SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ______ to ______
Commission file number 0-13849
RAMSAY YOUTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
63-0857352 (I.R.S. Employer Identification No.) |
|
| Columbus Center One Alhambra Plaza, Suite 750 Coral Gables, Florida (Address of principal executive offices) |
33134 (Zip Code) |
Registrant’s telephone number, including area code (305) 569-6993
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check
mark whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act).
Yes
[ ] No [X]
The number of shares of the Registrant’s Common Stock outstanding as of November 13, 2002, follows:
Common Stock, par value $0.01 per share – 9,291,081 shares
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
| Page | ||
| Part I. FINANCIAL INFORMATION | ||
| Item 1. Financial Statements (unaudited) | 1 | |
| Condensed Consolidated Balance Sheets – September 30, 2002 and December 31, 2001 | 2 | |
| Condensed Consolidated Statements of Operations – Quarter and Nine Months ended September 30, 2002 and 2001 | 3 | |
| Condensed Consolidated Statements of Cash Flows – Nine Months ended September 30, 2002 and 2001 | 4 | |
| Notes to Condensed Consolidated Financial Statements – September 30, 2002 | 5 | |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 22 | |
| Item 4. Controls and Procedures | 22 | |
| Part II. OTHER INFORMATION | ||
| Item 1. Legal Proceedings | 22 | |
| Item 2. Changes in Securities and Use of Proceeds | 22 | |
| Item 3. Defaults upon Senior Securities | 22 | |
| Item 4. Submission of Matters to a Vote of Securities Holders | 23 | |
| Item 5. Other Information | 23 | |
| Item 6. Exhibits and Reports on Form 8-K | 23 | |
| SIGNATURES | 24 |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
| September 30, | December 31, | |||||||||
| 2002 | 2001 | |||||||||
ASSETS |
||||||||||
Current assets |
||||||||||
Cash and cash equivalents |
$ | 1,608,000 | $ | 752,000 | ||||||
Accounts receivable, less allowances for doubtful accounts of
$2,676,000 and $1,934,000 at September 30, 2002 and December
31, 2001, respectively |
23,170,000 | 23,307,000 | ||||||||
Other current assets |
5,867,000 | 6,091,000 | ||||||||
Total current assets |
30,645,000 | 30,150,000 | ||||||||
Other assets |
||||||||||
Cash held in trust |
1,021,000 | 1,021,000 | ||||||||
Cost in excess of net asset value of purchased businesses, net |
2,232,000 | 2,232,000 | ||||||||
Unamortized loan costs, net |
842,000 | 1,077,000 | ||||||||
Deferred tax asset |
6,708,000 | — | ||||||||
Total other assets |
10,803,000 | 4,330,000 | ||||||||
Property and equipment |
||||||||||
Land |
4,635,000 | 4,659,000 | ||||||||
Buildings and improvements |
38,648,000 | 37,829,000 | ||||||||
Equipment, furniture and fixtures |
13,304,000 | 12,580,000 | ||||||||
| 56,587,000 | 55,068,000 | |||||||||
Less accumulated depreciation |
22,268,000 | 20,537,000 | ||||||||
| 34,319,000 | 34,531,000 | |||||||||
| $ | 75,767,000 | $ | 69,011,000 | |||||||
See notes to condensed consolidated financial statements.
1
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
| September 30, | December 31, | ||||||||||
| 2002 | 2001 | ||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|||||||||||
Current liabilities |
|||||||||||
Accounts payable |
$ | 5,237,000 | $ | 5,604,000 | |||||||
Accrued and other liabilities |
7,970,000 | 6,366,000 | |||||||||
Amounts due to third-party contractual agencies |
978,000 | 1,709,000 | |||||||||
Current portion of long-term debt |
3,899,000 | 3,372,000 | |||||||||
Total current liabilities |
18,084,000 | 17,051,000 | |||||||||
Noncurrent liabilities |
|||||||||||
Other accrued liabilities |
4,110,000 | 4,129,000 | |||||||||
Long-term debt, less current portion |
17,069,000 | 23,506,000 | |||||||||
Total liabilities |
39,263,000 | 44,686,000 | |||||||||
Commitments and contingencies |
|||||||||||
Stockholders’ equity |
|||||||||||
Common stock $.01 par value—authorized
30,000,000 shares; issued 9,484,931 shares at
September 30, 2002 and 9,445,449 shares at
December 31, 2001 |
95,000 | 94,000 | |||||||||
Additional paid-in capital |
127,130,000 | 127,047,000 | |||||||||
Accumulated deficit |
(86,822,000 | ) | (98,917,000 | ) | |||||||
Treasury stock—193,850 common shares at
September 30, 2002 and December 31, 2001, at
cost |
(3,899,000 | ) | (3,899,000 | ) | |||||||
Total stockholders’ equity |
36,504,000 | 24,325,000 | |||||||||
| $ | 75,767,000 | $ | 69,011,000 | ||||||||
See notes to condensed consolidated financial statements.
2
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
| Quarter Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
Revenues |
$ | 36,323,000 | $ | 33,638,000 | $ | 108,863,000 | $ | 99,267,000 | ||||||||||
Operating Expenses: |
||||||||||||||||||
Salaries, wages and benefits |
22,671,000 | 21,283,000 | 67,706,000 | 61,846,000 | ||||||||||||||
Other operating expenses |
9,971,000 | 9,457,000 | 29,516,000 | 28,087,000 | ||||||||||||||
Provision for doubtful accounts |
401,000 | 264,000 | 1,839,000 | 2,183,000 | ||||||||||||||
Depreciation and amortization |
679,000 | 639,000 | 1,928,000 | 1,824,000 | ||||||||||||||
Asset impairment charges |
— | — | 125,000 | — | ||||||||||||||
Total operating expenses |
33,722,000 | 31,643,000 | 101,114,000 | 93,940,000 | ||||||||||||||
Income from operations |
2,601,000 | 1,995,000 | 7,749,000 | 5,327,000 | ||||||||||||||
Non-operating expenses: |
||||||||||||||||||
Interest and other financing charges, net |
576,000 | 746,000 | 1,871,000 | 2,597,000 | ||||||||||||||
Total non-operating expenses, net |
576,000 | 746,000 | 1,871,000 | 2,597,000 | ||||||||||||||
Income before income taxes |
2,025,000 | 1,249,000 | 5,878,000 | 2,730,000 | ||||||||||||||
Provision (benefit) for income taxes |
763,000 | 171,000 | (6,215,000 | ) | 472,000 | |||||||||||||
Net income |
$ | 1,262,000 | $ | 1,078,000 | $ | 12,093,000 | $ | 2,258,000 | ||||||||||
Income attributable to common stockholders |
$ | 1,262,000 | $ | 1,078,000 | $ | 12,093,000 | $ | 2,258,000 | ||||||||||
Income per common share: |
||||||||||||||||||
Basic |
$ | 0.14 | $ | 0.12 | $ | 1.30 | $ | 0.25 | ||||||||||
Diluted |
$ | 0.11 | $ | 0.10 | $ | 1.06 | $ | 0.23 | ||||||||||
Weighted average number of common shares
outstanding: |
||||||||||||||||||
Basic |
9,279,000 | 9,056,000 | 9,272,000 | 8,977,000 | ||||||||||||||
Diluted |
11,493,000 | 11,059,000 | 11,444,000 | 9,977,000 | ||||||||||||||
See notes to condensed consolidated financial statements.
3
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2002 | 2001 | |||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 12,093,000 | $ | 2,258,000 | ||||||||
Adjustments to reconcile net income to net cash provided by
(used in) operating activities: |
||||||||||||
Depreciation |
1,928,000 | 1,723,000 | ||||||||||
Amortization, including loan costs |
400,000 | 526,000 | ||||||||||
Provision for doubtful accounts |
1,839,000 | 2,183,000 | ||||||||||
Asset impairment charges |
125,000 | — | ||||||||||
Loss on sale of assets |
17,000 | — | ||||||||||
Change in operating assets and liabilities: |
||||||||||||
Accounts receivable |
(1,702,000 | ) | (5,819,000 | ) | ||||||||
Other current assets |
371,000 | (829,000 | ) | |||||||||
Deferred tax assets |
(6,708,000 | ) | — | |||||||||
Accounts payable |
(367,000 | ) | (2,146,000 | ) | ||||||||
Accrued and other liabilities |
1,585,000 | 2,851,000 | ||||||||||
Amounts due to third-party contractual agencies |
(731,000 | ) | (1,890,000 | ) | ||||||||
Total adjustments |
(3,243,000 | ) | (3,401,000 | ) | ||||||||
Net cash provided by (used in) operating activities |
8,850,000 | (1,143,000 | ) | |||||||||
Cash flows from investing activities: |
||||||||||||
Proceeds from the sale of assets |
159,000 | 472,000 | ||||||||||
Expenditures for property and equipment |
(2,164,000 | ) | (1,826,000 | ) | ||||||||
Cash held in trust |
— | 30,000 | ||||||||||
Net cash used in investing activities |
(2,005,000 | ) | (1,324,000 | ) | ||||||||
Cash flows from financing activities: |
||||||||||||
Loan costs |
(82,000 | ) | (41,000 | ) | ||||||||
Proceeds from issuance of debt and warrants |
1,528,000 | 4,705,000 | ||||||||||
Payments on debt |
(7,521,000 | ) | (2,401,000 | ) | ||||||||
Net proceeds from exercise of options and stock purchases |
99,000 | 26,000 | ||||||||||
Registration costs |
(13,000 | ) | — | |||||||||
Net cash (used in) provided by financing activities |
(5,989,000 | ) | 2,289,000 | |||||||||
Net increase (decrease) in cash and cash equivalents |
856,000 | (178,000 | ) | |||||||||
Cash and cash equivalents at beginning of period |
752,000 | 1,539,000 | ||||||||||
Cash and cash equivalents at end of period |
$ | 1,608,000 | $ | 1,361,000 | ||||||||
Cash paid during the period for: |
||||||||||||
Interest |
$ | 1,446,000 | $ | 2,249,000 | ||||||||
Income taxes |
$ | 443,000 | $ | 417,000 | ||||||||
See notes to condensed consolidated financial statements.
4
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTE 1. BASIS OF PRESENTATION
Ramsay Youth Services, Inc. (the Company) is a provider and manager of mental health, substance abuse and behavioral health programs and services in residential and non-residential settings in Alabama, Florida, Georgia, Hawaii, Missouri, Michigan, Nevada, North Carolina, South Carolina, Texas, Utah and the Commonwealth of Puerto Rico.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the interim information are, unless otherwise discussed in this report, of a normal recurring nature and have been included. The Company’s business is seasonal in nature and subject to general economic conditions and other factors. Accordingly, operating results for the quarter and nine months ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year. The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates include valuation reserves for accounts receivable, estimates of revenue to be received from government and other contract reimbursement programs, self-insurance reserves, and estimates related to allocating purchase price to assets and liabilities for prior or future acquisitions. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.
NOTE 2. ASSET SALES
On May 15, 2001, the Company sold the Palm Bay facility for $2,300,000. Proceeds from the sale included a $500,000 cash payment at closing and a $1,800,000, 8% promissory note, due and payable on June 30, 2003. During the year ended December 31, 2001, the Company agreed to accept a discount of $130,000 for the full payment of the promissory note and accrued interest, however, the borrower was unable to close the transaction by the agreed upon date. As a result, the Company does not expect to receive full payment for the promissory note until the original maturity date of June 30, 2003.
NOTE 3. TRANSACTIONS WITH AFFILIATES
In September 2002, the Company entered into a lease agreement for a 110-bed facility in Macon, Georgia (the “Macon Facility”) with a corporate affiliate of Mr. Paul J. Ramsay, Chairman of the Board of the Company and beneficial owner of approximately 60% of our outstanding common stock. The lease has a primary term of five years and two successive five year renewal options. The lease payments are approximately $480,000 per annum and at each renewal option are subject to adjustments based on the change in the Consumer Price Index during the preceding period. In accordance with the terms of the lease, the Company is responsible for all costs of ownership, including taxes, insurance, maintenance and repairs. In addition, the Company has the option to purchase the facility at any time for an amount equal to the aggregate cost of the facility (as defined in the lease agreement) adjusted for the increase in the Consumer Price Index between the commencement of the lease and the purchase date.
5
RAYMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. LONG-TERM DEBT
The Company’s long-term debt is as follows:
| September 30, | December 31, | |||||||
| 2002 | 2001 | |||||||
Variable rate Term Loan, due October 30, 2003 |
$ | 6,946,000 | $ | 8,134,000 | ||||
Revolver, due October 30, 2003 |
4,178,000 | 7,503,000 | ||||||
Acquisition Loan, due October 30, 2003 |
365,000 | 1,849,000 | ||||||
Subordinated Note (net of discount of
$303,000), due January 24, 2007 |
4,697,000 | 4,660,000 | ||||||
Subordinated Note (net of discount of
$315,000), due January 24, 2007 |
4,685,000 | 4,640,000 | ||||||
Other |
97,000 | 92,000 | ||||||
| 20,968,000 | 26,878,000 | |||||||
Less current portion |
3,899,000 | 3,372,000 | ||||||
| $ | 17,069,000 | $ | 23,506,000 | |||||
The Company’s amended senior credit facility (the “Senior Credit Facility”) consists of a term loan (the “Term Loan”) payable in monthly installments ranging from $83,000 to $302,000 with a final installment of $3,600,000 due on October 30, 2003 and a revolving credit facility (the “Revolver”) for an amount up to the lesser of $15,000,000 or the borrowing base of the Company’s receivables (as defined in the agreement).
On September 6, 2002, the Company’s senior credit facility and subordinated debt was amended to consent to a commercial lease for the Macon Facility between the Company and a corporate affiliate of Mr. Paul J. Ramsay.
During the twelve months ended December 31, 2001, the Company exceeded the capital expenditure limitation in the Senior Credit Facility. On February 25, 2002, the Company’s lender agreed to amend the Senior Credit Facility, retroactive to December 31, 2001, to provide for among other items: (i) an increase in the permitted capital expenditures, (ii) a $3.0 million increase in the revolving credit loan commitment, and (iii) a $1.5 million additional advance on the term loan. At September 30, 2002, the Company was in compliance with all covenants stipulated in the Senior Credit Facility.
On January 25, 2000 and June 19, 2000, the Company entered into subordinated note and warrant purchase agreements with two unrelated financial institutions for an aggregate principal amount of $5.0 million each (the “Subordinated Notes”). The Subordinated Notes permit each of the financial institutions to exercise, under certain conditions, up to 475,000 warrants, which are convertible into the Company’s common stock. Borrowings under the Subordinated Notes bear interest at a rate of 12.5% per annum. The interest is payable quarterly, and the principal balance and any unpaid interest is due January 24, 2007. The aggregate value of the warrants at the time of issuance was $844,000. On August 17, 2001, one of the financial institutions exercised its warrant purchase agreement and converted 475,000 warrants into 294,597 shares of common stock utilizing the cashless exercise provision outlined in the warrant agreement.
6
RAYMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
| Quarter Ended | Nine Months Ended | ||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||