- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-6639
MAGELLAN HEALTH SERVICES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 58-1076937
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3414 PEACHTREE ROAD, NE, SUITE 1400
ATLANTA, GEORGIA 30326
(Address of principal executive offices)
(Zip Code)
(404) 841-9200
(Registrant's telephone number, including area code)
SEE TABLE OF ADDITIONAL REGISTRANTS BELOW.
------------------------
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No____
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes _X_ No______
The number of shares of the Registrant's Common Stock outstanding as of July
31, 1997, was 28,970,003.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADDITIONAL REGISTRANTS(1)
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Behavioral Heath Systems of Indiana,
Inc................................ Indiana 35-1990127 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Beltway Community Hospital, Inc...... Texas 58-1324281 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Blue Grass Physician Management
Group, Inc......................... Kentucky 66-1294402 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
C.A.C.O. Services, Inc............... Ohio 58-1751511 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
CCM, Inc............................. Nevada 58-1662418 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
CMCI, Inc............................ Nevada 88-0224620 1061 East Flamingo Road
Suite One
Las Vegas, NV 89119
(702) 737-0282
CMFC, Inc............................ Nevada 88-0215629 1061 East Flamingo Road
Suite One
Las Vegas, NV 89119
(702) 737-0282
CMSF, Inc............................ Florida 58-1324269 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
CPS Associates, Inc.................. Virginia 58-1761039 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
i
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Alvarado Behavioral Health
System, Inc........................ California 58-1394959 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Asheville Behavioral Health
System, Inc........................ North Carolina 58-2097827 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter Arbor Indy Behavioral
Health System, LLC................. Delaware 58-2265776 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Augusta Behavioral Health
System, Inc........................ Georgia 58-1615676 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Bay Harbor Behavioral Health
System, Inc........................ Florida 58-1640244 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
The Charter Beacon Behavioral Health
System, LLC........................ Delaware 35-1994155 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Corporation....... Nevada 91-1819015 1061 E. Flamingo Road
Suite One
Las Vegas, NV 89119
(702) 737-0282
Charter Behavioral Health System at
Fair Oaks, Inc..................... New Jersey 58-2097832 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
ii
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Behavioral Health System at
Hidden Brook, Inc.................. Maryland 52-1866212 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System at
Los Altos, Inc..................... California 33-0606642 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System at
Manatee Adolescent Treatment
Services, Inc...................... Florida 65-0519663 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System at
Potomac Ridge, Inc................. Maryland 52-1866221 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health Systems,
Inc................................ Delaware 58-2213642 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Athens, Inc........................ Georgia 58-1513304 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Austin, Inc........................ Texas 58-1440665 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Baywood, Inc....................... Texas 76-0430571 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
iii
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Behavioral Health System of
Bradenton, Inc..................... Florida 58-1527678 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Central Georgia, Inc............... Georgia 58-1408670 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavorial Health System of
Central Virginia, Inc.............. Virginia 54-1765921 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Charleston, Inc.................... South Carolina 58-1761157 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Charlottesville, Inc............... Virginia 58-1616917 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Chicago, Inc....................... Illinois 58-1315760 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Chula Vista, Inc................... California 58-1473063 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Columbia, Inc...................... Missouri 61-1009977 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
iv
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Behavioral Health System of
Corpus Christi, Inc................ Texas 58-1513305 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Dallas, Inc........................ Texas 58-1513306 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Delmarva, Inc...................... Maryland 52-1866214 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter Behavioral Health System
of Evansville, LLC................. Delaware 35-1994080 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Fort Worth, Inc.................... Texas 58-1643151 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Jackson, Inc....................... Mississippi 58-1616919 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Jacksonville, Inc.................. Florida 58-1483015 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter Behavioral Health System
of Jefferson, LLC.................. Delaware 35-1994087 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
v
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Behavioral Health System of
Kansas City, Inc................... Kansas 58-1603154 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Lafayette, Inc..................... Louisiana 72-0686492 302 Dulles Drive
Lafayette, LA 70506
(318) 233-9024
Charter Behavioral Health System of
Lake Charles, Inc.................. Louisiana 62-1152811 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System.....
of Maryland, Inc. Maryland 52-2026699 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter Behavioral Health System
of Michigan City, LLC.............. Delaware 35-1994736 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Mississippi, Inc................... Mississippi 58-2138622 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Mobile, Inc........................ Alabama 58-1569921 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Nashua, Inc........................ New Hampshire 02-0470752 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
vi
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Behavioral Health System of
Nevada, Inc........................ Nevada 58-1321317 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
New Mexico, Inc.................... New Mexico 58-1479480 5901 Zuni Road, SE
Albuquerque, NM 87108
(505) 265-8800
Charter Behavioral Health System of
North Carolina, Inc................ North Carolina 56-1908581 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Northern California, Inc........... California 58-1857277 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Northwest Arkansas, Inc............ Arkansas 58-1449455 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter Behavioral Health System
of Northwest Indiana, LLC.......... Delaware 35-1994154 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Paducah, Inc....................... Kentucky 61-1006115 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health of Puerto
Rico, Inc.......................... Georgia 66-0523678 Caso Bldg., Suite 1504
1225 Ponce de Leon Avenue
Santurce, PR 00907
vii
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Behavioral Health System of
San Jose, Inc...................... California 58-1747020 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Savannah, Inc...................... Georgia 58-1750583 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Texarkana, Inc..................... Arkansas 71-0752815 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
the Inland Empire, Inc............. California 95-2685883 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Toledo, Inc........................ Ohio 58-1731068 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Tucson, Inc........................ Arizona 86-0757462 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Visalia, Inc....................... California 33-0606644 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Waverly, Inc....................... Minnesota 41-1775626 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
viii
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Behavioral Health System of
Winston-Salem, Inc................. North Carolina 56-1050502 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health System of
Yorba Linda, Inc................... California 33-0606646 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health Systems of
Atlanta, Inc....................... Georgia 58-1900736 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Talbott Behavioral Health
System, Inc........................ Georgia 58-0979827 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter By-The-Sea Behavioral Health
System, Inc........................ Georgia 58-1351301 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Call Center, Inc............. Georgia 58-2318455 2151 Peachford Road
Atlanta, GA 30338
Charter Call Center of Texas, Inc.... Texas 75-2709908 920 South Main Street
Suite 250
Grapevine, TX 76051
Charter Canyon Behavioral Health
System, Inc........................ Utah 58-1557925 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Canyon Springs Behavioral
Health System, Inc................. California 33-0606640 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
ix
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Centennial Peaks Behavioral
Health System, Inc................. Colorado 58-1761037 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Community Hospital, Inc...... California 58-1398708 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Contract Services, Inc....... Georgia 58-2100699 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Cove Forge Behavioral Health
System, Inc........................ Pennsylvania 25-1730464 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Fairmount Behavioral Health
System, Inc........................ Pennsylvania 58-1616921 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Fenwick Hall Behavioral
Health System, Inc................. South Carolina 57-0995766 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Financial Offices, Inc....... Georgia 58-1527680 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Forest Behavioral Health
System, Inc........................ Louisiana 58-1508454 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Franchise Services, LLC...... Delaware 58-2292977 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
x
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Grapevine Behavioral Health
System, Inc........................ Texas 58-1818492 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Greensboro Behavioral Health
System, Inc........................ North Carolina 58-1335184 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Health Management of Texas,
Inc................................ Texas 58-2025056 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Columbus, Inc.... Ohio 58-1598899 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Denver, Inc...... Colorado 58-1662413 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Ft. Collins,
Inc................................ Colorado 58-1768534 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Laredo, Inc. Texas 58-1491620 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
xi
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Hospital of
Miami, Inc......................... Florida 61-1061599 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of
Mobile, Inc........................ Alabama 58-1318870 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Santa Teresa,
Inc................................ New Mexico 58-1584861 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of St. Louis,
Inc................................ Missouri 58-1583760 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Torrance, Inc.... California 58-1402481 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Indiana BHS Holding, Inc..... Indiana 58-2247985 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter Indianapolis Behavioral
Health
System, LLC........................ Delaware 35-1994923 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter Lafayette Behavioral
Health System, LLC................. Delaware 35-1994151 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
xii
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Lakehurst Behavioral Health
System, Inc........................ New Jersey 22-3286879 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Lakeside Behavioral Health
Network, Inc....................... Tennessee Applied for 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Lakeside Behavioral Health
System, Inc........................ Tennessee 62-0892645 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Laurel Heights Behavioral
Health
System, Inc........................ Georgia 58-1558212 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Linden Oaks Behavioral Health
System, Inc........................ Illinois 36-3943776 852 West Street
Naperville, IL 60540
(708) 305-5500
Charter Little Rock Behavioral Health
System, Inc........................ Arkansas 58-1747019 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Louisiana Behavioral Health
System, Inc........................ Louisiana 72-1319231 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Louisville Behavioral Health
System, Inc........................ Kentucky 58-1517503 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
xiii
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Managed Care Services, LLC... Georgia 58-2324879 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Meadows Behavioral Health
System, Inc........................ Maryland 52-1866216 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical--California,
Inc................................ Georgia 58-1357345 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical--Clayton County,
Inc................................ Georgia 58-1579404 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical--Cleveland,
Inc................................ Texas 58-1448733 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical--Long Beach, Inc..... California 58-1366604 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical--New York,
Inc................................ New York 58-1761153 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical (Cayman Islands) Cayman Islands, 58-1841857 Caledonian Bank & Trust
Ltd................................ BWI Swiss Bank Building
Caledonian House
Georgetown-Grand Cayman
Cayman Islands
(809) 949-0050
xiv
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Medical Information Services,
Inc................................ Georgia 58-1530236 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical International, Cayman Islands, N/A Caledonian Bank & Trust
Inc................................ BWI Swiss Bank Building
Caledonian House
Georgetown-Grand Cayman
Cayman Islands
(809) 949-0050
Charter Medical International, S.A.,
Inc................................ Nevada 58-1605110 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Managed Care Sales and
Services, Inc...................... Georgia 58-1195352 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical of East Valley,
Inc................................ Arizona 58-1643158 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical of England Limited... United Kingdom N/A 111 Kings Road
Box 323
London SW3 4PB
London, England
44-71-351-1272
Charter Medical of Florida,
Inc................................ Florida 58-2100703 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical of North Phoenix,
Inc................................ Arizona 58-1643154 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
xv
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Medical of Puerto Rico, Commonwealth of 58-1208667 Caso Building, Suite 1504
Inc................................ Puerto Rico 1225 Ponce De Leon Avenue
Santurce, P.R. 00907
(809) 723-8666
Charter Milwaukee Behavioral Health
System, Inc........................ Wisconsin 58-1790135 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Mission Viejo Behavioral
Health System, Inc................. California 58-1761156 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter MOB of Charlottesville,
Inc................................ Virginia 58-1761158 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter North Behavioral Health
System, Inc........................ Alaska 58-1474550 2530 DeBarr Road
Anchorage, AK 99508-2996
(907) 258-7575
Charter Northbrooke Behavioral Health
System, Inc........................ Wisconsin 39-1784461 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter North Counseling Center,
Inc................................ Alaska 58-2067832 2530 DeBarr Road
Anchorage, AK 99508-2996
(907) 258-7575
Charter Northridge Behavioral Health
System, Inc........................ North Carolina 58-1463919 400 Newton Road
Raleigh, NC 27615
(919) 847-0008
Charter Oak Behavioral Health System,
Inc................................ California 58-1334120 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
xvi
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter of Alabama, Inc.............. Alabama 63-0649546 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Palms Behavioral Health
System, Inc........................ Texas 58-1416537 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Peachford Behavioral Health
System, Inc........................ Georgia 58-1086165 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Pines Behavioral Health
System, Inc........................ North Carolina 58-1462214 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Plains Behavioral Health
System, Inc........................ Texas 58-1462211 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter-Provo School, Inc............ Utah 58-1647690 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Real Behavioral Health
System, Inc........................ Texas 58-1485897 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Ridge Behavioral Health
System, Inc........................ Kentucky 58-1393063 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Rivers Behavioral Health
System, Inc........................ South Carolina 58-1408623 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
xvii
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Charter Rockford Behavioral Health
System, Inc........................ Delaware 51-0374617 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter San Diego Behavioral Health
System, Inc........................ California 58-1669160 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Sioux Falls Behavioral Health
System, Inc........................ South Dakota 58-1674278 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
The Charter South Bend Behavioral
Health System,
LLC................................ Delaware 35-1994307 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Springs Behavioral Health
System, Inc........................ Florida 58-1517461 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Springwood Behavioral Health
System, Inc........................ Virginia 58-2097829 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Suburban Hospital of
Mesquite, Inc...................... Texas 75-1161721 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter System, LLC.................. Nevada 91-1819015 1061 E. Flamingo Road
Suite One
Las Vegas, NV 89119
(702) 737-0282
xviii
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
The Charter Terre Haute Behavioral
Health System,
LLC................................ Delaware 35-1994308 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Thousand Oaks Behavioral
Health System,
Inc................................ California 58-1731069 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Westbrook Behavioral Health
System, Inc........................ Virginia 54-0858777 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter White Oak Behavioral Health
System, Inc........................ Maryland 52-1866223 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Wichita Behavioral Health
System, Inc........................ Kansas 58-1634296 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Woods Behavioral Health
System, Inc........................ Alabama 58-1330526 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Correctional Behavioral Solutions,
Inc................................ Delaware 58-2180940 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Correctional Behavioral Solutions of
Indiana, Inc....................... Indiana 35-1978792 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
xix
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Correctional Behavioral Solutions of
New Jersey, Inc.................... New Jersey 22-3436964 3000 Atrium Way
Suite 410
Mount Laurel, NJ
(609) 235-2339
Correctional Behavioral Solutions of
Ohio, Inc.......................... Ohio 34-1826431 Allen Correctional Institute
2338 North West Street
Lima, OH 45801
(419) 224-8000
Desert Springs Hospital, Inc......... Nevada 88-0117696 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Employee Assistance Services, Inc.... Georgia 58-1501282 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Florida Health Facilities, Inc....... Florida 58-1860493 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Gulf Coast EAP Services, Inc......... Alabama 58-2101394 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Hospital Investors, Inc.............. Georgia 58-1182191 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Illinois Mentor, Inc................. Illinois 36-3643670 313 Congress St.
Boston, MA 02210
(617) 790-4800
Magellan Executive
Corporation........................ Georgia 58-2310891 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Magellan Public Solutions, Inc....... Delaware 58-2227841 222 Berkley Street
Boston, MA 02117
(617) 437-6400
xx
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Mandarin Meadows, Inc................ Florida 58-1761155 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Magellan Public Network, Inc......... Delaware 51-0374654 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Magellan Public Solutions of Ohio,
Inc................................ Ohio Applied for 222 Berkley Street
Boston, MA 02117
(617) 437-6400
Massachusetts Mentor, Inc............ Massachusetts 04-2799071 313 Congress St.
Boston, MA 02210
(617) 790-4800
Metroplex Behavioral Healthcare
Services, Inc...................... Texas 58-2138596 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
National Mentor, Inc................. Delaware 04-3250732 313 Congress St.
Boston, MA 02210
(617) 790-4800
National Mentor Healthcare,
Inc................................ Massachusetts 04-2893910 313 Congress St.
Boston, MA 02210
(617) 790-4800
NEPA--Massachusetts, Inc............. Massachusetts 58-2116751 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
NEPA--New Hampshire, Inc............. New Hampshire 58-2116398 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Nevada Behavioral Services,
Inc................................ Nevada Applied for 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
xxi
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES
- ------------------------------------- ------------------ -------------- -------------------------------------
Ohio Mentor, Inc..................... Ohio 31-1098345 313 Congress St.
Boston, MA 02210
(617) 790-4800
Pacific-Charter Medical, Inc......... California 58-1336537 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
South Carolina Mentor, Inc........... South Carolina 57-0782160 313 Congress St.
Boston, MA 02210
(617) 790-4800
Southeast Behavioral Systems, Inc.... Georgia 58-2100700 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Schizophrenia Treatment and
Rehabilitation, Inc................ Georgia 58-1672912 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Sistemas De Terapia Respiratoria,
S.A., Inc.......................... Georgia 58-1181077 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Western Behavioral
Systems, Inc....................... California 58-1662416 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Wisconsin Mentor, Inc................ Wisconsin 39-1840054 313 Congress St.
Boston, MA 00210
(617) 790-4800
- ------------------------
(1) The Additional Registrants listed are wholly-owned subsidiaries of the
Registrant and are guarantors of the Registrant's 11 1/4% Series A Senior
Subordinated Notes due 2004. The Additional Registrants have been
conditionally exempted, pursuant to Section 12(h) of the Securities Exchange
Act of 1934, from filing reports under Section 13 of the Securities Exchange
Act of 1934.
xxii
FORM 10-Q
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
-------------
PART I--FINANCIAL INFORMATION:
Condensed Consolidated Balance Sheets--
September 30, 1996 and June 30, 1997................................................................ 1
Condensed Consolidated Statements of Operations--
For the Three Months and the Nine Months ended June 30, 1996 and 1997............................... 2
Condensed Consolidated Statements of Cash Flows--
For the Nine Months ended June 30, 1996 and 1997.................................................... 3
Notes to Condensed Consolidated Financial Statements.................................................. 4
Management's Discussion and Analysis of Financial Condition and Results of Operations................. 19
PART II--OTHER INFORMATION:
Item 1.--Legal Proceedings............................................................................ 27
Item 4.--Submission of Matters to a Vote of Security Holders.......................................... 27
Item 6.--Exhibits and Reports on Form 8-K............................................................. 27
Signatures............................................................................................ 30
MAGELLAN HEALTH SERVICES, INC.
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
PART I--FINANCIAL INFORMATION
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, JUNE 30,
ASSETS 1996 1997
------------- ---------
Current Assets:
Cash and cash equivalents.............................................................. $ 120,945 $ 326,243
Accounts receivable, net............................................................... 189,878 151,620
Supplies............................................................................... 4,753 1,508
Refundable income taxes................................................................ 1,323 --
Other current assets................................................................... 21,251 18,568
------------- ---------
Total Current Assets............................................................... 338,150 497,939
Property and Equipment:
Land................................................................................... 83,431 12,520
Buildings and improvements............................................................. 388,821 69,164
Equipment.............................................................................. 146,915 59,711
------------- ---------
619,167 141,395
Accumulated depreciation............................................................... (126,053) (34,376)
------------- ---------
493,114 107,019
Construction in progress............................................................... 2,276 429
------------- ---------
495,390 107,448
Assets Restricted for Settlement of Unpaid Claims and Other Long-Term Liabilities........ 105,303 92,335
Deferred income taxes.................................................................... -- 8,267
Investment in CBHS....................................................................... -- 7,101
Other Long-Term Assets................................................................... 30,755 26,209
Goodwill, net............................................................................ 128,012 113,265
Other Intangible Assets, net............................................................. 42,527 38,966
------------- ---------
$ 1,140,137 $ 891,530
------------- ---------
------------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable....................................................................... $ 78,966 $ 47,363
Accrued liabilities.................................................................... 189,599 167,969
Current maturities of long-term debt and
capital lease obligations............................................................ 5,751 3,592
------------- ---------
Total Current Liabilities.......................................................... 274,316 218,924
Long-Term Debt and Capital Lease Obligations............................................. 566,307 391,926
Deferred Income Taxes.................................................................... 12,368 --
Reserve for Unpaid Claims................................................................ 73,040 55,331
Deferred Credits and Other Long-Term Liabilities......................................... 39,769 21,842
Minority Interest........................................................................ 52,520 58,943
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock, without par value
Authorized--10,000 shares
Issued and outstanding--none......................................................... -- --
Common Stock, par value $0.25 per share
Authorized--80,000 shares
Issued and outstanding--33,007 shares at
September 30, 1996 and 33,311 shares at June 30, 1997.................................... 8,252 8,330
Other Stockholders' Equity:
Additional paid-in capital........................................................... 327,681 336,692
Accumulated deficit.................................................................. (129,457) (140,118)
Warrants outstanding................................................................. 54 25,050
Common Stock in Treasury, 4,424 shares at September 30, 1996 and June 30, 1997....... (82,731) (82,731)
Cumulative foreign currency adjustments.............................................. (1,982) (2,659)
------------- ---------
Stockholders' Equity............................................................... 121,817 144,564
------------- ---------
$ 1,140,137 $ 891,530
------------- ---------
------------- ---------
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these balance sheets.
1
MAGELLAN HEALTH SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
---------------------- ------------------------
1996 1997 1996 1997
---------- ---------- ---------- ------------
Net revenue.................................................... $ 346,379 $ 324,921 $ 996,997 $ 1,021,662
---------- ---------- ---------- ------------
Costs and expenses:
Salaries, supplies and other operating expenses.............. 274,536 263,915 780,880 830,248
Bad debt expense............................................. 18,886 12,081 61,293 47,456
Depreciation and amortization................................ 12,886 12,044 36,186 38,231
Interest, net................................................ 13,065 12,602 35,459 39,324
Stock option expense (credit)................................ (210) 1,781 1,204 3,214
Equity in loss of CBHS....................................... -- 399 -- 399
Loss on Crescent Transactions................................ -- 59,868 -- 59,868
Unusual items................................................ 33,959 (1,038) 33,959 357
---------- ---------- ---------- ------------
353,122 361,652 948,981 1,019,097
---------- ---------- ---------- ------------
Income (loss) before provision for income taxes, minority
interest and extraordinary items............................. (6,743) (36,731) 48,016 2,565
Provision for (benefit from) income taxes...................... (2,698) (14,693) 19,674 1,025
---------- ---------- ---------- ------------
Income (loss) before minority interest and extraordinary
items........................................................ (4,045) (22,038) 28,342 1,540
Minority interest.............................................. 1,677 2,403 4,247 6,948
---------- ---------- ---------- ------------
Income (loss) before extraordinary items....................... (5,722) (24,441) 24,095 (5,408)
Extraordinary items--losses on early extinguishments of debt
(net of income tax benefit of $1,536 for the three months
ended June 30, 1997 and $3,503 for the nine months ended June
30, 1997).................................................... -- (2,303) -- (5,253)
---------- ---------- ---------- ------------
Net income (loss).............................................. $ (5,722) $ (26,744) $ 24,095 $ (10,661)
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
Income (loss) per common share:
Income (loss) before extraordinary items..................... $ (0.18) $ (0.85) $ 0.79 $ (0.19)
Extraordinary losses on early extinguishments of debt........ -- (0.08) -- (0.18)
---------- ---------- ---------- ------------
Net income (loss).............................................. $ (0.18) $ (0.93) $ 0.79 $ (0.37)
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
Weighted average number of common shares outstanding........... 32,464 28,830 30,559 28,715
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
2
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
FOR THE NINE MONTHS
ENDED
JUNE 30,
----------------------
1996 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................................................... $ 24,095 $ (10,661)
---------- ----------
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization........................................................... 36,186 38,231
Non-cash portion of unusual items....................................................... 31,206 --
Equity in loss of CBHS.................................................................. -- 399
Loss on Crescent Transactions........................................................... -- 59,868
Stock option expense.................................................................... 1,204 3,214
Non-cash interest expense............................................................... 1,812 1,297
Gain on sale of assets.................................................................. (867) (5,747)
Extraordinary losses on early extinguishments of debt................................... -- 8,756
Cash flows from changes in assets and liabilities, net of effects from sales and
acquisitions of businesses:
Accounts receivable, net.............................................................. (3,201) 18,521
Other assets.......................................................................... 2,291 8,409
Accounts payable and other accrued liabilities........................................ (28,798) (67,540)
Reserve for unpaid claims............................................................. (14,051) (20,679)
Income taxes payable.................................................................. 11,514 (17,985)
Other liabilities..................................................................... (5,957) (17,400)
Minority interest, net of dividends paid.............................................. 4,868 7,498
Other................................................................................. 155 (965)
---------- ----------
Total adjustments................................................................... 36,362 15,877
---------- ----------
Net cash provided by operating activities......................................... 60,457 5,216
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.................................................................... (24,617) (28,113)
Acquisitions and investments in businesses, net of cash acquired........................ (50,099) (28,840)
Decrease (increase) in assets restricted for settlement of unpaid claims................ (8,567) 12,551
Proceeds from sale of property and equipment to Crescent and CBHS, net of transaction
costs................................................................................. -- 384,041
Proceeds from sale of assets............................................................ 1,253 15,463
---------- ----------
Net cash provided by (used in) investing activities................................... (82,030) 355,102
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt, net of issuance costs................................... 68,125 203,643
Payments on debt and capital lease obligations.......................................... (84,492) (389,406)
Proceeds from issuance of common stock, net of issuance costs........................... 68,561 --
Proceeds from issuance of warrants...................................................... -- 25,000
Proceeds from exercise of stock options and warrants.................................... 2,147 5,743
Income tax payments made on behalf of stock optionees................................... (1,678) --
---------- ----------
Net cash provided by (used in) financing activities................................... 52,663 (155,020)
---------- ----------
Net increase in cash and cash equivalents................................................. 31,090 205,298
Cash and cash equivalents at beginning of period.......................................... 105,514 120,945
---------- ----------
Cash and cash equivalents at end of period................................................ $ 136,604 $ 326,243
---------- ----------
---------- ----------
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
3
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Management, all adjustments, consisting of normal recurring
adjustments considered necessary for a fair presentation, have been included.
These financial statements should be read in conjunction with the audited
consolidated financial statements of the Company for the year ended September
30, 1996, included in the Company's Annual Report on Form 10-K, as amended.
NOTE B--NATURE OF BUSINESS
The Company's provider business and CBHS' (as hereinafter defined) business
are seasonal in nature, with a reduced demand for certain services generally
occurring in the first fiscal quarter around major holidays, such as
Thanksgiving and Christmas, and during the summer months comprising the fourth
fiscal quarter. The Company's business is also subject to general economic
conditions and other factors. Accordingly, the results of operations for the
interim periods are not necessarily indicative of the actual results expected
for the year.
NOTE C--SUPPLEMENTAL CASH FLOW INFORMATION
Below is supplemental cash flow information related to the nine months ended
June 30, 1996 and 1997:
FOR THE NINE MONTHS
ENDED JUNE 30,
--------------------
1996 1997
--------- ---------
(IN THOUSANDS)
Income taxes paid, net of refunds received........................................ $ 6,853 $ 14,419
Interest paid, net of amounts capitalized......................................... 53,350 53,945
Notes payable assumed in connection with acquisitions of businesses............... 12,100 --
Non-cash investment in CBHS....................................................... -- 5,281
The non-cash portion of unusual items for the nine months ended June 30,
1996 includes the unpaid portion of the $30.0 million insurance settlement that
was recorded during the quarter ended June 30, 1996. The payments of the
insurance settlement are included in accounts payable and other accrued
liabilities in the statement of cash flows for the nine months ended June 30,
1997.
4
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE D--LONG-TERM DEBT AND LEASES
Information with regard to the Company's long-term debt and capital lease
obligations at September 30, 1996 and June 30, 1997 is as follows:
SEPTEMBER 30, JUNE 30,
1996 1997
------------- ----------
(IN THOUSANDS)
New Revolving Credit Agreement due 2002...................................... $ 105,593 $ --
11.25% Senior Subordinated Notes due 2004.................................... 375,000 375,000
6.8125% to 8.0% Mortgage and other notes payable through 1999................ 12,163 7,940
Variable rate secured notes.................................................. 60,875 --
7.5% Swiss Bonds............................................................. 6,443 6,443
4.25% capital lease obligations due through 2014............................. 12,333 6,439
------------- ----------
572,407 395,822
Less amounts due within one year......................................... 5,751 3,592
Less debt service funds.................................................. 349 304
------------- ----------
$ 566,307 $ 391,926
------------- ----------
------------- ----------
On October 28, 1996, the Company entered into a Credit Agreement with
certain financial institutions for a five-year senior secured reducing revolving
credit facility in an aggregate committed amount of $400 million (the "Revolving
Credit Agreement"). The Company borrowed approximately $121.0 million under the
Revolving Credit Agreement in October 1996 to (i) pay-off the existing
borrowings outstanding under the previous revolving credit agreement that was
terminated and (ii) pay for fees and expenses related to the Revolving Credit
Agreement.
The loans outstanding under the Revolving Credit Agreement bore interest
(subject to certain potential adjustments) at a rate per annum equal to one,
two, three or six-month LIBOR plus 1.25% or the Prime Lending Rate.
The Company recorded an extraordinary loss from the early extinguishment of
debt of approximately $3.0 million, net of tax, during the quarter ended
December 31, 1996 to write off unamortized deferred financing costs related to
its previous revolving credit agreement.
On June 17, 1997, the Company entered into a new Credit Agreement (the "New
Revolving Credit Agreement") with certain financial institutions for a five-year
senior secured revolving credit facility in an aggregate committed amount of
$200 million. The Company paid off approximately $191.8 million of borrowings
outstanding under the Revolving Credit Agreement on June 17, 1997 with proceeds
from the Crescent Transactions (as hereinafter defined).
The loans outstanding under the New Revolving Credit Agreement bear interest
(subject to certain potential adjustments) at a rate per annum equal to one,
two, three or six-month LIBOR plus 1.25% or the Alternative Base Rate ("ABR"),
as defined, plus .25%. Interest on ABR loans is payable at the end of each
fiscal quarter. Interest on LIBOR-based loans is payable at the end of their
respective terms, but a minimum of every three months.
5
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE D--LONG-TERM DEBT AND LEASES (CONTINUED)
The Company also paid off approximately $66 million of variable rate secured
notes and other long-term debt during June 1997 related to the consummation of
the Crescent Transactions.
The Company recorded an extraordinary loss of approximately $2.3 million,
net of tax, during the quarter ended June 30, 1997 to write off unamortized
deferred financing costs related to the Revolving Credit Agreement and for costs
related to paying off the variable rate secured notes.
NOTE E--ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
SEPTEMBER 30, JUNE 30,
1996 1997
------------- ----------
Salaries and wages........................................................... $ 39,841 $ 17,811
Amounts due health insurance programs........................................ 27,223 16,341
Medical claims payable....................................................... 26,552 32,766
Interest..................................................................... 20,348 9,094
Crescent Transaction......................................................... -- 20,306
Other........................................................................ 75,635 71,651
------------- ----------
$ 189,599 $ 167,969
------------- ----------
------------- ----------
NOTE F--CRESCENT TRANSACTIONS
On June 17, 1997, the Company consummated a series of transactions including
the sale of substantially all of its domestic hospital real estate and related
personal property (the "Assets") to Crescent Real Estate Equities Limited
Partnership ("Crescent") and CBHS (as hereinafter defined). In addition, the
Company's domestic portion of its provider business segment will be operated as
a joint venture ("CBHS") that is initially owned equally by Magellan and
Crescent Operating, Inc., an affiliate of Crescent ("COI"). The Company will
account for its 50% investment in CBHS under the equity method of accounting.
The Company received approximately $417.2 million in cash (before costs
estimated to be $16.0 million) and warrants in COI for the purchase of 2.5% of
COI's common stock, exercisable over 12 years. The Company also issued 1,283,311
warrants to Crescent and COI each for the purchase of Magellan common stock at
an exercise price of $30 per share.
In related agreements, (i) Crescent leased the real estate and related
assets to CBHS for annual rent beginning at approximately $41.7 million with a
5% annual escalation clause compounded annually (the "Facilities Lease") and
(ii) CBHS will pay Magellan approximately $78.3 million in annual franchise
fees, subject to increase, for the use of assets retained by Magellan and for
support in certain areas. The franchise fees to be paid by CBHS to the Company
are subordinated to the lease obligations in favor of Crescent. The assets
retained by Magellan include, but are not limited to, the "CHARTER" name,
intellectual property, protocols and procedures, clinical quality management,
operating processes and the "1-800-CHARTER" telephone call center. Magellan will
provide CBHS ongoing support in areas including advertising and marketing
assistance, risk management services, outcomes monitoring, and consultation on
6
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE F--CRESCENT TRANSACTIONS (CONTINUED)
matters relating to reimbursement, government relations, clinical strategies,
regulatory matters, strategic planning and business development.
The Company initially used a portion of the proceeds from the sale of the
Assets to reduce its long-term debt, including borrowings under the Revolving
Credit Agreement. Under the terms of its Senior Subordinated Notes (the "Notes")
indenture, the Noteholders were given the right to put their Notes to the
Company at 101% of face value through July 21, 1997. No Noteholders elected to
put their Notes to the Company. The Company intends to use the remaining
proceeds from the sale of the Assets to pursue acquisitions in its managed care
and public sector business segments, develop new products and increase managed
care and public sector marketing efforts.
The Crescent Transactions are more fully described in the Company's Proxy
Statement filed on Schedule 14A on April 24, 1997, which is incorporated herein
by reference.
The Company recorded a loss before income taxes of approximately $59.9
million as a result of the Crescent Transactions, which consisted of the
following (in thousands):
Accounts receivable collection fees........................................ $ 21,400
Impairment losses on intangible assets..................................... 14,408
Exit costs and construction obligation..................................... 13,549
Loss on the sale of property and equipment................................. 10,511
---------
$ 59,868
---------
---------
The $5.0 million of exit costs accrued as a result of the Crescent
transactions include incremental staffing, consulting and related costs to
prepare and coordinate audits of terminating Medicare cost reports, prepare and
file income tax, property tax, sales and use tax and other tax returns and
perform accounting functions related to the divested businesses (CBHS). The
Company incurred approximately $0.1 million of such costs during the quarter and
the nine months ended June 30, 1997.
The Company is constructing a hospital in Philadelphia as required by the
Crescent Real Estate Purchase Agreement to replace CBHS' existing Philadelphia
hospital. The Company has incurred approximately $2.0 million in construction
costs as of June 30, 1997 and expects to incur up to $8.5 million in
construction costs before completion.
The Company's Consolidated Statement of Operations for the nine months ended
June 30, 1996 and 1997 include the operations of businesses divested as part of
the Crescent Transactions through June 16, 1997. The unaudited pro forma
information for the nine months ended June 30, 1996 and 1997 have been prepared
assuming the Crescent Transactions were consummated on October 1, 1995. The pro
forma information does not purport to be indicative of the results which would
have actually been obtained had
7
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE F--CRESCENT TRANSACTIONS (CONTINUED)
the Crescent Transactions been consummated on October 1, 1995 or which may be
attained in future periods (in thousands, except per share data).
PRO FORMA
FOR THE NINE MONTHS ENDED
----------------------------
JUNE 30, 1996 JUNE 30, 1997
------------- -------------
Net Revenue......................................................................... $ 454,639 $ 527,338
Income before extraordinary items(1)................................................ 14,515 24,448
Net income(1)....................................................................... 14,515 19,195
Income per common share--primary:
Income before extraordinary items(1)............................................ 0.51 0.83
Net income(1)................................................................... 0.51 0.66
Income per common share--fully diluted:
Income before extraordinary items(1)............................................ 0.51 0.82
Net income(1)................................................................... 0.51 0.64
- ------------------------
(1) Excludes the loss on the Crescent Transactions and assumes the excess
proceeds from the Crescent Transactions are not invested. If the excess
proceeds from the Crescent Transactions were assumed to be reinvested at the
Company's historic temporary cash investment rate of 5.4% and 5.25% for the
nine months ended June 30, 1996 and 1997, respectively, pro forma income
before extraordinary items, net income, income per common share before
extraordinary items and net income per common share would have been $19.3
million, $19.3 million, $0.68 (primary and fully diluted) and $0.68 (primary
and fully diluted) for the nine months ended June 30, 1996, respectively,
and $29.1 million, $23.9 million, $0.99 (primary) and $0.81 (primary) and
$0.98 (fully diluted) and $0.80 (fully diluted) for the nine months ended
June 30, 1997, respectively.
NOTE G--UNUSUAL ITEMS
INSURANCE SETTLEMENTS
Unusual items for the quarter and the nine months ended June 30, 1996
included the resolution of disputes between the Company and insurance carriers
concerning certain billings for services.
In August 1996, the Company and a group of insurance carriers resolved a
billing dispute which arose in fiscal 1996 related to matters originating in the
1980's. As part of the settlement of these claims, certain related payer matters
and associated legal fees, the Company recorded a charge of approximately $30.0
million during the quarter ended June 30, 1996. The Company is paying the
insurance settlement amount in twelve installments over a three year period,
that began in August 1996. The Company and the insurance carriers have agreed
that the dispute and settlement will not negatively impact any present or
pending business relationships nor will it prevent the parties from negotiating
in good faith concerning additional business opportunities available to, and
future relationships between, the parties.
8
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE G--UNUSUAL ITEMS (CONTINUED)
FACILITY CLOSURES
During fiscal 1996, the Company consolidated, closed or sold nine
psychiatric facilities (the "1996 Closed Facilities"). The 1996 Closed
Facilities that are still owned by the Company will be sold, leased or used for
alternative purposes depending on the market conditions in each geographic area.
The Company recorded charges of approximately $4.1 million related to facility
closures in fiscal 1996.
Severance and benefits related to the 1996 Closed Facilities were fully paid
as of December 31, 1996. Other exit costs paid and applied against the resulting
liabilities recorded during fiscal 1996 were approximately $0.1 million and $0.4
million during the quarter and the nine months ended June 30, 1997,
respectively.
During the second quarter of fiscal 1997, the Company consolidated or closed
three psychiatric facilities and its one general hospital (the "1997 Closed
Facilities"). The 1997 Closed Facilities which were owned by the Company were
sold as part of the Crescent Transactions. The Company recorded charges of
approximately $4.2 million related to facility closures in the second quarter of
fiscal 1997, which consisted of approximately $3.0 million for severance and
related benefits and $1.2 million for contract terminations and other costs.
Approximately 700 employees were terminated at the 1997 Closed Facilities.
Severance and related benefits paid and applied against the resulting liability
were approximately $0.4 million and $2.7 million during the quarter and nine
months ended June 30, 1997, respectively. Other exit costs paid and applied
against the resulting liability were approximately $0.4 million and $0.7 million
during the quarter and the nine months ended June 30, 1997, respectively. The
remaining obligations relating to the 1997 Closed Facilities sold to Crescent
have been assumed by CBHS as part of the Crescent Transactions.
The following table presents net revenue, salaries, supplies and other
operating expenses and bad debt expenses and depreciation and amortization of
the 1996 Closed Facilities and the 1997 Closed Facilities (in thousands):
QUARTER ENDED JUNE NINE MONTHS ENDED
30, JUNE 30,
-------------------- --------------------
1996 1997 1996 1997
--------- --------- --------- ---------
Net Revenue.................................................... $ 21,304 $ 286 $ 72,939 $ 18,952
Salaries, supplies and other operating
expenses and bad debt expenses............................... 20,063 346 74,127 21,964
Depreciation and Amortization.................................. 407 -- 1,509 272
The Company recorded a charge of approximately $2.0 million in the fourth
quarter of fiscal 1996 related to severance and related benefits for employees
who were terminated pursuant to planned overhead reductions. Substantially all
of such severance and benefits was paid as of December 31, 1996.
FACILITY SALES
The Company sold two psychiatric facilities during the quarter ended March
31, 1997 that were closed during fiscal 1995. The Company received approximately
$5.6 million in proceeds from the sales and recorded an aggregate gain on such
sales of approximately $2.8 million during the quarter ended March 31,
9
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE G--UNUSUAL ITEMS (CONTINUED)
1997. The Company also sold one psychiatric facility during the quarter ended
June 30, 1997 that was closed during fiscal 1996. The Company received
approximately $4.8 million in proceeds from the sale and recorded a gain of
approximately $2.6 million during the quarter and the nine months ended June 30,
1997.
OTHER
The Company recorded charges of approximately $1.6 million during the
quarter and the nine months ended June 30, 1997 for costs incurred related
primarily to the expiration of its agreement to sell its three European
Hospitals. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Outlook" for further discussion.
NOTE H--INCOME PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 "Earnings per Share" ("FAS 128"), which is more fully described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Accounting Pronouncements". The Company is required to adopt
FAS 128 in the first quarter of fiscal 1998. Income per common share under FAS
128, if applied to the three months and the nine months ended June 30, 1996 and
1997, is as follows:
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
1996 1997 1996 1997
--------- --------- --------- ---------
(IN)THOUSANDS, EXCEPT PER SHARE DATA
Income (loss) per common share--Basic:
Income (loss) before extraordinary items................................ $ (0.18) $ (0.85) $ 0.79 $ (0.19)
Extraordinary losses on early extinguishments of debt................... -- (0.08) -- (0.18)
--------- --------- --------- ---------
Net income (loss)........................................................... $ (0.18) $ (0.93) $ 0.79 $ (0.37)
--------- --------- --------- ---------
--------- --------- --------- ---------
Income (loss) per common share--Diluted:
Income (loss) before extraordinary item................................. $ (0.18) $ (0.85) $ 0.77 $ (0.19)
Extraordinary losses on early extinguishments of debt................... -- (0.08) -- (0.18)
--------- --------- --------- ---------
Net income (loss)........................................................... $ (0.18) $ (0.93) $ 0.77 $ (0.37)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average number of common shares outstanding:
Basic................................................................... 32,464 28,830 30,559 28,715
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted................................................................. 32,464 28,830 31,099 28,715
--------- --------- --------- ---------
--------- --------- --------- ---------
The difference between weighted average number of common shares outstanding
for basic and diluted EPS for the nine months ended June 30, 1996 related
primarily to stock option common stock equivalents computed under the treasury
stock method.
10
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE I--INVESTMENT IN CBHS
The Company owned a 50% interest in CBHS as of June 30, 1997. The Company
became a 50% owner of CBHS upon consummation of the Crescent Transactions. The
Company accounts for its investment in CBHS using the equity method.
A summary of financial information for the Company's investment in CBHS is
as follows (in thousands):
JUNE 30, 1997
-------------
Current assets........................................................................... $ 59,870
Property and equipment, net.............................................................. 18,863
Other noncurrent assets.................................................................. 3,340
-------------
Total Assets......................................................................... 82,073
-------------
-------------
Current liabilities...................................................................... $ 40,980
Long-term debt(2)........................................................................ 25,875
Other noncurrent liabilities............................................................. 1,016
Member capital........................................................................... 14,202
-------------
Total liabilities and Member capital................................................. $ 82,073
-------------
-------------
Magellan equity investment............................................................... $ 7,101
-------------
-------------
14 DAYS ENDED
JUNE 30, 1997
--------------
Net revenue............................................................................. $ 29,865
--------------
Operating expenses(1)................................................................... 30,565
Interest, net........................................................................... 98
--------------
Net loss............................................................................ $ (798)
--------------
--------------
Cash used in operating activities....................................................... $ (13,996)
--------------
--------------
Magellan equity loss.................................................................... $ (399)
--------------
--------------
- ------------------------
(1) Includes salaries, supplies and other operating expenses, bad debt expense,
depreciation and amortization.
(2) As of August 11, 1997, CBHS had $65 million of outstanding borrowings under
its revolving credit agreement and had received $20 million of advances from
its Members, including $10 million from the Company.
11
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE I--INVESTMENT IN CBHS (CONTINUED)
The Company's transactions with CBHS and related balances are as follows (in
thousands):
14 DAYS ENDED
JUNE 30, 1997
---------------
Franchise Fee revenue................................................................... $ 3,164
------
Expenses:
Accounts receivable collection fees................................................. 1,426
Hospital-based Joint venture management fees........................................ 417
------
1,843
------
Income before income taxes, minority interest
and extraordinary items............................................................... $ 1,321
------
------
JUNE 30, 1997
-------------
Accounts receivable collection fees...................................................... $ (1,426)
Hospital-based Joint venture management fees payable..................................... (417)
Other receivables........................................................................ 5,571
-------------
Due from CBHS, net................................................................... $ 3,728
-------------
-------------
NOTE J--CONTINGENCIES
The Company is self-insured for a substantial portion of its general and
professional liability risks. The reserves for self-insured general and
professional liability losses, including loss adjustment expenses, are based on
actuarial estimates that are discounted at an average rate of 6% to their
present value based on the Company's historical claims experience adjusted for
current industry trends. The reserve for unpaid claims is adjusted periodically
as such claims mature, to reflect changes in actuarial estimates based on actual
experience. The Company recorded reductions of expenses of approximately $4.8
million and $12.3 million during the quarter and the nine months ended June 30,
1996, respectively, and $2.5 million and $7.5 million during the quarter and the
nine months ended June 30, 1997, respectively. These reductions resulted
primarily from updates to actuarial assumptions regarding the Company's expected
losses for more recent policy years. These revisions are based on changes in
expected values of ultimate losses resulting from the Company's claim
experience, and increased reliance on such claim experience. While management
and its actuaries believe that the present reserve is reasonable, ultimate
settlement of losses may vary from the amount provided.
The Company and certain of its subsidiaries are subject to claims, civil
suits, and governmental investigations and inquiries relating to their
operations and certain alleged business practices. In the opinion of management,
based on consultation with counsel, resolution of these matters will not have a
material adverse effect on the Company's financial position or results of
operations.
On August 1, 1996, the United States Department of Justice, Civil Division,
filed its First Amended Complaint in a civil qui tam action initiated in
November of 1994 against the Company and its Orlando South hospital subsidiary
("Charter Orlando") by two former employees. The First Amended Complaint
12
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE J--CONTINGENCIES (CONTINUED)
alleges that Charter Orlando violated the civil False Claims Act (the "Act") in
billing for inpatient treatment provided to elderly patients. The Court granted
the Company's motion to dismiss the government's First Amended Complaint yet
granted the government leave to amend its First Amended Complaint. The
government filed a Second Amended Complaint on December 12, 1996 which, similar
to the First Amended Complaint alleges that the Company and its subsidiary
violated the Act in billing for the treatment of geriatric patients. Like the
First Amended Complaint, the Second Amended Complaint is based on disputed
clinical and factual issues which the Company believes do not constitute a
violation of the Act. The Company and its subsidiary, therefore, have filed a
motion to dismiss the Second Amended Complaint. The Company and its subsidiary
deny the allegations made in the Second Amended Complaint and will vigorously
defend against its claims. The Company does not believe this matter will have a
material adverse effect on its financial position or results of operations.
The Company has provided a guarantee, not to exceed $65 million, for CBHS'
line of credit. CBHS has a $100 million, 5-year revolving credit facility.
13
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE K--GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
SEPTEMBER 30, 1996
--------------------------------------------------------------------
MAGELLAN
HEALTH
SERVICES,
INC. CONSOLIDATED
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
ASSETS SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
----------- ------------- ------------ ------------ ------------
Current Assets
Cash and cash equivalents....................... $ 29,751 $ 79,552 $ 11,642 $ -- $ 120,945
Accounts receivable, net........................ 139,523 44,904 5,451 -- 189,878
Supplies........................................ 4,091 394 268 -- 4,753
Other current assets............................ 8,379 121 14,074 -- 22,574
----------- ------------- ------------ ------------ ------------
Total Current Assets........................ 181,744 124,971 31,435 -- 338,150
Assets restricted for settlement of unpaid claims
and other long-term liabilities................. -- 78,542 26,761 -- 105,303
Property and Equipment
Land............................................ 74,790 6,657 1,984 -- 83,431
Buildings and improvements...................... 350,187 33,493 5,141 -- 388,821
Equipment....................................... 112,748 25,206 8,961 -- 146,915
----------- ------------- ------------ ------------ ------------
537,725 65,356 16,086 -- 619,167
Accumulated depreciation........................ (111,556) (10,313) (4,184) -- (126,053)
Construction in progress........................ 1,586 621 69 -- 2,276
----------- ------------- ------------ ------------ ------------
427,755 55,664 11,971 -- 495,390
Other Long-Term Assets (1)........................ 92,978 (78,517) 1,172,069 (1,155,775) 30,755
Goodwill, net..................................... 20,645 94,682 12,685 -- 128,012
Other Intangible Assets, net...................... 5,213 22,341 14,973 -- 42,527
----------- ------------- ------------ ------------ ------------
$ 728,335 $ 297,683 $1,269,894 $(1,155,775) $1,140,137
----------- ------------- ------------ ------------ ------------
----------- ------------- ------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable................................ $ 32,644 $ 34,057 $ 12,265 $ -- $ 78,966
Accrued liabilities and income tax payable...... 57,948 55,208 76,443 -- 189,599
Current maturities of long-term debt and capital
lease obligations............................. 2,620 3,131 -- -- 5,751
----------- ------------- ------------ ------------ ------------
Total Current Liabilities................... 93,212 92,396 88,708 -- 274,316
Long-Term Debt and Capital Lease Obligations...... (455,333) 8,815 1,012,825 -- 566,307
Deferred Income Tax Liabilities................... -- (4,252) 16,620 -- 12,368
Reserve for Unpaid Claims......................... -- 72,494 546 -- 73,040
Deferred Credits and Other Long-Term
Liabilities(1).................................. 352,044 43,565 29,378 (385,218) 39,769
Minority interest................................. -- -- -- 52,520 52,520
Stockholders' Equity
Common Stock, par value $0.25 per share;
Authorized--80,000 shares Issued and
outstanding--33,007 shares.................... 2,764 (483) 8,252 (2,281) 8,252
Committments and contingencies
Other Stockholders' Equity
Additional paid-in capital...................... 609,627 30,237 327,681 (639,864) 327,681
Retained earnings (Accumulated deficit)......... 126,826 58,932 (129,457) (185,758) (129,457)
Warrants outstanding............................ -- -- 54 -- 54
Common Stock in treasury, 4,424 shares.......... -- (4,736) (82,731) 4,736 (82,731)
Cumulative foreign currency adjustments......... (805) 715 (1,982) 90 (1,982)
----------- ------------- ------------ ------------ ------------
738,412 84,665 121,817 (823,077) 121,817
----------- ------------- ------------ ------------ ------------
$ 728,335 $ 297,683 $1,269,894 $(1,155,775) $1,140,137
----------- ------------- ------------ ------------ ------------
----------- ------------- ------------ ------------ ------------
- ------------------------
(1) Elimination entry related to intercompany receivables and payables and
investment in consolidated subsidiaries.
The accompanying Notes to Condensed Consolidating Financial Statements
are an integral part of these balance sheets.
14
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE K--GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JUNE 30, 1997
--------------------------------------------------------------------
MAGELLAN
HEALTH
SERVICES,
INC. CONSOLIDATED
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
----------- ------------- ------------ ------------ ------------
ASSETS
Current Assets
Cash and cash equivalents............. $ 105,409 $ 65,215 $ 155,619 $ -- $ 326,243
Accounts receivable, net.............. 91,995 51,421 8,204 -- 151,620
Supplies.............................. 903 286 319 -- 1,508
Other current assets.................. 987 7,343 10,238 -- 18,568
----------- ------------- ------------ ------------ ------------
Total Current Assets.............. 199,294 124,265 174,380 -- 497,939
Assets restricted for settlement of unpaid
claims and other long-term
liabilities............................. -- 74,219 18,116 -- 92,335
Property and Equipment
Land.................................. 6,266 5,382 872 -- 12,520
Buildings and improvements............ 34,220 33,169 1,775 -- 69,164
Equipment............................. 20,323 30,451 8,937 -- 59,711
----------- ------------- ------------ ------------ ------------
60,809 69,002 11,584 -- 141,395
Accumulated depreciation.............. (14,407) (15,819) (4,150) -- (34,376)
Construction in progress.............. 39 340 50 -- 429
----------- ------------- ------------ ------------ ------------
46,441 53,523 7,484 -- 107,448
Investment in CBHS........................ 7,101 -- -- -- 7,101
Deferred income taxes..................... -- 4,308 3,959 -- 8,267
Other Long-Term Assets (1)................ 132,662 (24,026) 1,036,123 (1,118,550) 26,209
Goodwill, net............................. 18,039 95,226 -- -- 113,265
Other Intangible Assets, net.............. 2,674 22,570 13,722 -- 38,966
----------- ------------- ------------ ------------ ------------
$ 406,211 $ 350,085 $1,253,784 $(1,118,550) $ 891,530
----------- ------------- ------------ ------------ ------------
----------- ------------- ------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable...................... $ 23,707 $ 20,744 $ 2,912 $ -- $ 47,363
Accrued liabilities................... 32,539 61,792 73,638 -- 167,969
Current maturities of long-term debt
and capital lease obligations....... 460 3,132 -- -- 3,592
----------- ------------- ------------ ------------ ------------
Total Current Liabilities......... 56,706 85,668 76,550 -- 218,924
Long-Term Debt and Capital Lease
Obligations............................. (766,309) 4,217 1,154,018 -- 391,926
Reserve for Unpaid Claims................. -- 65,576 (10,245) -- 55,331
Deferred Credits and Other Long-Term
Liabilities (1)......................... 61,772 12,681 (111,103) 58,492 21,842
Minority interest......................... -- -- -- 58,943 58,943
Stockholders' Equity......................
Common Stock, par value $0.25 per
share;
Authorized--80,000 shares...........
Issued and outstanding--33,311
shares.............................. 2,752 (483) 8,330 (2,269) 8,330
Commitments and contingencies.............
Other Stockholders' Equity................
Additional paid-in capital............ 1,024,344 125,672 336,692 (1,150,016) 336,692
Retained earnings (Accumulated
deficit)............................ 26,150 54,318 (140,118) (80,468) (140,118)
Warrants outstanding.................. -- -- 25,050 -- 25,050
Common stock in Treasury, 4,424
shares.............................. -- -- (82,731) -- (82,731)
Cumulative foreign currency
adjustments......................... 796 2,436 (2,659) (3,232) (2,659)
----------- ------------- ------------ ------------ ------------
1,054,042 181,943 144,564 (1,235,985) 144,564
----------- ------------- ------------ ------------ ------------
$ 406,211 $ 350,085 $1,253,784 $(1,118,550) 891,530
----------- ------------- ------------ ------------ ------------
----------- ------------- ------------ ------------ ------------
- ------------------------
(1) Elimination entry related to intercompany receivables and payables and
investment in consolidated subsidiaries.
The accompanying Notes to Condensed Consolidating Financial Statements
are an integral part of these balance sheets.
15
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE K--GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED JUNE 30, 1996
----------------------------------------------------------------------
MAGELLAN
HEALTH
SERVICES,
INC. CONSOLIDATED
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
----------- ------------- ------------- ------------- ------------
Net revenue............................... $ 252,810 $ 96,031 $ 1,776 $ (4,238) $ 346,379
Costs and expenses
Salaries, supplies and other operating
expenses.............................. 194,157 82,021 2,596 (4,238) 274,536
Bad debt expense........................ 21,482 1,671 (4,267) -- 18,886
Depreciation and amortization........... 9,015 3,443 428 -- 12,886
Interest, net........................... (10,923) (307) 24,295 -- 13,065
Stock option expense (credit)........... -- -- (210) -- (210)
Unusual items........................... 3,959 -- 30,000 -- 33,959
----------- ------------- ------------- ------------- ------------
217,690 86,828 52,842 (4,238) 353,122
----------- ------------- ------------- ------------- ------------
Income (loss) before income taxes and
equity in earnings (loss) of
subsidiaries............................ 35,120 9,203 (51,066) -- (6,743)
Provision for (benefit from) income
taxes................................... 197 2,799 11 (5,705) (2,698)
----------- ------------- ------------- ------------- ------------
Income (loss) before equity in earnings
(loss) of subsidiaries.................. 34,923 6,404 (51,077) 5,705 (4,045)
Equity in earnings (loss) of
subsidiaries............................ 1,540 1,602 (45,355) 43,890 1,677
----------- ------------- ------------- ------------- ------------
Net income (loss)......................... $ 33,383 $ 4,802 $ (5,722) $ (38,185) $ (5,722)
----------- ------------- ------------- ------------- ------------
----------- ------------- ------------- ------------- ------------
FOR THE THREE MONTHS ENDED JUNE 30, 1997
----------------------------------------------------------------------
MAGELLAN
HEALTH
SERVICES,
INC. CONSOLIDATED
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
----------- ------------- ------------- ------------- ------------
Net revenue............................... $ 202,006 $ 121,046 $ 2,122 $ (253) $ 324,921
Costs and expenses
Salaries, supplies and other operating
expenses.............................. 157,059 101,705 5,404 (253) 263,915
Bad debt expense........................ 11,690 835 (444) 0 12,081
Depreciation and amortization........... 7,385 3,748 911 0 12,044
Interest, net........................... (14,368) (655) 27,625 0 12,602
Stock option expense.................... 0 0 1,781 0 1,781
Equity in loss of CBHS.................. 399 0 0 0 399
Los on Crescent Transactions............ 13,684 14 46,170 -- 59,868
Unusual items........................... (2,583) 0 1,545 0 (1,038)
----------- ------------- ------------- ------------- ------------
173,266 105,647 82,992 (253) 361,652
----------- ------------- ------------- ------------- ------------
Income (loss) before income taxes, equity
in earnings (loss) of subsidiaries and
extraordinary items..................... 28,740 15,399 (80,870) 0 (36,731)
Provision for (benefit from) income
taxes................................... 826 3,345 (18,864) 0 (14,693)
----------- ------------- ------------- ------------- ------------
Income (loss) before equity in earnings
(loss) of subsidiaries and extraordinary
items................................... 27,914 12,054 (62,006) 0 (22,038)
Equity in earnings (loss) of continuing
subsidiaries............................ (328) (2,063) 37,565 (37,577) (2,403)
----------- ------------- ------------- ------------- ------------
Income (loss) before extraordinary
items................................... 27,586 9,991 (24,441) (37,577) (24,441)
Extraordinary item--loss on early
extinguishment of debt (net of income
tax benefit of $1,536).................. (910) -- (2,303) 910 (2,303)
----------- ------------- ------------- ------------- ------------
Net income (loss)......................... $ 26,676 $ 9,991 $ (26,744) $ (36,667) $ (26,744)
----------- ------------- ------------- ------------- ------------
----------- ------------- ------------- ------------- ------------
The accompanying Notes to Condensed Consolidating Financial Statements
are an integral part of these statements.
16
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE K--GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(IN THOUSANDS)
FOR THE NINE MONTHS ENDED JUNE 30, 1996
--------------------------------------------------------------------
MAGELLAN
HEALTH
SERVICES,
INC. CONSOLIDATED
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
----------- ------------- ------------ ------------ ------------
Net revenue............................... $ 765,388 $ 235,720 $ 9,403 $ (13,514) $ 996,997
Costs and expenses
Salaries, supplies and other operating
expenses.............................. 586,180 204,112 4,102 (13,514) 780,880
Bad debt expense........................ 62,520 3,659 (4,886) -- 61,293
Depreciation and amortization........... 27,043 8,346 797 -- 36,186
Interest, net........................... (31,309) (575) 67,343 -- 35,459
Stock option expense.................... -- -- 1,204 -- 1,204
Unusual items........................... 3,959 -- 30,000 -- 33,959
----------- ------------- ------------ ------------ ------------
648,393 215,542 98,560 (13,514) 948,981
----------- ------------- ------------ ------------ ------------
Income (loss) before income taxes and
equity in earnings (loss) of
subsidiaries............................ 116,995 20,178 (89,157) -- 48,016
Provision for income taxes................ 1,538 4,845 219 13,072 19,674
----------- ------------- ------------ ------------ ------------
Income (loss) before equity in earnings
(loss) of subsidiaries.................. 115,547 15,333 (89,376) (13,072) 28,342
Equity in earnings (loss) of
subsidiaries............................ 1,172 2,747 (113,471) 113,799 4,247
----------- ------------- ------------ ------------ ------------
Net income (loss)......................... $ 114,285 $ 12,586 $ 24,095 $ (126,871) $ 24,095
----------- ------------- ------------ ------------ ------------
----------- ------------- ------------ ------------ ------------
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash provided by operating activities..... $ 6,702 $ 29,922 $ 23,833 $ -- $ 60,457
----------- ------------- ------------ ------------ ------------
Cash Flows from Investing Activities:
Capital expenditures.................... (17,359) (2,320) (4,938) -- (24,617)
Proceeds from sale of assets............ 1,253 -- -- -- 1,253
Acquisitions and investments in
businesses, net of cash acquired...... (438) 36,229 (85,890) -- (50,099)
Increase in assets restricted for the
settlement of unpaid claims........... -- (7,059) (1,508) -- (8,567)
----------- ------------- ------------ ------------ ------------
Cash provided by (used in) investing
activities.............................. (16,544) 26,850 (92,336) -- (82,030)
----------- ------------- ------------ ------------ ------------
Cash Flows from Financing Activities:
Proceeds from the issuance of debt...... -- 125 68,000 -- 68,125
Payments on debt and capital
obligations........................... (12,465) (4,027) (68,000) -- (84,492)
Proceeds from issuance of Common Stock,
net of issuance costs................. -- -- 68,561 -- 68,561
Income tax payments made on behalf of
stock optionees....................... -- -- (1,678) -- (1,678)
Proceeds from exercise of stock option
and warrants.......................... -- -- 2,147 -- 2,147
----------- ------------- ------------ ------------ ------------
Cash provided by (used in) financing
activities.............................. (12,465) (3,902) 69,030 -- 52,663
----------- ------------- ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents............................. (22,307) 52,870 527 -- 31,090
Cash and cash equivalents at beginning of
period.................................. 60,719 10,279 34,516 -- 105,514
----------- ------------- ------------ ------------ ------------
Cash and cash equivalents at end of
period.................................. $ 38,412 $ 63,149 $ 35,043 $ -- $ 136,604
----------- ------------- ------------ ------------ ------------
----------- ------------- ------------ ------------ ------------
The accompanying Notes to Condensed Consolidating Financial Statements
are an integral part of these statements.
17
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE K--GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(IN THOUSANDS)
FOR THE NINE MONTHS ENDED JUNE 30, 1997
--------------------------------------------------------------------
MAGELLAN
HEALTH
SERVICES,
INC. CONSOLIDATED
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
----------- ------------- ------------ ------------ ------------
Net revenue............................... $ 669,274 $ 346,248 $ 7,093 $ (953) $1,021,662
Costs and expenses
Salaries, supplies and other operating
expenses.............................. 518,843 291,983 20,375 (953) 830,248
Bad debt expense........................ 44,776 3,124 (444) -- 47,456
Depreciation and amortization........... 24,147 11,221 2,863 -- 38,231
Interest, net........................... (39,530) (1,650) 80,504 -- 39,324
Stock option expense (credit)........... -- -- 3,214 -- 3,214
Equity in loss of CBHS.................. 399 -- -- -- 399
Loss on Crescent Transactions........... 13,684 14 46,170 -- 59,868
Unusual Items........................... (1,188) -- 1,545 -- 357
----------- ------------- ------------ ------------ ------------
561,131 304,692 154,227 (953) 1,019,097
----------- ------------- ------------ ------------ ------------
Income (loss) before income taxes, equity
in earnings (loss) of subsidiaries and
extraordinary items..................... 108,143 41,556 (147,134) -- 2,565
Provision for (benefit from) income
taxes................................... 1,860 9,531 (10,366) -- 1,025
----------- ------------- ------------ ------------ ------------
Income (loss) before equity in earnings
(loss) of subsidiaries and extraordinary
items................................... 106,283 32,025 (136,768) -- 1,540
Equity in earnings (loss) of continuing
subsidiaries............................ (686) (6,043) 131,360 (131,579) (6,948)
----------- ------------- ------------ ------------ ------------
Income (loss) before extraordinary
items................................... 105,597 25,982 (5,408) (131,579) (5,408)
Extraordinary items--loss on early
extinguishments of debt (net of income
tax benefit of $3,503).................. (2,103) -- (5,253) 2,103 (5,253)
----------- ------------- ------------ ------------ ------------
Net income (loss)......................... $ 103,494 $ 25,982 $ (10,661) $ (129,476) $ (10,661)
----------- ------------- ------------ ------------ ------------
----------- ------------- ------------ ------------ ------------
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash provided by (used in) operating
activities.............................. $ 46,758 $ 5,170 $ (46,712) $ -- $ 5,216
----------- ------------- ------------ ------------ ------------
Cash Flows from Investing Activities:
Capital expenditures.................... (18,462) (8,086) (1,565) -- (28,113)
Acquisitions and investments in
businesses, net of cash acquired...... (19,657) (8,656) (527) -- (28,840)
Decrease (increase) in assets restricted
for the settlement of unpaid claims... -- 1,934 10,617 -- 12,551
Proceeds from the sale of property and
equipment to Crescent and CBHS, net of
transaction costs..................... 196,066 -- 187,975 -- 384,041
Proceeds from the sale of assets........ 15,463 -- -- -- 15,463
----------- ------------- ------------ ------------ ------------
Cash provided by (used in) investing
activities.............................. 173,410 (14,808) 196,500 -- 355,102
----------- ------------- ------------ ------------ ------------
Cash Flows from Financing Activities:
Payments on debt and capital lease
obligations........................... (272,944) (4,699) (111,763) -- (389,406)
Proceeds from the issuance of debt...... 128,434 -- 75,209 -- 203,643
Proceeds from issuance of warrants...... -- -- 5,743 -- 5,743
Proceeds from exercise of stock options
and warrants.......................... -- -- 25,000 -- 25,000
----------- ------------- ------------ ------------ ------------
Cash provided by (used in) financing
activities.............................. (144,510) (4,699) (5,811) -- (155,020)
----------- ------------- ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents............................. 75,658 (14,337) 143,977 -- 205,298
Cash and cash equivalents at beginning of
period.................................. 29,751 79,552 11,642 -- 120,945
----------- ------------- ------------ ------------ ------------
Cash and cash equivalents at end of
period.................................. $ 105,409 $ 65,215 $ 155,619 $ -- $ 326,243
----------- ------------- ------------ ------------ ------------
----------- ------------- ------------ ------------ ------------
The accompanying Notes to Condensed Consolidating Financial Statements
are an integral part of these statements.
18
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
JUNE 30, 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This document contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 including, without
limitation, statements regarding the sufficiency of the Company's liquidity and
sources of capital and the statements under the heading "Outlook". Actual
results may differ materially from those projected in such forward-looking
statements. These forward-looking statements are subject to certain risks,
uncertainties and other factors which could cause actual results to differ
materially from those anticipated, including, without limitation, potential
reductions in reimbursement by third-party payers and changes in hospital payer
mix, governmental budgetary constraints and healthcare reform, the impact of
potential hospital closures, competition in the provider business and the
managed care business, and the regulatory environment for the Company's
businesses, as well as the other factors discussed in Exhibit 99 hereto, which
is hereby incorporated by reference.
GREEN SPRING ACQUISITION
On December 13, 1995, the Company acquired a 51% ownership interest in Green
Spring for approximately $68.9 million in cash, the issuance of 215,458 shares
of Magellan Common Stock valued at approximately $4.3 million and the
contribution of GPA, a wholly-owned subsidiary of the Company, which became a
wholly-owned subsidiary of Green Spring. On December 20, 1995, the Company
acquired an additional 10% ownership interest in Green Spring for approximately
$16.7 million in cash as a result of an exercise by a minority stockholder of
its Exchange Option ("Exchange Option") for a portion of the stockholder's
interest in Green Spring. Green Spring provides managed behavioral healthcare
services, which includes utilization management, care management and employee
assistance programs through a 50-state provider network covering approximately
16.1 million people nationwide. The Company has accounted for the acquisition of
Green Spring using the purchase method of accounting, which resulted in
additional intangible assets of approximately $113 million.
The minority stockholders of Green Spring consist of four Blue Cross/Blue
Shield organizations (the "Blues") that are key customers of Green Spring. In
addition, two other Blues organizations that formerly owned a portion of Green
Spring have continued as customers of Green Spring. As of June 30, 1997, the
minority stockholders of Green Spring have the Exchange Option, under certain
circumstances, to exchange their ownership interest in Green Spring for
2,831,739 shares of the Company's Common Stock or $65.1 million in subordinated
notes. The Company may elect to pay cash in lieu of issuing the subordinated
notes. The Exchange Option expires December 13, 1998.
CRESCENT TRANSACTIONS
On June 17, 1997, the Company consummated the Crescent Transactions, which
are more fully described in Note F. The Company's resulting investment in CBHS
will be accounted for under the equity method, which will result in a
significant reduction in the Company's revenues and expenses from its provider
segment in future periods.
PSYCHIATRIC HOSPITAL RESULTS
The following selected statistics include the psychiatric hospitals in
operation, by quarter, for fiscal 1996 and 1997, including (a) psychiatric
hospitals closed during fiscal 1996 and 1997 and (b) psychiatric hospitals
acquired during fiscal 1996 and 1997 (from the date of acquisition). The
selected statistics include the psychiatric hospitals controlled by CBHS as a
result of the Crescent Transactions through June 16, 1997.
19
FISCAL FISCAL %
1996 1997 CHANGE
--------- --------- -----------
Hospitals in operation:
December 31................................................................... 102 95 (7)%
March 31...................................................................... 99 93 (6)
June 30....................................................................... 96 13 (86)
September 30.................................................................. 95
Average licensed beds at:
Quarter:
First..................................................................... 9,110 8,463 (7)%
Second.................................................................... 9,040 8,468 (6)
Third..................................................................... 8,677 7,358 (15)
Fourth.................................................................... 8,469
Year.......................................................................... 8,805
Net revenue (in thousands):
Quarter:
First..................................................................... $ 253,565 $ 229,064 (10)%
Second.................................................................... 257,690 225,494 (12)
Third..................................................................... 249,145 195,981 (21)
Fourth.................................................................... 228,597
---------
Year.......................................................................... $ 988,997
---------
---------
Patient days:
Quarter:
First..................................................................... 432,474 392,352 (9)%
Second.................................................................... 463,327 402,929 (13)
Third..................................................................... 452,864 350,877 (23)
Fourth.................................................................... 404,346
---------
Year.......................................................................... 1,753,011
---------
---------
Equivalent patient days:
Quarter:
First..................................................................... 478,693 437,960 (9)%
Second.................................................................... 513,502 447,551 (13)
Third..................................................................... 503,622 390,194 (23)
Fourth.................................................................... 450,708
---------
Year.......................................................................... 1,946,525
---------
---------
Net revenue per equivalent patient day:
Quarter:
First..................................................................... $ 530 $ 523 (1)%
Second.................................................................... 502 504 --
Third..................................................................... 495 502 1
Fourth.................................................................... 507
Year.......................................................................... 508
Admissions:
Quarter:
First..................................................................... 32,865 32,326 (2)%
Second.................................................................... 37,966 34,643 (9)
Third..................................................................... 35,854 29,848 (17)
Fourth.................................................................... 33,861
---------
Year.......................................................................... 140,546
---------
---------
Average length of stay (days):
Quarter:
First..................................................................... 12.4 11.5 (7)%
Second.................................................................... 12.2 11.1 (9)
Third..................................................................... 12.5 11.6 (7)
Fourth.................................................................... 12.5
Year.......................................................................... 12.4
- ------------------------
Note: Includes Northstar Hospital in Anchorage, Alaska that is managed pursuant
to a joint venture arrangement.
20
RESULTS OF OPERATIONS
The following table summarizes, for the periods indicated, changes in
selected operating indicators.
PERCENTAGE OF NET REVENUE
------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1996 1997 1996 1997
--------- --------- --------- ---------
Net revenue................................................................ 100.0% 100.0% 100.0% 100.0%
Salaries, supplies and other operating expenses............................ 79.2 81.2 78.3 81.3
Bad debt expense........................................................... 5.5 3.7 6.2 4.6
--------- --------- --------- ---------
Total expenses............................................................. 84.7 84.9 84.5 85.9
Operating margin........................................................... 15.3% 15.1% 15.5% 14.1%
--------- --------- --------- ---------
--------- --------- --------- ---------
Patient days at the Company's hospitals decreased 22.5% and 15.0% for the
quarter and the nine months ended June 30, 1997, respectively, as compared to
the same periods of fiscal 1996. The decrease resulted primarily from patient
days attributable to the hospitals closed during fiscal 1996 and 1997, declines
in average length of stay and the consummation of the Crescent Transactions on
June 17, 1997. Total admissions decreased 16.8% and 9.2% for the quarter and the
nine months ended June 30, 1997, respectively, as compared to the prior year
periods. The decrease resulted primarily from the hospitals closed in fiscal
1996 and 1997 and the consummation of the Crescent Transactions on June 17,
1997.
The Company's net revenue for the quarter ended June 30, 1997 decreased 6.2%
as compared to the prior year quarter. The decrease was primarily attributable
to (i) the closure of hospitals during fiscal 1996 and 1997, (ii) reduced
equivalent patient days at the Company's operating hospitals and (iii) the
effect of the consummation of the Crescent Transactions offset by revenue growth
in the Company's managed care (Green Spring) and public sector (Public
Solutions) businesses. The 44.0% increase in Green Spring revenue to $95.6
million was primarily attributable to obtaining several new contracts, which
became effective July 1, 1996 and January 1, 1997, to manage the behavioral
healthcare component of certain state Medicaid programs and increases in
services to an insurer. The 39.0% increase in Public Solutions revenue to $24.6
million was primarily attributable to a 25.0 % increase in placements in mentor
homes and $1.4 million in new revenues from correctional contracts.
The Company's net revenue for the nine months ended June 30, 1997 increased
2.5 % as compared to the prior year period. The increase was primarily
attributable to the Green Spring acquisition and related internal growth (as
previously described) and Public Solutions internal growth (as previously
described) offset by (i) the closure of hospitals during fiscal 1996 and fiscal
1997, (ii) reduced equivalent patient days at the Company's operating hospitals
and (iii) the effect of the consummation of the Crescent Transactions. Green
Spring revenues increased 85.1% to $269.1 million and Public Solutions revenue
increased 34.8% to $68.5 million.
The Company's salaries, supplies and other operating expenses decreased 3.9%
and increased 6.3% in the quarter and the nine months ended June 30, 1997
compared to the same periods in fiscal 1996. The increases resulted primarily
from the Green Spring acquisition and related internal growth less the effect of
hospitals closed during fiscal 1996 and 1997 and the effect of the consummation
of the Crescent Transactions.
The Company's bad debt expense decreased 36.0% and 22.6% in the quarter and
the nine months ended June 30, 1997 compared to the same periods in fiscal 1996.
These decreases are primarily attributable to (i) improvement in accounts
receivable agings and turnover compared to prior periods, (ii) shifts towards
governmental and managed care payers, which reduces the Company's credit risk
associated with individual patients and (iii) the effect of the consummation of
the Crescent Transactions.
21
Bad debt expense decreased to 3.7% and 4.6% of revenue for the quarter and the
nine months ended June 30, 1997, respectively. These decreases are primarily
attributable to lower bad debt expense in the provider business and bad debt
expense representing less than 1% of Green Spring revenues for the periods
presented.
Depreciation and amortization decreased $0.8 million and increased $2.0
million in the quarter and the nine months ended June 30, 1997, respectively,
compared to the same periods in fiscal 1996. These changes resulted primarily
from depreciation and amortization related to the Green Spring acquisition and
the effect of the consummation of the Crescent Transactions.
Interest expense, net, decreased $0.5 million and increased $3.9 million for
the quarter and the nine months ended June 30, 1997, respectively, compared to
the same periods in fiscal 1996. The decrease for the three months ended June
30, 1997 resulted primarily from lower average borrowings and higher temporary
investments as a result of the Crescent Transactions. The increase for the nine
months ended June 30, 1997 resulted primarily from approximately $5.0 million of
interest income recorded during the nine months ended June 30, 1996 related to
income tax refunds due from the State of California for the Company's income tax
returns for fiscal 1982 through 1989 offset by reduced interest, net, as a
result of the Crescent Transactions.
Stock option expense for the quarter and the nine months ended June 30, 1997
increased $2.0 million from the previous year periods primarily due to
fluctuations in the market price of the Company's common stock.
Equity in loss of CBHS represents the Company's proportionate (50%) loss in
CBHS for the 14 days ended June 30, 1997. See Note I for further information
regarding the Company's Investment in CBHS.
The Company recorded a loss on the Crescent Transactions of approximately
$59.9 million during the quarter and the nine months ended June 30, 1997. See
Note F for further information regarding the Crescent Transactions.
The Company recorded unusual items, net, of $(1.0) million and $0.4 million,
during the quarter and the nine months ended June 30, 1997, respectively, which
consisted of (i) a $2.6 million and a $5.4 million pre-tax gain on the sale of
previously closed psychiatric hospitals, respectively, (ii) a $4.2 million
charge for the closure of three psychiatric hospitals and one general hospital
during the nine months ended June 30, 1997 and (iii) $1.6 million charge related
to the termination of an agreement to sell the Company's European hospitals
during the quarter and the nine months ended June 30, 1997. During the quarter
and the nine months ended June 30, 1996, the Company recorded an unusual item of
$30.0 million related to the settlement of insurance claims. Also, during the
quarter and the nine months ended June 30, 1996, the Company recorded unusual
items of $2.8 million related to the closure of three hospitals and $1.2 million
for an impairment loss. See Note G for further information regarding unusual
items.
Minority interest increased $0.7 million and $2.7 million in the quarter and
the nine months ended June 30, 1997 as compared to the prior year periods. The
increases are primarily due to (i) the Company acquiring a controlling interest
in Green Spring in December 1995, (ii) Green Spring's internal growth subsequent
to the acquisition date and (iii) increased net income from hospital-based joint
ventures.
The Company recorded extraordinary losses on early extinguishment of debt,
net of tax, of $2.3 million and $5.3 million for the three months and the nine
months ended June 30, 1997, respectively. See Note D for further information
regarding the early extinguishment of debt.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123 ("FAS 123") "Accounting for Stock-Based Compensation," which became
effective for fiscal years beginning after December 15, 1995. FAS 123
established new financial accounting and reporting standards for stock-based
22
compensation plans. Entities will be allowed to measure compensation expense for
stock-based compensation under FAS 123 or APB Opinion No. 25, "Accounting for
Stock Issued to Employees." Entities electing to remain with the accounting in
APB Opinion No. 25 will be required to make pro forma disclosures of net income
and earnings per share as if the provisions of FAS 123 had been applied. The
Company is adopting FAS 123 in fiscal 1997 on a proforma disclosure basis.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
FAS 128, which applies to entities with publicly held common stock or potential
common stock. FAS 128 replaces APB Opinion 15, "Earnings per Share" and related
interpretations. APB Opinion 15 required that entities with simple capital
structures present a single "earnings per common share" ("EPS") on the face of
the income statement, whereas those with complex capital structures present both
"primary" and "fully diluted" EPS. Primary EPS shows the amount of income
attributed to each share of common stock if every common stock equivalent were
converted into common stock. Fully diluted EPS considers common stock
equivalents and all other securities that could be converted into common stock.
Statement 128 simplifies the computation of EPS by replacing the
presentation of primary EPS with a presentation of basic EPS. The Statement
requires dual presentation of basic and diluted EPS by entities with complex
capital structures. Basic EPS includes no dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
of securities that could share in the earnings of an entity, similar to fully
diluted EPS under APB Opinion 15.
FAS 128 becomes effective for financial statements for both interim and
annual periods ending after December 15, 1997. Earlier application is not
permitted. The Company will adopt FAS 128 during the quarter ended December 31,
1997, which is the first quarter of the fiscal year ended September 30, 1998.
The Company has disclosed pro forma EPS amounts computed using FAS 128 in Note H
to the financial statements for the quarter and the nine months ended June 30,
1996 and 1997. After the effective date, all prior-period EPS data presented
will be restated to conform with the provisions of FAS 128.
The primary effect of FAS 128 on the Company's financial statements is the
required dual presentation of basic and diluted income per common share for each
interim and annual reporting period. APB Opinion No. 15 allowed entities with
complex capital structures to present income per common share excluding common
stock equivalents and other potentially dilutive securities if the dilution was
less than three percent.
LIQUIDITY AND SOURCES OF CAPITAL
OPERATING ACTIVITIES. The Company's net cash provided by operating
activities was approximately $60.5 million and $5.2 million for the nine months
ended June 30, 1996 and June 30, 1997, respectively. The decrease in operating
cash flows for the nine months ended June 30, 1997 was primarily the result of
(i) higher income tax payments ($6.9 million and $14.4 million for the nine
months ended June 30, 1996 and 1997, respectively), (ii) $5.0 million of
interest income related to income tax refunds in fiscal 1996 and (iii) reduced
cash flows from its provider business. Management believes its cash flows from
operations will be adequate to fund operations, capital expenditures and debt
service obligations in future periods.
INVESTING ACTIVITIES. The Company acquired a 61% ownership interest in
Green Spring during the first quarter of fiscal 1996. The consideration paid for
Green Spring and related acquisition costs resulted in the use of cash of
approximately $87.2 million compared to approximately $28.8 million for
acquisitions and investments in businesses during the nine months ended June 30,
1997.
23
The Crescent Transactions resulted in net proceeds of $384.0 million, during
the nine months ended June 30, 1997 which consists of the following (in
thousands):
Sale of Property and Equipment to Crescent and CBHS............... $ 392,200
Crescent Transaction costs........................................ (8,159)
---------
$ 384,041
---------
---------
The Company also made a $2.5 capital contribution to CBHS on June 20, 1997.
The Company expects to fund an additional $15.4 million in transaction costs and
construction obligations related to the Crescent Transactions through fiscal
1998.
Management believes that its cash on hand, future cash flows from
operations, borrowing capacity under the New Revolving Credit Agreement and its
ability to issue debt and equity securities under current market conditions will
provide adequate capital resources to support the Company's anticipated
investing strategies.
FINANCING ACTIVITIES. The Company borrowed approximately $68.1 million and
$88.0 million (excluding borrowings of approximately $115.6 million to pay off
the previous Revolving Credit Agreement), respectively, during the nine months
ended June 30, 1996 and 1997, primarily to fund the acquisition of Green Spring
in fiscal 1996 and to (i)fund the payment of variable rate secured notes and
other long-term debt, (ii)fund acquisitions and (iii)fund working capital needs
in fiscal 1997. The Company believes that its businesses will generate
sufficient cash flows from operations to meet its future debt service
requirements.
The Company paid off approximately $84.5 million and $389.4 million of debt
and capital lease obligations during the nine months ended June 30, 1996 and
1997, respectively. The payments relate primarily to servicing and refinancing
long-term debt under the Revolving Credit Agreements and servicing variable rate
secured notes and other long-term debt as a result of the Crescent Transactions.
The Company issued approximately 2.6 million warrants with a fair value of
$25.0 million to Crescent and COI as part of the Crescent Transactions during
the nine months ended June 30, 1997.
On September 27, 1996, the Company repurchased approximately 4.0 million
shares of its Common Stock for approximately $73.5 million, including
transaction costs, pursuant to a "Dutch Auction" self-tender offer to its
stockholders. On November 1, 1996, the Company announced that its board of
directors approved the repurchase of an additional 3.0 million shares of its
Common Stock from time to time subject to the terms of the New Revolving Credit
Agreement. The Company expects to use cash on hand, future cash flows from
operations and borrowings under its New Revolving Credit Agreement to fund any
future treasury stock purchases.
As of June 30, 1997, the Company had $193.4 million of availability under
the New Revolving Credit Agreement. The Company was in compliance with all debt
covenants at June 30, 1997.
OUTLOOK
CRESCENT TRANSACTIONS. The Company relinquished control of CBHS upon
consummation of the Crescent Transactions. Magellan's operational input in CBHS
will be limited to those rights provided by the franchise agreements and the
CBHS Operating Agreement.
The Franchise Fees payable to the Company by CBHS are subordinated in
payment to the $41.7 million annual base rent, 5% minimum escalator rent and, in
certain circumstances, the additional rent due Crescent under the CBHS
Facilities Lease. If CBHS encounters a decline in earnings or financial
difficulties, such amounts due Crescent will be paid before any Franchise Fees
are paid. The remainder of CBHS' available cash will then be applied in such
order of priority as CBHS may determine, in the reasonable discretion of the
CBHS board, to all other operating expenses of CBHS, including the current
24
and accumulated Franchise Fees. The Company will be entitled to pursue all
available remedies for breach of the Master Franchise Agreement, except that the
Company does not have the right to take any action that could reasonably be
expected to force CBHS into bankruptcy or receivership. In addition, if CBHS
encounters a decline in earnings or financial difficulties, it is possible that
cash flows from CBHS' operations will not be sufficient to pay all or a portion
of the Franchise Fees when due.
The Company has used the proceeds of the Crescent Transactions to reduce net
interest expense by repaying long-term debt where possible and investing the
remaining proceeds in short-term cash equivalents. Although net interest expense
will be lower, the Company's reduced earnings as a result of the Crescent
Transactions could be even more pronounced until capital resource allocation
decisions (e.g., acquisitions) related to the net proceeds from the Crescent
Transactions are implemented.
SALE OF EUROPEAN HOSPITALS. On March 19, 1997, the Company announced that
it signed definitive agreements with Priory Hospitals Holdings Limited and
Priory Hospitals Europe Limited for the sale of its two psychiatric hospitals in
London and its psychiatric hospital in Nyon, Switzerland. The sale of the
European Hospitals was subject to regulatory approval. The total purchase price
for the European Hospitals and license agreements was $76 million.
On June 17, 1997, the Company announced that the sale of its two United
Kingdom hospitals had been referred to the Monopolies and Mergers Commission
("MMC") by the Office of Fair Trade under the provisions of the Fair Trading
Act. The MMC is required to make their report by September 15, 1997. The time
period for receiving regulatory approval expired and the Company elected not to
consummate the sale and has begun exploring other strategic alternatives related
to its European hospitals.
NET OPERATING LOSS CARRYFORWARDS The Company incurred a gain for federal
income tax purposes of approximately $50 million as a result of the Crescent
Transactions. The Company intends to utilize net operating loss carryforwards
("NOLs") to offset such taxable gains to the extent NOLs are available. The
expected utilization of NOLs as a result of the Crescent Transactions will
accelerate the payment of federal income taxes in future periods, resulting in
lower cash flows from operations in future periods.
OPERATIONS-PROVIDER. CBHS management continually assesses events and
changes in circumstances that could affect its business strategy and the
viability of its operations. During fiscal 1995 and 1996, Magellan consolidated,
closed or sold 15 and 9 psychiatric hospitals, respectively. During fiscal 1997,
Magellan has consolidated or closed three psychiatric hospitals and its one
general hospital. See Note G for further information regarding facility closures
in fiscal 1996 and 1997. CBHS may pursue acquisitions during fiscal 1998 in
markets where it does not currently have a presence and in markets where it has
existing hospital operations. CBHS management may consolidate services in
selected markets as a result of acquisitions or overcapacity by closing
additional facilities in future periods depending on market conditions and
evolving business strategies. If CBHS closes additional psychiatric hospitals in
future periods, it could result in additional charges to income for the costs
necessary to exit the hospital operations, which would result in lower equity in
earnings of CBHS for the Company.
The Company's hospitals and CBHS' hospitals continue to experience a shift
in payer mix to managed care payers from other payers, which contributed to a
reduction in revenue per equivalent patient day in fiscal 1996 and average
length of stay in fiscal 1996 and 1997. Management anticipates continued
shifting in CBHS' hospital payer mix towards managed care payers as a result of
changes in the healthcare marketplace. Future shifts in CBHS' hospital payer mix
to managed care payers could result in lower revenue per equivalent patient day
and lower average length of stay in future periods for CBHS' hospital
operations. In addition, the recently passed Federal budget will, beginning in
fiscal 1998, reduce the amount of reimbursement the Company and CBHS receive for
treatment of Medicare patients. Lower revenue per equivalent patient day and
declines in average length of stay at CBHS' hospitals could result in lower
equity in earnings from CBHS for the Company and the recognition of bad debt
expense related to franchise fee receivables in future periods, if any.
25
During fiscal 1994, 1995 and 1996, the Company recorded revenue of $32.1
million, $35.6 million and $28.3 million, respectively, for settlements and
adjustments related to reimbursement issues. During the quarter and the nine
months ended June 30, 1997, the Company recorded revenue of $2.5 million and
$16.2 million, respectively, for settlements and adjustments related to
reimbursement issues compared to $3.3 million and $14.4 million, respectively,
for the prior year periods. The settlements in fiscal 1994, 1995 and 1996
related primarily to certain reimbursable costs associated with the Company's
financial reorganization in fiscal 1992 and costs related to the early
extinguishment of long-term debt in fiscal 1994. Management anticipates that
revenue related to such settlements will decline for fiscal 1997, and that the
decline will be comparable to the reduction experienced in fiscal 1996.
Management also expects revenue related to such settlements to decline in fiscal
1998 from anticipated fiscal 1997 levels comparable to the reduction anticipated
in fiscal 1997 as compared to fiscal 1996.
During fiscal 1996, the Company recorded reductions of expenses of
approximately $15.3 million as a result of updated actuarial estimates related
to malpractice claim reserves. The Company recorded reductions of expenses of
approximately $4.8 million and $12.3 million during the quarter and the nine
months ended June 30, 1996 and $2.5 million and $7.5 million in the quarter and
the nine months ended June 30, 1997, respectively. These reductions resulted
primarily from updates to actuarial assumptions regarding the Company's expected
losses for more recent policy years. These revisions are based on changes in
expected values of ultimate losses resulting from the Company's claim
experience, and increased reliance on such claim experience. While Management
and its actuaries believe that the present reserve is reasonable, ultimate
settlement of losses may vary from the amount recorded and result in additional
fluctuations in income in future periods.
HUMAN AFFAIRS INTERNATIONAL, INC. ACQUISITION
On August 5, 1997, the Company announced that it had signed a definitive
agreement for the purchase of Human Affairs International, Inc. ("HAI"), a unit
of Aetna U.S. Healthcare for approximately $122.1 million in cash. HAI manages
the care of approximately 15 million covered lives through employee assistance
programs and managed behavioral health plans. The Company expects to fund the
acquisition of HAI with cash on hand. The Company will account for the
acquisition of HAI using the purchase method of accounting. The HAI acquisition
is subject to federal and state approval and other customary matters and is
expected to close in the first quarter of fiscal 1998.
The Company may be required to make additional contingent payments of up to
$300 million to Aetna U.S. Healthcare (the "Contingent Payments") over the
five-year period subsequent to closing under certain circumstances. The Company
expects to fund the Contingent Payments, if any, with a combination of cash on
hand, future cash flows from operations and borrowing capacity under the New
Revolving Credit Agreement.
26
PART II--OTHER INFORMATION
ITEM 1.--LEGAL PROCEEDINGS
The Company and certain of its subsidiaries are subject to or parties to
claims, civil suits and governmental investigations and inquiries relating to
their operations and certain alleged business practices. In the opinion of
management, based on consultation with counsel, resolution of these matters will
not have a material adverse effect on the Company's financial position or
results or operations.
ITEM 4.--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held an annual meeting of stockholders on May 30, 1997.
The tabulation of votes with respect to each matter voted upon at the
meeting is as follows:
VOTES CAST
------------------------------------------------
AUTHORITY BROKER
FOR WITHHELD ABSTAIN NON-VOTES
------------ ----------- --------- ----------
Election of:
E. Mac Crawford as a Director (term expiring in 2000)............ 25,501,517 502,794 N/A N/A
Raymond H. Kiefer as a Director (term expiring in 2000).......... 25,551,055 453,256 N/A N/A
Gerald L. McManis as a Director (term expiring 2000)............. 25,032,534 971,777 N/A N/A
BROKER
FOR AGAINST ABSTAIN NON-VOTES
------------ ----------- --------- ----------
Approval of:
Increasing the number of Directors from 8 to 12.................. 25,936,831 42,738 24,742 0
1997 Stock Option Plan........................................... 21,557,684 496,605 43,393 3,906,629
Crescent Transactions............................................ 21,413,032 49,460 635,096 3,906,723
ITEM 6.--EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2(a) Real Estate Purchase and Sale Agreement, dated January 29, 1997, between the Company and
Crescent Real Estate Equities Limited Partnership, which was filed as Exhibit 2(a) to the
Company's current report on Form 8-K filed on April 23, 1997, and is incorporated herein by
reference.
2(b) Amendment No. 1, dated February 28, 1997, to the Real Estate Purchase and Sale Agreement, dated
January 29, 1997, between the Company and Crescent Real Estate Equities Limited Partnership,
which was filed as Exhibit 2(b) to the Company's current report on Form 8-K filed on April 23,
1997, and is incorporated herein by reference.
2(c) Amendment No. 2, dated May 29, 1997, to the Real Estate Purchase and Sale Agreement, dated
January 29, 1997, between the Company and Crescent Real Estate Equities Limited Partnership,
which was filed as Exhibit 2(c) to the Company's current report on Form 8-K, which was filed on
June 30, 1997, and is incorporated herein by reference.
2(d) Contribution Agreement, dated June 16, 1997 between the Company and Crescent Operating, Inc.,
which was filed as Exhibit 2(d) to the Company's current report on Form 8-K, which was filed on
June 30, 1997, and is incorporated herein by reference.
27
4(a) Warrant Purchase Agreement, dated January 29, 1997, between the Company and Crescent Real
Estate Equities Limited Partnership which was filed as Exhibit 4(a) to the Company's current
report on Form 8-K, which was filed on April 23, 1997, and is incorporated herein by reference.
4(b) Amendment No. 1, dated June 17, 1997, to the Warrant Purchase Agreement, dated January 29,
1997, between the Company and Crescent Real Estate Equities Limited Partnership, which was
filed as Exhibit 4(b) to the Company's current report on Form 8-K, which was filed on June 30,
1997, and is incorporated herein by reference.
10(a) Master Lease Agreement, dated June 16, 1997, between Crescent Real Estate Funding VII, L.P., as
Landlord, and Charter Behavioral Health Systems, LLC, as Tenant, which was filed as Exhibit
99(b) to the Company's current report on Form 8-K, which was filed on June 30, 1997, and is
incorporated herein by reference.
10(b) Master Franchise Agreement, dated June 17, 1997, between the Company and Charter Behavioral
Health Systems, LLC, which was filed as Exhibit 99(c) to the Company's current report on Form
8-K, which was filed on June 30, 1997, and is incorporated herein by reference.
10(c) Form of Franchise Agreement, dated June 17, 1997, between the Company, as Franchisor, and
Franchise Owners, which was filed as Exhibit 99(d) to the Company's current report on Form 8-K,
which was filed on June 30, 1997, and is incorporated herein by reference.
10(d) Subordination Agreement, dated June 16, 1997, between the Company, Charter Behavioral Health
Systems, LLC and Crescent Real Estate Equities Limited Partnership, which was filed as Exhibit
99(e) to the Company's current report on Form 8-K, which was filed on June 30, 1997, and is
incorporated herein by reference.
10(e) Operating Agreement of Charter Behavioral Health systems, LLC, dated June 16, 1997, between the
Company and Crescent Operating, Inc., which was filed as Exhibit 99(f) to the Company's current
report on Form 8-K, which was filed on June 30, 1997, and is incorporated herein by reference.
10(f) Warrant Purchase Agreement, dated June 16, 1997, between the Company and Crescent Operating,
Inc., which was filed as Exhibit 99(g) to the Company's current report on Form 8-K, which was
filed on June 30, 1997, and is incorporated herein by reference.
10(g)* Employment Agreement, dated March 1, 1997, between the Company and E. Mac Crawford.
10(h) Amended and Restated Credit Agreement, dated June 16, 1997, among the Company and Chase
Manhattan Bank, as Administrative Agent and First Union National Bank of North Carolina as
Syndication Agent.
10(i)* 1997 Stock Option Plan of the Company
28
27 Financial Data Schedule
99 Safe Harbor for Forward-Looking Statements under the Private Litigation Reform Act of 1995:
Certain Cautionary Statements.
- ------------------------
* Constitutes a management contract or compensatory plan arrangement.
(b) Reports on Form 8-K
The following current reports on Form 8-K were filed by the Registrant with
the Securities and Exchange Commission during the quarter ended June 30, 1997.
FINANCIAL STATEMENTS
DATE OF REPORT ITEM REPORTED AND DESCRIPTION FILED
- ----------------------------- -------------------------------------------------------- -------------------------
April 23, 1997 Other Events--Crescent Transaction Documents No
June 30, 1997 Disposition of Assets--Crescent Transactions Yes(1)
- ------------------------
(1) Unaudited Pro Forma Statements of Operations for the fiscal year ended
September 30, 1996 and the six months ended March 31, 1997 and unaudited Pro
Forma Balance Sheet as of March 31, 1997.
29
FORM 10-Q
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAGELLAN HEALTH SERVICES, INC.
------------------------------------------
(Registrant)
Date: August 12 , 1997 /s/ CRAIG L. MCKNIGHT
------------------------------------------
Craig L. McKnight
Executive Vice President and
Chief Financial Officer
Date: August 12 , 1997 /s/ HOWARD A. MCLURE
------------------------------------------
Howard A. McLure
Senior Vice President and Controller
(Principal Accounting Officer)
30