<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended AUGUST 31, 1995
-------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------------------- ----------------
Commission file number 1-7008
--------------------------------------------------
------------------------------------------------------------------
COMMUNITY PSYCHIATRIC CENTERS
--------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 94-1599386
- ------------------------------ ---------------------------------
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
6600 W. CHARLESTON BOULEVARD, SUITE 118, LAS VEGAS, NEVADA 89102
- -------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (702) 259-3600
----------------------
NOT APPLICABLE
- -------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date: 43,340,000 as of September
30, 1995.
Total number of pages: 17
Exhibit Index at page: 15
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months ended Three Months Ended
August 31 August 31
1995 1994 1995 1994
-----------------------------------------------------
(000s omitted except per share data)
<S> <C> <C> <C> <C>
REVENUES:
Net operating revenues $383,550 $305,591 $128,071 $105,001
Investment and other income 2,044 1,400 492 659
------- ------- ------- -------
385,594 306,991 128,563 105,660
COSTS AND EXPENSES:
Operating expense 285,047 241,111 97,929 79,894
General and administrative
expense 28,101 24,583 9,515 8,755
Bad debt expense 23,109 18,019 6,893 8,594
Depreciation and
amortization 17,380 13,937 6,322 5,026
Interest expense 3,427 2,364 1,404 564
Settlement costs 45,000 -- 45,000 --
Restructuring credit -
Note B (2,490) (875) -- --
------- ------- ------- -------
399,574 299,139 167,063 102,833
INCOME (LOSS) BEFORE TAXES (13,980) 7,852 (38,500) 2,827
Income taxes (credit) (4,756) 3,171 (14,168) 1,160
------- ------- ------- -------
NET INCOME (LOSS) $ (9,224) $ 4,681 $(24,332) $ 1,667
------- ------- ------- -------
------- ------- ------- -------
NET INCOME (LOSS) PER SHARE $ (.21) $ .11 $ (.56) $ .04
------- ------- ------- -------
------- ------- ------- -------
WEIGHTED AVERAGE COMMON
SHARES 43,630 43,378 43,660 43,390
------- ------- ------- -------
------- ------- ------- -------
DIVIDENDS PER COMMON SHARE .01 .01 .00 .00
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See notes to condensed consolidated financial statements.
Page 2 of 17
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31 November 30
1995 1994
(Unaudited) (Audited)
---------------------------
ASSETS (OOOs omitted)
- ------
<S> <C> <C>
CURRENT:
Cash and cash equivalents $ 33,714 $ 37,263
Short-term investments 5,000 13,756
Accounts receivable, less allowances
for doubtful accounts
1995 - $ 30,542 /1994 - $29,381 117,873 103,128
Receivable from third parties under
reimbursable contracts 1,953 --
Prepaid expenses and other current assets 18,960 18,305
Assets held for sale 1,849 2,374
Deferred income taxes 3,775 3,773
Refundable income taxes 16,203 --
------- -------
TOTAL CURRENT ASSETS 199,327 178,599
PROPERTY, BUILDINGS & EQUIPMENT-at
cost less allowances for depreciation
1995 - $106,207 /1994 - $92,937 395,295 376,765
DEFERRED TAXES 1,125 2,823
OTHER ASSETS 26,627 25,207
EXCESS OF INVESTMENTS IN SUBSIDIARIES
OVER NET ASSETS ACQUIRED 16,571 16,610
------- -------
$638,945 $600,004
------- -------
------- -------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable and accrued expenses $ 45,581 $ 50,232
Income taxes payable 3,603 5,845
Payable to third parties under
reimbursable contracts -- 5,802
Accrued settlement costs 22,230 --
Current maturities on long-term debt 63,652 13,224
------- -------
TOTAL CURRENT LIABILITIES 135,066 75,103
LONG-TERM DEBT, EXCLUSIVE OF CURRENT
MATURITIES 33,774 69,090
DEFERRED COMPENSATION 1,325 1,816
DEFERRED INCOME TAXES 15,892 13,956
OBLIGATION TO BE SETTLED IN COMMON STOCK 21,250 --
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1.00,
authorized 2,000 shares; none issued
Common Stock, par value $1.00, authorized
100,000 shares; issued 1995 - 46,856
shares 1994 - 46,856 shares 46,856 46,856
Additional paid-in capital 62,139 61,357
Less due from employees for exercise
of stock options -- (35)
Retained earnings 359,470 369,131
Foreign currency translation adjustment (2,301) (1,805)
Less treasury stock-at cost 1995 - 3,185
shares and 1994 - 3,265 shares (34,526) (35,465)
------- -------
431,638 440,039
------- -------
$638,945 $600,004
------- -------
------- -------
</TABLE>
NOTE: The balance sheet at November 30, 1994 has been derived from the
audited financial statement at that date but does not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements.
Page 3 of 17
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
August 31
1995 (Unaudited) 1994
---------------------
(000s omitted)
CASH FLOWS FROM
OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (9,224) $ 4,681
Items not resulting in cash flows:
Depreciation and amortization 17,380 13,937
Provision for uncollectible accounts 23,109 18,019
Settlement costs 43,480 --
Restructuring credit (2,490) (875)
(Gain) on sale of property, buildings
and equipment -- (264)
Other 251 (324)
Changes in assets and liabilities:
Short-term investments 8,756 (2,819)
Accounts receivable (37,854) (35,452)
Receivable from/payable to third parties
under reimbursement contracts (7,775) (2,952)
Prepaid expenses and other current assets 655 1,587
Accounts payable and accrued expense (4,651) 7,292
Accrued restructuring costs -- (9,307)
Income taxes (14,813) (2,439)
------- -------
Net cash provided from (used for) operations 16,824 (8,916)
FINANCING:
Proceeds from revolving credit facilities 31,648 39,311
Dividends paid (436) (435)
Payments of deferred compensation (593) (121)
Net proceeds from exercise of stock options 829 5,349
Payments on long-term debt (17,504) (1,274)
------- -------
Net cash provided from financing activities 13,944 42,830
INVESTING:
Payments received on notes 985 3,306
Loans made to officers (1,825) (533)
Purchase of property, buildings and equipment (27,586) (32,633)
Investment in pre-opening costs (2,211) (3,147)
Proceeds from sale of property, buildings
and equipment 5,289 5,035
Payment for business acquisitions:
Property, buildings and equipment (8,604) (2,517)
Excess of purchase price over fair value of
assets acquired (365) (549)
------- -------
Net cash used for investing activities (34,317) (31,038)
------- -------
Net increase (decrease) in cash and
cash equivalents (3,549) 2,876
Beginning cash and cash equivalents 37,263 24,640
------- -------
Ending cash and cash equivalents $ 33,714 $ 27,516
------- -------
------- -------
</TABLE>
See notes to condensed consolidated financial statements.
Page 4 of 17
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
AUGUST 31, 1995
NOTE A: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. For further information, refer
to the consolidated financial statements and footnotes thereto
included in the registrant's annual report on Form 10-K for the year
ended November 30, 1994.
NOTE B: RESTRUCTURING CHARGES (CREDITS)
Effective February 28, 1993, the Company recorded a pre-tax
charge of $55.0 million ($35.0 million after tax) in connection with
the decision to close seven of its psychiatric hospitals. The charge
comprised $35.3 million to write down buildings and other fixed
assets, $2.1 million to write off intangibles, $14.4 million for
future operating losses of the seven hospitals and related corporate
restructuring costs associated with terminating employees, and $3.2
million for additional accounts receivable allowances at the seven
hospitals. Six of the restructured hospitals have ceased operations.
The seventh hospital, which returned to operating status effective
March 1, 1994, has been reconstituted under new management into a
rapid stabilization facility. Of the six closed hospitals, five have
been sold and one has been converted into a long-term critical care
hospital operated by the Company's wholly owned subsidiary,
Transitional Hospitals Corporation (THC). The Company received cash
proceeds of approximately $5.0 million and $5.3 million, respectively,
in the first quarter of 1994 and the second and third quarters of 1995
from the sale of the five hospitals. The Company continues to hold
property for sale with a remaining book value of $.3 million that was
included as part of the restructuring in 1993.
Effective February 28, 1994, the Company recorded a restructuring
credit totalling $7.2 million ($4.3 million after tax) from the
resolution of the previously restructured psychiatric assets. The
restructuring credit resulted from the Company's success in
controlling hospital closure costs and in divesting one of its
restructured properties at a higher price than the 1993 writedown of
the facility anticipated.
Effective February 28, 1994, the Company recorded a restructuring
charge of $6.3 million ($3.8 million after tax) in connection with the
decision to close three additional psychiatric facilities. The charge
comprised $2.2 million for future operating losses, $1.5 million for
restructuring costs associated with terminating employees and $2.6
million for additional accounts receivable allowances and reserves for
other assets at the three hospitals. Approximately 225 employees of
the restructured hospitals were terminated. Amounts charged against
the reserve for estimated operating losses and termination benefits
paid approximated amounts originally accrued. Total revenue and net
operating income or (loss) for the three closed hospitals totalled
Page 5 of 17
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
AUGUST 31, 1995
$2.8 million and ($1.1 million)for the first quarter of 1994, $20
million and $.6 million for fiscal year 1993, and $23.5 million and
$2.3 million for fiscal year 1992. Of the three closed hospitals, one
is being held for sale, one was converted into a THC facility after
the restructuring, and one was converted into a THC facility in
September of 1995.
Effective May 31, 1995, the Company recorded a restructuring
credit totalling $2.5 million ($1.5 million after tax) from the
resolution of previously restructured psychiatric assets. The
restructuring credit resulted from divesting two restructured
properties at higher prices than the 1993 writedown of the facilities
anticipated and the Company's success in collecting accounts
receivable balances that were reserved for as part of the February 28,
1994 restructuring charge.
NOTE C: LITIGATION
On September 28, 1995, the Company reached an agreement in
principle to settle certain consolidated securities class action and
derivative lawsuits (See Part II, Item I: Legal Proceedings). As of
August 31, 1995, the Company recorded a charge of $45 million ($28.4
million after tax) relating to the settlement of the lawsuits and
associated legal fees and expenses. The charge resulted in a
liability of $21.8 million to establish a fund for the settlement of
the class actions. In addition, the Company will issue to members
of the plaintiff class shares being held in the treasury equal to
$21.25 million. The number of shares of common stock to be issued
will be equal to $21.25 million divided by the market value of the
common stock over a 10-day trading period prior to the distribution
of shares to settle claims, provided that in any event the minimum
number of shares that will be issued is 1,931,818 and the maximum
number of shares that will be issued is 3,035,714. The maximum
limits would be triggered if the market value of the common stock
is at $7 per share or below. The agreement is subject to the
execution of definitive settlement documents and court approval.
Also included in the settlement charge was $1.9 million of
legal expenses associated with the settlement.
On August 17, 1995 the company reported developments pertaining
to CPC Southwind Hospital in Oklahoma City, Oklahoma, which is
operated by the company's subsidiary, CPC Oklahoma, Inc. The first
was the filing of a whistleblower suit against CPC Oklahoma, Inc.
under the Federal False Claims Act, and the second concerned the
seizure of certain of Southwind's records pursuant to a search
warrant. The company also explained that the United States intended
to file an amended complaint in the whistleblower suit by
September 29, 1995.
On September 26, 1995, the United States and CPC Oklahoma, Inc.
filed a joint motion to extend by 60 days, i.e., through November 28,
1995, the time in which to file the amended complaint. The purpose
of this extension is to facilitate ongoing discussions and permit
possible resolution or narrowing of the issues prior to the onset
of litigation and discovery. The court has not yet acted on this
motion. The Company has received copies of all documents taken by
governmental authorities and continues to cooperate fully with the
investigation and to pursue its internal review of operations at
Southwind. Management is presently unable to evaluate the potential
impact of the suit on the Company.
NOTE D: ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the FASB issued Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, which requires impairment losses to be recognized
for long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows are not
sufficient to recover the assets' carrying amount. The impairment
loss is measured by comparing the fair value of the asset to its
carrying amount. The Company will adopt Statement No. 121 in the
fourth quarter of 1995. Based on presently available estimates, the
new impairment rules are expected to result in recognition of an
impairment loss that will be charged against operating income in
the 1995 fourth quarter of approximately $27 - $32 million before
income taxes.
NOTE E: Certain amounts have been reclassified in the 1994 Financial
Statements to conform with 1995 presentations.
Page 6 of 17
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
NINE MONTHS ENDED AUGUST 31, 1995
The following table represents selected unaudited pro forma income
statement data for the nine months ended August 31, 1995 and 1994, adjusted as
if the restructuring for the three hospitals restructured in the first quarter
of fiscal year 1994 had occurred on November 30, 1993. The table also excludes
the restructuring credits described in footnote B and the settlement costs
described in footnote C to the Financial Statements. The data presented below
may not be indicative of the results that would have been obtained had the
transactions described above actually occurred on the date assumed. In the
opinion of management, this data includes all adjustments, consisting of normal
recurring adjustments that the Company considers necessary for a fair
presentation of the data set forth therein.
<TABLE>
<CAPTION>
Nine Months Ended
August 31
1995 (Unaudited) 1994
---------------------
(000s omitted)
<S> <C> <C>
Net operating revenues $383,550 $303,999
Investment and other income 2,044 1,400
------- -------
385,594 305,399
Costs and expenses:
Operating expense 285,047 239,145
General and administrative expense 28,101 24,656
Bad debt expense 23,109 17,556
Depreciation and amortization 17,380 13,812
Interest expense 3,427 2,364
------- -------
Total costs and expenses 357,064 297,533
Income before taxes 28,530 7,866
Income taxes 10,898 3,146
------- -------
Net income $ 17,632 $ 4,720
------- -------
------- -------
</TABLE>
The following discussion excludes the restructuring charge and the
operating results for the three hospitals restructured in the first quarter of
1994, the restructuring credits recorded in both years, and the settlement costs
described in footnote C.
Net operating revenues for the nine months ended August 31, 1995 increased
by approximately 26.2% to $383.6 million from $304.0 million for the first six
months of the prior year. The largest portion of this increase was a $76.8
million increase in THC revenue from $65.1 million in the first nine months of
1994 to $141.9 million in the first nine months of 1995. THC's same-store
admissions and patient days increased 67.3% and 99.1%, respectively.
Net operating revenues from the United States psychiatric hospitals
decreased by 5.5% or approximately $11.3 million as a result of a 10.2% decrease
in adjusted patient days offset by a 5.1% increase in net revenue per patient
day. Net revenue per patient day increased as favorable Medicare and Medicaid
cost report settlements exceeded prior year amounts by approximately $3.7
million for the nine months ended August, 31, 1995. Although admissions
increased 3.0% for the U.S. Psychiatric division, adjusted patient days declined
due to the continuing decline in the average length of a patient's stay.
Page 7 of 17
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations (continued)
NINE MONTHS ENDED AUGUST 31, 1995 (continued)
Net operating revenues from the Company's United Kingdom operations
increased by 42.6% or approximately $14.0 million as a result of an increase in
same-store patient days of 19.3% and a 8.9% increase in average net revenue per
patient day. The remaining portion of the increase in net operating revenue
relates to additional patient days generated by three new facilities that
started operations subsequent to the third quarter of 1994.
Operating expenses decreased as a percentage of net operating revenues to
74.3% in the nine months ended August 31, 1995 from 78.7% in the nine months
ended August 31, 1994. General and administrative expenses decreased as a
percentage of net operating revenues to 7.3% from 8.1%. A higher percentage of
THC's total costs are now being reimbursed because an increased number of THC
hospitals have received certification for cost-based reimbursement under
Medicare during the first nine months of 1995 compared to the first nine months
of 1994. THC hospitals incur significant start up losses because they are not
entitled to cost based reimbursement for Medicare patients until they are
certified as long-term care hospitals. Pending such certification, these start
up hospitals are reimbursed under the Medicare Prospective Payment System which
does not pay the full cost of treating Medicare patients with the severity of
illness treated at THC facilities. Of the 14 hospitals in operation during the
first nine months of 1995, 13 were certified as long-term care hospitals and
therefore received cost-based reimbursement under Medicare, whereas at the same
time in 1994, 12 facilities were in operation and eleven had been open long
enough to receive their long-term care hospital certification. In addition,
seven facilities (six in the third quarter of 1995) completed their TEFRA (Tax
Equity and Fiscal Responsibility Act) rate setting period during the current
year and are now eligible for an additional incentive payment if their costs are
less than the targeted rate per discharge.
In addition, the Company implemented cost-containment programs in the
fourth quarter of 1994 which included consolidation of several corporate
administrative functions for the U.S. Psychiatric Division and THC and the
reduction of personnel and other overhead.
Bad debt expense as a percentage of net operating revenue was 6.0% for the
nine months ended August 31, 1995 compared to 5.8% for the nine months ended
August 31, 1994. A portion of the increase relates to the fact that collections
have slowed from certain State Medicaid programs that have converted to managed
care initiatives in early 1995. In addition the Company moved eleven
psychiatric hospitals to a central billing office late in the fourth quarter of
1994 and in the first quarter of 1995 which also contributed to the slowdown in
billings and collections. The Company anticipates future increases in bad debt
expense due to decreased annual and lifetime psychiatric maximum payment limits
for individual patients and increased deductibles and co-insurance.
Investment and other income increased primarily due to the addition of $.4
million of income in the current year from a residential treatment center joint
venture that had started operations in the third quarter of the comparable prior
year.
The decrease in the effective tax rate from 40.0% to 38.2% is primarily due
to a reduction in the net operating loss valuation reserve for THC operating
loss carryforwards that have been realized in the current year and those that
are expected to be realized in future years.
Page 8 of 17
<PAGE>
FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations (continued)
NINE MONTHS ENDED MAY 31, 1995 (continued)
For the reasons described above, earnings before depreciation,
amortization, interest, other income and income taxes for the nine months ended
August 31, 1995 increased from $22.6 million in the first nine months of 1994 to
$47.3 million in the first nine months of 1995.
Following is a summary of net income by business segment, excluding the
restructuring credit and settlement costs, for the nine months ended August 31,
1995:
<TABLE>
<CAPTION>
(000s)
-------
<S> <C>
U.S. Psychiatric division $ 5,864
U.K. Psychiatric division 7,102
Long-term critical care division 4,666
-------
Net income $ 17,632
-------
-------
</TABLE>
THREE MONTHS ENDED AUGUST 31, 1995
Net operating revenues for the quarter ended August 31, 1995 increased by
approximately 22.0% to $128.1 million from $105.0 million for the third quarter
of the prior year. The largest portion of this increase was a $23.8 million
increase in THC revenue from $28.1 million in the third quarter of 1994 to $51.9
million in the third quarter of 1995. THC's same-store admissions and patient
days increased 49.3% and 91.9%, respectively.
Net operating revenues from the United States psychiatric hospitals
decreased by 7.9% or approximately $5.1 million as a result of a 14.1% decrease
in adjusted patient days offset by a 7.3% increase in net revenue per patient
day. Net revenue per patient day increased as favorable Medicare and Medicaid
cost report settlements exceeded prior year amounts by approximately $2.1
million for the quarter-ended August 31, 1995.
Net operating revenues from the Company's United Kingdom operations
increased by 37.4% or approximately $4.4 million as a result of an increase in
same-store patient days of 8.7% and a 7.2% increase in average net revenue per
patient day. The remaining portion of the increase in net operating revenue
relates to additional patient days generated by three new facilities that
started operations subsequent to the third quarter of 1994.
Operating expenses as a percentage of net operating revenues were 76.5% for
the quarter ended August 31, 1995 compared to 76.1% for the comparable prior
year quarter. The slight increase was due to the significant decrease in
patient days experienced by the U.S. Psychiatric Division during the summer
months of the third quarter. The Company maintains staffing levels at its
hospitals necessary to promote high quality care while attempting to adapt the
levels for census fluctuations. While census levels may decrease significantly
in the summer months, the Company does not adjust staffing levels below what is
mandated by regulatory bodies.
General and administrative expense decreased as a percentage of net
operating revenue from 8.3% to 7.4%. A higher percentage of overhead costs are
now absorbed by the increased revenue generated by THC.
Page 9 of 17
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations (continued)
THREE MONTHS ENDED AUGUST 31, 1995 (continued)
Bad debt expense decreased from 8.2% of net operating revenues in the third
quarter of 1994 to 5.4% in the third quarter of 1995. The prior year quarter
included a $2 million charge related to a temporary disruption in Medicare
reimbursement for partial psychiatric hospitalization in California.
For the reasons described above, earnings before depreciation,
amortization, interest, other income and income taxes for the quarter ended
August 31, 1995 increased from $7.8 million in the third quarter of 1994 to
$13.7 million in the third quarter of 1995.
Following is a summary of net income (loss) by business segment for the
three months ended August 31, 1995:
<TABLE>
<CAPTION>
(000s)
-------
<S> <C>
U.S. Psychiatric division $ (217)
U.K. Psychiatric division 1,924
Long-term critical care division 2,311
------
Net income $ 4,018
------
------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES AT AUGUST 31, 1995
Cash flows provided from operations were $16.8 million for the nine months
ended August 31, 1995 as compared to cash flows used for operations of $8.9
million for the comparable period of 1994. Net accounts receivable balances
increased $14.7 million during the nine months ended August 31, 1995 as compared
to $17.4 million during the comparable period of 1994. The main reason for the
increase in accounts receivable during 1995 is the increased revenue generated
by THC in the current year. Consolidated days revenue in accounts receivable
were 85 days at August 31, 1995 and August 31, 1994.
Proceeds from revolving credit facilities were used to pay off $15 million
of 8 1/2 subordinated guaranteed debentures that were due on March 1, 1995. A
$.01 dividend ($.4 million) was paid to shareholders in redemption of all
preferred share rights outstanding under the Shareholder Rights Agreement dated
as of February 1, 1989.
Proceeds totalling $5.3 million were received from the sale of three
hospitals that were restructured in 1993. Purchases of fixed assets totalled
$27.6 million in the first nine months of 1995. In the second quarter of 1995,
the Company acquired for $5.8 million, the land, building, and fixed assets for
a THC facility that has been managed by THC since May of 1994. In the third
quarter of 1995, the Company acquired a residential treatment center in the
United Kingdom for a purchase price of $2.2 million. Capital expenditures for
the balance of 1995 are estimated to be approximately $3 million for THC, $2
million for the U.K. Psychiatric division, and $2.5 million for the U.S.
Psychiatric division.
In January 1995, the Board of Directors authorized the expenditure to build
a new Corporate office which will be situated on the campus of the THC Las Vegas
Hospital in Las Vegas, Nevada. A portion of this building will be utilized by
the hospital to expand patient care space. The Company expects to expend $10.2
million on the construction of the building of which approximately $2.0 million
has been expended through August 31, 1995. Expenditures for the balance of 1995
related to the Corporate office are expected to be approximately $3 million.
Page 10 of 17
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES AT AUGUST 31, 1995 (continued)
The Company believes that its current cash and cash equivalent balances and
its operating cash flow will be sufficient to fund the Company's operations and
capital expenditures through the end of fiscal 1995. The Company will be
evaluating proposals for additional funding as needed to support further
expansion of THC and to repay outstanding borrowings under the existing credit
facilities.
Page 11 of 17
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
AUGUST 31, 1995
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 28, 1995, the Company reached an agreement in principle
to settle certain consolidated securities class action lawsuits. As of
August 31, 1995, the Company recorded a charge of $45 million ($28.4
million after tax) relating to settlement of the lawsuits and associated
legal fees and expenses. The suits, filed in late 1991, alleged violations
of the federal securities laws by CPC and certain individuals between
September 1990 and November 1991 arising from the activities of the U.S.
psychiatric division. The charge also includes expenses associated with
the company's agreement in principle to settle a related shareholder
derivative action.
The principal terms of the agreement call for the establishment of a
settlement fund of $21.25 million. In addition, the company will issue to
members of the plaintiff class shares of the company's common stock with an
expected value of $21.25 million. The shares to be issued to the plaintiff
class were previously repurchased by the company pursuant to a stock
buyback program during late 1991 through early 1993. The number of shares
of common stock to be issued will be equal to $21.25 million divided by the
market value of the common stock over a 10-day trading period prior to the
distribution of shares to settle claims, provided that in any event the
minimum number of shares that will be issued is 1,931,818 and the maximum
number of shares that will be issued is 3,035,714. The maximum limits would
be triggered if the market value of the common stock is at $7 per share or
below. The agreement is subject to the execution of definitive settlement
documents and court approval.
While these cases allege actions taken before present management was
in place, management continues to believe that the claims asserted in the
shareholder suits lack merit. Nevertheless, the company believes that it
is prudent to settle the cases due to the continuing substantial costs of
defense, the distraction of management's attention and the risks associated
with litigation.
On August 17, 1995 the company reported developments pertaining to
CPC Southwind Hospital in Oklahoma City, Oklahoma, which is operated by the
company's subsidiary, CPC Oklahoma, Inc. The first was the filing of a
whistleblower suit against CPC Oklahoma, Inc. under the Federal False
Claims Act, and the second concerned the seizure of certain of Southwind's
records pursuant to a search warrant. The company also explained that the
United States intended to file an amended complaint in the whistleblower
suit by September 29, 1995.
On September 26, 1995, the United States and CPC Oklahoma, Inc. filed
a joint motion to extend by 60 days, i.e., through November 28, 1995, the
time in which to file the amended complaint. The purpose of this extension
is to facilitate ongoing discussions and permit possible resolution or
narrowing of the issues prior to the onset of litigation and discovery.
The court has not yet acted on this motion. The company has received
copies of all documents taken by the governmental authorities and continues
to cooperate fully with the investigation and to pursue its internal review
of operations at Southwind. Management is presently unable to evaluate
the potential impact of the suit on the Company.
The Company is subject to ordinary and routine litigation incidental
to its business, including those arising from patient treatment, injuries
or death for which it is covered by liability insurance, and those arising
from actions involving employees. Management believes that the ultimate
resolution of these proceedings will not have a material adverse effect on
the Company.
Page 12 of 17
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
AUGUST 31, 1995
PART II. OTHER INFORMATION (continued)
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K:
A) The following exhibits are included herein:
Exhibit 10: Agreement and Promissory Note between Registrant and
Richard Conte dated as of June 7, 1995.
Exhibit 11: Computation of Earnings per Share
Exhibit 27: Financial Data Schedule
B) On October 4, 1995, the Registrant filed Form 8-K disclosing a
change in the Registrant's certifying accountants.
Page 13 of 17
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
COMMUNITY PSYCHIATRIC CENTERS
(Registrant)
Dated: October 13, 1995 /S/ WENDY SIMPSON
------------------------------
Wendy Simpson
Chief Financial Officer
Page 14 of 17
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE NO.
- ------- --------
10 Agreement and Promissory Note between 16
Registrant and Richard Conte dated as of
June 7, 1995
11 Computation of Earnings Per Share 17
27 Financial Data Schedule 18
Page 15 of 17
<PAGE>
Exhibit 10
AGREEMENT AND PROMISSORY NOTE
This Agreement and Promissory Note is made as of June 7, 1995 (the "Loan
Date"), between Richard Conte ("Employee") and Community Psychiatric Centers, a
Nevada Corporation ("CPC"), under the circumstances set forth in the Certificate
of Resolution, of the Compensation Committee of the Board of Directors, dated
June 2, 1995, wherein said Committee provided for Special Recognition Awards,
for the outcome of the development of the Transitional Hospitals concept.
NOW, THEREFORE, it is agreed:
1. CPC shall loan to Employee an interest free thirty-six (36) month
nonrecourse loan of One million ($1,000,000). One thirty-sixth (1/36) of the
loan shall be forgiven each month provided the recipient does not voluntarily
terminate employment during the loan's term, in which event the balance of the
loan shall become immediately due and payable. Any balance of the loan at the
time of involuntary termination; change of control; death; disability; or,
termination pursuant to any provision in any applicable employment agreement
permitting the Employee to terminate employment for cause, shall be forgiven
with applicable payroll tax withholding.
At each regular pay period, one seventy-eighth (1/78) of the loan will
be recorded as income as non-cash compensation in forgiveness of that portion of
the loan with all applicable payroll tax withholding.
2. This Agreement supersedes any and all prior express or implied
agreements or promises; whether written or oral between Employee and CPC, its'
agents, subsidiaries, successors and assigns; including, but not limited to,
agreements regarding compensation, remuneration or any form of consideration;
relating or pertaining to, the creation, development, management, or operation
of Transitional Hospital Corporation, long-term acute services, and all services
related thereto.
This Agreement and Note shall bind and inure to the benefit of the parties
hereto and their successors and assigns.
/s/ Richard Conte
---------------------------------------
Signature
Name Richard Conte
---------------------------------
Address 3013 Astoria Pines
------------------------------
Las Vegas, NV 89107
------------------------------
------------------------------
Social Security # ###-##-####
----------------------
Page 16 of 17
<PAGE>
EXHIBIT 11
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
August 31 August 31
1995 1994 1995 1994
---------------------- ----------------------
(000s, except per share data)
<S> <C> <C> <C> <C>
Weighted average
common shares* 43,630 43,378 43,660 43,390
------ ------ ------- ------
------ ------ ------- ------
Net Income (Loss)
$(9,224) $ 4,681 $(24,332) $ 1,667
------ ------ ------- ------
------ ------ ------- ------
Net Income (Loss)
per share $ (.21) $ .11 $ (.56) $ .04
------ ------ ------- ------
------ ------ ------- ------
* Dilutive common stock equivalents are less than 3% of weighted average
common shares outstanding.
</TABLE>
Page 17 of 17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> AUG-31-1995
<CASH> 33,714
<SECURITIES> 0
<RECEIVABLES> 117,873
<ALLOWANCES> 30,542
<INVENTORY> 0
<CURRENT-ASSETS> 199,327
<PP&E> 395,295
<DEPRECIATION> 106,207
<TOTAL-ASSETS> 638,945
<CURRENT-LIABILITIES> 135,066
<BONDS> 33,774
<COMMON> 46,856
0
0
<OTHER-SE> 384,782
<TOTAL-LIABILITY-AND-EQUITY> 638,945
<SALES> 383,550
<TOTAL-REVENUES> 385,594
<CGS> 285,047
<TOTAL-COSTS> 285,047
<OTHER-EXPENSES> 87,991<F1>
<LOSS-PROVISION> 23,109
<INTEREST-EXPENSE> 3,427
<INCOME-PRETAX> (13,980)
<INCOME-TAX> (4,756)
<INCOME-CONTINUING> (9,224)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,224)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
<FN>
<F1> Includes $45,000 of settlement costs and a restructuring
credit of ($2,490).
</TABLE>
