SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 JUNE 30, 1999
Commission file number 001-12055
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 800, 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 August 13, 1999, there were outstanding 55,118,330 shares of the
Registrant's Common Stock, no stated value.
2
PARACELSUS HEALTHCARE CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1999
INDEX
PAGE REFERENCE
FORM 10-Q
FORWARD-LOOKING STATEMENTS 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements-- (Unaudited)
Condensed Consolidated Balance Sheets--
June 30, 1999 and December 31, 1998 4
Consolidated Statements of Operations--
Three Months and Six Months Ended June 30, 5
1999 and 1998
Condensed Consolidated Statements of Cash Flows-- 6
Six Months Ended June 30, 1999 and 1998
Notes to Interim Condensed Consolidated 7
Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. OTHER INFORMATION 19
SIGNATURE 21
3
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q 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. Factors which may cause the
Company's actual results in future periods to differ materially from
forecast results include, but are not limited to: general economic and
business conditions, both nationally and in the regions in which the
Company operates; industry capacity; demographic changes; existing
government regulations and changes in, or the failure to comply with
government regulations; legislative proposals for healthcare reform; the
ability to enter into managed care provider arrangements on acceptable
terms; changes in Medicare and Medicaid reimbursement levels;
liabilities and other claims asserted against the Company; competition;
the loss of any significant customer; changes in business strategy,
divestiture or development plans; the ability to attract and retain
qualified personnel, including physicians; the impact of Year 2000
issues; fluctuations in interest rates on the Company's variable rate
indebtedness; the continued listing of the Company's common stock on the
New York Stock Exchange; the Company's ability to divest assets to reduce
indebtedness and to realize its tax assets; the availability and terms of
capital to fund working capital requirements and the expansion of the
Company's business; the Company's continued compliance with its debt
covenants and its ability to obtain waivers in the event of
noncompliance; and the final resolution of settlement to litigation and
the fulfillment of the conditions contained therein. The Company is
generally not required to, and does not undertake to, update or revise
its forward-looking statements.
4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARACELSUS HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in 000's)
JUNE 30, DECEMBER 31,
1999 1998
--------- ------------
(Unaudited) (Note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 12,364 $ 11,944
Restricted cash 1,111 1,029
Accounts receivable, net 60,182 67,332
Deferred income taxes 10,757 9,641
Other current assets 39,842 38,923
--------- ---------
Total current assets 124,256 128,869
Property and equipment 539,615 531,908
Less: Accumulated depreciation and amortization (179,324) (168,009)
--------- ---------
360,291 363,899
Goodwill 134,751 136,994
Other assets 84,444 86,340
--------- ---------
Total assets $ 703,742 $ 716,102
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 47,124 $ 41,301
Accrued liabilities and other 52,392 58,758
Current maturities of long-term debt 4,379 6,284
--------- ---------
Total current liabilities 103,895 106,343
Long-term debt 537,759 533,048
Other long-term liabilities 36,942 42,370
Stockholders' equity:
Common stock 222,977 222,977
Additional paid-in capital 390 390
Accumulated deficit (198,221) (189,026)
--------- ---------
Total stockholders' equity 25,146 34,341
--------- ---------
Total liabilities and stockholders' equity $ 703,742 $ 716,102
========= =========
See accompanying notes.
5
PARACELSUS HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in 000's, except per share data)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-----------------------------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Net revenue $ 143,267 $ 176,693 $ 294,211 $ 363,575
Costs and expenses:
Salaries and benefits 58,135 72,775 117,100 147,891
Other operating expenses 56,939 71,275 115,024 145,982
Provision for bad debts 9,087 9,363 21,485 19,880
Interest 13,079 13,295 26,183 25,674
Depreciation and amortization 9,970 8,850 19,785 18,126
Unusual items 6,545 (22) 7,668 (22)
Loss (gain) on sale of
facilities 2,387 (7,100) 2,387 (7,100)
--------- -------- -------- --------
Total costs and expenses 156,142 168,436 309,632 350,431
--------- -------- -------- --------
Income (loss) before minority
interests, income taxes and
extraordinary charge (12,875) 8,257 (15,421) 13,144
Minority interests 58 (701) 121 (3,286)
--------- -------- -------- --------
Income (loss) before income
taxes and extraordinary charge (12,817) 7,556 (15,300) 9,858
Provision (benefit) for income
taxes (5,208) 1,858 (6,105) 2,535
--------- -------- -------- --------
Income (loss) before
extraordinary charge (7,609) 5,698 (9,195) 7,323
Extraordinary charge on
extinguishment of debt, net - - - (1,175)
--------- -------- -------- --------
Net income (loss) $ (7,609) $ 5,698 $ (9,195) $ 6,148
========= ========= ========= ========
Income (loss) per share - basic
and assuming dilution:
Income (loss) before
extraordinary charge $ (0.14) $ 0.10 $ (0.17) $ 0.13
Extraordinary charge on
extinguishment of debt - - - (0.02)
--------- --------- --------- ---------
Net income (loss) per share $ (0.14) $ 0.10 $ (0.17) $ 0.11
========= ========= ========= ========
See accompanying notes.
6
PARACELSUS HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in 000's)
(Unaudited)
Six Months Ended
June 30,
------------------------
1999 1998
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (9,195) $ 6,148
Non-cash expenses and changes in operating
assets and liabilities 18,729 (1,929)
--------- ---------
Net cash provided by operating activities 9,534 4,219
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in DHHS - (64,816)
Proceeds from sale of facilities, net of expenses 1,925 22,998
Additions to property and equipment, net (14,644) (9,198)
Decrease in other assets, net 1,923 1,763
--------- ---------
Net cash used in investing activities (10,796) (49,253)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock - 67
Borrowings under senior revolving credit facility 17,000 64,528
Repayments under senior revolving credit facility (11,420) (30,275)
Repayments of debt, net (3,898) (3,184)
Deferred financing costs - (3,984)
--------- ---------
Net cash provided by financing activities 1,682 27,152
--------- ---------
Increase (decrease) in cash and cash equivalents 420 (17,882)
Cash and cash equivalents at beginning of period 11,944 28,173
--------- ---------
Cash and cash equivalents at end of period $ 12,364 $ 10,291
========= =========
Supplemental Cash Flow Information:
Interest paid $ 26,542 $ 24,568
Income taxes (refunded) paid $ (26) $ (415)
Noncash Investing Activities:
Notes receivable from sale of hospitals $ 6,169 $ -
Capital lease obligations $ 1,124 $ -
See accompanying notes.
7
PARACELSUS HEALTHCARE CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1999
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION - Paracelsus Healthcare Corporation (the "Company") was
incorporated in November 1980 for the principal purpose of owning and
operating acute care and related healthcare businesses in selected
markets. The Company presently operates 15 hospitals with 1,878 licensed
beds in 9 states, of which 11 are owned and four are leased.
BASIS OF PRESENTATION - On July 1, 1998, the Company completed the
purchase of Dakota Medical Foundation's 50% partnership interest in a
general partnership operating as Dakota Heartland Health Systems ("DHHS")
thereby giving the Company 100% ownership of DHHS. Prior to the
purchase, the Company owned 50% of DHHS and accounted for its investment
under the equity method. The transaction was accounted for as a step
purchase acquisition. As a result of this change in control, the Company
has recast its 1998 consolidated statement of operations to account for
DHHS under the consolidated method of accounting as though the
transaction had occurred on January 1, 1998.
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 notes required by generally accepted accounting
principles for annual financial statements. In the opinion of management,
all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation have been included. The balance sheet
at June 30, 1999, has been derived from the unaudited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for a
complete set of financial statements. The Company's business is seasonal
in nature and subject to general economic conditions and other factors.
Accordingly, operating results for the three and six months ended June
30, 1999, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. These financial
statements should be read in conjunction with the audited consolidated
financial statements and notes thereto for the year ended December 31,
1998, included in the Company's 1998 Form 10-K.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
8
EARNINGS PER SHARE - The following table sets forth the computation of
basic and diluted income (loss) before extraordinary charge per share
(dollars in thousands, except per share amounts).
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ --------------------
1999 1998 1999 1998
-------- --------- -------- --------
Numerator (a):
Income (loss) before
extraordinary charge $ (7,609) $ 5,698 $ (9,195) $ 7,323
======== ======= ======== ========
Denominator:
Weighted average shares used
for basic earnings per
share 55,118 55,103 55,118 55,098
------- -------- -------- --------
Effect of dilutive securities:
Employee stock options - 2,445 - 2,446
------- -------- -------- --------
Dilutive potential common
shares - 2,445 - 2,446
------- -------- -------- --------
Shares used for diluted
earnings per share 55,118 57,548 55,118 57,544
======= ======== ======== ========
Income (loss) before extraordinary
charge per share:,
Basic $ (0.14) $ 0.10 $ (0.17) $ 0.13
======== ======== ======== ========
Diluted $ (0.14) $ 0.10 $ (0.17) $ 0.13
======== ======== ======== ========
- ------------------------------------
(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 7,671,402 and 4,988,000 shares of the Company's
common stock at a weighted average exercise price of $4.98 and $7.37 per
share and warrants to purchase 414,906 shares at a weighted average
exercise price of $9.00 per share were outstanding during the three and
six months ended June 30, 1999 and 1998, respectively, but were not
included in the computation of diluted EPS because their inclusion would
have an antidilutive effect in the periods presented.
RESTRICTED CASH - The Company had restricted cash of $1.1 million and
$1.0 million at June 30, 1999 and December 31, 1998, respectively, for
payments related to the commercial paper financing program.
COMPREHENSIVE INCOME - The Company had no other comprehensive income
(loss) for the three and six months ended June 30, 1999 and 1998.
Comprehensive income (loss) equaled net income (loss) for each of the
periods presented on the accompanying Consolidated Statements of
Operations.
NOTE 2. UNUSUAL ITEMS
In the six months ended June 30, 1999, the Company recorded unusual
items of $7.7 million, which included a $2.2 million net charge
associated with the execution of an executive agreement with certain
current and former officers of the Company, as previously reported, and a
$5.5 million corporate restructuring charge. The restructuring charge
was recorded in June 1999 as a result of the Company's efforts to further
reduce corporate overhead through the consolidation and/or elimination of
various corporate functions and contracts and a reduction of corporate
9
office space under lease. Such charge included $2.2 million for employee
termination costs, $1.3 million for the cancellation of certain lease and
maintenance contracts and $2.0 million for the write-down of certain
deferred costs, leasehold improvements and redundant equipment. Employee
termination and contract cancellation costs totalling $3.5 million were
included in accrued expenses in the accompanying Condensed Consolidated
Balance Sheet as of June 30, 1999.
NOTE 3. DISPOSITIONS OF HOSPITALS
Effective June 30, 1999, the Company sold substantially all of the
assets of four skilled nursing facilities (collectively, the
"Convalescent Hospitals"). The facilities had 232 licensed beds. The
sales price of approximately $6.9 million, which excluded net working
capital, was paid by a combination of $3.0 million in cash and a $3.9
million second lien promissory note. The note matures on June 30, 2004
and is subject to prepayment discounts. In connection with the sale, the
Company paid $1.0 million to terminate a lease agreement at one of the
facilities and used the remaining cash proceeds of $2.0 million from the
sale to reduce its outstanding indebtedness under its senior revolving
credit facility. The Company recorded a pretax gain of approximately
$1.3 million on the disposition.
In June 1999, the Company also recorded a loss on sale of facilities
of $3.7 million in connection with the sale of the eight hospitals
located in metropolitan Los Angeles ("LA Metro") as previously reported
in the Company's 1998 Form 10-K. The charge resulted from the final
settlement of working capital and the recognition of a prepayment
discount on certain promissory notes. The notes were repaid in full
during the second quarter of 1999 and the proceeds were used to reduce
the Company's indebtedness under the senior revolving credit facility.
Effective March 31, 1999, the Company sold the stock of Paracelsus
Bledsoe County Hospital, Inc. ("Bledsoe"), which operated a 32 licensed
bed facility located in Pikeville, Tennessee. The sales price of
approximately $2.2 million, including working capital, was paid by a
combination of $100,000 in cash and the issuance by the buyer of $2.1
million in promissory notes. The notes are secured by all outstanding
common stock and assets of Bledsoe. The Company recorded no material gain
or loss on the Bledsoe disposition.
On June 30, 1998, the Company completed the sale of substantially
all of the assets of Chico Community Hospital, Inc., which included a 123
licensed bed acute care hospital and a 60 licensed bed rehabilitation
hospital, both located in Chico, California, (collectively, the "Chico
Hospitals") for $25.0 million in cash plus working capital and the
termination of a facility operating lease and related letter of credit.
The Company recognized a pretax gain of $7.1 million on the disposition.
The results of operations of the Convalescent Hospitals and Bledsoe
for the six months ended June 30, 1999 were not material to the Company's
consolidated statements of operations, individually and on a combined
basis. The pro forma effect of the dispositions of the Convalescent
Hospitals, Bledsoe, the Chico Hospitals and LA Metro on the Company's
1998 results of operations was previously reported in the Company's
Current Report on Form 8-K dated July 16, 1999.
NOTE 4. LONG-TERM DEBT
Effective June 30, 1999, the Company amended its senior bank credit
agreement (the "Amended Agreement"). The Amended Agreement provides for,
among other things (i) a 0.25% increase in interest rates applicable to
the Company's revolving credit facility and Tranche A term loan facility
(outstanding borrowings of $88.9 million and $41.8 million, respectively,
at June 30,1999), with such rates subject to an additional 0.25% increase,
retroactive to August 13, 1999, in the event certain asset dispositions do
not occur, as defined, by November 15, 1999 (ii) a 0.50% increase in
the interest rate applicable to the Company's Tranche B term loan facility
10
(outstanding borrowings of $69.5 million at June 30, 1999), with such rates
subject to an additional 0.50% increase, retroactive to August 13, 1999, in the
event certain asset dispositions do not occur, as defined, by November 15,
1999 (iii) a change in certain financial covenants for the last three quarters
of 1999, (iv) a reduction in the revolving credit loan commitments for
any prepayment made in connection with an asset disposition, as defined, (v) an
increase in permitted letters of credit from $25.0 million to $26.0 million
and (vi) approval of certain asset dispositions, as defined. Pursuant to the
Amended Agreement, the interest rates, as adjusted, in effect on June 30,
1999 were 8.33% under the revolving credit facility and Tranche A term
loan facility and 8.58% under Tranche B term loan facility.
Effective July 21, 1999, the Company received waivers to certain
provisions of the Amended Agreement to permit the global settlement of
the putative class and derivative actions arising out of the Company's
August 1996 merger with Champion Healthcare Corporation ("Champion") and
two related public offerings. The terms of the global settlement were
described in detail in the Company's Annual Report on Form 10-K filed
on April 13, 1999 (See Note 6).
At June 30, 1999, the Company was in compliance with all debt
covenants to which it was subject under the Amended Agreement. The
Company's continued compliance with its debt covenants is predicated on
its ability to maintain certain levels of operating performance and on
its ability to sell certain non-core assets to reduce debt. If the
Company is unable to meet these objectives, it will be required to seek
waivers from its lenders in the future. However, there can be no
assurance that the Company will be able to obtain such waivers, if
needed.
NOTE 5. OPERATING SEGMENTS
The Company segregates its hospitals into core and non core markets
("Core Facilities" and "Non Core Facilities", respectively). There has
been no material change in the composition of Core and Non Core
Facilities or in the accounting policies of the segments as previously
reported in the Company's 1998 Form 10-K, except for the reclassification
of the Non Core Facilities sold in 1999 to the "All Other" segment in
each of the periods presented below. The Company does not allocate
income taxes, senior bank debt interest, or subordinated note interest to
its reportable segments. These items, along with overhead costs, and the
operations of sold/closed facilities, including the Convalescent
Hospitals, Bledsoe, the Chico Hospitals and LA Metro, have been included
in the "All Other" category. Selected segment information for the
three and six months ended June 30, 1999 and 1998 are as follows:
THREE MONTHS ENDED JUNE 30, 1999
---------------------------------------------------
CORE NON CORE ALL OTHER TOTAL
--------- ----------- ----------- ---------
Net revenue $ 122,092 $ 17,506 $ 3,669 $ 143,267
Adjusted EBITDA (a) $ 23,487 $ 994 $ (5,317) $ 19,164
THREE MONTHS ENDED JUNE 30, 1998
---------------------------------------------------
CORE NON CORE ALL OTHER TOTAL
--------- ----------- ----------- ---------
Net revenue $ 123,458 $ 19,263 $ 33,972 $ 176,693
Adjusted EBITDA (a) (b) $ 24,015 $ 1,775 $ (3,211) $ 22,579
11
SIX MONTHS ENDED JUNE 30, 1999
---------------------------------------------------
CORE NON CORE ALL OTHER TOTAL
--------- ------------ --------- ---------
Net revenue $ 248,148 $ 36,868 $ 9,195 $ 294,211
Adjusted EBITDA (a) $ 48,676 $ 2,506 $ (10,459) $ 40,723
SIX MONTHS ENDED JUNE 30, 1998
---------------------------------------------------
CORE NON CORE ALL OTHER TOTAL
--------- ------------ --------- ---------
Net revenue $ 251,504 $ 40,658 $ 71,413 $ 363,575
Adjusted EBITDA (a) (b) $ 47,492 $ 4,747 $ (5,703) $ 46,536
- ---------------------------------------------
(a) Earnings before extraordinary charge, interest, taxes, depreciation,
amortization and unusual charges.
(b) Core Facilities adjusted EBITDA for the three and six months ended
June 30, 1998 included minority interest of $1.6 million and $4.1
million, respectively, attributable to the Company's former partner in
DHHS.
NOTE 6. CONTINGENCIES
SHAREHOLDERS LITIGATION - On July 22, 1999, the United States District
Court for the Southern District of Texas granted final approval of the
global settlement of the putative class and derivative actions arising
out of the Company's August 1996 merger with Champion and two
related public offerings. The terms of the global settlement were described
in detail in the Company's 1998 Annual Report on Form 10-K. The court's
approval is subject to appeal for a period of thirty days. Barring any
appeals, the settlement will take effect ten days after the expiration of the
appeal period.
IMPACT OF YEAR 2000 - The Company has a Year 2000 strategy for its
hospitals and corporate office that includes phases for education,
inventory and assessment of applications and equipment at risk, analysis
and planning, testing, conversion/remediation/replacement and post-
implementation and contingency planning. The Company can provide no
assurances that applications and equipment the Company believes to be
Year 2000 compliant will not experience difficulties, or that the Company
will not experience difficulties obtaining resources needed to make
modifications to correct or replace the Company's affected systems and
equipment. Failure by the Company or third parties on which it relies to
resolve Year 2000 issues could have a material adverse effect on the
Company's results of operations and its ability to provide health care
services. Consequently, the Company can give no assurances that issues
related to Year 2000 will not have a material adverse effect on the
Company's financial condition or results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
for further discussion.
NOTE 7. SUBSEQUENT EVENT
In July 1999, the definitive agreement on the sale of the remaining
two Tennessee facilities and the two facilities in Georgia and
Mississippi, as previously reported, was terminated.
Effective August 16, 1999, the Company entered into a definitive
agreement to transfer the stock of its subsidiary which will hold substantially
all the assets of the Company's five Utah hospitals with 640 licensed beds,
12
including PHC Regional Hospital and Medical Center which has been closed
since June 1997, to an unrelated third-party. The consideration for the
transfer includes a combination of cash and a minority interest in the
transferred subsidiary. When completed, the transaction will eliminate
indebtedness currently outstanding under the senior credit facilities and
reduce borrowings under the commercial paper financing program. The
transaction is subject to regulatory approvals and the normal due diligence.
The Company expects the transfer to be completed in the fourth quarter of 1999.
However, there can be no assurance on the final outcome of the due diligence
process or that the terms and conditions of the definitive agreement will be
satisfactorily fulfilled.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The comparison of operating results for 1999 with prior years is
difficult given the acquisitions and divestitures in the affected
periods. "Same hospitals" as used in the following discussion, where
appropriate, consist of acute care hospitals owned throughout the periods
for which comparative operating results are presented. Accordingly, "same
hospitals" exclude facilities sold in 1998, the Convalescent Hospitals
and Bledsoe, which were sold effective June 30 and March 31, 1999,
respectively, and include DHHS which was consolidated in 1998 and
included in the Company's results of operations for both periods
presented.
While the most significant changes in Medicare payments mandated by
the Balanced Budget Act of 1997 (the "1997 Budget Act") and certain
proposed changes to various states' Medicaid programs were phased in by
October 1, 1998, these changes continue to have an unfavorable impact on
the Company's revenues and earnings through 1999. Additionally,
pressures to control healthcare costs and a shift from traditional
Medicare/Medicaid and traditional indemnity insurers have resulted in an
increase in the number of patients whose healthcare coverage is provided
under managed care plans, from which the Company generally receives lower
payments per patient. The Company anticipates that its managed care
business will continue to increase in the future.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1999
COMPARED WITH THREE MONTHS ENDED JUNE 30, 1998
Net revenue for the three months ended June 30, 1999, was $143.3
million, a decrease of $33.4 million, or 18.9%, from $176.7 million for
the same period in 1998. The decline in net revenue is largely due to the
sale of eight acute care hospitals in June and September of 1998 and the
sale of Bledsoe in March 1999. The remaining decline in net revenue
occurred at the Company's "same hospitals," as discussed below.
Net revenue at "same hospitals" for the three months ended June 30,
1999 was $139.6 million compared to $142.7 million in 1998, a decrease of
$3.1 million, or 2.2%. Same hospital net revenue at Core Facilities
decreased $1.4 million, or 1.1%, from $123.5 million in 1998 to $122.1
million in 1999. Same hospital net revenue at Non Core Facilities
decreased $1.8 million, or 9.1%, from $19.3 million in 1998 to $17.5
million in 1999. Same hospital net revenue decreased in the three months
ended June 30, 1999 as compared to the same period in the prior year due
largely to the unfavorable impact of certain key provisions of the 1997
Budget Act, which were not implemented until the second half of 1998 and
resulted in the closure of certain skilled nursing facilities and the
restructuring of home health operations in the third and fourth quarters
of 1998. Additionally, increased managed care presence in certain
markets and downward pressure on payment levels by managed care plans
unfavorably affected same hospital net revenue in 1999. The full impact
of the 1997 Budget Act and managed care trend on same hospital net
revenue were partially mitigated by increased patient volumes in
admissions, patient days and outpatient visits (excluding home health).
While the restructuring of the home health operations and increasing
13
managed care penetration are likely to continue in 1999, which may
further reduce net revenue, the Company anticipates that the 1997 Budget
Act will not have a significant impact on Company's net revenue in the
second half of 1999 as compared to 1998.
The Company's "same hospitals" experienced a 1.7% increase in
inpatient admissions from 14,017 in the three months ended June 30, 1998
to 14,256 in the comparable period in 1999. "Same hospitals" patient
days increased 1.7% from 62,729 in 1998 to 63,768 in 1999. Excluding home
health visits, outpatient visits in "same hospitals" increased 1.6% from
157,216 in 1998 to 159,757 in 1999. The increase in admissions and
outpatient visits were primarily driven by the Core Facilities and
resulted from (i) favorable demographic changes in certain markets, (ii)
an increase in the number of physicians and services at several of the
Company's hospitals and (iii) increased volume generated from certain
hospital benchmarking and service awareness programs implemented in 1998.
Volume at the Non Core Facilities, as reported below, declined due to
the closure of certain operations and increasing competition in a
selected market. Home health visits in "same hospitals" decreased 35.1%
from 103,560 in 1998 to 67,163 in 1999 primarily due to the closure or
sale of home health operations throughout 1998.
The following table presents "same hospitals" operating statistics
for the Company's Core and Non Core Facilities for the three months ended
June 30, 1999 and 1998.
"SAME HOSPITALS"
-----------------------------------
THREE MONTHS ENDED JUNE 30,
-----------------------------------
1999 1998 % CHANGE
---------- ---------- ---------
Core Facilities
- ---------------
Patient Days 54,836 51,985 5.5%
Inpatient Admissions 12,168 11,717 3.8
Outpatient Visits, excluding Home Health 135,249 128,540 5.2
Home Health Visits 41,485 62,370 (33.5)
Non Core Facilities
- -------------------
Patient Days 8,932 10,744 (16.9)%
Inpatient Admissions 2,088 2,300 (9.2)
Outpatient Visits, excluding Home Health 24,508 28,676 (14.5)
Home Health Visits 25,678 41,190 (37.7)
Operating expenses (salaries and benefits, other operating expenses
and provision for bad debts), expressed as a percentage of net revenue,
remained relatively flat at 86.7% and 86.8% for the three months ended
June 30, 1999 and 1998, respectively. Operating expenses decreased $29.2
million from $153.4 million in 1998 to $124.2 million in 1999 primarily
from the Company's strategic disposition of certain facilities or closure
of unprofitable business operations, and from cost reduction efforts
implemented in the latter part of 1998. These initiatives contributed to
the stability of the Company's operating margins, which were 13.3% and
13.2% in 1999 and 1998, respectively.
Operating expenses at the Company's "same hospitals" increased from
80.8% of net revenue in 1998 to 82.5% in 1999, and operating margins
decreased from 19.2% to 17.5%, respectively. On a "same hospital"
basis, Core Facility operating margins declined from 20.8% in 1998 to
19.2% in 1999. The decline reflects, in part, the implementation of
certain key components of the 1997 Budget Act in the latter half of
1998, particularly with respect to the Company's home health operations,
as well as continuing downward pressure on payment levels by managed care
14
plans. Operating margins were also negatively impacted by the loss of
higher margin home health volume and higher labor costs resulting from a
combination of increased patient volume and tight labor markets at
certain facilities. Operating margins at the Non Core Facilities
declined from 9.2% in 1998 to 5.7% in 1999, due to a significant
reduction in the home health operations which led to overall volume
reductions at these facilities and an increase in the provision for bad
debt due to collection issues from a computer system conversion at one
facility. In addition to the cost reduction strategies implemented in
1998, the Company implemented a plan in 1999 to further reduce corporate
overhead through the consolidation and/or elimination of corporate office
space and various corporate functions and contracts. Management believes
that the cost savings associated with these initiatives will have a
favorable impact on the Company's results of operations throughout 1999.
However, there can be no assurance that the Company will achieve its
desired cost structure or that any cost reductions will be sufficient to
offset present and/or future government initiatives and the effect of
increasing managed care penetration in selected markets.
Depreciation and amortization expense increased $1.1 million from
$8.9 million in the three months ended June 30, 1998 to $10.0 million for
the same period in 1999 primarily due to the Company's acquisition of
DHHS on July 1, 1998 and additions to property and equipment.
Loss before income taxes was $12.8 million for the three months
ended June 30, 1999 and included (i) unusual charges of $6.5 million,
which consisted of a $5.5 million corporate restructuring charge and a
$1.0 million charge associated with an executive agreement executed in
November 1998 (see Note 2) and (ii) loss on sale of hospitals of $2.4
million (see Note 3). Income before income taxes of $7.6 million for the
three months ended June 30, 1998 included a $7.1 million gain from sale
of the Chico Hospitals and minority interests of $1.6 million
attributable to DHHS. The Company acquired its former partner's 50%
interest in DHHS in July 1998.
The Company recorded income tax benefit of $5.2 million for the
three months ended June 30, 1999 and income tax expense of $1.9 million
for the same period in 1998. Income tax benefit in 1999 approximated the
statutory rate due to the offset of nondeductible goodwill amortization
and a non-taxable gain related to the executive agreement. Income tax
expense in 1998 differed from the statutory rate due to a decrease in the
valuation allowance, which was partially offset by nondeductible goodwill
amortization.
Net loss for the three months ended June 30, 1999 was $7.6 million,
or $0.14 per diluted share, compared to net income of $5.7 million or
$0.10 per diluted share, for the same period of 1998. Weighted average
common and common equivalent shares outstanding were 55.1 million and
57.5 million in 1999 and 1998, respectively. The decrease in weighted
average common and common equivalent shares outstanding resulted from the
effect of dilutive securities, which were excluded due to their anti-
dilutive effect on 1999 net loss.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1999
COMPARED WITH SIX MONTHS ENDED JUNE 30, 1998
Net revenue for the six months ended June 30, 1999, was $294.2
million, a decrease of $69.4 million, or 19.1%, from $363.6 million for
the same period in 1998. The decline in net revenue is largely due to the
sale of Bledsoe in March 1999 and eight acute care hospitals sold in
1998. The remaining decline in net revenue occurred at the Company's
"same hospitals," as discussed below.
Net revenue at "same hospitals" for the six months ended June 30,
1999 was $285.0 million compared to $292.2 million in 1998, a decrease of
$7.2 million, or 2.4%. Same hospital net revenue at Core Facilities
decreased $3.4 million, or 1.3%, from $251.5 million in 1998 to $248.1
million in 1999. Same hospital net revenue at Non Core Facilities
decreased $3.8 million, or 9.3%, from $40.7 million in 1998 to $36.9
15
million in 1999. As previously discussed, increased patient volumes in
admissions, patient days and outpatient visits (excluding home health)
partially mitigated the decline in same hospital net revenue that
resulted from the implementation of certain key provisions of the 1997
Budget Act in the second half of 1998, which led to the eventual closure
of certain skilled nursing facilities and the restructuring of home
health operations. The decline in same store net revenue was also due to
the increased penetration of managed care plans at selected markets.
The Company's "same hospitals" experienced a 2.1% increase in
inpatient admissions from 28,950 in the six months ended June 30, 1998 to
29,561 in the comparable period in 1999. Same hospital patient days
increased 2.6% from 132,347 in 1998 to 135,756 in 1999. Excluding home
health visits, outpatient visits in "same hospitals" increased 3.9% from
313,098 in 1998 to 325,292 in 1999. The increase in admissions and
outpatient visits resulted from (i) a delayed flu season in some markets
in the current year, (ii) favorable demographic changes in certain
markets, (iii) an increase in the number of physicians and services at
several of the Company's hospitals and (iv) increased volume generated
from certain hospital benchmarking and service awareness programs
implemented in 1998. Home health visits in "same hospitals" decreased
37.4% from 226,177 in 1998 to 141,515 in 1999 primarily due to the 1998
closure or sale of home health operations in response to the 1997 Budget
Act.
The following table presents "same hospitals" operating statistics
for the Company's Core and Non Core Facilities for the six months ended
June 30, 1999 and 1998.
"SAME HOSPITALS"
-----------------------------------
SIX MONTHS ENDED JUNE 30,
-----------------------------------
1999 1998 % CHANGE
---------- ---------- ---------
Core Facilities
- ---------------
Patient Days 114,514 109,215 4.9%
Inpatient Admissions 24,645 23,987 2.7
Outpatient Visits, excluding Home Health 274,648 255,575 7.5
Home Health Visits 87,909 136,833 (35.8)
Non Core Facilities
- -------------------
Patient Days 21,242 23,132 (8.2)%
Inpatient Admissions 4,916 4,963 (0.9)
Outpatient Visits, excluding Home Health 50,644 57,523 (12.0)
Home Health Visits 53,606 89,344 (40.0)
Operating expenses (salaries and benefits, other operating expenses
and provision for bad debts), expressed as a percentage of net revenue,
remained relatively flat at 86.2% and 86.3%, respectively, for the six
months ended June 30, 1999 and 1998, respectively. Operating expenses
decreased $60.1 million from $313.7 million in the six months ended June
30, 1998 to $253.6 million in 1999 largely due to reductions from
closed/sold facilities and cost reduction initiatives implemented in the
second half of 1998. Operating margins were 13.8% and 13.7% in 1999 and
1998, respectively.
Operating expenses at the Company's "same hospitals" increased from
80.7% of net revenue in 1998 to 82.1% in 1999, and operating margins
decreased from 19.3% to 17.9%, respectively. Core Facility operating
margins declined from 20.6% in 1998 to 19.6% in 1999, and Non Core
Facility operating margins decreased from 11.7% to 6.8%, respectively. As
discussed above, the decline in operating margins reflects (i) the
16
implementation of certain key components of the 1997 Budget Act in the
latter half of 1998, particularly with respect to the Company's home
health operations, (ii) continuing downward pressure on payment levels by
managed care plans, (ii) the loss of higher margin home health volume and
(iii) higher labor costs resulting from a combination of increased
patient volume and tight labor markets at certain facilities.
Additionally, operating margins were further reduced by an increase in
the first quarter 1999 bad debt expense due to collection issues arising
from information systems conversions and personnel turnover at several
facilities. These issues have largely been resolved and management
expects that bad debt expense should be in line with historical results
for the remainder of 1999. Management also believes that the cost
savings associated with the initiatives implemented in 1998 and 1999 will
have a favorable impact on the Company's results of operations throughout
1999. However, there can be no assurance that the Company will achieve
its desired cost structure or that any cost reductions will be sufficient
to offset present and/or future government initiatives and the effect of
increasing managed care penetration.
Interest expense increased $509,000 from $25.7 million in the six
months ended June 30, 1998 to $26.2 million in 1999, primarily due to an
net increase in borrowings under the senior credit facilities (primarily
to fund the acquisition of DHHS in July 1998 and working capital) and the
commercial paper program, which was partially offset by a decrease in
interest rates under the credit facilities.
Depreciation and amortization expense increased $1.7 million from
$18.1 million in the six months ended June 30, 1998 to $19.8 million for
the same period in 1999 primarily due to the acquisition of DHHS on July
1, 1998 and additions to property and equipment.
Loss before income taxes and extraordinary charge was $15.3 million
for the six months ended June 30, 1999 and included (i) unusual charges
of $7.7 million, which consisted of a $5.5 million corporate
restructuring charge and a $2.2 million charge associated with the
executive agreement executed in November 1998 (see Note 2) and (ii) a
loss on sale of facilities of $2.4 million (see Note 3). Income before
income taxes and extraordinary charge was $9.9 million for the six months
ended June 30, 1998 and included a gain on sale of the Chico Hospitals of
$7.1 million and minority interests of $4.1 million attributable to DHHS.
The Company recorded income tax benefit of $6.1 million in the six
months ended June 30, 1999 and income tax expense of $2.5 million for the
same period in 1998. Income tax benefit in 1999 approximated the
statutory rate due to the offset of nondeductible goodwill amortization
and a non-taxable gain related to the executive agreement. Income tax
expense in 1998 differed from the statutory rate due to a decrease in the
valuation allowance, which was partially offset by nondeductible goodwill
amortization.
Net loss for the six months ended June 30, 1999 was $9.2 million, or
$0.17 per diluted share, compared to net income of $6.1 million, or $0.11
per diluted share, for the same period of 1998. Net income in 1998
included an extraordinary charge for the write-off of deferred loan costs
of $1.2 million (net of tax benefits of $816,000), or $0.02 per share,
relating to the credit facility in existence prior to March 30, 1998.
Weighted average common and common equivalent shares outstanding were
55.1 million and 57.5 million in 1999 and 1998, respectively. The
decrease in weighted average common and common equivalent shares
outstanding resulted from the effect of dilutive securities, which were
excluded due to their anti-dilutive effect on 1999 net loss.
LIQUIDITY AND CAPITAL RESOURCES
The Company had net working capital of $20.4 million at June 30,
1999, a decrease of $2.1 million from $22.5 million at December 31, 1998.
The decrease in net working capital resulted primarily from an increase
in accrued expenses for corporate restructuring charges recorded in June
1999, which was partially offset by a reduction in accounts receivable.
17
The Company's long-term debt as a percentage of total capitalization
increased to 95.5% at June 30, 1999, compared to 93.9% at December 31,
1998, as the result of the 1999 year-to-date net loss and from additional
net borrowings under the senior credit facilities.
The acquisition of the remaining 50% interest in DHHS in July 1998
and increased efficiency in the utilization of the Company's operating
assets and liabilities contributed to a $5.3 million increase in net cash
provided by operating activities, which was $9.5 million in the six
months ended June 30, 1999 as compared to $4.2 million for the same
period in 1998. Net cash used in investing activities decreased $38.5
million from $49.3 million in 1998 to $10.8 million in 1999 due to (i)
the acquisition of DHHS for $64.8 million in 1998 partially offset by
(ii) a decrease in proceeds from sale of facilities of $21.1 million and
(iii) an increase in property and equipment additions primarily from
facility expansions at selected facilities and increased capital
expenditures in 1999 associated with Year 2000 and computer system
conversions. Net cash provided by financing activities during 1999 was
$1.7 million as compared to $27.2 million during 1998. The $25.5 million
decrease resulted primarily from a decrease in acquisition related
borrowings in 1999 relative to 1998, partially offset by a decrease in
repayments under the revolver portion of the senior credit facilities and
the payment of deferred financing costs associated with the refinancing
of the senior credit facility in March 1998.
Effective June 30, 1999, the Company amended its senior bank credit
agreement (the "Amended Agreement"). The Amended Agreement provides for,
among other things (i) a 0.25% increase in interest rates applicable to
the Company's revolving credit facility and Tranche A term loan facility
(outstanding borrowings of $88.9 million and $41.8 million, respectively,
at June 30,1999), with such rates subject to an additional 0.25% increase,
retroactive to August 13, 1999, in the event certain asset dispositions do
not occur, as defined, by November 15, 1999 (ii) a 0.50% increase in
the interest rate applicable to the Company's Tranche B term loan facility
(outstanding borrowings of $69.5 million at June 30, 1999), with such rates
subject to an additional 0.50% increase, retroactive to August 13, 1999, in the
event certain asset dispositions do not occur, as defined, by November 15,
1999 (iii) a change in certain financial covenants for the last three quarters
of 1999, (iv) a reduction in the revolving credit loan commitments for
any prepayment made in connection with an asset disposition, as defined, (v) an
increase in permitted letters of credit from $25.0 million to $26.0 million
and (vi) approval of certain asset dispositions, as defined. Pursuant to the
Amended Agreement, the interest rates, as adjusted, in effect on June 30,
1999 were 8.33% under the revolving credit facility and Tranche A term
loan facility and 8.58% under Tranche B term loan facility.
At June 30, 1999, the Company was in compliance with all debt
covenants to which it was subject under the Amended Agreement. The
Company's continued compliance with its debt covenants is predicated on
its ability to maintain certain levels of operating performance and on
its ability to sell certain assets to reduce debt. If the Company is
unable to meet these objectives, it will be required to seek waivers from
its lenders in the future. However, there can be no assurance that the
Company will be able to obtain such waivers, if needed.
In June 1999, the Company recorded a corporate restructuring charge
of $5.5 million in connection with its effort to further reduce corporate
overhead through the consolidation and/or elimination of corporate
functions and contracts and a reduction of corporate office space under
lease. Such charge included $2.2 million for employee termination costs,
$1.3 million for the cancellation of various leases and maintenance
contracts and $2.0 million for the write-down of certain deferred costs,
leasehold improvements and redundant equipment. Management expects that
approximately $3.5 million, which represented the cash portion of the
restructuring charge, will be paid in the second half of this year.
Effective July 21, 1999, the Company received waivers to certain
provisions of the Amended Agreement to permit the global settlement of
the putative class and derivative actions arising out of the Company's
18
August 1996 merger with Champion and two related public offerings. The
terms of the global settlement were described in detail in the Company's
Annual Report on Form 10-K filed on April 13, 1999.
As of August 16, 1999, the Company had $22.5 million available for
borrowings under the revolver portion of its senior credit facilities,
subject to the terms thereof, to fund future capital expenditures,
working capital requirements and the issuance of letters of credit.
Additionally, approximately $14.6 million remained available for
borrowings under the commercial paper program, subject to the
availability of the eligible accounts receivable.
Effective August 16, 1999, the Company entered into a definitive
agreement to transfer the stock of its subsidiary which will hold substantially
all the assets of the Company's five Utah hospitals with 640 licensed beds,
including PHC Regional Hospital and Medical Center which has been closed
since June 1997, to an unrelated third-party. The consideration for the
transfer includes a combination of cash and a minority interest in the
transferred subsidiary. When completed, the transaction will eliminate
indebtedness currently outstanding under the senior credit facilities, reduce
borrowings under the commercial paper financing program and provide additional
capital for working capital needs and investment in existing markets. The
transaction is subject to regulatory approvals and the normal due diligence.
The Company expects the transfer to be completed in the fourth quarter of 1999.
However, there can be no assurance on the final outcome of the due diligence
process or that the terms and conditions of the definitive agreement will be
satisfactorily fulfilled.
The Company anticipates that internally generated cash flows from
earnings, existing cash balances, borrowings under the senior credit facilities
and the commercial paper program, proceeds from the sale of facilities, income
tax refunds and permitted equipment leasing arrangements will be sufficient to
fund future capital and Year 2000 expenditures (see "Year 2000" discussion
below) and working capital requirements through 1999. There can be no
assurance that the above sources will sufficiently fund the Company's liquidity
needs or that future developments in the hospital industry or general economic
trends will not adversely affect the Company's operations or its liquidity.
LITIGATION
On July 22, 1999, the United States District Court for the Southern
District of Texas granted final approval of the global settlement of the
putative class and derivative actions arising out of the Company's August
1996 merger with Champion and two related public offerings. The terms of
the global settlement were described in detail in the Company's 1998
Annual Report on Form 10-K. The court's approval is subject to appeal
for a period of thirty days. Barring any appeals, the settlement will
take effect ten days after the expiration of the appeal period.
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.
YEAR 2000
The following discussion updates a more complete disclosure of the
Company's Year 2000 project plan previously reported in the 1998 Form 10-
K. The Company is on track with its Year 2000 seven-phase project plan.
As previously reported, the Company completed the first two phases of the
project plan. Phases three and four involving vendor certification and
developing test plans and compliance criteria for all patient care
critical and operations critical items are completed. The fifth phase,
which includes testing all patient care critical or operations critical
systems and identifying/replacing non-compliant items, is substantially
completed and documented in the Company's Year 2000 data repository.
Non-compliant patient care or operation critical systems have either been
replaced or the Company is in the process of approving/ ordering
19
replacement systems. The Company has also received vendor certification
from a majority of the critical suppliers and third parties such as
fiscal intermediaries, insurance companies, banks and local community
service providers.
The sixth phase, which involves developing contingency plans, is in
process and is scheduled for completion in the third quarter of 1999. The
Company has established and communicated a master contingency plan
guideline to all facilities and the corporate office requiring each
functional department to develop and document alternative means to
address all identifiable types of Year 2000 disruptions. The contingency
plan, by functional department, will include the identification of (i)
core functions and related supporting mission-critical systems, (ii)
procedures to detect data corruption and manual/replacement procedures to
execute in the event of system malfunction, (iii) loss impact of
potential failures on departmental core functions and procedures for
restoring data loss, (iv) a supply chain readiness assessment for all
critical suppliers, (v) a staffing plan during the weekend of the century
change and the scheduling of Year 2000 critical personnel to assist and
coordinate activities in the event of system malfunctions (vi) emergency
notification procedures with the Corporate command center and with points
of contact, including vendors, customers and/or legal counsel, (vii)
backup procedures for all critical physical facility equipment and
systems including heating, water supply, electrical power, elevators,
fire detection and security, and increased fuel resources for extended
usage of emergency power, and (viii) validation plan to ensure that the
contingency plan is realistic and executable. The seventh and final
phase which focuses on identifying and correcting any unpredictable
malfunction in the systems and equipment will be conducted throughout the
second half of the year, as planned.
Based on existing information, the Company believes that its
estimate of Year 2000 total costs in the range of $8.0 million to $10.0
million, as previously reported in the 1998 Form 10-K, remains
appropriate. To date, the Company has incurred approximately $5.5
million in capital expenditures on replacement systems and capital
projects that would have been undertaken notwithstanding the Year 2000
compliance program, but the timing of which was accelerated. The Company
has also incurred approximately $1.0 million in expenses to date,
including approximately $400,000 associated with the write-off of non-
compliant systems, which were or will be replaced. The Company expects to
incur the remainder of the projected cost, estimated at $1.5 million to
$3.5 million, in the latter half of 1999. The Company continues to
review its Year 2000 total cost estimate as appropriate. There can be no
assurance that the total projected Year 2000 costs, as reported, will not
differ materially from the actual costs incurred by the Company.
The foregoing assessment is based on information currently available
to the Company. The Company can provide no assurances that applications
and equipment the Company believes to be Year 2000 compliant will not
experience difficulties or that the Company will not experience
difficulties obtaining resources needed to make modifications to or
replace the Company's affected systems and equipment. Failure by the
Company or third parties on which it relies to resolve Year 2000 issues
could have a material adverse effect on the Company's results of
operations and its ability to provide health care services. Consequently,
the Company can give no assurances that issues related to Year 2000 will
not have a material adverse effect on the Company's financial condition
or results of operations.
REGULATORY MATTERS
Because of national, state and private industry efforts to reform
healthcare delivery and payment systems, the healthcare industry as a
whole faces increased uncertainty. The Company is unable to predict
whether any other healthcare legislation at the federal and/or state
level will be passed in the future and what action it may take in
response to such legislation, but it continues to monitor all proposed
legislation and analyze its potential impact in order to formulate its
20
future business strategies.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 22, 1999, the United States District Court for the Southern
District of Texas granted final approval of the global settlement of the
putative class and derivative actions arising out of the Company's August
1996 merger with Champion and two related public offerings. The terms of
the global settlement were described in detail in the Company's 1998
Annual Report on Form 10-K. The court's approval is subject to appeal
for a period of thirty days. Barring any appeals, the settlement will
take effect ten days after the expiration of the appeal period.
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 2. CHANGE IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(c) Exhibits
3.1 Amended and Restated Bylaws of Paracelsus Healthcare Corporation
dated March 24, 1999.
10.76 Employment agreement effective July 1, 1999 between James G.
VanDevender and Paracelsus Healthcare Corporation.*
10.77 Third Amendment to Amended and Restated Credit Agreement and
Approval of Asset Dispositions effective June 30, 1999.
10.78 Shareholder Agreement dated March 19, 1999, between Park-Hospital
GmbH and Paracelsus Healthcare Corporation.
10.79 Settlement Agreement dated March 24, 1999, by and among the former
shareholders of Champion Healthcare Corporation, Park-Hospital GmbH,
Dr. Manfred Georg Krukemeyer, and Paracelsus Healthcare Corporation.
10.80 Stipulation of Settlement dated May 11, 1999, by and among plaintiffs,
individually and as representatives of the Class, as defined, Paracelsus
Healthcare Corporation, Manfred G. Krukemeyer, R.J. Messenger, James T.
Rush, Charles R. Miller, James G. VanDevender, the Champion Shareholders,
as defined, Park-Hospital GmbH, Donaldson Lufkin & Jenrette Securities
Corporation, Bear Stearns & Co., Inc., Smith Barney, Inc., and ABN AMRO
Chicago Corporation in connection with the litigation captioned IN RE
PARACELSUS CORP. SECURITIES LITIGATION, Master File No. H-96-3464 (EW)
filed with the United States District Court for the Southern District of
Texas.
10.81 Settlement Agreement dated March 17, 1999, by and between James G.
Caven and Robert Orovitz, derivatively on behalf of Champion
Healthcare Corporation and double derivatively on behalf of
Paracelsus Healthcare Corporation; Paracelsus Healthcare
Corporation; the former shareholders of Champion Healthcare
Corporation; Park-Hospital GmbH; Donaldson Lufkin & Jenrette
Securities Corporation; Bears Stearns & Co.; Smith Barney, Inc.; and
ABN AMRO Chicago Corporation; Manfred Georg Krukemeyer; Charles R.
Miller; James G. VanDevender; Ronald R. Patterson; R.J. Messenger;
James T. Rush; Robert C. Joyner; Michael D. Hofmann; Christian A.
Lange; and Scott K. Barton.
27 Financial Data Schedule.
- ---------------------------------------------------
* Portions of the indicated exhibit have been omitted pursuant to a
request for confidentiality treatment which was filed separately
with the Securities and Exchange Commission on August 16, 1999.
(b) Report on Form 8-K
The Company filed on July 16, 1999, a Current Report on Form 8-K,
dated July 2, 1999, reporting pursuant to Item 2, the sale of
substantially all of the assets of four skilled nursing facilities
located in California effective June 30, 1999.
21
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)
Dated: August 16, 1999 By: /S/ JAMES G. VANDEVENDER
----------------------------
James G. VanDevender
Chief Executive Officer
& Director