<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1996
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
---------- ---------
------------------
Commission file number 33-31717-A
------------------
QUORUM HEALTH GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 62-1406040
(State of incorporation) (IRS Employer Identification No.)
103 CONTINENTAL PLACE, BRENTWOOD, TENNESSEE 37027
(Address of principal executive offices) (Zip Code)
(615) 371-7979
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Class Outstanding at April 30, 1996
----- -----------------------------
Common Stock, $.01 Par Value 48,577,597 Shares
</TABLE>
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31
-----------------------
1996 1995
--------- ---------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Revenue:
Net patient service revenue $ 251,424 $ 195,168
Hospital management/professional services 19,470 18,658
Reimbursable expenses 15,113 13,687
--------- ---------
Net operating revenue 286,007 227,513
Expenses:
Salaries and benefits 109,174 86,158
Reimbursable expenses 15,113 13,687
Supplies 42,183 32,701
Fees 25,381 22,454
Other operating expenses 24,505 16,861
Provision for doubtful accounts 13,156 12,313
Depreciation and amortization 14,294 9,494
Interest 9,337 6,089
Minority interest 147 244
--------- ---------
253,290 200,001
Net gain on sale of assets 826 --
--------- ---------
Income before income taxes 33,543 27,512
Provision for income taxes 13,618 11,386
--------- ---------
Net income $ 19,925 $ 16,126
========= =========
Net income per common share:
Primary $ 0.40 $ 0.33
========= =========
Fully diluted $ 0.40 $ 0.33
========= =========
Weighted average shares used in earnings
per share computations:
Primary 49,820 49,146
========= =========
Fully diluted 49,820 49,260
========= =========
</TABLE>
See accompanying notes.
2
<PAGE> 3
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31
-----------------------
1996 1995
--------- ---------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Revenue:
Net patient service revenue $ 713,932 $ 525,858
Hospital management/professional services 57,049 55,256
Reimbursable expenses 41,982 38,413
--------- ---------
Net operating revenue 812,963 619,527
Expenses:
Salaries and benefits 311,957 230,653
Reimbursable expenses 41,982 38,413
Supplies 120,551 88,631
Fees 76,659 60,764
Other operating expenses 68,412 49,524
Provision for doubtful accounts 38,539 37,914
Depreciation and amortization 41,345 26,398
Interest 27,227 15,996
Minority interest 622 676
--------- ---------
727,294 548,969
Net gain on sale of assets 826 --
--------- ---------
Income before income taxes 86,495 70,558
Provision for income taxes 35,117 29,208
--------- ---------
Net income $ 51,378 $ 41,350
========= =========
Net income per common share:
Primary $ 1.03 $ 0.84
========= =========
Fully diluted $ 1.03 $ 0.84
========= =========
Weighted average shares used in earnings
per share computations:
Primary 49,648 49,054
========= =========
Fully diluted 49,673 49,094
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 JUNE 30
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 28,578 $ 27,475
Accounts receivable, less allowance
for doubtful accounts of
$49,223,206 at March 31, 1996
and $44,827,559 at June 30, 1995 181,119 144,787
Supplies 26,668 21,336
Deferred income taxes 3,796 6,947
Other current assets 27,926 17,841
---------- ----------
Total current assets 268,087 218,386
Property, plant and equipment:
Land 52,974 34,983
Buildings and improvements 229,004 169,239
Equipment 348,904 272,392
Construction in progress 13,920 13,862
---------- ----------
644,802 490,476
Less accumulated depreciation 106,495 71,789
---------- ----------
538,307 418,687
Cost in excess of net assets acquired 143,098 111,206
Unallocated purchase price 657 4,717
Other assets and deferred charges 44,544 20,506
---------- ----------
Total assets $ 994,693 $ 773,502
========== ==========
</TABLE>
See accompanying notes.
4
<PAGE> 5
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 JUNE 30
1996 1995
--------- --------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 43,740 $ 39,012
Accrued salaries and benefits 39,590 35,762
Accrued income taxes 4,407 1,532
Deferred income 5,485 5,845
Other current liabilities 2,738 1,386
Current maturities of long-term debt 2,380 1,537
--------- ---------
Total current liabilities 98,340 85,074
Long-term debt 430,095 287,364
Deferred income taxes 29,050 23,891
Other deferrals and liabilities 17,904 15,121
Minority interest 6,181 5,663
Commitments and contingencies -- --
Stockholders' equity:
Common stock, $.01 par value;
100,000,000 shares authorized;
48,453,803 issued and
outstanding at March 31,
1996 and 47,783,984 at June
30,1995 485 478
Additional paid-in capital 261,695 256,346
Retained earnings 150,943 99,565
--------- ---------
413,123 356,389
--------- ---------
Total liabilities and
stockholders' equity $ 994,693 $ 773,502
========= =========
</TABLE>
See accompanying notes.
5
<PAGE> 6
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31
-----------------------
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net cash provided by operating
activities $ 85,349 $ 54,835
Cash flows from investing activities:
Purchase of acquired companies (187,735) (88,574)
Purchase of property, plant and
equipment (42,324) (30,903)
Assets held for sale -- 3,235
Proceeds from sale of assets 880 3,695
Other (84) (310)
--------- ---------
Net cash used by investing activities (229,263) (112,857)
Cash flows from financing activities:
Proceeds from issuance of Senior
Subordinated Notes 150,000 --
Borrowings under bank debt 305,750 220,833
Repayments of bank debt (311,000) (167,276)
Proceeds from issuance of notes 4,188 4,250
Repayments of notes (4,422) (3,947)
Proceeds from issuance of common
stock, net 5,355 4,771
Loan origination costs (5,016) (325)
Other 162 (1,134)
--------- ---------
Net cash provided by financing
activities 145,017 57,172
--------- ---------
Increase (decrease) in cash and cash
equivalents 1,103 (850)
Cash and cash equivalents at beginning
or period 27,475 30,309
--------- ---------
Cash and cash equivalents at end of
period $ 28,578 $ 29,459
========= =========
Supplemental cash flow information:
Interest paid $ (17,363) $ (11,959)
Interest received 748 775
Income taxes paid (23,585) (22,373)
========= =========
Noncash transactions:
Acquisitions:
Fair value of assets acquired $ 191,306 $ 103,794
Cash paid (187,735) (88,574)
--------- ---------
Liabilities assumed $ 3,571 $ 15,220
========= =========
Divestitures:
Cash $ 880 $ --
Notes receivable 5,454 --
Fair value of assets sold (5,820) --
Net gain on sale of assets (826) --
--------- ---------
Liabilities sold $ (312) $ --
========= =========
</TABLE>
See accompanying notes.
6
<PAGE> 7
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
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 footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three months
and nine months ended March 31, 1996 are not necessarily indicative of the
results that may be expected for the year ending June 30, 1996. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
June 30, 1995. Certain reclassifications have been made to the fiscal 1995
financial presentation to conform with fiscal 1996.
2. ACQUISITIONS AND DIVESTITURES
Fiscal 1996 Proposed Acquisition
On November 7, 1995, the Company signed a letter of intent to form a joint
venture controlled by the Company to acquire the assets of Mary Black Hospital
of Spartanburg, South Carolina. The proposed transaction is subject to the
completion of customary closing conditions and obtaining certain regulatory
approvals.
Fiscal 1996 Acquisitions and Divestitures
On August 1, 1995, a subsidiary of the Company acquired certain assets and
businesses of The Lutheran Hospital of Indiana, Inc. in Fort Wayne, Indiana for
approximately $172.0 million. The purchase price was financed through $167.5
million of bank debt and assumption of certain current liabilities. On
February 1, 1996, a subsidiary of the Company acquired certain assets and
businesses of Fort Wayne Center Equipment, Inc. and affiliate for approximately
$13.6 million, which was financed through bank debt.
On February 1, 1996, Alegent Health acquired a minority ownership in Midlands
Community Hospital in Papillion, Nebraska for approximately $1.0 million. The
agreement provides options for Alegent to acquire the remaining interests prior
to August 1, 1997 or to acquire the remaining interests or additional ownership
interests on an annual basis through August 1, 2001 subject to certain
restrictions.
7
<PAGE> 8
On March 1, 1996, the Company sold certain assets and the business of Concho
Valley Regional Hospital in San Angelo, Texas.
Fiscal 1995 Acquisitions
On August 1, 1994, a subsidiary of the Company acquired the assets and business
of Midlands Community Hospital in Papillion, Nebraska for approximately $11.0
million. The purchase price was financed through $9.2 million of bank debt and
assumption of certain current liabilities.
On February 1, 1995, a subsidiary of the Company acquired the assets and
business of Carolinas Hospital System in Florence, South Carolina for
approximately $86.0 million. The purchase price was financed through $76.0
million of bank debt and assumption of certain current liabilities.
On June 1, 1995, a subsidiary of the Company acquired certain personal property
and the business of Lake City Community Hospital in Lake City, South Carolina
for $2.0 million and entered into an agreement to lease the land, buildings and
equipment. The purchase price was financed by bank debt.
Other Information Regarding Acquisitions and Divestitures
All of the foregoing acquisitions were accounted for using the purchase method
of accounting. The allocation of the purchase price associated with certain of
the acquisitions has been determined by the Company based upon available
information and is subject to further refinement. The operating results of the
acquired hospitals have been included in the accompanying condensed
consolidated statements of income from the respective dates of acquisition.
The following unaudited pro forma results of operations give effect to the
operations of the entities acquired and divested in fiscal 1995 and 1996 as if
the respective transactions had occurred at the beginning of the periods
presented. The pro forma results of operations do not purport to represent
what the Company's results of operations would have been had such transactions
in fact occurred at the beginning of the periods presented or to project the
Company's results of operations in any future period.
8
<PAGE> 9
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31 MARCH 31
------------------------ ----------------------
1996 1995 1996 1995
---------- ------------ ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net operating revenue $281,914 $268,385 $808,960 $783,947
Net income 19,839 17,150 52,185 46,589
Net income per
common share:
Primary 0.40 0.35 1.05 0.95
Fully diluted 0.40 0.35 1.05 0.95
</TABLE>
3. INCOME PER COMMON SHARE
Income per common share is based on the weighted average number of shares of
common stock outstanding, and common stock equivalents consisting of dilutive
stock options.
4. LONG-TERM DEBT
On November 9, 1995, the Company issued in a public offering $150.0 million in
Senior Subordinated Notes maturing on November 1, 2005 and bearing interest at
8.75%. The Notes are subject to redemption at the option of the Company at a
price of 104.375% on or after November 1, 2000, 102.188% on or after November
1, 2001 and at par on or after November 1, 2002. The Notes are unsecured
obligations and are subordinated in right of payment to all existing and future
senior indebtedness. The indenture for the Notes contains covenants including
restrictions on additional indebtedness, investments, the pledge or disposition
of assets, transactions with affiliates and the ability to merge or consolidate
with or to transfer assets to another entity and a requirement to repurchase
all Notes at 101% of their principal amount in the event of a change in control
of the Company. The indenture also prohibits certain restricted payments,
including dividends and other distributions (other than dividends or
distributions payable solely in capital stock of the Company and related
securities) and repurchases of common stock and related securities, in excess
of the sum of (i) the aggregate of consolidated net income for the period
beginning October 1, 1995 (taking into account for this purpose 50% or 100% of
such income for the period if such income is positive or negative,
respectively), (ii) 100% of the aggregate net proceeds from the issuance of
capital stock and related securities after November 9, 1995 and (iii) $25
million. The majority of the proceeds of the Senior Subordinated Notes was
used to repay other indebtedness.
9
<PAGE> 10
5. INCOME TAXES
The income tax provision recorded for the three months and nine months ended
March 31, 1996 and 1995 differs from the expected income tax provision due to
permanent differences and the provision for state income taxes.
6. COMMITMENTS AND CONTINGENCIES
Management continually evaluates contingencies based on the best available
evidence and believes that adequate provision for losses has been provided to
the extent necessary.
General and Professional Liability Risks
The reserve for the self-insured portion of general and professional liability
risks is based on actuarially determined estimates.
Litigation
The Company currently, and from time to time, is expected to be subject to
claims and suits arising in the ordinary course of business. In the opinion of
management, the ultimate resolution of such pending legal proceedings will not
have a material effect on the Company's results of operations or financial
position.
Net Patient Service Revenue
Final determination of amounts earned under the Medicare and Medicaid programs
often occurs in subsequent years because of audits by the program, rights of
appeal and the application of numerous technical provisions. In the opinion of
management, adequate provision has been made for adjustments that may result
from such audits and appeals.
Income Taxes
The Internal Revenue Service is in the process of conducting examinations of
the Company's federal income tax returns for the years ended 1990 through 1992.
In the opinion of management, the ultimate outcome of the IRS examination will
not have a material effect on the Company's results of operations or financial
position.
Other
In June 1993, the Office of the Inspector General (OIG) of the Department of
Health and Human Services requested information from the Company in connection
with an investigation involving the Company's procedures for preparing Medicare
cost reports. In January 1995, the U.S. Department of Justice issued a Civil
Investigative Demand which also requested information from the Company
10
<PAGE> 11
in connection with that same investigation. As a part of the government's
investigation, several former and current employees of the Company have been
interviewed. The Company is continuing to provide information and is
cooperating fully with the investigation. The Company cannot predict whether
the government will commence litigation regarding this matter. However,
management believes that any claims likely to be asserted by the government as
a result of its investigation would not have a material adverse effect on the
Company's financial position or results of operations.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
GENERAL
Impact of Acquisitions
The Company was formed in July 1989 by Welsh, Carson, Anderson & Stowe and
members of management to acquire a hospital contract management business
established in the mid-1970s. Since that acquisition, the Company has expanded
the scope of its business by acquiring acute care hospitals, the first in
fiscal 1991, three facilities in fiscal 1992 (one of which has been divested),
eleven facilities in fiscal 1994 (ten of which were acquired in a single
transaction -- five of which have been divested and two of which were exchanged
for two other hospitals), three facilities in fiscal 1995 and one additional
facility in August 1995. The Company also acquired Hospital Management
Professionals, Inc., a hospital contract management company, in fiscal 1993.
Since July 1989, the proportion of the Company's net operating revenue
contributed by the Company's owned hospitals has increased significantly. The
Company's owned hospitals accounted for 88% and 85% of the Company's net
operating revenue for the nine months ended March 31, 1996 and 1995,
respectively.
Because of the financial impact of the Company's recent acquisitions, it
is difficult to make meaningful comparisons between the Company's financial
statements for the fiscal periods presented. In addition, due to the current
number of owned hospitals, each additional hospital acquisition can affect the
overall operating margin of the Company. Upon the acquisition of a hospital,
the Company has typically taken a number of immediate steps, including staffing
adjustments, to lower operating costs. The impact of such actions can be
partially offset by cost increases to expand the hospital's services,
strengthen its medical staff and improve its market position. The benefits of
these investments and of other activities to improve operating margins may not
occur immediately. Consequently, the financial performance of an acquired
hospital may adversely affect overall operating margins in the near-term. As
the Company makes additional hospital acquisitions, the Company expects that
this effect will be mitigated by the expanded financial base of existing
hospitals.
Industry Trends
The Company's owned hospitals derive a substantial portion of their
revenue from the federal Medicare program and the state Medicaid programs. The
payment rates under the Medicare program for inpatients are prospective, based
upon the diagnosis of a patient. While these rates are indexed for inflation
annually, the increases have historically been less than actual inflation.
Both federal and state legislators are continuing to scrutinize the health
care industry for the purpose of reducing health care costs. The Company is
unable to predict what, if any, future health reform legislation may be enacted
at the federal or state level. Changes in the Medicare or Medicaid programs
and other proposals to limit health care spending could have an adverse impact
upon the health care industry and the Company.
12
<PAGE> 13
In addition, states, insurance companies and employers are actively
negotiating the amounts paid to hospitals, which are typically lower than their
standard rates. The trend toward managed care, including health maintenance
organizations, preferred provider organizations and various other forms of
managed care, may affect hospitals' ability to maintain their current rate of
net revenue growth and operating margins.
The Company expects the industry trend from inpatient to outpatient
services to continue due to the increased focus on managed care and advances in
technology. Outpatient revenue of the Company's owned hospitals was
approximately 34% and 31% of gross patient service revenue for the nine months
ended March 31, 1996 and 1995, respectively.
SELECTED OPERATING STATISTICS - OWNED HOSPITALS
The following table sets forth certain operating statistics for the
Company's owned hospitals for each of the periods presented. The results of
the owned hospitals for the three months ended March 31, 1996 include three
months of operations for thirteen hospitals and a partial period for one
hospital divested during such period. The results of the owned hospitals for
the three months ended March 31, 1995 include three months of operations for
eleven hospitals and a partial period for one hospital acquired during such
period. The results of the owned hospitals for the nine months ended March 31,
1996 include nine months of operations for twelve hospitals and partial periods
for one hospital acquired and one hospital divested during such period. The
results of the owned hospitals for the nine months ended March 31, 1995 include
nine months of operations for ten hospitals and partial periods for two
hospitals acquired during such period.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31 MARCH 31
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Number of hospitals at end of period 13 12 13 12
Licensed beds at end of period 3,192 2,861 3,192 2,861
Beds in service at end of period 2,635 2,320 2,635 2,320
Admissions 25,061 19,928 70,649 53,424
Average length of stay (days) 5.9 6.3 5.8 6.2
Patient days 147,322 125,451 410,800 332,707
Adjusted patient days 217,764 183,441 620,217 483,439
Occupancy rates (average licensed beds) 49.0% 51.3% 45.9% 48.5%
Occupancy rates (average beds in service) 59.6% 63.7% 55.9% 60.1%
Gross inpatient revenues (in thousands) $299,972 $243,314 $828,012 $655,327
Gross outpatient revenues (in thousands) $143,581 $112,528 $422,103 $296,894
</TABLE>
RESULTS OF OPERATIONS
The tables below present for the three months and nine months ended March
31, 1996 and 1995 the Company's consolidated results of operations and the
separate results of the Company's owned hospitals and its management services
business. The results of the owned
13
<PAGE> 14
hospitals for the three months ended March 31, 1996 include three months of
operations for thirteen hospitals and a partial period for one hospital divested
during such period. The results of the owned hospitals for the three months
ended March 31, 1995 include three months of operations for eleven hospitals and
a partial period for one hospital acquired during such period. The results of
the owned hospitals for the nine months ended March 31, 1996 include nine months
of operations for twelve hospitals and partial periods for one hospital acquired
and one hospital divested during such period. The results of the owned
hospitals for the nine months ended March 31, 1995 include nine months of
operations for ten hospitals and partial periods for two hospitals acquired
during such period.
Net operating revenue for the Company's owned hospitals is comprised of
net patient service revenue, which is revenue from services provided to
patients by such hospitals net of contractual adjustments, policy and charity
discounts. Such revenue is received primarily from Medicare, Medicaid and
commercial insurance payors.
Net operating revenue for the Company's management services business is
comprised of fees from management and consulting services provided to
third-party hospitals pursuant to management contracts and consulting
arrangements plus reimbursable expenses. Reimbursable expenses (which are
included in operating revenues and operating expenses at the same amount) are
amounts that are owed to the Company under its management contracts with client
hospitals with respect to the salary, employee benefits and other costs
incurred by the Company in providing a managed hospital with a chief executive
officer and, typically, a chief financial officer.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
---------------------------------
OWNED MANAGEMENT
HOSPITALS SERVICES CONSOLIDATED
--------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating revenue $251,424 $19,470 $270,894
Reimbursable expenses -- 15,113 15,113
-------- ------- --------
Net operating revenue 251,424 34,583 286,007
Operating expenses before
depreciation and amortization 202,684 26,828 229,512
Net gain on sale of assets (826) -- (826)
-------- ------- --------
EBITDA (1) 49,566 7,755 57,321
Depreciation and amortization 13,900 394 14,294
-------- ------- --------
Earnings before interest, minority
interest and income taxes 35,666 7,361 43,027
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1995
---------------------------------
OWNED MANAGEMENT
HOSPITALS SERVICES CONSOLIDATED
--------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating revenue $195,168 $18,658 $213,826
Reimbursable expenses -- 13,687 13,687
-------- ------- --------
Net operating revenue 195,168 32,345 227,513
Operating expenses before
depreciation and amortization 159,708 24,466 184,174
-------- ------- --------
EBITDA (1) 35,460 7,879 43,339
Depreciation and amortization 9,207 287 9,494
-------- ------- --------
Earnings before interest, minority
interest and income taxes 26,253 7,592 33,845
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31, 1996
--------------------------------
OWNED MANAGEMENT
HOSPITALS SERVICES CONSOLIDATED
--------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating revenue $713,932 $57,049 $770,981
Reimbursable expenses -- 41,982 41,982
-------- ------- --------
Net operating revenue 713,932 99,031 812,963
Operating expenses before
depreciation and amortization 583,094 75,006 658,100
Net gain on sale of assets (826) -- (826)
-------- ------- --------
EBITDA (1) 131,664 24,025 155,689
Depreciation and amortization 40,232 1,113 41,345
-------- ------- --------
Earnings before interest, minority
interest and income taxes 91,432 22,912 114,344
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31, 1995
--------------------------------
OWNED MANAGEMENT
HOSPITALS SERVICES CONSOLIDATED
--------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating revenue $525,858 $55,256 $581,114
Reimbursable expenses -- 38,413 38,413
-------- ------- --------
Net operating revenue 525,858 93,669 619,527
Operating expenses before
depreciation and amortization 434,682 71,217 505,899
-------- ------- --------
EBITDA (1) 91,176 22,452 113,628
Depreciation and amortization 25,460 938 26,398
-------- ------- --------
Earnings before interest, minority
interest and income taxes 65,716 21,514 87,230
</TABLE>
15
<PAGE> 16
- - -----------------------------
(1) EBITDA represents earnings before interest, minority interest, income
taxes, depreciation and amortization expense. The Company has included EBITDA
data because such data is used by certain investors to measure a company's
ability to service debt. EBITDA is not a measure of financial performance
under generally accepted accounting principles and should not be considered an
alternative to net income as a measure of operating performance or to cash
flows from operating activities as a measure of liquidity.
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
The Company's net operating revenue was $286.0 million for the three
months ended March 31, 1996, compared to $227.5 million for the comparable
period of fiscal 1995, an increase of $58.5 million or 26%. Net operating
revenue of the Company's owned hospitals increased by $56.3 million or 29%,
which was primarily attributable to the hospitals acquired in fiscal 1995 and
1996. Net operating revenue of hospitals owned by the Company during both
periods (calculated by comparing the same partial periods in both fiscal
periods for hospitals owned for a portion of fiscal 1995) increased by $10.3
million or 5% due to increased outpatient volumes, new and expanded patient
services, additional revenues from Medicaid and Medicare programs and increased
customary charges. Net operating revenue for the owned hospitals is reported
net of contractual adjustments and policy and charity discounts of $197.6
million for the three months ended March 31, 1996 and $164.5 million for the
three months ended March 31, 1995. The $33.1 million increase in such
adjustments and discounts is primarily attributable to the acquisitions made
during fiscal 1995 and 1996. Contractual adjustments principally result from
differences between the hospitals' customary charges and payment rates under
the Medicare and Medicaid programs. Net operating revenue from management
services increased by $2.2 million or 7% for the three months ended March 31,
1996, which was primarily attributable to revenues from price increases on
existing management contracts, the introduction of new services and increases
in reimbursable expenses.
Operating expenses before depreciation and amortization increased by $45.3
million or 25% for the three months ended March 31, 1996. Operating expenses
before depreciation and amortization of the Company's owned hospitals increased
by $43.0 million or 27%, which was primarily attributable to the hospitals
acquired in fiscal 1995 and 1996. Operating expenses before depreciation and
amortization, as a percentage of net operating revenue, of the Company's owned
hospitals decreased from 81.8% for the three months ended March 31, 1995 to
80.6% for the three months ended March 31, 1996. Operating expenses of
hospitals owned by the Company during both periods increased by $6.8 million or
4% due to the increases in outpatient volumes and the costs of new and expanded
patient services. Operating expenses before depreciation and amortization, as
a percentage of net operating revenue, of such hospitals decreased from 81.1%
for the three months ended March 31, 1995 to 80.3% for the three months ended
March 31, 1996. The percentage decrease is primarily due to a reduction in the
provision for doubtful accounts and the increases in revenue as discussed
above. Operating expenses before depreciation and amortization of the
management services business increased by $2.4 million or 10% which was
primarily attributable to increases in reimbursable expenses and the costs of
new services. Operating expenses before depreciation and amortization, as a
percentage of net operating revenue, for the Company's management services
business increased from 75.6% for the three months ended March 31, 1995 to
77.6% for the three months ended March 31, 1996. The percentage increase is
primarily due to increases in reimbursable expenses and the costs of new
services.
16
<PAGE> 17
The net gain on sale of assets increased $.8 million for the three months
ended March 31, 1996. On February 1, 1996, Alegent Health acquired a minority
ownership in Midlands Community Hospital in Papillion, Nebraska. On March 1,
1996, the Company sold certain assets and the business of Concho Valley
Regional Hospital in San Angelo, Texas.
Primarily as a result of the hospital acquisitions in fiscal 1995 and 1996
and the improvement in operating margins of the Company's owned hospitals, the
Company's EBITDA increased by $14.0 million or 32% from $43.3 million for the
three months ended March 31, 1995 to $57.3 million for the three months ended
March 31, 1996. EBITDA for the Company's owned hospitals increased by $14.1
million or 40%. EBITDA for the hospitals owned by the Company during both
periods increased $4.4 million or 12%. Excluding the net gain on sale of
assets, EBITDA for the hospitals owned by the Company during both periods
would have increased $3.5 million or 10%. EBITDA attributable to the
Company's management services business decreased $.1 million or 2% which was
primarily attributable to the costs of new services.
Depreciation and amortization expense for the three months ended March 31,
1996 increased $4.8 million or 51%, which was primarily attributable to the
hospitals acquired in fiscal 1995 and 1996. Interest expense increased by $3.2
million or 53% for the three months ended March 31, 1996 primarily due to debt
incurred to finance the hospitals acquired in fiscal 1995 and 1996 and the
issuance of subordinated debentures in November 1995.
The Company reported income before income taxes of $33.5 million for the
three months ended March 31, 1996 compared to $27.5 million for the three
months ended March 31, 1995. Income tax expense increased $2.2 million due
primarily to the increase in pre-tax income.
Net income for the three months ended March 31, 1996 increased $3.8
million or 24% to $19.9 million from $16.1 million for the three months ended
March 31, 1995. This increase was primarily attributable to the hospitals
acquired in fiscal 1995 and 1996 and the increased profitability of the
Company's owned hospitals, as discussed above.
Nine Months Ended March 31, 1996 Compared to Nine Months Ended March 31, 1995
The Company's net operating revenue was $813.0 million for the nine months
ended March 31, 1996, compared to $619.5 million for the comparable period of
fiscal 1995, an increase of $193.5 million or 31%. Net operating revenue of
the Company's owned hospitals increased by $188.1 million or 36%, which was
primarily attributable to the hospitals acquired in fiscal 1995 and 1996. Net
operating revenue of hospitals owned by the Company during both periods
increased by $16.6 million or 3% due to increased outpatient volumes, new and
expanded patient services and increased customary charges. Net operating
revenue for the owned hospitals is reported net of contractual adjustments
and policy and charity discounts of $551.8 million for the nine months ended
March 31, 1996 and $437.9 million for the nine months ended March 31, 1995.
The $113.9 million increase in such adjustments and discounts is primarily
attributable to the acquisitions made during fiscal 1995 and 1996. Net
operating revenue from management services increased by $5.4 million or 6% for
the nine months ended March 31, 1996, which was primarily attributable to
revenues from price increases on existing management contracts, the
introduction of new services and increases in reimbursable expenses.
Operating expenses before depreciation and amortization increased by
$152.2 million or 30% for the nine months ended March 31, 1996. Operating
expenses before depreciation and amortization of the Company's owned hospitals
increased by $148.4 million or 34%, which was
17
<PAGE> 18
primarily attributable to the hospitals acquired in fiscal 1995 and 1996.
Operating expenses before depreciation and amortization, as a percentage of net
operating revenue, of the Company's owned hospitals decreased from 82.7% for the
nine months ended March 31, 1995 to 81.7% for the nine months ended March 31,
1996. Operating expenses of hospitals owned by the Company during both periods
increased by $8.0 million or 2% due to the increases in outpatient volumes and
the costs of new and expanded patient services. Operating expenses before
depreciation and amortization, as a percentage of net operating revenue, of
such hospitals decreased from 81.8% for the nine months ended March 31, 1995 to
80.7% for the nine months ended March 31, 1996. The percentage decrease is
primarily due to a reduction in the provision for doubtful accounts. Operating
expenses before depreciation and amortization of the management services
business increased by $3.8 million or 5% which was primarily attributable to
increases in reimbursable expenses and the costs of new services. Operating
expenses before depreciation and amortization, as a percentage of net operating
revenue, for the Company's management services business decreased from 76.0% for
the nine months ended March 31, 1995 to 75.7% for the nine months ended March
31, 1996. The percentage decrease is primarily due to a reduction in employee
benefits expense.
The net gain on sale of assets increased $.8 million for the nine months
ended March 31, 1996. On February 1,1996, Alegent Health acquired a minority
ownership in Midlands Community Hospital in Papillion, Nebraska. On March 1,
1996, the Company sold certain assets and the business of Concho Valley
Regional Hospital in San Angelo, Texas.
Primarily as a result of the hospital acquisitions in fiscal 1995 and 1996
and the improvement in overall operating margins, the Company's EBITDA
increased by $42.1 million or 37% from $113.6 million for the nine months ended
March 31, 1995 to $155.7 million for the nine months ended March 31, 1996.
EBITDA for the Company's owned hospitals increased by $40.5 million or 44%.
EBITDA for the hospitals owned by the Company during both periods increased
$9.4 million or 10%. Excluding the net gain on sale of assets, EBITDA for the
hospitals owned by the Company during both periods would have increased $8.6
million or 9%. EBITDA attributable to the Company's management services
business increased $1.6 million or 7%.
Depreciation and amortization expense for the nine months ended March 31,
1996 increased $14.9 million or 57%, which was primarily attributable to the
hospitals acquired in fiscal 1995 and 1996. Interest expense increased by
$11.2 million or 70% for the nine months ended March 31, 1996 primarily due to
debt incurred to finance the hospitals acquired in fiscal 1995 and 1996.
The Company reported income before income taxes of $86.5 million for the
nine months ended March 31, 1996 compared to $70.6 million for the nine months
ended March 31, 1995. Income tax expense increased $5.9 million primarily due
to the increase in pre-tax income.
Net income for the nine months ended March 31, 1996 increased $10.0
million or 24% to $51.4 million from $41.4 million for the nine months ended
March 31, 1995. This increase was primarily attributable to the hospitals
acquired in fiscal 1995 and 1996 and the increased profitability of the
Company's owned hospitals and management services business, as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had working capital of $169.7 million,
including cash and cash equivalents of $28.6 million. The ratio of current
assets to current liabilities was 2.7 to 1.0 at
18
<PAGE> 19
March 31, 1996 compared to 2.6 to 1.0 at June 30, 1995.
As with the hospital industry in general, a major component of the
Company's working capital is accounts receivable arising from services provided
to the patients of its owned hospitals. Payments on accounts receivable are
made by third-party payors (Medicare, Medicaid, private insurance carriers and
various types of insurance plans) and directly by the patients. The Company
believes that the average collection period for its owned hospitals is
consistent with the industry average. Fees in the Company's management and
consulting businesses are generally paid monthly.
The Company's cash requirements excluding acquisitions have historically
been funded by cash generated from operations. Cash generated from operations
was $85.3 million and $54.8 million for the nine months ended March 31, 1996
and 1995, respectively. The increase is primarily due to the cash generated
from the hospitals acquired in fiscal 1995 and 1996.
Capital expenditures excluding acquisitions for the nine months ended
March 31, 1996 and 1995 were $42.3 million and $30.9 million, respectively.
The management services business does not require significant capital
expenditures. Capital expenditures for owned hospitals may vary from year to
year depending on facility improvements and service enhancements undertaken by
the hospitals. The Company expects to make capital expenditures in fiscal
1996 of approximately $60.0 million, exclusive of any acquisitions.
The Company intends to acquire additional acute care facilities, and the
Company is actively seeking such acquisitions. There can be no assurance that
the Company will not require additional debt or equity financing for any
particular acquisition. Also, the Company continually reviews its capital
needs and financing opportunities and may seek additional debt or equity
capital for its acquisition program or other needs. At March 31, 1996, the
Company had $424.0 million available under its Revolving Line of Credit.
On November 7, 1995, the Company signed a letter of intent to form a joint
venture controlled by the Company to acquire the assets of Mary Black Hospital
in Spartanburg, South Carolina. The proposed transaction is subject to the
completion of customary closing conditions and obtaining certain regulatory
approvals.
During the nine months ended March 31, 1996, the Company invested
approximately $187.7 million in hospital and affiliated business acquisitions.
On August 1, 1995, a subsidiary of the Company acquired certain assets and
businesses of The Lutheran Hospital of Indiana, Inc. in Fort Wayne, Indiana for
approximately $172.0 million, which was financed through $167.5 million of bank
debt and assumption of certain current liabilities. On February 1, 1996, a
subsidiary of the Company acquired certain assets and businesses of Fort Wayne
Center Equipment, Inc. and affiliate for approximately $13.6 million, which was
financed through bank debt. On February 1, 1996, Alegent Health acquired a
minority ownership in Midlands Community Hospital in Papillion, Nebraska for
approximately $1.0 million. The agreement provides options for Alegent to
acquire the remaining interests prior to August 1, 1997 or to acquire the
remaining interests or additional ownership interests on an annual basis
through August 1, 2001 subject to certain restrictions. On March 1, 1996, the
Company sold certain assets and the business of Concho Valley Regional Hospital
in San Angelo, Texas.
In fiscal 1995, the Company invested approximately $99.7 million in
hospital and affiliated business acquisitions. On August 1, 1994, a subsidiary
of the Company acquired the assets and
19
<PAGE> 20
business of Midlands Community Hospital in Papillion, Nebraska for approximately
$11.0 million, which was financed through $9.2 million of bank debt and
assumption of certain current liabilities. On February 1, 1995, a subsidiary of
the Company acquired the assets and business of Carolinas Hospital System in
Florence, South Carolina for approximately $86.0 million, which was financed
through $76.0 million of bank debt and assumption of certain current
liabilities. On June 1, 1995, a subsidiary of the Company acquired certain
personal property and the business of Lake City Community Hospital in Lake City,
South Carolina for approximately $2.0 million and entered into an agreement to
lease the land, buildings and equipment.
On November 9, 1995, the Company issued in a public offering $150.0
million in Senior Subordinated Notes maturing on November 1, 2005 and bearing
interest at 8.75%. The Notes are subject to redemption at the option of the
Company at a price of 104.375% on or after November 1, 2000, 102.188% on or
after November 1, 2001 and at par on or after November 1, 2002. The Notes are
unsecured obligations and are subordinated in right of payment to all existing
and future senior indebtedness. The indenture for the Notes contains covenants
including restrictions on additional indebtedness, investments, the pledge or
disposition of assets, transactions with affiliates and the ability to merge or
consolidate with or to transfer assets to another entity and a requirement to
repurchase all Notes at 101% of their principal amount in the event of a change
in control of the Company. The indenture also prohibits certain restricted
payments, including dividends and other distributions (other than dividends or
distributions payable solely in capital stock of the Company and related
securities) and repurchases of common stock and related securities, in excess
of the sum of (i) the aggregate of consolidated net income for the period
beginning October 1, 1995 (taking into account for this purpose 50% or 100% of
such income for the period if such income is positive or negative,
respectively), (ii) 100% of the aggregate net proceeds from the issuance of
capital stock and related securities after November 9, 1995 and (iii) $25
million. The majority of the proceeds of the Senior Subordinated Notes was
used to repay other indebtedness.
In June 1993, the OIG of the Department of Health and Human Services
requested information from the Company in connection with an investigation
involving the Company's procedures for preparing Medicare cost reports. In
January 1995, the U.S. Department of Justice issued a Civil Investigative
Demand which also requested information from the Company in connection with
that same investigation. As a part of the government's investigation, several
former and current employees of the Company have been interviewed. The Company
is continuing to provide information and is cooperating fully with the
investigation. The Company cannot predict whether the government will commence
litigation regarding this matter. However, management believes that any claims
likely to be asserted by the government as a result of its investigation would
not have a material adverse effect on the Company's financial position or
results of operations.
INFLATION
The health care industry is labor intensive. Wages and other expenses
increase especially during periods of inflation and when shortages in
marketplaces occur. In addition, suppliers pass along rising costs to the
Company in the form of higher prices. The Company has generally been able to
offset increases in operating costs by increasing charges for services and
expanding services. The Company has also implemented cost control measures to
curb increases in operating costs and expenses. In light of cost containment
measures imposed by government agencies, insurance companies and employers, the
Company is unable to predict its ability to offset or control future cost
increases.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The exhibits filed as part of this Report are listed in the
Index to Exhibits immediately following the signature page.
(b) No reports on Form 8-K were filed during the quarter ended March 31,
1996.
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 thereunto duly authorized.
QUORUM HEALTH GROUP, INC.
Date: May 10, 1996 By: /s/ James E. Dalton, Jr.
----------------------------
James E. Dalton, Jr.
President/Chief Executive
Officer
Date: May 10, 1996 By: /s/ Terry Allison
----------------------------
Terry Allison
Vice President and Assistant
Treasurer
(Chief Accounting Officer)
<PAGE> 22
Exhibit Index
Exhibit No.
11 Computation of Earnings Per Share
27 Financial Data Schedule (for SEC use only)
<PAGE> 1
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED MARCH 31 ENDED MARCH 31
1996 1995 1996 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Primary
Average shares outstanding 48,170 47,266 47,979 47,089
Net effect of dilutive stock
options based on the
treasury stock method
using average market price 1,650 1,880 1,669 1,965
--------- --------- --------- ---------
Totals 49,820 49,146 49,648 49,054
========= ========= ========= =========
Net income $ 19,925 $ 16,126 $ 51,378 $ 41,350
========= ========= ========= =========
Net income per common share $ 0.40 $ 0.33 $ 1.03 $ 0.84
========= ========= ========= =========
Fully Diluted
Average shares outstanding 48,170 47,266 47,979 47,089
Net effect of dilutive stock
options based on the treasury
stock method using the
the higher of ending or
average market price 1,650 1,994 1,694 2,005
--------- --------- --------- ---------
Totals 49,820 49,260 49,673 49,094
========= ========= ========= =========
Net income $ 19,925 $ 16,126 $ 51,378 $ 41,350
========= ========= ========= =========
Net income per common share $ 0.40 $ 0.33 $ 1.03 $ 0.84
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1996 (UNAUDITED) AND
THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED
MARCH 31, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000854694
<NAME> QUORUM HEALTH GROUP, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 28,578
<SECURITIES> 0
<RECEIVABLES> 230,342
<ALLOWANCES> 49,223
<INVENTORY> 26,668
<CURRENT-ASSETS> 268,087
<PP&E> 644,802
<DEPRECIATION> 106,495
<TOTAL-ASSETS> 994,693
<CURRENT-LIABILITIES> 98,340
<BONDS> 430,095
0
0
<COMMON> 485
<OTHER-SE> 412,638
<TOTAL-LIABILITY-AND-EQUITY> 994,693
<SALES> 0
<TOTAL-REVENUES> 812,963
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 661,528
<LOSS-PROVISION> 38,539
<INTEREST-EXPENSE> 27,227
<INCOME-PRETAX> 86,495
<INCOME-TAX> 35,117
<INCOME-CONTINUING> 51,378
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,378
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.03
</TABLE>
