<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q/A
AMENDMENT NO. 1
---------------
[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 of allowance of $53,467 and $17,990 ........... 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 ............................................................ 513,478 333,238
Acquired accounts receivable adjustment .................................. 30,000 --
--------- ---------
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
Debt under negotiation ............................................ 229,979 124,386
--------- ---------
Total current liabilities ......................................... 449,792 --
Revolving lines-of-credit ................................................ 679,771 124,386
Long-term debt ........................................................... -- 108,099
Minority interest in consolidated joint ventures ......................... -- 11,627
Other liabilities ........................................................ 4,604 6,599
Deferred income taxes non-current ........................................ 2,620 1,945
Stockholders' equity: .................................................... 1,521 1,522
Common stock par value $.001, authorized 75,000 shares, issued
39,852 in 1995 and 38,964 in 1994
Additional paid-in capital ............................................. 40 39
Unrealized loss on available-for-sale securities ....................... 355,070 341,328
Retained earnings (deficit) ............................................ (180) (279)
Total stockholders' equity ............................................ (80,583) (18,827)
--------- ---------
Total liabilities and stockholders' equity ............................... 274,347 322,261
--------- ---------
$ 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 T(2) 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 T(2) 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 T(2) Medical, Inc. ("T(2)"), 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:
T(2) ............................................. $ 115,770
Curaflex ......................................... 48,989
Medisys .......................................... 27,438
HealthInfusion ................................... 34,515
---------
Combined ....................................... $ 226,712
=========
Net Income (Loss):
T(2) ............................................. $ (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., $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 assumed only certain specified liabilities of the Caremark Business,
which expressly exclude any liabilities associated with the recent government
investigation of Caremark. 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 establishment of a deferred asset account entitled "Acquired
Accounts Receivable Adjustment" pending resolution of this matter; see below
(this account had previously been included 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 $163.5
6
<PAGE> 8
million, resulting from the acquisition of the Caremark Business, which
is being amortized over 30 years. Amounts allocated to identifiable intangibles
consist of $14.0 million allocated to the clinical outcomes database and $14.1
million allocated to payor contracts; these amounts are being amortized over 20
years and 5 years, respectively.
The allowance for uncollectible accounts, as established by Caremark at
April 1, 1995, the effective date of the Company's acquisition of the Caremark
Business, was $4.3 million, or 3.0% of the gross receivables of $142.3 million
at that date. The Company had not been able to perform extensive investigation
of the accounts receivable or related allowance for uncollectible accounts prior
to the acquisition, but had received specific representations and warranties
from Caremark that the accounts receivable were collectible in the ordinary
course of business and also that the values were in accordance with generally
accepted accounting principles. Based on the limited due diligence investigation
the Company was permitted to conduct, it appeared to the Company that the
allowance was low in comparison to its own allowance, but based on the limited
due diligence conducted by the Company, the Company requested, received, relied
on the representations and warranties from Caremark as to the collectibility.
After the acquisition, the Company engaged independent accounting consultants to
review the accounts receivable acquired from Caremark. It was concluded that
Caremark had made significant errors in its calculations of estimated
uncollectible accounts, because of, among other things, Caremark's failure to
properly recognize bad debts and contractual allowances, and that the acquired
receivables were overstated. $30 million of this overstatement was identified at
the time the Company prepared its June 30, 1995 financial statements. The
Company believes it is entitled to reimbursement from Caremark for the $30
million overstatement under the terms of the purchase agreement under which it
acquired the Caremark Business. Accordingly, it has recorded a $30 million
adjustment to increase the accounts receivable reserve and establish a deferred
asset account entitled "Acquired Accounts Receivable Adjustment" pending
resolution of the matter with Caremark.
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>
7
<PAGE> 9
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 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").
8
<PAGE> 10
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>
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") which was contemplated by the Company prior to
the acquisition of the Caremark Business. 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.
9
<PAGE> 11
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>
Personnel reduction costs include severance payments, fringe benefits
and taxes related to employees to be terminated as part of the restructuring,
costs of terminating executives, buying out employment contracts as part of the
restructuring, and approximately $3.5 million of direct incremental consulting,
legal and accounting fees related to development and implementation of the
restructuring plan.
Facility reduction costs resulting in cash expenditures consist of the
cost of fulfilling or buying out existing lease commitments on branch facilities
that will be closed as part of the restructuring, reduced by any sublease
income. These branches are located throughout the United States. It includes
related costs for equipment leases and closure expenses. Facility reduction
costs resulting in non-cash charges consist principally of the write-down, net
of any proceeds on disposition, of operating assets that have become redundant
because of the consolidation. Those assets include pharmacy equipment, office
and warehouse furniture and fixtures, computer hardware and software, and
leasehold improvements. It also includes inventory that has no future value
because of the restructuring.
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.
10
<PAGE> 12
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 LINES OF CREDIT AND
UNDER NEGOTIATION AT LONG-TERM DEBT 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 rates
ranging from 6% to 16%, collateralized by certain property
and equipment ................................................ 8,131 10,538
-------- --------
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 $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")
11
<PAGE> 13
with 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:
<TABLE>
<CAPTION>
<C> <C>
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%
======
</TABLE>
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
12
<PAGE> 14
time 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 T(2) 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 T(2) 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.
13
<PAGE> 15
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 transactions. Costs incurred of approximately
$3.4 million, representing the Company's expenses in the transaction, were
expensed in the quarter ended June 30, 1995.
14
<PAGE> 16
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 T(2) Medical, Inc. ("T(2)"), Curaflex Health
Services, Inc. ("Curaflex"), HealthInfusion, Inc. ("HealthInfusion") and
Medisys, Inc. ("Medisys" and together with T(2), 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
15
<PAGE> 17
a corresponding reduction 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. Management believes the Company
has made adequate provision for uncollectible accounts based on all information
currently available, but no assurance can be given as to the level of future
provisions. 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.
The accrual in the Company's Consolidated Balance Sheet for estimated
future cash expenditures related to the Four-Way merger and the Coram
Consolidation Plan at December 31, 1994 was $42.8 million. The Company currently
estimates that future cash expenditures related to that accrual will be made in
the following periods: 52% in 1995, 36% in 1996, 8% in 1997 and 4% in 1998 and
thereafter. These estimated amounts and the periods in which they will be spent
may change as cost estimates are finalized, and such changes may be material.
See Note 1 to the Consolidated Financial Statements--Merger and Restructuring.
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, T(2) entered a settlement agreement under which T(2)
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
16
<PAGE> 18
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. (Caremark Business revenue declined from $96.1 million (as
reported by Caremark) in the first quarter of 1995 to approximately $83.0
million in the second quarter, or a 13.6% decline.) 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 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
17
<PAGE> 19
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 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. These
non-recurring charges were principally for consulting services, legal and
professional fees, relocation, travel, transition management, training and
temporary help at levels not expected to recur once the Consolidation Plans are
completed and not directly part of the Consolidation Plans.
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.
18
<PAGE> 20
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.
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
19
<PAGE> 21
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.
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.
20
<PAGE> 22
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 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, 53.3% of the assets of the Company consisted of
goodwill. The Company had $513.5 million of goodwill as of June 30, 1995, an
increase of $180.2 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
21
<PAGE> 23
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 down such goodwill. Any such write down could have a
material adverse effect upon the Company's financial position and results of
operations.
An inability to recover goodwill may be suggested by, among other
conditions, cash flow deficits; an historic or anticipated decline in revenues
or operating profits; adverse legal, regulatory or reimbursement developments;
accumulation of costs significantly in excess of amounts originally expected to
acquire the asset; or, a material decrease in the fair value of some or all of
the goodwill.
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 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,
22
<PAGE> 24
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):
<TABLE>
<CAPTION>
CHANGE
CASH NON-CASH 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 6,600
------ ------ ------
Restructuring Costs.................................... $ -- $6,600 $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.
23
<PAGE> 25
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 T(2) 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
** Filed in original filing
(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.
24
<PAGE> 26
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.
25
<PAGE> 27
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/ Richard M. Smith
-------------------------
Richard M. Smith
Chief Financial Officer
April 3, 1996
26
<PAGE> 28
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
- ------ ------------------- ----
11 Statement Regarding
Computation of Per Share
Earnings*
27 Financial Date Schedule**
- ------
* Filed herewith
** Filed in original filing
<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>
