<PAGE> 1
================================================================================
UNITED STATES
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 JUNE 30, 1995
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 1-11343
CORAM HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
--------------------
DELAWARE 33-0615337
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1125 SEVENTEENTH STREET
SUITE 1500
DENVER, CO 80202
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (303) 292-4973
--------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
The number of shares outstanding of the Registrant's Common Stock, $.001 par
value, as of August 10, 1995 was 39,876,898.
================================================================================
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
CORAM HEALTHCARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, INCLUDING SHARES)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 21,649 $ 13,588
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,171 6,458
Investment in available-for-sale securities . . . . . . . . . . . . . 12,859 16,546
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . 208,114 109,087
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,691 11,864
Prepaid taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,413 11,510
Deferred income taxes, net . . . . . . . . . . . . . . . . . . . . . 32,538 31,893
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . 10,820 7,251
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 318,255 208,197
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . 43,469 25,902
Joint ventures and other assets . . . . . . . . . . . . . . . . . . . . 57,105 8,546
Deferred income taxes non-current . . . . . . . . . . . . . . . . . . . 556 556
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 543,478 333,238
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $962,863 $576,439
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 62,634 $ 27,098
Current maturities of long-term debt . . . . . . . . . . . . . . . . . 45,157 5,911
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 5,818 5,788
Liabilities for securities sold under agreement to repurchase . . . . . 5,775 7,430
Reserve for litigation . . . . . . . . . . . . . . . . . . . . . . . . 6,815 22,720
Accrued merger and restructuring . . . . . . . . . . . . . . . . . . . 56,559 43,594
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 47,221 11,845
------- -------
Total current liabilities before debt under negotiation . . . . . 229,979 124,386
Debt under negotiation . . . . . . . . . . . . . . . . . . . . . . 449,792 --
------- ---------
Total current liabilities including debt under negotiation . . . . 679,771 124,386
Revolving lines-of-credit . . . . . . . . . . . . . . . . . . . . . . . . -- 108,099
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 11,627
Minority interest in consolidated joint ventures . . . . . . . . . . . . 4,604 6,599
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,620 1,945
Deferred income taxes non-current . . . . . . . . . . . . . . . . . . . . 1,521 1,522
Stockholders' equity:
Common stock par value $.001, authorized 75,000 shares, issued
39,852 in 1995 and 38,964 in 1994 . . . . . . . . . . . . . . . . . . . 40 39
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 355,070 341,328
Unrealized loss on available-for-sale securities . . . . . . . . . . . (180) (279)
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . . . . . (80,583) (18,827)
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . 274,347 322,261
-------- --------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . $962,863 $576,439
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
1
<PAGE> 3
CORAM HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------------
1995 1994
--------- ---------
<S> <C> <C>
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $179,351 $113,647
Cost of service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,840 77,291
--------- ---------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,511 36,356
Operating expenses:
Selling, general and administrative expenses . . . . . . . . . . . . . 41,312 18,993
Provision for estimated uncollectible accounts . . . . . . . . . . . . 16,049 5,977
Amortization of goodwill . . . . . . . . . . . . . . . . . . . . . . . 4,767 2,142
Provision for T2 litigation settlements . . . . . . . . . . . . . . . . -- 17,200
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . 25,501 --
--------- ---------
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . 87,629 44,312
--------- ---------
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (46,118) (7,956)
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 527 828
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,953) (1,474)
Equity in net income of unconsolidated joint ventures . . . . . . . . . 551 241
Gain (loss) on sales of property and equipment . . . . . . . . . . . . 6 (67)
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (193) 281
--------- ---------
Loss before income taxes, minority interest and extraordinary items . . . (59,180) (8,147)
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . -- (2,284)
Minority interest in net income of consolidated joint ventures . . . . . (3,771) (3,137)
--------- ---------
Loss before extraordinary item . . . . . . . . . . . . . . . . . . . . . (62,951) (9,000)
Extraordinary loss - early extinguishment of debt (net of
zero income tax benefit) . . . . . . . . . . . . . . . . . . . . . . . (3,396) --
--------- ---------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (66,347) $ (9,000)
========= =========
Net loss per share:
Loss before extraordinary item . . . . . . . . . . . . . . . . . . . $(1.59) $ (0.23)
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . (0.08) --
--------- ---------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1.67) $ (0.23)
========= =========
Weighted average common shares outstanding . . . . . . . . . . . . . . . 39,685 38,497
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE> 4
CORAM HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1995 1994
-------- --------
<S> <C> <C>
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $284,129 $226,712
Cost of service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213,448 154,306
-------- --------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,681 72,406
Operating expenses:
Selling, general and administrative expenses . . . . . . . . . . . . . . . . 59,197 38,577
Provision for estimated uncollectible accounts . . . . . . . . . . . . . . . 20,061 10,709
Amortization of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . 7,557 4,277
Provision for T2 litigation settlements . . . . . . . . . . . . . . . . . . . -- 17,200
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,370 --
-------- --------
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . 108,185 70,763
-------- --------
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . (37,504) 1,643
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 929 1,543
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,389) (2,642)
Equity in net income of unconsolidated joint ventures . . . . . . . . . . . . 837 484
Gain (loss) on sales of property and equipment . . . . . . . . . . . . . . . 68 (173)
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (203) 295
-------- --------
Income (loss) before income taxes, minority interest and extraordinary items . (53,262) 1,150
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . (1,105) 1,411
Minority interest in net income of consolidated joint ventures . . . . . . . . (6,203) (5,528)
-------- --------
Loss before extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . (58,360) (5,789)
Extraordinary loss - early extinguishment of debt (net of zero
income tax benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,396) --
-------- --------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(61,756) $ (5,789)
======== ========
Net loss per share:
Loss before extraordinary item . . . . . . . . . . . . . . . . . . . . . . . $ (1.45) $ (0.15)
--------
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.08) --
-------- --------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1.53) $ (0.15)
======== ========
Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . 40,274 38,549
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE> 5
CORAM HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(61,756) $ (5,789)
Adjustments to reconcile net loss to net cash provided (used) by operating
activities:
Provision for estimated uncollectible accounts . . . . . . . . . . . . . . . 20,061 10,709
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 16,657 10,407
Merger and restructuring benefit . . . . . . . . . . . . . . . . . . . . . . (4,131) --
Deferred income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . (616) --
Minority interest in net income of consolidated joint ventures, net . . . . . (4,108) 5,528
(Gain) loss on sales of property and equipment, net . . . . . . . . . . . . . 451 120
Gain on sales of equity in joint ventures . . . . . . . . . . . . . . . . . . -- (161)
Equity in net income of unconsolidated joint ventures, net . . . . . . . . . 554 (503)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (71) (557)
Change in assets and liabilities, net of acquisitions and dispositions:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,558) (16,392)
Prepaid expenses, inventories and other assets . . . . . . . . . . . . . . (10,451) (1,712)
Current and other liabilities and reserve for litigation . . . . . . . . . 16,002 (1,440)
Accrued merger and restructuring . . . . . . . . . . . . . . . . . . . . . 11,671 --
-------- --------
Net cash provided (used) by operating activities . . . . . . . . . . . (31,295) 210
-------- --------
Cash flows from investing activities:
Proceeds from sale and maturities of available-for-sale securities . . . . . 3,786 7,016
Proceeds from sales of property and equipment . . . . . . . . . . . . . . . . 1,086 418
Proceeds from sales of joint ventures . . . . . . . . . . . . . . . . . . . . 100 500
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . (2,611) (4,784)
Payments for acquisition of businesses, net of cash acquired . . . . . . . . (239,461) (4,966)
Proceeds from sales of businesses . . . . . . . . . . . . . . . . . . . . . . 679 --
Capital contributions to unconsolidated joint ventures . . . . . . . . . . . (906) (1,654)
Distribution of earnings from unconsolidated joint ventures . . . . . . . . . -- 515
Distributions to minority interest in consolidated joint ventures . . . . . . -- (5,741)
-------- --------
Net cash used by investing activities . . . . . . . . . . . . . . . . (237,327) (8,696)
-------- --------
Cash flows from financing activities: --
Sales of common stock, net of repurchases and issuance costs . . . . . . . . 1,154
Borrowings (repayments) of lines of credit, net . . . . . . . . . . . . . . . (108,120) --
Securities sold under agreements to repurchase, net . . . . . . . . . . . . . (1,655) --
Debt borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 557,000 15,216
Repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (179,688) (10,523)
Proceeds from long-term receivable . . . . . . . . . . . . . . . . . . . . . 715 --
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (2,059)
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . 7,663 4,552
Exercise of stock warrants . . . . . . . . . . . . . . . . . . . . . . . . . 768 --
-------- --------
Net cash provided by financing activities . . . . . . . . . . . . . . 276,683 8,340
-------- --------
Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . . . 8,061 (146)
Cash at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . 13,588 17,948
-------- --------
Cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,649 $ 17,802
======== ========
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,219 $ 2,775
======== ========
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,722) $ 14,663
======== ========
Supplemental schedule of non-cash investing and financing activities:
Issuance of note in connection with acquisition . . . . . . . . . . . . . . . $100,000 --
======== ========
Issuance of Common Stock for Earn-Outs . . . . . . . . . . . . . . . . . . . $ 4,340 --
======== ========
Issuance of Common Stock for Convertible Debentures . . . . . . . . . . . . . $ 382 --
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE> 6
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared by Coram Healthcare Corporation (the "Company") pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such regulations. The consolidated financial statements
reflect all adjustments and disclosures which are, in the opinion of
management, necessary for a fair presentation. All such adjustments, other
than those relating to the acquisition of the Caremark Business (as defined
below), consolidation, restructuring, termination of the proposed merger with
Lincare Holdings Inc. ("Lincare"), litigation settlements and reclassification
of certain long-term indebtedness are of a normal recurring nature. The
results of operations for the interim periods are not necessarily indicative of
the results of the full fiscal year. Certain 1994 Financial Statement amounts
have been reclassified to conform with the June 30, 1995 presentation.
Joint Ventures and Other Assets - Joint ventures and other assets
increased primarily due to the allocation of the fair value of the Caremark
Business purchase price to other identifiable intangible assets.
Goodwill -- Effective April 1, 1995 the Company implemented SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." Accordingly, the carrying value of goodwill is
reviewed at least quarterly and more frequently if the facts and circumstances
suggest that it may be impaired. If such review indicated that goodwill will
not be recoverable, based on undiscounted estimated cash flows over the
remaining amortization period, the carrying value of goodwill will be reduced
to the estimated fair market value. Currently the Company is implementing the
Coram and Caremark Consolidation Plans (as defined below) and believes cash
flow from operations will be sufficient to recover the carrying value of this
goodwill. However, if sufficient cash flow from operations is not achieved,
the Company may be required to write down such goodwill. Any such write down
could have a material adverse effect upon the Company's financial position and
results of operations. Reference is made to the discussion under "Liquidity
and Capital Resources" set forth herein.
Per Share Data -- Per share data have been computed by dividing net
income or loss by the weighted average number of common and common equivalent
shares outstanding during the period. The weighted average calculation also
includes common shares issuable. Common stock equivalents include dilutive
stock options and warrants. Fully diluted per share amounts are not presented
in the financial statements because the assumed conversions of convertible debt
and any additional incremental shares would be either antidilutive or cause de
minimis dilution.
Business Activity
The operations of the Company commenced on July 8, 1994, as a result
of a merger (the "Four-Way Merger") of T2 Medical, Inc. ("T2"), Curaflex Health
Services, Inc. ("Curaflex"), HealthInfusion, Inc. ("HealthInfusion") and
Medisys, Inc. ("Medisys") (collectively, the "Merged Entities"). Each of those
companies became and is now a wholly-owned subsidiary of the Company. The
outstanding shares of the Merged Entities were converted, at varying exchange
rates, into shares of the Company s common stock, resulting in the issuance of
38.6 million shares of Coram common stock. The transaction was accounted for
as a pooling of interests. Accordingly, the accompanying financial information
was restated to include the accounts of the Merged Entities for all periods
presented.
5
<PAGE> 7
The results of operations previously reported by the Merged Entities
and the combined amounts presented in the accompanying consolidated financial
statements are summarized below (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1994
----------------
<S> <C>
Net Revenue:
T2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $115,770
Curaflex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,989
Medisys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,438
HealthInfusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,515
--------
Combined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $226,712
========
Net Income (Loss):
T2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,387)
Curaflex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,400)
Medisys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 599
HealthInfusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,703
Coram Holding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (304)
--------
Combined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,789)
========
</TABLE>
HMSS Acquisition -- On September 12, 1994, the Company acquired all of
the capital stock of H.M.S.S., Inc. ("HMSS"), an alternate site infusion
therapy provider. The acquisition was accounted for by the purchase method of
accounting, and accordingly, the results of operations of HMSS have been
included in the accompanying consolidated financial statements subsequent to
the date of acquisition. The acquisition was not material to the Company's
financial position or results of operations.
Caremark Acquisition -- Effective April 1, 1995, the Company acquired
substantially all of the assets used in the alternate site infusion and certain
related businesses (collectively the "Caremark Business") of Caremark Inc.
("Caremark") a California corporation and wholly-owned subsidiary of Caremark
International, Inc. for $209 million in cash and $100 million aggregate
principal amount of Junior Subordinated Pay-In-Kind Notes (the "Junior
Subordinated PIK Notes") consisting of a $75 million 7% Junior Convertible
Subordinated PIK Note (the "Junior Convertible Subordinated PIK Note") and
a $25 million 12% Junior Non-Convertible Subordinated PIK Note (the "Junior
Non-Convertible Subordinated PIK Note"), plus assumption of specified
liabilities of the Caremark Business. The Company also incurred $6 million
of acquisition costs. The acquisition was accounted for by the purchase
method of accounting and the results of the Caremark Business have been
included in the accompanying condensed consolidated financial statements
since the date of acquisition. In connection with the purchase, the Company
has preliminarily determined that the fair values of acquired identifiable
intangible and tangible assets approximate $178.9 million and assumed
liabilities approximate $57.4 million.
The Company is currently obtaining necessary information to allocate
the purchase price to the fair values of the acquired net assets. Accordingly,
the acquired net assets are included in the Company's condensed consolidated
balance sheet as of June 30, 1995 using preliminary estimates of the fair
values that are subject to adjustment as additional information becomes
available. The accompanying condensed consolidated balance sheet as of June
30, 1995 reflects a $30 million reduction in the carrying value of certain
acquired accounts receivable, through an increase in the allowance for doubtful
accounts, with a corresponding increase in goodwill. The Company has not yet
completed its assessment of the fair value of the acquired accounts receivable
as well as other acquired net assets and further material adjustments to the
preliminary purchase price allocation are possible. Based on its preliminary
purchase price allocation and after allocation of fair value to other
identifiable intangible assets, the Company has recognized goodwill of $193.5
million, resulting from the acquisition of the Caremark Business, which is
being amortized over 30 years.
6
<PAGE> 8
In addition, the Company's management has formulated and begun to
implement plans to combine the Caremark Business with the Company's business.
Estimated incremental and non-revenue generating costs resulting from the
termination or relocation of former Caremark Business employees and from
reductions of operations at or elimination of the Caremark Business locations
have been recognized as liabilities assumed in the acquisition of the Caremark
Business and accounted for as additional costs of the acquisition of the
Caremark Business. Similar types of costs related to former Company employees
and facilities have been accrued and expensed as restructuring charges in the
Company's statement of operations as required by applicable accounting
standards (see "Merger and Restructuring" below). The Company's new management
group expects to focus on increasing revenues and cash collections and
decreasing operating costs. Resulting changes to preliminary estimates, if
any, will also be recognized as liabilities assumed in the acquisition of the
Caremark Business and as a part of the acquisition costs of the Caremark
Business.
Additionally, effective March 1, 1994, Caremark acquired the assets
and assumed certain liabilities of Critical Care of America, Inc. ("CCA"),
which transaction was accounted for using the purchase method of accounting.
The following table presents unaudited, pro forma information as if the
Company's acquisitions of the Caremark Business including CCA had occurred on
January 1, 1994. The unaudited, pro forma information is provided for
comparative purposes only and is not necessarily indicative of the results that
would have been obtained had the acquisitions of the Caremark Business and CCA
occurred on the date indicated or that may be achieved in the future.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1995 1994
---------- ---------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 380,387 $ 476,176
========== =========
Loss before extraordinary item . . . . . . . . . . . . . . $ (69,483) $ (26,322)
========== =========
Loss before extraordinary item per common share . . . . . . $ (1.76) $ (0.69)
========== =========
Common shares used in computation . . . . . . . . . . . . . 39,457 38,372
========== =========
</TABLE>
The above amounts reflect adjustments for interest charges on the debt
incurred as part of the acquisitions, amortization of goodwill and depreciation
expense related to fixed assets. These amounts have not been reduced by any
potential cost savings from operating synergies.
Other Acquisitions -- The Company has continued to make acquisitions,
primarily of certain physician practices of the Merged Entities. During the
six months ended June 30, 1995, the Company completed eight such acquisitions
totaling $21.7 million, which were accounted for as purchases and during the
year ended December 31, 1994, the Company and the Merged Entities completed 55
such acquisitions totaling $22.8 million which were accounted for as purchases.
Individually and in the aggregate, the results of operations of these
businesses for periods prior to their acquisition were not material to the
Company's consolidated results of operations for these periods.
Certain of the Company's historical purchase agreements previously
entered into by the Merged Entities provided for additional contingent
consideration. The amount of additional consideration, if any, is based on the
financial performance levels of the acquired companies. The Company may be
required to pay under such contingent obligations approximately $10.0 million
subject to increase based, in certain cases, on the Company or its subsidiaries
exceeding certain revenue or income targets and changes in the market value of
the Company's stock. Subject to certain elections by the Company or the
sellers, a maximum of approximately $8.1 million of contingent obligations may
be paid in cash. If these contingent payments are paid, they will be recorded
as additional costs in excess of fair value in the period in which the payment
becomes probable.
Merger and Restructuring -- During September 1994, the Company
initiated a merger and restructuring plan (the "Coram Consolidation Plan") to
reduce operating costs, improve productivity and gain efficiencies through
consolidation of redundant infusion centers and corporate offices, reduce
personnel, and eliminate or discontinue
7
<PAGE> 9
investments in certain joint ventures and other non-infusion facilities. The
Coram Consolidation Plan provided for the elimination of approximately 100 of
the Company s home infusion branch facilities and the consolidation of
corporate administrative operations into one location. It also provided for a
corresponding reduction of approximately 470 full-time equivalent field
employees and 160 full-time equivalent corporate employees. Upon the
completion of the HMSS acquisition, the Company extended the Coram
Consolidation Plan to include the consolidation of HMSS operations.
Accordingly, the Company recorded estimated restructuring costs of $3.2 million
related to the HMSS transaction. The estimated cost associated with each
component of the Coram Consolidation Plan, recorded in the third quarter of
1994, including the writedown of existing assets to their estimated net
realizable value, were as follows (in thousands):
<TABLE>
<CAPTION>
CASH NON-CASH
EXPENDITURES CHARGES TOTAL
------------ ------- -----
<S> <C> <C> <C>
Merger Costs . . . . . . . . . . . . . . . . . $27,900 $ 600 $28,500
======= ======= =======
Personnel Reduction Costs . . . . . . . . . . . $26,200 $ 600 $26,800
Facility Reduction Costs . . . . . . . . . . . 15,600 16,300 31,900
Discontinuance Costs . . . . . . . . . . . . . 4,200 32,600 36,800
------- ------- -------
Restructuring Costs . . . . . . . . . . . . . . $46,000 $49,500 $95,500
======= ======= =======
</TABLE>
The Company believes these costs to be non-recurring; however, actual
costs may vary from the recorded charges as the Coram Consolidation Plan
continues.
The Company has continued to evaluate the remaining accruals and the
estimated costs to complete the Coram Consolidation Plan. As a result of this
evaluation the Company recorded an additional charge (benefit) to restructuring
as a change in estimate in the first quarter of 1995. The change in estimate
was the result of the sale of its 51% ownership interest in Pediatric Partners,
Inc., doing business as Kids Medical Club ("Kids Medical"). The Company had
estimated that the sale of Kids Medical would result in a $2.7 million loss
because Kids Medical had historically sustained losses and made an
insignificant contribution to the Company s revenue. The unanticipated gain
resulted from (i) positive margins experienced by Kids Medical in the period
from the date of the estimate through the date of the sale of Kids Medical and
(ii) the purchase of Kids Medical by a synergistic buyer, Pediatric Services of
America, Inc. The sale of Kids Medical resulted in a $1.4 million gain;
therefore, $4.1 million was recorded as a restructuring benefit in the first
quarter of 1995.
Through June 30, 1995, the Company had completed a significant portion
of the branch consolidation process contemplated by the Coram Consolidation
Plan, including the closure of 122 branch facilities, the downsizing of 36
branch facilities, the consolidation of the corporate functions previously
conducted in five corporate facilities, and a reduction of approximately 700
full-time equivalent employees. The Company has made total payments and total
asset disposals through June 30, 1995, as follows (in thousands):
<TABLE>
<CAPTION>
CASH NON-CASH CHANGE IN
EXPENDITURES CHARGES ESTIMATE TOTAL
------------ ------- -------- -----
<S> <C> <C> <C> <C>
Merger Costs . . . . . . . . . . . . . . . . $25,100 $ 600 $ -- $25,700
======= ======= ======== =======
Personnel Reduction Costs . . . . . . . . . . $16,000 $ 600 $ -- $16,600
Facility Reduction Costs . . . . . . . . . . 6,400 16,300 -- 22,700
Discontinuance Costs . . . . . . . . . . . . 100 32,600 (3,000) 29,700
------- ------- -------- -------
Restructuring Costs . . . . . . . . . . . . . $22,500 $49,500 $ (3,000) $69,000
======= ======= ======== =======
</TABLE>
8
<PAGE> 10
In connection with the Coram Consolidation Plan and as a result of the
Company's decision to implement standardized policies for recognition of
contractual and other allowances, de-emphasize certain businesses and provide
for the potential disruptions expected during the merger and post-merger
transition process, the Company recorded a special charge of $17.3 million in
September 1994, for anticipated uncollectible accounts and other receivables.
In establishing this reserve, the Company evaluated the aging of trade
receivables since the merger process began and evaluated the impact of ending
relationships with certain centers.
During May 1995, the Company initiated a second restructuring plan (
the "Caremark Consolidation Plan"). The estimated costs associated with each
component of the Caremark Consolidation Plan, recorded in the second quarter of
1995, including the writedown of existing assets to their net realizable value,
were as follows (in thousands):
<TABLE>
<CAPTION>
CASH NON-CASH
EXPENDITURES CHARGES TOTAL
------------ ------- -----
<S> <C> <C> <C>
Personnel Reduction Costs . . . . . . . . . . . . $12,400 $ -- $12,400
Facility Reduction Costs . . . . . . . . . . . . 6,800 6,600 13,400
------- ------- -------
Restructuring Costs . . . . . . . . . . . . . . . $19,200 $ 6,600 $25,800
======= ======= =======
</TABLE>
The restructuring costs exclude the personnel reduction costs of
former Caremark employees in the amount of $2.7 million, the facility lease
buyout and closure expense of former Caremark facilities in the amount of $1.1
million and vendor contract cancellation charges of former Caremark vendors in
the amount of $3.9 million. These costs, totaling approximately $7.7 million
were accounted for as a change in the purchase price of the Caremark Business.
The Caremark Consolidation Plan provided for the elimination of
approximately 55 and the downsizing of approximately ten of the Company s home
infusion facilities and the consolidation of corporate functions. It also
provided for a corresponding reduction of approximately 330 full-time
equivalent field employees and 100 full-time equivalent corporate employees.
The Company anticipates that the Caremark Consolidation Plan will be
substantially completed by September 30, 1995.
The Company has made total payments and total asset disposals through
June 30, 1995, as follows (in thousands):
<TABLE>
<CAPTION>
CASH NON-CASH
EXPENDITURES CHARGES TOTAL
------------ ------- -----
<S> <C> <C> <C>
Personnel Reduction Costs . . . . . . . . . . . . . . $ -- $ -- $ --
Facility Reduction Costs . . . . . . . . . . . . . . -- 6,600 6,600
------ ------ ------
Restructuring Costs . . . . . . . . . . . . . . . . . $ -- $6,600 $6,600
====== ====== ======
</TABLE>
Although subject to future adjustment, the Company believes it had
adequate reserves as of June 30, 1995 to complete the Coram Consolidation Plan
and Caremark Consolidation Plan.
9
<PAGE> 11
2. LINES OF CREDIT AND LONG-TERM DEBT
Debt under negotiation, lines of credit and long-term debt were as
follows (in thousands):
<TABLE>
<CAPTION>
DEBT CURRENTLY UNDER LINES OF CREDIT AND
NEGOTIATION LONG-TERM DEBT AT
AT JUNE 30, 1995 DECEMBER 31, 1994
----------------- --------------------
<S> <C> <C>
Revolving lines of credit . . . . . . . . . . . . . . . . $30,000 $108,099
Term loans . . . . . . . . . . . . . . . . . . . . . . . 200,000 --
Bridge note, due April 5, 1996, plus interest payable
quarterly at 3% above the prime rate . . . . . . . . . . 150,000 --
Junior convertible subordinated PIK note, due October 1,
2005, plus interest payable semi-annually at 7%,
convertible into common stock at the conversion rate of
$27 . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000 --
Junior non-convertible subordinated PIK note, due
September 30, 2005, plus interest payable semi-annually
at 12% . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 --
Subordinated convertible debentures, due June 30, 1996,
plus interest payable semi-annually at 9%, convertible
into common stock at the conversion rate of $16.36 . . . 6,818 7,000
Other obligations, including capital leases, at interest 8,131 10,538
rates ranging from 6% to 16%, collateralized by certain --------- --------
property and equipment . . . . . . . . . . . . . . . . . 494,949 125,637
Less:
Current scheduled maturities . . . . . . . . . . . . 45,157 5,911
Debt current under negotiation . . . . . . . . . . . $449,792 --
======== --------
Lines of credit and long-term debt . . . . . . . . . $119,726
========
</TABLE>
The Company has violated certain minimum financial ratios of the
Senior Credit Facility and has obtained a waiver of such violation from its
lenders through October 31, 1995. The Company is currently negotiating with
banks party to the Senior Credit Facility (as defined below) and the holders of
its other outstanding long-term indebtedness in an effort to finalize a
satisfactory resolution of its debt. Emerging Issues Task Force Issue No.
86-30, "Classification of Obligations when a Violation is Waived by the
Creditor," requires a company to reclassify long-term debt as current when a
covenant violation has occurred at the balance sheet date or would have
occurred absent a loan modification and it is not assured that the borrower
will be able to comply with the same covenant, or receive a similar waiver, at
measurement dates that are within the next twelve months. The Company is in
the process of finalizing a new business plan, and it is engaging in
discussions with its creditors and pursuing plans to raise additional capital.
As a result, the Company is not able to determine at this time whether its
long-term debt should be reclassified. Reclassification of long-term debt as a
current liability would result in negative working capital of $361.5 million.
Unadjusted for the reclassification of long-term debt, working capital at June
30, 1995 was $88.3 million. Reference is made to the discussion under
"Liquidity and Capital Resources" set forth herein.
On April 6, 1995, the Company entered into a credit facility (the
"Senior Credit Facility"). Under the terms of the Senior Credit Facility, the
Company has (i) a $200 million term loan facility (the "Term Loan Facility")
with
10
<PAGE> 12
a maturity date of April 6, 2000, and (ii) a $100 million revolving credit
facility (the "Revolving Credit Facility"), with a maturity date of April 6,
2000, of which up to $20 million is available in the form of letters of credit.
As of June 30, 1995, the available borrowing base under the Revolving Credit
Facility was $30 million (excluding undrawn letters of credit of $836,000) and
the amount borrowed under the Term Loan Facility was $200 million. The Senior
Credit Facility is secured by the stock of all of the Company s subsidiaries
and contains standard financial covenants and conditions limiting the Company s
ability to engage in certain activities. The proceeds of the loans under the
Senior Credit Facility were used to repay amounts outstanding under a prior
credit facility, to fund a portion of the cash purchase price for the Caremark
Business and to pay certain expenses in connection therewith.
A bridge note (the "Bridge Note") was issued on April 6, 1995, to an
affiliate of DLJ Bridge, Inc., an affiliate of Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), pursuant to a securities purchase agreement, as
unsecured obligations of the Company, in a principal amount of $150 million.
The Bridge Note initially bears interest at an annual rate equal to the sum of
(i) the rate of interest publicly announced by The Bank of New York from time
to time as its prime rate plus (ii) 3.00% plus (iii) an additional percentage
amount, equal to 1.00% from and including October 5, 1995 and increasing by an
additional 0.50% from and including each quarterly anniversary of such date for
as long as the Bridge Note remains outstanding. Such interest will be payable
quarterly in arrears on the 30th day of March, June, September and December,
commencing on June 30, 1995. The principal amount of the Bridge Note, together
with any accrued and unpaid interest thereon, will initially be due and payable
in full on April 5, 1996. Commencing on the six-month anniversary of issuance,
the Bridge Note will also bear a duration fee, payable in arrears on October 5,
1995, and on the 5th day of each January, April and July, 1996, of 0.25% of the
average aggregate principal amount of the Bridge Note outstanding during the
three-month period (or, in the case of the payment due in October, 1995, the
six-month period) then ended. The agreement pursuant to which the Bridge Note
was issued contains customary covenants and events of default. If the Bridge
Note is not repaid in full as of April 6, 1996, rollover notes (the "Rollover
Notes") which mature on October 6, 2000 will be issued in an amount equal to
the then-outstanding principal amount of the Bridge Note. Additionally, DLJ
will have the right to appoint one member of the Company's Board of Directors
and a cash payment of three percent of the outstanding principal amount of the
Rollover Notes will be due to DLJ. DLJ will also begin to receive warrants to
purchase up to 20% of the outstanding shares of Common Stock of the Company at
a nominal exercise price in accordance with the following table:
0-89 days 0.50%
90-179 days 1.00%
180-269 days 1.00%
270-359 days 1.50%
360-449 days 2.00%
450-539 days 2.50%
540-629 days 2.50%
630-719 days 3.00%
720-809 days 3.00%
810 days and thereafter 3.00%
------
20.00%
======
Interest on the $75 million Junior Convertible Subordinated PIK Note
is payable semi-annually at the rate of 7% per annum. The Junior Convertible
Subordinated PIK Note will mature on the earlier to occur of October 1, 2005,
or an event of default. Prior to the second anniversary of the initial date of
issuance, interest is payable in cash or additional Junior Convertible
Subordinated PIK Notes, at the election of the Company. Thereafter, interest
will be payable in cash, subject to the satisfaction of certain financial tests
set forth in the Senior Credit Facility. The Junior Convertible Subordinated
PIK Note may not be prepaid or redeemed prior to three years following the
initial issuance date without the written consent of the holder thereof.
Thereafter, the Junior Convertible Subordinated PIK Note is, at the option of
the Company, redeemable, in whole or in part, subject to normal redemption
terms and conditions, and subject to restrictions on optional redemption
contained in the Senior Credit Facility. The Junior Convertible Subordinated
PIK Note will be convertible, at the holder s option, at any time
11
<PAGE> 13
subsequent to one year following the date of issuance, in whole or in part,
into such number of shares of Common Stock determined by dividing the aggregate
principal amount by the conversion price in effect at the time of such
conversion. The conversion price of the Junior Convertible Subordinated PIK
Note is $27 per share, subject to adjustment. The Company is required to file,
and use its best efforts to cause to become effective on or before the first
anniversary of the initial date of issuance of the Junior Convertible
Subordinated PIK Note, a registration statement covering the shares of the
Company's Common Stock issuable upon conversion thereof. The Company is
required to maintain the effectiveness of such registration statement for a
three year period following the original effective date of the registration
statement. In the event that there is a change in control (as defined herein)
of the Company, the holder of the Junior Convertible Subordinated PIK Note may
require the Company to repurchase such note at a purchase price equal to the
principal amount thereof, plus accrued interest thereon.
Interest on the $25 million Junior Non-Convertible Subordinated PIK
Note is payable semi-annually at the rate of 12% per annum. The Junior
Non-Convertible Subordinated PIK Note will mature on the earlier to occur of
September 30, 2005 or an event of default. Prior to the second anniversary of
the initial date of issuance, interest will be payable in cash or in additional
Junior Non-Convertible Subordinated PIK Notes, at the election of the Company.
Thereafter, interest will be payable in cash, subject to satisfaction of
certain financial tests set forth in the Senior Credit Facility. The Junior
Non-Convertible Subordinated PIK Note may be prepaid or redeemed, in whole or
in part, at any time at the Company s option, without penalty or premium, and
subject to restrictions on optional redemption contained in the Senior Credit
Facility. In the event that there is a change in control of the Company, the
holder of the Junior Non-Convertible Subordinated PIK Note may require the
Company to repurchase such note at a purchase price equal to the principal
amount therefore, plus accrued interest thereon.
3. INCOME TAXES
The Company recorded an income tax benefit of $1.1 million for the six
month period ended June 30, 1995. The resulting effective income tax benefit
rate is primarily due to the ability to carry back a portion of the Company's
tax deductible loss to the prior year tax returns of the predecessor companies.
4. LITIGATION
The Company entered into a Stipulation of Settlement (the
"Stipulation") dated as of January 27, 1995 which sets forth the principal
terms of a settlement of class action shareholder litigation which was
initiated against T2 in 1992. Pursuant to the settlement the Company paid,
during June 1995, the shareholder class $25.7 million in cash (of which
approximately $7.8 million was contributed by the Company s insurance carrier)
and has issued warrants to the shareholder class to acquire an aggregate of
approximately 2.5 million shares of Common Stock at an exercise price of
$22.125. The Stipulation was approved by the court on May 5, 1995 and a
judgment was entered dismissing the litigation with prejudice on May 19, 1995.
During September 1994, the Company also settled a dispute with the
former principals of a company acquired by T2 in 1992 related to the valuation
of that acquisition transaction. The dispute was settled with the Company
issuing to the former principals warrants to acquire 500,000 shares of the
Company's Common Stock at an exercise price of $18, subject to adjustment. The
Company is obligated to make a cash payment of up to $4 million to the
warrantholders at the end of the five year term of the warrants; provided,
however, that the payment will be reduced, dollar-for-dollar, to the extent of
the aggregate positive spread in excess of $16.00 per share on any warrant
exercised prior to, or exercisable at the end of, the five year term of the
warrants.
The Company is involved in various legal proceedings incidental to the
normal course of business. While it is not possible to predict the outcome of
such proceedings with certainty, management is of the opinion that their
ultimate disposition will not have a material adverse effect on the Company s
financial position, results of operations or liquidity.
12
<PAGE> 14
5. SUBSEQUENT EVENTS
Lincare Merger -- On April 17, 1995, the Company entered into an
agreement to merge (the "Lincare Agreement") with Lincare, a provider of oxygen
and other respiratory therapy services to patients in the home. On July 21,
1995, the Company and Lincare announced that they had terminated the plans to
merge and had signed a letter of intent to cooperatively offer their integrated
services in targeted metropolitan areas. The Company and Lincare executed a
letter agreement dated July 21, 1995, under which the parties agreed to
allocate fees and expenses incurred in connection with the transaction and to
forever release and discharge the other from actions, liabilities and
obligations arising out of or related to the transaction. Costs incurred of
approximately $3.4 million, representing the Company's expenses in the
transaction, were expensed in the quarter ended June 30, 1995.
13
<PAGE> 15
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKGROUND
General. The operations of Coram Healthcare Corporation, a Delaware
corporation ("Coram" or the "Company") commenced on July 8, 1994 as a result of
a merger (the "Four-Way Merger") of T2 Medical, Inc. ("T2"), Curaflex Health
Services, Inc. ("Curaflex"), HealthInfusion, Inc. ("HealthInfusion") and
Medisys, Inc. ("Medisys" and together with T2, Curaflex and HealthInfusion,
Inc. the "Merged Entities"), each of which was a publicly-held national or
regional provider of alternate site infusion therapy and related services.
Pursuant to the Four-Way Merger, which was accounted for as a pooling of
interests, each of those companies became and is now a wholly-owned subsidiary
of the Company. On September, 12, 1994, the Company acquired all of the
capital stock of H.M.S.S., Inc. ("HMSS"), a regional provider of alternate site
infusion therapies, in a transaction accounted for as a purchase. Effective
April 1, 1995, the Company acquired substantially all of the assets used in the
alternate site infusion and related businesses (collectively the "Caremark
Business") of Caremark Inc. ("Caremark"), a California corporation and wholly-
owned subsidiary of Caremark International, Inc. (the "Caremark Transaction").
The Caremark Transaction was accounted for as a purchase.
Acquisition of Caremark Business. Effective April 1, 1995, the
Company acquired the Caremark Business from Caremark. The purchase price of
the transaction consisted of (i) $209 million in cash and (ii) $100 million
aggregate principal amount of Junior Subordinated Pay-In-Kind Notes (the "PIK
Notes") payable to Caremark. The PIK Notes included a $75 million 7%
Convertible Subordinated PIK Note (the "Junior Convertible Subordinated PIK
Note") and a $25 million 12% Non-Convertible Subordinated PIK Note (the "Junior
Non-Convertible Subordinated PIK Note"). The Company also incurred $6 million
of acquisition costs. The Caremark Transaction was structured as an asset
purchase. Accordingly, the Company assumed only certain specified liabilities
of the Caremark Business, which, in particular, expressly exclude any
liabilities associated with the recent government investigation of Caremark.
In connection with the Caremark Transaction, the Company repaid all of its
indebtedness under its then existing credit facility. The cash paid by the
Company in connection with the Caremark Transaction and the repayment of
indebtedness, together with related fees and expenses, were financed through:
(i) borrowings under a Senior Credit Facility (the "Senior Credit Facility"),
and (ii) $150 million from the issuance of the Bridge Note (the "Bridge Note")
to an affiliate of Donaldson, Lufkin & Jenrette Securities Corporation, DLJ
Bridge, Inc. ("DLJ").
Coram Consolidation Plan and Caremark Consolidation Plan. Following
the Four-Way Merger, the Company initiated a merger and restructuring plan (the
"Coram Consolidation Plan") to reduce future operating costs, improve
productivity and gain efficiencies through consolidation of redundant infusion
centers and corporate offices, reductions in personnel and elimination or
discontinuance of investments in certain joint ventures and other non-infusion
facilities. The Coram Consolidation Plan provides for the elimination of
approximately 100 of the Company s home infusion branch facilities and the
consolidation of corporate administrative operations into one location, with a
corresponding significant reduction of branch and corporate personnel. In
connection with the Coram Consolidation Plan, the Company recorded charges of
$28.5 million in estimated merger costs and $95.5 million in estimated
restructuring costs in the quarter ended September 30, 1994, including charges
to assimilate HMSS. Management believes these costs to be non-recurring;
however, actual costs may vary from the recorded charges as the Coram
Consolidation Plan continues. The Coram Consolidation Plan is expected to
generate annual cost savings of over $70 million. The Company expects these
savings will result from reductions in overhead and procurement savings. In
the first half of 1995, these savings were partially offset by the costs of
integration, relocation, retention and retraining of personnel, estimated to be
approximately $5 million. No assurances can be given as to the aggregate cost
savings which will be achieved by the Company or the timing thereof.
During the quarter ended June 30, 1995, the Company initiated a second
restructuring plan (the "Caremark Consolidation Plan") following the
acquisition of the Caremark Business. The Caremark Consolidation Plan provides
for the elimination of approximately 55 branches and the downsizing of
approximately ten of the Company's home infusion branch facilities and the
consolidation of corporate functions. It also provided for a corresponding
reduction
14
<PAGE> 16
of approximately 330 full-time equivalent field employees and 100 full-time
equivalent corporate employees. The Caremark Consolidation Plan includes a
reorganization of the Caremark reimbursement function from a centralized
organization to a decentralized organization. It also includes the conversion
of the Company's billing and accounts receivable system to the Caremark system.
While the potential for an increase in accounts receivable write-offs exists,
management believes that such an exposure can be minimized with the proper
management emphasis. In connection with the Caremark Consolidation Plan, the
Company recorded charges of $25.8 million in estimated restructuring costs and
$7.7 million in purchase price adjustment in the quarter ended June 30, 1995.
Management believes these costs to be non-recurring; however, actual costs may
vary from the recorded charges as the Caremark Consolidation Plan continues.
The Company anticipates that the Caremark Consolidation Plan will be
substantially implemented by September 30, 1995 and will generate annualized
cost savings of approximately $59.0 million. No assurances can be given as to
the aggregate cost savings which will be achieved by the Company or the timing
thereof.
Lincare. On April 17, 1995, the Company entered into an agreement to
merge (the "Lincare Agreement") with Lincare Holdings Inc. ("Lincare"), a
provider of oxygen and other respiratory therapy services to patients in the
home. On July 21, 1995, the Company and Lincare announced that they had
terminated the plan to merge and had signed a letter of intent to cooperatively
offer their integrated services in targeted metropolitan areas. The Company
and Lincare executed a letter agreement dated July 21, 1995, under which the
parties agreed to allocate fees and expenses incurred in connection with the
transaction and to forever release and discharge the other from actions,
liabilities and obligations arising out of or related to the transaction.
Costs incurred of approximately $3.4 million, representing the Company's
expenses in connection with the transaction, were expensed in the quarter ended
June 30, 1995.
Management. Effective July 10, 1995, Sam R. Leno resigned from his
position as Vice President and Chief Financial Officer of the Company. G.
Rodney Wolford has assumed the position of Acting Chief Financial Officer. On
August 3, 1995, Patrick J. Fortune resigned from his position as a director,
President and Chief Operating Officer of the Company and Olav Bergheim resigned
from his position as Executive Vice President. James M. Sweeney, the Company's
Chairman and Chief Executive Officer, has assumed the additional position of
President of the Company. Kelly J. McCrann, president of the Company's
lithotripsy division, and John T. Gallatin, president of Coram Physician
Services, have each been appointed executive vice presidents of the Company.
It is currently anticipated that Mr. McCrann will assume responsibility for the
Company's corporate and administrative functions and that Mr. Gallatin will
assume responsibility for the Company's field operations. Messrs. McCrann and
Gallatin will report directly to Mr. Sweeney.
Factors Adversely Affecting Recent Operating Results. A number of
factors have adversely affected the Company's financial condition and recent
results of operations. First, following the Four-Way Merger, the Company
implemented a policy of terminating physician arrangements and certain
businesses which it inherited from the Merged Entities which were potentially
in conflict with new federal and state law. In September 1994, in connection
with a grand jury investigation, T2 entered a settlement agreement under which
T2 acquired 55 companies previously managed by it and terminated the other
outstanding management agreements it had with physician-owned home care
companies and physician-owned Intracare companies. In addition, the Company
terminated other relationships that the Merged Entities and HMSS had with
physicians. Many of the physician arrangements were terminated in the fourth
quarter of 1994 and the first quarter of 1995. As a result, the Company lost a
number of historical referral sources which, when combined with the loss of the
terminated businesses, resulted in a decline in revenues on a year-to-year
basis and for the first two quarters of 1995. Second, the revenues of the
Caremark Business declined significantly from the first quarter of 1995 to the
second quarter of 1995, a factor which the Company did not anticipate when it
acquired the business and obtained financing to pay the purchase price. Third,
the Company has experienced pricing pressure in its core infusion business as a
result of a continuing shift in payor mix from traditional indemnity insurers
to managed care payors and intense competition among infusion providers.
Fourth, the Company experienced a disruption in certain relationships as
a result of its headcount reduction and consolidation. The Company also
experienced increased competition from hospitals and physicians who have sought
to increase the scope of services through their offices, including services
similar to those offered by the Company. Finally, the Company believes that
its management's focus on the consolidation programs described above
15
<PAGE> 17
and pursuing a growth strategy based on acquisitions has resulted in
insufficient attention to revenue generation by its core infusion business.
The confluence of these factors in the first half of 1995 have significantly
affected the Company's financial results and condition and created liquidity
issues for the Company in the near term as discussed under the caption
"Liquidity and Capital Resources." There can be no assurance that these trends
will not continue to have an adverse effect on the Company's financial
condition and results of operations in the future.
In addition, there can be no assurance that the Company s lithotripsy
operations will not also experience pricing pressure in the future. The Health
Care Financing Administration has issued a proposed rule that would, if
implemented, significantly reduce the amount Medicare would reimburse its
beneficiaries for the cost of lithotripsy procedures performed in an ambulatory
surgery center or on an out-patient basis at a hospital. Such a proposal might
result in similar efforts by other third- party payors to limit reimbursement
for lithotripsy procedures.
Senior management of the Company is in the process of evaluating the
effects of the factors discussed above and are formulating a business plan
focused on revenue generation, cost reduction and cash collections. To
generate increased revenue, the Company will redirect its marketing efforts
towards improving its physician relationships in addition to developing new
programs such as one-stop shopping for managed care payors, physician practice
management services and disease-state carve-outs (i.e., vertical integration
along disease specific categories) and billing and collections. Cost reduction
efforts will be focused on field consolidation and a reduction of corporate
expenses, assessment of poor performing branches and a review of branch
efficiencies. Management also intends to concentrate on improved reimbursement
through an emphasis on cash collection throughout the organization over the
near term and the reassessment of systems support for reimbursement. While
management believes the implementation of this plan will improve the Company's
operations and financial performance, the plan is subject to change and no
assurances can be given as to its ultimate success.
RESULTS OF OPERATIONS
Prior to July 8, 1994, the activities of the Company were conducted
separately by each of the predecessor entities. Accordingly, the following
discussion provides certain comparative information for the second quarter of
1995 compared with the first quarter of 1995 in addition to prior year
comparisons.
SECOND QUARTER ENDED JUNE 30, 1995 COMPARED WITH SECOND QUARTER ENDED
JUNE 30, 1994
Net Revenue. Net revenue for the second quarter of 1995 increased by
$65.7 million or 57.8% compared with the same period in 1995. The acquisition
of the Caremark Business accounted for approximately $85.0 million of the
increase. Net revenue from Coram's business exclusive of the Caremark Business
(the "Coram Business"), declined by approximately $19.3 million or 17.0% from
the second quarter of 1994 due primarily to the factors discussed above.
Gross Profit. Gross profit for the second quarter of 1995 increased
$5.2 million or 14.2% compared with the same period in 1994. The increase is
primarily due to the acquisition of the Caremark Business which contributed an
estimated $16.5 million in 1995. The increased gross profit contributed by
this acquisition was partially offset by the sale of the Company's home
pediatrics business ("Kids Medical"), which decreased gross profit by $1.1
million, and price reductions resulting from industry pricing pressures and
therapy and payor mix shifts. The gross margin percentage decreased to 23.1%
for the second quarter of 1995 compared with 32.0% for the same period in 1994.
Gross profit on the Coram Business decreased by $11.3 million from the quarter
ended June 30, 1994 primarily due to reduced sales and therapy and payor mix
shifts which occurred for the reasons discussed under the caption "Factors
Adversely Affecting Recent Operating Issues."
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses increased $22.3 million or 117.5% for the
second quarter of 1995 compared with the same period in 1994. The acquisition
of the Caremark Business resulted in an increase of $14.7 million of SG&A
expenses in the second quarter, $7.5 million of which are duplicate corporate
expenses and other non-recurring items which are expected to be eliminated by
the fourth quarter of 1995. Expenses related to the terminated Lincare merger
contributed $3.4
16
<PAGE> 18
million in SG&A in the second quarter. Other integration costs not accrued as
part of the restructuring are estimated to be $2.2 million.
Total SG&A adjusted for estimated non-recurring items is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-----------------------
1995 1994
------ ------
<S> <C> <C>
Net revenue . . . . . . . . . . . . . . . . . . . . . . . $179,351 $113,647
======== ========
SG&A . . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,312 $ 18,993
Less Non-recurring SG&A:
Caremark general and administrative . . . . . . . . . . 7,500 --
Lincare termination costs . . . . . . . . . . . . . . . 3,400 --
Other non-recurring items . . . . . . . . . . . . . . . 2,200 --
-------- --------
Adjusted SG&A net of non-recurring items . . . . . . . . $ 28,212 $ 18,993
======== ========
SG&A as a percentage of Net revenue less
Non-recurring items . . . . . . . . . . . . . . . . . 15.7% 16.7%
======== ========
</TABLE>
Provision For Estimated Uncollectible Accounts. The provision for
estimated uncollectible accounts was $16.0 million, or 8.9% of net revenue, for
the quarter ended June 30, 1995 compared to $6.0 million, or 5.3% of net
revenue, for the quarter ended June 30, 1994 due primarily to the addition of
the Caremark Business that added $6.7 million to the current period reserve.
Management regularly reviews the collectibility of accounts receivable and
makes adjustments to the allowance for estimated uncollectible accounts as
needed to reflect current collection and other trends and changes in assessment
of realizable value.
Amortization of Goodwill. Amortization of goodwill increased $2.6
million from the second quarter of 1994 primarily as a result of $1.5 million
of amortization of goodwill related to the acquisition of the Caremark
Business, and additional amortization related to the acquisition of HMSS in
September 1994 and the acquisition of physician ownership interests in a number
of ventures.
Restructuring Costs. The Company recorded a pre-tax charge of $25.8
million in the second quarter of 1995 for estimated costs related to the
Caremark Consolidation Plan. This charge consists primarily of estimated exit
costs to close redundant branch facilities and related headcount reductions.
In addition, the Company recognized a $.3 million credit to the provisions for
the sale of a non-strategic asset.
Operating Loss. The Company recorded an operating loss of $46.1
million for the second quarter of 1995 compared with a loss of $8.0 million in
the second quarter of 1994 as a result of a $43.3 million increase in operating
expenses, offset by a $5.2 million increase in gross profit.
Other Income (Expenses). Interest expense increased by $12.5 million
for the second quarter of 1995 compared with the same period in 1994 due to
increased borrowings by the Company to finance acquisitions, merger costs and
working capital needs.
Provision (Benefit) for Income Taxes. During the second quarter of
1995, the Company did not record a tax benefit. This compares with a $2.3
million benefit in the same period in the prior year.
Net Loss. Net loss for the second quarter of 1995 increased $57.3
million compared with the same period in 1994 primarily as a result of the
$25.8 million special charge related to the Caremark Consolidation Plan, the
increase in the provision for estimated uncollectible accounts and increase in
interest expense.
17
<PAGE> 19
SECOND QUARTER ENDED JUNE 30, 1995 COMPARED WITH FIRST QUARTER ENDED
MARCH 31, 1995
Net revenue for the second quarter of 1995 increased by $74.6 million
compared with the first quarter of 1995. The major source of the increase was
approximately $85.0 million of revenue contributed by the Caremark Business
acquired at the beginning of the second quarter. The increase was partially
offset by a decrease in revenues resulting from the termination of physician
agreements and certain businesses as well as the March 31, 1995 sale of Kids
Medical which contributed $5.6 million in revenue in the first quarter. The
gross margin percentage in the Coram Business decreased to 23.1% in the second
quarter of 1995 compared with 27.8% in the first quarter of 1995 due to a
decline of physician-referred patients which typically result in higher levels
of reimbursement, and an increase in managed care patients which typically
result in lower reimbursement.
Operating expenses increased by $67.1 million for the second quarter
of 1995 compared with the first quarter of 1995. SG&A expenses increased $23.4
or 131.0%; the acquisition of the Caremark Business resulted in an increase of
$14.6 million of SG&A expenses in the second quarter and transaction expenses
related to the terminated Lincare merger resulted in an increase of $3.4
million to SG&A. Amortization of goodwill increased $2.0 million over the
first quarter. This increase included $1.5 million of amortization related to
the Caremark Transaction. The provision for estimated uncollectible accounts
was $16.0 million or 8.9% of net revenue for the second quarter compared to
$4.0 million or 3.8% of net revenue for the first quarter. The acquisition of
the Caremark Business added $6.7 million to this charge in the current quarter
with the remainder of the increase resulting from aging of the accounts
receivable of the Coram Business. Management regularly reviews the
collectibility of accounts receivable and makes adjustments to the provision
for estimated uncollectible accounts as needed to reflect prevailing
conditions. The Company also recorded a special charge of $25.8 million in the
second quarter related to the Caremark Consolidation Plan.
SIX MONTHS ENDED JUNE 30, 1995 COMPARED WITH SIX MONTHS ENDED
JUNE 30, 1994
Net Revenue. Net revenue for the six months ended June 30, 1995,
increased by $57.4 million or 25.3% compared with the same period in 1994. The
acquisition of the Caremark Business contributed an estimated $85.0 million of
such increase. Net revenue for the Coram Business declined by approximately
$27.6 million or 12.2% during the six month ended June 30, 1995 compared with
the six months ended June 30, 1994 as a result of the factors discussed above
under "Factors Adversely Affecting Recent Operating Results," the impact of the
Coram Consolidation Plan and the Caremark Consolidation Plan.
Gross Profit. Gross profit for the six months ended June 30, 1995
decreased $1.7 million or 2.4% compared with the same period in 1994. The
acquisition of the Caremark Business contributed an estimated $16.3 million to
gross profit; however that was more than offset by the sale of Kids Medical,
which contributed $6.1 million in gross profit in the prior year period, and
price reductions resulting from industry pricing pressures and therapy and
payor mix shifts. Gross margin decreased to 24.9% for six months ended June
30, 1995 compared with 31.9% for the same period in 1994. Gross profit on the
Coram Business decreased by $18.0 million for the six month period ended June
30, 1995 as compared with the same period in 1994 due to a combination of
reduced sales and therapy and payor mix shifts.
Selling, General and Administrative Expenses. SG&A expenses increased
$20.6 million or 53.5% for the six months ended June 30, 1995 compared with the
same period in 1994. The acquisition of the Caremark Business resulted in an
increase of $14.6 million of SG&A expenses in the second quarter, $7.5 million
of which are general and administrative costs which are expected to be
eliminated by the fourth quarter 1995. Transaction expenses related to the
terminated Lincare merger contributed $3.4 million in SG&A in the second
quarter. Management has estimated other non-recurring changes, primarily
related to the restructuring of Coram and Caremark but not chargeable to the
Coram Consolidation Plan and the Caremark Consolidation Plan to be $4.4
million.
18
<PAGE> 20
Total SG&A adjusted for estimated non-recurring items is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------
1995 1994
---- ----
<S> <C> <C>
Net revenue . . . . . . . . . . . . . . . . . . . . . $284,129 $226,712
======== ========
SG&A . . . . . . . . . . . . . . . . . . . . . . . . $ 59,197 $ 38,577
Less Non-recurring SG&A:
Caremark general and administrative . . . . . . . . 7,500 --
Lincare termination costs . . . . . . . . . . . . . 3,400 --
Other non-recurring items . . . . . . . . . . . . . 4,400 --
-------- --------
Adjusted SG&A, net of non-recurring items . . . . . . $ 43,897 $ 38,577
======== ========
SG&A Expenses as a percentage of net revenue less
non-recurring items . . . . . . . . . . . . . . . 15.4% 17.0%
======== ========
</TABLE>
Provision For Estimated Uncollectible Accounts. The provision for
estimated uncollectible accounts was $20.1 million, or 7.1% of net revenue, for
the six months ended June 30, 1995 compared with $10.7 million, or 4.7% of net
revenue for the six months ended June 30, 1994 due primarily to the acquisition
of the Caremark Business which accounted for $6.7 million of the increase.
Management regularly reviews the collectibility of accounts receivable and
makes adjustments to the provision for estimated uncollectible accounts as
needed to reflect current collection and other trends and changes in assessment
of realizable value. As the Company becomes more sophisticated in its approach
to the estimation process, as well as the lag experience goes beyond twelve
months for the Company, this will become a more refined process.
Amortization of Goodwill. Amortization of goodwill increased $3.3
million from the six months ended June 30, 1994 primarily as a result of $1.5
million of amortization related to the acquisition of the Caremark Business and
additional amortization related to the acquisition of HMSS in September 1994
and the acquisition of physician ownership interests in a number of ventures.
Restructuring Costs. The Company recorded a pre-tax charge of $25.8
million during the six months ended June 31, 1995 for estimated costs related
to the Caremark Consolidation Plan. This charge consists primarily of
estimated exit costs to close redundant branch facilities and related headcount
reductions.
Operating Income (Loss). The Company recorded an operating loss of
$37.5 million for the six months ended June 30, 1995 compared with $1.6 million
of operating income for the six months ended June 30, 1994 as a result of a
$1.7 million decrease in gross profit, and a $37.4 million increase in
operating expenses.
Other Income and Expenses. Interest expense increased by $14.7
million for the six months ended June 30, 1995 compared with the same period in
the prior year primarily due to increased borrowings by the Company to finance
acquisitions, merger costs and other working capital needs.
Provision (Benefit) for Income Taxes. During the six months ended
June 30, 1995, the Company recorded an income tax benefit of $1.1 million
compared with a $1.4 million provision for income taxes recorded in the
comparable period of the prior year. The income tax benefit recognized for the
six months ended June 30, 1995 has been limited to the estimated amounts
recoverable through carryback of losses and resulting recovery of income taxes
previously paid by predecessor entities to the Company that were participants
in the Four-Way Merger. The provision for income taxes recorded in the
comparable period of 1994 was determined separately for each of the predecessor
entities and then combined; the predecessor entities could not make
consolidated income tax filings for periods before the Four-Way Merger in July
1994 and thereby utilize the losses of one entity to offset taxable income
19
<PAGE> 21
generated by another. Accordingly, the effective income tax (benefit) rates
for the six months period ended June 30, 1995 and 1994 differ substantially
from the expected combined federal and state income tax (benefit) rates
calculated using applicable statutory rates.
The Company has recognized net deferred tax assets of approximately
$25.8 million at June 30, 1995 related primarily to accrued restructuring
costs, litigation charges and allowances for doubtful accounts that are not
deductible for income tax purposes until paid or realized and to net operating
loss carryforwards that are deductible against future taxable income. A
valuation allowance of $62.3 million has been provided to reduce the gross
amount of deferred tax assets to amounts expected to be recovered through (a)
carryback of taxable losses and resulting recovery of income taxes previously
paid by predecessor entities and (b) offset against deferred tax liabilities
that would otherwise become payable in the carryforward period. Realization
of $62.3 million of deferred tax assets, for which a valuation allowance has
been established at June 30, 1995, is dependent upon the ability of the Company
to generate taxable income in the future.
Net Loss. Net loss for the six months ended June 30, 1995 increased
$56.0 million as compared with the same period in 1994. The primary reason for
the increased loss is the $25.8 million special charges related to the Caremark
Consolidation Plan.
LIQUIDITY AND CAPITAL RESOURCES
The Company s cash, cash equivalents and marketable securities at June
30, 1995 were $41.7 million (including restricted cash of approximately $7.2
million), an increase of $5.1 million from December 31, 1994. The ratio of
total debt to equity increased to 1.83 to 1 at June 30, 1995 from .41 to 1 at
December 31, 1994 due to the additional debt incurred to acquire the Caremark
Business.
During the six months ended June 30, 1995, the Company had negative
cash flow from operations of $31.3 million compared with positive cash flow of
$0.2 million for the six months ended June 30, 1994. Cash used by investing
activities was $237.3 million for the six months ended June 30, 1995 compared
with $8.7 million for the six months ended June 30, 1994 due to capital
expenditures and business acquisitions. Cash provided by financing activities
was $276.7 million for the six months ended June 30, 1995 compared with $8.3
million for the six months ended June 30, 1994 due to increased borrowings
related to acquisitions.
As of June 30, 1995 the Company does not have any material commitments
for capital expenditures.
As of June 30, 1995, 56.4% of the assets of the Company consisted of
goodwill. The Company had $543.5 million of goodwill as of June 30, 1995, an
increase of $210.2 million over December 31, 1994. This increase was largely
the result of the purchase of the Caremark Business and other acquisitions
mentioned above. It is the Company's policy to review the recoverability of
goodwill at least quarterly and more frequently if the facts and circumstances
suggest that it may be impaired. If such review indicates that goodwill will
not be recoverable, based on undiscounted estimated cash flows over the
remaining amortization period, the carrying value of goodwill will be reduced
to estimated fair market value. Currently, the Company is implementing the
Coram and Caremark Consolidation Plans which are intended to generate cash
flow from operations, which will be sufficient to recover the carrying value
of this goodwill. However, if sufficient cash flow from operations is not
achieved, the Company may be required to write
20
<PAGE> 22
down such goodwill. Any such write down could have a material adverse effect
upon the Company's financial position and results of operations.
As of August 11, 1995, the Company had available cash of approximately
$32 million. Based on internal cash flow projections that assume current
expense levels and collections impacted by the Caremark Consolidation Plan, the
Company believes it will have sufficient working capital to meet its cash
requirements from operations through mid-October 1995, excluding the proceeds
from any asset sales which the Company is allowed to retain by its lenders
under the Senior Credit Facility. The Company has violated certain minimum
financial ratios of the Senior Credit Facility and has obtained a waiver of
such violations from its lenders through October 31, 1995. The Company is
currently in discussions with its senior lenders under the Senior Credit
Facility to modify the terms of its existing credit agreement, including the
waiver of certain defaults, the continuing ability to borrow under its
revolving credit facility, the deferral of a $10 million principal payment
which would otherwise be due on September 30, 1995 and the utilization of
proceeds from certain asset sales. If the Company is able to obtain
satisfactory modifications to its existing credit agreement, the Company
believes it will have sufficient working capital to meet its cash requirements
from operations. However, if the Company is not able to increase its cash flow
on or before mid-October, 1995 or restructure the terms of the Senior Credit
Facility, the Company will be required to raise additional capital either
through equity or debt financing, or a combination of each, to fund its cash
requirements after such time. The failure by the Company to amend the terms of
its indebtedness under the Senior Credit Facility or obtain such other
financing would have a material adverse effect on the Company's liquidity,
financial results and results of operations.
Pursuant to the Company's discussions with its lenders, the Company is
required to develop a formalized business plan that is acceptable to the
lenders. Due to the timing of the negotiations and the receipt of the waiver,
the Company has not had adequate time to respond. Emerging Issues Task Force
Issue No. 86-30, "Classification of Obligations when a Violation is Waived by
the Creditor," requires a company to reclassify long-term debt as current when
a covenant violation has occurred at the balance sheet date or would have
occurred absent a loan modification and it is not assured that the borrower
will be able to comply with the same covenant or receive a similar waiver, at
measurement dates that are within the next 12 months. The Company is in the
process of finalizing a new business plan, and it is engaging in discussions
with its creditors and pursuing plans to raise additional capital. As a result,
the Company is not able to determine at this time whether its long-term debt
should be reclassified. Reclassification of long-term debt would result in
negative working capital of $361.5 million. Unadjusted for the
reclassification of long-term debt, working capital at June 30, 1995 was $88.3
million.
No assurance can be given that the lenders will grant such payment
deferral or agree to any restructuring of the Company's debt obligations.
Failure to comply with any of the financial covenants set forth in the Senior
Credit Facility after expiration of the waiver or failure to make a payment
when due could result in acceleration of all amounts due under the Senior
Credit Facility. An acceleration of the debt under the Senior Credit Facility
would also result in a default under the Company's other long-term debt
instruments and certain of its leases and an acceleration of such instruments,
which would have a material adverse effect on the Company's liquidity,
financial results and results of operations.The Company has also requested a
deferral of a $10 million principal payment which would otherwise be due on
September 30, 1995 until October 31, 1995. DLJ has agreed to waive, until
October 31, 1995, subject to certain conditions, a payment of interest which
would otherwise have been due on the Bridge Note on September 30, 1995 and a
fee which would otherwise have been payable on October 6, 1995, in exchange for
(i) the right to appoint a director to the Company's Board of Directors on or
before August 15, 1995 and (ii) to commence receiving warrants from escrow to
purchase the Company's Common Stock in accordance with the schedule provided in
the Bridge Notes commencing on December 30, 1995, rather than April 6, 1996,
unless and until such time as all deferred interest and fees have been paid in
full, at which time the warrant release schedule would revert back to the
original schedule, although no previously issued warrants would be returned
by DLJ.
INFLATION
Inflation has not significantly impacted the operations or financial
position of the Company.
STATUS OF THE CORAM CONSOLIDATION PLAN
Through June 30, 1995, the Company had completed a significant portion
of the branch consolidation process, including the closure of 122 infusion
branch facilities, the downsizing of 36 branch facilities, the closure of the
corporate functions previously conducted in five corporate facilities, and a
reduction of approximately 700 full-time equivalent employees. The following
table summarizes the utilization of restructuring reserves through June 30,
1995 (in thousands):
21
<PAGE> 23
<TABLE>
<CAPTION>
CASH NON-CASH CHANGE IN
EXPENDITURES CHARGES ESTIMATE TOTAL
------------ ------- -------- -----
<S> <C> <C> <C> <C>
Merger Costs . . . . . . . . . . . . . . . . . . $25,100 $ 600 $ -- $25,700
======= ======= ======= =======
Personnel Reduction Costs . . . . . . . . . . . . $16,000 $ 600 $ -- 16,600
Facility Reduction Costs . . . . . . . . . . . . 6,400 16,300 -- 22,700
Discontinuance Costs . . . . . . . . . . . . . . 100 32,600 (3,000) 29,700
------- ------- ------- -------
Restructuring Costs . . . . . . . . . . . . . . . $22,500 $49,500 $(3,000) $69,000
======= ======= ======= =======
</TABLE>
The Company believes it has adequate reserves as of June 30, 1995, to
complete the Coram Consolidation Plan.
STATUS OF THE CAREMARK CONSOLIDATION PLAN
The Company has made total payments and total asset disposals through
June 30, 1995, as follows (in thousands):
<TABLE>
<CAPTION>
CASH NON-CASH
EXPENDITURES CHARGES TOTAL
------------ ------- -----
<S> <C> <C> <C>
Personnel Reduction Costs . . . . . . . . . . . . $ -- $ -- $ --
Facility Reduction Costs . . . . . . . . . . . . -- 6,600 --
------ ------ ------
Restructuring Costs . . . . . . . . . . . . . . . $ -- $6,600 $ --
====== ====== ======
</TABLE>
The Company believes it has adequate reserves as of June 30, 1995, to
complete the Caremark Consolidation Plan.
FUTURE HEALTH CARE PROPOSALS AND LEGISLATION
Political, economic and regulatory influences are subjecting the
health care industry in the United States to fundamental change. The Company
anticipates that Congress and state legislatures will continue to review and
assess alternative health care delivery systems and payment methodologies and
public debate of these issues will likely continue in the future. Due to
uncertainties regarding the ultimate features of reform initiatives and their
enactment and implementation, the Company cannot predict which, if any, of such
reform proposals will be adopted, when they may be adopted or what impact they
may have.
22
<PAGE> 24
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Pursuant to a Stipulation of Settlement (the "Stipulation") dated as
of January 27, 1995 which sets forth the principal terms of a settlement of
class action shareholder litigation which was initiated against T2 in 1992, the
Company paid the shareholder class $25.7 million in cash (of which
approximately $7.8 million was contributed by the Company s insurance carrier)
and has issued warrants to acquire an aggregate of approximately 2.5 million
shares of Common Stock at an exercise price of $22.125. The Stipulation was
approved by the court on May 5, 1995 and a judgment was entered dismissing the
litigation with prejudice on May 19, 1995.
The Company is subject to certain claims and lawsuits incidental to
the normal course of business, the outcome of which are not determinable at
this time. In the opinion of management, any liability that might be incurred
by the Company upon the resolution of these claims and lawsuits will not, in
the aggregate, have a material adverse effect on the consolidated financial
condition, results of operations or liquidity of the Company.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A)
Exhibit No. Description
----------- -----------
11 Statement Regarding Computation of Per Share Earnings*
27 Financial Data Schedules*
* Filed herewith
(B) REPORTS ON FORM 8K
On April 6, 1995, the Company filed a current report on Form 8-K
announcing the signing of definitive agreement for the Company to acquire the
Caremark Business. The filing included the following audited financial
statements of the Caremark Business:
1. Balance Sheet as of December 31, 1994 and 1993
2. Combined Statement of Operations for the years ended December
31, 1994, 1993 and 1992.
3. Combined Statement of Cash Flows for the years ended December
31, 1994, 1993, and 1992.
23
<PAGE> 25
On April 17, 1995, the Company filed an amended current report on Form
8-K/A providing Unaudited Pro Forma Condensed Financial Statements for the
acquisition of the Caremark Business.
On May 2, 1995, the Company filed a current report on Form 8-K
announcing the signing of a merger agreement with Lincare Holdings Inc.
On July 26, 1995, the Company filed a current report on Form 8-K
announcing the termination of the merger agreement with Lincare.
24
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORAM HEALTHCARE CORPORATION
By: /s/ James M. Sweeney
-----------------------------------
James M. Sweeney
Chairman and Chief
Executive Officer
(Duly Authorized Officer)
By: /s/ G. Rodney Wolford
-----------------------------------
G. Rodney Wolford
Acting Chief Financial Officer
August 14, 1995
25
<PAGE> 27
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
11 Statement regarding Computation of Per Share Earnings*
27 Financial Data Schedules*
</TABLE>
* Filed herewith
<PAGE> 1
CORAM HEALTHCARE CORPORATION
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
JUNE 30, 1995 JUNE 30, 1994
------------------------------- -----------------------------
PRIMARY SIX MONTHS THREE MONTHS SIX MONTHS THREE MONTHS
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Average common shares outstanding . . . . . 39,457 39,685 38,372 38,497
Net effect of other dilutive securities . . 817 -- 177 --
--------- --------- --------- ----------
Total . . . . . . . . . . . . . . 40,274 39,685 38,549 38,497
--------- --------- --------- ----------
Net loss applicable to common stock . . . . $ (61,756) $ (66,347) $ (5,789) $ (9,000)
--------- --------- --------- ----------
Per share amounts:
Net loss per common share . . . . $ (1.53) $ (1.67) $ (0.15) $ (0.23)
========= ========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1995 JUNE 30, 1994
FULLY DILUTED SIX MONTHS THREE MONTHS SIX MONTHS THREE MONTHS
<S> <C> <C> <C> <C>
Average common shares outstanding . . . . . 39,457 39,685 38,372 38,497
Net effect of other dilutive securities . . 817 -- 177 --
--------- --------- -------- ---------
Total . . . . . . . . . . . . . . 40,274 39,685 38,549 38,497
--------- --------- -------- ---------
Net loss applicable to common stock . . . . $ (61,756) $ (66,347) $ (5,789) $ (9,000)
--------- --------- -------- ---------
Per share amounts:
Net loss per common share . . . . $ (1.53) $ (1.67) $ (0.15) $ (0.23)
========= ========= ======== =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 28,820
<SECURITIES> 12,859
<RECEIVABLES> 208,114
<ALLOWANCES> 0
<INVENTORY> 15,691
<CURRENT-ASSETS> 318,255
<PP&E> 43,469
<DEPRECIATION> 0
<TOTAL-ASSETS> 962,863
<CURRENT-LIABILITIES> 679,771
<BONDS> 0
<COMMON> 40
0
0
<OTHER-SE> 274,307
<TOTAL-LIABILITY-AND-EQUITY> 962,863
<SALES> 284,129
<TOTAL-REVENUES> 284,129
<CGS> 213,448
<TOTAL-COSTS> 213,448
<OTHER-EXPENSES> 108,185
<LOSS-PROVISION> 20,061
<INTEREST-EXPENSE> 17,389
<INCOME-PRETAX> (53,262)
<INCOME-TAX> (1,105)
<INCOME-CONTINUING> (58,360)
<DISCONTINUED> 0
<EXTRAORDINARY> (3,396)
<CHANGES> 0
<NET-INCOME> (61,756)
<EPS-PRIMARY> (1.51)
<EPS-DILUTED> 0
</TABLE>
