<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended November 30, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission file number 1-7008
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COMMUNITY PSYCHIATRIC CENTERS
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(Exact name of registrant as specified in its charter)
Nevada 94-1599386
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State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification Number
6600 W. Charleston Boulevard, Suite 118, Las Vegas, NV 89102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (702) 259-3600
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $1.00 Par Value New York Stock Exchange
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Pacific Stock Exchange
Preferred Stock Purchase Rights ----------------------
- ------------------------------- New York Stock Exchange
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Securities registered pursuant to section 12(g) of the Act:
NONE
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(Title of class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is NOT contained
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant on January 31, 1995, based on the closing price on the New York Stock
Exchange was: $533,218,000
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Number of shares outstanding on January 31, 1995 46,860,672
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<PAGE>
ITEM 1. BUSINESS
The following discussion should be read in conjunction with the industry
segment information presented in the notes to the financial statements appearing
in item 8.
OVERVIEW
The Company is a leading provider of psychiatric services for adults,
adolescents and children with acute psychiatric, emotional, substance abuse and
behavioral disorders. The Company currently offers a broad spectrum of
inpatient, partial hospitalization, outpatient and residential treatment
programs through 35 hospitals in 17 states and Puerto Rico, and 13 hospitals in
the United Kingdom. The Company also offers long-term critical care services in
nine states through ten freestanding hospitals and three units within three of
its psychiatric hospitals.
PSYCHIATRIC SERVICES
The inpatient psychiatric hospital industry in the United States is
undergoing significant change due to the expanding influence of managed care and
cost-containment measures imposed by governmental and third party payors and
employers. In recent years, providers such as the Company have experienced a
significant increase in the percentage of revenues from payors that reimburse on
a negotiated per diem or capitated rate, or on a discounted basis. In addition,
this same trend has resulted in higher deductibles and co-insurance for
patients. Negotiated discounts to the majority of the Company's payors have
increased as has the use of less intensive settings of behavioral care in place
of inpatient treatment. Payors also have increasingly stringent admission and
length of stay criteria and other treatment constraints. All of these adversely
affect utilization and reimbursement for psychiatric services.
The Company's operating results for the periods presented have been
adversely affected by the influence of managed care and efforts by government
and private payors to contain or reduce the cost of psychiatric care, as well as
the Company's efforts to address the changing demands of the marketplace. The
Company has, among other things (i) changed and expanded senior management, (ii)
significantly expanded the scope of its psychiatric programs to provide the
patient, clinical team and payor a continuum of care from which the most
appropriate and cost-effective treatments can be selected, (iii) increased its
marketing efforts to managed care organizations and (iv) implemented
company-wide cost control and reduction measures and closed underutilized
facilities. During the fourth quarter of 1994, the Company changed its clinical
staffing model within the hospitals to ensure the most cost-effective delivery
of quality care in an environment of reduced reimbursement and inpatient
hospital stays.
LONG-TERM CRITICAL CARE
In November 1992, to diversify beyond psychiatric care, the Company,
through its wholly-owned subsidiary Transitional Hospitals Corporation ("THC"),
began to offer long-term critical care services in converted, previously
underutilized psychiatric hospitals and newly-acquired freestanding acute care
facilities. The Company incurs significant capital and start-up costs in
connection with the acquisition and conversion of each facility, and each of the
new facilities is expected to generate significant operating losses until the
facility is certified as a long-term critical care hospital at which time it
qualifies for cost-based reimbursement. Such certification typically occurs
after the facility's first six months of operations during which the facility
establishes an average length of stay in excess of 25 days.
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
BUSINESS STRATEGY
PSYCHIATRIC HOSPITALS--UNITED STATES
To address the changing needs and demands of its marketplace, the Company
has adopted the following strategies and programs:
- EXPANDED SERVICES. Over the past three years, the Company has
significantly expanded and expects to continue expanding the scope
of its psychiatric treatment programs to create a continuum of care
from which the most appropriate and cost-effective treatments can be
selected to meet the needs of its patients. In addition to offering
traditional inpatient treatment programs, the Company now provides
less costly treatment alternatives such as partial hospitalization,
residential treatment and intensive and non-intensive outpatient
programs. By offering a continuum of care through a single
organization, the Company believes that patients receive the most
appropriate treatment, and that the transition among differing
intensities of care occurs rapidly and cost effectively from the
perspective of the patient, clinical team and payor.
- DECENTRALIZED OPERATIONS. Over the past three years, the Company
has installed a new senior management team, upgraded its field
management and adopted a more decentralized operating philosophy.
The Company has reorganized its field operations into three regional
divisions, each managed by a Senior Vice President with its own
financial, marketing and clinical services functions. Each hospital
is supported by its regional division team, but is operated as a
separate business unit and managed by its own Chief Executive
Officer, most of whom have been recruited within the last three
years. The Company believes this decentralized approach to
management facilitates the attraction and retention of highly
capable managers who can be responsive to the needs and
opportunities of local markets served by the Company.
- INCREASED MANAGED CARE FOCUS. The Company's management and
marketing organization are focusing increasingly on the demands and
needs of managed care payors. In addition to expanding the range of
treatment programs it provides to offer less costly alternatives to
inpatient care, the Company, through its Managed Care Division, has
placed increased emphasis on developing and using internal systems
to measure outcomes, develop treatment plans, create and maintain
documentation, perform utilization review and communicate
effectively with external case managers.
- IMPLEMENTED OPERATING COST CONTROLS. To position itself to remain
a high quality provider of an expanded number of cost-competitive
services, the Company has undertaken cost-reduction and
cost-containment measures such as the closure or disposition of
underutilized facilities, reduction of personnel and elimination of
unnecessary overhead. The Company intends to continue to closely
monitor the utilization of its hospitals and its operating costs and
management is committed to taking such future action as it believes
is necessary, including discontinuing operations of underperforming
hospitals, to remain competitive and remain profitable.
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
BUSINESS STRATEGY (CONTINUED)
PSYCHIATRIC HOSPITALS AND DIALYSIS UNITS--UNITED KINGDOM
Currently, the Company operates 13 psychiatric hospitals and operates
three smaller units in the United Kingdom through which it provides primarily
inpatient treatment to patients covered by private health insurance. It also
operates two kidney dialysis facilities for Britain's National Health Service
("NHS"). Based on the number of licensed hospital beds, the Company is the
leading commercial provider of psychiatric services in the United Kingdom, where
psychiatric services are generally available to residents without charge from
government-owned NHS hospitals. Approximately 12% of the British population is
covered by private health insurance and recent legislation encourages the NHS to
contract with private providers. As a result of this legislation, a joint
venture agreement to operate a small psychiatric facility has been entered into
with the NHS. Management intends to continue to explore acquisitions and
alliances to take advantage of an increasing willingness on the part of the
British government to contract with private providers, and to expand the
Company's dialysis business in the United Kingdom.
THC HOSPITALS
Traditionally, patients suffering from long-term complex medical problems
have stayed in the intensive care unit of general acute care hospitals until
they were sufficiently well to be transferred to less intensive care settings.
Such stays are relatively expensive, reflecting the cost of intensive on-site
equipment and services that, while necessary for hospitals to accomplish their
primary missions, are not required for the ongoing treatment of these patients.
Over the past ten years, hospitals have come under increasing pressure to reduce
the length of patient stays as a means of containing costs. Managed care
organizations have limited hospitalization costs by controlling hospital
utilization and negotiating discounted rates for hospital services. Traditional
third party indemnity insurers have begun to limit reimbursement to
pre-determined amounts of "reasonable charges," regardless of actual costs, and
to increase the co-payments required to be paid by patients. In 1983, Congress
sought to contain Medicare hospital costs by adopting the Prospective Payment
System (PPS) under which hospitals generally receive a specified reimbursement
rate regardless of how long the patient remains in the hospital or the volume of
ancillary services ordered by the attending physician. The effect of these
various cost-containment measures have provided hospitals with an incentive to
discharge patients more quickly.
THC has primarily targeted larger-population markets which have
significant populations of persons over the age of 65. The aging of the
population, advancements in medical care, the desire of payors and patients for
lower cost and more specialized alternatives to traditional acute care hospitals
and the disincentive for such hospitals to provide long-term care to critically
ill patients has led to a growing demand for long-term critical care services.
The Company believes that providers such as skilled nursing facilities and home
care providers are not in the best position to efficiently provide health care
services to these critically ill patients. Traditional skilled nursing
facilities have generally focused on providing long-term custodial care to
persons eligible for Medicaid. As a result of Medicaid "cost ceilings" on
reimbursement for each patient, nursing homes face an economic disincentive to
treat medically complex patients. Home health care is not a viable alternative
to inpatient care for such patients because of their continued need for (i)
intensive and specialized medical care and equipment, (ii) the availability of
physicians and 24-hour nursing care, and (iii) a comprehensive array of
rehabilitative therapy. As a result, the Company believes, and the 1994
operating results have begun to demonstrate, that a significant market
opportunity exists for providers dedicated exclusively to providing long-term
critical care.
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
BUSINESS STRATEGY (CONTINUED)
THC HOSPITALS (CONTINUED)
To capitalize on this opportunity, THC offers long-term critical care to
patients who do not require the intensive care provided by traditional acute
care hospitals but who are too ill to return home or be placed in a nursing
home. THC provides care to those suffering from pulmonary diseases, kidney
failure and other complex medical problems; such patients require a variety of
intensive services including life-support systems, post-surgical stabilization,
intravenous therapy, subacute rehabilitation and wound care. THC's strategy is
to provide a comprehensive range of long-term critical care that will enable it
to treat most types of critical care patients, regardless of their diagnosis or
medical condition, with the objectives of returning these patients to full
activity.
THC offers managed care organizations and indemnity insurance payors a
single source from which to obtain long-term critical care services. The
Company believes THC addresses cost-containment pressures affecting the health
care industry by offering a high quality, cost-effective alternative to
traditional acute care hospitals.
THC's immediate expansion plan is to open three facilities in fiscal 1995.
The Company will expand THC's operations primarily by (i) converting selective
previously underutilized psychiatric hospitals owned by the Company to long-term
critical care use, (ii) acquiring and converting freestanding acute care and
psychiatric facilities and (iii) leasing beds in acute care facilities owned by
others.
PSYCHIATRIC CARE OPERATIONS
SERVICES AND PROGRAMS
The Company offers a continuum of specialized treatment programs that are
designed to provide high quality care that is specific to the patient's needs
and is cost-effective to payors. The Company's programs include:
- INPATIENT. Inpatient treatment is provided when the patient's
disorder prevents him or her from safely performing routine daily
activities without 24-hour supervision. Intensive individual or
group therapy is provided and the patient's daily activities are
highly structured. Treatment regimens are designed to enable
transition to a less intensive treatment program as soon as
feasible.
- RESIDENTIAL. Residential treatment programs specialize in
providing treatment for adolescents who need more structured
treatment than can be provided through outpatient care. The
Company's 21 residential treatment centers typically have 10 to 30
beds and each are staffed with a psychiatrist, 24-hour nursing and
an on-site licensed program therapist.
- PARTIAL HOSPITALIZATION. Partial hospitalization (including
outpatient visits) is provided when the patient's disorder does not
require 24-hour supervision and is such that the patient may be
treated while living at home. Treatment regimens are generally for
6-12 hours per day, up to 7 days per week, and are structured
to meet the patient's specific clinical needs as well as the
patient's work, school and home life requirements.
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
PSYCHIATRIC CARE OPERATIONS (CONTINUED)
SERVICES AND PROGRAMS (continued)
- INTENSIVE OUTPATIENT. Intensive outpatient programs are provided
when a patient's disorder necessitates routine observation,
supervision or intervention but does not require inpatient or
partial hospitalization treatment. Treatment is generally provided
for 3-4 hours per day, typically 3-4 days per week, according to the
patient's clinical needs and daily routine.
- OUTPATIENT. Outpatient treatment is offered when a patient's
disorder requires therapeutic intervention at a level that is less
intensive than the Company's other psychiatric services. This type
of treatment generally involves individual, family or group therapy
of 45-90 minutes per session on a scheduled basis. Typically, the
Company will refer these types of patients to community-based
clinicians as appropriate to the needs and location of the patient.
For the year ended November 30, 1994, the average length of stay for
psychiatric hospitals for the Company's domestic inpatient and residential
treatment programs was 10.6 days and 77.8 days, respectively. Adjusted patient
days for inpatient, partial hospitalization (including outpatient visits), and
residential treatment programs were 410,711, 65,745 and 145,852, respectively,
for the same period.
PSYCHIATRIC HOSPITALS PRO FORMA OPERATING DATA
The following is a comparison of the quarterly and annual statistical data
for fiscal years 1994 and 1993 for the Company's 35 United States psychiatric
hospitals and its ten United Kingdom psychiatric hospitals which were open in
both years. In all periods presented, adjusted patient days include inpatient
days and equivalent days for partial hospitalization and outpatient programs.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------
UNITED STATES FEB. 28 MAY 31 AUG. 31 NOV. 30
- ------------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Adjusted patient days 1993 134,127 150,600 128,952 139,881
1994 146,991 167,531 149,979 148,524
Admissions 1993 8,098 8,980 7,894 8,576
1994 8,909 10,599 9,846 9,924
Average length of stay 1993 15.4 14.8 14.7 13.5
1994 13.4 13.8 13.1 12.5
<CAPTION>
UNITED KINGDOM
- --------------
<S> <C> <C> <C> <C> <C>
Adjusted patient days 1993 21,187 23,622 24,236 23,970
1994 24,912 26,738 27,083 29,399
Admissions 1993 847 866 906 979
1994 943 1,020 1,040 1,197
Average length of stay 1993 22.3 24.4 23.6 23.9
1994 23.0 22.8 22.4 23.2
</TABLE>
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
PSYCHIATRIC CARE OPERATIONS (CONTINUED)
PSYCHIATRIC HOSPITALS
As of November 30, 1994, the Company was operating the following
psychiatric hospitals:
LICENSED YEAR
HOSPITAL CITY BEDS OPENED/ACQUIRED
- -------- ---- -------- ---------------
ARKANSAS
Pinnacle Point Hospital Little Rock 102 1991
CALIFORNIA
Alhambra Hospital Rosemead 98 1968
Belmont Hills Hospital Belmont 84 1962
Fremont Hospital Fremont 78 1990
Heritage Oaks Hospital Sacramento 76 1988
Laguna Hills Hospital Laguna Hills 78 1988
Rancho Lindo Hospital Fontana 74 1988
San Luis Rey Hospital Encinitas 123 1976
Santa Ana Hospital Santa Ana 100 1970
Sierra Vista Hospital Sacramento 72 1986
Vista Del Mar Hospital Ventura 87 1985
Walnut Creek Hospital Walnut Creek 108 1972
FLORIDA
Fort Lauderdale Hospital Ft. Lauderdale 100 1978
Palm Bay Hospital Palm Bay 60 1986
St. Johns River Hospital Jacksonville 99 1973
GEORGIA
Parkwood Hospital Atlanta 152 1981
IDAHO
Intermountain Hospital Boise 75 1980
ILLINOIS
Old Orchard Hospital Skokie 168 1976
Streamwood Hospital Streamwood 100 1991
INDIANA
Valle Vista Hospital Greenwood 98 1983
(Indianapolis)
KANSAS
College Meadows Hospital Lenexa 79 1986
LOUISIANA
Brentwood Hospital Shreveport 174 1990
Coliseum Medical Center New Orleans 90 1980
East Lake Hospital New Orleans 80 1987
Meadow Wood Hospital Baton Rouge 85 1985
MISSISSIPPI
Sand Hill Hospital Gulfport 60 1984
MISSOURI
Spirit of St. Louis Hospital St. Charles 104 1980
(St. Louis)
NORTH CAROLINA
Cedar Spring Hospital Pineville 70 1985
(Charlotte)
OKLAHOMA
Southwind Hospital Oklahoma City 80 1989
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
PSYCHIATRIC CARE OPERATIONS (CONTINUED)
PSYCHIATRIC HOSPITALS
LICENSED YEAR
HOSPITAL CITY BEDS OPENED/ACQUIRED
- -------- ---- -------- ---------------
TEXAS
Capital Hospital Austin 130 1987
Millwood Hospital Arlington 130 1981
CRC of San Antonio* San Antonio 18 1994
UTAH
Olympus View Hospital Salt Lake City 102 1986
WASHINGTON
Fairfax Hospital Kirkland (Seattle) 133 1971
WISCONSIN
Greenbriar Hospital Greenfield 80 1971
(Milwaukee)
PUERTO RICO
Hospital San Juan Capestrano Rio Piedras 88 1988
TOTAL U. S. PSYCHIATRIC LICENSED BEDS 3,435
*Joint venture, Residential Treatment Center.
UNITED KINGDOM
- -------------- YEAR
FACILITY NAME AND LOCATION BEDS OPENED/ACQUIRED
- -------------------------- ---- ---------------
Altrincham Priory Hospital 54 1986
South Manchester
The Dukes Priory Hospital 42 1992
Chelmsford, Essex
Fulford Grange Medical Centre* 22 1993
Leeds
Grovelands Priory Hospital 65 1986
Southgate, London
Hayes Grove Priory Hospital 55 1983
Bromley, Kent
Heath House Priory Hospital 42 1994
Bristol
Jacques Hall (adolescents) 26 1993
Manningtree, Essex
Marchwood Priory Hospital 59 1987
Southampton
Nottingham Clinic (chemical dependency) 21 1993
Nottingham
The Priory Hospital 86 1980
Roehampton, London
Sturt House Clinic 21 1994
Walton-on-the-Hill, Surrey
Lynbrook Priory Hospital 26 1994
Woking, Surrey
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
PSYCHIATRIC CARE OPERATIONS (CONTINUED)
PSYCHIATRIC HOSPITALS
UNITED KINGDOM (continued)
- --------------
YEAR
FACILITY NAME AND LOCATION BEDS OPENED/ACQUIRED
- -------------------------- ---- ---------------
The Woodbourne Clinic 60 1984
Birmingham
TOTAL U. K. PSYCHIATRIC BEDS 579
* 50% owned
MANAGED UNITS
Priory Suite, Beardwood Hospital 14 1993
Blackburn
Priory Suite, Winfield Hospital 6 1992
Gloucester
Priory Suite, Nuffield Hospital 8 1991
Leicester
TOTAL U. K. MANAGED UNITS 28
TOTAL U. K. PSYCHIATRIC LICENSED BEDS 607
-------------------------------------
A 20-bed hospital is under construction in Glasgow, Scotland which will replace
an 8-bed managed unit in the spring of 1995 and will be owned and operated by
CPC.
U. K. DIALYSIS UNITS STATIONS
Carmarthen, Wales 13 1985
Rotherham, Yorkshire 11 1992
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
PSYCHIATRIC CARE OPERATIONS (CONTINUED)
SOURCES OF PSYCHIATRIC HOSPITAL REVENUES - U.S.
Patients are typically referred to the Company by physicians and other
health care professionals, managed care organizations, employee assistance
programs, the clergy, law enforcement officials, schools, emergency rooms and
crisis intervention services. In some areas, the Company provides a community
outreach program called the Psychiatric Assessment Team which is able to respond
on a 24-hour basis to emergency calls for help in assessing people's problems
and making referrals to the appropriate mental health service or setting.
Psychiatrists and, in some states, psychologists are authorized to admit
patients to the Company's facilities. It is against Company policy to pay
referral sources for hospital admissions. The Company believes it obtains
referrals from both physicians and secondary sources primarily as a result of
its competitive pricing and the quality and scope of its programs.
The Company receives payment for its psychiatric hospital services from
patients, private health insurers, managed care organizations, and from the
Medicare, Medicaid and CHAMPUS governmental programs. While variations or
hybrid programs may exist, the following four categories include all methods by
which the Company's hospitals receive payment for services:
- NEGOTIATED RATE. Negotiated rate reimbursement is at prices
established in advance by negotiation or competitive bidding for
contracts with insurers and other payors such as health maintenance
organizations, preferred provider organizations and other similar
plans.
- PRIVATE PAY. Payment by patients and their private indemnity
health insurance plans is generally based on the Company's schedule
of rates for that location. The Company's general policy is to set
rates for services at amounts equal to or less than the average
rates of its competitors' comparable facilities in each hospital
market.
- COST-BASED. Cost-based reimbursement is predicated on the
allowable cost of services, plus an incentive payment where costs
fall below a target rate. It is used by Medicare and Medicaid to
reimburse psychiatric hospital services and provides a lower rate of
reimbursement than the Company's schedule of rates.
- CHAMPUS. CHAMPUS is a federal program which provides health
insurance for certain active and retired military personnel and
their dependents. CHAMPUS reimbursement is at either (i) regionally
set rates, (ii) 1988 charges adjusted upward by the Medicare Market
Basket Index, or (iii) a fixed rate per day at certain of the
Company's California facilities where CHAMPUS contracts with a
benefit administration group.
The following table summarizes, as a percentage of net operating revenues
for all of the Company's United States psychiatric hospitals, the percentage of
net operating revenues from each reimbursement method for the periods presented.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
NOVEMBER 30,
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Negotiated Rate 58% 48% 41%
Private Pay 16 23 38
Cost-Based 20 23 16
CHAMPUS 6 6 5
--- --- ---
Total 100% 100% 100%
--- --- ---
--- --- ---
</TABLE>
In 1994, as a percentage of U.S. psychiatric patient days, negotiated rate
represented 58%, private pay 11%, cost-based 24%, and CHAMPUS 7%.
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
PSYCHIATRIC CARE OPERATIONS (CONTINUED)
SOURCES OF PSYCHIATRIC HOSPITAL REVENUES - U.K.
Approximately 12% of United Kingdom's population has private health
insurance which provides benefits for psychiatric and substance abuse treatment.
There are few private psychiatric hospitals in the United Kingdom because NHS
hospitals (British government-owned) are available to its residents without
charge. Approximately 76% (85% in 1993 and 95% in 1992) of the Company's 1994
revenues for services in its psychiatric hospitals and alcoholism treatment
facilities in the United Kingdom were derived from private sources not subject
to any governmental payment limitations, but which are being affected by
reimbursement restrictions imposed by private insurers.
LONG-TERM CRITICAL CARE
The Company, through THC, provides long-term critical care in converted
psychiatric facilities, freestanding acute care facilities, and hospital space
leased from owners of other acute care facilities. Although THC's patients
range in age from pediatric to geriatric, a substantial portion of THC's
patients are over 65 years of age. THC's long-term critical care facilities
include the equipment and physician and other professional staff necessary to
care for most types of critically ill patients regardless of their diagnosis or
medical condition. THC's professional staffs work in inter-disciplinary teams
to evaluate patients upon admission to determine a treatment plan with an
appropriate level and intensity of care. Where appropriate, the treatment
programs may involve the services of several disciplines, such as pulmonary and
rehabilitation therapy. Currently, THC offers a complex medical care program,
ventilator management program, wound care program and low tolerance
rehabilitation program. Patients who successfully complete treatment programs
are discharged to skilled nursing homes, rehabilitation hospitals or home care
settings.
LONG-TERM CRITICAL CARE HOSPITALS
As of November 30, 1994, THC operated the following 13 long-term critical
care hospitals:
TRANSITIONAL HOSPITALS CORPORATION
LICENSED
HOSPITAL CITY BEDS DATE OPENED
- -------- ---- -------- -----------
FLORIDA
THC Hollywood Hollywood 124 October 1993
Transitional Hospital of Tampa Tampa 102 March 1993
ILLINOIS
THC Chicago (3) Chicago 134 December 1993
INDIANA
THC Indianapolis (1) Greenwood 38 November 1993
LOUISIANA
THC New Orleans (1) New Orleans 78 November 1992
MASSACHUSETTS
THC Boston Peabody 41 November 1993
MINNESOTA
THC Minneapolis Golden Valley 112 November 1994
NEVADA
THC Las Vegas Las Vegas 52 December 1993
NEW MEXICO
THC Albuquerque Albuquerque 61 December 1993
TEXAS
THC Arlington (2) Arlington 80 December 1992
THC Houston (2) Houston 42 December 1993
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
LONG-TERM CRITICAL CARE HOSPITALS (continued)
TRANSITIONAL HOSPITALS CORPORATION (CONTINUED)
LICENSED
HOSPITAL CITY BEDS DATE OPENED
- -------- ---- -------- -----------
WASHINGTON
THC Seattle (4) Seattle 80 May 1994
WISCONSIN
THC Milwaukee (1) Greenfield 34 February 1994
TOTAL THC LICENSED BEDS 978
-----------------------
(1) Shared facility with CPC.
(2) Fully converted from a CPC psychiatric hospital.
(3) Leased facility.
(4) Managed facility.
Note: Four additional facilities are under development in Brea, CA (48 beds -
fully converted), Ft. Worth, TX (satellite of Arlington-fully converted),
San Diego, CA (37 beds) and Chicago, IL (104 beds).
The Company conducts market research prior to opening a new facility to
determine (i) the need for placement of ventilator-dependent patients and other
classes of critically ill patients, (ii) the existing physician referral
patterns, (iii) the presence of competitors, (iv) the payor mix and (v) the
political and regulatory climate. The Company generally seeks to purchase
hospitals with fewer than 100 beds in major metropolitan areas and also
considers hospitals in other markets where its research indicates the need for
such hospitals.
PATIENT ADMISSION
Substantially all of the patient admissions to THC's hospitals are
transfers from other health care providers. Patients are referred from general
acute care hospitals, rehabilitation hospitals, skilled nursing facilities and
home care settings. The majority of THC's admissions are directly from the
intensive care units of general acute care hospitals. Referral sources include
discharge planners, case managers of managed care plans, social workers,
physicians, third party administrators, HMOs and insurance companies.
THC has directors of patient referrals who educate health care
professionals from traditional acute care hospitals as to the unique nature of
the services provided by THC's hospitals. The directors of patient referrals
develop an annual admission plan for each hospital, with assistance from the
hospital's administrator. The admission plans involve ongoing education of
local physicians and the employees of managed care organizations and acute care
hospitals. THC anticipates that it will direct increased admission efforts
toward insurance company case managers and managed care organizations.
SOURCES OF LONG-TERM CRITICAL CARE REVENUES
For long-term critical care services rendered to patients, THC receives
payment from (i) the federal government under Medicare, (ii) certain states
under Medicaid, (iii) commercial insurers and patients and (iv) managed care
organizations. After certification of the THC facility as PPS exempt, payments
from Medicare and Medicaid are generally based upon cost; payments from
commercial insurers are generally based upon charges and payments from managed
care organizations are based on negotiated rates. Net Medicare revenue for THC
totalled 75% of total THC net operating revenues for fiscal year 1994. The
Company anticipates reimbursement from Medicare will continue to constitute a
significant portion of THC's revenues in the future. See "Business--Regulation
and Reimbursement."
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
COMPETITION
The Company's psychiatric hospitals compete with psychiatric units in
medical/surgical hospitals as well as with other specialty psychiatric
hospitals. Some competing hospitals are either owned or supported by government
agencies. Others are owned by nonprofit corporations and supported by
endowments and charitable contributions. In each case, they are substantially
exempt from income and property taxation. The competitive position of a
hospital is, to a significant degree, dependent upon the number and quality of
physicians practicing at the hospital and the members of its medical staff. The
Company also believes that the competitive position of a hospital is dependent
upon the variety of services offered by a facility, and the Company strives to
implement programs best suited to the needs of patients and payors in each
particular market.
THC's hospitals compete with medical/surgical hospitals, certain long-term
care hospitals, sub-acute facilities, rehabilitation hospitals and nursing homes
specializing in providing care to medically complex patients. Many of these
providers are larger and more established than THC. The Company believes that,
to offer programs providing a cost-effective continuum of care, nursing homes
and other companies are converting their facilities and developing programs that
will be competitive with THC's hospitals. This trend is expected to continue
due to cost-containment pressures and the efforts of nursing homes to expand
their existing markets.
The competitive position of a hospital, including the Company's
psychiatric hospitals and THC's hospitals, is affected by the ability of its
management to negotiate service contracts with purchasers of group health care
services, including private employers, PPOs and HMOs. Such organizations
attempt to obtain discounts from established hospital charges. The importance
of obtaining contracts with PPOs, HMOs and other organizations which finance
health care, and its effect on a hospital's competitive position, vary from
market to market, depending on the number and market strength of such
organizations. It is the Company's policy to enter into these contracts
wherever feasible. Generally, hospitals holding major contracts with managed
care organizations are able to attract more doctors to their active medical
staffs than hospitals without such contracts.
EMPLOYEES
As of November 30, 1994, the Company had approximately 9,775 employees, of
which approximately half were employed full time and half were employed part
time. The employees at one of the Company's psychiatric hospitals (representing
less than 1% of total employees) are covered by a union agreement. The Company
considers its labor relations to be satisfactory. There is a national shortage
of nursing personnel which, in general, has required the Company to pay a wage
premium in excess of the normal standards to recruit a satisfactory complement
of nurses.
REGULATION AND REIMBURSEMENT
The Company's hospitals are subject to substantial and continuous federal,
state and local government regulation. Such regulations provide for periodic
inspections and other reviews by state and local agencies, HHS and CHAMPUS to
determine compliance with their respective standards pertaining to medical care,
staffing utilization, safety and equipment necessary for continued licensing or
participation in the Medicare, Medicaid or CHAMPUS programs. The admission and
treatment of patients at the Company's psychiatric hospitals are also subject to
state and federal regulation relating to confidentiality of medical records.
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
REGULATION AND REIMBURSEMENT (CONTINUED)
ACCREDITATION AND STATE LICENSING
State licensing of hospitals is a prerequisite to the operation of each
hospital and to participation in all federally-funded programs. Once a hospital
has been licensed, it must continue to comply with federal, state and local
licensing requirements in addition to local building and life safety codes. All
of the Company's hospitals have obtained the necessary licenses to conduct
business.
Hospitals may seek an accreditation from The Joint Commission on
Accreditation of Healthcare Organizations ("JCAHO"), a nationwide commission
which establishes standards relating to the physical plant, administration,
quality of patient care and operation of medical staffs of hospitals.
Generally, hospitals and certain other health care facilities are required to
have been in operation at least six months in order to be eligible for
accreditation by JCAHO. After conducting on-site surveys, JCAHO awards
accreditation for up to three years to hospitals found to be in substantial
compliance with JCAHO standards. Accredited hospitals are periodically
resurveyed, including, at the option of JCAHO, upon a major change in facilities
or organization and after a merger or consolidation. All of the Company's
hospitals are accredited by JCAHO. The Company intends to seek and obtain
JCAHO accreditation for any additional hospitals it may purchase or lease.
State certificate of need ("CON") laws generally provide that prior to the
expansion of an existing facility, the construction of a new facility, the
addition of beds, the acquisition of existing facilities or major items of
equipment or certain changes in services, or the undertaking of a capital
expenditure on behalf of a facility, approval must be obtained from the
designated state health planning agency. The stated objective of the CON
process is to promote quality health care at the lowest possible cost and avoid
unnecessary duplication of services, equipment and facilities. If the Company
is unable to obtain the requisite CONs, the growth of its business and
especially that of THC could be adversely affected.
MEDICARE AND MEDICAID
During fiscal 1994, approximately 37% of the Company's United States
psychiatric operating revenues were derived from patients covered by Medicare
and Medicaid programs, and the Company anticipates that this participation will
increase in the future. Medicare is a federal program that provides certain
hospital and medical insurance benefits to persons age 65 and over and certain
disabled persons. Medicaid is a medical assistance program administered by the
states and partially funded by the federal government under which health care
benefits are available to the indigent. Within the Medicare and Medicaid
statutory framework, there are substantial areas subject to administrative
rulings, interpretations and discretion which may affect payments made to
providers.
In order to receive Medicare reimbursement, each hospital must meet the
applicable conditions of participation set forth by the Department relating to
the type of hospital, its equipment, personnel and standard of medical care, as
well as comply with state and local laws and regulations. Hospitals undergo
periodic on-site Medicare certification surveys. The Medicare survey is limited
if the hospital is JCAHO accredited. All but one of the Company's operating
hospitals are certified as Medicare providers. All of the Company's operating
hospitals are certified by their respective state Medicaid programs. A loss of
certification could adversely affect a hospital's ability to receive payments
from Medicare and Medicaid.
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
REGULATION AND REIMBURSEMENT (CONTINUED)
MEDICARE AND MEDICAID (continued)
Prior to 1983, Medicare reimbursed hospitals for the reasonable direct and
indirect cost of the services provided to beneficiaries. The Social Security
Amendments of 1983 implemented PPS in an effort to reduce and control Medicare
costs. Under PPS, inpatient costs are reimbursed based upon a fixed payment
amount per discharge using diagnosis related groups ("DRGs"). The DRG payment
under PPS is based upon the national average cost of treating Medicare patients
with the same diagnosis. Although the average length of stay varies for each
DRG, the average stay for all Medicare patients subject to PPS is approximately
six days. An additional outlier payment is made for patients with unusually
long lengths of stay or higher treatment costs. Outliers are designed to cover
only marginal costs. Additionally, PPS payments can only be made once every 60
days for each patient. Thus, PPS creates an economic incentive for general
acute care hospitals to discharge Medicare patients as soon as clinically
possible.
The Social Security Amendments of 1983 exempted psychiatric,
rehabilitation, cancer, children's and long-term care hospitals from PPS. A
long-term care hospital is defined as a hospital which has an average length of
stay of greater than 25 days. The Company's experience is that THC's facilities
are able to meet this definition. Under current law, inpatient operating costs
for long-term care and psychiatric hospitals are reimbursed under a cost-based
reimbursement system, except for their initial six months of operation, when
they are subject to PPS reimbursement. As a result of the Tax Equity and Fiscal
Responsibility Act of 1982 ("TEFRA"), reimbursement under the cost-based system
is subject to a computed target amount per discharge (the "Target") for
inpatient operating costs. A hospital's Target rate is the per discharge (case)
limitation, derived from the hospital's allowable net Medicare inpatient
operating costs in the hospital's base year, and updated for each subsequent
hospital cost reporting period by the appropriate annual rate-of-increase
percentage. If allowable net inpatient operating costs do not exceed the
hospital's Target, payment to the hospital will be determined on the basis of
the lower of (i) Net inpatient operating costs plus 50% of the difference
between inpatient operating costs and the Target; or (ii) Net inpatient
operating costs plus 5% of the Target. Prior to October 1, 1991, allowable
Medicare operating costs per discharge in excess of the Target were not
reimbursed. Effective October 1, 1991, if a hospital's allowable net inpatient
operating costs exceed the Target, Medicare reimburses the lower of (i) the
hospital's target amount plus 50% of the allowable Medicare operating costs per
discharge in excess of the Target or (ii) 110% of the Target. With regard to
hospitals certified prior to October 1, 1992, the TEFRA Target provisions do not
apply with respect to hospitals that have been in operation for less than three
full years. For hospitals certified on or after October 1, 1992, the TEFRA
Target provisions do not apply with respect to hospitals that have been in
operation for less than two full years. Under the Omnibus Budget Reconciliation
Act of 1993 ("OBRA"), increases in the Target for fiscal years 1994 through 1997
are generally limited to the hospital market basket increase minus one
percentage point.
In October 1993, the United States Department of Health and Human Services
("HHS"), acting through the Health Care Financing Administration, issued a
memorandum to its regional offices directing them to review carefully Medicare
certification requests by long-term care hospitals operating in space leased
from another hospital. The memorandum mandated new rules for long-term care
hospitals to qualify for exclusion from PPS in a "hospital within a hospital"
setting. The new rules require a separate governing body, separate medical and
financial staffs, and 75% or more of the admissions must be referred from
sources other than the "host" hospital. THC is currently in compliance with the
new regulations with no exceptions.
Medicare and Medicaid reimbursement is generally determined from annual
cost reports filed by the Company. These cost reports are subject to audit by
Medicare and Medicaid. The Company has established reserves for possible
adjustments at levels which management believes to be adequate to cover any
downward adjustments resulting from audits of these cost reports.
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
REGULATION AND REIMBURSEMENT (CONTINUED)
MEDICARE AND MEDICAID (continued)
Federal regulations provide that admission to and utilization of hospitals
by Medicare and Medicaid patients must be reviewed by peer or utilization review
organizations ("PROs") in order to ensure efficient utilization of hospitals and
services. A PRO may conduct such review either prospectively or retroactively
and may, as appropriate, recommend denial of payments upon admission or
retrospectively for services provided to a patient. Such review is subject to
administrative and judicial appeal.
HEALTH CARE REFORM
The health care industry is undergoing fundamental change as a direct
result of political, economic, and regulatory influences. The Company
anticipates that Congress and state legislatures will continue to review and
assess health care delivery systems, payor and provider relationships and
payment methodologies. Public debate will likely continue in the future.
During October of 1993, proposed health care reform called for a
moratorium on the designation of additional long-term care hospitals. No such
legislation was enacted.
The Company cannot predict the ultimate form or timing of enacted
legislation, if any, or its effect on the Company, and no assurance can be given
that any such legislation will not have a material adverse effect on the
Company's business and results of operations.
REIMBURSEMENT LIMITATIONS AND COST-CONTAINMENT
Regardless of the outcome of the proposed health care reform bills, there
will likely continue to be vigorous efforts to effectuate cost savings in the
Medicare program. These efforts could include change in the reimbursement of
the Company's long-term critical care hospitals to the DRG method. In fact, the
conference report accompanying the 1993 OBRA urged prompt completion of a study
of methods to subject hospitals such as THC's to PPS, from which they are
currently exempt. Even if cost-based reimbursement for the THC facilities
continues, additional reimbursement limits may be imposed. Such cost-containment
initiatives may vary substantially from the proposed structural reforms
discussed above and may impact the Company more quickly and directly. Similar
changes in reimbursement of psychiatric services could also adversely impact the
Company's business and results of operations. Conversely, there is also
potential for a positive effect on the Company's psychiatric operations in the
event that Congress, as part of any health care reform legislation, mandates
mental health benefits for all Americans.
RATE SETTING LAWS
In recent years various forms of prospective reimbursement legislation
have been proposed or enacted in states in which the Company owns hospitals.
For example, the Company's Florida hospitals are governed by a prospective
reimbursement law which generally allows rate increases based on the Consumer
Price Index. The Company's Washington psychiatric hospital was subject to a
prospective reimbursement law based on each facility's budgeted costs until June
30, 1989, when the law lapsed and was not renewed. If prospective reimbursement
laws were to be enacted in the future in one or more of the states in which the
Company operates hospitals, it could have an adverse effect on the Company's
business and results of operations. In addition, the enactment of such
legislation in states where the Company does not now have hospitals could have a
deterrent effect on the decision to acquire or establish facilities in such
states.
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
REGULATION AND REIMBURSEMENT (CONTINUED)
RELATIONSHIPS WITH CLINICIANS
The Company is subject to federal and state laws that regulate its
relationships with physicians and other providers of health care services.
These laws include the Medicare and Medicaid anti-kickback statute, under which
criminal penalties can be imposed upon persons who pay or receive any
remuneration in return for referrals of patients for items or services
reimbursed under the Medicare, Medicaid or certain state health care programs.
Violations of this law also results in automatic exclusion from these programs.
The Company is also subject to state and federal laws prohibiting false claims.
The Department, courts and officials of the Office of Inspector General
have broadly construed the anti-kickback statute. "Safe harbor" regulations
promulgated by the Department define a narrow range of practices that will be
exempted from prosecution or other enforcement action under this statute. To
the extent that offers to pay or payments made are deemed to be for purposes of
inducing referrals and do not satisfy all the criteria for a safe harbor, the
arrangements could be found to violate the anti-kickback laws. Similarly, state
fraud and abuse laws, which vary from state to state, are often vague and have
infrequently been interpreted by courts or regulatory agencies. Given the
breadth of these laws and the dearth of court rulings dealing with businesses
like the Company's, there can be no assurance that the Company's arrangements
with its providers will not be challenged.
OBRA of 1993 contains provisions ("Stark Act") prohibiting physicians
having a financial relationship with the provider from making referrals for
"designated health services" rendered by the provider. These services include
radiation therapy services; durable medical equipment; parenteral and enteral
nutrients, equipment, and supplies; prosthetics, orthotics, and prosthetic
devices; home health services; outpatient prescription drugs; and inpatient and
outpatient hospital services. In addition, if such a financial relationship
exists, the entity is prohibited from billing for or receiving reimbursement on
account of such referral. These provisions take effect January 1, 1995.
Numerous exceptions are allowed under the Stark Act for financial
arrangements that would otherwise trigger the referral prohibitions. These
provide, under certain conditions, exceptions for relationships involving rental
of office space and equipment, employment relationships, personal service
arrangements, payments unrelated to designated services, physician recruitment,
and certain isolated transactions. The Department has not yet issued
regulations, however, and there can be no assurance that these provisions will
be interpreted in a manner consistent with the practices of the Company.
The Company has contracts with physicians to provide hospital services and
in some instances patient services. These contracts have been revised to meet
the requirements of the Stark Act. However, until clear regulations are
promulgated or the contracts are otherwise tested, there can be no assurance
that the contracts will be found to be in compliance.
ITEM 2. PROPERTIES
This item incorporates by reference the tables of psychiatric and
long-term critical care hospital and dialysis facility locations set forth in
Item 1. Ownership information is set forth in the text of this item.
U. S. PSYCHIATRIC HOSPITAL PROPERTIES
The Company owns, in fee simple, all of the real property on which its
acute psychiatric hospital facilities are located.
In 1994, three of the above-described facilities were shared with THC. As
of November 30, 1994, the Company was in the process of converting two other
facilities into long-term critical care facilities.
<PAGE>
ITEM 2. PROPERTIES
U. S. PSYCHIATRIC HOSPITAL PROPERTIES (CONTINUED)
The Company's existing hospital facilities range in size from 20,000 to
100,000 square feet and each facility has sufficient acreage to allow space for
outdoor recreation. All of the existing hospital buildings meet all state and
local requirements for licensing as hospitals to provide the services indicated.
Six facilities ceased operations in fiscal year 1993. Two of these hospitals
were sold in January and February of 1994. Three of these hospitals are being
held for sale, and one is being converted into a THC facility. Three additional
hospitals ceased operations in fiscal year 1994. One of these hospitals was
converted into a THC facility in 1994, and one will be converted in 1995. The
remaining hospital is being held for sale.
The Company has four separate mortgage loans with lenders, each of which
is secured by one of the Company's hospitals.
OTHER PROPERTIES:
The Company leases office space for its Corporate office in Las Vegas,
Nevada. The leases for this space aggregate approximately 22,000 square feet of
office space with lease terms of two years.
The Company also owns a three-story building completed in 1988 used for a
portion of its Corporate headquarters; medical office buildings adjacent to
twenty of its hospital facilities; three parcels of land for potential hospital
development or future sale, two parcels of land being developed for sale for
investment purposes (non-hospital related), and one apartment in a location
central to the Company's operations for use by employees whose duties require
them to travel.
UNITED KINGDOM PSYCHIATRIC HOSPITAL PROPERTIES:
The Company owns, in fee simple, the real property for eleven of its
psychiatric hospitals. The Company leases one of its psychiatric hospitals.
The Company also owns, in fee simple, one clinic specializing in the treatment
of substance abuse. The Company operates two dialysis centers from buildings
located on National Health Service properties. All of the Company's existing
facilities range in size from one-half acre to five acres.
THC PROPERTIES:
The Company owns, in fee simple, the real property for eleven of its
long-term critical care facilities. The Company leases one long-term critical
care facility and manages one other long-term critical care facility. All of
the Company's facilities are located on sites ranging from one to forty-two
acres. As of November 30, 1994, THC operated additional units within three of
the Company's psychiatric hospitals.
The Company currently leases office space for its eastern region office in
Atlanta, Georgia. The lease for this space aggregates approximately 14,000
square feet of office space with a remaining lease term of seven months as of
November 30, 1994, after which the Company plans to occupy a currently unused
medical office building on the campus of a CPC psychiatric facility in Atlanta.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Immediately following the Company's public announcement of the increased
charge for uncollectible accounts referred to in "Management's Discussion and
Analysis of Results of Operations and Financial Condition 1991 Compared to
1990", eleven securities class action lawsuits were filed against the Company
and several of its officers and directors in the United States District Court
for the Central District of California. These suits allege generally that the
Company has in the past made materially false and misleading public statements
or failed to disclose material adverse information regarding its earnings,
financial condition and business prospects. These suits have been consolidated
into a single action. A shareholders' derivative action was filed at about the
same time in the Superior Court for Orange County, California, against the
Company, its then directors and certain other officers alleging breach of
fiduciary duty, waste of corporate assets and gross mismanagement based largely
on the same operative facts. The Company maintains that the public statements
and reports in question were complete and correct and that its policy is and
always has been to disclose material adverse information publicly and on a
timely basis. It has not been possible to assess the likely outcome of these
actions, but the Company has defended them vigorously. Each of its officers and
directors has broad indemnification contracts with the Company and are entitled
to indemnity under circumstances prescribed by applicable law. In addition, the
Company's Articles of Incorporation and applicable law restrict the liability of
its officers and directors for damages for breach of their fiduciary duties.
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 all
pending proceedings will not have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Market Information
(1) (i) The Common Stock of Community Psychiatric Centers
is traded on the New York and Pacific Stock Exchanges. Ticker symbol: CMY.
(ii) The information in response to this portion of
Item 5 is incorporated by reference from footnote 13 to the financial statements
in Item 8.
(b) Holders
(1) Approximate number of holders of the $1.00 Par Value
Common Stock of the Company at January 31, 1995 2,361
- The number of record holders includes banks and brokerage houses
which are holding shares of the Company's Common Stock for an undetermined
number of beneficial owners.
(c) Dividends
(1) The information in response to this portion of Item 5 is
incorporated by reference from footnote 13 to the financial statements in Item
8.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Community Psychiatric Centers and Subsidiaries
YEAR ENDED NOVEMBER 30
1994 1993 1992 1991 1990
-------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Operating revenues $ 423,955 $ 335,578 $ 344,274 $392,873 $ 371,221
Net earnings (loss) 10,220 (24,892) 23,137 45,289 83,211
Total assets 605,404 530,340 540,600 569,670 551,590
Long-term debt, ex-
clusive of current
maturities 69,090 40,718 26,293 27,172 28,577
Earnings (loss) per
common share: $ 0.24 $ (0.58) $ 0.52 $ 0.98 $ 1.80
Dividends per share 0.01 0.09 0.36 0.36 0.36
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations"-- "Restructuring Charges (Credit)."
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the selected
financial data on the preceding page and the notes to financial statements
appearing in Item 8.
RESTRUCTURING CHARGES (CREDIT)
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, two have been sold, three are being held for sale or
lease, and one is being converted into a THC facility. The Company received
cash proceeds of approximately $5.0 million in January and February 1994 from
the sale of two of these hospitals.
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 year-ago
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, including termination benefits paid, approximated amounts
originally accrued. Total revenue and net operating income or (loss) for the
three closed hospitals totalled $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 will be converted into a THC facility in fiscal year
1995.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1994, cash and equivalents were $37.3 million and total
working capital was $103.5 million, net of the accrual for restructuring costs
of $2.7 million. Cash was principally used during the year ended November 30,
1994 to fund working capital and operating losses for THC facilities, and for
the purchase of equipment and improvements ($48.8 million). The Company also
acquired a psychiatric hospital and a residential treatment center in the
United Kingdom for a combined purchase price of $5.7 million. In March of 1994,
the Company paid a one-time dividend to shareholders of record on March 1, 1994
totalling $.4 million (.01 per share). The increase in accounts receivable at
November 30, 1994, is due primarily to the expansion of THC's operation during
the year. Proceeds from borrowings on revolving credit facilities totalled
$42.0 million for the year ended November 30, 1994.
The Company's current ratio in 1994, 1993, and 1992 was 2.3, 2.7, and 5.0,
respectively. The Company's ratio of long-term debt to total capital at
November 30, 1994, 1993, and 1992 was 15.7%, 9.6%, and 6.0%, respectively. The
increase in these ratios is reflective of the $40.7 million increase in debt
levels which was used to fund growth in THC and the United Kingdom.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company presently expects to expend up to $29 million in fiscal 1995
for the conversion and maintenance of its THC facilities. In addition to these
capital expenditures, the Company expects to expend up to $5 million in fiscal
1995 to fund both the working capital (principally accounts receivable) and
start-up operating losses principally for THC facilities opening in late 1994
and 1995. The Company also expects to spend approximately $14.0 million on
capital expenditures for maintenance of its psychiatric facilities and
acquisitions in the United Kingdom.
In January 1995, the Board of Directors authorized the expenditure of $9.5
million 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 in order to provide needed expansion of patient
care space within the current hospital. The Company expects to expend $8.2
million on the construction of the building in fiscal year 1995.
In January 1992, the Board of Directors authorized the expenditure of up
to $50.0 million of cash on hand for the repurchase of the Company's common
stock from time-to-time in the open market. As of November 30, 1992, the
Company had purchased 2,890,000 shares for $31.1 million, including 451,000 at
market value from the former chairman, under that authorization. Through
November 30, 1993, an additional 85,000 shares were repurchased for $0.8
million. Under an authorization in effect prior to January 31, 1992, the
Company had repurchased 549,800 shares for $6.3 million. No common stock was
repurchased in fiscal year 1994.
The Company received net cash proceeds of approximately $5 million in
January and February of 1994 from the sale of two closed facilities. The
Company also received approximately $2.3 million in cash proceeds from three
sales of vacant land during 1994.
The Company has a $25.0 million revolving credit facility with Bank of
America National Trust and Savings Association ("BofA"). At November 30, 1994,
$25.0 million has been borrowed under this facility. The Company may borrow,
repay and reborrow up to $25 million through November 30, 1995 (the revolving
loan period), at which time any amount outstanding is converted into a term loan
payable in equal quarterly installments through November 30, 1998. The
Company's subsidiary in the United Kingdom has a credit facility whereby the
Company is allowed to borrow up to $15 million. At November 30, 1994,
approximately $10.2 million was outstanding under this facility. On May 6,
1994, the Company entered into an additional revolving credit facility with Bank
of America for $50 million. As of November 30, 1994, $20 million was
outstanding under this facility. Any amount outstanding under this facility is
due and payable on February 28, 1996. Unused revolving credit facilities of
approximately $30 million remain available to the Company at November 30, 1994.
The Company believes that its current cash and cash equivalent balances, its
operating cash flow, and the amounts available under its revolving credit
facilities will be sufficient to fund the Company's operations and capital
expenditures through the end of fiscal 1995. The Company is presently
evaluating proposals for additional funding from other financing sources.
Additional funding sources will be needed to support further expansion of THC
and to repay outstanding borrowings under the $50 million credit facility.
OPERATING RESULTS
The following table presents selected unaudited pro forma income statement
data for the years ended November 30, 1994, 1993 and 1992 adjusted as if the
restructurings had occurred on November 30, 1991. The data presented below may
not be indicative of the results that would have been obtained had the
restructurings 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.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
OPERATING RESULTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net operating revenues $ 422,363 $ 311,249 $ 286,287
Other income 3,785 2,301 3,433
-----------------------------
426,148 313,550 289,720
Operating expense 326,616 235,000 206,342
General and administrative
expense 33,775 26,806 21,747
Bad debt expense 26,503 19,316 12,383
Depreciation and amortization 18,524 13,790 12,425
Interest expense 3,545 2,420 1,607
-----------------------------
408,963 297,332 254,504
-----------------------------
Earnings before income taxes 17,185 16,218 35,216
Income taxes 6,960 6,325 13,030
-----------------------------
Net earnings $ 10,225 $ 9,893 $ 22,186
-----------------------------
-----------------------------
</TABLE>
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993
The following discussion excludes the restructuring charges and operating
results of the Restructured Hospitals.
Net operating revenues for the year ended November 30, 1994 increased by
approximately 35.7% to $422.4 million from $311.2 million for the prior year.
This increase was due primarily to the addition of $82.9 million of THC revenue
in 1994 compared to 1993.
Net operating revenues from the United States psychiatric hospitals
increased by 6.1% or approximately $15.9 million as a result of a 10.7% increase
in adjusted patient days to 613,025 from 553,560 which was partially offset by a
decrease in the net revenue per adjusted patient day. The increase in adjusted
patient days was due in large part to (i) a 37.0% increase in residential
treatment patient days to 142,661 from 104,147 and (ii) a 37.8% increase in
partial hospitalization visits to 148,340 from 107,687. The increase in
adjusted patient days offset the 9.6% decrease in average length of stay. The
decrease in net revenue per adjusted patient day was the result of the
continuing shift in reimbursement to negotiated rates and cost-based
reimbursement from private pay.
Net operating revenues from the Company's United Kingdom operations
increased by 36.3% or approximately $12.3 million as a result of a 34.8%
increase in inpatient days and a slight increase in average length of stay and
net revenue per adjusted patient day. The Company's United Kingdom operations
benefitted from the acquisition of one new hospital in the first quarter and one
new hospital in the fourth quarter.
Operating expenses as a percentage of net operating revenues increased to
77.3% from 75.5% in the year ended November 30, 1994 compared to the prior year.
This increase was primarily attributable to expenses incurred in connection with
the expansion of the Company's THC operations.
General and administrative expenses decreased as a percentage of net
operating revenues from 8.6% to 8.0% due to cost-containment programs
implemented during the middle of 1993, which included the reduction of personnel
and other overhead. During the fourth quarter of 1994, the Company implemented
further reductions in its overhead by further reducing the number of overhead
personnel. During the fourth quarter of 1994, the Company incurred
approximately $1 million in moving costs and severance pay related to the
relocation of its Corporate office from Laguna Hills, California to Las Vegas,
Nevada.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993 (CONTINUED)
Bad debt expense increased as a percentage of net operating revenues to
6.3% in 1994 from 6.2% in 1993. The U. S. Psychiatric Division incurred
specific provisions for bad debt expense of $2 million and $1 million,
respectively, in the third and fourth quarters of 1994 related to continued
interruptions in Medicare reimbursement to partial hospitalization providers in
California. A concerted effort is being made to collect the unpaid amounts,
however, it is not certain when the situation will be resolved. 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.
Other operating results, after the effect of the restructuring charges are
described as follows:
Other income increased due to gains on the sale of three parcels of land
totalling approximately $2.0 million.
Depreciation and amortization increased mainly due to the increase in
operating facilities at THC from seven as of November 30, 1993 to 13 as of
November 30, 1994.
Interest expense, net of capitalized interest, increased due to the
increase in long-term debt.
Income taxes (benefit) as a percentage of pre-tax income (loss) was 40.5%
compared to (35.4%) in 1993.
For the reasons described above, earnings before depreciation,
amortization, interest, and income taxes for the twelve months ended November
30, 1994 increased by approximately 17.9% to $35.5 million from $30.1 million in
the prior year period and net earnings increased to $10.2 million from $9.9
million compared to the prior year period.
In 1994, approximately 18% of the Company's net revenues were paid by
private sources and insurance companies which based reimbursement on the
Company's price schedule. Approximately 44% of the Company's net revenues were
paid by Medicare, Medicaid and other programs which based reimbursement on the
Company's costs and DRG rates. Therefore, to the extent that costs increased,
higher cost-based reimbursement was generally received on a dollar-for-dollar
basis. Approximately 5% was paid by CHAMPUS, a Federal Government Program which
based reimbursement generally on a regional average rate. The balance of
approximately 33% was paid based upon rates negotiated with insurers and other
payors including managed care companies, health maintenance organizations,
preferred provider organizations and similar plans. The number of patients
covered under negotiated rate plans has grown significantly in recent years and
such growth is expected to continue in the future.
FISCAL YEAR 1993 COMPARED TO FISCAL YEAR 1992
The following discussion excludes the restructuring charge and operating
results of the Restructured Hospitals.
Net operating revenues for the year ended November 30, 1993 increased by
approximately 8.7% to $311.2 million from $286.3 million for the prior year.
This increase was due primarily to the addition of $18.1 million of THC revenue
in 1993 as compared to effectively no THC revenue in 1992.
Net operating revenues from the United States psychiatric hospitals
increased by 2.5% or approximately $6.4 million as a result of a 8.3% increase
in adjusted patient days to 553,560 from 511,318 which was partially offset by a
decrease in the net revenue per adjusted patient day. The increase in adjusted
patient days was due in a large part to (i) a 78.3% increase in residential
treatment patient days to 104,147 from 58,402 and (ii) a 79.4% increase in
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
FISCAL YEAR 1993 COMPARED TO FISCAL YEAR 1992 (CONTINUED)
partial hospitalization visits to 107,687 from 60,011. The increase in adjusted
patient days more than offset the 7.0% decrease in average length of stay. The
decrease in net revenue per adjusted patient day was the result of the
continuing shift in reimbursement to negotiated rates and cost-based
reimbursement from private pay.
Net operating revenues from the Company's United Kingdom operations
increased by 1.2% or approximately $412,000 as a result of an increase in
inpatient admissions and average length of stay which was partially offset by a
decline in net revenue per adjusted patient day.
Operating expenses as a percentage of net operating revenues increased to
75.5% from 72.1% in the year ended November 30, 1993 compared to the prior year.
This increase was primarily attributable to expenses incurred in connection with
the Company's THC operations which were not existent in the 1992 period and an
increase in personnel costs in the first quarter of 1993 related to the
Company's expansion of its continuum of care.
General and administrative expenses increased by approximately 23.0% to
$26.8 million from $21.8 million and increased as a percentage of net operating
revenues to 8.6% from 7.6% due primarily to (i) an increase in personnel costs
related to the Company's initiatives to enhance the quality of its services and
strengthen its revenue generation efforts (ii) the expenses incurred in
connection with providing a continuum of care and (iii) THC operations which
were not existent in the 1992 period. Provision for uncollectible accounts,
exclusive of a 1992 recovery of previously written off accounts receivable,
increased as a percentage of total revenues to 6.2% from 4.3%.
Cost-containment programs, which included reduction of personnel and
elimination of overhead, were implemented during the second and third quarters
of 1993 and resulted in reductions of operating and general and administrative
expenses as a percentage of net operating revenues from 95.7% in the first
quarter to 76.8% in the fourth quarter.
For the reasons described above, earnings before depreciation,
amortization, interest, other income and income taxes for the twelve months
ending November 30, 1993 declined by approximately 34.3% to $30.1 million from
$45.8 million in the prior year period and net earnings declined to $9.9 million
from $22.2 million compared to the prior year period.
Other operating results, after the effect of the restructuring charge, are
described as follows:
- Depreciation expense decreased because the Restructured Hospitals
were excluded from operations subsequent to the end of the first
quarter of 1993.
- Interest expense increased in 1993 because of the decrease in
amounts capitalized and the increase in long-term debt.
- Income taxes (benefit) as a percent of pre-tax income (loss) was
(35.4%) in 1993 compared to 37% in 1992.
In 1993, approximately 30% of the Company's net revenues were paid by
private sources and insurance companies which based reimbursement on the
Company's price schedule. Approximately 24% of the Company's net revenues were
paid by Medicare, Medicaid and other programs which based reimbursement on the
Company's costs and DRG rates. Therefore, to the extent that costs increased,
higher cost-based reimbursement was generally received on a dollar-for-dollar
basis. Approximately 5% was paid by CHAMPUS, a Federal Government Program which
based reimbursement generally on a regional average rate. The balance of
approximately 41% was paid based upon rates negotiated with insurers and other
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
FISCAL YEAR 1993 COMPARED TO FISCAL YEAR 1992 (CONTINUED)
payors including managed care companies, health maintenance organizations,
preferred provider organizations and similar plans. The number of patients
covered under negotiated rate plans has grown significantly in recent years and
such growth is expected to continue in the future.
The Company's ability to negotiate rate increases successfully with these
plans that are comparable to the Company's cost increases is significant to
maintaining adequate operating margins.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information in response to this item is incorporated by reference from
Exhibit 1 in Item 14.
ITEM 9. CHANGE IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
INFORMATION CONCERNING NOMINEES AND CONTINUING DIRECTORS
The following information is furnished with respect to each nominee and the
continuing Directors.
<TABLE>
<CAPTION>
DIRECTOR
OCCUPATION AND CONTINUOUSLY TERM
NAME* AGE BUSINESS EXPERIENCE SINCE EXPIRES
- ---- --- ------------------- ------------ --------
<S> <C> <C> <C> <C>
NOMINEES:
Hartly Fleischmann . . . . . . 67 Attorney since 1952, member of Fleischmann & 1972 1995
Fleischmann, San Francisco, California, engaged in
the general practice of law; counsel to the
Company since 1971.
Jack H.Lindheimer, M.D. . . . . 63 Corporate Medical Director, U.S. Psychiatric 1983 1995
Services since 1991; Medical Director, CPC
Alhambra Hospital 1970-1992; physician in private
practice since 1960, specializing in psychiatry.
CONTINUING DIRECTORS:
Richard L. Conte . . . . . . . 41 Chairman of the Board of Directors since May 21, 1991 1997
1992 and Chief Executive Officer since April 13,
1992; President 1991-1992; Chief Financial Officer
1989-1991; Executive Vice President--Dialysis,
European and Home Health Division 1985-1989;
General Counsel 1980-1990.
Dana L. Shires, M.D. . . . . . 62 Physician in private practice since 1961 1989 1997
specializing in nephrology; Chairman, Chief
Executive Officer and President of LifeLink
Foundation, a not-for-profit corporation.
David L. Dennis . . . . . . . . 46 Managing Director, Investment Banking, Donaldson, 1991 1996
Lufkin & Jenrette Securities Corporation,
responsible for that corporation's health care and
media industry financing on the West Coast since
1989.
</TABLE>
<PAGE>
PART III (CONTINUED)
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
INFORMATION CONCERNING NOMINEES AND CONTINUING DIRECTORS (CONTINUED)
- --------------------------------------------------------
<TABLE>
<CAPTION>
OCCUPATION AND CONTINUOUSLY TERM
NAME* AGE BUSINESS EXPERIENCE SINCE EXPIRES
- ---- --- ------------------- ------------ --------
<S> <C> <C> <C> <C>
David A. Wakefield . . . . . . 48 Chairman, Priory Hospitals Group since 1993; 1992 1996
Executive Vice President since 1992, responsible
for hospital operations and development in the
United Kingdom and Europe; Senior Vice President--
United Kingdom and European Division 1988-1992.
Robert L. Thomas . . . . . . . 70 Retired since 1993; Consultant, 1992-1993 and 1993 1997
Executive Director, 1977-1992, National
Association of Private Psychiatric Hospitals, a
nonprofit entity.
<FN>
- --------------
* Stephen J. Powers resigned as a director effective February 8, 1995.
</TABLE>
INFORMATION CONCERNING EXECUTIVE OFFICERS
- -----------------------------------------
The following table lists and provides biographical data about the executive
officers of the Company.
<TABLE>
<CAPTION>
PERIOD OF SERVICE AND
NAME AGE TITLE BUSINESS EXPERIENCE
---- --- ----- ---------------------
<S> <C> <C> <C>
Richard L. Conte . . . . . . . . . . 41 Chairman of the Board and Chief Executive Officer Appointed April 13, 1992;
President 1991-1992; Chief
Financial Officer 1989-1991;
Executive Vice President--
Dialysis, European and Home
Health Division 1985-1989;
General Counsel 1980-1990.
James R. Laughlin . . . . . . 48 Executive Vice President of the Company and Appointed Executive Vice
President--Transitional Hospitals Corporation President 1993; Appointed
President--Transitional
Hospitals Corporation 1992;
President, The Phoenix Group,
health care consultants 1991-
1992; Executive Vice
President, Development and
Administrative Services,
Charter Medical Corporation
1987-1990.
</TABLE>
<PAGE>
PART III (CONTINUED)
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
INFORMATION CONCERNING NOMINEES AND CONTINUING DIRECTORS (CONTINUED)
- --------------------------------------------------------
<TABLE>
<CAPTION>
NAME AGE TITLE BUSINESS EXPERIENCE
---- --- ----- ---------------------
<S> <C> <C> <C>
Kay E. Seim . . . . . . . . . . . . . 48 Executive Vice President of the Company and Appointed March 1994;
President--U.S. Psychiatric Services Executive Vice President--U.S.
Psychiatric Operations 1993;
Executive Vice President--
West Coast Hospitals 1992;
Senior Vice President and
Chief Operating Officer,
Ramsay Health Care, Inc. 1991-
1992; Vice President--
Northwest Region of the Company
1986-1991.
David A. Wakefield . . . . . . . . . 48 Executive Vice President of the Company and Appointed Chairman--Priory
Chairman--Priory Hospitals Group Hospitals Group 1993;
Appointed Executive Vice
President 1992; Senior Vice
President--United Kingdom and
European Division 1988-1992.
Wendy L. Simpson . . . . . . . . . . 45 Executive Vice President of the Company, Chief Appointed December 1994;
Financial Officer and Treasurer Senior Vice President--
Transitional Hospitals
Corporation 1994; Senior Vice
President and Chief Financial
Officer, Weisman Taylor
Simpson & Sabatino 1992-1994;
Senior Vice President and
Chief Financial Officer,
American Medical International
1990-1991; Vice President and
Controller, American Medical
International 1988-1990.
Ronald L. Ooley . . . . . . . . . . . 49 Executive Vice President--Administration and Appointed Corporate Secretary
Corporate Secretary 1994; Appointed Executive Vice
President 1993; Senior Vice
President--Human Resources
1992; Vice President--Human
Resources, The Phoenix Group
1991-1992; consultant, Core
Management Resources, a
benefits consulting company,
1990-1991; Senior Vice
President--Human Resources,
Charter Medical Corporation,
1988-1990.
Jack H. Lindheimer, M.D. . . . . . . 63 Corporate Medical Director, U.S. Psychiatric Appointed 1991; Medical
Services Director, CPC Alhambra
Hospital 1970-1992; physician
in private practice since
1960, specializing in
psychiatry.
</TABLE>
<PAGE>
PART III (CONTINUED)
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
INFORMATION CONCERNING NOMINEES AND CONTINUING DIRECTORS (CONTINUED)
- --------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD OF SERVICE AND
NAME AGE TITLE BUSINESS EXPERIENCE
---- --- ----- ---------------------
<S> <C> <C> <C>
Julia L. Kopta . . . . . . . . . . . 45 General Counsel and Executive Vice President-- Appointed General Counsel
Corporate Planning and Development January 27, 1995; Appointed
Executive Vice President--
Corporate Planning and
Development 1993; Chairperson,
Care Visions Corporation 1987-
1993.
Steven S. Weis . . . . . . . . . . . 52 *
<FN>
- ---------------
* Steven S. Weis resigned as Executive Vice President and Chief Financial
Officer effective December 31, 1994. See "Settlement with Steven S. Weis."
</TABLE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
- --------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
the outstanding shares of the Company's common stock, to file with the
Securities and Exchange Commission and the New York and Pacific Stock Exchanges
initial reports of ownership and reports of changes in ownership of such stock.
SEC regulations establish specific due dates for these reports. The Company is
required to disclose any failure to file a report for the 1994 fiscal year on a
timely basis.
To the Company's knowledge, based solely upon review of the copies of such
reports furnished to it, during the fiscal year ended November 30, 1994 all
Section 16(a) filing requirements applicable to its officers and directors were
complied with, except that (i) Dr. Shires filed a late report on Form 4 relating
to one transaction; and (ii) Messrs. Wakefield and Weis filed their year-end
reports on Form 5 late.
<PAGE>
PART III (CONTINUED)
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
- ----------------------------------------------
The following table shows the cash compensation paid by the Company, as
well as certain other compensation paid or accrued, (i) to the Chief Executive
Officer for his service in all executive capacities during 1992, the fiscal year
in which he was appointed chief executive officer and during the fiscal years
ending November 30, 1993 and 1994; and (ii) to each of the other four most
highly compensated executive officers who were serving as executive officers on
November 30, 1994, in all executive capacities in which they served during the
fiscal years ending November 30, 1992, 1993 and 1994:
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Long Term
Compensation
Annual Compensation Awards
------------------- ------------
Securities
Underlying
All
Name and Options/ Other
Principal Salary Bonus SARs Compen-
Position Year ($) ($) (#) sation
- -------- ---- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Richard L. Conte, 1994 750,000 237,500 100,000 218,802(7)
Chief Executive 1993 550,000 412,500 550,000(6) 223,844(7)
Officer(1) 1992 456,246 150,000 50,000 31,469(8)
James R. Laughlin, 1994 400,000 50,000 105,000
Executive Vice President 1993 275,000 275,000 115,000
of the Company and 1992 181,850 100,000
President--Transitional
Hospitals Corporation(2)
Kay E. Seim, Executive 1994 407,209(9) 30,000
Vice President of the 1993 222,807 50,000 115,000
Company and President-- 1992 89,154 20,000 100,000
U.S. Psychiatric
Services(3)
David A. Wakefield, 1994 191,250(10) 191,250(10) 32,882
Executive Vice President 1993 150,000 150,000 155,000
of the Company and 1992 150,000 23,000 0
Chairman--Priory Hospitals
Group(4)(12)
Steven S. Weis(5) 1994 275,000 30,000 341,493(11)
1993 243,577 50,000 115,000
1992 219,950 25,000 100,000
<FN>
- ----------------
1 Mr. Conte was appointed Chief Executive Officer on April 13, 1992.
2 Prior to his appointment as an executive in May 1992, Mr. Laughlin received
compensation as a consultant to the Company.
3 Ms. Seim rejoined the Company as an executive on June 29, 1992.
4 Mr. Wakefield was appointed an executive officer in 1993.
5 Steven S. Weis resigned as Executive Vice President and Chief Financial
Officer effective December 31, 1994. See "Settlement with Steven S. Weis."
6 Includes options on 166,328 shares, which were repriced on January 29, 1993
in exchange for the forfeiture of options on 332,656 shares.
7 Includes $54,930 and $56,528 in life insurance premiums paid by the Company
on behalf of Mr. Conte in 1994 and 1993, respectively (see "Employment
Contracts"), and $163,872 and $167,316 deferred compensation accrued for
Mr. Conte in 1994 and 1993, respectively (see "Employment Contracts--
Retirement Benefits").
8 Deferred compensation accrued for Mr. Conte. See "Employment Contracts--
Retirement Benefits."
9 Includes $49,458 paid in lieu of accrued vacation.
10 Paid in currency of the U.K. Exchange rates used were 1.53, 1.50, and 1.68
for the years ended 11/30/94, 11/30/93, and 11/30/92, respectively.
</TABLE>
<PAGE>
PART III (CONTINUED)
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION (CONTINUED)
- ----------------------------------------------
<TABLE>
<C> <S>
<FN>
11 Paid or to be paid in connection with the resignation of Mr. Weis as
follows: $275,000 severance pay; $34,064 accrued vacation; up to $5,635
relocation expenses; $19,513 net book value of Company car and $7,281 net
book value of Company laptop and desk computers. See "Settlement with
Steven S. Weis."
12 Mr. Wakefield's salary was not included in prior years pursuant to
instruction 3 of Item 402(a)(iii) that excludes compensation pursuant to
overseas assignments and is included currently as the results of operations
of the United Kingdom Psychiatric Division have become more material to the
consolidated operating results in the current year.
</TABLE>
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
- -------------------------------------------
The following table contains information concerning the grant of stock
options and tandem limited stock appreciation rights ("SARs") under the
Company's 1989 Stock Incentive Plan to the named executives during the fiscal
year ended November 30, 1994:
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
-------------------------------------
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term
- ------------------------------------------------------------------------- ----------------
Number of % of Total
Securities Options/
Underlying SARs
Options/ Granted to Exercise
SARs Employees or Base Expira-
Granted in Fiscal Price tion
Name (#)(1) Year ($/Sh) Date 5% ($) 10% ($)
- ---- ---------- --------- -------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Conte 100,000 7.90 12.38 12/01/03 778,578 1,973,372
James R. Laughlin 30,000 2.40 12.38 12/01/03 233,573 592,012
75,000 5.90 17.00 01/28/04 801,848 2,032,350
Kay E. Seim 30,000 2.40 12.38 12/01/03 233,573 592,012
David A. Wakefield 32,882(4) 2.60 12.38 12/01/93 256,012 891,036
Steven S. Weis 30,000(2) 2.40 12.38 12/31/95(3) 7,428 14,856
<FN>
- ---------------
1 All options vest 20% on the date of grant and on the first day of each of
the following four fiscal years.
2 Mr. Weis is entitled to exercise options on 12,000 of these shares, which
is the amount vested on the effective date of his termination. See
"Settlement with Steven S. Weis."
3 See "Settlement with Steven S. Weis."
4 2,882 of these options fully vested on the date of grant.
</TABLE>
<PAGE>
PART III (CONTINUED)
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
OPTION/SAR HOLDINGS
- -------------------
The following table sets forth the number of shares of Common Stock
acquired on exercise of options during the fiscal year ended November 30, 1994,
and the number subject to outstanding stock options held by each of the named
executives as of the end of that fiscal year. The closing price of the
Company's common stock on the New York Stock Exchange on November 30, 1994 was
$10.00.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values
---------------------------------
Number of Securities
Underlying
Unexercised Value of Unexercised,
Shares Options/SARs In-the-Money, Options/
Acquired At Fiscal Year End SARs
on Value Unexercis- At Fiscal Year End ($)(4)
Exercise Realized Exercis- able Exercis- Unexercis-
Name (#) ($) (1) able (2) (#) (3) able able
- ---- ------- --------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Conte 160,000 1,245,004 189,796 350,204 0 15,000
James R. Laughlin 0 0 97,000 223,000 6,000 9,000
Kay E. Seim 45,500 358,312 36,500 163,000 6,000 9,000
David A. Wakefield 0 0 81,881 157,001 6,000 9,000
Steven S. Weis 0 0 82,000 163,000 6,000 9,000
<FN>
- ---------------
(1) Represents the difference between the market value of the underlying
securities at exercise minus the exercise or base price.
(2) Includes options on 189,796 shares for Mr. Conte; 85,000 shares for Mr.
Laughlin; 24,000 shares for Ms. Seim; 69,881 shares for Mr. Wakefield; and
70,000 shares for Mr. Weis, which were not "in the money" as of
November 30, 1994.
(3) Includes Converging Options on 100,000 shares for Mr. Conte and 75,000
shares for Messrs. Laughlin, Wakefield and Weis and Ms. Seim, which were
not "in the money" as of November 30, 1994.
(4) Represents the difference between the closing price of the Company's common
stock on November 30, 1994 as reported on the New York Stock Exchange and
the exercise price of options that were "in the money" as of that date.
</TABLE>
EMPLOYMENT CONTRACTS
- --------------------
EMPLOYMENT CONTRACTS. The Company has entered into an employment contract
with Mr. Conte, which provided (i) for the last seven months of fiscal 1992 and
for fiscal 1993, an annual salary of $550,000, subject to annual review by the
Board; (ii) an initial employment term ending November 30, 1996 and
automatically extending for an additional year on each December 1 of the
employment term; (iii) noncompetition, nondisclosure and nonsolicitation
covenants; and (iv) payment by the Company of the cost of a life insurance
policy for Mr. Conte with a death benefit of not less than $5,000,000. If
employment terminates because of Mr. Conte's permanent disability as defined in
the contract or if Mr. Conte terminates employment because of a breach of the
contract by the Company or within one (1) year after a "change in control" of
the Company as defined in the contract, he would be entitled to receive
termination payments equal to his salary through the November 30 following the
fourth anniversary of such termination and all other compensation and benefits
due under the contract and his "Supplemental Retirement Agreement" (see
"Retirement Benefits"); and in the case of termination because of a breach by
the Company or a "change in control," after such termination, Mr. Conte would
not be bound by the noncompetition, nondisclosure and nonsolicitation covenants.
Further, all options, contingent bonuses and similar deferred benefits held by
Mr. Conte immediately vest and become exercisable upon a change in control.
Effective December 1, 1993, Mr. Conte's annual salary was increased to $750,000.
<PAGE>
PART III (CONTINUED)
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
EMPLOYMENT CONTRACTS (CONTINUED)
- --------------------
The Company also has entered into employment contracts with Ms. Seim and
Mr. Wakefield which expire July 1, 1995 and July 30, 1995, respectively, and
which automatically renew for additional one-year periods. Ms. Seim's contract
provided for an annual salary of $200,000 and $225,000 for fiscal 1992 and 1993,
respectively. Effective December 1, 1993 and April 15, 1994, Ms. Seim's annual
salary was increased to $300,000 and $400,000, respectively. Mr. Wakefield's
contract provided for an annual salary of L77,000 for July 31 through November
30, 1992. Effective December 1, 1992 and 1993, Mr. Wakefield's salary was
increased to L100,000 ($150,000) and L125,000 ($191,250), respectively. These
contracts contain noncompetition, nondisclosure and nonsolicitation covenants.
If Ms. Seim or Mr. Wakefield terminates employment within ninety (90) days after
a "change in control" of the Company as defined in the agreements, she or he
would be entitled to receive termination payments equal to two years' salary and
would not be bound by the noncompetition, nondisclosure and nonsolicitation
covenants after such termination. Mr. Weis had a similar employment contract
with the Company which has been superseded by a Separation Agreement and General
Release. See "Settlement with Steven S. Weis."
RETIREMENT BENEFITS. In addition to his employment agreement, Mr. Conte,
as of June 1, 1988, entered into a Supplemental Retirement Agreement with the
Company pursuant to which he will become vested at the rate of 10% per year in
deferred benefits equal to 9 1/2% of his compensation each year plus any amount
by which the Company's authorized contributions for him to its profit sharing or
any other employee benefit plan cannot be allocated to his account in the plan
because the contribution exceeds limits imposed by the Internal Revenue Code of
1986 as amended. Interest will be credited annually to this accrued amount at a
rate to be specified from time to time by the Company but at not less than 6%
per annum. Distributions of the retirement benefits will be made in 20 equal
annual installments commencing 60 days after the later of the executive's 55th
birthday or the termination of his employment. During fiscal 1993, the Board of
Directors authorized vesting of Mr. Conte's deferred benefits at the rate of
100%, which resulted in $167,316 accrued on behalf of Mr. Conte for that year
and $163,872 for fiscal 1994. See "Summary Compensation Table."
SETTLEMENT WITH STEVEN S. WEIS
Steven S. Weis resigned as Executive Vice President and Chief Financial
Officer of the Company effective December 31, 1994. Mr. Weis and the Company
have entered into an agreement which settles the rights and obligations of Mr.
Weis and the Company with regard to his employment. Mr. Weis has released the
Company from certain obligations related to his employment and remains subject
to certain nondisclosure and nonsolicitation covenants, but he is no longer
bound by the noncompetition covenant in his employment contract. The Company
has agreed to pay Mr. Weis severance pay of $275,000, payable in 13 equal
installments of $21,154 on each of the first 13 dates after December 30, 1994 on
which the Company regularly pays its employees. In addition, the Company has
paid Mr. Weis $34,064 for accrued but unused vacation time as of December 31,
1994 and has agreed to reimburse Mr. Weis up to $5,635 in connection with his
relocation to either Los Angeles or Orange County, California at any time prior
to December 30, 1995. The Company will continue to provide Mr. Weis with health
insurance benefits through November 30, 1995, and thereafter, Mr. Weis will be
eligible to purchase 18 months of continued health coverage under the provisions
of the Consolidated Omnibus Budget Reconciliation Act. In addition, the Company
transferred to Mr. Weis, free of charge, the Company automobile and laptop and
desk computers that he had used as an employee, and the Company has accepted a
grant deed to the real property in Las Vegas, Nevada, on which Mr. Weis had been
constructing a residence in full satisfaction of sums advanced to him for the
purchase thereof and has agreed to assume Mr. Weis' construction loan to
complete the construction commenced thereon. The Company believes that the fair
market value of such real property is at least equal to the aggregate of the
amounts advanced to Mr. Weis and to be paid by the Company under the
construction loan.
<PAGE>
PART III (CONTINUED)
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
EMPLOYMENT CONTRACTS (CONTINUED)
- --------------------
SETTLEMENT WITH STEVEN S. WEIS (CONTINUED)
The Company also extended until December 31, 1995 the expiration date for
options to purchase 18,000, 4,000, 12,000 and 80,000 shares of the Company's
common stock at exercise prices of $9.50, $10.875, $12.375 and $14.625 per
share, respectively, which options had been fully vested in Mr. Weis at the time
his employment terminated. Nonvested options held by Mr. Weis terminated
December 31, 1994.
REMUNERATION OF DIRECTORS
During fiscal 1994 those directors who were not employed by the Company
received a fee of $3,000 for each Board meeting and $1,000 for each Committee
meeting attended, plus travel expenses, if any, and they will receive the same
compensation for 1995. Officers of the Company who serve as directors receive
only reimbursement of expenses, if any, incurred in attending meetings.
Pursuant to the Company's 1989 Stock Incentive Plan, annual automatic grants of
options on 5,000 shares have been and will be made to each nonemployee director
on January 26 of each year, the first of such grants having been made on January
26, 1989.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Powers, Dennis and Thomas and Dr. Shires served on the Company's
Compensation Committee during the last fiscal year. Mr. Powers resigned as a
director effective February 8, 1995.
<PAGE>
PART III (CONTINUED)
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following tables show the beneficial ownership of the Company's common
stock, $1.00 par value, by all directors, executive officers and others.
BENEFICIAL OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP PERCENT OF
NAME(1) AS OF 2/10/95(2) CLASS(3)
---- -------------------- ----------
<S> <C> <C>
Richard L. Conte 312,533
David L. Dennis 20,000
Hartly Fleischmann 41,665
James R. Laughlin 152,000
Jack H. Lindheimer 51,000
Stephen J. Powers 20,000
Kay E. Seim 76,544
Dana L. Shires 68,299
Robert L. Thomas 15,000
David A. Wakefield 121,007
All directors and executive 955,048 2.0%
officers as a group (13 persons)
<FN>
- ---------------
(1) Steven S. Weis resigned as Executive Vice President and Chief Financial
Officer effective December 31, 1994. See "Settlement with Steven S. Weis."
(2) Includes shares subject to options granted under the Company's 1989 Stock
Incentive Plan which are presently exercisable or which will become
exercisable on or before April 11, 1995, as follows: Mr. Conte, 286,531;
Mr. Wakefield, 119,882; Ms. Seim, 76,500; Dr. Lindheimer, 51,000; Mr.
Fleischmann, 35,765; Dr. Shires, 30,000; Messrs. Dennis and Powers, 20,000;
Mr. Thomas, 15,000; Mr. Laughlin, 152,000; and the group, 863,678. Also
includes shares held in trust, for which an above listed person acts as
trustee.
(3) In all cases except the group, the holdings represent less than 1% of the
outstanding shares of common stock.
</TABLE>
OTHER BENEFICIAL OWNERSHIP
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP PERCENT OF CLASS
---------------- -------------------- ----------------
<S> <C> <C>
Invesco M.I.M. PLC 3,709,775(1) 8.5%
11 Devonshire Square
London, EC 2M 4YR
England
Goldman, Sachs & Co. 3,383,600(1) 7.8%
85 Broad Street
New York, NY 10004
<FN>
- -----------
(1) Shared voting power and shared investment power with respect to all such
shares.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Fleischmann & Fleischmann, of which Mr. Fleischmann is a general partner,
was paid $237,713 for legal services rendered to the Company and its subsidiary,
Transitional Hospitals Corporation, during fiscal 1994. The Company believes
that the terms and conditions of its relationship with Fleischmann & Fleischmann
are as favorable as those that could have been obtained from a third party, and
it plans to retain Fleischmann & Fleischmann to provide legal services in fiscal
1995.
<PAGE>
PART III (CONTINUED)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)
INDEBTEDNESS OF MANAGEMENT
OPTION LOANS. The Company's 1989 Stock Incentive Plan authorizes the Board
of Directors to extend credit to enable optionees to exercise their options.
The Board has discretion from time to time to change the terms of such credit.
The past policy and practice of the Board has been to require payment of one-
third of the option price in cash with the balance payable within the earlier of
ten years of the date of exercise or twelve years of the date of grant. The
resulting obligations are evidenced by full recourse promissory notes with
interest at a rate established by the Board, payable annually, and are secured
by a pledge of the stock so purchased. The Company also makes unsecured loans
on the same terms to optionees to enable them to pay income taxes due on
exercise of options granted thereunder which do not qualify as incentive stock
options.
RESIDENCE LOANS. The Company has loaned $296,000 to Mr. Ooley and $299,646
to Ms. Seim, in each case at 5% interest per year, to enable these executive
officers to acquire residences in close proximity to their principal business
offices. The loans, which are secured by the residences, originally mature in
three years and provide for consecutive three-year extensions while employment
continues. The loans are paid in monthly installments of principal and interest
based on a 30-year amortization and are accelerated and become immediately due
and payable ninety days after termination of employment.
RELOCATION LOANS AND PURCHASE OF EQUITY.The Company had loaned $300,000 to
Mr. Conte and Mr. Weis on the same terms outlined above, which loans have been
deemed paid in full pursuant to the Company's home purchase program, through
which, in connection with the Company's relocation of its corporate
headquarters from Laguna Hills, California, to Las Vegas, Nevada, the Company
has purchased Messrs. Conte and Weis' equity interests in their former homes and
has assumed all burdens of ownership, including payment of all expenses and
debts associated therewith. The Company has also purchased an equity interest
in Mr. Laughlin's former home and has assumed all burden of ownership, including
payment of all expenses and debts associated therewith. The Company assumes the
risk of loss in connection with the sale of such properties, but also is
entitled to any profit realized thereon. As part of the home purchase program,
the Company also will pay Mr. Conte's moving expenses.
Also in connection with the Company's relocation of its corporate
headquarters, the Company has loaned $15,300 to Ms. Kopta and an additional
$49,000 to Mr. Ooley to assist them to acquire residences in close proximity to
the new corporate headquarters. In each case, interest is at the annual rate
of 5% and are secured by the officers' new or former residences and other
security. The loans mature in fifteen months and are paid in monthly
installments of interest only, beginning in the fourth such month. The Company
has loaned an additional $85,600 to Ms. Kopta, also at 5% annual interest and
secured by the property she acquired in Nevada, which loan matures in twelve
months and is paid in monthly installments of principal and interest based on a
30-year amortization. All of these loans are accelerated and become immediately
due and payable thirty days after termination of employment. The Company had
advanced $150,000 to Mr. Weis under the relocation program. In connection with
the termination of his employment, the Company has accepted a grant deed to the
real property in Las Vegas, Nevada, purchased by Mr. Weis in full satisfaction
of the sums advanced to him. See "Settlement with Steven S. Weis."
SCHEDULE OF INDEBTEDNESS. The following table shows, as to each director
or executive officer whose indebtedness exceeded $60,000, the largest aggregate
amount of such indebtedness during fiscal year 1994 and the balance due the
Company as of February 10, 1995.
<TABLE>
<CAPTION>
Largest Balance
Aggregate Due as of
Indebtedness February 10, 1995
------------ -----------------
<S> <C> <C>
Richard L. Conte $ 295,000 $ -0-
Kay E. Seim 299,000 294,000
Ronald L. Ooley 345,000 344,000
Julia Kopta 100,900 100,000
Steven S. Weis 441,000 -0-
</TABLE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. The Financial Statements listed in
response to Item 8 are filed herewith.
2. The following Financial Statement Schedules is filed herewith:
Valuation and Qualifying Accounts
3. Exhibits:
(3) Articles of Incorporation and By-laws
3.1 Restated Articles of Incorporation as adopted by vote of shareholders
on May 20, 1993 (filed as Appendix B to Registrant's Proxy Statement dated April
20, 1993 relating to the annual meeting of its shareholders on May 20, 1993 and
incorporated in full herein by this reference).
3.2 By-Laws as amended by vote of shareholders on May 23, 1991 (filed as
Exhibit 3.2 to Registrant's Annual Report on Form 10-K for its fiscal year ended
November 30, 1991 and incorporated in full herein by this reference) and as
amended by vote of shareholders on May 20, 1993 (filed as Appendix A to
Registrant's Proxy Statement dated April 20, 1993 relating to the annual meeting
of its shareholders on May 20, 1993 and incorporated in full herein by this
reference).
(10) Material Contracts
10.1 Employment Contract Number Four between Registrant and Richard L.
Conte, dated as of May 1, 1992 (filed as Exhibit 10.1 to Registrant's Annual
Report on Form 10-K for its fiscal year ended November 30, 1993 and incorporated
in full herein by reference).*
10.2 Amendment Number One dated as of July 29, 1994, to Employment
Contract Number Four between Registrant and Richard L. Conte.*
10.3 Supplemental Retirement Contract between Registrant and Richard L.
Conte, dated as of September 1, 1988 (filed as Exhibit 10.4 to Registrant's
Annual Report on Form 10-K for its fiscal year ended November 30, 1988 and
incorporated in full herein by this reference).*
10.4 Restated and Amended Employment Contract between Registrant and Robert
L. Green, dated June 1, 1988 (filed as Exhibit 10.1 to Registrant's Annual
Report on Form 10-K for its fiscal year ended November 30, 1988, and
incorporated in full herein by this reference).
<PAGE>
PART IV (CONTINUED)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(CONTINUED)
10.5 Amendment Number One dated as of August 1, 1989, and Amendment Number
Two dated as of December 1, 1989 to Restated and Amended Employment Contract
between Registrant and Robert L. Green.
10.6 Employment Agreement between Registrant and David A. Wakefield dated
as of July 31, 1992.*
10.7 Employment Contract between Registrant and Kay E. Seim dated as of
June 15, 1992 (filed as Exhibit 10.9 to Registrant's Annual Report on Form 10-K
for its fiscal year ended November 30, 1993 and incorporated in
full herein by this reference).
10.8 Termination Agreement between Registrant and Steven S. Weis dated as
of December 30, 1994.
10.9 Form of Indemnification Agreements between Registrant and its
Directors and Executive Officers (filed as Exhibit C to Registrant's Proxy
Statement, dated April 24, 1987, relating to the annual meeting of its
shareholders on June 1, 1987, and incorporated in full herein by this
reference).
10.10 Registrant's 1989 Stock Incentive Plan (filed as Exhibit A to
Registrant's Proxy Statement, dated July 12, 1989, and incorporated in full
herein by this reference).*
10.10.1 Form of Stock Option Agreement (filed as Exhibit 10.6.1 to
Registrant's Report on Form 10-K for its fiscal year ended November 30, 1990 and
incorporated in full herein by this reference).*
10.10.2 Form of Nonstatutory Stock Option Agreement with Director (filed as
Exhibit 10.6.2 to Registrant's Report on Form 10-K for its fiscal year ended
November 30, 1990 and incorporated in full herein by this reference).*
10.11 Registrant's Combined Stock Option Plan for Key Employees and
Amendment Numbers One, Two, Three, Four and Five thereto (filed as Exhibit 10.7
to Registrant's Report on Form 10-K for its fiscal year ended November 30, 1989
and incorporated in full herein by this reference).*
10.11.1 Form of Stock Option Agreement--General Stock Option (filed as
Exhibit 10.7.1 to Registrant's Report on Form 10-K for its fiscal year ended
November 30, 1989 and incorporated in full herein by this reference).*
10.11.2 Form of Stock Option Agreement--Incentive Stock Option (filed as
Exhibit 10.7.2 to Registrant's Report on Form 10-K for its fiscal year ended
November 30, 1989 and incorporated in full herein by this reference).*
<PAGE>
PART IV (CONTINUED)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(CONTINUED)
10.12 Credit Agreement among Registrant, Transitional Hospitals Corporation
and Bank of America National Trust and Savings Association, dated as of
September 20, 1993 (filed as Exhibit 10 to Registrant's Report on Form 10-Q for
its fiscal quarter ended August 31, 1993 and incorporated in full herein by
this reference).
10.13 Credit Agreement, among Registrant, Priory Hospitals Group Limited
and Bank of America National Trust and Savings Association dated as of December
23, 1993 (filed as Exhibit 10.11 to Registrant's Annual Report on Form 10-K for
its fiscal year ended November 30, 1993, and incorporated herein by this
reference).
10.14 Credit Agreement among Registrant, Transitional Hospitals Corporation
and Bank of American National Trust Savings Association, dated as of May 6, 1994
(filed as Exhibit 10 to Registrant's Report on Form 10-Q for its fiscal year
ended May 31, 1994, and incorporated herein by this reference).
10.15 First Amendment to Credit Agreement among Registrant, Transitional
Hospitals Corporation and Bank of America National Trust Savings Association
dated as of December 14, 1994.
10.16 Letter of Intent dated February 15, 1995 extending due date under
Credit Agreement referred to in Exhibit 10.15.
(11) Statement re computation of earnings per share
(22) Subsidiaries of the Registrant
(24) Consents of Experts
(b) Report on Form 8-K: None.
*Required to be filed as an exhibit pursuant to item 14(c) of this Form.
<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.
COMMUNITY PSYCHIATRIC CENTERS
By:/s/ Richard L. Conte Date: February 24, 1995
------------------------
Richard L. Conte
Chairman of the Board
of Directors and
Chief Executive Officer
(Principal Executive 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.
/s/ Richard L. Conte Date: February 24, 1995
------------------------
Richard L. Conte
Chairman of the Board
of Directors and
Chief Executive Officer
(Principal Executive Officer)
/s/ Wendy Simpson Date: February 24, 1995
------------------------
Wendy Simpson
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ David Wakefield Date: February 24, 1995
------------------------
David Wakefield
Director and Executive
Vice President of the Company,
and Chairman Priory Hospitals Group
/s/ Hartly Fleischmann Date: February 24, 1995
------------------------
Hartly Fleischmann
Director
/s/ Jack H. Lindheimer, M.D. Date:February 24, 1995
----------------------------
Jack H. Lindheimer, M.D.
Director and
Medical Director,
U.S. Psychiatric Services
/s/ Dana L. Shires, Jr., M.D. Date: February 24, 1995
-----------------------------
Dana L. Shires, Jr., M.D.
Director
/s/ David L. Dennis Date: February 24, 1995
------------------------
David L. Dennis
Director
/s/ Robert L. Thomas Date: February 24, 1995
------------------------
Robert L. Thomas
Director
/s/ Steven M. Gray Date: February 24, 1995
-----------------------
Steven M. Gray
Vice President and Corporate Controller
(Principal Accounting Officer)
<PAGE>
Annual Report Form 10-K
Item 8, Item 14(a)(1) and (2), (c) and (d)
Financial Statements and Supplementary Data
List of Financial Statements and Financial Statement Schedule
Certain Exhibits
Financial Statement Schedule
Community Psychiatric Centers and Subsidiaries
Las Vegas, Nevada
YEAR ENDED NOVEMBER 30, 1994
<PAGE>
Community Psychiatric Centers
Form 10-K Item 14(a)(1) and (2)
List of Financial Statements and Financial Statement Schedules
The following consolidated financial statements of Community
Psychiatric Centers and Subsidiaries are included in Item 8:
Report of Independent Auditors
Consolidated statements of operations - Years ended November 30,
1994, 1993 and 1992
Consolidated balance sheets - November 30, 1994 and 1993
Consolidated statements of stockholders' equity - Years ended
November 30, 1994, 1993 and 1992
Consolidated statements of cash flows - Years ended November 30,
1994, 1993 and 1992
Notes to consolidated financial statements - November 30, 1994
The following consolidated financial statement schedule of Community
Psychiatric Centers and Subsidiaries is included in Item 14(d):
Schedule VIII - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore
have been omitted.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Community Psychiatric Centers
We have audited the accompanying consolidated balance sheets of
Community Psychiatric Centers and Subsidiaries as of November 30, 1994 and
1993, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended
November 30, 1994. Our audits also included the financial statement
schedule listed in the index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether 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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Community Psychiatric Centers and Subsidiaries at November 30,
1994 and 1993, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended November 30,
1994, in conformity with generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
As discussed in Note 5 to the consolidated financial statements,
effective December 1, 1992, the Company adopted Statement of Financial
Accounting Standard No. 109 "Accounting for Income Taxes."
ERNST & YOUNG LLP
Los Angeles, California
January 27, 1995
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30
-----------------------
1994 1993
---- ----
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 37,263 $ 24,640
Short-term investments 13,756 10,932
Accounts receivable, less allowance for doubtful
accounts (1994 - $29,381 and 1993--$22,658) 103,128 80,024
Prepaid expenses and other current assets 18,305 16,468
Property held for sale, net 7,774 10,551
Refundable income taxes -- 5,763
Deferred income taxes 3,773 1,859
-------- --------
Total current assets 183,999 150,237
Property, buildings and equipment, at cost, less
allowances for depreciation 376,765 339,078
Other assets:
Refundable income taxes 1,103 --
Deferred income taxes 1,720 1,126
Other assets 25,207 24,178
-------- --------
28,030 25,304
Excess of investment in subsidiaries over net assets
acquired, less accumulated amortization
(1994 - $3,418 and 1993 - $2,940) 16,610 15,721
-------- --------
$605,404 $530,340
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
NOVEMBER 30
-----------------------
1994 1993
---- ----
(IN THOUSANDS,
EXCEPT
PAR VALUE DATA)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,305 $ 15,332
Accrued payroll and other expenses 34,624 23,033
Dividends payable -- 111
Income taxes payable 5,845 2,641
Payable to third parties under reimbursement
contracts 5,802 4,990
Accrued restructuring charges 2,703 8,666
Current maturities on long-term debt 13,224 940
-------- --------
Total current liabilities 80,503 55,713
Long-term debt, exclusive of current maturities 69,090 40,718
Deferred credits:
Deferred compensation 1,816 1,814
Deferred income taxes 13,956 9,603
-------- --------
15,772 11,417
Stockholders' equity:
Preferred stock, par value $1 a share; authorized
2,000 shares; none issued -- --
Common stock, par value $1 a share; authorized
100,000 shares; issued 46,856 in 1994
and 1993 46,856 46,856
Additional paid-in capital 61,357 65,341
Less due from employees for exercise of stock options (35) (35)
-------- --------
108,178 112,162
Retained earnings 369,131 359,345
Foreign currency translation adjustment (1,805) (3,815)
-------- --------
475,504 467,692
Less cost of treasury stock--3,265 shares in 1994
and 3,763 shares in 1993 (35,465) (45,200)
-------- --------
440,039 422,492
-------- --------
$605,404 $530,340
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
--------------------------------------
1994 1993 1992
---- ---- ----
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Net operating revenues $423,955 $335,578 $344,274
Other income 3,785 2,301 3,433
-------- -------- --------
427,740 337,879 347,707
Costs and expenses:
Operating expense 328,508 256,661 255,799
General and administrative expense 33,775 26,806 21,747
Bad debt expense 26,966 21,266 17,482
Depreciation and amortization 18,649 14,330 14,319
Interest (principally on long-term debt) 3,545 2,420 1,607
Restructuring charge (875) 54,950 --
-------- -------- --------
410,568 376,433 310,954
-------- -------- --------
Earnings (loss) before income taxes 17,172 (38,554) 36,753
Income taxes (credit) 6,952 (13,662) 13,616
-------- -------- --------
Net earnings (loss) $ 10,220 $(24,892) $ 23,137
-------- -------- --------
-------- -------- --------
Earnings (loss) per common share $ 0.24 $ (0.58) $ 0.52
-------- -------- --------
-------- -------- --------
Average number of common shares 43,465 42,951 44,668
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
AMOUNTS
DUE FROM
EMPLOYEES
FOR FOREIGN
ADDITIONAL EXERCISE CURRENCY TREASURY STOCK
COMMON PAID-IN OF STOCK RETAINED TRANSLATION ------------------
STOCK CAPITAL OPTIONS EARNINGS ADJUSTMENT SHARES AMOUNT
------ --------- --------- -------- ----------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at November 30, 1991 $46,855 $67,828 $ (141) $380,995 $2,580 (665) $(14,181)
Payments on amounts due on stock
options 2
Subordinated debenture conversion 1 3
Stock repurchased (3,166) (34,464)
Net earnings for year 23,137
Dividends paid, $.36 per common share (16,030)
Foreign currency translation
adjustment (5,652)
------- ------- -------- --------- ------- ------ --------
Balance at November 30, 1992 46,856 67,831 (139) 388,102 (3,072) (3,831) (48,645)
Exercise of employees' stock
options (2,620) 153 4,283
Payments on amounts due on stock
options 104
Income tax benefits derived from
employee stock option transactions 130
Stock repurchased (85) (838)
Net loss for the year (24,892)
Dividends paid, $.09 per common share (3,865)
Foreign currency translation
adjustment (743)
------- ------- -------- --------- ------- ------ --------
Balance at November 30, 1993 46,856 65,341 (35) 359,345 (3,815) (3,763) (45,200)
Exercise of employees' stock options (4,052) 498 9,735
Income tax benefits derived from
employee stock option transactions 68
Net earnings for year 10,220
Dividends paid, $.01 per common share (434)
Foreign currency translation
adjustment 2,010
------- ------- -------- --------- ------- ------ --------
Balance at November 30, 1994 $46,856 $61,357 $ (35) $369,131 $(1,805) (3,265) $(35,465)
------- ------- -------- --------- ------- ------ --------
------- ------- -------- --------- ------- ------ --------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
--------------------------------------
1994 1993 1992
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 10,220 $(24,892) $ 23,137
Items not resulting in cash flows:
Depreciation and amortization 18,649 14,330 14,319
Provision for uncollectible accounts 26,966 21,266 17,482
Restructuring charge (credit) (875) 54,950 --
(Gain) loss on sale of property,
buildings and equipment (1,970) (232) 387
Other (1,780) 1,343 166
Changes in assets and liabilities,
exclusive of business acquisitions:
Short-term investments (2,824) (10,932) --
Accounts receivable (50,070) (23,948) (8,737)
Payable to third parties under
reimbursement contracts 812 3,170 9,260
Prepaid expenses and other current
assets (1,837) (3,138) (1,106)
Accounts payable and accrued expenses 14,564 11,334 2,303
Accrued restructuring costs (5,088) (8,892) --
Dividends payable (111) (3,839) (232)
Income taxes 9,709 (10,685) 5,561
-------- -------- --------
Net cash provided from operations 16,365 19,835 62,540
FINANCING:
Proceeds from revolving credit facilities 41,982 13,267 --
Dividends paid (434) (3,865) (16,030)
Purchase of treasury shares -- (838) (34,464)
Payments of deferred compensation (162) (6,448) --
Net proceeds from exercise of stock
options, payments on loans and related
transactions 5,683 1,897 --
Payments on long-term debt (1,402) (667) (1,703)
-------- -------- --------
Net cash provided from (used for) financing
activities 45,667 3,346 (52,197)
INVESTING:
Payment received on notes 3,437 669 277
Purchase of property, buildings and
equipment (48,760) (58,269) (19,419)
Investment in pre-opening costs (4,225) (2,904) (1,365)
Proceeds from sale of property, buildings
and equipment 7,393 1,039 --
Loans made to officers (1,242) (227) (916)
Investment in affiliate -- (1,602) --
Payment for business acquisitions:
Property, buildings and equipment (4,787) (965) --
Excess of purchase price over fair value
of assets acquired (1,225) (4,119) (584)
-------- -------- --------
Net cash used for investing activities (49,409) (66,378) (22,007)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents 12,623 (43,197) (11,664)
Beginning cash and cash equivalents 24,640 67,837 79,501
-------- -------- --------
Ending cash and cash equivalents $ 37,263 $ 24,640 $ 67,837
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1994
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany transactions have been
eliminated in the accompanying consolidated financial statements.
The excess of investment in subsidiaries over net assets acquired resulting
from acquisitions subsequent to 1970 is being amortized on a straight-line basis
over 40 years.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Those highly liquid
assets with a maturity of more than three months are classified as short-term
investments.
PROPERTY, BUILDINGS AND EQUIPMENT
Depreciation is generally computed on the straight-line method based on the
estimated useful lives of buildings or items of equipment.
PREOPENING COSTS
Costs incurred prior to the opening of new facilities are deferred and
amortized on a straight-line basis over a five-year period.
CAPITALIZATION OF INTEREST
Interest incurred in connection with development and construction of
hospitals is capitalized as part of the related property.
NET OPERATING REVENUES
Net operating revenues include amounts for hospital services estimated by
management to be reimbursable by federal and state government programs
(Medicare, Medicaid and CHAMPUS); negotiated programs (managed care companies,
health maintenance organizations and preferred provider organizations) and
private pay payors (private sources and insurance companies which base
reimbursement on the Company's price schedule).
The following table summarizes the percent of net operating revenue
generated from all payors (1994 and 1993 percentages include THC operations).
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Government and other cost-based* 44% 24% 16%
CHAMPUS 5 5 4
Negotiated rate 33 41 35
Private pay 18 30 45
---- ---- ----
100% 100% 100%
---- ---- ----
---- ---- ----
<FN>
* Includes Medicare DRG payments to THC.
</TABLE>
Amounts received are generally less than the established billing rates of
the Company and the difference is reported as a contractual allowance and
deducted from operating revenues. Final determination of amounts earned for
hospital services is subject to audit by the payors. In the opinion of
management, adequate provision has been made for any adjustments that may
result from such audits. Differences between estimated provisions and final
settlement are reflected as charges and credits to operating revenues in the
year the audit reports are finalized. In the current year, the Company
received approximately $5.5 million in excess of recorded amounts related to
prior year Medicare settlements. These amounts are included in operating
revenue.
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
receivables from government programs.
The Company maintains cash equivalents and short-term investments with various
financial institutions. The Company's policy is designed to limit exposure to
any one institution. The Company performs periodic evaluations of the relative
credit standing to those financial institutions that are considered in the
Company's investment strategy. The Company and management do not believe that
there are any credit risks associated with receivables from governmental
programs. Negotiated and private receivables consist of receivables from
various payors, including individuals involved in diverse activities, subject to
differing economic conditions, and do not represent any concentrated credit
risks to the Company. Furthermore, management continually monitors and adjusts
its reserves and allowances associated with these receivables.
STOCK OPTIONS
Proceeds from the exercise of stock options are credited to common stock, to the
extent of par value, and the balance to additional paid-in capital, except when
shares held in the treasury are issued. The difference between the cost of the
treasury stock and the option price is charged or credited to additional paid-in
capital. No charges or credits are made to earnings with respect to options
granted or exercised. Income tax benefits derived from exercise of
non-incentive stock options and from sales of stock obtained from incentive
stock options before the minimum holding period are credited to additional
paid-in capital.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share have been computed based upon the weighted average
number of shares of common stock outstanding during the year. Dilutive common
stock equivalents have not been included in the computation of earnings (loss)
per share because the aggregate potential dilution resulting therefrom is less
than 3%.
TRANSLATION OF FOREIGN CURRENCIES
The financial statements of the Company's foreign subsidiaries have been
translated into U.S. dollars in accordance with FASB Statement No. 52. All
balance sheet accounts have been translated at year-end exchange rates.
Statements of earnings amounts have been translated at the average exchange rate
for the year. The resulting currency translation adjustments were made directly
to a separate component of Stockholders' Equity. The effect on the statement of
earnings of translation gains and losses is insignificant for all years
presented.
RECLASSIFICATIONS
Certain amounts have been reclassified to conform with 1994 presentations.
Certain hospital expenses that were previously classified as general and
administrative expense have been re-classified to operating expenses for all
periods presented.
NOTE 2--RESTRUCTURING CHARGE
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
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--RESTRUCTURING CHARGE (CONTINUED)
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, two have been sold, three are being held for sale or lease, and one
is being converted into a THC facility. The Company received cash proceeds of
approximately $5 million in January and February of 1994 from the sale of two of
these hospitals.
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 year-ago
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, including termination benefits paid, approximated amounts
originally accrued. Total revenue and net operating income or (loss) for the
three closed hospitals totalled $2.8 million and ($1.1 million) for the first
quarter of 1994, $20.0 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 classified as held for sale, one was converted into a THC facility, and
one will be converted into a THC facility in fiscal year 1995.
NOTE 3--ACQUISITIONS
In April 1990, the Company acquired the assets of Harvard Medical Limited, a
patient liaison business in West Germany for approximately $2.3 million
including acquisition costs. The purchase agreement provided for additional
annual payments through 1993 if certain economic performance criteria were
achieved. In September 1991, October 1992, and October 1993, total additional
payments of $2.3 million were made.
During 1993, the Company acquired six buildings and the related fixed assets and
modified the buildings into six long-term critical care facilities. Total
consideration paid was $33.0 million. The Company also acquired a substance
abuse center in the United Kingdom for a purchase price of $4.3 million.
During 1994, the Company acquired two hospitals in the United Kingdom for a
total purchase price of $5.7 million.
The aggregate total costs of these acquisitions exceeded the fair value of the
assets acquired by approximately $8.7 million. The excess is being amortized on
a straight-line basis over a 40-year period. The acquisitions have been
accounted for as purchases and, accordingly, the results of operations of the
acquired facilities have been included in the consolidated statement of earnings
since the date of acquisition. The results of operations of the acquired
businesses prior to the date of acquisition were not material to the
consolidated financial statements.
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30
-------------------
1994 1993
---- ----
(IN THOUSANDS)
<S> <C> <C>
Land $ 61,570 $ 55,685
Buildings and improvements 302,779 282,027
Furniture, fixtures and equipment 94,285 70,855
Construction in progress (estimated additional
cost to complete at November 30, 1994--$5.2 million) 11,068 8,362
-------- --------
469,702 416,929
Less accumulated depreciation (92,937) (77,851)
-------- --------
$376,765 $339,078
-------- --------
-------- --------
</TABLE>
The Company incurred interest expense of $4.8 million, $2.5 million and $2.4
million in 1994, 1993 and 1992, respectively, including $1.3 million, $.2
million and $.8 million which was capitalized in 1994, 1993 and 1992,
respectively.
Interest paid excluding the capitalized portion was $4.1 million, $2.5 million,
and $1.6 million during 1994, 1993 and 1992, respectively.
NOTE 5--INCOME TAXES
Effective December 1, 1992, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by FASB
Statement No. 109, "Accounting for Income Taxes". The changes required by FASB
No. 109 (principally adjusting the balances of certain deferred tax accounts)
did not have a significant effect on the financial statements of the Company.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of November 30, 1994 and
November 30, 1993, are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Deferred tax liabilities:
Excess tax depreciation $ 21,978 $ 21,421
Other 1,859 2,219
Restructuring charge ( 9,881) (14,037)
-------- --------
Total deferred tax liabilities $ 13,956 $ 9,603
-------- --------
-------- --------
Deferred tax assets:
Current:
Excess of book over tax bad debt provision $ 3,506 $ 1,575
Other 267 284
-------- --------
Total current deferred tax assets $ 3,773 $ 1,859
-------- --------
-------- --------
Non-current:
Net operating loss $ 3,781 $ 2,134
Restructuring charge 1,827 1,882
Excess tax depreciation (1,647) (2,136)
Other (287) (54)
Net operating loss valuation reserve (1,954) (700)
-------- --------
Total non-current deferred tax assets $ 1,720 $ 1,126
-------- --------
-------- --------
</TABLE>
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--INCOME TAXES (CONTINUED)
Deferred tax liabilities and assets by tax jurisdictions are as follows (in
thousands):
<TABLE>
<CAPTION>
DEFERRED DEFERRED
TAX ASSET TAX LIABILITIES
--------- ---------------
CURRENT NON-CURRENT CURRENT NON-CURRENT
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
U.S. Federal Income
Taxes (consolidated) $3,283 $ -- $ -- $11,917
Foreign (U.K.) -- -- -- 2,039
State 490 1,720 -- --
------ ------ ------ -------
$3,773 $1,720 $ -- $13,956
------ ------ ------ -------
------ ------ ------ -------
</TABLE>
For financial reporting purposes, income before income taxes includes the
following components:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Pretax income (loss):
United States $ 7,846 $(44,796) $29,566
Foreign 9,326 6,242 7,187
-------- -------- -------
$ 17,172 $(38,554) $36,753
-------- -------- -------
-------- -------- -------
</TABLE>
Significant components of the provision for income taxes attributable
to continuing operations are as follows:
<TABLE>
<CAPTION>
DEFERRED
LIABILITY METHOD METHOD
---------------- --------
1994 1993 1992
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal $ 1,497 $ (3,576) $ 7,951
Foreign 1,996 2,169 1,773
State 1,614 611 1,325
-------- -------- -------
Total current 5,107 (796) 11,049
Deferred:
Federal 1,295 (9,967) 2,697
Foreign 1,364 (94) (116)
State (814) (2,805) (14)
-------- -------- -------
Total deferred 1,845 (12,866) 2,567
-------- -------- -------
$ 6,952 $(13,662) $13,616
-------- -------- -------
-------- -------- -------
</TABLE>
The components of the provision for deferred income taxes for the year
ended November 30, 1992 are as follows:
<TABLE>
<CAPTION>
1992
----
(IN THOUSANDS)
<S> <C>
Depreciation $ 1,771
Bad debts 733
Other 63
-------
Provision for deferred income taxes $ 2,567
-------
-------
</TABLE>
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--INCOME TAXES (CONTINUED)
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to income tax expense is:
<TABLE>
<CAPTION>
LIABILITY METHOD DEFERRED METHOD
----------------------------------------------------- ------------------------
1994 1993 1992
------------------------ ----------------------- ------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory
rates $ 5,838 34% ($13,108) (34)% $12,496 34%
State income taxes,
net of federal tax
benefit, (charge) 528 3 ( 1,448) (4) 865 2
Restructuring-intangibles -- -- 730 2 -- --
Other--net 586 4 164 1 255 1
-------- --- -------- ---- ------- ----
$ 6,952 41% ($13,662) (35%) $13,616 37%
-------- --- -------- ---- ------- ----
-------- --- -------- ---- ------- ----
</TABLE>
The Company received income tax refunds (net of income taxes paid of $4.5
million and $3.2 million) of $2.3 million and $3.2 million in 1994 and 1993,
respectively. The Company made income tax payments of $7.9 million in 1992.
NOTE 6--LONG-TERM DEBT
<TABLE>
<CAPTION>
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Borrowings under revolving credit agreements $55,169 $13,267
5 3/4% Convertible Subordinated Debentures due
2012, convertible into Common Stock of the
Company at $35.89 per share, may be redeemed
at 103.75% of face value as of October 15,
1992 declining annually to 100% of face value
on or after October 15, 1999 7,366 7,903
8 3/4% Subordinated Guaranteed Debentures due
1996 (net of unamortized discount of $44) 4,956 4,932
8 1/2% Subordinated Guaranteed Debentures due
1995 (net of unamortized discount of $22) 10,840 10,788
Notes payable, collateralized by deeds of trust on
land, buildings and equipment with a cost of
approximately $8,051, payable in installments to
2004 including interest ranging from 7% to 10 1/2% 1,903 2,421
Note payable due December 31, 1994, interest payable
quarterly at the LIBOR rate plus 2% 1,485 1,485
Other 595 862
------- -------
82,314 41,658
Less current portion 13,224 940
------- -------
$69,090 $40,718
------- -------
------- -------
</TABLE>
During May 1994, the Company, Transitional Hospitals Corporation (THC - the
Company's wholly-owned long-term care subsidiary) and Bank of America National
Trust and Savings Association ("the Bank") entered into a credit agreement ("the
Agreement") whereby the Company or THC may borrow, repay and reborrow up to $50
million through February 28, 1996. Interest is payable at LIBOR plus 2.75%
through February 28, 1995. Interest through February 28, 1996 is payable at
LIBOR plus 1.50%. As of November 30, 1994, $20 million is outstanding under
this agreement.
During September 1993, the Company entered into a credit agreement ("the
Agreement") whereby the Company may borrow, repay and reborrow up to $25 million
through November 30, 1995 (the revolving loan period), at which time any amount
outstanding is converted into a term loan payable in equal quarterly
installments through November 30, 1998. Interest is payable at the lesser of
(1) LIBOR plus 1.25% during the revolving loan period and LIBOR plus 1.50%
during the term loan period or (2) the greater of (a) the Bank's reference rate
or (b) the Fed Funds rate plus .5%. As of November 30, 1994, $25 million is
outstanding under this agreement.
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--LONG-TERM DEBT (CONTINUED)
During October 1993, the Company's subsidiary in the United Kingdom entered
into a temporary revolving credit facility whereby the Company was allowed to
borrow up to $7.5 million through December 31, 1993. Interest was to be
calculated at the rate of interest at which sterling pounds deposits would be
offered to major banks in the London interbank market, plus 1.25%. A final loan
agreement was signed in December 1993 to replace the temporary facility whereby
the Company may borrow up to 10 million sterling pounds through November 30,
1995, at which time any amount outstanding is converted into a term loan payable
in equal quarterly installments through November 30, 1998. Interest is payable
at the sterling pounds LIBOR rate plus 1.25% up to the conversion date and LIBOR
plus 1.50% after the conversion date. As of November 30, 1994, $10.2 million is
outstanding under this facility.
The Agreements contain provisions which, among other things, place
restrictions on borrowing, capital expenditures and the payment of dividends,
and requires the maintenance of certain financial ratios including tangible net
worth, fixed charge coverage and funded debt. The Company is currently in
compliance with all material covenants and restrictions contained in the
Agreements. Borrowings are unsecured and are guaranteed by the Company's
domestic subsidiaries.
Under the terms of the Debenture Payment Assumption Agreement, Vivra
Incorporated is obligated to pay $4.1 million of the 8 1/2% Subordinated
Guaranteed Debentures due 1995. The balance shown above has been reduced by
that amount. The Company has guaranteed the payment by Vivra.
The conversion price of the convertible debentures is subject to
antidilutive provisions.
The annual maturities of debt for five years ending November 30, 1999 are
as follows (In thousands):
1995 $13,224
1996 $36,994
1997 $12,025
1998 $11,872
1999 $ 172
NOTE 7--CAPITAL STOCK AND STOCK OPTIONS
The Company has stock option plans whereby options may be granted at not less
than 100% of fair market value at the date of grant and are exercisable at any
time thereafter for a period of ten years, or five years for options granted
prior to November 8, 1990. Options granted on and after November 8, 1990, are
exercisable 20% at date of grant with the remaining 80% becoming exercisable at
the rate of 20% each December 1 thereafter, with the exception of 100,000
options re-issued to certain officers of the Company (see below) which vested
immediately. At the time of exercise, at least one-third is payable in cash and
the balance, if any, with a five-year note bearing interest at 8%. The unpaid
portion of options exercised, evidenced by a note, has been deducted from
Stockholders' Equity in the accompanying Consolidated Balance Sheet. Stock
options may also be exercised by the return of previously acquired shares of
common stock. Shares obtained by such exercises are included in treasury stock
and valued at the market value at date of exercise.
On May 20, 1993, the Company issued 860,000 of non-qualified options to
several key executives. The option price is $20 above the closing price of the
Company's stock on the date of grant, or $29.50 per share. For each year during
which the Company meets specified performance targets, the option price will
decrease by $5.00 until the option price and market price converge. The option
price will be fixed at the market price on the date of convergence and the
options will vest. If convergence does not occur during the first five years
after grant of the options, the options will be cancelled and the shares will
revert to the 1989 Stock Incentive Plan and be available for reissuance. The
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--CAPITAL STOCK AND STOCK OPTIONS (CONTINUED)
Company met these targets for fiscal 1993. During fiscal year 1994, 146,000
shares of converging options were issued at an option price of $24.50 per share.
On February 14, 1992, 315,200 outstanding options granted in previous years
at prices ranging from $18.54 to $34.13 were revalued to $14.63, the market
price on that day. Options granted previously to the five then most
highly-compensated officers were not revalued. On January 29, 1993, 717,249
options granted previously to those individuals were cancelled, revalued, and
re-issued at a 1 to 2 ratio. The options were granted in previous years at
prices ranging from $24.08 to $26.81. The options were revalued to $10.88, $.25
higher than the closing market price on that day.
A summary of activity under the plans during 1994, 1993 and 1992 is as
follows:
<TABLE>
<CAPTION>
NUMBER AGGREGATE
OF SHARES PER SHARE OPTION PRICE
--------- -------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Options outstanding at November 30,
1991 1,572,600 $18.54-34.13 $ 41,188
Options granted 624,000 10.88-14.63 8,108
Options cancelled and expired (132,600) 21.27-27.13 (3,451)
Options revalued (3,769)
---------- ------------ --------
Options outstanding at November 30,
1992 2,064,000 10.88-31.88 42,076
Options granted 2,325,000 9.50-33.00 40,673
Options cancelled and expired (1,017,000) 14.63-31.88 (23,593)
Options revalued and reissued 359,000 10.88 3,906
Treasury stock issued on exercise (153,000) 10.88-14.63 (1,663)
---------- ------------ --------
Options outstanding at November 30,
1993 3,578,000 $ 9.50-33.00 $ 61,399
Options granted 1,264,000 12.38-24.50 18,591
Options cancelled and expired (498,000) 9.50-14.63 (5,673)
Treasury stock issued on exercise (355,000) 9.50-33.00 (5,295)
Options converged 24.50 (4,300)
---------- ------------ --------
Options outstanding at November 30,
1994 3,989,000 $9.50-33.00 $ 64,722
---------- ------------ --------
---------- ------------ --------
</TABLE>
The market value of the Company's common stock at the date the options were
exercised was $11.88 - $18.75 for 1994.
The market value of the Company's common stock at the date the options were
exercised was $13.00 - $13.88 for 1993. There were no options exercised in
1992.
At November 30, 1994, 1.3 million options were exercisable and 1.7 million
(2.7 million and .4 million at November 30, 1993 and 1992) were available for
grant under the plans.
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--DEFERRED COMPENSATION
On May 21, 1992, the then Chairman of the Board of Directors of the Company
resigned. During the course of his employment with the Company, the former
Chairman had an employment contract which provided for consideration for
consulting services and a noncompetition agreement to commence in 1995 or
earlier in the event of permanent disability. The consideration was equivalent
to one-half of the total qualifying compensation paid during full time
employment from December 1, 1970 through November 30, 1990 and commencing
December 1, 1975, the amount on which such qualifying consideration was based
increased by 6.5% annually through November 30, 1990 and 8% annually thereafter.
The amount due under the terms of the contract was payable in equal annual
installments over the life of the former Chairman.
At the time of the former Chairman's resignation, an acceleration of
payments due him was agreed to by the Company. Based on a computation of the
present value of the contractually due amount, a payment of $6.3 million was
made in December 1992. Of this amount, $3.4 million was provided for in the
financial statements of the Company through November 30, 1992. The remaining
amount, $2.9 million, is being amortized as consideration (approximately
$244,000 annually) for services rendered over the term of the consulting and
non-competition agreements which extend to November 30, 2004.
Effective November 30, 1989, a former Chairman of the Board of Directors
terminated his employment with the Company and began receiving deferred
compensation benefits in accordance with contract terms substantially the same
as the contract described above. Approximately $162,000 of the annual payment
of $323,000 is charged to expense as consideration for services rendered over
the term of the consulting and noncompetition agreements which extend to
November 30, 2000.
Deferred compensation accrued for 1994, 1993 and 1992 was $326,000,
$329,000 and $292,000, respectively.
NOTE 9--PROFIT SHARING PLAN
The Company has a noncontributory, trusteed profit sharing plan which is
qualified under Section 401 of the Internal Revenue Code. All regular nonunion
employees in the United States (union employees are eligible if the collective
bargaining agreement so specifies) with at least 1,000 hours of service per
annum, over 21 years of age, and employed at year-end are eligible for
participation in the plan after one year of employment. The Company's
contribution to the plan for any fiscal year, as determined by the Board of
Directors, is discretionary, but is limited to an amount which is deductible for
federal income tax purposes. Contributions to the plan are allocated among
eligible participants in the proportion of their salaries to the total salaries
of all participants. There were no contributions made by the Company in 1994,
1993 and 1992. During 1993, a 401(k) segment was added to the plan which allows
employees to defer a portion of their salary on a pre-tax basis. The Company
may match a portion of the amount deferred. The Company's matching contribution
is determined by the Board of Directors each year. During 1994, no matching
contribution was made.
NOTE 10--BUSINESS SEGMENT INFORMATION
The Company is engaged in two principal business segments. The Company
provides psychiatric services for adults, adolescents, and children with acute
psychiatric, emotional, substance abuse, and behavioral disorders in the United
States (plus Puerto Rico) and the United Kingdom. The Company also offers long-
term critical care services.
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--BUSINESS SEGMENT INFORMATION (CONTINUED)
The following tables have been prepared in accordance with the requirements
of FASB Statement No. 14. This information has been derived from the Company's
accounting records.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
--------------------------------------
1994 1993 1992
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Net operating revenues:
U.S. Psychiatric division $ 276,698 $ 283,539 $ 310,768
U.K. Psychiatric division 46,226 33,918 33,506
Long-term critical care division 101,031 18,121 --
--------- --------- ---------
$ 423,955 $ 335,578 $ 344,274
Operating profit:
U.S. Psychiatric division $ 29,778 $ 26,559 $ 40,072
U.K. Psychiatric division 12,558 8,893 9,505
Long-term critical care division (7,630) (4,607) (331)
--------- --------- ---------
34,706 30,845 49,246
Other income and expense:
Other income 3,785 2,301 3,433
Depreciation and amortization (18,649) (14,330) (14,319)
Interest expense (3,545) (2,420) (1,607)
Restructuring (charge) credit 875 (54,950) --
--------- --------- ---------
Earnings (loss) before income taxes $ 17,172 $ (38,554) $ 36,753
Identifiable Assets:
U.S. Psychiatric division $ 401,777 $ 410,892 $ 499,110
U.K. Psychiatric division 68,640 50,550 39,684
Long-term critical care division 134,987 68,898 1,806
--------- --------- ---------
$ 605,404 $ 530,340 $ 540,600
Depreciation Expense:
U.S. Psychiatric division $ 9,948 $ 10,401 $ 11,021
U.K. Psychiatric division 2,316 1,691 1,610
Long-term critical care division 3,611 478 --
--------- --------- ---------
$ 15,875 $ 12,570 $ 12,631
Capitalized Expenditures for property,
building, and equipment: (1)
U.S. Psychiatric division $ 11,194 $ 9,104 $ 10,914
U.K. Psychiatric division 6,209 5,018 7,254
Long-term critical care division 31,357 44,147 1,251
--------- --------- ---------
$ 48,760 $ 58,269 $ 19,419
<FN>
(1) Excludes assets acquired in business acquisitions of $4.8 million and $1
million in 1994 and 1993, respectively.
</TABLE>
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
SHORT-TERM INVESTMENTS: The fair values for marketable securities are
based on quoted market prices.
LONG-TERM AND SHORT-TERM DEBT: The carrying amounts of the Company's long-
term and short-term debt approximates its fair value.
The carrying amounts and fair values of the Company's financial instruments
at November 30, 1994:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- ------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents $37,263 $37,263
Short-term investments $13,756 $13,756
Short-term debt $13,224 $13,224
Long-term debt $69,090 $69,090
</TABLE>
NOTE 12--CONTINGENCIES
Following the release of the Company's third quarter earnings in September
1991, several securities class action lawsuits and one related shareholder
derivative action were filed against the Company and certain of its officers and
directors. These suits allege the Company made false and misleading statements
about its financial condition and business prospects in past periods. The
Company maintains its actions were correct and will vigorously defend these
suits.
The Company is subject to other claims and suits arising in the ordinary
course of business. In the opinion of management, ultimate resolution of all
pending legal proceedings will not have a material adverse effect on the
Company's business or financial condition.
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly data for the three
years ended November 30, 1994:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------
FEBRUARY 28 MAY 31 AUGUST 31 NOVEMBER 30
----------- ------ --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1994
Total revenues $ 92,525 $108,806 $105,660 $120,749
Net earnings 625 2,389 1,667 5,539
Earnings per common share *0.01 0.06 0.04 0.13
Per common share:
Dividend declared -- .01 -- --
Stock prices:
High 19 18 3/4 15 15 5/8
Low 12 1/4 13 11 5/8 9 1/4
1993
Total revenues $ 84,689 $86,149 $80,009 $87,032
Net earnings (loss) (37,935) 3,490 4,068 5,485
Earnings (loss) per common share **(.88) 0.08 0.09 0.13
Per common share:
Dividends declared .09 -- -- --
Stock prices:
High 11 3/4 13 3/4 12 3/4 14 7/8
Low 8 7/8 9 9 3/4 10 1/8
1992
Total revenues $84,451 $94,696 $81,662 $86,898
Net earnings 6,941 12,946 2,098 1,152
Earnings per common share 0.15 0.29 0.05 0.03
Per common share:
Dividends declared 0.09 0.09 0.09 0.09
Stock prices:
High 15 1/2 13 3/4 11 3/4 10 5/8
Low 11 3/4 10 5/8 9 1/2 8 5/8
<FN>
- -----------
* Earnings per share in the first quarter include $(.09) for a pre-tax charge
of $6.3 million ($3.8 million after tax) in connection with the decision to
close three psychiatric facilities. Also included in earnings per share
for the first quarter is a restructuring credit $(.10) totalling $7.2
million ($4.3 million after tax) from the resolution of the previously
restructured psychiatric assets.
** Earnings per share in the first quarter include $(.81) for a pre-tax charge
of $55.0 million ($34.9 million net of tax) in connection with the
restructuring of certain of its psychiatric hospitals.
</TABLE>
<PAGE>
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
------------ -------------- -------------------------------- ------------ ----------------
ADDITIONS
--------------------------------
CHARGED
BALANCE AT TO OTHER
BEGINNING OF CHARGED TO COSTS ACCOUNTS-- DEDUCTIONS-- BALANCE AT END
DESCRIPTION PERIOD AND EXPENSES DESCRIBE DESCRIBE OF PERIOD
--------------- -------------- ---------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended November 30, 1992 $ 23,304,000 $ 17,482,000 $ (19,165,000) (1) $ 21,365,000
(256,000) (2)
Year ended November 30, 1993 21,365,000 21,266,000 (19,943,000) (1) 22,658,000
(30,000) (2)
Year ended November 30, 1994 22,658,000 26,966,000 (20,325,000) (1) 29,381,000
82,000 (2)
<FN>
- ---------------
(1) Write-offs, net of recoveries.
(2) Foreign currency translation adjustment.
</TABLE>
<PAGE>
EXHIBIT INDEXES
EXHIBIT
NO. DOCUMENT
- -------- --------
3 Articles of Incorporation and By-Laws:
3.1 Restated Articles of Incorporation as
adopted by vote of shareholders on May 20, 1993
(filed as Appendix B to Registrant's Proxy
Statement dated April 20, 1993, relating to the
annual meeting of its shareholders on May 20,
1993 and incorporated in full herein by this
reference).
3.2 By-Laws as amended by vote of shareholders
on May 23, 1991 (filed as Exhibit 3.2 to
Registrant's Annual Report on Form 10-k for its
fiscal year ended November 30, 1991 and
incorporated in full herein by this reference)
and as amended by vote of shareholders on May 20,
1993 (filed as Appendix A to Registrant's Proxy
Statement dated April 20, 1993, relating to the
annual meeting of its shareholders on May 20,
1993, and incorporated in full herein by this
reference).
10 Material Contracts
10.1 Employment Contract Number Four between
Registrant and Richard L. Conte, dated as of May 1,
1992 (filed as Exhibit 10.1 to Registrant's
Annual Report on Form 10-K for its fiscal year ended
November 30, 1993, and incorporated in full herein by
reference).*
10.2 Amendment Number One dated as of July 29,
1994 to Employment Contract Number Four between
Registrant and Richard L. Conte.*
10.3 Supplemental Retirement Contract between
Registrant and Richard L. Conte, dated as of
September 1, 1988 (filed as Exhibit 10. to
Registrant's Annual Report on Form 10-K for its
fiscal year ended November 30, 1988 and incorporated
in full herein by this reference).*
10.4 Restated and Amended Employment Contract
between Registrant and Robert L. Green, dated
June 1, 1988 (filed as Exhibit 10.1 to Registrant's
Annual Report on Form 10-K for its fiscal year ended
November 30, 1988, and incorporated in full herein by
this reference).
10.5 Amendment Number One dated as of August 1,
1989, and Amendment Number Two dated as of December 1,
1989 to Restated and Amended Employment Contract
between Registrant and Robert L. Green.
10.6 Employment Agreement between Registrant and
David A. Wakefield dated as of July 31, 1992.*
10.7 Employment Contract between Registrant and
Kay E. Seim dated as of June 15, 1992 (filed as
Exhibit 10.9 to Registrant's Annual Report on Form
10-K for its fiscal year ended November 30, 1993 and
incorporated in full herein by this reference).
<PAGE>
EXHIBIT INDEXES (CONTINUED)
EXHIBIT
NO. DOCUMENT
- ------- --------
10 10.8 Termination Agreement between Registrant and
Steven S. Weis dated as of December 30, 1994.
10.9 Form of Indemnification Agreements between
Registrant and its Directors and Executive Officers
(filed as Exhibit C to Registrant's Proxy Statement,
dated April 24, 1987, relating to the annual meeting
of its shareholders on June 1, 1987, and incorporated
in full herein by this reference).
10.10 Registrant's 1989 Stock Incentive Plan.
(filed as Exhibit A to Registrant's Proxy Statement,
dated July 12, 1989, and incorporated in full herein
by this reference).*
10.10.1 Form of Stock Option Agreement (filed as
Exhibit 10.6.1 to Registrant's Report on Form 10-K
for its fiscal year ended November 30, 1990 and
incorporated in full herein by this reference).*
10.10.2 Form of Nonstatutory Stock Option Agreement
with Director (filed as Exhibit 10.6.2 to Registrant's
Report on Form 10-K for its fiscal year ended
November 30, 1990 and incorporated in full herein by
this reference).*
10.11 Registrant's Combined Stock Option Plan for
Key Employees and Amendment Numbers One, Two, Three,
Four and Five thereto (filed as Exhibit 10.7 to
Registrant's Report on Form 10-K for its fiscal year
ended November 30, 1989 and incorporated in full
herein by this reference).*
10.11.1 Form of Stock Option Agreement--General
Stock Option (filed as Exhibit 10.7.1 to Registrant's
Report on Form 10-K for its fiscal year ended
November 30, 1989 and incorporated in full herein by
this reference).*
10.11.2 Form of Stock Option Agreement--Incentive
Stock Option (filed as Exhibit 10.7.2 to Registrant's
Report on Form 10-K for its fiscal year ended
November 30, 1989 and incorporated in full herein by
this reference).*
10.12 Credit Agreement among Registrant,
Transitional Hospitals Corporation and Bank of
America National Trust and Savings Association,
dated as of September 20, 1993 (filed as Exhibit 10
to Registrant's Report on Form 10-Q for its fiscal
quarter ended August 31, 1993 and incorporated in
full herein by this reference).
10.13 Credit Agreement, among Registrant, Priory
Hospitals Group Limited and Bank of America National
Trust and Savings Association dated as of December 23,
1993 (filed as Exhibit 10.11 to Registrant's Annual
Report on Form 10-K for its fiscal year ended November
30, 1993, and incorporated herein by this reference).
10.14 Credit Agreement among Registrant, Transitional
Hospitals Corporation and Bank of American National Trust
Savings Association, dated as of May 6, 1994 (filed as
Exhibit 10 to Registrant's Report on Form 10-Q for its
fiscal year ended May 31, 1994, and incorporated herein
by this reference).
<PAGE>
EXHIBIT INDEXES (CONTINUED)
EXHIBIT
NO. DOCUMENT
- ------- --------
10 10.15 First Amendment to Credit Agreement among
Registrant, Transitional Hospitals Corporation and Bank of
America National Trust Savings Association, dated as of
December 14, 1994.
10.16 Letter of Intent dated February 15, 1995
extending due date under Credit Agreement referred to
in Exhibit 10.15.
11 Statement re computation of earnings per share.
22 Subsidiaries of the Registrant.
24 Consents of Experts.
*Required to be filed as an exhibit pursuant to item 14(c) of this Form.
<PAGE>
AMENDMENT NUMBER ONE TO
EMPLOYMENT CONTRACT NUMBER FOUR
This Amendment Number One (Amendment) to Employment Contract Number Four
(Contract), dated as of July 29, 1994, is made between community Psychiatric
Centers, a Nevada corporation (CPC) and Richard L. Conte, an individual (Conte).
1 Recitals. This Amendment is made in consideration of the following facts:
1.1 CPC has employed Conte as an executive pursuant to prior contracts and
as its Chief Executive Officer pursuant to the existing Contract, Employment
Contract Number Four.
1.2 The Board of Directors of CPC has authorized and directed Conte and
other employees of CPC to relocate the corporate headquarters from Orange
County, California to Las Vegas, Nevada. The accomplishment of the relocation
of the corporate headquarters and related matters require Conte to promptly
establish and maintain his principal place of business and residence in Clark
County, Nevada.
1.3 CPC desires to revise certain terms of Conte's employment and to
continue to employ him, and Conte desires to continue in CPC's employment.
2 Place of Business. Section 2.2 of the Contract, "Place of Business," is
amended to provide: Effective August 1, 1994, and continuing thereafter during
the Employment Term, Conte's principal place of business shall be in Clark
County, Nevada, and he shall not be obliged to maintain his principal place of
business elsewhere.
3 Relocation Package. CPC will provide to Conte the relocation benefits
specified in Exhibit A, attached and incorporated.
4 No Other changes. Except as specified in this Amendment, the Contract
remains unchanged and in full force.
Community Psychiatric Centers /s/ Richard L. Conte
---------------------------------
Richard L. Conte
By: /s/ Dana L. Shires, M.D.
---------------------------
Title: Chairman, Compensation Committee
---------------------------------
PAGE 1 OF 4
<PAGE>
COMMUNITY Policy No.
PSYCHIATRIC Page:
CENTERS Effective Date:
8/1/94
STAFF RELOCATION POLICY
(Corporate Office Relocation)
I. PURPOSE
To communicate policy and procedures as they relate to reimbursement of
relocation expenses connected with the move of the Corporate Office.
II. POLICY
The Company will provide a uniform basis for reimbursing employees of CPC
for reasonable expenses which are connected with their move.
III. SCOPE
All Corporate Office Executive Vice President.
IV. PROVISIONS
A. Temporary Lodging and Living Expenses
1. Lodging and Meals
The employee and family (if appropriate) will be reimbursed for
lodging and meal expenses incurred during temporary residence
requirements in Las Vegas. The total cost is not to exceed
$1,250.
2. Employees will be reimbursed for transportation expenses for one
trip home prior to relocation of household goods and one
additional trip for the purpose of closing on their former home.
B. Househunting Trips
Employees and their spouses will be entitled to reimbursement for the
actual transportation (including rental car), $20 per day per adult
and $10 per day per child for meals and lodging up to a maximum of two
round trips each -- not to exceed 3 days each trip, inclusive of
travel time. The company will reimburse for children to accompany
parents on one househunting trip.
C. Relocation Expense Allowance
1. Employees will be provided an allowance to cover all or a portion
of each person's incurred expenses. This allowance is intended
to cover a variety of relocation costs.
Examples of costs that this allowance will cover include:
a) Movement of Household Goods
b) Movement of personal automobiles
PAGE 2 OF 4
<PAGE>
c) New Residence Expense
-- Closing costs incurred in connection with the purchase
of a new residence. Reimbursable costs include, but
are not limited to, appraisals required by the mortgage
lender, title insurance, attorney fees, recording fees,
service charges, loan origination fees, loan service
fees, discount points, etc.
-- Interest on construction loans, if necessary.
d) Miscellaneous expenses - including:
-- Cleaning costs
-- Drapes
-- Installation of playground equipment
-- Appliance hookups and servicing
-- Automobile tags
-- Licenses
-- Fix-up painting
e) Financial assistance to pay taxes on relocation benefits
that are taxable.
2. Allowance Levels:
Ten percent of the employee's annual salary, or $25,000 minimum -
- For those employees who:
a) Purchase a house in Las Vegas
b) Rent in Las Vegas due to their having negative equity in
their current residence
c) Who rent in Las Vegas with their current residence listed.
$20,000 - For those employees who:
a) Rent in Las Vegas and do not meet the criteria above.
Note: If the employee purchases a home in Las Vegas
before completion of the Corporate office
building, that employee will receive the
additional $5,00.
3. Allowance Reimbursement: Employees will be reimbursed for their
actual moving expenses incurred by submitting receipts. At the
completion of their move any remaining balance will be paid
directly to the employee.
4. Homeowner's Allowance: Employees who own homes will be
reimbursed for the real estate commission incurred, up to five
and one-half percent of the sales' price, in the sale of their
residence.
5. Home Purchase Program: Employees will be provided a Home
Purchase Program established through Coldwell Banker Relocation
Services, Inc. This program will offer participants with a
guaranteed appraised price for the sale of their current
residence.
6. Bridge Loans: The company will provide temporary (bridge) loans
to assist the employee in obtaining a new home. These loans will
be secured by either equity in their current home
PAGE 3 OF 4
<PAGE>
or other assets. If a bridge loan is requested, approval must
be received from their supervisor and the Executive Vice
President, Administration. The term of these loans will be
interest free for the first three months and at 5 percent per
annum for an additional twelve months.
7. Loan Assistance: The company will provide the employee with a
home loan at 80 percent of the appraised value of the home to be
purchased up to a maximum of $300,000. The term of the loan will
be 5 percent interest per annum and amortized over 30 years.
8. Employment with Company: Relocated employees who voluntarily
resign from CPC within the first six (6) months of relocation to
Las Vegas will be required to reimburse 50% of the paid
relocation allowance back to the company. Employees voluntarily
resigning within the 7th to 12th month of relocation will be
responsible for reimbursing the paid relocation allowances on a
pro-rated basis.
D. Company-paid Best Start Marketing Program
The company will provide homeowner's the benefit of an advance
marketing program provided by a relocation firm to assist the
relocatee in the selling of their home.
PAGE 4 OF 4
<PAGE>
AMENDMENT NUMBER ONE
TO
RESTATED AND AMENDED EMPLOYMENT CONTRACT
OF
ROBERT L. GREEN
This Amendment Number One ("Amendment") is made as of August 1, 1989, to
the Restated and Amended Employment Contract (the "Contract") dated as of June
1, 1988, between Community Psychiatric Centers, a Nevada corporation ("CPC"),
and Robert L. Green, an individual ("Green").
RECITALS
A. CPC employs Green pursuant to the Contract.
B. CPC has transferred its dialysis and home health businesses to its
wholly owned subsidiary, Vivra, Inc., a Delaware corporation ("Vivra") and
proposes to distribute all of Vivra's capital stock to CPC's shareholders (the
"Spinoff"). It is in the best interests of CPC and its shareholders and Vivra
that Green be employed as Vivra's Chief Executive Officer, and Green desires to
be so employed. Therefore, CPC and Green desire to terminate the Employment
Term of the Contract pursuant to all the terms and conditions of this Amendment.
NOW, THEREFORE, IT IS AGREED:
1. Termination of Employment Term. Paragraph 2.1 of the Contract is
hereby amended to provide that the Employment Term of the Contract shall
terminate on August 31, 1989.
2. Post-Employment Term. Paragraph 2.2 of the Contract is hereby amended
to provide that the Post-Employment Term of the Contract shall commence on
September 1, 1989.
3. Salary. Green's salary shall be increased to Four Hundred Fifty
Thousand Dollars ($450,000) per year commencing as of December 1, 1988 and shall
continue at that rate through November 30, 1989.
4. Noncompetition. The noncompetition covenant contained in paragraph
4.1.2(a) is amended to provide that neither Green's employment by Vivra will nor
any actions taken in the course and scope of that employment are or be a
violation thereof.
5. Post-Employment Term Compensations. Green's compensation during the
Post-Employment Term shall be calculated pursuant to paragraph 4.2.2 of the
Contract as if the Employment Term had ended on November 30, 1989.
6. Effect of Amendment. Except as amended hereby, the Contract shall
remain in full force and effect.
IN WITNESS WHEREOF, this Amendment Number One to Restated and Amended
Employment contract of Robert L. Green has been executed by the parties on the
date set forth opposite their names.
September 11, 1989. /s/ Robert L. Green
--------------------------------
Robert L. Green
COMMUNITY PSYCHIATRIC CENTERS
September 14, 1989. By: /s/ James W. Conte
---------------------------
James W. Conte, President
<PAGE>
AMENDMENT NUMBER TWO
TO
RESTATED AND AMENDED EMPLOYMENT CONTRACT
This Amendment Number Two to Restated and Amended Employment Contract
("Amendment") is made as of December 1, 1989 between Robert L. Green, an
individual ("Green") and Community Psychiatric Centers, a Nevada corporation
("CPC").
RECITALS
A. Effective June 1, 1988, Green and CPC entered into a Restated and
Amended Employment Contract (the "Contract"). All capitalized terms in this
Amendment have the same meanings as in the Contract.
B. On August 31, 1989, the Employment Term of the Contract ended and, by
agreement of Green and CPC, the Post-Employment Term began on December 1, 1989.
On September 1, 1989, Green became the President, Chief Executive Officer and
Chairman of the Board of Directors of VIVRA, Incorporated, a Delaware
corporation ("VIVRA") and since that day has been and now is in the full-time
employ of VIVRA.
C. Paragraph 4.2.1 of the Contract obliges CPC to provide certain
benefits to Green during the Post-Employment Term. This Amendment is intended
to clarify and define CPC's obligations pursuant to paragraph 4.2.1 of the
Contract during the Post-Employment Term.
NOW, THEREFORE, IT IS AGREED:
1. Office and Secretary. Recognizing that Vivra currently provides him
with office space and secretarial assistance, CPC shall pay Green Two Thousand
Dollars ($2,000) per month while he continues in the full-time employment of
VIVRA, in lieu of providing the suitable office space and secretarial assistance
referred to in paragraph 4.2.1 of the Contract. Such payments shall fully
discharge CPC's obligations to provide such space and assistance during the
periods for which they are made. However, if and as soon as Green's employment
by VIVRA terminates or VIVRA ceases to provide him with such office space and
secretarial assistance as at present, paragraph 4.2.1 of the Contract shall
govern his entitlement to such benefits.
2. Automobile. CPC is now providing and will continue to provide Green
with an automobile of his choice and will reimburse Green for all of his
expenses incurred for personal use or for CPC's business, but not for expenses
for VIVRA's business.
3. Group Insurance. CPC will continue to carry Green as an insured under
its group travel insurance policy and group medical, dental and hospital policy
pursuant to and subject to the terms of paragraphs 3.4 and 4.2.1(a) of the
Contract.
4. Profit Sharing Plan. CPC has been advised by special counsel that
Green is/is not currently entitled to participate in CPC's Profit Sharing Plan.
CPC will review his status in this respect annually.
5. Except as specifically provided in this Amendment, the Contract shall
remain in full force and effect.
IN WITNESS WHEREOF this Amendment has been executed and delivered by
the parties on the dates set forth opposite their names.
<PAGE>
Dated: February 27, 1991 /s/ Robert L. Green
------------------------------
Robert L. Green
COMMUNITY PSYCHIATRIC CENTERS
Dated: February 25, 1991 By: /s/ Richard L. Conte
------------------------------
Richard L. Conte, President
<PAGE>
EMPLOYMENT AGREEMENT
1. Parties. This Employment Agreement ("Agreement") is made between COMMUNITY
PSYCHIATRIC CENTERS, a Nevada corporation with its International Headquarters
located in Laguna Hills, California ("CPC"), and DAVID WAKEFIELD, an individual
("Employee"), under the following circumstances:
2. Continuation of Employment, End of Prior Contract. Pursuant to all the
terms and conditions of this Agreement, CPC desires to continue to employ
Employee and he desires to continue in his employment, and each of them desires
to terminate and cancel any prior contract.
2.1 Employment and Duties. CPC shall employ Employee and Employee shall
serve CPC as one of its executive employees and shall perform such duties
as the President or Chief Executive Officer of CPC may direct. Employee
shall devote his full productive time, energies and abilities to the
business of CPC.
2.2 Subsidiaries of CPC. From time to time, Employee may be assigned to
work for or on behalf of various subsidiaries of CPC. All obligations of
Employee to CPC shall also apply between Employee and all subsidiaries of
CPC.
3. Employment Term. The initial Employment Term of this Agreement shall
commence on July 31, 1992 and shall continue for a period of three years, ending
on July 30, 1995. Unless either party gives written notice of non-renewal to
the other not less than sixty (60) days prior to the expiration of any
Employment Term, this Agreement shall automatically renew for additional
Employment Terms of one (1) year each.
4. Compensation.
4.1 Salary. CPC shall pay to Employee an initial salary of L77,000
(Seventy-seven thousand pounds) per year in equal semi-monthly or more
frequent installments in accordance with CPC's payroll practices from time
to time in effect.
4.1.1 Salary Review. For fiscal years commencing on or after
December 1, 1992, Employee's salary shall be subject to annual review
by the parties but this requirement of annual review shall not be
construed in any manner as an express or implied agreement by CPC to
raise Employee's salary.
4.2 Expense Reimbursement. Upon submission of appropriate vouchers and in
accordance with the reimbursement policy stated in CPC's Administrative
Manual from time to time in effect, CPC shall reimburse Employee for all
authorized travel and entertainment expenses.
4.3 Other Benefits. Employee shall be entitled to participate in
employment benefits made available to other salaried employees of CPC and
described in Chapter 700 of the CPC's Administrative Manual from time to
time in effect. This Agreement shall not restrict in any way the right of
CPC to add to, modify or eliminate any employment benefits.
4.4 Bonus Plan. Employee shall be allowed to participate in a bonus plan
as approved from time to time by CPC's Board of Directors.
5. Termination. This Agreement may be terminated prior to the end of the
Employment Term as follows:
<PAGE>
5.1 Mutual Consent. By mutual written consent of the parties.
5.2 CPC. By CPC, for any of the following reasons:
5.2.1 Breach. Upon breach by Employee of any of his duties as
Employee or the breach by Employee of any term of this Agreement;
5.2.2 Neglect, etc.. For habitual neglect or nonperformance by
Employee of his duties;
5.2.3 Incapacity. Upon incapacity of Employee to perform his
duties under this Agreement for any consecutive period of more than
ninety (90) business days; or
5.2.4 Cause. For cause.
5.3 Employee. By Employee, for any of the following reasons:
5.3.1 Breach. Upon breach by CPC of any of its material
obligations to Employee under this Agreement;
5.3.2 Cause. For cause; or
5.3.3 Change in Control. Within ninety (90) days after the
occurrence of any of the following events:
5.3.3.1 Tender or Exchange Offer. The purchase of thirty-three
and one-third percent (33 1/3%) of the outstanding shares of the
CPC's One Dollar par value Common Stock (the "Common Stock")
pursuant to any tender or exchange offer (other than such an
offer by CPC), whether or not such purchase is opposed by CPC;
5.3.3.2 Other Acquisition of Controlling Stock. The date CPC
receives notice that any person or group deemed to be a person
under Section 13(d)(3) of the Securities Exchange Act of 1934 and
regulations thereunder, in any transaction or series of
transactions, becomes the beneficial owner directly or indirectly
of Common Stock sufficient to entitle such person or group to
thirty-three and one-third percent (33 1/3%) or more or all votes
which all shareholders of CPC would be entitled to cast in an
election held on such date;
5.3.3.3 Change in Directors. A date during any one-year period
when individuals, who at the beginning of that period,
constituted the Board of Directors of CPC cease for any reason to
constitute a majority thereof, unless the election, or the
nomination for election by the shareholders of CPC of each new
director was approved by a vote of at least two-thirds of the
directors in office who were directors at the beginning of the
period;
5.3.3.4 Reorganization, Sale of Assets. The date of approval
by the shareholders of CPC of an agreement providing for:
5.3.3.4.1 The merger or consolidation of CPC with another
corporation where the shareholders of CPC immediately prior
to the merger or consolidation do not beneficially own
immediately thereafter shares of the corporation issuing
cash
<PAGE>
or securities in the merger or consolidation, entitling such
shareholders to fifty percent (50%) or more of all votes to
which all shareholders of such corporation would be entitled
in the election of Directors, or where the members of the
Board of Directors of CPC immediately prior to the merger or
consolidation do not immediately thereafter constitute a
majority of the Board of Directors of the corporation
issuing cash or securities in the merger or consolidation;
or
5.3.3.4.2 The sale or other disposition of all or
substantially all of the assets of CPC.
5.5 Payment on Termination.
5.5.1 Change in Control. If Employee terminates his employment
pursuant to paragraph 5.3.3, he shall be entitled to receive, in
addition to any amounts due pursuant to paragraph 5.5.2, a cash
payment equivalent to two (2) year's salary as severance pay,
regardless of the Employment Term remaining at the time of such
termination.
5.5.2 Other Termination. Upon termination of Employee's employment
for any reason, he shall be paid all salary and vacation time (not
including sick time) accrued to the date of termination; provided,
however, that:
5.5.2.1 Notice of and Payments upon Termination. Employee
shall give at least sixty (60) days prior written notice to CPC
of his intention to terminate his employment pursuant to
paragraphs 5.3.1 or 5.3.2 and if he fails to give such notice to
CPC, he shall pay to CPC, as liquidated damages, an amount equal
to one month's salary which amount shall be used by employer to
offset the costs incurred in replacing Employee on short notice;
and
5.5.2.2 Repayment of Obligations, etc.. Upon termination of
his employment for any reason, Employee shall pay to CPC all sums
due under any notes or other obligations from his to it and all
such obligations shall then become due and payable. Such
obligations include, but are not limited to, those incurred for
purchase of CPC stock upon exercise of stock options held by
Employee.
5.5.3 Return of Property. Upon termination of employment for any
reason, Employee shall return to CPC all property belonging to CPC, in
his possession or under his control.
5.5.4 Stock Options. Employee acknowledges that CPC's Qualified,
Non-qualified and Combined Stock Option Plans for Key Employees
provide that all unexercised options held by him thereunder shall
expire upon termination of employment for any reason, except for
termination by Employee pursuant to paragraph 5.3.3. Upon termination
of employment pursuant to that paragraph, Employee will be entitled to
a cash payment in the amount of the difference between the option
price of shares of CPC stock subject to options held by him and the
then fair market value of such shares, all as more fully described in
CPC's stock option plans. The plans may be changed or eliminated and
may not be modified or controlled by
<PAGE>
this Agreement.
6. Protection of Business Information.
6.1 Existing Businesses. At the present time, CPC is engaged in the
following businesses (the "Existing Businesses"):
6.1.1 Ownership and operation of acute psychiatric hospitals and
related facilities, which include, but are not limited to, medical
buildings and pharmacies;
6.1.2 Ownership and operation of facilities which provide chemical,
drug and alcohol dependency treatment and services;
6.2 Proposed Businesses. In addition, CPC plans to be engaged in other
businesses (the "Proposed Businesses") related and unrelated to the
Existing Businesses.
6.3 Information. In the operation, planning and development of the
Existing Businesses and the Proposed Businesses, CPC generates and will
generate business information, confidential information and trade secrets
which are and will be proprietary and confidential ("Information") and the
disclosure of which would be extremely detrimental to CPC and of great
assistance to its competitors. The Information includes, but is not
limited to:
6.3.1 Data regarding location of proposed and existing facilities;
6.3.2 Market survey, studies and analyses;
6.3.3 Information concerning the identity, location and qualifications
of professionals and employees, existing and prospective;
6.3.4 Information concerning referral sources;
6.3.5 Information concerning reimbursement sources, insurers and other
third-party payors;
6.3.6 Tabulated and organized information concerning legislative,
administrative, regulatory and zoning requirements, bodies and
officials;
6.3.7 Medical and personnel records;
6.3.8 Statistical, financial, cost and accounting data;
6.3.9 Existing and prospective customer lists; and
6.3.10 Administrative, operations and procedure manuals and
directives.
6.3.11 Business ideas pertaining to any Existing or Proposed
Businesses of CPC. Business ideas include, but are not limited to,
ideas, concepts or proposals that are conceived, developed or
implemented by or communicated to Employee.
6.4 Information Held as a Fiduciary. All of the Information which is
acquired by, communicated to or in any way comes into the possession or
control of Employee shall be held by employee in a fiduciary capacity for
the exclusive benefit of CPC.
<PAGE>
6.5 During Employment. Prior to termination of this Agreement, Employee
shall have these obligations:
6.5.1 No Competition. Employee shall not compete with CPC. "Compete"
means to either directly or indirectly own, manage, operate, control
or participate or join in or advise, consult with or assist in the
establishment or operation of any business similar to the Existing
Businesses or the Proposed Businesses which is located within any
county or equivalent jurisdiction in which any of the Existing
Business or Proposed Businesses are located or proposed to be located;
within any contiguous county; within the United Kingdom; or within a
two hundred mile radius of any Prospective Business located in any
foreign country.
6.5.2 No Planning to Compete Following Employment. Employee shall not
plan or otherwise prepare to compete with CPC following Employee's
employment with CPC.
6.5.3 No Solicitation to Compete. Employee shall not solicit other
employees, independent contractors, customers, referral sources or
reimbursement sources of CPC to compete with CPC during or following
Employee's employment with CPC.
6.5.4 No Disclosure. Employee shall not disclose to any person, who,
on behalf of CPC, has no business reason to know, any business
information, confidential information or trade secrets of CPC.
6.6 Following Employment. Upon termination of this Agreement, Employment
shall have the following obligations:
6.6.1 Return of Information. Employee will promptly relinquish to CPC
all files, correspondence, memoranda, diaries and other records,
minutes, notes, manuals, papers and other documents and data, however
prepared or memorialized, and all copies thereof, belonging to or
relating to the business of CPC, that are in Employee's custody or
control.
6.6.2 No Use of Trade Secrets. Employee shall not use or disclose any
trade secret acquired from or on behalf of CPC before, during or after
Employment with CPC.
6.6.3 No Use of Confidential Information. Employee shall not use or
disclose any confidential information acquired from, for or about CPC
before, during or after Employee's employment with CPC.
6.6.4 No Use of Business Information. Employee shall not use or
disclose any business information acquired from, for or about CPC
before, during or after Employee's employment with CPC.
6.6.5 No Interference. Employee shall not interfere with any
contracts or business relationships of CPC.
6.6.6 No Solicitation. Employee shall not solicit other employees,
independent contractors, customers, referral sources or reimbursement
sources of CPC to compete with CPC.
6.6.7 No Competition. Employee shall not compete with CPC for a
period of two years following termination of employment.
<PAGE>
6.7 Exception for Publicly Held Companies. Notwithstanding the provisions
of paragraphs 6.5 and 6.6 above, Employee may participate as a non-
controlling shareholder (but not in any other capacity), holding less than
five percent (5%) of any class of stock in a publicly owned corporation
whose stock is traded on a National Securities Exchange or on the over-the-
counter market.
6.8 Exception for Change of Control. The provisions of paragraph 6.6
shall not apply if employee's employment is terminated pursuant to
paragraph 5.3.3 above.
6.9 Scope of Covenant. It is expressly understood and agreed that the
scope of the various covenants in this paragraph 6 are reasonable both in
time and area and are fair and necessary to protect the investment of CPC
against the material adverse effects which would result from the violation
of any of these covenants.
6.10 Divisibility of Covenants. The covenants of this paragraph 6 shall be
regarded as divisible and shall be given the greatest operative effect
possible. If any part of them is declared invalid or unenforceable in any
respect, the validity and enforceability of the remainder shall not be
affected.
6.11 Remedies for Breach of Obligations Regarding Business Information. In
addition to CPC's right to seek damages for any violation of the covenants
in this paragraph 6, Employee acknowledges that because his duties are of a
special, unique, unusual, extraordinary or intellectual character, which
gives them peculiar value which cannot be reasonably or adequately
compensated by an award of damages, equitable relief in the form of
injunction or other order will be available to CPC.
7. Notices. Any notice provided for by this Contract and any other notice,
demand or communication which either party may wish to send to the other
("Notices") shall be in writing and shall be deemed to have been properly given
when received if delivered by personal delivery; certified mail, return receipt
requested; or other commercially acceptable means. Notices shall be addressed
as follows:
If to CPC: Richard L. Conte, Chairman & Chief Executive Officer
Community Psychiatric Centers
24502 Pacific Park Drive
Laguna Hills, California 92656
If to Employee:
David Wakefield
53 Ringford Road
London, SW18 1RP
Either party may change its address for Notices by giving notice of the change
to the other party.
8. Successors, Assignment. Except as provided in paragraph 5.3.3, this
agreement shall be binding on the heirs, assigns, personal representatives and
successors of CPC and Employee. However, due to the nature of the services to
be provided by Employee, Employee shall have no power to assign any rights or
duties under this Agreement.
9. Applicable Law. This agreement shall be governed by and construed in
accordance with the laws of the State of California and the parties consent to
the jurisdiction of its courts.
<PAGE>
10. Divisibility of Agreement. This Agreement shall be divisible and if any
part of it is determined to be invalid or unenforceable the remaining portions
shall not be affected and the Agreement shall be carried out to the greatest
extent possible in accordance with all of its provisions.
11. Entire Agreement. This Agreement represents the entire agreement between
CPC and Employee, and this Agreement supersedes any other agreements, oral or
written, that may define the employment relationship between Employee and CPC.
Neither CPC nor Employee has relied upon any promise or other inducement which
is not expressed in this Agreement.
12. Amendment. This Agreement may be amended only by written agreement of CPC
and Employee and may not be modified by any oral agreement.
13. Practices Inconsistent with this Agreement. No provision of this Agreement
shall be modified or construed by any practice or occurrence that is
inconsistent with any provision. Failure of either party to insist upon
compliance with any provision shall not constitute an amendment or a waiver of
the right to insist upon compliance with that provision or any other provision.
EMPLOYEE
Dated: August 19, 1992
-------------------------------
/s/ David Wakefield
-------------------------------
David Wakefield
Executive Vice President
COMMUNITY PSYCHIATRIC CENTERS
Dated: September 9, 1992
-------------------------------
/s/ Richard L. Conte
-------------------------------
Richard L. Conte, Chairman
Chief Executive Officer
<PAGE>
SEPARATION AGREEMENT AND GENERAL RELEASE
This Separation Agreement and General Release ("Agreement") is entered into
by and between Community Psychiatric Centers ("Employer") and Steve Weis
("Employee") in consideration of the following facts:
A. Employee is employed by Employer in the position of Executive Vice
President and Chief Financial Officer of Employer.
B. Employee has voluntarily resigned from his position as Executive Vice
President and Chief Financial Officer of Employer, subject to the execution of
this Agreement, and Employer has accepted Employee's resignation. Employer and
Employee have agreed that Employee's employment will permanently terminate
effective December 31, 1994 ("Termination Date").
C. Employee acknowledges that he has timely received all wages due
through the Termination Date.
D. Employer and Employee are desirous of entering into an agreement to
provide for the settlement and release of any claims related to Employee's
employment and the termination of that employment.
ACCORDINGLY, in consideration of the terms, conditions and agreements set
forth below, the parties covenant and agree as follows:
1. Review Period. Employee shall have until the close of business on January
21, 1995, to accept the terms of this Agreement. Employee may use as much of
that time as Employee wishes. Employee has consulted with an attorney before
signing this Agreement.
2. Severance Benefits. Provided Employee executes this Agreement and all
documents required to effectuate same, then upon expiration of the seven (7) day
revocation period described in paragraph 18 below, Employer agrees to provide
Employee the payments and benefits set forth below in subparagraphs 2.1 through
2.8 Employee understands that the amounts set forth below are all that Employee
is entitled to receive from Employer except for the right to purchase
continuation coverage under Employer's group health plan for employee and any
eligible dependents pursuant to the provisions of the Consolidated Omnibus
Budget Reconciliation Act (COBRA) as explained in the notice delivered to
Employee contemporaneously with the delivery of this document, except for any
other vested employee benefits, including but not limited to, any retirement
benefits governed by or arising under the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") or Internal Revenue Code Section 401(k), and,
the Indemnification Agreement dated December 7, 1991 (the "Indemnification
Agreement"). Employee hereby acknowledges that the severance benefit set forth
below is more than the Employer is required to pay under its normal policies and
practices.
2.1 Severance Pay. Employer will pay Employee a severance benefit of Two
Hundred Seventy-Five Thousand Dollars ($275,000.00) equal to fifty-two (52)
weeks of pay at Employee's base rate of pay, less deductions required by law.
Payment will be made in thirteen (13) equal increments of Twenty-One Thousand
One Hundred Fifty-Three Dollars and Eighty-Four Cents ($21,153.84), payable
consecutively on the first thirteen (13) dates on which Employer pays its
employees, beginning with the next regular pay day after receipt of the signed
copy of this Agreement and expiration of the seven (7) day revocation period
described in paragraph 18 below. Such payments shall be mailed to Employee's
most recent address on file with Employer.
<PAGE>
2.2 Vacation Pay Employee has accrued Two Hundred Fifty-Seven and
Seventy-Two Hundreds (257.72) hours of unused vacation time for which he is
entitled to receive payment in the amount of Thirty-Four Thousand Sixty-Three
Dollars and Sixty-Eight Cents ($34,063.68), which Employer shall pay in one lump
sum.
2.3 Health Insurance Benefits Employer will continue Employee's
eligibility for health benefits under Employer's Health Payment Plan through
December 31, 1995 (unless Employee obtains other coverage earlier and notifies
Employer of such by written notice.) Employer and Employee shall each pay their
usual share of such premiums, and Employer is hereby authorized to deduct
Employee's share of such premiums from the severance benefits payable under
paragraph 2.1 hereof. Employer shall be entitled to modify or terminate its
Health Payment Plan, but Employee shall not be treated any worse than any other
employees of Employer in such event. After December 31, 1995, or upon the
earlier termination by Employee as hereinabove provided, Employee will be
eligible to purchase eighteen (18) months of continued health care coverage
pursuant to the provisions of COBRA.
2.4 Transfer of Company Automobile Employer will deliver to Employee,
free of charge to Employee, a certificate of title to the automobile owned by
Employer that Employee is presently using to Employee that is properly endorsed
to transfer ownership of the vehicle to Employee. The automobile is being
transferred in its "as is" condition, without covenant or warranty, express or
implied, of any kind, nature or description. Employee covenants and agrees to
immediately register ownership of the vehicle in his name promptly upon delivery
of the endorsed certificate of title. Employee shall be, from and after the date
of delivery of the endorsed certificate of title, solely responsible for all
expenses associated with the cost of transferring title, including, but not
limited to, any license fees, certificate transfer fees and use taxes, and the
care, upkeep and insuring the vehicle. Notwithstanding the foregoing, it is
understood and agreed that Employer shall continue to furnish insurance on the
vehicle through February 28, 1995, at Employee's sole cost and expense, until
Employee can establish California residency and qualify for California
automobile insurance. The cost of such insurance coverage shall be deducted
from the payments to be made to Employee during the months of January and
February, 1995, under paragraph 2.1 hereof. Should Employee fail to register
the vehicle in his name and provide Employer with written proof of same by no
later than February 25, 1995, then until Employee does so, Employer shall be
entitled to continue insurance coverage beyond February 28, and to deduct the
cost of same from the amount owed to Employee AND to suspend any and all further
payments coming due under paragraph 2.1 from and after February 25, 1995.
2.5 Transfer of Company Computer Employer will transfer to Employee, free
of charge to Employee, all of its right, title and interest in and to the laptop
and desk computers that Employee utilized in his position with Employer. These
computers are being transferred in their "as is" condition, without covenant or
warranty, express or implied, of any kind, nature or description. Employee shall
be, from and after the Termination Date, responsible for all taxes on and all
expenses associated with the care, upkeep and insuring the computers.
2.6 Purchase of Employee's Residences Employer has advanced certain sums
to Employee in connection with the construction of a single family residence in
Las Vegas, Nevada. Employer hereby agrees to accept a grant deed to the subject
property upon which the single family residence is being constructed, in form
and content acceptable to Employer, properly executed and notarized by Employee
and his wife, together with an appropriate endorsement to Employee's title
insurance policy naming Employer, as Employee's assignee, as the insured under
the policy in full satisfaction of Employee's indebtedness for all advances
<PAGE>
heretofore made by Employer to Employee for such construction. It is understood
and agreed that nothing contained in this Agreement shall alter or modify the
contract by which Employer acquired title to Employee's former residence in
Laguna Hills, California, or otherwise entitle Employer to rescind that
contract, and Employer shall be entitled to dispose of the California property
through the Coldwell Banker Relocation Group and to retain all proceeds realized
from any sale of that property, and Employee hereby acknowledges that he shall
have no right, title or interest in or to any portion of the proceeds realized
from such sale.
2.7 Relocation to California Employer will reimburse Employee for the cost
of moving Employee's household goods to either Los Angeles or Orange Counties,
California at any time within one (1) year from the date of this Agreement. The
maximum amount that Employer shall be obligated to reimburse Employee under this
Agreement, regardless of the actual cost of relocation, shall be Five Thousand
Six Hundred Thirty-Five Dollars ($5,635.00) or the actual amount paid to the
moving company, whichever is lower. Payment shall be made within seven (7) days
of receipt of a valid invoice.
2.8 Employee Stock Options Employee shall be entitled to exercise his
vested stock options according to the Plan Agreement, as of December 31, 1994,
for a period not to extend beyond December 31, 1995.
2.9 Taxation of Benefits. It is understood and agreed that Employer
shall not withhold any taxes or other payroll deductions from the amounts to be
paid under paragraph 2.1 or 2.2 hereof for the value of any of the benefits
conferred on Employee under paragraphs 2.3 though 2.7 hereof, however, Employee
understands and agrees that Employer shall file an IRS form 1099 for the value
of all such benefits conferred on Employee. For purposes of form 1099, Employer
shall use the net book value of the automobile.
3. Release of Claims.
3.1 Subject to paragraph 3.2 hereof, in consideration of Employer's
acceptance of this General Release and its resulting obligations hereunder, and
other good and valuable consideration of the receipt and sufficiency whereof is
hereby acknowledged, Employee, for himself, his heirs, executors,
representatives, principals, successors and assigns, and for all persons acting
by, through or under him, does hereby release, acquit and forever discharge
Employer and its parent corporation, its subsidiaries and affiliates, both past
and present, as well as each and all of their respective past and present
agents, employees, officers, directors, stockholders, partners, attorneys,
accountants, successors and assigns, and each of them, of and from any and all
losses, claims, debts, liabilities, demands, obligations, costs and expenses,
actions and causes of actions, of every kind, nature and description, known or
unknown, suspected or unsuspected, which Employee now owns or hold, or at any
time heretofore has owned or held, or may at any time own or hold, or which
could, might or may be claimed to exist by reason of any matter, cause or thing
whatsoever occurred, done, omitted or suffered to be done or omitted, prior to
the date of this instrument, including, but without limiting the generality of
the foregoing, relating to, pertaining to, or arising out of in any way (a) any
contract, whether express or implied, written or oral agreement, letter, or
other document signed by, sent by CPC to, or received by Employee from any of
the parties being released hereby, which, with the exception, subject to the
provisions of paragraph 3.8 hereof, of the Indemnification Agreement, are hereby
terminated, of no further force or effect and superseded by this Agreement, or
(b) Employee's employment by Employer or (c) the circumstances or conditions
under which the employment relationship between Employee and Employer was
terminated. This release includes (but is not limited to) any claims for wages,
compensation, deferred compensation, bonuses, vacation, sick pay, or any other
fringe benefits or benefits for services rendered, waiting time penalties or
other penalties or fines, any claim under the Age Discrimination in Employment
Act, which prohibits age discrimination in employment, Title VII of the Civil
Rights Act, which prohibits discrimination in employment based on race, color,
sex, religion or national origin, or any other federal, state or local law or
regulation
<PAGE>
prohibiting employment discrimination, or any claim for wrongful discharge,
intentional or negligent infliction of emotional distress, interference with
prospective economic advantage, defamation, fraud, misrepresentation, any other
claim, however styled, pertaining to Employee's employment or termination of
employment for Employer.
3.2 The release set forth in paragraph 3.1 does not affect Employee's
right, if any, to receive benefits under the terms of the CPC Employees' Profit
Sharing Plan, or to any employee benefits covered by ERISA or IRS Section
401(k), or to apply for continuation or conversion of insurance coverage to the
extent that the Employer's insurance plans or applicable law provide for such
continuation or conversion. In addition, the release set forth in paragraph 3.1
does not apply to any claim for workers' compensation under any federal or state
workers' compensation or occupational disease law. Employee acknowledges that,
at the present time, he has no actual knowledge of any claims for workers'
compensation under any federal or state workers' compensation or occupational
disease law.
3.3 The release set forth in paragraph 3.1 shall be effective upon the
execution and delivery of this instrument and expiration of the revocation
period provided in paragraph 19 hereof, and, subject to the provisions of
paragraph 3.2, shall include, as indicated hereinabove, all released claims,
causes of action, costs and demands which Employee may have against any of the
parties being released hereby up to the time of the execution and delivery of
this instrument, regardless of whether such released claims, causes of action,
costs or demands have been stated, alleged or even suspected by Employee prior
thereto.
3.4. Employee acknowledges and agrees that it is his intention that this
instrument shall be effective as a full and final accord and satisfaction and
settlement of and bar to each and every claim, demand, debt, account, reckoning,
liability, obligation, cost, expense, lien, action and cause of action
heretofore described and released herein. In connection with such waiver and
relinquishment, Employee understands that the facts in respect of which the
release made in this instrument may hereafter turn out to be other than or
different from the facts in that connection now known or believed by Employee to
be true, but it is his intention to fully, finally, absolutely and forever
settle any and all claims, disputes and differences which do now exist or
heretofore may have existed between Employee and the parties being released
hereby, and he does hereby accept and assume the risk of the facts turning out
to be different and agrees that this instrument shall be and remain in all
respects effective and not subject to termination or rescission by virtue of any
such difference in facts.
3.5 In order to achieve a full and complete waiver of all claims as set
forth in paragraph 3.1 above, Employee expressly acknowledges that Employee
intends to waive and relinquish all rights and benefits he may have under any
statute, regulation or case law providing that a general release does not extend
to claims which are unknown to the person giving the release at the time the
release is given.
3.6 The release of unknown claims, demands and/or causes of action
contained in paragraph 3.1 is a separate consideration for the covenants/actions
set forth in Section 2 hereof and the release set forth in paragraph 3.4 hereof,
and Employee understands that Employer would not accept this General Release and
thereby so agree or act but for the release by Employee of unknown claims,
demands and/or causes of action.
3.7 Nothing provided in this paragraph herein shall limit Employee's right
to assert defenses and claims in response to any future suit asserted by
Employer against Employee.
4. Agreement Not to Sue. Employee represents and warrants that he has not
filed or caused to be filed any action or proceeding in any court, or before any
administrative or arbitration agency, bureau or body against any of the parties
being released herein with respect to any of the claims, disputes or causes of
action herein released, and Employee promises never to file a lawsuit asserting
any claims which are released by this Agreement.
<PAGE>
5. Warranty of Non-Assignment. Employee represents and warrants that he has
not heretofore assigned or transferred, or purported to assign or transfer, to
any person, firm or corporation whomsoever any claim, debt, liability, demand,
obligation, cost, expense, action or cause of action herein released. Employee
agrees to defend, protect, indemnify and hold each of the parties being released
hereby harmless from and against any claim, debt, liability, demand, obligation,
cost, expense, action or cause of action based on, arising out of or in
connection with any such transfer or assignment or purported transfer or
assignment.
6. No Representations. Employee acknowledges, except as herein expressly set
forth, that no representations of any kind or character have been made to him by
Employer, or by any of Employer's agents, representatives or attorneys, to
induce the execution of this instrument, and further acknowledges that he has
relied solely on his own judgment, belief and knowledge, and on the advice of
his own attorney as to the nature, extent and effect of the claimed damages he
has allegedly suffered, and any liability therefor.
7. Future Employment. Employee acknowledges that no promise of future
employment has been made by Employer or on its behalf.
8. Name and Reputation. Employer and Employee promise to refrain from
engaging, directly or indirectly, in any action or omission which is, or is
likely to be, detrimental to the reputation or goodwill of the other party or
any of Employer's directors, officers, owners, employees, related or affiliated
entities.
9. Confidential Information and Trade Secrets.
9.1 In the course of Employee's employment, Employee has acquired
confidential and/or trade secret information, including, but not limited to,
data regarding proposed or potential and/or existing hospital sites; market
surveys, studies and analyses; information concerning the identity, location and
qualifications of health care professionals and employees, existing or
potential; information concerning reimbursement sources, insurers and other
third party payors, such as but not limited to, PPO's, HMO's and other
contractual arrangements with health care providers; tabulated and organized
information concerning legislative, administrative, regulatory or zoning
requirements, bodies or officials; any and all forms that Employer uses or is
developing; any and all hospital policies and procedures, and treatment
programs; any and all computer programs (whether or not completed or in use);
any and all operating manuals or other similar materials which constitute the
systems, policies and procedures and methods of doing business by Employer; any
and all administrative, advertising or marketing techniques used by Employer;
any and all financial information, records or data pertaining to the above-
described hospital or Employer; any and all names and addresses of the patients
and referral sources used by Employer to obtain patients; and any and all other
relevant, important and private information utilized by Employer (hereinafter
collectively referred to as the "protected materials"), all of which are unique
assets of Employer, and Employee acknowledges that all of the protected
materials are Employer's trade secrets, within the meaning of any and all
appropriate and applicable federal and state statutes, rules and regulations,
and constitute a part of Employer's principal assets, having been acquired
and/or created through the outlay of considerable time and effort, and by the
expenditure of large sums of money, and are a substantial basis and foundation
upon which Employer's services are predicated. Employee hereby acknowledges,
covenants and agrees that he/ she shall not, for a period of one (1) year from
and after the date of this Agreement, in any form, fashion or manner, (i)
disclose, divulge, or communicate to any person, firm or corporation, or for any
personal or business purpose, other than under compulsion of law, directly or
indirectly, or use in any way, the contents of patient's medical records, or any
employee personnel records, or any of the other information pertaining to such
persons, or any of the protected materials, whether given to Employee by
Employer or created or prepared by Employee, or otherwise coming into the
possession or knowledge of Employee, nor (ii) call on, solicit or take away, or
attempt to call on solicit or take away, any of Employer's employees, patients,
referral sources or payors, whether
<PAGE>
for Employee's own benefit or for the benefit of any other person, firm or
corporation;
9.2 Employee shall not make any copies of any of the protected materials
and will do everything reasonably possible to protect and maintain the
inviolability of the protected materials from use or dissemination to anyone not
entitled to receive and/or use such materials.
9.3 Employee shall immediately, upon execution of this Agreement, deliver
to Employer all protected materials in Employee's possession or under Employee's
control, in good condition, ordinary wear and tear, and damage by any cause
beyond Employee's reasonable control excepted. Employee shall not copy or
remove from Employer's premises any protected materials.
9.4 Employee acknowledges and agrees that the proprietary interests of
Employer are of a special, unique, unusual and extraordinary character which
gives them a peculiar value, the loss of which cannot reasonably or adequately
be compensated for in damages, and, therefore, Employee agrees that Employer, in
addition to any other remedy or rights Employer might have in law or in equity,
shall be entitled to seek injunctive or other equitable relief in the event of a
breach or a threatened breach of this Agreement.
9.5 The agreements set forth in paragraphs 9.1 through 9.4 shall survive
the termination of other arrangements contained in this document.
10. Return of Employer's Property. Employee warrants that he has, with the
exception of the automobile described in paragraph 2.3 and the computers
described in paragraph 2.4 above, returned to Employer all promotional or
marketing materials, files, records, patient, client and referral lists, credit
cards, keys, access cards, and other documents, products, or property which
Employee received from Employer in the course of Employee's employment, or which
reflect in any way any confidential information in the possession or under the
control of Employee.
11. Consequences of Violation of Promises. If either party violates any of the
promises contained in herein, then in the event of any action or proceeding, at
law or in equity, to interpret or enforce the terms of, or obligations arising
out of this Agreement, or to recover damages for the breach hereof, or to compel
performance hereunder, the party prevailing in any such action or proceeding
shall be entitled to recover from the non-prevailing party all reasonable
attorneys' fees, costs and expenses incurred by the prevailing party, whether
incurred before or after the commencement of such action or proceeding. The
attorney's fees shall include those incurred in bringing such suit and/or
enforcing any judgment granted therein, all of which shall be deemed to have
accrued upon the commencement of such action, and shall be paid whether or not
such action is prosecuted to judgment. Any judgment or order entered in such
action shall contain a specific provision providing for the recovery of
attorney's fees and costs incurred in enforcing such judgment. For purposes of
this paragraph, attorney's fees shall include, without limitation, fees incurred
in the following: (a) post-judgment motions; (b) contempt proceedings; (c)
garnishment, levy and debtor and third party examinations; (d) discovery; and
(e) bankruptcy litigation.
12. Confidentiality. Employee and Employer both agree not to disclose the
terms and conditions of this Agreement to any person or entity not a party
hereto except members of Employee's immediate family and legal advisors who
shall be informed of and bound by this confidentiality provision, unless such
communication is required by law or is necessary to comply with the law (e.g.,
communications to a tax preparer for purposes of submitting an income tax return
to the Internal Revenue Service), except to the extent such disclosure is
necessary to enforce the terms of this Agreement. Notwithstanding the
foregoing, the parties shall be entitled to state, or the equivalent, with
regard to Employee's separation from employment by Employer, that "Mr. Weis
resigned for personal reasons, and all matters relating to his resignation were
resolved in a mutually satisfactory manner," and Employer shall, in response to
any reference
<PAGE>
inquiries, state, or its equivalent, that "Mr. Weis was employed by CPC from
December 7, 1991 until December 31, 1994, on which date he resigned
voluntarily."
13. Amendments. No addition, modification, amendment or waiver of any part of
this Agreement shall be binding or enforceable unless executed in writing by
both parties hereto.
14. Severability. Should any part of this Agreement be declared invalid, void
or unenforceable, all remaining parts shall remain in full force and effect and
shall in no way be invalidated or affected.
15. Non-Admissions. Employer and Employee agree that neither this Agreement
nor the consideration given shall be construed as an admission of any wrongdoing
or liability by Employer, and Employee acknowledges that this instrument effects
the release of claims and causes of action which are denied and contested by the
parties being released hereby, and that nothing contained herein, nor the
consideration given, shall be construed as an admission of liability by or on
behalf of and of said parties by whom liability is expressly denied.
16. Entire Agreement. This instrument contains the entire agreement
relating to the rights and obligations contained herein, and there are no other
representations, warranties or commitments, except as are specifically set forth
herein. This instrument supersedes any and all prior or contemporaneous
representations, negotiations, promises, covenants, discussions or agreements
between Employee and any of the parties being released hereby in connection with
the matters contained herein, whether oral or written. No course of prior
dealing among said parties, no usage of trade, and no parol or extrinsic
evidence of any kind or nature shall be used to supplement, modify or vary any
of the terms hereof.
17. Successors and Assigns. All the terms and conditions of this instrument
shall be binding upon and inure to the benefit of each of the parties hereto and
their respective heirs, representatives, affiliates, subsidiaries, successors
and assigns.
18. Revocation Period. Employee may revoke this Agreement within seven (7)
days of Employee's signing it. Revocation can be made by delivering a written
notice of revocation to Ron Ooley, Sr. Vice President, Human Resources, 6600
West Charleston Boulevard #118, Las Vegas, Nevada 89102. For the revocation to
be effective, written notice of same must be received by no later than the close
of business on the seventh calendar day after Employee signs this Agreement. If
Employee revokes this Agreement, it shall not be effective or enforceable, and
Employee will not be entitled to receive any of the benefits described in
Section 2 above. To the extent any documents or items have been delivered by
Employer or any payment due under Section 2 has been made to or for the benefit
of Employee prior to the date of his revocation of this Agreement, the
revocation shall not be effective unless Employee delivers any documents or
items so delivered and any monies so paid by Employer prior to the close of
business on the seventh calendar day after Employee signs this Agreement.
19. Governing Law and Venue. Employer and Employee agree that the venue for any
action brought to enforce the provisions of this Agreement will be brought in
the State of Nevada and that any action that is brought in any other state will
be removed to Nevada, upon proper motion to the Court, and the party having to
file such a motion to remove the matter to Nevada, or otherwise dismiss the
action, will be entitled to attorney fees from the party that filed the action
in a state other than Nevada. This instrument shall be governed, construed,
interpreted and enforced under and pursuant to the laws of the State of Nevada.
20. Availability. Employee shall make himself reasonably available to
Employer to provide assistance and information until December 31, 1995.
<PAGE>
EMPLOYEE ACKNOWLEDGES THAT EMPLOYEE HAS READ THIS AGREEMENT, THAT EMPLOYEE HAS
BEEN GIVEN AMPLE OPPORTUNITY TO REVIEW IT AND TO CONSULT WITH A REPRESENTATIVE
OR ATTORNEY OF EMPLOYEE'S CHOOSING CONCERNING ITS TERMS. EMPLOYEE FURTHER
ACKNOWLEDGES THAT EMPLOYEE UNDERSTANDS THIS AGREEMENT AND IS VOLUNTARILY
ENTERING INTO IT WITH THE INTENTION OF RELINQUISHING ALL CLAIMS AND RIGHTS OTHER
THAN THOSE RESERVED IN THIS AGREEMENT.
Dated: 12/30/94 /s/ Steve Weis
---------------------- ------------------------------
Steve Weis
Dated: 12/30/94
---------------------- Community Psychiatric Centers
By: /s/ Richard Conte
---------------------------
Richard Conte,
Chief Executive Officer
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT is made and dated as of December
14, 1994 (the "Amendment") among Community Psychiatric Centers, a Nevada
corporation ("CPC"), Transitional Hospitals Corporation, a Delaware corporation
("THC"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a United
States national banking association ("Bank") and amends that certain Credit
Agreement dated as of May 6, 1994 (as so amended or modified from time to time,
the "Credit Agreement").
RECITALS
WHEREAS, the Company has requested, and the Bank has agreed, on the terms
and conditions set forth herein, to amend the Credit Agreement to extend the
Termination Date.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. Terms. All terms used herein shall have the same meanings as in the
Credit Agreement unless otherwise defined herein. All references to the Credit
Agreement shall mean the Credit Agreement as hereby amended.
2. Amendment to Credit Agreement
2.1 The definition of "Termination Date" is amended by deleting
"December 31, 1994" and inserting "February 28, 1995" in lieu thereof.
3. Representations and Warranties. Company represents and warrants to
Bank that, on and as of the date hereof, and after giving effect to this
Amendment:
3.1 Authorization. The execution, delivery and performance of this
Amendment have been duly authorized by all necessary corporate action by the
Company and this Amendment has been duly executed and delivered by the Company.
3.2 Binding Obligation. This Amendment is the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms.
3.3 No Legal Obstacle to Credit Agreement. The execution, delivery
and performance of this Amendment will not (a) contravene the terms of the
Company's certificate of incorporation, by-laws or other organization document;
(b) conflict with or result in any breach or contravention of the provisions of
any contract to which the Company is a party, or the violation of any law,
judgment, decree or governmental order, rule or regulation applicable to
Company, or (c) result in the creation under any agreement or instrument of any
security interest, lien, charge, or encumbrance upon any of the assets of the
Company. No approval or authorization of any governmental authority is required
to permit the execution, delivery or performance by the Company of this
Amendment, or the transactions contemplated hereby.
3.4 Incorporation of Certain Representations. The representations
and warranties of the Company set forth in Section 5 of the Credit Agreement are
true and correct in all respects on and as of the date hereof as though made on
and as of the date hereof.
<PAGE>
3.5 Default. No Default or Event of Default under the Credit
Agreement has occurred and is continuing.
4. Conditions, Effectiveness. The effectiveness of this Amendment shall
be subject to the compliance by the Company with its agreements herein
contained, and to the delivery of the following to the Bank in form and
substance satisfactory to the Bank:
4.1 Authorized Signatories. A certificate, signed by the Secretary
or an Assistant Secretary of the Company and dated the date of this Amendment,
as to the incumbency of the person or persons authorized to execute and deliver
this Amendment and any instrument or agreement required hereunder on behalf of
Company.
4.2 Amendment Fee. The Company shall pay to the Bank for the Bank's
account an amendment fee in the amount of $10,000.
4.3 Other Evidence. Such other evidence with respect to the Company
or any other person as the Bank may reasonably request in connection with this
Amendment and the compliance with the conditions set forth herein.
5. Miscellaneous.
5.1 Effectiveness of the Credit Agreement and Loan Documents. Except
as hereby expressly amended, the Credit Agreement and each other Loan Document
shall each remain in full force and effect, and are hereby ratified and
confirmed in all respects on and as of the date hereof.
5.2 Waivers. This Amendment is limited solely to the matters
expressly set forth herein and is specific in time and in intent and does not
constitute, nor should it be construed as, a waiver or amendment of any other
term or condition, right, power or privilege under the Credit Agreement, the
Loan Documents, or under any agreement, contract, indenture, document or
instrument mentioned therein; nor does it preclude or prejudice any rights of
the Bank thereunder, or any exercise thereof or the exercise of any other right,
power or privilege, nor shall it require the Bank to agree to an amendment,
waiver or consent for a similar transaction or on a future occasion, nor shall
any future waiver of any right, power, privilege or default hereunder, or under
any agreement, contract, indenture, document or instrument mentioned in the
Credit Agreement, constitute a waiver of any other default of the same or of any
other term or provision.
5.3 Counterparts. This Amendment may be executed in any number of
counterparts and all of such counterparts taken together shall be deemed to
constitute one and the same instrument. This Amendment shall not become
effective until the Company and the Bank shall have signed a copy hereof,
whether the same or counterparts, and the same shall have been delivered to the
Bank.
5.4 Jurisdiction. This Amendment shall be governed by and construed
under the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the date first written above.
COMMUNITY PSYCHIATRIC CENTERS
By: /s/ Wendy Simpson
----------------------------
Name: Wendy Simpson
Title: Chief Financial Officer
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION
By: /s/ Richard Conte
----------------------------
Name: Richard Conte
Title: CEO/Chairman
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ J. A. Emslie
----------------------------
Name: J. A. Emslie
Title: Managing Director
<PAGE>
CONSENT OF GUARANTORS
The undersigned Guarantors hereby acknowledge that they have reviewed and
consent to the foregoing First Amendment dated as of December 14, 1994 to Credit
Agreement dated as of May 6, 1994, and hereby reaffirm their respective General
Continuing General Guaranties, which continue in full force and effect on and as
of the date hereof.
Date: December 14, 1994
EACH OF THE GUARANTORS LISTED
ON ANNEX A HERETO,
INCORPORATED BY REFERENCE
HEREIN
By: /s/ Wendy Simpson
-----------------------------
Title: Chief Financial Officer
By: /s/ Richard Conte
-----------------------------
Title: CEO/Chairman
<PAGE>
BANK OF AMERICA
Wyatt R. Ritchie
Vice President
U.S. Corporate Group-L.A.
February 15, 1995
Wendy Simpson
Community Psychiatric Centers
333 North Rancho Road, Suite 300
Las Vegas, NV 89106
Dear Wendy:
Per our phone conversation today, this letter is to confirm Bank of America's
approval to extend the $50 million Revolving Credit Facility made available to
Community Psychiatric Centers.
We will be extending the expiry of the Facility to February 28, 1996, as well as
amending the pricing to be the same as the $25 million Revolver/Term Facility.
This will reduce your cost from LIBOR +2.75% to LIBOR + 1.50% given the current
leverage ratio. I will be following up with documentation to amend the facility
within the next few days.
Best regards,
/s/ Wyatt R. Ritchie
Wyatt R. Ritchie
Vice President
Bank of America National Trust and Savings Association
555 South Flower Street Los Angeles, California 90071
<PAGE>
Exhibit 11 Statements Re:
Computation of Per Share Earnings
Community Psychiatric Centers and Subsidiaries
<TABLE>
<CAPTION>
Years Ended November 30,
---------------------------------------------------
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Primary:
Average shares outstanding during
the period--treating as outstanding
only the paid portion of shares
portion of shares issued to employees
for exercise of stock options 44,668,000 42,951,000 43,465,000
(a) Stock options granted to
employees and unpaid portion
of shares issued to employees
for exercise of stock options,
based on the treasury-stock
method using average market price ** *** *
----------- ------------ -----------
TOTAL 44,668,000 42,951,000 43,465,000
----------- ------------ -----------
----------- ------------ -----------
Net earnings (loss) $23,137,000 $(24,892,000) $10,220,000
----------- ------------ -----------
----------- ------------ -----------
Earnings (loss) per share $ 0.52 $ (0.58) $ 0.24
----------- ------------ -----------
----------- ------------ -----------
Fully diluted:
Average shares outstanding during the
year--treating as outstanding only
the paid portion of shares issued to
employees for exercise of stock options 44,668,000 42,951,000 43,465,000
(a) Stock options granted to
employees and unpaid portion of
shares issued to employees for
exercise of stock options,
based on the treasury-stock
method using the year-end
market price, if higher than
average market price ** *** *
----------- ------------ -----------
TOTAL 44,668,000 42,951,000 43,465,000
----------- ------------ -----------
----------- ------------ -----------
Net earnings (loss) $23,137,000 $(24,892,000) $10,220,000
----------- ------------ -----------
----------- ------------ -----------
Earnings (loss) per share $ 0.52 $ (0.58) $ 0.24
----------- ------------ -----------
----------- ------------ -----------
<FN>
- -----------
* As the dilutive common stock equivalents are less than 3% of the weighted
average outstanding shares, they have not been included in the 1994
computation of earnings per share as shown in the Consolidated Statement of
Operations and Five Year Summary of Selected Financial Data.
** During the fiscal year ended November 30, 1992, there were no stock
options outstanding at exercise prices above average or ending market
price.
*** The impact of stock options is excluded from earnings (loss) per share as
the impact of stock equivalents is anti-dilutive.
</TABLE>
<PAGE>
EXHIBIT 22 RE: SUBSIDIARIES OF THE REGISTRANT
The Company's subsidiaries, the fictitious business names (if any) under which
they do business, and the state or other jurisdiction of incorporation or
organization of each are set forth below. All are wholly owned by the Company
and included in the Consolidated Financial Statement.
<TABLE>
<CAPTION>
State or Country
Subsidiary Fictitious Business Name of Incorporation
---------- ------------------------ ----------------
<S> <C> <C>
Community Psychiatric Centers of California CPC Alhambra Hospital California
CPC Belmont Hills Hospital
CPC Brea Canyon Hospital (Closed)
CPC Fairfax Hospital
CPC Fremont Hospital
CPC Heritage Oaks Hospital
CPC Horizon Hospital
CPC Laguna Hills Hospital
CPC Rancho Lindo Hospital
CPC Santa Ana Hospital
CPC San Luis Rey Hospital
CPC Sierra Vista Hospital
CPC Vista Del Mar Hospital
CPC Walnut Creek Hospital
CPC Westwood Hospital (Closed)
Community Psychiatric Centers of Florida,Inc. CPC Ft. Lauderdale Hospital Florida
CPC Palm Bay Hospital
CPC St. Johns River Hospital
Community Psychiatric Centers of Idaho, Inc. CPC Intermountain Hospital of Boise Idaho
Community Psychiatric Centers of Indiana,Inc. CPC Valle Vista Hospital Indiana
Community Psychiatric Centers of Kansas, Inc. CPC College Meadows Hospital Kansas
CPC Great Plains Hospital (Closed)
Community Psychiatric Centers of
Mississippi, Inc. CPC Sand Hill Hospital Mississippi
Community Psychiatric Centers of Missouri,Inc. CPC Spirit of St. Louis Hospital Missouri
Community Psychiatric Centers of North
Carolina, Inc. CPC Cedar Spring Hospital North Carolina
Community Psychiatric Centers of Oklahoma,
Inc. CPC Southwind Hospital Oklahoma
Community Psychiatric Centers of Oregon, Inc. CPC Cedar Hills Hsptl.(Closed) Oregon
<PAGE>
EXHIBIT 22 RE: SUBSIDIARIES OF THE REGISTRANT (CONTINUED)
<CAPTION>
State or Country
Subsidiary Fictitious Business Name of Incorporation
---------- ------------------------ ----------------
<S> <C> <C>
Community Psychiatric Centers of CPC Hospital San Juan Capestrano
Puerto Rico, Inc. Puerto Rico
Community Psychiatric Centers of Texas,Inc. CPC Afton Oaks Hospital (closed) Texas
CPC Capital Hospital
CPC Cypress Point Hospital (closed)
CPC Millwood Hospital
CPC Oak Bend Hospital (closed)
Community Residential Centers of San Antonio (LLC) Texas
Community Psychiatric Centers of Utah,Inc. CPC Olympus View Hospital Utah
Community Psychiatric Centers of
Wisconsin, Inc. CPC Greenbriar Hospital Wisconsin
CPC of Georgia, Inc. Georgia
C.P.C. of Louisiana, Inc. CPC Brentwood Hospital Louisiana
CPC Coliseum Medical Center
CPC East Lake Hospital
CPC Meadow Wood Hospital
Miami Valley Community Centers, Inc. Ohio
Old Orchard Hospital, Inc. CPC Old Orchard Hospital Illinois
CounterPoint Center of Old Orchard, Inc. CPC Streamwood Hospital Illinois
Peachtree-Parkwood Hospital, Inc. CPC Parkwood Hospital Georgia
Community Psychiatric Centers
of Arkansas, Inc. CPC Pinnacle Pointe Hospital Arkansas
Priory Hospitals Group Altrincham Priory United Kingdom
Grovelands Priory
Hayes-Grove Priory
Heath House Priory
Jacques Hall
Lynbrook Priory
Marchwood Priory
The Priory
The Woodbourne Clinic
The Dukes Priory
The Nottingham Clinic
P.P.P., Inc. Georgia
<PAGE>
EXHIBIT 22 RE: SUBSIDIARIES OF REGISTRANT (CONTINUED)
<CAPTION>
State or Country
Subsidiary Fictitious Business Name of Incorporation
---------- ------------------------ ----------------
<S> <C> <C>
Community Psychiatric Hospitals Assoc., Inc. California
Solutions Counseling & Treatment Center, Inc. Texas
Community Behavioral Health Systems, Inc. Nevada
Community Psychiatric Centers Properties
Incorporated California
CPC Properties of Illinois, Inc. Illinois
CPC Properties of Indiana, Inc. Indiana
CPC Properties of Kansas, Inc. Kansas
CPC Properties of Louisiana, Inc. Louisiana
CPC Properties of Mississippi, Inc. Mississippi
CPC Properties of Missouri, Inc. Missouri
CPC Properties of North Carolina, Inc. North Carolina
CPC Properties of Arkansas, Inc. Arkansas
CPC Properties of Oklahoma, Inc. Oklahoma
CPC Properties of Wisconsin, Inc. Wisconsin
Community Psychiatric Centers Properties of
Texas, Inc. Texas
Community Psychiatric Centers Properties
of Utah, Inc. Utah
Florida Hospital Properties Florida
Psychiatric Hospital Consultants CPC Consultants California
Belmedco Belmont Hills Pharmacy California
CPC Pharmacy, Inc. California
CPC Investment Corp. California
Cottonwood Hill, Inc. Colorado
CPC Laboratories, Inc. Georgia
<PAGE>
EXHIBIT 22 RE: SUBSIDIARIES OF THE REGISTRANT (CONTINUED)
<CAPTION>
State or Country
Subsidiary Fictitious Business Name of Incorporation
---------- ------------------------ ----------------
<S> <C> <C>
CalProp I, Inc. Delaware
CalProp II, Inc. Delaware
CPC (Londinium) Unlimited United Kingdom
Community Psychiatric Centres Limited Canada
CPC Managed Care Services, Inc. CPC Managed Care Delaware
Harvard Medical Ltd. United Kingdom
Michael A. Bell Agency West Germany
Transitional Hospitals Corporation Delaware
Transitional Hospitals Corporation
of Louisiana, Inc. THC - New Orleans Louisiana
Transitional Hospitals Corporation
of Texas, Inc. THC - Arlington Texas
THC - Seattle, Inc. THC - Seattle Washington
Transitional Hospitals Corporation
of Indiana, Inc. THC - Indianapolis Indiana
THC - Minneapolis, Inc. THC - Minneapolis Minnesota
Transitional Hospitals Corporation
of Massachusetts, Inc. Massachusetts
Transitional Hospitals Corporation
of Nevada, Inc. THC - Las Vegas Nevada
THC - Chicago, Inc. THC - Chicago Illinois
Transitional Hospitals Corporation
of New Mexico, Inc. THC - Albuquerque New Mexico
Transitional Hospitals Corporation
of Tampa, Inc. THC - Tampa Florida
THC - Hollywood, Inc. THC - Hollywood Florida
Transitional Hospitals Corporation
of North Carolina, Inc. North Carolina
THC - Houston, Inc. THC - Houston Texas
<PAGE>
EXHIBIT 22 RE: SUBSIDIARIES OF THE REGISTRANT (CONTINUED)
<CAPTION>
State or Country
Subsidiary Fictitious Business Name of Incorporation
---------- ------------------------ ----------------
<S> <C> <C>
J. B. Thomas Hospital, Inc. THC - Boston Massachusetts
Transitional Hospitals Corporation
of Wisconsin, Inc. THC - Milwaukee Wisconsin
</TABLE>
<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement No.
33-37920 and Post-Effective Amendment No. 1 to Registration Statement No.
33-2-76435, both on Form S-8 and both dated November 21, 1990, Registration
Statement No. 33-5485 on Form S-8 dated August 1, 1994 and Registration
Statement No. 33-14747 on Form S-3 dated August 6, 1987 of our report dated
January 27, 1995 with respect to the consolidated financial statements and
schedule of Community Psychiatric Centers and Subsidiaries included in the
Annual Report on Form 10-K for the year ended November 30, 1994.
ERNST & YOUNG LLP
Los Angeles, California
February 27, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10K and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1994
<PERIOD-START> DEC-01-1993
<PERIOD-END> NOV-30-1994
<EXCHANGE-RATE> 1.5645
<CASH> 37,263
<SECURITIES> 0
<RECEIVABLES> 103,128
<ALLOWANCES> 29,381
<INVENTORY> 0
<CURRENT-ASSETS> 183,999
<PP&E> 376,765
<DEPRECIATION> 92,937
<TOTAL-ASSETS> 605,404
<CURRENT-LIABILITIES> 80,503
<BONDS> 69,090
<COMMON> 46,856
0
0
<OTHER-SE> 393,183
<TOTAL-LIABILITY-AND-EQUITY> 605,404
<SALES> 423,955
<TOTAL-REVENUES> 427,740
<CGS> 328,508
<TOTAL-COSTS> 328,508
<OTHER-EXPENSES> 51,549
<LOSS-PROVISION> 26,966
<INTEREST-EXPENSE> 3,545
<INCOME-PRETAX> 17,172
<INCOME-TAX> 6,952
<INCOME-CONTINUING> 10,220
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,220
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
