<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1996
COMMISSION FILE NUMBER 0-11851
CHAMPION HEALTHCARE CORPORATION
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 59-2283872
- ------------------------------- ----------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
515 W. GREENS ROAD, SUITE 800, HOUSTON, TEXAS 77067
- --------------------------------------------- --------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ZIP CODE
(713) 873-6623
- --------------------------------------------------------------------------------
(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: 12,023,192 shares outstanding as of
May 2, l996.
<PAGE> 2
INDEX
CHAMPION HEALTHCARE CORPORATION
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheet (unaudited)
as of March 31, 1996 and
December 31, 1995 2
Condensed consolidated statement of operations for
the three months ended March 31, 1996 and 1995 (unaudited) 3
Condensed consolidated statement of cash flows for
the three months ended March 31, 1996 and 1995
(unaudited) 4
Notes to condensed consolidated financial statements at
March 31, 1996 (unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE 14
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHAMPION HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------------------------------
(Dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,670 $ 7,583
Accounts receivable, less allowance for doubtful
accounts of $14,041 and $10,116 at March 31, 1996 and
December 31, 1995, respectively 36,407 33,262
Supplies inventory 3,872 3,470
Prepaid expenses and other current assets 6,290 6,264
----------- -----------
Total current assets 52,239 50,579
Property and equipment, less allowances for depreciation and
amortization of $11,901 and $10,733 at March 31, 1996 and
December 31, 1995, respectively 166,997 158,382
Investment in Dakota Heartland Health System 52,118 48,145
Other assets 36,668 34,154
----------- -----------
Total assets $ 308,022 $ 291,260
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations $ 2,834 $ 2,467
Accounts payable 12,743 13,952
Due to third parties 8,052 8,829
Other current liabilities 12,860 15,490
----------- -----------
Total current liabilities 36,489 40,738
Long-term debt and capital lease obligations 181,212 162,447
Other long-term liabilities 10,445 10,177
Redeemable preferred stock 46,078 46,029
Common stock, $.01 par value:
Authorized - 25,000,000 shares, 12,012,603 and 11,868,230
shares issued and outstanding at March 31, 1996
and December 31, 1995, respectively 120 119
Common stock subscribed, 80,000 shares at March 31, 1996
and December 31, 1995, respectively 40 40
Common stock subscription receivable (40) (40)
Paid in capital 48,178 47,643
Accumulated deficit (14,500) (15,893)
----------- -----------
Total liabilities and stockholders' equity $ 308,022 $ 291,260
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 4
CHAMPION HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
-----------------------------
(Dollars in thousands, except
per share data)
<S> <C> <C>
Net patient service revenue $ 49,898 $ 27,625
Other revenue 783 1,102
-------- --------
Net revenue 50,681 28,727
Operating expenses:
Salaries and benefits 22,006 12,762
Other operating and administrative 19,232 10,913
Provision for bad debts 3,670 2,073
Interest 4,587 2,630
Depreciation and amortization 3,016 1,532
Equity in earnings of Dakota Heartland Health System (3,973) (1,478)
-------- --------
Total expenses 48,538 28,432
-------- --------
Income before income taxes 2,143 295
Provision for income taxes 750 118
-------- --------
Net income $ 1,393 $ 177
======== ========
Income (loss) applicable to common stock $ 1,344 $ (1,312)
======== ========
Income (loss) per common share:
Primary $ .10 $ (.31)
======== ========
Fully Diluted $ .08 N/A
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 5
CHAMPION HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
-------------------------------
(Dollars in thousands)
<S> <C> <C>
Operating activities:
Net income $ 1,393 $ 177
Equity in earnings of Dakota Heartland Health System (3,973) (1,478)
Depreciation and amortization 3,016 1,532
Provision for bad debts 3,670 2,073
Changes in assets and liabilities, net of effects from acquisitions
Increase in assets (5,195) (1,008)
Decrease in liabilities (4,477) (2,459)
----------- --------
Net cash used in operating activities (5,566) (1,163)
----------- --------
Investing activities:
Additions to property and equipment (2,697) (7,060)
Investment in Jordan Valley Hospital (10,746)
Investment in Dakota Heartland Health System (2,000)
Investment in Salt Lake Regional Medical Center (3,000)
Proceeds from sale of property and equipment 1,300
Investment in note receivable (50) (793)
Other (575) (576)
----------- --------
Net cash used in investing activities (14,068) (12,129)
----------- --------
Financing activities:
Proceeds from the issuance of long-term obligations 18,512
Payments on long-term debt and capital lease obligations (768) (1,989)
Other (23) (235)
----------- --------
Net cash provided by (used in) financing activities 17,721 (2,224)
----------- --------
Decrease in cash and cash equivalents (1,913) (15,516)
Cash and cash equivalents at beginning of period 7,583 48,424
----------- --------
Cash and cash equivalents at end of period $ 5,670 $ 32,908
=========== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 6
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
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 with the instructions to Form
10-Q and Article 10 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. Such 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 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, 1995,
included in the Company's Annual Report on Form 10-K, as amended, for the year
ended December 31, 1995.
The Company's business is seasonal in nature and subject to general economic
conditions and other factors. Accordingly, operating results for the three
months ended March 31, 1996, are not necessarily indicative of the results that
may be expected for the year ended December 31, 1996.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation," which is effective for fiscal years beginning after
December 15, 1995. SFAS 123 establishes new financial accounting and reporting
standards for stock-based compensation plans. Entities will be allowed to
measure compensation expense for stock-based compensation under SFAS 123 or APB
Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has
elected to continue accounting for such compensation under the provisions of
APB Opinion No. 25.
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 Company's adoption of SFAS 121 on January 1, 1996, had no
material effect on its financial statements.
NOTE 2 -- 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"). 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 the partnership agreement and an operating agreement with DHHS.
Under the terms of the partnership agreement, the Company is entitled to 55% of
DHHS'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 DHHS to cover any and all operating
deficits.
5
<PAGE> 7
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 2 -- SUMMARIZED FINANCIAL INFORMATION OF EQUITY AFFILIATE -- CONTINUED
The Company accounts for its investment in DHHS under the equity method. The
following table summarizes certain financial information of DHHS (dollars in
thousands).
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
INCOME STATEMENT DATA
Net revenue $ 27,623 $ 26,088
Net income 7,223 2,687
Company's equity in the earnings of DHHS 3,973 1,478
</TABLE>
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
BALANCE SHEET DATA
Current assets $ 38,095 $ 39,008
Non-current assets 56,226 55,854
Current liabilities 12,258 19,980
Non-current liabilities 15 57
Partners' equity 82,048 74,825
</TABLE>
NOTE 3 -- LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consisted of the following at
March 31, 1996 and December 31, 1995 (dollars in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
<S> <C> <C>
Revolving Loan $ 66,200 $ 47,700
11% Senior Subordinated Notes, net of discount (face amount of
$98,705 and $99,089 at March 31, 1996 and December 31, 1995,
respectively) 98,076 98,447
Health Care REIT, Inc. 10,908 11,120
Other notes payable and capital lease obligations 8,862 7,647
----------- ----------
Total debt and capital lease obligations 184,046 164,914
Less current portion (2,834) (2,467)
----------- ----------
Total long-term debt and capital lease obligations $ 181,212 $ 162,447
=========== ==========
</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, 1996 and December 31, 1995.
6
<PAGE> 8
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 4 -- ACQUISITIONS
Jordan Valley Hospital
On March 1, 1996, the Company acquired Jordan Valley Hospital ("Jordan") from
Columbia/HCA Healthcare Corporation ("Columbia"). Jordan is a 50 bed acute
care hospital located in West Jordan, Utah, a suburb of Salt Lake City. Jordan
was acquired in exchange for Autauga Medical Center, an 85 bed acute care
hospital, and Autauga Health Care Center, a 72 bed skilled nursing facility,
both in Prattville, Alabama, plus preliminary cash consideration paid to
Columbia of approximately $10,750,000. Cash consideration included
approximately $3,750,000 for certain net working capital components, which are
subject to adjustment and final settlement by the parties, and reimbursement of
certain capital expenditures made previously by Columbia. The transaction did
not result in a gain or loss. The Alabama facilities were acquired as part of
the Company's acquisition of AmeriHealth, Inc. on December 6, 1994.
The following selected unaudited pro forma financial information for the three
months ended March 31, 1996 and 1995, assumes that the acquisition of Jordan
and Salt Lake Regional Medical Center ("SLRMC") occurred on January 1, 1995.
The Company acquired SLRMC on April 13, 1995. The pro forma financial
information does not purport to be indicative of the results that actually
would have been obtained had the operations been combined during the periods
presented, and is not intended to be a projection of future results or trends.
<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1995
---- ----
(Dollars in thousands, except
per share data)
<S> <C> <C>
Net revenue $ 51,919 $ 49,353
============= =============
Net income $ 1,268 $ 1,313
============= =============
Income (loss) applicable to common stock $ 1,219 $ (176)
============= =============
Income (loss) per common share:
Primary $ 0.09 $ (0.04)
============= =============
Fully diluted $ 0.07 N/A
=============
Weighted average number of common shares
outstanding:
Primary 12,835 4,228
============= =============
Fully diluted 18,184 N/A
=============
</TABLE>
NOTE 5 -- INCOME PER SHARE
Primary income per common and common equivalent share is calculated by dividing
the income attributable to common stock (net income less preferred stock
dividend requirements and accretion of preferred stock issuance costs) by the
weighted average number of common and common equivalent shares outstanding
during each period, assuming the exercise of all stock options and warrants,
when dilutive, with 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, 1996, assumed the conversion
of 2,608,176 shares of convertible preferred stock into a weighted average of
5,216,027 common shares, and that no preferred dividends on the preferred stock
were provided (See Note 6). Fully diluted income per share was not presented
for the quarter ended March 31, 1995, due to the anti-dilutive effect of such
calculation.
7
<PAGE> 9
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 5 -- INCOME PER SHARE -- CONTINUED
The weighted average number of shares used in computing income (loss) per share
are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
--------------------------
<S> <C> <C>
Primary 12,835,211 4,227,975
========== =========
Fully Diluted 18,183,900 N/A
==========
</TABLE>
NOTE 6 -- CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK
At March 31, 1996, the Company had outstanding 2,608,176 shares of Series C and
D Cumulative Convertible Redeemable Preferred Stock (collectively, "Preferred
Stock") which were convertible into 5,216,352 shares of common stock. The
Company's Certificate of Incorporation, as amended, certain preferred stock
purchase agreements, and its Senior and other debt agreements prohibit or place
limitations on the payment of cash dividends to holders of preferred and common
stock. Effective December 31, 1995, the Company and its Preferred shareholders
entered into the 1995 Recapitalization Agreement that, among other things,
eliminated the accrual of future dividends on its outstanding Preferred Stock.
NOTE 7 -- INCOME TAXES
The income tax provision recorded for the quarters ended March 31, 1996 and
1995 differs 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 8 -- CONTINGENCIES
Litigation. The Company is subject to claims and legal actions arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material effect on
the Company's financial position, results of operations or liquidity.
Professional Liability. The Company is self-insured up to $1,000,000 per
occurrence for the payment of claims arising from professional liability risks.
The Company has accrued liabilities for potential professional liability risks
based on estimates for losses limited to $1,000,000 per occurrence and
$4,000,000 in the aggregate. The Company is further insured by a commercial
insurer for claims in excess of these limits up to an additional $10,000,000
over its self-insured retention. In the opinion of management, any unaccrued
damages awarded will not have a material adverse effect on the Company's
financial position, results of operations or liquidity.
NOTE 9 -- SUBSEQUENT EVENT
Effective April 12, 1996, the Company executed a definitive Agreement and Plan
of Merger (the "Merger Agreement") with Paracelsus Healthcare Corporation, a
privately held California corporation ( "Paracelsus") and PC Merger Sub., Inc.,
a newly formed Paracelsus subsidiary. The Merger Agreement provides for, among
other things, the merger of PC Merger Sub., Inc. with and into the Company (the
"Merger"). Each share of the Company's common stock will convert into one
share of Paracelsus common stock, and each share of the Company's Preferred
Stock will convert into two shares of Paracelsus common stock. Dr. Manfred
George Krukemeyer, currently the Chairman of the Board and sole shareholder of
Paracelsus, and members of Paracelsus management will own approximately 60% of
the Company, and current Company security holders will own approximately 40% of
Paracelsus common stock on a fully diluted basis. The consummation of the
Merger is conditioned upon, among other things, Dr. Krukemeyer entering into a
shareholder agreement (the "Shareholder Agreement") with Paracelsus to be
effective at the time of the Merger. The Shareholder Agreement will, among
other things, set forth
8
<PAGE> 10
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 9 -- SUBSEQUENT EVENT -- CONTINUED
(i) restrictions on certain acquisitions and dispositions of Paracelsus voting
securities, (ii) certain rights and obligations relating to board
representation and (iii) certain rights of first refusal for Dr. Krukemeyer.
The Shareholder agreement will also impose other customary standstill
restrictions. The Merger is subject to a number of customary conditions
including filings with the Securities and Exchange Commission, approval of the
stockholders of the Company and Paracelsus, and antitrust filings. In the
event that the Merger Agreement is terminated, under certain circumstances
Paracelsus and the Company have agreed to pay a termination fee to the other.
Effective April 12, 1996, the Company and holders of its 11% Senior
Subordinated Notes under agreements dated December 31, 1993, (the "Series D
Notes") and May 1, 1995, (the "Series E Notes") and certain holders of its
Preferred Stock entered into an Agreement in Contemplation of the Merger, that
among other things provided (i) the parties thereto holding shares of Preferred
Stock agreed to vote their Preferred Shares for the Merger, (ii) the holders of
the Series D Notes agreed among other things (a) to waive any rights to cause
the Company to purchase from such holders the Series D Notes in the event of a
change in control caused by the Merger and (b) surrender their Series D Notes
for prepayment at a premium depending upon the year of prepayment, and (iii)
the holder of the Series E Notes agreed among other things (x) to waive any
rights to cause the Company to purchase from such holders the Series E Notes in
the event of a change in control caused by the Merger and (y) to surrender
their Series E Notes for prepayment at a premium depending upon the year of
such prepayment and upon whether warrants to purchase Company common stock are
surrendered in connection with such prepayment.
Pursuant to the 1995 Recapitalization Agreement entered into by the Company and
certain of its security holders effective December 31, 1995, the Company agreed
to reduce the exercise prices of one series of 680,104 warrants from $5.90 to
$5.25 per share and two series totaling 2,447,670 warrants from $9.00 to $7.00
per share until May 13, 1996, after which the exercise prices revert to their
prior amounts. As of May 13, 1996, warrants have been exercised to purchase
approximately 2,370,000 shares of common stock, resulting in cash proceeds to
the Company of approximately $8,715,000 and the tender of approximately
$4,840,000 in Company subordinated notes in lieu of cash.
On January 31, 1996, the Company entered into a letter of intent to sell the
149 bed Lakeland Regional Hospital in Springfield, MO, to Columbia/HCA
Healthcare Corporation in exchange for the 100 bed Poplar Springs Hospital in
Petersburg, VA. Both facilities are psychiatric hospitals. On May 6, 1996,
the Company and Columbia mutually agreed to terminate this transaction.
9
<PAGE> 11
PART I. FINANCIAL INFORMATION - CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SIGNIFICANT ACQUISITIONS
Because of the financial impact of the Company's acquisitions, it is difficult
to make meaningful comparisons between the Company's financial statements for
the fiscal periods presented. Furthermore, each additional hospital
acquisition can have a significant impact on the Company's overall financial
performance. After acquiring a hospital, the Company attempts to implement
various operating efficiencies and cost cutting strategies, including staffing
adjustments. The Company may also incur significant additional costs to expand
the hospital's services and improve its market position. The Company can give
no assurance that these investments and other activities will result in
significant increases in revenue or reductions in costs at the acquired
facility. Consequently, the financial performance of an acquired hospital may
adversely affect the Company's operating results in the near-term. The Company
believes this effect will be mitigated as additional hospitals are acquired.
RESULTS OF OPERATIONS
Quarter Ended March 31, 1996 Compared to Quarter Ended March 31, 1995
The Company reported net income of $1,393,000 for the quarter ended March 31,
1996, compared to net income of $177,000 for the first quarter of 1995. For
the quarter ended March 31, 1996, after deducting approximately $49,000 for
accretion of preferred stock issuance costs, the Company reported primary
income per share of $0.10, compared to a loss per share of $0.31 for the
quarter ended March 31, 1995. The loss for 1995 included a deduction of
approximately $1,489,000 for non-cash preferred stock dividend requirements and
accretion of issuance costs. On a fully diluted basis, the Company reported
net income per share of $0.08 for the quarter ended March 31, 1996. Fully
diluted income per share was not presented for the quarter ended March 31,
1995, due to the anti-dilutive effect of such calculation.
Income before income taxes for the quarter ended March 31, 1996, includes
approximately $3,973,000 attributable to the Company's equity in the earnings
of DHHS, compared to approximately $1,478,000 for the same period a year
earlier, or an increase of 168.8%. The increase was due to (i) an $1,535,000,
or 5.9%, increase in DHHS net revenue for the quarter ended March 31, 1996, as
compared to the same period a year earlier, primarily as a result of an
expanded and improved service mix and (ii) a $3,175,000, or 14.1%, decrease in
current period operating expenses as compared to the prior period. The
reduction in operating expenses is due primarily to the elimination of
duplicative services and overhead costs, and reflects the Company's ongoing
efforts to integrate the operations of the two hospitals that comprise DHHS.
The Company had net revenue of $50,681,000 for the quarter ended March 31,
1996, compared to $28,727,000 for same period in 1995, an increase of
$21,954,000 or 76.4%. The increase was due primarily to the Company's
acquisition of the 200 bed SLRMC in April 1995, the acquisition of home
healthcare operations in June 1995 and January 1996, and the commencement of
operations at the 101 bed Westwood Medical Center ("WMC") in October 1995. WMC
replaced the 60 bed Physicians and Surgeons Hospital located in Midland, Texas,
which the Company had acquired in 1993.
The Company's operations are labor intensive with salaries and benefits
comprising the single largest item in operating expenses. Salaries and
benefits increased 72.4% to $22,006,000 for the quarter ended March 31, 1996,
compared to $12,762,000 in 1995, primarily as a result of the Company's
acquisition of SLRMC, and the acquisition of home health care operations. As a
percent of net revenue, salaries and benefits were 43.4% and 44.4% for the
quarters ended March 31, 1996 and 1995, respectively. The decline in salaries
and benefits as a percent of net revenue reflects the Company's ongoing efforts
to implement various operating efficiencies and cost cutting measures at its
hospitals.
The major components of other operating and administrative expenses were
professional fees, taxes (other than income), insurance, utilities and other
services. Other operating and administrative expenses increased by 76.2% to
$19,232,000 for the quarter ended March 31, 1996, compared to $10,913,000 in
1995, once again due to the Company's acquisition of SLRMC and the start up of
WMC. As a percent of net revenue, other operating and
10
<PAGE> 12
administrative expenses were substantially unchanged at 37.9% and 38.0% for the
quarters ended March 31, 1996 and 1995, respectively.
Provision for bad debts was $3,670,000 for the quarter ended March 31, 1996, or
7.4% of net patient service revenue, compared to $2,073,000, or 7.5% for the
same period in 1995.
Interest expense increased to $4,587,000 in the first quarter of 1996 compared
to $2,630,000 for the comparable period in 1995, due principally to (i) the
increase in amounts outstanding under the Company's senior bank credit facility
as a result of its acquisition of SLRMC and Jordan Valley Hospital, and (ii)
the issuance of $35,000,000 of 11% Senior Subordinated Notes on June 12, 1995.
The increase in interest expense was offset, in part, by a decline in the
interest rate applicable to the Company's senior bank credit facility (a
weighted average of approximately 8.71% and 9.12% for the quarters ended March
31, 1996 and 1995, respectively.)
Depreciation and amortization expense was $3,016,000 in 1996 compared to
$1,532,000 in 1995, an increase of $1,484,000 or 96.9%. This increase is due
primarily to the Company's acquisition of SLRMC and the completion of
construction at WMC, as well as the Company's ongoing capital improvement
programs at its existing hospitals.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $5,670,000 at March 31, 1996. The
Company also had $33,351,000 available under its senior secured bank credit
facility, subject to certain limitations.
The Company had a cash deficit from operations of approximately $5,566,000 for
the quarter ended March 31, 1996, due primarily to working capital
requirements. Cash flows from operations have not contributed significantly to
the Company's liquidity in the past, due principally to its strategy of
acquiring under performing 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 quarter ended March 31, 1996, the Company expended approximately
$2,697,000 for routine capital expenditures and approximately $768,000 for
principal payments on long-term debt and capitalized lease obligations.
Additionally, the Company borrowed approximately $18,512,000 under its senior
secured bank credit facility during the quarter ended March 31, 1996, primarily
to finance the acquisition of Jordan Valley Hospital and to fund working
capital requirements.
The Company anticipates that existing cash, amounts available under its senior
secured bank credit facility 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, home health care providers and
physician practices 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 March 1, 1996, the Company acquired Jordan Valley Hospital from Columbia/HCA
Healthcare Corporation. Jordan is a 50 bed acute care hospital located in West
Jordan, Utah, a suburb of Salt Lake City. Jordan was acquired in exchange for
Autauga Medical Center, an 85 bed acute care hospital, and Autauga Health Care
Center, a 72 bed skilled nursing facility, both in Prattville, Alabama, plus
preliminary cash consideration paid to Columbia of approximately $10,750,000.
Cash consideration included approximately $3,750,000 for certain net working
capital components, which are subject to further adjustment and final agreement
by the parties, and reimbursement for certain capital expenditures made
previously by Columbia. The transaction did not result in a gain or loss.
SUBSEQUENT EVENT
Effective April 12, 1996, the Company executed a definitive Agreement and Plan
of Merger with Paracelsus Healthcare Corporation, a privately held California
corporation. See "Note 9 -- Subsequent Event" for a discussion of the terms of
the Merger Agreement.
Pursuant to the 1995 Recapitalization Agreement entered into by the Company and
certain of its security holders effective December 31, 1995, the Company agreed
to reduce the exercise prices of one series of 680,104 warrants
11
<PAGE> 13
from $5.90 to $5.25 per share and two series totaling 2,447,670 warrants from
$9.00 to $7.00 per share until May 13, 1996, after which the exercise prices
revert to their prior amounts. As of May 13, 1996, warrants have been
exercised to purchase approximately 2,370,000 shares of common stock,
resulting in cash proceeds to the Company of approximately $8,715,000 and the
tender of approximately $4,840,000 in Company subordinated notes in lieu of
cash.
INFLATION
The health care industry is labor intensive. Wages and other expenses are
subject to rapid escalation, especially during periods of inflation and labor
shortages 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.
12
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Disclosure required under this Item with respect to the
Registrant's Special Meeting of Stockholders on February 12,
1996, was reported previously in the Registrant's Form 10-K
for the year ended December 31, 1995, filed March 26, 1996,
under Item 4. Submission of Matters to a Vote of Security
Holders.
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 a report on Form 8-K dated March 1,
1996, reporting the acquisition of Jordan Valley Hospital
under Item 2. Acquisition or Disposition of Assets.
Disclosures required under Item 7. Financial Statements and
Exhibits have been previously reported in the Company's
Schedule 14A Definitive Proxy dated January 22, 1996.
13
<PAGE> 15
SIGNATURE
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: May 14, 1996 By: /S/ James G. VanDevender
-----------------------------------------
James G. VanDevender
Executive Vice President, Chief Financial
Officer and Director
14
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11 -- COMPUTATION OF PER SHARE EARNINGS
CHAMPION HEALTHCARE CORPORATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
--------------------------------
<S> <C> <C>
Primary:
Weighted average shares outstanding 11,960,335 4,227,975
Net effect of dilutive stock options and
warrants--based on the treasury stock
method using average market price (1) 874,876 --
------------- ------------
Total 12,835,211 4,227,975
============= ============
Net income $ 1,393,000 $ 177,000
Preferred stock dividend requirements N/A (1,421,000)
Accretion of preferred stock issuance cost (49,000) (68,000)
------------- ------------
Income (loss) applicable to common stock $ 1,344,000 $ (1,312,000)
============= ============
Income (loss) per share $ 0.10 $ (0.31)
============= ============
Fully Diluted:
Weighted average shares outstanding 11,960,335 4,227,975
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 1,007,538 3,329,120
Assumed conversion of Preferred Stock (2) 5,216,027 9,920,427
------------- ------------
Total 18,183,900 17,477,522
============= ============
Net income $ 1,393,000 $ 177,000
Interest reduction, net of tax effect N/A 363,000
------------- ------------
Income applicable to common stock $ 1,393,000 $ 540,000
============= ============
Income per share $ 0.08 $ .03
============= ============
</TABLE>
(1) The effect of options and warrants was anti-dilutive for the quarter ended
March 31, 1995.
(2) At March 31, 1996 and 1995, the Company had 2,608,176 and 10,408,286
shares of preferred stock outstanding, respectively.
15
<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 FOR THE QUARTER ENDED MARCH 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,670
<SECURITIES> 0
<RECEIVABLES> 36,407
<ALLOWANCES> 14,041
<INVENTORY> 3,872
<CURRENT-ASSETS> 52,239
<PP&E> 166,997
<DEPRECIATION> 11,901
<TOTAL-ASSETS> 308,022
<CURRENT-LIABILITIES> 36,489
<BONDS> 181,212
<COMMON> 120
46,078
0
<OTHER-SE> 33,678
<TOTAL-LIABILITY-AND-EQUITY> 308,022
<SALES> 0
<TOTAL-REVENUES> 50,681<F1>
<CGS> 0
<TOTAL-COSTS> 41,238
<OTHER-EXPENSES> (957)<F2>
<LOSS-PROVISION> 3,670
<INTEREST-EXPENSE> 4,587
<INCOME-PRETAX> 2,143
<INCOME-TAX> 750
<INCOME-CONTINUING> 1,393
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,393
<EPS-PRIMARY> .10
<EPS-DILUTED> .08
<FN>
<F1>TOTAL REVENUES INCLUDE OTHER REVENUE OF $783,000.
<F2>OTHER EXPENSES INCLUDE DEPRECIATION AND AMORTIZATION EXPENSE OF $3,016,000 AND
A CREDIT OF $3,973,000 REPRESENTING EQUITY IN THE EARNINGS OF DAKOTA HEARTLAND
HEALTH SYSTEM.
</FN>
</TABLE>
