58-1616921 561 Fairthorne Avenue
Health System, Inc. Philadelphia, PA 19128
(215) 487-4000
Charter Fenwick Hall South Carolina 57-0995766 3414 Peachtree Rd., N.E.
Behavioral Health System, Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
Charter Financial Offices, Georgia 58-1527680 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
vi
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Forest Behavioral Louisiana 58-1508454 9320 Linwood Avenue
Health System, Inc. Shreveport, LA 71106
(318) 688-3930
Charter Grapevine Behavioral Texas 58-1818492 2300 William D. Tate Ave.
Health System, Inc. Grapevine, TX 76051
(817) 481-1900
Charter Greensboro Behavioral North Carolina 58-1335184 700 Walter Reed Drive
Health System, Inc. Greensboro, NC 27403
(919) 852-4821
Charter Health Management Texas 58-2025056 6800 Park Ten Blvd.
of Texas, Inc. Suite 275-W
San Antonio, TX 78213
(210) 699-8585
Charter Hospital of Ohio 58-1598899 3414 Peachtree Rd., N.E.
Columbus, Inc. Suite 1400
Atlanta, GA 30326
404) 841-9200
Charter Hospital of Denver, Colorado 58-1662413 3414 Peachtree Rd., N.E.
Inc Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Ft. Colorado 58-1768534 3414 Peachtree Rd., N.E.
Collins, Inc Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Laredo, Texas 58-1491620 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Miami, Florida 61-1061599 11100 N.W. 27th Street
Inc. Miami, FL 33172
(305) 591-3230
Charter Hospital of Mobile, Alabama 58-1318870 5800 Southland Drive
Inc. Mobile, AL 36693
(334) 661-3001
Charter Hospital of Santa New Mexico 58-1584861 3414 Peachtree Rd., N.E.
Teresa, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of St. Louis, Missouri 58-1583760 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
vii
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Hospital of Torrance, California 58-1402481 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Indianapolis Indiana 58-1674291 5602 Caito Drive
Behavioral Health System, Indianapolis, IN 46226
Inc. (317) 545-2111
Charter Lafayette Behavioral Indiana 58-1603158 3700 Rome Drive
Health System, Inc. Lafayette, IN 47905
(317) 448-6999
Charter Lakehurst New Jersey 22-3286879 3414 Peachtree Rd., N.E.
Behavioral Health System, Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
Charter Lakeside Behavioral Tennessee 62-0892645 2911 Brunswick Road
Health System, Inc. Memphis, TN 38134
(901) 377-4700
Charter Laurel Heights Georgia 58-1558212 3414 Peachtree Rd., N.E.
Behavioral Health System, Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
Charter Linden Oaks Illinois 36-3943776 852 West Street
Behavioral Health System, Naperville, IL 60540
Inc. (708) 305-5500
Charter Little Rock Behavioral Arkansas 58-1747019 1601 Murphy Drive
Health System, Inc. Maumelle, AR 72113
(501) 851-8700
Charter Louisville Behavioral Kentucky 58-1517503 1405 Browns Lane
Health System, Inc. Louisville, KY 40207
(502) 896-0495
Charter Meadows Maryland 52-1866216 730 Maryland, Route 3
Behavioral Health System, Gambrills, MD 21054
Inc. (410) 923-6022
Charter Medfield Behavioral Florida 58-1705131 12891 Seminole Blvd.
Health System, Inc. Largo, FL 34648
(813) 581-8757
Charter Medical - California, Georgia 58-1357345 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
viii
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Medical - Clayton Georgia 58-1579404 3414 Peachtree Rd., N.E.
County, Inc. Suite 1400
Atlant30326
(404) 841-9200
Charter Medical - Cleveland, Texas 58-1448733 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlant30326
(404) 841-9200
Charter Medical - Dallas, Texas 58-1379846 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlant30326
(404) 841-9200
Charter Medical - Long California 58-1366604 3414 Peachtree Rd., N.E.
Beach, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical - New York, New York 58-1761153 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlant30326
(404) 841-9200
Charter Medical (Cayman Cayman Islands, BWI 58-1841857 Caledonian Bank & Trust
Islands) Ltd. Swiss Bank Building
Caledonian House
Georgetown-Grand Cayman
Cayman Islands
(809) 949-0050
Charter Medical Executive Georgia 58-1538092 3414 Peachtree Rd., N.E.
Corporation Suite 1400
Atlanta, Ga 30326
(404) 841-9200
Charter Medical Information Georgia 58-1530236 3414 Peachtree Rd., N.E.
Services, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical International, Cayman Islands, BWI N/A Caledonian Bank & Trust
Inc Swiss Bank Building
Caledonian House
Georgetown-Grand Cayman
Cayman Islands
(809) 949-0050
Charter Medical International, Nevada 58-1605110 3414 Peachtree Rd., N.E.
S.A., Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
ix
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Medical Management Georgia 58-1195352 3414 Peachtree Rd., N.E.
Company Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical of East Arizona 58-1643158 2190 N. Grace Boulevard
Valley, Inc. Chandler, AZ 85224
(602) 899-8989
Charter Medical of England, United Kingdom N/A 111 Kings Road
Ltd. Box 323
London SW3 4PB
London, England
44-71-351-1272
Charter Medical of Florida, Florida 58-2100703 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical of North Arizona 58-1643154 6015 W. Peoria Avenue
Phoenix, Inc. Glendale, AZ 85302
(602) 878-7878
Charter Medical of Puerto Commonwealth of 58-1208667 Caso Building, Suite 1504
Rico, Inc. Puerto Rico 1225 Ponce De Leon Avenue
Santurce, P.R. 00907
(809) 723-8666
Charter Mental Health Florida 58-2100704 3414 Peachtree Rd., N.E.
Options, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Milwaukee Behavioral Wisconsin 58-1790135 11101 West Lincoln Avenue
Health System, Inc. West Allis, WI 53227
(414) 327-3000
Charter Mission Viejo California 58-1761156 23228 Madero
Behavioral Health System, Mission Viejo, CA 92691
Inc. (714) 830-4800
Charter MOB of Virginia 58-1761158 1023 Millmont Avenue
Charlottesville, Inc. Charlottesville, VA 22901
(804) 977-1120
Charter North Behavioral Alaska 58-1474550 2530 DeBarr Road
Health System, Inc. Anchorage, AK 99508-2996
(907) 258-7575
Charter Northbrooke Wisconsin 39-1784461 46000 W. Shroeder Drive
Behavioral Health System, Brown Deer, WI 53223
Inc. (414) 355-2273
x
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter North Counseling Alaska 58-2067832 2530 DeBarr Road
Center, Inc. Anchorage, AL 99508-2996
(907) 258-7575
Charter Northridge Behavioral North Carolina 58-1463919 400 Newton Road
Health System, Inc. Raleigh, NC 27615
(919) 847-0008
Charter Oak Behavioral California 58-1334120 1161 East Covina Boulevard
Health System, Inc. Covina, CA 91724
(818) 966-1632
Charter of Alabama, Inc. Alabama 63-0649546 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Palms Behavioral Texas 58-1416537 1421 E. Jackson Avenue
Health System, Inc. McAllen, TX 78502
(512) 631-5421
Charter Peachford Behavioral Georgia 58-1086165 2151 Peachford Road
Health System, Inc. Atlanta, GA 30338
(404) 455-3200
Charter Petersburg Behavioral Virginia 58-1761160 3414 Peachtree Rd., N.E.
Health System, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Pines Behavioral North Carolina 58-1462214 3621 Randolph Road
Health System, Inc. Charlotte, NC 28211
(704) 365-5368
Charter Plains Behavioral Texas 58-1462211 801 N. Quaker Avenue
Health System, Inc. Lubbock, TX 79408
(806) 744-5505
Charter-Provo School, Inc. Utah 58-1647690 4501 North University Ave.
Provo, UT 84604
(801) 227-2000
Charter Real Behavioral Texas 58-1485897 8550 Huebner Road
Health System, Inc. San Antonio, TX 78240
(512) 699-8585
Charter Regional Medical Texas 74-1299623 3414 Peachtree Rd., N.E.
Center, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Ridge Behavioral Kentucky 58-1393063 3050 Rio Dosa Drive
Health System, Inc. Lexington, KY 40509
(606) 269-2325
xi
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Rivers Behavioral South Carolina 58-1408623 2900 Sunset Boulevard
Health System, Inc. West Columbia, SC 29169
(803) 796-9911
Charter San Diego Behavioral California 58-1669160 11878 Avenue of Industry
Health System, Inc. San Diego, CA 92128
(619) 487-3200
Charter Sioux Falls Behavioral South Dakota 58-1674278 2812 South Louise Avenue
Health System, Inc. Sioux Falls, SD 57106
(605) 361-8111
Charter South Bend Behavioral Indiana 58-1674287 6704 N. Gumwood Drive
Health System, Inc. Granger, IN 46530
(219) 272-9799
Charter Springs Behavioral Florida 58-1517461 3130 S.W. 27th Avenue
Health System, Inc. Ocala, FL 32674
(904) 237-7293
Charter Springwood Virginia 58-2097829 Route 4, Box 50
Behavioral Health System, Leesburg, VA 22075
Inc. (703) 777-0800
Charter Suburban Hospital Texas 75-1161721 3414 Peachtree Rd., N.E.
of Mesquite, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Terre Haute Behavioral Indiana 58-1674293 1400 Crossing Boulevard
Health System, Inc. Terre Haute, IN 47802
(812) 299-4196
Charter Thousand Oaks California 58-1731069 150 Via Merida
Behavioral Health System, Thousand Oaks, CA 91361
Inc. (805) 495-3292
Charter Treatment Center of Michigan 58-2025057 3414 Peachtree Rd., N.E.
Michigan, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Westbrook Behavioral Virginia 54-0858777 1500 Westbrook Avenue
Health System, Inc. Richmond, VA 23227
(804) 266-9671
Charter White Oak Maryland 52-1866223 1441 Taylors Island Road
Behavioral Health System, Woolford, MD 21677
Inc. (410) 228-7000
Charter Wichita Behavioral Kansas 58-1634296 8901 East Orme
Health System, Inc. Wichita, KS 67207
(316) 686-5000
xii
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Woods Behavioral Alabama 58-1330526 700 Cottonwood Road
Health System, Inc. Dothan, AL 36301
(205) 794-4357
Desert Springs Hospital, Inc. Nevada 88-0117696 414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Employee Assistance Services, Georgia 58-1501282 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Florida Health Facilities, Florida 58-1860493 21808 State Road 54
Inc. Lutz, FL 33549
(813) 948-2441
Gulf Coast EAP Services, Alabama 58-2101394 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Hospital Investors, Inc. Georgia 58-1182191 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Ga 30326
(404) 841-9200
Illinois Mentor, Inc. Illinois 36-3643670 45 Milk Street
Boston, MA 02109
(617) 654-0500
Magellan Public Solutions, Delaware 04-3250732 45 Milk Street
Inc. Boston, MA 02109
(617) 654-0500
Mandarin Meadows, Inc. Florida 58-1761155 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Massachusetts Mentor, Inc. Massachusetts 04-2799071 45 Milk Street
Boston, MA 02109
(617) 654-0500
National Mentor, Inc. Delaware 04-2794857 45 Milk Street
Boston, MA 02109
(617) 654-0500
National Mentor Healthcare, Massachusetts 04-2893910 45 Milk Street
Inc. Boston, MA 02109
(617) 654-0500
xiii
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
NEPA - Massachusetts, Inc. Massachusetts 58-2116751 #6 Courthouse Lane
Chelmsford, MA 01863
(508) 441-2332
NEPA - New Hampshire, Inc. New Hampshire 58-2116398 29 Northwest Boulevard
Nashua, NH 03063
(603) 886-5000
Ohio Mentor, Inc. Ohio 31-1098345 45 Milk Street
Boston, MA 02109
(617) 654-0500
Pacific-Charter Medical, Inc. California 58-1336537 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
South Carolina Mentor, Inc. South Carolina 57-0782160 45 Milk Street
Boston, MA 02109
(617) 654-0500
Southeast Behavioral Systems, Georgia 58-2100700 3414 Peachtree Rd., N.E.
Inc Suite 1400
Atlanta, GA 30326
(404) 841-9200
Schizophrenia Treatment and Georgia 58-1672912 209 Church Street
Rehabilitation, Inc. Decatur, GA 30030
(404) 377-1986
Sistemas De Terapia Georgia 58-1181077 3414 Peachtree Rd., N.E.
Respiratoria, S.A., Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Western Behavioral California 58-1662416 3414 Peachtree Rd., N.E.
Systems, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
</TABLE>
(1) The Additional Registrants listed are wholly-owned subsidiaries of the
Registrant and are guarantors of the Registrant's 11 1/4% Series A
Senior Subordinated Notes due 2004. The Additional Registrants have
been conditionally exempted, pursuant to Section 12(h) of the
Securities Exchange Act of 1934, from filing reports under Section 13
of the Securities Exchange Act of 1934.
xiv
<PAGE>
<TABLE>
<CAPTION>
MAGELLAN HEALTH SERVICES, INC.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended September 30, 1995
Table of Contents
Page
PART I
<S> <C> <C> <C> <C>
Item 1. Business 1
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market Price for Registrant's Common Equity and Related 13
Stockholder Matters 13
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 23
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 23
PART III
Item 10. Directors and Executive Officers of the Registrant 24
Item 11. Executive Compensation 24
Item 12. Security Ownership of Certain Beneficial Owners and Management 24
Item 13. Certain Relationships and Related Transactions 24
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K 25
</TABLE>
<PAGE>
PART I
Item 1. Business
General
Magellan Health Services, Inc. (the "Company") (formerly Charter
Medical Corporation) , which was incorporated in 1969, is a behavioral
healthcare company. As of September 30, 1995, the Company operated 98 acute
care psychiatric hospitals and four residential treatment centers with an
aggregate capacity of 8,939 licensed beds. Ninety-three of the Company's
hospitals operate partial hospitalization programs, and the Company operates
144 outpatient centers, staffed by mental health professionals. In this report,
the Company uses the term "psychiatric hospitals" or "hospitals" to refer
to the 98 facilities licensed as acute care psychiatric hospitals and the four
facilities licensed as residential treatment centers. A residential
treatment center offers less intensive and longer stay services than acute
care psychiatric hospitals.
The Company's business strategy is to develop and operate fully
integrated behavioral healthcare delivery systems in certain markets in which it
presently operates one or more hospitals and in selected other markets in which
the Company does not presently operate a hospital. The fully integrated delivery
systems that the Company is developing offer a comprehensive range of behavioral
healthcare services including inpatient treatment, day and partial
hospitalization services, group and individual outpatient treatment, residential
treatment programs and other less intensive behavioral healthcare services. The
Company is establishing such systems by using its hospitals as a base and by
arranging for other services through acquisitions, contracts or affiliations
with physicians, psychologists and other mental health professionals and, in
some markets, with general acute care hospitals and other institutional
healthcare providers.
Recent Developments
Green Spring Health Services Acquisition
On December 13, 1995, the Company acquired a 51% ownership interest in
Green Spring Health Services, Inc. ("Green Spring") for approximately $73.2
million in cash and Common Stock and the contribution of Group Practice
Affiliates ("GPA"), a wholly-owned Magellan subsidiary, which became a
wholly-owned subsidiary of Green Spring. GPA was organized by the Company for
the purpose of acquiring and managing professional group practices and has
acquired five group practices through September 30, 1995. Green Spring is a
leading provider of managed behavioral healthcare services, which includes
utilization management, care management and employee assistance programs through
a 50-state provider network for approximately 12 million people nationwide.
The Green Spring acquisition creates the first fully integrated
national behavioral healthcare system and gives the Company the capability to
provide case management and delivery services to large private organizations and
a public sector marketplace seeking increased privatization of services. The
Company changed its name to Magellan Health Services, Inc. on December 21, 1995
to reflect the broader range of services it expects to provide as a result of
the Green Spring acquisition.
The Company will operate its integrated national behavioral healthcare
system through three principal subsidiaries beginning in fiscal 1996 engaging in
(i) the provider business, (ii) the managed care business and (iii) the
public sector business. Each principal subsidiary will operate autonomously and
enter into contractual arrangements with the other subsidiaries as necessary.
The minority shareholders of Green Spring consist of four Blue
Cross/Blue Shield organizations (the "Blues") that are key customers of Green
Spring. In addition, two other Blues organizations that formerly owned a portion
of Green Spring will continue as customers of Green Spring. The minority
shareholders of Green Spring will have the option, under certain circumstances,
to exchange their ownership interests ("exchange option") in Green Spring for
<PAGE>
approximately 3.6 million shares of Magellan Common Stock or $81.8 million in
subordinated notes. The Company may elect to pay cash in lieu of issuing the
subordinated notes. The exchange option expires December 13, 1998.
On December 20, 1995, the Company acquired an additional 10% ownership
interest in Green Spring for approximately $16.7 million in cash as a result of
an exchange option exercised by certain of the minority shareholders of Green
Spring. The Company has a 61% ownership interest in Green Spring subsequent to
the exercise of the aforementioned exchange option.
Fiscal 1994 and Prior Developments
NME Acquisition
During fiscal 1994, the Company agreed to acquire 40 psychiatric
hospitals (the "Acquired Hospitals") from National Medical Enterprises, Inc.
("NME"). The purchase price for the Acquired Hospitals was approximately $120.4
million in cash plus an additional cash amount of approximately $51 million,
subject to adjustment, for the net working capital of the Acquired Hospitals
(the "Hospital Acquisition".) The Acquired Hospitals had an aggregate capacity
of 2,873 licensed beds when acquired and were located in 19 states. For their
fiscal year ended May 31, 1994, the Acquired Hospitals had net revenue of
approximately $315.1 million.
On June 30, 1994, the Company completed the purchase of 27 of the
Acquired Hospitals for a cash purchase price of approximately $129.6 million,
which included approximately $39.3 million, subject to adjustment, for the net
working capital of the facilities. On October 31, 1994, the Company completed
the purchase of three additional Acquired Hospitals for a cash purchase price of
approximately $5 million, which included approximately $2.2 million related to
the net working capital of the facilities. On November 30, 1994, the Company
completed the purchase of the remaining ten Acquired Hospitals for a cash
purchase price of approximately $36.8 million, including approximately $9.5
million related to the net working capital of the ten Acquired Hospitals. During
the year ended September 30, 1995, the Company received approximately $3.5
million from NME as a partial payment related to the settlement of the
working capital portion of the purchase price. The Company accounted for the
Hospital Acquisition using the purchase method of accounting.
Debt Refinancing
In order to finance the Hospital Acquisition and to refinance
substantially all of the Company's outstanding long-term debt, on May 2, 1994,
the Company entered into a Second Amended and Restated Credit Agreement with
certain financial institutions for a five-year reducing, revolving credit
facility in an aggregate committed amount of $300 million (the "Revolving Credit
Agreement") and issued $375 million of 11 1/4% Series A Senior Subordinated
Notes which mature on April 15, 2004 (the "Notes") and are general unsecured
obligations of the Company. (See Note 6 of the Company's Consolidated Financial
Statements.)
Sale of General Hospitals
On September 30, 1993, the Company sold its general hospitals and
related assets to Quorum, Inc. for approximately $338 million. The Company
retained the assets and liabilities relating to these hospitals for professional
liability claims incurred and cost report settlements for periods prior to
September 30, 1993.
For fiscal 1993, the general hospitals had net revenue of approximately
$347 million, a net loss of approximately $15 million, and admissions and
patient days of 39,669 and 205,843, respectively. In 1993, the Company restated
its consolidated financial statements to reflect the sales of the general
hospitals and its interest in a non-hospital subsidiary as discontinued
operations.
<PAGE>
Financial Restructuring
In its 1992 fiscal year, the Company completed a restructuring of its
debt and equity capitalization (the "Restructuring") pursuant to a prepackaged
plan of reorganization filed under Chapter 11 of the United States Bankruptcy
Code (the "Plan"), which became effective on July 21, 1992. As a result of the
Restructuring, the Company's long-term debt was reduced by approximately $700
million and its redeemable preferred stock of $233 million was eliminated. The
holders of the debt and preferred stock that were reduced or eliminated received
approximately 97% of the Company's common stock outstanding on July 21, 1992.
Psychiatric Hospital Operations
The Company's psychiatric hospitals in operation on September 30, 1995
are located in well-populated urban and suburban locations in 32 states and two
foreign countries. Five of the Company's hospitals are affiliated with medical
schools for residency and other post-graduate teaching programs.
Most of the Company's hospitals offer a full continuum of behavioral
care in their service area. The continuum includes inpatient hospitalization,
partial hospitalization, intensive outpatient services and, in some markets,
residential treatment services.
The Company's hospitals provide structured and intensive treatment
programs for mental health and alcohol and drug dependency disorders in
children, adolescents and adults. The specialization of programs enables the
clinical staff to provide care that is specific to the patient's needs and
facilitates monitoring the patient's progress. A typical treatment program of
the Company integrates physicians and other patient-care professionals with
structured activities, providing patients with testing, adjunctive therapies
(occupational, recreational and other), group therapy, individual therapy and
educational programs. A treatment program includes one or more of the types of
treatment settings provided by the Company's continuum of care. For those
patients who do not have a personal psychiatrist or other specialist, the
hospital refers the patient to a member of its medical staff.
A significant portion of hospital admissions are provided by referrals
from former patients, local marketplace advertising, managed care organizations
and physician referrals. Professional relationships are an important aspect of
the Company's ongoing business. Management believes the quality of the Company's
treatment programs, staff employees and physical facilities are important
factors in maintaining good professional relationships.
The Company's hospitals work closely with mental health professionals,
non-psychiatric physicians, emergency rooms and community agencies that come in
contact with individuals who may need treatment for mental illness or substance
abuse. A portion of the Company's marketing efforts is directed at increasing
general awareness of mental health and addictive disease and the services
offered by the Company's hospitals.
Seasonality
The Company's business is seasonal in nature, with a reduced demand for
certain services generally occurring in the first fiscal quarter around major
holidays, such as Thanksgiving and Christmas, and during the summer months
comprising the fourth fiscal quarter.
Related Businesses
As part of the Company's business strategy during the past three fiscal
years, the Company (i) acquired a company that develops information systems
relating to the financing and delivery of behavioral healthcare services, (ii)
acquired a company that provides outpatient treatment for schizophrenia
patients, and (iii) acquired a company that provides specialized health services
in mentor homes. To date, the activities of these subsidiaries have not been
material to the Company.
<PAGE>
Hospital Properties
The following table provides information relating to the 102 hospitals
operated by the Company as of September 30, 1995.
<TABLE>
<CAPTION>
State/Country Number of Hospitals Number of Licensed Beds
------------- ------------------- -----------------------
<S> <C> <C>
Alabama 2 169
Alaska 1 74
Arizona 2 170
Arkansas 2 125
California 11 889
Colorado 1 72
England 2 123
Florida 10 833
Georgia 8 840
Illinois 2 215
Indiana 10 746
Kansas 2 160
Kentucky 3 256
Louisiana 3 259
Maryland 6 350
Massachusetts 2 215
Minnesota 1 40
Mississippi 1 111
Missouri 1 96
Nevada 1 84
New Hampshire 1 100
New Jersey 1 150
New Mexico 2 172
North Carolina 4 398
Ohio 1 38
Pennsylvania 2 265
South Carolina 3 260
South Dakota 1 60
Switzerland 1 69
Tennessee 1 204
Texas 8 662
Utah 1 212
Virginia 3 362
Wisconsin 2 160
----- -----
Total 102 8,939
===== =====
</TABLE>
All of the Company's hospitals located in the United States have been
accredited by the Joint Commission on Accreditation of Healthcare Organizations
(the "Joint Commission"). The Joint Commission is a national commission which
establishes standards relating to the physical plant, administration, quality of
patient care, governing body and medical staffs of hospitals.
<PAGE>
The Company operates 13 leased hospitals, including one 150-bed general
hospital, not listed above, which is managed by an unaffiliated third party. The
leases for such hospitals have terms expiring between 1996 and 2069. The leases
for two hospitals contain options to purchase these hospitals for nominal
consideration at the end of their respective lease terms.
Sixty-two of the Company's hospitals listed above are subject to
mortgages. The stock of substantially all of the domestic subsidiaries of the
Company has been pledged as collateral for the Company's secured bank financing.
The Company owns 16 medical office buildings and leases an additional
19 such buildings. Five of the Company's medical office buildings are subject to
mortgages.
The Company leases office space for its outpatient centers. The leases
generally have terms of less than five years.
Divestitures
During fiscal 1995, the Company sold the following facilities:
<TABLE>
<CAPTION>
Location Size/Type of Facility Date
-------- --------------------- ----
<S> <C> <C>
Chesapeake, VA Outpatient psychiatric hospital December 1994
Norfolk, VA 65-bed psychiatric hospital December 1994
Virginia Beach, VA 61-bed psychiatric hospital December 1994
</TABLE>
In addition, the Company leases, with options to purchase by the
lessees, three facilities which it previously operated prior to fiscal 1991. The
Company is also attempting to sell or lease 11 other previously operated
hospitals and related medical office buildings and certain unimproved real
estate.
Competition
Each of the Company's hospitals competes with other hospitals, some of
which are larger and have greater financial resources. Some competing hospitals
are owned and operated by governmental agencies, others by nonprofit
organizations supported by endowments and charitable contributions and others by
proprietary hospital corporations. The hospitals frequently draw patients from
areas outside their immediate locale and, therefore, the Company's hospitals
may, in certain markets, compete with both local and distant hospitals. In
addition, the Company's hospitals compete not only with other psychiatric
hospitals, but also with psychiatric units in general hospitals, and outpatient
services provided by the Company may compete with private practicing mental
health professionals. The competitive position of a hospital is, to a
significant degree, dependent upon the number and quality of physicians who
practice at the hospital and who are members of its medical staff. The Company
has entered into joint venture arrangements with other healthcare providers in
certain markets to promote more efficiency in the local delivery system.
In recent years, the competitive position of hospitals has been
affected by the ability of such hospitals to obtain contracts with Preferred
Provider Organizations ("PPO's"), Health Maintenance Organizations ("HMO's") and
other managed care programs to provide inpatient and other services. Such
contracts normally involve a discount from the hospital's established charges,
but provide a base of patient referrals. These contracts also frequently provide
for pre-admission certification and for concurrent length of stay reviews. The
importance of obtaining contracts with HMO's, PPO's and other managed care
companies varies from market to market, depending on the individual market
strength of the managed care companies. The Company's acquisition of Green
Spring creates opportunities to increase its revenues through managed
care contracts utilizing the continuum of care described above, information
systems that support care management and at-risk pricing mechanisms.
State certificate of need laws place limitations on the Company's and
its competitors' ability to build new hospitals and to expand existing
hospitals. Protection from new competition is reduced in those states where
there is no certificate of need law. The Company operates 44 hospitals in 12
states (Arizona, Arkansas, California, Colorado, Indiana, Kansas, Louisiana,
Nevada, New Mexico, South Dakota, Texas and Utah) which do not have certificate
of need
<PAGE>
laws applicable to hospitals. In most cases, these state laws do not restrict
the ability of the Company or its competitors to offer new outpatient services.
Industry Trends
The Company's hospitals have been adversely affected by factors
influencing the entire psychiatric hospital industry. Factors which affect the
Company include (i) the imposition of more stringent length of stay and
admission criteria by payors; (ii) the failure of reimbursement rate increases
from certain payors that reimburse on a per diem or other discounted basis to
offset increases in the cost of providing services; (iii) an increase in the
percentage of its business that the Company derives from payors that reimburse
on a per diem or other discounted basis; (iv) a trend toward higher deductible
and co-insurance for individual patients; and (v) a trend toward limiting
employee health benefits, such as reductions in annual and lifetime limits on
mental health coverage. In response to these conditions, the Company has (i)
strengthened controls to reduce costs and capital expenditures, (ii) reviewed
its portfolio of hospitals and sold, closed or leased hospitals or consolidated
operations in certain locations, (iii) developed strategies to increase
outpatient services and partial hospitalization programs to meet the demands of
the marketplace, and (iv) created a national, fully integrated behavioral
healthcare system upon acquiring Green Spring in December 1995, thereby
improving the Company's ability to obtain contracts with large private and
public payors.
Governmental Budgetary Constraints and Healthcare Reform
In the 1995 session of the United States Congress, the focus of
healthcare legislation has been on budgetary and related funding mechanism
issues. A number of reports, including the 1995 Annual Report of the Board of
Trustees of the Federal Hospital Insurance Program (Medicare) have projected
that the Medicare "trust fund" is likely to become insolvent by the year 2002 if
the current growth rate of approximately 10% per annum in Medicare expenditures
continues. Similarly, federal and state expenditures under the Medicaid program
are projected to increase significantly during the same seven-year period. In
response to these projected expenditure increases, and as part of an effort to
balance the federal budget, both the Congress and the Clinton Administration
have made proposals to reduce the rate of increase in projected Medicare and
Medicaid expenditures and to change funding mechanisms and other aspects of both
programs. Congress has passed legislation that would reduce projected
expenditure increases substantially and would make significant changes in the
Medicare and the Medicaid programs. The Clinton Administration has
proposed alternate measures to reduce, to a lesser extent, projected
increases in Medicare and Medicaid expenditures. As of the date of this
filing, neither proposal has become law.
The Medicare legislation that has been adopted by Congress
would, with some differences, reduce projected expenditure increases by a
variety of means, including reduced payments to providers (including the
Company), increased beneficiary premiums for physician and certain other
services, and creation of incentives for Medicare beneficiaries to
enroll in managed care plans or to accept Medicare coverage with a
substantially increased deductible, with the savings being available to the
beneficiaries to pay non-covered expenses. Changes in the Medicaid program
would reduce the number and extent of federal mandates concerning how state
Medicaid programs operate (including levels of benefits provided and levels of
payments to providers) and would change the funding mechanism from a sharing
formula between the federal government and a state to "block grant" funding. The
Company cannot predict the effect of any such legislation, if adopted, on its
operations; but the Company anticipates that, although overall Medicare and
Medicaid funding may be reduced from projected levels, the changes in such
programs may provide opportunities to the Company to obtain increased Medicare
and Medicaid business through risk-sharing or partial risk-sharing contracts
with managed care plans and state Medicaid programs.
Although the United States Congress, in 1995, has not considered
healthcare reform proposals, the Company anticipates that numerous healthcare
reform proposals will continue to be introduced in future sessions of Congress.
The Company cannot predict whether any such proposal will be adopted or the
effect on the Company of any proposal that does become law.
<PAGE>
A number of states in which the Company has operations have either
adopted or are considering the adoption of healthcare reform proposals of
general applicability or Medicaid reform proposals, partly in response to
possible changes in Medicaid law. Where adopted, these state reform laws have
often not yet been fully implemented. The Company cannot predict the effect of
these state healthcare reform and Medicaid reform laws on its operations.
Sources of Revenue
Payments are made to the Company's hospitals by patients, by insurance
companies and self-insured employers, by the federal and state governments under
Medicare, Medicaid, CHAMPUS and other programs and by HMO's, PPO's and other
managed care programs. Amounts received under government programs, HMO, PPO and
other managed health care arrangements, certain self-insured employers and
certain Blue Cross plans are generally less than the hospital's established
charges. The approximate percentages of gross patient revenue (which is revenue
before deducting contractual allowances and discounts from established billing
rates) derived by the Company's hospitals from various payment sources for the
last three fiscal years were as follows:
<TABLE>
<CAPTION>
Percentage of Hospital Gross
Patient Revenue for the Year
Ended September 30
---------------------------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Medicare........................................................ 23% 27% 26%
Medicaid........................................................ 15 16 17
-- -- --
38 43 43
HMO's and PPO's................................................. 11 14 17
CHAMPUS......................................................... 6 5 4
Other Government Programs....................................... -- 3 6
Other (primarily Blue Cross and Commercial Insurance)........... 45 35 30
-- -- --
Total........................................................... 100% 100% 100%
=== === ===
</TABLE>
Most private insurance carriers reimburse their policyholders or make
direct payments to the hospitals for charges at rates specified in their
policies. The patient remains responsible to the hospital for any difference
between the insurance proceeds and the total charges. Certain Blue Cross
programs have negotiated reimbursement rates with certain of the Company's
hospitals which are less than the hospital's established charges.
Most of the Company's hospitals have entered into contracts with HMO's,
PPO's, certain self-insured employers and other managed care plans which provide
for reimbursement at rates less than the hospital's normal charges. In addition
to contracts entered into by individual hospitals with such managed care plans,
the Company has entered into regional and national contracts with HMO's, PPO's,
self-insured employers and other managed care plans that apply to all of the
Company's hospitals in the geographic areas covered by a contract. The Company
is seeking to obtain additional regional and national contracts. The Company
expects its percentage of revenue from these payor sources to increase in the
future.
Under the Medicare provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 ("TEFRA"), costs per Medicare case are determined for
each of the Company's hospitals. A target cost per case is established for each
year (the "Target Rate"). If a hospital's costs per case are less than the
Target Rate, the hospital receives a bonus of 50% of the difference between its
actual costs per case and the Target Rate (limited to 5% of the Target Rate).
Hospitals with costs which exceed the Target Rate are paid an additional amount
equal to 50% of the excess, up to 10% of the Target Rate. These limits apply
only to operating costs and do not apply to capital costs, including lease
expense, depreciation and interest associated with capital expenditures. The
Target Rate for each hospital is increased annually by the application of an
"update factor."
<PAGE>
Most of the Company's hospitals participate in state operated Medicaid
programs. Current federal law prohibits Medicaid funding for inpatient services
in freestanding psychiatric hospitals for patients between the ages of 21 and
64; proposed legislation would eliminate this prohibition if implemented. Each
state is responsible for establishing the Medicaid eligibility and coverage
criteria, payment methodology and funding mechanisms which apply in that state,
subject to federal guidelines. Accordingly, the level of Medicaid payments
received by the Company's hospitals varies from state to state. In addition to
the basic payment level for patient care, several state programs include a
financial benefit for hospitals which treat a disproportionately large volume of
Medicaid patients as a percentage of the total patient population. These
"disproportionate share" benefits are subject to annual review and revision by
the related state governments and could be substantially reduced or eliminated
at any point in the future. The Omnibus Budget Reconciliation Act of 1993 ("OBRA
93") prohibits disproportionate share payments to hospitals which have a
Medicaid utilization rate of less than 1% effective for state fiscal years
ending in 1994. For state fiscal years which began on or after January 1, 1995,
the amount of disproportionate share payments each hospital can receive is
limited through the use of formulas based generally on the cost of providing
services to Medicaid and uninsured patients. The Company received approximately
$15 million, $11 million and $9 million in Medicaid disproportionate share
payments in fiscal 1993, 1994 and 1995, respectively.
Within the statutory framework of the Medicare and Medicaid programs,
there are substantial areas subject to administrative rulings and
interpretations which may affect payments made under either or both of such
programs. In addition, federal or state governments could reduce the future
funds available under such programs or adopt additional restrictions on
admissions and more stringent requirements for utilization of services. These
types of measures could adversely affect the Company's operations. Final
determination of amounts payable under Medicare and certain Medicaid programs
are subject to review and audit. The Company's management believes that adequate
provisions have been made for any adjustments that might result from such
reviews or audits.
Most of the Company's hospitals receive revenues from the CHAMPUS
program. Under CHAMPUS, psychiatric hospitals are classified into two groups,
each with different payment methods. The first group, classified as high volume
CHAMPUS hospitals, are those hospitals with 25 or more CHAMPUS discharges during
a federal fiscal year. The Company has 56 hospitals included within this group.
These hospitals receive a per diem payment, subject to a limitation of $645 per
day. The remainder of the Company's psychiatric hospitals are classified as low
volume CHAMPUS hospitals and receive a per diem based on a wage-adjusted
regional rate.
CHAMPUS patients are subject to annual limits on the number of
psychiatric days covered by CHAMPUS. Covered inpatient services are generally
limited to 30 days for adult acute patients, 45 days for child and adolescent
acute patients, and 150 days for residential treatment center patients.
Regulation and Other Factors
Operations of psychiatric hospitals are subject to substantial federal,
state and local government regulation. Such regulations provide for periodic
inspections or other reviews by state agencies, the United States Department of
Health and Human Services (the "Department") and CHAMPUS to determine compliance
with their respective standards of medical care, staffing, equipment and
cleanliness necessary for continued licensing or participation in the Medicare,
Medicaid or CHAMPUS programs. The admission and treatment of patients at the
Company's hospitals are also subject to substantial state regulation relating to
involuntary admissions, confidentiality and patients' rights and to federal
regulation relating to confidentiality of medical records of substance abuse
patients.
The obtaining of approvals for construction of new hospitals and for
renovation of and additions to existing hospitals is subject to various
governmental requirements, such as approval of sites and findings of community
need for additional hospital facilities and services. In addition, in certain
states, as a practical matter, it is necessary to pledge to provide various
amounts of uncompensated care to indigent persons in order to obtain a
certificate of need.
<PAGE>
Federal law contains numerous provisions designed to insure that
services rendered by hospitals to Medicare and Medicaid patients are medically
necessary and are of a quality which meets professionally recognized standards
and to insure that claims for reimbursement under the Medicare and Medicaid
programs are properly filed. Among other things, services provided at the
Company's hospitals are subject to periodic review by Peer Review Organizations
("PRO's"). All hospitals which participate in the Medicare program are subject
to review by PRO's. PRO activities include reviews of certain admissions and
services to determine medical necessity and to determine whether quality of care
meets professionally recognized standards. PRO's have the authority to recommend
to the Department that a provider who is in substantial noncompliance with the
medical necessity and quality of care standards of a PRO or who has grossly and
flagrantly violated an obligation to render quality care be excluded from
participation in the Medicare program or be required to reimburse the federal
government for certain payments previously made to the provider under the
Medicare program.
The Company's hospitals have been subject to and have complied with
various forms of utilization review since 1970. The Company has implemented a
quality assurance program in each of its hospitals, which includes procedures
for utilization review and retrospective patient care evaluation.
The Medicare and Medicaid Patient and Program Protection Act of 1987
expanded the authority of the Department to exclude from participation in the
Medicare and Medicaid programs those hospitals which engage in defined
prohibited activities. The Department is required under this Act to exclude from
participation in the Medicare and Medicaid programs any individual or entity
that has been convicted of a criminal offense relating to the delivery of
services under Medicare and Medicaid or to the neglect or abuse of patients. In
addition, the Department has authority to exclude from participation in the
Medicare program individuals or hospitals under certain other circumstances.
These include engaging in illegal remuneration arrangements with physicians and
other healthcare providers, license revocation, exclusion from some other
government programs (such as CHAMPUS), filing claims for excess charges or for
unnecessary services, failure to comply with conditions of participation and
failure to disclose certain required information or to grant proper access to
hospital books and records.
The Department has authority to impose civil monetary penalties against
any participant in the Medicare program which makes claims for payment for
services which were not rendered or were rendered by a person or entity not
properly licensed under state law. The Department also has authority to impose a
penalty of not more than $2,000 for each improperly claimed service and an
assessment equal to not more than twice the amount claimed for each service not
rendered.
In 1989, Congress passed the Stark I legislation which prohibits
physicians who have a financial relationship with entities that furnish
clinical laboratory services from referring to such entities for Medicare
reimbursed services. Stark I, which contains a number of exceptions from its
general referral prohibition, became effective January 1, 1992. Proposed
regulations implementing Stark I were first issued in March 1992, however, the
final Stark I regulations were not issued on August 14, 1995.
Subsequent to Stark I in 1993, Congress passed Stark II which expanded
the prohibitions of Stark I to include referrals from physicians for a wide
variety of medical services, including inpatient/outpatient hospital services,
and extended the referral prohibition to include services reimbursed under
Medicaid in addition to Medicare. The limitations on referrals outlined in
Stark II became effective January 1, 1995. Although the regulations
implementing Stark II have not been issued it is anticipated that they will be
similar to the Stark I regulations. The Company believes that its financial
relationships with physicians do not violate the applicable statutes. There
can be no assurance however that (i) government enforcement agencies will not
contend that certain of these financial relationships are in violation of the
Stark legislation or (ii) that the Stark legislation will not ultimately be
interpreted by the courts in a matter of inconsistent with the Company's
practices or (iii) regulations will be issued in the future that will result
in an interpretation by the courts in the manner inconsistent with the
Company's practices.
Federal law makes it a felony, subject to certain exceptions, for a
hospital to make false statements relating to claims for payments under the
Medicare program, to engage in illegal remuneration arrangements with physicians
and other healthcare providers, to make false statements relating to compliance
with the Medicare conditions of participation, or to make false claims for
Medicare or Medicaid payments. A number of states have adopted laws that also
make illegal under state law certain remuneration and referral arrangements with
physicians and other healthcare providers.
<PAGE>
In order to provide guidance to healthcare providers with respect to
the statute that makes certain remuneration arrangements between hospitals and
physicians and other healthcare providers illegal, the Department has issued
regulations outlining certain "safe harbor" practices, which, although
potentially capable of inducing prohibited referrals of business, would not be
subject to enforcement action under the illegal remuneration statute. The
practices covered by the regulations include, among others, certain investment
transactions, lease of space and equipment, personal services and management
contracts, sales of physician practices, payments to employees and waivers of
beneficiary deductibles and co-payments. Additional proposed safe harbors were
published in 1993 by the Department. Certain transactions and agreements of the
Company do not satisfy all the applicable criteria contained in the final and
proposed safe harbor regulations that relate to such transactions and
agreements. However, the Company believes that such leases and contracts do not
violate the statute that makes certain remuneration arrangements illegal. There
can be no assurance that (i) government enforcement agencies will not assert
that certain of these arrangements are in violation of the illegal remuneration
statute or (ii) the statute will ultimately be interpreted by the courts in a
manner consistent with the Company's practices.
CHAMPUS regulations authorize CHAMPUS to exclude from the CHAMPUS
program any provider who has committed fraud or engaged in abusive practices.
The regulations permit CHAMPUS to make its own determination of abusive
practices without reliance on any actions of the Department. The term "abusive
practices" is defined broadly to include, among other things, the provision of
medically unnecessary services, the provision of care of inferior quality and
the failure to maintain adequate medical or financial records.
A number of states have adopted hospital rate review legislation, which
generally provides for state regulation of rates charged for various hospital
services. Such laws are in effect in the state of Florida in which the Company
operates ten hospitals. In Florida, the Health Care Board approves a budget for
each hospital, which establishes a permitted level of revenues per discharge. If
this level of permitted revenues per discharge is exceeded by a hospital in a
particular year by more than a specified amount, certain penalties, including
cash penalties, can be imposed.
GPA, the Company's subsidiary that owns or manages professional group
practices is subject to the federal and state illegal remuneration statutes
described above. In addition, in some states, practice of medicine and certain
other health professions' laws prohibit the subsidiary from owning, but not from
managing, professional practices.
Medical Staffs and Employees
At September 30, 1995, approximately 1,500 licensed physicians were
active members of the medical staffs of the Company's hospitals. Many of these
physicians also serve on the medical staffs of other hospitals. A number of
these physicians serve in administrative capacities in the Company's hospitals.
Most of these physicians are independent contractors who have private practices
in addition to their duties for the Company, while certain of these physicians
are employees of the Company. The medical and professional affairs of each
hospital are supervised by the medical staff of the hospital, under the control
of its board of trustees. The Company recruits physicians to serve in
administrative capacities at its hospitals and to engage in private practice in
communities where the Company's hospitals are located. The Company's agreements
with recruited physicians generally provide for, among other things, allowances
for reimbursement of relocation and office start-up expenses and a guarantee of
a specified level of physician income during the recruited physician's first
year of practice.
Registered nurses and certain other hospital employees are required to
be licensed under the professional licensing laws of most states. The Company's
hospital subsidiaries require such employees to maintain such professional
licenses as a condition of employment.
At September 30, 1995, the Company had approximately 9,200 full-time
and 3,700 part-time employees. The Company's hospitals have had generally
satisfactory labor relations.
<PAGE>
Liability Insurance
Effective June 1, 1995, Plymouth Insurance Company, Ltd. ("Plymouth"),
a wholly-owned Bermuda subsidiary of the Company, provides $25 million per
occurrence general and hospital professional liability insurance for the
Company's hospitals. All of the risk of losses from $1.5 million to $25 million
per occurrence has been reinsured with unaffiliated insurers. The Company also
insures with an unaffiliated insurer 100% of the risk of losses between $25
million and $100 million per occurrence. The Company's general and professional
liability coverage is written on a "claims made or circumstances reported"
basis.
For the six years from June 1, 1989 through May 31, 1995, the Company
had a similar general and hospital professional liability insurance program. For
those years, the per occurrence deductible (with respect to which the Company
was self-insured) was $2.5 million for the years ended May 31, 1990 and 1991, $2
million for the years ended May 31, 1992 and 1993 and $1.5 million (relating to
the Company's general hospitals sold on September 30, 1993) for the year ended
May 31, 1994. For psychiatric hospitals, Plymouth's coverage did not contain a
per occurrence deductible for the year ended May 31, 1994 and 1995. In December
1994, the per occurrence deductible for the years ended May 31, 1989 and 1990
was eliminated. Plymouth provides coverage with no per occurence deductible for
hospital system claims which had not been paid prior to December 31, 1994.
Executive Officers of the Registrant
<TABLE>
<CAPTION>
Name and Age Position with the Company and Principal
of Executive Officer Occupations During the Past Five Years
- -------------------- --------------------------------------
<S> <C>
E. Mac Crawford Chairman of the Board of Directors, President and
46 Chief Executive Officer (since 1993); President and
Chief Operating Officer (1992-1993) and Director
(since 1990); Executive Vice President - Hospital
Operations(1990-1992); Assistant to the President
and Chairman (1990).
Lawrence W. Drinkard Executive Vice President and Chief Financial Officer
56 (1994-1995) and Director (1991-1995); Senior Vice
President (1990-1993); Treasurer(1986-1991); Vice
President (1987-1990).
Craig L. McKnight Executive Vice President - Office of the President and
44 Chairman(since March 1995); Partner, Coopers & Lybrand
L.L.P. (1985-1995).
C. Clark Wingfield Senior Vice President - Administrative Services (since
45 1995); Vice President - Administrative Services (1990-
1995); Vice President - Human Resources (1990); Senior
Executive Director - Compensation and Benefits
(1989-1990).
David A. Richardson Executive Vice President - Alternative Services (since
45 1995); Senior Vice President - Alternative Services
(1994-1995); Senior Vice Presdient - Hospital
Operations (1991-1994); Vice President Hospital
Operations (1990-1991).
</TABLE>
Coopers & Lybrand L.L.P. is an international accounting firm that
provides accounting and auditing services, tax services and consulting services.
As an audit partner at Coopers & Lybrand L.L.P., Mr. McKnight had responsibility
for a wide range of hospital and managed care engagements, as well as assisting
clients with formulating financing options, financial restructuring and the
purchase/sale of health plans and facilities.
<PAGE>
Effective October 1, 1995, Mr. McKnight was appointed Chief Financial
Officer of the Company, replacing Mr. Drinkard, who elected to resign as Chief
Financial Officer and Director of the Company.
International Operations
The Company owns and operates two psychiatric hospitals in London,
England (a 45-bed hospital and a 78-bed hospital) and a 69-bed psychiatric
hospital in Nyon, Switzerland. The Company's international hospital
operations are not material to the Company's overall operations. The Company's
international operations also include the Bermuda insurance company that
provides the coverages described under "Liability Insurance."
Item 2. Properties
Information relating to the Company's owned and leased operating
hospital facilities, their location and licensed bed capacity is contained under
the caption "Item 1. Business - Hospital Properties." Such information is
incorporated herein by reference.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market Price for Registrant's Common Equity and Related Stockholder
Matters
The Company has one class of Common Stock, which is listed for trading
on the American Stock Exchange (ticker symbol "MGL"). As of November 30, 1995,
there were 12,840 holders of record of the Company's $0.25 par value Common
Stock. The following table sets forth the high and low sales prices of the
Company's Common Stock from October 1, 1993 through the fiscal year ended
September 30, 1995 as reported by the American Stock Exchange:
<TABLE>
<CAPTION>
Common Stock Sales Prices
-------------------------------
Calendar Year High Low
- ---------------------------------------- --------------- ---------------
<S> <C> <C> <C>
1993
Fourth Quarter ............... $ 27 $ 21
1994
First Quarter ................ $ 28 $ 21 3/8
Second Quarter ............... 26 1/8 21 3/4
Third Quarter ................ 28 1/2 21 1/4
Fourth Quarter ............... 28 1/2 19
1995
First Quarter ................ $ 21 1/4 $ 13 7/8
Second Quarter ............... 19 5/8 15 5/8
Third Quarter ................ 23 1/4 16 1/4
</TABLE>
The Company has not declared any cash dividends during fiscal 1994 or
1995. The Company is prohibited from paying dividends (other than dividends
payable in shares of Common Stock) on its Common Stock under the terms of its
Revolving Credit Agreement, except for cash dividends that, in the aggregate
from May 1994, do not exceed 6% of the net cash proceeds from issuances of
capital stock, reduced by the aggregate cost of stock purchases since May 1994
and certain other limited circumstances.
Item 6. Selected Financial Data
The following table sets forth selected historical financial
information of the Company for each of the five years in the period ended
September 30, 1995. The information prior to August 1992 is not comparable
because of the consummation of the Company's Restructuring and the
implementation of fresh start accounting in fiscal 1992, which included the
revaluation of the Company's assets and liabilities and resulted in, among other
things, significant reductions in long-term debt and interest expense and
elimination of preferred stock and preferred stock dividend requirements. In
1993, the Company restated its consolidated financial statements to reflect the
sale of certain subsidiaries as discontinued operations. The Summary of
Operations and Balance Sheet Data for the five years ended September 30, 1995,
presented below, have been derived from, and should be read in conjunction with,
the Company's audited consolidated financial statements and the related notes
thereto. The following financial information should be read in conjunction with
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Consolidated Financial Statements of the Company
indicated in the Index on page F-1 of this Annual Report on Form 10-K.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF OPERATIONS
(In thousands, except per share amounts)
Ten Months Two Months
Year Ended Ended Ended
September 30, July 31, September 30, Year Ended September 30,
------------------------------------
1991 1992 1992 1993 1994 1995
------------ ----------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenue........................... $ 868,264 $ 777,855 $ 142,850 $ 897,907 $ 904,646 $ 1,151,736
Salaries, supplies and other
operating expenses............... 656,828 563,600 107,608 640,847 661,516 864,165
Bad debt expense...................... 51,617 50,403 14,804 67,300 70,623 92,022
Depreciation and amortization......... 48,659 35,126 3,631 26,382 28,354 38,087
Amortization of reorganization
value in excess of amounts
allocable to identifiable assets.. -- -- 7,167 42,678 31,200 26,000
Interest, net.......................... 232,218 169,244 12,690 74,156 39,394 55,237
ESOP expense (credit).................. (3,962) 33,714 4,811 45,874 49,197 73,257
Stock option expense (credit).......... -- -- (789) 38,416 10,614 (467)
Unusual items.......................... 45,000 -- -- -- 71,287 57,437
Deferred compensation expense.......... 5,061 3,190 -- -- -- --
Loss from continuing operations
before income taxes,
reorganization items and
extraordinary item................ (167,157) (77,422). (7,072) (37,746) (57,539) (54,272)
Provision for (benefit from)
income taxes...................... -- 4,259 1,054 1,874 (10,536) (11,309)
Loss from continuing operations
before reorganization items
and extraordinary item........... (167,157) (81,681) (8,126) (39,620) (47,003) (42,963)
Discontinued operations:
Income (loss) from
discontinued operations....... 37,115 24,211 930 (14,703) -- --
Gain on disposal of
discontinued operations....... -- -- -- 10,657 -- --
Loss before reorganization items
and extraordinary items..... (130,042) (57,470) (7,196) (43,666) (47,003) (42,963)
Reorganization Items:
Professional fees and
other expenses................ -- (8,156) -- -- -- --
Adjust accounts to fair value..... -- 83,004 -- -- -- --
Extraordinary item - gain
(loss) on early extinguishment
or discharge of debt.......... -- 730,589 -- (8,561) (12,616) --
Net income (loss)................. $ (130,042) $ 747,967 $(7,196) $ (52,227) $ (59,619) $ (42,963)
Earnings (loss) per common share:
Loss from continuing
operations before
extraordinary item........... $ (0.33) $ (1.59) $ (1.78) $ (1.54)
Income (loss) from dis-
continued operations and
disposal of discontinued
operations.................... 0.04 (0.16) -- --
Loss before extraordinary
item.......................... (0.29) (1.75) (1.78) (1.54)
Extraordinary loss on early
extinguishment of debt........ -- (0.35) (0.48) --
Net loss.......................... --(A) --(A) $ (0.29) $(2.10) $ (2.26) $ (1.54)
</TABLE>
(A) Earnings (loss) per share for periods prior to the two months September
30, 1992 are not presented because they are not meaningful due to the
implementation of fresh start accounting and the increase in the number
of shares outstanding as a result of the Plan.
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
(In thousands)
September 30,
--------------------------------------------------------------------------
1991 1992 1993 1994 1995
------------ ----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Current assets................................. $ 320,755 $ 290,742 $ 231,915 $ 324,627 $ 305,575
Current liabilities............................ 2,123,006 296,144 272,598 215,048 214,162
Working capital................................ (1,802,251) (5,402) (40,683) 109,579 91,413
Working capital ratio.......................... -- -- -- 1.51:1 1.43:1
Property and equipment, net.................... 645,173 486,762 444,786 494,345 488,767
Total assets................................... 1,338,823 1,299,198 838,186 961,480 983,558
Long-term debt and capital lease obligations... 5,920 844,839 350,205 533,476 538,770
Redeemable preferred stock..................... 214,842 -- -- -- --
Common stockholders' equity (deficit).......... (1,138,279) 10,424 57,298 56,221 88,560
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
For the fiscal years ended September 30, 1993, 1994 and 1995, the
Company derived approximately 11%, 14% and 17%, respectively, of its gross
patient revenue from managed care payors (primarily HMO's and PPO's); 45%, 35%
and 30%, respectively, from other private payor sources (primarily Blue Cross
and commercial insurance); and 44%, 51% and 53%, respectively, from governmental
payors (primarily Medicare, Medicaid and CHAMPUS). The Company believes that
revenue from private payors, as a percentage of total gross patient revenue, has
declined because of a shift by purchasers of health care coverage to managed
care plans that generally authorize shorter lengths of stay than traditional
insurance plans and authorize more outpatient treatment plans. Services to
Medicare and Medicaid patients have increased due to increased recognition and
treatment of behavioral illnesses of the elderly and disabled and, in some
states, improved coverage of behavioral services in psychiatric hospitals for
Medicaid beneficiaries. These shifts in the Company's payor mix and the Acquired
Hospitals, who have historically had lower net revenue per equivalent patient
day than other Company hospitals, have resulted in lower net revenue per
equivalent patient day. The psychiatric hospital industry has been adversely
affected by the trends described under "Item 1. Business - Industry Trends."
Because of the industry factors referred to previously and the Hospital
Acquisition, the Company's operating margin declined to 17.0% in fiscal 1995
from 19.1% in fiscal 1994. Operating income (net revenue less salaries, supplies
and other operating expenses and bad debt expenses) was $195.5 million for
fiscal 1995, compared with $172.5 million in fiscal 1994. The Company may
continue to experience reduced operating margins as a percentage of net revenue
when compared to prior periods. The Company intends to increase market share and
patient volume through contracting activities, to consolidate markets where
practical to reduce operating costs, and to enter joint venture arrangements
with other healthcare providers in response to this trend. The Company continues
to broaden the scope of services it provides by offering alternatives to
traditional inpatient treatment settings, such as partial hospitalization,
intensive outpatient and residential treatment programs, the utilization of
mentor homes and by entering the behavioral managed care business through the
acquisition of Green Spring in December 1995.
The Company's ability to increase the rates it charges to offset
increased costs is limited because the Company derives a significant portion of
its revenues from patients covered by governmental and managed-care programs.
With respect to governmental programs, the amount the Company is paid for its
services is established by law and regulation. With respect to managed-care
programs, the amount is established by the managed-care contracts. Although
inflation has not been a significant factor in the Company's results of
operations in recent years, a resurgence of inflation could adversely affect the
Company's results of operations because of such limitations on the Company's
ability to increase its rates. It is unlikely that federal and state governments
will increase reimbursement rates under their programs in
<PAGE>
amounts sufficient to offset future price increases that result from general
inflationary pressures.
The Company's business is seasonal in nature, with a reduced demand for
certain services generally occurring during the first fiscal quarter,
particularly around major holidays such as Thanksgiving and Christmas, and
during the summer months comprising the fourth fiscal quarter.
Management believes that the purchase of the Acquired Hospitals will
assist the Company in implementing its strategy by increasing the Company's
size, market position and geographical coverage. For example, the Hospital
Acquisition permitted the Company to enter 16 new markets, including markets in
the mid-Atlantic and northeastern United States. Management believes the
operating results of the Acquired Hospitals will provide sufficient cash flow
for debt service and capital expenditures related to those facilities. The
aggregate purchase price for the Acquired Hospitals was approximately $120.4
million in cash plus approximately $51 million for the related net working
capital. Of this amount, $106.3 million was obtained from the net proceeds of
the Notes issued in May 1994, $39.1 million was borrowed pursuant to the
Revolving Credit Agreement and approximately $26 million of cash on hand was
used. Pro forma results of operations for fiscal 1994 and 1995 which include the
40 Acquired Hospitals are included in Note 2 of the Company's Consolidated
Financial Statements.
A summary of psychiatric hospitals in operation during each fiscal year
is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Beginning of the year...... 79 74 101
Consolidated/closed/sold... (5) -- (15)
Acquired................... -- 27 16
-- -- ---
End of the year............ 74 101 102
== === ===
</TABLE>
The Company leases one general hospital, which is managed by an
unrelated third party. The lease and management agreement expire in 1997.
For fiscal 1993, the general hospitals operated by the Company had net
revenue of approximately $347 million and a net loss of approximately $15
million. In 1993, the Company restated its consolidated financial statements to
reflect the sales of the general hospitals and its interest in a non-hospital
subsidiary as discontinued operations. On September 30, 1993, the Company sold
its general hospitals and related assets for approximately $338 million. The
Company retained the assets and liabilities relating to these hospitals for
professional liability claims incurred and cost report settlements for periods
prior to September 30, 1993.
On September 15, 1993, the Company sold its interest in Beech Street of
California, Inc. ("Beech Street"). Beech Street operates preferred provider
networks and provides utilization review services to third parties. Immediately
prior to the sale, the Company owned 71.1% of the voting stock and 19.8% of the
equity ownership of Beech Street. The operations of Beech Street were
consolidated with the Company and have been reported as discontinued operations
in the Company's financial statements. For fiscal 1993, Beech Street had
revenues of approximately $26 million and net income of approximately $700,000.
The Company recognized after-tax gains from the sale of the general
hospitals and Beech Street of approximately $10.7 million during the fourth
quarter of fiscal 1993.
During fiscal 1992, the Company filed a voluntary petition for relief
pursuant to Chapter 11 of the U.S. Bankruptcy Code. The prepackaged plan of
reorganization effected a restructuring of the Company's debt and equity
capitalization. The Restructuring, which became effective on July 21, 1992,
resulted in a reduction of approximately $700 million principal amount of
long-term debt and the elimination of redeemable preferred stock having an
aggregate liquidation preference of $233 million. The Company accounted for the
Restructuring by using the principles of fresh start accounting. Accordingly,
the Company's total assets were recorded at their assumed reorganization value,
with
<PAGE>
the reorganization value allocated to identified tangible assets on the basis of
their estimated fair value at July 31, 1992. The excess of the reorganization
value over the value of identifiable assets is reported as "reorganization value
in excess of amounts allocable to identifiable assets."
The following table summarizes, for the periods indicated, changes in
selected operating indicators.
<TABLE>
<CAPTION>
Percentage of Net Revenue
-------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Net revenue.................. 100.0% 100.0% 100.0%
Salaries, supplies and
other operating expenses... 71.4 73.1 75.0
Bad debt expenses............ 7.5 7.8 8.0
--- --- ---
Total expenses............. 78.9 80.9 83.0
---- ---- ----
Operating margin............. 21.1 19.1 17.0
==== ==== ====
</TABLE>
Psychiatric Hospital Results
Following are financial and statistical results from operations of
hospitals which are included in the Company's consolidated financial statements:
<TABLE>
<CAPTION>
Selected Psychiatric Hospital Operating Data
Fiscal Year Ended September 30,
--------------------------------------------------------------------------
1991 1992 1993 1994 1995
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Number of Psychiatric Hospitals (1)................ 80 79 74 101 102
Bed Capacity:
Licensed Beds............................... 7,310 7,228 6,902 8,908 8,939
Average Licensed Beds....................... 7,284 7,288 7,145 7,468 9,368
Net Revenue (in thousands) (2)..................... $ 838,167 $ 875,776 $ 853,792 $ 850,575 $1,042,360
Total Patient Days (3)............................. 1,494,844 1,430,815 1,373,835 1,383,388 1,758,079
Total Equivalent Patient Days (4).................. 1,551,180 1,508,716 1,481,221 1,527,855 1,957,509
Net Revenue/Equivalent Patient Day (2)(4).......... $ 540 $ 580 $ 576 $ 557 $ 532
Admissions......................................... 73,120 81,311 86,794 102,802 132,165
Average Length of Stay (Days)...................... 20.4 17.8 15.8 13.6 12.9
Private Pay and Other Sources/Gross Revenue (5).... 70% 65% 56% 49% 47%
Government Programs/Gross Revenue (5) (6).......... 30% 35% 44% 51% 53%
</TABLE>
<PAGE>
The table below presents "same store" data for facilities in operation on
September 30, 1995.
<TABLE>
<CAPTION>
Selected Psychiatric Hospital Operating Data
Fiscal Year Ended September 30,
----------------------------------------------------------------------
1993 1994 % Change 1995 % Change
----------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Number of Psychiatric Hospitals................... 69 69 -- 69 --
Average Licensed Beds............................. 6,479 6,440 (1) 6,345 (1)
Net Revenue (in thousands) (2).................... $ 796,997 $ 762,326 (4) $ 734,761 (4)
Total Patient Days (3)............................ 1,296,686 1,234,964 (5) 1,197,161 (3)
Total Equivalent Patient Days (4)................. 1,396,014 1,363,080 (2) 1,330,478 (2)
Net Revenue/Equivalent Patient Day (2) (4)........ $ 571 $ 559 (2) $ 552 (1)
Admissions........................................ 80,933 91,202 13 96,471 6
Average Length of Stay (Days)..................... 16.0 13.6 (15) 12.2 (10)
Private Pay and Other Sources/Gross Revenue (5)... 57% 50% 49%
Government Programs/Gross Revenue (5) (6)......... 43% 50% 51%
</TABLE>
- ------------------------------------
(1) Hospitals in operation on September 30th.
(2) Includes inpatient and outpatient revenue.
(3) Provision of care to one patient for one day.
(4) Represents inpatient days adjusted to reflect outpatient utilization,
computed by dividing patient charges by inpatient charges per day.
(5) Gross revenue is revenue before deducting contractual allowances and
discounts from established billing rates. Gross Revenue is not separately
identified in the Company's Consolidated Statements of Operations;
instead, Net Revenue in the Consolidated Statements of Operations
reflects gross revenue after deductions for contractual allowances
and discounts from established billing rates.
(6) Government programs include Medicare, Medicaid and the Civilian Health and
Medical Program of the Uniformed Services ("CHAMPUS"), which provides
payment for medical services to military dependents and retired military
personnel.
Fiscal 1994 Compared to Fiscal 1995. Patient days at the Company's
hospitals increased 27% in fiscal 1995 as compared to fiscal 1994. The increase
resulted primarily from patient days attributable to the Acquired Hospitals.
Patient days at the same store hospitals decreased 3% due primarily to a 10%
decrease in the average length of stay from 13.6 days in fiscal 1994 to 12.2
days in fiscal 1995 for the same store hospitals. Total admissions increased 29%
in fiscal 1994 as compared to fiscal 1995. The increase in admissions resulted
primarily from admissions attributable to the Acquired Hospitals. On a same
store hospital basis, admissions increased 6% for fiscal 1995 as compared to
fiscal 1994.
The Company's net revenue increased $247.1 million, or 27.3%, from
$904.6 million in fiscal 1994 to $1.2 billion in fiscal 1995. The increase
resulted primarily from acquisitions. Net revenue for fiscal 1995 included $35.6
million from the normal settlement of previous years reimbursement issues and
disproportionate share payments, which represented an increase of $3.5 million
from fiscal 1994. Net revenue at the Company's non-psychiatric hospital
operations increased $59.1 million, including $56.5 million provided by
companies acquired or developed in the Company's expansion of services pursuant
to its business strategy. Net revenue at the Company's same store hospitals
decreased 3.6% from $762.3 million in fiscal 1994 to $734.8 million in fiscal
1995. The Company derived net revenue in fiscal 1995 of $249.2 million from the
Acquired Hospitals as compared to $52.1 million in fiscal 1994. Net revenue per
equivalent patient day decreased 4.5% to $532 in fiscal 1995 from $557 in fiscal
1994. The decreases were primarily due to lower net revenue per equivalent
patient day for the Acquired Hospitals compared to the Company's other hospitals
and a continued shift in payor mix from private payor sources to managed care
payors and governmental payors.
<PAGE>
Following is a discussion of changes in operating expenses for fiscal
1994 compared to fiscal 1995.
The Company's salaries, supplies and other operating expenses increased
$202.6 million or 30.6% in fiscal 1995 to $864.2 million from $661.5 million in
fiscal 1994. The increase was primarily due to expenses incurred by the Acquired
Hospitals of $194.1 million as compared to $40.2 million in fiscal 1994 and
expenses of other acquired businesses offset by reductions in salaries, supplies
and other expenses at the same store psychiatric hospitals. Cost savings at the
same store hospitals were achieved by reducing advertising expenses, purchased
services and medical professional fees.
The Company's bad debt expenses increased to $92.0 million in fiscal
1995 from $70.6 million in fiscal 1994. The increase was primarily due to
additional bad debt expense at the Acquired Hospitals of $12.9 million and
increased bad debt expense at the Company's other hospitals. Bad debt expense as
a percentage of net revenue increased to 8.0% in fiscal 1995 from 7.8% for
fiscal 1994. The Company anticipates future increases in bad debt expense due to
increased deductibles and co-insurance and reduced annual and lifetime
psychiatric maximum payment limits for individual patients, which will result in
the Company not collecting full charges on an increasing number of patients.
Depreciation and amortization increased 34.3% to $38.1 million in
fiscal 1995. The increase resulted primarily from the depreciation related to
the Acquired Hospitals and other acquisitions and the amortization of the
related covenant not to compete and goodwill.
Reorganization value in excess of amounts allocable to identifiable
assets (the "Excess Reorganization Value") was amortized over the three-year
period ended July 31, 1995. The related amortization expense decreased $5.2
million in fiscal 1995 as compared to fiscal 1994 due to the completion of the
amortization period in fiscal 1995.
Net interest expense for fiscal 1995 increased 40.2% to $55.2 million
from the previous fiscal year due to the issuance of the Notes and due to
additional borrowings under the Revolving Credit Agreement for acquisitions.
ESOP expense for fiscal 1995 increased 49.5% to $73.5 million in fiscal
1995 from $49.2 million for fiscal 1994. The increase resulted primarily from an
increase in shares allocated to the ESOP participants. The Company has commited
to allocate all existing shares held by the ESOP to the participants and,
accordingly, will not incur this expense in future years.
Stock option expense for fiscal 1995 decreased $11.1 million from the
previous year due to a charge during the first quarter of fiscal 1994 of $3.9
million related to the manner of exercise of certain options held by a former
employee and director (see Note 7 of the Company's Consolidated Financial
Statements) and changes in the market price of the Company's common stock.
During fiscal 1995, the Company recorded unusual items of $ 57.4
million. Included in the unusual charges was the resolution in March 1995 of
disputes between the Company and a group of insurance carriers that arose in
fiscal 1995 related to claims paid predominantly in the 1980's. As part of the
resolution, the Company agreed to pay the insurance carriers approximately $29.8
million in five installments over a three-year period. The Company and the
insurance carriers will continue to do business at the same or similar general
levels. Furthermore, the parties will seek additional business opportunities
that will serve to enhance their present relationships.
During fiscal 1995, the Company consolidated, closed or sold fifteen
psychiatric facilities. The Company recorded a charge of approximately $3.6
million in the fourth quarter of fiscal 1995 related to the five psychiatric
hospitals closed in the fourth quarter.
The Company also recorded a charge of approximately $27.0 million
related to the adoption and implementation of Statement of Financial Accounting
Standards No. 121. See "Recent Accounting Pronouncements" on page 23 for
further detail.
The Company also recorded an unusual item of approximately $3.0 million
for the gain on the sale of three psychiatric hospitals.
<PAGE>
As of September 30, 1995, the Company had estimated tax net operating
loss (NOL) carryforwards of approximately $233 million available to reduce
future federal taxable income. These NOL carry forwards expire in 2006 through
2009 and are subject to examination by the Internal Revenue Service. Due to the
ownership change which occurred as a result of the Reorganization, the Company's
utilization of NOLs generated prior to the consummation of the Reorganization is
significantly limited. The Internal Revenue Service is currently examining the
Company's income tax returns for fiscal 1989 through 1992. Adjustments arising
from such examination could reduce or eliminate the NOL carryforwards. In
management's opinion, adequate provisions have been made for any adjustments
which may result from such examinations.
Outlook
Management continually assesses events and changes in circumstances
that could affect its business strategy and the viability of its operating
facilities. During 1995, the Company consolidated, closed or sold fifteen
psychiatric hospitals. Management may elect to consolidate services in selected
markets and to close or sell additional facilities in future periods depending
on market conditions and evolving business strategies. If the Company
closes additional psychiatric hospitals in future periods, it could result in
additional charges to income for the costs necessary to exit the hospital
operations.
On December 13, 1995, the Company acquired 51% of the outstanding
common stock of Green Spring for approximately $73.2 million in cash and Common
Stock and the contribution of Group Practice Affiliates, Inc., a wholly owned
Magellan subsidiary that became a wholly-owned subsidiary of Green Spring.
Green Spring provides managed behavioral healthcare services. The Company will
account for the acquisition of Green Spring using the purchase method of
accounting.
The minority shareholders of Green Spring will have the option, under
certain circumstances, to exchange their ownership interests in Green Spring for
approximately 3.6 million shares of Magellan common stock or $81.8 million in
subordinated notes. The Company may elect to pay cash in lieu of issuing the
subordinated notes. The exchange option expires on December 13, 1998.
On December 20, 1995, the Company acquired an additional 10% ownership
interest in Green Spring for approximately $16.7 million in cash as a result of
an exchange option exercised by certain of the minority shareholders of Green
Spring. The Company has a 61% ownership interest in Green Spring subsequent to
the exercise of the aforementioned exchange option.
The acquisition of Green Spring creates a fully integrated national
behavioral healthcare system. The Company will now have the ability to obtain
direct access to large public and private payors who are seeking one
organization to manage, administer and deliver behavioral healthcare services.
In addition, the strategic alliance with Green Spring should increase the number
of patients utilizing inpatient and outpatient services at the Company's
hospitals. As a result of the Green Spring acquisition, the Company expects
increases in revenues and operating income in fiscal 1996. However, increases in
amortization expense, interest expense and minority interest resulting from the
acquisition of Green Spring may exceed the expected increase in operating
income in fiscal 1996.
Fiscal 1993 Compared to Fiscal 1994. Patient days at the Company's
hospitals increased 1% in fiscal 1994. The increase resulted primarily from the
Acquired Hospitals. Patient days at the same store hospitals decreased 5% due
primarily to a 15% decrease in the average length of stay for the same store
hospitals from 16.0 days in fiscal 1993 to 13.6 days in fiscal 1994. Total
admissions increased 18% in fiscal 1993 as compared to fiscal 1994. The increase
resulted primarily from the Acquired Hospitals.
The Company's net revenue increased $6.7 million, or 0.8%, from $897.9
million in fiscal 1993 to $904.6 million in fiscal 1994. The increase resulted
primarily from acquisitions. Net revenue at the Company's non-psychiatric
hospital operations increased $9.6 million, including $3.4 million at the
Company's general hospital which is managed by a third party and $1.9 million
provided by companies acquired or developed in the Company's expansion of
services pursuant to its business strategy. Net revenue decreased $9.6 million
due to the disposal of hospitals which were considered core hospitals during
portions of fiscal 1993. Net revenue at the Company's same store hospitals
decreased
<PAGE>
$34.7 million from $797.0 million in fiscal 1993 to $762.3 million in fiscal
1994. The Company derived net revenue in fiscal 1994 of $52.1 million from the
Acquired Hospitals. Net revenue per equivalent patient day decreased 3.3% to
$557 in fiscal 1994 from $576 in fiscal 1993. The decreases resulted primarily
from a continued shift in payor mix from private payor sources to managed care
payors and governmental payors.
Following is a discussion of changes in operating expenses for
fiscal 1993 compared to fiscal 1994.
The Company's salaries, supplies and other operating expenses increased
3.2% to $661.5 million in fiscal 1994 from $640.8 million in fiscal 1993, due
primarily to expenses incurred by the Acquired Hospitals of $40.2 million. The
same store psychiatric hospitals of the Company decreased their salaries,
supplies and other expenses primarily by reducing advertising expenses,
purchased services, salaries and benefits and medical professional fees.
The Company's bad debt expenses increased 4.9% to $70.6 million in
fiscal 1994 from $67.3 million in fiscal 1993. The Hospital Acquisition resulted
in additional bad debt expense of $3.7 million during fiscal 1994. Bad debt
expense as a percentage of net revenue increased to 7.8% for fiscal 1994 from
7.5% for fiscal 1993.
Depreciation and amortization increased 7.5% to $28.4 million in fiscal
1994. The increase resulted primarily from depreciation of the Acquired
Hospitals and the amortization of the related covenant not to compete and
goodwill during 1994.
Reorganization value in excess of amounts allocable to identifiable
assets (the "Excess Reorganization Value") was amortized over the three-year
period ended July 31, 1995. During fiscal 1993, Excess Reorganization Value was
reduced by approximately $21 million to reflect the recognition of tax benefits
related to pre-Reorganization tax loss carry forwards and accordingly,
amortization expense for the Excess Reorganization Value decreased 26.9% to
$31.2 million in fiscal 1994 from $42.7 million in fiscal 1993.
Net interest expense for fiscal 1994 decreased 46.9% from the previous
fiscal year due to the debt reductions resulting from the sale of the general
hospitals on September 30, 1993, mandatory and voluntary prepayments and
scheduled payments in fiscal 1993 and fiscal 1994. Interest expense during the
fourth quarter of fiscal 1994 increased over the first three quarters due to the
issuance of the Notes and to borrowings under the Revolving Credit Agreement
used in the Hospital Acquisition.
Interest expense was significantly reduced by the consummation of the
Plan and as a result of the payments on debt made with proceeds from the sale of
the general hospitals.
ESOP expense for fiscal 1994 increased 7.2% to $49.2 million from $45.9
million for fiscal 1993. The increase resulted primarily from changes in
eligibility requirements, which increased the number of employees who
participate in the ESOP.
Stock option expense for fiscal 1994 decreased $27.8 million from the
previous year due to a one-time charge during the second quarter of fiscal 1993
of $21.3 million related to the vesting of certain options held by a former
employee and director (see Note 7 of the Company's Consolidated Financial
Statements) and changes in the market price of the Company's Common Stock.
During fiscal 1994, the Company recorded unusual items of approximately
$71.3 million. Included in the unusual charges was the resolution in November
1994 between the Company and a group of insurance carriers of disputes that
arose in the fourth quarter related to claims paid predominantly in the 1980's.
As part of the resolution, the Company agreed to pay the insurance carriers
approximately $31 million plus interest, for a total of $37.5 million in four
installments over a three-year period. The Company and the insurance carriers
will continue to do business at the same or similar general levels. Furthermore,
the parties will seek additional business opportunities that will serve to
enhance their present relationships.
As a result of the Hospital Acquisition, the Company reassessed its
business strategy in certain markets. The Company established a plan to
consolidate services in selected markets and close or sell certain facilities
owned prior to the Hospital Acquisition. Accordingly, the Company recorded a
charge of $23 million in fiscal 1994 primarily to write down
<PAGE>
the assets of those facilities to their net realizable value. The Company also
recorded as an unusual charge during fiscal 1994 of approximately $4.5 million
of expenses related to the relocation of the Company's executive offices.
During fiscal 1994, the Company recorded an extraordinary loss of
approximately $12.6 million (net of income tax benefit of approximately $8.4
million) related to the defeasance of the Company's 7 1/2% Senior Subordinated
Debentures due 2003 and the pay-off of certain subsidiary mortgages. The
extraordinary loss includes the difference between the redemption price and the
carrying value of the debentures and prepayment penalties related to such
subsidiary mortgages.
See "Business -- Competition," "-- Sources of Revenues," "-- Regulation
and Other Factors," "-- Medical Staffs and Employees," "-- Industry Trends," and
"-- Liability Insurance" for additional information on trends that may affect
operations.
Liquidity and Capital Resources
Operational Activities. The Company's net cash provided by operating
activities was $98.3 million and $95.6 million for fiscal 1994 and fiscal 1995,
respectively. The decrease in net cash provided by operating activities is
primarily attributable to the payments related to the insurance settlements ($0
in fiscal 1994 and $22.3 million in fiscal 1995) and increased interest payments
offset by the positive operating cash flows generated by acquired businesses. As
of September 30, 1994 and 1995, the Company had working capital of $109.6
million and $91.4 million, respectively, including cash and cash equivalents of
$129.6 million and $105.5 million. The decrease in working capital is due
primarily to the funding of certain acquisitions with cash on hand during fiscal
1995. Management believes that the Company will have adequate cash flow from
operations to fund its operations, capital expenditures and debt service
obligations over the next year.
The number of days of gross patient revenue in gross patient accounts
receivable was 61 days at September 30, 1995 and 62 days at September 30, 1994.
Investing Activities. During fiscal 1994 and fiscal 1995, the Company
incurred approximately $14.6 million and $20.2 million, respectively, in capital
expenditures, primarily for routine capital replacement. During fiscal 1994 and
fiscal 1995, the Company also incurred expenditures of approximately $130.6
million and $62.0 million, respectively, in connection with acquisitions. The
capital outlays were financed from borrowings under the Revolving Credit
Agreement, proceeds from the issuance of the Notes and from cash provided by
operations.
Management believes that its cash on hand, future cash flows from
operations, borrowing capacity under the Revolving Credit Agreement and its
ability to issue debt and equity securities under current market conditions will
provide adequate capital resources to support the Company's anticipated
long-term investing strategies.
Financing Activities. On May 2, 1994, the Company entered into the
Revolving Credit Agreement and issued the 11 1/4% Senior Subordinated Notes. The
net proceeds from the sale of the Notes, together with borrowings pursuant to
the Revolving Credit Agreement, were used to refinance the indebtedness
outstanding pursuant to the Company's previous credit agreement, to retire the 7
1/2% Senior Subordinated Debentures, to refinance certain existing mortgage
indebtedness of certain of the subsidiaries of the Company and to finance the
Hospital Acquisition and to pay related transaction expenses. Commitments under
the Revolving Credit Agreement will be automatically reduced by approximately
$23.8 million on March 31, 1996, $47.5 million on March 31, 1997, and $32.5
million on March 31, 1998 and $175.0 million on March 31, 1999. The Company
believes that its hospitals and other businesses will generate sufficient cash
flows from operations to meet its future debt service requirements. The Notes
mature on April 15, 2004. Interest on the Notes is payable each April 15 and
October 15.
On December 22, 1995, the Company entered into a definitive agreement
to issue approximately four million shares of Common Stock and two million
warrants in a private placement. The expected net proceeds from the private
placement of approximately $70 million will be used to service a portion of the
outstanding borrowings under the Revolving Credit Agreement. The Company expects
to complete the private placement transaction, subject to certain regulatory
approval, no later than January 31, 1996.
<PAGE>
As of September 30, 1995, the Company had approximately $127 million of
availability under the Revolving Credit Agreement. In December 1995,
approximately $68 million of the Revolving Credit Agreement availability was
utilized in connection with the acquisition of the 61% interest in Green Spring.
The Company obtained increased operational and financial flexibility as a result
of entering into the Revolving Credit Agreement and issuing the Notes because
the covenants contained in the Revolving Credit Agreement and the indenture for
the Notes are less restrictive than those formerly in effect. However, the
Revolving Credit Agreement and the indenture for the Notes contain a number of
restrictive covenants, which, among other things, limit the ability of the
Company to incur other indebtedness, engage in transactions with affiliates,
incur liens, make certain restricted payments, and enter into certain business
combination and asset sale transactions. The Revolving Credit Agreement also
limits the Company's ability to incur capital expenditures and requires the
Company to maintain certain specified financial ratios. A failure by the Company
to maintain such financial ratios or to comply with the restrictions contained
in the Revolving Credit Agreement, the indenture for the Notes or other
agreements relating to the Company's debt could cause such indebtedness (and by
reason of cross-acceleration provisions, other indebtedness) to become
immediately due and payable. The Company was in compliance with all debt
covenants at September 30, 1995.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121 ("FAS 121") "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", which becomes effective for fiscal years beginning after December 15, 1995.
FAS 121 establishes standards for determining when impairment losses on
long-lived assets have occurred and how impairment losses should be measured.
The Company adopted FAS 121 effective October 1, 1994. The financial statement
impact of adopting FAS 121 was not material. The application of FAS 121
subsequent to the adoption date resulted in the Company recording approximately
$27.0 million in impairment losses.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 ("FAS 123") "Accounting for Stock-Based Compensation," which
becomes effective for fiscal years beginning after December 15, 1995. FAS 123
establishes new financial accounting and reporting standards for stock-based
compensation plans. Entities will be allowed to measure compensation expense for
stock-based compensation under FAS 123 or APB Opinion No. 25, "Accounting for
Stock Issued to Employees." Entities electing to remain with the accounting in
APB Opinion No. 25 will be required to make pro forma disclosures of net income
and earnings per share as if the provisions of FAS 123 had been applied. The
Company is in the process of evaluating FAS 123. The potential impact on the
Company of adopting the new standard has not been quantified at this time. The
Company must adopt FAS 123 no later than October 1, 1996.
Item 8. Financial Statements and Supplementary Data
Information with respect to this item is contained in the Company's
Consolidated Financial Statements and financial statement schedule indicated in
the Index on Page F-1 of this Annual Report on Form 10-K and is incorporated
herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to the Company's executive officers is
contained under "Item 1. Business - Executive Officers of the Registrant."
Pursuant to General Instruction G(3) to Form 10-K, the information required by
this item with respect to directors has been omitted inasmuch as the Company
files with the Securities and Exchange Commission a definitive proxy statement
not later than 120 days subsequent to the end of its fiscal year. Such
information is incorporated herein by reference.
Item 11. Executive Compensation
Pursuant to General Instruction G(3) to Form 10-K, the information
required with respect to this item has been omitted inasmuch as the Company
files with the Securities and Exchange Commission a definitive proxy statement
not later than 120 days subsequent to the end of its fiscal year. Such
information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Pursuant to General Instruction G(3) to Form 10-K, the information
required with respect to this item has been omitted inasmuch as the Company
files with the Securities and Exchange Commission a definitive proxy statement
not later than 120 days subsequent to the end of its fiscal year. Such
information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Pursuant to General Instruction G(3) to Form 10-K, the information
required with respect to this item has been omitted inasmuch as the Company
files with the Securities and Exchange Commission a definitive proxy statement
not later than 120 days subsequent to the end of its fiscal year. Such
information is incorporated herein by reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of the Report:
1. Financial Statements
Information with respect to this item is contained on Pages
F-2 to F-30 of this Annual Report on Form 10-K.
2. Financial Statement Schedule
Information with respect to this item is contained on page S-1
of this Annual Report on Form 10-K.
3. Exhibits
Exhibit
No. Description of Exhibit
2(a) Asset Sale Agreement (First Facilities), dated March 29, 1994,
between National Medical Enterprises, Inc., as Seller, and the
Company, as Buyer, which was filed as Exhibit 2(d) to the Company's
Amendment No. 1 to Registration Statement on Form S-4 (No. 33-53701)
filed July 1, 1994, and is incorporated herein by reference.
2(b) Asset Sale Agreement (Subsequent Facilities), dated March 29, 1994,
between National Medical Enterprises, Inc., as Seller, and the
Company, as Buyer, which was filed as Exhibit 2(e) to the Company's
Amendment No. 1 to Registration Statement on Form S-4 (No. 33-53701)
filed July 1, 1994, and is incorporated herein by reference.
Exhibit 2(a) and 2(b) do not contain copies of the
exhibits and schedules to such agreements. Such
agreements describe such exhibits and schedules. The
Company agrees to furnish supplementally to the
Commission, upon request, a copy of any omitted
exhibit or schedule to such agreements.
2(c) Amendment No. 1, dated September 12, 1994, to Asset Sale Agreement
(First Facilities), dated March 29, 1994, between National Medical
Enterprises, Inc., as Seller and the Company, as Buyer, which was
filed as Exhibit 2(c) to the Company's Annual Report on Form 10-K
for the year ended September 30, 1994, and is incorporated herein by
reference.
2(d) Amendment No. 1, dated September 12, 1994, to Asset Sale Agreement
(Subsequent Facilities), dated March 29, 1994, between National
Medical Enterprises, Inc., as Seller and the Company, as Buyer,
which was filed as Exhibit 2(d) to the Company's Annual Report on
Form 10-K for the year ended September 30, 1994, and is incorporated
herein by reference.
2(e) Amendment No. 2, dated September 29, 1994, to Asset Sale Agreement
(Subsequent Facilities), dated March 29, 1994, between National
Medical Enterprises, Inc., as Seller and the Company, as Buyer,
which was filed as Exhibit 2(e) to the Company's Annual Report on
Form 10-K for the year ended September 30, 1994, and is incorporated
herein by reference.
2(f) Amendment No. 3, dated November 15, 1994, to Asset Sale Agreement
(Subsequent Facilities), dated March 29, 1994, between National
Medical Enterprises, Inc., as Seller and the Company, as Buyer,
which was filed as Exhibit 2(f) to the Company's Annual Report on
Form 10-K for the year ended September 30, 1994, and is incorporated
herein by reference.
2(g) Incorporation, Conveyance and Stock Purchase Agreement, dated August
16, 1993, among Quorum, Inc., the Company and certain subsidiaries,
which was filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K, dated as of September 30, 1993, and which is incorporated
herein by reference.
3(a) Restated Certificate of Incorporation of the Company, as filed in
Delaware on October 16, 1992, which was filed as Exhibit 3(a) to the
Company's Annual Report on Form 10-K for the year ended September
30, 1992, and is incorporated herein by reference.
<PAGE>
Exhibit
No. Description of Exhibit
3(b) Bylaws of the Company, as amended, effective May 19, 1995, which was
filed as Exhibit 3(a) to the Company's Quarterly Report on Form 10-Q
for the Quarterly Period ended June 30, 1995, and is incorporated
herein by reference.
3(c) Certificate of Ownership and Merger merging Magellan Health
Services, inc. (a Delaware corporation) into Charter Medical
Corporation (a Delaware corporation), as filed in Delaware on
December 21, 1995.
4(a) Indenture, dated as of May 2, 1994, among the Company, the
Guarantors listed therein and Marine Midland Bank, as Trustee,
relating to the 11 1/4% Senior Subordinated Notes due April 15, 2004
of the Company, which was filed as Exhibit 4(a) to the Company's
Registration Statement on Form S-4 (No. 33-53701) filed May 18,
1994, and is incorporated herein by reference.
4(b) Second Amended and Restated Credit Agreement, dated as of May 2,
1994, among the Company, the financial institutions listed therein,
Bankers Trust Company, as Agent, and First Union National Bank of
North Carolina, as Co-Agent, which was filed as Exhibit 4(e) to the
Company's Registration Statement on Form S-4 (No. 33-53701) filed
May 18, 1994, and is incorporated herein by reference.
4(c) Second Amended and Restated Subsidiary Credit Agreement, dated as of
May 2, 1994, among certain subsidiaries of the Company, the
financial institutions listed therein, Bankers Trust Company, as
Agent, and First Union National Bank of North Carolina, as Co-Agent,
which was filed as Exhibit 4(f) to the Company's Registration
Statement on Form S-4 (No. 33-53701) filed May 18, 1994, and is
incorporated herein by reference.
4(d) Second Amended and Restated Company Stock and Notes Pledge
Agreement, dated as of May 2, 1994, between the Company and Bankers
Trust Company, as Collateral Agent, which was filed as Exhibit 4(g)
to the Company's Registration Statement on Form S-4 (No. 33-53701)
filed May 18, 1994, and is incorporated herein by reference.
4(e) Second Amended and Restated Subsidiary Stock and Notes Pledge
Agreement, dated as of May 2, 1994, among various subsidiaries of
the Company and Bankers Trust Company, as Collateral Agent, which
was filed as Exhibit 4(h) to the Company's Registration Statement on
Form S-4 (No. 33-53701) filed May 18, 1994, and is incorporated
herein by reference.
4(f) Second Amended and Restated Subsidiary Pledge and Security
Agreement, dated as of May 2, 1994, among various subsidiaries of
the Company and Bankers Trust Company, as Collateral Agent, which
was filed as Exhibit 4(i) to the Company's Registration Statement on
Form S-4 (No. 33-53701) filed May 18, 1994, and is incorporated
herein by reference.
4(g) Second Amended and Restated Subsidiary Pledge and Security Agreement
(ESOP collateral), dated as of May 2, 1994, between the Company and
Bankers Trust Company, as Collateral Agent, which was filed as
Exhibit 4(j) to the Company's Registration Statement on Form S-4
(No. 33-53701) filed May 18, 1994, and is incorporated herein by
reference.
4(h) Second Amended and Restated FINCO Pledge and Security Agreement I,
dated as of May 2, 1994, between CMFC, Inc. and Bankers Trust
Company, as Collateral Agent, which was filed as Exhibit 4(k) to the
Company's Registration Statement on Form S-4 (No. 33-53701) filed
May 18, 1994, and is incorporated herein by reference.
4(i) Second Amended and Restated Subsidiary Guaranty, dated as of May 2,
1994, executed by various subsidiaries of the Company, which was
filed as Exhibit 4(l) to the Company's Registration Statement on
Form S-4 (No. 33-53701) filed May 18, 1994, and is incorporated
herein by reference.
4(j) Second Amended and Restated Company Collateral Accounts Assignment
Agreement, dated as of May 2, 1994, between the Company and Bankers
Trust Company, as agent, which was filed as Exhibit 4(m) to the
Company's Registration Statement on Form S-4 (No. 33-53701) filed
May 18, 1994, and is incorporated herein by reference.
4(k) Company Pledge and Security Agreement, dated as of May 2, 1994,
between the Company and Bankers Trust Company, as Collateral Agent,
which was filed as Exhibit 4(n) to the Company's Registration
Statement on Form S-4 (No. 33-53701) filed May 18, 1994, and is
incorporated herein by reference.
4(l) Second Amended and Restated FINCO Pledge and Security Agreement II,
dated as of May 2, 1994, between CMCI, Inc. and Bankers Trust
Company, as Collateral Agent, which was filed as Exhibit 4(o) to the
Company's Registration Statement on Form S-4 (No. 33-53701) filed
May 18, 1994, and is incorporated herein by reference.
<PAGE>
Exhibit
No. Description of Exhibit
4(m) Second Amended and Restated Company Guaranty, dated as of May 2,
1994, executed by the Company, which was filed as Exhibit 4(p) to
the Company's Registration Statement on Form S-4 (No. 33-53701)
filed May 18, 1994, and is incorporated herein by reference.
4(n) Second Amended and Restated Subsidiary Collateral Accounts
Assignment Agreement, dated as of May 2, 1994, among various
subsidiaries of the Company and Bankers Trust Company, as Agent,
which was filed as Exhibit 4(q) to the Company's Registration
Statement on Form S-4 (No. 33-53701) filed May 18, 1994, and is
incorporated herein by reference.
4(o) Form of Indenture of Mortgage, Deed to Secure Debt, Deed of Trust,
Security Agreement and Assignment of Leases and Rents; Amended
Indenture of Mortgage, Deed to Secure Debt, Deed of Trust, Security
Agreement and Assignment of Leases and Rents; and Consolidated
Agreement, executed as of May 2, 1994, by 71 subsidiaries of the
Company and Bankers Trust Company, as Agent, and various trustees as
shown on individual subsidiary cover pages attached, which was filed
as Exhibit 4(t) to the Company's Registration Statement on Form S-4
(No. 33-53701) filed May 18, 1994, and is incorporated herein by
reference.
4(p) Purchase Agreement, dated April 22, 1994, between the Company and
Bear, Stearns & Co. Inc. and BT Securities Corporation, which was
filed as Exhibit 4(u) to the Company's Registration Statement on
Form S-4 (No. 33-53701) filed May 18, 1994, and is incorporated
herein by reference.
4(q) Exchange and Registration Rights Agreement, dated April 22, 1994
between the Company and Bear, Stearns & Co. Inc. and BT Securities
Corporation, which was filed as Exhibit 4(v) to the Company's
Registration Statement on Form S-4 (No. 33-53701) filed May 18,
1994, and is incorporated herein by reference.
4(r) Amendment No. 1, dated as of June 9, 1994, to Second Amended and
Restated Credit Agreement, dated as of May 2, 1994, among the
Company, the financial institutions listed therein, Bankers Trust
Company, as Agent, and First Union National Bank of North Carolina,
as Co-Agent, which was filed as Exhibit 4(w) to the Company's
Amendment No. 1 to Registration Statement on Form S-4 (No. 33-53701)
filed July 1, 1994, and is incorporated herein by reference.
4(s) Amendment No. 2, dated September 30, 1994, to Second Amended and
Restated Credit Agreement, dated as of May 2, 1994, among the
Company, the financial institutions listed therein, Bankers Trust
Company, as Agent, and First Union National Bank of North Carolina,
as Co-Agent, which was filed as Exhibit 4(s) to the Company's Annual
Report on Form 10-K for the year ended September 30, 1994, and is
incorporated herein by reference
4(t) Amendment No. 3, dated as of December 12, 1994, to Second Amended
and Restated Credit Agreement, dated as of May 2, 1994, among the
Company, the financial institutions listed herein, Bankers Trust
Company, as Agent, and First Union National Bank of North Carolina,
as Co-Agent, which was filed as Exhibit 4(a) to the Company's
Quarterly Report on Form 10-Q for the Quarterly Period ended
December 31, 1994, and is incorporated herein by reference.
4(u) Amendment No. 4, dated as of January 11, 1995, to Second Amended and
Restated Credit Agreement, dated as of May 2, 1994, among the
Company, the financial institutions listed therein, Bankers Trust
Company, as Agent, and First Union National Bank of North Carolina,
as Co-Agent, which was filed as Exhibit 4(b) to the Company's
Quarterly Report on Form 10-Q for the Quarterly Period ended
December 31, 1994, and is incorporated herein by reference.
4(v) Amendment No. 5, dated as of March 17, 1995, to Second Amended and
Restated Credit Agreement, dated as of May 2, 1994, among the
Company, Bankers Trust Company, as Agent, First Union National Bank
of North Carolina, as Co-Agent, and the lenders listed on Annex I,
which was filed as Exhibit 4(a) to the Company's Quarterly Report on
Form 10-Q for the Quarterly Period ended March 31, 1995, and is
incorporated herein by reference.
4(w) Indenture Supplement No. 1, dated June 3, 1994, among the Company,
the Guarantors listed therein and Marine Midland Bank, as Trustee,
relating to the 11 1/4% Senior Subordinated Notes due April 15,
2004, together with a schedule identifying substantially similar
documents, pursuant to Instruction 2 to Item 601 of Regulation S-K,
which was filed as Exhibit 4(t) to the Company's Annual Report on
Form 10-K for the year ended September 30, 1994, and is incorporated
herein by reference.
<PAGE>
Exhibit
No. Description of Exhibit
4(x) Indenture Supplement No. 3, dated August 30, 1994, among the
Company, the Guarantors listed therein and Marine Midland Bank, as
Trustee, relating to the 11 1/4% Senior Subordinated Notes due April
15, 2004, which was filed as Exhibit 4(v) to the Company's Annual
Report on Form 10-K for the year ended September 30, 1994, and is
incorporated herein by reference.
The Company and the Additional Registrants agree, pursuant
to (b)(4)(iii) of Item 601 of Regulation S-K, to furnish to
the Commission, upon request, a copy of each agreement
relating to long-term debt where the total amount of debt
under each such agreement does not exceed 10% of the
Registrants' respective total assets on a consolidated
basis.
*10(a) Written description of Corporate Annual Incentive Plan for the year
ended September 30, 1994, which was filed as Exhibit 10(a) to the
company's Annual Report on Form 10-K for the year ended September
30, 1994, and is incorporated herein by reference.
*10(b) Written description of Corporate Annual Incentive Plan for the year
ended September 30, 1995.
*10(c) 1989 Non-Qualified Deferred Compensation Plan of the Company,
adopted January 1, 1989, as amended, which was filed as Exhibit
10(f) to the Company's Annual Report on Form 10-K dated as of
September 30, 1989 and is incorporated herein by reference.
*10(d) 1992 Stock Option Plan of the Company, as amended, which was filed
as Exhibit 10(c) to the Company's Annual Report on Form 10-K for the
year ended September 30, 1994, and is incorporated herein by
reference.
*10(e) Directors' Stock Option Plan of the Company, as amended, which was
filed as Exhibit 10(d) to the Company's Annual Report on Form 10-K
for the year ended September 30, 1994, and is incorporated herein by
reference.
*10(f) 1994 Stock Option Plan of the Company, as amended, which was filed
as Exhibit 10(e) to the Company's Annual Report on Form 10-K for the
year ended September 30, 1994, and is incorporated herein by
reference.
*10(g) Directors' Unit Award Plan of the Company, which was filed as
Exhibit 10(i) to the Company's Registration Statement on Form S-4
(No. 33-53701) filed May 18, 1994, and is incorporated herein by
reference.
*10(h) Description of Flexible Benefits Plan, which was filed as Exhibit
10(g) to the Company's Annual Report on Form 10-K for the year ended
September 30, 1994, and is incorporated herein by reference..
*10(i) Employment Agreement, dated July 21, 1992, between the Company and
E. Mac Crawford, Director, President and Chief Operating Officer of
the Company, which was filed as Exhibit 10(f) to the Company's
Annual Report on Form 10-K dated September 30, 1992 and is
incorporated herein by reference.
*10(j) Employment Agreement, dated July 21, 1992, between the Company and
Lawrence W. Drinkard, Director and Senior Vice President - Finance
(principal financial officer) of the Company, which was filed as
Exhibit 10(g) to the Company's Annual Report on Form 10-K dated
September 30, 1992 and is incorporated herein by reference.
*10(k) Employment Agreement, dated February 28, 1995, between the Company
and John Cook Barlett, Senior Vice President - Clinical Strategies.
*10(l) Employment Agreement, dated March 31, 1995, between the Company and
Craig L. McKnight, Executive Vice President - Office of the
Chairman.
*10(m) Employment Agreement, dated October 1, 1995, between the Company and
E. Mac Crawford, Chairman of the Board of Directors, President and
Chief Executive Officer.
21 List of subsidiaries of the Company.
23 Consent of independent public accountants.
27 Financial Data Schedule
- -------------------------------------
*Constitutes a management contract or compensatory plan arrangement.
<PAGE>
(b) Reports on Form 8-K:
There were no current reports on Form 8-K filed by the Registrant with the
Securities and Exchange Commission during the quarter ended September 30,
1995.
(c) Exhibits Required by Item 601 of Regulation S-K:
Exhibits required to be filed by the Company pursuant to Item 601 of
Regulation S-K are contained in a separate volume.
(d) Financial Statement Schedules Required By Regulation S-X:
Separate financial statements and schedules of Magellan Health Services,
Inc. ("Parent Company") have been omitted since the restricted net assets
as defined by Rule 4-08(e)(3) of Regulation S-X of the Parent Company's
consolidated subsidiaries do not exceed 25% of the consolidated net assets
of the Company as of September 30, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned thereunto duly authorized.
MAGELLAN HEALTH SERVICES, INC.
(Registrant)
Date: December 27, 1995 /s/ Craig L. McKnight
------------------------------ ----------------------
Craig L. McKnight
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ E. Mac Crawford Chairman of the Board of December 27, 1995
- --------------------- Directors, President and ----------------
E. Mac Crawford Chief Executive Officer
/s/ Edwin M. Banks Director December 27, 1995
- ------------------------- ----------------
Edwin M. Banks
/s/ Andre C. Dimitriadis Director December 27, 1995
- ------------------------- ----------------
Andre C. Dimitriadis
/s/ A.D. Frazier, Jr. Director December 27, 1995
- ------------------------- ----------------
A.D. Frazier, Jr.
/s/ Raymond H. Kiefer Director December 27, 1995
- ------------------------- ----------------
Raymond H. Kiefer
/s/ Gerald L. McManis Director December 27, 1995
- ------------------------- ----------------
Gerald L. McManis
<PAGE>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
The following Consolidated Financial Statements of the Registrant and
its subsidiaries are submitted herewith in response to Item 8 and Item 14(a)1:
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Magellan Health Services, Inc.:
Report of independent public accountants........................ F-2
Consolidated balance sheets as of September 30, 1994 and 1995... F-3
Consolidated statements of operations for the years ended
September 30, 1993, 1994 and 1995.............................. F-5
Consolidated statements of changes in stockholders' equity
for the years ended September 30, 1993, 1994, and 1995....... F-6
Consolidated statements of cash flows for the years ended
September 30, 1993, 1994 and 1995............................ F-7
Notes to Consolidated Financial Statements..................... F-8
The following financial statement schedule of the Registrant and its
subsidiaries is submitted herewith in response to Item 14(a)2:
Page
Schedule II -- Valuation and qualifying accounts.............. S-1
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Magellan Health Services, Inc.:
We have audited the accompanying consolidated balance sheets of
Magellan Health Services, Inc. (a Delaware corporation) formerly (Charter
Medical Corporation) and subsidiaries as of September 30, 1994 and 1995, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the three years in the period ended September 30,
1995. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Magellan Health
Services, Inc. and subsidiaries as of September 30, 1994 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1995 in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 9, 1995
(Except with respect to the matters discussed in Note 13, as to which the date
is December 20, 1995.)
<PAGE>
<TABLE>
<CAPTION>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
September 30,
------------------------------
1994 1995
---- ----
<S> <C> <C>
------------ ---------
Current Assets:
Cash, including cash equivalents of $68,237 in 1994 and
$60,234 in 1995 at cost which approximates market value........... $ 129,603 $ 105,514
Accounts receivable, less allowance for doubtful accounts of
$43,555 in 1994 and $48,741 in 1995............................. 170,295 181,163
Supplies............................................................ 6,097 5,768
Other current assets................................................ 18,632 13,130
------------ ---------
Total Current Assets........................................... 324,627 305,575
Assets Restricted for Settlement of Unpaid Claims........................ 74,532 94,138
Property and Equipment:
Land................................................................ 96,373 88,019
Buildings and improvements.......................................... 360,586 377,169
Equipment........................................................... 92,044 111,554
------------ ---------
549,003 576,742
Accumulated depreciation............................................ (56,967) (90,877)
------------ ---------
492,036 485,865
Construction in progress............................................ 2,309 2,902
------------ ---------
Total Property and Equipment....................................... 494,345 488,767
Other Long-Term Assets................................................... 14,355 33,249
Reorganization Value in Excess of Amounts
Allocable to Identifiable Assets....................................... 26,001 --
Other Intangible Assets, net of accumulated amortization of 27,620 61,829
$1,876 in 1994 and $9,406 in 1995......................................
------------ ---------
$ 961,480 $ 983,558
============ =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except shares and per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30,
-----------------------------------
1994 1995
------------ --------------
<S> <C> <C>
Current Liabilities:
Accounts payable........................................................ $ 50,745 $ 71,020
Accrued liabilities..................................................... 158,901 139,908
Current income taxes payable............................................ 2,749 435
Current maturities of long-term debt and capital lease obligations...... 2,653 2,799
------------ --------------
Total Current Liabilities.......................................... 215,048 214,162
Long-Term Debt and Capital Obligations....................................... 533,476 538,770
Deferred Income Tax Liabilities.............................................. 12,380 --
Reserve for Unpaid Claims.................................................... 100,250 100,125
Deferred Credits and Other Long-Term Liabilities............................. 44,105 41,941
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, without par value
Authorized - 10,000 shares
Issued and outstanding - none...................................... -- --
Common Stock, par value $.25 per share
Authorized - 80,000 shares
Issued and outstanding - 26,899 shares in 1994
and 28,405 shares in 1995........................................ 6,725 7,101
Other Stockholders' Equity
Additional paid-in capital......................................... 244,339 253,295
Accumulated deficit................................................ (119,042) (161,840)
Unearned compensation under ESOP................................... (73,527) --
Warrants outstanding............................................... 180 64
Common Stock in Treasury, 462 shares............................... -- (9,238)
Cumulative foreign currency adjustments............................ (2,454) (822)
------------ --------------
56,221 88,560
------------ --------------
$ 961,480 983,558
============ ==============
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended September 30,
-----------------------------------------------
1993 1994 1995
---------- ---------- ----------------
<S> <C> <C> <C> <C>
Net revenue..................................................... $ 897,907 $ 904,646 $ 1,151,736
---------- ---------- ----------------
Costs and expenses
Salaries, supplies and other operating expenses....... 640,847 661,516 864,165
Bad debt expense...................................... 67,300 70,623 92,022
Depreciation and amortization......................... 26,382 28,354 38,087
Amortization of reorganization value in excess of
amounts allocable to identifiable assets............ 42,678 31,200 26,000
Interest, net......................................... 74,156 39,394 55,237
ESOP expense.......................................... 45,874 49,197 73,527
Stock option expense (credit)......................... 38,416 10,614 (467)
Unusual item.......................................... -- 71,287 57,437
---------- ---------- ----------------
935,653 962,185 1,206,008
---------- ---------- ----------------
Loss from continuing operations before
income taxes and extraordinary items.......................... (37,746) (57,539) (54,272)
Provision for (benefit from) income taxes....................... 1,874 (10,536) (11,309)
---------- ---------- ----------------
Loss from continuing operations before extraordinary items...... (39,620) (47,003) (42,963)
Discontinued operations:
Loss from discontinued operations (net of income
tax benefit of $10,708)............................. (14,703) -- --
Gain on disposal of discontinued operations (net of
income tax provision of $42,838).................... 10,657 -- --
---------- ---------- ----------------
Loss before extraordinary items................................. (43,666) (47,003) (42,963)
Extraordinary items - loss on early extinguishment of debt
(net of income tax benefit of $5,298 in 1993 and
$8,410 in 1994)............................................... (8,561) (12,616) --
---------- ---------- ----------------
Net loss........................................................ $ (52,227) $ (59,619) (42,963)
========== ========== ================
Average number of common shares outstanding..................... 24,875 26,394 27,870
========== ========== ================
Loss per common share:
Loss from continuing operations before
extraordinary items.................................. $ (1.59) $ (1.78) $ (1.54)
Loss from discontinued operations and gain on
disposal of discontinued operations, net............ (0.16) -- --
---------- ---------- ----------------
Loss before extraordinary items....................... (1.75) (1.78) (1.54)
Extraordinary loss on early extinguishment of debt.............. (0.35) (0.48) --
---------- ---------- ----------------
Net Loss........................................................ $ (2.10) $ (2.26) $ (1.54)
========== ========== ================
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
Year Ended September 30,
----------------------------------------------------------
1993 1994 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Common Stock:
Balance, beginning of period.................... $ 6,207 $ 6,250 $ 6,725
Exercise of options and warrants................ 43 475 24
Pooling of Mentor............................... -- -- 352
---------------- ---------------- ----------------
Balance, end of period.......................... 6,250 6,725 7,101
---------------- ---------------- ----------------
Additional Paid-in Capital:
Balance, beginning of period.................... 198,623 237,581 244,339
Stock option expense (credit)................... 38,416 10,614 (467)
Exercise of options and warrants................ 542 (3,856) 624
Pooling of Mentor............................... -- -- 8,799
---------------- ---------------- ----------------
Balance, end of period.......................... 237,581 244,339 253,295
---------------- ---------------- ----------------
Accumulated Deficit:
Balance, beginning of period.................... (7,196) (59,423) (119,042)
Net loss........................................ (52,227) (59,619) (42,963)
Pooling of Mentor............................... -- -- 165
---------------- ---------------- ----------------
Balance, end of period.......................... (59,423) (119,042) (161,840)
---------------- ---------------- ----------------
Unearned Compensation under ESOP:
Balance, beginning of period..................... (187,128) (122,724) (73,527)
ESOP expense..................................... 45,874 49,197 73,527
ESOP expense of discontinued operations.......... 18,530 -- --
---------------- ---------------- ----------------
Balance, end of period........................... (122,724) (73,527) --
---------------- ---------------- ----------------
Warrants Outstanding:
Balance, beginning of period..................... 283 274 180
Exercise of warrants............................. (9) (94) (116)
---------------- ---------------- ----------------
Balance, end of period........................... 274 180 64
---------------- ---------------- ----------------
Common Stock in Treasury:
Balance, beginning of period...................... -- -- --
Purchases of treasury stock....................... -- -- (5,349)
Reacquisition of shares under shareholder note.... -- -- (3,889)
---------------- ---------------- ----------------
Balance, end of period............................ -- -- (9,238)
================ ================ ================
Cumulative Foreign Currency Adjustments:
Balance, beginning of period..................... (365) (4,660) (2,454)
Foreign currency translation gain (loss)......... (4,295) 2,206 1,632
---------------- ---------------- ----------------
Balance, end of period........................... (4,660) (2,454) (822)
---------------- ---------------- ----------------
Total Stockholders' Equity................................. $ 57,298 $ 56,221 $ 88,560
================ ================ ================
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended September 30,
------------------------------------------------
1993 1994 1995
------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net loss..................................................... $ (52,227) $ (59,619) $ (42,963)
------------- ------------- ----------------
Adjustments to reconcile net loss to net cash provided by operating
activities:
Loss from discontinued operations....................... 14,703 -- --
Gain on sale of discontinued operations................. (10,657) -- --
Gain on sale of assets.................................. -- -- (2,961)
Depreciation and amortization........................... 69,060 59,554 64,087
Non-cash portion of unusual items....................... -- 70,207 45,773
ESOP expense............................................ 45,874 49,197 73,527
Stock option expense (credit)........................... 38,416 10,614 (467)
Non-cash interest expense............................... 7,866 2,005 2,735
Cash flows from changes in assets and liabilities, net of effects
from sales and acquisitions of businesses:
Accounts receivable, net........................... 7,909 (7,533) 7,280
Other current assets............................... (2,541) 4,563 9,533
Other long-term assets............................. (5,239) 2,860 (5,813)
Accounts payable and accrued liabilities........... (30,443) (13,017) (11,645)
Income taxes payable and deferred income taxes..... 1,482 (26,759) (16,761)
Reserve for unpaid claims.......................... 4,119 1,215 (5,885)
Extraordinary loss on early extinguishment
of debt.......................................... 8,561 12,616 --
Other.............................................. (6,925) (7,556) (20,820)
------------- ------------- ----------------
Total adjustments.................................. 142,185 157,966 138,583
------------- ------------- ----------------
Net cash provided by operating activities.... 89,958 98,347 95,620
------------- ------------- ----------------
Cash Flows From Investing Activities
Capital expenditures......................................... (11,101) (14,626) (20,224)
Acquisitions of businesses................................... -- (130,550) (61,980)
(Increase) decrease in assets restricted for settlement
of unpaid claims........................................... (14,152) 7,076 (19,606)
Proceeds from sale of assets (including discontinued
operations)................................................ 354,173 16,584 5,879
Cash flows from discontinued operations...................... 42,487 -- --
Other........................................................ -- -- (1,050)
------------- ------------- ----------------
Net cash provided by (used in)
investing activities....................... 371,407 (121,516) (96,981)
------------- ------------- ---------------
Cash Flows From Financing Activities
Payments on debt and capital lease obligations............... (533,942) (311,553) (46,779)
Proceeds from issuance of debt............................... 17,200 381,798 28,869
Proceeds from exercise of stock options and warrants......... 576 1,315 531
Purchases of treasury stock.................................. -- -- (5,349)
Tax benefit related to the exercise of stock options......... -- 9,424 --
Income tax payments made on behalf of stock optionee......... -- (14,214) --
------------- ------------- --------------
Net cash provided by (used in)
financing activities....................... (516,166) 66,770 (22,728)
------------- ------------- ----------------
Net increase (decrease) in cash and cash equivalents................ (54,801) 43,601 (24,089)
Cash and cash equivalents at beginning of period.................... 140,803 86,002 129,603
------------- ------------- ----------------
Cash and cash equivalents at end of period.......................... $ 86,002 $ 129,603 $ 105,514
============= ============= ================
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</TABLE>
<PAGE>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements of Magellan Health Services, Inc.
("the Company") (formerly Charter Medical Corporation) include the accounts of
the Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
On June 2, 1992, the Company filed a voluntary petition under Chapter
11 of the United States Bankruptcy Code. The prepackaged plan of reorganization
(the "Plan") effected a restructuring of the Company's debt and equity
capitalization (the "Restructuring"). The Company's Plan was confirmed on July
8, 1992, and became effective on July 21, 1992 (effective on July 31, 1992 for
financial reporting purposes). The consolidated financial statements for the
three years in the period ended September 30, 1995 are presented for the Company
after the consummation of the Plan. These statements were prepared under the
principles of fresh start accounting. (See Note 3.)
The Company provides behavioral healthcare services in the United
States, the United Kingdom and Switzerland. The Company's principal services
include inpatient treatment, day and partial hospitalization services, group and
individual outpatient treatment and residential services.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Net Revenue
Net revenue is based on established billing rates, less estimated
allowances for patients covered by Medicare and other contractual reimbursement
programs and discounts from established billing rates. Amounts received by the
Company for treatment of patients covered by Medicare and other contractual
reimbursement programs, which may be based on cost of services provided or
predetermined rates, are generally less than the established billing rates of
the Company's hospitals. Final determination of amounts earned under contractual
reimbursement programs is subject to review and audit by the applicable
agencies. Management believes that adequate provision has been made for any
adjustments that may result from such reviews.
Advertising Costs
The Company adopted AICPA Statement of Position 93-7, "Reporting on
Advertising Costs," ("SOP 93-7") effective October 1, 1994. The financial
statement impact of conforming to SOP 93-7 was not material.
The production costs of advertising are expensed as incurred.
Direct-response advertising costs are capitalized and amortized over the
expected period of future benefit. Direct-response advertising costs consist
primarily of radio and television air time, which are amortized as utilized, and
printed media services. At September 30, 1994 and 1995, capitalized advertising
costs were not material. Advertising expense was approximately $39.4 million,
$35.6 million and $33.5 million for the years ended September 30, 1993, 1994 and
1995, respectively.
<PAGE>
Charity Care
The Company provides care without charge or at amounts less than its
established rates to patients who meet certain criteria under its charity care
policies. Because the Company does not pursue collection of amounts determined
to be charity care, they are not reported as revenue. For the years ended
September 30, 1993, 1994 and 1995, the Company provided, at its established
billing rates, approximately $33.1 million, $29.3 million and $41.2 million,
respectively, of such care.
Interest, Net
The Company records interest expense net of capitalized interest and
interest income. Interest income for the years ended September 30, 1993, 1994,
and 1995 was approximately $3.6 million, $4.4 million and $3.7 million,
respectively.
Cash and Cash Equivalents
Cash equivalents are short-term, highly liquid interest-bearing
investments with a maturity of three months or less when purchased, consisting
primarily of money market instruments.
Concentration of Credit Risk
Accounts receivable from patient revenue subject the Company to a
concentration of credit risk with third party payors that include insurance
companies, managed healthcare organizations and governmental entities. The
Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific payors, historical trends and other
information. Management believes the allowance for doubtful accounts is adequate
to provide for normal credit losses.
Assets Restricted for the Settlement of Unpaid Claims
Assets restricted for the settlement of unpaid claims include
marketable securities which are carried at fair market value. Transfer of such
investments from the insurance subsidiaries to the Company or any of its other
subsidiaries is subject to meeting certain criteria under the Revolving Credit
Agreement (as defined herein) and approval by certain regulatory authorities.
During fiscal 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities ("FAS 115"). Under FAS 115, investments are classified into
three categories: (i) held to maturity; (ii) available for sale; and (iii)
trading. Unrealized holding gains or losses are recorded for trading and
available for sale securities. The Company's investments are classified as
available for sale and the adoption of FAS 115 did not have a material effect on
the Company's financial statements, financial condition and liquidity or results
of operations. The unrealized gain or loss on investments available for sale was
not material at September 30, 1994 and 1995.
Property and Equipment
As a result of the adoption of fresh start accounting, property and
equipment were adjusted to their estimated fair value as of July 31, 1992 and
historical accumulated depreciation was eliminated. Expenditures for renewals
and improvements are charged to the property accounts. Replacements and
maintenance and repairs that do not improve or extend the life of the respective
assets are expensed as incurred. The Company removes the cost and related
accumulated depreciation from the accounts for property sold or retired, and any
resulting gain or loss is included in operations. Amortization of capital lease
assets is included in depreciation expense. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets, which
averaged 22 years for buildings and improvements and three to ten years for
equipment. Depreciation expense was $25.9 million, $27.4 million and $35.1
million for the years ended September 30, 1993, 1994 and 1995, respectively.
<PAGE>
Excess Reorganization Value
Excess Reorganization Value that resulted from fresh start accounting
was amortized on a straight-line basis over the three-year period ended July 31,
1995. The unamortized Excess Reorganization Value of $58.6 million attributable
to the general hospitals sold on September 30, 1993 reduced the gain from the
disposal of such hospitals. Excess Reorganization Value was reduced by
approximately $21 million during fiscal 1993 to reflect the recognition of tax
benefits related to pre-Plan tax loss carry forwards. (See Note 3.)
Intangible Assets
Intangible assets are composed principally of goodwill, which
represents the excess of the cost of businesses acquired over the fair value of
the net identifiable assets at the date of acquisition and related non-compete
agreements. Goodwill is generally amortized using the straight-line method over
25 to 35 years and related non-compete agreements are amortized over the term of
the agreements.
The Company continually monitors events and changes in circumstances
that could indicate carrying amounts of intangible assets may not be
recoverable. When events or changes in circumstances are present that indicate
the carrying amount of intangible assets may not be recoverable, the Company
assesses the recoverability of intangible assets by determining whether the
carrying value of such intangible assets will be recovered through the future
cash flows expected from the use of the asset and its eventual disposition. No
impairment losses on intangible assets were recorded by the Company in fiscal
1994 and 1993. Impairment losses of approximately $4.0 million were recorded in
1995. (See Note 4)
Foreign Currency
Changes in the cumulative translation of foreign currency assets and
liabilities are presented as a separate component of stockholders' equity. Gains
and losses resulting from foreign currency transactions, which were not
material, are included in operations as incurred.
Net Loss Per Common Share
Net loss per common share is computed based on the weighted average
number of shares of common stock outstanding during the period. Common stock
equivalents were anti-dilutive for the periods presented and therefore were
excluded from the calculation.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 ("FAS 121") "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," which becomes effective for fiscal years beginning after December 15, 1995.
FAS 121 establishes standards for determining when impairment losses on
long-lived assets have occurred and how impairment losses should be measured.
The Company adopted FAS 121 effective October 1, 1994. The financial statement
impact of adopting FAS 121 was not material. The application of FAS 121
subsequent to the adoption date resulted in the Company recording approximately
$27.0 million in impairment losses in fiscal 1995. (See Note 4.)
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 ("FAS 123") "Accounting for Stock-Based Compensation," which
becomes effective for fiscal years beginning after December 15, 1995. FAS 123
establishes new financial accounting and reporting standards for stock-based
compensation plans. Entities will be allowed to measure compensation cost for
stock-based compensation under FAS 123 or APB Opinion No. 25, "Accounting for
Stock Issued to Employees." Entities electing to remain with the accounting in
APB Opinion No. 25 will be required to make pro forma disclosures of net income
and earnings per share as if the provisions of FAS 123 had been applied. The
Company is in the process of evaluating FAS 123. The potential impact on the
Company of adopting the new standard has not been quantified at this time. The
Company must adopt FAS 123 no later than October 1, 1996.
<PAGE>
2. Acquisitions, Joint Ventures and Discontinued Operations
During fiscal 1994, the Company agreed to acquire 40 psychiatric
hospitals (the "Acquired Hospitals") from National Medical Enterprises ("NME").
The purchase price for the Acquired Hospitals was approximately $120.4 million
in cash plus an additional cash amount of approximately $51 million, subject to
adjustment, for the net working capital of the Acquired Hospitals (the "Hospital
Acquisiton"). During the year ended September 30, 1995, the Company received
approximately $3.5 million from NME as a partial payment related to the
settlement of the working capital portion of the purchase price.
On June 30, 1994, the Company completed the purchase of 27 of the
Acquired Hospitals for a cash purchase price of approximately $129.6 million,
which included approximately $39.3 million, subject to adjustment, for the net
working capital of the facilities. On October 31, 1994, the Company completed
the purchase of three additional Acquired Hospitals for a cash purchase price of
approximately $5 million, which included approximately $2.2 million related to
the net working capital of the facilities. On November 30, 1994, the Company
completed the purchase of the remaining ten Acquired Hospitals for a cash
purchase price of approximately $36.8 million, including approximately $9.5
million related to the net working capital of ten Acquired Hospitals. The
Company accounted for the Hospital Acquisition using the purchase method of
accounting. The operating results of the Acquired Hospitals are included in the
Company's Consolidated Statements of Operations from the respective dates of
acquisition.
The following unaudited pro forma financial information presents the
results of operation for the Company for the years ended September 30, 1994 and
1995 as if the Acquired Hospitals had been purchased on October 1, 1993. The pro
forma information does not purport to be indicative of the results which would
actually have been attained had the Hospital Acquisition been completed on such
date or which may be attained in the future. (In thousands, except for per share
data.)
<TABLE>
<CAPTION>
For the Year Ended
-------------------------------------------------------------------------------
September 30, 1994 September 30, 1995
-------------------------------- -----------------------------
Actual Pro Forma Actual Pro Forma
------------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Net revenue.................................. $ 904,646 $1,161,250 $1,151,736 $1,164,086
Loss before extraordinary items.............. (47,003) (41,733) (42,963) (42,360)
Net loss..................................... (59,619) (54,349) (42,963) (42,360)
Loss per common share:
Loss before extraordinary items.... (1.78) (1.58) (1.54) (1.52)
Net loss........................... (2.26) (2.06) (1.54) (1.52)
</TABLE>
In January 1995, the Company acquired National Mentor, Inc. ("Mentor")
by issuing 1,409,978 shares of Common Stock. Mentor provides specialized
health services in mentor homes. The acquisition was accounted for as a
pooling of interests, effective January 1, 1995. The consolidated financial
statements of the Company were not restated for periods prior to January 1,
1995, as the effect of restatement would not have been material to such
periods.
In February 1995, the Company acquired Westwood Pembroke Health System,
which includes two psychiatric hospitals and a professional group practice. The
Company accounted for the acquisition using the purchase method of accounting.
<PAGE>
Joint Ventures
The Company entered into joint ventures with Columbia in the Raleigh,
North Carolina and Albuquerque, New Mexico markets. Effective May 31, 1995,
Charter Behavioral Health System of New Mexico, a subsidiary of the Company, and
New Mexico Psychiatric Company, a subsidiary of Columbia, formed Charter Heights
Behavioral Health System ("Heights"). The Company leased and contributed certain
assets of its Albuquerque Hospital to Heights in exchange for a 67% interest and
Columbia leased and contributed certain assets of its Columbia Heights Hospital
to Heights in exchange for a 33% interest.
Effective June 30, 1995, Charter Northridge Behavioral Health System, a
subsidiary of the Company, and Wake Psychiatric Hospital, a subsidiary of
Columbia, formed the Holly Hill/Charter Behavioral Health System ("Holly Hill").
The Company leased and contributed certain assets of its Northridge Hospital to
Holly Hill in exchange for a 50% interest and Columbia leased and contributed
certain assets of its Holly Hill Hospital to Holly Hill in exchange for the
remaining 50% interest.
Discontinued Operations
On September 30, 1993, the Company sold its general hospitals and the
related assets for approximately $338 million. The Company retained the assets
and liabilities relating to these subsidiaries for professional liability claims
incurred and cost report settlements for periods prior to September 30, 1993. On
September 15, 1993, the Company sold its interest in Beech Street of California,
Inc. ("Beech Street"). (See Note 12) Beech Street operates preferred provider
networks and provides utilization review services to third parties. Immediately
prior to the sale, the Company owned 71.1% of the voting stock and 19.8% of the
equity ownership of Beech Street. Summarized results of the discontinued
operations were as follows (in thousands):
<TABLE>
<CAPTION>
Year ended
September 30,
1993
-------------------
<S> <C>
Net revenue.......................................... $ 372,431
Operating and bad debt expenses...................... 308,706
Amortization of reorganization value in excess of
amounts allocable to identifiable assets........... 32,000
Other expenses (1)................................... 46,428
------------
Net loss............................................. $ (14,703)
============
</TABLE>
- ------------------------------------
(1) Included in these amounts are income taxes and interest expense related
to debt specifically identifiable as debt of the discontinued
operations. Such interest expense is not material.
The net assets, results of operations and the gains on the sales of the
general hospitals and Beech Street have been reported in the accompanying
financial statements as discontinued operations. Therefore, the financial
statements for the year ended September 30, 1993, have been presented to
segregate these amounts from continuing operations.
3. The Restructuring and Fresh Start Reporting
The consummation of the Plan discussed in Note 1 resulted in, among
other things, (i) a reduction of approximately $700 million in long-term debt,
(ii) elimination of $233 million of preferred stock and (iii) the issuance of
approximately 24.8 million shares of Common Stock to certain holders of debt
securities, the preferred stockholders and common stockholders.
As a result of the consummation of the Plan, the financing under the
$880 Million Credit Agreement between the Company and certain banks dated
September 1, 1988 was replaced by new facilities under the Amended and Restated
Credit Agreement, dated July 21, 1992, among the Company and certain banks (the
"Credit Agreement").
<PAGE>
Upon consummation of the Plan, the Company recognized an extraordinary
gain on debt discharge of approximately $731 million which represented
forgiveness of debt, principal and interest, reduced by the estimated fair value
of Common Stock issued to certain debtholders of the Company. The Company's
long-term debt was stated at the present value of amounts to be paid, based on
market interest rates on July 31, 1992. This adjustment to present value
resulted in an aggregate carrying amount for the Company's long-term debt which
was less than the aggregate principal amount thereof, and resulted in the
amortization of the difference into interest expense over the terms of the debt
instruments and, upon extinguishment of the debt prior to scheduled maturity,
resulted in a loss on debt extinguishment.
Under the principles of fresh start accounting, the Company's total
assets were recorded at their assumed reorganization value, with the
reorganization value allocated to identifiable tangible assets on the basis of
their estimated fair value. Accordingly, the Company's property and equipment
were reduced and its intangible assets were written off. In addition, the
Company's accumulated deficit, common stock in treasury and cumulative foreign
currency adjustments were eliminated. The excess of the reorganization value
over the value of identifiable assets was reported as "reorganization value in
excess of amounts allocable to identifiable assets" (the "Excess Reorganization
Value").
The total reorganization value assigned to the Company's assets was
estimated by calculating projected cash flows before debt service requirements,
for a five-year period, plus an estimated terminal value of the Company
(calculated using a multiple of approximately six (6) on projected EBDIT (which
is net revenue less operating and bad debt expenses)), each discounted back to
its present value using a discount rate of 12% (representing the estimated
after-tax weighted cost of capital). This amount was approximately $1.2 billion
and was increased by (i) the estimated net realizable value of assets to be sold
and (ii) estimated cash in excess of normal operating requirements. The above
calculations resulted in an estimated reorganization value of approximately $1.3
billion, of which the Excess Reorganization Value was $225 million, of which
$129 million related to continuing operations. The Excess Reorganization Value
was amortized over the three-year period ended July 31, 1995.
4. Unusual Items
Insurance Settlements
Unusual items include resolutions of disputes between the Company and a
group of insurance carriers that arose in fiscal 1994 and 1995 related to
medical claims paid predominantly in the 1980's. As part of the resolutions, the
Company recorded charges of approximately $37.5 million and $29.8 million in
1994 and 1995, respectively. The Company and the insurance carriers will
continue to do business at the same or similar general levels. Furthermore, the
parties will seek additional business opportunities that will serve to enhance
their present relationships.
Amounts payable in future periods under the insurance settlements are
as follows (in thousands):
<TABLE>
<S> <C>
1996 $23,003
1997 11,700
1998 10,347
</TABLE>
Facility Closures
As a result of the Hospital Acquisition, the Company reassessed its
business strategy in certain markets at the end of fiscal 1994. The Company
established a plan to consolidate services in selected markets and close or sell
certain facilities owned prior to the Hospital Acquisition. The Company recorded
a charge of $23 million in fiscal 1994 primarily to write down the property and
equipment at these facilities to their net realizable value.
<PAGE>
During 1995, the Company consolidated, closed or sold fifteen
psychiatric facilities (the "Closed Facilities"). The Closed Facilities, in
aggregate, operated at unprofitable levels during fiscal 1995 and, in the
opinion of management, would have continued to operate at unprofitable levels in
the foreseeable future. The Closed Facilities that are still owned by the
Company will be sold, leased or used for alternative purposes depending on the
market conditions in each geographic area.
The Company recorded additional charges of approximately $3.6 million
related to facility closures in the fourth fiscal quarter of 1995 as follows (in
thousands):
<TABLE>
<CAPTION>
1995
----------------
<S> <C>
Severance and related benefits.................. $ 2,132
Contract terminations........................... 479
Other........................................... 1,013
---------------
$ 3,624
</TABLE>
Approximately 500 employees were terminated at the facilities closed in
the fiscal fourth quarter of 1995. Severance and related benefits paid and
charged against the resulting liability were approximately $1.3 million in
fiscal 1995. Other exit costs paid and applied against the resulting liability
were approximately $212,000 in fiscal 1995.
The following table presents revenues, operating and bad debt expenses
and net loss of the Closed Facilities (in thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Net revenue......................... $ 36,592 $ 38,165 $ 50,478
Operating and bad debt expenses..... 34,294 40,541 52,542
Net loss............................ (1,808) (5,014) (5,171)
</TABLE>
Asset Impairments
As discussed in Note 1, the Company adopted FAS 121 effective October
1, 1994. During fiscal 1995, the Company recorded impairment losses on property
and equipment and intangible assets of approximately $23.0 million and $4.0
million, respectively. The impairment losses were primarily related to assets to
be held and used. Such losses resulted from changes in the manner that certain
of the Company's assets will be used in future periods and current period
operating losses at certain of the Company's operating facilities combined with
projected future operating losses. Fair values of the long-lived assets that
have been written down were determined using the best available information in
each individual circumstance, which included quoted market price, comparable
sales prices for similar assets or valuation techniques utilizing present value
of estimated expected cash flows.
Other
During fiscal 1994, the Company recorded a charge of approximately $4.5
million related to the relocation of the Company's executive offices. During
fiscal 1995, the Company recorded a gain of approximately $3 million related to
the sale of three psychiatric hospitals.
5. Benefit Plans
The Company maintains an Employee Stock Ownership Plan (the "ESOP"), a
noncontributory retirement plan that enables eligible employees to participate
in the ownership of the Company. At September 30, 1995, the ESOP owed the
Company approximately $38.1 million.
<PAGE>
The Company had recorded unearned compensation to reflect the cost of
Common Stock purchased by the ESOP but not yet allocated to participants'
accounts. In the period that shares are allocated or projected to be allocated
to participants, ESOP expense is recorded and unearned compensation is reduced.
All shares have been allocated to the participants as of September 30, 1995.
Interest expense on the remaining portion of the debt incurred to finance the
ESOP transaction amounted to approximately $10.4 million, $6.2 million and $0
for fiscal 1993, 1994 and 1995, respectively, and is included in interest
expense in the statements of operations.
The Internal Revenue Service has ruled that the ESOP qualifies under
Section 401 of the Internal Revenue Code of 1986, as amended. Such determination
allows the Company to deduct its contributions to the ESOP for federal income
tax purposes.
During fiscal 1992, the Company reinstated a defined contribution plan
(the "401-K Plan"). Employee participants can elect to voluntarily contribute up
to 5% of their compensation to the 401-K Plan. Effective October 1, 1992, the
Company began making contributions to the 401-K Plan based on employee
compensation and contributions. The Company makes a discretionary contribution
of 2% of each employee's compensation and matches 50% of each employee's
contribution up to 3% of their compensation. During the years ended September
30, 1993, 1994 and 1995, the Company made contributions of approximately $2.5
million, $4.9 million and $5.8 million, respectively, to the 401-K Plan.
6. Long-Term Debt and Capital Lease Obligations
Information with regard to the Company's long-term debt and capital
lease obligations at September 30, 1994 and 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
September 30, September 30,
1994 1995
---- ----
<S><C> <C> <C>
Revolving Credit Agreement due through 1999
(7.625% at September 30, 1995)............................. $ 72,584 $ 80,593
11.25% Senior Subordinated Notes due 2004.................... 375,000 375,000
8.0 % to 10.75% Mortgage and other collateralized
notes payable through...................................... 6,434 5,268
Variable rate secured notes due through 2013
(4.5 % to 4.6% at September 30, 1995....................... 63,125 62,025
7.5% Swiss Bonds............................................. 6,443 6,443
4.6% to 12.5% Capital lease obligations due through 2014.... 12,870 12,617
------ ------
536,456 541,946
Less amounts due within one year................... 2,653 2,799
Less debt service funds............................ 327 377
--- ----
$ 533,476 $ 538,770
=========== ==========
</TABLE>
The aggregate scheduled maturities of long-term debt and capital lease
obligations during the five years subsequent to September 30, 1995 are as
follows (in thousands): 1996 -- $2,799; 1997 -- $2,967; 1998 -- $2,522; 1999 --
$82,878; and 2000 -- $1,993.
The Senior Subordinated Notes, which are carrried at cost, had a fair
value of approximately $402 million at September 30, 1995 based on a market
quote. The Company's remaining debt is also carried at cost, which approximates
fair market value.
<PAGE>
Revolving Credit Agreement
On May 2, 1994, the Company entered into a Second Amended and Restated
Credit Agreement with certain financial institutions for a five-year reducing,
revolving credit facility in an aggregate committed amount of $300 million (the
"Revolving Credit Agreement"). Proceeds from the Revolving Credit Agreement were
used (i) to refinance certain mortgage indebtedness of certain subsidiaries of
the Company in the principal amount of approximately $14.7 million and the loans
to certain subsidiaries of the Company outstanding under the Credit Agreement in
the principal amount of approximately $46.8 million, (ii) for continued credit
enhancement of certain currently outstanding variable rate demand notes issued
by or for the benefit of certain subsidiaries of the Company and (iii) for
working capital and other general corporate purposes, including to finance, in
part, the Hospital Acquisition and to finance other permitted acquisitions and
investments.
The amounts available under the Revolving Credit Agreement will be
reduced by the amounts and on the dates indicated below (in thousands):
<TABLE>
<CAPTION>
Amount Date
------ ----
<S> <C>
$ 23,756 March 31, 1996
47,512 March 31, 1997
32,512 March 31, 1998
175,000 March 31, 1999
</TABLE>
In addition to the scheduled reductions above, the Revolving Credit
Agreement commitment shall be reduced (i) by an amount equal to 70% (or if a
default or an event of default exists, 100%) of the net proceeds of certain
asset sales, (ii) by an amount equal to 25% (or if a default or an event of
default exists, 100%) of the net proceeds of certain issuances or sales of the
Company's capital stock or other equity interests, except that no such reduction
shall be required if the Company meets specified financial ratios and no default
or event of default has occurred and is continuing, and (iii) by an amount equal
to the principal amount of permitted subordinated indebtedness subject to a
required repurchase or repurchase offer by the Company as a result of any asset
sale. All such reductions described in the foregoing clauses (i) through (iii)
shall be applied first on a pro rata basis to all scheduled reductions of the
Revolving Credit Agreement other than the last scheduled reduction of the
Revolving Credit Agreement, and thereafter to the last scheduled reduction. On
September 29, 1995, the Company voluntarily reduced the commitment by $15.0
million.
The loans outstanding under the Revolving Credit Agreement bear
interest (subject to certain potential adjustments) at a rate per annum equal to
(a) the sum of the Base Lending Rate plus 3/4 of 1%, or (b) at the option of the
Company, the sum of the maximum reserve-adjusted one, two, three or six-month
LIBOR plus 1 3/4%. The Base Lending Rate is the higher of (x) the rate announced
from time to time as Bankers Trust Company's prime lending rate, (y) the Federal
Reserve's reported weekly average dealer offering rate for three-month
certificates of deposit, adjusted for maximum reserves, plus 1/2 of 1%, and (z)
the Federal Funds Rate plus 1/2 of 1%.
Senior Subordinated Notes
Also on May 2, 1994, the Company issued $375 million of 11.25% Senior
Subordinated Notes which mature on April 15, 2004 (the "Notes") and are general
unsecured obligations of the Company. Interest on the Notes is payable
semi-annually on each April 15 and October 15. The Notes were originally issued
as unregistered securities and later exchanged for securities which were
registered with the Securities and Exchange Commission. Due to a delay in the
registration of the notes to be exchanged, the Company was required to increase
the interest rate on the Notes by 50 basis points per annum for the period
September 1, 1994 through October 21, 1994, the date of issuance of the notes to
be exchanged. Proceeds of $181.8 million from the sale of the Notes were used to
defease, and, subsequently on June 9, 1994, to redeem the Company's outstanding
7.5% Senior Subordinated Debentures due 2003 (the "Debentures"). Certain
remaining proceeds were used, along with proceeds from the Revolving Credit
Agreement, to finance the Hospital Acquisition. The Notes are guaranteed on an
unsecured senior subordinated basis by substantially all of the Company's
existing subsidiaries and certain subsidiaries created after the issuance of the
Notes.
<PAGE>
The Notes are not redeemable at the option of the Company prior to April
15, 1999. Thereafter, the Notes will be subject to redemption at the option of
the Company, in whole or in part, at the redemption prices (expressed as a
percentage of the principal amount) set forth below, plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning April 15 of the years indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----
<S> <C>
1999................... 105.625%
2000................... 103.750%
2001................... 101.875%
2002 and thereafter.... 100.000%
</TABLE>
Covenants
The Revolving Credit Agreement and the indenture for the Notes contain
a number of restrictive covenants, which, among other things, limit the ability
of the Company and certain of its subsidiaries to incur other indebtedness,
engage in transactions with affiliates, incur liens, make certain restricted
payments, and enter into certain business combination and asset sale
transactions. The Revolving Credit Agreement also limits the Company's ability
to incur capital expenditures and requires the Company to maintain certain
specified financial ratios. The Company was in compliance with all debt
covenants at September 30, 1995.
Extraordinary Losses
The consolidated statements of operations for the years ended September
30, 1993 and 1994 include extraordinary after-tax losses of approximately $8.6
and $12.6 million, respectively, resulting from the early extinguishment of
debt. The loss during fiscal 1993 includes fees incurred upon the retirement of
the Senior Secured Notes, certain debt under the Credit Agreement and mortgages
on the general hospitals and the write-off of the unamortized discount or
premium remaining on certain debt. The extraordinary loss in fiscal 1994 was
related to the defeasance of the Debentures and the pay-off of certain
subsidiary mortgages and includes the difference between the redemption price
and the carrying value of the Debentures and prepayment penalties related to the
subsidiary mortgages.
Leases
The Company leases certain hospital facilities, some of which may be
purchased during the term or at expiration of the leases. The book value of
capital leased assets was approximately $8.7 million at September 30, 1995. The
leases, which expire at various dates through 2069, generally require the
Company to pay all maintenance, property tax and insurance costs.
At September 30, 1995, aggregate amounts of future minimum payments
under operating leases were as follows: 1996 - $9.7 million; 1997 - $6.7
million; 1998 - $5.2 million; 1999 - $3.8 million; 2000 - $2.4 million;
subsequent to 2000 - $50.5 million.
Rent expense for the years ended September 1993, 1994 and 1995 was
$11.3 million, $11.4 million and $15.4 million, respectively.
7. Stockholders' Equity
Pursuant to the Company's Restated Certificate of Incorporation, the
Company is authorized to issue 80 million shares of common stock, $.25 par value
per share, and 10 million shares of preferred stock, without par value. Under
the terms of the Plan, approximately 24.8 million shares of common stock were
issued to certain holders of debt securities, the preferred stockholders, and
common stockholders. No shares of preferred stock have been issued as of
September 30, 1995.
<PAGE>
Common Stock
The Company is prohibited from paying dividends (other than dividends
payable in shares of Common Stock) on its Common Stock under the terms of the
Revolving Credit Agreement except under certain limited circumstances.
1992 Stock Option Plan
The 1992 Stock Option Plan provides for the issuance of approximately
3.4 million options to purchase shares of Common Stock. A summary of changes in
options outstanding and other related information is as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C> <C>
Balance, beginning of period...... 3,416,826 3,228,076 772,516
Granted................. 21,750 6,000 --
Canceled................ (27,000) (24,000) (10,500)
Exercised............... (183,500) (2,437,560) (46,500)
-------- ---------- -------
Balance, end of period............ 3,228,076 772,516 715,516
========= ======= =======
Option prices, end of period...... $.25-$16.875 $4.36-$22.75 $4.36-$22.75
Price range of exercised options.. $4.36 $.25 - $4.36 $4.36-$14.19
Average exercise price............ $4.36 $.62 $6.26
</TABLE>
The exercise price of certain options will be reduced upon termination
of employment of certain optionees without cause.
Options issued pursuant to the 1992 Stock Option Plan are exercisable
upon vesting and expire through October 2000. As of September 30, 1995, 100% of
the options outstanding were vested.
Upon the termination of the employment of the Company's former Chairman
of the Board on March 4, 1993, and under the provisions of the 1992 Stock Option
Plan, all of the former employee's options vested and the option prices were
reduced to $.25 per share. Such options totaled 2,220,336 at September 30, 1993.
As a result, the Company recognized approximately $21.3 million in additional
stock option expense during fiscal 1993. On December 3 and December 29, 1993,
all of the options under the 1992 Stock Option Plan held by the former employee
were exercised. On December 3, 1993, 326,000 options were exercised and the
option exercise price was paid by reducing the number of shares issuable by the
number of shares having a fair market value equal to the option exercise price
(3,326 shares). This exercise triggered a new measurement date for the options
exercised and, since the stock price had increased since March 4, 1993,
additional stock option expense of $3.9 million was recognized in fiscal 1994.
The option exercise price for the 1,894,336 options exercised on December 29,
1993, was paid in cash; accordingly, no additional stock option expense was
triggered. For both of the exercises, the former employee elected to surrender
optioned shares (approximately 570,000 shares) as consideration for the payment
of required withholding taxes of approximately $14.2 million. These withholdings
represent the minimum required tax withholding amounts required in order to
avoid triggering a new measurement date and additional compensation expense. The
Company was required to make withholding tax payments on behalf of the former
employee of approximately $14.2 million which was charged against additional
paid-in capital. This charge was offset by a tax benefit recorded of
approximately $9.4 million related to additional stock option expense allowable
for income tax purposes.
1994 Stock Option Plan
The 1994 Stock Option Plan provides for the issuance of approximately
1.3 million options to purchase shares of Common Stock. Options must be granted
on or before December 31, 1996. Officers and key employees of the Company are
eligible to participate. The options have an exercise price which approximates
fair market value of the
<PAGE>
Common Stock at the date of grant. A summary of changes in options outstanding
and other related information is as follows:
<TABLE>
<CAPTION>
Year ended September 30
-----------------------
1994 1995
---- ----
<S> <C> <C> <C>
Balance, beginning of period........... -- 876,500
Granted...................... 921,000 485,000
Canceled..................... 44,500 (209,169)
Exercised.................... -- --
------ --------
Balance, end of period................. 876,500 1,162,331
======= =========
Option prices......................... $22.687.-.$28.312 $15.625 - $27.875
</TABLE>
Options granted under the 1994 Stock Option Plan are exercisable to the
extent vested. An option vests at the rate of 33-1/3% of the shares covered by
the option on each of the first three anniversary dates of the grant of the
option if the optionee is an employee of the Company on such dates. Options must
be exercised no later than ten years after the date of grant. As of September
30, 1995, 22.9% of the options outstanding were vested.
1994 Employee Stock Purchase Plan
The 1994 Employee Stock Purchase Plan ("ESPP") covers 600,000 shares of
Common Stock that can be purchased by eligible employees of the Company.
The initial offering period began on April 1, 1994 and expired on March
31, 1995. The second offering period began on April 1, 1995 and will end March
31, 1996. On the first date of these offering periods, each participant was
granted an option to purchase shares of common stock at a purchase price equal
to 85% of the fair value of the Company's common stock on such date. Total
options granted on April 1, 1994 and April 1, 1995 were 85,115 and 41,565,
respectively, with option prices of $21.144 and $15.831. A total of 4,872
options were exercised at the end of the first offering period.
Effective August 1, 1995, the Company amended the ESPP to change the
option price in subsequent offering periods to the lesser of (i) 85% of the fair
value of Company common stock on the first day of the offering period or (ii)
85% of the fair value of the Company's common stock on the last day of the
offering period. Holders of the options from the second offering period as of
July 31, 1995 were given the choice of (i) canceling their options to purchase
shares of common stock, (ii) exercising the option to purchase shares of common
stock at a purchase price of $15.831 or (iii) keeping their options. A total of
11,870 options were exercised on July 31, 1995. The third offering period began
August 1, 1995 and will end December 31, 1995. The number of options granted and
the option price of the third offering period will be determined on December 31,
1995 when the option price is known.
Directors' Stock Option Plan and Directors' Unit Award Plan
The Directors' Stock Option Plan provides for the grant of options to
non-employee members of the Company's Board of Directors to purchase up to
175,000 shares of the Company's Common Stock, subject to adjustments to reflect
certain changes in capitalization. The options have an exercise price which
approximates the fair market value of the Common Stock on the date of grant.
During fiscal 1993, 100,000 options were granted at an exercise price of $14.56
per share. During fiscal 1994, 25,000 of these options were exercised and an
additional 25,000 options were granted at an exercise price of $23.163 per
share. During fiscal 1995, 25,000 options were granted at an exercise price of
$18.875 per share.
<PAGE>
Options granted can be exercised from the date of vesting until
February 1, 2003. No options can be granted after February 4, 1998. Options vest
20% when granted and an additional 20% on each successive February 1 for a
period of four years, if the optionee continues to serve as a non-employee
director on the applicable February 1. Unvested options vest in full in certain
instances of termination.
In addition, during 1994, the Company approved the Directors' Unit
Award Plan (the "Unit Plan") which provides for the award of a maximum of 15,000
units (the "Units") that, upon vesting under the terms of the Unit Plan, would
result in the issuance of an aggregate of 15,000 shares of Common Stock in
settlement of Units.
The Unit Plan provides for the award to each director who is not an
employee of the Company of 2,500 Units. Upon vesting of the Units awarded to a
director, the Company will settle the Units by issuing to the director, with no
exercise price, a number of shares of the Company's Common Stock equal to the
number of vested Units.
Rights Plan
Also upon consummation of the Plan, the Company adopted a Share
Purchase Rights Plan (the "Rights Plan"). Pursuant to the Rights Plan, each
share of Common Stock also represents one Share Purchase Right (collectively,
the "Rights"). The Rights trade automatically with the underlying shares of
Common Stock. Upon becoming exercisable, but prior to the occurrence of certain
events, each Right initially entitles its holder to buy one share of Common
Stock from the Company at an exercise price of $60.00. The Rights will be
distributed and become exercisable only if a person or group acquires, or
announces its intention to acquire, Common Stock exceeding certain levels, as
specified in the Rights Plan. Upon the occurrence of such events, the exercise
price of each Right reduces to one-half of the then current market price. The
Rights also give the holder certain rights in an acquiring company's Common
Stock. The Company is entitled to redeem the Rights at a price of $.01 per Right
at any time prior to the distribution of the Rights. The Rights have no voting
power until exercised.
Common Stock Warrants
The Company has two series of warrants outstanding, the 2002 Warrants
and the 2006 Warrants.
In connection with the Plan, the Company issued 114,690 of the 2002
Warrants to purchase one share each of the Company's Common Stock. These
warrants, which expire on June 30, 2002, have an exercise price of $5.24 per
share. During fiscal 1994 and 1995, 37,395 and 47,392 shares were issued,
respectively, upon the exercise of these warrants.
The 2006 Warrants, which expire on September 1, 2006, were subject to
certain adjustments as a result of the Plan, and accordingly, 146,791 of such
warrants are currently outstanding with an exercise price of $38.70 per share.
8. Income Taxes
The provision (benefit) for income taxes attributable to continuing
operations consisted of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C> <C>
Income taxes currently payable:
Federal.................. $ 181 $ -- $ 658
State.................... 315 639 1,851
Foreign.................. 986 1,466 1,188
Deferred income taxes:
Federal.................. 370 (11,106) (13,130)
State.................... (39) (1,587) (1,876)
Foreign................. 61 52 --
-- -- --
$ 1,874 $(10,536) $(11,309)
======== ======== ========
</TABLE>
<PAGE>
A reconciliation of the Company's income tax provision (benefit)
attributable to continuing operations to that computed by applying the statutory
federal income tax rate is as follows (in thousands): <TABLE> <CAPTION>
Year Ended September 30,
------------------------
1993 1994 1995
---- ---- ----
<S><C> <C> <C> <C>
Income tax benefit at federal statutory
income tax rate......................... $(13,117) $(20,139) $(18,995)
State income taxes, net of federal
income tax benefit...................... 180 (616) (16)
Amortization of Excess
Reorganization Value.................... 14,831 10,920 9,100
Other -- net.............................. (20) (701) (1,398)
--- ---- ------
Income tax provision (benefit)............ $ 1,874 $(10,536) $(11,309)
======== ======== ========
</TABLE>
As of September 30, 1995, the Company has estimated tax net operating
loss ("NOL") carryforwards of approximately $233 million available to reduce
future federal taxable income. These NOL carry forwards expire in 2006 through
2009 and are subject to examination by the Internal Revenue Service. Due to the
ownership change which occurred as a result of the Restructuring, the Company's
utilization of NOLs generated prior to the Effective Date is significantly
limited. Based on these limitations and certain other factors, the Company has
recorded a valuation allowance against the entire amount of the NOL deferred tax
asset and other deferred tax assets, that in management's opinion, are not
likely to be recovered.
Components of the net deferred income tax liability (asset) at
September 30, 1994 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1994 1995
---- ----
<S><C> <C> <C> <C>
Deferred tax liabilities:
Property and depreciation.................. $ 6,636 $ 11,952
Long-term debt and interest................ 26,623 27,481
ESOP....................................... 26,019 17,708
Other...................................... 11,200 6,868
------ ------
Total deferred tax liabilities... $ 70,478 $ 64,009
------ ------
Deferred tax assets:
Operating loss carry forwards.............. (101,443) (93,171)
Insurance settlement....................... (16,031) (18,752)
Self-insurance reserves.................... (48,222) (44,519)
Restructuring costs........................ (9,365) (21,042)
Stock option expense....................... (6,649) (4,908)
Tax capitalization of costs
expensed for book purposes............... (5,338) (5,681)
Accruals................................... (14,504) (6,074)
Other...................................... (18,632) (24,832)
------- -------
Total deferred tax assets.................. (220,184) (218,979)
Valuation allowance........................ 162,086 154,087
------- -------
Deferred tax assets after
valuation allowance...................... (58,098) (64,892)
------- -------
Net deferred tax liabilities............... $ 12,380 (883)
========== ====
</TABLE>
<PAGE>
Effective January 1, 1993, the federal statutory corporate tax rate
increased from 34% to 35%. The effect of the increase was not material to the
Company.
The Internal Revenue Service is currently examining the Company's
income tax returns for fiscal 1989 through 1992. In management's opinion,
adequate provisions have been made for any adjustments which may result from
these examinations.
9. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
-------------
1994 1995
---- ----
<S> <C> <C>
Salaries, wages and other benefits...... $ 29,110 $ 28,597
Amounts due health insurance payors..... 37,647 10,252
Interest................................ 18,535 20,561
Other................................... 73,609 80,498
------ ------
$ 158,901 $ 139,908
=========== ===========
</TABLE>
10. Supplemental Cash Flow Information
Supplemental cash flow information for the years ended September 30,
1993, 1994 and 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1993 1994 1995
---- ---- ----
<S><C> <C> <C> <C> <C>
Federal and state income taxes paid,
net of refunds received.................... $11,136 $ 7,097 $ 4,682
Interest paid, net of amounts capitalized.... 74,167 25,554 54,302
Liabilities assumed in connection
with acquisitions:
Long-term debt..................... -- 4,573 --
Other liabilities.................. -- 12,578 15,040
</TABLE>
11. Commitments and Contingencies
The Company is self-insured for a substantial portion of its general
and professional liability risks. The reserves for self-insured general and
professional liability losses, including loss adjustment expenses, are based on
actuarial estimates that are discounted at an average rate of 6% to their
present value based on using the Company's historical claims experience adjusted
for current industry trends. The reserve for unpaid claims is adjusted, as such
claims mature, to reflect revised actuarial estimates based on actual
experience. While management and its actuaries believe that the present reserve
is reasonable, ultimate settlement of losses may vary from the amount provided.
In addition to general and professional liability claims, the Company
is subject to other claims, suits, surveys and investigations. In the opinion of
management, the ultimate resolution of such other pending legal proceedings will
not have a material adverse effect on the Company's financial position or
results of operations.
<PAGE>
The Resolution Trust Corporation ("RTC"), for itself or in its capacity
as conservator or receivor for 12 financial institutions, formerly held certain
debt securities that were issued by the Company in 1988. RTC has indicated to
the Company that it believes that certain financial statements and other
disclosures made by the Company in connection with such debt securities
contained materially misleading statements or material omissions and that such
misleading statements or omissions resulted in an overvaluation of such debt
securities. The Company has agreed to a tolling of the statute of limitations
applicable to RTC's claims. Based on a review of relevant law and the facts
known to the Company, the Company believes it has a substantial defense to a
potential claim by RTC and that such potential claim would not have a material
adverse effect on the Company's financial position or results of operations.
12. Certain Relationships and Related Transactions
The Company owns 50% of the Charter Medical Building in Macon, Georgia,
and leases space in such building for certain corporate offices. Through
September 30, 1994, the Company's corporate headquarters were located in the
building and the lease, which expired September 30, 1994, provided for an
average annual rent of approximately $1.2 million. Currently the Company is
paying approximately $45,000 per month in rent on the building. Mr. William A.
Fickling, Jr., a former Director and former Chairman of the Board of Directors
of the Company, and his father's estate own 25% of the building. In the opinion
of management, such office space was leased on terms as favorable as could be
obtained from an unaffiliated party. The Company received distributions of
approximately $280,000 in 1994.
On September 15, 1993, the Company sold its ownership interest in Beech
Street to the children of Mr. Fickling for approximately $5.5 million, plus the
right to receive additional consideration if certain events (e.g. a public
offering of Beech Street stock or if Beech Street sells 50% or more of its
assets) occur within two years. The Company obtained a fairness opinion by an
independent appraisal firm stating that the financial consideration was fair.
The Company acquired its ownership interest in a series of related transactions
beginning in May 1989, for a total purchase price of $2,956,000. During the
period of its ownership, the Company received $1,242,000 in dividend
distributions from Beech Street.
Beech Street was, prior to May 1989, a wholly owned subsidiary of Beech
Street, Inc., in which Mr. Fickling beneficially owns a majority of the
outstanding stock.
The Company also has agreements with Beech Street where certain of the
Company's hospitals provide services to employers (and their related employee
and covered dependent groups) who have entered into agreements with Beech
Street to utilize a Beech Street Preferred Provider Organization ("PPO") for
hospital and other healthcare services. Such agreements provide for covered
services to be rendered under terms (including discounts from the hospital's
normal charges) which management of the Company believes are customary for
hospital PPO agreements. The Beech Street PPO reviews claims and serves as an
intermediary between the Company's hospitals and the contracting employers.
The Company derived approximately $21.4 million, and $5.2 million in revenue
from these agreements during fiscal 1993 and 1994, respectively. The
aggregate discount from customary charges was 12% in fiscal 1993 and 19% in
1994.
Gerald L. McManis, who was elected director on February 18, 1994, is
the President of McManis Associates, Inc. ("MAI"), a healthcare development and
management consulting firm and a subsidiary of MMI Companies, Inc. ("MMI"). Mr.
McManis also serves on the Board of Directors of MMI. During fiscal 1993, 1994
and 1995, MAI provided consulting services for the Company related to the
development of strategic plans and a review of the Company's business processes.
The Company incurred approximately $1.0 million, $1.3 million, and $158,000 in
fees for such services during fiscal 1993, 1994 and 1995, respectively, and
reimbursed MAI for approximately $128,000, $244,000 and $21,000, respectively,
for expenses.
13. Subsequent Events
On December 13, 1995, the Company acquired 51% of the outstanding
Common Stock of Green Spring Health Services, Inc. ("Green Spring") for
approximately $73.2 million in cash and Common Stock and the contribution of
Group Practice Affiliates, a wholly-owned subsidiary of the Company, which then
became a wholly-owned subsidiary of Green Spring. Green Spring provides managed
behavioral healthcare services. The Company will account for the acquisition of
Green Spring using the purchase method of accounting.
<PAGE>
The minority shareholders of Green Spring will have the option, under
certain circumstances, to exchange their ownership interests in Green Spring for
approximately 3.6 million shares of Magellan Common Stock or $81.8 million in
subordinated notes. The Company may elect to pay cash in lieu of issuing the
subordinated notes. The exchange option expires on December 13, 1998.
On December 20, 1995, the Company acquired an additional 10% ownership
interest in Green Spring for approximately $16.7 million in cash as a result of
an exchange option exercised by certain of the minority shareholders of Green
Spring. The Company has a 61% ownership interest in Green Spring subsequent to
the exercise of the aforementioned exchange option.
14. Selected Quarterly Financial Data (Unaudited)
The following is a summary of the quarterly results of operations for
the years ended September 30, 1994 and 1995. The fourth quarter of fiscal 1994
contained unusual charges of approximately $71.3 million. The first quarter,
second quarter and fourth quarter of fiscal 1995 contained unusual charges
(income) of approximately ($3.0) million, $29.8 million and $30.6 million,
respectively. See Note 4 for an explanation of these charges.
<TABLE>
<CAPTION>
Fiscal Quarters
--------------------------------------------------------------------
First Second Third Fourth
---------- ------------- ------------ ------------
(In thousands, except per share amounts)
1994
<S> <C> <C> <C> <C>
Net revenue...................................... $ 208,817 $212,610 $220,857 $262,362
Income (loss) before extraordinary item.......... (3,866) 1,123 2,110 (46,370)
Net income (loss)................................ (3,866) 1,123 (10,506) (46,370)
Income (loss) per common share:
Income (loss) before extraordinary item... $ (0.15) $ 0.04 $ 0.08 $ (1.72)
Net income (loss)......................... (0.15) 0.04 (0.39) (1.72)
1995
Net revenue...................................... $ 263,841 $299,817 $304,745 $283,333
Net income (loss)................................ 349 (15,100) 1,682 (29,894)
Net income (loss) per common share............... 0.01 (0.53) 0.06 (1.07)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
15. Guarantor Condensed Consolidating Financial Statements
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(In thousands, except per share amounts)
September 30, 1994
---------------------------------------------------
Magellan
Health
Services, Inc.
Guarantor Nonguarantor (Parent
ASSETS Subsidiaries Subsidiaries Corporation)
<S> <C> <C> <C> <C> <C>
-------------- ---------------- --------------
Current Assets
Cash and cash equivalents.......................................... $ 71,850 $ 8,606 $ 49,147
Accounts receivable, net........................................... 166,191 2,780 1,324
Supplies........................................................... 5,713 75 309
Other current assets............................................... 11,461 177 19,018
-------------- ---------------- --------------
Total Current Assets...................................... 255,215 11,638 69,798
Assets restricted for settlement of unpaid claims............................ -- 61,475 13,057
Property and Equipment
Land............................................................... 89,340 6,019 1,014
Buildings and improvements......................................... 369,518 5,666 (14,598)
Equipment.......................................................... 88,483 1,262 2,299
-------------- ---------------- --------------
547,341 12,947 (11,285)
Accumulated depreciation........................................... (55,505) (1,056) (406)
Construction in progress........................................... 2,143 166 --
-------------- ---------------- --------------
493,979 12,057 (11,691)
Other Long-Term Assets (1)................................................... 44,400 11,003 972,059
Reorganization Value in Excess of Amounts Allocable to Identifiable
Assets, net............................................................ -- -- 26,001
Other Intangible Assets 8,038 3,382 16,200
-------------- ---------------- --------------
$ 801,632 $ 99,555 $ 1,085,424
============== ================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable.................................................. $ 43,476 $ 1,107 $ 6,162
Accrued liabilities and income tax payable........................ 63,742 1,684 96,224
Current maturities of long-term debt and capital
lease obligations............................................... 2,537 116 --
-------------- ---------------- --------------
Total Current Liabilities................................ 109,755 2,907 102,386
Long-Term Debt and Capital Lease Obligations................................ (258,010) 1,497 789,989
Deferred Income Taxes....................................................... -- 647 11,733
Reserve for Unpaid Claims................................................... -- 54,759 57,515
Deferred Credits and Other Long-Term Liabilities (1)........................ 349,146 669 67,580
Stockholders' Equity........................................................
Common Stock, par value $0.25 per share;
Authorized - 80,000 shares
Issued and outstanding - 26,899 shares........................... 2,866 587 6,725
Other Stockholders' Equity
Additional paid-in capital........................................ 707,744 30,455 244,339
Retained earnings (Accumulated deficit)........................... (109,093) 7,734 (119,042)
Unearned compensation under ESOP.................................. -- -- (73,527)
Warrants outstanding.............................................. -- -- 180
Cumulative foreign currency adjustments........................... (776) 300 (2,454)
============== ---------------- --------------
600,741 39,076 56,221
Commitments and Contingencies
$ 801,632 $ 99,555 $ 1,085,424
============== ================ ==============
September 30, 1994
---------------------------------
Consolidated
Elimination Consolidated
ASSETS Entries Total
-------------- ----------------
Current Assets
Cash and cash equivalents.......................................... $ -- $ 129,603
Accounts receivable, net........................................... -- 170,295
Supplies........................................................... -- 6,097
Other current assets............................................... (12,024) 18,632
-------------- ----------------
Total Current Assets...................................... (12,024) 324,627
Assets restricted for settlement of unpaid claims............................ -- 74,532
Property and Equipment
Land............................................................... -- 96,373
Buildings and improvements......................................... -- 360,586
Equipment.......................................................... -- 92,044
-------------- ----------------
-- 549,003
Accumulated depreciation........................................... -- (56,967)
Construction in progress........................................... -- 2,309
-------------- ----------------
-- 494,345
Other Long-Term Assets (1)................................................... (1,013,107) 14,355
Reorganization Value in Excess of Amounts Allocable to Identifiable
Assets, net............................................................ -- 26,001
Other Intangible Assets -- 27,620
-------------- ----------------
$ (1,025,131) $ 961,480
============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable.................................................. $ -- $ 50,745
Accrued liabilities and income tax payable........................ -- 161,650
Current maturities of long-term debt and capital
lease obligations............................................... -- 2,653
-------------- ----------------
Total Current Liabilities................................ -- 215,048
Long-Term Debt and Capital Lease Obligations................................ -- 533,476
Deferred Income Taxes....................................................... -- 12,380
Reserve for Unpaid Claims................................................... (12,024) 100,250
Deferred Credits and Other Long-Term Liabilities (1)........................ (373,290) 44,105
Stockholders' Equity........................................................
Common Stock, par value $0.25 per share;
Authorized - 80,000 shares
Issued and outstanding - 26,899 shares........................... (3,453) 6,725
Other Stockholders' Equity
Additional paid-in capital........................................ (738,199) 244,339
Retained earnings (Accumulated deficit)........................... 101,359 (119,042)
Unearned compensation under ESOP.................................. -- (73,257)
Warrants outstanding.............................................. -- 180
Cumulative foreign currency adjustments........................... 476 (2,454)
-------------- ----------------
(639,817) 56,221
Commitments and Contingencies
$ (1,025,131) $ 961,480
============== ================
</TABLE>
(1) Elimination entry related to intercompany receivables and payables and
investment in consolidated subsidiaries.
The accompanying Notes to Condensed Consolidating Financial Statements are an
integral part of these balance sheets.
<PAGE>
<TABLE>
<CAPTION>
15. Guarantor Condensed Consolidating Financial Statements
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(In thousands, except per share amounts)
September 30, 1995
--------------------------------------------
Magellan
Health
Services, Inc.
Guarantor Nonguarantor (Parent
Subsidiaries Subsidiaries Corporation)
<S> <C> <C> <C> <C>
------------ ------------ -------------
Current Assets
Cash and cash equivalents................................................. $ 60,719 $ 10,279 $ 34,516
Accounts receivable, net.................................................. 170,855 10,251 57
Supplies.................................................................. 5,081 224 463
Other current assets...................................................... 10,004 (1,241) 19,151
------------ ------------ -------------
Total Current Assets............................................. 246,659 19,513 54,187
Assets restricted for settlement of unpaid claims................................... -- 78,188 15,950
Property and Equipment
Land...................................................................... 79,807 7,199 1,013
Buildings and improvements................................................ 351,081 21,017 5,071
Equipment................................................................. 103,125 4,900 3,529
------------ ------------ -------------
534,013 33,116 9,613
Accumulated depreciation.................................................. (87,503) (2,716) (658)
Construction in progress.................................................. 2,650 251 1
------------ ------------ -------------
449,160 30,651 8,956
Other Long-Term Assets (1).......................................................... 130,363 20,409 1,015,435
Other Intangible Assets, net........................................................ 29,498 11,811 20,520
------------ ------------ -------------
$ 855,680 $ 160,572 $ 1,115,048
============ ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable......................................................... $ 50,510 $ 8,424 $ 12,086
Accrued liabilities and income tax payable............................... 67,646 4,156 68,541
Current maturities of long-term debt and capital lease obligations....... 2,673 126 --
------------ ------------ -------------
Total Current Liabilities....................................... 120,829 12,706 80,627
Long-Term Debt and Capital Lease Obligations....................................... (344,312) 5,271 877,811
Reserve for Unpaid Claims.......................................................... -- 89,207 25,702
Deferred Credits and Other Long-Term Liabilities (1)............................... 512,891 2,487 42,348
Stockholders' Equity...............................................................
Common Stock, par value $0.25 per share; Authorized - 80,000 shares
Issued and outstanding - 28,405 shares.................................. 2,765 837 7,101
Other Stockholders' Equity
Additional paid-in capital............................................... 612,131 30,455 253,295
Retained earnings (Accumulated deficit).................................. (47,789) 22,601 (161,840)
Warrants outstanding..................................................... -- -- 64
Common stock in Treasury
462 shares............................................................. -- (4,736) (9,238)
Cumulative foreign currency adjustments.................................. (835) 1,744 (822)
------------ ------------ -------------
566,272 50,901 88,560
------------ ------------ -------------
Commitments and Contingencies $ 855,680 $ 160,572 $ 1,115,048
============ ============ =============
September 30, 1995
----------------------------
Consolidated
Elimination Consolidated
Entries Total
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents................................................. $ -- $ 105,514
Accounts receivable, net.................................................. -- 181,163
Supplies.................................................................. -- 5,768
Other current assets...................................................... (14,784) 13,130
------------ ------------
Total Current Assets............................................. (14,784) 305,575
Assets restricted for settlement of unpaid claims................................... -- 94,138
Property and Equipment
Land...................................................................... -- 88,019
Buildings and improvements................................................ -- 377,169
Equipment................................................................. -- 111,554
------------ ------------
-- 576,742
Accumulated depreciation.................................................. -- (90,877)
Construction in progress.................................................. -- 2,902
------------ ------------
-- 488,767
Other Long-Term Assets (1).......................................................... (1,132,958) 33,249
Other Intangible Assets, net........................................................ -- 61,829
------------ ------------
$(1,147,742) $ 983,558
============ ============
Current Liabilities
Accounts payable......................................................... $ -- $ 71,020
Accrued liabilities and income tax payable............................... -- 140,343
Current maturities of long-term debt and capital lease obligations....... -- 2,799
------------ ------------
Total Current Liabilities....................................... -- 214,162
Long-Term Debt and Capital Lease Obligations....................................... -- 538,770
Reserve for Unpaid Claims.......................................................... (14,784) 100,125
Deferred Credits and Other Long-Term Liabilities (1)............................... (515,785) 41,941
Stockholders' Equity...............................................................
Common Stock, par value $0.25 per share; Authorized - 80,000 shares
Issued and outstanding - 28,405 shares.................................. (3,602) 7,101
Other Stockholders' Equity
Additional paid-in capital............................................... (642,586) 253,295
Retained earnings (Accumulated deficit).................................. 25,188 (161,840)
Warrants outstanding..................................................... -- 64
Common stock in Treasury
462 shares............................................................. 4,736 (9,238)
Cumulative foreign currency adjustments.................................. (909) (822)
------------ ------------
(617,173) 88,560
------------ ------------
Commitments and Contingencies $ (1,147,742) $ 983,558
============ ============
</TABLE>
(1) Elimination entry related to intercompany receivables and payables and
investment in consolidated subsidiaries.
The accompanying Notes to Condensed Consolidating Financial Statements are an
integral part of these balance sheets.
<TABLE>
<CAPTION>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(In thousands, except shares and per share amounts)
September 30, 1993
---------------------------------------------------
Magellan
Health
Services, Inc.
Guarantor Nonguarantor (Parent
Subsidiaries Subsidiaries Corporation)
--------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Net revenue.......................................................... $ 922,221 $ 16,911 $ (20,514)
Costs and expenses
Salaries, supplies and other operating expenses............ 876,792 11,913 (227,147)
Bad debt expense........................................... 68,086 121 (907)
Depreciation and amortization.............................. 26,816 411 (845)
Amortization of reorganization value in excess of amounts
allocable to identifiable assets......................... (8) -- 42,686
Interest, net.............................................. (7,465) 36 81,585
ESOP expense............................................... 41,563 -- 4,311
Stock option expense....................................... -- -- 38,416
--------------- ---------------- --------------
1,005,784 12,481 (61,901)
--------------- ---------------- --------------
Income (loss) from continuing operations before income taxes and
extraordinary item and equity in earnings (loss) of subsidiaries... (83,563) 4,430 41,387
Provision for (benefit from) income taxes (30,313) 520 31,667
--------------- ---------------- --------------
Income (loss) from continuing operations before extraordinary item
and equity in earnings (loss) of subsidiaries..................... (53,250) 3,910 9,720
Equity in earnings (loss) of continuing subsidiaries................ 909 -- (49,340)
Discontinued operations:
Income (loss) from discontinued operations................ 14,734 5,492 (34,929)
Equity in earnings (loss) of discontinued subsidiaries.... -- -- 104,402
Gain (loss) on disposal of discontinued operations........ 84,176 -- (73,519)
--------------- ---------------- --------------
Income (loss) before extraordinary item............................. 46,569 9,402 (43,666)
Extraordinary loss in early extinguishment of debt.................. 314 -- 8,561
--------------- ---------------- --------------
Net income (loss)................................................... $ 46,255 $ 9,402 $ (52,227)
=============== ================ ==============
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash provided by (used in) operating activities..................... $ (404,185) $ 5,066 $ 489,077
--------------- ---------------- --------------
Cash Flows from Investing Activities:
Capital expenditures...................................... (10,806) (76) (219)
Increase in assets restricted for the settlement
of unpaid claims........................................ -- (10,084) (4,068)
Proceeds from the sale of assets.......................... 342,781 5,710 5,682
Cash flows from discontinued operations................... 42,487 -- --
--------------- ---------------- --------------
Cash provided by (used in) investing activities..................... 374,462 (4,450 1,395
--------------- ---------------- --------------
Cash Flows from Financing Activities:
Proceeds from the issuance of debt........................ 17,200 -- --
Payments on debt and capital lease obligations........... (56,508) -- (477,434)
Cash flows from other financing activities................ -- -- 576
--------------- ---------------- --------------
Cash used in financing activities................................... (39,308) -- (476,858)
--------------- ---------------- --------------
Net increase (decrease) in cash and cash equivalents................ (69,031) 616 13,614
Cash and cash equivalents at beginning of period.................... 114,178 2,140 24,485
--------------- ---------------- --------------
Cash and cash equivalents at end of period......................... $ 45,147 $ 2,756 $ 38,099
=============== ================ ==============
September 30, 1993
----------------------------------
Consolidated
Elimination Consolidated
Entries Total
--------------- ----------------
Net revenue.......................................................... $ (20,711) $ 897,907
Costs and expenses
Salaries, supplies and other operating expenses............ (20,711) 640,847
Bad debt expense........................................... -- 67,300
Depreciation and amortization.............................. -- 26,382
Amortization of reorganization value in excess of amounts
allocable to identifiable assets......................... -- 42,678
Interest, net.............................................. -- 74,156
ESOP expense............................................... -- 45,874
Stock option expense....................................... -- 38,416
--------------- ----------------
(20,711) 935,653
--------------- ----------------
Income (loss) from continuing operations before income taxes and
extraordinary item and equity in earnings (loss) of subsidiaries... -- (37,746)
Provision for (benefit from) income taxes -- 1,874
--------------- ----------------
Income (loss) from continuing operations before extraordinary item
and equity in earnings (loss) of subsidiaries..................... -- (39,620)
Equity in earnings (loss) of continuing subsidiaries................ 48,431 --
Discontinued operations:
Income (loss) from discontinued operations................ -- (14,703)
Equity in earnings (loss) of discontinued subsidiaries.... (104,402) --
Gain (loss) on disposal of discontinued operations........ -- 10,657
--------------- ----------------
Income (loss) before extraordinary item............................. (55,971) (43,666)
Extraordinary loss in early extinguishment of debt.................. (314) 8,561
--------------- ----------------
Net income (loss)................................................... $ (55,657) $ (52,227)
=============== ================
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash provided by (used in) operating activities..................... $ -- $ 89,958
--------------- ----------------
Cash Flows from Investing Activities:
Capital expenditures...................................... -- (11,101)
Increase in assets restricted for the settlement
of unpaid claims........................................ -- (14,152)
Proceeds from the sale of assets.......................... -- 354,173
Cash flows from discontinued operations................... -- 42,487
--------------- ----------------
Cash provided by (used in) investing activities..................... -- 371,407
--------------- ----------------
Cash Flows from Financing Activities:
Proceeds from the issuance of debt........................ -- 17,200
Payments on debt and capital lease obligations........... -- (533,942)
Cash flows from other financing activities................ -- 576
--------------- ----------------
Cash used in financing activities................................... -- (516,166)
--------------- ----------------
Net increase (decrease) in cash and cash equivalents................ -- (54,801)
Cash and cash equivalents at beginning of period.................... -- 140,803
--------------- ----------------
Cash and cash equivalents at end of period......................... $ -- $ 86,002
=============== ================
</TABLE>
The accompanying Notes to Condensed Consolidating Financial Statements are an
integral part of these statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
MAGELLAN HEALTH SERVICES, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In thousands, except shares and per share amounts)
September 30, 1994
---------------------------------------------------
Magellan
Health
Services, Inc.
Guarantor Nonguarantor (Parent
Subsidiaries Subsidiaries Corporation)
--------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Net revenue........................................................... $ 890,737 $ 24,390 $ 6,931
Costs and expenses
Salaries, supplies and other operating expenses............. 794,650 21,187 (136,909)
Bad debt expense............................................ 70,856 (2) (231)
Depreciation and amortization............................... 26,602 1,027 725
Amortization of reorganization value in excess of amounts
allocable to identifiable assets.......................... -- -- 31,200
Interest, net............................................... (20,830) 21 60,203
ESOP expense................................................ 46,316 -- 2,881
Stock option expense........................................ -- -- 10,614
Unusual items............................................... 787 196 70,304
--------------- ---------------- --------------
918,381 22,429 38,787
--------------- ---------------- --------------
Income (loss) from continuing operations before income taxes,
equity in earnings (loss) of subsidiaries and extraordinary item..... (27,644) 1,961 (31,856)
Income tax benefit..................................................... (8,753) (195) (1,588)
--------------- ---------------- --------------
Income (loss) from continuing operations before equity in earnings
(loss) of subsidiaries and extraordinary item......................... (18,891) 2,156 (30,268)
Equity in earnings (loss) of subsidiaries.............................. 1,889 -- (16,735)
--------------- ---------------- --------------
Income (loss) before extraordinary item................................ (17,002) 2,156 47,003
Extraordinary item - loss on early extinguishment or discharge
of debt (net of income tax benefit of $8,410)........................ -- -- (12,616)
--------------- ---------------- --------------
Net income (loss) $ (17,002) $ 2,156 $ (59,619)
=============== ================ ==============
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash provided by (used in) operating activities....................... $ 153,152 $ 7,097 $ (61,902)
--------------- ---------------- --------------
Cash Flows from Investing Activities:
Capital expenditures........................................ (14,282) (344) --
Proceeds from the sale of assets............................ 11,584 -- 5,000
Acquisitions of businesses.................................. (129,816) (734) --
(Increase) decrease in assets restricted for the
settlement of unpaid claims............................... (124) 7,200 --
--------------- ---------------- --------------
Cash provided by (used in) investing activities....................... (132,514) (1,202) 12,200
--------------- ---------------- --------------
Cash Flows from Financing Activities:
Proceeds from the issuance of debt.......................... 25,862 -- 355,936
Payments on debt and capital lease obligations............. (19,797) (45) (291,711)
Cash flows from other financing activities.................. -- -- (3,475)
--------------- ---------------- --------------
Cash provided by (used in) financing activities....................... 6,065 (45) (60,750)
--------------- ---------------- --------------
Net increase in cash and cash equivalents............................. 26,703 5,850 11,048
Cash and cash equivalents at beginning of period...................... 45,147 2,756 38,099
--------------- ---------------- --------------
Cash and cash equivalents at end of period............................ $ 71,850 $ 8,606 $ 49,147
=============== ================ ==============
September 30, 1994
----------------------------------
Consolidated
Elimination Consolidated
Entries Total
--------------- ----------------
Net revenue........................................................... $ (17,412) $ 904,646
Costs and expenses
Salaries, supplies and other operating expenses............. (17,412) 661,516
Bad debt expense............................................ -- 70,623
Depreciation and amortization............................... -- 28,354
Amortization of reorganization value in excess of amounts
allocable to identifiable assets.......................... -- 31,200
Interest, net............................................... -- 39,394
ESOP expense................................................ -- 49,197
Stock option expense........................................ -- 10,614
Unusual items............................................... 71,287
--------------- ----------------
(17,412) 962,185
--------------- ----------------
Income (loss) from continuing operations before income taxes,
equity in earnings (loss) of subsidiaries and extraordinary item..... -- (57,539)
Income tax benefit..................................................... -- (10,536)
--------------- ----------------
Income (loss) from continuing operations before equity in earnings
(loss) of subsidiaries and extraordinary item......................... -- (47,003)
Equity in earnings (loss) of subsidiaries.............................. 14,846 --
--------------- ----------------
Income (loss) before extraordinary item................................ 14,846 (47,003)
Extraordinary item - loss on early extinguishment or discharge
of debt (net of income tax benefit of $8,410)........................ -- (12,616)
--------------- ----------------
Net income (loss) $ 14,846 $ (59,619)
=============== ================
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash provided by (used in) operating activities....................... $ -- $ 98,347
--------------- ----------------
Cash Flows from Investing Activities:
Capital expenditures........................................ -- (14,626)
Proceeds from the sale of assets............................ -- 16,584
Acquisitions of businesses.................................. -- (130,550)
(Increase) decrease in assets restricted for the
settlement of unpaid claims............................... -- 7,076
--------------- ----------------
Cash provided by (used in) investing activities....................... -- (121,516)
--------------- ----------------
Cash Flows from Financing Activities:
Proceeds from the issuance of debt.......................... -- 381,798
Payments on debt and capital lease obligations............. -- (311,553)
Cash flows from other financing activities.................. -- (3,475)
--------------- ----------------
Cash provided by (used in) financing activities....................... -- 66,770
--------------- ----------------
Net increase in cash and cash equivalents............................. -- 43,601
Cash and cash equivalents at beginning of period...................... -- 86,002
--------------- ----------------
Cash and cash equivalents at end of period............................ $ -- $ 129,603
=============== ================
</TABLE>
The accompanying Notes to Condensed Consolidating Financial Statements are an
integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(In thousands, except shares and per share amounts)
September 30, 1995
----------------------------------------------------
Magellan
Health
Services, Inc.
Guarantor Nonguarantor (Parent
Subsidiaries Subsidiaries Corporation)
--------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Net revenue........................................................... $ 1,099,039 $ 79,702 $ (2,792)
Costs and expenses
Salaries, supplies and other operating expenses............. 925,259 78,153 (115,612)
Bad debt expense............................................ 91,945 2,088 (2,011)
Depreciation and amortization............................... 35,769 2,073 823
Amortization of reorganization value in excess of amounts
allocable to identifiable assets.......................... -- -- 26,000
Interest, net............................................... (32,975) 32 88,180
ESOP expense................................................ 55,497 70 17,960
Stock option expense........................................ -- -- (467)
Unusual items............................................... 26,640 3,957 26,840.
--------------- ---------------- --------------
1,102,135 86,373 41,713
--------------- ---------------- --------------
Income (loss) from continuing operations before income taxes
and equity in earnings (loss) of subsidiaries....................... (3,096 (6,671) (44,505)
Provision for (benefit from) income taxes 6,139 (2,418) (15,030)
--------------- ---------------- --------------
Income (loss) from continuing operations before
equity in earnings (loss) of subsidiaries........................... (9,235) (4,253) (29,475)
Equity in earnings (loss) of continuing subsidiaries.................. 3,680 -- (13,488)
--------------- ---------------- --------------
Net income (loss)..................................................... $ (5,555) $ (4,253) $ (42,963)
=============== ================ ==============
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash provided by (used in) operating activities...................... $ 82,863 $ 28,223 $ (15,466)
--------------- ---------------- --------------
Cash Flows from Investing Activities:
Capital expenditures....................................... (17,729) (1,177) (1,318)
Acquisition of businesses.................................. (57,882) (4,098) --
Increase in assets restricted for the settlement of
unpaid claims............................................ -- (16,713) (2,893)
Proceeds from the sale of assets........................... -- -- 5,879
Other...................................................... (1,050) -- --
--------------- ---------------- --------------
Cash provided by (used in) investing activities...................... (76,661) (21,988) 1,668
--------------- ---------------- --------------
Cash Flows from Financing Activities:
Proceeds from the issuance of debt......................... 28,869 -- --
Payments on debt and capital lease obligations............ (46,202) (31) (546)
Treasury stock transactions................................ -- (4,531) (818)
Cash flows from other financing activities................. -- -- 531
--------------- ---------------- --------------
Cash provided by (used in) financing activities...................... (17,333) (4,562) (833)
--------------- ---------------- --------------
Net increase (decrease) in cash and cash equivalents................. (11,131) 1,673 (14,631)
Cash and cash equivalents at beginning of period..................... 71,850 8,606 49,147
--------------- ---------------- --------------
Cash and cash equivalents at end of period.......................... $ 60,719 $ 10,279 $ 34,516
=============== ================ ==============
September 30, 1995
--------------------------------
Elimination Consolidated
Entries Total
--------------- ----------------
Net revenue........................................................... $ (24,213) $ 1,151,736
Costs and expenses
Salaries, supplies and other operating expenses............. (23,635) 864,165
Bad debt expense............................................ -- 92,022
Depreciation and amortization............................... (578) 38,087
Amortization of reorganization value in excess of amounts
allocable to identifiable assets.......................... -- 26,000
Interest, net............................................... -- 55,237
ESOP expense................................................ -- 73,527
Stock option expense........................................ -- (467)
Unusual items............................................... -- 57,437
--------------- ----------------
(24,213) 1,206,008
--------------- ----------------
Income (loss) from continuing operations before income taxes
and equity in earnings (loss) of subsidiaries....................... -- (54,272)
Provision for (benefit from) income taxes -- (11,309)
--------------- ----------------
Income (loss) from continuing operations before
equity in earnings (loss) of subsidiaries........................... -- (42,963)
Equity in earnings (loss) of continuing subsidiaries.................. 9,808 --
--------------- ----------------
Net income (loss)..................................................... $ 9,808 $ (42,963)
=============== ================
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash provided by (used in) operating activities...................... $ -- $ 95,620
--------------- ----------------
Cash Flows from Investing Activities:
Capital expenditures....................................... -- (20,224)
Acquisition of businesses.................................. -- (61,980)
Increase in assets restricted for the settlement of
unpaid claims............................................ -- (19,606)
Proceeds from the sale of assets........................... -- 5,879
Other...................................................... -- (1,050)
--------------- ----------------
Cash provided by (used in) investing activities...................... -- (96,981)
--------------- ----------------
Cash Flows from Financing Activities:
Proceeds from the issuance of debt......................... -- 28,869
Payments on debt and capital lease obligations............ -- (46,779)
Treasury stock transactions................................ -- (5,349)
Cash flows from other financing activities................. -- 531
--------------- ----------------
Cash provided by (used in) financing activities...................... -- (22,728)
--------------- ----------------
Net increase (decrease) in cash and cash equivalents................. -- (24,089)
Cash and cash equivalents at beginning of period..................... -- 129,603
--------------- ----------------
Cash and cash equivalents at end of period.......................... $ -- $ 105,514
=============== ================
</TABLE>
The accompanying Notes to Condensed Consolidating Financial Statements are an
integral part of these statements.
<PAGE>
15. Guarantor Condensed Consolidating Financial Statements
Notes to the Condensed Consolidating Financial Statements
General - These condensed consolidating financial statements reflect
the Guarantors under the Notes and the Revolving Credit Agreement consummated in
May 1994. The direct and indirect Guarantors are wholly owned by the Company or
a Guarantor Subsidiary of the Company. Separate financial statements of the
Guarantors are not presented because the Guarantors are jointly, severally and
unconditionally liable under the guarantee, and the Company believes the
condensed consolidating financial statements presented are more meaningful in
understanding the financial position of the Guarantor Subsidiaries, and the
separate financial statements are deemed not material to investors.
Distributions - There are no restrictions on the ability of the
Guarantor Subsidiaries to make distributions to the Company.
Transfers from Guarantors to Nonguarantors - The Revolving Credit
Agreement permits the Company to contribute the assets of hospitals and related
medical facilities to joint ventures that conduct a healthcare business,
provided that certain conditions are satisfied and that the aggregate fair
market value or book value, whichever is greater, of all such facilities
contributed to joint ventures with respect to which the Company and its
wholly-owned subsidiaries do not have a majority of the equity interests or are
not entitled to elect or appoint the directors, managers or trustees, as
applicable, does not exceed $100 million. Furthermore, the Revolving Credit
Agreement permits the Company and its Restricted Subsidiaries (as defined in the
Revolving Credit Agreement), subject to the satisfaction of certain conditions,
to invest up to $50 million plus the lesser of $30 million and an amount equal
to "accumulated excess cash flow" (as defined in the Revolving Credit
Agreement), of cash and other assets (other than hospitals and related medical
facilities) in subsidiaries of the Company formed to pursue strategic
investments and joint ventures in managed care businesses, clinical services and
management information services and to invest up to $70 million through May 2,
1996 and $80 million thereafter in other types of investments. The indenture
related to the Notes also contains provisions that permit the Company and its
Restricted Subsidiaries (as defined in the indenture for the Notes) to make
investments in non-guarantors. The provisions contained in the indenture are
less restrictive than those contained in the Revolving Credit Agreement and are,
therefore, not relevant to the ability of the Company and its Restricted
Subsidiaries to make investments in non-guarantors as long as the Revolving
Credit Agreement is in effect.
The Company intends to make investments in Permitted Joint Ventures (as
defined in the Revolving Credit Agreement) and Unrestricted Subsidiaries (as
defined in the Revolving Credit Agreement) to the extent it believes doing so
will be consistent with its business strategy. To the extent the Company or its
Restricted Subsidiaries make investments of the type described above, the assets
available for debt payments and guarantee obligations could be diminished.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Additions
----------------------------------------------------------------------------------------
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts-- Deductions-- End of
Classification of Period Expenses Describe Describe Period
- ------------------------------- ------------ ------------ ---------------- -- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Year ended September 30, 1993:
Allowance for doubtful
accounts............. $ 30,272 $ 67,300 $ 19,598 (A) $ 89,272 (C) $ 28,843
945 (B)
------------ ------------ ---------------- -------------- -------------
$ 30,272 $ 67,300 $ 20,543 $ 89,272 $ 28,843
============ ============ ================ ============== =============
Year ended September 30, 1994:
Allowance for doubtful $ 28,843 $ 70,623 $ 19,877 (A) $ 109 (B) $ 43,555
accounts............ 8,560 (D) 84,239 (C)
------------ ------------ ---------------- -------------- -------------
$ 28,843 $ 70,623 $ 28,437 $ 84,348 $ 43,555
============ ============ ================ ============== =============
Year ended September 30, 1995:
Allowance for doubtful $ 43,555 $ 92,022 $ 21,393 (A) $ 111,021 (C) $ 48,741
accounts............ 2,792 (D)
------------ ------------ ---------------- -------------- -------------
$ 43,555 $ 92,022 $ 24,185 $ 111,021 $ 48,741
============ ============ ================ ============== =============
(A) Recoveries of amounts previously charged to income.
(B) Included in provision for restructuring for operations.
(C) Accounts written off.
(D) Allowance for doubtful accounts assumed in acquisitions.
<PAGE>
</TABLE>
[TYPE] EX-3
[DESCRIPTION] Certificate of Merger
CERTIFICATE OFOWNERSHIP
AND MERGER
MERGING
MAGELLAN HEALTHSERVICES, INC.
(a Delawarecorporation)
INTO
CHARTER MEDICALCORPORATION
(a Delawarecorporation)
CHARTER MEDICAL CORPORATION, a corporation organized andexisting under
the laws of the State of Delaware ("Corporation"),
DOES HEREBY CERTIFY:
FIRST: That this Corporation is incorporated pursuant to the General
Corporation Law of the State of Delaware (the "Delaware Act"), the provisions of
which permit the merger of a subsidiary corporation organized and existing under
the laws of said State into a parent corporation organized and existing under
the laws of said State.
SECOND: That this Corporation owns one hundred percent (100%) of the
outstanding shares of the common stock, $1.00 par value per share, of MAGELLAN
HEALTH SERVICES, INC. ("Subsidiary"), a corporation incorporated on the 13th day
of November, 1995 pursuant to the Delaware Act, and having no class of stock
outstanding other than said common stock.
THIRD: That this Corporation, by the resolutions of its Board of
Directors duly adopted on November 30 , 1995, attached hereto as Exhibit A and
incorporated herein by reference, determined to, and effective upon the filing
of this Certificate of Ownership and Merger with the Secretary of State of the
State of Delaware does, merge the Subsidiary with and into the Corporation.
FOURTH: That this Corporation, by the resolutions of it Board of
Directors attached hereto as Exhibit A, determined to, and effective upon the
filing of this Certificate of Ownership and Merger with the Secretary of State
of the State of Delaware does, pursuant to Section 253(b) of the Delaware Act,
change the name of the Corporation to "MAGELLAN HEALTH SERVICES, INC."
-1-
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by its duly authorized officers, this ______ day of __________________,
1995.
CHARTER MEDICAL CORPORATION
By:
Name:
Title:
31202794.W51
-2-
<PAGE>
EXHIBIT A
WHEREAS, Charter Medical Corporation, a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), owns 100%
of the outstanding stock of Magellan Health Services, Inc., a corporation
organized and existing under the laws of the State of Delaware (the
"Subsidiary"); and
WHEREAS, the Corporation desires to merge the Subsidiary into the
Corporation pursuant to Section 253 of the General Corporation Law of the State
of Delaware (the "Delaware Act"), and to be possessed of all the estate,
property, rights, privileges and franchises of said corporation;
NOW, THEREFORE, BE IT RESOLVED, that, effective upon the filing of an
appropriate Certificate of Ownership and Merger, the Corporation merge the
Subsidiary with and into itself, with the Corporation to be the surviving
corporation (the "Surviving Corporation") and to assume all of the Subsidiary's
liabilities and obligations; and
FURTHER RESOLVED, that the Certificate of Incorporation of the
Corporation shall be the Certificate of Incorporation of the Surviving
Corporation, provided that such Certificate of Incorporation shall be amended
pursuant to Section 253(b) of the Delaware Act as follows:
1. The text of Article I of the Certificate shall be deleted in its
entirety and replaced with the following:
The name of the corporation is MAGELLAN HEALTH SERVICES, INC.
FURTHER RESOLVED, that the By-laws, the officers and the directors of
the Corporation shall be the By-laws, the officers and the directors of the
Surviving Corporation;
FURTHER RESOLVED, that the appropriate officers of the Corporation be
and they hereby are authorized and empowered to make and execute, under the
corporate seal of the Corporation, a Certificate of Ownership and Merger setting
forth a copy of these resolutions to merge the Subsidiary into the Corporation
and to assume its liabilities and obligations, and the date of adoption thereof,
and to file the same in the office of the Secretary of State of Delaware;
FURTHER RESOLVED; that upon the filing of such Certificate of Ownership
and Merger with the Secretary of State of the State of Delaware, all of the
issued and outstanding capital stock of the Subsidiary shall be cancelled
without payment of any consideration in respect thereof, and the issued and
outstanding capital stock of the Corporation shall remain issued and outstanding
and unchanged;
<PAGE>
FURTHER RESOLVED, that the appropriate officers of the Corporation be
and they hereby are authorized and directed to do all acts and things whatsoever
whether within or without the State of Delaware which may be in any way
necessary or proper to effect said merger;
FURTHER RESOLVED, that the resolutions previously adopted by this Board
of Directors calling a special meeting of stockholders of the Corporation to be
held on ____________ __ , 1995 (the "Meeting") and in furtherance of the Meeting
are hereby rescinded, and the Meeting is hereby cancelled;
FURTHER RESOLVED, that all outstanding certificates representing
securities of the Corporation shall remain valid and represent the same amount
of securities, and the holders thereof shall not be required to exchange such
certificates for new certificates, notwithstanding the change of the
Corporation's name;
FURTHER RESOLVED, that upon presentation to the transfer agent or
registrar of such securities for registration of transfer or reissuance,
certificates representing securities of the Corporation reflecting the name
Charter Medical Corporation shall be replaced with certificates reflecting the
new name of the Corporation;
FURTHER RESOLVED, that any actions taken by the officers of the
Corporation prior to the adoption of the foregoing resolutions that are within
the authority conferred thereby be, and each of them hereby is, ratified,
confirmed and approved as the act and deed of the Corporation; and
FURTHER RESOLVED, that the officers of the Corporation be, and each of
them hereby is, authorized and empowered to execute and deliver any and all
other documents, papers or instruments and to do or cause to be done any and all
such acts and things as they or any of them may deem necessary, appropriate or
desirable in order to enable the Corporation fully and promptly to carry out the
purposes and intent of the foregoing resolutions.
31202794.W51
<PAGE>
CMC/CORPORATE INCENTIVE PLAN
FY 95
I. PURPOSE
The purpose of this plan is to provide an incentive to certain
executives and key employees of the Company who contribute to the
success of the enterprise by offering an opportunity to such person to
earn compensation in addition to their salaries, based on the operating
income of the Company.
II. ELIGIBLE PARTICIPANTS
Eligibility for participation in the Incentive Plan shall be determined
by management from among those key employees who are in a position to
materially contribute to the success of the Company. Additionally,
requirements for participation are outlined in Section III, Conditions
for Receiving Payment.
If a person otherwise eligible for participation in the Incentive Plan
becomes an employee of the Company during the fiscal year, such
employee shall be eligible to receive a prorated portion of an annual
bonus (number of semi-monthly pay periods of employment divided by
twenty-four), subject to approval of such employee's vice president or,
in the case of an officer, his superior's approval.
III. CONDITIONS FOR RECEIVING PAYMENT
Incentive compensation under the Incentive Plan is not an integral part
of an employee's compensation package. An employee's base salary
compensates the employee for the expected results of any given job.
Payment of incentive compensation is at the discretion of the Board of
Directors of CMC.
NO INCENTIVE COMPENSATION WILL BE PAID TO ANY EMPLOYEE IF EMPLOYMENT IS
TERMINATED, WHETHER VOLUNTARY OR INVOLUNTARY, PRIOR TO THE ACTUAL
PAYMENT DATE. However, the Board of Directors of CMC retains authority
to make exceptions to the foregoing policy in unusual or meritorious
cases including, but not limited to, the death of an employee during
the fiscal year or termination of employment due to total or partial
disability or retirement with the consent of CMC.
IV. METHOD OF ALLOCATION
Each participant must meet the goals established by management. In
order to receive a bonus, each participant must be recommended for all,
part or none of his bonus by his superior, with the approval of the
Chairman. Each participant's assigned bonus percentage of base pay
corresponds to established targets set by management. The percentages
are on a variable scale and calculated on performance to budget. The
various percentages of achievement are:
<TABLE>
<CAPTION>
TARGET BONUS PERCENTAGE
90% 95% 100% 110% 120%
BASE
SALARY
<S> <C> <C> <C> <C> <C> <C>
========================================= ======= ======= ========= ========= =========
Executive Officer 0% 40% 50.0% 67.5% 85%
Sr. Vice President 0% 32% 40.0% 65.0% 85%
Vice President 0% 32% 40.0% 65.0% 85%
Assistant Vice President 0% 26% 32.5% 60.0% 80%
Sr. Exec., Exec. & Sr. Dir. 0% 20% 25.0% 40.0% 50%
Director 0% 12% 15.0% 25.0% 35%
Corporate 0% 4% 5.0% 10.0% 15%
</TABLE>
V. PLAN SEGMENTS
For corporate personnel, the Incentive Plan consists of the following
two segments:
A. Corporate budget achievement of operating income
(EBITDA as defined in Section IX A)
B. Department budget performance will be reviewed at the
end of the year by the President of CMC. Department
budget performance review is subject up to 100% of a
"holdback" review, with such review to be conducted
and performance determined by such President in his
discretion.
VI. DISTRIBUTION
The distribution of bonuses shall be made promptly after completion of
unaudited financial statements for the 1994 Fiscal Year or as may be
otherwise approved by the Board of Directors. Specific provisions
regarding distribution are outlined in Section III, Conditions for
Receiving Payment.
VII. INTERPRETATION AND DURATION
Any areas of question, interpretation, dispute, etc., concerning any
area of this plan shall be governed by the Executive Committee of the
Company. The Executive Committee is defined as the Chairman, the
Executive Vice President and Chief Financial Officer, and the Vice
President of Administrative Services. This plan shall be effective for
the fiscal year beginning October 1, 1994. The Executive Committee and
the Board of Directors each retain the authority to modify, repeal or
discontinue the plan.
IX. DEFINITION OF TERMS
A. EBITDA
EBITDA is income of the Company before (1) interest expense,
(2) ESOP expense, (3) depreciation and amortization, (4)
provision for state and federal income taxes, (5) interest
income, (6) restructuring charges, (7) unusual items and (8)
stock option expense, subject to adjustment for the following:
A significant, unexpected change in the operation of
the company as a result of condemnation, major
physical damage from a fire or other catastrophe,
strike, governmental seizure, or disruption due to
construction will result in an adjustment to income.
This will avoid any penalty or windfall as a result
of changes in capacity to contribute to overall
parent company earnings which are not the result of
the participant's ability to manage the operation.
This does not include changes in Blue Cross or
governmental reimbursement policies, loss of a prime
admitter, expansion by another hospital, etc., which
are regarded as normal business risks.
B. Change in Accounting Policy or Practice
A material change (from the prior year) in accounting policy
or practice which has an effect on the Company's EBITDA (i.e.,
changes in the procedures for reserving for doubtful accounts,
asset sales or acquisitions, etc.) will be considered as an
adjustment to EBITDA. Year end adjustments to correct prior
errors or to adjust previous estimates and accruals will not
be regarded as changes in policy or practice.
<PAGE>
EXECUTION COPY
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
on February 28, 1995 by and between Charter Medical Corporation, a Delaware
Corporation ("Employer"), and Dr. John Cook Bartlett ("Officer").
WHEREAS, Employer desires to obtain the continued services of Officer
and Officer desires to continue to render services to Employer; and
WHEREAS, Employer and Officer desire to set forth the terms and
conditions of Officer's employment with Employer under this Agreement; and
NOW, THEREFORE, in consideration of the foregoing recitals and of the
mutual covenants and agreements contained in this Agreement, the parties agree
as follows:
1. Term. Employer agrees to employ Officer, and Officer agrees to serve
Employer, in accordance with the terms of this Agreement, for a term (the
"Term") beginning on April 3, 1995 and ending , unless earlier terminated in
accordance with the provisions of this Agreement, on April 3, 1998.
2. Employment of Officer.
(a) Specific Position. Employer and Officer agree that,
subject to the provisions of this Agreement, Employer will employ Officer and
Officer will serve Employer as Senior Vice President, Clinical Strategies.
Although Employer may, with the consent of Officer (which consent shall not be
unreasonably withheld), change Officer's title, Employer agrees that Officer's
duties hereunder shall be the usual and customary duties of the most senior
level of assistants to the Chief Executive Officer as duly determined from time
to time by the Board of Directors of Employer (the "Board") or the Chief
Executive Officer.
(b) Promotion of Employer's Business. During the Term, Officer
shall devote his full business time and energy to the business, affairs and
interests of Employer and related matters, including those permitted in Section
2 (c) and shall use his best efforts and abilities to promote Employer's
interests. Officer agrees that he will diligently endeavor to perform services
contemplated by this Agreement in accordance with the policies established by
the Chief Executive Officer and the Board.
(c) Permitted Activities. Officer may serve as an officer,
director, agent or employee of any direct or indirect subsidiary or other
affiliate of Employer but may not serve as an officer, director, agent or
employee of any other business enterprise without the written approval of the
Board or the Chief Executive Officer; provided, that Officer may make and manage
personal business investments of his choice (and, in so doing, may serve as an
officer,
<PAGE>
director, agent or employee of entities and business enterprises that are
related to such personal business investments) and serve in any capacity with
any civic, educational or charitable organization, or any governmental entity or
trade association, without seeking or obtaining such written approval of the
Board or the Chief Executive Officer, if such activities and services do not
significantly interfere or conflict with the performance of his duties under
this Agreement.
(d) Principal Office. Officer's principal office and
normal place of work shall be at Employer's principal executive offices.
3. Salary. Employer shall pay Officer a salary of at least $205,000 per
year (prorated for any partial year during the Term) payable in equal bi-weekly
installments, less state and federal tax and other legally required and
Officer-authorized withholdings. Such salary shall be subject to review and
upward adjustment by the Board (or a Board Committee) from time to time
consistent with past practice. This paragraph controls officer's salary, terms,
and replaces and supercedes the salary terms stated in the Employment Offer
dated February 6, 1995 attached hereto as Attachment A and specifically
incorporated herein. The parties acknowledge that if the Board of Directors
requires a general downgrading of senior management pay or benefits, such shall
likewise apply to Officer.
4. Benefits.
(a) Fringe Benefits. In addition to the compensation provided
for in Section 3, Officer shall be entitled during the Term of this Agreement to
such other benefits of employment with Employer as are now or may hereafter be
in effect for (i) salaried officers of Employer or (ii) senior executives of
Employer with duties comparable to those of Officer, including, without
limitation, all bonus, incentive and deferred compensation, pension, stock
option, life and other insurance, disability (insured and uninsured), medical
and dental, vacation, and other benefit plans and other benefit plans or
programs. The parties acknowledge that if the Board of Directors requires a
general downgrading of senior management pay or benefits, such shall likewise
apply to Officer.
(b) Expenses. During the Term, Employer shall reimburse
Officer promptly for all reasonable travel, entertainment, parking, business
meeting and similar expenditures in pursuance and furtherance of Employer's
business upon receipt of reasonably supporting documentation as required by
Employer's policies applicable to its officers generally. Officer is eligible
for relocation expenses as outlined in the policy attached to the Employment
Offer dated February 6, 1995 attached hereto as Attachment A and specifically
incorporated herein. The parties acknowledge that if the Board of Directors
requires a general downgrading of senior management pay or benefits, such shall
likewise apply to Officer.
5. Termination.
(a) Termination Due to Resignation and Termination for
Cause. Officer's
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employment under this Agreement shall be terminated and, except as provided in
this Section 5, all of his rights to receive salary and other benefits (except
for salary, bonus and other benefits accrued on the books of Employer through
the date of termination) shall terminate upon the occurrence of (i) Officer's
resignation, or (ii) termination by Employer for "cause," as defined below,
during the Term. Employer shall have the right, exercisable upon 30 days'
written notice, to terminate, without liability except for base salary and
vacation days accrued through the date of termination, Officer's employment for
"cause" if Officer (i) materially breaches any material term of this Agreement,
(ii) is convicted by a court of competent jurisdiction of a felony, (iii)
performs his duties hereunder in a manner substantially detrimental to the
business of the Employer, (iv) engages in illegal conduct substantially
detrimental to the business or reputation of Employer.
(b) Termination Due to Death or Disability. Officer's
employment and all of his rights to receive salary and other benefits under this
Agreement, may be terminated by Employer upon Officer's death, or 30 days'
written notice from Employer to Officer, if Officer has been unable to perform
substantially all of his duties under this Agreement for a period of 180 days,
or can reasonably be expected to be unable to do so for such period based on a
reasonable medical opinion, as the result of physical or mental impairment;
provided that upon any termination pursuant to his Section 5 (b) , Officer (or
in the event of his death, his estate) shall be entitled to receive the
Specified Amount (as defined below), and such Specified Amount shall be payable
in a lump sum on the date of termination. In addition to the Specified Amount,
if Officer is terminated due to death or disability, Officer (or in the event of
his death, his estate) shall be entitled to receive the portion or portions of
any bonus or other cash incentive compensation that had been accrued on the
books of Employer through the date of termination pursuant to this Section 5 (b)
with respect to Officer.
The term "Specified Amount" shall mean the greater of (i) the
total of all salary payments pursuant to Section 3 that would thereafter have
come due during the Term had there been no such termination or resignation or
(ii) two years' salary pursuant to Section 3, (in each case as the Term may have
been extended and assuming a continuation for the remainder of the Term of then
current salary levels).
(c) Termination Without Cause. Subject to compliance with the
provisions of Section 5 (d), Employer shall have the right, exercisable upon 30
days' written notice, to terminate Officer's employment under this Agreement
without cause at any time during the Term.
(d) Payments Upon Termination Without Cause. If Officer is
terminated by Employer without cause pursuant to Section 5 (c), Officer (i)
shall be entitled to receive the Specified Amount as defined in 5 (b) in cash on
the date of such termination; (ii) any stock option or other stock-based
compensation plan shall be governed by the terms of such plans (and any related
stock option or similar agreements); and (iii) the portion or portions of any
bonus or other cash incentive compensation that had been accrued on the books of
Employer through the
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<PAGE>
date of termination pursuant to this Section 5 (d) with respect to Officer shall
be paid to Officer in cash on the date of such termination.
(e) Termination Upon a Change of Control. Officer shall be
entitled to terminate his employment upon a change of control and shall be
entitled to all of the salary, benefits and other rights provided in this
Agreement (including those payments provided under Section 5 (d) as though the
termination has been initiated by Employer without cause upon the occurrence of
any of the following events: (a) the acquisition after the beginning of the Term
in one or more transactions, of beneficial ownership (within the meaning of Rule
13d-3 (a) (1) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) by any person or entity (other than Officer or Edwin M.
Crawford) or any group of persons or entities (other than Officer) who
constitute a group (within the meaning of Section 13 (d) (3) of the Exchange
Act) of any securities of Employer such that as a result of such acquisition
such person or entity or group beneficially owns (within the meaning of Rule
13d-3 (a) (1) under the Exchange Act) more than 50% of Employer's then
outstanding voting securities entitled to vote on a regular basis for a majority
of the Board; or (b) the sale of all or substantially all of the assets of
Employer (including, without limitation, by way of merger, consolidation, lease
or transfer) in a transaction (except for a sale-leaseback transaction) where
Employer or the holders of common stock of Employer do not receive (i) voting
securities representing a majority of the voting power entitled to vote on a
regular basis for the Board of Directors of the acquiring entity or of an
affiliate which controls the acquiring entity, or (ii) securities representing a
majority of the equity interest in the acquiring entity or of an affiliate that
controls the acquiring entity, if other than a corporation; provided, that if
Officer becomes entitled to any payments (whether hereunder or otherwise) by
reason of an event described in Internal Revenue Code Section 280G(b) (2) (A)
(i) (a "Parachute Event") that would constitute "parachute payments" (as defined
in Internal Revenue Code Section 280G(b) (G(2) (A)) if paid, then Officer's
entitlement to such payments shall be reduced by such amount as will cause none
of such payments to constitute parachute payments if, and only if, the net
amount received by Officer by reason of the Parachute Event, after imposition of
all applicable taxes (including taxes under Internal Revenue Code Section 4099),
would be greater after such reduction than if such reduction were not made.
6. Confidentiality and Noncompetition.
(a) Confidentiality. Officer acknowledges that,
by reason of his employment with Employer, he may learn trade secrets
and obtain other confidential information concerning the business and
policies of Employer and its subsidiaries. Officer agrees that, during and
after the end of the Term, he will not voluntarily divulge or otherwise
disclose, directly or indirectly, any such trade secrets or other confidential
information concerning the business or policies of Employer or any of its
subsidiaries that he may learn as a result of his employment during the Term
or may have learned prior to the Term, except to the extent such information is
lawfully obtainable from public sources or such use or disclosures is (i)
necessary to the performance of this Agreement and in furtherance of Employer's
best interests, (ii) required by applicable laws, or (iii) authorized by
Employer.
4
<PAGE>
(b) Noncompetition. In order to protect any
confidential information that Officer may learn during the Term and in order to
protect any goodwill that Employer has earned and may earn during the Term,
Officer agrees that, if Officer voluntarily terminates this Agreement
during the Term, he shall not, at any location it the State of Georgia, for
a period of 12 months after such termination, provide services, as employee,
officer, director, consultant or otherwise, for any company, firm or entity
that owns and operates (directly or through subsidiaries) more than one
behavioral healthcare, psychiatric or substance abuse hospital or facility
(each, a "Facility") and that owns and operates one or more facilities
located in Georgia within 25 miles of a generally similar facility
(except for size of facility) owned and operated by Employer or a subsidiary
and located within the State of Georgia.
7. Employer Advance. Employer agrees to advance Officer
the sum of $75,000 on the date of employment. Employer agrees that it will
forgive $25,000 on each anniversary of this agreement.
8. Miscellaneous.
(a) Succession. This Agreement shall inure to
the benefit of and shall be binding upon Employer, its successors and
assigns, but Employer shall not have the right to assign this Agreement
without the prior written consent of Officer. The obligations and duties
of Officer under this Agreement shall be personal and not assignable.
(b) Notices. Any notice, request, instruction
or other document to be given under this Agreement by any party to the others
shall be in writing and delivered in person or by courier, telegraphed,
telexed or sent by facsimile transmission or mailed by certified mail,
postage prepaid, return receipt requested (such mailed notice to be
effective on the date of such receipt is acknowledged), as follows:
If to Officer:
Dr. John Cook Bartlett
2815 Dean Parkway
Minneapolis, MN 55416
If to Employer:
Charter Medical Corporation
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, GA 30326
Attn: Secretary
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<PAGE>
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
(c) Entire Agreement. This Agreement contains
the entire agreement of the parties relating to the subject matter of this
Agreement, and it replaces and supersedes any prior agreements between the
parties relating to said subject matter except for the Employment Offer dated
February 6, 1995 attached hereto as Attachment A and specifically incorporated
herein.
(d) Waiver; Amendment. No provision of this
Agreement may be waived except by a written agreement signed by the waiving
party. The waiver of any term or of any condition of this Agreement shall not
be deemed to constitute the waiver of any other term or condition. This
Agreement may be amended only by a written agreement signed by the parties.
(e) Governing Law. This Agreement shall be
construed under and governed by the internal laws of the State of Georgia.
(f) Arbitration. Except for an action for
injunctive relief, any disputes or controversies arising under this Agreement
shall be settled by arbitration in Atlanta, Georgia in accordance with the
rules of the American Arbitration Association relating to the
arbitration of commercial disputes. The determination and findings of
such arbitrators shall be final and binding on all parties and may be
enforced, if necessary, in the courts of the State of Georgia.
(g) Attorneys' Fees in Action by Employee on
Contract. In the event of litigation or arbitration between Officer and
Employer arising out of or as a result of this Agreement or the acts of the
parties pursuant to this Agreement, or seeking an interpretation of this
Agreement, if Officer is the prevailing party in such litigation or
arbitration, in addition to any other judgment or award, he shall be
entitled to receive such sums as the court or panel hearing the matter shall
find to be reasonable as and for attorneys' fees.
(h) Remedies of Employer. Officer acknowledges
that the services he is obligated to render under the provisions of this
Agreement are of a special, unique and intellectual character, which gives
this Agreement peculiar value to Employer. The loss of these services
cannot be reasonably or adequately compensated in damages in an action at
law and it would be difficult (if not impossible) to replace such services.
Accordingly, Officer agrees and consents that, if he materially violates
any of the material provisions of this Agreement, including, without
limitation, Section 6, Employer, in addition to any other rights and remedies
available under this Agreement or under applicable law, shall be entitled
during the remainder of the Term (and, in the case of Section 6, after the
Term to the extent provided in Section 6) to injunctive relief, from a
court of competent jurisdiction, restraining Officer from committing or
continuing any violation of this Agreement, or from the performance
of services to any other business entity in violation of this Agreement,
or both.
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<PAGE>
(i) Captions. Captions have been inserted
solely for the convenience of reference and in no way define, limit or describe
the scope or substance of any provisions of this Agreement.
(j) Severability. If this Agreement shall be
ny reason be or become unenforceable by any party, this Agreement shall
thereupon terminate and become unenforceable by the other party as well.
In all other respects, if any provision of this Agreement is held invalid or
unenforceable, the remainder of this Agreement shall nevertheless remain in
full force and effect and, if any provision if held invalid or
unenforceable with respect to particular circumstances, it shall
nevertheless remain in full force and effect in all other circumstances.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
CHARTER MEDICAL CORPORATION
By: /s/ Dr. John Cook Barlett
---------------------------------------
Name:Dr. John Cook Bartlett
Title:
\barteea.fnl
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<PAGE>
Execution Copy
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and
entered into as of October 1, 1995 by and between Charter Medical Corporation, a
Delaware Corporation ("Employer"), and E. Mac Crawford
("Officer").
WHEREAS, Employer desires to obtain the continued services
of Officer and Officer desires to continue to render services to Employer; and
WHEREAS, Employer and Officer desire to set forth the terms
and conditions of Officer's employment with Employer under this Agreement;
NOW, THEREFORE, in consideration of the foregoing recitals
and of the mutual covenants and agreements contained in this Agreement, the
parties agree as follows:
1. Term. Employer agrees to employ Officer, and Officer
agrees to serve Employer, in accordance with the terms of this Agreement, for a
term (the "Term") beginning on the date of this Agreement and ending, unless
earlier terminated in accordance with the provisions of this Agreement, on
December 31, 1997.
2. Employment of Officer.
(a) Specific Position. Employer and Officer
agree that, subject to the provisions of this Agreement, Employer will employ
Officer and Officer will serve Employer as Chairman of the Board of Directors,
President and Chief Executive Officer. Employer agrees that Officer's duties
under this Agreement shall be the usual and customary duties of a Chief
Executive Officer and, consistent with the foregoing, as are determined from
time to time by the Board of Directors of Employer (the "Board"), and shall not
be inconsistent with the provisions of the Certificate of Incorporation of
Employer or applicable law.
(b) Promotion of Employer's Business. During
the Term, Officer shall devote his full business time and energy to the
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<PAGE>
business, affairs and interests of Employer and related matters, and shall use
his best efforts and abilities to promote Employer's interests. Officer agrees
that he will diligently endeavor to perform services contemplated by this
Agreement in accordance with the policies established by the Board, subject to
the provisions of the second sentence of Section 2(a).
(c) Permitted Activities. Officer may serve
as an officer, director, agent or employee of any direct or indirect
subsidiary or other affiliate of Employer but may not serve as an officer,
director, agent or employee of any other business enterprise without the
written approval of the Board; provided, that Officer may make and manage
personal business investments of his choice (and, in so doing, may serve as
an officer, director, agent or employee of entities and business enterprises
that are related to such personal business investments) and serve in any
capacity with any civic, educational or charitable organization, or any
governmental entity or trade association, without seeking or obtaining
such written approval of the Board, if such activities and services do
not significantly interfere or conflict with the performance of his duties
under this Agreement.
(d) Principal Office. Officer's principal
office and normal place of work shall be at Employer's principal executive
offices.
3. Salary. Employer shall pay Officer a salary in the amount
of $600,000 per year (pro-rated for any partial year during the Term) payable in
equal semi-monthly installments, less state and federal tax and other legally
required and Officer-authorized withholdings. Such salary shall be subject to
review and adjustment by the Board (or a Board Committee) from time to time
consistent with past practice; provided, that, during the Term, such salary may
not be reduced below any previous level paid during the Term as a result of such
review.
4. Contract Bonus Compensation. On December 31, 1997,
Employer shall pay in cash to Officer $10 million minus the amount
determined under the next two paragraphs, whichever is applicable.
If, on December 31, 1997, Officer has not exercised, between
the date of this Agreement and December 31, 1997, any options held by Officer on
the date of this Agreement under Employer's 1992 Stock Option Plan, then the
amount shall be the result obtained by
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<PAGE>
Execution Copy
multiplying (i) 462,990 (the number of options held by Officer as of the date of
this Agreement under Employer's 1992 Stock Option Plan) by (ii) the excess of
the lesser of (A) $18.00 and (B) the arithmetic average of the closing sale
price per share of Employer's Common Stock on the American Stock Exchange (or if
the Common Stock is not then traded on such exchange, on the largest national
securities exchange on which the Common Stock is then traded or, if not then
traded on a national securities exchange, on the NASD market in or on which the
Common Stock is then traded) for the ten trading days immediately preceding the
date of payment, over (iii) $4.36.
If, on December 31, 1997, Officer has exercised, between the
date of this Agreement and December 31, 1997, any of such options held by him on
the date of this Agreement, then the amount shall be the sum of (a) and (b), as
follows:
(a) the result obtained by multiplying (i) the
number of options held by Officer on the date of this Agreement under
Employer's 1992 Stock Option Plan, which options have not been
exercised as of December 31, 1997, by (ii) the excess of the lesser
of (A) and (B) in the immediately-preceding paragraph, over (iii)
$4.36.
(b) the result obtained by multiplying (i) the
number of options held by Officer on the date of this Agreement under
Employer's 1992 Stock Option Plan, which options are exercised by
Officer between the date of this Agreement and December 31, 1997, by
(ii) the excess of $18 over $4.36, or $13.64.
If, prior to the date of payment pursuant to this Section 4,
Employer effects a change in capitalization, as described in Section 10 of
Employer's 1992 Stock Option Plan, then the number and dollar amounts in (i),
(ii)(A) and (iii) in the second paragraph of this Section 4 and in (i) and (ii)
of the third paragraph of this Section 4 shall be adjusted in the manner
provided in Section 10 of Employer's 1992 Stock Option Plan (as such plan is
worded on the date of this Agreement).
A change in the per share exercise price of such options
pursuant to Section 3(b) of the Stock Option Agreement, dated as of
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July 21, 1992, between Employer and Officer shall not affect the amount payable
to Officer under this Section 4.
5. Benefits.
(a) Fringe Benefits. In addition to the
compensation provided for in Sections 3 and 4, Officer shall be entitled during
the Term of this Agreement to such other benefits of employment with Employer as
are now or may hereafter be in effect for (i) salaried officers of Employer or
(ii) senior executives of Employer, including, without limitation, all bonus,
incentive and deferred compensation, pension, stock option, life and other
insurance, disability (insured and uninsured), medical and dental and other
benefit plans or programs; provided, that bonuses, life insurance and disability
insurance for Officer during the Term shall be in amounts and on other terms
that are not less and no less favorable than those provided, on average, by
comparable hospital management companies for a comparable officer position.
(b) Expenses. During the Term, Employer shall
reimburse Officer promptly for all reasonable travel, entertainment, parking,
business meeting and similar expenditures in pursuance and furtherance of
Employer's business upon receipt of reasonable supporting documentation as
required by Employer's policies applicable to its officers generally.
6. Termination.
(a) Termination Due to Resignation and Termination
For Cause. (1) Officer's employment under this Agreement shall be terminated
and, except as provided in this Section 6, all of his rights to receive salary
and other benefits (except for salary, bonus and other benefits accrued through
the date of termination) shall terminate upon the occurrence of (i) Officer's
resignation other than for "good reason," as defined in Section 6(e), or (ii)
termination by Employer for "cause," as defined below, during the Term. Employer
shall have the right, exercisable upon 30 days' written notice, to terminate,
without liability except as provided in the parenthetical in the preceding
sentence, Officer's employment for "cause" if Officer (i) materially breaches
any material term of this Agreement, (ii) is convicted by a court of competent
jurisdiction of a felony, (iii) refuses, fails or neglects to perform his duties
under this Agreement in a manner substantially detrimental to the business of
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Execution Copy
the Employer, (iv) engages in illegal or other wrongful conduct substantially
detrimental to the business or reputation of Employer, or (v) develops or
pursues interests substantially adverse to Employer; provided that in the case
of clauses (i), (iii), (iv), or (v), no such termination shall be effective
unless (1) Employer shall have given Officer 30 days' prior written notice of
any conduct or deficiency in performance by Officer that Employer believes
could, if not discontinued or corrected, lead to Officer's termination under
this Section 6(a) in order that Officer shall have had an opportunity to cure
such noncomplying conduct or performance, and (2) Officer shall not have cured
such noncomplying conduct or performance during such notice period.
(2) If this Agreement is terminated due to
Officer's resignation other than for "good reason" as defined in Section
6(e), then Employer shall pay to Officer, in addition to any amounts payable
pursuant to Section 6(a)(1), an amount equal to the result obtained by
multiplying (i) the number of options held by Officer as of the date of
this Agreement, which options have not been exercised by Officer between
the date of this Agreement and the date of such termination of this Agreement
by (ii) the excess, if any, of (A) $18.00 over (B) the arithmetic average
of the closing sale price per share of Employer's Common Stock on the
American Stock Exchange (or other exchange or market, as described in the
second paragraph of Section 4) for the ten trading days immediately preceding
the date of termination.
(b) Termination Due to Death or Disability.
Officer's employment and all of his rights to receive salary and other benefits
under this Agreement may be terminated by Employer upon Officer's death, or on
30 days' written notice from Employer to Officer if Officer has been unable to
perform substantially all of his duties under this Agreement for a period of 180
days, or can reasonably be expected to be unable to do so for such period, as
the result of physical or mental impairment; provided that upon any termination
pursuant to this Section 6(b), Officer (or in the event of his death, his
estate) shall be entitled to receive the Specified Amount (as defined below),
and such Specified Amount shall be payable in a lump sum on the date of
termination. In addition to the Specified Amount, if Officer is terminated due
to death or disability, Officer (or in the event of his death, his estate) shall
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be entitled to receive the portion or portions of any bonus or other cash
incentive compensation that had been accrued with respect to Officer on the
books of Employer through the date of termination pursuant to this Section 6(b)
or otherwise.
The term "Specified Amount" shall mean the sum of
(x) the greater of (i) the total of all salary payments pursuant to Section 3
that would thereafter have come due during the Term had there been no
such termination or resignation or (ii) three years' salary pursuant to
Section 3, (in each case as the same may have been extended and assuming a
continuation for the remainder of the Term of then current salary levels)
and (y) the amount payable to Officer on December 31, 1997, pursuant to Section
4, except that the references in Section 4 to "December 31, 1997" shall be
changed to the date of termination of this Agreement.
(c) Termination Without Cause. Subject to
compliance with the provisions of Section 6(d), Employer shall have the right,
exercisable on 30 days' written notice, to terminate Officer's employment under
this Agreement without cause at any time during the Term.
(d) Payments Upon Termination Without Cause.
If Officer is terminated by Employer without cause pursuant to Section
6(c), Officer (i) shall be entitled to receive the Specified Amount in cash
on the date of such termination; (ii) any stock option or other
stock-based compensation plan shall be governed by the terms of such plans
(and any related stock option or similar agreements); and (iii) the portion
or portions of any bonus or other cash incentive compensation that had been
accrued with respect to Officer on the books of Employer through the date of
termination pursuant to this Section 6(d) or otherwise shall be paid to
Officer in cash on the date of such termination.
(e) Termination By Officer For Good Reason.
Officer shall be entitled to terminate his employment for "good reason"
and in such event shall be entitled to all of the salary, benefits and other
rights provided in this Agreement as though the termination was initiated by
Employer without "cause". For purposes of this Agreement, "good reason"
shall mean any of the following events, which event shall continue for 30
days after notice to the Employer, unless the event occurs with Officer's
express prior written consent:
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Execution Copy
(i) the assignment to Officer of any duties
inconsistent with his status as Chairman of the Board of Directors,
President and Chief Executive Officer of Employer or a substantial
alteration in the nature or status of his responsibilities from those
in effect immediately prior to the date of this Agreement;
(ii) a reduction by Employer in Officer's annual
base salary as in effect from time to time during the Term;
(iii) the failure by Employer to comply with
Section 3 or Section 5; or
(iv) any other material breach of this Agreement
by Employer.
(f) Termination Upon a Change of Control.
Officer shall be entitled to terminate his employment upon a change of control
and shall be entitled to (i) all of the salary, benefits and other rights
provided in this Agreement (including those payments provided under Section
6(d)) as though the termination has been initiated by Employer without cause,
and (ii) a Gross-Up Payment (as defined), to the extent provided by the
second paragraph of this Section 6(f), upon the occurrence of any of the
following events: (a) the acquisition after the date of this Agreement, in
one or more transactions, of beneficial ownership (within the meaning
of Rule 13d-3(a)(1) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) by any person or entity (other than Officer) or any
group of persons or entities (other than Officer) who constitute a group
(within the meaning of Section 13(d)(3) of the Exchange Act) of any
securities of Employer such that as a result of such acquisition such
person or entity or group beneficially owns (within the meaning of Rule
13d-3(a)(1) under the Exchange Act) more than 50% of Employer's then
outstanding voting securities entitled to vote on a regular basis for a
majority of the Board; or (b) the sale of all or substantially all of the
assets of Employer (including, without limitation, by way of merger,
consolidation, lease or transfer) in a transaction where Employer or the
holders of common stock of Employer do not receive (i) voting securities
representing a majority of the voting power entitled to vote on a regular
basis for the Board of Directors of the acquiring entity or of an affiliate
which controls
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the acquiring entity, or (ii) securities representing a majority of the equity
interests in the acquiring entity or of an affiliate that controls the acquiring
entity, if other than a corporation.
A Gross-Up Payment (as defined) shall be payable upon
termination of employment pursuant to this Section 6(f) on and subject to the
following terms and conditions:
(1) If any payment or other benefit (a "Termination
Payment") to Officer under this Section 6(f) is or will be subject to the tax
(the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code"), Employer shall pay to Officer, at the time the
applicable Termination Payment is made, an additional amount (the "Gross-Up
Payment") such that the net amount retained by Officer, after deduction of any
Excise Tax on such Termination Payment and any federal, state and local income
tax and Excise Tax on the Gross-Up Payment, shall be equal to the amount or
value of such Termination Payment. For purposes of determining whether any such
Termination Payment will be subject to the Excise Tax, any other payments or
benefits received or to be received by Officer in connection with an event
giving rise to a Termination Payment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with Employer, with any
person whose actions result in a change in control or with any person affiliated
with Employer or such person) shall be treated as "parachute payments" within
the meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code shall be treated
as being subject to the Excise Tax. The amount of the Termination Payment that
shall be treated as subject to the Excise Tax shall be equal to the lesser of
(i) the total amount of the Termination Payment or (ii) the amount of excess
parachute payments within the meaning of Sections 280G(b)(1) and (4) of the Code
(after applying the immediately preceding sentence). The full amount of the
Gross-Up Payment shall be treated as being subject to the Excise Tax. The value
of any non-cash benefits or any deferred payment or benefit shall be determined
in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.
(2) For purposes of determining the amount of any
Gross-Up Payment, Officer shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation in the calendar year in which
the applicable Termination Payment or Gross-Up Payment is made, and shall be
deemed to pay state and local income
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Execution Copy
taxes at the highest marginal rates of taxation in the state and locality of his
residence on the date the applicable Termination Payment or Gross-Up Payment is
made, net of the maximum reduction in federal income taxes that could be
obtained from deduction of such state and local taxes.
(3) If the Excise Tax or income tax payable with
respect to a Gross-Up Payment as finally determined exceeds the amount taken
into account or paid to Officer at the time the applicable Termination Payment
or Gross-Up Payment is made (including by reason of any payment the existence or
amount of which cannot be determined at the time of the applicable Gross-Up
Payment), Employer shall make an additional Gross-Up Payment in respect of such
excess (plus any interest payable by Officer with respect to such excess) at the
time that the amount of such excess is finally determined.
7. Confidentiality and Noncompetition.
(a) Confidentiality. Officer acknowledges that, by
reason of his employment with Employer, he may learn trade secrets and obtain
other confidential information concerning the business and policies of Employer
and its subsidiaries. Officer agrees that he will not voluntarily divulge or
otherwise disclose, directly or indirectly, any such trade secrets or other
confidential information concerning the business or policies of Employer or any
of its subsidiaries that he may learn as a result of his employment during the
Term or may have learned prior to the Term, except to the extent such
information is lawfully obtainable from public sources or such use or disclosure
is (i) necessary to the performance of this Agreement and in furtherance of
Employer's best interests, (ii) required by applicable laws, or (iii) authorized
by Employer.
(b) Noncompetition. In order to protect any
confidential information that Officer may learn during the Term and in order to
protect any goodwill that Employer has earned and may earn during the Term,
Officer agrees that, if Officer voluntarily terminates this Agreement without
good reason during the Term, he shall not, at any location in the State of
Georgia, for a period of 12 months after such termination, provide services, as
employee, officer, director, consultant or otherwise, which services are
substantially similar to the hospital management company chief
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executive officer services performed by Officer under this Agreement, for any
company, firm or entity that owns and operates (directly or through
subsidiaries) more than one hospital and that owns and operates one or more
psychiatric hospitals located in Georgia within 25 miles of a similar
(psychiatric) hospital owned and operated by Employer and located within the
State of Georgia.
8. Miscellaneous.
(a) Succession. This Agreement shall inure to
the benefit of and shall be binding upon Employer, its successors and assigns,
but Employer shall not have the right to assign this Agreement without the
prior written consent of Officer. The obligations and duties of Officer
under this Agreement shall be personal and not assignable.
(b) Notices. Any notice, request, instruction
or other document to be given under this Agreement by any party to the others
shall be in writing and delivered in person or by courier, telegraphed,
telexed or sent by facsimile transmission or mailed by certified mail,
postage prepaid, return receipt requested (such mailed notice to be effective
on the date of such receipt is acknowledged), as follows:
If to Officer:
E. Mac Crawford
143 Blackland Road, N.W.
Atlanta, GA 30342
If to Employer:
Charter Medical Corporation
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, GA 30326
Attn: Secretary
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
(c) Entire Agreement. This Agreement contains
the entire agreement of the parties relating to the subject matter of
this Agreement, and, subject to Section 8(k), it replaces and
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Execution Copy
supersedes any prior agreements between the parties relating to said
subject matter.
(d) Waiver; Amendment. No provision of this
Agreement may be waived except by a written agreement signed by the waiving
party. The waiver of any term or of any condition of this Agreement shall not be
deemed to constitute the waiver of any other term or condition. This Agreement
may be amended only by a written agreement signed by the parties.
(e) Governing Law. This Agreement shall be
construed under and governed by the internal laws of the State of
Georgia.
(f) Arbitration. Except for an action for
injunctive relief, any disputes or controversies arising under this Agreement
shall be settled by arbitration in Atlanta, Georgia in accordance with the rules
of the American Arbitration Association relating to the arbitration of
commercial disputes. The determination and findings of such arbitrators shall be
final and binding on all parties and may be enforced, if necessary, in the
courts of the State of Georgia.
(g) Attorneys' Fees in Action by Employee on
Contract. In the event of litigation or arbitration between Officer and Employer
arising out of or as a result of this Agreement or the acts of the parties
pursuant to this Agreement, or seeking an interpretation of this Agreement, if
Officer is the party in such litigation or arbitration, in addition to any other
judgment or award, he shall be entitled to receive such sums as the court or
panel hearing the matter shall find to be reasonable as and for attorneys' fees.
(h) Remedies of Employer. Officer acknowledges
that the services he is obligated to render under the provisions of this
Agreement are of a special, unique and intellectual character, which gives
this Agreement peculiar value to Employer. The loss of these services cannot
be reasonably or adequately compensated in damages in an action at law and it
would be difficult (if not impossible) to replace such services. Accordingly,
Officer agrees and consents that, if he materially violates any of the material
provisions of
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this Agreement, including, without limitation, Section 7, Employer, in addition
to any other rights and remedies available under this Agreement or under
applicable law, shall be entitled during the remainder of the Term (and, in the
case of Section 7, after the Term to the extent provided in Section 7) to seek
injunctive relief, from a court of competent jurisdiction, restraining Officer
from committing or continuing any violation of this Agreement, or from the
performance of services to any other business entity, or both.
(i) Captions. Captions have been inserted
solely for the convenience of reference and in no way define, limit or
describe the scope or substance of any provisions of this Agreement.
(j) Severability. If this Agreement shall be
any reason be or become unenforceable by any party, this Agreement shall
thereupon terminate and become unenforceable by the other party as well.
In all other respects, if any provision of this Agreement is held invalid or
unenforceable, the remainder of this Agreement shall nevertheless remain
in full force and effect and, if any provision if held invalid or
unenforceable with respect to particular circumstances, it shall nevertheless
remain in full force and effect in all other circumstances.
(k) Prior Employment Agreement. The July 21,
1992, Employment Agreement, if not previously terminated, shall terminate as
of the date of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
CHARTER MEDICAL CORPORATION
BY: /s/ E. Mac Crawford
-----------------------------
Name: E. Mac Crawford
Title:
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EXECUTION COPY
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
on March 31, 1995 by and between Charter Medical Corporation, a Delaware
Corporation ("Employer"), and Craig L. McKnight ("Officer").
WHEREAS, Employer desires to obtain the continued services of Officer
and Officer desires to continue to render services to Employer; and
WHEREAS, Employer and Officer desire to set forth the terms and
conditions of Officer's employment with Employer under this Agreement; and
NOW, THEREFORE, in consideration of the foregoing recitals and of the
mutual covenants and agreements contained in this Agreement, the parties agree
as follows:
1. Term. Employer agrees to employ Officer, and Officer
agrees to serve Employer, in accordance with the terms of this Agreement,
for a term (the "Term") beginning on March 1, 1995 and ending , unless
earlier terminated in accordance with the provisions of this Agreement, on
February 28, , 2000.
2. Employment of Officer.
(a) Specific Position. Employer and Officer agree that,
subject to the provisions of this Agreement, Employer will employ Officer and
Officer will serve Employer as Executive V.P. Although Employer may, with the
consent of Officer (which consent shall not be unreasonably withheld), change
Officer's title, Employer agrees that Officer's duties hereunder shall be the
usual and customary duties of the most senior level of assistants to the Chief
Executive Officer as duly determined from time to time by the Board of Directors
of Employer (the "Board") or the Chief Executive Officer.
(b) Promotion of Employer's Business. During the Term, Officer
shall devote his full business time and energy to the business, affairs and
interests of Employer and related matters, including those permitted in Section
2 (c), and shall use his best efforts and abilities to promote Employer's
interests. Officer agrees that he will diligently endeavor to perform services
contemplated by this Agreement in accordance with the policies established by
the Chief Executive Officer and the Board.
(c) Permitted Activities. Officer may serve as an officer,
director, agent or employee of any direct or indirect subsidiary or other
affiliate of Employer but may not serve as an officer, director, agent or
employee of any other business enterprise without the written approval of the
Board or the Chief Executive Officer; provided, that Officer may make and
<PAGE>
manage personal business investments of his choice (and, in so doing, may serve
as an officer, director, agent or employee of entities and business enterprises
that are related to such personal business investments) and serve in any
capacity with any civic, educational or charitable organization, or any
governmental entity or trade association, without seeking or obtaining such
written approval of the Board or the Chief Executive Officer, if such activities
and services do not significantly interfere or conflict with the performance of
his duties under this Agreement.
(d) Principal Office. Officer's principal office and
normal place of work shall be at Employer's principal executive offices.
3. Salary. Employer shall pay Officer a salary in the amount of
$350,000 per year (pro-rated for any partial year during the Term) payable in
equal bi-weekly installments, less state and federal tax and other legally
required and Officer-authorized withholdings. Such salary shall be subject to
review and adjustment by the Board (or a Board Committee) from time to time
consistent with past practice.
4. Benefits.
(a) Fringe Benefits. In addition to the compensation provided
for in Section 3, Officer shall be entitled during the Term of this Agreement to
such other benefits of employment with Employer as are now or may hereafter be
in effect for (i) salaried officers of Employer or (ii) senior executives of
Employer with duties comparable to those of Officer, including, without
limitation, all bonus, incentive and deferred compensation, pension, stock
option, life and other insurance, disability (insured and uninsured), medical
and dental, vacation and other benefit plans or programs consistent with those
included in the Employment Offer dated January 25, 1995, included herein as
Attachment A.
(b) Expenses. During the Term, Employer shall reimburse
Officer promptly for all reasonable travel, entertainment, parking, business
meeting and similar expenditures in pursuance and furtherance of Employer's
business upon receipt of reasonably supporting documentation as required by
Employer's policies applicable to its officers generally.
5. Termination.
(a) Termination Due to Resignation and Termination for Cause.
Officer's employment under this Agreement shall be terminated and, except as
provided in this Section 5, all of his rights to receive salary and other
benefits (except for salary, bonus and other benefits accrued on the books of
Employer through the date of termination) shall terminate upon the occurrence of
(i) Officer's resignation, or (ii) termination by Employer for "cause," as
defined below, during the Term. Employer shall have the right, exercisable upon
30 days' written notice, to terminate, without liability except for base salary
and vacation days accrued through the date of termination, Officer's employment
for "cause" if Officer (i) materially breaches any material term of this
Agreement, (ii) is convicted by a court of competent jurisdiction of a felony,
(iii)
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willfully performs his duties hereunder in a manner substantially detrimental to
the business of the Employer, (iv) intentionally engages in illegal conduct
substantially detrimental to the business or reputation of Employer, or (v)
develops or pursues interests substantially adverse to Employer.
(b) Termination Due to Death or Disability. Officer's
employment and all of his rights to receive salary and other benefits under this
Agreement, may be terminated by Employer upon Officer's death, or 30 days'
written notice from Employer to Officer, if Officer has been unable to perform
substantially all of his duties under this Agreement for a period of 180 days,
or can reasonably be expected to be unable to do so for such period, as the
result of physical or mental impairment; provided that upon any termination
pursuant to his Section 5 (b) , Officer (or in the event of his death, his
estate) shall be entitled to receive the Specified Amount (as defined below),
and such Specified Amount shall be payable in a lump sum on the date of
termination. In addition to the Specified Amount, if Officer is terminated due
to death or disability, Officer (or in the event of his death, his estate) shall
be entitled to receive the portion or portions of any bonus or other cash
incentive compensation that had been accrued on the books of Employer through
the date of termination pursuant to this Section 5 (b) with respect to Officer.
The term "Specified Amount" shall mean the greater of (i) the
total of all salary payments pursuant to Section 3 that would thereafter have
come due during the Term had there been no such termination or resignation or
(ii) two years' salary pursuant to Section 3, (in each case as the Term may have
been extended and assuming a continuation for the remainder of the Term of then
current salary levels).
(c) Termination Without Cause. Subject to compliance with the
provisions of Section 5 (d), Employer shall have the right, exercisable upon 30
days' written notice, to terminate Officer's employment under this Agreement
without cause at any time during the Term.
(d) Payments Upon Termination Without Cause. If Officer is
terminated by Employer without cause pursuant to Section 5 (c), Officer (i)
shall be entitled to receive the Specified Amount as defined in Section 5 (b) in
cash on the date of such termination subject to the provisions of Section 5 (f);
(ii) any stock option or other stock-based compensation plan shall be governed
by the terms of such plans (and any related stock option or similar agreements);
and (iii) the portion or portions of any bonus or other cash incentive
compensation that had been accrued on the books of Employer through the date of
termination pursuant to this Section 5 (d) with respect to Officer shall be paid
to Officer in cash on the date of such termination.
(e) Termination Upon a Change of Control. Officer shall be
entitled to terminate his employment upon a change of control and shall be
entitled to all of the salary, benefits and other rights provided in this
Agreement (including those payments provided under Section 5 (d) as though the
termination has been initiated by Employer without cause upon the
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occurrence of any of the following events: (a) the acquisition after the
beginning of the Term in one or more transactions, of beneficial ownership
(within the meaning of Rule 13d-3 (a) (1) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) by any person or entity (other than
Officer or Edwin M. Crawford) or any group of persons or entities (other than
Officer) who constitute a group (within the meaning of Section 13 (d) (3) of the
Exchange Act) of any securities of Employer such that as a result of such
acquisition such person or entity or group beneficially owns (within the meaning
of Rule 13d-3 (a) (1) under the Exchange Act) more than 50% of Employer's then
outstanding voting securities entitled to vote on a regular basis for a majority
of the Board; or (b) the sale of all or substantially all of the assets of
Employer (including, without limitation, by way of merger, consolidation, lease
or transfer) in a transaction (except for a sale-leaseback transaction) where
Employer or the holders of common stock of Employer do not receive (i) voting
securities representing a majority of the voting power entitled to vote on a
regular basis for the Board of Directors of the acquiring entity or of an
affiliate which controls the acquiring entity, or (ii) securities representing a
majority of the equity interest in the acquiring entity or of an affiliate that
controls the acquiring entity, if other than a corporation; provided, that if
Officer becomes entitled to any payments (whether hereunder or otherwise) by
reason of an event described in Internal Revenue Code Section 280G(b) (2) (A)
(i) (a "Parachute Event") that would constitute "parachute payments" (as defined
in Internal Revenue Code Section 280G(b) (G(2) (A)) if paid, then Officer's
entitlement to such payments shall be reduced by such amount as will cause none
of such payments to constitute parachute payments if, and only if, the net
amount received by Officer by reason of the Parachute Event, after imposition of
all applicable taxes (including taxes under Internal Revenue Code Section 4099),
would be greater after such reduction than if such reduction were not made.
(f) In the event that Officer is terminated without cause and
in the event that Officer's salary has been reduced to an amount less than
$350,000 per year, the calculation of any amounts due under Section 5 (d) (i)
shall be calculated using a base salary of $350,000 per year (pro-rated for any
partial year during the Term).
6. Confidentiality and Noncompetition.
(a) Confidentiality. Officer acknowledges that, by reason of
his employment with Employer, he may learn trade secrets and obtain other
confidential information concerning the business and policies of Employer and
its subsidiaries. Officer agrees that, during and after the end of the Term, he
will not voluntarily divulge or otherwise disclose, directly or indirectly, any
such trade secrets or other confidential information concerning the business or
policies of Employer or any of its subsidiaries that he may learn as a result of
his employment during the Term or may have learned prior to the Term, except to
the extent such information is lawfully obtainable from public sources or such
use or disclosures is (i) necessary to the performance of this Agreement and in
furtherance of Employer's best interests, (ii) required by applicable laws, or
(iii) authorized by Employer.
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(b) Noncompetition. In order to protect any confidential
information that Officer may learn during the Term and in order to protect any
goodwill that Employer has earned and may earn during the Term, Officer agrees
that, if Officer voluntarily terminates this Agreement during the Term, he shall
not, at any location it the State of Georgia, for a period of 12 months after
such termination, provide services, as employee, officer, director, consultant
or otherwise, for any company, firm or entity that owns and operates (directly
or through subsidiaries) more than one behavioral healthcare, psychiatric or
substance abuse hospital or facility (each, a "Facility") and that owns and
operates one or more facilities located in Georgia within 25 miles of a
generally similar facility (except for size of facility) owned and operated by
Employer or a subsidiary and located within the State of Georgia.
7. Miscellaneous.
(a) Succession. This Agreement shall inure to the benefit of
and shall be binding upon Employer, its successors and assigns, but Employer
shall not have the right to assign this Agreement without the prior written
consent of Officer. The obligations and duties of Officer under this Agreement
shall be personal and not assignable.
(b) Notices. Any notice, request, instruction or other
document to be given under this Agreement by any party to the others shall be in
writing and delivered in person or by courier, telegraphed, telexed or sent by
facsimile transmission or mailed by certified mail, postage prepaid, return
receipt requested (such mailed notice to be effective on the date of such
receipt is acknowledged), as follows:
If to Officer:
Craig L. McKnight
1522 Monticello Drive
Gladwyne, PA 19035
If to Employer:
Charter Medical Corporation
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, GA 30326
Attn: Secretary
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
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(c) Entire Agreement. This Agreement contains the
entire agreement of the parties relating to the subject matter of this
Agreement, and it replaces and supersedes any prior agreements between the
parties relating to said subject matter.
(d) Waiver; Amendment. No provision of this Agreement may be
waived except by a written agreement signed by the waiving party. The waiver of
any term or of any condition of this Agreement shall not be deemed to constitute
the waiver of any other term or condition. This Agreement may be amended only by
a written agreement signed by the parties.
(e) Governing Law. This Agreement shall be construed
under and governed by the internal laws of the State of Georgia.
(f) Arbitration. Except for an action for injunctive relief,
any disputes or controversies arising under this Agreement shall be settled by
arbitration in Atlanta, Georgia in accordance with the rules of the American
Arbitration Association relating to the arbitration of commercial disputes. The
determination and findings of such arbitrators shall be final and binding on all
parties and may be enforced, if necessary, in the courts of the State of
Georgia.
(g) Attorneys' Fees in Action by Employee on Contract. In the
event of litigation or arbitration between Officer and Employer arising out of
or as a result of this Agreement or the acts of the parties pursuant to this
Agreement, or seeking an interpretation of this Agreement, if Officer is the
prevailing party in such litigation or arbitration, in addition to any other
judgment or award, he shall be entitled to receive such sums as the court or
panel hearing the matter shall find to be reasonable as and for attorneys' fees.
(h) Remedies of Employer. Officer acknowledges that the
services he is obligated to render under the provisions of this Agreement are of
a special, unique and intellectual character, which gives this Agreement
peculiar value to Employer. The loss of these services cannot be reasonably or
adequately compensated in damages in an action at law and it would be difficult
(if not impossible) to replace such services. Accordingly, Officer agrees and
consents that, if he materially violates any of the material provisions of this
Agreement, including, without limitation, Section 6, Employer, in addition to
any other rights and remedies available under this Agreement or under applicable
law, shall be entitled during the remainder of the Term (and, in the case of
Section 6, after the Term to the extent provided in Section 6) to injunctive
relief, from a court of competent jurisdiction, restraining Officer from
committing or continuing any violation of this Agreement, or from the
performance of services to any other business entity in violation of this
Agreement, or both.
(i) Captions. Captions have been inserted solely for
the convenience of reference and in no way define, limit or describe the scope
or substance of any provisions of this Agreement.
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(j) Severability. If this Agreement shall be any reason be or
become unenforceable by any party, this Agreement shall thereupon terminate and
become unenforceable by the other party as well. In all other respects, if any
provision of this Agreement is held invalid or unenforceable, the remainder of
this Agreement shall nevertheless remain in full force and effect and, if any
provision if held invalid or unenforceable with respect to particular
circumstances, it shall nevertheless remain in full force and effect in all
other circumstances.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
CHARTER MEDICAL CORPORATION
By: /s/ Craig L.McKnight
-----------------------
Name: Craig L. McKnight
Title:
\mcknigh.fnl
7
<PAGE>
Exhibit 21
CHARTER MEDICAL CORPORATION
SUBSIDIARY CORPORATIONS
September 30, 1995
The following corporations are all of the direct or indirect subsidiary
corporations of Charter Medical Corporation, a Delaware corporation. Charter
Medical Corporation directly or indirectly owns all of the outstanding voting
securities of such subsidiaries except where noted.
<TABLE>
<CAPTION>
Name of Corporation: State or Jurisdiction
of Incorporation
<S> <C> <C>
Beltway Community Hospital, Inc. Texas
C.A.C.O. Services, Inc. Ohio
CCM, Inc.1 Nevada
Charter of Alabama, Inc. Alabama
Charter Alvarado Behavioral Health System, Inc. California
Charter Appalachian Hall Behavioral Health System, Inc. North Carolina
Charter Arbor Indy Behavioral Health System, Inc. Indiana
Charter Augusta Behavioral Health System, Inc. Georgia
Charter Bay Harbor Behavioral Health System, Inc. Florida
Charter Beacon Behavioral Health System, Inc. Indiana
Subsidiary:
Indiana Behavioral Health Systems, L.L.C.2 Indiana
Charter Behavioral Health System of Athens, Inc. Georgia
- --------
1 50% owned by Charter Medical Corporation; 50% owned by CMCI,
Inc.
2 51% collectively owned by Charter Beacon Behavioral Health System,
Inc. and various other Indiana subsidiaries.
<PAGE>
Name of Corporation: State or Jurisdiction
of Incorporation
of Incorporation
Charter Behavioral Health Systems of Atlanta, Inc. Georgia
Charter Behavioral Health System of Austin, Inc. Texas
Charter Behavioral Health System of Baywood, Inc. Texas
Charter Behavioral Health System of Bradenton, Inc. Florida
Subsidiary:
Charter Behavioral Health System at Manatee Florida
Adolescent Treatment Services, Inc.
Charter Behavioral Health System of Central Georgia, Inc. Georgia
Charter Behavioral Health System of Central Virginia, Inc. Virginia
Charter Behavioral Health System of Charleston, Inc. South Carolina
Charter Behavioral Health System of Charlottesville, Inc. Virginia
Charter Behavioral Health System of Chicago, Inc. Illinois
Charter Behavioral Health System of Chula Vista, Inc. California
Charter Behavioral Health System of Columbia, Inc. Missouri
Charter Behavioral Health System of Corpus Christi, Inc. Texas
Charter Behavioral Health System of Dallas, Inc. Texas
Charter Behavioral Health System of Delmarva, Inc. Maryland
Charter Behavioral Health System of Evansville, Inc. Indiana
Charter Behavioral Health System at Fair Oaks, Inc. New Jersey
Charter Behavioral Health System of Fort Worth, Inc. Texas
Charter Behavioral Health System at Hidden Brook, Inc. Maryland
Charter Behavioral Health System of Jackson, Inc. Mississippi
Subsidiary:
Charter Behavioral Health System of Mississippi
Mississippi, Inc.
<PAGE>
Name of Corporation: State or Jurisdiction
of Incorporation
of Incorporation
Charter Behavioral Health System of Jacksonville, Inc. Florida
Charter Behavioral Health System of Jefferson, Inc. Indiana
Charter Behavioral Health System of Kansas City, Inc. Kansas
Charter Behavioral Health System of Lafayette, Inc. Louisiana
Subsidiary:
The Charter Cypress Behavioral Health Tennessee
System, L.L.C.3
Charter Behavioral Health System of Lake Charles, Inc. Louisiana
Charter Behavioral Health System at Los Altos, Inc. California
Charter Behavioral Health System of Massachusetts, Inc. Massachusetts
Subsidiary:
Westwood/Pembroke Health System Limited Massachusetts
Partnership4
Charter Behavioral Health System of Michigan City, Inc. Indiana
Charter Behavioral Health System of Mobile, Inc. Alabama
Charter Behavioral Health System of Nashua, Inc. New Hampshire
Charter Behavioral Health System of Nevada, Inc. Nevada
Charter Behavioral Health System of New Mexico, Inc. New Mexico
Subsidiary:
The Charter Heights Behavioral Health Delaware
System Limited Partnership5
Charter Behavioral Health System of North Carolina, Inc. North Carolina
- --------
3 50% owned by Charter Behavioral Health System of Lafayette, Inc.
4 90% owned by Charter Behavioral Health System of Massachusetts,
Inc.
5 67% owned by Charter Behavioral Health System of New Mexico, Inc.
<PAGE>
Name of Corporation: State or Jurisdiction
of Incorporation
of Incorporation
Charter Behavioral Health System of Northwest Arkansas, Arkansas
Inc.
Charter Behavioral Health System of Northwest Indiana, Indiana
Inc.
Charter Behavioral Health System of Paducah, Inc. Kentucky
Charter Behavioral Health System at Potomac Ridge, Inc. Maryland
Subsidiary:
Charter Psychiatric Management Services, Maryland
LLC6
Charter Behavioral Health of Puerto Rico, Inc. Georgia
Charter Behavioral Health System of San Jose, Inc. California
Charter Behavioral Health System of Tampa Bay, Inc. Florida
Subsidiary:
Tampa Bay Behavioral Health Alliance, Inc. Florida
Charter Behavioral Health System of Texarkana, Inc. Arkansas
Charter Behavioral Health System of Toledo, Inc. Ohio
Charter Behavioral Health System of Tucson, Inc. Arizona
Charter Behavioral Health System of Visalia, Inc. California
Charter Behavioral Health System of Waverly, Inc. Minnesota
Charter Behavioral Health System of Winston-Salem, Inc. North Carolina
Charter Behavioral Health System of Yorba Linda, Inc. California
Charter Brawner Behavioral Health System, Inc. Georgia
- --------
6 50% owned by Charter Behavioral Health System at Potomac Ridge,
Inc.
<PAGE>
Name of Corporation: State or Jurisdiction
of Incorporation
of Incorporation
Subsidiary:
Charter Behavioral Health System of Georgia
Savannah, Inc.
Charter-By-The-Sea Behavioral Health System, Inc. Georgia
Charter Canyon Behavioral Health System, Inc. Utah
Charter Canyon Springs Behavioral Health System, Inc. California
Charter Centennial Peaks Behavioral Health System, Inc. Colorado
Charter Community Hospital, Inc. California
Charter Contract Services, Inc. Georgia
Charter Correctional Systems, Inc. Delaware
Charter Cove Forge Behavioral Health System, Inc. Pennsylvania
Subsidiary:
Behavioral Healthcare Services of Western Pennsylvania
Pennsylvania, L.L.C.7
Charter Fairbridge Behavioral Health System, Inc. Maryland
Charter Fairmount Behavioral Health System, Inc. Pennsylvania
Charter Fenwick Hall Behavioral Health System, Inc. South Carolina
Charter Financial Offices, Inc. Georgia
Charter Forest Behavioral Health System, Inc. Louisiana
Charter Grapevine Behavioral Health System, Inc. Texas
Charter Greensboro Behavioral Health System, Inc. North Carolina
Charter Health Management of Texas, Inc. Texas
Charter Hospital of Columbus, Inc. Ohio
Charter Hospital of Denver, Inc. Colorado
- --------
7 Percentage of ownership yet to be determined.
<PAGE>
Name of Corporation: State or Jurisdiction
of Incorporation
of Incorporation
Charter Hospital of Ft. Collins, Inc. Colorado
Charter Hospital of Laredo, Inc. Texas
Charter Hospital of Mobile, Inc. Alabama
Charter Hospital of Santa Teresa, Inc. New Mexico
Charter Hospital of St. Louis, Inc. Missouri
Subsidiary:
Charter Hospital of Miami, Inc. Florida
Charter Hospital of Torrance, Inc. California
Charter Indiana BHS Holding, Inc. Indiana
Charter Indianapolis Behavioral Health System, Inc. Indiana
Charter Lafayette Behavioral Health System, Inc. Indiana
Charter Lakehurst Behavioral Health System, Inc. New Jersey
Charter Lakeside Behavioral Health System, Inc. Tennessee
Subsidiary:
Alliance For Behavioral Health8 Tennessee
Charter Laurel Heights Behavioral Health System, Inc. Georgia
Charter Linden Oaks Behavioral Health System, Inc. Illinois
Subsidiary:
Naperville Psychiatric Ventures 9 Illinois
Charter Little Rock Behavioral Health System, Inc. Arkansas
Charter Louisville Behavioral Health System, Inc. Kentucky
Charter Meadows Behavioral Health System, Inc. Maryland
- --------
8 50% owned by Charter Lakeside Behavioral Health System, Inc.
9 75% owned by Charter Linden Oaks Behavioral Health System, Inc.
<PAGE>
Name of Corporation: State or Jurisdiction
of Incorporation
of Incorporation
Charter Medfield Behavioral Health System, Inc. Florida
Charter Medical - California, Inc. Georgia
Subsidiary:
Charter Behavioral Health System of California
Northern California, Inc.
Charter Medical (Cayman Islands) Ltd Cayman Islands
Charter Medical - Clayton County, Inc. Georgia
Charter Medical - Cleveland, Inc. Texas
Subsidiary:
Charter Regional Medical Center, Inc. Texas
Charter Medical - Dallas, Inc. Texas
Charter Medical of East Valley, Inc. Arizona
Charter Medical of England Limited United Kingdom
Charter Medical Executive Corporation Georgia
Charter Medical of Florida, Inc. Florida
Charter Medical Information Services, Inc. Georgia
Charter Medical International, Inc. Cayman Islands
Charter Medical International, S.A., Inc. Nevada
Subsidiary:
Societe Anonyme De La Metairie Switzerland
Charter Medical International Services, Inc. Cayman Islands
Charter Medical Leasing Limited United Kingdom
Charter Medical - Long Beach, Inc. California
Charter Medical Management Company Georgia
Charter Medical - New York, Inc. New York
<PAGE>
Name of Corporation: State or Jurisdiction
of Incorporation
of Incorporation
Charter Medical of North Phoenix, Inc. Arizona
Subsidiary
Arizona Behavioral Systems, L.L.C.10 Arizona
Charter Medical of Puerto Rico, Inc. Commonwealth of
Puerto Rico
Charter Mental Health Options, Inc. Florida
Charter Milwaukee Behavioral Health System, Inc. Wisconsin
Charter Mission Viejo Behavioral Health System, Inc. California
Charter MOB of Charlottesville, Inc. Virginia
Charter North Behavioral Health System, Inc. Alaska
Charter North Counseling Center, Inc. Alaska
Charter Northbrooke Behavioral Health System, Inc. Wisconsin
Charter Northridge Behavioral Health System, Inc. North Carolina
Subsidiary:
Holly Hill/Charter Behavioral Health System, Tennessee
L.L.C.11
Charter Oak Behavioral Health System, Inc. California
Charter Palms Behavioral Health System, Inc. Texas
Charter Park Hospital Limited United Kingdom
Charter Peachford Behavioral Health System, Inc. Georgia
Charter Petersburg Behavioral Health System, Inc. Virginia
Charter Pines Behavioral Health System, Inc. North Carolina
Charter Plains Behavioral Health System, Inc. Texas
- --------
10 Approximately 67% owned by Charter Medical of North Phoenix, Inc.
11 50% owned by Charter Northridge Behavioral Health System, Inc.
<PAGE>
Name of Corporation: State or Jurisdiction
of Incorporation
of Incorporation
Charter - Provo School, Inc. Utah
Charter Real Behavioral Health System, Inc. Texas
Charter Ridge Behavioral Health System, Inc. Kentucky
Charter Rivers Behavioral Health System, Inc. South Carolina
Charter San Diego Behavioral Health System, Inc. California
Charter Sioux Falls Behavioral Health System, Inc. South Dakota
Charter South Bend Behavioral Health System, Inc. Indiana
Charter Springs Behavioral Health System, Inc. Florida
Charter Springwood Behavioral Health System, Inc. Virginia
Charter Suburban Hospital of Mesquite, Inc. Texas
Charter Terre Haute Behavioral Health System, Inc. Indiana
Charter Thousand Oaks Behavioral Health System, Inc. California
Charter Treatment Center Of Michigan, Inc. Michigan
Charter Westbrook Behavioral Health System, Inc. Virginia
Subsidiary:
CPS Associates, Inc. Virginia
Charter White Oak Behavioral Health System, Inc. Maryland
Charter Wichita Behavioral Health System, Inc. Kansas
Charter Woods Behavioral Health System, Inc. Alabama
CMSF, Inc. Florida
Desert Springs Hospital, Inc. Nevada
Subsidiary:
CMCI, Inc. Nevada
CMFC, Inc. Nevada
Employee Assistance Services, Inc. Georgia
<PAGE>
Name of Corporation: State or Jurisdiction
of Incorporation
of Incorporation
Florida Health Facilities, Inc. Florida
Golden Isle Assurance Company Ltd. Bermuda
Group Practice Affiliates, Inc. Delaware
Subsidiary:
Capital Area PsySystems, Inc.12 Texas
GPA Arizona, Inc. Arizona
GPA Management of Virginia, Inc.13 Virginia
GPA NovaPsy Clinic, Inc. Virginia
GPA Pennsylvania, Inc. Pennsylvania
Pacific Behavioral Management, LLC14 California
Gulf Coast EAP Services, Inc. Alabama
Hospital Investors, Inc. Georgia
Illinois Mentor, Inc. Illinois
Magellan Health Services, Inc. Delaware
Mandarin Meadows, Inc. Florida
Massachusetts Mentor, Inc. Massachusetts
Metroplex Behavioral Healthcare Services, Inc. Texas
National Mentor, Inc. Delaware
National Mentor Healthcare, Inc. Massachusetts
NEPA - Massachusetts, Inc. Massachusetts
NEPA - New Hampshire, Inc. New Hampshire
Ohio Mentor, Inc. Ohio
- --------
12 50% owned by Group Practice Affiliates, Inc.
13 90% owned by Group Practice Affiliates, Inc.
14 70% owned by Group Practice Affiliates, Inc.
<PAGE>
Name of Corporation: State or Jurisdiction
of Incorporation
of Incorporation
Pacific - Charter Medical, Inc. California
Subsidiary:
Charter Behavioral Health System of the California
Inland Empire, Inc.
Plymouth Insurance Company, Ltd. Bermuda
Schizophrenia Treatment and Rehabilitation, Inc. Georgia
Sistemas De Terapia Respiratoria S.A., Inc. Georgia
South Carolina Mentor, Inc. South Carolina
Southeast Behavioral Systems, Inc. Georgia
Strategic Advantage, Inc. Minnesota
Western Behavioral Systems, Inc. California
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our report dated November 9, 1995 (except with
respect to the matters discussed in Note 13, as to which the date is December
20, 1995), and to all references to our firm, included in this Form 10-K, into
the Company's previously filed Registration Statements on Form S-8 (File Nos.
33-57210 and 33-62542) and Form S-3 (File No. 33-57817).
/s/ Arthur Anderson, LLP
Atlanta, Georgia
December 22, 1995
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Consolidated Balance Sheets and Consolidated Statements of Operation found on
pages 3 and 4 of the Company's Form 10-K for the year-to-date, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 105,514,000
<SECURITIES> 0
<RECEIVABLES> 181,163,000
<ALLOWANCES> 0
<INVENTORY> 5,768,000
<CURRENT-ASSETS> 305,575,000
<PP&E> 579,644,000
<DEPRECIATION> 90,877,000
<TOTAL-ASSETS> 983,558,000
<CURRENT-LIABILITIES> 214,162,000
<BONDS> 538,770,000
<COMMON> 7,101,000
0
0
<OTHER-SE> 81,459,000
<TOTAL-LIABILITY-AND-EQUITY> 983,558,000
<SALES> 1,151,736,000
<TOTAL-REVENUES> 1,151,736,000
<CGS> 0
<TOTAL-COSTS> 956,187,000
<OTHER-EXPENSES> 194,584,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,237,000
<INCOME-PRETAX> (54,272,000)
<INCOME-TAX> (11,309,000)
<INCOME-CONTINUING> (42,963,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,963,000)
<EPS-PRIMARY> (1.54)
<EPS-DILUTED> 0
</TABLE>
