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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 December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _________________
Commission File 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
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
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
The number of shares of the Registrant's Common Stock outstanding as of January
31, 1996, was 32,747,523.
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PAGE>
ADDITIONAL REGISTRANTS(1)
State or Address including zip code,
Exact name of jurisdiction I.R.S. Employer including area code,
registrant as specified of incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- -----------------------
Beltway Community Texas 58-1324281 3414 Peachtree Rd., N.E.
Hospital, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
C.A.C.O. Services, Inc. Ohio 58-1751511 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
CCM, Inc. Nevada 58-1662418 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
CMCI, Inc. Nevada 88-0224620 1061 East Flamingo Road
Suite One
Las Vegas, NV 89119
(702) 737-0282
CMFC, Inc. Nevada 88-0215629 1061 East Flamingo Road
Suite One
Las Vegas, NV 89119
(702) 737-0282
CMSF, Inc. Florida 58-1324269 3550 Colonial Boulevard
Fort Myers, FL 33912
(813) 939-0403
CPS Associates, Inc. Virginia 58-1761039 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Alvarado California 58-1394959 7050 Parkway Drive
Behavioral Health La Mesa, CA 91942-2352
System, Inc. 619) 465-4411
Charter Appalachian Hall North Carolina 58-2097827 60 Caledonia Road
Behavioral Health Asheville, NC 28803
System, Inc. (704) 253-3681
Charter Arbor Indy Indiana 35-1916340 11075 N. Pennsylvania
Behavioral Health Indianapolis, IN 46280
System, Inc. (317) 575-1000
Charter Augusta Georgia 58-1615676 3100 Perimeter Parkway
Behavioral Health P.O. Box 14939
System, Inc. Augusta, GA 30909
(404) 868-6625
i
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- -----------------------
Charter Bay Harbor Behavioral Florida 58-1640244 3414 Peachtree Rd., N.E.
Health System, Inc. Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Beacon Behavioral Indiana 58-1524996 1720 Beacon Street
Health System, Inc. Fort Wayne, IN 46805
(219) 423-3651
Charter Behavioral Health New Jersey 58-2097832 19 Prospect Street
System at Fair Oaks, Inc. Summit, NJ 07901
(908) 277-9102
Charter Behavioral Health Maryland 52-1866212 522 Thomas Run Road
System at Hidden Brook, Inc. Bel Air, MD 21014
(410) 879-1919
Charter Behavioral Health California 33-0606642 3340 Los Coyotes Diagonal
System at Los Altos, Inc. Long Beach, CA 90808
(310) 421-9311
Charter Behavioral Health Florida 65-0519663 1324 37th Avenue, East
System at Manatee Adolescent Bradenton, FL 4208
Treatment Services, Inc. (813) 746-1388
Charter Behavioral Health Maryland 52-1866221 14901 Broschart Road
System at Potomac Ridge, Inc. Rockville, MD 20850
(301) 251-4500
Charter Behavioral Health Delaware 58-2213642 3414 Peachtree Rd., N.E.
Systems, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health Georgia 58-1513304 240 Mitchell Bridge Road
System of Athens, Inc. Athens, GA 30606
(404) 546-7277
Charter Behavioral Health Texas 58-1440665 8402 Cross Park Drive
System of Austin, Inc. Austin, TX 78754
(512) 837-1800
Charter Behavioral Health Texas 76-0430571 3414 Peachtree Rd., N.E.
System of Baywood, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health Florida 58-1527678 4480 51st Street, West
System of Bradenton, Inc. Bradenton, FL 34210
(813) 746-1388
Charter Behavioral Health Georgia 58-1408670 3500 Riverside Drive
System of Central Georgia, Inc. Macon, GA 31210
(912) 474-6200
ii
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- -----------------------
Charter Behavorial Health Virginia 54-1765921 1500 Westbrook Avenue
System of Central Virginia, Inc. Richmond, VA 23227
(804) 266-9671
Charter Behavioral Health South Carolina 58-1761157 2777 Speissegger Drive
System of Charleston, Inc. Charleston, SC 29405-8299
(803) 747-5830
Charter Behavioral Health Virginia 58-1616917 2101 Arlington Boulevard
System of Charlottesville, Inc. Charlottesville, VA 22903-1593
(804) 977-1120
Charter Behavioral Health Illinois 58-1315760 4700 North Clarendon Avenue
System of Chicago, Inc. Chicago, IL 60640
(312) 728-7100
Charter Behavioral Health California 58-1473063 3414 Peachtree Rd., N.E.
System of Chula Vista, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health Missouri 61-1009977 200 Portland Street
System of Columbia, Inc. Columbia, MO 65201
(314) 876-8000
Charter Behavioral Health Texas 58-1513305 3126 Rodd Field Road
System of Corpus Christi, Inc. Corpus Christi, TX 78414
(512) 993-8893
Charter Behavioral Health Texas 58-1513306 6800 Preston Road
System of Dallas, Inc. Plano, TX 75024
(214) 964-3939
Charter Behavioral Health Maryland 52-1866214 3680 Warwick Road, Route 1
System of Delmarva, Inc. East New Market, MD 21631
(410) 943-8108
Charter Behavioral Health Indiana 35-1916338 7200 East Indiana
System of Evansville, Inc. Evansville, IN 47715
(812) 476-7200
Charter Behavioral Health Texas 58-1643151 3414 Peachtree Rd., N.E.
System of Fort Worth, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health Mississippi 58-1616919 3531 Lakeland Drive
System of Jackson, Inc. Jackson, MS 39208
(601) 939-9030
Charter Behavioral Health Florida 58-1483015 3947 Salisbury Road
System of Jacksonville, Inc. Jacksonville, FL 32216
(904) 296-2447
iii
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Behavioral Health Indiana 35-1916342 2700 River City Park Drive
System of Jefferson, Inc. Jeffersonville, IN 47130
(812) 284-3400
Charter Behavioral Health Kansas 58-1603154 8000 West 127th Street
System of Kansas City, Inc. Overland Park, KS 66213
(913) 897-4999
Charter Behavioral Health Louisiana 72-0686492 302 Dulles Drive
System of Lafayette, Inc. Lafayette, LA 70506
(318) 233-9024
Charter Behavioral Health Louisiana 62-1152811 4250 Fifth Avenue, South
System of Lake Charles, Inc. Lake Charles, LA 70605
(318) 474-6133
Charter Behavioral Health Indiana 35-1916343 3714 S. Franklin Street
System of Michigan City, Inc. Michigan City, IN 46360
(219) 872-0531
Charter Behavioral Health Alabama 58-1569921 3414 Peachtree Rd., N.E.
System of Mobile, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health New Hampshire 02-0470752 29 Northwest Boulevard
System of Nashua, Inc. Nashua, NH 03063
(603) 886-5000
Charter Behavioral Health Nevada 58-1321317 7000 West Spring Mountain Rd.
System of Nevada, Inc. Las Vegas, NV 89117
(702) 876-4357
Charter Behavioral Health New Mexico 58-1479480 5901 Zuni Road, SE
System of New Mexico, Inc. Albuquerque, NM 87108
(505) 265-8800
Charter Behavioral Health California 58-1857277 101 Cirby Hills Drive
System of Northern California, Roseville, CA 95678
Inc. (916) 969-4666
Charter Behavioral Health Arkansas 58-1449455 4253 Crossover Road
System of Northwest Arkansas, Fayetteville, AR 72703
Inc. (501) 521-5731
Charter Behavioral Health Indiana 58-1603160 101 West 61st Avenue
System of Northwest Indiana, State Road 51
Inc. Hobart, IN 46342
(219) 947-4464
Charter Behavioral Health Kentucky 61-1006115 435 Berger Road
System of Paducah, Inc. Paducah, KY 42002-7609
(502) 444-0444
iv
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Behavioral Health Georgia 66-0523678 Caso Bldg., Suite 1504
of Puerto Rico, Inc. 1225 Ponce de Leon Avenue
Santurce, PR 00907
Charter Behavioral Health California 58-1747020 455 Silicon Valley Boulevard
System of San Jose, Inc. San Jose, CA 95138
(408) 224-2020
Charter Behavioral Health Georgia 58-1750583 1150 Cornell Avenue
System of Savannah, Inc. Savannah, GA 31406
(912) 354-3911
Charter Behavioral Health Arkansas 71-0752815 3414 Peachtree Rd., N.E.
System of Texarkana, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health California 95-2685883 2055 Kellogg Drive
System of the Inland Empire, Corona, CA 91719
Inc. (714) 735-2910
Charter Behavioral Health Ohio 58-1731068 1725 Timberline Road
System of Toledo, Inc. Maumee, Ohio 43537
(419) 891-9333
Charter Behavioral Health Arizona 86-0757462 3414 Peachtree Rd., N.E.
System of Tucson, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health California 33-0606644 3414 Peachtree Rd., N.E.
System of Visalia, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health Minnesota 41-1775626 109 North Shore Drive
System of Waverly, Inc. Waverly, MN 55390
(612) 658-4811
Charter Behavioral Health North Carolina 56-1050502 3637 Old Vineyard Road
System of Winston-Salem, Inc. Winston-Salem, NC 27104
(919) 768-7710
Charter Behavioral Health California 33-0606646 16850 Bastanchury Avenue
System of Yorba Linda, Inc. Yorba Linda, CA 92686
(714) 993-3002
Charter Behavioral Health Georgia 58-1900736 811 Juniper St., N.E.
Systems of Atlanta, Inc. Atlanta, GA 30308
(404) 881-5800
v
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- -----------------------
Charter Brawner Behavioral Georgia 58-0979827 3414 Peachtree Rd., N.E.
Health System, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter By-The-Sea Georgia 58-1351301 2927 Demere Road
Behavioral Health System, St. Simons Island, GA 31522
Inc. (912) 638-1999
Charter Canyon Behavioral Utah 58-1557925 3414 Peachtree Rd., N.E.
Health System, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Canyon Springs California 33-0606640 69696 Ramon Road
Behavioral Health System, Cathedral City, CA 92234
Inc. (619) 321-2000
Charter Centennial Peaks Colorado 58-1761037 2255 South 88th Street
Behavioral Health System, Louisville, CO 80027
Inc. (303) 673-9990
Charter Community Hospital, California 58-1398708 21530 South Pioneer Boulevard
Inc Hawaiian Gardens, CA 90716
(310) 860-0401
Charter Contract Services, Georgia 58-2100699 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Cove Forge Behavioral Pennsylvania 25-1730464 New Beginnings Road
Health System, Inc. Williamsburg, PA 16693
(814) 832-2121
Charter Fairmount Behavioral Pennsylvania 58-1616921 561 Fairthorne Avenue
Health System, Inc. Philadelphia, PA 19128
(215) 487-4000
Charter Fenwick Hall South Carolina 57-0995766 3414 Peachtree Rd., N.E.
Behavioral Health System, Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
Charter Financial Offices, Georgia 58-1527680 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
vi
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Forest Behavioral Louisiana 58-1508454 9320 Linwood Avenue
Health System, Inc. Shreveport, LA 71106
(318) 688-3930
Charter Grapevine Behavioral Texas 58-1818492 2300 William D. Tate Ave.
Health System, Inc. Grapevine, TX 76051
(817) 481-1900
Charter Greensboro Behavioral North Carolina 58-1335184 700 Walter Reed Drive
Health System, Inc. Greensboro, NC 27403
(919) 852-4821
Charter Health Management Texas 58-2025056 6800 Park Ten Blvd.
of Texas, Inc. Suite 275-W
San Antonio, TX 78213
(210) 699-8585
Charter Hospital of Ohio 58-1598899 3414 Peachtree Rd., N.E.
Columbus, Inc. Suite 1400
Atlanta, GA 30326
404) 841-9200
Charter Hospital of Denver, Colorado 58-1662413 3414 Peachtree Rd., N.E.
Inc Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Ft. Colorado 58-1768534 3414 Peachtree Rd., N.E.
Collins, Inc Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Laredo, Texas 58-1491620 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Miami, Florida 61-1061599 11100 N.W. 27th Street
Inc. Miami, FL 33172
(305) 591-3230
Charter Hospital of Mobile, Alabama 58-1318870 5800 Southland Drive
Inc. Mobile, AL 36693
(334) 661-3001
Charter Hospital of Santa New Mexico 58-1584861 3414 Peachtree Rd., N.E.
Teresa, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of St. Louis, Missouri 58-1583760 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
vii
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Hospital of Torrance, California 58-1402481 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Indianapolis Indiana 58-1674291 5602 Caito Drive
Behavioral Health System, Indianapolis, IN 46226
Inc. (317) 545-2111
Charter Lafayette Behavioral Indiana 58-1603158 3700 Rome Drive
Health System, Inc. Lafayette, IN 47905
(317) 448-6999
Charter Lakehurst New Jersey 22-3286879 3414 Peachtree Rd., N.E.
Behavioral Health System, Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
Charter Lakeside Behavioral Tennessee 62-0892645 2911 Brunswick Road
Health System, Inc. Memphis, TN 38134
(901) 377-4700
Charter Laurel Heights Georgia 58-1558212 3414 Peachtree Rd., N.E.
Behavioral Health System, Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
Charter Linden Oaks Illinois 36-3943776 852 West Street
Behavioral Health System, Naperville, IL 60540
Inc. (708) 305-5500
Charter Little Rock Behavioral Arkansas 58-1747019 1601 Murphy Drive
Health System, Inc. Maumelle, AR 72113
(501) 851-8700
Charter Louisville Behavioral Kentucky 58-1517503 1405 Browns Lane
Health System, Inc. Louisville, KY 40207
(502) 896-0495
Charter Meadows Maryland 52-1866216 730 Maryland, Route 3
Behavioral Health System, Gambrills, MD 21054
Inc. (410) 923-6022
Charter Medical - California, Georgia 58-1357345 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
viii
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Medical - Clayton Georgia 58-1579404 3414 Peachtree Rd., N.E.
County, Inc. Suite 1400
Atlant30326
(404) 841-9200
Charter Medical - Cleveland, Texas 58-1448733 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlant30326
(404) 841-9200
Charter Medical - Dallas, Texas 58-1379846 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlant30326
(404) 841-9200
Charter Medical - Long California 58-1366604 3414 Peachtree Rd., N.E.
Beach, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical - New York, New York 58-1761153 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlant30326
(404) 841-9200
Charter Medical (Cayman Cayman Islands, BWI 58-1841857 Caledonian Bank & Trust
Islands) Ltd. Swiss Bank Building
Caledonian House
Georgetown-Grand Cayman
Cayman Islands
(809) 949-0050
Charter Medical Executive Georgia 58-1538092 3414 Peachtree Rd., N.E.
Corporation Suite 1400
Atlanta, Ga 30326
(404) 841-9200
Charter Medical Information Georgia 58-1530236 3414 Peachtree Rd., N.E.
Services, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical International, Cayman Islands, BWI N/A Caledonian Bank & Trust
Inc Swiss Bank Building
Caledonian House
Georgetown-Grand Cayman
Cayman Islands
(809) 949-0050
Charter Medical International, Nevada 58-1605110 3414 Peachtree Rd., N.E.
S.A., Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
ix
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Medical Management Georgia 58-1195352 3414 Peachtree Rd., N.E.
Company Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical of East Arizona 58-1643158 2190 N. Grace Boulevard
Valley, Inc. Chandler, AZ 85224
(602) 899-8989
Charter Medical of England, United Kingdom N/A 111 Kings Road
Ltd. Box 323
London SW3 4PB
London, England
44-71-351-1272
Charter Medical of Florida, Florida 58-2100703 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical of North Arizona 58-1643154 6015 W. Peoria Avenue
Phoenix, Inc. Glendale, AZ 85302
(602) 878-7878
Charter Medical of Puerto Commonwealth of 58-1208667 Caso Building, Suite 1504
Rico, Inc. Puerto Rico 1225 Ponce De Leon Avenue
Santurce, P.R. 00907
(809) 723-8666
Charter Mental Health Florida 58-2100704 3414 Peachtree Rd., N.E.
Options, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Milwaukee Behavioral Wisconsin 58-1790135 11101 West Lincoln Avenue
Health System, Inc. West Allis, WI 53227
(414) 327-3000
Charter Mission Viejo California 58-1761156 23228 Madero
Behavioral Health System, Mission Viejo, CA 92691
Inc. (714) 830-4800
Charter MOB of Virginia 58-1761158 1023 Millmont Avenue
Charlottesville, Inc. Charlottesville, VA 22901
(804) 977-1120
Charter North Behavioral Alaska 58-1474550 2530 DeBarr Road
Health System, Inc. Anchorage, AK 99508-2996
(907) 258-7575
Charter Northbrooke Wisconsin 39-1784461 46000 W. Shroeder Drive
Behavioral Health System, Brown Deer, WI 53223
Inc. (414) 355-2273
x
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter North Counseling Alaska 58-2067832 2530 DeBarr Road
Center, Inc. Anchorage, AL 99508-2996
(907) 258-7575
Charter Northridge Behavioral North Carolina 58-1463919 400 Newton Road
Health System, Inc. Raleigh, NC 27615
(919) 847-0008
Charter Oak Behavioral California 58-1334120 1161 East Covina Boulevard
Health System, Inc. Covina, CA 91724
(818) 966-1632
Charter of Alabama, Inc. Alabama 63-0649546 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Palms Behavioral Texas 58-1416537 1421 E. Jackson Avenue
Health System, Inc. McAllen, TX 78502
(512) 631-5421
Charter Peachford Behavioral Georgia 58-1086165 2151 Peachford Road
Health System, Inc. Atlanta, GA 30338
(404) 455-3200
Charter Petersburg Behavioral Virginia 58-1761160 3414 Peachtree Rd., N.E.
Health System, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Pines Behavioral North Carolina 58-1462214 3621 Randolph Road
Health System, Inc. Charlotte, NC 28211
(704) 365-5368
Charter Plains Behavioral Texas 58-1462211 801 N. Quaker Avenue
Health System, Inc. Lubbock, TX 79408
(806) 744-5505
Charter-Provo School, Inc. Utah 58-1647690 4501 North University Ave.
Provo, UT 84604
(801) 227-2000
Charter Real Behavioral Texas 58-1485897 8550 Huebner Road
Health System, Inc. San Antonio, TX 78240
(512) 699-8585
Charter Regional Medical Texas 74-1299623 3414 Peachtree Rd., N.E.
Center, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Ridge Behavioral Kentucky 58-1393063 3050 Rio Dosa Drive
Health System, Inc. Lexington, KY 40509
(606) 269-2325
xi
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Rivers Behavioral South Carolina 58-1408623 2900 Sunset Boulevard
Health System, Inc. West Columbia, SC 29169
(803) 796-9911
Charter San Diego Behavioral California 58-1669160 11878 Avenue of Industry
Health System, Inc. San Diego, CA 92128
(619) 487-3200
Charter Sioux Falls Behavioral South Dakota 58-1674278 2812 South Louise Avenue
Health System, Inc. Sioux Falls, SD 57106
(605) 361-8111
Charter South Bend Behavioral Indiana 58-1674287 6704 N. Gumwood Drive
Health System, Inc. Granger, IN 46530
(219) 272-9799
Charter Springs Behavioral Florida 58-1517461 3130 S.W. 27th Avenue
Health System, Inc. Ocala, FL 32674
(904) 237-7293
Charter Springwood Virginia 58-2097829 Route 4, Box 50
Behavioral Health System, Leesburg, VA 22075
Inc. (703) 777-0800
Charter Suburban Hospital Texas 75-1161721 3414 Peachtree Rd., N.E.
of Mesquite, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Terre Haute Behavioral Indiana 58-1674293 1400 Crossing Boulevard
Health System, Inc. Terre Haute, IN 47802
(812) 299-4196
Charter Thousand Oaks California 58-1731069 150 Via Merida
Behavioral Health System, Thousand Oaks, CA 91361
Inc. (805) 495-3292
Charter Treatment Center of Michigan 58-2025057 3414 Peachtree Rd., N.E.
Michigan, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Westbrook Behavioral Virginia 54-0858777 1500 Westbrook Avenue
Health System, Inc. Richmond, VA 23227
(804) 266-9671
Charter White Oak Maryland 52-1866223 1441 Taylors Island Road
Behavioral Health System, Woolford, MD 21677
Inc. (410) 228-7000
Charter Wichita Behavioral Kansas 58-1634296 8901 East Orme
Health System, Inc. Wichita, KS 67207
(316) 686-5000
xii
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Woods Behavioral Alabama 58-1330526 700 Cottonwood Road
Health System, Inc. Dothan, AL 36301
(205) 794-4357
Desert Springs Hospital, Inc. Nevada 88-0117696 414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Employee Assistance Services, Georgia 58-1501282 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Florida Health Facilities, Florida 58-1860493 21808 State Road 54
Inc. Lutz, FL 33549
(813) 948-2441
Gulf Coast EAP Services, Alabama 58-2101394 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Hospital Investors, Inc. Georgia 58-1182191 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Ga 30326
(404) 841-9200
Illinois Mentor, Inc. Illinois 36-3643670 45 Milk Street
Boston, MA 02109
(617) 654-0500
Magellan Public Solutions, Delaware 04-3250732 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Mandarin Meadows, Inc. Florida 58-1761155 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Massachusetts Mentor, Inc. Massachusetts 04-2799071 45 Milk Street
Boston, MA 02109
(617) 654-0500
National Mentor, Inc. Delaware 04-2794857 45 Milk Street
Boston, MA 02109
(617) 654-0500
National Mentor Healthcare, Massachusetts 04-2893910 45 Milk Street
Inc. Boston, MA 02109
(617) 654-0500
xiii
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
NEPA - Massachusetts, Inc. Massachusetts 58-2116751 #6 Courthouse Lane
Chelmsford, MA 01863
(508) 441-2332
NEPA - New Hampshire, Inc. New Hampshire 58-2116398 29 Northwest Boulevard
Nashua, NH 03063
(603) 886-5000
Ohio Mentor, Inc. Ohio 31-1098345 45 Milk Street
Boston, MA 02109
(617) 654-0500
Pacific-Charter Medical, Inc. California 58-1336537 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
South Carolina Mentor, Inc. South Carolina 57-0782160 45 Milk Street
Boston, MA 02109
(617) 654-0500
Southeast Behavioral Systems, Georgia 58-2100700 3414 Peachtree Rd., N.E.
Inc Suite 1400
Atlanta, GA 30326
(404) 841-9200
Schizophrenia Treatment and Georgia 58-1672912 209 Church Street
Rehabilitation, Inc. Decatur, GA 30030
(404) 377-1986
Sistemas De Terapia Georgia 58-1181077 3414 Peachtree Rd., N.E.
Respiratoria, S.A., Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Western Behavioral California 58-1662416 3414 Peachtree Rd., N.E.
Systems, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
(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.
xiv
FORM 10-Q
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I - Financial Information:
Condensed Consolidated Balance Sheets -
September 30, 1995 and December 31, 1995................................................................2
Condensed Consolidated Statements of Operations -
For the Three Months ended December 31, 1994 and 1995...................................................4
Condensed Consolidated Statements of Cash Flows -
For the Three Months ended December 31, 1994 and 1995...................................................5
Notes to Condensed Consolidated Financial Statements.....................................................6
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................................................13
PART II - Other Information:
Item 5. - Other Information.............................................................................18
Item 6. - Exhibits and Reports on Form 8-K..............................................................20
Signatures..............................................................................................22
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)
September 30 December 31
1995 1995
---------------- ----------------
ASSETS
Current Assets
Cash and cash equivalents............................... $ 105,514 $ 103,483
Accounts receivable, net................................ 181,163 210,738
Supplies................................................ 5,768 5,962
Other current assets.................................... 13,130 15,079
------------ --------------
Total Current Assets............................... 305,575 335,262
Property and Equipment
Land.................................................... 88,019 88,000
Buildings and improvements.............................. 377,169 387,133
Equipment............................................... 111,554 123,962
------------ --------------
576,742 599,095
Accumulated depreciation................................ (90,877) (100,240)
------------ --------------
485,865 498,855
Construction in progress................................ 2,902 5,181
------------ --------------
488,767 504,036
Assets Restricted for Settlement of Unpaid Claims.............. 94,138 97,752
Other Long-Term Assets......................................... 33,249 32,956
Intangible Assets, net......................................... 61,829 176,209
------------ --------------
$ 983,558 $ 1,146,215
============ ==============
2
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share data)
September 30 December 31
1995 1995
-------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable...................................... $ 71,020 $ 76,084
Accrued liabilities................................... 140,343 164,468
Current maturities of long-term debt and
capital lease obligations.......................... 2,799 5,827
------------- ---------------
Total Current Liabilities.................... 214,162 246,379
Long-Term Debt and Capital Lease Obligations................. 538,770 615,294
Reserve for Unpaid Claims.................................... 100,125 98,435
Deffered Credits and Other Long-Term Liabilities............. 34,455 33,144
Minority Interest............................................ 7,486 48,783
Commitments and Contingencies
Stockholders' Equity
Common Stock, par value $0.25 per share
Authorized - 80,000 shares
Issued and outstanding - 28,405 shares at
September 30, 1995 and 28,664 shares
at December 31, 1995......................... 7,101 7,166
Other Stockholders' Equity
Additional paid-in capital......................... 253,295 259,370
Accumulated deficit................................ (161,840) (152,092)
Warrants outstanding............................... 64 64
Common Stock in Treasury, 462 at September
30, 1995 and December 31, 1995............... (9,238) (9,238)
Cumulative foreign currency adjustments............ (822) (1,090)
-------------- ----------------
Stockholders' Equity......................... 88,560 104,180
-------------- ----------------
$ 983,558 $ 1,146,215
============== ================
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these balance sheets.
3
MAGELLAN HEALTH SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
For the Three Months
ended
December 31,
-------------------------
1994 1995
--------- ---------
Net revenue.................................................. $263,841 $295,665
-------- --------
Costs and expenses
Salaries, supplies and other operating expenses...... 199,527 231,326
Bad debt expense...................................... 21,219 19,788
Depreciation and amortization......................... 8,357 10,180
Amortization of reorganization value in excess of
amounts allocable to identifiable assets......... 7,800 --
Interest, net......................................... 13,864 13,822
ESOP expense.......................................... 12,500 --
Stock option expense (credit)......................... (2,361) 1,823
Unusual items......................................... (2,960) --
-------- --------
257,946 276,939
-------- ---------
Income before provision for income taxes
and minority interest................................. 5,895 18,726
Provision for income taxes................................... 5,478 7,959
-------- ---------
Income before minority interest.............................. 417 10,767
Minority interest............................................ 68 1,019
-------- ---------
Net Income................................................... $ 349 $ 9,748
======== =========
Average number of common shares outstanding.................. 26,910 27,994
======== =========
Net income per common share.................................. $ 0.01 $ 0.35
======== =========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
4
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Three Months
ended
December 31
----------------------------
1994 1995
---------- -----------
Cash Flows from Operating Activities
Net income....................................................... $ 349 $ 9,748
-------- ----------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization............................. 16,157 10,180
ESOP expense.............................................. 12,500 --
Stock option expense (credit)............................. (2,361) 1,823
Non-cash interest expense................................. 586 600
Gain on sale of assets.................................... (2,960) (139)
Cash flows from changes in assets and liabilities, net
of effects from sales and acquisitions of businesses:
Accounts receivable, net........................... (5,373) (5,595)
Other assets....................................... (14,748) (2,443)
Accounts payable and other accrued liabilities..... (14,062) (33,602)
Reserve for unpaid claims.......................... 2,767 (1,690)
Income taxes payable............................... 4,719 6,196
Other liabilities.................................. (15,338) (1,311)
Minority interest, net of dividends paid........... (64) 1,163
Other.............................................. (91) 168
--------- ----------
Total adjustments............................. (18,268) (24,650)
--------- ----------
Net cash used in operating activities.... (17,919) (14,902)
--------- ----------
Cash Flows From Investing Activities
Capital expenditures............................................. (4,304) (4,368)
Acquisitions of businesses, net of cash acquired................. (44,836) (47,327)
Increase in assets restricted for settlement of
unpaid claims.................................................. (9,908) (3,614)
Proceeds from sale of assets..................................... 5,695 503
--------- ----------
Net cash used in investing activities.... (53,353) (54,806)
--------- ----------
Cash Flows From Financing Activities
Proceeds from issuance of debt................................... 28,009 68,125
Payments on debt and capital lease obligations................... (433) (448)
Proceeds from exercise of stock options and warrants............. 129 --
-------- ----------
Net cash provided by financing activities 27,705 67,677
-------- ----------
Net decrease in cash and cash equivalents............................... (43,567) (2,031)
Cash and cash equivalents at beginning of period........................ 129,603 105,514
-------- ---------
Cash and cash equivalents at end of period.............................. $ 86,036 $ 103,483
======== =========
The accompanying Notes to Condensed Consolidated Financial Statements are an i
ntegral part of these statements.
5
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(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, 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, 1995, included in the Company's Annual Report on Form 10-K. Certain
reclassifications have been made to fiscal 1995 amounts to conform to fiscal
1996 presentation.
NOTE B - Nature of Business
The Company's hospital business 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 three months
ended December 31, 1994 and 1995:
For the Three Months ended
December 31
1994 1995
--------- ------
(In thousands)
Income taxes paid, net of refunds received...................................... $698 $700
Interest paid, net of amounts capitalized....................................... 22,601 23,498
Notes payable assumed in connection with acquisitions of businesses............. 947 12,000
6
NOTE D - Long-Term Debt and Leases
Information with regard to the Company's long-term debt and capital lease
obligations at September 30, 1995 and December 31, 1995 follows:
September 30, December 31,
1995 1995
----------------- ----------------
(In thousands)
Revolving Credit Agreement due through 1999
(7.625 % to 7.688% at December 31, 1995)............... $ 80,593 $ 148,593
11.25% Senior Subordinated Notes due 2004..................... 375,000 375,000
6.813 % to 10.75% Mortgage and other notes
payable through 1999................................... 5,268 17,109
Variable rate secured notes due through 2013
(5.0% to 5.5% at December 31, 1995).................... 62,025 61,975
7.5% Swiss Bonds.............................................. 6,443 6,443
5.3% to 12.5% Capital lease obligations due through 2014...... 12,617 12,381
--------------- -------------
541,946 621,501
Less amounts due within one year....................... 2,799 5,827
Less debt service funds................................ 377 380
--------------- -------------
$ 538,770 $ 615,294
=============== =============
NOTE E - Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
September 30 December 31
1995 1995
---------------- ----------------
Salaries and wages............................... $ 28,597 $ 32,172
Amounts due health insurance programs............ 10,252 11,948
Medical claims payable........................... -- 25,598
Interest......................................... 20,561 11,318
Other............................................ 80,933 83,432
------------- --------------
$ 140,343 $ 164,468
============= ==============
NOTE F - Acquisition
Acquisition
On December 13, 1995, the Company acquired a 51% ownership interest in
Green Spring Health Services, Inc. ("Green Spring") for approximately $73.2
million in cash and Common Stock and the contribution of Group Practice
Affiliates, Inc.("GPA"), a wholly owned subsidiary of the Company, which became
a wholly owned subsidiary of Green Spring. On December 20, 1995, the Company
acquired an additional 10% ownership interest in Green Spring for
approximately $16.7 million in cash as a result of an exercise by a minority
stockholder of its Exchange Option (as hereinafter defined) for a portion of
the stockholder's interest in Green Spring. The Company had a 61% ownership
interest in Green Spring as of December 31, 1995. Green Spring provides
managed behavioral healthcare services, which includes utilization management,
care management and employee assistance programs through a 50-state
provider network for approximately 12 million people nationwide.
7
The minority shareholders 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 will continue as customers of Green Spring. As of December 31, 1995, the
minority stockholders of Green Spring have the option, under certain
circumstances, to exchange their ownership interests ("Exchange Option") in
Green Spring for approximately 2.8 million 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.
The Company recorded the investments in Green Spring using the purchase
method of accounting. Green Spring's results of operations have been included in
the condensed consolidated financial statements since the acquisition date, less
minority interest.
The cost of the investments in Green Spring have been preliminarily
allocated to the estimated fair value of assets acquired and liabilities assumed
to the extent acquired by the Company. The remaining portion of Green Spring's
assets and liabilities were recorded at the historical cost basis of the
minority stockholders. The preliminary purchase price allocation for the
investments in Green Spring and the historical cost basis of the minority
stockholders of Green Spring, in aggregate, resulted in goodwill and
identifiable intangible assets of approximately $111 million. This amount
will be allocated among goodwill and identifiable intangible assets when the
necessary appraisals have been completed.
NOTE G - Facility Closures
Severance and related benefits paid and charged against the liability
recorded at September 30, 1995 for the cost of facility closures was
approximately $656,000 for the quarter ended December 31, 1995. Other exit costs
paid and charged against the resulting liability were approximately $305,000 for
the quarter ended December 31, 1995.
NOTE H - Unusual Item
In December 1994, the Company recorded an unusual item of approximately
$3.0 million which represented the pre-tax gain on the sale of three psychiatric
hospitals.
NOTE I - Contingencies
The Company is self-insured for a substantial portion of 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 using the Company's historical claims experience adjusted
for current industry trends. The reserve for unpaid claims is adjusted as such
claims mature, to reflect revised actuarial estimates based on actual
experience. While management and its actuaries believe that the present reserve
is reasonable, ultimate settlement of losses may vary from the amount provided.
In addition to general and professional liability claims, the Company is
subject to other claims, suits, surveys and investigations. In the opinion of
management, the ultimate resolution of such other pending legal proceedings will
not have a material adverse effect on the Company's financial position or
results of operations.
In January 1996, the Company settled an ongoing dispute with the
Resolution Trust Corporation ("RTC"), for itself or in its capacity as
conservator or receiver for 12 financial institutions, which formerly held
certain debt securities that were issued by the Company in 1988. In connection
with the settlement, the Company, denying any liability or fault, paid $2.7
million to the RTC in exchange for a release of all claims.
8
NOTE H - Guarantor Condensed Consolidating Financial Statements
MAGELLAN HEALTH SERVICES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(In thousands, except per share amounts)
December 31, 1995
--------------------------------------------------
Magellan
Health
Services, Inc.
Guarantor Nonguarantor (Parent
ASSETS Subsidiaries Subsidiaries Corporation)
-------------- ---------------- ---------------
Current Assets
Cash and cash equivalents.............................................. $ 40,989 $ 53,066 $ 9,428
Accounts receivable, net............................................... 171,337 39,553 (152)
Supplies............................................................... 5,148 407 407
Other current assets................................................... 8,730 36 13,917
------------- --------------- --------------
Total Current Assets................................... 226,204 93,062 23,600
Property and Equipment
Land.................................................................. 79,012 7,974 1,014
Buildings and improvements............................................ 346,990 35,071 5,072
Equipment............................................................. 102,584 17,672 3,706
------------- --------------- --------------
528,586 60,717 9,792
Accumulated depreciation.............................................. (92,650) (4,400) (3,190)
Construction in progress.............................................. 3,736 1,430 15
------------- --------------- --------------
439,672 57,747 6,617
Assets restricted for settlement of unpaid claims............................ -- 82,453 15,299
Other Long-Term Assets (1)................................................... 161,008 9,274 1,185,501
------------- --------------- --------------
$ 826,884 $ 242,536 $ 1,231,017
============== =============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable..................................................... $ 44,339 $ 23,615 $ 8,130
Accrued expenses and other current liabilities ...................... 54,887 47,438 60,456
Current maturities of long-term debt and capital lease obligations... 2,699 3,128 --
------------- --------------- --------------
Total Current Liabilities............................ 101,925 74,181 68,586
Long-Term Debt and Capital Lease Obligations................................ (365,840) 13,535 967,599
Reserve for Unpaid Claims................................................... -- 84,153 21,886
Deferred Credits and Other Long-Term Liabilities (1)........................ 481,194 8,825 68,766
Minority Interest........................................................... -- -- --
Commitments and Contingencies
Stockholders' Equity
Common Stock, par value $0.25 per share; Authorized - 80,000 shares
Issued and outstanding - 28,664 shares.............................. 2,765 836 7,166
Other Stockholders' Equity
Additional paid-in capital........................................... 612,131 30,455 259,370
Retained earnings (Accumulated deficit).............................. (4,351) 33,490 (152,092)
Warrants outstanding................................................. -- -- 64
Common shares in Treasury - 462 shares............................... -- (4,736) (9,238)
Cumulative foreign currency adjustments.............................. (940) 1,797 (1,090)
-------------- -------------- ------------
609,605 61,842 104,180
-------------- -------------- ------------
$ 826,884 $ 242,536 $ 1,231,017
============== ============== =============
Consolidated
Elimination Consolidated
ASSETS Entries Total
-------------- --------------
Current Assets
Cash and cash equivalents.............................................. $ -- $ 103,483
Accounts receivable, net............................................... -- 210,738
Supplies............................................................... -- 5,962
Other current assets................................................... (7,604) 15,079
------------ ------------
Total Current Assets................................... (7,604) 335,262
Property and Equipment
Land.................................................................. -- 88,000
Buildings and improvements............................................ -- 387,133
Equipment............................................................. -- 123,962
------------ ------------
-- 599,095
Accumulated depreciation.............................................. -- (100,240)
Construction in progress.............................................. -- 5,181
------------ ------------
-- 504,036
Assets restricted for settlement of unpaid claims............................ -- 97,752
Other Long-Term Assets (1)................................................... (1,146,618) 209,165
------------ ------------
$ (1,154,222) $ 1,146,215
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable..................................................... $ -- $ 76,084
Accrued expenses and other current liabilities ...................... 1,687 164,468
Current maturities of long-term debt and capital lease obligations... -- 5,827
------------ ------------
Total Current Liabilities............................ 1,687 246,379
Long-Term Debt and Capital Lease Obligations................................ -- 615,294
Reserve for Unpaid Claims................................................... (7,604) 98,435
Deferred Credits and Other Long-Term Liabilities (1)........................ (525,641) 33,144
Minority Interest........................................................... 48,783 48,783
Commitments and Contingencies
Stockholders' Equity
Common Stock, par value $0.25 per share; Authorized - 80,000 shares
Issued and outstanding - 28,664 shares.............................. (3,601) 7,166
Other Stockholders' Equity
Additional paid-in capital........................................... (642,586) 259,370
Retained earnings (Accumulated deficit).............................. (29,139) (152,092)
Warrants outstanding................................................. -- 64
Common shares in Treasury - 462 shares............................... 4,736 (9,238)
Cumulative foreign currency adjustments.............................. (857) (1,090)
------------ ------------
(671,447) 104,180
------------ ------------
$ (1,154,222) $ 1,146,215
============ ============
(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 statements.
9
MAGELLAN HEALTH SERVICES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(In thousands, except per share amounts)
September 30, 1995
----------------------------------------------------
Magellan
Health
Services, Inc.
Guarantor Nonguarantor (Parent
Subsidiaries Subsidiaries Corporation)
-------------- ---------------- --------------
ASSETS
Current Assets
Cash and cash equivalents............................................ $ 60,719 $ 10,279 $ 34,516
Accounts receivable, net............................................. 170,855 10,251 57
Supplies............................................................. 5,081 224 463
Other current assets................................................. 10,004 (1,241) 19,151
------------ -------------- --------------
Total Current Assets................................. 246,659 19,513 54,187
Property and Equipment
Land................................................................. 79,807 7,199 1,013
Buildings and improvements........................................... 351,081 21,017 5,071
Equipment............................................................ 103,125 4,900 3,529
------------ -------------- --------------
534,013 33,116 9,613
Accumulated depreciation............................................. (87,503) (2,716) (658)
Construction in progress............................................. 2,650 251 1
------------ -------------- --------------
449,160 30,651 8,956
Assets restricted for settlement of unpaid claims........................... -- 78,188 15,950
Other Long-Term Assets (1).................................................. 129,898 18,398 1,010,425
Other Intangible Assets, net................................................ 29,498 11,811 20,520
------------ -------------- --------------
$ 855,215 $ 158,561 $ 1,110,038
============ ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable..................................................... $ 50,510 $ 8,424 $ 12,086
Accrued liabilities and income tax payable........................... 67,646 4,156 68,541
Current maturities of long-term debt and capital lease obligations... 2,673 126 --
------------ -------------- ------------
Total Current Liabilities............................ 120,829 12,706 80,627
Long-Term Debt and Capital Lease Obligations................................ (344,312) 5,271 877,811
Reserve for Unpaid Claims................................................... -- 89,207 25,702
Deferred Credits and Other Long-Term Liabilities (1)........................ 512,426 476 37,338
Minority Interest........................................................... -- -- --
Commitments and Contingencies
Stockholders' Equity
Common Stock, par value $0.25 per share; Authorized - 80,000 shares
Issued and outstanding - 28,405 shares.............................. 2,765 837 7,101
Other Stockholders' Equity
Additional paid-in capital........................................... 612,131 30,455 253,295
Retained earnings (Accumulated deficit).............................. (47,789) 22,601 (161,840)
Warrants outstanding................................................. -- -- 64
Common stock in Treasury
462 shares......................................................... -- (4,736) (9,238)
Cumulative foreign currency adjustments.............................. (835) 1,744 (822)
------------ ------------ --------------
566,272 50,901 88,560
------------ ------------ --------------
$ 855,215 $ 158,561 $ 1,110,038
============ ============ ==============
Consolidated
Elimination Consolidated
Entries Total
-------------- --------------
ASSETS
Current Assets
Cash and cash equivalents............................................ $ -- $ 105,514
Accounts receivable, net............................................. -- 181,163
Supplies............................................................. -- 5,768
Other current assets................................................. (14,784) 13,130
------------ --------------
Total Current Assets................................. (14,784) 305,575
Property and Equipment
Land................................................................. -- 88,019
Buildings and improvements........................................... -- 377,169
Equipment............................................................ -- 111,554
------------ --------------
-- 576,742
Accumulated depreciation............................................. -- (90,877)
Construction in progress............................................. -- 2,902
------------ --------------
-- 488,767
Assets restricted for settlement of unpaid claims........................... -- 94,138
Other Long-Term Assets (1).................................................. (1,125,472) 33,249
Other Intangible Assets, net................................................ -- 61,829
------------ --------------
$ (1,140,256) $ 983,558
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable..................................................... $ -- $ 71,020
Accrued liabilities and income tax payable........................... -- 140,343
Current maturities of long-term debt and capital lease obligations... -- 2,799
------------ --------------
Total Current Liabilities............................ -- 214,162
Long-Term Debt and Capital Lease Obligations................................ -- 538,770
Reserve for Unpaid Claims................................................... (14,784) 100,125
Deferred Credits and Other Long-Term Liabilities (1)........................ (515,785) 34,455
Minority Interest........................................................... 7,486 7,486
Commitments and Contingencies
Stockholders' Equity
Common Stock, par value $0.25 per share; Authorized - 80,000 shares
Issued and outstanding - 28,405 shares.............................. (3,602) 7,101
Other Stockholders' Equity
Additional paid-in capital........................................... (642,586) 253,295
Retained earnings (Accumulated deficit).............................. 25,188 (161,840)
Warrants outstanding................................................. -- 64
Common stock in Treasury
462 shares......................................................... 4,736 (9,238)
Cumulative foreign currency adjustments.............................. (909) (822)
------------ --------------
(617,173) 88,560
------------ --------------
$ (1,140,256) $ 983,558
============ ==============
(1) Elimination entry related to intercompany receivables and payables and
investment in consolidated subsidiaries.
10
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(In thousands)
For the Three Months Ended December 31, 1994
-------------------------------------------------
Magellan
Health
Services, Inc.
Guarantor Nonguarantor (Parent
Subsidiaries Subsidiaries Corporation)
-------------- -------------- -------------
Net revenue................................................................. $ 255,986 $ 14,064 $ (979)
Costs and expenses
Salaries, general and administrative expenses....................... 189,520 13,994 1,497
Bad debt expense..................................................... 23,210 9 (2,000)
Depreciation and amortization........................................ 8,471 327 (441)
Amortization of reorganization value in excess of amounts
allocable to identifiable assets................................... -- -- 7,800
Interest, net........................................................ (7,330) 8 21,195
ESOP expense......................................................... 13,538 -- (1,033)
Stock option expense (credit)........................................ -- -- (2,361)
Unusual item......................................................... -- -- (2,960)
------------- ------------ --------------
227,409 14,338 21,697
------------- ------------ --------------
Income (loss) from continuing operations before income taxes and
equity in earnings (loss) of subsidiaries................................ 28,577 (274) (22,676)
Provision for income taxes -- -- --
------------- ------------ --------------
Income (Loss) before equity in earnings (loss) of subsidiaries............. 28,577 (274) (22,676)
Equity in earnings (loss) of subsidiaries.................................. 587 -- 23,025
------------- ------------ --------------
Net income (loss).......................................................... $ 29,164 $ (274) $ 349
============= ============ ==============
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash provided by (used in) operating activities............................ $ (4,416) $ 7,082 $ (20,585)
------------- ------------ --------------
Cash Flows from Investing Activities:
Capital expenditures................................................ (3,499) (243) (562)
Acquisitions of businesses.......................................... (41,996) (2,840) --
Increase in assets restricted for the settlement of unpaid claims... -- (5,556) (4,352)
Proceeds from the sale of assets.................................... -- -- 5,695
------------- ------------ --------------
Cash provided by (used in) investing activities............................ (45,495) (8,639) 781
------------- ------------ --------------
Cash Flows from Financing Activities:
Proceeds from the issuance of debt.................................. 28,009 -- --
Cash flows from other financing activities.......................... (427) (44) 167
------------- ------------ --------------
Cash used in financing activities.......................................... 27,582 (44) 167
------------- ------------ --------------
Net increase (decrease) in cash and cash equivalents....................... (22,329) (1,601) (19,637)
Cash and cash equivalents at beginning of period........................... 71,850 8,606 49,147
------------- ------------ --------------
Cash and cash equivalents at end of period................................. $ 49,521 $ 7,005 $ 29,510
============= ============ ==============
Consolidated
Elimination Consolidated
Entries Total
-------------- --------------
Net revenue................................................................. $ (5,230) $ 263,841
Costs and expenses
Salaries, general and administrative expenses....................... (5,484) 199,527
Bad debt expense..................................................... 21,219
Depreciation and amortization........................................ 8,357
Amortization of reorganization value in excess of amounts
allocable to identifiable assets................................... -- 7,800
Interest, net........................................................ (9) 13,864
ESOP expense......................................................... (5) 12,500
Stock option expense (credit)........................................ -- (2,361)
Unusual item......................................................... -- (2,960)
-------------- --------------
(5,498) 257,946
-------------- --------------
Income (loss) from continuing operations before income taxes and
equity in earnings (loss) of subsidiaries................................ 268 5,895
Provision for income taxes 5,478 5,478
------------- --------------
Income (Loss) before equity in earnings (loss) of subsidiaries............. (5,210) 417
Equity in earnings (loss) of subsidiaries.................................. (23,680) 68
-------------- --------------
Net income (loss).......................................................... $ (28,890) $ 349
============== ==============
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash provided by (used in) operating activities............................ $ -- $ (17,919)
-------------- --------------
Cash Flows from Investing Activities:
Capital expenditures................................................ -- (4,304)
Acquisitions of businesses.......................................... (44,836)
Increase in assets restricted for the settlement of unpaid claims... -- (9,908)
Proceeds from the sale of assets.................................... -- 5,695
-------------- --------------
Cash provided by (used in) investing activities............................ -- (53,353)
-------------- --------------
Cash Flows from Financing Activities:
Proceeds from the issuance of debt.................................. -- 28,009
Cash flows from other financing activities.......................... -- (304)
-------------- --------------
Cash used in financing activities.......................................... -- 27,705
-------------- --------------
Net increase (decrease) in cash and cash equivalents....................... -- (43,567)
Cash and cash equivalents at beginning of period........................... -- 129,603
-------------- --------------
Cash and cash equivalents at end of period................................. $ -- $ 86,036
============== ==============
The accompanying Notes to Condensed Consolidating Financial Statements are an
integral part of these statements.
11
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(In thousands)
For the Three Months ended December 31, 1995
----------------------------------------------------
Magellan
Health
Services, Inc.
Guarantor Nonguarantor (Parent
Subsidiaries Subsidiaries Corporation)
------------ -------------- ---------------
Net revenue................................................................. $ 247,754 $ 44,528 $ 7,847
Costs and expenses
Salaries, supplies and other operating expenses..................... 193,846 37,360 4,584
Bad debt expense..................................................... 19,964 669 (845)
Depreciation and amortization........................................ 8,745 1,256 179
Interest, net........................................................ (10,100) 80 23,842
Stock option expense (credit)........................................ -- -- 1,823
------------ -------------- --------------
212,455 39,365 29,583
------------ -------------- --------------
Income (loss) before income taxes and
equity in earnings (loss) of subsidiaries................................. 35,299 5,163 (21,736)
Provision for income taxes 653 632 269
------------ -------------- --------------
Income (loss) before equity in earnings (loss) of subsidiaries.............. 34,646 4,531 (22,005)
Equity in earnings (loss) of subsidiaries................................... (289) 301 (18,075)
------------ -------------- ---------------
Net income (loss)........................................................... $ 34,935 $ 4,230 $ (3,930)
============ ============== ===============
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash provided by (used in) operating activities............................. $ (15,884) $ 8,975 $ (7,993)
------------ -------------- ---------------
Cash Flows from Investing Activities:
Capital expenditures................................................. (3,919) (256) (193)
Acquisitions of businesses, net of cash acquired..................... -- 38,226 (85,553)
Proceeds from sale of assets......................................... 503 -- --
Increase in assets restricted for the settlement of unpaid claims.... -- (4,265) 651
------------ -------------- --------------
Cash provided by (used in) investing activities............................. (3,416) 33,705 (85,095)
------------ -------------- ---------------
Cash Flows from Financing Activities:
Proceeds from the issuance of debt................................... -- 125 68,000
Payments on debt and capital obligations............................. (430) (18) --
------------ -------------- ---------------
Cash provided by (used in) financing activities............................. (430) 107 68,000
------------ -------------- ---------------
Net increase (decrease) in cash and cash equivalents........................ (19,730) 42,787 (25,088)
Cash and cash equivalents at beginning of period............................ 60,719 10,279 34,516
------------ -------------- ---------------
Cash and cash equivalents at end of period.................................. $ 40,989 $ 53,066 $ 9,428
============ ============== ===============
Consolidated
Elimination Consolidated
Entries Total
-------------- --------------
Net revenue................................................................. $ (4,464) $ 295,665
Costs and expenses
Salaries, supplies and other operating expenses..................... (4,464) 231,326
Bad debt expense..................................................... -- 19,788
Depreciation and amortization........................................ -- 10,180
Interest, net........................................................ -- 13,822
Stock option expense (credit)........................................ -- 1,823
------------ ---------------
(4,464) 276,939
------------ ---------------
Income (loss) before income taxes and
equity in earnings (loss) of subsidiaries................................. -- 18,726
Provision for income taxes 6,405 7,959
----------- ---------------
Income (loss) before equity in earnings (loss) of subsidiaries.............. (6,405) 10,767
Equity in earnings (loss) of subsidiaries................................... 19,082 1,019
------------ --------------
Net income (loss)........................................................... $ (25,487) $ 9,748
=========== ==============
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash provided by (used in) operating activities............................. $ -- $ (14,902)
----------- --------------
Cash Flows from Investing Activities:
Capital expenditures................................................. -- (4,368)
Acquisitions of businesses, net of cash acquired..................... -- (47,327)
Proceeds from sale of assets......................................... -- 503
Increase in assets restricted for the settlement of unpaid claims.... -- (3,614)
----------- --------------
Cash provided by (used in) investing activities............................. -- (54,806)
----------- --------------
Cash Flows from Financing Activities:
Proceeds from the issuance of debt................................... -- 68,125
Payments on debt and capital obligations............................. -- (448)
----------- --------------
Cash provided by (used in) financing activities............................. -- 67,677
----------- --------------
Net increase (decrease) in cash and cash equivalents........................ -- (2,031)
Cash and cash equivalents at beginning of period............................ -- 105,514
----------- --------------
Cash and cash equivalents at end of period.................................. $ -- $ 103,483
=========== ==============
The accompanying Notes to Condensed Consolidating Financial Statements are an
integral part of these statements.
12
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
December 31, 1995
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Acquisition
On December 13, 1995, the Company acquired a 51% ownership interest in
Green Spring for approximately $73.2 million in cash and Common Stock and the
contribution of GPA, a wholly owned subsidiary of the Company, which became a
wholly owned subsidiary of Green Spring. On December 20, 1995, the Company
acquired an additional 10% ownership interest in Green Spring for
approximately $16.7 million in cash as a result of an exercise by a minority
stockholder of its Exchange Option for a portion of the stockholder's interest
in Green Spring. The Company has a 61% ownership interest in Green Spring as
of December 31, 1995. Green Spring provides managed behavioral healthcare
services, which includes utilization management, care management and employee
assistance programs through a 50-state provider network for approximately 12
million people nationwide. The Company has accounted for the acquisition of
Green Spring using the purchase method of accounting, which resulted in
additional intangible assets of approximately $111 million.
The minority shareholders 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 will continue as customers of Green Spring. As of December 31, 1995, the
minority stockholders of Green Spring have the option, under certain
circumstances, to exchange their ownership interests in Green Spring for
approximately 2.8 million 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.
Psychiatric Hospital Results
Selected statistics (from the date of acquisition for acquired facilities)
for the psychiatric hospitals in operation by quarter for fiscal 1995 and fiscal
1996 are as follows:
Fiscal Fiscal %
1995 1996 Change
------------- ----------- -----------
Average licensed beds at:
Quarter:
First........................ 9,198 9,110 (1)%
Second....................... 9,567
Third........................ 9,585
Fourth....................... 9,130
Year.............................. 9,368
Net revenue (in thousands):
Quarter:
First........................ $ 249,105 $ 253,565 2%
Second....................... 269,854
Third........................ 272,510
Fourth....................... 250,891
------------
Year.............................. 1,042,360
============
13
Fiscal Fiscal %
1995 1996 Change
------------- ----------- -----------
Patient days:
Quarter:
First........................ 415,122 432,474 4%
Second....................... 456,885
Third........................ 456,698
Fourth....................... 429,374
------------
Year.............................. 1,758,079
============
Equivalent patient days:
Quarter:
First........................ 462,663 478,693 3%
Second....................... 509,222
Third........................ 509,354
Fourth....................... 476,270
------------
Year.............................. 1,957,509
============
Net revenue per equivalent patient day:
Quarter:
First........................ $ 538 530 (1)%
Second....................... 530
Third........................ 535
Fourth....................... 527
Year.............................. 532
Admissions:
Quarter:
First........................ 30,626 32,865 7%
Second....................... 34,772
Third........................ 33,790
Fourth....................... 32,977
------------
Year.............................. 132,165
============
Average length of stay (days):
Quarter:
First........................ 13.3 12.4 (7)%
Second....................... 12.7
Third........................ 12.8
Fourth....................... 12.9
Year.............................. 12.9
Results of Operations
The following table summarizes, for the periods indicated, changes in
selected operating indicators.
Percentage of Net Revenue
------------------------------------------------
For the Three Months Ended December 31
------------------------------------------------
1994 1995
--------------- ---------------------
Net revenue............................................ 100.0% 100.0%
Salaries, supplies and other operating expenses........ 75.6 78.2
Bad debt expense....................................... 8.0 6.7
----------- ----------------
Total expenses......................................... 83.6 84.9
Operating margin....................................... 16.4 15.1
=========== ================
14
Patient days at the Company's hospitals increased 4% for the quarter ended
December 31, 1995, as compared to the same period of fiscal 1995. The increase
resulted primarily from patient days attributable to the hospitals acquired
during fiscal 1995 offset by reductions in patient days resulting from hospitals
closed in fiscal 1995. Total admissions increased 7% for the quarter ended
December 31, 1995, as compared to the prior year period. The increase resulted
from continued admissions growth at the Company's hospitals and admissions
attributable to hospitals acquired during fiscal 1995 offset by reductions
resulting from hospitals closed in fiscal 1995.
The Company's net revenue for the quarter ended December 31, 1995 increased
12.1% compared to the same period in fiscal 1995. The increases resulted
primarily from acquisitions less the effect of hospitals closed during fiscal
1995. National Mentor, Inc. ("Mentor"), which was acquired in January 1995, and
Green Spring (excluding GPA), which was acquired on December 13, 1995, had
revenues of approximately $16.9 million and $10.7 million, respectively, for the
quarter ended December 31, 1995. Net revenue for the quarters ended December 31,
1994 and 1995 included $8.2 million and $7.8 million, respectively, for the
normal settlement and adjustments related to reimbursement issues related to
earlier fiscal periods. Net revenue per equivalent patient day at the Company's
psychiatric hospitals decreased in the quarter ending December 31, 1995 by 1.5%
compared to the same period in the prior year. The decreases were primarily due
to a continued shift in payor mix from private payor sources to managed care
payors and governmental payors. Services to Medicare and Medicaid patients
have increased due to increased recognition and treatment of behavioral
illnesses of the elderly and disabled and, in some states, improved coverage
of behavioral services in psychiatric hospitals for Medicaid beneficiaries.
The Company believes that, at the same time, revenue from Blue Cross and
commercial insurance payors has declined because of a shift by purchasers
of health coverage to HMOs, PPOs, and other managed care plans that generally
authorize shorter lengths of stay than traditional insurance plans.
The Company's salaries, supplies and other operating expenses increased
15.9% in the quarter ended December 31, 1995 compared to the same period in
fiscal 1995. The increase resulted primarily from acquisitions. Expenses
incurred by Mentor and Green Spring (excluding GPA) were approximately $14.4
million and $9.1 million, respectively, in the quarter ended December 31, 1995.
The Company's bad debt expense decreased 6.7% in the quarter ended December
31, 1995 compared to the same period in fiscal 1995. The decrease was primarily
due to the shift in the provider business to managed care payors, which reduces
the Company's credit risk associated with individual patients. The decrease in
bad debt expense as a result of the shift to managed care payors were partially
offset by the increase in bad debt expense related to acquisitions. The Company
could experience future increases in bad debt expense in its provider business
due to increased deductibles and co-insurance and reduced annual and lifetime
psychiatric maximum payment limits for individual patients, which could result
in the Company not collecting full charges on an increasing number of patients.
Depreciation and amortization increased 21.8% in the first quarter of
fiscal 1996 compared to the same period in fiscal 1995. The increase resulted
primarily from depreciation and amortization related to acquired businesses.
Mentor and Green Spring (excluding GPA) had depreciation and amortization of
approximately $592,000 and $508,000, respectively in the quarter ended December
31, 1995.
Reorganization value in excess of amounts allocable to identifiable assets
was fully amortized effective July 31, 1995. Accordingly, no such amortization
expense was recorded in the first quarter of fiscal 1996.
ESOP expense for the first quarter of fiscal 1996 was $0 as compared to
$12.5 million in the first quarter of fiscal 1995. The decrease resulted from
the Company's commitment to allocate all existing shares held by the ESOP to the
participants as of September 30, 1995.
Stock option expense for the first quarter of fiscal 1996 increased $4.2
million from the previous year primarily due to fluctuations in the market price
of the Company's common stock.
15
During the first quarter of fiscal 1995, the Company recorded an unusual
item of approximately $3.0 million which represented the pre-tax gain on the
sale of three psychiatric hospitals.
The Company's effective tax rate declined from 92.9% in the first quarter
of fiscal 1995 to 42.5% in the first quarter of fiscal 1996. The decrease in the
effective tax rate is primarily attributable to the elimination of
non-deductible amortization of reorganization value in excess of amounts
allocable to identifiable assets in fiscal 1996 offset by increased
non-deductible intangible amortization in the first quarter of fiscal 1996 as a
result of the Mentor and Green Spring acquisitions.
Minority interest increased $1.0 million in the first quarter of fiscal
1996 as compared to the prior year. The increase is primarily due to the Company
acquiring a controlling interest in Green Spring in December 1995 and obtaining
a controlling interest in other businesses since December 31, 1994. The Company
expects minority interest to increase in future quarterly periods that include a
full quarter of Green Spring's operating results.
Recent Accounting Pronouncements
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 ("FAS 123") "Accounting for Stock-Based Compensation," which
becomes effective for fiscal years beginning after December 15, 1995. FAS 123
establishes new financial accounting and reporting standards for stock-based
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 in the process of evaluating FAS 123. The potential impact on the
Company of adopting the new standard has not been quantified at this time. The
Company must adopt FAS 123 no later than October 1, 1996.
Liquidity and Sources of Capital
Operating Activities. The Company's net cash used in operating
activities was approximately $17.9 million and $14.9 million for the quarters
ended December 31, 1994 and 1995, respectively. The Company had negative cash
flows from operations during the first quarter of fiscal 1995 and fiscal 1996
primarily as a result of insurance settlement payments ($11.3 million and $14.0
million for the quarters ended December 31, 1994 and December 31, 1995,
respectively) and the $21.1 million semi-annual interest payment paid in October
each year for the 11.25% Senior Subordinated Notes. Management believes that the
Company will have positive cash flows from operations in fiscal 1996, which will
be adequate to fund operations, capital expenditures and debt service
obligations.
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 $86.1 million compared to approximately $44.8 million in
acquisition expenditures in the first quarter of fiscal 1995.
Management believes that its cash on hand, future cash flows from
operations, borrowing capacity under the 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 $28.0 million
and $68.1 million, respectively, during the quarters ended December 31, 1994 and
1995, primarily to fund the acquisition of 13 hospitals in fiscal 1995 and to
fund the acquisition of Green Spring in fiscal 1996. The Company believes that
its businesses will generate sufficient cash flows from operations to meet its
future debt service requirements.
On December 22, 1995, the Company entered into a definitive agreement
to issue approximately four million shares of Common Stock and two million
warrants in a private placement transaction. On January 25, 1996, the
16
Company completed the private placement transaction and received proceeds of
approximately $68.7 million, net of issuance costs.
As of December 31, 1995, the Company had approximately $59.0 million of
availability under the Revolving Credit Agreement. In January 1996, $68.0
million of the outstanding borrowings under the Revolving Credit Agreement were
repaid from the proceeds of the private placement. The availability under the
Revolving Credit Agreement increased to approximately $110 million as a result
of the debt repayment after the commitment reduction required under the
Revolving Credit Agreement. The Company was in compliance with all debt
covenants at December 31, 1995.
Outlook
Management continually assesses events and changes in circumstances
that could effect its business strategy and the viability of its operating
facilities. During fiscal 1995, the Company consolidated, closed or sold fifteen
psychiatric hospitals. Management may elect to consolidate services in selected
markets and to close or sell additional facilities in future periods depending
on market conditions and evolving business strategies. If the Company closes
additional psychiatric hospitals in future periods, it could result in charges
to income for the costs necessary to exit the hospital operations.
The Company expects the Green Spring acquisition to result in increased
revenue and operating income (net revenue less salaries, supplies and other
operating expenses and bad debt expense) during fiscal 1996. However, increases
in amortization expense, interest expense and minority interest resulting from
the acquisition of Green Spring may exceed the expected increase in operating
income in fiscal 1996. In addition, the Exchange Option is potentially dilutive
to earnings per share, on a fully diluted basis, in future quarterly periods
during fiscal 1996.
The private placement transaction consummated in January 1996 resulted
in the Company reducing its long term debt and future interest obligations,
increasing its stockholders' equity and increasing its borrowing capacity.
However, the additional Common Stock outstanding as a result of the private
placement transaction will have a dilutive effect on earnings per share during
future quarterly periods.
17
PART II - OTHER INFORMATION
Item 5. - Other Information
Acquisition
On December 13, 1995, the Company acquired a 51% ownership interest in
Green Spring for approximately $73.2 million in cash and Common Stock and the
contribution of GPA, a wholly owned subsidiary of the Company, which became a
wholly owned subsidiary of Green Spring. On December 20, 1995, the Company
acquired an additional 10% ownership interest in Green Spring for approximately
$16.7 million in cash as a result of an exercise by a minority stockholder of
its Exchange Option for a portion of the stockholder's interest in Green Spring.
The Company has 61% ownership interest in Green Spring as of December 31, 1995.
The Company has accounted for the acquisition of Green Spring using the purchase
method of accounting.
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 will continue as customers of Green Spring. As of December 31,
1995, the minority stockholders of Green Spring have the option, under certain
circumstances, to exchange their ownership interests in Green Spring for
approximately 2.8 million shares of Magellan 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.
Description of Green Spring's Business
Green Spring is the nation's third largest managed behavioral
healthcare organization specializing in mental health and substance
abuse/dependency services through a network of more than 30,000 providers
nationwide, serving approximately 12 million members at December 31, 1995.
Green Spring was founded in 1991 by a group of clinicians who utilized
a clinical model that emphasizes the treatment needs of individuals. Green
Spring attempts to match each patient with an appropriate provider,
focusing on the quality of care and cost effectiveness from both the clinical
and service aspects.
Green Spring's services include:
Enhanced Utilization Management, a utilization review process that
employs clinical criteria designed to provide each patient with accessible,
appropriate and affordable treatment across the entire continuum of care and
services;
Care Management, a fully integrated healthcare model that offers
utilization review services and provides care to patients through the management
of a national network of providers and Green Spring-owned staff model clinics;
Employee Assistance Plans, employer-paid assessment, counseling and
referral programs that help employees address personal and workplace problems;
and
Comprehensive Administrative Services, including member assistance,
management reporting, claims processing, clinical management information and
provider referral systems that are adaptable to customer circumstances and
requirements.
18
Green Spring has several contractual funding arrangements with its
customers ranging from full risk capitated contracts to non-risk administrative
services only (ASO) arrangements. The primary funding arrangements for risk
business include full capitation and partial capitation. Under full capitation
arrangements, Green Spring assumes full risk for care under the contract and is
paid a monthly fee for each at-risk member regardless of the actual utilization
of services by the member. Partial capitation arrangements are similar to full
capitation arrangements except that the underwriting gain or loss is split
between the customer and Green Spring based on a pre-determined formula.
Non-risk funding arrangements include administrative service fees, and incentive
based administrative service fees. ASO funding arrangements call for the payment
of a fee to Green Spring for providing varying levels of administrative support
and management. Incentive-based administrative service fees are similar to
incentive-based ASO arrangements except the ASO fee is subject to adjustment
based on the level of performance achieved by Green Spring compared to a
mutually agreed target level of performance.
At December 31, 1995, Green Spring's risk and non-risk membership was
approximately 3.6 million and 8.8 million, respectively. During 1995, risk and
non-risk business comprised approximately 70% and 30%, respectively, of Green
Spring revenues.
Green Spring's customers include Fortune 1000 companies, Blue
Cross/Blue Shield organizations, major HMO's/PPO's, several State employee
programs, labor unions and several State Medicaid programs. During 1995,
approximately 70% of Green Spring's historical revenues have been generated from
the Blues organizations.
Marketing
Green Spring conducts marketing activities utilizing an internal
marketing staff. The marketing efforts are primarily focused on developing new
customer relationships in existing markets as well as exploring opportunities in
states where Green Spring currently does not have local operating units.
Information Systems
Green Spring owns the data processing systems that are used for
conducting its business including the systems used for utilization management,
provider profiling and credentialing, benefit authorization and eligibility
processing, care management, billing processing and corporate accounting. Green
Spring's systems operate on server based local area and wide area networks.
Government Regulation
Green Spring operations, in some states, are subject to utilization
review licensure and related state regulatory procedures. However, Green Spring
must comply with all reporting and monitoring requirements of the Health Care
Financing Administration ("HCFA") communicated to it from the prime contractor,
Blue Cross/Blue Shield plans, for the behavioral health portion care for the
Medicare risk business. The Office of Inspector General of the United States
monitors and reviews financial reporting and performance of the Blue Cross
Federal Employees Program for which Green Spring provides the behavioral
healthcare benefit through several Blue Cross plans. Medicaid business is also
subject to the financial reporting and performance monitoring requirements of
the applicable state governments as well as HCFA as noted above.
The management of Green Spring believe that it is in compliance, in all
material respects, with all current state and federal regulatory requirements
applicable to the business it conducts.
19
Trademarks
Green Spring owns and uses several registered service marks including
Green Spring Health Services, Inc., Green Spring and Managed With Care in the
operation of its business.
Competition
The managed healthcare industry is being affected by various external
factors including rising healthcare costs, intense price competition, market
consolidation by major managed care companies and proposed healthcare reform
legislation.
Green Spring faces competition from a number of sources, including
other behavioral health managed care companies and traditional full service
managed care companies that contract to provide behavioral healthcare benefits.
Also, to a lesser extent, competition exists from fully capitated
multi-specialty medical groups and individual practice associations that
directly contract with managed care companies and other customers to provide and
manage all components of healthcare for the members including the behavioral
healthcare component.
Green Spring believes that the most significant factors in a customer's
selection of a managed behavioral healthcare company include price, the extent
and depth of provider networks, flexibility and scope of benefits, quality of
services, market presence, reputation and financial stability. The management of
Green Spring believes that Green Spring competes effectively with respect to
these factors.
Employees
At December 31, 1995, Green Spring employed 979 full-time employees and
70 part-time employees. None of the Green Spring employees are covered by
collective bargaining agreements. Green Spring believes that it has satisfactory
relations with its employees.
Properties
As of December 31, 1995, Green Spring leased office space for its
headquarters and administrative offices in Columbia, Maryland. Green Spring also
leases office space in 19 other facilities in 14 states housing the local state
operating units and staff model clinics. The annual payments under these lease
arrangements during 1995 amounted to approximately $2.9 million.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
4(a) Amendment No. 6, dated as of October 17, 1995, to
Second Amended and Restated Credit Agreement, dated
as of May 2, 1994, among the Company, Bankers Trust
Company, as Agent, First Union National Bank of North
Carolina, as Co-Agent.
4(b) Amendment No. 7, dated as of November 30, 1995, to
Second Amended and Restated Credit Agreement, dated
as of May 2, 1994, among the Company, Bankers Trust
Company, as Agent, First Union National Bank of North
Carolina, as Co-Agent.
20
4(c) Amendment No. 8, dated as of January 24, 1996, to
Second Amended and Restated Credit Agreement, dated
as of May 2, 1994, among the Company, Bankers Trust
Company, as Agent, First Union National Bank, as
Co-Agent.
4(d) Stockholders' Agreement, dated December 13, 1995,
among Green Spring Health Services, Inc., Blue Cross
and Blue Shield of New Jersey, Inc., Health Care
Service Corporation, Independence Blue Cross, Pierce
County Medical Bureau, Inc. and the Company.
4(e) Exchange Agreement, dated December 13, 1995, among
Blue Cross and Blue Shield of New Jersey, Inc.,
Health Care Service Corporation, Independence Blue
Cross, Pierce County Medical Bureau, Inc. and the
Company.
4(f) Stock and Warrant Purchase Agreement, dated December
22, 1995, between the Company and Richard E.
Rainwater.
*10(a) Written description of Corporate Annual Incentive
Plan for the year ended September 30, 1996.
*10(b) Employment Agreement, dated March 18, 1993, between
Green Spring Health Services, Inc. and Henry T.
Harbin, M.D., Executive Vice President of the
Company and President and Chief Executive Officer of
Green Spring Health Services, Inc.
*10(c) Letter Agreement, dated November 9, 1993, between
Green Spring Health Services, Inc. and Henry T.
Harbin, M.D., Executive Vice President of the
Company and President and Chief Executive Officer of
Green Spring Health Services, Inc.
*10(d) Letter Agreement, dated September 19, 1994 between
Green Spring Health Services, Inc. and Henry T.
Harbin, M.D., Executive Vice President of the
Company and President and Chief Executive Officer of
Green Spring Health Services, Inc.
10(e) Stock Purchase Agreement, dated November 14, 1995,
among Blue Cross and Blue Shield of New Jersey, Inc.,
Health Care Service Corporation, Independence Blue
Cross, Medical Service Association of Pennsylvania,
Pierce County Medical Bureau, Inc., Veritus, Inc.,
Green Spring Health Services, Inc. and the Company.
10(f) GPA Stock Exchange Agreement, dated November 14,
1995, between Green Spring Health Services, Inc. and
the Company.
27 Financial Data Schedule
*Constitutes a management contract or compensatory plan
arrangement.
(b) Report on Form 8-K
There were no current reports on Form 8-K filed by
the Registrant with the Securities and Exchange
Commission during the quarter ended December 31,
1995.
21
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: February 12, 1996 /s/ Craig L. McKnight
------------------------ ---------------------
Craig L. McKnight
Executive Vice President and
Chief Financial Officer
Date: February 12, 1996 /s/ Howard A. McLure
------------------------ --------------------
Howard A. McLure
Vice President and Controller
(Principal Accounting Officer)
22