<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, 1995
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-15088
CONTINENTAL MEDICAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0287965
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
600 WILSON LANE
P.O. BOX 715
MECHANICSBURG, PA 17055
TELEPHONE NUMBER (717) 790-8300
___________________________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and, (2) has been subject to such filing
requirements for the past 90 days:
Yes X No _____
-----
As of April 30, 1995, there were 38,631,536 shares of the Registrant's $.01 par
value Common Stock outstanding.
================================================================================
<PAGE>
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
INDEX
FORM 10-Q - FOR THE QUARTER ENDED MARCH 31, 1995
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
ITEM 1. Consolidated Financial Statements:
Consolidated Balance Sheets
March 31, 1995 and June 30, 1994................................ 1
Consolidated Statements of Operations
Three months and nine months ended March 31, 1995 and 1994...... 2
Consolidated Statement of Stockholders' Equity
Nine months ended March 31, 1995................................ 3
Consolidated Statements of Cash Flows
Nine months ended March 31, 1995 and 1994 ...................... 4-5
Notes to Consolidated Financial Statements....................... 6-8
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 9-18
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K................................. 19
SIGNATURE ................................................................ 20
</TABLE>
<PAGE>
Continental Medical Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
March 31, 1995 and June 30, 1994
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
ASSETS 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share data)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 23,142 $ 54,862
Accounts receivable, net of allowance for doubtful accounts
($21,366, March 31, 1995 and $16,685, June 30, 1994) 216,025 232,198
Other receivables 14,120 10,778
Prepaid expenses 15,197 13,720
Prepaid income taxes 2,958 4,319
Deferred income taxes 12,569 5,610
------------ ------------
284,011 321,487
------------ ------------
Property and equipment, net 240,464 252,023
------------ ------------
Other:
Goodwill, net 89,871 72,613
Investments, principally affiliates 19,164 21,804
Notes receivable 29,390 31,454
Deferred income taxes 7,008 14,357
Deferred costs, new facilities, net 15,268 20,885
Other assets 36,992 32,119
------------ ------------
197,693 193,232
------------ ------------
$ 722,168 $ 766,742
============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 3,056 $ 4,013
Accounts payable 19,072 28,615
Accrued expenses 101,312 97,780
Due to third-party payors 21,974 24,676
------------ ------------
145,414 155,084
Long-term debt, net of current portion 310,895 353,752
Other liabilities 9,033 7,391
------------ ------------
465,342 516,227
------------ ------------
Minority interests 15,506 14,963
------------ ------------
Contingencies (Note 3)
Stockholders' equity:
Preferred stock, $.01 par; authorized 10,000,000 shares; None issued
Common stock, $.01 par; authorized 80,000,000 shares; 38,623,786 shares
issued and outstanding, March 31, 1995 (38,359,245, June 30, 1994) 386 384
Capital in excess of par 194,485 192,573
Retained earnings 46,449 42,595
------------ ------------
241,320 235,552
------------ ------------
$ 722,168 $ 766,742
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Continental Medical Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1995 1994 1995 1994
------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net operating revenues $ 249,331 $ 252,986 $ 738,363 $ 751,789
---------- ---------- ---------- ----------
Costs and expenses:
Cost of services 220,800 226,315 655,918 667,634
Interest expense 8,669 9,685 26,363 28,688
Depreciation and amortization 9,518 9,710 27,952 28,486
Special charge (Note 4) 5,045 18,443
---------- ---------- ---------- ----------
244,032 245,710 728,676 724,808
Income from operations 5,299 7,276 9,687 26,981
Other income, principally interest 915 776 2,361 2,538
---------- ---------- ---------- ----------
Income before minority interests,
income taxes and extraordinary gain 6,214 8,052 12,048 29,519
Minority interests (2,126) (1,042) (5,197) (3,416)
---------- ---------- ---------- ----------
Income before income taxes and extraordinary gain 4,088 7,010 6,851 26,103
Income taxes 2,284 2,840 4,955 10,572
---------- ---------- ---------- ----------
Net income before extraordinary gain 1,804 4,170 1,896 15,531
Extraordinary gain, net of income taxes (Note 5) 1,958 1,958
---------- ---------- ---------- ----------
Net income $ 3,762 $ 4,170 $ 3,854 $ 15,531
========== ========== ========== ==========
Net income per common share and
common equivalent share (Note 6):
Net income before extraordinary gain $ 0.05 $ 0.11 $ 0.05 $ 0.40
Extraordinary gain 0.05 0.05
---------- ---------- ---------- ----------
Net income $ 0.10 $ 0.11 $ 0.10 $ 0.40
========== ========== ========== ==========
Weighted average number of shares outstanding 39,535,492 38,835,178 39,530,243 38,609,729
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Continental Medical Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Nine Months Ended March 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Capital
-------------------------
Shares in excess Retained
issued Amount of par earnings Total
--------------------------------------------------------------------------------
(In thousands, except shares issued)
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1994 38,359,245 $ 384 $ 192,573 $ 42,595 $ 235,552
Stock issued pursuant to:
Employee benefit plans 133,032 1 760 761
Acquisition agreements 131,509 1 1,152 1,153
Net income for the nine months 3,854 3,854
---------- -------- ------------ ----------- ------------
Balance, March 31, 1995 38,623,786 $ 386 $ 194,485 $ 46,449 $ 241,320
========== ======== ============ =========== ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Continental Medical Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1995 1994
- ----------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,854 $ 15,531
----------- ------------
Adjustments:
Depreciation and amortization 27,952 28,486
Other 3,400 (222)
Special charge 18,443
Extraordinary gain, net of taxes (1,958)
Increase (decrease) in cash from changes in assets and liabilities,
excluding effects of acquisitions and dispositions:
Accounts receivable 15,574 (28,705)
Other assets (10,480) (7,212)
Accounts payable and accrued expenses (14,410) 10,522
Other liabilities (16,049) (2,921)
Income taxes 572 6,557
----------- ------------
Total adjustments 23,044 6,505
----------- ------------
Net cash provided by operating activities 26,898 22,036
----------- ------------
Cash flows from investing activities:
Payments pursuant to acquisition agreements, net of cash acquired (18,132) (14,689)
Cash proceeds from sale of property and equipment 15,735 13,835
Deferred costs, new facilities (2,652) (1,839)
Acquisition of property and equipment (11,907) (20,857)
Notes receivable 2,299 (279)
Other investing activities (2,944) (2,975)
----------- ------------
Net cash used in investing activities (17,601) (26,804)
----------- ------------
Cash flows from financing activities:
Long-term debt borrowing 105,131 88,329
Long-term debt repayment (141,322) (97,291)
Deferred financing costs (3,102) (910)
Issuance of common stock 761 1,280
Capital contributions by minority interests 361 1,608
Distributions to minority interests (2,846) (2,523)
----------- ------------
Net cash used in financing activities (41,017) (9,507)
----------- ------------
Decrease in cash and cash equivalents (31,720) (14,275)
Cash and cash equivalents, beginning of period 54,862 64,444
----------- ------------
Cash and cash equivalents, end of period $ 23,142 $ 50,169
=========== ============
</TABLE>
<PAGE>
Continental Medical Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1995 1994
- --------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized ($1,500
in fiscal 1994) $ 30,394 $ 31,058
=========== ===========
Income taxes (net of refunds) $ 4,934 $ 4,785
=========== ===========
Supplemental schedule of noncash investing and financing activities:
The company issued stock pursuant to various acquisition agreements $ 1,153 $ 3,549
========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
1. BASIS OF PRESENTATION:
In the opinion of the Company, the accompanying interim consolidated financial
statements present fairly the Company's financial position at March 31, 1995,
the results of its operations, and its cash flows for the three and nine month
periods then ended. All adjustments are of a normal and recurring nature. These
statements are presented in accordance with the rules and regulations of the
United States Securities and Exchange Commission ("SEC"). Accordingly, they are
unaudited, and certain information and footnote disclosures normally included in
the Company's annual consolidated financial statements have been condensed or
omitted, as permitted under the applicable rules and regulations. Readers of
these statements should refer to the Company's audited consolidated financial
statements and notes thereto which were presented in the Company's Form 10-K for
the year ended June 30, 1994. The results of operations presented in the
accompanying financial statements are not necessarily representative of
operations for an entire year due to, among other things, new hospital
development and divestitures, acquisitions, interest rate changes and
fluctuations in effective tax rates. Comparisons to the prior year might also be
affected for similar reasons. Certain items in the fiscal 1994 financial
statements have been reclassified to conform to the classifications in the
fiscal 1995 financial statements.
2. LONG-TERM DEBT:
During the first nine months of fiscal 1995, the Company purchased $85,206,000
principal amount of its Senior Subordinated Notes ("Subordinated Debt") at a
discount in a series of open market purchases.
3. CONTINGENCIES
Outstanding letters of credit aggregated approximately $29,085,000 at March 31,
1995.
The Company is subject to legal proceedings and claims which have arisen in the
ordinary course of its business and have not been finally adjudicated or
settled, which include among other items malpractice claims covered under the
Company's insurance policy. Additionally, in the normal course of business, the
Company has amounts due to or from the Medicare program, the Medicaid program
and other third party payors. The Company has recorded amounts due to or from
these third party payors which it believes are reasonable estimates. However,
additional changes to these estimates in the future may be appropriate based on
facts and circumstances which arise. Ultimately, the amounts due to or from
third party payors may be adjusted by these third party payors upon final
settlement. The Company is unable to estimate the likelihood or potential
amounts of any such settlements or adjustments.
4. SPECIAL CHARGE:
During the second and third quarters of fiscal 1995, special pre-tax charges of
$13,398,000 and $5,045,000 were recorded, respectively. The second quarter
special charge reflects the effect of a revision in the Company's estimate of
receivables from third party payors at its CMS Therapies, Inc. subsidiary. The
third quarter special charge reflects the costs of eliminating management and
staff positions, office lease terminations and certain other costs of the
changes implemented during the third quarter at CMS Therapies, Inc.
<PAGE>
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
5. EXTRAORDINARY GAIN:
During the third quarter of fiscal 1995, the Company recognized a gain of
$1,958,000 ($3,158,000 less related tax effect of $1,200,000) relating to open
market purchases of its Subordinated Debt at a discount.
6. NET INCOME PER SHARE:
Net income per common share and common equivalent share is based upon the
weighted average number of common shares outstanding during the period plus the
dilutive effect of common shares contingently issuable, primarily from stock
options and acquisition agreements requiring the issuance of shares contingent
on future earnings.
Fully diluted earnings per share are determined on the assumption that the 7
3/4% convertible subordinated debentures were converted July 1, 1993. Net income
was adjusted for the interest on the debentures, net of the related income tax
benefits.
7. MERGER AGREEMENT
On March 31, 1995, the Company and Horizon Healthcare Corporation, a Delaware
Corporation (Horizon), agreed to a strategic merger. Under the terms of the
Agreement and Plan of Merger (Merger Agreement), upon the effective time of the
merger a wholly owned subsidiary of Horizon will merge into the Company and
Horizon will change its name to Horizon/CMS Healthcare Corporation. The Company
will continue in existence as a wholly owned subsidiary of Horizon/CMS
Healthcare Corporation.
The Merger Agreement provides that each share of the Company's Common Stock
outstanding at the effective time of the merger will be converted into that
number of shares of Horizon Common Stock equal to $13.00 divided by the Horizon
Transaction Value, rounded to four decimal places (the "Exchange Ratio");
provided that the Exchange Ratio shall not be less than .4415 nor more than
.5397. The Horizon Transaction Value will be equal to the average closing price
on the New York Stock Exchange Composite Tape of Horizon Common Stock for the 20
New York Stock Exchange trading days ending with the third New York Stock
Exchange trading day immediately preceding the date of mailing of the Joint
Proxy Statement/Prospectus to the stockholders of the Company. The Exchange
Ratio will be fixed prior to the mailing of the definitive Joint Proxy
Statement/Prospectus to the stockholders of the Company and such definitive
material will be prepared based upon the Exchange Ratio as so fixed.
The Merger Agreement provides that the combination will be accounted for as a
pooling of interests and will constitute a tax-free reorganization for federal
income tax purposes. The transaction is subject to the satisfaction of
conditions, including approval by both companies' stockholders, receipt of
certain governmental consents and approvals, the effectiveness of a registration
statement filed with the Securities and Exchange Commission and other customary
conditions.
In connection with the Merger Agreement and the transactions contemplated
thereby, the Company also entered into a Stock Option Agreement, dated as of
March 31, 1995, by and among the Company and Horizon, and a Voting Agreement,
dated as of March 31, 1995, between Horizon and certain stockholders of the
Company named therein.
<PAGE>
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
Horizon and its subsidiaries provide specialty health care services and long
term nursing care. Horizon currently operates 133 long-term care centers, 16
specialty hospitals, 15 specialty subacute units, institutional pharmacy
services in 18 states and contract rehabilitation therapy services in 20 states.
It is anticipated that the merger will be consummated during the Company's
fourth quarter. The Company will reflect the costs of the merger on the
consummation date.
<PAGE>
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1995
_________________________________________________________________
OVERVIEW
- --------
The Company is a diversified provider of comprehensive medical rehabilitation
and physician services. The Company has a significant presence in each of the
rehabilitation industry's three principal sectors - inpatient rehabilitation
care, contract services and outpatient rehabilitation care. Additionally, the
Company is the largest provider of physician locum tenens services in the United
States. The following discussion of the Company's financial condition and
results of operations for the three and nine months ended March 31, 1995 and
1994 should be read in connection with the Management's Discussion and Analysis
of Financial Condition and Results of Operations presented in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1994.
The following table sets forth, for the periods indicated, net operating
revenues and EBITDA (defined as income from operations plus interest,
depreciation, amortization and special charge) for each of the Company's
operating groups (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, Increase March 31, Increase
1995 1994 (Decrease) 1995 1994 (Decrease)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net operating revenues:
- -----------------------
Rehabilitation group $139,367 $141,331 ( 1.4%) $406,696 $416,278 ( 2.3%)
Contract therapy services 85,999 86,075 ( 0.1%) 258,179 254,764 1.3%
Physician services 22,386 25,231 (11.3%) 69,661 79,930 (12.8%)
Other 1,579 349 N/M 3,827 817 N/M
-------- -------- ------- ------- -------- -------
$249,331 $252,986 (1.4%) $738,363 $751,789 ( 1.8%)
======== ======== ======= ======== ======== =======
EBITDA:
- -------
Rehabilitation group $ 20,694 $ 17,281 19.8% $ 60,240 $ 54,624 10.3%
Contract therapy services 7,223 7,889 ( 8.4%) 18,308 25,490 (28.2%)
Physician services 1,219 2,082 (41.5%) 5,639 5,930 ( 4.9%)
Other (605) (581) N/M (1,742) (1,889) N/M
--------- --------- ------- --------- --------- -------
$ 28,531 $ 26,671 7.0% $ 82,445 $ 84,155 ( 2.0%)
========= ========= ======= ========== ========= =======
</TABLE>
"Other" referred to in the above table consist principally of the Company's new
initiatives including SelectRehab, Innovative Health Alliances, Medical
Management Associates and Keystone Medical Systems. The percentage changes in
"Other" are not meaningful (N/M).
Certain reclassifications were made to the comparative prior year net operating
revenues to conform to the fiscal 1995 presentations.
<PAGE>
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORM 10-Q - FOR THE QUARTER ENDED MARCH 31,1995
________________________________________________________________________________
RESULTS OF OPERATIONS
NET OPERATING REVENUES AND EBITDA
Net operating revenues decreased by 1.4% to $249,331,000 for the three months
ended March 31, 1995 from $252,986,000 in the comparative quarter of the prior
year. During the nine months ended March 31, 1995, net operating revenues
decreased 1.8% to $738,363,000 from $751,789,000 for the same period in the
prior year. The decrease from the prior year's third quarter and nine months
resulted from operations sold or discontinued as part of the Company's
previously announced restructuring program which included the divestiture of two
rehabilitation hospitals during the fourth quarter of fiscal 1994. The decrease
also resulted from lower physician filled days in the Company's locum tenens
business.
EBITDA increased 7.0% to $28,531,000 for the three months ended March 31, 1995
from $26,671,000 in the comparative quarter of the prior year. During the nine
months ended March 31, 1995, EBITDA decreased 2.0% to $82,445,000 from
$84,155,000 for the same period in the prior year. The increase in the Company's
EBITDA for the three months ended March 31, 1995 over the comparative quarter of
the prior year resulted from the increase in EBITDA in the Company's
Rehabilitation Group which was offset, in part by decreases in the Company's
Contract Therapy and Physician Services Groups. The decrease in the Company's
EBITDA for the nine months ended March 31, 1995 over the comparative period of
the prior year resulted from a decrease in EBITDA in the Company's Contract
Therapy Services and Physician Services Groups, which was offset, in part, by
increases in EBITDA in the Company's Rehabilitation Group.
Approximately 44% of the Company's consolidated net operating revenues during
each of the third quarters of fiscal 1995 and fiscal 1994, was provided from
patients covered by the federal government's Medicare program for the aged and
chronically disabled and state Medicaid programs for the indigent. The balance
of the Company's net operating revenues was provided by private pay sources,
non-governmental payors, such as commercial insurance companies, and non-patient
related revenues.
The federal government, state governments, business and labor continue to
discuss, propose and implement various measures to control rising healthcare
costs, improve quality and provide funding for those who currently lack health
insurance. The Company is unable to predict what form these measures will take
and, as a result, cannot estimate how they might affect future operating
results.
Following is a discussion of the Company's operating groups. Certain operating
results related to new initiatives and management services companies have been
excluded from the discussion due to their immateriality in relation to the
consolidated results.
REHABILITATION GROUP:
The following table sets forth, for the periods indicated, net operating
revenues for the rehabilitation group (in thousands):
<PAGE>
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORM 10-Q - FOR THE QUARTER ENDED MARCH 31,1995
________________________________________________________________________________
RESULTS OF OPERATIONS
NET OPERATING REVENUES AND EBITDA (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended % Nine Months Ended %
March 31, Increase March 31, Increase
1995 1994 (Decrease) 1995 1994 (Decrease)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net operating revenues:
Rehabilitation group
Hospitals (fiscal year of opening)
Pre-1994 (32 hospitals) $121,490 $118,096 2.9% $356,726 $352,670 1.2%
Fiscal 1994 (4 hospitals) 11,676 7,836 49.0% 33,850 16,546 104.6%
Fiscal 1995 (1 hospital) 3,066 100.0% 5,403 100.0%
Divested facilities (2 hospitals) 6,920 N/M 20,582 N/M
------ ------ ------- ------ ------- -------
136,232 132,852 2.5% 395,979 389,798 1.6%
Other rehab related 3,135 8,479 (63.0%) 10,717 26,480 (59.5%)
------- ------- ------- ------- ------- -------
Total rehabilitation group $139,367 $141,331 ( 1.4%) $406,696 $416,278 ( 2.3%)
======== ======== ======= ======== ======== =======
</TABLE>
"Other rehab related" revenues referred to in the above table include revenues
from long-term care operations, Medicare reimbursement of certain home office
costs and certain outpatient operations.
The decreases in net operating revenues generated by the rehabilitation group
for the three and nine month periods ended March 31, 1995 as compared with the
comparable periods in the prior year resulted primarily from operations closed
or divested as part of the Company's previously announced restructuring program,
including the two hospitals divested during the fourth quarter of fiscal 1994.
The decline in other rehab related net operating revenues for the comparable
three and nine month periods is principally due to the Company's decision to
discontinue the provision of custodial care skilled nursing services at two of
its rehabilitation hospitals. Net operating revenues generated by the Company's
32 rehabilitation hospitals in operation during all of fiscal 1994 and the first
nine months of fiscal 1995 (the "Pre-1994 Hospitals") increased 2.9% and 1.2%,
respectively, for the three and nine month periods ended March 31, 1995 from the
comparable periods of the prior year.
As of March 31, 1995, the Company had transitional rehabilitation units, with a
total of 421 beds, in 24 of its rehabilitation hospitals. Transitional
rehabilitation units provide a lower level of care and consequently generate
lower revenues per occupied bed than an acute rehabilitation bed. However, there
are less costs related to providing transitional rehabilitation services. The
Company believes that its transitional rehabilitation units will increase its
overall inpatient utilization at its hospitals and expand its continuum of
services at various levels of care and cost, an important factor in dealing with
managed care payors.
<PAGE>
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORM 10-Q - FOR THE QUARTER ENDED MARCH 31,1995
________________________________________________________________________________
RESULTS OF OPERATIONS
NET OPERATING REVENUES AND EBITDA (CONTINUED)
REHABILITATION GROUP (CONTINUED):
The percentage of net operating revenues generated by Medicare and Medicaid
patients within the rehabilitation group was 66% and 65% for the three months
ended March 31, 1995 and 1994, respectively, and 65% and 63% for the nine months
ended March 31, 1995 and 1994, respectively.
With the pressures to control rising healthcare costs, more services are being
provided on an outpatient basis. Total outpatient treatments in the third
quarter of fiscal 1995 increased to 822,705 over the 740,949 outpatient
treatments in the comparative quarter of the prior year. For the nine months
ended March 31, 1995 outpatient treatments were 2,384,728, a 6.8% increase over
the same period of the prior year. Outpatient services represented 17.0% and
15.3% of the rehabilitation group's net operating revenues in the third quarters
of fiscal 1995 and 1994, respectively. While the volume of outpatient treatments
continues to increase, pricing of outpatient services has declined over the
prior year due to several factors including changes in the Company's marketing
strategy and changes in regulatory requirements affecting pricing in selected
states' workers compensation programs.
EBITDA for the rehabilitation group increased 19.8% for the three months ended
March 31, 1995 to $20,694,000 from $17,281,000 for the comparative quarter in
the prior year. EBITDA increased 10.3% for the nine months ended March 31, 1995
to $60,240,000 from $54,624,000 for the comparative period in the prior year.
The increases resulted from lower operating costs at the rehabilitation
hospitals.
Below are selected statistics for the Pre-1994 Hospitals:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1995 1994 % Change 1995 1994 % Change
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Occupancy percentage 72.6% 69.0% 5.2% 70.3% 65.7% 7.0%
Admissions 6,325 6,010 5.2% 18,027 16,908 6.6%
Average length of stay (days) 22.0 21.9 0.5% 22.3 22.4 ( .4%)
Patient days 137,437 127,892 7.5% 403,791 375,094 7.7%
Outpatient treatments 739,295 619,350 19.4% 2,157,037 1,896,300 13.7%
Outpatient % of net operating revenue 17.4% 15.6% 11.5% 17.5% 16.6% 5.4%
</TABLE>
Outpatient treatments for the Pre-1994 Hospitals increased 19.4% and 13.7% for
the three and nine months ended March 31, 1995, respectively over the
Comparitive periods in the prior year, which reflects demand for these services.
Occupancy percentage for the Pre-1994 Hospitals for the third quarter of fiscal
1995 was 72.6% as compared to 69.0% during the comparative quarter of the prior
year. Those same facilities' occupancy percentage for the nine months ended
March 31, 1995 was 70.3% compared to 65.7% during the same period in the prior
year. This increase in occupancy percentage was primarily due to an increase in
admissions during the first nine months of
<PAGE>
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORM 10-Q - FOR THE QUARTER ENDED MARCH 31,1995
__________________________________________________________________
RESULTS OF OPERATIONS
NET OPERATING REVENUES AND EBITDA (CONTINUED)
REHABILITATION GROUP (CONTINUED):
fiscal 1995. Average length of stay remained relatively consistent for the
comparative three and nine months ended March 31, 1995 and 1994. Certain
reimbursement methodologies, including those under the Tax Equity and Fiscal
Responsibility Act ("TEFRA") regulations, applicable to Medicare reimbursement,
make the number of admissions, in addition to occupancy percentages and average
length of stay, important in monitoring the results of the hospitals as revenue
growth becomes increasingly dependent upon patient volume. As of March 31, 1995,
the Company had 18 hospitals subject to TEFRA regulations.
The timing of new hospital openings during fiscal 1994 makes a comparison of
occupancy percentages between the third quarter of fiscal 1995 and 1994 for
these hospitals not meaningful. The rehabilitation hospitals opened in fiscal
1994 (the "1994 Hospitals") increased their patient days in the third quarter of
fiscal 1995 to 13,398 from 8,019 in the comparative quarter of the prior year.
Year to date, their patient days increased to 36,666 from 16,016 in the prior
year. During the third quarter of fiscal 1995, the occupancy percentage for the
1994 Hospitals was 64.7% and 58.2% for the nine months ended March 31, 1995.
CONTRACT THERAPY SERVICES:
Net operating revenues generated by Contract Therapy Services for the three
month period ended March 31, 1995 were essentially unchanged from the comparable
period of the prior year. The 1.3% increase in net operating revenues for the
nine months ended March 31, 1995 over the comparative period of the prior year
resulted from same company growth through the addition of new contracts with
both existing and new providers. The net number of facilities served increased
22.8% over the same period in the prior year. The Company continues to add
contracts with new facilities and terminate business with certain facilities
that do not meet the Company's business objectives. The contract therapy
companies serve over 2,300 facilities.
Approximately 80% and 83% of the net operating revenues for both the three and
nine months ended March 31, 1995, respectively, were generated through the
provision of therapist services to skilled nursing facilities, while the
remainder was generated by therapy services to hospitals, schools, clinics and
other institutions.
The percentage of net operating revenues generated from direct services to
Medicare/Medicaid patients remained relatively constant at approximately 20% for
the three and nine months ended March 31, 1995 and 1994.
EBITDA decreased 8.4% to $7,223,000 in the third quarter of fiscal 1995 from
$7,889,000 in the comparative quarter of the prior year. EBITDA decreased 28.2%
to $18,308,000 for the nine months ended March 31, 1995 from $25,490,000 in the
comparative period of the prior year. During the third quarter and first nine
months of fiscal 1995, the EBITDA from contract therapy services declined
compared to the prior year primarily due to declining performance at the
Company's CMS Therapies, Inc. subsidiary which provides therapists to nursing
homes on a contract basis. The declines resulted from lower therapist
productivity, higher than expected turnover, higher costs and other factors.
<PAGE>
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORM 10-Q - FOR THE QUARTER ENDED MARCH 31,1995
_________________________________________________________________
RESULTS OF OPERATIONS
PHYSICIAN SERVICES:
The decline in the Company's physician services net operating revenues for the
three and nine month periods ended March 31, 1995, respectively, over the
comparative periods of the prior year was a result of reduced demand, additional
competition in local markets and pricing pressures in the Company's
physician/locum tenens services. Net operating revenues for the three and nine
months ended March 31, 1995 declined 11.3% and 12.8%, respectively, as compared
to the same periods of the prior year.
During the three and nine months ended March 31, 1995 approximately 54% and 56%,
respectively, of net operating revenues was generated through services to
hospitals, while 36% and 33%, respectively, involved contracts with physician
groups. The remainder was with managed care programs, clinics and other sources.
EBITDA declined 41.5% to $1,219,000 in the third quarter of fiscal 1995 as
compared to $2,082,000 in the comparative quarter of the prior year. EBITDA also
declined 4.9% to $5,639,000 for the nine months ended March 31, 1995 from
$5,930,000 in the comparative period of the prior year. EBITDA decreased for the
comparative three and nine month periods primarily due to lower filled days and
pricing pressures. The decrease was partially offset by a reduction of costs
through the consolidation of the Company's locum tenens business during fiscal
1994.
The following tables set forth, for the periods indicated, filled days by
discipline:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
- ----------------------------------------------------------------------------------------------------
1995 1994 %
# OF # of Increase
DAYS % days % (Decrease)
---- ----- ---- ----- ---------
<S> <C> <C> <C> <C> <C>
Physicians:
Primary care 10,529 30.5 12,108 34.0 (13.0%)
Specialty care 11,054 32.0 12,028 33.8 ( 8.1%)
Allied professionals 12,970 37.5 11,482 32.2 13.0%
------ ----- ------ ----- -------
34,553 100.0 35,618 100.0 ( 3.0%)
====== ===== ====== ===== =======
<CAPTION>
Nine Months Ended
March 31,
- ----------------------------------------------------------------------------------------------------
1995 1994 %
# OF # of Increase
DAYS % days % (Decrease)
---- ----- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Physicians:
Primary care 29,955 28.9 35,333 31.7 (15.2%)
Specialty care 36,372 35.0 39,833 35.7 ( 8.7%)
Allied professionals 37,467 36.1 36,371 32.6 3.0%
------- ----- ------- ----- -------
103,794 100.0 111,537 100.0 ( 6.9%)
======= ===== ======= ===== ======
</TABLE>
<PAGE>
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORM 10-Q - FOR THE QUARTER ENDED MARCH 31,1995
_________________________________________________________________
RESULTS OF OPERATIONS
The decline in total filled days for the comparative three and nine month
periods ended March 31, 1995 and 1994, respectively, is due to reduced demand
for specialty physicians locum tenens services and additional competition in
local markets along with the effect of the consolidation of the Company's
primary care physician product lines. Allied professionals represent
approximately 23% of physician services net operating revenues for both the
three and nine months ended March 31, 1995. The Company believes the primary
care physician product line has greater long-term growth prospects than its
specialist product line.
INTEREST EXPENSE
Interest expense for the third quarter of fiscal 1995 was $8,669,000 compared to
$9,685,000 for the comparative quarter of the prior year. Interest expense year
to date in fiscal 1995 totalled $26,363,000 compared to $28,688,000 for the
comparative time period of the prior year, a decrease of $2,325,000. The
decreases for the three and nine months of fiscal 1995 over the comparable prior
year periods were primarily due to a lower average outstanding debt balance as a
result of the retirement of $85,206,000 of the Company's Senior Subordinated
Notes during fiscal 1995. The decreases were offset, in part, by interest
expense related to bank credit facility borrowings.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization were essentially unchanged over the comparative
three and nine months ended March 31, 1995 versus the comparative prior year
periods as increases in depreciation expense resulting from the openings of new
hospitals were offset by the lower depreciation expense from facilities impaired
through the special charge recorded in the fourth quarter of fiscal 1994.
SPECIAL CHARGE
The Company has taken a special pre-tax charge of $5,045,000 in the third
quarter which, together with the special charge taken in the second quarter,
brings the special charge to $18,443,000 year to date. As previously announced
during the Company's second quarter, the operations of the Company's largest
contract therapy subsidiary, CMS Therapies, began to show declines during the
second fiscal quarter. In response to the declining operations, the Company has
implemented significant changes at the subsidiary. Virtually all of the
subsidiary's senior management have been replaced, approximately 260 positions
have been eliminated, office leases have been terminated and the entire
operation has been reviewed and new operating procedures implemented. The third
quarter special charge reflects the elimination of staff positions, office lease
terminations and certain other costs of the changes which were implemented
during the third quarter. The second quarter special charge reflects the effect
of a revision in the Company's estimate of amounts due to or from third party
payors.
MINORITY INTERESTS
Minority interests in net income increased for both the three and nine months
ended March 31, 1995. The increases were primarily due to improved profitability
in fiscal 1995 at the Company's joint ventured rehabilitation hospitals.
<PAGE>
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORM 10-Q - FOR THE QUARTER ENDED MARCH 31,1995
________________________________________________________________
INCOME TAXES
Income taxes as a percentage of income (loss) before income taxes were 55.9% and
72.3% for the three and nine months ended March 31, 1995, respectively. These
percentages reflect the effect of the special charge taken in the second and
third quarters and are before the extraordinary gain. Without the effect of the
special charge and the extraordinary gain, pro forma income taxes as a
percentage of income before income taxes were 46.0% for each of the three and
nine month periods ended March 31, 1995. The percentage for each of the
comparable periods in the prior year was 40.5%. The Company's higher pro forma
effective tax rate resulted primarily from a higher effective state tax rate, a
reduction in the tax exempt interest income, a higher proportion of income from
subsidiaries not consolidated for tax purposes and a relative increase in non-
deductible costs such as goodwill amortization.
CAPITAL RESOURCES AND LIQUIDITY
For the nine months ended March 31, 1995, operating activities provided
$26,898,000 of cash as compared with $22,036,000 in the nine months ended March
31, 1994. In the past, the Company has utilized cash from operations to fund the
working capital of new hospital openings as well as the expansion of certain
contract therapy and physician services operations. The cash flow increase
relates principally to the slowdown of capital intensive hospital development
projects. Available cash was primarily used to fund the Company's operating cash
requirements and to retire long term debt for the nine months of fiscal 1995.
See the Consolidated Statements of Cash Flows for a detailed analysis of the
components of cash flow.
Long-term debt outstanding at March 31, 1995 totalled $313,951,000, including
$3,056,000 representing the current portion of long-term debt. During the first
nine months of fiscal 1995, the Company purchased approximately $85,206,000 of
its Senior Subordinated Notes in a series of open market purchases. The Company
anticipates that it will employ operating cash flow in new growth opportunities
within its core businesses and, where market opportunities are available on
favorable terms, to selectively retire long-term debt. The Company's credit
facility provides up to $235,000,000 in a revolving line of credit, of which up
to $45,000,000 is available in the form of letters of credit. At March 31, 1995,
there were approximately $43,000,000 of borrowings and approximately $29,085,000
of letters of credit outstanding under the credit facility. The credit facility
provides for a revolving loan period through December 31, 1996 and the
subsequent conversion of the revolving loan into a four-year term loan. The
Company has pledged its ownership interests in certain of its operating
subsidiaries as collateral under the facility. The Company is also subject to
certain financial and other covenants, including, without limitation,
restrictions on the amount of other indebtedness it may incur and on paying cash
dividends.
The Company's ongoing working capital requirements relate principally to routine
capital expenditures, future development projects, potential acquisitions and
activities within its contract therapy and physician services companies. The
Company currently has no new hospital construction in progress. The Company
currently estimates that its capital requirements for the foreseeable future
will consist of capital maintenance and improvements at existing facilities in
the normal course of business and will be funded through the Company's operating
cash flow or its credit facility. Pursuant to contingent deferred payment
provisions of certain acquisition agreements, the Company expects that
additional capital may be required to pay the sellers of the acquired companies
through fiscal 1997, based upon the earnings of the acquired companies.
The Company has historically expanded its business, in part, through selective
acquisitions and intends to pursue additional acquisition opportunities from
time to time. It is anticipated that future acquisitions will be funded through
the issuance of capital stock and payment of cash and other consideration.
Management believes that current sources of capital are sufficient to meet the
needs of the Company's business for the foreseeable future. Liquidity on a
short-term basis will be provided internally from the Company's operating cash
flow and externally
<PAGE>
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORM 10-Q - FOR THE QUARTER ENDED MARCH 31,1995
__________________________________________________________________
RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY (CONTINUED)
from its bank credit facility. At March 31, 1995 the Company had $162,915,000 of
unused borrowing capacity (subject to applicable covenants which may limit
borrowing capacity) under its credit facility, of which $15,915,000 is available
in the form of letters of credit.
During the third quarter, the Company completed the sale of the land and
building comprising its former Rocky Mountain facility in Aurora, Colorado which
was contracted for in June 1994. The sale was completed with the former joint
venture partner in the Rocky Mountain facility, HealthOne of Denver, Colorado.
On March 31, 1995, the Company and Horizon Healthcare Corporation, a Delaware
Corporation (Horizon), agreed to a strategic merger. Under the terms of the
Agreement and Plan of Merger (Merger Agreement), upon the effective time of the
merger a wholly owned subsidiary of Horizon will merge into the Company and
Horizon will change its name to Horizon/CMS Healthcare Corporation. The Company
will continue in existence as a wholly owned subsidiary of Horizon/CMS
Healthcare Corporation.
The Merger Agreement provides that each share of the Company's Common Stock
outstanding at the effective time of the merger will be converted into that
number of shares of Horizon Common Stock equal to $13.00 divided by the Horizon
Transaction Value, rounded to four decimal places (the "Exchange Ratio");
provided that the Exchange Ratio shall not be less than .4415 nor more than
.5397. The Horizon Transaction Value will be equal to the average closing price
on the New York Stock Exchange Composite Tape of Horizon Common Stock for the 20
New York Stock Exchange trading days ending with the third New York Stock
Exchange trading day immediately preceding the date of mailing of the Joint
Proxy Statement/Prospectus to the stockholders of the Company. The Exchange
Ratio will be fixed prior to the mailing of the definitive Joint Proxy
Statement/Prospectus to the stockholders of the Company and such definitive
material will be prepared based upon the Exchange Ratio as so fixed.
The Merger Agreement provides that the combination will be accounted for as a
pooling of interests and will constitute a tax-free reorganization for federal
income tax purposes. The transaction is subject to the satisfaction of
conditions, including approval by both companies' stockholders, receipt of
certain governmental consents and approvals, the effectiveness of a registration
statement filed with the Securities and Exchange Commission and other customary
conditions.
In connection with the Merger Agreement and the transactions contemplated
thereby, the Company also entered into a Stock Option Agreement, dated as of
March 31, 1995, by and among the Company and Horizon, and a Voting Agreement,
dated as of March 31, 1995, between Horizon and certain stockholders of the
Company named therein.
Horizon and its subsidiaries provide specialty health care services and long
term nursing care. Horizon currently operates 133 long-term care centers, 16
specialty hospitals, 15 specialty subacute units, institutional pharmacy
services in 18 states and contract rehabilitation therapy services in 20 states.
It is anticipated that the merger will be consummated during the Company's
fourth quarter. The Company will reflect the costs of the merger on the
consummation date.
In fiscal 1994 the Company recorded a special charge of $74,834,000, which
included a charge for restructuring certain elements of its business. At March
31, 1995 an accrual of $12,602,000 remains to complete the plan associated with
certain components of the special charge.
During the fiscal year, operating facilities and office locations of the Company
were visited or contacted by representatives of the U.S. Justice Department for
the purpose of interviewing certain of its employees and
<PAGE>
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORM 10-Q - FOR THE QUARTER ENDED MARCH 31,1995
___________________________________________________________________
RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY (CONTINUED)
reviewing certain documents. The Company is cooperating with the Justice
Department inquiries. The Company's management is not aware of any Company
practices of the type covered by the Justice Department inquiries, or otherwise,
that are not in compliance with the rules and regulations applicable to its
operations. The Company is unable to predict what effect, if any, these
inquiries will have on the Company's business.
During April 1995, the Health Care Financing Administration (HCFA) issued a
memorandum relating to Payment of Occupational and Speech Language Pathology
Services furnished under arrangements. The memorandum, while not binding,
suggested rates to Medicare Intermediaries to assist them in making "prudent
buyer" assessments of speech and occupational therapy rates. As the HCFA
memorandum acknowledges that the rates noted are not absolute limits and should
only be used for comparative purposes, the Company cannot predict what effect,
if any, the HCFA memorandum will have on the Company's future results, liquidity
or cash flows.
In the normal course of its business, certain contingencies have the potential
to affect the Company's operating results and financial position. These
contingencies are discussed in Note 3 of the Company's financial statements
included in this report.
<PAGE>
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORM 10-Q - FOR THE QUARTER ENDED MARCH 31,1995
________________________________________________________________________________
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
(4) Ninth Amendment dated March 7, 1995 to the Amended and
Restated Credit Agreement.
(11) Computation of Earnings Per Share
(27) Financial Data Schedule
(B) REPORTS ON FORM 8-K
(1) Report dated March 31, 1995 (filed April 10, 1995) reporting
the Agreement and Plan of Merger among CMS, Horizon and CMS
Merger Corporation, a wholly owned subsidiary of Horizon.
<PAGE>
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
SIGNATURE
FORM 10-Q - FOR THE QUARTER ENDED MARCH 31, 1995
________________________________________________________________________________
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONTINENTAL MEDICAL SYSTEMS, INC.
Date: May 11, 1995 By: /S/ Dennis L. Lehman
--------------- --------------------------
Dennis L. Lehman
Senior Vice-President - Finance
and Chief Financial Officer
Signing on the behalf of the registrant and
as principal financial officer.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Document Page
- ------ -------- ----
<C> <S> <C>
4. Ninth Amendment dated March 7, 1995 to the Amended and
Restated Credit Agreement
11. Computation of Earnings Per Share
27. Financial Data Schedule
</TABLE>
<PAGE>
Exhibit 4
WAIVER AND NINTH AMENDMENT
--------------------------
March 7, 1995
Citibank, N.A., as Agent
c/o Citicorp North America, Inc.
1400 Trammell Crow Center
2001 Ross Avenue
Dallas, TX 75201
Attention: Mr. Richard J. Sirchio
RE: Waiver and Ninth Amendment
--------------------------
Ladies and Gentlemen:
Reference is made to the Amended and Restated Credit Agreement among
Continental Medical Systems, Inc., a Delaware corporation ("Borrower"), the
Lenders from time to time party thereto (the "Lenders"), NationsBank of
Tennessee, N.A., a national banking association, successor by assignment to
Maryland National Bank, as Co-Agent, and Citibank, N.A., a national banking
association, as Agent ("Agent"), dated as of August 28, 1991, as amended as of
December 31, 1991, March 31, 1992, July 8, 1992, September 23, 1992, February
26, 1993, March 26, 1993, December 10, 1993 and June 17, 1994 (the "Credit
Agreement"). Unless otherwise defined herein, terms are used herein as defined
in the Credit Agreement.
The purpose of this letter is to request the agreement of Agent and
the Majority Lenders to waive the condition set forth in Section 6.20(c)(i)(B)
of the Credit Agreement (for fiscal quarters beginning after December 31, 1994)
and to amend Section 6.20(c)(iii)(A) of the Credit Agreement in connection with
Borrower's purchase from time to time after the date hereof of Debt outstanding
under the Subordinate Debt Indentures. To date, Borrower has spent an aggregate
of approximately $64.35 million to repurchase approximately $71.9 million
principal amount of such Debt (including approximately $19.5 million spent
during the current fiscal quarter) in accordance with Section 6.20 of the Credit
Agreement.
<PAGE>
The amendment requested for Section 6.20(c)(iii)(A) of the Credit
Agreement is that the ratio in such section be changed from "0.75 to 1.00" to
"1.15 to 1.00". In addition, the Credit Agreement would be further amended to
provide for a related amendment fee by adding a new Section 2.03(i) to read as
follows:
(i) The Borrower agrees to pay to Agent, for the account of each
Lender who executes the Ninth Amendment to this Agreement, an amendment fee
equal to 0.075% times the amount of such Lender's Specified Percentage of
the Commitment as of the date of the Ninth Amendment to this Agreement,
payable on or before August 31, 1995, unless on or before such date each
Lender (or its assignee pursuant to Section 9.04(a) hereof) consents in
writing to an extension of the Conversion Date for at least one year. The
Borrower acknowledges that the Lenders have no obligation to consent to any
such extension.
In order to induce Agent and the Lenders to agree to such waiver and
amendments, Borrower hereby represents and warrants that (a) there exists no
Default or Event of Default under the Credit Agreement on the date hereof, (b)
the representations and warranties set forth in Article V of the Credit
Agreement are true and correct on the date hereof, and (c) Borrower has complied
with all agreements and conditions to be complied with by it under the Credit
Agreement and the other Loan Papers by the date hereof.
Borrower also agrees that such waiver shall extend only to the
requirements of the Credit Agreement to the limited extent expressly provided
herein and shall not be deemed to extend to any other or additional state of
facts or circumstance or any other covenant, obligation, representation or
warranty of any party to the Credit Agreement or the other Loan Papers. Borrower
also agrees that, except as waived and amended hereby, the Credit Agreement and
the other Loan Papers, and each term, condition, covenant, obligation,
representation and warranty thereunder, shall otherwise be and remain in full
force and effect.
Borrower and, by their signatures, Agent and the Lenders acknowledge
and agree (a) that this letter embodies the entire agreement of the parties, may
not be contradicted by evidence of prior, contemporaneous or subsequent oral
agreements, and supersedes any prior agreements or understandings, with respect
to the subject matter hereof and (b) that the waiver and amendments requested
hereby shall be governed by and construed in accordance with the laws of the
State of New York and the United States of America.
2
<PAGE>
We ask Agent and the Lenders to confirm their agreement to the waiver
and amendments requested hereby by signing the enclosed counterparts of this
letter in the space provided below, such waiver and amendments to be effective
when signed by the Majority Lenders and consented to by the Subsidiary
Guarantors and Borrowing Subsidiaries listed on the consent and agreement
attached hereto.
Sincerely,
CONTINENTAL MEDICAL SYSTEMS, INC., a
Delaware corporation
By:
Dennis L. Lehman,
Senior Vice President
WAIVER GRANTED AND AMENDMENT AGREED TO:
Agent:
CITIBANK, N.A., as Agent Dated: March 7, 1995
By: /s/ Barbara A. Cohen
------------------------------------
Barbara A. Cohen
Title: Vice President
Lenders:
CITIBANK, N.A., individually Dated: March 7, 1995
By: /s/ Barbara A. Cohen
------------------------------------
Barbara A. Cohen
Title: Vice President
NATIONSBANK OF TENNESSEE, N.A. Dated: March 8, 1995
(formerly known as Sovran
Bank/Tennessee)
By: /s/ Patrick J. Neal
------------------------------------
Patrick J. Neal
Title: Assistant Vice President
[SIGNATURES CONTINUED ON NEXT PAGE]
MELLON BANK, N.A. Dated: March 8, 1995
By: /s/ Daniel T. Weick
------------------------------------
Daniel T. Weick
Title: Assistant Vice President
PNC BANK, NATIONAL ASSOCIATION Dated: March 7, 1995
(formerly known as Pittsburgh
National Bank)
By: /s/ Robert J. Courie
------------------------------------
Robert J. Courie
Title: Commercial Banking Officer
THE BANK OF CALIFORNIA, N.A. Dated: March 7, 1995
By: /s/ Albert W. Kelley
------------------------------------
Albert W. Kelley
Title: Vice President
THE CHASE MANHATTAN BANK, N.A. Dated: March 7, 1995
By: /s/ Nina W. Lihn
------------------------------------
Nina W. Lihn
Title: Managing Director
3
<PAGE>
CORESTATES BANK, N.A. Dated: March 7, 1995
By: /s/ Paul Hogan
----------------------------------
Paul Hogan
Title: Assistant Vice President
4
<PAGE>
CONSENT AND AGREEMENT
The undersigned, being Subsidiary Guarantors and Borrowing
Subsidiaries (each as defined in the Credit Agreement), hereby consent and
agree, as of March 7, 1995, to the foregoing Waiver and Ninth Amendment to the
Credit Agreement and hereby confirm their respective guarantees and grants of
security interests and other obligations under the Loan Papers (as defined in
the Credit Agreement), which shall remain in full force and effect and be
applicable to the Credit Agreement and the Loan Papers, as waived and amended by
the foregoing Waiver and Ninth Amendment.
APCO MEDICAL LABORATORIES, INC.
BATON ROUGE REHAB, INC.
BRAINTREE REHABILITATION VENTURES,
INC.
CENTRAL ARIZONA REHABILITATION
HOSPITAL, INC.
CENTRAL ARKANSAS OUTPATIENT CENTERS,
INC.
CHICO REHABILITATION HOSPITAL, INC.
CLEAR LAKE REHABILITATION HOSPITAL,
INC.
CMS ADMINISTRATIVE SERVICES, INC.
(formerly Capital Rehabilitation
Hospital, Inc.) (formerly New London
Rehabilitation Hospital, Inc.)
CMS ALEXANDRIA REHABILITATION, INC.
CMS BATON ROUGE REHABILITATION, INC.
CMS BEAUMONT REHABILITATION, INC.
CMS CONTRA COSTA CLINIC, INC. (formerly
Unit Management Group, Inc., formerly
Northeast Wisconsin Rehabilitation
Hospital, Inc.)
CMS DENVER REHABILITATION, INC.
CMS DEVELOPMENT AND MANAGEMENT
COMPANY, INC.
CMS ELIZABETHTOWN, INC.
CMS FAYETTEVILLE REHABILITATION, INC.
CMS FORT WORTH REHABILITATION, INC.
CMS FRESNO REHABILITATION, INC.
CMS HOUSTON REHABILITATION, INC.
CMS KANSAS CITY REHABILITATION, INC.
CMS OF OHIO, INC.
CMS OUTPATIENT CENTERS OF NORTH TEXAS,
INC.
CMS OUTPATIENT CENTERS OF SOUTH TEXAS,
INC.
CMS OUTPATIENT REHABILITATION SERVICES,
INC. (formerly Fairfield
Rehabilitation Hospital, Inc.)
CMS PENNSYLVANIA, INC.
(formerly CMS Pennsylvania
Rehabilitation, Inc.)
CMS REHABILITATION CENTER OF HIALEAH,
INC.
CMS RUSTON REHABILITATION, INC.
CMS SAN DIEGO REHAB, INC.
CMS SHERWOOD REHABILITATION, INC.
5
<PAGE>
CMS SOUTH MIAMI REHAB, INC.
CMS SPORTSMED CLINIC, INC.
(formerly CMS Los Gatos, Inc.)
CMS THERAPIES, INC. (formerly Premier
Rehabilitation Services, Inc.)
(formerly Communi-Care of America,
Inc.) (SPECIFIED DEBT)
CMS THERAPIES MANAGEMENT, INC.
(formerly Premier Rehabilitation
Management, Inc.) (formerly
Communi-Care/Pro Rehab Management,
Inc.) (formerly Alta Petens, Inc.)
(SPECIFIED DEBT)
CMS THERAPIES PROVIDER, INC.
(formerly Premier Rehab, Inc.)
(formerly Pro-Rehab, Inc.)
(SPECIFIED DEBT)
CMS THERAPY SERVICES, INC.
(formerly Advanced Care Medicine,
Inc.)
CMS TOPEKA REHABILITATION, INC.
CMS TRI-CITIES REHABILITATION
HOSPITAL, INC.
CMS TUSTIN REHABILITATION, INC.
CMS WICHITA REHABILITATION, INC.
CMS WORK-ABLE, INC.
CMS WORK-ABLE OF PARAGOULD, INC.
CMS WORKNET OF BATON ROUGE, INC.
CMSI SYSTEMS OF TEXAS, INC.
COLORADO OUTPATIENT CENTERS, INC.
(formerly CMS Kokomo Rehabilitation,
Inc.)
COMPHEALTH, INC.
COMPHEALTH MEDICAL STAFFING, INC.
CONTINENTAL MEDICAL OF ARIZONA, INC.
CONTINENTAL MEDICAL OF COLORADO, INC.
CONTINENTAL MEDICAL OF KENTUCKY, INC.
CONTINENTAL MEDICAL OF PALM BEACH,
INC.
CONTINENTAL MEDICAL SYSTEMS OF
FLORIDA, INC.
CONTINENTAL REHAB OF W.F., INC.
CONTINENTAL REHABILITATION HOSPITAL OF
ARIZONA, INC.
ELIZABETHTOWN MANAGEMENT COMPANY, INC.
FAIRLAND NURSING AND RETIREMENT HOME,
INC.
GREAT PLAINS REHABILITATION HOSPITAL,
INC.
HCA WESLEY REHABILITATION CLINIC OF
LIBERAL, INC. (formerly CMS Chico
Rehabilitation, Inc.)
HCA WESLEY REHABILITATION HOSPITAL,
INC. (SPECIFIED DEBT)
HIALEAH CONVALESCENT CENTERS, INC.
INDIANA OUTPATIENT CENTERS, INC.
6
<PAGE>
INNOVATIVE HEALTH ALLIANCES, INC.
(formerly InterNet Health
Alliance, Inc.)
(formerly Memphis Rehabilitation
Hospital, Inc.)
K.C. REHABILITATION HOSPITAL, INC.
(SPECIFIED DEBT)
KANSAS OUTPATIENT CENTERS, INC.
KENTFIELD HOSPITAL CORPORATION
KOKOMO REHABILITATION HOSPITAL, INC.
LOUISIANA OUTPATIENT CENTERS, INC.
MANAGEMENT CARE THERAPY SERVICES, INC.
MARYLAND REHABILITATION HOSPITAL, INC.
MID-AMERICA OUTPATIENT CENTERS, INC.
(formerly Pikeville Rehabilitation
Hospital, Inc.)
NEVADA REHABILITATION HOSPITAL, INC.
NORTHEAST ARKANSAS REHABILITATION
UNIT, INC.
NORTHEAST OKLAHOMA REHABILITATION
HOSPITAL, INC.
NORTH LOUISIANA REHABILITATION CENTER,
INC. (SPECIFIED DEBT)
NORTHERN VIRGINIA REHABILITATION
HOSPITAL, INC. (formerly Iliff
Nursing Home, Inc.)
ORANGE REHABILITATION HOSPITAL, INC.
P.G. REHAB HOSPITAL, INC.
PALM SPRINGS REHABILITATION HOSPITAL,
INC.
PARK MANOR NURSING HOME, INC.
PHYSICAL THERAPY SOURCE, INC.
(formerly Hartford Rehabilitation
Hospital, Inc.)
PINELLAS-RODRIGUEZ REHABILITATIVE
ASSOCIATES LIMITED, INC.
PREMIER ANCILLARY SERVICES, INC.
(formerly RMS Clinics, Inc. and
Continental Rehabilitation of
Alexandria, Inc.)
PRO THERAPY OF AMERICA, INC.
PROFESSIONAL MANAGEMENT RESOURCES, INC.
PROFESSIONAL THERAPY INTERNATIONAL,
INC.
PROFESSIONAL THERAPY STAFFING, INC.
RCM MANAGEMENT COMPANY, INC.
REHAB JOINT VENTURES, INC.
REHAB RESOURCES, INC. (formerly Rehab
America Management Services, Inc.)
REHABILITATIVE ASSOCIATES, INC.
REHABILITATION HOSPITAL OF COLORADO
SPRINGS, INC.
REHABILITATION HOSPITAL OF FORT WAYNE,
INC.
REHABILITATION HOSPITAL OF NEVADA - LAS
VEGAS, INC. (formerly SR Sub, Inc.)
REHABILITATION HOSPITAL OF PLANO, INC.
7
<PAGE>
REHABWORKS, INC.
REHABWORKS OF CALIFORNIA, INC.
(formerly, California Therapy, Inc.)
ROMANO REHABILITATION HOSPITAL, INC.
SD ACQUISITION CORPORATION
SD PARTNERS, INC.
SAN BERNARDINO REHABILITATION
HOSPITAL, INC.
SELECTREHAB, INC. (formerly CMS Unit
Management, Inc.)
SHERWOOD REHABILITATION HOSPITAL, INC.
SIERRA PAIN AND OCCUPATIONAL
REHABILITATION CENTER, INC.
(formerly Coastal Empire
Rehabilitation Hospital, Inc.)
SOUTHEAST TEXAS REHABILITATION
HOSPITAL, INC.
TARRANT COUNTY REHABILITATION
HOSPITAL, INC.
TERRE HAUTE REHABILITATION HOSPITAL,
INC.
THE KELTON CORPORATION
THE NURSING HOME AT CHEVY CHASE, INC.
THE REHAB SOURCE, INC.
TULSA REHABILITATION HOSPITAL, INC.
TYLER REHABILITATION HOSPITAL, INC.
WESTERN NEURO CARE, INC.
WESTERN NEUROLOGIC RESIDENTIAL
CENTERS, INC.
WESTERN NEURO RESIDENTIAL, INC.
WICHITA FALLS REHABILITATION HOSPITAL,
INC.
BEAUMONT REHAB ASSOCIATES LIMITED PARTNERSHIP (SPECIFIED DEBT)
By Southeast Texas Rehabilitation
Hospital, Inc., General Partner
CENTRAL ARKANSAS REHABILITATION ASSOCIATES, L.P. (SPECIFIED DEBT)
By Sherwood Rehabilitation
Hospital, Inc., General Partner
CENTRAL LOUISIANA REHAB ASSOCIATES, L.P. (SPECIFIED DEBT)
By CMS Alexandria Rehabilitation,
Inc., General Partner
CMS REHAB OF W.F., L.P. (SPECIFIED DEBT)
By Continental Rehab of W.F.,
Inc., General Partner
CMS REHABILITATION CENTER OF SOUTH MIAMI (SPECIFIED DEBT)
By CMS South Miami Rehab, Inc.,
General Partner
COLLIN COUNTY REHAB ASSOCIATES LIMITED PARTNERSHIP (SPECIFIED DEBT)
By Rehabilitation Hospital of
Plano, Inc., General Partner
HELMWOOD ASSOCIATES LIMITED PARTNERSHIP (SPECIFIED DEBT)
By CMS Elizabethtown, Inc.,
General Partner
HOUSTON REHABILITATION ASSOCIATES (SPECIFIED DEBT)
By Romano Rehabilitation Hospital,
Inc., General Partner
KOKOMO REHABILITATION HOSPITAL, L.P.
8
<PAGE>
By Kokomo Rehabilitation Hospital,
Inc., General Partner
LAKEVIEW REHABILITATION GROUP PARTNERS (SPECIFIED DEBT)
By Continental Medical Of Kentucky,
Inc., General Partner
MARYLAND REHAB ASSOCIATES, L.P.
By Maryland Rehabilitation
Hospital, Inc., General Partner
MEMPHIS REHAB ASSOCIATES, LIMITED
PARTNERSHIP (SPECIFIED DEBT)
By CMS Tri-Cities Rehabilitation
Hospital, Inc., General Partner
NORTHEAST OKLAHOMA REHAB ASSOCIATES, L.P.
By Northeast Oklahoma Rehabilitation
Hospital, Inc., General Partner
NORTHERN RHODE ISLAND REHAB MANAGEMENT ASSOCIATES, L.P. (SPECIFIED DEBT)
By Braintree Rehabilitation
Ventures, Inc., General Partner
NORTHWEST ARKANSAS REHABILITATION ASSOCIATES (SPECIFIED DEBT)
By CMS Fayetteville
Rehabilitation, Inc., General
Partner
) PHYSICAL THERAPY AND SPORTS MEDICINE CENTER PARTNERSHIP (SPECIFIED DEBT
By Pro Therapy of America, Inc.,
General Partner
PRIDE/BRAINTREE JOINT VENTURE
By Braintree Rehabilitation
Ventures, Inc., General Partner
REHAB HOSPITAL OF FORT WAYNE GENERAL PARTNERSHIP (SPECIFIED DEBT)
By Rehabilitation Hospital of Fort
Wayne, Inc.
REHABILITATION HOSPITAL OF NEVADA -
LAS VEGAS, L.P.
By Rehabilitation Hospital of Nevada-
Las Vegas, Inc., General Partner
RENO REHAB ASSOCIATES, LIMITED
PARTNERSHIP
By Nevada Rehabilitation Hospital,
Inc., General Partner
SAN BERNARDINO REHABILITATION HOSPITAL (SPECIFIED DEBT)
By San Bernardino Rehabilitation
Hospital, Inc., General Partner
SAN DIEGO HEALTH ASSOCIATES LIMITED PARTNERSHIP
By SD Acquisition Corporation,
General Partner
SAN DIEGO REHAB LIMITED PARTNERSHIP (SPECIFIED DEBT)
By San Diego Rehabilitation
Associates, General Partner
By CMS San Diego Rehab, Inc.,
General Partner
SAN DIEGO REHABILITATION ASSOCIATES (SPECIFIED DEBT)
By CMS San Diego Rehab, Inc.,
General Partner
SAN JOAQUIN VALLEY REHABILITATION
HOSPITAL, A DELAWARE LIMITED
9
<PAGE>
PARTNERSHIP (SPECIFIED DEBT)
By Orange Rehabilitation Hospital,
Inc., General Partner
SOUTHERN ARIZONA REGIONAL REHABILITATION HOSPITAL, L.P. (SPECIFIED DEBT)
By Continental Rehabilitation
Hospital of Arizona, Inc.,
General Partner
SPORTSMED ASSOCIATES (SPECIFIED DEBT)
By CMS Sportsmed Clinic, Inc.,
General Partner
TERRE HAUTE REGIONAL REHABILITATION HOSPITAL, L.P. (SPECIFIED DEBT)
By Terre Haute Rehabilitation
Hospital, Inc., General Partner
TRI-CITIES REHABILITATION HOSPITAL, L.P. (SPECIFIED DEBT)
By CMS Tri-Cities Rehabilitation
Hospital, Inc., General Partner
TULSA REHAB HOSPITAL, L.P.
By Tulsa Rehabilitation Hospital,
Inc., General Partner
TYLER REHAB ASSOCIATES, L.P. (SPECIFIED DEBT)
By Tyler Rehabilitation Hospital,
Inc., General Partner
WEST GABLES REHABILITATION HOSPITAL,
LTD. (formerly South Dade Nursing Home,
Ltd.) (SPECIFIED DEBT)
By Continental Medical Systems of
Florida, Inc., General Partner
By: /s/ Dennis L. Lehman
-----------------------------------
Dennis L. Lehman, Vice President
ACMED THERAPY TECHNOLOGIES CORP.
CHS THERAPY TECHNOLOGIES CORP.
CMS CAPITAL VENTURES, INC.
CMS REHAB TECHNOLOGIES CORP.
COA THERAPY TECHNOLOGIES CORP.
REHAB CONCEPTS CORP.
RWI THERAPY TECHNOLOGIES CORP.
VTA THERAPY TECHNOLOGIES CORP. (formerly
CMS Appleton Rehabilitation, Inc.)
By: /s/ William L. Pegler
------------------------------------
William L. Pegler, Vice President
KANSAS REHABILITATION HOSPITAL, INC. (SPECIFIED DEBT)
By: /s/ Anthony F. Misitano
------------------------------------
Anthony F. Misitano, Vice President
CMS SAN DIEGO SURGICAL, INC.
By: /s/ David G. Nation
------------------------------------
David G. Nation, Vice President
10
<PAGE>
CMS PHYSICIAN SERVICES, INC.
(formerly CMS Washington
Rehabilitation, Inc.)
(formerly Ranier Regional
Rehabilitation Hospital, Inc.)
ENCOMPUS, INC.
KRON CLINICAL SERVICES, L.P.
(SPECIFIED DEBT)
By CMS Physician Services, Inc.,
General Partner
VTA MANAGEMENT SERVICES, INC.
By: /s/ Dennis L. Lehman
------------------------------------
Dennis L. Lehman, Treasurer
LAFAYETTE REHABILITATION HOSPITAL, INC.
(formerly New Bern Rehabilitation
Hospital, Inc.)
LAFAYETTE REHAB ASSOCIATES, LIMITED PARTNERSHIP
By Lafayette Rehabilitation Hospital,
Inc., General Partner
By: /s/ Edward T. Stinson
-----------------------------------
Edward T. Stinson, President
MANCOR MEDICAL MANAGEMENT COMPANY, INC.
MEDICAL MANAGEMENT ASSOCIATES, INC.
By: /s/ H. Ted Levenson
-----------------------------------
H. Ted Levenson, President
REHAB CONNECTION, INC.
THERAPY SOURCE, INC.
By: /s/ Deborah Myers Welsh
-----------------------------------
Deborah Myers Welsh, Vice President
11
<PAGE>
Exhibit 11
Continental Medical Systems, Inc. and Subsidiaries
Computation of Earnings per Share
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1995 1994 1995 1994
---------------------- -------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
PRIMARY:
Shares outstanding at beginning of period 38,539 37,550 38,359 36,935
Weighted average shares issued pursuant to:
Employee benefit plans 85 74 127 146
Acquisition agreements 105 307
Dilutive effect of outstanding stock options 27 494 95 338
Contingent shares issuable pursuant to acquisition
agreements 303 401 330 455
--------- --------- --------- ---------
Weighted average number of shares and equivalent
shares outstanding 38,954 38,519 39,016 38,181
========= ========= ========= =========
Net income $ 3,762 $ 4,170 $ 3,854 $15,531
Additional goodwill amortization from contingent
shares issuable pursuant to acquisition agreements (44) (44) (132)
--------- --------- --------- ---------
Adjusted net income used in primary calculation $3,762 $4,126 $3,810 $15,399
========= ========= ========= =========
Net income per share and equivalent share $0.10 $0.11 $0.10 $0.40
========= ========= ========= =========
FULLY DILUTED:
Weighted average number of shares and equivalent
shares used in primary calculation 38,954 38,519 39,016 38,181
Additional dilutive effect of stock options 93 26 113
Additional dilutive effect of contingent shares issuable
pursuant to acquisition agreements 226 82 226 82
Assumed conversion of dilutive convertible debentures 262 234 262 234
--------- --------- --------- ---------
Fully diluted weighted average number of shares and
equivalent shares outstanding 39,535 38,835 39,530 38,610
========= ========= ========= =========
Net income used in primary calculation $3,762 $4,126 $3,810 $15,399
Adjustment for interest expense, net of related income
tax benefits 20 23 45 69
--------- --------- --------- ---------
Adjusted net income used in fully diluted calculation $3,782 $4,149 $3,855 $15,468
========= ========= ========= =========
Fully diluted net income per share and equivalent share $0.10 $0.11 $0.10 $0.40
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the March 31, 1995
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 23,142
<SECURITIES> 0
<RECEIVABLES> 237,391
<ALLOWANCES> 21,366
<INVENTORY> 0
<CURRENT-ASSETS> 284,011
<PP&E> 304,168
<DEPRECIATION> 63,704
<TOTAL-ASSETS> 722,168
<CURRENT-LIABILITIES> 145,414
<BONDS> 310,895
<COMMON> 386
0
0
<OTHER-SE> 240,934
<TOTAL-LIABILITY-AND-EQUITY> 722,168
<SALES> 738,363
<TOTAL-REVENUES> 738,363
<CGS> 655,918
<TOTAL-COSTS> 655,918
<OTHER-EXPENSES> 46,395
<LOSS-PROVISION> 14,139
<INTEREST-EXPENSE> 26,363
<INCOME-PRETAX> 6,851
<INCOME-TAX> 4,955
<INCOME-CONTINUING> 1,896
<DISCONTINUED> 0
<EXTRAORDINARY> 1,958
<CHANGES> 0
<NET-INCOME> 3,854
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
