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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Commission file number 1-12055
PARACELSUS HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
California 95-3565943
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
515 W. Greens Road, Suite 500, Houston, Texas
(Address of principal executive offices)
77067 (281) 774-5100
(Zip Code) (Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, no stated value New York Stock Exchange
- ----------------------------- -----------------------
(Title of Class) (Name of each exchange on
which registered)
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[ ]
As of May 15, 2000, there were outstanding 58,967,721 shares of the Registrant's
Common Stock, no stated value.
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1
PARACELSUS HEALTHCARE CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 2000
INDEX
Page Reference
Form 10-Q
Forward-Looking Statements 3
- --------------------------
PART I. FINANCIAL INFORMATION
- ------
Item 1. Financial Statements-- (Unaudited)
Condensed Consolidated Balance Sheets--
March 31, 2000 and December 31, 1999 4
Consolidated Statements of Operations--
Three Months Ended March 31, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows--
Three Months Ended March 31, 2000 and 1999 6
Notes to Interim Condensed Consolidated
Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market 15
Risks
PART II. OTHER INFORMATION 15
- -------
SIGNATURE 18
2
Forward-Looking Statements
Certain statements in this Form 10-K are "forward-looking statements"
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements involve a number of risks and
uncertainties. All statements regarding the Company's expected future financial
position, results of operations, cash flows, liquidity, financing plans,
business strategy, budgets, projected costs and capital expenditures,
competitive position, growth opportunities, plans and objectives of management
for future operations and words such as "anticipate," "believe," "plan,"
"estimate," "expect," "intend," "may" and other similar expressions are
forward-looking statements. Such forward-looking statements are inherently
uncertain, and stockholders must recognize that actual results may differ
materially from the Company's expectations as a result of a variety of factors,
including, without limitation, those discussed below.
Factors which may cause the Company's actual results in future periods
to differ materially from forecast results include, but are not limited to:
o Competition and general economic, demographic and business conditions, both
nationally and in the regions in which the Company operates;
o Existing government regulations and changes in legislative proposals
for healthcare reform, including changes in Medicare and Medicaid
reimbursement levels;
o The ability to enter into managed care provider arrangements on acceptable
terms;
o Liabilities and other claims asserted against the Company;
o The loss of any significant customer, including but not limited to
managed care contracts;
o The ability to attract and retain qualified personnel, including
physicians;
o The continued listing of the Company's common stock on the New
York Stock Exchange;
o The Company's ability to develop and consummate an acceptable and
sustainable alternative financial structure, considering the
Company's liquidity and limited financial resources;
o The Company's ability to consummate acceptable financial arrangements,
under reasonable terms, to replace its existing interim credit facility
and off-balance-sheet receivable financing arrangement;
o The possibility that the Company may be forced to file for
protection under Chapter 11 of the Federal Bankruptcy Code or that
its creditors could file an involuntary petition seeking to place
the Company in bankruptcy.
The Company is generally not required to, and does not undertake to,
update or revise its forward-looking statements.
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARACELSUS HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in 000's)
March 31, December 31,
2000 1999
---------------- --------------------
(Unaudited) (Note 1)
Assets
Current assets:
Cash and cash equivalents.............................................. $ 13,650 $ 22,723
Restricted cash........................................................ 14,010 12,991
Accounts receivable, net............................................... 32,194 30,796
Supplies............................................................... 8,836 8,655
Income taxes receivable................................................ 6,867 6,152
Other current assets................................................... 17,492 14,212
---------- ----------
Total current assets............................................... 93,049 95,529
Property and equipment..................................................... 341,043 339,528
Less: Accumulated depreciation and amortization............................ (118,320) (113,052)
---------- ----------
222,723 226,476
Goodwill................................................................... 86,799 87,684
Other assets............................................................... 26,756 27,369
---------- ----------
Total assets....................................................... $ 429,327 $ 437,058
========== ==========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable....................................................... $ 33,078 $ 35,563
Accrued interest payable............................................... 20,697 12,598
Accrued liabilities and other.......................................... 17,093 20,426
Long-term debt in default classified as current (Note 2)............... 335,445 335,445
Long-term debt due within one year..................................... 306 654
---------- ----------
Total current liabilities.......................................... 406,619 404,686
Long-term debt............................................................. 3,634 3,685
Other long-term liabilities................................................ 22,380 23,490
Stockholders' equity (deficit):
Common stock........................................................... 216,045 215,761
Additional paid-in capital............................................. 11,821 12,105
Accumulated deficit.................................................... (231,172) (222,669)
---------- ----------
Total stockholders' equity (deficit)............................... (3,306) 5,197
---------- ----------
Total Liabilities and Stockholders' Equity (Deficit)....................... $ 429,327 $ 437,058
======== ==========
See accompanying notes.
4
PARACELSUS HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in 000's, except per share data)
(Unaudited)
Three Months Ended
March 31,
----------------- -- ------------------
2000 1999
----------------- ------------------
Net revenue................................................................ $ 95,084 $ 150,944
Costs and expenses:
Salaries and benefits.................................................... 40,700 58,965
Other operating expenses................................................. 36,159 58,085
Provision for bad debts.................................................. 6,958 12,398
Interest................................................................. 9,010 13,104
Depreciation and amortization............................................ 8,213 9,815
Restructuring costs (Note 3)............................................. 2,547 -
Unusual charges.......................................................... 1,123
----------- ----------
Total costs and expenses........................................... 103,587 153,490
----------- ----------
Loss before minority interest and income taxes............................. (8,503) (2,546)
Minority interests......................................................... - 63
------------ ----------
Loss before income taxes................................................... (8,503) (2,483)
Income tax benefit (Note 4)................................................ - (897)
------------ ----------
Net loss................................................................... $ (8,503) $ (1,586)
=========== ==========
Net loss per share - basic and assuming dilution........................... $ (0.15) $ (0.03)
=========== ==========
See accompanying notes.
5
PARACELSUS HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in 000's)
(Unaudited)
Three Months Ended
March 31,
--------------------------------------
2000 1999
------------------ ------------------
Cash Flows from Operating Activities:
Net loss........................................................ $ (8,503) $ (1,586)
Non-cash expenses and changes in operating assets
and liabilities............................................... 2,791 (3,824)
---------- ----------
Net cash used in operating activities............................ (5,712) (5,410)
---------- ----------
Cash Flows from Investing Activities:
Additions to property and equipment, net......................... (1,733) (5,610)
Increase in other assets, net.................................... (591) (2,644)
---------- ----------
Net cash used in investing activities............................ (2,324) (8,254)
---------- ----------
Cash Flows from Financing Activities:
Borrowings under credit facilities .............................. - 10,000
Repayments under credit facilities............................... - (1,100)
Repayments of debt, net......................................... (399) (1,535)
Deferred financing costs......................................... (638) -
---------- ----------
Net cash provided by (used in) financing activities.............. (1,037) 7,365
---------- ----------
Decrease in cash and cash equivalents............................ (9,073) (6,299)
Cash and cash equivalents at beginning of period................. 22,723 11,944
---------- ----------
Cash and cash equivalents at end of period....................... $ 13,650 $ 5,645
========== ==========
Supplemental Cash Flow Information:
Interest paid................................................. $ 911 $ 20,461
Income taxes paid............................................. $ 715 $ -
Noncash Investing Activities:
Notes receivable from sale of hospital........................ $ - $ 2,269
See accompanying notes.
6
PARACELSUS HEALTHCARE CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2000
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Organization - Paracelsus Healthcare Corporation ("PHC") was incorporated in
November 1980 for the principal purpose of owning and operating acute care and
related healthcare businesses in selected markets. PHC and its subsidiaries (the
"Company") presently operate 10 acute care hospitals with 1,287 licensed beds in
seven states, of which eight are owned and two are leased.
Basis of Presentation - The accompanying unaudited condensed consolidated
financial statements of the Company 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 notes required by generally accepted accounting principles for a
complete set of financial statements. In the opinion of management, all
adjustments, consisting of normal recurring accruals, considered necessary for a
fair presentation have been included. The Company's business is seasonal in
nature and subject to general economic conditions and other factors.
Accordingly, operating results for the three months ended March 31, 2000, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. These financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
for the year ended December 31, 1999, included in the Company's 1999 Form 10-K.
The Company incurred operating losses in the first quarter of 2000 and
the year ended December 31, 1999, and had a working capital deficit at March 31,
2000 and December 31, 1999. These matters and certain liquidity issues described
in Note 2 have raised substantial doubt as to the Company's ability to continue
as a going concern. The accompanying unaudited condensed consolidated financial
statements have been prepared assuming the Company will continue as a going
concern and contemplate the realization of assets and the settlement of
liabilities and commitments in the normal course of business. The financial
statements do not include further adjustments, if any, reflecting the possible
future effects on the recoverability and classification of assets or the amount
and classification of liabilities that may result from the outcome of
uncertainties discussed herein.
7
Earnings Per Share - The following table sets forth the computation of basic and
diluted net loss per share (dollars in thousands, except per share amounts).
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
----------------------- ------------------------
Numerator (a):
Net loss................................................. $ (8,503) $ (1,586)
====== ======
Denominator:
Weighted average shares used for basic
earnings per share.................................... 57,668 55,118
Effect of dilutive securities:
Employee stock options................................. - -
------ ------
Dilutive potential common shares.......................... - -
------ ------
Shares used for diluted earnings per share................. 57,668 55,118
====== ======
Net loss per share - basic assuming dilution............. $ (0.15) $ (0.03)
====== ======
- ----------------------
(a) Amount is used for both basic and diluted earnings per share computations
since there is no earnings effect related to the dilutive securities.
Options to purchase 2.1 million shares of the Company's common stock at
a weighted average exercise price of $4.05 per share and warrants to purchase
414,906 shares at a weighted average exercise price of $9.00 per share were
outstanding during the quarter ended March 31, 2000, but were not included in
the computation of diluted EPS because the exercise price was greater than the
average market price of the common shares.
Comprehensive Loss - Comprehensive loss for the quarter ended March 31, 2000, of
$8.8 million included $284,000 of deferred compensation costs related to the
issuance of restricted stock grants under an employment agreement. Comprehensive
loss for the quarter ended March 31, 1999 equaled reported net loss.
Restricted Cash - The Company had restricted cash of $14.0 million and $13.0
million at March 31, 2000 and December 31, 1999, respectively, as collateral for
outstanding letters of credit and for payment of fees and interest related to
the commercial paper financing program and other commitments.
NOTE 2 . ISSUES AFFECTING LIQUIDITY
As previously reported in the Company's 1999 Form 10-K, on February 15,
2000, the Company did not make the interest payment of approximately $16.3
million due on the Company's $325.0 million 10% Senior Subordinated Notes (the
"Notes") due 2006, which upon the expiration of a 30-day grace period on March
16, 2000, constituted an event of default under the Note indenture.
8
The Company has retained an investment banking firm and legal counsel
to review its strategic alternatives and is in discussion with the holders of
the majority of the Notes. Few holders hold the majority of the Notes, and the
Company believes the concentration will facilitate the restructuring process.
Considering the Company's limited financial resources, there can be no assurance
that the Company and the Note holders will succeed in formulating an acceptable
alternative capital structure, in which case the Note holders are entitled, at
their discretion, to accelerate all principal and interest due on the Notes.
Either as a result of successful negotiations with the Note holders or as the
result of the failure of such negotiations, the Company could file for
protection under Chapter 11 of the Bankruptcy Code (the "Bankruptcy Code") or be
subject to an involuntary petition. A reorganization would likely result in a
significant dilution of the ownership interest of the existing holders of the
Company's common stock. There can be no assurance that a bankruptcy proceeding
would result in a reorganization of the Company rather than a liquidation. If a
liquidation or a protracted reorganization were to occur, there is a substantial
risk that there would be insufficient cash or property available for
distribution to the Company's creditors and/or the holders of the Company's
common stock.
Relating to the matters discussed above, on March 15, 2000, a
wholly-owned, second-tier subsidiary of PHC, PHC Finance, Inc., filed a
voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code
with the U.S. Bankruptcy Court for the Southern District of Texas in Houston.
The subsidiary, whose principal assets are several medical office buildings,
does not own or operate any hospital facilities, and neither PHC nor any of the
Company's hospital operating subsidiaries is a guarantor for any obligations of
PHC Finance, Inc.
Given the Company's default on the Notes and the uncertainty
surrounding the ultimate resolution of the Company's negotiations with its Note
holders, the principal amount of the Notes and certain other debt obligations
have been presented as current liabilities in the Company's condensed
consolidated balance sheet at March 31, 2000, which has resulted in a working
capital deficit of $313.6 million.
As the result of the default of interest payment on the Notes, the
Company was also in default under its interim credit facility, under which the
Company had $11.6 million in outstanding letters of credit, all of which were
fully secured by cash collateral held by the lender, and no outstanding
borrowings.
Additionally, the Company was in default with certain provisions of its
off-balance sheet commercial paper financing program, under which a wholly-owned
subsidiary of the Company had sold $32.3 million of eligible receivables as of
March 31, 2000. As a result of this default, the subsidiary is unable to sell
additional receivables under the commercial paper program. The lender of the
Company's commercial paper financing program has extended the program until May
17, 2000.
As of May 15, 2000, the Company has substantially finalized
negotiations of and expects to shortly enter into a new credit agreement with a
lending group, which will provide for a $62.0 million revolving credit and
letter of credit guaranty facility (the "Credit Facility"), expiring May 15,
2003. The Credit Facility will be used primarily to fund normal working
capital and certain capital expenditures of the Company's hospitals. The Credit
Facility will be an obligation of certain of the Company's subsidiaries and
will be secured by all patient accounts receivable and certain other assets of
the Company's hospitals and a first lien on two of its hospitals. Accordingly,
the Credit Facility will not be not an obligation of PHC. The Credit Facility
will replace the letters of credit outstanding under the interim facility and
the Company's commercial paper financing program. The outstanding letters of
credit under the Credit Facility will be secured by cash collateral held by the
lenders. Borrowings under the Credit Facility will bear interest at prime plus
1.5% or LIBOR plus 3.75% per annum and will be limited to hospitals' eligible
receivables and certain operating measurements, as defined. The Company
recorded deferred financing costs of $638,000 in connection with the
Credit Facility as of March 31, 2000.
9
The Company is in a highly leveraged financial position. The lending
group's commitment to enter into the Credit Facility expires May 16, 2000.
Should the lending group's commitment expire prior to the consummation of the
Credit Facility, the Company would be required to seek an extension of such
commitment from the lending group. The Company expects it will be able to obtain
such an extension; however, there can be no assurance that the lending group
would grant such an extension. Should the Company fail to receive an extension
of the commitment for the Credit Facility from the lending group or fail to
consummate the Credit Facility, the Company would have no available credit lines
and therefore would be required to finance its cash needs from operations.
Additionally, the Company would be required to seek an extension from its lender
under its commercial paper program, which expires May 16, 2000. In the event the
commercial paper program is not extended beyond May 16, 2000, a wind down of the
program may commence with the Company's current lender retaining a significant
portion of the Company's operating cash flows until all amounts outstanding
under the commercial paper program are repaid in full. In the event of a wind
down, operating cash flows would likely be insufficient to meet the Company's
operational and capital expenditure needs.
NOTE 3 . RESTRUCTURING COSTS AND UNUSUAL CHARGES
In the three months ended March 31, 2000, the Company recorded $2.5
million of restructuring costs for professional fees incurred in connection with
its efforts to restructure the Notes. In the three months ended March 31, 1999,
the Company recorded a net unusual charge of $1.1 million related to an
executive agreement with certain of its former senior executives.
NOTE 4 . INCOME TAXES
During the fourth quarter of 1999, the Company recorded a deferred tax
valuation allowance aggregating $26.8 million to reserve the full amount of the
Company's net deferred tax assets at December 31, 1999, due to issues affecting
liquidity and related uncertainties discussed in Note 2, which, if unfavorably
resolved, would adversely affect the Company's future operations. The Company
recorded no income tax benefit in the first quarter of 2000, as the result of
recording an additional valuation allowance of $3.2 million to reserve all net
deferred tax assets generated during the current quarter. The deferred tax
valuation allowance as of March 31, 2000 totaled $78.3 million.
NOTE 5 . OPERATING SEGMENTS
There has been no material change in the Company's reportable segments
as previously reported in the Company's 1999 Form 10-K. "Same Hospitals," as a
reportable segment, consist of acute care hospitals currently owned and operated
by the Company. "All Other" is comprised of closed/sold facilities and overhead
costs. Selected segment information for the quarters ended March 31, 2000 and
1999, were as follows:
Three Months ended
March 31, 2000
---------------------------------------
Same
Hospitals All Other Total
---------- ---------- ---------
Net revenue................................. $ 94,157 $ 927 $ 95,084
Adjusted EBITDA (a).......................... $ 13,818 $ (2,551) $ 11,267
Three Months ended
March 31, 1999
---------------------------------------
Same
Hospitals All Other Total
---------- ---------- ---------
Net revenue.................................. $ 95,904 $ 55,040 $ 150,944
Adjusted EBITDA (a).......................... $ 17,013 $ 4,546 $ 21,559
- -------------------------------------
10
(a) Earnings before extraordinary charge, interest, taxes, depreciation,
amortization, restructuring costs and unusual charges ("Adjusted EBITDA")
has been included because it is a widely used measure of internally
generated cash flow and is frequently used in evaluating a company's
performance. Adjusted EBITDA is not an acceptable measure of liquidity,
cash flow or operating income under generally accepted accounting
principles and may not be comparable to similarly titled measures of other
companies.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company incurred operating losses in the first quarter of 2000 and
the year ended December 31, 1999, and had a working capital deficit at March 31,
2000 and December 31, 1999. These matters and certain liquidity issues described
below have raised substantial doubt as to the Company's ability to continue as a
going concern. The accompanying unaudited condensed consolidated financial
statements have been prepared assuming the Company will continue as a going
concern and contemplate the realization of assets and the settlement of
liabilities and commitments in the normal course of business. The financial
statements do not include further adjustments, if any, reflecting the possible
future effects on the recoverability and classification of assets or the amount
and classification of liabilities that may result from the outcome of
uncertainties discussed herein.
ISSUES AFFECTING LIQUIDITY
As previously reported in the Company's 1999 Form 10-K, on February 15,
2000, the Company did not make the interest payment of approximately $16.3
million due on the Notes, which upon the expiration of a 30-day grace period on
March 16, 2000, constituted an event of default under the Note indenture.
The Company has retained an investment banking firm and legal counsel
to review its strategic alternatives and is in discussion with the holders of
the majority of the Notes. Few holders hold the majority of the Notes, and the
Company believes the concentration will facilitate the restructuring process.
Considering the Company's limited financial resources, there can be no assurance
that the Company and the Note holders will succeed in formulating an acceptable
alternative capital structure, in which case the Note holders are entitled, at
their discretion, to accelerate all principal and interest due on the Notes.
Either as a result of successful negotiations with the Note holders or as the
result of the failure of such negotiations, the Company could file for
protection under Chapter 11 of the Bankruptcy Code or be subject to an
involuntary petition. A reorganization would likely result in a significant
dilution of the ownership interest of the existing holders of the Company's
common stock. There can be no assurance that a bankruptcy proceeding would
result in a reorganization of the Company rather than a liquidation. If a
liquidation or a protracted reorganization were to occur, there is a substantial
risk that there would be insufficient cash or property available for
distribution to the Company's creditors and/or the holders of the Company's
common stock.
Relating to the matters discussed above, on March 15, 2000, a
wholly-owned, second-tier subsidiary of PHC, PHC Finance, Inc., filed a
voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code
with the U.S. Bankruptcy Court for the Southern District of Texas in Houston.
The subsidiary, whose principal assets are several medical office buildings,
does not own or operate any hospital facilities, and neither PHC nor any of the
Company's hospital operating subsidiaries is a guarantor for any obligations of
PHC Finance, Inc.
Given the Company's default on the Notes and the uncertainty
surrounding the ultimate resolution of the Company's negotiations with its Note
holders, the principal amount of the Notes and certain other debt obligations
have been presented as current liabilities in the Company's condensed
consolidated balance sheet at March 31, 2000, which has resulted in a working
capital deficit of $313.6 million.
11
As the result of the default of interest payment on the Notes, the
Company was also in default under its interim credit facility, under which the
Company had $11.6 million in outstanding letters of credit, all of which were
fully secured by cash collateral held by the lender, and no outstanding
borrowings.
Additionally, the Company was in default with certain provisions of its
off-balance sheet commercial paper financing program, under which a wholly-owned
subsidiary of the Company had sold $32.3 million of eligible receivables as of
March 31, 2000. As a result of this default, the subsidiary is unable to sell
additional receivables under the commercial paper program. The lender of the
Company's commercial paper financing program has extended the program until May
17, 2000.
As of May 15, 2000, the Company has substantially finalized
negotiations of and expects to shortly enter into a new credit agreement with a
lending group, which will provide for a $62.0 million revolving credit and
letter of credit guaranty facility, expiring May 15, 2003. The Credit Facility
will be used primarily to fund normal working capital and certain capital
expenditures of the Company's hospitals. The Credit Facility will be an
obligation of certain of the Company's subsidiaries and will be secured by all
patient accounts receivable and certain other assets of the Company's
hospitals and a first lien on two of its hospitals. Accordingly, the
Credit Facility will not be not an obligation of PHC. The Credit Facility
will replace the letters of credit outstanding under the interim facility and
the Company's commercial paper financing program. The outstanding letters of
credit under the Credit Facility will be secured by cash collateral held by
the lenders. Borrowings under the Credit Facility will bear interest at prime
plus 1.5% or LIBOR plus 3.75% per annum and will be limited to hospitals'
eligible receivables and certain operating measurements, as defined. The
Company recorded deferred financing costs of $638,000 in connection with the
Credit Facility as of March 31, 2000.
The Company is in a highly leveraged financial position. The lending
group's commitment to enter into the Credit Facility expires May 16, 2000.
Should the lending group's commitment expire prior to the consummation of the
Credit Facility, the Company would be required to seek an extension of such
commitment from the lending group. The Company expects it will be able to obtain
such an extension; however, there can be no assurance that the lending group
would grant such an extension. Should the Company fail to receive an extension
of the commitment for the Credit Facility from the lending group or fail to
consummate the Credit Facility, the Company would have no available credit lines
and therefore would be required to finance its cash needs from operations.
Additionally, the Company would be required to seek an extension from its lender
under its commercial paper program, which expires May 16, 2000. In the event the
commercial paper program is not extended beyond May 16, 2000, a wind down of the
program may commence with the Company's current lender retaining a significant
portion of the Company's operating cash flows until all amounts outstanding
under the commercial paper program are repaid in full. In the event of a wind
down, operating cash flows would likely be insufficient to meet the Company's
operational and capital expenditure needs.
RESULTS OF OPERATIONS
The comparison of operating results to prior years is difficult given
the number of divestitures in 1999. "Same Hospitals" as used in the following
discussion, where appropriate, consist of acute care hospitals owned throughout
both periods for which comparative operating results are presented.
Results of Operations - Quarter ended March 31, 2000
compared with Quarter ended March 31, 1999
Net revenue for the quarter ended March 31, 2000, was $95.1 million, a
decrease of $55.8 million, or 37.0%, from $150.9 million for the same period in
1999. Net revenue declined by $54.0 million due to the sale of ten hospitals in
1999. The remaining decline in net revenue occurred at the Company's "Same
Hospitals," as discussed below.
12
Net revenue at "Same Hospitals" for the quarter ended March 31, 2000
was $94.2 million compared to $95.9 million in 1999, a decrease of $1.7 million,
or 1.8%. The decline in net revenue was due in part to a shift in payor mix
from the traditional Medicare, Medicaid and indemnity plans to managed care,
from which the Company generally receives lower reimbursements, and to a
decline in admissions and patient days at certain hospitals as more fully
discussed below.
The Company's "Same Hospitals" experienced a 1.1% decrease in inpatient
admissions from 10,305 in the quarter ended March 31, 1999 to 10,195 in the
comparable period in 2000. Same hospital patient days decreased 4.4% from 52,824
in 1999 to 50,509 in 2000. Excluding home health visits, outpatient visits
increased 3.6% from 76,846 in 1999 to 79,585 in 2000. The decrease in admissions
and patient days was driven largely by the departure of physicians at the
Richmond, Virginia facility as the result of a revision to the licensure
standards of the hospital's medical staff. Home health visits decreased 14.4%
from 74,352 in 1999 to 63,645 in 2000 primarily due to the closure of a home
health office and the cancellation of certain home health contracts at the
Richmond facility and a general slow down of home health operations in
other markets. Excluding the Richmond facility, admissions and outpatient
visits (excluding home health) increased 0.4% and 6.9%, respectively, and home
health visits declined by 2.1%, compared to prior year quarter.
Operating expenses decreased $45.6 million from $129.4 million in the
quarter ended March 31, 1999 to $83.8 million in 2000 primarily from closed/sold
facilities. Excluding sold/closed facilities, operating expenses at Same
Hospitals increased by approximately $1.4 million from (i) an increase of $2.0
million in salaries and benefits from market driven increases in wages at
several facilities and increased overtime and contract labor due to a shortage
of nurses at certain hospitals, (ii) an increase of $700,000 in other operating
costs primarily from increased volume and patient acuity at certain facilities,
which resulted in higher supply costs, offset by (iii) a decrease in provision
for bad debt of $1.3 million due to improved collections and accounts
receivable management at selected hospitals and an increased emphasis on the
segregation of charity care from the bad debt provision.
Operating expenses (salaries and benefits, other operating expenses and
provision for bad debts), expressed as a percentage of net revenue were 88.2%
and 85.8% in 2000 and 1999, respectively. Operating expenses at "Same Hospitals"
increased to 85.3% of net revenue in 2000 from 82.3% in 1999, and operating
margins decreased to 14.7% from 17.7%, respectively. The deterioration in
operating margins resulted from the aforementioned factors.
Interest expense decreased $4.1 million from $13.1 million in the
quarter ended March 31, 1999 to $9.0 million in 2000, primarily due to the
repayment of amounts outstanding under the senior credit facility in October
1999.
Depreciation and amortization expense decreased $1.6 from $9.8 million
in the quarter ended March 31, 1999 to $8.2 million for the same period in 2000
primarily due to the sale of ten hospitals in 1999, partially offset by an
increase from additions to property and equipment.
Loss before income taxes of $8.5 million for the quarter ended March
31, 2000, included restructuring costs of $2.5 million for professional fees
incurred in connection with the Company's efforts to restructure the Notes. Loss
before income taxes of $2.5 million for the quarter ended March 31, 1999,
included a net unusual charge of $1.1 million resulting from the executive
agreement executed in November 1998.
The Company recorded no income tax benefit in the quarter ended March
31, 2000 as the result of recording an additional valuation allowance to reserve
all net deferred tax assets generated during the current quarter. Income tax
benefit of $897,000 in 1999 differed from the statutory rate due to
nondeductible goodwill amortization which was offset by a non-taxable gain
related to an executive agreement with certain of the Company's former senior
executives.
13
Net loss for the quarter ended March 31, 2000 was $8.5 million, or
$0.15 per diluted share, compared to $1.6 million, or $0.03 per diluted share,
for the same period of 1999. Weighted average common and common equivalent
shares outstanding increased to 57.7 million in 2000 as compared to 55.1 million
as the result of the issuance of common shares in connection with the settlement
of litigation in September 1999.
LIQUIDITY AND CAPITAL RESOURCES
The introductory information to this Item as set forth in "Issues
Affecting Liquidity" discusses the important issues affecting the Company's
liquidity and capital resources.
Net cash used in operating activities was $5.7 million in the quarter
ended March 31, 2000, compared to $5.4 million for the same period of 1999, and
included payments of $2.5 million for professional fees related to the Note
restructuring activities, $1.0 million for the working capital settlement on the
Utah hospitals sold in 1999, $1.0 million of cash collateral on certain letter
of credit commitments, and a federal income tax payment. Net cash used in
investing activities decreased to $2.3 million during 2000, as compared to $8.3
million during 1999, and reflected a decrease in capital expenditures related to
the Year 2000 program and to facility expansion. Net cash used in financing
activities during 2000 was $1.0 million, which reflected payments on capital
lease obligations and deferred financing costs on the Credit Facility, compared
to net cash provided by financing activities of $7.4 million during 1999, which
resulted primarily from net borrowings under the senior credit facilities.
In connection with its efforts to restructure the Notes, the Company
paid $2.5 million of professional fees in the three months ended March 31, 2000.
The Company expects that future restructuring costs will be paid as incurred
from internally generated cash from operations and existing cash balances.
The Company anticipates that internally generated cash from operations,
existing cash balances and borrowings under the Credit Facility will be
sufficient to fund the hospitals' routine capital expenditures and working
capital requirements through 2000. Should the Company fail to consummate the
Credit Facility, the Company would have no available credit lines and there
can be no assurance that the Company will have sufficient resources to
finance its capital expenditure program in 2000.
LITIGATION
The Company is subject to claims and legal actions by patients and
others in the ordinary course of business. The Company believes that all such
claims and actions are either adequately covered by insurance or will not have a
material adverse effect on the Company's financial condition, results of
operations or liquidity.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
There were no material changes to the information reported in the
Company's 1999 Annual Report on Form 10-K.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no other material developments in the legal
proceedings.
14
ITEM 2. CHANGE IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As previously reported in the Company's 1999 Form 10-K, on February 15,
2000, the Company did not make the interest payment of approximately $16.3
million due on the Company's $325.0 million 10% Senior Subordinated Notes due
2006, which upon the expiration of a 30-day grace period on March 16, 2000,
constituted an event of default under the Note indenture. The Company is
currently engaged in negotiations with the majority of the Note holders to
develop an alternative, sustainable capital structure for the Company.
As the result of the default of interest payment on the Notes, the
Company was also in default under its interim credit facility, under which the
Company had $11.6 million in outstanding letters of credit, all of which were
fully secured by cash collateral held by the lender, and no outstanding
borrowings. Additionally, the Company was in default with certain provisions of
its off-balance sheet commercial paper financing program, under which a
wholly-owned subsidiary of the Company had sold $32.3 million of eligible
receivables as of March 31, 2000. As a result of this default, the subsidiary
is unable to sell additional receivables under the commercial paper program.
The lender under the Company's commercial paper financing program extended
the program until May 16, 2000.
As of May 15, 2000, the Company has substantially finalized
negotiations of and expects to shortly enter into a new credit agreement with a
lending group, which will provide for a $62.0 million revolving credit and
letter of credit guaranty facility, expiring May 15, 2003. The Credit
Facility will replace the letters of credit outstanding under the interim
facility and the Company's commercial paper financing program.
The Company is in a highly leveraged financial position. The lending
group's commitment to enter into the Credit Facility expires May 16, 2000.
Should the lending group's commitment expire prior to the consummation of the
Credit Facility, the Company would be required to seek an extension of such
commitment from the lending group. The Company expects it will be able to obtain
such an extension; however, there can be no assurance that the lending group
would grant such an extension. Should the Company fail to receive an extension
of the commitment for the Credit Facility from the lending group or fail to
consummate the Credit Facility, the Company would have no available credit lines
and therefore would be required to finance its cash needs from operations.
Additionally, the Company would be required to seek an extension from its lender
under its commercial paper program, which expires May 16, 2000. In the event the
commercial paper program is not extended beyond May 16, 2000, a wind down of the
program may commence with the Company's current lender retaining a significant
portion of the Company's operating cash flows until all amounts outstanding
under the commercial paper program are repaid in full. In the event of a wind
down, operating cash flows would likely be insufficient to meet the Company's
operational and capital expenditure needs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
The New York Stock Exchange ("NYSE") recently notified the Company that
it no longer meets the NYSE's minimum criteria for market capitalization of not
less than $50 million and stockholders' equity of not less than $50 million. The
NYSE has given the Company until June 2, 2000 to submit a plan for bringing the
Company back into compliance with these requirements over an eighteen-month
period that commenced on April 13, 2000. The Company intends to submit such a
plan and to work with the NYSE to continue the Company's listing. The Company's
plan most likely will involve pursuing alternatives that include negotiating
with the Note holders to develop an alternative, sustainable capital structure
that may enable the Company to regain compliance. Although the Company expects
that the plan it will submit will bring the Company into compliance with the
NYSE's criteria, there can be no assurance that the NYSE will accept the
Company's plan.
15
The NYSE previously informed the Company that it remained below the
NYSE's required minimum share price of $1 over a 30 trading-day period. The
Company's share price remains below the $1 level over a 30 trading-day period.
The Company has until its next annual meeting of shareholders to raise its share
price above $1.
There can be no assurance that the Company's common stock will continue
to be listed on a national securities exchange. If the Company's securities were
delisted, the delisting would have a material adverse effect on the liquidity
and trading price of the Company's securities.
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) Exhibit
10.83 Employment Agreement effective March 27, 2000 between
Robert L. Smith and Paracelsus Healthcare Corporation.
27 Financial Data Schedule.
(b) Report on Form 8-K
None.
16
SIGNATURE
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.
Paracelsus Healthcare Corporation
(Registrant)
/s/ LAWRENCE A. HUMPHREY
Dated: May 15, 2000 By: ___________________________
Lawrence A. Humphrey
Executive Vice President &
Chief Financial Officer
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