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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30,DECEMBER 31, 1997
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 NO. 1-6639
MAGELLAN HEALTH SERVICES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 58-1076937
(State or other jurisdiction of (I.R.S. Employer
of Identification No.)
incorporation or organization) Identification No.)
3414 PEACHTREE ROAD, NE, SUITE 1400
ATLANTA, GEORGIA 30326
(Address of principal executive offices)
(Zip Code)
(404) 841-9200
(Registrant's telephone number, including area code)
SEE TABLE OF ADDITIONAL REGISTRANTS BELOW.
------------------------
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No____No ___
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes _X_ No_________No ___
The number of shares of the Registrant's Common Stock outstanding as of
JulyJanuary 31, 1997,1998, was 28,970,003.30,543,065.
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ADDITIONAL REGISTRANTS(1)
STATE OR OTHER
JURISDICTION
OF I.R.S. ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S.INCORPORATION EMPLOYER AND TELEPHONE NUMBER JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS OR IDENTIFICATION AREA CODE, OF REGISTRANT'S
CHARTER OR ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
- ------------------------------------- ------------------------------------------------------------------ -------------- --------------------------------------------------- ------------------------------
Allied Specialty Care Services, Inc. Florida 58-1761155 3106 Commerce Pkwy.
Miramar, FL 33025
(800) 789-4618
Behavioral HeathHealth Systems of Indiana, Inc................................Inc. Indiana 35-1990127 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Behavioral Healthcare Solutions, Inc. Delaware 87-0552566 10150 S. Centennial Pkwy.
Sandy. UT 84070
(801) 256-7300
Beltway Community Hospital, Inc......Inc. Texas 58-1324281 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Blue Grass Physician Management
Group, Inc......................... Kentucky 66-1294402 3414 Peachtree Rd., N.E.
Management Group, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
C.A.C.O. Services, Inc...............Inc. Ohio 58-1751511 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
CCM, Inc.............................Inc. Nevada 58-1662418 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
CMCI, Inc............................Inc. Nevada 88-0224620 1061 East Flamingo Road
Suite One
Las Vegas, NV 89119
(702) 737-0282
CMFC, Inc............................Inc. Nevada 88-0215629 1061 East Flamingo Road
Suite One
Las Vegas, NV 89119
(702) 737-0282
CMSF, Inc............................ Florida 58-1324269CPS Associates, Inc. Virginia 58-1761039 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
CPS Associates, Inc.................. Virginia 58-1761039Charter Advantage, LLC Delaware 58-2292977 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
i
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Alvarado Behavioral Health System, Inc........................Inc. California 58-1394959 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Asheville Behavioral Health
System, Inc........................ North Carolina 58-2097827 3414 Peachtree Rd., N.E.
Health System, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter Arbor Indy Behavioral Health System, LLC................. Delaware 58-2265776 3414 Peachtree Rd., N.E.
Health System, LLC Suite 1400
Atlanta, GA 30326
(404) 841-9200
i
ADDITIONAL REGISTRANTS(1)
STATE OR OTHER
JURISDICTION
OF I.R.S. ADDRESS INCLUDING ZIP CODE,
INCORPORATION EMPLOYER AND TELEPHONE NUMBER INCLUDING
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS OR IDENTIFICATION AREA CODE, OF REGISTRANT'S
CHARTER ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
- ------------------------------------------------ -------------- -------------- ------------------------------
Charter Augusta Behavioral Health
System, Inc........................ Georgia 58-1615676 3414 Peachtree Rd., N.E.
Health System, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Bay Harbor Behavioral Health
System, Inc........................ Florida 58-1640244 3414 Peachtree Rd., N.E.
Health System, Inc. Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
The Charter Beacon Behavioral Health
System, LLC........................ Delaware 35-1994155 3414 Peachtree Rd., N.E.
Health System, LLC Suite 1400
Atlanta, GAGeorgia 30326
(404) 841-9200
Charter Behavioral Corporation....... NevadaCorporation Delaware 91-1819015 1061 E. Flamingo RoadRd.
Suite One
Las Vegas, NV 89119
(702) 737-0282
Charter Behavioral Health System at Fair Oaks, Inc..................... New Jersey 58-2097832 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GAGeorgia 30326
(404) 841-9200
ii
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Behavioral Health System at
Hidden Brook, Inc.................. Maryland 52-1866212 3414 Peachtree Rd., N.E.
at Hidden Brook, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System at Los Altos, Inc..................... California 33-0606642 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System at Manatee Adolescent Treatment
Services, Inc...................... Florida 65-0519663 3414 Peachtree Rd., N.E.
Adolescent Treatment Services, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System at
Potomac Ridge, Inc................. Maryland 52-1866221 3414 Peachtree Rd., N.E.
at Potomac Ridge, Inc. Suite 1400
Atlanta, GA 3032633026
(404) 841-9200
Charter Behavioral Health Systems, Inc................................Inc. Delaware 58-2213642 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Athens, Inc........................Inc. Georgia 58-1513304 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Austin, Inc........................Inc. Texas 58-1440665 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Baywood, Inc....................... Texas 76-0430571 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
iii
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Behavioral Health System of
Bradenton, Inc..................... Florida 58-1527678 3414 Peachtree Rd., N.E.Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Bradenton, Florida 58-1527678 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
ii
ADDITIONAL REGISTRANTS(1)
STATE OR OTHER
JURISDICTION
OF I.R.S. ADDRESS INCLUDING ZIP CODE,
INCORPORATION EMPLOYER AND TELEPHONE NUMBER INCLUDING
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS OR IDENTIFICATION AREA CODE, OF REGISTRANT'S
CHARTER ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
- ------------------------------------------------ -------------- -------------- ------------------------------
Charter Behavioral Health System of Central Georgia, Inc............... Georgia 58-1408670 3414 Peachtree Rd., N.E.
Georgia, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavorial Health System of Central Virginia Inc.............. Virginia 54-1765921 3414 Peachtree Rd., N.E.
Virginia, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Charleston, Inc.................... South Carolina 58-1761157 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Charlottesville, Inc............... Virginia 58-1616917 3414 Peachtree Rd., N.E.
of Charlottesville, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Chicago, Inc....................... Illinois 58-1315760 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Chula Vista, Inc................... California 58-1473063 3414 Peachtree Rd., N.E.
of Chula Vista, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Columbia, Inc...................... Missouri 61-1009977 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
iv
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Behavioral Health System of Corpus Christi, Inc................ Texas 58-1513305 3414 Peachtree Rd., N.E.
Christi, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Dallas, Inc........................Inc. Texas 58-1513306 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Delmarva, Inc...................... Maryland 52-1866214 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter Behavioral Health System of Evansville, LLC................. Delaware 35-1994080 3414 Peachtree Rd., N.E.
of Evansville, LLC Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Fort Worth, Inc.................... Texas 58-1643151 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Jackson, Inc....................... Mississippi 58-1616919 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Jacksonville, Inc.................. Florida 58-1483015 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter Behavioral Health System
of Jefferson, LLC.................. Delaware 35-1994087 3414 Peachtree Rd., N.E.Jacksonville, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
viii
ADDITIONAL REGISTRANTS(1)
STATE OR OTHER
JURISDICTION
OF I.R.S. ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S.INCORPORATION EMPLOYER AND TELEPHONE NUMBER JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS OR IDENTIFICATION AREA CODE, OF REGISTRANT'S
CHARTER OR ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
- ------------------------------------- ------------------------------------------------------------------ -------------- --------------------------------------------------- ------------------------------
The Charter Behavioral Health System Delaware 35-1994087 3414 Peachtree Rd., N.E.
of Kansas City, Inc...................Jefferson, LLC Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System Kansas 58-1603154 3414 Peachtree Rd., N.E.
of Kansas City, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Lafayette, Inc..................... Louisiana 72-0686492 302 Dulles Drive
Lafayette, LA 70506
(318) 233-9024
Charter Behavioral Health System of
Lake Charles, Inc.................. Louisiana 62-1152811 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System.....System of Lake Louisiana 62-1152811 3414 Peachtree Rd., N.E.
Charles, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Maryland, Inc. Maryland 52-2026699 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter Behavioral Health System of Michigan City, LLC.............. Delaware 35-1994736 3414 Peachtree Rd., N.E.
of Michigan City, LLC Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Mississippi, Inc................... Mississippi 58-2138622 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Mobile, Inc........................Inc. Alabama 58-1569921 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Nashua, Inc........................Inc. New Hampshire 02-0470752 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
vi
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Behavioral Health System of Nevada, Inc........................Inc. Nevada 58-1321317 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
New Mexico, Inc.................... New Mexico 58-1479480 5901 Zuni Road, SE
of New Mexico, Inc. Albuquerque, NM 87108
(505) 265-8800
Charter Behavioral Health System of North Carolina, Inc................ North Carolina 56-1908581 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Northern California, Inc........... California 58-1857277 3414 Peachtree Rd., N.E.
California, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Northwest Arkansas Inc............ Arkansas 58-1449455 3414 Peachtree Rd., N.E.
Arkansas, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter Behavioral Health System of Northwest Indiana, LLC.......... Delaware 35-1994154 3414 Peachtree Rd., N.E.
Northwest Indiana, LLC Suite 1400
Atlanta, GA 30326
(404) 841-9200
iv
ADDITIONAL REGISTRANTS(1)
STATE OR OTHER
JURISDICTION
OF I.R.S. ADDRESS INCLUDING ZIP CODE,
INCORPORATION EMPLOYER AND TELEPHONE NUMBER INCLUDING
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS OR IDENTIFICATION AREA CODE, OF REGISTRANT'S
CHARTER ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
- ------------------------------------------------ -------------- -------------- ------------------------------
Charter Behavioral Health System of Paducah, Inc....................... Kentucky 61-1006115 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health of Puerto Rico, Inc..........................Inc. Georgia 66-0523678 Caso Bldg., Suite 1504
1225 Ponce de Leon Avenue
Santurce, PR 00907
vii
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Behavioral Health System of San Jose, Inc...................... California 58-1747020 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Savannah, Inc...................... Georgia 58-1750583 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Texarkana, Inc..................... Arkansas 71-0752815 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
the Inland Empire, Inc............. California 95-2685883 3414 Peachtree Rd., N.E.
of the Inland Empire, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Toledo, Inc........................Inc. Ohio 58-1731068 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Tucson, Inc........................Inc. Arizona 86-0757462 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Visalia, Inc....................... California 33-0606644 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of Waverly, Inc....................... Minnesota 41-1775626 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System North Carolina 56-1050502 3414 Peachtree Rd., N.E.
of Winston-Salem, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System California 33-0606646 3414 Peachtree Rd., N.E.
of Yorba Linda, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health Systems of Atlanta, Georgia 58-1900736 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Talbott Behavioral Health System, Inc. Georgia 58-0979827 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
viiiv
ADDITIONAL REGISTRANTS(1)
STATE OR OTHER
JURISDICTION
OF I.R.S. ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S.INCORPORATION EMPLOYER AND TELEPHONE NUMBER JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS OR IDENTIFICATION AREA CODE, OF REGISTRANT'S
CHARTER OR ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
- ------------------------------------- ------------------------------------------------------------------ -------------- --------------------------------------------------- ------------------------------
Charter Behavioral Health System of
Winston-Salem, Inc................. North Carolina 56-1050502 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Yorba Linda, Inc................... California 33-0606646 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health Systems of
Atlanta, Inc....................... Georgia 58-1900736 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Talbott Behavioral Health
System, Inc........................ Georgia 58-0979827 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter By-The-Sea Behavioral Health System, Inc........................ Georgia 58-1351301 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Call Center, Inc.............Inc. Georgia 58-2318455 2151 Peachford RoadRd.
Atlanta, GA 30338
(888) 222-4302
Charter Call Center of Texas, Inc....Inc. Texas 75-2709908 920 South Main StreetSt.
Suite 250
Grapevine, TX 76051
(817) 481-9998
Charter Canyon Behavioral Health System, Inc........................Inc. Utah 58-1557925 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Canyon Springs Behavioral Health System, Inc................. California 33-0606640 3414 Peachtree Rd., N.E.
Health System, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
ix
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Centennial Peaks Behavioral
Health System, Inc................. Colorado 58-1761037 3414 Peachtree Rd., N.E.
Health System, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Community Hospital, Inc......Inc. California 58-1398708 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Contract Services, Inc.......Inc. Georgia 58-2100699 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Cove Forge Behavioral Health System, Inc........................ Pennsylvania 25-1730464 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Fairmount Behavioral Health System, Inc........................Inc. Pennsylvania 58-1616921 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Fenwick Hall Behavioral Health System, Inc................. South Carolina 57-0995766 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Financial Offices, Inc.......Inc. Georgia 58-1527680 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Forest Behavioral Health System, Inc........................Inc. Louisiana 58-1508454 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Franchise Services, LLC...... Delaware 58-2292977Grapevine Behavioral Health System, Inc. Texas 58-1818492 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
xvi
ADDITIONAL REGISTRANTS(1)
STATE OR OTHER
JURISDICTION
OF I.R.S. ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S.INCORPORATION EMPLOYER AND TELEPHONE NUMBER JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS OR IDENTIFICATION AREA CODE, OF REGISTRANT'S
CHARTER OR ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
- ------------------------------------- ------------------------------------------------------------------ -------------- --------------------------------------------------- ------------------------------
Charter Grapevine Behavioral Health
System, Inc........................ Texas 58-1818492 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Greensboro Behavioral Health System, Inc........................ North Carolina 58-1335184 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Health Management of Texas, Inc................................Inc. Texas 58-2025056 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Columbus, Inc....Inc. Ohio 58-1598899 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Denver, Inc......Inc. Colorado 58-1662413 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Ft. Collins, Inc................................Inc. Colorado 58-1768534 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Laredo, Inc. Texas 58-1491620 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Laredo,Miami, Inc. Texas 58-1491620 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
xi
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Hospital of
Miami, Inc......................... Florida 61-1061599 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Mobile, Inc........................Inc. Alabama 58-1318870 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Santa Teresa, Inc................................Inc. New Mexico 58-1584861 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of St. Louis, Inc................................Inc. Missouri 58-1583760 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Torrance, Inc....Inc. California 58-1402481 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Indiana BHS Holding, Inc.....Inc. Indiana 58-2247985 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter Indianapolis Behavioral Health
System, LLC........................ Delaware 35-1994923 3414 Peachtree Rd., N.E.
Health System, LLC Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter Lafayette Behavioral Health System, LLC................. Delaware 35-1994151 3414 Peachtree Rd., N.E.
Health System, LLC Suite 1400
Atlanta, GA 30326
(404) 841-9200
xiivii
ADDITIONAL REGISTRANTS(1)
STATE OR OTHER
JURISDICTION
OF I.R.S. ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S.INCORPORATION EMPLOYER AND TELEPHONE NUMBER JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS OR IDENTIFICATION AREA CODE, OF REGISTRANT'S
CHARTER OR ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
- ------------------------------------- ------------------------------------------------------------------ -------------- --------------------------------------------------- ------------------------------
Charter Lakehurst Behavioral Health System, Inc........................Inc. New Jersey 22-3286879 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Lakeside Behavioral Health Network, Inc.......................Inc. Tennessee Applied for[Applied for] 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Lakeside Behavioral Health System, Inc........................Inc. Tennessee 62-0892645 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Laurel Heights Behavioral Health
System, Inc........................ Georgia 58-1558212 3414 Peachtree Rd., N.E.
Health System, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Linden Oaks Behavioral Health System, Inc........................ Illinois 36-3943776 852 West Street
Inc. Naperville, IL 60540
(708) 305-5500
Charter Little Rock Behavioral Health System, Inc........................ Arkansas 58-1747019 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Louisiana Behavioral Health System, Inc........................Inc. Louisiana 72-1319231 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Louisville Behavioral Health System, Inc........................ Kentucky 58-1517503 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
xiii
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Managed Care Services, LLC...LLC Georgia 58-2324879 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Meadows Behavioral Health System, Inc........................Inc. Maryland 52-1866216 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical--California, Inc................................Inc. Georgia 58-1357345 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical--Clayton County, Inc................................Inc. Georgia 58-1579404 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical--Cleveland, Inc................................Inc. Texas 58-1448733 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical--Long Beach, Inc.....Inc. California 58-1366604 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
viii
ADDITIONAL REGISTRANTS(1)
STATE OR OTHER
JURISDICTION
OF I.R.S. ADDRESS INCLUDING ZIP CODE,
INCORPORATION EMPLOYER AND TELEPHONE NUMBER INCLUDING
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS OR IDENTIFICATION AREA CODE, OF REGISTRANT'S
CHARTER ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
- ------------------------------------------------ -------------- -------------- ------------------------------
Charter Medical--New York, Inc................................Inc. New York 58-1761153 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical (Cayman Islands) Ltd. Cayman Islands, 58-1841857 Caledonian Bank & Trust
Ltd................................Islands, BWI Swiss Bank Building
Caledonian House
Georgetown-Grand Cayman
Cayman Islands
(809) 949-0050
xiv
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Medical Information Services, Inc................................Inc. Georgia 58-1530236 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical International, & Trust Inc. Cayman Islands, N/A Caledonian Bank
& Trust
Inc................................Islands, BWI Swiss Bank Building
Caledonian House
Georgetown-Grand Cayman
Cayman Islands
(809) 949-0050
Charter Medical International, S.A., Inc................................Inc. Nevada 58-1605110 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Managed Care Sales and Services, Inc......................Inc. Georgia 58-1195352 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical of East Valley, Inc................................Inc. Arizona 58-1643158 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical of England Limited...Limited United Kingdom N/A 111 Kings Road
Box 323
London SW3 4PB
London, England
44-71-351-1272
Charter Medical of Florida,
Inc................................ Florida 58-2100703North Phoenix, Inc. Arizona 58-1643154 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical of North Phoenix,
Inc................................ Arizona 58-1643154 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
xv
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Medical of Puerto Rico, Inc. Commonwealth of 58-1208667 Caso Building, Suite 1504
Inc................................of Puerto Rico 1225 Ponce De Leon Avenue
Santurce, P.R. 00907
(809) 723-8666
Charter Milwaukee Behavioral Health System, Inc........................Inc. Wisconsin 58-1790135 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Mission Viejo Behavioral Health System, Inc................. California 58-1761156 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter MOB of Charlottesville, Inc................................Inc. Virginia 58-1761158 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
ix
ADDITIONAL REGISTRANTS(1)
STATE OR OTHER
JURISDICTION
OF I.R.S. ADDRESS INCLUDING ZIP CODE,
INCORPORATION EMPLOYER AND TELEPHONE NUMBER INCLUDING
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS OR IDENTIFICATION AREA CODE, OF REGISTRANT'S
CHARTER ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
- ------------------------------------------------ -------------- -------------- ------------------------------
Charter North Behavioral Health System, Inc........................Inc. Alaska 58-1474550 2530 DeBarr Road
Anchorage, AK 99508-2996
(907) 258-7575
Charter Northbrooke Behavioral Health System, Inc........................ Wisconsin 39-1784461 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-920046000 W. Schroeder Drive
Inc. Brown Deer, WI 53223
(414) 355-2273
Charter North Counseling Center, Inc................................Inc. Alaska 58-2067832 2530 DeBarr Road
Anchorage, AK 99508-2996
(907) 258-7575
Charter Northridge Behavioral Health System, Inc........................ North Carolina 58-1463919 400 Newton Road
Inc. Raleigh, NC 27615
(919) 847-0008
Charter Oak Behavioral Health System, Inc................................Inc. California 58-1334120 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GAGeorgia 30326
(404) 841-9200
xvi
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter of Alabama, Inc..............Inc. Alabama 63-0649546 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Palms Behavioral Health System, Inc........................Inc. Texas 58-1416537 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Peachford Behavioral Health System, Inc........................Inc. Georgia 58-1086165 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Pines Behavioral Health System, Inc........................Inc. North Carolina 58-1462214 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Plains Behavioral Health System, Inc........................Inc. Texas 58-1462211 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter-Provo School, Inc............Inc. Utah 58-1647690 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Real Behavioral Health System, Inc........................Inc. Texas 58-1485897 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Ridge Behavioral Health System, Inc........................Inc. Kentucky 58-1393063 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Rivers Behavioral Health System, Inc........................Inc. South Carolina 58-1408623 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Rockford Behavioral Health System, Inc. Delaware 1-0374617 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
xviix
ADDITIONAL REGISTRANTS(1)
STATE OR OTHER
JURISDICTION
OF I.R.S. ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S.INCORPORATION EMPLOYER AND TELEPHONE NUMBER JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS OR IDENTIFICATION AREA CODE, OF REGISTRANT'S
CHARTER OR ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
- ------------------------------------- ------------------------------------------------------------------ -------------- --------------------------------------------------- ------------------------------
Charter Rockford Behavioral Health
System, Inc........................ Delaware 51-0374617 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter San Diego Behavioral Health System, Inc........................Inc. California 58-1669160 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Sioux Falls Behavioral Health System, Inc........................ South Dakota 58-1674278 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-92002812 South Louise Avenue
Inc. Sioux Falls, SD 57106
(605) 361-8111
The Charter South Bend Behavioral
Health System,
LLC................................ Delaware 35-1994307 3414 Peachtree Rd., N.E.
Health System, LLC Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Springs Behavioral Health System, Inc........................Inc. Florida 58-1517461 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Springwood Behavioral Health System, Inc........................ Virginia 58-2097829 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Suburban Hospital of Mesquite, Inc......................Inc. Texas 75-1161721 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter System, LLC..................LLC Nevada 91-1819015 1061 E. Flamingo RoadRd.
Suite One
Las Vegas, NV 89119
(702) 737-0282
xviii
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
The Charter Terre Haute Behavioral
Health System,
LLC................................ Delaware 35-1994308 3414 Peachtree Rd., N.E.
Health System, LLC Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Thousand Oaks Behavioral Health System,
Inc................................ California 58-1731069 3414 Peachtree Rd., N.E.
Health System, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Westbrook Behavioral Health System, Inc........................Inc. Virginia 54-0858777 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter White Oak Behavioral Health System, Inc........................Inc. Maryland 52-1866223 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Wichita Behavioral Health System, Inc........................Inc. Kansas 58-1634296 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Woods Behavioral Health System, Inc........................Inc. Alabama 58-1330526 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Correctional Behavioral Solutions, Inc................................Inc. Delaware 58-2180940 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Correctional Behavioral Solutions of
Indiana, Inc....................... Indiana 35-1978792 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
xixxi
ADDITIONAL REGISTRANTS(1)
STATE OR OTHER
JURISDICTION
OF I.R.S. ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S.INCORPORATION EMPLOYER AND TELEPHONE NUMBER JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS OR IDENTIFICATION AREA CODE, OF REGISTRANT'S
CHARTER OR ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
- ------------------------------------- ------------------------------------------------------------------ -------------- --------------------------------------------------- ------------------------------
Correctional Behavioral Solutions of Indiana, Indiana 35-1978792 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Correctional Behavioral Solutions of New Jersey, Inc.................... New Jersey 22-3436964 3000 Atrium Way
Inc. Suite 410
Mount Laurel, NJ
(609) 235-2339
Correctional Behavioral Solutions of Ohio, Inc..........................Inc. Ohio 34-1826431 Allen Correctional Institute
2338 North West Street
Lima, OH 45801
(419) 224-8000
Desert Springs Hospital, Inc.........Inc. Nevada 88-0117696 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Employee Assistance Services, Inc....Inc. Georgia 58-1501282 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
First Step Independent Living Program, Inc. California 95-3574845 1174 Nevada St.
Redlands, CA 92374
(909) 307-6584
Florida Health Facilities, Inc.......Inc. Florida 58-1860493 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Gulf Coast EAP Services, Inc.........Inc. Alabama 58-2101394 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Horrigan Cole Enterprises, Inc. California 33-0152162 1174 Nevada St.
Redlands, CA 92374
(909) 307-6584
Hospital Investors, Inc..............Inc. Georgia 58-1182191 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Human Affairs of Alaska, Inc. Alaska 92-0155098 4300 "B' St.
Anchorage, AK 99503
(907) 562-0794
Human Affairs International, Incorporated Utah 87-0300539 10150 S. Centennial Pkwy.
Sandy, UT 84070
(801) 256-7300
Illinois Mentor, Inc.................Inc. Illinois 36-3643670 313 Congress St.
Boston, MA 02210
(617) 790-4800
Magellan Executive Corporation........................Corporation Georgia 58-2310891 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Magellan Public Solutions, Inc.......Inc. Delaware 58-2227841 222 Berkley StreetBerkeley St.
Boston, MA 02117
(617) 437-6400
xxxii
ADDITIONAL REGISTRANTS(1)
STATE OR OTHER
JURISDICTION
OF I.R.S. ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S.INCORPORATION EMPLOYER AND TELEPHONE NUMBER JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS OR IDENTIFICATION AREA CODE, OF REGISTRANT'S
CHARTER OR ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
- ------------------------------------- ------------------------------------------------------------------ -------------- --------------------------------------------------- ------------------------------
Mandarin Meadows, Inc................ Florida 58-1761155 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Magellan Public Network, Inc.........Inc. Delaware 51-0374654 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Magellan Public Solutions of Ohio, Inc................................Inc. Ohio Applied for[Applied for] 222 Berkley StreetBerkeley St.
Boston, MA 02117
(617) 437-6400
Massachusetts Mentor, Inc............Inc. Massachusetts 04-2799071 313 Congress St.
Boston, MA 02210
(617) 790-4800
Metroplex Behavioral Healthcare Services, Inc......................Inc. Texas 58-2138596 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
National Mentor, Inc.................Inc. Delaware 04-3250732 313 Congress St.
Boston, MA 02210
(617) 790-4800
National Mentor Healthcare, Inc................................Inc. Massachusetts 04-2893910 313 Congress St.
Boston, MA 02210
(617) 790-4800
NEPA--Massachusetts, Inc.............Inc. Massachusetts 58-2116751 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
NEPA--New Hampshire, Inc.............Inc. New Hampshire 58-2116398 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Nevada Behavioral Services,
Inc................................ Nevada Applied forNew Allied, Inc. Florida 58-1324269 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
xxi
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Ohio Mentor, Inc.....................Inc. Ohio 31-1098345 313 Congress St.
Boston, MA 02210
(617) 790-4800
Pacific-Charter Medical, Inc.........Inc. California 58-1336537 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
South Carolina Mentor, Inc...........Inc. South Carolina 57-0782160 313 Congress St.
Boston, MA 02210
(617) 790-4800
Southeast Behavioral Systems, Inc....Inc. Georgia 58-2100700 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Schizophrenia Treatment and Rehabilitation, Inc................Inc. Georgia 58-1672912 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Sistemas De Terapia Respiratoria, S.A., Inc..........................Inc. Georgia 58-1181077 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
xiii
ADDITIONAL REGISTRANTS(1)
STATE OR OTHER
JURISDICTION
OF I.R.S. ADDRESS INCLUDING ZIP CODE,
INCORPORATION EMPLOYER AND TELEPHONE NUMBER INCLUDING
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS OR IDENTIFICATION AREA CODE, OF REGISTRANT'S
CHARTER ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
- ------------------------------------------------ -------------- -------------- ------------------------------
Western Behavioral Systems, Inc.......................Inc. California 58-1662416 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Wisconsin Mentor, Inc................Inc. Wisconsin 39-1840054 313 Congress St.
Boston, MA 00210
(617) 790-4800
- ------------------------
(1) The Additional Registrants listed are wholly-owned subsidiaries of the
Registrant and are guarantors of the Registrant's 11 1/4% Series A Senior
Subordinated Notes due 2004. The Additional Registrants have been
conditionally exempted, pursuant to Section 12(h) of the Securities Exchange
Act of 1934, from filing reports under Section 13 of the Securities Exchange
Act of 1934.
xxiixiv
FORM 10-Q
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
-------------
PART I--FINANCIAL INFORMATION:
Condensed Consolidated Balance Sheets--
September 30, 19961997 and June 30, 1997................................................................December 31, 1997........................................................ 1
Condensed Consolidated Statements of Operations--
For the Three Months and the Nine Months ended June 30,December 31, 1996 and 1997............................... 21997........................................... 3
Condensed Consolidated Statements of Cash Flows--
For the NineThree Months ended June 30,December 31, 1996 and 1997.................................................... 31997........................................... 4
Notes to Condensed Consolidated Financial Statements.................................................. 4Statements.............................................. 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 19Operations............................................................. 17
PART II--OTHER INFORMATION:
Item 1.--Legal Proceedings............................................................................ 27
Item 4.--Submission of Matters to a Vote of Security Holders.......................................... 27Proceedings........................................................................ 25
Item 6.--Exhibits and Reports on Form 8-K.............................................................8-K......................................................... 25
Signatures........................................................................................ 27
Signatures............................................................................................ 30
MAGELLAN HEALTH SERVICES, INC.
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
PART I--FINANCIAL INFORMATION
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)THOUSANDS)
SEPTEMBER 30, JUNE 30,
ASSETS 1996DECEMBER 31,
1997 1997
------------- ---------------------
ASSETS
Current Assets:
Cash and cash equivalents..............................................................equivalents......................................................... $ 120,945372,878 $ 326,243170,459
Accounts receivable, net............................................................... 189,878 151,620
Supplies............................................................................... 4,753 1,508net.......................................................... 107,998 140,219
Refundable income taxes................................................................ 1,323taxes........................................................... 2,466 --
Other current assets................................................................... 21,251 18,568assets.............................................................. 23,696 34,438
------------- ---------------------
Total Current Assets............................................................... 338,150 497,939Assets............................................................ 507,038 345,116
Assets restricted for settlement of unpaid claims
and other long-term liabilities................................................... 87,532 73,020
Property and Equipment:
Land................................................................................... 83,431 12,520equipment:
Land.............................................................................. 11,667 11,687
Buildings and improvements............................................................. 388,821 69,164
Equipment.............................................................................. 146,915 59,711improvements........................................................ 70,174 72,102
Equipment......................................................................... 63,719 74,319
------------- ---------
619,167 141,395------------
145,560 158,108
Accumulated depreciation............................................................... (126,053) (34,376)depreciation.......................................................... (37,038) (41,169)
------------- ---------
493,114 107,019------------
108,522 116,939
Construction in progress............................................................... 2,276 429progress.......................................................... 692 995
------------- ---------
495,390 107,448
Assets Restricted for Settlement of Unpaid Claims------------
Total property and Other Long-Term Liabilities........ 105,303 92,335equipment.................................................... 109,214 117,934
------------- ------------
Deferred income taxes.................................................................... -- 8,267taxes............................................................... 1,158 2,178
Investment in CBHS....................................................................... -- 7,101CBHS.................................................................. 16,878 5,390
Other Long-Term Assets................................................................... 30,755 26,209long-term assets.............................................................. 20,893 42,932
Goodwill, net............................................................................ 128,012 113,265net....................................................................... 114,234 242,968
Other Intangible Assets, net............................................................. 42,527 38,966intangible assets, net........................................................ 38,673 67,576
------------- ---------------------
$ 1,140,137895,620 $ 891,530897,114
------------- ---------------------
------------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable....................................................................... $ 78,966 $ 47,363
Accrued liabilities.................................................................... 189,599 167,969
Current maturities of long-term debt and
capital lease obligations............................................................ 5,751 3,592
------------- ---------
Total Current Liabilities.......................................................... 274,316 218,924
Long-Term Debt and Capital Lease Obligations............................................. 566,307 391,926
Deferred Income Taxes.................................................................... 12,368 --
Reserve for Unpaid Claims................................................................ 73,040 55,331
Deferred Credits and Other Long-Term Liabilities......................................... 39,769 21,842
Minority Interest........................................................................ 52,520 58,943
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock, without par value
Authorized--10,000 shares
Issued and outstanding--none......................................................... -- --
Common Stock, par value $0.25 per share
Authorized--80,000 shares
Issued and outstanding--33,007 shares at
September 30, 1996 and 33,311 shares at June 30, 1997.................................... 8,252 8,330
Other Stockholders' Equity:
Additional paid-in capital........................................................... 327,681 336,692
Accumulated deficit.................................................................. (129,457) (140,118)
Warrants outstanding................................................................. 54 25,050
Common Stock in Treasury, 4,424 shares at September 30, 1996 and June 30, 1997....... (82,731) (82,731)
Cumulative foreign currency adjustments.............................................. (1,982) (2,659)
------------- ---------
Stockholders' Equity............................................................... 121,817 144,564
------------- ---------
$ 1,140,137 $ 891,530
------------- ---------
------------- ---------------------
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these balance sheets.statements.
1
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
1997 1997
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................................. $ 45,346 $ 37,663
Accrued liabilities............................................................... 170,429 191,645
Income taxes payable.............................................................. -- 781
Current maturities of long-term debt and capital lease obligations................ 3,601 3,604
------------- ------------
Total Current Liabilities....................................................... 219,376 233,693
Long-term debt and capital lease obligations........................................ 391,693 391,550
Reserve for unpaid claims........................................................... 49,113 40,201
Deferred credits and other long-term liabilities.................................... 16,110 15,023
Minority interest................................................................... 61,078 64,785
Commitments and contingencies
Stockholders' Equity:
Preferred Stock, without par value
Authorized--10,000 shares
Issued and outstanding--none.................................................... -- --
Common Stock, par value $0.25 per share
Authorized--80,000 shares
Issued and outstanding--33,439 shares at September 30, 1997 and 33,543 shares at
December 31, 1997............................................................. 8,361 8,387
Other Stockholders' Equity
Additional paid-in capital...................................................... 340,645 338,961
Accumulated deficit............................................................. (129,955) (122,327)
Warrants outstanding............................................................ 25,050 25,050
Common Stock in Treasury, 4,424 shares at September 30, 1997 and 4,969 shares at
December 31, 1997............................................................. (82,731) (95,187)
Cumulative foreign currency adjustments......................................... (3,120) (3,022)
------------- ------------
Total stockholders' equity.................................................... 158,250 151,862
------------- ------------
$ 895,620 $ 897,114
------------- ------------
------------- ------------
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
2
MAGELLAN HEALTH SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS
FOR THE NINE MONTHS
ENDED
ENDED
JUNE 30, JUNE 30,DECEMBER 31,
---------------------- ------------------------
1996 1997
1996 1997
---------- ----------
---------- ------------
Net revenue....................................................revenue............................................................................ $ 346,379346,819 $ 324,921 $ 996,997 $ 1,021,662216,097
---------- ---------- ---------- ------------
Costs and expenses:
Salaries, suppliescost of care and other operating expenses.............. 274,536 263,915 780,880 830,248expenses.................................. 284,123 175,621
Bad debt expense............................................. 18,886 12,081 61,293 47,456expense..................................................................... 20,235 1,070
Depreciation and amortization................................ 12,886 12,044 36,186 38,231amortization........................................................ 13,099 6,969
Interest, net................................................ 13,065 12,602 35,459 39,324net........................................................................ 13,569 7,401
Stock option expense (credit)................................ (210) 1,781 1,204 3,214........................................................ 604 (3,959)
Equity in loss of CBHS.......................................CBHS............................................................... -- 399 -- 399
Loss on Crescent Transactions................................ -- 59,868 -- 59,868
Unusual items................................................ 33,959 (1,038) 33,959 35711,488
---------- ----------
---------- ------------
353,122 361,652 948,981 1,019,097331,630 198,590
---------- ----------
---------- ------------
Income (loss) before provision for income taxes,
minority interest and extraordinary items............................. (6,743) (36,731) 48,016 2,565item............................................. 15,189 17,507
Provision for (benefit from) income taxes...................... (2,698) (14,693) 19,674 1,025taxes............................................................. 6,075 7,003
---------- ----------
---------- ------------
Income (loss) before minority interest and extraordinary items........................................................ (4,045) (22,038) 28,342 1,540item................................. 9,114 10,504
Minority interest.............................................. 1,677 2,403 4,247 6,948interest...................................................................... 1,973 2,876
---------- ----------
---------- ------------
Income (loss) before extraordinary items....................... (5,722) (24,441) 24,095 (5,408)item....................................................... 7,141 7,628
Extraordinary items--lossesitem--loss on early extinguishmentsextinquishment
of debt (net of income tax benefit of $1,536 for the three months
ended June 30, 1997 and $3,503 for the nine months ended June
30, 1997)....................................................$1,967)........................................ (2,950) --
(2,303) -- (5,253)---------- ----------
Net income............................................................................. $ 4,191 $ 7,628
---------- ----------
---------- ------------
Net income (loss).............................................. $ (5,722) $ (26,744) $ 24,095 $ (10,661)
----------
---------- ---------- ------------
---------- ---------- ---------- ------------
Income (loss) per common share:
Income (loss) before extraordinary items..................... $ (0.18) $ (0.85) $ 0.79 $ (0.19)
Extraordinary losses on early extinguishments of debt........ -- (0.08) -- (0.18)
---------- ---------- ---------- ------------
Net income (loss).............................................. $ (0.18) $ (0.93) $ 0.79 $ (0.37)
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
Weighted averageAverage number of common shares outstanding........... 32,464 28,830 30,559 28,715
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
2
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
FOR THE NINE MONTHS
ENDED
JUNE 30,
----------------------
1996 1997outstanding--basic..................................... 28,589 28,969
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................................................... $ 24,095 $ (10,661)
---------- ----------
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization........................................................... 36,186 38,231
Non-cash portionAverage number of unusual items....................................................... 31,206 --
Equity in loss of CBHS.................................................................. -- 399
Loss on Crescent Transactions........................................................... -- 59,868
Stock option expense.................................................................... 1,204 3,214
Non-cash interest expense............................................................... 1,812 1,297
Gain on sale of assets.................................................................. (867) (5,747)
Extraordinary losses on early extinguishments of debt................................... -- 8,756
Cash flows from changes in assets and liabilities, net of effects from sales and
acquisitions of businesses:
Accounts receivable, net.............................................................. (3,201) 18,521
Other assets.......................................................................... 2,291 8,409
Accounts payable and other accrued liabilities........................................ (28,798) (67,540)
Reserve for unpaid claims............................................................. (14,051) (20,679)
Income taxes payable.................................................................. 11,514 (17,985)
Other liabilities..................................................................... (5,957) (17,400)
Minority interest, net of dividends paid.............................................. 4,868 7,498
Other................................................................................. 155 (965)common shares outstanding--diluted................................... 28,983 29,784
---------- ----------
Total adjustments................................................................... 36,362 15,877---------- ----------
Income per common share--basic:
Income before extraordinary item..................................................... $ 0.25 $ 0.26
---------- ----------
---------- ----------
Net cash provided by operating activities......................................... 60,457 5,216income........................................................................... $ 0.15 $ 0.26
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.................................................................... (24,617) (28,113)
Acquisitions and investments in businesses, net of cash acquired........................ (50,099) (28,840)
Decrease (increase) in assets restricted for settlement of unpaid claims................ (8,567) 12,551
Proceeds from sale of property and equipment to Crescent and CBHS, net of transaction
costs................................................................................. -- 384,041
Proceeds from sale of assets............................................................ 1,253 15,463---------- ----------
Income per common share--diluted:
Income before extraordinary item..................................................... $ 0.25 $ 0.26
---------- ----------
---------- ----------
Net cash provided by (used in) investing activities................................... (82,030) 355,102
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt, net of issuance costs................................... 68,125 203,643
Payments on debt and capital lease obligations.......................................... (84,492) (389,406)
Proceeds from issuance of common stock, net of issuance costs........................... 68,561 --
Proceeds from issuance of warrants...................................................... -- 25,000
Proceeds from exercise of stock options and warrants.................................... 2,147 5,743
Income tax payments made on behalf of stock optionees................................... (1,678) --
---------- ----------
Net cash provided by (used in) financing activities................................... 52,663 (155,020)
---------- ----------
Net increase in cash and cash equivalents................................................. 31,090 205,298
Cash and cash equivalents at beginning of period.......................................... 105,514 120,945
---------- ----------
Cash and cash equivalents at end of period................................................income........................................................................... $ 136,6040.14 $ 326,2430.26
---------- ----------
---------- ----------
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
3
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
FOR THE THREE MONTHS
ENDED
DECEMBER 31,
----------------------
1996 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................................................. $ 4,191 $ 7,628
---------- ----------
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization......................................................... 13,099 6,969
Equity in loss of CBHS................................................................ -- 11,488
Stock option expense (credit)......................................................... 604 (3,959)
Non-cash interest expense............................................................. 483 422
Gain on sale of assets................................................................ (493) --
Extraordinary loss on early extinguishment of debt.................................... 4,917 --
Cash flows from changes in assets and liabilities, net of effects from sales and
acquisitions of businesses:
Accounts receivable, net............................................................ (1,984) (16,304)
Other assets........................................................................ (4,109) (9,999)
Accounts payable and other accrued liabilities...................................... (32,046) (21,184)
Reserve for unpaid claims........................................................... (2,351) (9,256)
Income taxes payable and deferred income taxes...................................... 1,517 2,056
Other liabilities................................................................... (9,729) (1,623)
Minority interest, net of dividends paid............................................ 2,296 3,199
Other............................................................................... 216 (1,162)
---------- ----------
Total adjustments................................................................. (27,580) (39,353)
---------- ----------
Net cash used in operating activities........................................... (23,389) (31,725)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.................................................................... (7,012) (4,578)
Acquisitions and investments in businesses, net of cash acquired........................ (1,612) (165,548)
Decrease in assets restricted for settlement of unpaid claims........................... 10,381 14,364
Proceeds from sale of assets............................................................ 4,822 --
Crescent Transaction costs.............................................................. -- (4,253)
---------- ----------
Net cash provided by (used in) investing activities............................. 6,579 (160,015)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt, net of issuance costs................................... 126,825 --
Payments on debt and capital lease obligations.......................................... (116,620) (140)
Proceeds from exercise of stock options and warrants.................................... 112 1,917
Purchases of treasury stock............................................................. -- (12,456)
---------- ----------
Net cash provided by (used in) financing activities............................. 10,317 (10,679)
---------- ----------
Net decrease in cash and cash equivalents................................................. (6,493) (202,419)
Cash and cash equivalents at beginning of period.......................................... 120,945 372,878
---------- ----------
Cash and cash equivalents at end of period................................................ $ 114,452 $ 170,459
---------- ----------
---------- ----------
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
4
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30,DECEMBER 31, 1997
(UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Management,management, all adjustments, consisting of normal recurring
adjustments considered necessary for a fair presentation, have been included.
These financial statements should be read in conjunction with the audited
consolidated financial statements of the Company for the year ended September
30, 1996,1997, included in the Company's Annual Report on Form 10-K, as amended.10-K.
NOTE B--NATURE OF BUSINESS
The Company's provider50% owned hospital business, and CBHS' (as hereinafter defined) business
areCharter Behavioral Health
Systems, LLC ("CBHS"), is seasonal in nature, with a reduced demand for certain
services generally occurring in the first fiscal quarter around major holidays,
such as Thanksgiving and Christmas, and during the summer months comprising the
fourth fiscal quarter. The Company's business is also subject to general
economic conditions and other factors. Accordingly, the results of operations
for the interim periods are not necessarily indicative of the actual results
expected for the year.
NOTE C--SUPPLEMENTAL CASH FLOW INFORMATION
Below is supplemental cash flow information related to the ninethree months
ended June 30,December 31, 1996 and 1997:
FOR THE NINETHREE MONTHS
ENDED
JUNE 30,DECEMBER 31,
--------------------
1996 1997
--------- ---------
(IN THOUSANDS)
(IN THOUSANDS)
Income taxes paid, net of refunds received........................................received............................... $ 6,8532,540 $ 14,4194,752
Interest paid, net of amounts capitalized......................................... 53,350 53,945
Notes payable assumed in connection with acquisitions of businesses............... 12,100 --
Non-cash investment in CBHS....................................................... -- 5,281capitalized................................ 24,939 21,550
The non-cash portion of unusual items for the nine months ended June 30,
1996 includes the unpaid portion of the $30.0 million insurance settlement that
was recorded during the quarter ended June 30, 1996. The payments of the
insurance settlement are included in accounts payable and other accrued
liabilities in the statement of cash flows for the nine months ended June 30,
1997.
45
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30,DECEMBER 31, 1997
(UNAUDITED)
NOTE D--LONG-TERM DEBT AND LEASES
Information with regard to the Company's long-term debt and capital lease
obligations at September 30, 19961997 and June 30,December 31, 1997 is as follows:
SEPTEMBER 30, JUNE 30,
1996DECEMBER 31,
1997 1997
------------- ----------------------
(IN THOUSANDS)
New RevolvingMagellan Existing Credit Agreement due 2002......................................through 2002............. $ 105,593-- $ --
11.25% Senior Subordinated Notes due 2004....................................2004....................... 375,000 375,000
6.8125%6.78125% to 8.0%8.00% Mortgage and other notes payable through
1999................ 12,163 7,940
Variable rate secured notes.................................................. 60,875 --1999.......................................................... 7,721 7,577
7.5% Swiss Bonds.............................................................Bonds................................................ 6,443 6,443
4.25% capital3.95% Capital lease obligations due through 2014............................. 12,333 6,4392014................ 6,438 6,438
------------- ----------
572,407 395,822------------
395,602 395,458
Less amounts due within one year......................................... 5,751 3,592year.............................. 3,601 3,604
Less debt service funds.................................................. 349funds....................................... 308 304
------------- ----------------------
$ 566,307391,693 $ 391,926391,550
------------- ----------------------
------------- ----------------------
On October 28, 1996,February 12, 1998, the Company entered into a Credit Agreement with
certain financial institutions for a five-year senior secured reducing revolving
credit facility in an aggregate committed amount of $400 million (the "Revolving
Credit Agreement"). The Company borrowed approximately $121.0 million underterminated the Revolving Credit Agreement in October 1996 to (i) pay-off the existing
borrowings outstanding under the previous revolving credit agreement that was
terminated and (ii) pay for fees and expenses related to the Revolving Credit
Agreement.
The loans outstanding under the Revolving Credit Agreement bore interest
(subject to certain potential adjustments) at a rate per annum equal to one,
two, three or six-month LIBOR plus 1.25% or the Prime Lending Rate.
The Company recorded an extraordinary loss from the early extinguishment of
debt of approximately $3.0 million, net of tax, during the quarter ended
December 31, 1996 to write off unamortized deferred financing costs related to
its previous revolving credit agreement.
On June 17, 1997, the Company entered into a new Credit Agreement (the "New
Revolving Credit Agreement") with certain financial institutions for a five-year
senior secured revolving credit facility in an aggregate committed amount of
$200 million. The Company paid off approximately $191.8 million of borrowings
outstanding under the Revolving Credit Agreement on June 17, 1997 with proceeds
from the Crescent Transactions (as hereinafter defined).
The loans outstanding under the New Revolving Credit Agreement bear interest
(subject to certain potential adjustments) at a rate per annum equal to one,
two, three or six-month LIBOR plus 1.25% or the Alternative Base Rate ("ABR"),
as defined, plus .25%. Interest on ABR loans is payable at the end of each
fiscal quarter. Interest on LIBOR-based loans is payable at the end of their
respective terms, but a minimum of every three months.
5
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE D--LONG-TERM DEBT AND LEASES (CONTINUED)
The Company also paid off approximately $66 million of variable rate secured
notes and other long-term debt during June 1997 related to the consummation of
the Crescent Transactions.
The Company recorded an extraordinary loss of approximately $2.3 million,
net of tax, during the quarter ended June 30, 1997 to write off unamortized
deferred financing costs related to the RevolvingMagellan Existing Credit
Agreement and for costs
related to paying offextinguished the variable rate secured notes.$375 million 11.25% Senior Subordinated Notes in
connection with the acquisition of Merit Behavioral Care Corporation ("Merit").
See Note J--"Subsequent Events--Merit Acquisition".
NOTE E--ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
SEPTEMBER 30, JUNE 30,
1996DECEMBER 31,
1997 1997
------------- ----------------------
Salaries, wages and wages...........................................................other benefits.............................. $ 39,84121,647 $ 17,81121,596
Amounts due health insurance programs........................................ 27,223 16,341programs........................... 14,126 8,159
Medical claims payable....................................................... 26,552 32,766
Interest..................................................................... 20,348 9,094payable.......................................... 36,508 63,877
Interest........................................................ 19,739 9,322
Crescent Transaction......................................................... -- 20,306
Other........................................................................ 75,635 71,651Transactions........................................... 14,648 9,805
Other........................................................... 63,761 78,886
------------- ----------------------
$ 189,599170,429 $ 167,969191,645
------------- ----------------------
------------- ----------------------
NOTE F--CRESCENT TRANSACTIONS
On June 17, 1997, the Company consummated a series of transactions including
the sale of substantially all of its domestic hospital real estate and related
personal property (the "Assets") to Crescent Real Estate Equities Limited
Partnership ("Crescent") and CBHS (as hereinafter defined). In addition, the
Company's domestic portion of its provider business segment will be operated as
a joint venture ("CBHS") that is initially owned equally by Magellan and
Crescent Operating, Inc., an affiliate of Crescent ("COI").F--INCOME PER COMMON SHARE
The Company will
account for its 50% investment in CBHS under the equity methodadopted Statement of accounting.
The Company received approximately $417.2 million in cash (before costs
estimated to be $16.0 million) and warrants in COIFinancial Accounting Standards No. 128,
"Earnings per Share" ("FAS 128"), effective October 1, 1997. Income per common
share for the purchasequarter ended December 31, 1996 has been restated to conform to
FAS 128 as required. The effect of 2.5% of
COI's common stock, exercisable over 12 years. The Company also issued 1,283,311
warrants to Crescent and COI each for the purchase of Magellan common stock at
an exercise price of $30 per share.
In related agreements, (i) Crescent leased the real estate and related
assets to CBHS for annual rent beginning at approximately $41.7 million with a
5% annual escalation clause compounded annually (the "Facilities Lease") and
(ii) CBHS will pay Magellan approximately $78.3 million in annual franchise
fees, subject to increase, for the use of assets retained by Magellan and for
support in certain areas. The franchise fees to be paid by CBHS to the Company
are subordinated to the lease obligations in favor of Crescent. The assets
retained by Magellan include, but areadopting FAS 128 was not limited to, the "CHARTER" name,
intellectual property, protocols and procedures, clinical quality management,
operating processes and the "1-800-CHARTER" telephone call center. Magellan will
provide CBHS ongoing support in areas including advertising and marketing
assistance, risk management services, outcomes monitoring, and consultation onmaterial.
6
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30,DECEMBER 31, 1997
(UNAUDITED)
NOTE F--CRESCENT TRANSACTIONSF--INCOME PER COMMON SHARE (CONTINUED)
matters relating to reimbursement, government relations, clinical strategies,
regulatory matters, strategic planning and business development.
The Company initially used a portion of the proceeds from the sale of the
Assets to reduce its long-term debt, including borrowings under the Revolving
Credit Agreement. Under the terms of its Senior Subordinated Notes (the "Notes")
indenture, the Noteholders were given the right to put their Notes to the
Company at 101% of face value through July 21, 1997. No Noteholders elected to
put their Notes to the Company. The Company intends to use the remaining
proceeds from the sale of the Assets to pursue acquisitions in its managed care
and public sector business segments, develop new products and increase managed
care and public sector marketing efforts.
The Crescent Transactions are more fully described in the Company's Proxy
Statement filed on Schedule 14A on April 24, 1997, which is incorporated herein
by reference.
The Company recorded a loss before income taxes of approximately $59.9
million as a result of the Crescent Transactions, which consisted of the
following (in thousands):
Accounts receivable collection fees........................................ $ 21,400
Impairment losses on intangible assets..................................... 14,408
Exit costs and construction obligation..................................... 13,549
Loss on the sale of property and equipment................................. 10,511
---------
$ 59,868
---------
---------
The $5.0 million of exit costs accrued as a result of the Crescent
transactions include incremental staffing, consulting and related costs to
prepare and coordinate audits of terminating Medicare cost reports, prepare and
file income tax, property tax, sales and use tax and other tax returns and
perform accounting functions related to the divested businesses (CBHS). The
Company incurred approximately $0.1 million of such costs during the quarter and
the nine months ended June 30, 1997.
The Company is constructing a hospital in Philadelphia as required by the
Crescent Real Estate Purchase Agreement to replace CBHS' existing Philadelphia
hospital. The Company has incurred approximately $2.0 million in construction
costs as of June 30, 1997 and expects to incur up to $8.5 million in
construction costs before completion.
The Company's Consolidated Statement of Operations for the nine months ended
June 30, 1996 and 1997 include the operations of businesses divested as part of
the Crescent Transactions through June 16, 1997. The unaudited pro forma
information for the nine months ended June 30, 1996 and 1997 have been prepared
assuming the Crescent Transactions were consummated on October 1, 1995. The pro
forma information does not purport to be indicative of the results which would
have actually been obtained had
7
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE F--CRESCENT TRANSACTIONS (CONTINUED)
the Crescent Transactions been consummated on October 1, 1995 or which may be
attained in future periods (in thousands, except per share data).
PRO FORMA
FOR THE NINE MONTHS ENDED
----------------------------
JUNE 30, 1996 JUNE 30, 1997
------------- -------------
Net Revenue......................................................................... $ 454,639 $ 527,338
Income before extraordinary items(1)................................................ 14,515 24,448
Net income(1)....................................................................... 14,515 19,195
Income per common share--primary:
Income before extraordinary items(1)............................................ 0.51 0.83
Net income(1)................................................................... 0.51 0.66
Income per common share--fully diluted:
Income before extraordinary items(1)............................................ 0.51 0.82
Net income(1)................................................................... 0.51 0.64
- ------------------------
(1) Excludes the loss on the Crescent Transactions and assumes the excess
proceeds from the Crescent Transactions are not invested. If the excess
proceeds from the Crescent Transactions were assumed to be reinvested at the
Company's historic temporary cash investment rate of 5.4% and 5.25% for the
nine months ended June 30, 1996 and 1997, respectively, pro forma income
before extraordinary items, net income, income per common share before
extraordinary items and net income per common share would have been $19.3
million, $19.3 million, $0.68 (primary and fully diluted) and $0.68 (primary
and fully diluted) for the nine months ended June 30, 1996, respectively,
and $29.1 million, $23.9 million, $0.99 (primary) and $0.81 (primary) and
$0.98 (fully diluted) and $0.80 (fully diluted) for the nine months ended
June 30, 1997, respectively.
NOTE G--UNUSUAL ITEMS
INSURANCE SETTLEMENTS
Unusual items for the quarter and the nine months ended June 30, 1996
included the resolution of disputes between the Company and insurance carriers
concerning certain billings for services.
In August 1996, the Company and a group of insurance carriers resolved a
billing dispute which arose in fiscal 1996 related to matters originating in the
1980's. As part of the settlement of these claims, certain related payer matters
and associated legal fees, the Company recorded a charge of approximately $30.0
million during the quarter ended June 30, 1996. The Company is paying the
insurance settlement amount in twelve installments over a three year period,
that began in August 1996. The Company and the insurance carriers have agreed
that the dispute and settlement will not negatively impact any present or
pending business relationships nor will it prevent the parties from negotiating
in good faith concerning additional business opportunities available to, and
future relationships between, the parties.
8
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE G--UNUSUAL ITEMS (CONTINUED)
FACILITY CLOSURES
During fiscal 1996, the Company consolidated, closed or sold nine
psychiatric facilities (the "1996 Closed Facilities"). The 1996 Closed
Facilities that are still owned by the Company will be sold, leased or used for
alternative purposes depending on the market conditions in each geographic area.
The Company recorded charges of approximately $4.1 million related to facility
closures in fiscal 1996.
Severance and benefits related to the 1996 Closed Facilities were fully paid
as of December 31, 1996. Other exit costs paid and applied against the resulting
liabilities recorded during fiscal 1996 were approximately $0.1 million and $0.4
million during the quarter and the nine months ended June 30, 1997,
respectively.
During the second quarter of fiscal 1997, the Company consolidated or closed
three psychiatric facilities and its one general hospital (the "1997 Closed
Facilities"). The 1997 Closed Facilities which were owned by the Company were
sold as part of the Crescent Transactions. The Company recorded charges of
approximately $4.2 million related to facility closures in the second quarter of
fiscal 1997, which consisted of approximately $3.0 million for severance and
related benefits and $1.2 million for contract terminations and other costs.
Approximately 700 employees were terminated at the 1997 Closed Facilities.
Severance and related benefits paid and applied against the resulting liability
were approximately $0.4 million and $2.7 million during the quarter and nine
months ended June 30, 1997, respectively. Other exit costs paid and applied
against the resulting liability were approximately $0.4 million and $0.7 million
during the quarter and the nine months ended June 30, 1997, respectively. The
remaining obligations relating to the 1997 Closed Facilities sold to Crescent
have been assumed by CBHS as part of the Crescent Transactions.
The following table presents net revenue, salaries, supplies and other
operating expenses and bad debt expenses and depreciation and amortizationthe components of the 1996 Closed Facilities and the 1997 Closed Facilities (in thousands):weighted average common
shares outstanding-- diluted:
QUARTER ENDED JUNE NINETHREE MONTHS ENDED
30, JUNE 30,
-------------------- --------------------
1996 1997 1996 1997
--------- --------- --------- ---------
Net Revenue.................................................... $ 21,304 $ 286 $ 72,939 $ 18,952
Salaries, supplies and other operating
expenses and bad debt expenses............................... 20,063 346 74,127 21,964
Depreciation and Amortization.................................. 407 -- 1,509 272
The Company recorded a charge of approximately $2.0 million in the fourth
quarter of fiscal 1996 related to severance and related benefits for employees
who were terminated pursuant to planned overhead reductions. Substantially all
of such severance and benefits was paid as of DecemberDECEMBER 31, 1996.
FACILITY SALES
The Company sold two psychiatric facilities during the quarter ended March
31, 1997 that were closed during fiscal 1995. The Company received approximately
$5.6 million in proceeds from the sales and recorded an aggregate gain on such
sales of approximately $2.8 million during the quarter ended March 31,
9
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE G--UNUSUAL ITEMS (CONTINUED)
1997. The Company also sold one psychiatric facility during the quarter ended
June 30, 1997 that was closed during fiscal 1996. The Company received
approximately $4.8 million in proceeds from the sale and recorded a gain of
approximately $2.6 million during the quarter and the nine months ended June 30,
1997.
OTHER
The Company recorded charges of approximately $1.6 million during the
quarter and the nine months ended June 30, 1997 for costs incurred related
primarily to the expiration of its agreement to sell its three European
Hospitals. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Outlook" for further discussion.
NOTE H--INCOME PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 "Earnings per Share" ("FAS 128"), which is more fully described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Accounting Pronouncements". The Company is required to adopt
FAS 128 in the first quarter of fiscal 1998. Income per common share under FAS
128, if applied to the three months and the nine months ended June 30, 1996 and
1997, is as follows:
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------
--------------------
1996 1997 1996 1997
--------- ---------
--------- ---------
(IN)THOUSANDS, EXCEPT PER SHARE DATA
Income (loss) perWeighted average common share--Basic:
Income (loss) before extraordinary items................................ $ (0.18) $ (0.85) $ 0.79 $ (0.19)
Extraordinary losses on early extinguishments of debt................... -- (0.08) -- (0.18)
--------- --------- --------- ---------
Net income (loss)........................................................... $ (0.18) $ (0.93) $ 0.79 $ (0.37)
--------- --------- --------- ---------
--------- --------- --------- ---------
Income (loss) per common share--Diluted:
Income (loss) before extraordinary item................................. $ (0.18) $ (0.85) $ 0.77 $ (0.19)
Extraordinary losses on early extinguishments of debt................... -- (0.08) -- (0.18)
--------- --------- --------- ---------
Net income (loss)........................................................... $ (0.18) $ (0.93) $ 0.77 $ (0.37)
--------- --------- --------- ---------
--------- ---------shares outstanding--basic.......................... 28,589 28,969
Common stock equivalents--stock options.................................... 377 762
Common stock equivalents--warrants......................................... 17 53
--------- ---------
Weighted average number of common shares outstanding:
Basic................................................................... 32,464 28,830 30,559 28,715
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted................................................................. 32,464 28,830 31,099 28,715
--------- --------- --------- ---------outstanding--diluted........................ 28,983 29,784
--------- ---------
--------- ---------
The difference between weighted average number of common shares outstanding
for basic and diluted EPS for the nine months ended June 30, 1996 related
primarily to stock option common stock equivalents computed under the treasury
stock method.
10
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE I--INVESTMENT IN CBHS
The Company owned a 50%61% equity interest in CBHS asGreen Spring Health Services,
Inc. ("Green Spring") at December 31, 1997. The four minority stockholders of
June 30, 1997.Green Spring have the option to exchange their ownership interests in Green
Spring for 2,831,516 shares of the Company's common stock or $65.1 million of
subordinated notes (the "Exchange Option"). The Exchange Option was considered a
potentially dilutive security for the quarters ended December 31, 1996 and 1997
for the purpose of computing diluted income per common share. The Exchange
Option was anti-dilutive for the quarters ended December 31, 1996 and 1997 and,
therefore, was excluded from the respective diluted income per common share
calculations.
Each of the minority stockholders of Green Spring exercised the Exchange
Option in January 1998, which resulted in the issuance of 2,831,516 shares of
the Company's common stock. See Note J-- "Subsequent Events--Green Spring
Minority Shareholder Conversion".
NOTE G--INVESTMENT IN CBHS
The Company became a 50% owner of CBHS upon consummation of the Crescent
Transactions.Transactions (as defined) on June 17, 1997, which are further described in the
Company's Annual Report on Form 10-K for the year ended September 30, 1997. The
Company accounts for its investment in CBHS using the equity method.
A summary of financial information for the Company's investment in CBHS is as follows (in thousands):
JUNESEPTEMBER 30, DECEMBER 31,
1997 1997
------------- ------------
Current assets...........................................................................assets.................................................. $ 59,870148,537 $ 149,724
Property and equipment, net.............................................................. 18,863net..................................... 18,424 18,217
Other noncurrent assets.................................................................. 3,340assets......................................... 8,633 8,081
------------- ------------
Total Assets......................................................................... 82,073Assets.................................................. $ 175,594 $ 176,022
------------- ------------
------------- ------------
Current liabilities......................................................................liabilities............................................. $ 40,98068,497 $ 83,478
Long-term debt(2)........................................................................ 25,875debt.................................................. 65,860 65,846
Other noncurrent liabilities............................................................. 1,016
Member capital........................................................................... 14,202liabilities.................................... 7,481 16,820
Members' capital................................................ 33,756 9,878
------------- ------------
Total liabilities and Member capital.................................................members' capital........................ $ 82,073175,594 $ 176,022
------------- ------------
------------- Magellan equity investment............................................................... $ 7,101
-------------
-------------------------
14 DAYS ENDED
JUNE 30, 1997
--------------
Net revenue............................................................................. $ 29,865
--------------
Operating expenses(1)................................................................... 30,565
Interest, net........................................................................... 98
--------------
Net loss............................................................................ $ (798)
--------------
--------------
Cash used in operating activities....................................................... $ (13,996)
--------------
--------------
Magellan equity loss.................................................................... $ (399)
--------------
--------------
- ------------------------
(1) Includes salaries, supplies and other operating expenses, bad debt expense,
depreciation and amortization.
(2) As of August 11, 1997, CBHS had $65 million of outstanding borrowings under
its revolving credit agreement and had received $20 million of advances from
its Members, including $10 million from the Company.
117
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30,DECEMBER 31, 1997
(UNAUDITED)
NOTE I--INVESTMENTG--INVESTMENT IN CBHS (CONTINUED)
THREE MONTHS
ENDED
DECEMBER 31,
1997
-----------------
Net revenue................................................................ $ 178,058
--------
Operating expenses......................................................... 199,664
Interest, net.............................................................. 1,370
--------
Net loss before preferred member distribution............................ $ (22,976)
--------
Cash used in operating activities.......................................... $ (2,176)
--------
Magellan equity loss....................................................... $ (11,488)
--------
The Company's transactions with CBHS and related balances are as follows (in
thousands):
14 DAYSTHREE MONTHS
ENDED
JUNE 30,DECEMBER 31, 1997
--------------------------------
Franchise Fee revenue...................................................................revenue...................................................... $ 3,164
------
Expenses:19,575
-------
Costs:
Accounts receivable collection fees................................................. 1,426fees...................................... 1,054
Hospital-based Jointjoint venture management fees........................................ 417
------
1,843
------
Income before income taxes, minority interest
and extraordinary items............................................................... $ 1,321
------
------fees............................. 1,630
JUNESEPTEMBER 30, 1997 -------------DECEMBER 31, 1997
------------------ -----------------
Accounts receivable collection fees...................................................... $ (1,426)
Hospital-based Joint venture management fees payable..................................... (417)
Other receivables........................................................................ 5,571
-------------
Due (to) from CBHS, net...................................................................net (1).......................... $ 3,728
-------------
-------------(5,090) $ 6,188
------- -------
------- -------
Prepaid CHARTER call center management fees.......... $ -- $ 5,905
------- -------
------- -------
- ------------------------
(1) The nature of hospital accounts receivable billing and collection processess
have resulted in the Company and CBHS receiving remittances from payors
which belong to the other party. Additionally, the Company and CBHS have
established a settlement and allocation process for the accounts receivable
related to those patients who were not yet discharged from their treatment
on June 16, 1997. In an effort to settle these amounts on a timely basis,
and in light of CBHS start up operations and cash flow requirements, the
Company made advances to CBHS periodically during the quarter ending
December 31, 1997. Such advances, net of all settlement activity and certain
other amounts due to CBHS for certain shared services and related matters,
resulted in the amount shown above as due from CBHS.
8
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(UNAUDITED)
NOTE G--INVESTMENT IN CBHS (CONTINUED)
The Company is in continuing discussions with Crescent Operating, Inc.
("COI"), the other 50% owner of CBHS, and its affiliates concerning the possible
sale of the Company's franchise operations, together with related intellectual
property, the Company's interest in CBHS and six hospital-based joint ventures
("JV Hospitals") and certain other assets. In connection with the proposed sale,
it is anticipated that CBHS and its affiliates will be an important part of the
Company's managed behavioral care preferred provider network under the terms of
a long-term arrangement. The parties have not yet reached agreement on all the
terms of the transaction. Significant issues regarding the terms of the proposed
sale remain under discussion. In addition to resolution of such issues,
completion of the proposed sale would be subject to a number of conditions,
including regulatory approvals and the obtaining by COI and its affiliates of
all necessary debt and equity financing. If the sale is completed, the Company
intends to use the cash proceeds remaining after payment of fees and expenses to
repay indebtedness. There can be no assurance that any such transaction will
occur.
NOTE H--ACQUISITIONS
ALLIED HEALTH GROUP, INC. ACQUISITION.
On December 5, 1997, the Company purchased the assets of Allied Health
Group, Inc. and certain affiliates ("Allied"). Allied provides specialty
risk-based products and administrative services to a variety of insurance
companies and other customers for its 3.4 million members. Allied manages over
80 physician networks across the eastern United States. Allied's networks
include physicians specializing in cardiology, oncology and diabetes. The
Company paid $70 million for Allied, of which $50 million was paid to the
sellers at closing with the remaining $20 million placed in escrow.
The Company funded the acquisition of Allied with cash on hand and has
accounted for the acquisition of Allied using the purchase method of accounting.
The escrowed amount is payable if Allied achieves specified earnings targets
during the three years following the closing. Additionally, the purchase price
may be increased during the three year period by $40 million if Allied's
performance exceeds specified earnings targets. The maximum purchase price
payable is $110 million.
The preliminary allocation of the Allied purchase price to goodwill and
identifiable intangible assets was based on the Company's preliminary
valuations, which are subject to change upon receiving independent appraisals of
identifiable intangible assets.
HAI ACQUISITION. On December 4, 1997, the Company acquired the outstanding
common stock of Human Affairs International, Incorporated ("HAI"), a
wholly-owned subsidiary of Aetna Insurance Company of Connecticut and a unit of
Aetna U.S. Healthcare ("Aetna"), for approximately $122.1 million. HAI manages
the care of over 16 million covered lives, primarily through employee assistance
programs and other managed behavioral healthcare plans. The Company funded the
acquisition of HAI with cash on hand and has accounted for the acquisition of
HAI using the purchase method of accounting.
The Company may be required to make additional contingent payments of up to
$300 million to Aetna (the "Contingent Payments") over the five-year period
(each year a "Contract Year") subsequent to closing. The amount and timing of
the Contingent Payments will depend upon HAI's receipt of additional covered
lives, under two separate calculations. Under the first calculation, the Company
may be required
9
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(UNAUDITED)
NOTE H--ACQUISITIONS (CONTINUED)
to pay up to $25 million per year for each of five years following the
acquisition based on the net annual growth in the number of lives covered in
specified HAI products. Under the second calculation, the Company may be
required to pay up to $35 million per Contract Year, based on the net cumulative
increase in lives covered by certain other HAI products. The Company expects to
fund the Contingent Payments, if any, with a combination of cash on hand, future
cash flows from operations and borrowing capacity under the New Credit Agreement
(as defined).
The preliminary allocation of the HAI purchase price to goodwill and
identifiable intangible assets was based on the Company's preliminary
valuations, which are subject to change upon receiving independent appraisals of
identifiable intangible assets.
The unaudited pro forma information for the quarters ended December 31, 1996
and 1997 have been prepared assuming the Crescent Transactions (as defined),
Allied acquisition and HAI acquisition were consummated on October 1, 1996. The
unaudited pro forma information does not purport to be indicative of the results
that would have actually been obtained had such transactions been consummated,
or which may be attained in future periods (in thousands, except per share
data):
PRO FORMA
FOR THE THREE MONTHS ENDED
--------------------------
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
Net revenue...................................................... $ 235,506 $ 264,427
Income before extraordinary item................................. 10,317 10,384
Net income....................................................... 7,367 10,384
Income per common share--basic:
Income before extraordinary item............................... 0.36 0.36
Net income..................................................... 0.26 0.36
Income per common share--diluted:
Income before extraordinary item............................... 0.36 0.35
Net income..................................................... 0.25 0.35
NOTE J--CONTINGENCIESI--CONTINGENCIES
The Company is self-insured for a substantial portion of its general and
professional liability risks. The reserves for self-insured general and
professional liability losses, including loss adjustment expenses, are based on
actuarial estimates that are discounted at an average rate of 6% to their
present value based on the Company's historical claims experience adjusted for
current industry trends. The reserve for unpaid claims is adjusted periodically
as such claims mature, to reflect changes in actuarial estimates based on actual
experience. TheDuring the quarter ended December 31, 1997, the Company recorded
reductions of expensesin malpractice claim reserves of approximately $4.8$4.1 million and $12.3 million during the quarter and the nine months ended June 30,
1996, respectively, and $2.5 million and $7.5 million during the quarter and the
nine months ended June 30, 1997, respectively. These reductionsas a
result of updated actuarial estimates. This reduction resulted primarily from
updates to actuarial assumptions regarding the Company's expected losses for
more recent policy years. These revisions are based on changes in expected
values of ultimate losses resulting from the Company's claim experience, and
increased reliance on such claim experience. While management and its actuaries
believe that the present reserve is reasonable, ultimate settlement of losses
may vary from the amount provided.
The Company and certain10
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(UNAUDITED)
NOTE I--CONTINGENCIES (CONTINUED)
Certain of itsthe Company's subsidiaries are subject to claims, civil suits,
and governmental investigations and inquiries relating to their operations and
certain alleged business practices. In the opinion of management, based on
consultation with counsel, resolution of these matters will not have a material
adverse effect on the Company's financial position or results of operations.
On August 1, 1996, the United States Department of Justice, Civil Division,
filed its Firstan Amended Complaint in a civil qui tamQUI TAM action initiated in November of 1994
against the Company and its Orlando South hospital subsidiary ("Charter
Orlando") by two former employees. The First Amended Complaint 12
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE J--CONTINGENCIES (CONTINUED)
alleges that
Charter Orlando violated the civilfederal False Claims Act (the "Act") in billing for
inpatient treatment provided to elderly patients. The Court granted the
Company's motion to dismiss the government'sgovernments's First Amended Complaint yet
granted the government leave to amend its First Amended Complaint. The
government filed a Second Amended Complaint on December 12, 1996 which, similar
to the First Amended Complaint, alleges that the Company and its subsidiary
violated the Act in billing for the treatment of geriatric patients. Like the
First Amended Complaint, the Second Amended Complaint is based on disputed
clinical and factual issues which the Company believes do not constitute a
violation of the Act. On the Company's motion, the Court has ordered the parties
to participate in mediation of the matter. As a result of the mediation, the
parties are engaged in settlement discussions which may lead to a resolution of
the matter. The Companyparties have reached a tentative financial settlement of this
matter for approximately $4.8 million, which has been accrued, however,
negotiations concerning substantive non-monetary issues continue, and its subsidiary, therefore, have filedresolution
of such non-monetary issues will be material in connection with the Company's
decision to finalize a motionsettlement. There can be no assurance at this time that
the non-monetary terms will be resolved to dismiss the Second Amended Complaint. TheCompany's satisfaction. In any
event, the Company and its subsidiary deny the allegations made in the Second
Amended Complaint and will vigorously defend against its claims. The Company
does not believe this matter will have a material adverse effect on its
financial position or results of operations.
NOTE J--SUBSEQUENT EVENTS
MERIT ACQUISITION. On February 12, 1998, the Company acquired all of the
outstanding stock of Merit for approximately $448.9 million in cash plus the
repayment of long-term debt. The Company has providedrefinanced its $375 million 11.25%
Senior Subordinated Notes as part of the Merit acquisition. The Company will
account for the Merit acquisition using the purchase method of accounting. Merit
manages healthcare programs for over 21 million covered lives across all
segments of the healthcare industry, including HMOs, Blue Cross/Blue Shield
organizations and other insurance companies, corporations and labor unions,
federal, state and local government agencies, and various state Medicaid
programs.
In connection with the consummation of the Merit acquisition, the Company
consummated certain related transactions (together with the Merit acquisition,
collectively, the "Transactions"), as follows: (i) the Company terminated its
Credit Agreement; (ii) the Company repaid all loans outstanding pursuant to and
terminated Merit's existing credit agreement (the "Merit Existing Credit
Agreement"); (iii) the Company completed a guarantee, not to exceed $65 million,tender offer for CBHS'
lineits 11 1/4% Series A
Senior Subordinated Notes due 2004 (the "Magellan Outstanding Notes"); (iv)
Merit completed a tender offer for its 11 1/2% Senior Subordinated Notes due
2005 (the "Merit Outstanding Notes"); (v) the Company entered into a new senior
secured bank credit agreement (the "New Credit Agreement") with The Chase
Manhattan Bank and a syndicate of
credit. CBHS has a $100 million, 5-year revolving credit facility.
1311
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
JUNE 30,STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(UNAUDITED)
NOTE J--SUBSEQUENT EVENTS (CONTINUED)
financial institutions, providing for credit facilities of up to $700 million;
and (vi) the Company issued $625 million in 9% Senior Subordinated Notes due
2008 (the "Notes").
The following table sets forth the sources and uses of funds for the
Transactions at closing (in thousands):
SOURCES:
Cash and cash equivalents....................................... $ 59,290
New Credit Agreement:
Revolving Facility (1)........................................ 20,000
Term Loan Facility............................................ 550,000
The Notes....................................................... 625,000
---------
Total sources................................................. $1,254,290
---------
---------
USES:
Cash paid to Merit shareholders................................. $ 448,867
Repayment of Merit Existing Credit Agreement (2)................ 196,357
Purchase of Magellan Outstanding Notes (3)...................... 432,102
Purchase of Merit Outstanding Notes (4)......................... 121,651
Transaction costs (5)........................................... 55,314
---------
Total uses...................................................... $1,254,290
---------
---------
- ------------------------
(1) The Revolving Facility provides for borrowings of up to $150.0 million. The
Company had $112.5 million available for borrowing pursuant to the Revolving
Facility after consummating the Transactions, excluding approximately $17.5
million of availability reserved for certain letters of credit.
(2) Includes principal amount of $193.6 million and accrued interest of $2.7
million.
(3) Includes face amount of $375.0 million, tender premium of $43.4 million and
accrued interest of $13.7 million.
(4) Includes face amount of $100.0 million, tender premium of $18.9 million and
accrued interest of $2.8 million.
(5) Transaction costs include, among other things, expenses payable at closing
associated with the Debt Tender Offers, the Offering, the Merit acquisition
and the New Credit Agreement.
GREEN SPRING MINORITY SHAREHOLDER CONVERSION. The four minority
shareholders of Green Spring converted their ownership interests into 2,831,516
shares of Magellan common stock in accordance with the terms in the Green Spring
Exchange Agreement at various dates during January 1998. The Company will
account for the Green Spring Minority Shareholder Conversion as a purchase of
the minority interests in Green Spring at the fair value of the consideration
paid.
12
NOTE K--GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
SEPTEMBER 30, 19961997
--------------------------------------------------------------------
MAGELLAN
HEALTH
SERVICES,
INC. CONSOLIDATED
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
ASSETS SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
----------- ------------- ------------ ------------ ------------
Current Assets
Cash and cash equivalents....................... $ 29,751102,419 $ 79,55262,326 $ 11,642208,133 $ -- $ 120,945372,878
Accounts receivable, net........................ 139,523 44,904 5,45146,652 60,185 1,161 -- 189,878
Supplies........................................ 4,091 394 268 -- 4,753107,998
Other current assets............................ 8,379 121 14,0742,346 10,215 13,601 -- 22,57426,162
----------- ------------- ------------ ------------ ------------
Total Current Assets........................ 181,744 124,971 31,435151,417 132,726 222,895 -- 338,150507,038
Assets restricted for settlement of unpaid claims
and other long-term liabilities................. -- 78,542 26,76171,501 16,031 -- 105,30387,532
Property and Equipmentequipment
Land............................................ 74,790 6,657 1,9845,406 5,389 872 -- 83,43111,667
Buildings and improvements...................... 350,187 33,493 5,14135,789 31,517 2,868 -- 388,82170,174
Equipment....................................... 112,748 25,206 8,96119,704 35,023 8,992 -- 146,91563,719
----------- ------------- ------------ ------------ ------------
537,725 65,356 16,08660,899 71,929 12,732 -- 619,167145,560
Accumulated depreciation........................ (111,556) (10,313) (4,184)(15,168) (17,288) (4,582) -- (126,053)(37,038)
Construction in progress........................ 1,586 621 694 611 77 -- 2,276692
----------- ------------- ------------ ------------ ------------
427,755 55,664 11,971Total property and equipment................ 45,735 55,252 8,227 -- 495,390109,214
----------- ------------- ------------ ------------ ------------
Investment in CBHS................................ 16,878 -- -- -- 16,878
Deferred income taxes............................. -- 4,428 (3,270) -- 1,158
Other Long-Term Assetslong-term assets (1)........................ 92,978 (78,517) 1,172,069 (1,155,775) 30,755114,642 (5,757) 978,588 (1,027,907) 59,566
Goodwill, net..................................... 20,645 94,682 12,68517,966 96,268 -- 128,012
Other Intangible Assets, net...................... 5,213 22,341 14,973 -- 42,527114,234
----------- ------------- ------------ ------------ ------------
$ 728,335346,638 $ 297,683 $1,269,894 $(1,155,775) $1,140,137354,418 $1,222,471 $(1,027,907) $ 895,620
----------- ------------- ------------ ------------ ------------
----------- ------------- ------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable................................ $ 32,64423,057 $ 34,05717,097 $ 12,2655,192 $ -- $ 78,96645,346
Accrued liabilities and income tax payable...... 57,948 55,208 76,44327,800 73,586 69,043 -- 189,599170,429
Current maturities of long-term debt and capital
lease obligations............................. 2,620 3,131466 3,135 -- -- 5,7513,601
----------- ------------- ------------ ------------ ------------
Total Current Liabilities................... 93,212 92,396 88,70851,323 93,818 74,235 -- 274,316
Long-Term Debt219,376
Long-term debt and Capital Lease Obligations...... (455,333) 8,815 1,012,825capital lease obligations...... (793,325) 3,913 1,181,105 -- 566,307
Deferred Income Tax Liabilities................... -- (4,252) 16,620 -- 12,368391,693
Reserve for Unpaid Claims.........................unpaid claims......................... -- 72,494 54656,339 (7,226) -- 73,04049,113
Deferred Creditscredits and Other Long-Term
Liabilities(1)other long-term
liabilities(1).................................. 352,044 43,565 29,378 (385,218) 39,7698,393 6,290 (183,893) 185,320 16,110
Minority interest................................. -- -- -- 52,520 52,52061,078 61,078
Stockholders' Equity
Common Stock, par value $0.25 per share;
Authorized--80,000 shares Issued and
outstanding--33,007outstanding--33,439 shares.................... 2,7642,752 (483) 8,252 (2,281) 8,2528,361 (2,269) 8,361
Committments and contingencies
Other Stockholders' Equity
Additional paid-in capital...................... 609,627 30,237 327,681 (639,864) 327,6811,000,935 125,624 340,645 (1,126,559) 340,645
Retained earnings (Accumulated deficit)......... 126,826 58,932 (129,457) (185,758) (129,457)76,035 71,317 (129,955) (147,352) (129,955)
Warrants outstanding............................ -- -- 5425,050 -- 5425,050
Common Stock in treasury, 4,424 shares.......... -- (4,736)-- (82,731) 4,736-- (82,731)
Cumulative foreign currency adjustments......... (805) 715 (1,982) 90 (1,982)525 (2,400) (3,120) 1,875 (3,120)
----------- ------------- ------------ ------------ ------------
738,412 84,665 121,817 (823,077) 121,817Total stockholders equity................... 1,080,247 194,058 158,250 (1,274,305) 158,250
----------- ------------- ------------ ------------ ------------
$ 728,335346,638 $ 297,683 $1,269,894 $(1,155,775) $1,140,137354,418 $1,222,471 $(1,027,907) $ 895,620
----------- ------------- ------------ ------------ ------------
----------- ------------- ------------ ------------ ------------
- ------------------------
(1) Elimination entry related to intercompany receivables and payables and
investment in consolidated subsidiaries.
The accompanying Notes to Condensed Consolidating Financial Statements
are an integral part of these balance sheets.
1413
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE K--GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JUNE 30,DECEMBER 31, 1997
--------------------------------------------------------------------
MAGELLAN
HEALTH
SERVICES,
INC. CONSOLIDATED
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
ASSETS SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
----------- ------------- ------------ ------------ ------------
ASSETS
Current Assets
Cash and cash equivalents.............equivalents....................... $ 105,40979,896 $ 65,21561,733 $ 155,61928,830 $ -- $ 326,243170,459
Accounts receivable, net.............. 91,995 51,421 8,204net........................ 41,406 76,057 22,756 -- 151,620
Supplies.............................. 903 286 319 -- 1,508140,219
Other current assets.................. 987 7,343 10,238assets............................ 6,135 12,011 16,292 -- 18,56834,438
----------- ------------- ------------ ------------ ------------
Total Current Assets.............. 199,294 124,265 174,380Assets........................ 127,437 149,801 67,878 -- 497,939345,116
Assets restricted for settlement of unpaid claims
and other long-term liabilities.............................liabilities................. -- 74,219 18,11666,028 6,992 -- 92,33573,020
Property and Equipment
Land.................................. 6,266 5,382equipment
Land............................................ 5,450 5,365 872 -- 12,52011,687
Buildings and improvements............ 34,220 33,169 1,775improvements...................... 36,261 31,647 4,194 -- 69,164
Equipment............................. 20,323 30,451 8,93772,102
Equipment....................................... 27,253 38,031 9,035 -- 59,71174,319
----------- ------------- ------------ ------------ ------------
60,809 69,002 11,58468,964 75,043 14,101 -- 141,395158,108
Accumulated depreciation.............. (14,407) (15,819) (4,150)depreciation........................ (16,483) (19,713) (4,973) -- (34,376)(41,169)
Construction in progress.............. 39 340 50progress........................ 22 896 77 -- 429995
----------- ------------- ------------ ------------ ------------
46,441 53,523 7,48452,503 56,226 9,205 -- 107,448117,934
Investment in CBHS........................ 7,101CBHS................................ 5,390 -- -- -- 7,1015,390
Deferred income taxes.....................taxes............................. (9) 4,425 (2,238) -- 4,308 3,959 -- 8,2672,178
Other Long-Term Assetslong-term assets (1)................ 132,662 (24,026) 1,036,123 (1,118,550) 26,209........................ 145,692 (5,743) 1,293,918 (1,323,359) 110,508
Goodwill, net............................. 18,039 95,226net..................................... 145,163 97,805 -- -- 113,265
Other Intangible Assets, net.............. 2,674 22,570 13,722 -- 38,966242,968
----------- ------------- ------------ ------------ ------------
$ 406,211476,176 $ 350,085 $1,253,784 $(1,118,550)368,542 $1,375,755 $(1,323,359) $ 891,530897,114
----------- ------------- ------------ ------------ ------------
----------- ------------- ------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable......................payable................................ $ 23,70720,758 $ 20,74414,236 $ 2,9122,669 $ -- $ 47,36337,663
Accrued liabilities................... 32,539 61,792 73,638liabilities............................. 48,491 81,664 61,490 -- 167,969191,645
Income taxes payable............................ (309) 1,227 (137) -- 781
Current maturities of long-term debt and capital
lease obligations....... 460 3,132obligations............................. 477 3,127 -- -- 3,5923,604
----------- ------------- ------------ ------------ ------------
Total Current Liabilities......... 56,706 85,668 76,550Liabilities................... 69,417 100,254 64,022 -- 218,924
Long-Term Debt233,693
Long-term debt and Capital Lease
Obligations............................. (766,309) 4,217 1,154,018capital lease obligations...... (818,540) 13,890 1,196,200 -- 391,926391,550
Reserve for Unpaid Claims.................unpaid claims......................... 1,006 46,530 (7,335) -- 65,576 (10,245) -- 55,33140,201
Deferred Creditscredits and Other Long-Term
Liabilitiesother long-term liabilities
(1)......................... 61,772 12,681 (111,103) 58,492 21,842............................................. 133,831 15,377 (28,994) (105,191) 15,023
Minority interest.........................interest................................. -- -- -- 58,943 58,94364,785 64,785
Commitments and contingencies
Stockholders' Equity......................Equity
Common Stock, par value $0.25 per share;
Authorized--80,000 shares...........shares Issued and
outstanding--33,311
shares..............................outstanding--33,543 shares.................... 2,752 (483) 8,3308,387 (2,269) 8,330
Commitments and contingencies.............8,387
Other Stockholders' Equity................Equity
Additional paid-in capital............ 1,024,344 125,672 336,692 (1,150,016) 336,692capital...................... 1,120,638 122,262 338,961 (1,242,900) 338,961
Retained earnings (Accumulated deficit)............................ 26,150 54,318 (140,118) (80,468) (140,118)......... (33,402) 73,107 (122,327) (39,705) (122,327)
Warrants outstanding..................outstanding............................ -- -- 25,050 -- 25,050
Common stock in Treasury, 4,424
shares..............................4,969 shares.......... -- -- (82,731)(95,187) -- (82,731)(95,187)
Cumulative foreign currency adjustments......................... 796 2,436 (2,659) (3,232) (2,659)adjustments......... 474 (2,395) (3,022) 1,921 (3,022)
----------- ------------- ------------ ------------ ------------
1,054,042 181,943 144,564 (1,235,985) 144,564Total stockholders' equity.................. 1,090,462 192,491 151,862 (1,282,953) 151,862
----------- ------------- ------------ ------------ ------------
$ 406,211476,176 $ 350,085 $1,253,784 $(1,118,550) 891,530368,542 $1,375,755 $(1,323,359) $ 897,114
----------- ------------- ------------ ------------ ------------
----------- ------------- ------------ ------------ ------------
- ------------------------
(1) Elimination entry related to intercompany receivables and payables and
investment in consolidated subsidiaries.
The accompanying Notes to Condensed Consolidating Financial Statements
are an integral part of these balance sheets.
1514
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE K--GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED JUNE 30,DECEMBER 31, 1996
----------------------------------------------------------------------
MAGELLAN
HEALTH
SERVICES,
INC. CONSOLIDATED
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
----------- ------------- ------------- ------------- ------------
Net revenue............................... $ 252,810223,877 $ 96,031112,591 $ 1,77610,706 $ (4,238)(355) $ 346,379346,819
Costs and expenses
Salaries, suppliescost of care and other
operating expenses.............................. 194,157 82,021 2,596 (4,238) 274,536expenses.................... 177,681 100,260 6,537 (355) 284,123
Bad debt expense........................ 21,482 1,671 (4,267)19,024 1,211 -- 18,886-- 20,235
Depreciation and amortization........... 9,015 3,443 4288,617 3,750 732 -- 12,88613,099
Interest, net........................... (10,923) (307) 24,295(12,106) (443) 26,118 -- 13,06513,569
Stock option expense (credit)...........expense.................... -- -- (210)604 -- (210)
Unusual items........................... 3,959 -- 30,000 -- 33,959604
----------- ------------- ------------- ------------- ------------
217,690 86,828 52,842 (4,238) 353,122193,216 104,778 33,991 (355) 331,630
----------- ------------- ------------- ------------- ------------
Income (loss) before income taxes and
equity in earnings (loss) of
subsidiaries............................ 35,120 9,203 (51,066)30,661 7,813 (23,285) -- (6,743)15,189
Provision for (benefit from) income
taxes................................... 197 2,799 11 (5,705) (2,698)831 2,855 2,389 -- 6,075
----------- ------------- ------------- ------------- ------------
Income (loss) before equity in earnings
(loss) of subsidiaries.................. 34,923 6,404 (51,077) 5,705 (4,045)29,830 4,958 (25,674) -- 9,114
Equity in earnings (loss) of
subsidiaries............................ 1,540 1,602 (45,355) 43,890 1,677
----------- ------------- ------------- ------------- ------------
Net income (loss)......................... $ 33,383 $ 4,802 $ (5,722) $ (38,185) $ (5,722)
----------- ------------- ------------- ------------- ------------
----------- ------------- ------------- ------------- ------------
FOR THE THREE MONTHS ENDED JUNE 30, 1997
----------------------------------------------------------------------
MAGELLAN
HEALTH
SERVICES,
INC. CONSOLIDATED
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
----------- ------------- ------------- ------------- ------------
Net revenue............................... $ 202,006 $ 121,046 $ 2,122 $ (253) $ 324,921
Costs and expenses
Salaries, supplies and other operating
expenses.............................. 157,059 101,705 5,404 (253) 263,915
Bad debt expense........................ 11,690 835 (444) 0 12,081
Depreciation and amortization........... 7,385 3,748 911 0 12,044
Interest, net........................... (14,368) (655) 27,625 0 12,602
Stock option expense.................... 0 0 1,781 0 1,781
Equity in loss of CBHS.................. 399 0 0 0 399
Los on Crescent Transactions............ 13,684 14 46,170 -- 59,868
Unusual items........................... (2,583) 0 1,545 0 (1,038)
----------- ------------- ------------- ------------- ------------
173,266 105,647 82,992 (253) 361,652
----------- ------------- ------------- ------------- ------------
Income (loss) before income taxes, equity
in earnings (loss) of subsidiaries and
extraordinary items..................... 28,740 15,399 (80,870) 0 (36,731)
Provision for (benefit from) income
taxes................................... 826 3,345 (18,864) 0 (14,693)
----------- ------------- ------------- ------------- ------------
Income (loss) before equity in earnings
(loss) of subsidiaries and extraordinary
items................................... 27,914 12,054 (62,006) 0 (22,038)
Equity in earnings (loss) of continuing
subsidiaries............................ (328) (2,063) 37,565 (37,577) (2,403)(53) (1,842) 32,815 (32,893) (1,973)
----------- ------------- ------------- ------------- ------------
Income (loss) before extraordinary items................................... 27,586 9,991 (24,441) (37,577) (24,441)item... 29,777 3,116 7,141 (32,893) 7,141
Extraordinary item--loss on early
extinguishment of debt (net of income
tax benefit of $1,536)$1,967).................. (910)(1,193) -- (2,303) 910 (2,303)(2,950) 1,193 (2,950)
----------- ------------- ------------- ------------- ------------
Net income (loss)......................... $ 26,67628,584 $ 9,9913,116 $ (26,744)4,191 $ (36,667)(31,700) $ (26,744)4,191
----------- ------------- ------------- ------------- ------------
----------- ------------- ------------- ------------- ------------
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash provided by (used in) operating
activities.............................. $ 18,476 $ (22,153) $ (19,712) $ -- $ (23,389)
----------- ------------- ------------- ------------- ------------
Cash Flows from Investing Activities:
Capital expenditures.................... (3,133) (3,663) (216) -- (7,012)
Acquisitions of businesses.............. (170) (1,442) -- -- (1,612)
Decrease in assets restricted for the
settlement of unpaid claims........... -- 6,670 3,711 -- 10,381
Proceeds from the sale of assets........ 4,822 -- -- -- 4,822
----------- ------------- ------------- ------------- ------------
Cash provided by investing activities..... 1,519 1,565 3,495 -- 6,579
----------- ------------- ------------- ------------- ------------
Cash Flows from Financing Activities:
Payments on debt and capital lease
obligations........................... (71,435) (207) (44,978) -- (116,620)
Proceeds from the issuance of debt...... 71,616 -- 55,209 -- 126,825
Proceeds from exercise of stock options
and warrants.......................... -- -- 112 -- 112
----------- ------------- ------------- ------------- ------------
Cash provided by (used in) financing
activities.............................. 181 (207) 10,343 -- 10,317
----------- ------------- ------------- ------------- ------------
Net increase (decrease) in cash and cash
equivalents............................. 20,176 (20,795) (5,874) -- (6,493)
Cash and cash equivalents at beginning of
period.................................. 29,751 79,552 11,642 -- 120,945
----------- ------------- ------------- ------------- ------------
Cash and cash equivalents at end of
period.................................. $ 49,927 $ 58,757 $ 5,768 $ -- $ 114,452
----------- ------------- ------------- ------------- ------------
----------- ------------- ------------- ------------- ------------
The accompanying Notes to Condensed Consolidating Financial Statements
are an integral part of these statements.
1615
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE K--GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(IN THOUSANDS)
FOR THE NINETHREE MONTHS ENDED JUNE 30, 1996
--------------------------------------------------------------------DECEMBER 31, 1997
---------------------------------------------------------------------
MAGELLAN
HEALTH
SERVICES,
INC. CONSOLIDATED
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
----------- ------------- ------------ ------------------------- ------------
Net revenue............................... $ 765,38885,862 $ 235,720130,191 $ 9,40344 $ (13,514)-- $ 996,997216,097
Costs and expenses
Salaries, suppliescost of care and other
operating expenses.............................. 586,180 204,112 4,102 (13,514) 780,880expenses.................... 61,343 110,841 3,437 -- 175,621
Bad debt expense........................ 62,520 3,659 (4,886)179 891 -- 61,293-- 1,070
Depreciation and amortization........... 27,043 8,346 7972,260 4,067 642 -- 36,1866,969
Interest, net........................... (31,309) (575) 67,343(21,031) (682) 29,114 -- 35,4597,401
Stock option expense....................expense (credit)........... -- -- 1,204(3,959) -- 1,204
Unusual items........................... 3,959(3,959)
Equity in loss of CBHS.................. 11,488 -- 30,000 -- 33,959-- 11,488
----------- ------------- ------------ ------------- ------------
------------
648,393 215,542 98,560 (13,514) 948,98154,239 115,117 29,234 -- 198,590
----------- ------------- ------------ ------------------------- ------------
Income (loss) before income taxes and
equity in earnings (loss) of
subsidiaries............................ 116,995 20,178 (89,157)31,623 15,074 (29,190) -- 48,01617,507
Provision for (benefit from) income
taxes................ 1,538 4,845 219 13,072 19,674
-----------taxes................................... 138 4,284 2,581 -- 7,003
------------- ------------ ------------------------- ------------
Income (loss) before equity in earnings
(loss) of subsidiaries.................. 115,547 15,333 (89,376) (13,072) 28,34231,485 10,790 (31,771) -- 10,504
Equity in earnings (loss) of
subsidiaries............................ 1,172 2,747 (113,471) 113,799 4,247(206) (2,633) 39,399 (39,436) (2,876)
----------- ------------- ------------ ------------------------- ------------
Net income (loss)......................... $ 114,28531,279 $ 12,5868,157 $ 24,0957,628 $ (126,871)(39,436) $ 24,0957,628
----------- ------------- ------------ ------------------------- ------------
----------- ------------- ------------ ------------ ------------
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash provided by operating activities..... $ 6,702 $ 29,922 $ 23,833 $ -- $ 60,457
----------- ------------- ------------ ------------ ------------
Cash Flows from Investing Activities:
Capital expenditures.................... (17,359) (2,320) (4,938) -- (24,617)
Proceeds from sale of assets............ 1,253 -- -- -- 1,253
Acquisitions and investments in
businesses, net of cash acquired...... (438) 36,229 (85,890) -- (50,099)
Increase in assets restricted for the
settlement of unpaid claims........... -- (7,059) (1,508) -- (8,567)
----------- ------------- ------------ ------------ ------------
Cash provided by (used in) investing
activities.............................. (16,544) 26,850 (92,336) -- (82,030)
----------- ------------- ------------ ------------ ------------
Cash Flows from Financing Activities:
Proceeds from the issuance of debt...... -- 125 68,000 -- 68,125
Payments on debt and capital
obligations........................... (12,465) (4,027) (68,000) -- (84,492)
Proceeds from issuance of Common Stock,
net of issuance costs................. -- -- 68,561 -- 68,561
Income tax payments made on behalf of
stock optionees....................... -- -- (1,678) -- (1,678)
Proceeds from exercise of stock option
and warrants.......................... -- -- 2,147 -- 2,147
----------- ------------- ------------ ------------ ------------
Cash provided by (used in) financing
activities.............................. (12,465) (3,902) 69,030 -- 52,663
----------- ------------- ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents............................. (22,307) 52,870 527 -- 31,090
Cash and cash equivalents at beginning of
period.................................. 60,719 10,279 34,516 -- 105,514
----------- ------------- ------------ ------------ ------------
Cash and cash equivalents at end of
period.................................. $ 38,412 $ 63,149 $ 35,043 $ -- $ 136,604
----------- ------------- ------------ ------------ ------------
----------- ------------- ------------ ------------ ------------
The accompanying Notes to Condensed Consolidating Financial Statements
are an integral part of these statements.
17
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE K--GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(IN THOUSANDS)
FOR THE NINE MONTHS ENDED JUNE 30, 1997
--------------------------------------------------------------------
MAGELLAN
HEALTH
SERVICES,
INC. CONSOLIDATED
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
----------- ------------- ------------ ------------ ------------
Net revenue............................... $ 669,274 $ 346,248 $ 7,093 $ (953) $1,021,662
Costs and expenses
Salaries, supplies and other operating
expenses.............................. 518,843 291,983 20,375 (953) 830,248
Bad debt expense........................ 44,776 3,124 (444) -- 47,456
Depreciation and amortization........... 24,147 11,221 2,863 -- 38,231
Interest, net........................... (39,530) (1,650) 80,504 -- 39,324
Stock option expense (credit)........... -- -- 3,214 -- 3,214
Equity in loss of CBHS.................. 399 -- -- -- 399
Loss on Crescent Transactions........... 13,684 14 46,170 -- 59,868
Unusual Items........................... (1,188) -- 1,545 -- 357
----------- ------------- ------------ ------------ ------------
561,131 304,692 154,227 (953) 1,019,097
----------- ------------- ------------ ------------ ------------
Income (loss) before income taxes, equity
in earnings (loss) of subsidiaries and
extraordinary items..................... 108,143 41,556 (147,134) -- 2,565
Provision for (benefit from) income
taxes................................... 1,860 9,531 (10,366) -- 1,025
----------- ------------- ------------ ------------ ------------
Income (loss) before equity in earnings
(loss) of subsidiaries and extraordinary
items................................... 106,283 32,025 (136,768) -- 1,540
Equity in earnings (loss) of continuing
subsidiaries............................ (686) (6,043) 131,360 (131,579) (6,948)
----------- ------------- ------------ ------------ ------------
Income (loss) before extraordinary
items................................... 105,597 25,982 (5,408) (131,579) (5,408)
Extraordinary items--loss on early
extinguishments of debt (net of income
tax benefit of $3,503).................. (2,103) -- (5,253) 2,103 (5,253)
----------- ------------- ------------ ------------ ------------
Net income (loss)......................... $ 103,494 $ 25,982 $ (10,661) $ (129,476) $ (10,661)
----------- ------------- ------------ ------------ ------------
----------- ------------- ------------ ------------ ------------
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash provided by (used in) operating
activities.............................. $ 46,758(36,449) $ 5,170(238) $ (46,712)4,962 $ -- $ 5,216(31,725)
----------- ------------- ------------ ------------------------- ------------
Cash Flows from Investing Activities:
Capital expenditures.................... (18,462) (8,086) (1,565)(1,825) (2,710) (43) -- (28,113)
Acquisitions(4,578)
Acquisition and investments in
businesses,businessess, net of cash acquired...... (19,657) (8,656) (527)acquired..... 15,751 (2,979) (178,320) -- (28,840)(165,548)
Decrease (increase) in assets restricted for the
settlement of unpaid claims...claims........... -- 1,934 10,6175,474 8,890 -- 12,551
Proceeds from the sale of property and
equipment to14,364
Crescent and CBHS, net of
transaction costs..................... 196,066 -- 187,975 -- 384,041
Proceeds from the sale of assets........ 15,463Transaction costs.............. -- -- (4,253) -- 15,463(4,253)
----------- ------------- ------------ ------------------------- ------------
Cash provided by (used in) investing
activities.............................. 173,410 (14,808) 196,50013,926 (215) (173,726) -- 355,102(160,015)
----------- ------------- ------------ ------------------------- ------------
Cash Flows from Financing Activities:
Payments on debt and capital lease
obligations........................... (272,944) (4,699) (111,763) -- (389,406)
Proceeds from the issuance of debt...... 128,434 -- 75,209 -- 203,643
Proceeds from issuance of warrants......(140) -- -- 5,743 -- 5,743(140)
Proceeds from exercise of stock options
and warrants..........................& warrants............................ -- -- 25,0001,917 -- 25,0001,917
Purchases of treasury stock............. -- -- (12,456) -- (12,456)
----------- ------------- ------------ ------------------------- ------------
Cash provided by (used in)used in financing activities.............................. (144,510) (4,699) (5,811)activities......... -- (155,020)(140) (10,539) -- (10,679)
----------- ------------- ------------ ------------------------- ------------
Net increase (decrease)decrease in cash and cash
equivalents............................. 75,658 (14,337) 143,977(22,523) (593) (179,303) -- 205,298(202,419)
Cash and cash equivalents at beginning of
period.................................. 29,751 79,552 11,642102,419 62,326 208,133 -- 120,945372,878
----------- ------------- ------------ ------------------------- ------------
Cash and cash equivalents at end of
period.................................. $ 105,40979,896 $ 65,21561,733 $ 155,61928,830 $ -- $ 326,243170,459
----------- ------------- ------------ ------------------------- ------------
----------- ------------- ------------ ------------------------- ------------
The accompanying Notes to Condensed Consolidating Financial Statements
are an integral part of these statements.
1816
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
JUNE 30,DECEMBER 31, 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This document contains certain forward-looking statementsForm 10-Q includes "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 including, without
limitation, statements regarding the sufficiencySection 27A of the Company's liquiditySecurities Act and sourcesSection 21E of capitalthe Exchange Act. Although
the Company believes that its plans, intentions and the statements under the heading "Outlook". Actual
results may differ materially from those projectedexpectations reflected in
such forward-looking statements. These forward-looking statements are subject to certain risks,
uncertainties and otherreasonable, it can give no assurance that
such plans, intentions or expectations will be achieved. Important factors whichthat
could cause actual results to differ materially from those anticipated,the Company's
forward-looking statements are set forth in the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1997. All forward-looking
statements attributable to the Company or persons acting on behalf of the
Company are expressly qualified in their entirety by the cautionary statements
set forth in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997.
OVERVIEW
The Company has historically derived the majority of its revenue from
providing healthcare services in an inpatient setting. Payments from third-party
payors are the principal source of revenue for most healthcare providers. In the
early 1990's, many third-party payors sought to control the cost of providing
care to their patients by instituting managed care programs or seeking the
assistance of managed care companies. Providers participating in managed care
programs agree to provide services to patients for a discount from established
rates, which generally results in pricing concessions by the providers and lower
margins. Additionally, managed care programs generally encourage alternatives to
inpatient treatment settings and reduce utilization of inpatient services. As a
result, third-party payors established managed care programs or engaged managed
care companies in many areas of healthcare, including without limitation, potential
reductionsbehavioral healthcare. The
Company, which until June 1997 was the largest operator of psychiatric hospitals
in reimbursementthe United States, was adversely affected by the adoption of managed care
programs by third-party payers and changes in hospital payer
mix, governmental budgetary constraints and healthcare reform,payors.
Prior to the impactfirst quarter of potential hospital closures, competition infiscal 1996, the Company was not a provider business and theof
behavioral managed care business, andservices. During the regulatory environment for the Company's
businesses, as well as the other factors discussed in Exhibit 99 hereto, which
is hereby incorporated by reference.
GREEN SPRING ACQUISITION
On December 13, 1995,first quarter of fiscal 1996, the
Company acquired a 51%61% ownership interest in Green Spring. At that time, the
Company intended to become a fully integrated behavioral healthcare provider by
combining the managed behavioral healthcare products offered by Green Spring
with the direct treatment services offered by the Company's psychiatric
hospitals. The Company believed that an entity that participated in both the
managed care and provider segments of the behavioral healthcare industry could
more efficiently provide and manage behavioral healthcare for approximately $68.9insured
populations than an entity that was solely a managed care company. The Company
also believed that earnings from its managed care business would offset, in
part, the negative impact on the financial performance of its psychiatric
hospitals caused by managed care. Green Spring was the Company's first
significant involvement in managed behavioral healthcare.
Subsequent to the Company's acquisition of Green Spring, the growth of the
managed behavioral healthcare industry accelerated. Under the Company's majority
ownership, Green Spring increased its base of covered lives from 12.0 million as
of the end of calendar year 1995 to 21.1 million as of the end of calendar year
1997, a compound annual growth rate of over 32%. While growth in the industry
was accelerating, the managed behavioral healthcare industry also began to
consolidate. The Company concluded that consolidation presented an opportunity
for the Company to enhance its stockholder value by increasing its participation
in the managed behavioral healthcare industry, which the Company believed
offered growth and earnings prospects superior to those of the psychiatric
hospital industry. Therefore, the Company decided to sell its domestic
psychiatric facilities to obtain capital for expansion in the managed behavioral
healthcare business.
17
During the third quarter of fiscal 1997, the Company sold substantially all
of its domestic acute-care psychiatric hospitals and residential treatment
facilities (the "Psychiatric Hospital Facilities") to Crescent Real Estate
Equities Limited Partnership ("Crescent") for $417.2 million in cash the issuance(before
costs of 215,458 shares
of Magellan Common Stock valued at approximately $4.3 million$16.0 million) and the
contribution of GPA, a wholly-owned subsidiarycertain other consideration (the
"Crescent Transactions"). The sale of the Company, which became a
wholly-owned subsidiary of Green Spring. On December 20, 1995,Psychiatric Hospital Facilities
provided the Company acquired an additional 10% ownership interestwith approximately $200 million of net cash proceeds, after
debt repayment, for use in Green Spring for approximately
$16.7 millionimplementing its business strategy. The Company used
the net cash proceeds to finance the acquisitions of HAI and Allied in cash asDecember
1997. The Company has further implemented its business strategy through the
Merit acquisition. See Note J--"Subsequent Events--Merit Acquisition".
The Company now generates a result of an exercise by a minority stockholdersignificant portion of its Exchange Option ("Exchange Option") for arevenue and earnings
from its managed care business. A significant portion of the stockholder's
interestCompany's managed
care revenue and earnings are generated from risk-based products, and such
portion will increase following the Merit acquisition. The Company believes
enrollment in Green Spring. Green Spring provides managed behavioral healthcare
services, which includes utilization management, care managementrisk-based products will continue to grow through new covered
lives and the transition of covered lives in administrative services-only
products and employee assistance programs through a 50-state provider network covering approximately
16.1to higher revenue risk-based products.
Risk-based products typically generate significantly higher amounts of revenue
than other managed behavioral healthcare products. Because the Company is
responsible for the cost of care, risk-based products typically have lower
margins than non-risk-based products.
RESULTS OF OPERATIONS
QUARTER ENDED DECEMBER 31, 1996 COMPARED TO THE QUARTER ENDED DECEMBER 31,
1997.
REVENUE. Managed care revenue increased 61.8% to $134.1 million people nationwide.for the
quarter ended December 31, 1997 from $82.9 million in the same period in fiscal
1997. The Company has accounted forincrease resulted primarily from the acquisition of HAI and Allied in
December 1997 and continued revenue growth at Green Spring. HAI and Allied
revenues were approximately $9.2 million and $18.5 million, respectively, for
the quarter ended December 31, 1997. Green Spring usingrevenues were positively
impacted by the purchase methodaward of accounting, which resultedseveral new contracts and acquisitions since December
31, 1996, resulting in a 54% increase in covered lives to 21.1 million as of
December 31, 1997 as compared to December 31, 1996.
Public sector revenue increased 36.1% to $29.3 million for the quarter ended
December 31, 1997 from $21.5 million in the same period in fiscal 1997. The
increase was primarily attributable to a 26% increase in placements in Mentor
homes and $1.7 million in additional intangible assetsrevenues from correctional contracts.
Healthcare franchising revenue was $19.6 million for the quarter ended
December 31, 1997. The healthcare franchising revenue consisted of approximately $113 million.
The minority stockholders of Green Spring consist of four Blue Cross/Blue
Shield organizations (the "Blues") that are key customers of Green Spring. In
addition, two other Blues organizations that formerly owned a portion of Green
Spring have continued as customers of Green Spring. As of June 30, 1997, the
minority stockholders of Green Spring have the Exchange Option, under certain
circumstances, to exchange their ownership interest in Green Spring for
2,831,739 shares of the Company's Common Stock or $65.1 million in subordinated
notes. The Company may elect to pay cash in lieu of issuing the subordinated
notes. The Exchange Option expires December 13, 1998.
CRESCENT TRANSACTIONS
On June 17, 1997, the Company consummated the Crescent Transactions, which
are more fully described in Note F. The Company's resulting investment in CBHS
will be accounted for under the equity method, which will result in a
significant reduction in the Company's revenues and expenses from its provider
segment in future periods.
PSYCHIATRIC HOSPITAL RESULTS
The following selected statistics include the psychiatric hospitals in
operation, by quarter, for fiscal 1996 and 1997, including (a) psychiatric
hospitals closed during fiscal 1996 and 1997 and (b) psychiatric hospitals
acquired during fiscal 1996 and 1997 (from the date of acquisition). The
selected statistics include the psychiatric hospitals controlledfranchise
fees payable by CBHS pursuant to the master franchising agreement entered into
as a
resultpart of the Crescent Transactions through June 16, 1997.
19
FISCAL FISCAL %
1996 1997 CHANGE
--------- --------- -----------
Hospitals in operation:
December 31................................................................... 102 95 (7)%
March 31...................................................................... 99 93 (6)
June 30....................................................................... 96 13 (86)
September 30.................................................................. 95
Average licensed beds at:
Quarter:
First..................................................................... 9,110 8,463 (7)%
Second.................................................................... 9,040 8,468 (6)
Third..................................................................... 8,677 7,358 (15)
Fourth.................................................................... 8,469
Year.......................................................................... 8,805
Net revenue (in thousands):
Quarter:
First..................................................................... $ 253,565 $ 229,064 (10)%
Second.................................................................... 257,690 225,494 (12)
Third..................................................................... 249,145 195,981 (21)
Fourth.................................................................... 228,597
---------
Year.......................................................................... $ 988,997
---------
---------
Patient days:
Quarter:
First..................................................................... 432,474 392,352 (9)%
Second.................................................................... 463,327 402,929 (13)
Third..................................................................... 452,864 350,877 (23)
Fourth.................................................................... 404,346
---------
Year.......................................................................... 1,753,011
---------
---------
Equivalent patient days:
Quarter:
First..................................................................... 478,693 437,960 (9)%
Second.................................................................... 513,502 447,551 (13)
Third..................................................................... 503,622 390,194 (23)
Fourth.................................................................... 450,708
---------
Year.......................................................................... 1,946,525
---------
---------
Net revenue per equivalent patient day:
Quarter:
First..................................................................... $ 530 $ 523 (1)%
Second.................................................................... 502 504 --
Third..................................................................... 495 502 1
Fourth.................................................................... 507
Year.......................................................................... 508
Admissions:
Quarter:
First..................................................................... 32,865 32,326 (2)%
Second.................................................................... 37,966 34,643 (9)
Third..................................................................... 35,854 29,848 (17)
Fourth.................................................................... 33,861
---------
Year.......................................................................... 140,546
---------
---------
Average length of stay (days):
Quarter:
First..................................................................... 12.4 11.5 (7)%
Second.................................................................... 12.2 11.1 (9)
Third..................................................................... 12.5 11.6 (7)
Fourth.................................................................... 12.5
Year.......................................................................... 12.4
- ------------------------
Note: Includes Northstar Hospital in Anchorage, Alaska that is managed pursuant(the "Franchise Fees").
Provider business revenue decreased 86.3% to a joint venture arrangement.
20
RESULTS OF OPERATIONS
The following table summarizes, for the periods indicated, changes in
selected operating indicators.
PERCENTAGE OF NET REVENUE
------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1996 1997 1996 1997
--------- --------- --------- ---------
Net revenue................................................................ 100.0% 100.0% 100.0% 100.0%
Salaries, supplies and other operating expenses............................ 79.2 81.2 78.3 81.3
Bad debt expense........................................................... 5.5 3.7 6.2 4.6
--------- --------- --------- ---------
Total expenses............................................................. 84.7 84.9 84.5 85.9
Operating margin........................................................... 15.3% 15.1% 15.5% 14.1%
--------- --------- --------- ---------
--------- --------- --------- ---------
Patient days at the Company's hospitals decreased 22.5% and 15.0%$33.1 million for the quarter
and the nine months ended June 30,December 31, 1997 respectively, as compared tofrom $242.4 million in the same periods ofperiod in fiscal 1996.1997.
The decrease resulted primarily from patient
days attributable to the hospitals closed during fiscal 1996 and 1997, declines
in average lengtheffect of stay and the consummation of the
Crescent Transactions on June 17, 1997. Total admissions decreased 16.8% and 9.2% for the quarter and the
nine months ended June 30, 1997, respectively, as compared to the prior year
periods. The decrease resulted primarilyfollowing which revenue from the
hospitals closed in fiscal
1996 and 1997 and the consummation of the Crescent Transactions on June 17,
1997.
The Company's net revenue for the quarter ended June 30, 1997 decreased 6.2%
as compared to the prior year quarter. The decrease was primarily attributable
to (i) the closure of hospitals during fiscal 1996 and 1997, (ii) reduced
equivalent patient days at the Company's operating hospitals and (iii) the
effect of the consummation of the Crescent Transactions offset by revenue growth
in the Company's managed care (Green Spring) and public sector (Public
Solutions) businesses. The 44.0% increase in Green Spring revenue to $95.6
million was primarily attributable to obtaining several new contracts, which
became effective July 1, 1996 and January 1, 1997, to manage the behavioral
healthcare component of certain state Medicaid programs and increases in
services to an insurer. The 39.0% increase in Public Solutions revenue to $24.6
million was primarily attributable to a 25.0 % increase in placements in mentor
homes and $1.4 million in new revenues from correctional contracts.
The Company's net revenue for the nine months ended June 30, 1997 increased
2.5 % as compared to the prior year period. The increase was primarily
attributable to the Green Spring acquisition and related internal growth (as
previously described) and Public Solutions internal growth (as previously
described) offset by (i) the closure of hospitals during fiscal 1996 and fiscal
1997, (ii) reduced equivalent patient days at the Company's operating hospitals
and (iii) the effect of the consummation of the Crescent Transactions. Green
Spring revenues increased 85.1% to $269.1 million and Public Solutions revenue
increased 34.8% to $68.5 million.
The Company's salaries, suppliesPsychiatric Hospital Facilities and other operating expenses decreased 3.9%
and increased 6.3% in the quarter and the nine months ended June 30, 1997
compared to the same periods in fiscal 1996. The increases resulted primarily
from the Green Spring acquisition and related internal growth less the effect of
hospitals closed during fiscal 1996 and 1997 and the effect of the consummation
of the Crescent Transactions.
The Company's bad debt expense decreased 36.0% and 22.6% in the quarter and
the nine months ended June 30, 1997 compared to the same periods in fiscal 1996.
These decreases are primarily attributable to (i) improvement in accounts
receivable agings and turnover compared to prior periods, (ii) shifts towards
governmental and managed care payers, which reduces the Company's credit risk
associated with individual patients and (iii) the effect of the consummation of
the Crescent Transactions.
21
Bad debt expense decreased to 3.7% and 4.6% of revenue for the quarter and the
nine months ended June 30, 1997, respectively. These decreases are primarily
attributable to lower bad debt expense in the provider business and bad debt
expense representing less than 1% of Green Spring revenues for the periods
presented.
Depreciation and amortization decreased $0.8 million and increased $2.0
million in the quarter and the nine months ended June 30, 1997, respectively,
compared to the same periods in fiscal 1996. These changes resulted primarily
from depreciation and amortization related to the Green Spring acquisition and
the effect of the consummation of the Crescent Transactions.
Interest expense, net, decreased $0.5 million and increased $3.9 million for
the quarter and the nine months ended June 30, 1997, respectively, compared to
the same periods in fiscal 1996. The decrease for the three months ended June
30, 1997 resulted primarily from lower average borrowings and higher temporary
investments as a result of the Crescent Transactions. The increase for the nine
months ended June 30, 1997 resulted primarily from approximately $5.0 million of
interest income recorded during the nine months ended June 30, 1996 related to
income tax refunds due from the State of California for the Company's income tax
returns for fiscal 1982 through 1989 offset by reduced interest, net, as a
result of the Crescent Transactions.
Stock option expense for the quarter and the nine months ended June 30, 1997
increased $2.0 million from the previous year periods primarily due to
fluctuations in the market price of the Company's common stock.
Equity in loss of CBHS represents the Company's proportionate (50%) loss in
CBHS for the 14 days ended June 30, 1997. See Note I for further information
regarding the Company's Investment in CBHS.
The Company recorded a loss on the Crescent Transactions of approximately
$59.9 million during the quarter and the nine months ended June 30, 1997. See
Note F for further information regarding the Crescent Transactions.
The Company recorded unusual items, net, of $(1.0) million and $0.4 million,
during the quarter and the nine months ended June 30, 1997, respectively, which
consisted of (i) a $2.6 million and a $5.4 million pre-tax gain on the sale of
previously closed psychiatric hospitals, respectively, (ii) a $4.2 million
charge for the closure of three psychiatric hospitals and one general hospital
during the nine months ended June 30, 1997 and (iii) $1.6 million charge related
to the termination of an agreement to sell the Company's European hospitals
during the quarter and the nine months ended June 30, 1997. During the quarter
and the nine months ended June 30, 1996, the Company recorded an unusual item of
$30.0 million related to the settlement of insurance claims. Also, during the
quarter and the nine months ended June 30, 1996, the Company recorded unusual
items of $2.8 million related to the closure of three hospitals and $1.2 million
for an impairment loss. See Note G for further information regarding unusual
items.
Minority interest increased $0.7 million and $2.7 million in the quarter and
the nine months ended June 30, 1997 as compared to the prior year periods. The
increases are primarily due to (i) the Company acquiring a controlling interest
in Green Spring in December 1995, (ii) Green Spring's internal growth subsequent
to the acquisition date and (iii) increased net income from hospital-based joint
ventures.
The Company recorded extraordinary losses on early extinguishment of debt,
net of tax, of $2.3 million and $5.3 million for the three months and the nine
months ended June 30, 1997, respectively. See Note D for further information
regarding the early extinguishment of debt.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123 ("FAS 123") "Accounting for Stock-Based Compensation," which became
effective for fiscal years beginning after December 15, 1995. FAS 123
established new financial accounting and reporting standards for stock-based
22
compensation plans. Entities will be allowed to measure compensation expense for
stock-based compensation under FAS 123 or APB Opinion No. 25, "Accounting for
Stock Issued to Employees." Entities electing to remain with the accounting in
APB Opinion No. 25 will be required to make pro forma disclosures of net income
and earnings per share as if the provisions of FAS 123 had been applied. The
Company is adopting FAS 123 in fiscal 1997 on a proforma disclosure basis.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
FAS 128, which applies to entities with publicly held common stock or potential
common stock. FAS 128 replaces APB Opinion 15, "Earnings per Share" and related
interpretations. APB Opinion 15 required that entities with simple capital
structures present a single "earnings per common share" ("EPS") on the face of
the income statement, whereas those with complex capital structures present both
"primary" and "fully diluted" EPS. Primary EPS shows the amount of income
attributed to each share of common stock if every common stock equivalent were
converted into common stock. Fully diluted EPS considers common stock
equivalents and all other securities that could be converted into common stock.
Statement 128 simplifies the computation of EPS by replacing the
presentation of primary EPS with a presentation of basic EPS. The Statement
requires dual presentation of basic and diluted EPS by entities with complex
capital structures. Basic EPS includes no dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
of securities that could share in the earnings of an entity, similar to fully
diluted EPS under APB Opinion 15.
FAS 128 becomes effective for financial statements for both interim and
annual periods ending after December 15, 1997. Earlier application is not
permitted. The Company will adopt FAS 128 during the quarter ended December 31,
1997, which is the first quarter of the fiscal year ended September 30, 1998.
The Company has disclosed pro forma EPS amounts computed using FAS 128 in Note H
to the financial statements for the quarter and the nine months ended June 30,
1996 and 1997. After the effective date, all prior-period EPS data presented
will be restated to conform with the provisions of FAS 128.
The primary effect of FAS 128 on the Company's financial statements is the
required dual presentation of basic and diluted income per common share for each
interim and annual reporting period. APB Opinion No. 15 allowed entities with
complex capital structures to present income per common share excluding common
stock equivalents and other potentially dilutive securities if the dilution was
less than three percent.
LIQUIDITY AND SOURCES OF CAPITAL
OPERATING ACTIVITIES. The Company's net cash provided by operating
activities was approximately $60.5 million and $5.2 million for the nine months
ended June 30, 1996 and June 30, 1997, respectively. The decrease in operating
cash flows for the nine months ended June 30, 1997 was primarily the result of
(i) higher income tax payments ($6.9 million and $14.4 million for the nine
months ended June 30, 1996 and 1997, respectively), (ii) $5.0 million of
interest income related to income tax refunds in fiscal 1996 and (iii) reduced
cash flows from its provider business. Management believes its cash flows from
operations will be adequate to fund operations, capital expenditures and debt
service obligations in future periods.
INVESTING ACTIVITIES. The Company acquired a 61% ownership interest in
Green Spring during the first quarter of fiscal 1996. The consideration paid for
Green Spring and related acquisition costs resulted in the use of cash of
approximately $87.2 million compared to approximately $28.8 million for
acquisitions and investments in businesses during the nine months ended June 30,
1997.
23
The Crescent Transactions resulted in net proceeds of $384.0 million, during
the nine months ended June 30, 1997 which consists of the following (in
thousands):
Sale of Property and Equipment to Crescent and CBHS............... $ 392,200
Crescent Transaction costs........................................ (8,159)
---------
$ 384,041
---------
---------
The Company also made a $2.5 capital contributionfacilities transferred to CBHS on June 20, 1997.
The Company expects to fund an additional $15.4 million in transaction costs and
construction obligations related to the Crescent Transactions through fiscal
1998.
Management believes that its cash on hand, future cash flows from
operations, borrowing capacity under the New Revolving Credit Agreement and its
ability to issue debt and equity securities under current market conditions will
provide adequate capital resources to support the Company's anticipated
investing strategies.
FINANCING ACTIVITIES. The Company borrowed approximately $68.1 million and
$88.0 million (excluding borrowings of approximately $115.6 million to pay off
the previous Revolving Credit Agreement), respectively, during the nine months
ended June 30, 1996 and 1997, primarily to fund the acquisition of Green Spring
in fiscal 1996 and to (i)fund the payment of variable rate secured notes and
other long-term debt, (ii)fund acquisitions and (iii)fund working capital needs
in fiscal 1997. The Company believes that its businesses will generate
sufficient cash flows from operations to meet its future debt service
requirements.
The Company paid off approximately $84.5 million and $389.4 million of debt
and capital lease obligations during the nine months ended June 30, 1996 and
1997, respectively. The payments relate primarily to servicing and refinancing
long-term debt under the Revolving Credit Agreements and servicing variable rate
secured notes and other long-term debt as a result of the Crescent Transactions.
The Company issued approximately 2.6 million warrants with a fair value of
$25.0 million to Crescent and COIwas no
longer recorded as part of the Crescent Transactions during
the nine months ended June 30, 1997.
On September 27, 1996, the Company repurchased approximately 4.0 million
shares of its Common Stock for approximately $73.5 million, including
transaction costs, pursuant to a "Dutch Auction" self-tender offer to its
stockholders. On November 1, 1996, the Company announced that its board of
directors approved the repurchase of an additional 3.0 million shares of its
Common Stock from time to time subject to the terms of the New Revolving Credit
Agreement. The Company expects to use cash on hand, future cash flows from
operations and borrowings under its New Revolving Credit Agreement to fund any
future treasury stock purchases.
As of June 30, 1997, the Company had $193.4 million of availability under
the New Revolving Credit Agreement. The Company was in compliance with all debt
covenants at June 30, 1997.
OUTLOOK
CRESCENT TRANSACTIONS. The Company relinquished control of CBHS upon
consummation of the Crescent Transactions. Magellan's operational input in CBHS
will be limited to those rights provided by the franchise agreements and the
CBHS Operating Agreement.
The Franchise Fees payable to the Company by CBHS are subordinated in
payment to the $41.7 million annual base rent, 5% minimum escalator rent and, in
certain circumstances, the additional rent due Crescent under the CBHS
Facilities Lease. If CBHS encounters a decline in earnings or financial
difficulties, such amounts due Crescent will be paid before any Franchise Fees
are paid. The remainder of CBHS' available cash will then be applied in such
order of priority as CBHS may determine, in the reasonable discretion of the
CBHS board, to all other operating expenses of CBHS, including the current
24
and accumulated Franchise Fees. The Company will be entitled to pursue all
available remedies for breach of the Master Franchise Agreement, except that the
Company does not have the right to take any action that could reasonably be
expected to force CBHS into bankruptcy or receivership. In addition, if CBHS
encounters a decline in earnings or financial difficulties, it is possible that
cash flows from CBHS' operations will not be sufficient to pay all or a portion
of the Franchise Fees when due.
The Company has used the proceeds of the Crescent Transactions to reduce net
interest expense by repaying long-term debt where possible and investing the
remaining proceeds in short-term cash equivalents. Although net interest expense
will be lower, the Company's reduced earnings as a result of the Crescent
Transactions could be even more pronounced until capital resource allocation
decisions (e.g., acquisitions) related to the net proceeds from the Crescent
Transactions are implemented.
SALE OF EUROPEAN HOSPITALS. On March 19, 1997, the Company announced that
it signed definitive agreements with Priory Hospitals Holdings Limited and
Priory Hospitals Europe Limited for the sale of its two psychiatric hospitals in
London and its psychiatric hospital in Nyon, Switzerland. The sale of the
European Hospitals was subject to regulatory approval. The total purchase price
for the European Hospitals and license agreements was $76 million.
On June 17, 1997, the Company announced that the sale of its two United
Kingdom hospitals had been referred to the Monopolies and Mergers Commission
("MMC") by the Office of Fair Trade under the provisions of the Fair Trading
Act. The MMC is required to make their report by September 15, 1997. The time
period for receiving regulatory approval expired and the Company elected not to
consummate the sale and has begun exploring other strategic alternatives related
to its European hospitals.
NET OPERATING LOSS CARRYFORWARDS The Company incurred a gain for federal
income tax purposes of approximately $50 million as a result of the Crescent
Transactions. The Company intends to utilize net operating loss carryforwards
("NOLs") to offset such taxable gains to the extent NOLs are available. The
expected utilization of NOLs as a result of the Crescent Transactions will
accelerate the payment of federal income taxes in future periods, resulting in
lower cash flows from operations in future periods.
OPERATIONS-PROVIDER. CBHS management continually assesses events and
changes in circumstances that could affect its business strategy and the
viability of its operations. During fiscal 1995 and 1996, Magellan consolidated,
closed or sold 15 and 9 psychiatric hospitals, respectively. During fiscal 1997,
Magellan has consolidated or closed three psychiatric hospitals and its one
general hospital. See Note G for further information regarding facility closures
in fiscal 1996 and 1997. CBHS may pursue acquisitions during fiscal 1998 in
markets where it does not currently have a presence and in markets where it has
existing hospital operations. CBHS management may consolidate services in
selected markets as a result of acquisitions or overcapacity by closing
additional facilities in future periods depending on market conditions and
evolving business strategies. If CBHS closes additional psychiatric hospitals in
future periods, it could result in additional charges to income for the costs
necessary to exit the hospital operations, which would result in lower equity in
earnings of CBHS for the Company.
The Company's hospitals and CBHS' hospitals continue to experience a shift
in payer mix to managed care payers from other payers, which contributed to a
reduction in revenue per equivalent patient day in fiscal 1996 and average
length of stay in fiscal 1996 and 1997. Management anticipates continued
shifting in CBHS' hospital payer mix towards managed care payers as a result of
changes in the healthcare marketplace. Future shifts in CBHS' hospital payer mix
to managed care payers could result in lower revenue per equivalent patient day
and lower average length of stay in future periods for CBHS' hospital
operations. In addition, the recently passed Federal budget will, beginning in
fiscal 1998, reduce the amount of reimbursement the Company and CBHS receive for
treatment of Medicare patients. Lower revenue per equivalent patient day and
declines in average length of stay at CBHS' hospitals could result in lower
equity in earnings from CBHS for the Company and the recognition of bad debt
expense related to franchise fee receivables in future periods, if any.
25
During fiscal 1994, 1995 and 1996, the Company recorded revenue of $32.1
million, $35.6 million and $28.3 million, respectively, for settlements and
adjustments related to reimbursement issues.revenue. During the quarterquarters ended
December 31, 1996 and the nine
months ended June 30, 1997, the Company recorded revenue of $2.5$11.0 million and
$16.2$0.7 million, respectively, for settlements and adjustments related to
reimbursement issues comparedwith respect to $3.3psychiatric hospitals owned or formerly
owned by the Company. During fiscal 1997, the Company recorded $27.4 million and $14.4 million, respectively,
for
the prior year periods. The settlements in fiscal 1994, 1995 and 1996
related primarily to certain reimbursable costs associated with the Company's
financial reorganization in fiscal 1992 and costs related to the early
extinguishment of long-term debt in fiscal 1994.such settlements. Management anticipates that revenue related to such
settlements will decline significantly for fiscal 1998.
SALARIES, COST OF CARE AND OTHER OPERATING EXPENSES. Salaries, cost of care
and other operating expenses attributable to the managed care business increased
61.7% to $119.6 million for the quarter ended December 31, 1997 from $73.9
million in the same period in fiscal 1997. The increase resulted primarily from
the acquisition of HAI and Allied, which had expenses of $6.8 million and $17.6
million, respectively, for the quarter ended December 31, 1997, and thatfrom
continued growth at Green Spring.
18
Public sector salaries, cost of care and other operating expenses increased
39.0% to $27.4 million for the decline will be comparablequarter ended December 31, 1997 from $19.7
million in the same period in fiscal 1997. The increase was due primarily to
internal growth and increases in costs related to expansion and new product
development.
Healthcare franchising operating expenses were $2.2 million for the quarter
ended December 31, 1997. The Company recorded no expenses with respect to the
reduction experiencedhealthcare franchising business during the quarter ended December 31, 1996
because the Crescent Transactions were not consummated until the third quarter
of fiscal 1997.
Salaries, cost of care and other operating expenses attributable to the
provider business decreased 88.0% to $22.1 million for the quarter ended
December 31, 1997 from $184.7 million in the same period in fiscal 1996.
Management also expects revenue related1997. The
decrease resulted primarily from the effect of the consummation of the Crescent
Transactions, following which operating expenses of the Psychiatric Hospital
Facilities and other facilities transferred to such settlements to decline in fiscal
1998 from anticipated fiscalCBHS were no longer accounted for
as part of the Company's operating expenses. During the quarter ended December
31, 1997, levels comparable to the reduction anticipated
in fiscal 1997 as compared to fiscal 1996.
During fiscal 1996, the Company recorded reductions of expenses of approximately $15.3$4.1
million as a result of updated actuarial estimates related to malpractice claim
reserves. The Company recorded reductions of expenses of
approximately $4.8 million and $12.3 million during the quarter and the nine
months ended June 30, 1996 and $2.5 million and $7.5 million in the quarter and
the nine months ended June 30, 1997, respectively. These reductions resulted primarily from updates to actuarial
assumptions regarding the Company's expected losses for more recent policy
years. These revisions are based on changes in expected values of ultimate
losses resulting from the Company's claim experience, and increased reliance on
such claim experience. While Managementmanagement and its actuaries believe that the
present reserve is reasonable, ultimate settlement of losses may vary from the
amount recorded and result in additional fluctuations in income in future
periods.
HUMAN AFFAIRS INTERNATIONAL, INC. ACQUISITION
On August 5,BAD DEBT EXPENSE. Bad debt expense, which is primarily attributable to the
provider business, decreased 94.7%, or $19.2 million, for the quarter ended
December 31, 1997 compared to the same period in fiscal 1997. The decrease was
primarily attributable to the effect of the consummation of the Crescent
Transactions, following which the bad debt expense incurred by the Psychiatric
Hospital Facilities and other facilities transferred to CBHS was no longer
accounted for as part of the Company's bad debt expense.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased
46.8%, or $6.1 million, for the quarter ended December 31, 1997 compared to the
same period in fiscal 1997. The decrease was primarily attributable to the
effect of the consummation of the Crescent Transactions, whereby the Psychiatric
Hospital Facilities were sold to Crescent, offset by increases in depreciation
and amortization resulting from the HAI and Allied acquisitions.
INTEREST, NET. Interest expense, net, decreased 45.5%, or $6.2 million, for
the quarter ended December 31, 1997 compared to the same period in fiscal 1997.
The decrease was primarily the result of lower interest expense due to lower
average borrowings and higher interest income due to temporary investments of
the cash received in the Crescent Transactions.
OTHER ITEMS. Stock option expense (credit) for the quarter ended December
31, 1997 decreased $4.6 million from the quarter ended December 31, 1996
primarily due to fluctuations in the market price of the Company's common stock.
The Company recorded equity in the loss of CBHS of $11.5 million for the
quarter ended December 31, 1997, representing the Company's proportionate (50%)
loss in CBHS for the quarter ended December 31, 1997. See Note G--"Investment in
CBHS".
Minority interest increased $0.9 million during the quarter ended December
31, 1997 compared to the same period in fiscal 1997. The increase was primarily
due to Green Spring's net income growth in fiscal 1998.
19
The Company recorded an extraordinary loss on early extinguishment of debt,
net of tax, of $3.0 million during the quarter ended December 31, 1996 related
to the termination of its then existing credit agreement.
IMPACT OF CRESCENT TRANSACTIONS
The Company owns a 50% equity interest in CBHS, from which it receives the
Franchise Fees. The Franchise Fees represent a significant portion of the
Company's earnings and cash flows. The following is a discussion of certain
matters related to the Company's ownership of CBHS that may have a bearing on
the Company's future results of operations.
CBHS may consolidate services in selected markets by closing facilities
depending on market conditions and evolving business strategies. For example,
during fiscal 1995 and 1996, the Company consolidated, closed or sold 15 and 9
psychiatric hospitals, respectively. During fiscal 1997, the Company
announced thatconsolidated or closed three psychiatric hospitals prior to the Crescent
Transactions. If CBHS closes additional psychiatric hospitals, it had signed a definitive
agreementcould result
in charges to income for the purchasecosts attributable to the closures, which would
result in lower equity in earnings of Human Affairs International, Inc. ("HAI"CBHS for the Company.
The Company's JV Hospitals and CBHS' hospitals continue to experience a
shift in payor mix to managed care payors from other payors, which contributed
to a reduction in revenue per equivalent patient day in fiscal 1996 and a
decline in average length of stay in fiscal 1995, 1996 and 1997. Management
anticipates a continued shift in hospital payor mix towards managed care payors
as a result of changes in the healthcare marketplace. Future shifts in hospital
payor mix to managed care payors could result in lower revenue per equivalent
patient day and lower average length of stay in future periods for the Company's
JV Hospitals and CBHS' hospitals, which could result in lower equity in earnings
from CBHS for the Company and cash flows to pay the Franchise Fees. The
hospitals currently managed or operated by CBHS, including hospitals closed or
sold in 1997, reported a 10% reduction in equivalent patient days, a 7%
reduction in average length of stay and a 4% decrease in admissions in fiscal
1997 compared to fiscal 1996.
The Balanced Budget Act of 1997 (the "Budget Act"), a unitwhich was enacted by
Congress in August 1997, includes provisions that eliminated the TEFRA bonus
payment and reduced reimbursement of Aetna U.S. Healthcarecertain costs previously paid by Medicare
and eliminated the Medicaid "disproportionate share" program. These provisions,
along with other provisions in the Budget Act, will reduce the amount of revenue
and earnings that CBHS hospitals will receive for approximately $122.1the treatment of Medicare
patients. CBHS management estimates that such reductions will approximate $10
million in cash.fiscal 1998, and due to the phase-in effects of the Budget Act,
approximately $15 million annually in subsequent fiscal years.
Based on projections of fiscal 1998 operations prepared by management of
CBHS and results of operations through December 31, 1997, the Company believes
that CBHS will be unable to pay the full amount of the Franchise Fees it is
contractually obligated to pay the Company during fiscal 1998. The Company
currently estimates that CBHS will be able to pay approximately $58 to $68
million of the Franchise Fees in fiscal 1998, a $10 to $20 million shortfall
relative to amounts payable under the master franchise agreement. The Company
may be required to record bad debt expense related to Franchise Fees receivable
from CBHS, if any, in fiscal 1998 or future periods if CBHS's operating
performance does not improve to levels achieved prior to the consummation of the
Crescent Transactions. If CBHS defaults in payment of the Franchise Fees, the
Company will pursue all remedies available to it under the master franchise
agreement.
IMPACT OF THE MERIT ACQUISITION
Following the Merit acquisition, the Company provides managed behavioral
healthcare services in the United States to over 58 million covered lives. The
Company believes it has the number one market position in each of the major
product markets in which it competes. The Company believes its industry
20
leading position will enhance its ability to (1) provide a consistent level of
high quality service on a nationwide basis; (ii) enter into favorable agreements
with behavioral healthcare providers that allow it to effectively control
healthcare costs for its customers; and (iii) effectively market its managed
care products to large corporate, HMO and insurance customers, which, the
Company believes, increasingly prefer to be serviced by a single-source provider
on a national basis.
The Company believes that the Merit acquisition creates opportunities for
the Company to achieve significant cost savings in its managed behavioral
healthcare business. Management believes that cost saving opportunities will
result from leveraging fixed overhead over a larger revenue base and an
increased number of covered lives and from reducing duplicative corporate and
regional selling, general and administrative expenses. As a result, the Company
expects to achieve approximately $60.0 million of cost savings in its managed
behavioral healthcare business on an annual basis within eighteen months
following the consummation of the Merit acquisition. The Company expects to
spend approximately $26.0 million during the eighteen months following the
consummation of the Merit acquisition in connection with achieving such costs.
The Company expects to finalize its plans for the integration of the
businesses of Green Spring, HAI managesand Merit by March 31, 1998. The Company expects
to record charges to operations during the carequarter ended March 31, 1998 to the
extent the integration plan results in the elimination of personnel and facility
closures at HAI and Green Spring and for integration plan costs incurred that
benefit future periods.
The full implementation of the integration plan is expected to take eighteen
months. The Merit acquisition and related transactions are expected to be
dilutive to future earnings until the integration plan is substantially
complete. Accordingly, such earnings dilution will be most significant during
the remaining quarters of fiscal 1998.
The Company expects to record an extraordinary loss of approximately 15$30.0
million covered lives throughto $35.0 million, net of tax benefits, in connection with the
termination of its Credit Agreement and extinguishing the $375 million in 11.25
% Senior Subordinated Notes as part of the Transactions.
HISTORICAL LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Company's net cash used in operating activities
was approximately $23.4 million and $31.7 million for the quarters ended
December 31, 1996 and 1997, respectively. The Company typically has negative
operating cash flows in the December quarter each year due to the interest
payment previously due in October each year for the $375 million 11.25% Senior
Subordinated Notes and annual employee assistance
programsincentive payments. Operating cash flows
for the quarter ended December 31, 1997 were also adversely affected by the
change in due to/from CBHS, primarily due to working capital advances, of $11.3
million, the prepayment of CHARTER call center management fees to CBHS of $5.9
million and managed behavioral health plans.insurance settlement payments of $6.8 million.
INVESTING ACTIVITIES. The Company utilized $165.5 million in funds, net of
cash acquired, for acquisitions and investments in businesses, including Allied
and HAI, during the quarter ended December 31, 1997. In addition, the Company
paid approximately $4.3 million for Crescent Transaction costs during the
quarter ended December 31, 1997. The Company expects to fund an additional $6.6
million in transaction costs and construction costs in fiscal 1998 related to
the acquisition of HAI with cash on hand.Crescent Transactions.
FINANCING ACTIVITIES. The Company will account for the
acquisitionborrowed approximately $126.8 million,
net of HAI using the purchase method of accounting. The HAI acquisition
is subject to federal and state approval and other customary matters and is
expected to closeissuance costs, in the first quarter of fiscal 1998.1997, primarily to
refinance its then existing credit agreement. The Company repurchased
approximately 545,000 shares of its common stock for approximately $12.5 million
during the quarter ended December 31, 1997.
As of February 12, 1998, the Company had approximately $112.5 million of
availability under the Revolving Facility of the New Credit Agreement.
21
PRO FORMA LIQUIDITY AND CAPITAL RESOURCES
Following the consummation of the Merit acquisition, interest payments on
the Notes and interest and principal payments on indebtedness outstanding
pursuant to the New Credit Agreement will represent significant liquidity
requirements for the Company. Borrowings under the New Credit Agreement will
bear interest at floating rates and will require interest payments on varying
dates depending on the interest rate option selected by the Company. Borrowings
pursuant to the New Credit Agreement will include $550 million in Term Loans and
up to $150 million under the Revolving Facility. Commencing in the second
quarter of fiscal 1999, the Company will be required to make principal payments
with respect to the Term Loans.
The Company is in the process of finalizing its plans for the integration of
the businesses of Green Spring, HAI and Merit. The Company expects to achieve
approximately $60.0 million of cost savings on an annual basis within eighteen
months following the consummation of the Merit acquisition. Such cost savings
are measured relative to the combined budgeted amounts of the Company, Merit and
HAI for the current fiscal year prior to the cost savings initiatives. The
Company expects to spend approximately $26.0 million during the eighteen months
following the consummation of the Merit acquisition in connection with achieving
such cost savings, including expenses related to reducing duplicative personnel
in its managed care organizations, contractual terminations for eliminating
excess real estate (primarily locations under operating leases) and other
related costs in connection with the integration plan. Certain of such costs
will be capital expenditures.
During December 1997, the Company purchased HAI and Allied for approximately
$122.1 million and $70.0 million, respectively, excluding transaction costs. In
addition, the Company incurred the obligation to make contingent payments to the
former owners of HAI and Allied. With respect to HAI, the Company may be
required to make additional contingent payments of up to $300$60.0 million annually
to Aetna U.S. Healthcare (the "Contingent Payments") over the five-year period subsequent to closing. The Company is
obligated to make contingent payments under two separate calculations. Under the
first calculation, the amount and timing of the contingent payments will be
based on growth in the number of lives covered by certain HAI products during
the next five years. The Company may be required to make contingent payments of
up to $25.0 million per year for each of the five years following the HAI
acquisition depending on the net annual growth in the number of lives covered by
such HAI products. The amount to be paid per incremental covered life decreases
during the five-year term of the Company's contingent payment obligation. Under
the second calculation, the Company may be required to make contingent payments
of up to $35.0 million per year for each of five years based on the net
cumulative growth in the number of lives covered by certain other HAI products.
Aetna will receive a specified amount per net incremental life covered by such
products. The amount to be paid per incremental covered life increases with the
number of incremental covered lives.
The Company may be required to pay up to $40.0 million during the three
years following the closing of the Allied acquisition based on Allied's
performance relative to certain earnings targets. In connection with Merit's
acquisition of CMG Health, Inc. ("CMG"), the Company, by acquiring Merit, may be
required to make certain future contingent cash payments over the next two years
to the former shareholders of CMG based upon the performance of certain CMG
customer contracts. Such contingent payments are subject to an aggregate maximum
of $23.5 million.
The Company believes that the cash flow generated from its operations
together with amounts available for borrowing under the New Credit Agreement,
should be sufficient to fund its debt service requirements, anticipated capital
expenditures, contingent payments, if any, with respect to HAI, Allied and CMG
and other investing and financing activities. The Company currently estimates
that it will spend approximately $50.0 million to $60.0 million for capital
expenditures in fiscal 1998. On a combined basis, the Company (excluding its
provider business), Merit and HAI spent approximately $40 million for capital
expenditures during fiscal 1997. The majority of the Company's budgeted capital
expenditures relate to
22
management information systems and related equipment. The Revolving Facility
will provide the Company with revolving loans and letters of credit in an
aggregate principal amount at any time not to exceed $150.0 million. Immediately
after the consummation of the Transactions, $112.5 million, including $17.5
million for letters of credit, was available to the Company for borrowing
pursuant to the Revolving Facility. The Company's future operating performance
and ability to service or refinance the Notes or to extend or refinance the
indebtedness outstanding pursuant to the New Credit Agreement will be subject to
future economic conditions and to financial, business and other factors, many of
which are beyond the Company's control.
The New Credit Agreement provides for the Term Loan Facility in an aggregate
principal amount of $550 million, consisting of an approximately $183.3 million
Tranche A Term Loan (the "Tranche A Term Loan"), an approximately $183.3 million
Tranche B Term Loan (the "Tranche B Term Loan") and an approximately $183.3
million Tranche C Term Loan (the "Tranche C Term Loan") and the Revolving
Facility providing for revolving loans to the Company and the "Subsidiary
Borrowers" (as defined therein) and the issuance of letters of credit for the
account of the Company and the Subsidiary Borrowers in an aggregate principal
amount (including the aggregate stated amount of letters of credit) of $150
million.
The Tranche A Term Loan and the Revolving Facility will mature on the date
that is six years after the closing of the Transactions. The Tranche B Term Loan
will mature on the date that is seven years after the closing of the
Transactions and the Tranche C Term Loan will mature on the date that is eight
years after the closing of the Transactions. The Tranche A Term Loan will be
amortized in installments in amounts equal to $22.0 million in the second year
following the closing date, $30.0 million in the third year following the
closing date, $36.0 million in the fourth year following the closing date, $48.0
million in the fifth year following the closing date, and $47.3 million in the
sixth year following the closing date. The Tranche B Term Loan will be amortized
in installments in amounts equal to $2.2 million in each of the second through
fifth years following the closing date, $55.0 million in the sixth year
following the closing date, and $119.5 million in the seventh year following the
closing date. The Tranche C Term Loan will be amortized in installments in
amounts equal to $2.2 million in each of the second through sixth years
following the closing date, $55.0 million in the seventh year following the
closing date and $117.3 million in the eighth year following the closing date.
In addition, the credit facilities are subject to mandatory prepayment and
reductions (to be applied first to the Term Loan Facility) in an amount equal to
(a) 100% of the net proceeds of certain circumstances.offerings of equity securities by the
Company or any of its subsidiaries, (b) 100% of the net proceeds of certain debt
issuances of the Company or any of its subsidiaries, (c) 75% of the Company's
excess cash flow, as defined, and (d) 100% of the net proceeds of certain asset
sales or other dispositions of property of the Company and its subsidiaries, in
each case subject to certain limited exceptions.
The New Credit Agreement will impose restrictions on the Company's ability
to make capital expenditures and both the New Credit Agreement and the Indenture
governing the Notes limit the Company's ability to incur additional
indebtedness. Such restrictions, together with the highly leveraged financial
condition of the Company subsequent to the Merit acquisition, could limit the
Company's ability to respond to market opportunities. The covenants contained in
the New Credit Agreement will also, among other things, restrict the ability of
the Company to dispose of assets, repay other indebtedness, amend other debt
instruments (including the Indenture), pay dividends, create liens on assets,
enter into sale and leaseback transactions, make investments, loans or advances,
redeem or repurchase common stock and make acquisitions.
23
MODIFICATION OF COMPUTER SOFTWARE FOR THE YEAR 2000
The Company and its subsidiaries have internally developed computer software
systems that process transactions based on storing two digits for the year of a
transaction (i.e., "97" for 1997) rather than four digits, which will be
required for year 2000 transaction processing. CBHS expects to spend $1.0
million in the aggregate during fiscal 1998 and fiscal 1999 to modify internal
use software. The Company expects to fundspend approximately $1.6 million in the
Contingent Payments, ifaggregate during fiscal 1998 and fiscal 1999 to modify internal use software.
The Company does not anticipate incurring any with a combinationother significant costs for year
2000 software modification. The cost of cash on
hand, future cash flows from operations and borrowing capacity undermodifying internal use software for the
New
Revolving Credit Agreement.
26year 2000 is charged to expense as incurred.
24
PART II--OTHER INFORMATION
ITEM 1.--LEGAL PROCEEDINGS
The Company and certainCertain of itsthe Company's subsidiaries are subject to or parties to claims,
civil suits and governmental investigations and inquiries relating to their
operations and certain alleged business practices. In the opinion of management,
based on consultation with counsel, resolution of these matters will not have a
material adverse effect on the Company's financial position or results or
operations.
ITEM 4.--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held an annual meeting of stockholders on May 30, 1997.
The tabulation of votes with respect to each matter voted upon at the
meeting is as follows:
VOTES CAST
------------------------------------------------
AUTHORITY BROKER
FOR WITHHELD ABSTAIN NON-VOTES
------------ ----------- --------- ----------
Election of:
E. Mac Crawford as a Director (term expiring in 2000)............ 25,501,517 502,794 N/A N/A
Raymond H. Kiefer as a Director (term expiring in 2000).......... 25,551,055 453,256 N/A N/A
Gerald L. McManis as a Director (term expiring 2000)............. 25,032,534 971,777 N/A N/A
BROKER
FOR AGAINST ABSTAIN NON-VOTES
------------ ----------- --------- ----------
Approval of:
Increasing the number of Directors from 8 to 12.................. 25,936,831 42,738 24,742 0
1997 Stock Option Plan........................................... 21,557,684 496,605 43,393 3,906,629
Crescent Transactions............................................ 21,413,032 49,460 635,096 3,906,723
ITEM 6.--EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2(a) Real Estate Purchase and Sale Agreement, dated January 29, 1997, between the Company and
Crescent Real Estate Equities Limited Partnership, which was filed as Exhibit 2(a) to the
Company's current report on Form 8-K filed on April 23, 1997, and is incorporated herein by
reference.
2(b) Amendment No. 1, dated February 28, 1997, to the Real Estate Purchase and Sale Agreement, dated
January 29, 1997, between the Company and Crescent Real Estate Equities Limited Partnership,
which was filed as Exhibit 2(b) to the Company's current report on Form 8-K filed on April 23,
1997, and is incorporated herein by reference.
2(c) Amendment No. 2, dated May 29, 1997, to the Real Estate Purchase and Sale Agreement, dated
January 29, 1997, between the Company and Crescent Real Estate Equities Limited Partnership,
which was filed as Exhibit 2(c) to the Company's current report on Form 8-K, which was filed on
June 30, 1997, and is incorporated herein by reference.
2(d) Contribution Agreement, dated June 16, 1997 between the Company and Crescent Operating, Inc.,
which was filed as Exhibit 2(d) to the Company's current report on Form 8-K, which was filed on
June 30,(a) Exhibits
2(a) Stock Purchase Agreement, dated August 5, 1997, between the Company and
Aetna Insurance Company of Connecticut, which was filed as Exhibit 2(a)
to the Company's current report on Form 8-K, which was filed on December
17, 1997, and is incorporated herein by reference.
27
4(a) Warrant Purchase Agreement, dated January 29,2(b) Master Service Agreement, dated August 5, 1997, between the Company and Crescent Real
Estate Equities Limited Partnership which was filed as Exhibit 4(a) to the Company's current
report on Form 8-K, which was filed on April 23, 1997, and is incorporated herein by reference.
4(b) Amendment No. 1, dated June 17, 1997, to the Warrant Purchase Agreement, dated January 29,
1997, between the Company and Crescent Real Estate Equities Limited Partnership, which was
filed as Exhibit 4(b) to the Company's current report on Form 8-K, which was filed on June 30,
1997, and is incorporated herein by reference.
10(a) Master Lease Agreement, dated June 16, 1997, between Crescent Real Estate Funding VII, L.P., as
Landlord, and Charter Behavioral Health Systems, LLC, as Tenant, which was filed as Exhibit
99(b) to the Company's current report on Form 8-K, which was filed on June 30, 1997, and is
incorporated herein by reference.
10(b) Master Franchise Agreement, dated June 17, 1997, between the Company and Charter Behavioral
Health Systems, LLC, which was filed as Exhibit 99(c) to the Company's current report on Form
8-K, which was filed on June 30, 1997, and is incorporated herein by reference.
10(c) Form of Franchise Agreement, dated June 17, 1997, between the Company, as Franchisor, and
Franchise Owners, which was filed as Exhibit 99(d) to the Company's current report on Form 8-K,
which was filed on June 30, 1997, and is incorporated herein by reference.
10(d) Subordination Agreement, dated June 16, 1997, between the Company, Charter Behavioral Health
Systems, LLC and Crescent Real Estate Equities Limited Partnership, which was filed as Exhibit
99(e) to the Company's current report on Form 8-K, which was filed on June 30, 1997, and is
incorporated herein by reference.
10(e) Operating Agreement of Charter Behavioral Health systems, LLC, dated June 16, 1997, between the
Company and Crescent Operating, Inc., which was filed as Exhibit 99(f) to the Company's current
report on Form 8-K, which was filed on June 30, 1997, and is incorporated herein by reference.
10(f) Warrant Purchase Agreement, dated June 16, 1997, between the Company and Crescent Operating,
Inc., which was filed as Exhibit 99(g) to the Company's current report on Form 8-K, which was
filed on June 30, 1997, and is incorporated herein by reference.
10(g)* Employment Agreement, dated March 1, 1997, between the Company and E. Mac Crawford.
10(h) Amended and Restated Credit Agreement, dated June 16, 1997, among the Company and Chase
Manhattan Bank, as Administrative Agent and First Union National Bank of North Carolina as
Syndication Agent.
10(i)* 1997 Stock Option Plan of the Company,
28Aetna U.S. Healthcare, Inc. and Human Affairs International,
Incorporated, which was filed as Exhibit 2(b) to the Company's current
report on Form 8-K, which was filed on December 17, 1997, and is
incorporated herein by reference.
2(c) Amendment to Stock Purchase Agreement, dated December 4, 1997, between
the Company and Aetna Insurance Company of Connecticut, which was filed
as Exhibit 2(c) to the Company's current report on Form 8-K, which was
filed on December 17, 1997, and is incorporated herein by reference.
2(d) First Amendment to Master Services Agreement, dated December 4, 1997,
between the Company, Aetna U.S. Healthcare, Inc. and Human Affairs
International, Incorporated, which was filed as Exhibit 2(d) to the
Company's current report on Form 8-K, which was filed on December 17,
1997, and in incorporated herein by reference.
2(e) Asset Purchase Agreement, dated October 16, 1997, among the Company;
Allied Health Group, Inc.; Gut Management, Inc.; Sky Management Co.;
Florida Specialty Network, LTD; Surgical Associates of South Florida,
Inc.; Surginet, Inc.; Jacob Nudel, M.D.; David Russin, M.D. and Lawrence
Schimmel, M.D.
2(f) First Amendment to Asset Purchase Agreement, dated December 5, 1997,
among the Company; Allied Health Group, Inc.; Gut Management, Inc.; Sky
Management Co.; Florida Specialty Network, LTD; Surgical Associates of
South Florida, Inc.; Surginet, Inc.; Jacob Nudel, M.D.; David Russing
M.D. and Lawrence Schimmel, M.D.
2(g) Agreement and Plan of Merger, dated October 24, 1997, among the
Company, Merit Behavioral Care Corporation and MBC Merger Corporation.
27 Financial Data Schedule
25
27 Financial Data Schedule
99 Safe Harbor for Forward-Looking Statements under the Private Litigation Reform Act of 1995:
Certain Cautionary Statements.
- ------------------------
* Constitutes a management contract or compensatory plan arrangement.
(b) ReportsReport on Form 8-K
The following current reports on Form 8-K were filed by the
Registrant with the Securities and Exchange Commission during the quarter
ended June 30,December 31, 1997.
FINANCIAL
STATEMENTS
DATE OF REPORT ITEM REPORTED AND DESCRIPTION FILED
- ----------------------------- -------------------------------------------------------- ----------------------------------------------- --------------------------------- ---------------
April 23,December 17, 1997 Other Events--Crescent Transaction Documents No
June 30, 1997 Disposition of Assets--Crescent Transactions Yes(1)Acquisition--HAI Acquisition Yes (1)
- ------------------------
(1) Unaudited Pro Forma Statements of OperationsAudited financial statements for the fiscaltwo years in the period ended
December 31, 1996, unaudited financial statements for the nine months
ended September 30, 1997 and 1996 and as of September 30, 1997, unaudited
pro forma statement of operations for the year ended September 30, 1996 and the six months ended March 31, 1997
and unaudited Pro
Forma Balance Sheetpro forma balance sheet as of March 31,September 30, 1997.
2926
FORM 10-Q
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAGELLAN HEALTH SERVICES, INC.
-------------------------------------------------------------------------------------
(Registrant)
Date: August 12 , 1997February 16, 1998 /s/ CRAIGCraig L. MCKNIGHT
------------------------------------------McKnight
-------------------------------------------
Craig L. McKnight
Executive Vice President and
Chief Financial Officer
Date: August 12 , 1997February 16, 1998 /s/ HOWARDHoward A. MCLURE
------------------------------------------McLure
-------------------------------------------
Howard A. McLure
Senior Vice President and Controller
(Principal Accounting Officer)
3027