<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A AMENDMENT NO. 2
AMENDMENT TO APPLICATION OR REPORT
FILED PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1995
COMMISSION FILE NUMBER 0-11851
CHAMPION HEALTHCARE CORPORATION
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
AMENDMENT NO. 2
THE REGISTRANT HEREBY AMENDS THE INFORMATION SET FORTH UNDER ITEM 1 IN ITS
ENTIRETY.
DELAWARE 59-2283872
- ------------------------------------ -------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
14340 TORREY CHASE, SUITE 320, HOUSTON, TEXAS 77014
- ------------------------------------------------------ ------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ZIP CODE
(713) 583 5491
- --------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant has (1) 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 periods that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
Yes X No
--- ---
Common stock, par value $.01 per share: 4,243,975 shares outstanding as of May
12, l995.
<PAGE> 2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Champion Healthcare Corporation
---------------------------------
(Registrant)
Date: July 20, 1995 By: /s/ James G. VanDevender
---------------------------------
James G. VanDevender
Executive Vice President, Chief
Financial Officer and Director
1
<PAGE> 3
INDEX
CHAMPION HEALTHCARE CORPORATION
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
- --------------------------------
Item 1. Financial Statements
Condensed consolidated balance sheet
as of March 31, 1995 (unaudited) and
December 31, 1994 3
Condensed consolidated statement of operations for
the three months ended March 31, 1995 and 1994 (unaudited) 4
Condensed consolidated statement of cash flows for
the three months ended March 31, 1995 and 1994
(unaudited) 5
Notes to condensed consolidated financial statements at
March 31, 1995 (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
- ----------------------------
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
2
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHAMPION HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
(UNAUDITED)
------------------------------------
(Dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 32,908 $ 48,424
Restricted cash 5,000 5,000
Accounts receivable, less allowance for doubtful
accounts of $4,650 and $4,959, respectively 17,003 17,115
Supplies inventory 1,945 1,942
Prepaid expenses and other current assets 5,943 4,899
---------- ----------
Total current assets 62,799 77,380
Property and equipment, less allowances for depreciation and
amortization of $6,151 and $5,340 at March 31, 1995 and
December 31, 1994, respectively 88,353 81,913
Investment in DHHS 41,653 40,079
Other assets 20,034 17,181
---------- ----------
Total assets $ 212,839 $ 216,553
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations $ 4,152 $ 4,781
Accounts payable 6,341 10,637
Other current liabilities 11,534 10,687
---------- ----------
Total current liabilities 22,027 26,105
Long-term debt and capital lease obligations 104,655 105,284
Other long-term liabilities 11,689 11,037
Redeemable preferred stock 77,918 76,294
Common stock, $.01 par value:
Authorized - 15,000,000 shares, 4,243,975 and 4,223,975
shares issued and outstanding at March 31, 1995
and December 31, 1994, respectively 42 42
Common stock subscribed, 100,000 shares 40 50
Common stock subscription receivable (40) (50)
Paid in capital 14,538 15,998
Accumulated deficit (18,030) (18,207)
---------- ----------
Total liabilities and stockholders equity $ 212,839 $ 216,553
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 5
CHAMPION HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
-----------------------------------
(Dollars in thousands, except per
share data)
<S> <C> <C>
Net patient service revenue $ 27,625 $ 23,399
Other revenue 1,102 1,164
------------ ---------
Net revenue 28,727 24,563
Operating expenses:
Salaries and benefits 12,762 8,992
Other operating and administrative 10,913 9,995
Provision for bad debts 2,073 1,879
Interest 2,630 1,422
Depreciation and amortization 1,532 723
Equity in earnings of DHHS (1,478) --
------------ ---------
Total expenses 28,432 23,011
------------ ---------
Income before income taxes 295 1,552
Provision for income taxes 118 79
------------ ---------
Net income $ 177 $ 1,473
============ =========
(Loss) income per common share:
Primary (loss) income per share $ (.31) $ .21
============ =========
Fully diluted income per share $ -- $ .15
============ =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 6
CHAMPION HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
-----------------------------------
(Dollars in thousands)
<S> <C> <C>
Operating activities:
Net income $ 177 $ 1,473
Equity in earnings of DHHS (1,478) --
Depreciation and amortization 1,532 723
Provision for bad debts 2,073 1,879
Increase in current assets (1,008) (2,558)
(Decrease) increase in liabilities (2,459) 1,531
------------ ---------
Net cash (used in) provided by operating activities (1,163) 3,048
------------ ---------
Investing activities:
Additions to property and equipment (7,060) (1,535)
Investment in Dakota Partnership (2,000) --
Investment in Salt Lake Regional Medical Center (3,000) --
Proceeds from sale of assets 1,300 --
Investment in note receivable (793)
Other (576) 227
------------ ---------
Net cash used in investing activities (12,129) (1,308)
------------ ---------
Financing activities:
Payments on debt and capital lease obligations (1,989) --
Other (235) (218)
------------ ---------
Net cash used in financing activities (2,224) (218)
------------ ---------
(Decrease) increase in cash and cash equivalents (15,516) 1,522
Cash and cash equivalents at beginning of period 48,424 66,686
------------ ----------
Cash and cash equivalents at end of period $ 32,908 $ 68,208
============ ==========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 7
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- RESTATEMENT OF FINANCIAL STATEMENTS
The Company and the staff of the Securities and Exchange Commission ("SEC")
have had discussions with respect to the accounting method used to account for
the Company s investment in Dakota Heartland Health System ("DHHS"), a 50%
owned partnership, which began operations on December 31, 1994. As a result of
those discussions, the Company has accounted for its investment in DHHS using
the equity method. Previously, the Company included the separate financial
statements of DHHS in its condensed consolidated financial statements.
Accordingly, the Company s condensed consolidated financial statements for the
quarter ended March 31, 1995, have been restated to reflect the Company s
accounting for its investment in DHHS using the equity method.
NOTE 2 -- BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
all wholly-owned and majority-owned subsidiaries and partnerships. All
significant intercompany transactions and accounts have been eliminated in
consolidation.
The accompanying unaudited condensed consolidated financial statements of the
Company have been prepared in accordance with generally accepted accounting
principles for interim financial statements and in accordance with Rule 3-01
and 3-02 of Regulation S-X. Accordingly, these financial statements do not
include all of the information and disclosures 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 of the results for the periods
presented have been reflected.
The year-end condensed consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
These financial statements should be read in conjunction with the Company s
audited consolidated financial statements for the year ended December 31, 1994,
included in the Company's Annual Report on Form 10-K, as amended, for the year
ended December 31, 1994.
Net patient service revenue is presented based on established billing rates
less allowances and discounts for patients covered by Medicare, Medicaid and
other contractual programs. Payments received under these programs are
generally less than the established billing rates of the Company's hospitals
with the differences recorded as contractual allowances or discounts. Such
allowances have been deducted from accounts receivable pending final audit and
settlement. Provision for contractual allowances and discounts for the
quarters ended March 31, 1995 and 1994 were $24,996,000 and $15,081,000,
respectively.
The Company adopted Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115") on January 1, 1995. All investments accounted for under SFAS No. 115
are classified as available-for-sale, and accordingly, the implementation of
this statement had no impact on net income.
The Company's business is seasonal in nature and subject to general economic
conditions and other factors. Accordingly, operating results for the three
month period ended March 31, 1995 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1995.
NOTE 3 -- SUMMARIZED FINANCIAL INFORMATION OF EQUITY AFFILIATE
The Company, through a wholly-owned subsidiary, owns 50% of a partnership
operated as Dakota Heartland Health System. DHHS owns and operates two general
acute care hospitals with a total of 341 beds in Fargo, North Dakota, and the
Company manages the combined operations of the two facilities pursuant to an
operating agreement with
6
<PAGE> 8
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 3 -- SUMMARIZED FINANCIAL INFORMATION OF EQUITY AFFILIATE -- CONTINUED
the partnership. Under the terms of the partnership agreement, the Company is
entitled to 55% of the partnership s net income and distributable cash flow
("DCF") until such time as it has recovered on a cumulative basis an additional
$10,000,000 of DCF. The Company is also obligated to advance funds to the
partnership to cover any and all operating deficits. The partnership began
operations on December 31, 1994.
The Company accounts for its investment in DHHS under the equity method. The
following table summarizes certain financial information of DHHS as of and for
the quarter ended March 31, 1995 (dollars in thousands).
<TABLE>
<S> <C>
INCOME STATEMENT DATA
Net revenue $ 26,088
Operating income 3,623
Net income 2,687
Company s equity in the earnings of DHHS 1,478
BALANCE SHEET DATA
Current assets $ 29,157
Non-current assets 43,673
Current liabilities 9,758
Non-current liabilities 228
Partners capital 62,844
</TABLE>
NOTE 4 -- LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consisted of the following at
March 31, 1995 and December 31, 1994 (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Term Loan $ 18,000 $ 18,500
11% Senior Subordinated Notes 62,905 62,703
Wilmington Savings Fund Society 9,533 9,766
Health Care REIT, Inc. 11,720 12,770
Other notes payable & capital lease obligations 6,649 6,326
---------- ----------
Total debt and capital lease obligations 108,807 110,065
Less current portion (4,152) (4,781)
---------- ----------
Total long-term debt and capital lease obligations $ 104,655 $ 105,284
========== ==========
</TABLE>
The Company is subject to various loans, notes and mortgages that contain
restrictive covenants which include, among others, restrictions on additional
indebtedness, the payment of dividends and other distributions, the repurchase
of common stock and related securities under certain circumstances, and the
requirement to maintain certain financial ratios. The Company was in
compliance with or has obtained permanent waivers for all loan covenants to
which it was subject at March 31, 1995.
7
<PAGE> 9
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 5 -- DISPOSITION OF ASSETS
In March 1995, the Company sold a closed hospital facility that had been
acquired as part of its 1994 acquisition of Psychiatric Healthcare Corporation
("PHC"). Total proceeds from the sale were approximately $1,300,000. As part
of the PHC acquisition, the Company had agreed to issue additional contingent
consideration upon the sale of this facility; accordingly, the Company expects
to issue additional preferred stock and notes with detachable warrants as
required under the PHC purchase agreement.
NOTE 6 -- (LOSS) INCOME PER SHARE
Primary (loss) income per share is calculated by dividing income attributable
to common stockholders (net income less preferred stock dividend requirements)
by the weighted average number of common and common equivalent shares
outstanding during each period, assuming the exercise of all stock options and
warrants having an exercise price less than the average market price of the
common stock using the treasury stock method. The fully diluted income per
share computation for the quarter ended March 31, 1994, assumed the conversion
of convertible preferred stock into 8,233,090 common shares, and that no
preferred dividends on the preferred stock were provided (see Note 7). Fully
diluted income per share is not presented for the quarter ended March 31, 1995
as the results are anti-dilutive.
The weighted average number of shares used in computing income per share are as
follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------------
1995 1994
---- ----
<S> <C> <C>
Primary 4,227,975 1,637,940
========= ===========
Fully Diluted N/A 11,626,887
===========
</TABLE>
NOTE 7 -- CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK
At March 31, 1995, the Company had outstanding 10,408,286 shares of Series A -
D Cumulative Convertible Redeemable Preferred Stock (collectively, "Preferred
Stock") which was convertible into 9,920,427 shares of common stock. The
Company is subject to certain credit agreements which restrict its right to pay
cash dividends on its common stock and Preferred Stock. At March 31, 1995, the
dividend arrearage on the Company s Preferred Stock was $8,327,000 and will
increase as dividends accumulate.
NOTE 8 -- INCOME TAXES
The income tax provision recorded for the quarters ended March 31, 1995 and
1994 differ from the expected income tax provision due to permanent
differences, the provision for state income taxes and the realization of net
deferred tax assets.
NOTE 9 -- SUBSEQUENT EVENTS
a.) Expansion of Bank Credit Facility
On April 6, 1995, the Company received a firm commitment to expand its senior
bank credit facility from $50,000,000 to $100,000,000.
8
<PAGE> 10
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 9 -- SUBSEQUENT EVENTS -- CONTINUED
b.) Acquisitions
On April 13, 1995, the Company completed its acquisition of Salt Lake Regional
Medical Center ("SLRMC") from HealthTrust, Inc.-The Hospital Company ("HTI").
SLRMC is comprised of a 200 bed tertiary care hospital and five clinics and is
located in Salt Lake City, Utah. The Company paid total cash consideration of
approximately $56,248,000, which included approximately $11,248,000 for certain
working capital components and reimbursement of certain capital expenditures.
The Company funded the asset purchase from available cash and borrowings under
its revolving credit agreement. SLRMC was formerly a not-for-profit hospital
acquired by HTI in August 1994 and was sold pursuant to a consent decree and
settlement agreement between HTI and the Federal Trade Commission.
Consummation of the sale had been subject to approval by the Federal Trade
Commission, which was received on April 7, 1995.
9
<PAGE> 11
PART I. FINANCIAL INFORMATION - CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter Ended March 31, 1995 Compared to Quarter Ended March 31, 1994
The Company reported net income of $177,000 for the quarter ended March 31,
1995, compared to net income of $1,473,000 for the first quarter of 1994. On a
per share basis, after deducting non-cash dividend requirements for preferred
stockholders of $1,489,000 and $1,128,000 for the quarters ended March 31, 1995
and 1994, respectively, the Company reported a primary loss per share of $0.31
for the quarter ended March 31, 1995, compared to primary income per share of
$0.21 for the first quarter of 1994. On a fully diluted basis, the Company
reported net income per share of $0.15 in the first quarter of 1994. Such
calculation was anti-dilutive for the quarter ended March 31, 1995.
Net income for the quarter ended March 31, 1995, included approximately
$1,478,000 attributable to the Company s equity in the earnings of DHHS.
The Company s net revenue was $28,727,000 for the quarter ended March 31, 1995,
compared to $24,563,000 for same period in 1994, an increase of $4,164,000 or
17%. The Company s net revenue for the quarter ended March 31, 1995 was
impacted significantly by the Company s acquisition of four hospitals and one
skilled nursing home in the fourth quarter of 1994 ("1994 Acquisitions") and
the formation of the DHHS partnership, pursuant to which the Company
contributed the 142 bed Heartland Medical Center ("HMC"). The following table
summarizes the effect of the Company s acquisition and investment activity on
net revenue for the quarters ended March 31, 1995 and 1994.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1995 1994
------- ---------
<S> <C> <C>
Net revenue - same store $ 22,283 $ 24,563
Net revenue attributable to HMC, which was contributed to
the DHHS partnership ($9,776 in 1994) (9,838) --
-------- --------
12,445 24,563
Net revenue - acquisitions
16,282 --
-------- --------
$ 28,727 $ 24,563
======== ========
</TABLE>
Exclusive of HMC and the 1994 Acquisitions, net revenue at the Company s
hospitals decreased by approximately $1,817,000, or 12.7% for the quarter ended
March 31, 1995, as compared to the prior year. This decrease occurred
primarily at one facility and was due, in part, to the elimination of a
psychiatric program that had contributed approximately 16.5% of that facility s
patient days in the comparable 1994 period, and due to continuing capacity
constraints experienced at this facility as a result of its consolidation with
another Company owned hospital in the same market. The Company expects to
complete the construction of an ambulatory care center at this facility in the
third quarter of 1995, which will alleviate the aforementioned constraints;
however, the Company can give no assurance that the decline in outpatient
surgeries experienced over the last year will abate as a result of this
addition.
Net revenue for the quarters ended March 31, 1995 and 1994 included
approximately $560,000 and $445,000, respectively, in interest income earned on
cash balances.
The Company s operations are labor intensive with salaries and benefits
comprising the single largest item in operating expenses. Salaries and
benefits increased 41.9% to $12,762,000 for the quarter ended March 31, 1995,
compared to $8,992,000 for the first quarter of 1994, primarily as a result of
the Company s 1994 Acquisitions. As
10
<PAGE> 12
a percent of net revenue, salaries and benefits were 44.4% and 36.6% for the
quarters ended March 31, 1995 and 1994, respectively. This trend is consistent
with the Company s strategy of acquiring hospitals that have attractive market
share and profit potential, but which may be underperforming due to a lack of
capital or management resources. In many instances, these hospitals incur
labor and other operating costs in excess of what the Company believes is
necessary for the efficient operation of the facility. The Company attempts to
reduce these costs over time by implementing various operating efficiencies and
cost cutting strategies. However, the Company can give no assurance that its
efforts will ultimately result in significant cost reductions at these
facilities.
Exclusive of HMC and the 1994 Acquisitions, salaries and benefits as a percent
of net revenue increased to 39.7% for the quarter ended March 31, 1995,
compared to 35.9% in 1994, primarily as a result of a decline in utilization
rates at one of the Company s facilities that was not sufficiently offset by a
corresponding reduction in staff levels. The Company has implemented a program
to reduce salary costs at this facility and believes that such program will
improve the Company s ability to manage variable costs at this facility in
response to future fluctuations in utilization rates.
The major components of other operating expenses were professional fees, taxes
(other than income), insurance, utilities and other services. Other operating
and supply expenses increased by 9.2% to $10,913,000 for the quarter ended
March 31, 1995, compared to $9,995,000 in 1994, once again as a result of the
Company s 1994 Acquisitions. As a percent of net revenue, other operating and
supply expenses were 38.0% for the first quarter of 1995 compared to 40.7% in
1994.
Provision for bad debts was $2,073,000 for the quarter ended March 31, 1995, or
7.5% of net patient service revenue, compared to $1,879,000, or 8.0% in 1994.
The decline in provision for bad debts as a percentage of net patient revenue
was due principally to the Company s efforts to improve collections at its
facilities.
Depreciation and amortization expense was $1,532,000 in 1995 compared to
$723,000 in 1994, an increase of $809,000 or 111.9%. This increase is due
primarily to the Company s 1994 Acquisitions as well as the Company s ongoing
capital improvement programs at its existing hospitals.
Interest expense increased to $2,630,000 in the first quarter of 1995 compared
to $1,422,000 for the comparable period in 1994, due principally to the Company
s issuance of $19,133,000 of 11% Senior Subordinated Notes effective December
30, 1994, as well as interest expense associated with debt assumed and/or
issued in connection with the 1994 Acquisitions. Interest expense also
increased due to an increase in the interest rate under which the Company
calculates its interest payments under its term loan (approximately 9.12% and
6.56% for the quarters ended March 31, 1995 and 1994, respectively.)
The Company capitalized interest costs of approximately $259,000 for the
quarter ended March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1995, the Company had cash and cash equivalents of $32,908,000.
The Company also had available $30,000,000 under its senior secured bank
facility.
The Company used approximately $1,163,000 in cash to fund operations for the
quarter ended March 31, 1995. Cash flow from operations have not contributed
significantly to the Company's liquidity in the past, due principally to its
strategy of acquiring underperforming hospitals. The Company seeks to improve
cash flows at its acquired facilities through the implementation of improved
operating efficiencies over time. However, there can be no assurance that the
Company s efforts will be successful, nor can it give any assurance that these
improvements, if achieved, will result in increased cash flows from operations.
For the three months ended March 31, 1995, the Company expended approximately
$7,060,000 for net capital expenditures, which included approximately
$4,254,000 in expenditures related to the hospital and medical building under
construction in Midland, Texas and approximately $1,966,000 related to the
construction of an ambulatory care center at the Company s Baytown, Texas
facility. Also for the quarter ended March 31, 1995, the Company expended
approximately $1,989,000 for principal payments on long-term debt and
capitalized lease obligations, $850,000 of which was related to debt reduction
concurrent with the sale of the closed PHC facility.
11
<PAGE> 13
The Company anticipates that existing capital sources and internally generated
cash flows will be sufficient to fund capital expenditures, debt service and
working capital requirements through the foreseeable future. The Company
intends to acquire additional acute care and specialty facilities and is
actively pursuing several of such acquisitions. However, depending upon the
individual circumstances, the Company will likely require additional debt or
equity financing as it pursues its acquisition strategy.
On April 6, 1995, the Company received a firm commitment to expand its senior
bank credit facility from $50,000,000 to $100,000,000.
On April 13, 1995, the Company completed its acquisition of Salt Lake Regional
Medical Center ("SLRMC") from HealthTrust, Inc.-The Hospital Company ("HTI").
SLRMC is comprised of a 200 bed tertiary care hospital and five clinics and is
located in Salt Lake City, Utah. The Company paid total cash consideration of
approximately $56,248,000, which included approximately $11,248,000 for certain
working capital components and reimbursement of certain capital expenditures.
The Company funded the asset purchase from available cash and borrowings under
its revolving credit agreement. SLRMC was formerly a not-for-profit hospital
acquired by HTI in August 1994 and was sold pursuant to a consent decree and
settlement agreement between HTI and the Federal Trade Commission.
Consummation of the sale had been subject to approval by the Federal Trade
Commission, which was received on April 7, 1995.
The Company is subject to various loans, notes and mortgages that contain
restrictive covenants which include, among others, restrictions on additional
indebtedness, the payment of dividends and other distributions, the repurchase
of common stock and related securities under certain circumstances, and the
requirement to maintain certain financial ratios. The Company was in
compliance with or has received permanent waivers for all loan covenants to
which it was subject as of March 31, 1995.
The Company is subject to certain credit agreements that restrict its right to
pay cash dividends on its common stock and Series A - D Preferred Stock
(collectively, "Preferred Stock"). Furthermore, the Company can not pay cash
dividends on its common stock until dividends on the Preferred Stock have been
paid in full. At March 31, 1995, the dividend arrearage on the Company s
Preferred Stock was $8,327,000 and will increase as dividends accumulate.
At March 31, 1995, 10,408,286 shares of Preferred Stock were redeemable and
convertible into 9,920,427 shares of common stock. Additionally, at March 31,
1995, the Company had outstanding 2,298,022 warrants to purchase 2,683,894
shares of Common Stock.
INFLATION
The health care industry is labor intensive. Wages and other expenses are
subject to rapid escalation, especially during periods of inflation and when
shortages occur in the marketplace. In addition, suppliers attempt to pass
along increases in their costs by charging the Company higher prices. In
general, the Company s revenue increases through price increases or changes in
reimbursement levels have not kept up with cost increases. In light of cost
containment measures imposed by government agencies, private insurance
companies and managed-care plans, the Company is likely to experience continued
pressure on operating margins in the future.
RECENT PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115") on January 1, 1995. All investments accounted for under SFAS No. 115
are classified as available-for-sale, and accordingly, the implementation of
this statement had no impact on net income.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
SFAS 121, which is effective for fiscal years beginning after December 15,
1995, requires that long-lived assets and certain identifiable intangibles held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The
12
<PAGE> 14
Company will adopt SFAS 121 at the beginning of 1996. It is anticipated that
the impact of adopting this statement will not have a material effect on the
financial statements.
13
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter for which this report on Form 10-Q is filed,
the Company filed one report on Form 8-K dated January 25, 1995,
which reported under "Item 5. Other Events" that the Company had
entered into an Asset Purchase Agreement with HealthTrust,
Inc.-The Hospital Company to acquire substantially all of the
assets of Salt Lake Regional Medical Center, a 200 licensed bed
tertiary care hospital located in Salt Lake City, Utah, as well
as certain related assets.
14
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
Exhibit 11 Statement Re: Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11 -- COMPUTATION OF PER SHARE EARNINGS
CHAMPION HEALTHCARE CORPORATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1995 1994
----------------------------------------
<S> <C> <C>
Primary:
- --------
Weighted average shares outstanding 4,227,975 1,209,294
Net effect of dilutive stock options and warrants--
based on the treasury stock method using average
market price (1) -- 428,646
------------------ ----------------
Total 4,227,975 1,637,940
================== ================
Net income $ 177,000 $ 1,473,000
Preferred stock dividend requirement (1,421,000) (1,101,000)
Accretion of preferred stock issuance cost (68,000) (27,000)
------------------ ----------------
(Loss) income applicable to common stock $ (1,312,000) $ 345,000
================== ================
Per share amount $ (.31) $ .21
================== ================
Fully Diluted:
- --------------
Weighted average shares outstanding 4,227,975 1,209,294
Net effect of dilutive stock options and warrants--based on
the treasury stock method using the year-end market
price, if higher than average market price 3,329,120 2,184,503
Assumed conversion of Preferred Stock (2) 9,920,427 8,233,090
------------------ ----------------
Total 17,477,522 11,626,887
================== ================
Net income $ 177,000 $ 1,473,000
Interest reduction, net of tax effect 363,000 249,000
------------------ ----------------
Income applicable to common stock $ 540,000 $ 1,722,000
================== ================
Per share amount $ .03 $ .15
================== ================
</TABLE>
(1) The effect of options was anti-dilutive for the quarter ended March 31,
1995.
(2) At March 31, 1995 and 1994, the Company had 10,408,286 and 9,564,611
shares of preferred stock outstanding.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPANY'S FORM
10-Q/A AMENDMENT NO. 1 FOR THE QUARTER ENDED MARCH 31, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1995 JAN-01-1994
<PERIOD-END> MAR-31-1995 MAR-31-1994
<CASH> 37,908<F1> 0
<SECURITIES> 0 0
<RECEIVABLES> 17,003 0
<ALLOWANCES> 4,650 0
<INVENTORY> 1,945 0
<CURRENT-ASSETS> 62,799 0
<PP&E> 88,353 0
<DEPRECIATION> 6,151 0
<TOTAL-ASSETS> 212,839 0
<CURRENT-LIABILITIES> 22,027 0
<BONDS> 104,655 0
<COMMON> 42 0
77,918 0
0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 212,839 0
<SALES> 0 0
<TOTAL-REVENUES> 28,727<F2> 0
<CGS> 0 0
<TOTAL-COSTS> 23,675 24,563
<OTHER-EXPENSES> 54<F3> 723
<LOSS-PROVISION> 2,073 1,879
<INTEREST-EXPENSE> 2,630 1,422
<INCOME-PRETAX> 295 1,552
<INCOME-TAX> 118 79
<INCOME-CONTINUING> 177 1,473
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 177 1,473
<EPS-PRIMARY> (.31) .21
<EPS-DILUTED> 0 .15
<FN>
<F1>CASH INCLUDES $5,000 IN RESTRICTED CASH.
<F2>TOTAL REVENUES INCLUDE OTHER REVENUE OF $1,102 AND $1,164 FOR THE QUARTERS
ENDED MARCH 31, 1995 AND 1994, RESPECTIVELY.
<F3>OTHER EXPENSES INCLUDE DEPRECIATION AND AMORTIZATION EXPENSE OF $1,532 AND $723
FOR THE QUARTERS ENDED MARCH 31, 1995 AND 1994, RESPECTIVELY. OTHER EXPENSES
FOR THE QUARTER ENDED MARCH 31, 1995, ALSO INCLUDE A CREDIT OF $1,478
REPRESENTING EQUITY IN THE EARNINGS OF DHHS.
</FN>
</TABLE>
