<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 1996
-----------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to _____________________
Commission file number 1-7008
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- --------------------------------------------------------------------------------
COMMUNITY PSYCHIATRIC CENTERS
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 94-1599386
- ------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
6600 W. Charleston Boulevard, Suite 118, Las Vegas, Nevada 89102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (702) 259-3600
----------------------------
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date: 44,396,000 as of March 31,
------------
1996.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
February 29/28
1996 1995
(000s omitted
-------------
except per share data)
----------------------
<S> <C> <C>
REVENUES:
Net operating revenues $123,409 $119,541
Investment income and other 486 829
-------- --------
123,895 120,370
COSTS AND EXPENSES:
Operating expense 97,393 88,182
General and administrative expense 7,935 8,688
Bad Debt expense 4,703 7,684
Depreciation and amortization 5,643 5,013
Interest expense 1,373 1,080
Restructuring charge 843 --
-------- --------
117,890 110,647
INCOME BEFORE TAXES 6,005 9,723
Income taxes 2,282 3,793
-------- --------
NET INCOME $ 3,723 $ 5,930
======== ========
NET INCOME PER SHARE $ 0.09 $ 0.14
======== ========
WEIGHTED AVERAGE COMMON SHARES 43,702 43,597
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 29 November 30
1996 1995
(Unaudited) (Audited)
-----------------------
ASSETS (000s omitted)
- ------
<S> <C> <C>
CURRENT:
Cash and cash equivalents $ 7,209 $ 17,263
Short-term investments 2,000 7,601
Accounts receivable, less allowances
for doubtful accounts
1996 - $25,729/1995 - $24,682 119,136 113,686
Receivable from third parties under
reimbursement contracts 5,196 4,550
Prepaid expenses and other current assets 19,038 14,756
Assets held for sale 19,169 15,512
Refundable and deferred income taxes 18,754 21,979
-------- --------
TOTAL CURRENT ASSETS 190,502 195,347
PROPERTY, BUILDINGS & EQUIPMENT-at
cost less allowances for depreciation 354,223 354,192
Deferred income taxes 21,218 21,334
Other assets 25,573 24,862
Excess of investments in subsidiaries
over net assets acquired 8,799 8,890
-------- --------
$600,315 $604,625
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
CURRENT:
Accounts payable and accrued expenses $ 46,781 $ 53,143
Income taxes payable 8,814 4,425
Accrued restructuring charges 1,875 3,693
Current maturities on long-term debt 68,758 18,764
-------- --------
TOTAL CURRENT LIABILITIES 126,228 80,025
LONG-TERM DEBT, EXCLUSIVE OF CURRENT
MATURITIES 31,328 84,883
DEFERRED COMPENSATION 2,013 2,019
DEFERRED INCOME TAXES 17,007 17,659
Commitments and contingencies
Obligation to be settled in common stock 21,250 21,250
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1.00, authorized
2,000 shares; none issued -- --
Common Stock, par value $1.00, authorized
100,000 shares; issued 1995 - 46,856
shares 1994 - 46,856 shares 46,856 46,856
Additional paid-in capital 62,139 62,096
Retained earnings 330,787 327,062
Foreign currency translation adjustment (3,197) (2,943)
Less treasury stock-at cost 1996 - 3,150
shares and 1995 - 3,166 shares (34,096) (34,282)
-------- --------
402,489 398,789
-------- --------
$600,315 $604,625
======== ========
</TABLE>
NOTE: The balance sheet at November 30, 1995 has been derived from the audited
financial statement at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed consolidated financial statements.
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Quarter Ended
February 29/28
1996 (Unaudited) 1995
---------------------
(000s omitted)
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $ 3,723 $ 5,930
Items not resulting in cash flows:
Depreciation and amortization 5,643 5,013
Provision for uncollectible accounts 4,703 7,684
Restructuring charge 843 --
Gain on the sale of property (103) --
Other 1,091 2,100
Changes in assets and liabilities:
Short-term investments 5,601 --
Accounts receivable (10,153) (22,610)
Receivable from/payable to third parties
under reimbursement contracts (646) 3,776
Prepaid expenses and other current assets (4,282) (1,681)
Accounts payable and accrued expense (6,362) (6,207)
Accrued restructuring charges (2,661) (79)
Income taxes 7,078 420
-------- --------
Net cash provided from (used) for operations 4,475 (5,654)
FINANCING:
Proceeds from revolving credit facilities -- 851
Net proceeds from exercise of stock options 150 293
Payments on long-term debt (3,568) (4,167)
-------- --------
Net cash used for financing activities (3,418) (3,023)
INVESTING:
Payments received on notes 341 70
Loans made to officers (750) --
Purchase of property, buildings and equipment (10,482) (9,879)
Investment in pre-opening costs (282) (1,183)
Proceeds from sale of property, buildings
and equipment 62 --
Payment for business acquisitions:
Property, buildings and equipment -- (728)
Excess of purchase price over fair value of
assets acquired -- (221)
-------- --------
Net cash used for investing activities (11,111) (11,941)
-------- --------
Net decrease in cash and cash equivalents (10,054) (20,618)
Beginning cash and cash equivalents 17,263 37,263
-------- --------
Ending cash and cash equivalents $ 7,209 $ 16,645
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 1996
NOTE A: Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
have been included. For further information, refer to the consolidated
financial statements and footnotes thereto included in the registrant's
annual report on Form 10-K for the year ended November 30, 1995.
NOTE B: Restructuring Charge
--------------------
Effective February 29, 1996, the Company recorded a
restructuring charge totalling $.8 million ($.5 million after tax)
determined in accordance with the provisions of the January 1995
Financial Accounting Standards Board Emerging Issues Task Force
Consensus No. 94-3 "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs incurred in a Restructuring)", ("EITF 94-3"), in
connection with the decision to close one psychiatric hospital in
January of 1996. EITF 94-3 requires the accrual of certain employee
termination costs and costs resulting from a plan to exit an activity
that are not associated with or that do not benefit activities that will
continue and prohibits accrual of expected future operating losses of
the activity exited. The charge comprised $.6 million for employee
termination benefits related to hospital operations and $.2 million for
non-cancelable operating leases and other exit costs. Net operating
revenue and net operating income or (loss) for the closed hospital
totalled $1.1 million and ($.2 million) for the first two months of
fiscal year 1996, $6.2 million and ($1 million) for fiscal year 1995,
and $8.5 million and ($34,000) for fiscal year 1994. The fixed assets of
this hospital were written down to their estimated fair market value in
November 1995 in accordance with the provisions of Financial Accounting
Standard No. 121 ("FAS 121"), "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of". This hospital
is currently being held for sale.
Subsequent to February 29, 1996, the Company has closed two
additional U.S. psychiatric division hospitals. In the second quarter of
1996, the Company expects to record a restructuring charge of an
undetermined amount related to exit costs associated with the closed
facilities. One of these hospitals was sold for its book value in April
of 1996. The second hospital was written down to its estimated fair
market value in November of 1995 in accordance with the provisions of
FAS 121. This hospital is currently being held for sale.
Management continually reviews all facilities to evaluate
potential closures, divestitures or conversions. Management may elect to
close additional psychiatric facilities in the future which could result
in additional charges to income for the costs necessary to exit the
hospital operations.
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FEBRUARY 29, 1996
NOTE C: Recent Developments
-------------------
Spin-off Transaction. On December 20, 1995, The Company
announced that the CPC Board of Directors had preliminarily approved a
plan to spin-off the U.S. psychiatric business in the form of a taxable
dividend to the CPC shareholders. The plan calls for CPC to be split
into two independent publicly held corporations, one providing
psychiatric services in the U.S. and one operating THC, U.K. psychiatric
operations and Puerto Rico psychiatric operations. The spin-off is
subject to a number of conditions, including regulatory and other third
party approvals, market conditions, final approval of the Board of
Directors and shareholder approval, accordingly, there can be no
assurance that the Company will be successful in consummating the spin-
off. However, it is anticipated that the spin-off and related matters
will be submitted to shareholders at the Annual Meeting to be scheduled
at a later date. The special dividend is expected to be distributed by
mid 1996.
Indications of Interest Received for PHG. The Company has
received a number of unsolicited indications of interest to acquire its
United Kingdom subsidiary--the Priory Hospitals Group ("PHG"). There can
be no assurance that these inquiries and related discussions will result
in a sale of PHG. The Company is giving each indication of interest
received to date careful consideration.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
Results of Operations
THREE MONTHS ENDED FEBRUARY 29, 1996
Net operating revenues for the quarter ended February 29, 1996 increased
approximately 3.2% to $123.4 million from $119.5 million for the first quarter
of the prior year. The increase was a result of a $14.9 million increase in THC
revenue from $41.0 million in the first quarter of 1995 to $55.9 million in the
first quarter of 1996. THC's same-store admissions and patient days increased
34.3% and 27.8%, respectively.
Net operating revenues from the United States psychiatric hospitals
decreased approximately $11.8 million from $64.1 million to $52.3 million
primarily due to the closure of six U.S. psychiatric hospitals in November 1995
and one hospital in January 1996. The closed hospitals generated approximately
$9.9 million of net revenue in the first quarter of the prior year. The
remaining portion of the decrease in net operating revenues related to a
decrease in same-store admissions and adjusted patient days of 2.6% and 5.0%,
respectively.
Net operating revenues from the Company's United Kingdom operations
increased by 5.2% or approximately $.8 million as a result of additional patient
days from two hospitals that were acquired during fiscal year 1995. The United
Kingdom operations experienced reduced admissions and patient days in certain
hospitals in the early part of the first quarter resulting in same-store
declines of 4.1% and 5.2%, respectively.
Operating expenses as a percentage of net operating revenues were 79.0% for
the quarter ended February 29, 1996 compared to 73.8% for the comparable prior
year quarter. The increase related to several factors including an increase in
personnel costs at the U.S. psychiatric division as the Company is making an
effort to (i) upgrade the quality of its operating and financial personnel in
these hospitals and (ii) to expand the psychiatric and behavioral health
services offered. The increase in operating expenses as a percentage of net
operating revenues was also impacted by the decrease in patient days over the
comparable period in the prior year for the U.S. psychiatric division and a
decrease in same-store patient days for the U.K. psychiatric division. The
Company maintains staffing levels at its hospitals necessary to promote high
quality care while attempting to adapt the levels for census fluctuations.
While census levels may decrease significantly during the holidays in the first
quarter, the Company does not adjust staffing levels below what is mandated by
regulatory bodies. In addition to the above, the Company incurred approximately
$.9 million of operating expenses related to the seven U.S. psychiatric
hospitals that have been closed since November of 1995. These costs were
prohibited from being accrued for in any of the related restructuring charges as
they did not qualify as exit costs as defined by EITF 94-3 (see Note B to the
condensed consolidated financial statements related to EITF 94-3 and a
description of the $.8 million restructuring charge for one U.S. psychiatric
division hospital that was closed in January of 1996).
General and administrative expense decreased $.8 million and as a
percentage of net operating revenue to 6.4% from 7.3% in the prior year
comparable period. Beginning in November of 1995, the Company closed three
regional offices, consolidated certain positions at the Corporate office, and
continued with further reductions in Corporate overhead personnel in January of
1996.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations (continued)
THREE MONTHS ENDED FEBRUARY 29, 1996 (continued)
Bad debt expense decreased from 6.4% of net operating revenues in the first
quarter of 1995 to 3.8% in the first quarter of 1996. Bad debt expense was
higher in the first quarter of 1995 due to the fact that the Company experienced
a slow down in billing and collections as it converted several U.S. psychiatric
hospitals to a centralized billing office as well as a new computer system.
Also included in the first quarter of 1995 was a charge of approximately $.7
million related to temporary interruptions in Medicare reimbursement to the
Company and other partial hospitalization providers in California.
Depreciation and amortization increased as the Company added two THC
facilities, one U.K. psychiatric hospital and a new computer system since the
first quarter of 1995.
Following is a summary of net income by business segment, excluding the
restructuring charge, for the three months ended February 29, 1996:
<TABLE>
<CAPTION>
(000s)
--------
<S> <C>
U.S. Psychiatric division $ 596
U.K. Psychiatric division 1,364
Long-term critical care division 2,286
------
Net income $4,246
======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES AT FEBRUARY 29, 1996
Cash flows provided from operations were $4.5 million for the three months
ended February 29, 1996 compared to cash flows used for operations of $5.7
million for the comparable period of 1995. Net accounts receivable balances
increased $5.5 million during the three months ended February 29, 1996 compared
to $14.9 million during the comparable period of the prior year. The decline in
the increase in accounts receivable was the principal cause of cash flows from
operations improving by $10.2 million over the prior year. Days revenue in
accounts receivable were 88 and 86 at February 29, 1996 and February 28, 1995,
respectively. The increase in days revenue in accounts receivable is primarily
the result of a $3.5 million increase in accounts receivable at one THC facility
that was awaiting approval for their Medicare provider number at the end of the
first quarter. The delay in receiving the facility's provider number, which is
necessary for billing Medicare claims, was caused by a partial shutdown of the
U.S. Government during the first quarter of 1996. The Company obtained the
provider number in March of 1996 and is now being reimbursed for the services
provided.
Purchases of fixed assets totalled $10.4 million during the first quarter
of 1996. This amount included $2.8 million for a new office that the Company is
building on the campus of THC Las Vegas Hospital in Las Vegas, Nevada. This
building and its parking structure will provide additional administrative
offices, dining facilities, and parking for the hospital and will serve as the
new location for the corporate office. Capital expenditures for the remainder
of fiscal year 1996 are estimated to be $18 million for THC, $12 million for the
U.K. psychiatric division, $10 million for the U.S. psychiatric division, and
$3.3 million for the new office building in Las Vegas, Nevada.
The Company believes that its current cash and cash equivalent balances,
its operating cash flow, and its ability to borrow additional funds will be
sufficient to fund the Company's operations and capital expenditures through the
end of fiscal 1996. Additional funding sources will be necessary to support
further expansion of THC and the U.K. psychiatric operations and to repay
outstanding borrowings under credit facilities.
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
FEBRUARY 29, 1996
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
On September 28, 1995, the Company reached an agreement to settle
certain consolidated securities class action lawsuits and a related
shareholder derivative action. During the third and fourth quarters of
1995, the Company recorded charges totalling $46.0 million ($28.9 million
after tax) relating to settlement of the lawsuits and associated legal fees
and expenses. The suits, filed in late 1991, alleged violations of the
federal securities laws by the Company and certain individuals between
September 1990 and November 1991 arising from the activities of the U.S.
Psychiatric Division.
The principal terms of the agreement call for a settlement amount of
$42.5 million consisting of a settlement fund of $21.25 million and the
Company's common stock with an expected value of $21.25 million. The cash
amount, plus interest, was paid in November 1995. The shares to be issued
to the plaintiff class were previously repurchased by the Company pursuant
to a stock buyback program during late 1991 through early 1993. The number
of shares of common stock to be issued will be equal to $21.25 million
divided by the average market value of the common stock over a 10-day
trading period prior to the distribution of shares to settle claims,
provided that in any event the minimum number of shares that will be issued
is 1,931,818 and the maximum number of shares that will be issued is
3,035,714. The maximum limits would be triggered if the average market
value of the common stock is at $7 per share or below. The class action
lawsuit received final court approval on February 12, 1996. On March 4,
1996, the Company issued 689,189 of common shares to the plaintiffs'
attorneys which represents a portion of the settlement to be made in common
stock. The remaining shares will be issued pursuant to a schedule that will
be agreed to by the plaintiffs' attorneys and the Company. Upon issuance,
these shares have a dilutive effect on earnings per share. The derivative
action is scheduled for a hearing for final court approval on April 30,
1996.
While these cases allege actions taken before present management was in
place, management continues to believe that the claims asserted in the
shareholder suits lack merit. Nevertheless, the Company believed that it
was prudent to settle these cases due to the continuing substantial costs
of defense, the distraction of management's attention and the risks
associated with litigation.
On August 17, 1995 the Company reported developments pertaining to CPC
Southwind Hospital in Oklahoma City, Oklahoma, which is operated by the
Company's subsidiary, CPC Oklahoma, Inc. The first was the filing of a
whistleblower suit against CPC Oklahoma, Inc. under the Federal False
Claims Act, and the second concerned the seizure of certain of Southwind's
records pursuant to a search warrant. On January 19, 1996, the Government
filed an amended complaint alleging that Southwind Hospital submitted false
claims to various federally-funded health care programs. The amended
complaint contained an attached schedule of claims covering periods from
1990 through mid-1992. Since the service of the original complaint,
Southwind Hospital has provided information to the Government on numerous
issues based on internal review. The Company has responded to the
government's complaint and continues to provide information to the
government. Management is presently unable to evaluate the potential impact
of the suit on the Company.
The Company is subject to ordinary and routine litigation incidental to
its business, including those arising from patient treatment, injuries or
death for which it is covered by liability insurance, and those arising
from actions involving employees. Management believes that the ultimate
resolution of such proceedings will not have a material adverse effect on
the Company.
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
FEBRUARY 29, 1996
PART II. OTHER INFORMATION (continued)
ITEM 5: OTHER INFORMATION
-----------------
Hartly Fleischmann resigned as a Director of the Company on March 20,
1996.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K:
--------------------------------
A) The following exhibits are included herein:
Exhibit 10: Third Amendment to Credit Agreement Dated as of September
20, 1993 and Fifth Amendment to Credit Agreement Dated as
of May 6, 1994 among Registrant, Transitional Hospitals
Corporation, and Bank of America Trust and Savings
Association, dated as of April 10, 1996.
Exhibit 11: Computation of Earnings per Share
Exhibit 27: Financial Data Schedule
The registrant was not required to file a Form 8-K during the three
months ended February 29, 1996.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNITY PSYCHIATRIC CENTERS
(Registrant)
Dated: April 15, 1996 /s/ WENDY SIMPSON
------------------------------
Wendy Simpson
Chief Financial Officer
<PAGE>
EXHIBIT 10
FIFTH AMENDMENT TO CREDIT AGREEMENT
DATED AS OF MAY 6, 1994
AND
THIRD AMENDMENT TO CREDIT AGREEMENT
DATED AS OF SEPTEMBER 20, 1993
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT DATED AS OF MAY 6, 1994 AND
FOURTH AMENDMENT TO CREDIT AGREEMENT DATED AS OF SEPTEMBER 20, 1993 (this
"Amendment") is made and dated as of April 10, 1996 among Community Psychiatric
Centers, a Nevada corporation ("CPC"), Transitional Hospitals Corporation, a
Delaware corporation ("THC") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION ("Bank") and amends (a) that certain Credit Agreement dated as of
May 6, 1994, as amended by a First Amendment to Credit Agreement dated as of
December 14, 1994, a Second Amendment to Credit Agreement dated as of February
28, 1995, a Third Amendment to Credit Agreement dated as of June 7, 1995 and a
Fourth Amendment to Credit Agreement and Waiver dated as of February 26, 1996
and (b) that certain Credit Agreement dated as of September 20, 1993, among CPC,
THC and Bank, as amended by a First Amendment to Credit Agreement dated as of
May 6, 1994, and a Second Amendment to Credit Agreement dated as of June 7,
1995 (such Agreements, as amended or modified from time to time, collectively,
the "Agreements").
RECITALS
--------
The Company has requested, and the Bank has agreed, on the terms and
conditions set forth herein, to amend the Agreements.
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
Agreements unless otherwise defined herein. All references to the Agreements
shall mean the Agreements as hereby amended.
2. Amendment to Agreements. The parties agree to amend the Agreements
as follows:
2.1 The definition of "EBITDA" in Section 1.01 of the Agreements is
amended by inserting the following before the proviso at the end thereof:
- 1 -
<PAGE>
", plus (f) Permitted Settlement and Impairment Costs incurred during
such period;"
2.2 The following new definition is inserted in Section 1.01 of the
Agreements as follows:
"`Permitted Settlement and Impairment Costs' means costs incurred
in settling certain securities class action lawsuits and impairment
losses incurred by the Company because of its adoption of FASB 121, in
an aggregate amount not exceeding $92,006,000 through the fiscal period
ending November 30, 1995, plus an additional $10,000,000 in the
aggregate for any impairment losses incurred by the Company because of
its adoption of FASB 121 and restructuring charges incurred at any time
thereafter."
2.3 Sections 7.14, 7.15 and 7.16 of the Agreements are amended and
restated in their entirety as follows:
"7.14 Net Funded Debt to EBITDA Ratio. The Company shall not
permit its Net Funded Debt to EBITDA Ratio to be more than the
applicable maximum amount set forth opposite such period below:
<TABLE>
<CAPTION>
"Each Consecutive 12-Month Maximum
Period Ending Ratio
-------------------------- -------
<S> <C>
February 1996 2.10 to 1
May 1996 2.10 to 1
August 1996 2.00 to 1
November 1996 1.50 to 1
February 1997 and thereafter 0.90 to 1
</TABLE>
"7.15 EBITDA to Consolidated Net Interest Expense Ratio. The
Company shall not permit its EBITDA to Consolidated Net Interest Expense
Ratio to be less than the applicable minimum amount set forth opposite
such period below:
<TABLE>
<CAPTION>
"Each Consecutive 12-Month Minimum
Period Ending Ratio
-------------------------- -------
<S> <C>
February 1996 8.00 to 1
May 1996 5.90 to 1
August 1996 5.50 to 1
November 1996 7.00 to 1
February 1997 and thereafter 10.00 to 1
</TABLE>
- 2 -
<PAGE>
"7.16 Tangible Net Worth. The Company shall not permit (as of the
end of any fiscal quarter) its Tangible Net Worth to be less than 100%
of the Tangible Net Worth as of November 30, 1995 less $15,000,000 plus
75% of the Company's net income (not to be reduced by losses) earned in
each fiscal quarter plus 75% of the Net Issuance Proceeds since the date
hereof."
3. Representations and Warranties. The 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 Agreements. 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 the 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 by 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 Agreements are true and
correct in all respects on and as of the date hereof as though made on and as of
the date hereof.
3.5 Default. No Default or Event of Default under the Agreements 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:
- 3 -
<PAGE>
4.1 Corporate Resolution. A copy of a resolution or resolutions passed
by the Board of Directors of the Company, certified by the Secretary or an
Assistant Secretary of the Company as being in full force and effect on the
effective date of this Amendment, authorizing the amendments herein provided for
and the execution, delivery and performance of this Amendment.
4.2 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
the Company.
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 Agreements and the Loan Documents. Except as
hereby expressly amended, the Agreements 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 Agreements, 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 Agreements, 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.
- 4 -
<PAGE>
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 L. Simpson
------------------------------------
Name: Wendy L. Simpson
----------------------------------
Title: Chief Financial Officer
---------------------------------
TRANSITIONAL HOSPITALS CORPORATION
By: /s/ Wendy L. Simpson
------------------------------------
Name: Wendy L. Simpson
----------------------------------
Title: Chief Financial Officer
---------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ Wyatt Ritchie
-------------------------------------
Wyatt Ritchie
Vice President
- 5 -
<PAGE>
CONSENT OF GUARANTORS
---------------------
The undersigned Guarantors hereby acknowledge that they have reviewed and
consent to the foregoing Fifth Amendment to Credit Agreement dated as of May 6,
1994 and Third Amendment to Credit Agreement dated as of September 20, 1993,
among Community Psychiatric Centers ("CPC"), Transitional Hospitals Corporation
("THC") and Bank of America National Trust and Savings Association ("Bank"),
amending (a) that certain Credit Agreement dated as of May 6, 1994, among CPC,
THC and Bank, as amended, and (b) that certain Credit Agreement dated as of
September 20, 1993, among CPC, THC and Bank, as amended, and hereby reaffirm
that their respective General Continuing General Guaranties, continue in full
force and effect on and as of the date hereof.
Dated: April 10, 1996
EACH OF THE GUARANTORS LISTED ON ANNEX A
TO EACH OF THE GUARANTIES, WHICH ARE
INCORPORATED BY REFERENCE HEREIN BY THIS
REFERENCE
By: /s/ Richard Conte
-------------------------------------
Title: Chairman and Chief Executive Officer
----------------------------------
By: /s/ Wendy L. Simpson
-------------------------------------
Title: Chief Financial Officer
----------------------------------
- 6 -
<PAGE>
EXHIBIT 11
COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
February 29\28
1996 1995
-----------------------------
(000s, except per share data)
<S> <C> <C>
Weighted average
common shares* $ 43,702 $ 43,597
======== ========
Net Earnings $ 3,723 $ 5,930
======== ========
Earnings per share $ .09 $ .14
======== ========
</TABLE>
* Dilutive common stock equivalents are less than 3% of weighted average
common shares outstanding.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 7,209
<SECURITIES> 0
<RECEIVABLES> 119,136
<ALLOWANCES> 25,729
<INVENTORY> 0
<CURRENT-ASSETS> 190,502
<PP&E> 354,223
<DEPRECIATION> 102,034
<TOTAL-ASSETS> 600,315
<CURRENT-LIABILITIES> 126,228
<BONDS> 31,328
0
0
<COMMON> 46,856
<OTHER-SE> 355,633
<TOTAL-LIABILITY-AND-EQUITY> 600,315
<SALES> 123,409
<TOTAL-REVENUES> 123,895
<CGS> 97,393
<TOTAL-COSTS> 97,393
<OTHER-EXPENSES> 14,421<F1>
<LOSS-PROVISION> 4,703
<INTEREST-EXPENSE> 1,373
<INCOME-PRETAX> 6,005
<INCOME-TAX> 2,282
<INCOME-CONTINUING> 3,723
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,723
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
<FN>
<F1>Includes a restructuring charge of $843,000.
</FN>
</TABLE>
