SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
Commission file number 1-12055
PARACELSUS HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3565943
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
515 W. GREENS ROAD, SUITE 800, HOUSTON, TEXAS
(Address of principal executive offices)
77067 (281) 774-5100
(Zip Code) (Registrant's telephone number, including
area code)
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, NO STATED VALUE NEW YORK STOCK EXCHANGE
----------------------------- ------------------------------
(Title of Class) (Name of each exchange on which
registered)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes[X] No[ ]
As of August 14, 1998, there were outstanding 55,118,330 shares of the
Registrant's Common Stock, no stated value.
<PAGE> 2
PARACELSUS HEALTHCARE CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1998
INDEX
PAGE REFERENCE
FORM 10-Q
--------------
FORWARD-LOOKING STATEMENTS 3
- --------------------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements-- (Unaudited)
Condensed Consolidated Balance Sheets--
June 30, 1998 and December 31, 1997 4
Consolidated Statements of Operations--
Three Months and Six Months Ended June 30, 5
1998 and 1997
Condensed Consolidated Statements of Cash Flows--
Six Months Ended June 30, 1998 and 1997 6
Notes to Interim Condensed Consolidated 7
Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. OTHER INFORMATION 21
SIGNATURE 23
<PAGE> 3
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q are "forward-looking
statements" made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements
involve a number of risks and uncertainties. Factors which may cause the
Company's actual results in future periods to differ materially from
forecast results include, but are not limited to: the outcome of
litigation pending against the Company and certain affiliated persons;
general economic and business conditions, both nationally and in the
regions in which the Company operates; industry capacity; demographic
changes; existing government regulations and changes in, or the failure
to comply with government regulations; legislative proposals for
healthcare reform; the ability to enter into managed care provider
arrangements on acceptable terms; changes in Medicare and Medicaid
reimbursement levels; revisions to amounts recorded for losses associated
with the impairment of assets; liabilities and other claims asserted
against the Company; competition; the loss of any significant customer;
changes in business strategy, divestiture or development plans; the
ability to attract and retain qualified personnel, including physicians;
costs to make the Company's information systems Year 2000 compliant;
fluctuations in interest rates on the Company's variable rate
indebtedness; and the availability and terms of capital to fund working
capital requirements and the expansion of the Company's business,
including the acquisition of additional facilities.
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARACELSUS HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in 000's)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------ -----------
(Unaudited) (Note 1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,291 $ 28,173
Restricted cash 9,855 6,457
Accounts receivable, net 57,952 70,675
Deferred income taxes 24,999 25,818
Other current assets 43,664 42,884
------- -------
Total current assets 146,761 174,007
Property and equipment 414,027 438,792
Less: Accumulated depreciation and amortization (123,789) (130,728)
------- -------
290,238 308,064
Investment in Dakota Heartland
Health System (Note 3) 116,708 48,499
Goodwill 112,522 114,404
Other assets 84,184 89,850
------- -------
Total assets $ 750,413 $ 734,824
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 35,054 $ 46,722
Accrued liabilities and other 76,803 83,698
Current maturities of long-term debt 7,276 6,209
------- -------
Total current liabilities 119,133 136,629
Long-term debt 521,916 491,914
Other long-term liabilities 61,158 64,278
Stockholders' Equity:
Common stock 224,542 224,475
Additional paid-in capital 390 390
Unrealized gains on marketable securities 12
Accumulated deficit (176,726) (182,874)
------- -------
Total stockholders' equity 48,206 42,003
------- -------
Total Liabilities and Stockholders' Equity $ 750,413 $ 734,824
======= =======
</TABLE>
See accompanying notes.
<PAGE> 5
PARACELSUS HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in 000's, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue $151,148 $167,256 $311,558 $335,746
Costs and expenses:
Salaries and benefits 62,463 68,248 127,893 137,260
Other operating expenses 62,683 68,967 128,161 135,274
Provision for bad debts 8,739 10,597 18,431 20,761
Interest 13,295 10,698 25,674 21,678
Depreciation and amortization 7,656 8,276 15,844 15,980
Equity in earnings of Dakota
Heartland Health System (1,976) (2,667) (5,061) (5,226)
Unusual items (1,072) 5,978 (1,072) 5,978
Gain on sale of facilities (7,100) (7,100)
------- ------- ------- -------
Total costs and expenses 144,688 170,097 302,770 331,705
------- ------- ------- -------
Income (loss) before minority
interest, income taxes and
extraordinary charge 6,460 (2,841) 8,788 4,041
Minority interests 916 (640) 855 (981)
------- ------- ------- -------
Income (loss) before income
taxes and extraordinary charge 7,376 (3,481) 9,643 3,060
Provision (benefit) for
income taxes 1,678 (464) 2,320 909
------- ------- ------- -------
Income (loss) before
extraordinary charge 5,698 (3,017) 7,323 2,151
Extraordinary charge on
extinguishment of debt, net (1,175)
------- ------- ------- -------
Net income (loss) $ 5,698 $ (3,017) $ 6,148 $ 2,151
======= ======= ======= =======
Income (loss) per share - basic
and assuming dilution:
Income (loss) before
extraordinary charge $ 0.10 $ (0.05) $ 0.13 $ 0.04
Extraordinary charge on
extinguishment of debt (0.02)
------- ------- ------- -------
Net income (loss) per share $ 0.10 $ (0.05) $ 0.11 $ 0.04
======= ======= ======= =======
</TABLE>
See accompanying notes.
<PAGE> 6
PARACELSUS HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in 000's)
(Unaudited)
Six Months Ended
June 30,
-----------------
1998 1997
------- -------
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,148 $ 2,151
Non-cash expenses and changes in operating
assets and liabilities (1,929) (10,572)
------ ------
Net cash provided by (used in) operating
activities 4,219 (8,421)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in DHHS (64,816)
Proceeds from sale of facilities, net of
expenses 22,998 12,201
Sale of marketable securities 19,284
Additions to property and equipment, net (9,198) (8,352)
Decrease (increase) in other assets, net 1,763 (954)
------ ------
Net cash provided by (used in) investing
activities (49,253) 22,179
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock 67
Borrowings under Revolving Credit Facility 64,528
Repayments under Revolving Credit Facility (30,275) (10,000)
Repayments of debt, net (3,184) (763)
Deferred financing costs (3,984)
------ ------
Net cash provided by (used in) financing
activities 27,152 (10,763)
------ ------
(Decrease) increase in cash and cash
equivalents (17,882) 2,995
Cash and cash equivalents at beginning of
period 28,173 17,771
------ ------
Cash and cash equivalents at end of period $ 10,291 $ 20,766
====== ======
Supplemental Cash Flow Information:
Interest paid $ 24,568 $ 22,995
Income taxes (refunded) paid $ (415) $ 702
</TABLE>
See accompanying notes.
<PAGE> 7
PARACELSUS HEALTHCARE CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1998
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION - Paracelsus Healthcare Corporation (the "Company") was
incorporated in November 1980 for the principal purpose of owning and
operating acute care and related healthcare businesses in selected
markets. The Company presently operates 24 hospitals with 2,484 licensed
beds and four skilled nursing facilities with 232 licensed beds in 9
states (including two psychiatric hospitals with 113 licensed beds), of
which 19 are owned and five are leased.
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
information and with the instructions to Form 10-Q. Accordingly, they do
not include all of the information and notes required by generally
accepted accounting principles for annual financial statements. In the
opinion of management, all adjustments considered necessary for a fair
presentation have been included. The balance sheet at December 31, 1997,
has been derived from the audited financial statements at that date but
does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. The Company's business is seasonal in nature and subject to
general economic conditions and other factors. Accordingly, operating
results for the quarter and six months ending June 30, 1998, are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1998. These financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto for the year ended December 31, 1997, included in the Company's
1997 Form 10-K.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Certain account balances for the three and six months ended June 30,
1997, have been reclassified to conform to the Company's current
presentation.
<PAGE> 8
EARNINGS PER SHARE - The following table sets forth the computation of
basic and diluted earnings per share before extraordinary charge (dollars
in thousands, except per share amounts). Per share amounts for the three
and six months ended June 30, 1997, have been restated in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per
Share":
<TABLE>
<CAPTION>
THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator (a):
Income(loss) before
extraordinary charge $ 5,698 $(3,017) $ 7,323 $ 2,151
====== ====== ====== ======
Denominator:
Weighted average shares used for
basic earnings per share 55,103 54,879 55,098 54,846
Effect of dilutive securities:
Employee stock options 2,445 - 2,446 1,428
------ ------ ------ ------
Dilutive potential common shares 2,445 - 2,446 1,428
------ ------ ------ ------
Shares used for diluted earnings
per share 57,548 54,879 57,544 56,274
====== ====== ====== ======
Basic earnings per share before
extraordinary charge $ 0.10 $ (0.05) $ 0.13 $ 0.04
====== ====== ====== ======
Diluted earnings per share
before extraordinary charge $ 0.10 $ (0.05) $ 0.13 $ 0.04
====== ====== ====== ======
</TABLE>
______________________
(a) Amount is used for both basic and diluted earnings per share
computations since there is no earnings effect related to the dilutive
securities.
Options to purchase 4,988,000 shares of the Company's common stock
at a weighted average exercise price of $7.37 per share were outstanding
during the three and six months ended June 30, 1998, but were not
included in the computation of diluted EPS because the options' exercise
price was greater than the average market price of the common shares.
COMPREHENSIVE INCOME - Effective January 1, 1998, the Company adopted
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS 130 establishes standards for the reporting and disclosure
of comprehensive income and its components in the financial statements.
Comprehensive income as defined by SFAS No. 30 is net income (loss) plus
direct adjustments from non stockholder sources to stockholders' equity.
Unrealized gains or losses on marketable securities are the only direct
adjustments recorded by the Company. During the quarters ended June 30,
1998 and 1997, total comprehensive income (loss) amounted to $5.7 million
<PAGE> 9
and ($3.0) million, respectively. During the six months ended June 30,
1998 and 1997, total comprehensive income amounted to $6.2 million and
$2.0 million, respectively.
NOTE 2. UNUSUAL ITEMS
In June 1998, the Company recognized an unusual charge of $731,000
to restructure home health operations at certain of its hospitals,
including in some cases the closure of these operations. The
restructuring charge consisted primarily of employee severance and
related costs, and to a lessor extent, costs associated with certain non-
cancelable operating leases. Additionally, in April 1998, the Company
recorded a $1.8 million gain to settle litigation related to an
unconsummated hospital acquisition by Champion Healthcare Corporation
prior to its merger with the Company in August 1996.
In May 1997, the Company recognized unusual charges totaling $6.0
million, consisting of $3.5 million related to the closure of the 125-bed
PHC Regional Hospital and Medical Center ("PHC Regional Hospital") in
Salt Lake City, Utah, and $2.5 million related to a corporate
reorganization. Such charges consisted primarily of employee severance
and related costs, and to a lessor extent, certain other contractual
termination costs.
NOTE 3. ACQUISITIONS AND DISPOSITIONS
On June 30, 1998, the Company completed the sale of substantially
all of the assets of Chico Community Hospital, Inc., which included a
123-bed acute care hospital and a 60-bed rehabilitation hospital, both
located in Chico, California, (collectively, the "Chico hospitals") for
$25.0 million in cash plus working capital and the termination of a
facility operating lease. Proceeds of the transaction (net of transaction
costs of $2.0 million) were used to reduce amounts outstanding under the
Company's revolving credit facility and its off balance sheet receivable
financing program. The working capital component of the transaction is
subject to a post-closing settlement. The Company recognized a pretax
gain of $7.1 million on the disposition.
Effective July 1, 1998, the Company completed the purchase of Dakota
Medical Foundation's 50% partnership interest in a general partnership
operating as Dakota Heartland Health System ("DHHS") for $64.5 million,
inclusive of working capital, thereby giving the Company 100% ownership
of DHHS. DHHS owns and operates a 218-bed tertiary care hospital in
Fargo, North Dakota. Although the Company did not assume control of DHHS
until July 1, 1998, the Company funded the purchase of DHHS with
borrowings under its revolving credit facility on June 30, 1998. The
Company has reflected such amount as an increase in its investment in
DHHS at June 30, 1998. Prior to the purchase, the Company owned 50% of
DHHS and accounted for its investment under the equity method. Beginning
July 1, 1998, the Company will account for DHHS under the consolidated
method of accounting.
The following selected unaudited pro forma financial information for
the six months ended June 30, 1998 and 1997, assumes the disposition of
the Chico hospitals and the acquisition of DHHS occurred on January 1,
1998 and 1997, respectively. Accordingly, the pro forma information
excludes the $7.1 million gain recognized by the Company in connection
with the disposition of the Chico hospitals. The unaudited pro forma
<PAGE> 10
financial information below does not purport to present the financial
position or results of operations of the Company had the above
transactions occurred on the dates specified, nor are they necessarily
indicative of results of operations that may be expected in the future.
Earnings before extraordinary charge, interest, taxes, depreciation,
amortization, unusual items and gain on the sale of facilities ("Adjusted
EBITDA") has been included because it is a widely used measure of
internally generated cash flow and is frequently used in evaluating a
company's performance. Adjusted EBITDA is not an acceptable measure of
liquidity, cash flow or operating income under generally accepted
accounting principles.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1998
--------------------------------------------------
Chico Pro Forma
Hospital Chico DHHS
As Pro forma Dispo- Pro Forma Company
Reported(a) Adj.(b) sition Adj.(c) Pro Forma
-------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net revenue $311,558 $(18,850) $292,708 $52,017 $344,725
======== ======== ======== ======= ========
Adjusted EBITDA $ 42,989 $ (3,560) $ 39,429 $ 6,638 $ 46,067
======== ======== ======== ======= ========
Income before income
taxes and extraordinary
loss $ 9,643 $ (8,645) $ 998 $ 1,251 $ 2,249
======== ======== ======== ======= ========
Income before
extraordinary loss $ 7,323 $ (6,630) $ 693 $ 729 $ 1,422
======== ======== ======== ======= ========
Net income (loss) $ 6,148 $ (6,630) $ (482) $ 729 $ 247
======== ======== ======== ======= ========
Income per share -
basic and assuming
dilution:
Income before
extraordinary charge $ 0.13 $ 0.01 $ 0.02
======== ======== ========
Net income per share $ 0.11 $ (0.01) $ -
======== ======== ========
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------------------
Chico Pro Forma
Hospital Chico DHHS
As Pro forma Dispo- Pro Forma Company
Reported Adj.(b) sition Adj.(c) Pro Forma
-------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net revenue $335,746 $(16,281) $319,465 $49,525 $368,990
======== ======== ======== ======= ========
Adjusted EBITDA $ 46,696 $ 8 $ 46,704 $ 6,992 $ 53,696
======== ======== ======== ======= ========
Income before income
taxes $ 3,060 $ 1,739 $ 4,799 $ 1,605 $ 6,404
======== ======== ======== ======= ========
Net income $ 2,151 $ 1,422 $ 3,573 $ 894 $ 4,467
======== ======== ======== ======= ========
Net income per share
- basic and assuming
dilution: $ 0.04 $ 0.06 $ 0.08
======== ======== ========
</TABLE>
_____________________
(a) Excluding the $7.1 million gain on sale of facilities, income before
extraordinary loss was $1.7 million, or $0.3 per share.
(b) Pro forma adjustments to reflect the disposition of the Chico
hospitals, including the removal of the $7.1 million gain on sale of
such facilities for the six months ended June 30, 1998.
(c) Pro forma adjustments to reflect DHHS acquisition. Adjusted EBITDA
for the six months ended June 30, 1998, includes a $1.1 million
payment to settle a 1995 dispute over certain contract services.
NOTE 4. LONG-TERM DEBT
On June 15, 1998, the Company entered into the First Amendment of
the Amended and Restated Credit Agreement (the "Amended Credit
Agreement"), whereby it increased principal amounts outstanding under its
Term Loan Facilities from $75.0 million to $115.0 million and reduced
amounts outstanding under the five-year Reducing Revolving Credit
Facility by $40.0 million (collectively, the "Facilities"). The total
commitment under the Reducing Revolving Credit Facility was reduced from
$180.0 million to $140.0 million (the "$140.0 million Facility"). The
$115.0 million in Term Loan Facilities (the "$115.0 million Facilities")
consist of a five-year $45.0 million Term Loan Facility ("Tranche A
Facility") and a six-year $70.0 million Term Loan Facility ("Tranche B
Facility"). The $140.0 million Facility is available for general
corporate purposes, including funding working capital needs, permitted
acquisitions and capital expenditures and the issuance of letters of
credit up to $25.0 million. It is subject to mandatory quarterly
reductions of $9.5 million, commencing on March 31, 2001, and a limit of
$50.0 million available for working capital needs. The Tranche A
Facility is payable in quarterly installments ranging from $600,000 to
$2.5 million with a final balloon payment of $22.5 million due on March
31, 2003. The Tranche B Facility is payable in annual installments of
$500,000 with a final balloon payment of $67.5 million due on March 31,
2004. The Company is further required to make mandatory prepayments under
<PAGE> 12
the Facilities equal to 100% of (i) net cash proceeds from permitted
asset sales, (ii) debt issuances and (iii) equity issuances, subject to
certain allowable exclusions for debt and equity as described in the
Amended Credit Agreement. Such prepayments are generally to be applied
ratably to the $140.0 million Facility, the Tranche A Facility and the
Tranche B Facility, but in certain circumstances may be applied solely as
prepayments of the $140.0 million Facility. Prepayments under the $140.0
million Facility do not result in a mandatory reduction in borrowing
capacity under such facility, but prepayments under the $115.0 million
Facilities do result in a mandatory permanent reduction. The Company is
subject to certain fees in the event targeted levels of asset
dispositions are not achieved by November 30, 1998. Borrowings under the
$140.0 million Facility and the Tranche A Facility bear interest at the
Company's option, at (i) LIBOR plus a margin ranging from 1.25% to 2.75%
or (ii) the prime rate plus a margin ranging from 0.0% to 1.25%.
Borrowings under the Tranche B Facility bear interest at LIBOR plus 2.75%
and may be reduced in certain circumstances. The Company is required to
pay annual commitment fees ranging from .25% to .50% of the unused
portion of the $140.0 million Facility. Letters of credit issued under
the $140.0 million Facility require annual fees equal to the effective
LIBOR margin and are to be paid quarterly in arrears.
NOTE 5. CONTINGENCIES
The Company is a party to pending litigation in connection with
several stockholder related matters. See "Item 2 - Pending Litigation."
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
"Same hospitals" as used in the following discussion, where
appropriate consist of acute care hospitals operated throughout the
periods for which comparative operating results are presented. Operating
results of the Company's psychiatric hospitals are charged to a disposal
loss accrual established in September 1996; accordingly, such results are
not reflected in the Consolidated Statement of Operations.
RESULTS OF OPERATIONS - QUARTER ENDED JUNE 30, 1998
COMPARED WITH QUARTER ENDED JUNE 30, 1997
Net revenue for the quarter ended June 30, 1998, was $151.1 million,
a decrease of $16.2 million, or 9.6%, from $167.3 million for the same
period of 1997. In general, this decline was attributable to (i) volume
declines at the Company's LA Metro hospitals, (ii) a decline in
utilization and reimbursement rates for home health and other healthcare
operations related to the enactment of the Balanced Budget Act of 1997
(the "1997 Budget Act"), (iii) the closure of certain under performing
operating units and (iv) the closure of PHC Regional Hospital in May
1997. Net revenue at the Company's Los Angeles area hospitals ("LA
Metro") decreased $7.4 million from $25.0 million in 1997 to $17.6
million in 1998, primarily as a result of reduced volumes at certain
facilities. Net revenue at the Company's Tennessee market hospitals,
which have significant home health operations, decreased $5.4 million
from $16.3 million in 1997 to $10.9 million in 1998. The closure of PHC
Regional Hospital in May 1997 resulted in a $1.4 million decline in net
revenue as compared to the current period. The reductions in net revenue
associated with the enactment of the 1997 Budget Act are likely to
continue throughout 1998. Furthermore, in June 1998, the Company
restructured the home health operations of certain of its hospitals,
including in some cases the closing of such operations (see Note 2).
These actions will likely result in additional reductions in home health
net revenue in future periods.
The Company's "same hospitals" experienced a 9.5% decrease in
inpatient admissions from 17,060 in 1997 to 15,444 in 1998. Same
hospital patient days decreased 11.2% from 81,026 in 1997 to 71,947 in
1998. The decrease in admissions and patient days are primarily due to
volume declines at the Company's LA Metro and Tennessee market hospitals.
Outpatient visits in "same hospitals" decreased 27.0% from 407,220 in
1997 to 297,155 in 1998, primarily as a result of a significant decline
in home health visits. This decrease was due primarily to stricter
utilization standards as a result of new regulations under the 1997
Budget Act effective October 1, 1997, and to a lesser extent, the
cancellation of a contract for home health services at one of the
Company's Tennessee hospitals. Excluding home health visits, outpatient
visits in "same hospitals" increased 4.1% from 163,738 in 1997 to 170,522
in 1998.
Excluding the LA Metro and Tennessee market hospitals from the "same
hospitals" comparison, inpatient admissions were 11,729 in 1998 and
11,952 in 1997, a decline of 1.9%. Patient days decreased 2.4% from
54,140 in 1997 to 52,823 in 1998, and outpatient visits decreased 18.0%
from 258,116 in 1997 to 211,630 in 1998, primarily due to the significant
decline in home health visits discussed above. Excluding home health
<PAGE> 14
visits, outpatient visits increased 9.0% from 135,842 in 1997 to 148,087
in 1998.
Operating expenses (salaries and benefits, other operating expenses
and provision for bad debts) decreased $13.9 million from $147.8 million
in 1997 to $133.9 million in 1998. Expressed as a percentage of net
revenue, operating expenses increased from 88.4% in 1997 to 88.6% in
1998, and operating margin decreased from 11.6% to 11.4%, respectively.
The increase in operating expenses as a percent of net revenue is due to
the impact of the aforementioned reductions in reimbursement rates under
the 1997 Budget Act, particularly with respect to the Company's home
healthcare businesses in Tennessee, and a decline in volumes at certain
LA Metro hospitals. Excluding the LA Metro and Tennessee market
hospitals, "same hospital" operating margins improved to 14.7% in 1998 as
compared to 12.4% in 1997. The increase in operating margin was due
principally to (i) efficiency and productivity gains resulting from the
implementation of operating standards and benchmarks on a hospital
department level and (ii) management's efforts to control overhead costs.
Interest expense increased $2.6 million from $10.7 million in 1997
to $13.3 million in 1998, due in part to $1.3 million of interest charges
in 1997 taken against a loss contract established in December 1996, with
respect to the now closed PHC Regional Hospital. Such amount represented
interest charges on borrowings to finance the acquisition of PHC Regional
Hospital. Additionally, interest expense was higher due to an increase
in interest rates and amounts outstanding under the Company's senior bank
credit facility and other debt.
Depreciation and amortization decreased 7.5% to $7.7 million in 1998
from $8.3 million for the same period of 1997, primarily due to a change
in estimated asset lives made in the third quarter of 1997 with respect
to certain assets acquired in the August 1996 merger with Champion
Healthcare Corporation.
Income (loss) before income taxes and extraordinary charge included
$2.0 million attributable to the Company's equity in the earnings of
Dakota Heartland Health System for the quarter ended June 30, 1998,
compared to $2.7 million for the prior period. The decline in earnings
was due primarily to a $1.1 million payment to settle a 1995 dispute over
certain contract services. Effective July 1, 1998, the Company purchased
Dakota Medical Foundation's 50% partnership interest in DHHS for $64.5
million, inclusive of working capital, thereby giving the Company 100%
ownership of DHHS (see Note 3). Commencing in the third quarter of 1998,
the Company will account for DHHS under the consolidated method of
accounting.
The following table presents pro forma net revenue and earnings before
extraordinary charge, interest, taxes, depreciation, amortization,
unusual items and gain on the sale of facilities ("Adjusted EBITDA") for
the quarters ended June 30, 1998 and 1997, as if the acquisition of DHHS
had occurred on January 1, 1998 and 1997, respectively ($ in thousands).
<PAGE> 15
<TABLE>
<CAPTION>
Reverse
Equity in DHHS
As Currently Earnings of Results of
Reported (a) DHHS Operation(b) Pro Forma
-------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
1998
Net revenue $151,148 $ 0 $ 25,544 $176,692
Adjusted EBITDA 20,155 (1,976) 6,017 24,196
1997
Net revenue $167,256 $ 0 $ 24,842 $192,098
Adjusted EBITDA 21,471 (2,667) 6,287 25,091
</TABLE>
(a) Adjusted EBITDA for the quarter ended June 30, 1998, excludes a $7.1
million gain on sale of facilities and the positive impact of $1.1
million in unusual items (see Note 2). Adjusted EBITDA for the quarter
ended June 30, 1997, excludes $6.0 million in unusual charges.
(b) Adjusted EBITDA for the quarter ended June 30, 1998, excludes a $1.1
million payment to settle a 1995 dispute over certain contract services.
Income before income taxes and extraordinary charge for the quarter
ended June 30, 1998, included a $7.1 million gain on sale of the Chico
hospitals (See Note 3) and unusual items of $1.1 million, consisting of a
$1.8 million gain to settle litigation related to an unconsummated
hospital acquisition by Champion Healthcare Corporation prior to its
merger with the Company in August 1996, offset by a $731,000 charge to
restructure home health operations at certain of the Company's hospitals
(see Note 2). Results of operations for the quarter ended June 30, 1997,
included $6.0 million in unusual charges, consisting of $3.5 million
relating to the closure of PHC Regional Hospital in May 1997, and $2.5
million relating to a corporate reorganization also completed in May
1997. Results of operations for the quarter ended June 30, 1997,
excluded a $5.2 million loss attributable to PHC Regional Hospital, which
was charged to the loss contract accrual established at December 31,
1996.
The Company's effective ongoing tax rate was 22.7% for the quarter
ended June 30, 1998, as compared to a 13.3% benefit rate in 1997. The
reduced tax rates for 1998 resulted from a $1.7 million reduction in the
valuation allowance related to the recognition of previously devalued tax
assets. The income tax benefit rate for 1997 was reduced by a $600,000
increase in the valuation allowance and nondeductible goodwill
amortization expense.
Net income for the quarter ended June 30, 1998 was $5.7 million, or
$0.10 per diluted share, compared to a net loss of $3.0 million, or $0.05
per diluted share, for the same period of 1997. Weighted average common
and common equivalent shares outstanding increased to 57.5 million in
1998 from 54.9 million in 1997, primarily due to the exclusion of
dilutive securities from the calculation of net loss per share in 1997.
<PAGE> 16
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1998
COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997
Net revenue for the six months ended June 30, 1998, was $311.6
million, a decrease of $24.1 million, or 7.2%, from $335.7 million for
the same period of 1997. In general, the decline in net revenue was
attributable to (i) volume declines at the Company's LA Metro hospitals,
(ii) a decline in utilization and reimbursement rates for home health and
other healthcare operations related to the enactment of the 1997 Budget
Act, (iii) the closure of certain under performing operating units and
(iv) the closure of PHC Regional Hospital in May 1997. Net revenue at
the Company's LA Metro hospitals decreased $8.4 million from $48.0
million in 1997 to $39.6 million in 1998, primarily as a result of
reduced volumes at certain facilities. Net revenue of the Company's
Tennessee market hospitals, which have significant home health
operations, decreased $9.4 million from $32.8 million in 1997 to $23.4
million in 1998. The closure of PHC Regional Hospital on May 1997,
accounted for $5.1 million of the decline in net revenue. Furthermore,
in June 1998, the Company restructured the home health operations of
certain of its hospitals, including in some cases the closing of such
operations (see Note 2).
The Company's "same hospitals" experienced a 8.3% decrease in
inpatient admissions from 34,819 in 1997 to 31,937 in 1998. Patient days
decreased 10.0% from 167,621 in 1997 to 150,824 in 1998. The decreases in
admissions and patient days are primarily due to volume declines at the
Company's LA Metro and Tennessee market hospitals. Outpatient visits in
"same hospitals" decreased 23.1% from 811,706 in 1997 to 624,250 in 1998,
primarily as a result of a significant decline in home health visits.
This decrease was due primarily to stricter utilization standards as a
result of new regulations under the 1997 Budget Act effective October 1,
1997, and to a lesser extent, the cancellation of a contract for home
health services at one of the Company's Tennessee hospitals. Excluding
home health visits, outpatient visits in "same hospitals" increased 4.2%
from 326,168 in 1997 to 339,985 in 1998.
Excluding the LA Metro and Tennessee market hospitals from the "same
hospitals" comparison, inpatient admissions decreased 2.1% from 24,487 in
1997 to 23,961 in 1998. Patient days decreased 3.7% from 113,583 in 1997
to 109,413 in 1998. Outpatient visits decreased 15.2% from 508,568 in
1997 to 431,274 in 1998, primarily as a result of the significant decline
in home health visits discussed above. Excluding home health visits,
outpatient visits increased 8.5% from 270,046 in 1997 to 292,978 in 1998.
Operating expenses (salaries and benefits, other operating expenses
and provision for bad debts) decreased $18.8 million from $293.3 million
in 1997 to $274.5 million in 1998. Expressed as a percentage of net
revenue, operating expenses increased from 87.4% in 1997 to 88.1% in
1998, and operating margin decreased from 12.6% to 11.9%. The increase
in operating expenses as a percent of net revenue is due to the impact of
the aforementioned reductions in reimbursement rates under the 1997
Budget Act, particularly with respect to the Company's home healthcare
businesses in Tennessee, and a decline in volumes at certain LA Metro
hospitals. Excluding the LA Metro and Tennessee market hospitals, "same
hospital" operating margins improved to 14.2% in 1998 as compared to
12.7% in 1997. The increase in operating margins was due principally to
(i) efficiency and productivity gains resulting from the implementation
of operating standards and benchmarks on a hospital department level and
(ii) management's efforts to control overhead costs.
<PAGE> 17
Interest expense increased $4.0 million from $21.7 million in 1997
to $25.7 million in 1998, due in part to $2.7 million of interest charges
in 1997 taken against a loss contract established in December 1996, with
respect to the now closed PHC Regional Hospital. Such amount represented
interest charges on borrowings to finance the acquisition of PHC Regional
Hospital. Additionally, interest expense was higher due to an increase
in interest rates and amounts outstanding under the Company's senior bank
credit facility and other debt.
Income before income taxes and extraordinary charge included $5.1
million attributable to the Company's equity in the earnings of Dakota
Heartland Health System for the six months ended June 30, 1998, compared
to $5.2 million for the prior period. DHHS earnings for 1998 included a
$1.1 million payment to settle a 1995 dispute over certain contract
services. Effective July 1, 1998, the Company purchased Dakota Medical
Foundation's 50% partnership interest in DHHS for $64.5 million,
inclusive of working capital, thereby giving the Company 100% ownership
of DHHS (see Note 3). Commencing in the third quarter of 1998, the
Company will account for DHHS under the consolidated method of
accounting. The following table presents pro forma net revenue and
Adjusted EBITDA for the six months ended June 30, 1998 and 1997, as if
the acquisition of DHHS had occurred on January 1, 1998 and 1997,
respectively ($ in thousands).
<TABLE>
<CAPTION>
Reverse
Equity in DHHS
As Currently Earnings of Results of
Reported (a) DHHS Operations(b) Pro Forma
-------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
1998
Net revenue $311,558 $ 0 $52,017 $363,575
Adjusted EBITDA 42,989 (5,061) 12,749 50,677
1997
Net revenue $335,746 $ 0 $49,525 $385,271
Adjusted EBITDA 46,696 (5,226) 12,218 53,688
</TABLE>
(a) Adjusted EBITDA for the six months ended June 30, 1998, excludes a
$7.1 million gain on sale of facilities and the positive impact of $1.1
million in unusual items (see Note 2). Adjusted EBITDA for the six
months ended June 30, 1997, excludes $6.0 million in unusual charges.
(b) Adjusted EBITDA for the six months ended June 30, 1998, excludes a
$1.1 million payment to settle a 1995 dispute over contract services.
Income before income taxes and extraordinary charge for the six
months ended June 30, 1998, included a $7.1 million gain on sale of the
Chico hospitals (see Note 3) and unusual items totaling $1.1 million,
consisting of a $1.8 million gain to settle litigation related to an
unconsummated hospital acquisition by Champion Healthcare Corporation
prior to its merger with the Company in August 1996, offset by a $731,000
charge to restructure home health operations at certain of the Company's
hospitals (see Note 2). Results of operations for the six months ended
June 30, 1997, included $6.0 million in unusual charges, consisting of
$3.5 million relating to the closure of PHC Regional Hospital in May
1997, and $2.5 million relating to a corporate reorganization also
<PAGE> 18
completed in May 1997. Results of operations for the six months ended
June 30, 1997, excluded a $10.9 million loss attributable to PHC Regional
Hospital, which was charged to the loss contract accrual established at
December 31, 1996.
The Company's effective tax rate was 24.1% for the six months ended
June 30, 1998, as compared to 29.7% for the comparable period in 1997.
The reduced tax rates for 1998 and 1997, resulted primarily from
reductions in the valuation allowance related to the recognition of
previously devalued tax assets of $2.4 million and $1.1 million,
respectively, offset by nondeductible goodwill amortization expense.
Net income for the six months ended June 30, 1998 was $6.1 million,
or $0.11 per diluted share, compared to net income of $2.2 million, or
$0.04 per diluted share, for the same period in 1997. The 1998 net
income includes an extraordinary charge on extinguishment of debt of $1.2
million (net of tax benefits of $817,000), or $0.02 per diluted share.
Weighted average common and common equivalent shares outstanding were
57.5 million and 56.3 million for the six months ended June 30, 1998 and
1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the six months ended
June 30, 1998, was $4.2 million, compared to net cash used of $8.4
million for the same period in 1997. The $12.6 million increase in net
cash provided by operating activities was mainly attributable to non-
recurring cash payments during 1997 for accrued (i) 1996 health claims
related to PHC Regional Hospital (ii) costs and fees related to the
Special Committee's investigation, and (iii) Champion merger costs. Net
cash used in investing activities was $49.3 million during 1998, as
compared to net cash provided by investing activities of $22.2 million
during 1997. The $71.5 million decrease was primarily attributable to
the Company's $64.8 million purchase (including transaction costs) of its
partner's 50% interest in DHHS (Note 3) in 1998, and to a net decrease in
proceeds from sales of marketable securities and facilities. In addition
to the DHHS purchase, investing activities for the six months ended June
30, 1998, included $23.0 million in net proceeds from the sale of the
Chico hospitals (see Note 3). Investing activities for the six months
ended June 30, 1997, included $12.2 million in net proceeds received from
the sale of certain hospitals and $19.3 million received from the
liquidation of marketable securities held by the Company's wholly-owned
subsidiary, Hospital Assurance Company, Ltd. Net cash provided by
financing activities during 1998 was $27.1 million, compared to cash used
of $10.8 million during 1997. The $37.9 million increase in cash provided
by financing activities was primarily attributable to borrowings under
the Company's Amended Credit Agreement to finance the purchase its
partner's 50% interest in DHHS, partially offset by repayments under the
Amended Credit Agreement of $30.3 million and deferred financing costs of
$4.0 million associated with the Amended Credit Agreement entered into in
March 1998.
Net working capital was $27.6 million at June 30, 1998, a decrease
of $9.8 million from $37.4 million at December 31, 1997. The decrease was
primarily due to the repayment of amounts outstanding under the Amended
Credit Facility from available cash, as well of the reclassification of
$2.0 million in principal amounts outstanding under the Term Loan
<PAGE> 19
Facilities from long term to current pursuant to the Amended Credit
Facility entered into in March 1998. Working capital also decreased as a
result of the sale of working capital associated with the Chico
hospitals, of which $3.1 million in proceeds were used to reduce amounts
outstanding under the Company's off balance sheet receivable financing
program. Such amount was reflected in restricted cash at June 30, 1998,
and paid on July 1, 1998. The Company's long-term debt as a percentage of
total capitalization was 91.5% at June 30, 1998, compared to 92.1% at
December 31, 1997.
As of August 14, 1998, the Company had $54.8 million available under
the revolver portion of its Amended Credit Agreement to fund future
capital expenditures, working capital requirements and the issuance of
letters of credit. The Company anticipates that internally generated cash
flows from earnings, proceeds from divestiture of certain assets,
proceeds from the sale of hospital accounts receivable under the
Company's off balance sheet receivable financing program, Federal and
state income taxes refunds, and available borrowings under its Amended
Credit Agreement will be sufficient to meet funding requirements through
1999. There can be no assurance that future developments in the hospital
industry or general economic trends will not adversely affect the
Company's operations or its ability to meet such funding requirements.
See "Pending Litigation" of this Item for a discussion regarding certain
pending litigation, the resolution of which could adversely affect the
Company's liquidity and its future operating results.
OPERATING PERFORMANCE OF LA METRO HOSPITALS
The Company's LA Metro acute care hospitals recorded an EBITDA
deficit of $645,000 for the quarter ended June 30, 1998, and EBITDA of
$492,000 for the six months ended June 30, 1998, as compared to EBITDA
of $1.4 million and $3.9 million for the quarter and six months ended
June 30, 1997, respectively. Losses before interest, income taxes,
depreciation and amortization for the LA metro psychiatric hospitals,
which were offset against the disposal loss accrual previously
established in September 1996, were $1.6 million and $1.7 million for the
quarter and six months ended June 30, 1998, respectively, as compared to
$142,000 and $175,000 for the quarter and six months ending June 30,
1997, respectively. Management does not believe the LA Metro hospitals
will have a material adverse effect on the Company's liquidity through
their estimated disposition date.
YEAR 2000 COMPLIANCE
As discussed in the Company's Form 10-K for the fiscal year ended
December 31, 1997, the Company has initiated a comprehensive assessment
of all equipment, systems and services, as well as embedded systems and
other applications that control medical and related equipment to
determine whether such items are Year 2000 compliant. As part of this
effort, the Company engaged an outside consultant to assist in
implementing an extensive pilot program at one of its hospitals to
compile a data base for use in evaluating Year 2000 compliance at all of
its hospitals. As a result of this pilot program, the Company and its
outside consultant have implemented a multiphase plan at all of its
hospitals to determine and execute the necessary actions to make their
various embedded systems, medical devices, related facility equipment,
and other third party supplied equipment and services Year 2000
compliant. The Company expects to complete an assessment by year end.
<PAGE> 20
At this time, the Company is not able to determine whether the costs of
bringing such embedded systems and other applications into compliance
will have a material impact on the Company's liquidity or results of
operations. As previously reported, the Company expects its core
information systems to be Year 2000 compliant as a result of ongoing
efforts to standardize and upgrade such systems.
PENDING LITIGATION
The Company has previously reported the filing of a number of
putative class and derivative action complaints relating to the August
1996 merger of the Company and Champion Healthcare Corporation. As
previously reported, two of these actions have been active: IN RE
PARACELSUS CORP. SECURITIES LITIGATION, Master File No. H-96-3464, in
which a number of federal class action complaints were consolidated, and
CAVEN V. MILLER No. H-96-4291, in which two derivative action complaints
have been consolidated. The federal class action complaint asserts
claims against the Company under sections 11 and 12(a)(2) of the
Securities Act of 1933, and claims against certain existing and former
officers and directors of the Company under sections 11 and 15 of the
Securities Act of 1933. In addition, the complaint was recently amended
to add a claim against the Company under section 10(b) of the Securities
Exchange Act of 1934. The Company has moved to dismiss the claim. The
derivative action asserts various state law claims against the Company,
certain of its existing and former officers and directors or their
affiliates, and other persons.
Since the Company reported on this litigation on its Form 10-K for
the fiscal year ended December 31, 1997, one of the California state
court actions, GAONKAR V. KRUKEMEYER ET AL., Case No BC158899, was
dismissed without prejudice on motion of the plaintiffs, and the other
California state court action previously consolidated with GAONKAR,
PRESCOTT V. PARACELSUS HEALTHCARE CORP., Case No. BC158979, has been
ordered to proceed separately.
As previously reported, in light of the Company's restatement of
financial information contained in the various registration statements
and prospectuses relating to the merger, the Company believes an
unfavorable outcome is probable for at least some of the claims asserted
in the stockholder class action. Efforts to settle the stockholder
claims are ongoing. Absent such a settlement within the Company's
financial resources, the Company will continue to defend the litigation
vigorously. Many factors will ultimately affect and determine the
results of the litigation, and the Company can provide no assurance that
the results will not have a material adverse effect on the Company.
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part I - Item 2 "Pending Litigation" for an update of
developments on the pending stockholders' litigation previously disclosed
in the Company's 1997 Form 10-K.
ITEM 2. CHANGE IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of stockholders on May 14, 1998, the
stockholders approved the following:
1. The election of Messrs. James G. VanDevender, Daryl J. White and Dr.
Heiner Meyer zu Losebeck to serve as Class II directors for a three-year
term, and the election of Mr. Nolan Lehmann to serve as a Class I
director for a two-year term and the election of Mr. Christian A. Lange
to serve as a Class III director for a one-year term. Each nominee
received the following votes:
FOR WITHHELD
---------- --------
Nolan Lehmann 47,854,654 666,961
James G. VanDevender 48,375,053 146,562
Daryl J. White 47,751,854 769,761
Dr. Heiner Meyer zu Losebeck 48,395,295 126,319
Christain A. Lange 48,392,885 128,730
2. The ratification of the appointment of Ernst & Young LLP as the
Company's auditors for 1998.
For 18,712,768
Against 28,172
Abstain 29,780,674
<PAGE>22
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) Exhibits
10.7 The First Amendment to Amended and Restated Credit Agreement,
effective June 15, 1998, by and among Paracelsus Healthcare
Corporation, Paribas, Toronto Dominion (Texas), Inc. and Bank of
Montreal.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed on July 10, 1998, a Current Report on Form 8-K, dated
June 30, 1998, reporting pursuant to Item 2 (i) the sale by the Company
effective June 30, 1998, of substantially all of the assets of Chico
Community Hospital, Inc., which included a 123 licensed bed acute care
hospital and a 60 licensed bed rehabilitation hospital, both located in
Chico, California, and (ii) the Company's purchase effective July 1, 1998
(through its subsidiary, Paracelsus Healthcare Corporation of North
Dakota, Inc.) of Dakota Medical Foundation's 50% partnership interest in
a general partnership operating as Dakota Heartland Health System
("DHHS"), thereby giving the Company 100% ownership of DHHS. Prior to the
purchase, the Company owned 50% of DHHS and accounted for its investment
under the equity method. DHHS owns and operates a 218 licensed bed
tertiary care hospital in Fargo, North Dakota.
<PAGE> 23
SIGNATURE
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.
Paracelsus Healthcare Corporation
(Registrant)
Dated: August 14, 1998 By: /S/ JAMES G.VANDEVENDER
--------------------------------
James G. VanDevender
Senior Executive Vice President,
Chief Financial Officer
& Director
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
("THIS AMENDMENT") is made and entered into effective as of June 15, 1998
(the "EFFECTIVE DATE") by and among PARACELSUS HEALTHCARE CORPORATION, a
California corporation (the "Borrower"), PARIBAS, a bank organized and
existing under the laws of the Republic of France (f/k/a Banque Paribas;
"PARIBAS"), TORONTO DOMINION (TEXAS), INC., a Delaware corporation ("TD")
and BANK OF MONTREAL, a Canadian chartered bank ("BMO" and collectively
with Paribas and TD, the "LENDERS").
W I T N E S S E T H:
WHEREAS, the Borrower, Paribas, as lead agent for the Lenders (in
such capacity, together with its successors in such capacity, the "AGENT")
and as the Issuing Bank, TD, as documentation agent for the Lenders (in
such capacity, the "DOCUMENTATION AGENT") and BMO, as administrative agent
for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT"), are parties
to that certain Amended and Restated Credit Agreement, dated as of
March 30, 1998 (the "CREDIT AGREEMENT");
WHEREAS, the Borrower and the Lenders desire to amend the Credit
Agreement in the manner hereinafter set forth;
NOW THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements hereinafter contained, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrower and the Lenders, each intending to be legally
bound, hereby mutually agree as follows:
1. CAPITALIZED TERMS. All capitalized terms used herein and
not otherwise defined shall have the respective meanings ascribed to such
terms in the Credit Agreement.
2. AMENDMENT OF ARTICLE I OF THE CREDIT AGREEMENT.
SECTION 1.1 of the Credit Agreement is hereby amended by amending
the following Definitions:
"APPLICABLE TRANCHE B MARGIN" is amended by substituting the date
"December 31, 1998" for the date "March 31, 1999".
"REVOLVING CREDIT LOANS COMMITMENT" is amended (i) by
substituting the dollar amount "$9,500,000" for the dollar amount
"$12,000,000" and (ii) by substituting the date "March 31, 2001" for
the date "March 31, 2000".
"SPECIFIED ASSET DISPOSITION" is amended by substituting the
words "those certain Asset Dispositions listed on SCHEDULE 9.12" for
the words "as specified in Section 9.12A".
"TOTAL DEBT" is amended by inserting the following at the end
thereof:
"MINUS the amount of the Borrower's unrestricted Cash
Equivalents in excess of $10,000,000".
3. AMENDMENT OF ARTICLE II OF THE CREDIT AGREEMENT.
(a) SECTION 2.3(B) of the Credit Agreement is hereby amended by
substituting the number "22,500,000" for the number "2,500,000" where it
appears opposite the date "March 31, 2003".
(b) SECTION 2.3(C) of the Credit Agreement is hereby amended by
substituting the number "67,500,000" for the number "47,500,000" where it
appears opposite the date "March 31, 2004".
(c) SECTION 2.7(C) of the Credit Agreement is hereby amended and
restated in its entirety as follows:
"(c) Notwithstanding either of the foregoing CLAUSE (A)
or CLAUSE (B), unless there shall have occurred and be
continuing a Default (in which case CLAUSE (B) above
shall govern), all Net Proceeds of Specified Asset
Dispositions received prior to July 1, 1999 shall be
applied as a prepayment of the Revolving Credit Loans,
unless and until the Revolving Credit Loans are paid in
full, in which case the Net Proceeds otherwise required
to be applied as a prepayment thereof shall be retained
by the Borrower".
(d) SECTION 2.9 of the Credit Agreement is hereby amended by
inserting the following at the beginning of the sentence beginning with the
words "In the event," which appears in the 10th line of the second full
paragraph:
"In the case of prepayments pursuant to SECTION 2.6,
the Borrower shall have the right to specify the Loans
and in the case of prepayments pursuant to SECTION 2.6
or 2.7, the Borrower shall have the right to specify
the Type of Loans to be prepaid, unless there shall
have occurred and be continuing a Default, in which
case, or".
4. AMENDMENT OF SECTION 9.5 OF THE CREDIT AGREEMENT. SECTION
9.5 of the Credit Agreement is hereby amended by inserting the following
sentence immediately before the penultimate sentence of such SECTION 9.5,
which sentence begins with the words "Any Acquisition permitted":
"Notwithstanding the foregoing, in connection with an
Acquisition, in no event shall the Borrower or any of
its Subsidiaries be required to grant to the Agent or
the Lenders any Lien or Security Interest in respect of
any real Property or personal Property which is leased
by the Borrower or such Subsidiary of the Borrower
(other than any such property leased by the Borrower to
a Subsidiary, or leased by a Subsidiary (other than an
Excluded Subsidiary) to the Borrower or another
Subsidiary)".
5. AMENDMENT OF SCHEDULE 1.1(D) OF THE CREDIT AGREEMENT.
SCHEDULE 1.1(D) to the Credit Agreement is hereby amended and restated in
its entirety by substituting therefor SCHEDULE 1.1(D) attached hereto.
6. REPLACEMENT NOTES. In furtherance of the foregoing
transaction, the Borrower shall execute and deliver to each of the Lenders
its replacement promissory notes dated the Effective Date in the form of
Annexes A-1 through A-3 hereto attached (the "REPLACEMENT NOTES"). The
principal amount of each Replacement Note delivered to each Lender shall
equal such Lender's Commitment, giving effect to the execution and delivery
hereof. The Replacement Notes shall, upon acceptance by the Lenders, as of
the Effective Date constitute replacements and substitutions for the Notes
dated March 30, 1998 in the aggregate principal amount of $255,000,000
issued by the Borrower to the order of the Lenders pursuant to the Credit
Agreement. All references in the Credit Agreement to the Notes shall, from
and after the Effective Date, be deemed to refer to the Replacement Notes,
the same as if such Replacement Notes were the Notes defined, described and
referred to in the Credit Agreement. Upon acceptance of the Replacement
Notes, the Lenders agree to return to the Borrower the Notes marked
"Replaced as of June 15, 1998".
7. FURTHER REPRESENTATIONS OF THE BORROWER.
(a) The execution, delivery and performance by the Borrower of
this Amendment and the consummation of the transactions contemplated hereby
have been duly authorized by all requisite corporate or other entity action
on the part of the Borrower and do not and will not (i) violate or conflict
with, or result in a breach of, or require any consent, except as may have
been obtained under (x) the Borrower's articles of incorporation or bylaws,
the violation of, conflict with, or breach of, which could reasonably be
expected to have a Material Adverse Effect, (y) any Governmental
Requirement or any order, writ, injunction or decree of any arbitrator the
violation of, conflict with, or breach of, which could reasonably be
expected to have a Material Adverse Effect, or (z) any material agreement,
document or instrument to which the Borrower is a party or by which the
Borrower or any of its Property is bound or subject, the violation of,
conflict with, or breach of, which could reasonably be expected to have a
Material Adverse Effect, or (ii) constitute a default under any such
material agreement, document or instrument which default could reasonably
be expected to have a Material Adverse Effect, or result in the creation or
imposition of any Lien (except for those in favor of Agent pursuant to the
Security Documents as provided in ARTICLE 5 of the Credit Agreement and
except for Permitted Liens) upon any of the revenues or Property of the
Borrower.
(b) This Amendment has been duly and validly executed and
delivered by the Borrower and constitutes the legal, valid and binding
obligation of the Borrower, enforceable against the Borrower in accordance
with its terms, except as limited by bankruptcy, insolvency or other laws
of general application relating to the enforcement of creditors' rights and
general principles of equity.
(c) No authorization, approval or consent of, and no filing or
registration with or notice to, any Governmental Authority is or will be
necessary for the execution, delivery or performance by the Borrower of
this Amendment or for the validity or enforceability thereof in respect of
the Borrower, except for such consents, approvals and filings as have been
validly obtained or made and are in full force and effect. The Borrower
has not failed to obtain any governmental consent, Permit or franchise
necessary for the ownership of any of its Properties or the conduct of its
business except where the failure to do so could not reasonably be expected
to have a Material Adverse Effect.
(d) The Borrower further represents and warrants that (i) all of
the representations and warranties made by the Borrower in ARTICLE VII of
the Credit Agreement, and in each other Loan Document, are true and correct
on and as of the date hereof, as though made on the date hereof except for
any such representation and warranties as are expressly stated to be made
as of a particular date; and (ii) no Default or Event of Default shall have
occurred and be continuing as of the Effective Date.
8. CONDITIONS. The obligations of the Lenders under this
Amendment are subject to the condition precedent that this Amendment and
the Replacement Notes shall have been duly executed by the Borrower and
delivered to the Lenders, and each Lender shall have executed and delivered
a counterpart hereof.
9. RATIFICATION OF CREDIT AGREEMENT. All terms and provisions
of the Credit Agreement not expressly amended hereby are hereby ratified
and reaffirmed and shall remain in full force and effect without
interruption, change, or impairment of any kind.
10. GENERAL.
(a) APPLICABLE LAW. This Amendment has been delivered and
accepted in, and shall be a contract made under and governed by the laws of
the State of New York.
(b) BINDING EFFECT. This Amendment shall be binding upon and
inure to the benefit of the Borrower and the Lenders and their respective
successors and assigns.
(c) HEADINGS. The Section and subsection headings of this
Amendment are for convenience and shall not affect, limit or expand any
term or provision hereof.
(d) COUNTERPARTS. This Amendment may be executed in as many
counterparts as may be deemed necessary or convenient, and each counterpart
shall be deemed an original. No one counterpart need be signed by all
parties hereto, but all such counterparts shall constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to Amended and Restated Credit Agreement to be executed and
delivered by their duly authorized officers, to be deemed effective as of
the Effective Date.
BORROWER:
PARACELSUS HEALTHCARE CORPORATION
By:
Deborah H. Frankovich
Senior Vice President and Treasurer
ADDRESS FOR NOTICES:
515 West Greens Road, Suite 800
Houston, Texas 77067
Telephone No.: 281-774-5100
Telecopy No.: 281-774-5110
Attn: James G. VanDevender
Senior Executive Vice President and Chief
Financial Officer
LENDERS:
PARIBAS, as the Agent, as the Issuing Bank and as a
Lender
By:
Timothy A. Donnon
Managing Director
By:
Glenn E. Mealey
Director
ADDRESS FOR NOTICES:
Paribas
The Equitable Tower
787 Seventh Avenue
New York, New York 10019
Telephone No.: 212-841-2000
Telecopy No.: 212-841-2146
Attn: Corporate Banking Group
with a copy to:
Paribas
1200 Smith Street, Suite 3100
Houston, Texas 77002
Telephone No.: 713-659-4811
Telecopy No.: 713-659-3832
Attention: Corporate Banking Group
TORONTO DOMINION (TEXAS), INC., as Documentation Agent
and as a Lender
By:
Authorized Signatory
Title:
ADDRESS FOR NOTICES:
909 Fannin, Suite 1700
Houston, Texas 77010
Telephone: 713-653-8281
Telecopy: 713-951-9921
Attn:
1
<PAGE>
BANK OF MONTREAL, as Administrative Agent and as a
Lender
By:
Ronald A. Launsbach
Director
ADDRESS FOR NOTICES:
601 S. Figueroa Street
Suite 4900
Los Angeles, California 90017
Telephone: (213) 239-0602
Telecopy: (213) 239-0680
Attn: Ronald A. Launsbach
2
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
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0
0
<OTHER-SE> (176,336)
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