SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
Commission file No. 0-13849
RAMSAY HEALTH CARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 63-0857352
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
Entergy Corporation Building
639 Loyola Avenue, Suite 1700
New Orleans, Louisiana 70113
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (504) 525-2505
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
The number of shares of the Registrant's Common Stock outstanding at
May 14, 1996 follows:
Common Stock, par value $0.01 per share - 8,023,558 shares
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets - March 31, 1996
and June 30, 1995 (unaudited).................. 1
Consolidated statements of operations - three months ended
March 31, 1996 and 1995 (unaudited)............ 3
Consolidated statements of cash flows - nine months ended
March 31, 1996 and 1995 (unaudited)............ 4
Notes to consolidated financial statements -
March 31, 1996 (unaudited)..................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...... 9
Part II. OTHER INFORMATION
Item 5. Other Information............................... 16
Item 6. Exhibits and Current Reports on Form 8-K........ 16
SIGNATURES......................................... 17
<PAGE>
PART I. FINANCIAL INFORMATION
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31 June 30
1996 1995
--------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ........................ $ 4,074,000 $ 9,044,000
Patient accounts receivable, less allowances for
doubtful accounts of $3,570,000 and $3,886,000
at March 31, 1996 and June 30, 1995, respectively 25,979,000 21,564,000
Amounts due from third-party contractual agencies 7,190,000 5,956,000
Receivable from affiliated company ............... 2,124,000 325,000
Other receivables ................................ 4,266,000 3,330,000
Other current assets ............................ 1,971,000 2,764,000
------------ ------------
TOTAL CURRENT ASSETS ......................... 45,604,000 42,983,000
OTHER ASSETS
Cash held in trust ............................... 1,271,000 1,778,000
Cost in excess of net asset value of purchased
businesses .................................... 647,000 663,000
Unamortized preopening and loan costs ............ 1,323,000 2,221,000
Receivable from affiliated company ............... 5,865,000 7,170,000
Deferred income taxes ............................ 8,002,000 8,652,000
Other non-current assets ......................... 2,442,000 2,301,000
------------ ------------
19,550,000 22,785,000
PROPERTY AND EQUIPMENT
Land ............................................. 5,359,000 5,383,000
Building and improvements ........................ 78,130,000 77,630,000
Equipment, furniture and fixtures ................ 20,159,000 19,611,000
------------ ------------
103,648,000 102,624,000
Less accumulated depreciation .................... 32,546,000 29,156,000
------------ ------------
71,102,000 73,468,000
------------ ------------
$136,256,000 $139,236,000
============ ============
See notes to consolidated financial statements.
1
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RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31 June 30
1996 1995
-------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ......................... $ 2,888,000 $ 3,868,000
Accrued salaries and wages ............... 3,895,000 4,843,000
Other accrued liabilities ................ 1,258,000 1,347,000
Amounts due to third-party contractual
agencies .............................. 6,329,000 4,996,000
Current portion of long-term debt ........ 11,542,000 3,831,000
----------- ----------
TOTAL CURRENT LIABILITIES ........... 25,912,000 18,885,000
LIABILITIES FOR SELF-INSURANCE CLAIMS,
less current portion .................. 1,294,000 1,337,000
LONG-TERM DEBT, less current portion ..... 44,664,000 55,568,000
MINORITY INTERESTS ....................... 771,000 1,667,000
STOCKHOLDERS' EQUITY
Class B convertible preferred stock,
Series C, $1 par value-authorized
152,321 shares; issued 142,486 shares
(liquidation value of $7,244,000)
including accrued dividends at
June 30, 1995 of $91,000 ............ 142,000 233,000
Common Stock, $.01 par value-authorized
20,000,000 shares; issued 8,605,108
shares at March 31, 1996 and 8,290,795
shares at June 30, 1995 ............. 86,000 83,000
Additional paid-in capital ............ 99,989,000 99,147,000
Retained earnings (deficit) ........... (32,703,000) (33,785,000)
Treasury Stock, at cost--581,550 shares
at March 31, 1996 and June 30, 1995.. (3,899,000) (3,899,000)
---------- -----------
63,615,000 61,779,000
---------- -----------
$ 136,256,000 $ 139,236,000
=========== ============
See notes to consolidated financial statements.
2
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RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Quarter Ended Nine Months Ended
March 31 March 31
------------------------ -------------------------
1996 1995 1996 1995
---- ---- ---- ----
NET REVENUES $ 31,888,000 $ 33,547,000 $ 92,832,000 $ 105,004,000
Operating Expenses:
Salaries, wages and
benefits 16,374,000 17,390,000 48,807,000 53,336,000
Other operating
expenses 10,156,000 11,270,000 29,902,000 33,513,000
Provision for doubtful
accounts .......... 1,218,000 1,183,000 3,244,000 3,765,000
Depreciation and
amortization ...... 1,422,000 1,927,000 4,048,000 5,737,000
Interest and other
financing charges . 1,754,000 2,161,000 5,263,000 6,472,000
Loss on sales and
closure of facilities --- 4,797,000 --- 4,797,000
------------ --------- --------- -----------
TOTAL OPERATING
EXPENSES 30,924,000 38,728,000 91,264,000 107,620,000
---------- ---------- ---------- ------------
INCOME (LOSS) BEFORE
MINORITY INTERESTS,
INCOME TAXES AND
EXTRAORDINARY ITEM . 964,000 (5,181,000) 1,568,000 (2,616,000)
Minority interests .... ( 76,000) 134,000 (177,000) 1,147,000
----------- --------- ---------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES AND
EXTRAORDINARY ITEM . 1,040,000 (5,315,000) 1,745,000 (3,763,000)
Provision (benefit) for
income taxes ....... 402,000 (1,355,000) 663,000 (828,000)
--------- ----------- --------- -----------
INCOME (LOSS) BEFORE 638,000 (3,960,000) 1,082,000 (2,935,000)
EXTRAORDINARY ITEM .
Loss from early
extinguishment of debt,
net of applicable income
taxes ............ --- (361,000) --- (361,000)
--------- ----------- --------- ----------
NET INCOME (LOSS) $ 638,000 $(4,321,000) $ 1,082,000 $ (3,296,000)
========= =========== ========= ===========
INCOME (LOSS) PER
COMMON AND
DILUTIVE COMMON
EQUIVALENT SHARE
Primary:
Before extraordinary item $ 0.07 $(0.52) $ 0.12 $(0.41)
Extraordinary item . --- (0.05) --- (0.05)
---- ----- ----- -----
$ 0.07 $(0.57) $ 0.12 $(0.46)
==== ======= ===== ======
Fully Diluted:
Before extraordinary
item ............. $ 0.07 $(0.52) $ 0.11 $(0.41)
Extraordinary item . --- (0.05) --- (0.05)
---- ----- ----- ------
$ 0.07 $(0.57) $ 0.11 $(0.46)
==== ====== ===== ======
Weighted average number of shares outstanding:
Primary .......... 9,446,000 7,759,000 9,323,000 7,737,000
Fully diluted .... 9,448,000 7,759,000 9,448,000 7,737,000
See notes to consolidated financial statements.
3
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RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended March 31
1996 1995
---- ----
Cash Flows from Operating Activities
Net income (loss) .................................. $ 1,082,000 $ (3,296,000)
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Depreciation and amortization 4,686,000 6,331,000
Provision (benefit) for deferred income taxes..... 650,000 (1,110,000)
Provision for doubtful accounts................... 3,244,000 3,765,000
Minority interests................................ (176,000) 1,147,000
Write-off of deferred loan costs.................. --- 229,000
Valuation allowance/loss on sales of facilities
and land ....................................... --- 4,112,000
Cash flows from (increase) decrease in
operating assets:
Accounts receivable ............................ (7,659,000) (4,419,000)
Amounts due from third-party contractual
agencies...................................... (1,234,000) (770,000)
Receivable from affiliated company.............. (494,000) ---
Other current and non-current assets ............. 132,000 (2,113,000)
Cash flows from increase (decrease) in operating
liabilities:
Accounts payable................................ (980,000) 1,050,000
Accrued salaries, wages and other liabilities... (1,037,000) (2,509,000)
Unpaid self-insurance claims.................... (43,000) (165,000)
Amounts due to third party contractual agencies 1,333,000 156,000
----------- -----------
Total adjustments............................... (1,578,000) 5,704,000
----------- -----------
Net cash provided by (used in) operating
activities................................... (496,000) 2,408,000
----------- -----------
Cash Flows from Investing Activities:
Proceeds from sales of facilities and real estate
held for sale................................... --- 550,000
Expenditures for property and equipment, net...... (1,024,000) (2,126,000)
Preopening costs.................................. (22,000) (294,000)
Restricted cash used for debt payments............ --- 5,311,000
Cash held in trust................................ 507,000 (965,000)
----------- ----------
Net cash provided by (used in) investing
activities...................................... (539,000) 2,476,000
----------- ----------
Cash Flows from Financing Activities:
Loan costs........................................ (217,000) (230,000)
Payment of costs related to distribution of
subsidiary...................................... --- (1,350,000)
Proceeds from exercise of options and stock
purchases....................................... 557,000 364,000
Distributions to minority interests............... (720,000) (2,016,000)
Proceeds from private placement of shares of
subsidiary...................................... --- 3,320,000
Proceeds from working capital facility............ --- 2,500,000
Payments on debt.................................. (3,193,000) (9,631,000)
Payments of preferred stock dividends............. (362,000) (272,000)
Purchase of treasury stock........................ --- (44,000)
----------- -----------
Net cash used in financing activities........... (3,935,000) (7,359,000)
----------- -----------
Net decrease in cash and cash equivalents........... (4,970,000) (2,475,000)
Cash and cash equivalents at beginning of period.... 9,044,000 6,207,000
----------- -----------
Cash and cash equivalents at end of period.......... $ 4,074,000 $ 3,732,000
============ ===========
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest ......................................... $ 3,969,000 $ 5,117,000
Income taxes...................................... 102,000 1,410,000
See notes to consolidated financial statements.
4
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
March 31, 1996
NOTE 1 - BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation of the interim information are, unless
otherwise discussed in this report, of a normal recurring nature and have been
included. The Company's business is seasonal in nature and subject to general
economic conditions and other factors. Accordingly, operating results for the
quarter and nine months ended March 31, 1996 are not necessarily indicative of
the results that may be expected for the year. For further information, refer to
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1995.
NOTE 2 - CREDIT FACILITIES
At March 31, 1996, the Company's credit facilities included $34,168,750 in
senior secured notes and $1,846,155 in subordinated secured notes (the 1990
Credit Facility), and approximately $20,000,000 in letters of credit, which
support the Company's variable rate demand revenue bonds (the 1993 Credit
Facility).
On May 1, 1995, the Company utilized a portion of the proceeds from a
sale/leaseback of two of its inpatient facilities and prepaid $7,500,000 of
principal due on the senior secured notes as follows: $3,531,250 in full
satisfaction of the amount due on September 30, 1995, $3,531,250 in full
satisfaction of the amount due on March 31, 1996, and $437,500 in partial
satisfaction of the $3,531,250 due on September 30, 1996. The senior secured
notes bear interest at 11.6% and are due in semi-annual installments that began
on March 31, 1993 and, after the May 1, 1995 prepayment, resume semi-annual
installments on September 30, 1996 through March 31, 2000. The subordinated
secured notes bear interest at 15.6% and are due in semi-annual installments
that began on March 31, 1994 and end on March 31, 2000.
The variable rate demand revenue bonds were issued in 1984 and 1985, have
terms of 30 years and require annual principal payments of $800,000 (through
year 2000) and $900,000 to $1,300,000 (from years 2001 to maturity).
5
<PAGE>
Effective September 15, 1995, the Company and the group of banks supporting
the 1993 Credit Facility agreed to an extension of the facility to February 15,
1997. In connection with this extension, certain financial covenants were
modified and the Company agreed to reduce the banks' exposure by $2,800,000 on
or before December 31, 1995 and an additional $3,000,000 on or before July 1,
1996. In December 1995, the Company fully paid down and terminated a working
capital facility originally issued in connection with the 1993 Credit Facility,
thereby achieving, along with regularly scheduled principal payments made prior
to December 31, 1995, the $2,800,000 reduction in the banks' credit exposure.
A summary of the Company's debt obligations is as follows:
March 31 June 30
1996 1995
-------- -------
11.6% senior secured notes..................... $ 34,169,000 $ 34,169,000
Variable rate demand revenue bonds............. 19,400,000 20,200,000
15.6% subordinated secured notes............... 1,846,000 2,308,000
Capital lease obligation....................... 598,000 919,000
Working capital facility....................... --- 1,500,000
Other notes payable............................ 193,000 303,000
---------- ----------
56,206,000 59,399,000
Less amounts due within one year............... 11,542,000 3,831,000
---------- ----------
$ 44,664,000 $ 55,568,000
========== ==========
The Company has pledged as collateral substantially all of the land,
building and improvements associated with its owned facilities.
NOTE 3 - ACCOUNTING FOR INCOME TAXES
Income taxes are accounted for in accordance with Statement of
Financial Accounting Standard (SFAS) No. 109. SFAS 109 requires recognition of
deferred tax assets and liabilities for expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets
and liabilities. The Company files a consolidated federal income tax return and
individual state income tax returns. Certain revenue and expense items are
recognized for tax purposes in years other than the year in which they are
reflected in the financial statements.
At March 31, 1996, the Company has estimated operating loss
carryforwards available to reduce future taxable income of approximately
$21,000,000, subject to significant annual limitations pursuant to Section 382
of the Internal Revenue Code of 1986, as amended.
NOTE 4 - LEASE COMMITMENTS
In April 1995, the Company sold and leased back the land, buildings and
fixed equipment of two of its inpatient facilities. The leases have a primary
term of 15 years (with three successive renewal options of 5 years each) and
require aggregate annual minimum rentals of $1,540,000 million, payable monthly.
Beginning April 1, 1996, the lease payments are subject to an upward adjustment
(not to exceed 3% annually) based upon any increase in the consumer price index
over the preceding twelve months.
6
<PAGE>
Net sale proceeds associated with this transaction totaled $12,100,000
which, when compared to the net book value of assets sold of $15,650,000,
resulted in a loss of $3,550,000. This loss was recorded in the March 31, 1995
statement of operations as "Loss on sales and closure of facilities". As
mentioned above, the Company utilized a portion of the proceeds from this
transaction and prepaid $7,500,000 of principal due on the senior secured notes.
In connection with this prepayment, the Company wrote down a proportionate
amount of unamortized loan costs related to the senior secured notes and
incurred a yield maintenance charge from the holders of the senior secured
notes. These amounts, net of applicable income taxes, totalled $361,000 and are
reflected as an extraordinary item in the March 31, 1995 statement of
operations.
Effective April 1995, the Company agreed to lease an 80-bed facility
near Salt Lake City, Utah for four years, with an option to renew for an
additional three years. The lease requires annual base rental payments of
$456,000. In addition, the lease provides for percentage rent payments to the
lessor equal to 2% of the net revenues of the facility, payable quarterly. Also,
the Company leases its corporate headquarters for a term of five years ending in
April 1999 and various other clinics and outpatient operations over terms
ranging from one to five years.
Annual rent expense related to noncancellable operating leases totals
approximately $2,700,000.
NOTE 5 - DISTRIBUTION OF RAMSAY MANAGED CARE, INC.
Effective April 24, 1995, the Company distributed, on a pro-rata basis
in the form of a dividend, the common stock of its subsidiary, Ramsay Managed
Care, Inc. ("RMCI"), held by the Company, to the holders of record on April 21,
1995 of the Company's common and preferred stock (the "RMCI Distribution").
RMCI, which was formed in October 1993, manages the delivery of mental health
and substance abuse care and provides employee assistance and mental health and
substance abuse treatment programs for and on behalf of self-insured employers,
health maintenance organizations ("HMOs"), insurance companies, government
agencies and other third-party payors. Subsequent to the RMCI Distribution, RMCI
ceased being a subsidiary of the Company.
For the three months ended March 31, 1995, net revenues and operating
expenses of RMCI were $4,390,000 and $4,572,000, respectively. For the nine
months ended March 31, 1995, net revenues and operating expenses of RMCI were
$11,345,000 and $11,376,000, respectively. The inclusion of RMCI increased the
reported loss per share for the March 31, 1995 quarter by $0.02 per share and
had no effect on the reported loss per share for the nine months ended March 31,
1995.
At March 31, 1996, the total amount owed to the Company by RMCI, including
net cash advances made by the Company to or on behalf of RMCI for purposes of
funding acquisitions, working capital and other corporate purposes, totalled
approximately $8,000,000. The Company anticipates approximately $1,800,000 of
the current portion of this receivable will be paid prior to fiscal year end or
otherwise in accordance with the payment terms as described below.
Of the $8,000,000 currently outstanding, $6,000,000 is represented by an
unsecured, interest-bearing (8%), subordinated promissory note due from RMCI and
issued on October 25, 1994. Interest on the subordinated promissory note
commenced June 30, 1995 and is payable on a quarterly basis (although interest
7
<PAGE>
for the quarters ended December 31, 1995 and March 31, 1996 has not yet been
paid). Principal on the subordinated promissory note is payable over a four-year
period in 17 equal quarterly installments commencing September 30, 1996.
In addition to the subordinated promissory note and pursuant to a
Distribution Agreement between RHCI and RMCI which governed the RMCI
Distribution, RMCI agreed to pay amounts owed to RHCI as of April 24, 1995 (the
"Distribution Date") totalling approximately $1,100,000. Pursuant to the
Distribution Agreement, $600,000 of this amount was payable by RMCI on or before
October 21, 1995 or on such other date and on such other terms and conditions as
mutually agreed to by RHCI and RMCI. RMCI paid $275,000 to RHCI on June 30, 1995
in partial satisfaction of the amount due on October 21, 1995. The remainder of
the $1,100,000 which was outstanding on the Distribution Date, or $500,000, is
payable on or before December 31, 1996, together with interest at 7% per annum
accruing from October 21, 1995, or on such other date and on such other terms
and conditions as shall be mutually agreed to between RHCI and RMCI.
Subsequent to the RMCI Distribution, RHCI paid additional amounts incurred
by RMCI prior to the Distribution Date, provided certain administrative services
to RMCI pursuant to certain agreements entered into in connection with the RMCI
Distribution, and charged interest on the subordinated promissory note. At March
31, 1996, these amounts totalled approximately $1,175,000.
8
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RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company pursues business expansion opportunities which are
consistent with its overall strategic plan and disposes of operations no longer
considered viable or consistent with this plan. The following significant
events, which occurred subsequent to March 31, 1995, impact the comparison of
revenues and operating expenses of the Company between the periods presented.
* The RMCI Distribution.
* Virtual elimination (due to statutory changes effective July 1, 1995)
of disproportionate share payments to the Company. Disproportionate
share was a funding mechanism designed to adequately reimburse
facilities serving a disproportionately high volume of Medicaid
patients, relative to other providers. The majority of
disproportionate share payments were received at the Company's Three
Rivers facility, which was operated as a limited partnership in which
the Company had a 55% interest and limited partners maintained a 45%
interest. Due to the virtual elimination of disproportionate share
payments effective July 1, 1995, as well as significantly more
restrictive admission criteria imposed by the State of Louisiana on
behavioral health providers treating adolescents in the State, the
Three Rivers facility was closed in June 1995. See Part II. Item 5 -
"Other Information".
* Commencement of operations in April 1995 at an 80-bed leased facility
near Salt Lake City, Utah.
* The closure of several day treatment centers and outpatient clinics
during fiscal 1995 due to negative operating margins.
* Expansion of the Company's contract services division during the
latter part of fiscal 1995.
9
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
Results of Operations
The following table sets forth, for the periods indicated, certain items of
the Company's Consolidated Statements of Operations as a percentage of the
Company's net revenues. For comparison purposes, the March 1995 percentages
exclude the operations of RMCI, the sale/leaseback loss, the extraordinary loss
on debt extinguishment and other nonrecurring losses recorded in 1995.
Percentage of Net Revenues
Quarter Ended Nine Months Ended
March 31 March 31
1996 1995 1996 1995
------------------ -------------------
Net revenues................... 100.0 % 100.0 % 100.0 % 100.0 %
----- ----- ----- -----
Operating expenses:
Salaries, wages and
benefits.................... 51.3 53.4 52.6 51.7
Other operating expenses...... 31.8 30.4 32.2 29.9
Provision for doubtful
accounts.................... 3.8 4.0 3.5 4.0
Depreciation and amortization 4.5 5.7 4.4 5.3
Interest expense.............. 5.6 7.2 5.6 6.8
---- ---- ---- ----
Total operating expenses....... 97.0 100.7 98.3 97.7
---- ----- ---- ----
Income (loss) before minority
interests and income taxes... 3.0 (0.7) 1.7 2.3
Minority interests............. (0.3) 0.5 (0.2) 1.2
----- ----- ----- -----
Income (loss) before income
taxes........................ 3.3 (1.2) 1.9 1.1
===== ===== ===== =====
Quarter Ended March 31, 1996 Compared to
Quarter Ended March 31, 1995
Net revenues in the quarter ended March 31, 1996 were $31.9 million,
compared to $33.5 million in the comparable quarter of the prior fiscal year.
The material changes in net revenues between these periods consisted of (a) a
$0.8 million increase in same facility net outpatient revenues, (b) a decrease
in net patient revenues of $1.3 million related to closed facilities (including
the Three Rivers facility), (c) an increase in net patient revenues of $1.1
million related to the opening of an additional facility near Salt Lake City,
Utah ("Benchmark South"), (d) a $1.9 million increase in net patient revenues
related to the Company's subacute operations, (e) a $0.4 million increase in net
revenues related to the Company's contract services division, and (f) net
revenues in the quarter ended March 31, 1995 related to RMCI of $4.4 million.
Same facility net inpatient revenues remained stable between periods
(from $21.8 million in the March 1995 quarter to $21.6 million in the current
year quarter) even though same facility patient days increased 9.6% between
periods. The decrease in inpatient revenue per patient day between periods
(9.7%) is due to an increase in patient days related to patients in managed care
plans (22% of total patient days in the March 1996 quarter compared to 16% in
the March 1995 quarter) as well as a shifting of the Company's revenue base from
acute psychiatric to residential treatment services. Managed care payors and
residential treatment services typically have lower per diem rates; however, the
average length of stay for residential treatment services is significantly
greater than that for acute psychiatric services. The increase in net revenues
10
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related to subacute operations is due to a significant increase in census
between periods at two of the Company's four subacute units.
Salaries, wages and benefits in the quarter ended March 31, 1996 were
$16.4 million, compared to $17.4 million in the comparable quarter of the prior
fiscal year. Same facility salaries, wages and benefits increased $0.3 million
(from $13.3 million to $13.6 million) between periods, or 2%. Other changes to
salaries, wages and benefits between periods included a) a decrease of $0.8
million related to the closure of the Three Rivers facility, b) an increase of
$0.7 million related to the opening of Benchmark South, c) an increase of $0.5
million related to subacute operations and d) salaries, wages and benefits in
the quarter ended March 31, 1995 related to RMCI of $1.8 million.
Other operating expenses in the quarter ended March 31, 1996 were $10.2
million, compared to $11.3 million in the comparable quarter of the prior fiscal
year. Same facility other operating expenses increased $0.5 million between
periods ($7.2 million in the current quarter compared to $6.7 million in the
prior fiscal year quarter), other operating expenses of RMCI in the quarter
ended March 31, 1995 were $2.4 million, and other operating expenses related to
subacute operations increased $0.7 million between periods. The decrease in
other operating expenses between periods due to the closure of the Three Rivers
facility was offset by the increase in other operating expenses due to the
opening of Benchmark South.
The provision for doubtful accounts in the quarters ended March 31,
1996 and 1995 totalled $1.2 million, which is consistent with the stability in
same facility inpatient revenues between periods.
Depreciation and amortization in the quarter ended March 31,1996
totalled $1.4 million, compared to $1.9 million in the prior year comparable
quarter. This decrease is due to (a) depreciation and amortization in the
quarter ended March 31,1995 related to RMCI of $0.3 million and (b) a
sale/leaseback transaction and asset write-down in the fourth quarter of the
Company's prior fiscal year, which reduced depreciation expense on the
underlying assets between periods by $0.3 million.
Interest expense decreased from $2.2 million in the quarter ended March
31, 1995 to $1.8 million in the current year comparable quarter. Debt levels
were reduced between periods through a prepayment of principal on the senior
secured notes, a $0.5 million reduction in principal on the subordinated secured
notes and a $0.8 million reduction in principal on the variable rate demand
revenue bonds. In addition, interest costs included in the March 31, 1995
quarter related to RMCI were not incurred in the current year quarter.
Minority interests reflects the limited partners' share of income or
loss before income taxes of the Three Rivers facility. The decrease in minority
interests between periods is due to the closure of this facility in June 1995.
Loss on sales and closure of facilities in the March 1995 quarter included
losses related to the sale/leaseback transaction described in Note 4 above ($3.6
million), the sale of real estate ($0.4 million) and closed outpatient clinics
($0.8 million).
11
<PAGE>
In connection with the Company's utilization of a portion of the
proceeds from the sale/leaseback transaction to prepay debt, the Company
recorded an extraordinary loss on the extinguishment of debt totalling $361,000
(net of applicable income taxes) in the March 1995 quarter.
Nine Months Ended March 31, 1996
Compared to Nine Months Ended March 31, 1995
Net revenues in the nine months ended March 31, 1996 were $92.8
million, compared to $105.0 million in the comparable period of the prior fiscal
year. The material changes in net revenues between these periods consisted of a)
a $2.8 million decrease in same facility net inpatient revenues, b) a $0.2
million decrease in same facility net outpatient revenues, c) a decrease in net
patient revenues of $8.1 million related to closed facilities (including the
Three Rivers facility which, in addition to its patient revenues, recorded $4.0
million of disproportionate share revenues in the nine months ended March 31,
1995), d) an increase in net patient revenues of $4.2 million related to the
opening of Benchmark South, e) a $5.0 million increase in net patient revenues
related to the Company's subacute operations, f) a $1.0 million increase in net
revenues related to the Company's contract services division and g) net revenues
in the nine months ended March 31, 1995 related to RMCI of $11.3 million.
Same facility net inpatient revenues, excluding Louisiana
disproportionate share revenues recorded at the Company's Bayou Oaks facility in
the prior year period, decreased 3% between periods (from $65.7 million in the
prior year to $63.8 million in the current year) while same facility patient
days increased 5% between periods. The decrease in inpatient revenue per patient
day between periods (9%) is due to an increase in patient days related to
patients in managed care plans (19% of total patient days in the current year
period compared to 14% in the prior year period) as well as a shifting of the
Company's revenue base from acute psychiatric to residential treatment services.
Managed care payors and residential treatment services typically have lower per
diem rates; however, the average length of stay for residential treatment
services is significantly greater than that for acute psychiatric services. The
increase in net revenues related to subacute operations is due to the opening of
an additional unit in December 1994 and a significant increase in census between
periods at two of the Company's other three subacute units.
Salaries, wages and benefits in the nine months ended March 31, 1996
were $48.8 million, compared to $53.3 million in the comparable period of the
prior fiscal year. Same facility salaries, wages and benefits increased $0.5
million (from $39.8 million to $40.3 million) between periods, or 1%. Other
changes to salaries, wages and benefits between periods included a) a decrease
of $3.8 million related to the closure of the Three Rivers facility, b) an
increase of $2.3 million related to the opening of Benchmark South, c) an
increase of $1.0 million related to subacute operations, d) an increase of $0.5
million related to the Company's contract services division and e) salaries,
wages and benefits in the nine months ended March 31, 1995 related to RMCI of
$4.9 million.
Other operating expenses in the nine months ended March 31, 1996 were
$29.9 million, compared to $33.5 million in the comparable nine month period of
the prior fiscal year. Same facility other operating expenses increased $0.3
million between periods ($21.7 million in the current year period compared to
$21.4 million in the prior year period), other operating expenses of RMCI in the
12
<PAGE>
nine months ended March 31, 1995 were $5.4 million, and other operating expenses
related to subacute operations increased $1.4 million between periods. The
decrease in other operating expenses between periods due to the closure of the
Three Rivers facility was offset by the increase in other operating expenses due
to the opening of Benchmark South.
The provision for doubtful accounts in the nine months ended March 31,
1996 totalled $3.2 million, compared to $3.8 million in the prior year
comparable period. The overall provision for doubtful accounts associated with
the same facilities decreased $0.6 million between periods due to the continued
shift in the Company's overall payor mix away from charged-based payors, which
typically include a higher patient portion due and, consequently, higher bad
debts.
Depreciation and amortization in the nine months ended March 31, 1996
totalled $4.0 million, compared to $5.7 million in the prior year comparable
period. This decrease is due to a) the closure of the Three Rivers facility
($0.2 million), b) depreciation and amortization in the nine months ended March
31, 1995 related to RMCI of $0.8 million and c) a sale/leaseback transaction and
asset write-down in the fourth quarter of the Company's prior fiscal year, which
reduced depreciation expense on the underlying assets between periods by $0.8
million.
Interest expense decreased from $6.5 million in the nine months ended
March 31, 1995 to $5.3 million in the current year comparable period. Debt
levels were reduced between periods through regularly scheduled principal
payments and a prepayment of principal on the senior secured notes, a $0.5
million reduction in principal on the subordinated secured notes and a $0.8
million reduction in principal on the variable rate demand revenue bonds. In
addition, interest costs included in the March 31, 1995 nine month period
related to RMCI, totalling $0.2 million, were not incurred in the current year
period.
Minority interests reflects the limited partners' share of income or
loss before income taxes of the Three Rivers facility. The decrease in minority
interests between periods is due to the closure of this facility in June 1995.
Loss on sales and closure of facilities in the March 1995 nine month
period included losses related to the aforementioned sale/leaseback transaction
($3.6 million), the sale of real estate ($0.4 million) and closed outpatient
clinics ($0.8 million).
In connection with the Company's utilization of a portion of the
proceeds from the sale/leaseback transaction to prepay debt, the Company
recorded an extraordinary loss on the extinguishment of debt totalling $361,000
(net of applicable income taxes), in the March 1995 nine month period.
Financial Condition
The Company records amounts due to or from third-party contractual
agencies (Medicare, Medicaid and Blue Cross) based on its best estimate, using
the principles of cost reimbursement, of amounts to be ultimately received or
paid under current and prior years' cost reports filed (or to be filed) with the
appropriate intermediaries. Ultimate settlements and other lump-sum adjustments
due from and paid to these intermediaries occur at various times during the
fiscal year. At March 31, 1996, amounts due from Medicare, Medicaid and Blue
Cross totalled $4.0 million, $2.0 million and $1.2 million, respectively. Also
13
<PAGE>
at March 31, 1996, amounts due to Medicare, Medicaid and Blue Cross totalled
$5.0 million, $0.8 million and $0.5 million, respectively.
The Company's net accounts receivable increased from $21.6 million at June
30, 1995 to $26.0 million at March 31, 1996. This increase in receivables is due
to a) the opening of Benchmark South in late fiscal 1995, b) new programs and
payor sources at the Company's existing facilities, c) a significant backlog of
residential treatment claims due from agencies within the State of Illinois, d)
a slowdown in processing of Medicaid claims, particularly in the states of
Louisiana and West Virginia and e) a significant increase in volume (and hence,
receivables) in the Company's subacute division.
During the nine months ended March 31, 1996, amounts owed to minority
interests decreased by a total of $0.9 million due primarily to distributions
made to the minority partners in the Three Rivers Hospital Limited Partnership.
In addition, the current portion of long-term debt increased approximately $7.7
million since June 30, 1995 due to a) the Company's commitment to reduce the
credit exposure of its bank group by $3.0 million on July 1, 1996 and b)
principal payments on the senior secured notes of $3.1 million and $3.5 million
which came due within one year on September 30, 1995 and March 31, 1996,
respectively. These increases were offset by $1.5 million in payments during the
nine months ended March 31, 1996 on the amount outstanding at June 30, 1995
under the Company's former working capital facility. The Company fully paid down
and terminated this working capital facility in December 1995. See "Liquidity
and Capital Resources" below.
The Company has net deferred tax assets of approximately $8.0 million
at March 31, 1996. Management has considered the effects of implementing tax
planning strategies, consisting of the sales of certain appreciated property, as
the primary basis for not recognizing a valuation allowance related to its
deferred tax assets at March 31, 1996. The ultimate realization of deferred tax
assets may be affected by changes in the underlying values of the properties
considered in the Company's tax planning strategies, which values are dependent
upon the operating results and cash flows of the individual properties. The
Company evaluates the realizability of its deferred tax assets on a quarterly
basis by reviewing its tax planning strategies and assessing the need for a
valuation allowance.
In October 1995, a corporate affiliate of Paul J. Ramsay, the Chairman
of the Board of the Company, acquired through private placement an aggregate of
275,863 shares of common stock of the Company at a price of $3.625 per share. Of
the total shares acquired, 121,363 were issued for cash and 154,500 were issued
for management fees due during the remainder of the Company's current fiscal
year under the Company's management agreement with another corporate affiliate
of Mr. Ramsay. With the issuance of the additional shares, the voting power of
the interests in the Company controlled by Mr. Ramsay increased from
approximately 30.9% to approximately 32.9%.
Liquidity and Capital Resources
The Company's credit facilities include $34.2 million in senior secured
notes, approximately $20 million in letters of credit and $1.8 million in
subordinated secured notes. The senior secured notes bear interest at 11.6% and
are payable as follows: a) $3.1 million due on September 30, 1996, b)
semi-annual principal payments of $3.5 million from March 31, 1997 through
September 30, 1998 and c) semi-annual principal payments of $5.65 million from
14
<PAGE>
March 31, 1999 through March 31, 2000. The subordinated secured notes bear
interest at 15.6% and require semi-annual principal payments of $0.2 million
through March 31, 2000. Required annual principal payments on the variable rate
demand revenue bonds total $0.8 million through year 2000 and $0.9 million to
$1.3 million in years 2001 through 2015.
In September 1995, the Company and the banks supporting the 1993 Credit
Facility agreed to terms which extended the expiration date of the 1993 Credit
Facility from May 15, 1996 to February 15, 1997. In connection with this
extension, the Company agreed to reduce the banks' exposure (through regular
principal payments on the variable rate demand revenue bonds outstanding, early
redemption of certain of these bonds and/or elimination of a working capital
facility) by $2.8 million on or before December 31, 1995 and an additional $3
million on or before July 1, 1996. In December 1995, the Company fully paid down
and terminated the working capital facility originally issued in connection with
the 1993 Credit Facility, thereby achieving, along with regularly scheduled
principal payments made prior to December 31, 1995, the $2.8 million reduction
in the banks' credit exposure.
In connection with the Company's integration strategy, the Company is
pursuing a transaction involving one of its facilities which has been financed,
in part, by variable rate revenue bonds, which bonds are supported by a letter
of credit from the Company's bank group. Under the current structure of the
proposed transaction, the Company would contribute the facility and its
operations to a new entity which would be jointly owned by the Company and a
medical/surgical facility in the same market area. The medical/surgical facility
would contribute cash and other consideration to the new entity. Through
economies of scale, infrastructure savings and new business opportunities of the
new entity, the Company believes its income from the new entity could
approximate the income currently realized from this facility. In connection with
this transaction, the revenue bonds outstanding on the facility would be
redeemed or a substitute letter of credit would be issued, thereby also
achieving the Company's commitment to reduce the exposure of its bank group by
an additional $3.0 million.
In May 1996, the Company signed a letter of intent to sell its Three
Rivers facility to an independent party. The Company expects to receive
approximately $2.2 million from the sale of this facility prior to July 31,
1996.
At the current time, the Company does not have any commitments to make
any material capital expenditures. The Company's current primary cash
requirements relate to its normal operating expenses, the requirement to reduce
its banks' credit exposure as discussed above, principal payments on its senior
secured notes (which resume on September 30, 1996) and routine capital
improvements at its facilities.
On the basis of its historical experience and projected identifiable cash
needs, the Company believes that its existing cash resources, internally
generated funds from operations, repayments of certain of the amounts owed by
Ramsay Managed Care, Inc. and funds/debt reductions derived from the
above-mentioned transactions will be sufficient to meet its current cash
requirements and future identifiable needs.
15
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
During fiscal years 1994 and 1995, the Company's Three Rivers facility
received Medicaid disproportionate share payments based on annual patient volume
projections made at the beginning of the facility's cost reporting periods. The
State of Louisiana has reviewed Three Rivers' annual patient volume for these
periods and has made a preliminary determination that the facility was overpaid
approximately $1.6 million in disproportionate share payments. The Company
believes that certain of the calculations which support the State's preliminary
determination are in error and that other relevant factors affecting this
determination have not been considered.
Further, during fiscal years 1994 and 1995, certain private psychiatric
facilities in Louisiana, including the Company's Three Rivers and Bayou Oaks
facilities, received additional disproportionate share payments based on the
facilities' classification as Louisiana teaching hospitals. The Company has been
notified that the State of Louisiana is investigating whether all facilities
receiving these payments were qualifying teaching hospitals at the time these
payments were made. Further, the Company believes that the State will take the
position that approximately $4 million in teaching disproportionate share
payments were improperly paid to its facilities. The Company believes that,
based on its understanding of the rules and regulations in place at the time
these payments were made, payments received as a result of the teaching
classification were appropriate.
In neither of the foregoing matters has the State of Louisiana made a final
determination or demand for repayment by the Company. Although the Company
intends to vigorously contest any position by the State of Louisiana which it
considers adverse, the Company cannot predict the outcome of these matters at
this time. In addition, the Company is considering establishing a reserve for
these matters in its fourth fiscal quarter.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits required to be filed as part of this Quarterly
Report on Form 10-Q are as follows:
Exhibit 11 Computation of Net Income per Share
Exhibit 27 Financial Data Schedule
(b) Current Reports on Form 8-K
There were no Current Reports on Form 8-K filed with the
Commission during the quarter ended March 31, 1996.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereupon duly authorized.
RAMSAY HEALTH CARE, INC.
Registrant
/s/ Daniel A. Sims
------------------------------
Daniel A. Sims
Corporate Controller
Date: May 15, 1996
Exhibit 11
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(unaudited)
Quarter Ended Nine Months Ended
March 31 March 31
1996 1995 1996 1995
---- ---- ---- ----
PRIMARY
Weighted average common shares
outstanding ................. 8,021,019 7,758,719 7,897,804 7,736,996
Class B convertible preferred
stock, Series C.............. 1,424,860 --- 1,424,860 ---
--------- ---------- --------- ----------
TOTAL COMMON AND DILUTIVE
COMMON EQUIVALENT SHARES.. 9,445,879 7,758,719 9,322,664 7,736,996
========= ========= ========= =========
Net Income (Loss) Available * *
to Common Shareholders.. $ 638,000 $(4,412,000) $1,082,000 $(3,568,000)
======== =========== ========= ===========
NET INCOME (LOSS) PER SHARE $0.07 $(0.57) $0.12 $(0.46)
==== ===== ==== =====
FULLY DILUTED
Weighted average common shares
outstanding.................. 8,023,558 7,758,719 8,023,558 7,736,996
Class B convertible preferred
stock, Series C.............. 1,424,860 --- 1,424,860 ---
--------- --------- --------- ----------
TOTAL COMMON AND DILUTIVE
COMMON EQUIVALENT SHARES.. 9,448,418 7,758,719 9,448,418 7,736,996
========= ========= ========= =========
Net Income (Loss) Available * *
to Common Shareholders.... $ 638,000 $(4,412,000) $1,082,000 $(3,568,000)
========= =========== ========= ===========
NET INCOME (LOSS) PER SHARE $0.07 $(0.57) $0.11 $(0.46)
==== ====== ==== ======
* Amount represents the net loss per the consolidated statements of
operations, plus the dividends paid on the Class B convertible preferred
stock, Series C.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<FISCAL-YEAR-END> Jun-30-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Mar-31-1996
<EXCHANGE-RATE> 1
<CASH> 4,074,000
<SECURITIES> 0
<RECEIVABLES> 29,549,000
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142,000
<COMMON> 86,000
<OTHER-SE> 63,387,000
<TOTAL-LIABILITY-AND-EQUITY> 136,256,000
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