<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 MARCH 31, 1997
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 May
19, 1997 follows:
Common Stock, par value $0.01 per share - 8,433,264 shares
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets -- March 31, 1997
and June 30, 1996 (unaudited)................. 1
Consolidated statements of operations -- three
and nine months ended March 31, 1997 and
1996 (unaudited).............................. 3
Consolidated statements of cash flows -- nine
months ended March 31, 1997 and 1996
(unaudited)................................... 4
Notes to consolidated financial statements --
March 31, 1997 (unaudited).................... 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations................................... 10
PART II. OTHER INFORMATION
Item 5. Other Information........................... 17
Item 6. Exhibits and Current Reports on Form 8-K.... 17
SIGNATURES...................................... 18
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31 June 30
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................. $ 872,000 $ 7,605,000
Patient accounts receivable, less allowances for doubtful accounts
of $3,521,000 and $4,573,000 at March 31, 1997 and June 30, 1996,
respectively............................................................. 25,925,000 23,410,000
Amounts due from third-party contractual agencies.......................... 3,864,000 6,479,000
Receivable from affiliated company......................................... 1,412,000 1,412,000
Other receivables.......................................................... 4,303,000 2,985,000
Deferred income taxes...................................................... 1,398,000 1,398,000
Other current assets....................................................... 1,860,000 2,372,000
------------ ------------
TOTAL CURRENT ASSETS..................................................... 39,634,000 45,661,000
OTHER ASSETS
Cash held in trust......................................................... 260,000 745,000
Cost in excess of net asset value of purchased businesses.................. 575,000 591,000
Unamortized preopening and loan costs...................................... 1,218,000 1,040,000
Receivable from affiliated company......................................... 6,387,000 6,795,000
Deferred income taxes...................................................... 8,869,000 10,141,000
Other noncurrent assets.................................................... 1,824,000 1,392,000
------------ ------------
TOTAL OTHER ASSETS....................................................... 19,133,000 20,704,000
PROPERTY AND EQUIPMENT
Land....................................................................... 5,025,000 5,025,000
Building and improvements.................................................. 70,722,000 69,200,000
Equipment, furniture and fixtures.......................................... 21,312,000 20,325,000
------------ ------------
97,059,000 94,550,000
Less accumulated depreciation.............................................. 31,498,000 28,157,000
------------ ------------
65,561,000 66,393,000
------------ ------------
$124,328,000 $132,758,000
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31 June 30
1997 1996
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................................................ $ 3,781,000 $ 4,990,000
Accrued salaries and wages...................................................... 5,144,000 5,169,000
Other accrued liabilities....................................................... 6,129,000 4,412,000
Amounts due to third-party contractual agencies................................. 7,437,000 8,435,000
Current portion of long-term debt............................................... 11,628,000 10,940,000
------------ ------------
TOTAL CURRENT LIABILITIES............................................................ 34,119,000 33,946,000
NONCURRENT LIABILITIES
Other accrued liabilities....................................................... 7,493,000 7,170,000
Long-term debt, less current portion............................................ 33,104,000 44,664,000
Minority interests...... ....................................................... 25,000 925,000
------------ ------------
TOTAL NONCURRENT LIABILITIES......................................................... 40,622,000 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 $272,000 at March 31, 1997 and $91,000 at June 30,
1996........................................................................... 414,000 233,000
Common Stock, $.01 par value-authorized 20,000,000 shares; issued
9,014,814 shares at March 31, 1997 and 8,605,108 shares at June 30, 1996....... 90,000 86,000
Additional paid-in capital...................................................... 100,585,000 99,899,000
Retained earnings (deficit)..................................................... (47,603,000) (50,266,000)
Treasury Stock, at cost-581,550 shares at March 31, 1997 and June 30, 1996...... (3,899,000) (3,899,000)
------------ ------------
49,587,000 46,053,000
------------ ------------
$124,328,000 $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 Nine Months Ended
March 31 March 31
------------------------- -------------------------
1997 1996 1997 1996
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
NET REVENUES $31,801,000 $31,888,000 $98,408,000 $92,832,000
EXPENSES:
Salaries, wages and benefits................. 16,473,000 16,374,000 49,736,000 48,807,000
Other operating expenses..................... 10,257,000 10,156,000 32,613,000 29,902,000
Provision for doubtful accounts.............. 1,183,000 1,218,000 3,332,000 3,244,000
Depreciation and amortization................ 1,376,000 1,422,000 3,969,000 4,048,000
Interest and other financing charges......... 1,429,000 1,754,000 4,463,000 5,263,000
----------- ----------- ----------- -----------
TOTAL EXPENSES................................ 30,718,000 30,924,000 94,113,000 91,264,000
----------- ----------- ----------- -----------
INCOME BEFORE MINORITY INTERESTS
AND INCOME TAXES.............................. 1,083,000 964,000 4,295,000 1,568,000
Minority interests............................. -- (76,000) -- (177,000)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES..................... 1,083,000 1,040,000 4,295,000 1,745,000
Provision for income taxes..................... 411,000 402,000 1,632,000 663,000
----------- ----------- ----------- -----------
NET INCOME..................................... $ 672,000 $ 638,000 $ 2,663,000 $ 1,082,000
=========== =========== =========== ===========
Income per common and dilutive common
equivalent share:
Primary...................................... $0.06 $0.07 $0.25 $0.12
Fully diluted................................ $0.06 $0.07 $0.25 $0.11
Weighted average number of shares
outstanding:
Primary...................................... 11,847,000 9,446,000 11,750,000 9,323,000
Fully diluted................................ 11,847,000 9,448,000 11,750,000 9,448,000
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended March 31
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income.................................................................. $ 2,663,000 $ 1,082,000
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization............................................... 4,202,000 4,686,000
Provision for deferred income taxes......................................... 1,272,000 650,000
Provision for doubtful accounts............................................. 3,332,000 3,244,000
Management and director fees paid in common stock........................... 692,000 --
Minority interests.......................................................... -- (176,000)
Cash flows from (increase) decrease in operating assets:
Accounts receivable........................................................ (5,847,000) (7,659,000)
Amounts due from third-party contractual agencies.......................... 2,615,000 (1,234,000)
Receivable from affiliated company......................................... 408,000 (494,000)
Other current and noncurrent assets........................................ (1,215,000) 132,000
Cash flows from increase (decrease) in operating liabilities:
Accounts payable........................................................... (1,209,000) (980,000)
Accrued salaries, wages and other liabilities.............................. 731,000 (1,080,000)
Amounts due to third-party contractual agencies............................ (998,000) 1,333,000
------------ -----------
Total adjustments.......................................................... 3,983,000 (1,578,000)
------------ -----------
Net cash provided by (used in) operating activities........................ 6,646,000 (496,000)
------------ -----------
Cash Flows from Investing Activities:
Expenditures for property and equipment, net................................ (2,622,000) (1,024,000)
Preopening costs............................................................ (401,000) (22,000)
Cash held in trust.......................................................... 485,000 507,000
------------ -----------
Net cash used in investing activities...................................... (2,538,000) (539,000)
------------ -----------
Cash Flows from Financing Activities:
Loan costs.................................................................. (302,000) (217,000)
Proceeds from forward interest rate agreement............................... 1,284,000 --
Proceeds from exercise of options and stock purchases....................... 40,000 557,000
Distributions to minority interests......................................... (900,000) (720,000)
Payments on debt............................................................ (10,872,000) (3,193,000)
Payments of preferred stock dividends....................................... (91,000) (362,000)
------------ -----------
Net cash used in financing activities...................................... (10,841,000) (3,935,000)
------------ -----------
Net decrease in cash and cash equivalents................................... (6,733,000) (4,970,000)
Cash and cash equivalents at beginning of period............................ 7,605,000 9,044,000
------------ -----------
Cash and cash equivalents at end of period.................................. $ 872,000 $ 4,074,000
============ ===========
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest.................................................................... $ 2,702,000 $ 3,969,000
Income taxes................................................................ 79,000 102,000
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997
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
quarter and nine months ended March 31, 1997 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
The Company is attempting to refinance its credit facilities to provide funds
for growth and working capital, as well as to reschedule the level of principal
repayment currently required by its credit facilities. The Company announced in
February 1997 that it was contemplating a $75 million debt offering through a
private placement pursuant to Rule 144A. Based on a change in market
conditions, the Company has postponed this offering at this time and is pursuing
other refinancing alternatives.
At March 31, 1997, the Company's credit facilities included $27,543,750 in
senior secured notes and $1,384,617 in subordinated secured notes (the 1990
Credit Facility), and approximately $16,443,000 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 September 30, 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 September 30, 1997 through March 31, 2000. The
variable rate demand revenue bonds were issued in 1984 and 1985, have terms of
30 years and, at March 31, 1997, require regularly scheduled annual principal
payments of $700,000 (through year 2000) and $800,000 to $1,100,000 (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 $15,700,000 at March 31, 1997), plus
approximately one quarter's interest. Such letters of credit are provided under
the 1993 Credit Facility.
In May 1997, the Company and banks supporting the 1993 Credit Facility agreed
to terms which revised certain of its terms and extended its expiration date
from August 15, 1997 to September 3, 1997. Additionally, provided certain
conditions are met on or before June 2, 1997, the expiration date
5
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
of the 1993 Credit Facility will be further extended to September 30, 1998.
These conditions include, among other things, (i) consent by the holders of the
senior secured and subordinated secured notes (the terms and conditions of such
consent have not yet been determined), (ii) joint and several guaranties by Paul
J. Ramsay, the Company's Chairman of the Board, and a corporate affiliate of Mr.
Ramsay of up to $5.5 million of the banks' credit exposure, and (iii) an opinion
by the Company's legal counsel. Although there can be no assurances, the
Company anticipates that these conditions will be met.
The 1993 Credit Facility provides that, prior to the expiration of the letters
of credit on September 3, 1997, the revenue bonds could be redeemed by the
Company through drawings under each letter of credit. The Company has the
ability under the 1993 Credit Facility (if the letters of credit are not further
extended beyond September 3, 1997) to convert these drawings into loans, the
terms of which would require repayment 366 days from the date of the conversions
and which would bear interest, at the Company's option, at either a rate per
annum equal to (i) the prime rate of its principal lender plus an incremental
interest rate of 1% per annum or (ii) the LIBOR adjusted rate plus an
incremental interest rate of 2 3/4% per annum. These loans would be
collateralized by certain of the Company's facilities which are currently
collateralizing the letters of credit. Because the terms of this alternative
source of financing do not require repayment within one year, the Company
classifies the noncurrent portion of the amounts due under the revenue bonds as
long-term debt in the accompanying financial statements.
In connection with the extension of the 1993 Credit Facility to September 3,
1997, the Company agreed to, among other things, (i) grant its creditors a first
priority security interest and lien in all of its unencumbered assets, (ii) the
payment of a $50,000 extension fee, (iii) quarterly increases of 0.25% in letter
of credit fees, effective November 15, 1997, (iv) effect the redemption of one
of the outstanding variable rate demand revenue bonds totalling $3.4 million and
repay this amount to the banks on or before September 30, 1997 and (v) reduce
the banks' overall credit exposure to approximately $6.7 million by September
30, 1998. In addition, any drawings under the remaining letters of credit to
satisfy unscheduled principal payments would be converted by the banks to term
loans which would be due and payable no earlier than September 30, 1998 and
which would bear interest as indicated above.
Under the 1993 and 1990 Credit Facilities, the Company is required to meet
certain covenants, including: (i) the maintenance of a minimum level of
consolidated tangible net worth; (ii) the maintenance of a working capital
ratio; and (iii) the maintenance of certain fixed charge coverage and debt
service 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. Effective June 30, 1996, pursuant to waiver
agreements, the Company obtained modifications from its lenders under the 1993
and 1990 Credit Facilities to certain of its debt covenants through June 30,
1997. In connection with these waiver agreements, the Company provided
additional collateral to the lenders and agreed not to pay future cash dividends
in respect of its Series C Preferred Stock. In addition, in connection with the
proposed extension of the 1993
6
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
Credit Facility to September 30, 1998, the Company's lenders are considering an
extension of these waiver agreements to September 30, 1998.
A summary of the Company's debt obligations is as follows:
<TABLE>
<CAPTION>
March 31 June 30
1997 1996
----------- -----------
<S> <C> <C>
11.6% senior secured notes.......... $27,544,000 $34,169,000
Variable rate demand revenue bonds.. 15,700,000 19,400,000
15.6% subordinated secured notes 1,385,000 1,846,000
Other notes payable................. 103,000 189,000
----------- -----------
44,732,000 55,604,000
Less amounts due within one year.... 11,628,000 10,940,000
----------- -----------
$33,104,000 $44,664,000
=========== ===========
</TABLE>
The Company has pledged substantially all of its real property and patient
accounts receivable 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 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 March 31,
1997, net operating loss carryovers of approximately $18 million (of which $12
million expires from 2000 to 2003, $3.8 million expires in 2010 and $2.2 million
expires in 2011) and alternative minimum tax credit carryovers of approximately
$1.5 million are available to reduce future federal income taxes, subject to
certain annual limitations.
7
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
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 March 31, 1997, 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 $7,798,000. 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 $720,000 of accrued interest
on the promissory note since October 1, 1995 and $1,078,000 of additional
amounts paid by the Company on behalf of RMCI or charges by the Company to RMCI
for certain administrative services (the "Additional Amount"). Of the
$6,000,000 due on the subordinated promissory note, approximately $1,412,000 is
due on or before March 31, 1998 and the remainder is payable in 13 quarterly
installments of approximately $353,000, beginning June 30, 1998. The Company
has agreed that the payment of interest on the subordinated promissory note for
the period October 1, 1995 through March 31, 1998 will not be required until
after April 1, 1998, all on terms and conditions to be mutually agreed to by the
Company and RMCI. On April 4, 1997, RMCI paid the Company $750,000 which was
applied against the Additional Amount.
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. In addition, as of the effective date of the
merger, the Company will issue approximately 2,136,000 shares of its common
stock and 1,000,000 shares of preferred stock to existing RMCI shareholders.
The registration statement filed by the Company in connection with the merger
was declared effective by the Securities and Exchange Commission on March 25,
1997 and the stockholders of both companies approved the merger on April 18,
1997. In May 1997, the banks supporting the 1993 Credit Facility agreed to
consent to the merger provided (i) the conditions discussed in Note 2 above are
met and (ii) subsequent to the merger, RMCI is maintained as a separate
subsidiary and the Company does not make any loans, payments, advances or equity
contributions or investments in RMCI. In addition, the terms and conditions of
the required consent to the merger by the holders of the Company's senior
secured and subordinated secured notes have not yet been determined. Although
there can be no
8
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
assurances, the Company expects that the conditions established by the banks
will be met, that it will reach agreement on the terms and conditions required
by such other holders of debt and that thereafter the merger will become
effective.
9
<PAGE>
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. 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.
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, (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, and (iv) an inability to satisfy (in
the case of its bank lenders) or to reach agreement on (in the case of its other
lenders) the terms and conditions to a further extension of its 1993 Credit
Facility to September 1998 (see Note 2 in "Item 1. Financial Statements" above)
and to the merger of RMCI with a wholly owned subsidiary of the Company (see
Note 5 in "Item 1. Financial Statements" above). In addition, 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.
10
<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 NINE MONTHS ENDED
MARCH 31 MARCH 31
1997 1996 1997 1996
--------- ----- -------- -------
<S> <C> <C> <C> <C>
Net revenues.......................... 100.0% 100.0% 100.0% 100.0%
Expenses:
Salaries, wages and benefits......... 51.8 51.3 50.5 52.6
Other operating expenses............. 32.3 31.9 33.2 32.2
Provision for doubtful accounts...... 3.7 3.8 3.4 3.5
Depreciation and amortization........ 4.3 4.5 4.0 4.4
Interest expense..................... 4.5 5.5 4.5 5.6
------ ------ ------ ------
Total expenses........................ 96.6 97.0 95.6 98.3
------ ------ ------ ------
Income before minority interests and
income taxes......................... 3.4 3.0 4.4 1.7
Minority interests.................... - 0.3 - 0.2
------ ------ ------ ------
Income before income taxes............ 3.4 3.3 4.4 1.9
====== ====== ====== ======
</TABLE>
QUARTER ENDED MARCH 31, 1997 COMPARED TO
QUARTER ENDED MARCH 31, 1996
Net revenues in the quarter ended March 31, 1997 were $31.8 million,
compared to $31.9 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, (b) a $0.2
million decrease in same facility net outpatient revenues, (c) a decrease in net
patient revenues of $0.9 million related to closed facilities, (d) a $1.8
million increase in net patient revenues related to the Company's subacute
operations and (e) a $0.6 million increase in net revenues related to the
Company's contract management division.
Same facility net inpatient revenues decreased 6% between periods
(from $22.4 million in the March 1996 quarter to $21.1 million in the current
year quarter) due to a 12% 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 March 31, 1997,
approximately 46% of the Company's behavioral health patient days related to
residential treatment patients, compared to 40% in the prior year comparable
quarter. In addition, net revenues related to subacute operations increased by
$1.8 million between periods (from $3.4 million in the prior year quarter, or
11% of total net revenues of the Company, to $5.2 million in the current year
quarter, or 16% of total net revenues of the Company), as subacute patient days
increased from 4,729 in the prior year comparable quarter to 5,722 in the
current year quarter.
11
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
Salaries, wages and benefits in the quarter ended March 31, 1997 were
$16.5 million, compared to $16.4 million in the comparable quarter of the prior
fiscal year. Same facility salaries, wages and benefits decreased $1.0 million
(from $14.1 million to $13.1 million) between periods, or 7%, as a result of the
decrease in acute psychiatric patient volume between periods. Other changes to
salaries, wages and benefits between periods included increases of $0.7 million
and $0.3 million related to subacute and contract management operations,
respectively.
Other operating expenses in the quarter ended March 31, 1997 were
$10.3 million, compared to $10.2 million in the comparable quarter of the prior
fiscal year. Same facility other operating expenses remained stable between
periods whereas other operating expenses related to subacute operations
increased $0.9 million between periods. This increase was offset by decreases
in contract management and corporate other operating expenses of $0.1 million
and $0.7 million, respectively.
The provision for doubtful accounts in the quarters ended March 31,
1997 and 1996 totalled $1.2 million. Also, depreciation and amortization in the
quarters ended March 31, 1997 and 1996 totalled $1.4 million.
Interest expense decreased from $1.8 million in the quarter ended
March 31, 1996 to $1.4 million in the current year comparable quarter. Debt
levels were reduced between periods through regularly scheduled principal
payments on the Company's senior and subordinated secured notes, as well as
principal payments made on the variable rate demand revenue bonds, including the
early redemption of one of these bonds on January 2, 1997, totalling $2.9
million.
NINE MONTHS ENDED MARCH 31, 1997
COMPARED TO NINE MONTHS ENDED MARCH 31, 1996
Net revenues in the nine months ended March 31, 1997 were $98.4
million, compared to $92.8 million in the comparable period of the prior fiscal
year. The material changes in net revenues between these periods consisted of
a) a $2.1 million decrease in same facility net inpatient revenues, b) a $0.4
million decrease in same facility net outpatient revenues, c) a decrease in net
patient revenues of $1.3 million related to closed facilities, d) a $5.2 million
increase in net patient revenues related to the Company's subacute operations,
e) a $1.4 million increase in net revenues related to the Company's contract
management division and f) 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 nine months ended
March 31, 1997 by $2.9 million.
Same facility net inpatient revenues decreased 3% between periods
(from $67.3 million in the prior year comparable period to $65.2 million in the
current year period) due to a 5% decline in acute psychiatric patient days
between periods, the continued pressure from managed care organizations and
12
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
other payors to reduce the reimbursement rates for acute psychiatric services,
and 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 nine months ended March 31, 1997,
approximately 44% 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 revenues related to subacute operations increased by
$5.2 million between periods (from $8.7 million in the prior year period, or 9%
of total net revenues of the Company, to $13.9 million in the current year
period, or 14% of total net revenues of the Company), as subacute patient days
increased from 10,769 in the prior year comparable period to 15,873 in the
current year period.
Salaries, wages and benefits in the nine months ended March 31, 1997
were $49.7 million, compared to $48.8 million in the comparable period of the
prior fiscal year. Same facility salaries, wages and benefits decreased $1.9
million (from $42.7 million to $40.8 million) between periods, or 4%, as a
result of the decrease in acute psychiatric patient volume between periods.
Other changes to salaries, wages and benefits between periods included a) an
increase of $1.7 million related to subacute operations, b) an increase of $0.8
million related to the Company's contract management division and c) an increase
in corporate office salaries of $0.3 million between periods.
Other operating expenses in the nine months ended March 31, 1997 were
$32.6 million, compared to $29.9 million in the comparable nine month period of
the prior fiscal year. Same facility other operating expenses decreased $0.3
million, or 1%, between periods and other operating expenses related to subacute
operations increased $3.2 million between periods based on the increase in
census in the subacute units between periods.
The provision for doubtful accounts in the nine months ended March 31,
1997 totalled $3.3 million, which compares to $3.2 million in the prior year
comparable period. Also, depreciation and amortization in the nine months ended
March 31, 1997 and 1996 totalled $4.0 million.
Interest expense decreased from $5.3 million in the nine months ended
March 31, 1996 to $4.5 million in the current year comparable period. Debt
levels were reduced between periods through regularly scheduled principal
payments on the senior secured and subordinated secured notes, regularly
scheduled principal payments on the variable rate demand revenue bonds and the
early redemption of one variable rate demand revenue bond on January 2, 1997,
totalling $2.9 million.
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, 1997, amounts due from Medicare, Medicaid and Blue
Cross totalled $3.3 million, $0.4 million and $0.2 million,
13
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
respectively. Also at March 31, 1997, amounts due to Medicare, Medicaid and
Blue Cross totalled $6.5 million, $0.6 million and $0.3 million, respectively.
Changes in these amounts since June 30, 1996 are the results of fiscal
intermediary lump sum adjustments, prior year cost report settlements and
current year estimated settlements recorded during the nine months ended March
31, 1997.
At March 31, 1997, net cash advances made by the Company to or on
behalf of RMCI totalled approximately $7.8 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 approximately $0.7 million of accrued
interest on the subordinated promissory note since October 1, 1995 and
approximately $1.1 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 $1.4
million is due on or before March 31, 1998 and the remainder is payable in 13
quarterly installments of approximately $353,000, beginning June 30, 1998. The
Company has agreed that the payment of interest on the subordinated promissory
note for the period from October 1, 1995 through March 31, 1998, as well as the
$1.1 million of additional amounts owed, will not be required until after April
1, 1998, all on terms and conditions to be mutually agreed to by the Company and
RMCI. On April 4, 1997, RMCI paid the Company $750,000 which was applied
against the additional amounts owed. Following the merger of the Company and
RMCI, amounts owing by RMCI to the Company will remain outstanding as
intercompany indebtedness.
The Company has net deferred tax assets totalling approximately $10.3
million, which includes a valuation allowance of $4.4 million, at March 31,
1997. 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 preopening costs
of approximately $385,000. These costs are being amortized over the twelve-
month period ending November 30, 1997.
During the nine months ended March 31, 1997, the Company reduced its
outstanding indebtedness by approximately $10.9 million from (i) cash available
at the beginning of the fiscal year, (ii) internally generated cash from
operations during the nine months ended March 31, 1997, (iii) proceeds received
from a favorable cash judgement awarded the Company by the courts of the State
of Missouri (see "Results of Operations" above) and (iv) cash received from the
termination of a forward interest rate
14
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
agreement entered into in connection with the postponed debt offering (see Note
2 in "Item 1. Financial Statements" above).
During the nine months ended March 31, 1997, 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% 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 March 31, 1997, the 1990 Credit Facility includes $27.5 million
in senior secured notes and $1.4 million in subordinated secured notes, and the
1993 Credit Facility consists of approximately $16 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 September 30, 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 March 31, 1997, regularly scheduled annual
principal payments on the variable rate demand revenue bonds total $0.7 million
through year 2000 and $0.8 million to $1.1 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 May 1997, the Company and banks supporting the 1993 Credit Facility
agreed to terms which revised certain of its terms and extended its expiration
date from August 15, 1997 to September 3, 1997. Additionally, provided certain
conditions are met on or before June 2, 1997, the expiration date of the 1993
Credit Facility will be further extended to September 30, 1998. In connection
with these extensions, the Company agreed to (i) effect the redemption of one of
the outstanding variable rate demand revenue bonds totalling $3.4 million and
repay this amount to the banks on or before September 30, 1997 and (ii) reduce
the banks' overall credit exposure to approximately $6.7 million by September
30, 1998. See also Note 2 in "Item 1. Financial Statements" above.
Under the 1993 and 1990 Credit Facilities, the Company is required to
meet certain covenants, including: (i) the maintenance of a minimum level of
consolidated tangible net worth; (ii) the maintenance of a
15
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
working capital ratio; and (iii) the maintenance of certain fixed charge
coverage and debt service 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, RHCI
pays additional fees and expenses. Effective June 30, 1996, pursuant to waiver
agreements, the Company obtained modifications from its lenders under the 1993
and 1990 Credit Facilities to certain of its debt covenants through June 30,
1997. In connection with these waiver agreements, the Company provided
additional collateral to the lenders and agreed not to pay future cash dividends
in respect of its Series C Preferred Stock. In addition, in connection with the
proposed extension of the 1993 Credit Facility to September 30, 1998, the
Company's lenders are considering an extension of these waiver agreements to
September 30, 1998.
During the nine months ended March 31, 1997, net cash provided by the
operating activities of the Company increased approximately $7.1 million. This
increase is primarily the result of (i) an improvement in net income between
periods (after giving effect to noncash deferred income taxes) of approximately
$2.2 million, (ii) cost report settlements with third-party contractual agencies
and changes in estimated settlements, which increased by $3.8 million in the
current year period and (iii) a $1.8 million reduction in the increase in
patient accounts receivable between periods.
As of March 31, 1997, the Company has no commitments for material
capital expenditures. The Company expects to satisfy the remainder of its
fiscal 1997 liquidity requirements from internally generated funds from
operations. The Company expects to satisfy its liquidity requirements after
fiscal 1997 through internally generated funds, proceeds from the sale of assets
and proceeds from a refinancing of its outstanding debt. Additionally, certain
of the Company's principal payments due after fiscal 1997 may be satisfied in
connection with guaranties by Mr. Ramsay and a corporate affiliate of Mr. Ramsay
(See Note 2 in "Item 1. Financial Statements" above).
In the event that the Company is unable to generate sufficient funds
from operations, to generate sufficient funds from asset sales 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 fiscal 1998. There can be no assurance
that any such waivers will be granted or as to the terms and conditions of such
waivers, if granted.
16
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
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 of Louisiana which it considers adverse and believes that
adequate provision has been made at March 31, 1997 for the estimated amount
which might be recovered from the Company as a result of this matter.
Additionally, the Company believes that the resolution of this matter will not
have a material adverse effect on its liquidity.
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
The Company filed with the Commission one Current Report on Form 8-K
dated February 10, 1997 during the quarter ended March 31, 1997.
17
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
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
Vice President and Corporate Controller
Date: May 20, 1997
18
<PAGE>
Exhibit 11
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
March 31 March 31
1997 1996 1997 1996
----------- ---------- ----------- ----------
PRIMARY
<S> <C> <C> <C> <C>
Weighted average common shares outstanding..... 8,425,953 8,021,019 8,329,001 7,897,804
Class B convertible preferred stock, Series C.. 1,424,860 1,424,860 1,424,860 1,424,860
Dilutive effect of stock options and warrants.. 1,996,060 -- 1,996,060 --
----------- ---------- ----------- ----------
TOTAL COMMON AND DILUTIVE
COMMON EQUIVALENT SHARES................... 11,846,873 9,445,879 11,749,921 9,322,664
=========== ========== =========== ==========
Net income..................................... $ 672,000 $ 638,000 $ 2,663,000 $1,082,000
Adjustment to net income for debt reduction
(modified treasury stock method)............. 92,000 -- 329,000 --
----------- ---------- ----------- ----------
Adjusted net income............................ $ 764,000 $ 638,000 $ 2,992,000 $1,082,000
=========== ========== =========== ==========
NET INCOME PER SHARE........................ $0.06 $0.07 $0.25 $0.12
=========== ========== =========== ==========
FULLY DILUTED
Weighted average common shares outstanding..... 8,425,953 8,023,558 8,329,001 8,023,558
Class B convertible preferred stock, Series C.. 1,424,860 1,424,860 1,424,860 1,424,860
Dilutive effect of stock options and warrants.. 1,996,060 -- 1,996,060 --
----------- ---------- ----------- ----------
TOTAL COMMON AND DILUTIVE
COMMON EQUIVALENT SHARES................... 11,846,873 9,448,418 11,749,921 9,448,418
=========== ========== =========== ==========
Net income..................................... $ 672,000 $ 638,000 $ 2,663,000 $1,082,000
Adjustment to net income for debt reduction
(modified treasury stock method)............. 72,000 -- 220,000 --
----------- ---------- ----------- ----------
Adjusted net income............................ $ 744,000 $ 638,000 $ 2,883,000 $1,082,000
=========== ========== =========== ==========
NET INCOME PER SHARE........................ $0.06 $0.07 $0.25 $0.11
=========== ========== =========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 872,000
<SECURITIES> 0
<RECEIVABLES> 29,446,000
<ALLOWANCES> 3,521,000
<INVENTORY> 0
<CURRENT-ASSETS> 39,634,000
<PP&E> 97,059,000
<DEPRECIATION> 31,498,000
<TOTAL-ASSETS> 124,328,000
<CURRENT-LIABILITIES> 34,119,000
<BONDS> 33,104,000
0
414,000
<COMMON> 90,000
<OTHER-SE> 49,587,000
<TOTAL-LIABILITY-AND-EQUITY> 124,328,000
<SALES> 0
<TOTAL-REVENUES> 31,801,000
<CGS> 0
<TOTAL-COSTS> 26,730,000
<OTHER-EXPENSES> 1,376,000
<LOSS-PROVISION> 1,183,000
<INTEREST-EXPENSE> 1,429,000
<INCOME-PRETAX> 1,083,000
<INCOME-TAX> 411,000
<INCOME-CONTINUING> 672,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 672,000
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
