<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 28, 1997
----------------------------------------------
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
-------------------------------------------------------
- --------------------------------------------------------------------------------
TRANSITIONAL HOSPITALS CORPORATION
------------------------------------------------------
(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)
5110 W. Sahara Avenue, Las Vegas, Nevada 89102
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (702)257-3600
-------------
Not Applicable
------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date: 38,829,000 as of March 31,
------------
1997.
Total number of pages: 10
Exhibit Index at page: 9
Page 1 of 10
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRANSITIONAL HOSPITALS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
February 28/29
1997 1996
(000s omitted
-------------
except per share data)
----------------------
<S> <C> <C>
REVENUES:
Net operating revenues $74,916 $127,489
Investment and other income 2,528 486
------- --------
77,444 127,975
COSTS AND EXPENSES:
Operating expense 58,992 101,277
General and administrative expense 5,309 7,935
Bad Debt expense 1,579 4,899
Depreciation and amortization 3,499 5,643
Interest expense 358 1,373
Non-recurring transactions -- 843
------- --------
69,737 121,970
INCOME BEFORE TAXES 7,707 6,005
Income taxes 3,006 2,282
------- --------
NET INCOME $ 4,701 $ 3,723
======= ========
NET INCOME PER SHARE $ 0.12 $ 0.09
======= ========
WEIGHTED AVERAGE COMMON SHARES 40,697 43,702
======= ========
</TABLE>
See notes to condensed consolidated financial statements.
Page 2 of 10
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28 November 30
1997 1996
(Unaudited) (Audited)
-------------- ----------
(000s omitted)
<S> <C> <C>
ASSETS
- ------
CURRENT:
Cash and cash equivalents $ 56,423 $ 84,313
Short-term investments 11,810 16,777
Accounts receivable, less allowances
for doubtful accounts
1997 - $21,112/1996 - $21,448 58,741 55,557
Prepaid expenses and other current assets 15,830 14,784
Property held for sale 13,393 13,393
Refundable and deferred income taxes 25,216 21,419
-------- --------
TOTAL CURRENT ASSETS 181,413 206,243
PROPERTY, BUILDINGS & EQUIPMENT-at
cost less allowances for depreciation 155,524 153,933
Investment in affiliate 70,368 69,859
Refundable and deferred income taxes 7,281 15,966
Other assets 23,299 19,946
-------- --------
$437,885 $465,947
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
CURRENT:
Accounts payable $ 7,708 $ 9,136
Accrued payroll and other expenses 17,394 15,680
Payable to third parties under
reimbursement contracts 16,477 13,954
Due to broker for stock repurchase plan 7,447 --
Other accrued liabilities 5,260 17,796
Current maturities on long-term debt 8,416 8,467
-------- --------
TOTAL CURRENT LIABILITIES 62,702 65,033
LONG-TERM DEBT, EXCLUSIVE OF CURRENT
MATURITIES 12,706 14,858
DEFERRED INCOME TAXES AND OTHER LIABILITIES 4,183 3,857
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 1997 - 46,856
shares 1996 - 46,856 shares 46,856 46,856
Additional paid-in capital 56,661 56,657
Unrealized gains on investments in debt securities 75 163
Retained earnings 326,411 321,710
Less treasury stock-at cost 1997 - 8,028
shares and 1996 - 4,988 shares (71,709) (43,187)
-------- --------
358,294 382,199
-------- -------
$437,885 $465,947
======== ========
</TABLE>
NOTE: The balance sheet at November 30, 1996 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 3 of 10
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Quarter Ended
February 28/29
1997 (Unaudited) 1996
---------------------
(000s omitted)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,701 $ 3,723
Adjustments to reconcile net income to
cash used for operating activities:
Depreciation and amortization 3,499 5,643
Provision for uncollectible accounts 1,579 4,703
Nonrecurring transactions -- 843
Other (1,197) 1,050
Changes in assets and liabilities, exclusive
of business acquisitions and disposals:
Accounts receivable (4,763) (10,153)
Receivable from/payable to third parties
under reimbursement contracts 2,523 (646)
Prepaid expenses and other current assets (2,596) (4,282)
Accounts payable and accrued expenses 417 (6,362)
Other accrued liabilities (12,536) (2,661)
Income taxes 4,946 7,078
-------- --------
Net cash used for operations (3,427) (1,064)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares (21,084) --
Net proceeds from exercise of stock options 10 150
Payments on long-term debt (2,204) (3,568)
-------- --------
Net cash used for financing activities (23,278) (3,418)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of short-term investments 11,698 5,601
Purchases of short-term investments (6,819) --
Payments received on notes 1,753 341
Loans made to officers -- (750)
Purchase of property, buildings and equipment (3,989) (10,482)
Investment in joint venture (3,191) --
Investment in pre-opening costs (637) (282)
-------- --------
Net cash used for investing activities (1,185) (5,572)
-------- --------
Net decrease in cash and cash equivalents (27,890) (10,054)
Beginning cash and cash equivalents 84,313 17,263
-------- --------
Ending cash and cash equivalents $ 56,423 $ 7,209
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
Page 4 of 10
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1997
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, 1996.
NOTE B: Due to broker for stock repurchase plan
---------------------------------------
The Company purchased .8 million shares of its own stock on the
open market for $7.4 million from February 26, 1997 through February
28, 1997. The payments for the aforementioned purchases were made on
the applicable settlement dates which spanned from March 3, 1997
through March 5, 1997. The $7.4 million was due to the Company's
broker at February 28, 1997 and is reflected as such on the February
28, 1997 balance sheet.
Forward Looking Information:
The discussion in this document contains forward looking
statements pertaining to development plans and future cash flows.
Actual results could differ materially from those projected and there
can be no assurance that these future results will be achieved.
Readers are cautioned that a number of factors could adversely affect
the Company's ability to obtain these results including: (a) changes
in the regulatory environment, including changes in Medicare and
Medicaid reimbursement programs, (b) the availability of suitable
acquisition candidates and the Company's success in negotiating
favorable terms to complete acquisitions, and (c) difficulties in
obtaining government approvals necessary for licensure of new
facilities.
Page 5 of 10
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
TRANSITIONAL HOSPITALS CORPORATION AND SUBSIDIARIES
Results of Operations
THREE MONTHS ENDED FEBRUARY 28, 1997
Net operating revenues for the quarter ended February 28, 1997 were $74.9
million compared to $127.5 million for the first quarter of the prior year. The
decrease in net operating revenues was the result of the sale of the Company's
United Kingdom and U.S. psychiatric operations in June 1996 and November 1996,
respectively.
Net operating revenues from the Company's long-term acute care hospitals
increased 23.2% from $60.0 million in the first quarter of 1996 to $73.9 million
in the first quarter of 1997. THC's admissions and patient days increased 29.6%
and 13.9%, respectively. Net revenue per patient day increased 7.6% as a result
of more favorable prior period Medicare settlements in the current period
compared to the first quarter of 1996. Net operating revenue from respiratory
therapy services increased from $4.9 million in the first quarter of 1996 to
$6.4 million in the first quarter of 1997 due to an approximate 35% increase in
the number of contracts in effect during the applicable periods.
Investment and other income increased $2.0 million from $.5 million in the
first quarter of 1996 to $2.5 million in the first quarter of 1997. Interest
income increased $1.5 million due to higher cash and short-term investment
balances that resulted from the sales of the United Kingdom and U.S. psychiatric
operations during 1996. Also contributing to the increase was $.8 million of
equity earnings from the Company's unconsolidated affiliate, Behavioral
Healthcare Corporation ("BHC"). The Company acquired an approximate 44.2%
common equity interest in BHC as partial consideration for the sale of
substantially all of its psychiatric operations to BHC on November 30, 1996.
Operating expenses as a percentage of net operating revenues were 78.7% for
the quarter ended February 28, 1997 compared to 79.4% for the comparable prior
year quarter. The decrease in operating expenses as a percentage of net
operating revenues is due to the sale of the U.S. psychiatric operations at the
close of fiscal 1996, which have historically incurred higher operating expenses
as a percentage of net operating revenue than the Company's long-term acute care
hospitals.
General and administrative expense decreased $2.6 million for the first
quarter of 1997 compared to the first quarter of 1996. Reductions in corporate
overhead were implemented with the sales of the U.S. and U.K. psychiatric
divisions in June 1996 and November 1996, respectively.
Bad debt expense decreased from 3.8% of net operating revenues in 1996 to
2.1% of net operating revenues in the first quarter of 1997. The decrease is
primarily due to the sale of U.S. psychiatric operations at the close of fiscal
1996, which have historically incurred higher bad debt expense as a percentage
of net operating revenues than the Company's long-term acute care hospitals.
Depreciation and amortization decreased $2.1 million from $5.6 million in
the first quarter of 1996 to $3.5 million in the first quarter of 1997. The
decrease is due to the sale of the Company's United Kingdom and U.S. psychiatric
operations during 1996. Depreciation and amortization as a percentage of net
operating revenues was 4.7% and 4.4% for the first quarters of 1997 and 1996,
respectively.
Interest expense decreased by $1.0 million in the first quarter of 1997
compared to the first quarter of 1996 as the Company repaid $80.3 million of
long-term debt during fiscal year 1996.
Page 6 of 10
<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 28, 1997 (continued)
Non-recurring transaction costs totaling $.8 million for termination
benefits and other exit costs were incurred during the first quarter of 1996 in
connection with the decision to close one psychiatric hospital in January 1996.
There were no non-recurring transactions during the first quarter of fiscal
1997.
LIQUIDITY AND CAPITAL RESOURCES AT FEBRUARY 28, 1997
Cash flows used for operations were $3.4 million and $1.1 million for the
quarters ended February 28, 1997 and February 29, 1996, respectively. Amounts
paid in the first quarter of 1997 for severance and other exit costs related to
the sale of the U.S. psychiatric division exceeded by $9.9 million amounts paid
for similar costs in the first quarter of 1996 related to the closure of six
U.S. psychiatric hospitals, three regional offices and corporate severance. The
$9.9 million increase in payments for these costs was partially offset by a $7.6
million increase in cash flows from operating activities.
In 1996, the Company's Board of Directors authorized spending up to $75
million to buy back company stock from time to time on the open market. In
accordance with this authorization, the Company purchased 4.2 million shares for
$35.8 million during the third and fourth quarters of 1996. During the first
quarter of 1997, an additional 3.0 million shares were purchased for $28.5
million. Of the $28.5 million, $21.1 million was paid by the Company during the
quarter ended February 28, 1997 and $7.4 million was paid in March 1997 for
purchases made on the last three days of February 1997.
Purchases of fixed assets totaled $4.0 million during the first quarter of
1997 compared to $10.5 million during the first quarter of 1996. Capital
expenditures for the remainder of fiscal year 1997 are estimated to be $22
million for renovation and expansion of existing facilities and equipment
additions. In addition, the Company will pay approximately $5 million over the
remainder of fiscal 1997 for a new computer system.
The Company's development focus is primarily on expanding and enhancing the
long-term acute care business as well as, to a lesser extent, on developing new
business in Puerto Rico, Latin America and Europe where the Company believes
that it has the experience and opportunities to provide cost effective
healthcare services. In the first quarter of 1997, the Company opened two new
THC facilities. In addition, the Company made an investment of $3.2 million in
a joint venture whereby the Company and its joint venture partner will build and
operate a drug and alcohol treatment facility on the island of Antigua. The
Company's investment in the joint venture is included in other assets at
February 28, 1997.
The Company believes that its current cash and cash equivalent balances
along with its operating cash flow will be sufficient to fund the Company's
normal operating requirements through the end of fiscal 1997.
Page 7 of 10
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION AND SUBSIDIARIES
FEBRUARY 28, 1997
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
In July 1995, the Government served a whistleblower suit against the
Company's Subsidiary, CPC Oklahoma, Inc., under the Federal False Claims
Act. CPC Oklahoma, Inc. operated Southwind Hospital, a psychiatric
hospital located in Oklahoma City, Oklahoma. The suit was originally filed
by a former employee and a relative of another employee under the qui tam
provisions of the Act. Invoking its rights under the Act, the United
States took over the case. In November 1996, Southwind and the Government
reached an agreement in principle under which Southwind would pay $750,000
to the Government in exchange for a release of the Government's civil and
administrative claims. The settlement was paid in February 1997. In a
related action, on August 4, 1995, federal and state authorities executed a
search warrant at Southwind and seized various records. In December 1996,
the Government notified Southwind that it had decided to discontinue any
further criminal investigation of this matter.
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.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K:
--------------------------------
A) The following exhibits are included herein:
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 28, 1997.
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.
TRANSITIONAL HOSPITALS CORPORATION
(Registrant)
Dated: April 11, 1997 /s/ WENDY SIMPSON
------------------------------
Wendy Simpson
Chief Financial Officer
Page 8 of 10
<PAGE>
EXHIBIT INDEX
Exhibit Page No.
- ------- --------
11 Computation of Earnings Per Share 10
27 Financial Data Schedule
Page 9 of 10
<PAGE>
EXHIBIT 11
TRANSITIONAL HOSPITALS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
February 28\29
1997 1996
------------------
(000s, except per share data)
<S> <C> <C>
Weighted average
common shares* 40,697 43,702
======== ========
Net Earnings $ 4,701 $ 3,723
======== ========
Earnings per share $ .12 $ .09
======== ========
</TABLE>
* Dilutive common stock equivalents are less than 3% of weighted average
common shares outstanding.
Page 10 of 10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 56,423
<SECURITIES> 11,810
<RECEIVABLES> 58,741
<ALLOWANCES> 21,112
<INVENTORY> 0
<CURRENT-ASSETS> 181,413
<PP&E> 155,524
<DEPRECIATION> 30,990
<TOTAL-ASSETS> 437,885
<CURRENT-LIABILITIES> 62,702
<BONDS> 12,706
0
0
<COMMON> 46,856
<OTHER-SE> 311,438
<TOTAL-LIABILITY-AND-EQUITY> 437,885
<SALES> 74,916
<TOTAL-REVENUES> 77,444
<CGS> 58,992
<TOTAL-COSTS> 58,992
<OTHER-EXPENSES> 8,808
<LOSS-PROVISION> 1,579
<INTEREST-EXPENSE> 358
<INCOME-PRETAX> 7,707
<INCOME-TAX> 3,006
<INCOME-CONTINUING> 4,701
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,701
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
