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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JUNE 30, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ____________TO___________
COMMISSION FILE NUMBER 0-13849
RAMSAY HEALTH CARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 63-0857352
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
ONE POYDRAS PLAZA
639 LOYOLA AVENUE, SUITE 1700 70113
NEW ORLEANS, LOUISIANA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (504) 525-2505
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
(TITLE OF CLASS)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The number of shares of the registrant's Common Stock outstanding as of
September 22, 1994 was 7,719,749. The aggregate market value of Common Stock
held by non-affiliates on such date was $46,496,160.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrant's definitive Proxy Statement to be
filed for the 1994 Annual Meeting of Stockholders are incorporated by reference
into Part III.
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PART I
ITEM 1. BUSINESS.
GENERAL
Ramsay Health Care, Inc. ("RHCI" or the "Company") is one of the leading
providers of behavioral health services in the country. RHCI has two business
units: a facilities division offering patient care through integrated networks
of mental health delivery systems in eleven states principally in the southeast
and southwest built around 15 inpatient hospitals with 1,264 beds, day
hospitals, subacute units, outpatient centers, and residential treatment
centers; and a managed care division providing utilization control and cost
management services. The Company also operates mental health programs for
public sector and private owners under management contracts.
FACILITIES DIVISION
The following table provides information concerning the 15 inpatient
facilities owned and/or operated by the Company at June 30, 1994.
DATE OPENED LICENSED
HOSPITAL (3) OR ACQUIRED BEDS
-------- ----------- ----
Havenwyck Hospital
Auburn Hills, MI . . . . . . . . . . . . . November 1983 120
Brynn Marr Hospital
Jacksonville, NC . . . . . . . . . . . . . December 1983 76
Hill Crest Hospital
Birmingham, AL . . . . . . . . . . . . . . January 1984 130
Heartland Hospital
Nevada, MO . . . . . . . . . . . . . . . . April 1984 128
Greenbrier Hospital
Covington, LA . . . . . . . . . . . . . . . October 1984 61
Coastal Carolina Hospital
Conway, SC . . . . . . . . . . . . . . . . November 1984 98
Bayou Oaks Hospital
Houma, LA(1) . . . . . . . . . . . . . . . November 1985 98
The Bethany Pavilion
Bethany, OK(2) . . . . . . . . . . . . . . December 1985 43
Meadowlake Hospital
Enid, OK . . . . . . . . . . . . . . . . . February 1986 50
Benchmark Regional Hospital
Woods Cross, UT . . . . . . . . . . . . . . August 1986 56
Desert Vista Hospital
Mesa, AZ . . . . . . . . . . . . . . . . . February 1987 102
Chestnut Ridge Hospital
Morgantown, WV . . . . . . . . . . . . . . November 1987 70
The Haven Hospital
DeSoto, TX . . . . . . . . . . . . . . . . April 1990 102
Mission Vista Hospital
San Antonio, TX . . . . . . . . . . . . . . November 1991 66
Three Rivers Hospital
Covington, LA (2) . . . . . . . . . . . . . January 1993 64
-----
Total 1,264
=====
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(1) A leased hospital facility. See "Item 2. Properties."
(2) A joint venture or partnership. See "Ownership Arrangements and
Operating Agreements."
(3) Excludes Harbor Oaks Hospital, a 98 bed facility in Fort Walton
Beach, FL, that is owned by the Company but is being leased to another
health care provider.
See "Acquisitions and Sales" for information concerning certain acquisitions
and sales which occurred during the last three fiscal years.
The Company's facilities are dedicated to the treatment of psychiatric and
chemical dependency disorders. Substance abuse treatment is provided to
patients who have a primary diagnosis of alcohol or substance abuse; however,
many of these patients have a secondary diagnosis of, and are treated for,
mental illness. Each of the Company's facilities also conducts outpatient
programs at the facilities and in clinics in the surrounding area. The
Company's current strategy is to expand its outpatient network in its continued
effort to provide intermediate mental health care for patients who do not
require inpatient care.
The initial goal of acute psychiatric hospitalization treatment is to
evaluate and stabilize the patient so that effective treatment can be continued
either on an inpatient, partial hospitalization or an outpatient basis. Under
the direction of a psychiatrist, the patient's condition is assessed, a
diagnosis is made and prescribed treatment follows, utilizing, where
appropriate, medication, individual and group therapy, adjunctive therapy, and
family therapy.
The most common disorders for which adult patients are admitted to the
Company's hospitals are mood and affective disorders (such as depression),
schizophrenia, situational crises and alcohol and drug dependency. For children
and adolescents, common disorders include those seen in adult patients, as well
as attention deficit disorders and conduct disorders. Many of these disorders
are often associated with child abuse. The Company has evaluation and treatment
programs designed specifically for adults, adolescents or children. Specialized
programs focusing upon neuropsychiatric disorders and pain and sleep disorders
have also been developed. All units and programs emphasize family involvement
in the evaluation and treatment process.
Each psychiatric hospital has a multidisciplinary team of health care
professionals, including psychiatrists, psychologists, social workers, nurses,
mental health and substance abuse counselors and therapists. Generally,
physician members of the professional staffs maintain a private practice. In
certain situations the Company guarantees minimum incomes, usually for one
year, to psychiatrists willing to relocate to certain facilities. All of the
Company's hospitals also have a medical director who acts as liaison between
the professional staff and the hospital administration staff. In addition, each
clinical program has a medical unit administrator.
Each of the Company's hospitals has a consulting board, comprised of
hospital executives, consulting physicians and other members of the local
community, which is responsible for standards of patient care. A hospital CEO
supervises and is responsible for the day-to-day operations of each hospital.
The Company emphasizes frequent communication, the setting of operational and
financial goals and the monitoring of actual results against targeted goals. To
this end, the Company collects and analyzes information on key indicators such
as admissions by treatment program and payor category, daily census, full-time
equivalent employees per patient day and average length of stay. On the basis
of this information, the administrative staff of each hospital together with
the corporate staff of the Company adopts new programs and modifies existing
programs to improve performance.
All of the Company's hospitals have been accredited by the Joint Commission
on Accreditation of Healthcare Organizations ("JCAHO"). The JCAHO is a
voluntary national organization which undertakes a comprehensive review for
purposes of accreditation of health care facilities. In general, hospitals and
certain other health care facilities are initially surveyed by JCAHO within 12
months after the commencement of operations and resurveyed at appropriate
intervals thereafter. Ten of the Company's fifteen hospitals were resurveyed
in fiscal 1994 and retained their JCAHO accreditation for an additional three
years.
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MANAGED CARE DIVISION
RHCI entered the managed mental healthcare business in October 1993 with
the acquisition of Florida Psychiatric Management, Inc. ("FPM") for a purchase
price of $6.5 million. The managed care division expanded in June 1994 with
the acquisition of a Phoenix, Arizona-based managed mental health business.
The managed care division provides a comprehensive range of managed mental
healthcare services to the commercial market as well as to insurance companies
and health maintenance organizations. The Company is considering various
options regarding the expansion of its managed care operations. Any such
expansion would require additional capital and there can be no assurances that
the Company will expand its managed care operations. See "Acquisitions and
Sales" below and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
COMPETITION
Each of the Company's facilities competes with other facilities including
proprietary hospitals and psychiatric units of general hospitals, some of which
are larger and have greater financial resources than the Company's hospitals.
These competing hospitals are owned or supported by governmental agencies,
nonprofit agencies, or proprietary hospital companies. Some of these competing
hospitals are substantially exempt from income and property taxation. The
Company's hospitals often draw patients from areas outside their immediate
locale, and therefore compete with both local and distant hospitals.
The ability of a psychiatric facility to compete with other facilities
depends on the number and quality of psychiatrists and clinical psychologists
practicing at the facility, and the number, type and quality of other
psychiatric facilities in the area. Another factor affecting the
competitiveness of psychiatric facilities is the extent to which the facility's
clinical programs satisfy community needs in an effective manner from both a
clinical and an economic standpoint. The Company believes that the quality of
its professional staff as well as the quality and effectiveness of its programs
permit it to compete effectively with the other providers of psychiatric and
chemical dependency care in the communities served by the Company's facilities.
In addition, the Company's facilities actively seek relationships with managed
care companies, which are increasingly responsible for steering patients to
high quality, cost-effective providers of behavioral health care.
The Company's managed care businesses compete directly with independent
local and national entities that offer managed mental health care services, as
well as with large insurance companies, health maintenance organizations and
other provider groups that have established or acquired managed mental health
care capabilities. In addition, the Company competes with not-for-profit
health plan corporations, preferred provider organizations and other provider
networks as well as third party administrators, which also offer services to
manage mental health care costs. Certain of these operations and facilities
have substantially greater financial resources than the Company and offer a
wider range of services than the Company.
SOURCES OF REVENUE
The Company's facilities receive payments from third-party reimbursement
sources, including commercial insurance carriers, Medicare, Medicaid, the
Civilian Health and Medical Program of the Uniformed Services ("CHAMPUS") and
Blue Cross, in addition to payments directly from patients.
Third-party reimbursement programs generally reimburse facilities either on
the basis of facility charges (charge-based), on the basis of the facility's
cost as audited or projected by the third-party payor (cost-based), or on the
basis of negotiated rates (per diem-based). Generally, charge-based programs
are more profitable to the Company. The following table sets
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forth, by category, the approximate percentages of the Company's consolidated
gross patient revenues charged by the Company's facilities derived from various
sources for the periods indicated.
YEAR ENDED JUNE 30
------------------
1994 1993 1992
---- ---- ----
Charge-based programs:
Commercial Insurance . . . . . . . . . . . . 14 % 20 % 24 %
Blue Cross . . . . . . . . . . . . . . . . . 1 3 3
Other Private Pay . . . . . . . . . . . . . 5 2 2
--- --- ---
Sub-total . . . . . . . . . . . . . . . 20 25 29
--- --- ---
Cost based and per diem-based programs:
Blue Cross . . . . . . . . . . . . . . . . . 6 9 8
CHAMPUS . . . . . . . . . . . . . . . . . . 7 10 17
Medicare/Medicaid . . . . . . . . . . . . . 54 47 37
State, HMO and PPO . . . . . . . . . . . . . 13 9 9
--- --- ---
Sub-total . . . . . . . . . . . . . . . 80 75 71
--- --- ---
Total . . . . . . . . . . . . . . 100 % 100 % 100 %
=== === ===
Most commercial insurance carriers reimburse their policyholders or make
direct payment to facilities for charges at rates and limits specified in their
policies. Patients generally remain responsible to the facilities for any
amounts not covered under their insurance policies. The trend in reimbursement
for psychiatric inpatient and chemical dependency care by commercial insurance
carriers is to limit inpatient days to a maximum number per year or for the
patient's lifetime, or to limit the maximum dollar amount expended for a
patient in a given period.
Most third-party payors and other commercial carriers have also expanded
benefit coverage to include partial hospitalization and other outpatient
services. Partial hospitalization is formally recognized by Medicare and
CHAMPUS as a covered service. In addition, managed care companies are seeking
to contract with providers that offer the full spectrum of psychiatric care.
Medicare is the federal health insurance program for the aged and disabled.
Medicare reimbursement is typically less than the Company's facilities'
established charges for services provided to Medicare patients. Patients are
not responsible for the difference between the reimbursed amount and the
facilities' established charges other than for applicable noncovered charges,
coinsurance and deductibles. In 1983, Congress changed the Medicare law
applicable to Medicare reimbursement for medical/surgical services from a
retrospectively determined reasonable cost system to a prospectively determined
diagnosis-related grouping ("DRGs") system. Psychiatric and chemical dependency
hospitals and units are exempt from this change in the Medicare law. To date,
no DRG implementation or conversion date has been proposed for psychiatric and
chemical dependency facilities. However, excluded hospitals and units are
subject to the payment limitations and incentives established in the Tax Equity
and Fiscal Responsibility Act of 1982 ("TEFRA"). They are paid on the basis of
each facility's historical costs trended forward, with a limit placed on the
rate of increase in per case reimbursable costs. These TEFRA target rates are
updated annually. Facilities with costs less than the target rate per discharge
are reimbursed based on allowable Medicare costs plus an additional payment.
Beginning in the federal fiscal year 1992, providers with costs exceeding their
target rates are subject to a payment ceiling of the target amount plus the
lesser of 5% of the target amount or 50% of the amount in excess of the target
amount. Exemptions and exceptions are available to hospitals when events beyond
the hospitals' control result in an increase in costs for a reporting period.
Moreover, "new hospitals" are eligible to be exempt from the limits until they
have been in operation for three years. At June 30, 1994, 14 of the Company's
facilities were subject to the TEFRA provisions. The Health Care Financing
Administration ("HCFA") has implemented changes to Medicare covering inpatient
services which are reimbursed under TEFRA. These changes provide for an
increase to the TEFRA payment limitations, subject to annual revision.
However, since 13 of the Company's 14 facilities which are subject to the TEFRA
payment limitations are currently operating at cost levels below their
respective TEFRA payment limitations, any increase in the TEFRA payment
limitations should have a minimal effect on the Company's results of
operations. In
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addition, HCFA has implemented changes to Medicare covering fee reimbursement
schedules for physician services. While these changes affect Medicare
reimbursement paid directly to physicians, they do not directly affect the rate
of Medicare reimbursement paid to the Company since most of the physicians
practicing at the Company's facilities bill their fees directly. Accordingly,
these changes have had only a minimal effect on the Company's results of
operations.
Medicaid is the federal/state health insurance program for the
underprivileged. Subject to certain minimum federal requirements, each state
defines the extent and duration of the services covered by its Medicaid
program. Moreover, although there are certain federal requirements governing
the payment levels for Medicaid services, each state has its own methodology
for making payment for services provided to Medicaid patients. The Medicaid
program covers payment for services provided to Medicaid patients at 14 of the
Company's facilities. The Company received significant payments pursuant to
enhanced reimbursement rates in 1994, 1993 and 1992 under certain state
programs. Statutory changes will decrease the level of these payments in the
future. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
In November 1991, Congress passed the Medicaid Voluntary Contribution and
Provider-Specific Tax Amendments of 1991. The effect of this legislation was
to restrict the states' abilities to generate federal matching funds for
Medicaid through the use of provider tax and donation programs. Existing
donation and taxation programs were allowed to continue into 1992 with exact
expiration dates based on the individual state's fiscal year end. The
legislation specified that provider taxation programs are eligible for federal
matching funds only if the tax applies to all providers in a class and if those
providers are not held harmless from the cost of the tax by compensating
payments from the state. The legislation limits the amount of the states'
funding for Medicaid that could come from provider taxes to the greater of the
existing level as of November 1991 or 25% of provider tax generated funds.
This cap will expire on September 30, 1995.
Acute psychiatric services for CHAMPUS patients are reimbursed on a
prospectively determined per diem basis. For the Company's high volume
facilities (as defined by CHAMPUS), 1991-1992 rates were fixed at 1988 levels
subject to an all-inclusive cap of $714 per day. This capped rate is higher
than the Company's net revenue per patient day for all of the Company's acute
psychiatric services. The Company's low volume facilities (as defined by
CHAMPUS) are reimbursed at prospectively determined per diem rates established
on a regional basis. These regional rates are lower than the hospitals'
established charges. CHAMPUS revenues in these low volume facilities did not
represent a significant portion of the Company's consolidated gross revenues
for the fiscal years ended June 30, 1994, 1993, or 1992.
RTC reimbursement for CHAMPUS patients is currently capped on a per diem
basis at the lesser of $477 per day or an inflation adjusted hospital-specific
rate based on per diem rates generally paid as of June 30, 1988. These rates
are adjusted annually each October 1 for inflation. This capped rate is higher
than the Company's net revenue per patient day for all of the Company's RTC
services. Neither of the Company's two CHAMPUS certified RTCs currently have
rates at the $477 per day maximum.
Effective October 1, 1991, CHAMPUS patients became subject to limits on the
number of psychiatric days covered by the CHAMPUS program. These limits have
reduced the revenue the Company receives from the CHAMPUS program. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Blue Cross plans in all areas in which the Company presently operates
facilities, except Alabama and Michigan, reimburse based on charges or
negotiated rates. In many states in which the Company operates, Blue Cross
charges are approved through a rate-setting process and, therefore, Blue Cross
may reimburse the Company at a rate less than billed charges. Under cost-based
Blue Cross programs, such as those in Alabama and Michigan, direct
reimbursement to hospitals typically is lower than the hospital's charges, and
patients are not responsible for the difference between the reimbursement
amount and the hospital's charges.
With respect to its managed mental health care programs, the Company
typically charges each customer a monthly fee for each beneficiary enrolled in
the customer's mental health benefit program. Depending upon both the type of
program from which a customer contracts and the benefits covered under such
program, the fee arrangement is designed so that, with
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respect to both inpatient and outpatient care, the Company accepts either full
risk (all service capitated), as is generally the case, partial risk (selected
services capitated) or limited risk (full risk up to a maximum amount), in each
case for costs that exceed the fees attributable to such program.
MARKETING
The Company's marketing programs are directed to referral sources within a
selected service area rather than to the general public and are designed to
increase awareness of a facility's programs and services. Referral sources
include psychiatrists, medical practitioners, managed mental health
organizations, courts and probationary officers, law enforcement agencies,
schools and clergy. Each facility's marketing staff, together with other
facility personnel, maintains direct contact with referral sources to meet the
needs of the referral sources. These needs may be related to a desired
treatment program, the desires of the patient's family, hospital policies or
the timely receipt of accurate information. Each facility establishes admission
targets for each referral source and results are monitored and evaluated at the
facility and by the corporate staff.
The Company focuses its marketing and sales efforts for its managed care
businesses primarily on insurance carriers, nonprofit health care corporations,
HMOs, government employee groups and self-insured employers. The Company has
also targeted employee benefit consulting firms, representing employers and
groups of employers in the selection and purchase of managed mental health care
benefit programs. Typically, the Company markets its services to the potential
customer's senior operating and marketing staff, medical directors or health
care managers.
REGULATION
Operations of the Company's facilities are subject to extensive federal,
state and local government regulation, including periodic inspection and
licensing requirements. This regulation is primarily concerned with the fitness
and adequacy of the facility, equipment and personnel, standards of medical
care provided, the dispensing of drugs, the adequacy of fire prevention
measures and other building standards and the confidentiality of medical
records of drug and alcohol abuse patients.
The Company believes that federal and state regulation may become more
comprehensive and restrictive in the future, particularly with respect to
reimbursement rates. In addition, legislative initiatives aimed at a
comprehensive overhaul of the U.S. health care system have been introduced in
Congress. The Company cannot predict the form or timing of any prospective
legislation or regulation, nor the effect which any legislation or regulation
might have on its revenues or profitability.
Capital expenditures for the construction of new facilities, the addition
of beds or the acquisition of facilities or medical equipment are reviewable by
governmental authorities in certain states which place limits or restrictions
on construction and acquisition of hospitals and the expansion of existing
hospitals and services. State certificate of need statutes provide generally
that prior to the construction of new beds or facilities or the introduction of
a new service, a state agency must determine that a need exists for those beds,
facilities or services. A certificate of need is generally issued for a
specific maximum amount of expenditures, number of beds or services to be
provided and the holder is generally required to implement the approved project
within a specific time period. Certificate of need proceedings for new
facilities are extremely competitive, often with several applicants for a
single license. Except for Arizona, Texas and Utah, all of the states in which
the Company operates facilities have adopted certificate of need statutes or
other statutes which limit the development of new beds.
The Social Security Act contains a number of provisions designed to ensure
that services rendered by health care facilities to Medicare and Medicaid
patients are medically necessary and meet professionally recognized standards.
These provisions include a requirement that admissions of Medicare and Medicaid
patients to hospitals must be reviewed in a timely manner to determine the
medical necessity of the admissions. In addition, the Peer Review Improvement
Act of 1982 ("Peer Review Act") provides that a hospital may be required by the
federal government to reimburse the government for the cost of Medicare paid
services determined by a peer review organization to have been medically
unnecessary. Each of the Company's hospitals has developed and implemented a
quality assurance program and implemented procedures for utilization review and
retrospective patient care evaluation to meet its obligations under the Peer
Review Act. As a result of new legislation passed in Texas as described below,
Peer Review Organizations in that state are applying extremely restrictive
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interpretations to the medical necessity of admissions and other services.
Consequently, significant amounts of the Texas facilities' charges have been
denied by such organizations.
To be covered by CHAMPUS, RTC services must be preauthorized as being
medically necessary. Effective October 1, 1991, hospital psychiatric services
also have had to be preauthorized. If the criteria for establishing medical
necessity are not met, CHAMPUS will not pay for the services provided.
The Defense Appropriations Act of 1991 provides that no funds will be
appropriated for CHAMPUS care when a patient is referred to a provider of
inpatient mental health care or residential treatment care by a medical or
health care professional having an economic interest in the facility to which
the patient is referred. The Medicare and Medicaid Anti-Fraud and Abuse
Amendments (the "Amendments") to the Social Security Act prohibit individuals
or entities participating in the Medicare or Medicaid programs from knowingly
and willfully offering, paying, soliciting, or receiving remuneration in order
to induce referrals for items or services reimbursed under those programs. The
policy objective of the Amendments is to ensure that the purpose for a referral
is quality of care and not monetary gain by the referring individual. The
Amendments' prohibitions only apply to Medicare and Medicaid patients and
impose felony criminal penalties and civil sanctions, as well as exclusion from
the Medicare or Medicaid programs. In 1989, CHAMPUS adopted regulations
authorizing it to exclude from the CHAMPUS program any provider who has
committed fraud or engaged in abusive practices. The Company believes that it
is in compliance with all aspects of the regulations.
The Company has entered into various types of agreements with physicians
and other health care providers in the ordinary course of operating its
facilities, many of which provide for payments to physicians or other health
care providers by the Company as compensation for services or other
consideration by the providers. On July 29, 1991, the Office of Inspector
General published final regulations establishing "safe harbors" for
relationships between health care providers and referral sources. Any
relationship that complies with the terms of a safe harbor would not be subject
to enforcement action under the Social Security Act. Although a relationship
that fails to satisfy a safe harbor is not necessarily illegal, that
relationship will not be exempt from scrutiny under the Amendments. The Company
believes that its agreements and arrangements in this area comply with the
Amendments. The Company intends to comply with any and all other similar
legislation that may be adopted in the future in this regard.
Several states have been investigating whether psychiatric hospitals have
engaged in fraudulent practices such as inflated bills for medications and
services, bills for services never rendered and admitting patients, especially
children, who do not require hospitalization. In 1991, the Texas Attorney
General disclosed that several of the Company's competitors doing business in
Texas were under investigation for fraudulent practices and a lawsuit seeking
injunctive relief was filed against one of those competitors. New legislation
was passed in Texas that placed severe restrictions on the marketing of
behavioral health care services. In June 1993, the Company signed an agreement
with the Texas Attorney General whereby it agreed to continue to comply with
Texas statutes regarding the delivery of mental health care.
As a managed health care services business and a health care provider, the
Company is also currently subject to extensive and frequently changing federal,
state and local government regulation. This regulation is primarily concerned
with licensure, conduct of operations, financial solvency, standards of medical
care provided, the confidentiality of medical records of drug and alcohol abuse
patients, and the direct employment of psychiatrists, psychologists, and other
licensed professionals by business corporations. The various types of
regulatory activity affect the Company's business either by controlling its
operations, restricting licensure of the business entity or by controlling the
reimbursement for services provided.
See also "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Sources of Revenue."
ACQUISITIONS AND SALES
In August 1991, the Company purchased a 72-bed hospital facility in San
Antonio, Texas and other personal property for a cash purchase price of
$2,100,000. After refurbishment and renovations totalling approximately
$1,800,000, the facility, Mission Vista Hospital, opened as a 66-bed facility
in November 1991.
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In December 1991, the Company entered into a one-year lease for a 36-bed
facility in Concord, California. The Company had an option to purchase this
facility for $1,050,000, which option expired in December 1992. The Company
terminated operations at this facility in September 1992 and allowed this
option to lapse.
In November 1992, the Company purchased a 64-bed hospital facility in
Covington, Louisiana for $2,000,000. The facility, Three Rivers Hospital,
opened in January 1993. The hospital is operated by a limited partnership in
which the Company is the general partner. See "Ownership Arrangements and
Operating Agreements."
In January 1993, the Company leased Harbor Oaks Hospital in Fort Walton
Beach, Florida to another health care provider. The lease gives the lessee the
option to purchase the facility at a fixed price through January 1996.
In August 1993, Cumberland Hospital in Fayetteville, North Carolina was
sold to Cape Fear Valley Medical Center for approximately $12.3 million.
In October 1993, the Company purchased the stock of Florida Psychiatric
Management, Inc., a regional provider of mental health care cost management
services based in Orlando, Florida for a cash payment of $4.0 million, the
issuance of an aggregate of $2.5 million of three-year 7% debentures, and
contingent consideration based upon the attainment of certain earnings and
revenue levels over the ensuing two years.
In February 1994, the Company sold its 50-bed Atlantic Shores Hospital in
Daytona Beach, Florida to Halifax Medical Center for $4.8 million.
In June 1994, the Company purchased the assets and assumed certain
liabilities of Human Dynamics Institute, a Phoenix, Arizona- based managed
mental health business for a cash payment of $1 million, a three-year, $1
million note bearing interest at 8.25%, 172,850 shares of common stock of
Ramsay Managed Care, Inc., a subsidiary of the Company, and contingent
consideration based upon the attainment of certain revenue levels over the
ensuing two years.
OWNERSHIP ARRANGEMENTS AND OPERATING AGREEMENTS
One physician owns a 5% interest in the subsidiary which owns the Company's
Harbor Oaks Hospital. The Company may be required to repurchase, and the
minority shareholder may be required to sell, the minority interest at a
formula price dependent upon many factors, including the earnings per share of
the subsidiary which owns the subject hospital and the price/earnings multiple
of the Company, after a fixed period of time. Although the amount of the
Company's repurchase obligation cannot be precisely determined, the Company
does not believe that this obligation will require a material payment by the
Company in the foreseeable future.
In 1985, the Company and Bethany General Hospital in Bethany, Oklahoma
entered into a joint development project. The general hospital and the Company
hold a joint certificate of need by which they have converted 23
medical/surgical beds to psychiatric beds, and constructed a psychiatric
pavilion containing an additional 20 psychiatric beds. Pursuant to a joint
venture agreement entered into in December 1985, the Company began managing the
23 existing beds in December 1985 and completed construction of the 20-bed
pavilion in October 1986. Under the joint venture agreement, the Company is
obligated to provide working capital to operate the 43-bed psychiatric unit.
There are no outstanding working capital advances at June 30, 1994. The
Company is operating the unit under the agreement for a three-year term (with
four additional three-year terms, at the Company's option) for an annual
management fee of 5% of the unit's gross revenues and 65% of the net profits or
losses of the unit. The agreement also provides that the Company will recover
construction costs amortized over 15 years and working capital advances from
operating revenue, unless the Company does not renew or breaches the agreement.
In November 1992, the Company formed a limited partnership to operate Three
Rivers Hospital, the 64-bed facility acquired in November 1992. The limited
partners have a 45% interest in the venture. In addition to its 55% share of
the profits as general partner, the Company leases the 64-bed facility to the
partnership for an annual rental of $276,000, subject to annual inflationary
adjustments.
8
10
INSURANCE
The Company and its facilities are insured on a "claims made" basis for
professional and general liability in the aggregate amount of $25,000,000, with
self-insured retentions of $500,000 per claim. The Company's self-insurance
program also includes "tail" coverage for prior acts retroactive to the date on
which the Company became responsible for such acts. This prior occurrence
coverage operates with the same self-insured retention levels. It is the
Company's policy to record the liability for uninsured losses related to
asserted and unasserted claims arising from reported incidents and losses
related to unreported incidents based upon an actuarial valuation of the
Company's past experience and other relevant information.
EMPLOYEES
As of June 30, 1994, the Company employed approximately 1,695 full-time and
578 part-time employees at its facilities, including approximately 762 nurses.
In addition, the Company has a corporate headquarters staff of approximately
35, including persons who specialize in various areas of hospital operations to
assist facilities with particular management issues. The Company considers its
relationship with its employees to be good.
EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information with respect to the executive officers of the Company
is set forth below:
POSITION WITH THE COMPANY AND
PRINCIPAL OCCUPATIONS DURING
NAME OF EXECUTIVE OFFICER AGE THE PAST FIVE YEARS
------------------------- --- -------------------
Gregory H. Browne . . . . . . . . . . . . 41 Chief Executive Officer of the Company since January
1992; President of the Company from January 1992 until September 1994; Chief
Executive Officer of Ramsay-HMO, Inc. from November 1989 to January 1992;
Chief Financial Officer of Ramsay-HMO, Inc. from January 1989 to January
1992; various executive positions with corporations controlled by Paul J.
Ramsay since prior to 1989.
Reynold J. Jennings . . . . . . . . . . . 48 President and Chief Operating Officer of the Company
since September 1994; Executive Vice President and
Chief Operating Officer of the Company from November 1993 until September
1994; various management and administrative positions with National Medical
Enterprises, Inc. since prior to 1989 to October 1993.
Bruce R. Soden . . . . . . . . . . . . . 40 Senior Vice President of the Company since prior to 1989;
Chief Financial Officer of the Company from
September 1991 to September 1993.
Wallace E. Smith . . . . . . . . . . . . 51 Senior Vice President of the Company since June 1992.
Vice President--Regional Operations of the Company
from prior to 1989 to June 1992.
John A. Quinn . . . . . . . . . . . . . . 40 Vice President--Regional Operations of the Company since
September 1991; various administrative and
management positions with Community Psychiatric Centers, Inc. from prior to
1989 to September 1991.
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11
Curtis L. Dosch . . . . . . . . . . . . . 42 Vice President--Finance of the Company since August
1993. Regional controller of the Company from prior
to 1989 to July 1993.
William N. Nyman . . . . . . . . . . . . 41 Vice President--Finance of the Company since August
1993. Regional controller of the Company from prior
to 1989 to July 1993.
Effective September 30, 1994, Jack V. Eumont, Jr. resigned from his
position as Vice President and Chief Financial Officer of the Company.
ITEM 2. PROPERTIES.
Information relating to the Company's owned and leased hospital facilities,
their locations and licensed bed capacity is contained under the caption "Item
1. Business -- Facilities Division." Such information is incorporated herein by
reference.
The building in which the Company's facility at Houma, Louisiana is located
is leased for an initial period ending January 31, 2005 (with an option to
renew for 20 years). The Company has entered into a 50-year ground lease for
the property on which its 70-bed facility at Morgantown, West Virginia is
located. For the Bethany, Oklahoma facility, the Company has one year remaining
on a three-year lease with options to renew totaling an additional 9 years.
The Company leases its corporate headquarters in New Orleans, Louisiana for
a term of five years ending in April 1999, and leases other space for various
clinics and regional offices.
See Item 1. Business--Acquisitions and Sales.
ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to claims and suits arising in the ordinary course
of business. In the opinion of management, the ultimate resolution of such
pending legal proceedings will not have a material adverse effect on the
Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded in the over-the-counter market and is
quoted on the NASDAQ National Market System under the symbol RHCI. On September
22, 1994 there were 667 holders of record of the Company's Common Stock. No
dividends have been declared on the Common Stock since the Company was
organized. Under the terms of its current credit agreement, the Company is
limited as to the amount of dividends it can pay on its Common Stock unless
certain conditions are met. The following table sets forth the range of high
and low closing sales prices per share of the Common Stock for each of the
quarters during the years ended June 30, 1994 and 1993, as reported on the
NASDAQ National Market System:
HIGH LOW
---------- ---------
Year ended June 30, 1994
First Quarter . . . . . . . $ 8 7/8 $ 6 3/8
Second Quarter . . . . . . . 9 3/4 6 3/4
Third Quarter . . . . . . . 9 7/16 7 1/8
Fourth Quarter . . . . . . . 8 1/8 6 5/8
Year ended June 30, 1993
First Quarter . . . . . . . $ 8 $ 4 7/8
Second Quarter . . . . . . . 6 1/8 4 5/8
Third Quarter . . . . . . . 6 4 3/4
Fourth Quarter . . . . . . . 6 7/8 5
On September 22, 1994, the closing sales price of the Company's Common
Stock was $ 7 3/8 per share.
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ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial
information for the periods shown and is qualified by reference to, and should
be read in conjunction with, the Consolidated Financial Statements and Notes
thereto and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing elsewhere in this Annual Report
on Form 10-K.
YEAR ENDED JUNE 30
------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Statement of Operations Data:
Net revenues . . . . . . . . . . . . $ 137,002 $ 136,354 $ 136,946 $ 132,739 $ 122,124
Salaries, wages and benefits . . . . 64,805 63,810 60,626 55,524 51,665
Other operating expenses . . . . . . 42,907 40,454 40,161 37,086 33,893
Provision for doubtful accounts . . . 5,846 8,148 8,628 6,992 5,782
Depreciation and amortization . . . . 6,836 6,605 5,439 5,545 5,311
Interest and other financing charges 8,906 9,494 10,488 14,462 15,448
Loss on sales and closure of
facilities. . . . . . . . . . . . . . 802 7,524 --- --- ---
Restructuring and other charges . . . --- 1,367 2,283 --- ---
---------- --------- --------- --------- ---------
130,102 137,402 127,625 119,609 112,099
---------- --------- --------- --------- ---------
Income (loss) before minority interests,
income taxes, extraordinary items and
cumulative effect of accounting
change . . . . . . . . . . . . . . . 6,900 (1,048) 9,321 13,130 10,025
Minority interests . . . . . . . . . 4,824 1,126 --- --- ---
---------- --------- --------- --------- ---------
Income (loss) before income taxes,
extraordinary items and cumulative
effect of accounting change . . . . 2,076 (2,174) 9,321 13,130 10,025
Income taxes . . . . . . . . . . . 599 159 3,974 5,126 4,260
---------- --------- --------- --------- ---------
Income (loss) before extraordinary items
and cumulative effect of accounting
change . . . . . . . . . . . . . . 1,477 (2,333) 5,347 8,004 5,765
Extraordinary items:
Loss from early extinguishment of debt,
net of income tax benefit of $103 in
1994, $312 in 1992 and $1,032 in
1990 . . . . . . . . . . . . . . (155) (1,580) (366) --- (1,874)
Income tax benefit from net
operating loss carryovers . . . . --- --- 953 922 1,158
Cumulative effect of change in
accounting for income taxes. . . . --- 2,353 --- --- ---
---------- --------- --------- --------- ---------
Net income (loss) . . . . . . . . . $ 1,322 $ (1,560) $ 5,934 $ 8,926 $ 5,049
========== ========= ========= ========= =========
Primary earnings per share:
Income (loss) per common share before
extraordinary items and cumulative
effect of accounting change . . . . $ .15 $ (.29) $ .68 $ 1.57 $ 1.15
Net income (loss) . . . . . . . . . $ .14 $ (.20) $ .75 $ 1.75 $ 1.01
Weighted average shares
outstanding(1) . . . . . . . . . . 9,641 7,932 7,886 5,091 5,009
(1) Includes common and dilutive common equivalent shares outstanding.
JUNE 30
---------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(IN THOUSANDS)
Balance Sheet Data:
Working capital $ 21,148 $ 23,811 $ 26,718 $ 24,913 $ 11,722
Total assets 183,168 190,370 194,357 196,158 186,294
Long-term debt 67,707 77,429 84,879 119,188 124,876
Class B preferred stock, Series 1987 --- --- 2,500 2,537 2,537
Stockholders' equity 80,468 79,997 76,068 40,550 28,816
12
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Operating revenues of the facilities are affected by changes in the rates
the Company charges or by changes in the number of patient days in the period.
Additionally, increases in one factor can offset decreases in the other.
Patient days are primarily a function of the number of admissions multiplied by
the average length of stay by all patients. Accordingly, increases in
admissions can offset, in whole or in part, decreases in average length of
stay.
Generally, charges for each facility's services are reimbursed under
third-party reimbursement programs at the amount billed or at a rate which can
be less than the facility's charges. This lower rate can be based on a
negotiated per diem amount or based on the facility's costs as audited or
projected by the third-party payors. When operating revenues (charges) per
patient day are higher than the negotiated per diem rate or the facility's
costs, the difference is added to contractual adjustments. Bad debts consist
primarily of the uncollectible commercial and self-pay accounts receivable.
The Company records amounts due to or from third-party reimbursement
sources based on its best estimates of amounts to be ultimately received or
paid under cost reports filed with appropriate intermediaries, such as Blue
Cross. The final determination of amounts earned under reimbursement programs
is subject to review and audit by these intermediaries. Differences between
amounts recorded as estimated settlements and the audited amounts are reflected
as adjustments to the Company's net revenues in the period the final
determination is made. During the years ended June 30, 1992, 1993, and 1994 the
Company recorded contractual adjustment benefits of approximately $2,400,000,
$2,300,000, and $1,400,000 respectively. The adjustments were made to reflect
the combined effects of intermediary audits and the routine evaluation of prior
year estimated settlements. There can be no assurances that any future
adjustments will be of a favorable nature or of a magnitude comparable to those
made in fiscal 1992, 1993, or 1994.
Under certain state Medicaid programs, the Company received significant
payments pursuant to enhanced reimbursement rates under disproportionate share
programs in fiscal 1994, 1993 and 1992. Statutory changes will decrease the
level of disproportionate share payments in the future. The Company is
investigating certain cost saving and other measures to attempt partially to
offset the effects of this decrease. In addition, many state Medicaid programs
are seeking to control costs through relationships with managed care
organizations. As a result, there can be no assurance as to the amounts or
forms of disproportionate share payments or other Medicaid payments in future
periods.
In recent years, approximately 7% to 17% of the Company's patient revenues
have come from CHAMPUS since some of the Company's hospitals are in close
proximity to major military installations in the United States. Congress has
imposed a reduction in the annual reimbursable length of stay for patients
covered by the mental health benefits of CHAMPUS, a federal government health
benefit program for the members (active and retired) of all seven uniformed
services and their families. Effective October 1, 1991, CHAMPUS began to limit
its coverage for hospital psychiatric services to 30 days for adult patients,
45 days for child and adolescent patients and 150 days for RTC services,
subject to waivers which will be available under limited circumstances if an
extension of the length of stay can be justified. The lengths of stay currently
experienced by the Company for adult, child and adolescent hospital programs
for CHAMPUS beneficiaries have usually been within the new limits applicable to
hospital stays. See "Item 1. Business -- Sources of Revenue."
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15
The following table sets forth, for the periods indicated, certain items of
the Company's Consolidated Statements of Operations as a percentage of the
Company's net revenues.
AS A PERCENTAGE OF NET REVENUES
YEAR ENDED JUNE 30,
-------------------
1994 1993 1992
---- ---- ----
Net revenues . . . . . . . . . . . . . . 100.0 % 100.0 % 100.0 %
Salaries, wages and benefits . . . . . . 47.3 46.8 44.3
Other operating expenses . . . . . . . . 31.3 29.7 29.3
Provision for doubtful accounts . . . . 4.3 6.0 6.3
Depreciation and amortization . . . . . 5.0 4.8 4.0
Interest and other financing charges . . 6.5 7.0 7.6
Loss on sales and closure of facilities 0.6 5.5 ---
Restructuring and other charges . . . . --- 1.0 1.7
----- ----- -----
Income (loss) before minority interests,
income taxes, extraordinary items and
cumulative effect of accounting change 5.0 % (0.8) % 6.8 %
===== ====== =====
Net income (loss) . . . . . . . . . . . 1.0 % (1.1) % 4.3 %
===== ====== =====
1994 COMPARED TO 1993
Net revenues for fiscal 1994 were $137.0 million compared to $136.4 million
in fiscal 1993. Net outpatient revenues increased to $18.2 million for fiscal
1994, an increase of 43% over fiscal 1993, offsetting a decline in inpatient
revenues of 9.6% from the prior year. Also, revenues from the managed care
division (which began in October 1993) offset the revenues lost from the
facilities that were sold during fiscal 1994. See "Item 1.
Business--Acquisitions and Sales." Net outpatient revenues comprised 14.2% of
total net patient revenues for fiscal 1994 compared to 9.5% for the prior year.
Same store admissions increased 5% over the prior year while inpatient average
length of stay declined from 18.3 days in fiscal 1993 to 17.6 days for fiscal
1994. Contractual adjustment benefits of approximately $1.4 and $2.3 million
were recognized in fiscal 1994 and 1993, respectively, to reflect the combined
effects of intermediary audits and the routine evaluation of prior year
estimated settlements. There can be no assurances that any future adjustments
will be favorable or of a comparable magnitude.
Salaries, wages and benefits and other operating expenses were 78.6% of net
revenues for fiscal 1994 compared to 76.5% for the prior year. Additional
costs associated with the managed care operations and the start-up phase of
subacute ventures exceeded the cost savings derived from the containment
measures at the Company's inpatient facilities.
The provision for doubtful accounts was 4.3% of net revenues for fiscal
1994 compared to 6.0% in fiscal 1993. The decrease reflects the shift in payor
base toward more Medicaid, fixed rate, negotiated rate and cost-based
contracts, as well as the increase in managed care revenues which are less
susceptible to uncollectibility.
Depreciation and amortization was 5.0% of net revenues for fiscal 1994 as
compared to 4.8% in fiscal 1993. The increase relates primarily to
depreciation and amortization of the preopening costs of the facility opened in
January 1993, the amortization of cost in excess of net asset value and other
intangibles associated with the acquisition of Florida Psychiatric Management,
Inc., offset in part by the effect of the sales of the two facilities in fiscal
1994. See "Item 1. Business--Acquisitions and Sales."
Interest and other financing charges decreased from 7.0% of net revenues
for fiscal 1993 to 6.5% of net revenues for fiscal 1994. The decrease is
attributable to reduced levels of debt during fiscal 1994.
14
16
The Company recorded net charges totaling $802,000 in 1994 relating to the
sale of certain inpatient facilities and closure of certain outpatient
operations. The Company recorded a loss of $1,109,000 during 1993 from the
closure of its leased facility, Oak Grove Hospital, in Concord, California.
The loss includes provisions for severance expense and other expenses incurred
with the termination of this lease. In addition, the Company recorded a
provision for loss at June 30, 1993 for the potential sales of Cumberland
Hospital in Fayetteville, NC and Harbor Oaks Hospital in Fort Walton Beach, FL
of $6,415,000. The estimated losses were based on a letter of intent relating
to the sale of the Cumberland facility and the existence of a lease with an
option to purchase for the Harbor Oaks facility. The Cumberland facility was
subsequently sold in August 1993. See "Item 1. Business--Acquisitions and
Sales."
The Company recorded a non-recurring charge of $1,367,000 in 1993 resulting
primarily from a decision not to proceed with the development of additional
inpatient psychiatric facilities in certain markets.
Minority interests reflects the limited partners of Three Rivers Hospital's
share of income before income taxes at that facility. See "Item 1.
Business--Ownership Arrangements and Operating Agreements."
The Company recognized an after-tax loss of $155,000 in 1994 from early
extinguishment of the industrial revenue bonds in connection with the sale of
Atlantic Shores Hospital. The Company recognized a loss of $1,580,000 on early
extinguishment of a 16.1% subordinated note in fiscal 1993. These losses are
reflected as extraordinary items in the consolidated statements of operations.
See "Liquidity and Capital Resources" below.
The Company had net income of $1,322,000 in fiscal 1994 compared to a net
loss of $1,560,000 in fiscal 1993. Excluding the non- recurring charges noted
above, the Company's operations continued to be adversely affected by
reductions in third party reimbursement levels.
1993 COMPARED TO 1992
Net revenues for fiscal 1993 were $136.4 million compared to $136.9 million
in fiscal 1992. Same store patient days remained constant during the two years
as increases in admissions of 10% were offset by reduced lengths of stay from
19.8 days to 18.3 days. Expanded outpatient and day treatment programs offset
the declining reimbursement levels for inpatient care, allowing the Company to
maintain approximately the same level of net revenues in 1993 and 1992.
Contractual adjustment benefits from prior years totaling $2.3 million and $2.4
million are reflected in net revenues for 1993 and 1992, respectively, to
reflect the combined effects of intermediary audits and the routine evaluation
of prior year estimated settlements. There can be no assurances that any
future adjustments will be favorable or of a comparable magnitude.
Salaries, wages and benefits and other operating expenses were 76.5% of net
revenues for 1993, as compared to 73.6% in 1992. A principal reason for the
increase relates to the incremental costs associated with the development of
outpatient revenue sources.
The provision for doubtful accounts was 6.0% of net revenues for 1993, as
compared to 6.3% for 1992. Although higher insurance deductibles and
coinsurance levels resulted in increased amounts due from patients, increased
emphasis on receivables allowed the Company to control this expense component.
Depreciation and amortization was 4.8% of net revenues for 1993, as
compared to 4.0% for 1992. The increase relates to depreciation of the
Company's new management information system and amortization of preopening
costs relating to the new facilities opened in the second quarter of fiscal
1992 and the third quarter of fiscal 1993. See "Item 1. Business--Acquisitions
and Sales."
Interest and other financing charges were 7.0% of net revenues for 1993 as
compared to 7.6% in 1992. The decrease is attributable to reduced levels of
debt during fiscal 1993.
The Company recorded a loss of $1,109,000 during 1993 from the closure of
its leased facility, Oak Grove Hospital, in Concord, California. The loss
includes provisions for severance expense and other expenses incurred with the
termination of this lease. In addition, the Company recorded a provision for
loss at June 30, 1993 for the
15
17
potential sales of Cumberland Hospital in Fayetteville, NC and Harbor Oaks
Hospital in Fort Walton Beach, FL of $6,415,000. The estimated losses were
based on a letter of intent relating to the sale of the Cumberland facility and
the existence of a lease with an option to purchase for the Harbor Oaks
facility. The Cumberland facility was subsequently sold in August 1993. See
"Item 1. Business--Acquisitions and Sales."
The Company recorded a non-recurring charge of $1,367,000 in 1993 resulting
primarily from a decision not to proceed with the development of additional
inpatient psychiatric facilities in certain markets. The Company recorded a
non-recurring restructuring charge of $2,283,000 during 1992 resulting from the
Company's reassessment of its strategic direction to meet the changing demands
of both payors and the public. The 1992 charge included provisions for
severance packages and for the potentially unrecoverable portion of an
investment in a hospital joint venture. See "Item 1. Business--Ownership
Arrangements and Operating Agreements."
Minority interests reflect the limited partners of Three Rivers Hospital's
share of income before income taxes at that facility for the 1993 fiscal year.
The Company recognized a loss of $1,580,000 on the early extinguishment of
a 16.1% subordinated note in fiscal 1993, which is reflected as an
extraordinary item in the consolidated statements of operations. In fiscal
1992, the Company wrote off deferred loan costs of $678,000 ($366,000 after
applicable income tax benefit) which is reflected as an extraordinary item in
the consolidated statements of operations. The write-off resulted from the
early retirement of the Company's $34 million bank term debt. See "Liquidity
and Capital Resources" below. The Company realized income tax benefits of
$953,000 in fiscal 1992 relating to the utilization of net operating loss
carryovers of prior years, which is also reflected as an extraordinary item in
the consolidated statements of operations.
Effective July 1, 1992, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by FASB
Statement No. 109, "Accounting for Income Taxes". The cumulative effect of
adopting Statement No. 109 as of July 1, 1992 was to increase net income for
the fiscal year ended June 30, 1993 by $2,353,000.
The Company had a net loss of $1,560,000 in fiscal 1993 compared to net
income of $5,934,000 in fiscal 1992. In addition to the charges noted above,
the decrease resulted from disproportionate increases in salaries and certain
operating costs.
IMPACT OF INFLATION
The psychiatric hospital industry is labor intensive, and wages and related
expenses increase in inflationary periods. Additionally, suppliers generally
seek to pass along rising costs to the Company in the form of higher prices.
The Company monitors the operations of its facilities to mitigate the effect of
inflation and the increase in costs of health care. To the extent possible,
the Company seeks to offset increased costs through increased rates, new
programs, and operating efficiencies. However, changes in reimbursement
patterns may hinder the Company's ability to realize the full effect of rate
increases. To date, inflation has not had a significant impact on operations.
LIQUIDITY AND CAPITAL RESOURCES
On February 10, 1994, the Company sold its Atlantic Shores Hospital for
$4.8 million. The $4.3 million outstanding balance of the industrial revenue
bonds associated with that facility was repaid with the proceeds from such
sale.
On August 31, 1993, the Company sold its Cumberland Hospital for $12.3
million. Of the total proceeds, $10.9 million was restricted for the repayment
of debt as such amounts become due. At June 30, 1994, $5.3 million was still
available and is included in restricted cash on the consolidated balance sheet.
16
18
On June 30, 1993, the interests in the Company controlled by Paul J.
Ramsay, the Company's Chairman, were recapitalized. The Company issued 142,486
shares of Class B Preferred Stock, Series C (the "Series C Preferred Stock") in
exchange for all outstanding shares of the Company's Class B Preferred Stock,
Series 1987, the Company's $2 million 16.1% Subordinated Promissory Note and
$500,000 in cash. The Series C Preferred Stock has ten votes per share and is
convertible at the option of the holder into ten shares of the Company's common
stock. It pays a 5% per annum dividend and has a $50.84 liquidation
preference.
On May 21, 1993, the Company finalized a credit facility for letters of
credit (to support the Company's outstanding variable rate industrial revenue
bonds) and working capital (the "1993 Credit Facility"). The 1993 Credit
Facility includes $27.5 million in letters of credit and a $4 million working
capital facility, which replace similar components of the 1990 Credit
Facilities described below. The 1993 Credit Facility expires on May 15, 1996.
There were no amounts outstanding under the working capital facility at June
30, 1994 or 1993.
On July 30, 1991, the Company completed a public offering (the "Public
Offering") of 2,700,000 shares of Common Stock from which it received net
proceeds (after payment of expenses) of $31,038,000 (including proceeds
received by the Company from the exercise of certain warrants by certain of the
selling stockholders in such offering). The net proceeds from this offering,
together with approximately $1,250,000 of the Company's internally generated
funds, were used to repay in full the remaining unpaid principal of the Bank
Term Debt referred to below.
On April 30, 1990, the Company completed the refinancing of its then
existing senior debt and a portion of its subordinated debt and entered into
new credit agreements (the "1990 Credit Facilities") with a group of insurance
companies and with a group of banks. The 1990 Credit Facilities included
$56,500,000 in senior secured notes, $34,000,000 in bank term debt (the "Bank
Term Debt"), approximately $31,000,000 in letters of credit (the "Bank Letters
of Credit"), $3,000,000 in subordinated secured notes and $5,000,000 in a
working capital facility (the "Bank Working Capital Facility"). The senior
secured notes bear interest at 11.6% and are due in semi-annual installments
beginning March 31, 1993 and ending on March 31, 2000. The Bank Term Debt bore
interest at a variable rate, which at June 30, 1991 was 9.75%, and was due in
quarterly installments beginning March 31, 1991 with the balance due on April
30, 1998. The Bank Term Debt was repaid with the Company's net proceeds from
the Public Offering and the Company's internally generated funds. The
subordinated secured notes bear interest at 15.6% and are due in semi-annual
installments beginning March 31, 1994 and ending on March 31, 2000.
The Company's current primary cash requirements relate to its normal
operating and debt service expenses, routine capital improvements at its
facilities and the expansion of its outpatient programs. In addition, at the
current time, the Company's specific development projects include ongoing
expansion of its subacute ventures, its management contract operations and its
network of affiliations with medical/surgical hospitals and other healthcare
providers. At the current time, the Company does not have any commitments to
make any material capital expenditures. In connection with any future
acquisitions, the Company may determine to make capital improvements at the
acquired facilities, although it is the Company's intention to acquire
facilities requiring low capital investment. On the basis of its historical
experience and projected cash needs, the Company believes that its internally
generated funds from operations, together with its $4,000,000 working capital
facility and funds derived from any future asset sales will be sufficient to
fund its current cash requirements and future identifiable needs. At the
present time, the Company does not have any agreement to sell any of its
assets.
The Company is also considering various options regarding the expansion of
its managed care operations. Additional sources of capital would be required to
undertake this expansion. There can be no assurances that the Company will
expand its managed care operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements of the Company and its consolidated subsidiaries are
set forth herein beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE.
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to the Company's executive officers is contained
in Part I under "Item 1. Business -- Executive Officers of the Registrant." The
information required by this Item with respect to directors will be contained
in the Company's definitive Proxy Statement ("Proxy Statement") for its 1994
Annual Meeting of Stockholders to be held on November 28, 1994 and is
incorporated herein by reference. Such Proxy Statement will be filed with the
Securities and Exchange Commission not later than 120 days subsequent to June
30, 1994.
ITEM 11. EXECUTIVE COMPENSATION.
The information required with respect to this Item will be contained in the
Proxy Statement, and such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required with respect to this Item will be contained in the
Proxy Statement, and such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required with respect to this Item will be contained in the
Proxy Statement, and such information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) DOCUMENTS FILED AS PART OF THE REPORT:
1. FINANCIAL STATEMENTS
Information with respect to this Item is contained on Pages F-1 to F-19 of
this Annual Report on Form 10-K.
2. FINANCIAL STATEMENT SCHEDULES
Information with respect to this Item is contained on Pages S-1 to S-5 of
this Annual Report on Form 10-K.
3. EXHIBITS
Information with respect to this Item is contained in the attached Index to
Exhibits.
(B) REPORTS ON FORM 8-K:
There were no reports on Form 8-K filed by the Company for the quarter ended
June 30, 1994.
(C) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K:
Exhibits required to be filed by the Company pursuant to Item 601 of
Regulation S-K are contained in Exhibits listed in response to Item 14(a)3,
and are incorporated herein by reference. The management contracts and
compensatory plans and arrangements required to be filed as an Exhibit to
this Form 10-K are listed in Exhibits 10.71, 10.72, 10.73, 10.74, 10.75,
10.81, 10.82 and 10.83.
18
20
POWER OF ATTORNEY
The registrant, and each person whose signature appears below, hereby
appoints Gregory H. Browne and Thomas M. Haythe as attorneys-in-fact with full
power of substitution, severally, to execute in the name and on behalf of the
registrant and each such person, individually and in each capacity stated
below, one or more amendments to the annual report which amendments may make
such changes in the report as the attorney-in-fact acting deems appropriate and
to file any such amendment to the report with the Securities and Exchange
Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto fully authorized.
Dated:
RAMSAY HEALTH CARE, INC.
OCTOBER 3, 1994 By /s/ GEREGORY H. BROWNE
GREGORY H. BROWNE
CHIEF EXECUTIVE OFFICER, PRINCIPAL
FINANCIAL AND ACCOUNTING OFFICER
AND DIRECTOR
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
DATE SIGNATURE/TITLE
- - - ---- ---------------
Dated:
October 3, 1994 By /s/ PAUL J. RAMSAY
Paul J. Ramsay
Chairman of the Board
and Director
Dated:
October 3, 1994 By /s/ GREGORY H. BROWNE
Gregory H. Browne
Chief Executive Officer, Principal
Financial and Accounting Officer
and Director
Dated:
October 3, 1994 By /s/ AARON BEAM, JR.
Aaron Beam, Jr.
Director
19
21
DATE SIGNATURE/TITLE
- - - ---- ---------------
Dated:
By____________________________
Peter J. Evans
Director
Dated:
October 3, 1994 By /s/ ROBERT E. GALLOWAY
Robert E. Galloway
Director
Dated:
October 3, 1994 By /s/ THOMAS M. HAYTHE
Thomas M. Haythe
Director
Dated:
October 3, 1994 By /s/ STEVEN J. SHULMAN
Steven J. Shulman
Director
Dated:
October 3, 1994 By /s/ MICHAEL S. SIDDLE
Michael S. Siddle
Director
Dated:
By__________________________
Bruce R. Soden
Senior Vice President and
Director
20
22
(THIS PAGE INTENTIONALLY LEFT BLANK)
23
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of the Registrant and its
subsidiaries are submitted herewith in response to Item 8 and Item 14(a)(1):
PAGE
NUMBER
------
Report of Independent Auditors . . . . . . . . . . . . . . . . . . F-3
Consolidated Balance Sheets -- June 30, 1994 and 1993 . . . . . . . F-4
Consolidated Statements of Operations-- For the Years Ended . . . .
June 30, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Stockholders' Equity -- For
the Years Ended June 30, 1994, 1993 and 1992 . . . . . . . . . . F-7
Consolidated Statements of Cash Flows -- For the Years
Ended June 30, 1994, 1993 and 1992 . . . . . . . . . . . . . . . F-8
Notes to Consolidated Financial Statements . . . . . . . . . . . . F-9
The following Financial Statement Schedules of the Registrant and its
subsidiaries are submitted herewith in response to Item 14(a)(2):
IV -- Indebtedness of and to Related Parties -- Not Current S-1
V -- Property and Equipment. . . . . . . . . . . . . . . . . . S-2
VI -- Accumulated Depreciation, Depletion and Amortization of
Property and Equipment . . . . . . . . . . . . . . . . . S-3
VIII -- Valuation and Qualifying Accounts . . . . . . . . . . . . S-4
X -- Supplementary Income Statement Information. . . . . . . . S-5
All other schedules have been omitted because they are inapplicable or the
information is provided in the consolidated financial statements including the
notes thereto.
F-1
24
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-2
25
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
RAMSAY HEALTH CARE, INC.
We have audited the accompanying consolidated balance sheets of Ramsay
Health Care, Inc. and Subsidiaries as of June 30, 1994 and 1993, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended June 30, 1994. Our
audits also included the financial statement schedules listed in the Index at
Item 14(a). These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Ramsay Health Care, Inc. and Subsidiaries at June 30, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1994, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
As discussed in the Note on Income Taxes on page F-13 to the consolidated
financial statements, the Company changed its method of accounting for income
taxes in 1993.
ERNST & YOUNG LLP
New Orleans, Louisiana
September 1, 1994
F-3
26
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30
----------------------------
1994 1993
---- ----
ASSETS
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . $ 6,207,000 $ 10,682,000
Restricted cash . . . . . . . . . . . . . . . . . . . 5,311,000 ---
Patient accounts receivable, less allowances for
doubtful accounts of $3,925,000 and $4,955,000
at June 30, 1994 and 1993, respectively . . . . . . 23,019,000 26,696,000
Amounts due from third-party contractual agencies . . 6,604,000 4,971,000
Other accounts receivable . . . . . . . . . . . . . . 2,139,000 1,356,000
Other current assets . . . . . . . . . . . . . . . . . 3,040,000 3,385,000
-------------- ---------------
Total current assets . . . . . . . . . . . . . . . . 46,320,000 47,090,000
Other assets
Cash held in trust . . . . . . . . . . . . . . . . . . 1,805,000 2,611,000
Cost in excess of net asset value of purchased
businesses . . . . . . . . . . . . . . . . . . . . . 12,042,000 4,699,000
Unamortized preopening and loan costs . . . . . . . . 3,731,000 3,664,000
Other intangible assets . . . . . . . . . . . . . . . 3,048,000 ---
Real estate held for sale . . . . . . . . . . . . . . 1,150,000 1,150,000
Other non-current assets . . . . . . . . . . . . . . . 4,911,000 4,141,000
-------------- ---------------
26,687,000 16,265,000
Property and equipment
Land . . . . . . . . . . . . . . . . . . . . . . . . . 9,009,000 9,995,000
Building and improvements . . . . . . . . . . . . . . 118,555,000 134,468,000
Equipment, furniture and fixtures . . . . . . . . . . 20,626,000 18,419,000
-------------- ---------------
148,190,000 162,882,000
Less accumulated depreciation . . . . . . . . . . . . 38,029,000 35,867,000
-------------- ---------------
110,161,000 127,015,000
-------------- ---------------
$ 183,168,000 $ 190,370,000
============== ===============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
27
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30
-----------------------
1994 1993
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . $ 2,306,000 $ 4,790,000
Accrued salaries and wages . . . . . . . . . . . . . . 4,291,000 3,760,000
Other accrued liabilities . . . . . . . . . . . . . . 4,386,000 1,467,000
Amounts due to third-party contractual agencies . . . 4,729,000 6,114,000
Current portion of long-term debt . . . . . . . . . . 9,460,000 7,148,000
-------------- --------------
Total current liabilities . . . . . . . . . . . . 25,172,000 23,279,000
Deferred income taxes . . . . . . . . . . . . . . . . . . . 4,932,000 6,120,000
Liabilities for unpaid self-insurance claims,
less current portion . . . . . . . . . . . . . . . . . 1,341,000 2,419,000
Long-term debt, less current portion . . . . . . . . . . . 67,707,000 77,429,000
Minority interests . . . . . . . . . . . . . . . . . . . . 3,548,000 1,126,000
Stockholders' equity
Class A convertible preferred stock, $1 par value--
authorized 800,000 shares; issued 22,910 shares . . 23,000 23,000
Class B convertible preferred stock, $1 par value,
authorized 152,321 shares--Series C, issued 142,486
shares (liquidation value of $7,244,000) including
accrued dividends of $91,000 at June 30, 1994 . . . 233,000 142,000
Common stock, $.01 par value--authorized 20,000,000
shares; issued 8,200,760 shares at June 30, 1994 and
8,087,926 shares at June 30, 1993 . . . . . . . . . 82,000 81,000
Additional paid-in capital . . . . . . . . . . . . . . 100,048,000 99,847,000
Retained earnings (deficit) . . . . . . . . . . . . . (16,483,000) (17,805,000)
Treasury stock--481,750 common shares at June 30, 1994
and 321,750 common shares at June 30,
1993, at cost. . . . . . . . . . . . . . . . . (3,435,000) (2,291,000)
-------------- --------------
Total stockholders' equity . . . . . . . . . . . 80,468,000 79,997,000
-------------- --------------
$ 183,168,000 $ 190,370,000
============== ==============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
28
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30
------------------
1994 1993 1992
---- ---- ----
NET REVENUES . . . . . . . . . . . . . . . . . . . . $137,002,000 $ 136,354,000 $ 136,946,000
Operating expenses:
Salaries, wages and benefits . . . . . . . . . . 64,805,000 63,810,000 60,626,000
Other operating expenses . . . . . . . . . . . . 42,907,000 40,454,000 40,161,000
Provision for doubtful accounts . . . . . . . . . 5,846,000 8,148,000 8,628,000
Depreciation and amortization . . . . . . . . . . 6,836,000 6,605,000 5,439,000
Interest and other financing charges . . . . . . 8,906,000 9,494,000 10,488,000
Loss on sales and closure of facilities . . . . . 802,000 7,524,000 ---
Restructuring and other charges . . . . . . . . . --- 1,367,000 2,283,000
------------ ------------- -------------
TOTAL OPERATING EXPENSES . . . . . . . . . . . . . . 130,102,000 137,402,000 127,625,000
------------ ------------- -------------
INCOME (LOSS) BEFORE MINORITY INTERESTS,
INCOME TAXES, EXTRAORDINARY ITEMS AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE . . . . . 6,900,000 (1,048,000) 9,321,000
Minority interests . . . . . . . . . . . . . . . . . 4,824,000 1,126,000 ---
------------ ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES,
EXTRAORDINARY ITEMS AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE . . . . . . . . . . . 2,076,000 (2,174,000) 9,321,000
Provision for income taxes . . . . . . . . . . . . . 599,000 159,000 3,974,000
------------ ------------- -------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE . . . . . 1,477,000 (2,333,000) 5,347,000
Extraordinary items:
Loss from early extinguishment of debt, less
applicable income tax benefit of $103,000 in 1994 and
$312,000 in 1992 . . . . . . . . . . . . . . . (155,000) (1,580,000) (366,000)
Reduction in federal and state income taxes from
utilization of net operating loss carryovers . --- --- 953,000
------------ ------------- -------------
(155,000) (1,580,000) 587,000
Cumulative effect of change in accounting for
income taxes . . . . . . . . . . . . . . . . . --- 2,353,000 ---
------------ ------------- -------------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . $ 1,322,000 $ (1,560,000) $ 5,934,000
============ ============= =============
Income (loss) per common and dilutive common
equivalent share:
Primary:
Before extraordinary items and cumulative
effect of accounting change . . . . . . . . . . $ 0.15 $ (0.29) $ 0.68
Extraordinary items:
Loss from early extinguishment of debt . . . (0.01) (0.20) (0.05)
Utilization of net operating loss carryovers --- --- 0.12
------------ ------------- ------------
(0.01) (0.20) 0.07
Cumulative effect of change in accounting for
income taxes . . . . . . . . . . . . . . . . --- 0.29 ---
------------ ------------- -------------
$ 0.14 $ (0.20) $ 0.75
============ ============= =============
Fully diluted:
Before extraordinary items and cumulative effect of
accounting change . . . . . . . . . . . . . . . $ 0.15 $ (0.29) $ 0.66
Extraordinary items:
Loss from early extinguishment of debt . . . (0.01) (0.20) (0.05)
Utilization of net operating loss carryovers --- --- 0.12
------------ ------------- ------------
(0.01) (0.20) 0.07
Cumulative effect of change in accounting for
income taxes . . . . . . . . . . . . . . . . --- 0.29 ---
------------ ------------- -------------
$ 0.14 $ (0.20) $ 0.73
============ ============= =============
Weighted average number of shares outstanding:
Primary . . . . . . . . . . . . . . . . . . . . . 9,641,000 7,932,000 7,886,000
Fully diluted . . . . . . . . . . . . . . . . . . 9,679,000 7,932,000 8,159,000
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
29
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CLASS B
CLASS A CONVERTIBLE
CONVERTIBLE PREFERRED ADDITIONAL RETAINED
PREFERRED STOCK COMMON PAID-IN EARNINGS TREASURY
STOCK SERIES C STOCK CAPITAL (DEFICIT) STOCK
----- -------- ----- ------- --------- -----
BALANCE AT JULY 1, 1991 . . . . . . . . . $313,000 $ --- $ 50,000 $ 62,366,000 $(22,179,000) $ ---
Exercise of stock options (28,833 shares) --- --- --- 281,000 --- ---
Dividends accrued on Class B redeemable
convertible preferred stock . . . . . --- --- --- (150,000) --- ---
Purchase of treasury stock (201,750
shares). . . . . . . . . . . . . . . . --- --- --- --- --- (1,585,000)
Issuance of common stock (2,700,000
shares) . . . . . . . . . . . . . . . --- --- 27,000 30,158,000 --- ---
Exercise of warrants (90,832 shares) . . --- --- 1,000 852,000 --- ---
Conversion of Class A convertible
preferred stock (290,590 shares) . . . (290,000) --- 3,000 287,000 --- ---
Net income . . . . . . . . . . . . . . . --- --- --- --- 5,934,000 ---
-------- --------- -------- ------------ ------------ -----------
BALANCE AT JUNE 30, 1992 . . . . . . . . 23,000 --- 81,000 93,794,000 (16,245,000) (1,585,000)
Dividends accrued on Class B redeemable
convertible preferred stock . . . . . --- --- --- (150,000) --- ---
Purchase of treasury stock (120,000 shares) --- --- --- --- --- (706,000)
Issuance of Class B preferred stock,
Series C (142,486 shares) . . . . . . --- 142,000 --- 6,203,000 --- ---
Net loss . . . . . . . . . . . . . . . . --- --- --- --- (1,560,000) ---
-------- --------- -------- ------------ ------------ -----------
BALANCE AT JUNE 30, 1993 . . . . . . . . 23,000 142,000 81,000 99,847,000 (17,805,000) (2,291,000)
Exercise of stock options (112,834 shares) --- --- 1,000 565,000 --- ---
Dividends accrued on Class B
convertible preferred stock, Series C --- 91,000 --- (364,000) --- ---
Purchase of treasury stock (160,000 shares) --- --- --- --- (1,144,000)
Net income . . . . . . . . . . . . . . . --- --- --- --- 1,322,000 ---
-------- --------- -------- ------------ ------------ -----------
BALANCE AT JUNE 30, 1994 . . . . . . . . $ 23,000 $ 233,000 $ 82,000 $100,048,000 $(16,483,000) $(3,435,000)
======== ========= ======== ============ ============ ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
30
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30
-----------------------------------------
1994 1993 1992
---- ---- ----
Cash flows from operating activities
Net income (loss) . . . . . . . . . . . . . . . . . . $ 1,322,000 $ (1,560,000) $ 5,934,000
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of change in accounting for
income taxes . . . . . . . . . . . . . . . . . --- (2,353,000) ---
Depreciation and amortization . . . . . . . . . 7,638,000 7,173,000 5,955,000
Loss on early extinguishment of debt . . . . . . 258,000 1,580,000 678,000
Write-off of development and other costs . . . . --- 1,367,000 ---
(Gain) loss on disposal of assets . . . . . . . 722,000 (121,000) ---
Provision for deferred income taxes . . . . . . (1,188,000) (696,000) 1,890,000
Provision for doubtful accounts . . . . . . . . 5,846,000 8,148,000 8,628,000
Provision for loss on sales and closure of
facilities . . . . . . . . . . . . . . . . . . --- 6,415,000 ---
Minority interests . . . . . . . . . . . . . . . 4,824,000 1,126,000 ---
Cash flows from (increase) decrease in operating
assets:
Patient accounts receivable . . . . . . . . . (2,169,000) (8,833,000) (8,690,000)
Other current assets . . . . . . . . . . . . . (2,071,000) 1,233,000 (150,000)
Other non-current assets . . . . . . . . . . . (554,000) 164,000 257,000
Cash flows from increase (decrease) in
operating liabilities:
Accounts payable . . . . . . . . . . . . . . . (2,484,000) 940,000 (814,000)
Accrued salaries, wages and other liabilities 3,150,000 (674,000) (2,664,000)
Unpaid self-insurance claims . . . . . . . . . (1,078,000) (456,000) 203,000
Amounts due to third-party contractual agencies (1,385,000) 724,000 (1,580,000)
------------- -------------- -------------
Total adjustments . . . . . . . . . . . . . 11,509,000 15,737,000 3,713,000
------------- -------------- -------------
Net cash provided by operating activities 12,831,000 14,177,000 9,647,000
------------- -------------- -------------
Cash flows from investing activities
Proceeds from sale of assets . . . . . . . . . . 16,422,000 300,000 ---
Acquisitions of businesses . . . . . . . . . . . (6,022,000) --- ---
Expenditures for property and equipment . . . . (5,070,000) (3,569,000) (5,206,000)
Purchase of facilities . . . . . . . . . . . . . --- (2,000,000) (2,100,000)
Development project costs . . . . . . . . . . . (388,000) (1,878,000) ---
Preopening costs . . . . . . . . . . . . . . . . (2,195,000) (905,000) (661,000)
------------- -------------- -------------
Net cash provided by (used in)
investing activities. . . . . . . . . . 2,747,000 (8,052,000) (7,967,000)
------------- -------------- -------------
Cash flows from financing activities
Loan costs . . . . . . . . . . . . . . . . . . . (222,000) (1,619,000) (711,000)
Proceeds from sale/leaseback of equipment . . . --- 1,857,000 ---
Distribution to minority interests . . . . . . . (2,741,000) --- ---
Proceeds from exercise of options and warrants . 566,000 --- 1,134,000
Payment on debt . . . . . . . . . . . . . . . . (11,734,000) (3,884,000) (34,317,000)
Payment of preferred stock dividends . . . . . . (273,000) (150,000) (187,000)
Issuance of Class B Preferred Stock, Series C . --- 265,000 ---
Issuance of common stock . . . . . . . . . . . . --- --- 30,185,000
Purchase of treasury stock . . . . . . . . . . . (1,144,000) (706,000) (1,585,000)
Restricted cash . . . . . . . . . . . . . . . . (5,311,000) --- ---
Cash held in trust . . . . . . . . . . . . . . . 806,000 166,000 329,000
------------- -------------- -------------
Net cash used in financing activities . (20,053,000) (4,071,000) (5,152,000)
------------- -------------- -------------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . . . . (4,475,000) 2,054,000 (3,472,000)
Cash and cash equivalents at beginning of year . . 10,682,000 8,628,000 12,100,000
------------- -------------- -------------
Cash and cash equivalents at end of year . . . . . $ 6,207,000 $ 10,682,000 $ 8,628,000
============= ============== =============
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest (net of amount capitalized) . . . . . . $ 8,064,000 $ 8,788,000 $ 11,740,000
Income taxes . . . . . . . . . . . . . . . . . . 398,000 1,780,000 1,096,000
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-8
31
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - - ------------------------------------------
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
INDUSTRY
The Company is a provider of a full continuum of behavioral health
services. Its facilities division operates private, free-standing acute care
psychiatric hospitals as well as outpatient day hospitals, freestanding day
treatment centers, subacute units, and residential treatment centers. Its
managed care division provides managed mental health care services.
AFFILIATED COMPANIES
Ramsay Holdings HSA Limited ("Holdings") owns approximately 18% of the
outstanding Common Stock of the Company and 50% of the outstanding Class B
Convertible Preferred Stock, Series C of the Company. Paul Ramsay Holdings
Pty. Limited owns the remaining 50% of the outstanding Class B Convertible
Preferred Stock, Series C. Together, these two entities affiliated with Paul
J. Ramsay own common stock and preferred stock in the Company which in total
represents an approximate 31% voting interest.
MEDICARE AND OTHER CONTRACTED REIMBURSEMENT PROGRAMS
Net revenues include estimated reimbursable amounts from Medicare and
other contracted reimbursement programs. Amounts received by the Company for
treatment of patients covered by such programs, which may be based on the cost
of services provided or predetermined rates, are generally less than the
established billing rates of the Company's hospitals. Final determination of
amounts earned under contracted reimbursement programs is subject to review and
audit by the appropriate agencies. See Note on Reimbursement from Third-Party
Contractual Agencies.
CHARITY CARE
The Company provides care to patients who meet certain criteria under its
charity care policy without charge or at amounts less than its established
rates. Because the Company does not pursue collection of amounts determined to
qualify as charity care, they are not reported as revenue.
INTANGIBLE ASSETS
Cost in excess of net asset value of purchased businesses is amortized on
a straight-line basis, over periods ranging from fifteen to forty years. Other
intangible assets, principally the value assigned to acquired clinical protocols
and contracts related to the managed care division, are amortized on a
straight-line basis over a fifteen year period.
Preopening costs, principally salaries and other costs incurred prior to
opening a new facility or program, are deferred and amortized on a
straight-line basis over two years.
Loan costs are amortized ratably over the life of the loan and are
included in interest expense. In fiscal 1994, the Company wrote off $258,000 of
deferred loan costs ($155,000 after applicable income tax benefit) in
connection with the early retirement of the bonds associated with Atlantic
Shores Hospital which was sold in February 1994. In fiscal 1993, the Company
incurred approximately $1,573,000 in deferred loan costs in connection with the
refinancing of its debt under the 1993 Credit Facilities. In fiscal 1992, the
Company wrote off $678,000 of deferred loan costs ($366,000 after applicable
income tax benefit) in connection with the early retirement of its $34 million
bank term debt.
F-9
32
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Accumulated amortization of the Company's intangible assets as of June 30,
1994 and 1993 was $9,896,000 and $10,311,000, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company capitalizes
interest, salaries and other costs for site selection and design incurred
during the construction period. Upon sale or retirement of property or
equipment, the cost and related accumulated depreciation are removed from the
accounts and the resulting gain or loss is included in operations.
Depreciation is computed substantially on the straight-line method for
financial reporting purposes and on accelerated methods for income tax
purposes. The general range of estimated useful lives is twenty to forty years
for buildings and five to twenty years for equipment.
PROFESSIONAL AND GENERAL LIABILITY INSURANCE
The Company maintains a self-insurance program for its hospital
professional liability insurance and commercial and general liability
insurance. The Company and its facilities are insured for professional and
general liability in the aggregate amount of $25 million with self-insured
retentions of $500,000 per claim. It is the Company's policy to record the
liability for uninsured losses related to asserted and unasserted claims
arising from reported incidents and losses related to unreported incidents
based upon