<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER 0-13849
RAMSAY HEALTH CARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 63-0857352
(State or other jurisdiction of) (I.R.S. Employer
incorporation or organization Identification No.)
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 a 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 as of
November 9, 1998, follows:
Common Stock, par value $0.01 per share - 14,522,429 shares
<PAGE> 2
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
FORM 10-Q/A
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets - September 30, 1998 and June 30, 1998
(unaudited)........................................................................... 1
Condensed consolidated statements of operations - quarter ended
September 30, 1998 and 1997 (unaudited)............................................... 3
Condensed consolidated statements of cash flows - quarter ended September 30,
1998 and 1997 (unaudited)............................................................. 4
Notes to condensed consolidated financial statements - September 30, 1998 (unaudited).......... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................. 11
PART II. OTHER INFORMATION
Item 5. Other Information..................................................................... 15
Item 6. Exhibits and Current Reports on Form 8-K.............................................. 16
SIGNATURES..................................................................................... 18
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ....................................... $ 6,008,000 $ 2,907,000
Accounts receivable, less allowances for doubtful
accounts of $2,602,000 and $2,395,000 at September 30,
1998 and June 30, 1998, respectively ........................ 11,527,000 12,023,000
Amounts due from third-party contractual agencies ............... 6,570,000 7,114,000
Other receivables ............................................... 2,231,000 2,138,000
Other current assets ............................................ 936,000 1,084,000
Net assets held for sale ........................................ -- 25,768,000
----------- -----------
Total current assets ........................................ 27,272,000 51,034,000
Other assets
Cash held in trust ............................................... 1,835,000 1,964,000
Cost in excess of net asset value of purchased businesses ........ 1,235,000 1,318,000
Unamortized loan costs ........................................... 1,831,000 2,397,000
----------- -----------
Total other assets .......................................... 4,901,000 5,679,000
Property and equipment
Land .............................................................. 2,925,000 2,648,000
Buildings and improvements ........................................ 30,209,000 29,698,000
Equipment, furniture and fixtures ................................. 12,479,000 11,422,000
----------- -----------
45,613,000 43,768,000
Less accumulated depreciation ..................................... 16,590,000 15,390,000
----------- -----------
29,023,000 28,378,000
----------- -----------
$61,196,000 $85,091,000
=========== ===========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE> 4
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1998
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ................................................................. $ 6,564,000 $ 6,040,000
Accrued salaries and wages ....................................................... 3,277,000 3,973,000
Other accrued liabilities ........................................................ 7,923,000 9,609,000
Amounts due to third-party contractual agencies .................................. 9,913,000 8,853,000
Current portion of long-term debt ................................................ 429,000 21,219,000
------------- -------------
Total current liabilities .................................................. 28,106,000 49,694,000
Noncurrent liabilities
Other accrued liabilities ........................................................ 12,976,000 13,071,000
Long-term debt, less current portion ............................................. 15,098,000 14,398,000
------------- -------------
Total noncurrent liabilities ............................................... 28,074,000 27,469,000
Commitments and contingencies
Class B convertible redeemable preferred stock, Series 1997, $1 par value -
authorized 100,000 shares; issued 100,000 shares (liquidation value of
$2,500,000 plus accrued dividends), net of issuance costs of $100,000
and including accrued dividends of $69,000 at June 30, 1998 .................. -- 2,469,000
Class B redeemable preferred stock, Series 1997-A,
$1 par value - authorized 4,000 shares; issued 4,000 shares (liquidation
value of $4,000,000 plus accrued dividends) including
accrued dividends of $361,000 at September 30, 1998
and $271,000 at June 30, 1998 ................................................ 4,361,000 4,271,000
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 $363,000 at September 30, 1998 and
$272,000 at June 30, 1998 .................................................... 505,000 414,000
Class B convertible preferred stock, Series 1996,
$1 par value - authorized 100,000 shares; issued 100,000 shares
(liquidation value of $3,000,000), including accrued dividends of
$150,000 at September 30, 1998 and $113,000 at June 30, 1998 ................. 3,150,000 3,113,000
Common stock $.01 par value--authorized
30,000,000 shares; issued 11,459,532 shares at September 30,
1998 and 11,453,400 shares at June 30, 1998 .................................. 115,000 115,000
Additional paid-in capital ...................................................... 106,536,000 107,016,000
Accumulated deficit ............................................................. (105,752,000) (105,571,000)
Treasury stock--581,550 common shares at September 30, 1998
and June 30, 1998, at cost ................................................... (3,899,000) (3,899,000)
------------- -------------
Total stockholders' equity ............................................... 655,000 1,188,000
------------- -------------
$ 61,196,000 $ 85,091,000
============= =============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE> 5
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenues:
Provider-based revenue ................................ $ 28,987,000 $ 31,561,000
Managed care revenue .................................. -- 6,132,000
Gain on sale of assets ................................ 2,039,000 --
Investment income and other ........................... 94,000 62,000
------------ ------------
TOTAL REVENUES ........................................... 31,120,000 37,755,000
------------ ------------
Expenses:
Salaries, wages and benefits .......................... 17,162,000 19,347,000
Managed care provider expenses ........................ -- 2,387,000
Other operating expenses .............................. 10,232,000 11,566,000
Provision for doubtful accounts ....................... 1,101,000 1,099,000
Depreciation and amortization ......................... 703,000 1,638,000
Interest and other financing charges .................. 1,215,000 1,320,000
------------ ------------
TOTAL EXPENSES ........................................... 30,413,000 37,357,000
------------ ------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM......... 707,000 398,000
Provision for income taxes ............................... -- --
------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM ......................... 707,000 398,000
Extraordinary item:
Loss from early extinguishment of debt ................ (888,000) (3,574,000)
------------ ------------
NET LOSS ................................................. $ (181,000) $ (3,176,000)
============ ============
Income (loss) per common share:
Basic:
Before extraordinary item ........................... $ 0.04 $ 0.03
Extraordinary item:
Loss from early extinguishment of debt ............ (0.08) (0.34)
============ ============
$ (0.04) $ (0.31)
============ ============
Diluted:
Before extraordinary item ........................... $ 0.04 $ 0.02
Extraordinary item:
Loss from early extinguishment of debt .......... (0.07) (0.28)
------------ ------------
$ (0.03) $ (0.26)
============ ============
Weighted average number of common shares outstanding:
Basic ................................................. 10,875,916 10,575,563
============ ============
Diluted ............................................... 11,875,916 12,562,141
============ ============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 6
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net loss ........................................................ $ (181,000) $ (3,176,000)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization, including loan costs .......... 812,000 1,638,000
Loss from early extinguishment of debt ....................... 888,000 3,574,000
Provision for doubtful accounts .............................. 1,101,000 1,099,000
Gain on sale of assets ....................................... (2,039,000) --
Change in operating assets and liabilities:
Accounts receivable ...................................... (605,000) (230,000)
Other current assets ..................................... 599,000 (30,000)
Other noncurrent assets .................................. -- (141,000)
Accounts payable ......................................... 524,000 (1,729,000)
Accrued salaries, wages and other accrued liabilities .... (4,270,000) (526,000)
Hospital and medical claims payable ...................... -- (225,000)
Amounts due to third-party contractual agencies .......... 1,060,000 48,000
------------ ------------
Total adjustments ....................................... (1,930,000) 3,478,000
------------ ------------
Net cash provided by (used in) operating activities.... (2,111,000) 302,000
------------ ------------
Cash flows from investing activities
Proceeds from sale of assets ..................................... 29,600,000 --
Expenditures for property and equipment .......................... (1,261,000) (1,398,000)
Preopening costs ................................................. -- (35,000)
Cash held in trust ............................................... 129,000 --
------------ ------------
Net cash provided by (used in) investing activities.... 28,468,000 (1,433,000)
------------ ------------
Cash flows from financing activities
Loan costs ....................................................... (437,000) (2,325,000)
Amounts received from affiliate .................................. 1,071,000 --
Net proceeds from exercise of options and stock purchases ........ 10,000 47,000
Proceeds from issuance of debt ................................... 2,000,000 41,100,000
Payments on debt ................................................. (23,161,000) (38,256,000)
Payments related to early extinguishment of debt ................. -- (2,229,000)
Payment of preferred stock dividends ............................. (114,000) --
Proceeds from issuance of preferred stock ........................ -- 5,284,000
Payment of costs related to issuance of stock .................... -- (100,000)
Redemption of preferred stock .................................... (2,625,000) --
------------ ------------
Net cash provided by (used in) financing activities.... (23,256,000) 3,521,000
------------ ------------
Net increase in cash and cash equivalents ........................... 3,101,000 2,390,000
Cash and cash equivalents at beginning of period .................... 2,907,000 1,723,000
------------ ------------
Cash and cash equivalents at end of period .......................... $ 6,008,000 $ 4,113,000
============ ============
Cash paid during the period for:
Interest ......................................................... $ 1,032,000 $ 1,034,000
============ ============
Income taxes ..................................................... $ 293,000 $ 458,000
============ ============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 7
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1998
NOTE 1 - GENERAL
The accompanying unaudited condensed 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 ended September 30, 1998 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 or Form 10-K for the year ended June 30, 1998.
NOTE 2 - CHANGE IN STRATEGIC DIRECTION AND ASSET SALES
During the quarter ended March 31, 1998, the Company changed its
strategic direction from an organization which provides and manages a full range
of behavioral healthcare services to an organization engaged in providing
services for at-risk and adjudicated youth with special needs. In connection
with its revised strategic initiative, the Company identified for divestiture
certain of its psychiatric inpatient facilities, its managed care operations and
other non-youth service businesses.
On September 28, 1998, the Company consummated a sale/leaseback
transaction whereby the Company sold the land, building and fixed equipment of
its Havenwyck facility in Auburn Hills, Michigan for the land, building and
fixed equipment of its leased Desert Vista facility in Mesa, Arizona and
$1,350,000 in cash. In connection with the sale/leaseback, the Company agreed to
leaseback the Havenwyck facility over a term of approximately 12 years. The
lease, which will be treated as an operating lease under generally accepted
accounting principles, currently requires annual minimum lease payments of
approximately $1,263,000, payable monthly.
On September 28, 1998, the Company also completed its previously
announced sale of its management contract services division and behavioral
health care facilities in Conway, South Carolina, Houma, Louisiana, Mesa,
Arizona and DeSoto, Texas for a cash purchase price of $13,500,000 to an
unrelated third party. In connection with the sale, the Company agreed to sell
its medical subacute and behavioral healthcare facility in San Antonio, Texas,
to the purchaser for no additional consideration other than the assumption of
liabilities if the purchaser obtains consent for the sale from the lessor of the
facility within 90 days.
On September 30, 1998, the Company completed its previously announced
sale of its behavioral health care facility in Morgantown, West Virginia for a
cash purchase price of $14,800,000 also to an unrelated third party.
The Company realized a gain on this transaction of approximately $2,000,000.
5
<PAGE> 8
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
At June 30, 1998, the assets and liabilities relating to the
aforementioned transactions are reflected in the accompanying balance sheet as
net assets held for sale. The following is a summary of these assets and
liabilities:
<TABLE>
<S> <C>
Accounts receivable, less allowance for
doubtful accounts of $1,742,000 $ 11,005,000
Other receivables 1,264,000
Other current assets 732,000
Other noncurrent assets 2,016,000
Property and equipment 49,895,000
Less: accumulated depreciation (17,124,000)
Less: valuation allowance on property and equipment (17,576,000)
Accounts payable (1,889,000)
Accrued salaries and wages (1,796,000)
Other accrued liabilities (703,000)
Notes payable (56,000)
------------
Total $ 25,768,000
============
</TABLE>
For the quarter ended September 30, 1998, revenues and net loss before
taxes for the aforementioned assets totaled approximately $14,000,000 and
$1,300,000, respectively. During fiscal 1998, the Company recorded asset
impairment charges of $17,576,000 in connection with the assets held for sale at
June 30, 1998.
NOTE 3 - BORROWINGS
The Company's long-term debt at September 30, 1998 is as follows:
<TABLE>
<S> <C>
Revolver, due September 30, 1999 $ 8,014,000
Bridge Facility to affiliate, due September 30, 2005 2,500,000
Junior Subordinated Note Agreement to
affiliate, due September 30, 2006 5,000,000
Other 13,000
-----------
15,527,000
Less current portion 429,000
-----------
$15,098,000
===========
</TABLE>
In connection with the change in strategic direction and asset sales,
the Company's credit agreement and subordinated note purchase agreements were
amended and restated on March 27, 1998, May 20, 1998, June 29, 1998 and
September 30, 1998 (the "Amended and Restated Credit Facility"). The Amended and
Restated Credit Facility also extended the maturity of the debt to September 30,
1999.
As required by the Amended and Restated Credit Facility, in September
1998, the Company used the net proceeds from the sales of assets to (i) repay
the total outstanding principal and interest on the term loans of approximately
$3,704,000, (ii) repay the total outstanding principal and interest on the
series A bridge loans of approximately $15,151,000, (iii) redeem all of the
outstanding shares of the Series 1997 Preferred Stock for $2,739,000, including
accrued interest and a redemption premium, (iv) pay $1,500,000 in previously
accrued fees to the financial institution and (v) repay approximately
$4,031,000 of the outstanding balance of the revolving credit loan. At September
30, 1998, after the allocation of the aforementioned proceeds, the balance of
the revolving credit loan was $8,014,000.
In conjunction with the partial prepayment of indebtedness, during
September 1998, the Company recorded a loss from early extinguishment of debt of
$888,000.
6
<PAGE> 9
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
On October 30, 1998, the Company refinanced the Amended and Restated
Credit Facility with proceeds from a credit facility consisting of term and
revolving credit debt of $22,000,000 (the "Senior Credit Facility").
Under the terms of the Senior Credit Facility, the Company was provided
with (i) a term loan of $8,000,000 (the "Term Loan"), payable in 54 monthly
installments ranging from $83,000 to $208,000, beginning May 1, 1999, with a
final installment of $1,000,000 due on October 30, 2003, (ii) a revolving credit
facility (the "Revolver") for an amount up to the lesser of $8,000,000 or the
borrowing base of the Company's receivables (as defined in the agreement) and
(iii) an acquisition loan (the "Acquisition Loan") commitment of up to
$6,000,000, beginning March 1, 1999. As of November 9, 1998, no amounts had been
drawn under the Revolver or Acquisition Loan.
As a result of the refinancing, the amount due under the then existing
revolving credit agreement of $8,014,000 at September 30, 1998 has been excluded
from current liabilities since the refinancing resulted in this amount being
outstanding for an uninterrupted period extending beyond one year from the
balance sheet date.
Interest on the Term Loan and the Revolver varies, and at the option of
the Company, would equal (i) a function of a base rate plus a margin ranging
from 0.5% to 2.0% (9% at October 30, 1998), based on the Company's ratio of
total indebtedness to EBITDA or (ii) a function of the Eurodollar rate plus a
margin ranging from 2.0% to 3.5%, based on the Company's ratio of total
indebtedness to EBITDA.
Interest on the Acquisition Loan varies, and at the option of the
Company, would equal (i) a function of a base rate plus a margin ranging from
0.75% to 2.25%, based on the Company's ratio of total indebtedness to EBITDA or
(ii) a function of the Eurodollar rate plus a margin ranging from 2.25% to
3.75%, based on the Company's ratio of total indebtedness to EBITDA.
Additionally, the Company is obligated to pay to the financial
institution an amount equal to one half of 1% of the unused portion of the
Revolver and the Acquisition Loan.
The Senior Credit Facility requires that the Company meet certain
covenants, including (i) the maintenance of certain fixed charge coverage,
interest coverage and leverage ratios, (ii) the maintenance of certain proforma
availability levels (as defined in the credit agreement) and (iii) a limitation
on capital expenditures. The Senior Credit Facility also prohibits (i) the
payment of cash dividends to common stockholders of the Company and (ii) the
payment of cash dividends to preferred stockholders and interest on the Bridge
Note (as defined below) and the Note (as defined below) all owed to an
affiliate, until the Company's EBITDA (as defined in the credit agreement)
exceeds $7,800,000.
The Company and its subsidiaries have pledged substantially all of
their real property, receivables and other assets as collateral for the Senior
Credit Facility.
In connection with the aforementioned refinancing, the Company expects
to incur a loss from early extinguishment of debt of approximately $1,800,000,
which will be recorded in October 1998.
On September 30, 1997, the Company entered into a $2,500,000
subordinated bridge facility with an affiliate of Mr. Paul J. Ramsay, Chairman
of the Board of the Company, and a significant shareholder (the "Bridge Note").
The Bridge Note, which is unsecured and is subordinated and junior in right of
payment to the Senior Credit Facility, is due and payable in September 2005, and
bears interest at a rate of 13.0% per annum beginning on October 1, 1998. The
Senior Credit Facility prohibits the payment of interest on the Bridge Note
until the Company's EBITDA (as defined in the agreement) reaches $7,800,000.
On March 25, 1998, the Company entered into a Junior Subordinated Note
Purchase Agreement (the "Note"), with a corporate affiliate of Mr. Ramsay in an
aggregate principal amount of $5,000,000, plus
7
<PAGE> 10
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
accrued interest. Proceeds from any borrowings made under the Note are
restricted, and may be used by the Company solely to (i) acquire and renovate a
youth services facility in Dothan, Alabama, (ii) acquire and renovate a youth
services facility in Palm Bay, Florida and (iii) meet the working capital needs
of these facilities. During the quarter ended September 30, 1998, the Company
requested and received the remaining $1,071,000 of the Note in order to fund the
working capital needs of the Dothan, Alabama and Palm Bay, Florida facilities.
Borrowings under the Note bear interest at 13.5% per annum beginning on October
1, 1998. Interest due under the Note will be accrued and added to the unpaid
principal balance. Beginning November 1, 1999, interest is payable quarterly, in
arrears, provided that the Company's EBITDA (as defined in the agreement)
exceeds $7,800,000. The Note matures on September 30, 2006.
The Note is unsecured and is subordinated and junior in right of
payment to the Senior Credit Facility or to any refinancing thereof.
NOTE 4 - PRIVATE PLACEMENT AND RECAPITALIZATION
On October 26, 1998, the Company entered into an exchange agreement
with a corporate affiliate of Mr. Paul J. Ramsay for the partial
recapitalization of certain preferred stock and subordinated debt (the "Partial
Recapitalization"). In connection with the Partial Recapitalization, the Company
agreed to exchange all of the outstanding shares of Class B Preferred Stock,
Series 1997-A, including accrued dividends thereon, and $1,000,000 of the
outstanding principal balance of the Bridge Note, for shares of the Company's
common stock valued at $1 1/8 per share (the closing bid price per share as
reported on the Nasdaq Stock Market on October 26, 1998).
On October 30, 1998, the Company completed the exchange of $600,000 of
the Bridge Note for 533,334 shares of common stock. The closing of the remaining
balance of $400,000 of the Bridge Note and the Class B Preferred Stock, Series
1997-A contemplated in the Partial Recapitalization is subject to certain
closing conditions, including the receipt of all necessary governmental
approvals under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as
amended.
On October 30, 1998, the Company completed a private placement of
$3,500,000 of common stock. The private placement consisted of the issuance of
(i) 888,889 shares of common stock to the Company's Chief Executive Officer,
(ii) 480,000 shares of common stock to a corporate affiliate of Mr. Paul J.
Ramsay and a significant shareholder and (iii) 1,742,222 shares of common stock
to unaffiliated third parties. The shares were issued at a purchase price of $1
1/8 per share (the closing bid price on October 26, 1998, the date of the
subscription agreements).
The following unaudited pro forma information has been prepared
assuming the Company's private placement and Partial Recapitalization had been
consummated on September 30, 1998.
Assets
Current assets $30,772,000
Other assets 4,901,000
Property and equipment, net 29,023,000
-----------
Total $64,696,000
===========
Liabilities and stockholders' equity
Current liabilities $28,106,000
Noncurrent liabilities 27,074,000
Stockholders' equity 9,516,000
-----------
Total $64,696,000
===========
8
<PAGE> 11
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTE 5 - LEASES
On September 28, 1998, the Company sold and leased back the land,
buildings and fixed equipment of its Havenwyck facility in Auburn Hills,
Michigan (see Note 2). The lease has a term of 12 years and currently requires
annual minimum lease payments of approximately $1,263,000, payable monthly.
Effective April 1 of each year, the lease payments are subject to upward
adjustments (not to exceed 3% annually) in the consumer price index over the
preceding twelve months.
In April 1995, the Company sold and leased back the land, buildings and
fixed equipment of its Desert Vista facility in Mesa, Arizona and its Mission
Vista facility in San Antonio, Texas. The lease of the Desert Vista facility was
released and the facility was sold with the asset sale transactions described in
Note 2. The lease at the Mission Vista facility has a primary term of 15 years
(with three successive renewal options of 5 years each) and at September 30,
1998 had aggregate annual minimum rentals of approximately $549,000, payable
monthly.
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. On November 3, 1998, the Company
was released from its obligations under this lease. The Company will cease
operations at this facility by December 3, 1998.
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 $3,000,000.
In August 1997, the Company leased its Meadowlake facility in Oklahoma
to an independent healthcare provider for an initial term of three years, with
four three-year renewal options. Lease payments during the initial term total
$360,000 per year and at each renewal option are subject to adjustment based on
the change in the consumer price index during the preceding lease period. In
accordance with the terms of the lease agreement, the tenant is responsible for
all costs of ownership, including taxes, insurance, maintenance and repairs. In
addition, the tenant has the option to purchase the facility at any time during
the initial term for $3,000,000, less $15,417 for each month of occupancy.
Subsequent to the initial term, the tenant has the option to purchase the
facility at any time for $2,500,000. The book value of the facility was
$2,169,000 on September 30, 1998.
NOTE 6 - INCOME TAXES
Income taxes are accounted for in accordance with SFAS No. 109. SFAS
No. 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 September 30, 1998, the Company had net
operating loss carryovers of approximately $18,400,000 and alternative minimum
tax credit carryovers of approximately $1,100,000 available to reduce future
federal income taxes, subject to certain annual limitations. The net operating
loss carryovers expire in the years 2001 through 2003.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Previously, the Company evaluated the
realizability of its deferred tax assets and the need for a valuation allowance
by considering the effects of implementing tax planning strategies that
contemplated the sales of certain appreciated property. In connection with the
Company's change in strategic direction, during the quarter ended March 31,
1998, the Company re-evaluated its tax planning strategies and determined that
such strategies will not be realized. Consequently, the Company's net operating
loss carryforwards were no longer considered realizable, pursuant to the
provisions of SFAS No. 109.
9
<PAGE> 12
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTE 7 - EARNINGS PER SHARE
In February 1997, the FASB issued SFAS No. 128, EARNINGS PER SHARE.
SFAS No 128, which applies to entities with publicly held common stock,
simplifies and replaces the standards for computing earnings per share
previously required in APB Opinion No. 15, EARNINGS PER SHARE, and makes them
comparable to international earnings per share standards. SFAS No. 128, which
became effective for financial statements issued for periods ending after
December 15, 1997, requires a restatement of prior year earnings (loss) per
share calculations. Accordingly, the Company changed the method used to compute
earnings (loss) per share and has restated all prior periods. Under the new
requirements for calculating earnings per share, the dilutive effect of stock
options is excluded. The adoption of the provisions of SFAS No. 128 did not have
a material impact on the calculation of earnings (loss) per share.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30,
------------ ------------
1998 1997
------------ ------------
<S> <C> <C>
Numerator:
Net income before extraordinary item, as reported ................ $ 707,000 $ 398,000
Dividends, Class B convertible preferred stock, Series C .......... (91,000) (91,000)
Dividends, Class B convertible preferred stock, Series 1996 ....... (38,000) (38,000)
Dividends, Class B convertible preferred stock, Series 1997 ....... (69,000) (1,000)
Dividends, Class B preferred stock, Series 1997-A ................. (90,000) (1,000)
------------ ------------
Numerator for basic earnings per share - income attributable
to common stockholders, before extraordinary item ............. 419,000 267,000
Effect of dilutive securities:
Convertible preferred stock...................................... 38,000 1,000
------------ ------------
38,000 1,000
------------ ------------
Numerator for diluted earnings per share - income
attributable to common stockholders after assumed ............. $ 457,000 $ 268,000
conversions
============ ============
Denominator:
Denominator for basic earnings per share - weighted-average
shares .......................................................... 10,875,916 10,575,563
Effect of dilutive securities:
Employee stock options and warrants ............................. -- 1,591,633
Convertible preferred stock ..................................... 1,000,000 394,945
------------ ------------
1,000,000 1,986,578
------------ ------------
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions ................. 11,875,916 12,562,141
============ ============
Basic earnings per share, before extraordinary item .................. $ .04 $ .03
Extraordinary item ................................................... (.08) (.34)
------------ ------------
Basic loss per share ................................................. $ (.04) $ (.31)
============ ============
Diluted earnings per share before extraordinary item ................. $ .04 $ .02
Extraordinary item ................................................... (.07) (.28)
------------ ------------
Diluted loss per share ............................................... $ (.03) $ (.26)
============ ============
</TABLE>
10
<PAGE> 13
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company is a leading operator and manager of diversified treatment
and education programs for at-risk and troubled youth in residential and
non-residential settings nationwide. During the fiscal year ended June 30, 1998
and the quarter ended September 30, 1998, the Company also operated as a
provider and manager of behavioral healthcare services.
On February 19, 1998, the Company announced a change in strategic
direction in order to focus on becoming a leader in the at-risk youth industry.
To that end, management identified for divestiture those businesses and
facilities which were not essential to its strategic objectives in the youth
services field (the "Divested Assets"). In June 1998, the Company sold its
behavioral managed care business and in September 1998, the Company completed
the sales of non-strategic inpatient psychiatric hospitals. The net proceeds for
these divestitures were applied to reduce indebtedness and to redeem preferred
stock, all held by an unaffiliated financial institution. The remaining business
(the "Retained Assets") represents the Company's youth service operations and is
comprised of seven youth facilities with 713 beds and six group homes with 66
beds. The Company also provides a range of outpatient services and day treatment
programs tailored for the at-risk and troubled youth population.
IN CONNECTION WITH THE "SAFE-HARBOR" PROVISIONS 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
THOSE SET FORTH IN ANY FORWARD-LOOKING STATEMENTS OR INFORMATION MADE BY OR ON
BEHALF OF OR CONCERNING THE COMPANY. SOME OF THE MOST SIGNIFICANT FACTORS
INCLUDE (i) ACCELERATING CHANGES OCCURRING IN THE AT-RISK YOUTH INDUSTRY,
INCLUDING COMPETITION FORM CONSOLIDATING AND INTEGRATED PROVIDER SYSTEMS AND
LIMITATIONS ON REIMBURSEMENT RATES, (ii) FEDERAL AND STATE GOVERNMENTAL
BUDGETARY CONSTRAINTS WHICH COULD HAVE THE EFFECT OF LIMITING THE AMOUNT OF
FUNDS AVAILABLE TO SUPPORT GOVERNMENTAL PROGRAMS, (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)
THE COMPANY'S INABILITY TO SUCCESSFULLY IMPLEMENT ITS NEW STRATEGIC DIRECTION OF
PROVIDING TREATMENT AND EDUCATION PROGRAMS FOR AT-RISK AND TROUBLED YOUTH. THERE
CAN BE NO ASSURANCE THAT ANY ANTICIPATED FUTURE RESULTS WILL BE ACHIEVED. AS A
RESULT OF THE FACTORS IDENTIFIED ABOVE AND OTHER FACTORS, THE COMPANY'S ACTUAL
RESULTS OR FINANCIAL OR OTHER CONDITION COULD VARY SIGNIFICANTLY FROM THE
PERFORMANCE OR FINANCIAL OR OTHER CONDITION SET FORTH IN ANY FORWARD-LOOKING
STATEMENTS OR INFORMATION.
RESULTS OF OPERATIONS
Revenues from provider-based operations decreased from $31.5 million in
the quarter ended September 30, 1997 to $28.9 million in the quarter ended
September 30, 1998. Of this amount, revenues related to Retained Assets totalled
$14.4 million in the quarter ended September 30, 1998 as compared to $11.3
million in the comparable quarter of the prior fiscal year. Revenues related to
Divested Assets totalled $14.5 million in the quarter ended September 30, 1998
compared to $20.2 million in the comparable quarter of the prior fiscal year.
The increase in provider-based revenues related to Retained Assets from
1997 to 1998 of $3.1 million is primarily attributable to (i) revenues of $0.8
million from a new contract in Puerto Rico, (ii) revenues of $0.5 million
generated by the Company's new facility located in Dothan, Alabama, (iii) $0.5
million in revenues from Gulf Coast Treatment Center primarily attributable to
its juvenile assignment center business which began in fiscal 1998, (iv)
revenues of $0.1 million from the newly formed Ramsay Youth Services of South
Carolina, and (v) an increase in revenues at the Company's other retained assets
of approximately $1.3 million due to an increase in total census between
periods.
The decrease in provider-based revenues related to Divested Assets from
1997 to 1998 of $5.7 million is attributable to (i) a decrease in the Company's
medical subacute unit revenues of $1.1 million attributable to a decrease in
total census between periods, (ii) a decrease in revenues at the Company's
11
<PAGE> 14
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
Greenbrier facility of $1.8 million due to the closure and sale of the facility
in fiscal 1998, (iii) a decrease in revenues at the Company's management
contracts division of $0.3 million due to the loss of certain contracts, and
(iv) a decrease in the revenues of the Company's other Divested Assets of $2.5
million primarily due to a decrease in total census between periods.
The decrease in managed care revenues of $6.1 million, when comparing
the quarter ended September 30, 1997 to the quarter ended September 30, 1998,
was a result of the sale of the Company's managed behavioral health care
business in June 1998.
In September 1998, the Company completed the sale of its behavioral
health care facility in Morgantown, West Virginia and realized a gain of $2.0
million. See "Item 1 - Financial Statements, Note 2".
Total salaries, wages and benefits decreased from $19.3 million in the
quarter ended September 30, 1997 to $17.1 million in the quarter ended September
30, 1998. Of this amount, salaries, wages and benefits related to Retained
Assets totalled $8.4 million in the quarter ended September 30, 1998 as compared
to $6.1 million in the comparable quarter of the prior fiscal year. Salaries,
wages and benefits related to Divested Assets totalled $8.1 million in the
quarter ended September 30, 1998 as compared to $12.4 million in the comparable
quarter of the prior fiscal year. Corporate salaries, wages and benefits
totalled $0.6 million in the quarter ended September 30, 1998 as compared to
$0.8 million in the comparable quarter of the prior fiscal year.
The increase in salaries, wages and benefits related to Retained Assets
from 1997 to 1998 of $2.3 million is attributable to (i) an increase in
salaries, wages and benefits of $0.3 million at Gulf Coast Treatment Center due
to services provided to its juvenile assignment center business which began in
fiscal 1998, (ii) an increase of $0.9 million due to the initial hiring of
personnel for the Dothan, Puerto Rico and South Carolina Group Home operations,
and (iii) an increase in salaries, wages and benefits in other Retained Assets
facilities of $1.1 million due to an increase in total census from the
comparable period of the prior fiscal year.
The decrease in salaries, wages and benefits related to the Divested
Assets from 1997 to 1998 of $4.3 million is attributable to (i) a decrease in
salaries, wages and benefits of the Company's managed care operations of $2.2
million due to its sale in June 1998, (ii) a decrease of $0.2 million
attributable to a decrease in total census between periods at the Company's
medical subacute units, (iii) a decrease in contract management salaries, wages
and benefits of $0.2 million due to the loss of contracts, (iv) a decrease in
salaries, wages and benefits of the Company's facilities located in Houma,
Louisiana, Conway, South Carolina and San Antonio, Texas by an aggregate of $0.3
million due to reductions in total census, and (v) a decrease in the Greenbrier
facility of $1.4 million due to its sale on June 2, 1998.
The decrease in salaries, wages and benefits related to the corporate
office from 1997 to 1998 of $0.2 million is attributable to the Company's
restructuring at its corporate headquarters initiated during the third quarter
of fiscal 1998.
Other operating expenses decreased from $11.6 million in the quarter
ended September 30, 1997 to $10.2 million in the quarter ended September 30,
1998. Of this amount, other operating expenses related to Retained Assets
totalled $3.6 million in the quarter ended September 30, 1998 as compared to
$3.0 million in the comparable quarter of the prior fiscal year. Other operating
expenses related to Divested Assets totalled $5.4 million in the quarter ended
September 30, 1998 as compared to $7.8 million in the comparable quarter of the
prior fiscal year. Other operating expenses related to the Company's corporate
office totalled $1.2 million in the quarter ended September 30, 1998 as compared
to $0.8 million in the comparable quarter of the prior fiscal year.
The increase in other operating expenses related to Retained Assets
from 1997 to 1998 of $0.6 million is attributable to (i) an increase in other
operating expenses of $0.1 million at Gulf Coast Treatment Center, (ii) other
operating expenses of the new Dothan and Palm Bay facilities and expenses
related to a
12
<PAGE> 15
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
new contract in Puerto Rico of $0.3 million and (iii) an increase
in other operating expenses of $0.2 million due to an increase in total census
between years at the remainder of the Company's Retained Assets.
The decrease in other operating expenses related to Divested Assets
from 1997 to 1998 of $2.4 million is primarily attributable to (i) a decrease of
$1.0 million in other operating expenses of the Company's managed care
operations which were sold in June of 1998, (ii) a decrease of $1.0 million
attributable to a decrease in census at the Company's medical subacute units and
(iii) a decrease in other operating expenses at the Greenbrier facility of $0.4
million due to its sale in June of 1998.
The increase in corporate other operating expenses of $0.4 million from
fiscal 1997 to fiscal 1998 is primarily attributable to professional fees
incurred in connection with the Company's restructuring efforts and related
asset sales.
The provision for doubtful accounts remained relatively constant
between the quarter ended September 30, 1998 and the comparable quarter of the
prior fiscal year (the provision for doubtful accounts as a percentage of
provider-based revenues was 3.8% in the quarter ended September 30, 1998 and
3.5% for the comparable quarter of the prior fiscal year).
Depreciation and amortization decreased from $1.6 million in the
quarter ended September 30, 1997 to $0.7 million in the quarter ended September
30, 1998 primarily due to the recording of asset impairment charges during
fiscal 1998 and the cessation of depreciation expense on assets sold and assets
held for sale.
Interest and other financing charges decreased from $1.3 million in the
quarter ended September 30, 1997 to $1.2 million in the quarter ended September
30, 1998. The decrease was primarily due to a reduction of debt between periods
due to the application of proceeds from asset sales.
Impact Of Year 2000
The Company has determined that it will be required to upgrade certain
portions of its software, hardware and equipment so that its systems and
equipment will function properly with respect to dates in the year 2000 and
thereafter. Affected systems do not include those used within the Company for
purposes of individual care. The Company will utilize both internal and external
resources to upgrade and test certain software for year 2000 readiness. The
Company anticipates substantially completing the Year 2000 project by June 1999.
The total cost of the Year 2000 project is estimated at $450,000, primarily for
the purchase of new software that will be capitalized. To date, the Company has
incurred approximately $300,000 related to the assessment of, and preliminary
efforts on, developing its Year 2000 compliance project plan, purchase of new
software and equipment, and installation of vendor supplied upgrades.
The costs for the Year 2000 project and the date on which the Company
believes it will complete the Year 2000 modifications are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources. The Company's
operating results could be materially impacted if actual costs of the Year 2000
project are significantly higher than management estimates or if the systems and
equipment of the Company or those of other companies on which it relies are not
compliant in a timely manner.
FINANCIAL CONDITION
The Company's consolidated balance sheet as of September 30, 1998
reflects the impact of the sale of the Three Rivers facility in May 1998, the
Greenbrier facility and managed care operations in June 1998, and the Company's
non-youth services business in September 1998. Net proceeds from the sales were
used to partially prepay the Company's debt.
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 September 30, 1998, amounts due from Medicare, Medicaid and Blue
Cross totalled approximately $4.4 million, $1.0 million and $1.1 million,
respectively. Also, at September 30, 1998, amounts due to Medicare, Medicaid and
Blue Cross totalled approximately $8.3 million, $1.0 million and $0.6 million,
respectively. Changes in these amounts since June 30, 1998 are the result of
fiscal intermediary lump sum adjustments, prior year cost report settlements and
current year estimated settlements recorded during the quarter ended September
30, 1998.
Other current accrued liabilities decreased from $9.6 million at June
30, 1998 to $7.7 million at September 30, 1998 primarily as a result of (i)
severance payments of $0.5 million made in connection with the Company's
corporate restructuring and (ii) the payment of $1.3 million in previously
accrued fees to the Company's former lender.
Other noncurrent accrued liabilities remained relatively constant
during the three months ended September 30, 1998.
On October 26, 1998, the Company entered into an exchange agreement
with a corporate affiliate of Mr. Paul J. Ramsay for the partial
recapitalization of certain preferred stock and subordinated debt (the
13
<PAGE> 16
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
"Partial Recapitalization"). In connection with the Partial Recapitalization,
the Company agreed to exchange all of the outstanding shares of Class B
Preferred Stock, Series 1997-A, including accrued dividends thereon, and $1.0
million of the outstanding principal balance of the Bridge Note, for shares of
the Company's common stock valued at $1 1/8 per share (the closing bid price per
share as reported on the Nasdaq Stock Market on October 26, 1998).
On October 30, 1998, the Company completed the exchange of $0.6 million
of the Bridge Note for 533,334 shares of common stock. The closing of the
remaining balance of $0.4 million of the Bridge Note and the Class B Preferred
Stock, Series 1997-A contemplated in the Partial Recapitalization is subject to
certain closing conditions, including the receipt of all necessary governmental
approvals under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as
amended.
LIQUIDITY AND CAPITAL RESOURCES
As mentioned previously, in connection with the change in strategic
direction and asset sales, the Company's credit agreement and subordinated note
purchase agreements were amended and restated on March 27, 1998, May 20, 1998,
and June 29, 1998 and September 30, 1998 (the "Amended and Restated Credit
Facility"). The Amended and Restated Credit Facility also extended the maturity
of the Revolver to September 30, 1999.
As required by the Amended and Restated Credit Facility, in September
1998, the Company used the net proceeds from the sales of assets to (i) repay
the total outstanding principal and interest on the term loans of approximately
$3.7 million, (ii) repay the total outstanding principal and interest on the
series A bridge loans of approximately $15.1 million, (iii) redeem all of the
outstanding shares of the Series 1997 Preferred Stock for $2.7 million,
including accrued interest and a redemption premium, (iv) pay $1.5 million in
previously incurred fees to the financial institution and (v) repay
approximately $4.0 million of the outstanding balance of the revolving credit
loan. At September 30, 1998, after the allocation of the aforementioned, the
balance of the revolving credit loan was $8.0 million.
On October 30, 1998, the Company refinanced the Amended and Restated
Credit Facility with proceeds from a credit facility consisting of term and
revolving credit debt of $22,000,000 (the "Senior Credit Facility").
Under the terms of the Senior Credit Facility, the Company was provided
(i) a $8.0 million term loan (the "Term Loan"), payable in 54 monthly
installments ranging from $.083 million to $.208 million, beginning May 1, 1999,
with a final installment of $1.0 million due on October 30, 2003, (ii) a
revolving credit facility (the "Revolver") for an amount up to the lesser of
$8.0 million or the borrowing base of the Company's receivables (as defined in
the agreement) and (iii) an acquisition loan (the "Acquisition Loan") commitment
of up to $6.0 million, beginning March 1, 1999. As of November 9, 1998, no
amounts had been drawn under the Revolver or Acquisition Loan.
On October 30, 1998, the Company completed a private placement of $3.5
million of common stock. The private placement consisted of the issuance of (i)
888,889 shares of common stock to the Company's Chief Executive Officer, (ii)
480,000 shares of common stock to a corporate affiliate of Mr. Paul J. Ramsay
and a significant shareholder and (iii) 1,742,222 shares of common stock to
unaffiliated third parties. The shares were issued at a purchase price of $1 1/8
per share (the closing bid price on October 26, 1998, the date of the
subscription agreements).
During the three months ended September 30, 1998, net cash provided by
the operating activities of the Company decreased approximately $2.4 million.
The decrease is primarily a result of the decreases in operating performance at
certain of the Divested Assets and changes in working capital between periods.
The Company's current cash requirements relate to its normal operating
expenses and routine capital improvements at its youth service facilities, the
expansion of its youth service business, the payment
14
<PAGE> 17
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
of restructuring charges, principally severance, and the payment of liabilities
associated with the sales of its Divested Assets.
Management of the Company believes that it can meet its current cash
requirements and future identifiable needs with (i) internally generated funds
from operations, (ii) the Senior Credit Facility and (iii) its ability to obtain
debt or equity capital through other sources.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company is party to certain claims, suits and complaints, including
those matters described below, whether arising from the acts or omissions of its
employees, providers or others, which arise in the ordinary course of business.
The Company has established reserves at September 30, 1998 for the estimated
amounts which might be recovered from the Company as a result of all outstanding
legal proceedings. In the opinion of management, the ultimate resolution of
these pending legal proceedings is not expected to have a material adverse
effect on the Company's financial position, results of operations or liquidity.
In March 1997, a former executive vice president of the Company
commenced arbitration and court proceedings against the Company in which he
claims his employment was wrongfully terminated by the Company and seeks damages
of approximately $2.3 million. Subsequently, the court proceedings have been
stayed and arbitration proceedings are pending. The Company intends to
vigorously defend the proceedings.
Prior to the merger with the Company, RMCI sold its subsidiary which,
as a licensed HMO in Louisiana, Alabama and Mississippi, managed and provided
prepaid healthcare services to its members. On September 29, 1997, RMCI received
a demand for indemnification by the purchaser of this subsidiary in an amount
totalling approximately $5.8 million. The Company intends to vigorously defend
any proceedings which may result from this matter. In addition, on September 30,
1997, the Company demanded indemnification from the purchaser for various
matters in an amount exceeding $2.0 million.
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 totaling approximately $5.5 million.
The repayment requested related primarily to alleged overpayments received by a
former facility of the Company. The Company believes that this matter may be
settled for an amount less than Louisiana's initial request. The Company intends
to vigorously contest any position by Louisiana which it considers adverse.
15
<PAGE> 18
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
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/A are as follows:
Exhibit 4.13 Amended and Restated Subscription Agreement
dated October 26, 1998 between the Company
and Paul Ramsay Holdings Pty. Limited
("Holdings Pty."). Pursuant to Reg. S-K,
Item 601(b)(2), the Company agrees to
furnish a copy of the Schedules and Exhibits
to such Agreement to the Commission upon
request*
Exhibit 4.14 Amended and Restated Subscription Agreement
dated October 26, 1998 between the Company
and Luis E. Lamela. Pursuant to Reg. S-K,
Item 601(b)(2), the Company agrees to
furnish a copy of the Schedules and Exhibits
to such Agreement to the Commission upon
request*
Exhibit 4.15 Subscription Agreement dated October 26,
1998 between the Company and Haythe &
Curley. Pursuant to Reg. S-K, Item
601(b)(2), the Company agrees to furnish a
copy of the Schedules and Exhibits to such
Agreement to the Commission upon
request*
Exhibit 4.16 Subscription Agreement dated as of October
26, 1998 between the Company and Dauphin
Capital Partners I, LP. Pursuant to Reg.
S-K, Item 601(b)(2), the Company agrees to
furnish a copy of the Schedules and Exhibits
to such Agreement to the Commission upon
request*
Exhibit 4.17 Subscription Agreement dated as of October
26, 1998 between the Company and Moises
Hernandez, M.D. Pursuant to Reg. S-K, Item
601(b)(2), the Company agrees to furnish a
copy of the Schedules and Exhibits to such
Agreement to the Commission upon
request*
Exhibit 4.18 Subscription Agreement dated as of October
26, 1998 between the Company and Tom Hodapp.
Pursuant to Reg. S-K, Item 601(b)(2), the
Company agrees to furnish a copy of the
Schedules and Exhibits to such Agreement to
the Commission upon request*
Exhibit 4.19 Subscription Agreement dated as of October
26, 1998 between the Company and Aaron Beam.
Pursuant to Reg. S-K, Item 601(b)(2), the
Company agrees to furnish a copy of the
Schedules and Exhibits to such Agreement to
the Commission upon request*
Exhibit 4.20 Subscription Agreement dated as of October
26, 1998 between the Company and Sanford R.
Robertson. Pursuant to Reg. S-K, Item
601(b)(2), the Company agrees to furnish a
copy of the Schedules and Exhibits to such
Agreement to the Commission upon request*
Exhibit 4.21 Revolving Credit Note dated October 30, 1998
by the Company in the aggregate principal
amount of $8,000,000 payable to the order of
Fleet Capital Corporation*
Exhibit 4.22 Secured Promissory Note (Term Note) by
the Company in the aggregate principal
amount of $8,000,000 payable to the order of
Fleet Capital Corporation*
16
<PAGE> 19
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
Exhibit 4.23 Secured Promissory Note (Acquisition Note)
by the Company in the aggregate principal
amount of $6,000,000 payable to the order of
Fleet Capital Corporation*
Exhibit 10.126 Amendment No. 3 to Rights Agreement dated as
of October 15, 1998 between the Company and
First Union National Bank of North Carolina,
as Rights Agent*
Exhibit 10.127 Loan and Security Agreement dated as of
October 30, 1998 by and among the Company,
certain subsidiaries of the Company on the
signature pages thereto, Fleet Capital
Corporation, as a Lender and as Agent, and
the Lenders from time to time party thereto.
Pursuant to Reg. S-K, Item 601(b)(2), the
Company agrees to furnish a copy of the
Schedules and Exhibits to such Agreement to
the Commission upon request*
Exhibit 10.128 Subordination Agreement dated October 30,
1998 by and among Holdings Pty., Paul Ramsay
Hospitals Pty. Limited, Ramsay Holdings HSA
Limited and Fleet Capital Corporation, as
Agent, and consented to by the Company and
certain of its subsidiaries on the signature
pages thereto*
Exhibit 10.129 Junior Subordinated Loan and Exchange
Agreement dated as of October 30, 1998 by
and between Holdings Pty. and the
Company*
Exhibit 10.130 Amended and Restated Exchange Agreement
dated as of October 26, 1998 by and between
Holdings Pty. and the Company. Pursuant to
Reg. S-K, Item 601(b)(2), the Company agrees
to furnish a copy of the Schedules and
Exhibits to such Agreement to the Commission
upon request*
Exhibit 11 Computation of Net Income (Loss) Per
Share*
Exhibit 27 Financial Data Schedule*
Exhibit 99.1 Press Release dated November 2, 1998*
Exhibit 99.2 Press Release dated November 2, 1998*
------------------
* Incorporated by reference to the Company's Report on
Form 10-Q for the quarter ended September 30, 1998.
(b) Current Reports on Form 8-K
The Company did not file any Current Reports on From 8-K
during the quarter ended September 30, 1998. Subsequent to
September 30, 1998, the Company did file on October 9, 1998 a
Current Report on Form 8-K related to the sale of its
behavioral health facilities.
17
<PAGE> 20
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/ Marcio C. Cabrera
---------------------------------------
Marcio C. Cabrera
Executive V.P. and
Chief Financial Officer
Date: January 13, 1999
18
