<PAGE>
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 December 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)
Columbus Center
One Alhambra Plaza
Suite 750
Coral Gables, Florida 33134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 569-6993
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
February 14, 1997 follows:
Common Stock, par value $0.01 per share - 8,425,431 shares
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets - December 31, 1996 and
June 30, 1996 (unaudited)..................................... 1
Consolidated statements of operations - three and six months ended
December 31, 1996 and 1995 (unaudited)........................ 3
Consolidated statements of cash flows - six months ended
December 31, 1996 and 1995 (unaudited)........................ 4
Notes to consolidated financial statements - December 31, 1996
(unaudited)................................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 8
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.......... 15
Item 5. Other Information............................................ 15
Item 6. Exhibits and Reports on Form 8-K............................. 16
SIGNATURES........................................................... 17
<PAGE>
PART I. FINANCIAL INFORMATION
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
------------ --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................ $ 9,060,000 $ 7,605,000
Patient accounts receivable, less allowances for
doubtful accounts of $3,725,000 and $4,573,000
at December 31, 1996 and June 30, 1996,
respectively.................................... 24,839,000 23,410,000
Amounts due from third-party contractual agencies 2,938,000 6,479,000
Receivable from affiliated company............... 2,118,000 1,412,000
Other receivables................................ 3,646,000 2,985,000
Deferred income taxes............................ 1,398,000 1,398,000
Other current assets............................. 2,166,000 2,372,000
------------ ------------
TOTAL CURRENT ASSETS.......................... 46,165,000 45,661,000
OTHER ASSETS
Cash held in trust............................... 457,000 745,000
Cost in excess of net asset value of purchased
businesses...................................... 580,000 591,000
Unamortized preopening and loan costs............ 1,207,000 1,040,000
Receivable from affiliated company............... 6,697,000 6,795,000
Deferred income taxes............................ 9,190,000 10,141,000
Other noncurrent assets.......................... 1,695,000 1,392,000
------------ ------------
TOTAL OTHER ASSETS............................ 19,826,000 20,704,000
PROPERTY AND EQUIPMENT
Land............................................. 5,025,000 5,025,000
Building and improvements........................ 70,149,000 69,200,000
Equipment, furniture and fixtures................ 21,067,000 20,325,000
------------ ------------
96,241,000 94,550,000
Less accumulated depreciation.................... 30,370,000 28,157,000
------------ ------------
65,871,000 66,393,000
------------ ------------
$131,862,000 $132,758,000
============ ============
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
------------ --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.............................. $ 4,740,000 $ 4,990,000
Accrued salaries and wages.................... 5,492,000 5,169,000
Other accrued liabilities..................... 5,114,000 4,412,000
Amounts due to third-party contractual
agencies..................................... 9,616,000 8,435,000
Current portion of long-term debt............. 11,970,000 10,940,000
------------ ------------
TOTAL CURRENT LIABILITIES.................. 36,932,000 33,946,000
NONCURRENT LIABILITIES
Other accrued liabilities..................... 6,498,000 7,170,000
Long-term debt, less current portion.......... 39,531,000 44,664,000
Minority interests............................ 25,000 925,000
------------ ------------
TOTAL NONCURRENT LIABILITIES............... 46,054,000 52,759,000
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 of $181,000 at December 31, 1996
and $91,000 at June 30, 1996................. 324,000 233,000
Common Stock, $.01 par value -- authorized
20,000,000 shares; issued 9,006,981 at
December 31, 1996 and 8,605,108 shares at
June 30, 1996................................ 90,000 86,000
Additional paid-in capital.................... 100,636,000 99,899,000
Retained earnings (deficit)................... (48,275,000) (50,266,000)
Treasury Stock, at cost -- 581,550 shares at
December 31, 1996 and June 30, 1996.......... (3,899,000) (3,899,000)
------------ ------------
48,876,000 46,053,000
------------ ------------
$131,862,000 $132,758,000
============ ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31, December 31,
------------------------ ------------------------
1996 1995 1996 1995
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
NET REVENUES $35,072,000 $31,815,000 $66,607,000 $60,944,000
Expenses:
Salaries, wages and benefits................. 16,647,000 16,194,000 33,263,000 32,433,000
Other operating expenses..................... 11,332,000 10,190,000 22,356,000 19,746,000
Provision for doubtful accounts.............. 1,260,000 1,070,000 2,149,000 2,026,000
Depreciation and amortization................ 1,280,000 1,291,000 2,593,000 2,626,000
Interest and other financing charges......... 1,489,000 1,783,000 3,034,000 3,509,000
----------- ----------- ----------- -----------
TOTAL EXPENSES............................ 32,008,000 30,528,000 63,395,000 60,340,000
----------- ----------- ----------- -----------
INCOME BEFORE MINORITY INTERESTS
AND INCOME TAXES............................... 3,064,000 1,287,000 3,212,000 604,000
Minority interests.............................. -- (49,000) -- (101,000)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES...................... 3,064,000 1,336,000 3,212,000 705,000
Provision for income taxes...................... 1,221,000 501,000 1,221,000 261,000
----------- ----------- ----------- -----------
NET INCOME................................... $ 1,843,000 $ 835,000 $ 1,991,000 $ 444,000
=========== =========== =========== ===========
Income per common and dilutive common
equivalent share:
Primary...................................... $0.19 $0.09 $0.21 $0.05
Fully diluted................................ $0.19 $0.09 $0.21 $0.05
Weighted average number of shares outstanding:
Primary...................................... 9,814,000 9,378,000 9,706,000 9,262,000
Fully diluted................................ 9,814,000 9,438,000 9,706,000 9,438,000
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended December 31,
------------------------------
1996 1995
------ ------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income.................................... $ 1,991,000 $ 444,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................ 2,739,000 3,035,000
Deferred income tax benefit.................. 951,000 261,000
Provision for doubtful accounts.............. 2,149,000 2,026,000
Management and director fees paid in common
stock....................................... 922,000 --
Minority interests........................... -- (101,000)
Cash flows from (increase) decrease in
operating assets:
Patient accounts receivable................ (3,578,000) (4,277,000)
Amounts due from third-party contractual
agencies.................................. 3,541,000 (217,000)
Other current assets....................... (620,000) 772,000
Receivable from affiliated company......... (608,000) (333,000)
Other noncurrent assets.................... (303,000) 95,000
Cash flows from increase (decrease) in
operating liabilities:
Accounts payable........................... (250,000) (1,440,000)
Accrued salaries, wages and other
liabilities............................... 353,000 (478,000)
Amounts due to third-party contractual
agencies.................................. 1,181,000 336,000
----------- -----------
Total adjustments....................... 6,477,000 (321,000)
----------- -----------
Net cash provided by operating
activities.......................... 8,468,000 123,000
----------- -----------
Cash flows from Investing Activities:
Expenditures for property and equipment, net. (1,743,000) (648,000)
Preopening costs............................. (349,000) (22,000)
Cash held in trust........................... 288,000 186,000
----------- -----------
Net cash used in investing activities...... (1,804,000) (484,000)
----------- -----------
Cash Flows from Financing Activities:
Loan costs................................... (115,000) (217,000)
Proceeds from exercise of stock options and
stock purchases............................. -- 526,000
Distributions to minority interests.......... (900,000) (720,000)
Payments on debt............................. (4,103,000) (2,700,000)
Payment of preferred stock dividends......... (91,000) (182,000)
----------- -----------
Net cash used in financing activities...... (5,209,000) (3,293,000)
----------- -----------
Net decrease in cash and cash equivalents..... 1,455,000 (3,654,000)
Cash and cash equivalents at beginning of
period....................................... 7,605,000 9,044,000
----------- -----------
Cash and cash equivalents at end of period.... $ 9,060,000 $ 5,390,000
=========== ===========
Supplemental Disclosures of Cash Flow
Information
Cash paid during the period for:
Interest..................................... $ 2,513,000 $ 2,672,000
Income taxes................................. 25,000 89,000
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
December 31, 1996
NOTE 1
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
three and six months ended December 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, 1996.
NOTE 2
As previously announced, the Company is contemplating a $75 million senior
debt offering through a private placement pursuant to Rule 144A to refinance
existing indebtedness and for other general corporate purposes. Any private
placement of the debt securities will be made only by means of an offering
memorandum, and will not be registered under the Securities Act of 1933 and may
not be offered or sold in the United States absent registration or an applicable
exemption from registration requirements.
At December 31, 1996, the Company's credit facilities included $31,075,000
in senior secured notes and $1,615,386 in subordinated secured notes (the 1990
Credit Facility), and approximately $19,000,000 in letters of credit, which
support the Company's variable rate demand revenue bonds (the 1993 Credit
Facility). The senior secured notes bear interest at 11.6% and require semi-
annual principal payments of $3,531,250 from March 31, 1997 through September
30, 1998 and $5,650,000 from March 31, 1999 through March 31, 2000. The
subordinated secured notes bear interest at 15.6% and are due in semi-annual
installments of $230,769 from March 31, 1997 through March 31, 2000.
The variable rate demand revenue bonds were issued in 1984 and 1985, have
terms of 30 years and at December 31, 1996 required annual principal payments of
$800,000 (through year 2000) and $900,000 to $1,200,000 (from years 2001 to
maturity). The Company is required to maintain an irrevocable standby letter of
credit for each bond in an amount equal to the total principal payment due under
the bonds (totalling $18,600,000 at December 31, 1996), plus approximately one
quarter's interest. Such letters of credit are provided in the 1993 Credit
Facility.
5
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
In August 1996, the Company and banks supporting the 1993 Credit Facility
agreed to terms which extended its expiration date from February 1997 to August
1997. In connection with this extension, the Company agreed to reduce the bank
group's exposure under the 1993 Credit Facility to $17,145,835 on or about
December 31, 1996 and to $15,000,000 by July 1, 1997. On January 2, 1997, the
former requirement was satisfied when the Company fully redeemed, with a
$2,900,000 principal payment, one of the outstanding demand revenue bonds
supported by the 1993 Credit Facility.
Under the 1993 and 1990 Credit Facilities, the Company is required to meet
certain covenants, including: (1) the maintenance of a minimum level of
consolidated tangible net worth; (2) the maintenance of a minimum working
capital ratio; and (3) the maintenance of certain fixed charge and debt service
coverage ratios. From time to time, the lenders under the 1993 and 1990 Credit
Facilities have agreed to waive or otherwise adjust certain of these ratios and
levels. In connection with these waivers and adjustments, the Company pays
additional fees and expenses. Further, as part of the waivers and adjustments
obtained as of June 30, 1996, the Company agreed to provide its Hillcrest
Hospital facility and related assets as additional collateral to the lenders and
agreed not to pay cash dividends in respect of its Common Stock or Class B
Preferred Stock, Series C.
A summary of the Company's debt obligations is as follows:
<TABLE>
<CAPTION>
December 31 June 30
1996 1996
---- ----
<S> <C> <C>
11.6% senior secured notes.......... $31,075,000 $34,169,000
Variable rate demand revenue bonds.. 18,600,000 19,400,000
15.6% subordinated secured notes.... 1,615,000 1,846,000
Other notes payable................. 211,000 189,000
----------- -----------
51,501,000 55,604,000
Less amounts due within one year.... 11,970,000 10,940,000
----------- -----------
$39,531,000 $44,664,000
=========== ===========
</TABLE>
The Company has pledged substantially all of its real property as
collateral on its long-term debt.
NOTE 3
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
currently require an aggregate annual minimum rental of $1.58 million, payable
monthly. Effective April 1 of each year, the lease payments are subject to any
upward adjustment (not to exceed 3% annually) in the consumer price index over
the preceding twelve months. 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, payable monthly, and percentage rental payments equal to
2% of the net revenues of the facility, payable quarterly. The Company leases
office space for
6
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
various other purposes over terms ranging from one to five years. Annual rent
expense related to noncancellable operating leases totals approximately $3
million.
NOTE 4
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109. SFAS 109 requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. At December 31,
1996, net operating loss carryovers of approximately $19,000,000 (of which
$13,000,000 expires from 2000 to 2003, $3,800,000 expires in 2010 and $2,200,000
expires in 2011) and alternative minimum tax credit carryovers of approximately
$1,500,000 are available to reduce future federal income taxes, subject to
certain annual limitations.
NOTE 5
In October 1993, the Company, through its subsidiary Ramsay Managed Care,
Inc. ("RMCI"), entered the managed mental health business through an acquisition
of Florida Psychiatric Management, Inc. The managed care division expanded in
June 1994 with the acquisition of a Phoenix, Arizona-based managed mental health
business and, in fiscal 1995, through the award of contracts in Hawaii and West
Virginia. On April 24, 1995, the Company distributed the stock of RMCI held by
it to the holders of record on April 21, 1995 of the Company's Common and
Preferred Stock. Subsequent to this distribution, which was recorded at net book
value, RMCI ceased being a subsidiary of the Company.
At December 31, 1996, total net cash advances made by the Company to or on
behalf of RMCI, including for purposes of partially funding acquisitions and for
working capital and other corporate purposes, totalled $8,815,000. Of this
amount, $6,000,000 is represented by an unsecured, interest-bearing (8%)
subordinated promissory note due from RMCI and issued on October 25, 1994. The
remaining amount, which is also unsecured, includes $600,000 of accrued interest
on the promissory note since October 1, 1995 and $2,215,000 of additional
amounts paid by the Company on behalf of RMCI or charges by the Company to RMCI
for certain administrative services. Of the $6,000,000 due on the subordinated
promissory note, approximately $2,118,000 is due on or before December 31, 1997
and the remainder is payable in 11 quarterly installments of approximately
$353,000, beginning March 31, 1998. The Company has agreed that the payment of
interest on the subordinated promissory note for the period October 1, 1995
through December 31, 1997, as well as the $2,215,000 of additional amounts owed,
will not be required until after January 1, 1998, all on terms and conditions to
be mutually agreed to by the Company and RMCI.
As previously announced, on October 1, 1996, the Company and RMCI entered
into an agreement and plan of merger providing for the merger of RMCI into a
wholly owned subsidiary of the Company. Following the merger, all amounts owed
by RMCI to the Company will become an intercompany payable and receivable
between RMCI and the Company, respectively. The merger is subject to approval by
the shareholders of each company, the receipt of lender,
7
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
governmental and other consents and the declaration of effectiveness by the
Securities and Exchange Commission of a registration statement filed by the
Company. Subject to the satisfaction of these conditions, it is expected that
the merger will be consummated in March 1997.
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. Due to cost-containment pressures imposed
by managed care organizations, governmental and other third-party payors, one of
the Company's strategic objectives is to reduce its dependence on acute
psychiatric inpatient care revenues and to expand its less intensive inpatient
behavioral programs, including residential treatment and youth-oriented
correctional service programs, which require longer lengths of stay.
Further, the Company is restructuring its outpatient services in an effort
to enhance the Company's relationship with managed care organizations and
increase the Company's outpatient revenues. In connection with this strategy
and as previously announced, on October 1, 1996, the Company and RMCI entered
into an agreement and plan of merger providing for the acquisition of RMCI by a
wholly owned subsidiary of the Company (see Note 5 in "Item 1. Financial
Statements" above).
In connection with the "safe-harbor" provision of the Private Securities
Litigation Reform Act of 1995, the Company notes that this Quarterly Report on
Form 10-Q contains forward-looking statements about the Company. The Company is
hereby setting forth cautionary statements identifying important factors that
may cause the Company's actual results to differ materially from any forward-
looking statement. Some of the most significant factors include (i)
accelerating changes occurring in the health care industry, including
competition from consolidating and integrated health care provider systems, the
imposition of more stringent admission criteria by payors, increased payor
pressures to limit lengths of stay, limitations on reimbursement rates and
limitations on annual and lifetime patient health benefits, (ii) federal and
state governmental budgetary constraints which could have the effect of limiting
the amount of funds available to support governmental health care programs,
including Medicare and Medicaid, and (iii) statutory, regulatory and
administrative changes or interpretations of existing statutory and regulatory
provisions affecting the conduct of the Company's business and affecting current
and prior reimbursement for the Company's services. While the Company believes
that implementing the above-described strategies will enable the Company to
improve its operations and financial condition, there can be no assurance that
the Company will be successful in doing so.
8
<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.
<TABLE>
<CAPTION>
Percentage of Net Revenues
Quarter Ended Six Months Ended
December 31 December 31
----------- -----------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues............................... 100.0 100.0 100.0 100.0
Expenses:
Salaries, wages and benefits............ 47.5 50.9 49.9 53.2
Other operating expenses................ 32.3 32.0 33.6 32.4
Provision for doubtful accounts......... 3.6 3.4 3.2 3.3
Depreciation and amortization........... 3.7 4.1 3.9 4.3
Interest expense........................ 4.2 5.6 4.6 5.8
----- ----- ----- -----
Total expenses............................. 91.3 96.0 95.2 99.0
----- ----- ----- -----
Income before minority interests and
income taxes............................ 8.7 4.0 4.8 1.0
Minority interests......................... -- (0.2) -- (0.2)
----- ----- ----- -----
Income before income taxes................. 8.7 4.2 4.8 1.2
===== ===== ===== =====
</TABLE>
Quarter Ended December 31, 1996 Compared to
Quarter Ended December 31, 1995
Net revenues in the quarter ended December 31, 1996 were $35.1 million,
compared to $31.8 million in the comparable quarter of the prior fiscal year.
The material changes in net revenues between these periods consisted of a) a
$1.3 million decrease in same facility net inpatient revenues between periods,
b) a $0.2 million decrease in same facility net outpatient revenues between
periods, c) a $1.6 million increase in net patient revenues related to the
Company's subacute operations, d) a $0.4 million increase in net revenues (from
$0.7 million in the December 1995 quarter to $1.1 million in the current year
quarter) related to the Company's contract services division and e) the impact
of a favorable cash judgment awarded the Company by the courts of the State of
Missouri. In this matter, the courts ruled that the Company's facility in
Nevada, Missouri had received insufficient reimbursement from the Missouri
Department of Social Services for the provision of behavioral health care to
Medicaid patients from 1990 to 1996. This judgment, net of related costs,
increased net revenues in the quarter ended December 31, 1996 by $2.9 million.
Same facility net inpatient revenues decreased 6% between periods (from
$22.7 million in the December 1995 quarter to $21.4 million in the current year
quarter) due to a 3% decline in acute psychiatric patient days between periods,
as well as the continued shift of the Company's inpatient business from acute
psychiatric patients to less intensive (and consequently lower paying)
residential treatment patients. For the quarter ended December 31, 1996,
approximately 45% of the Company's behavioral health patient days related to
residential treatment patients, compared to 42% in the prior year comparable
quarter. In addition, net revenues related to subacute operations increased by
$1.6 million between periods (from $3.2 million in the prior year period, or 10%
of
9
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
total net revenues of the Company, to $4.8 million in the current year period,
or 14% of total net revenues of the Company), as subacute patient days increased
from 3,409 in the prior year comparable quarter to 5,212 in the current year
quarter.
Salaries, wages and benefits in the quarter ended December 31, 1996 were
$16.6 million, compared to $16.2 million in the comparable quarter of the prior
fiscal year. Same facility salaries, wages and benefits decreased $0.4 million
(from $14.2 million to $13.8 million) between periods, or 3%, due to the
continued increase in residential treatment services, which are less labor
intensive than acute psychiatric services. The decrease in same facility
salaries, wages and benefits was offset by a $0.5 million increase in subacute
salaries, wages and benefits, due to the increase in subacute patient volume
between periods, and a $0.3 million increase in salaries, wages and benefits
related to the Company's contract services division.
Other operating expenses in the quarter ended December 31, 1996 were $11.3
million, compared to $10.2 million in the comparable quarter of the prior fiscal
year. Same facility other operating expenses remained stable between periods at
$7.8 million, other operating expenses of the subacute units increased by $0.9
million between periods due to the previously discussed increase in subacute
patient volume between periods, and corporate other operating expenses of the
Company increased $0.3 million between periods.
The provision for doubtful accounts in the quarter ended December 31, 1996
totalled $1.3 million, which compares to the $1.1 million provision for doubtful
accounts in the prior year comparable quarter. Also, deprecation and
amortization expense in the quarters ended December 31, 1996 and 1995 totalled
$1.3 million.
Interest expense decreased from $1.8 million in the quarter ended December
31, 1995 to $1.5 million in the current year comparable quarter. Debt levels
were reduced between periods through regularly scheduled principal payments on
the Company's subordinated secured notes and variable rate demand revenue bonds
and a $3.1 million principal payment made on the Company's senior secured notes
on September 30, 1996. Also, in the prior year comparable quarter, the Company
recorded interest expense in respect of borrowings under a working capital
facility which was paid off and cancelled in December 1995.
Six Months Ended December 31, 1996 Compared to
Six Months Ended December 31, 1995
Net revenues in the six months ended December 31, 1996 were $66.6 million,
compared to $60.9 million in the comparable period of the prior fiscal year.
The material changes in net revenues between these periods consisted of a) a
$1.0 million decrease in same facility net inpatient revenues between periods,
b) a $3.6 million increase in net patient revenues related to the Company's
subacute operations, c) a $0.7 million increase in net revenues related to the
Company's contract services division, d) a $0.4 million decrease in net revenues
due to amounts recorded in the prior year period related to a facility
previously closed and e) the impact of a favorable cash judgment awarded the
Company by the courts of the State of Missouri. In this matter, the courts
10
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
ruled that the Company's facility in Nevada, Missouri had received insufficient
reimbursement from the Missouri Department of Social Services for the provision
of behavioral health care to Medicaid patients from 1990 to 1996. This
judgment, net of related costs, increased net revenues in the six months ended
December 31, 1996 by $2.9 million.
Same facility net inpatient revenues decreased 2.2% between periods (from
$45.1 million in the prior year comparable period to $44.1 million in the
current year period due to continued pressure from managed care organizations
and other payors to reduce the reimbursement rates for acute psychiatric
services, as well as the continued shift of the Company's inpatient business
from acute psychiatric patients to less intensive (and consequently lower
paying) residential treatment patients. For the six months ended December 31,
1996, approximately 42% of the Company's behavioral health patient days related
to residential treatment patients, compared to 40% in the prior year comparable
period. In addition, net revenue related to subacute operations increased by
$3.6 million between periods (from $5.3 million in the prior year period, or 9%
of total net revenues of the Company, to $8.9 million in the current year
period, or 13% of total net revenues of the Company), as subacute patient days
increased from 6,040 in the prior year comparable period to 10,151 in the
current year period.
Salaries, wages and benefits in the six months ended December 31, 1996 were
$33.3 million, compared to $32.4 million in the comparable period of the prior
year. Same facility salaries, wages and benefits decreased $0.8 million (from
$28.4 million to $27.6 million) between periods, or 3%, due to the continued
increase in residential treatment services, which are less labor intensive than
acute psychiatric services. The decrease in same facility salaries, wages and
benefits was offset by a $1.2 million increase in subacute salaries, wages and
benefits, due to the increase in subacute patient volume between periods, and a
$0.4 million increase in salaries, wages and benefits related to the Company's
contract services division.
Other operating expenses in the six months ended December 31, 1996 were
$22.4 million, compared to $19.7 million in the comparable period of the prior
fiscal year. Same facility other operating expenses remained stable between
periods at $15.8 million, whereas other operating expenses of the subacute units
increased by $2.1 million between periods, due to the previously discussed
increase in subacute patient volume between periods, and corporate other
operating expenses of the Company increased $0.5 million between periods.
The provision for doubtful accounts in the six months ended December 31,
1996 totalled $2.1 million, which compares to the $2.0 million provision for
doubtful accounts in the prior year comparable period. Also, depreciation and
amortization expense in the six months ended December 31, 1996 and 1995 totalled
$2.6 million.
Interest expense decreased from $3.5 million in the six months ended
December 31, 1995 to $3.0 million in the current year comparable period. Debt
levels were reduced between periods through regularly scheduled principal
payments on the Company's subordinated secured notes and variable rate demand
revenue bonds and a $3.1 million principal payment made on the Company's senior
secured notes on September 30, 1996. Also, in the prior year comparable period,
the
11
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
Company recorded interest expense in respect of borrowings under a working
capital facility which was paid off and cancelled in December 1995.
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 December 31, 1996, amounts due from Medicare, Medicaid and Blue
Cross totalled $2.2 million, $0.5 million and $0.2 million, respectively. Also
at December 31, 1996, amounts due to Medicare, Medicaid and Blue Cross totalled
$7.9 million, $0.9 million and $0.8 million, respectively. Changes in these
amounts since June 30, 1996 are the result of fiscal intermediary lump sum
adjustments, prior year cost report settlements and current year estimated
settlements recorded during the six months ended December 31, 1996.
At December 31, 1996, net cash advances made by the Company to or on behalf
of RMCI totalled approximately $8.8 million. Of this amount, $6 million
primarily related to the funding of certain RMCI acquisitions and is represented
by an unsecured, interest-bearing (8%) subordinated promissory note due from
RMCI. The remaining amount included $0.6 million of accrued interest on the
subordinated promissory note since October 1, 1995 and $2.2 million of
additional amounts paid by the Company on behalf of RMCI and charges by the
Company to RMCI for certain administrative services. Of the $6 million due on
the subordinated promissory note, approximately $2.1 million is due on or before
December 31, 1997 and the remainder is payable in 11 quarterly installments of
approximately $353,000, beginning March 31, 1998. The Company has agreed that
the payment of interest on the subordinated promissory note for the period from
October 1, 1995 through December 31, 1997, as well as the $2.2 million of
additional amounts owed, will not be required until after January 1, 1998, all
on terms and conditions to be mutually agreed to by the Company and RMCI.
Following the expected merger of the Company and RMCI in March 1997, amounts
owing by RMCI to the Company will remain outstanding as intercompany
indebtedness.
The Company has net deferred tax assets totalling approximately $10.6
million, which includes a valuation allowance of $4.4 million, at December 31,
1996 and June 30, 1996. Management has considered the effects of implementing
tax planning strategies, consisting of the sales of certain appreciated
property, as the primary basis for recognizing deferred tax assets. 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 the
adequacy of its valuation allowance.
In December 1996, the Company resumed operations at its facility in Fort
Walton Beach, Florida, which had been leased to another behavioral healthcare
provider for the previous four years. In connection with the resumption of
operations at this facility, the Company incurred
12
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
preopening costs of approximately $330,000. These costs will be amortized over
the twelve-month period ending November 30, 1997.
At December 31, 1996, the current portion of long-term debt was $12.0
million, compared to $10.9 million at June 30, 1996. This increase was related
to the Company's commitment during 1996 to reduce the credit exposure of its
bank group by an additional $2.0 million on or before July 1, 1997.
During the six months ended December 31, 1996, amounts owed to minority
interests decreased by $0.9 million. This decrease was the result of a final
distribution of $0.9 million made in July 1996 to the limited partners in
connection with the dissolution of the Three Rivers Hospital Limited
Partnership, resulting in no gain or loss to the Company. Subsequent to this
distribution, the Three Rivers Hospital Limited Partnership was dissolved.
In August 1996, a corporate affiliate of Mr. Paul Ramsay, the Company's
Chairman and beneficial owner of approximately 36.1% of the Company's capital
stock, acquired through a private placement 275,546 shares of common stock at a
price of $2.75 per share. These shares were issued as consideration for fiscal
1997 management fees due under a management agreement between the Company and
another corporate affiliate of Mr. Ramsay. This management agreement was then
terminated in September 1996 in return for 250,000 exercisable warrants issued
to one of Mr. Ramsay's corporate affiliates.
Liquidity and Capital Resources
As of December 31, 1996, the 1990 Credit Facility includes $31.1 million in
senior secured notes and $1.6 million in subordinated secured notes, and the
1993 Credit Facility consists of approximately $19 million in letters of credit.
The senior secured notes bear interest at 11.6% and require semi-annual
principal payments of approximately $3.5 million from March 31, 1997 through
September 30, 1998 and semi-annual principal payments of $5.65 million from
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. As of December 31, 1996, required annual principal
payments on the variable rate demand revenue bonds total $0.8 million through
year 2000 and $0.9 million to $1.2 million in years 2001 through 2015. In
December 1995, the Company fully paid down and terminated its working capital
facility with its bank group originally available under the 1993 Credit
Facility.
In August 1996, the Company and banks supporting the 1993 Credit Facility
agreed to terms which extended its expiration date from February 1997 to August
1997. In connection with this extension, the Company agreed to reduce the bank
group's exposure under the 1993 Credit Facility to $17,145,835 on or about
December 31, 1996 and to $15,000,000 by July 1, 1997. On January 2, 1997, the
former requirement was satisfied when the Company fully redeemed, with a
$2,900,000 principal payment, one of the outstanding demand revenue bonds
supported by the 1993 Credit Facility. This redemption was satisfied principally
from funds received by the Company as a result of a favorable cash judgment
awarded the Company by the courts of the State of Missouri (see "Results of
Operations" above).
13
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
Under the 1993 and 1990 Credit Facilities, the Company is required to meet
certain covenants, including (1) the maintenance of a minimum level of
consolidated tangible net worth; (2) the maintenance of a minimum working
capital ratio; and (3) the maintenance of certain fixed charge and debt service
coverage ratios. From time to time, the lenders under the 1993 and 1990 Credit
Facilities have agreed to waive or otherwise adjust certain of these ratios and
levels. In connection with these waivers and adjustments, the Company pays
additional fees and expenses. Further, as part of the waivers and adjustments
obtained as of June 30, 1996, the Company agreed to provide its Hillcrest
Hospital facility and related assets as additional collateral to the lenders and
agreed not to pay cash dividends in respect of its Common Stock or Class B
Preferred Stock, Series C.
During the six months ended December 31, 1996, net cash provided by the
operating activities of the Company increased from approximately $0.1 million in
the prior year comparable period to approximately $8.5 million. This increase
is primarily the result of a) an improvement in net income between periods
(after giving effect to deferred tax benefits) of approximately $2.2 million,
b) cost report settlements with third-party contractual agencies and changes in
estimated settlements, which increased by $4.6 million in the current year
period and c) a $0.7 million reduction in the increase in patient accounts
receivable between periods.
As of December 31, 1996, the Company has no commitments for material
capital expenditures. The Company expects to satisfy the remainder of its fiscal
1997 liquidity requirements, including the debt payments due on March 31, 1997
under the 1990 Credit Facility, from internally generated funds from operations
and proceeds from the sale of its Three Rivers Hospital facility. This facility
is expected to be sold to an independent party in February or March 1997 for
approximately $2.2 million, net of transaction costs. The Company expects to
satisfy its liquidity requirements after fiscal 1997 through internally
generated funds and proceeds from a refinancing of its outstanding debt. In the
event that the Company is unable to generate sufficient funds from operations,
to sell its Three Rivers Hospital facility or to refinance its 1990 Credit
Facility and 1993 Credit Facility, the Company may be required to seek waivers
from its existing lenders, including with respect to the timing of scheduled
principal payments during 1997. There can be no assurance that any such waivers
will be granted or as to the terms and conditions of such waivers, if granted.
14
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
At this time, the Company has not entered into a definitive agreement to
sell its Three Rivers Hospital facility and, although it intends to refinance
its outstanding debt, at present, it does not have any commitment to refinance
its outstanding debt. Further, the Company believes that the resolution of the
disproportionate share matter with the State of Louisiana (see "Part II -- Other
Information, Item 5. Other Information" below) will not have a material adverse
effect on its liquidity.
In February 1997, the Company announced an intention to effect a private
placement of $75 million of senior debt securities of the Company (the "Proposed
Offering"). The proceeds from the Proposed Offering will be used to refinance
the 1990 Credit Facility and the 1993 Credit Facility and for other general
corporate purposes. Any private placement of the debt securities will be made
only by means of an offering memorandum, and will not be registered under the
Securities Act of 1933 and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on November 21,
1996. At the meeting, the Board of Directors' selection of Ernst & Young LLP as
the Company's independent auditors for the fiscal year ending June 30, 1997 was
ratified during the meeting by a vote of 9,159,593 in favor, 1,533 against and
2,382 abstaining. The affirmative vote of a majority of the shares of Company
stock represented and voted at the meeting was required for ratification.
During the Annual Meeting of Stockholders of the Company held on November
21, 1996, nominees for directors of the Company were elected by a vote which
approximated, for each director, 8,770,000 in favor and 400,000 abstaining. The
seven directors of the Company elected during the meeting were as follows: Aaron
Beam, Jr., Peter J. Evans, Thomas M. Haythe, Luis E. Lamela, Paul J. Ramsay,
Steven J. Shulman and Michael S. Siddle.
Item 5. Other Information
During fiscal 1996, the State of Louisiana requested repayment of
disproportionate share payments received by two of the Company's Louisiana
facilities in fiscal years 1995 and 1994 totalling approximately $5,000,000.
The repayment requests related to (i) alleged overpayments made to Three Rivers
Hospital because the State believed Three Rivers' actual annual inpatient volume
was less than its projection of annual inpatient volume made at the beginning of
its 1994 cost reporting year and (ii) alleged improper teaching hospital
payments made to Three Rivers Hospital and Bayou Oaks Hospital because the State
believed these facilities were not qualifying teaching hospitals at the time
these payments were made. The Company believes that certain of the calculations
which support the State's calculation of annual inpatient volume in 1994 are in
error and that other relevant factors affecting the State's calculation have not
been considered. Further, the Company believes that, based on its understanding
of the rules and regulations in place at the time the teaching hospital payments
were made, payments received as a result of the teaching classification were
appropriate.
On the basis of discussions to date between the Company and the State, the
Company believes that this matter may be settled for an amount significantly
less than the State's initial requests. Any settlement of this matter will be
contingent upon the execution of settlement documentation, the terms of which
have not been agreed upon. Further, there can be no assurance the Company and
the State will agree on a settlement amount or the terms and conditions of
settlement documentation. The Company intends to contest, vigorously, any
position by the State
15
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
of Louisiana which it considers adverse and believes that adequate provision has
been made at December 31, 1996 and June 30, 1996 for the estimated amount which
might be recovered from the Company as a result of this matter.
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
During the quarter ended December 31, 1996, the Company filed the
following Current Report on Form 8-K with the Commission:
* Form 8-K dated October 2, 1996 relating to the proposed merger
between the Company and Ramsay Managed Care, Inc.
In addition, subsequent to December 31, 1996, the Company filed
the following Current Report on Form 8-K with the Commission:
* Form 8-K dated February 10, 1997 relating to the contemplated
$75 million debt offering, through a private placement
pursuant to Rule 144A, to refinance existing indebtedness and
for other general corporate purposes.
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: February 19, 1997
17
<PAGE>
Exhibit 11
RAMSAY HEALTH CARE, INC.
AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31 December 31
1996 1995 1996 1995
------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY
Weighted Average Common
Shares Outstanding............ 8,389,427 7,952,692 8,281,578 7,836,866
Class B Convertible Preferred
Stock, Series C............... 1,424,860 1,424,860 1,424,860 1,424,860
---------- ---------- ---------- ----------
TOTAL COMMON AND DILUTIVE
COMMON EQUIVALENT SHARES...... 9,814,287 9,377,552 9,706,438 9,261,726
========== ========== ========== ==========
Net Income Available to
Common Shareholders........... $1,843,000 $ 835,000 $1,991,000 $ 444,000
---------- ---------- ---------- ----------
NET INCOME PER SHARE............ $ 0.19 $ 0.09 $ 0.21 $ 0.05
========== ========== ========== ==========
FULLY DILUTED
Weighted Average Common
Shares Outstanding............ 8,389,427 8,012,701 8,281,578 8,012,701
Class B Convertible Preferred
Stock, Series C............... 1,424,860 1,424,860 1,424,860 1,424,860
---------- ---------- ---------- ----------
TOTAL COMMON AND DILUTIVE
COMMON EQUIVALENT SHARES...... 9,814,287 9,437,561 9,706,438 9,437,561
========== ========== ========== ==========
Net Income Available to Common
Shareholders.................. $1,843,000 $ 835,000 $1,991,000 $ 444,000
---------- ---------- ---------- ----------
NET INCOME PER SHARE............ $ 0.19 $ 0.09 $ 0.21 $ 0.05
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,060,000
<SECURITIES> 0
<RECEIVABLES> 28,564,000
<ALLOWANCES> 3,725,000
<INVENTORY> 0
<CURRENT-ASSETS> 46,165,000
<PP&E> 96,241,000
<DEPRECIATION> 30,370,000
<TOTAL-ASSETS> 131,862,000
<CURRENT-LIABILITIES> 36,932,000
<BONDS> 39,531,000
0
324,000
<COMMON> 90,000
<OTHER-SE> 48,462,000
<TOTAL-LIABILITY-AND-EQUITY> 131,862,000
<SALES> 0
<TOTAL-REVENUES> 35,072,000
<CGS> 0
<TOTAL-COSTS> 27,979,000
<OTHER-EXPENSES> 1,280,000
<LOSS-PROVISION> 1,260,000
<INTEREST-EXPENSE> 1,489,000
<INCOME-PRETAX> 3,064,000
<INCOME-TAX> 1,221,000
<INCOME-CONTINUING> 1,843,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,843,000
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
