-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C0btGPnwoLs4scFjR4I/rQVPYx0NYOnKe+nirLgbiH98P+Yj6F32fmqtZx9zmbyi W5aNt5T8ODhAy9uxiLnG8A== 0000758722-97-000028.txt : 19971111 0000758722-97-000028.hdr.sgml : 19971111 ACCESSION NUMBER: 0000758722-97-000028 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19971110 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARACELSUS HEALTHCARE CORP CENTRAL INDEX KEY: 0000758722 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-GENERAL MEDICAL & SURGICAL HOSPITALS, NEC [8062] IRS NUMBER: 953565943 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-12055 FILM NUMBER: 97712207 BUSINESS ADDRESS: STREET 1: 515 W GREENS RD STREET 2: STE 800 CITY: HOUSTON STATE: TX ZIP: 77067 BUSINESS PHONE: 7138736623 MAIL ADDRESS: STREET 1: 515 W GREENS RD STREET 2: STE 800 CITY: HOUSTON STATE: TX ZIP: 77067 10-Q/A 1 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ___________ FORM 10-Q/A AMENDMENT NO. 1 TO QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 Commission file number 1-12055 PARACELSUS HEALTHCARE CORPORATION (Exact name of registrant as specified in its charter) California 95-3565943 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 515 W. Greens Road, Suite 800, Houston, Texas 77067 (Address of principal executive offices) (Zip Code) (281) 774-5100 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES_X_ NO__ As of September 30, 1996, there were 54,813,417 outstanding shares of the Registrant's Common Stock, no stated value. 2 PARACELSUS HEALTHCARE CORPORATION FORM 10-Q/A Three and Nine Months Ended September 30, 1996 TABLE OF CONTENTS Page ---- PRELIMINARY STATEMENT 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements - (Unaudited) Condensed Consolidated Balance Sheets - September 30, 1996 and December 31, 1995 4 Consolidated Statements of Operations - Three and Nine months ended September 30, 1996 and 1995 6 Condensed Consolidated Statements of Cash Flows - Nine months ended September 30, 1996 and 1995 8 Notes to Interim Condensed Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 22 PART II. OTHER INFORMATION 32 SIGNATURE 36 3 PRELIMINARY STATEMENT Paracelsus Healthcare Corporation (the "Company") is filing this report on Form 10-Q/A to amend and restate the Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, filed with the Securities and Exchange Commission (the "Commission") on November 19, 1996. In October 1996, the Board of Directors appointed a Special Committee consisting of non-management members, to supervise and direct the conduct of an inquiry by outside legal counsel regarding, among other things, the Company's accounting and financial reporting practices and procedures for the periods prior to the quarter ended September 30, 1996. As a result of the inquiry, the Company restated its financial information for periods commencing with January 1, 1992 through the nine months ended September 30, 1996, as reflected in the Company's Annual Report on Form 10-K for the year ended December 31, 1996, filed with the Commission on April 15, 1997. Adjustments and reclassifications were necessary to correct errors and irregularities relating to (i) receivables due from Medicare and other government programs (ii) use of corporate reserves, (iii) provisions for bad debt expense relating principally to two of the Company's psychiatric hospitals in the Los Angeles area and (iv) deferral of facility closure costs which only affected the 1996 quarterly information (collectively, the "restatement entries"). The following financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 1996 included in the Company's Annual Report on Form 10-K for such period, which include restated financial results for calendar years 1992 through 1995 and for the quarterly 1995 and 1996 periods. To show the impact of the restatement entries with respect to previously reported amounts for the three months and nine months ended September 30, 1996 and 1995, the Company has provided a description of the restatement entries and a reconciliation of historical results for the three months and nine months ended September 30, 1996 and 1995, as previously reported in the filed quarterly report on Form 10-Q, to the restated results for such periods. On September 12, 1996, the Company elected to change its fiscal year end from September 30 to December 31. Accordingly, the Quarterly Report on Form 10-Q for the three and nine months ended September 30, 1996 is filed for the third quarter of the new calendar year ending on December 31, 1996. Certain statements in this Form 10-Q are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks and uncertainties. Factors which may cause the Company's actual results in future periods to differ materially from forecast results include, but are not limited to: the outcome of litigation pending against the Company and certain affiliated persons, general economic and business conditions, both nationally and in the regions in which the Company operates; industry capacity; demographic changes; existing government regulations and changes in, or the failure to comply with government regulations; legislative proposals for healthcare reform; the ability to enter into managed care provider arrangements on acceptable terms; changes in Medicare and Medicaid reimbursement levels; liability and other claims asserted against the Company; competition; the loss of any significant customer; changes in business strategy or development plans; the ability to attract and retain qualified personnel, including physicians; the significant indebtedness of the Company; and the availability and terms of capital to fund the expansion of the Company's business, including the acquisition of additional facilities. 4 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PARACELSUS HEALTHCARE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) Restatement - See Note 2 ------------------------ September December 30, 31, 1996 1995 --------- --------- (Unaudited) (Note 1)
ASSETS Current Assets: Cash and cash equivalents $ 14,611 $ 4,418 Marketable securities 16,713 12,643 Accounts receivable, net 93,550 53,538 Deferred income taxes 48,459 13,742 Refundable income taxes 33,500 15,083 Other current assets 31,575 26,948 Current assets of discontinued operations, net 1,767 - ------ ------ Total current assets 240,175 126,372 Property and equipment 442,894 273,685 Less: Accumulated depreciation and amortization (64,647) (106,306) ------ ------ 378,247 167,379 Long-term assets of discontinued operations, net 28,533 - Assets held for sale, net 24,527 - Investment in Dakota Heartland Health System 48,586 - Goodwill 113,531 2,697 Other assets 40,823 36,938 ------ ------ Total Assets $ 874,422 $ 333,386 ======= =======
5 PARACELSUS HEALTHCARE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited) Restatement - See Note 2 ------------------------ September December 30, 31, 1996 1995 --------- --------- (Note 1)
LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities Accounts payable and other current liabilities $ 131,129 $ 64,211 Current maturities of long-term debt 2,245 5,150 ------- ------ Total current liabilities 133,374 69,361 Long-term debt 490,202 130,352 Other long-term liabilities 50,297 25,408 Deferred income taxes 18,503 21,544 Stockholders' equity Common stock 213,465 4,500 Additional paid-in capital 390 390 Unrealized (losses)gains on marketable securities 62 212 Retained earnings (31,871) 81,619 ------ ------ Total stockholders' equity 182,046 86,721 ------- ------ Total Liabilities and Stockholders' Equity $ 874,422 $ 333,386 ======= =======
See accompanying notes. 6 PARACELSUS HEALTHCARE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands) (Unaudited) Restatement - See Note 2 ----------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1996 1995 1996 1995 -------- -------- ------- -------
Net revenue $ 126,008 $ 104,650 $ 361,194 $317,551 Costs and expenses: Salaries and benefits 58,767 50,888 165,272 148,220 Other operating expenses 54,868 45,051 155,676 128,849 Provision for bad debts 10,039 4,998 24,003 17,057 Interest 9,397 4,133 18,411 12,004 Depreciation and amortization 7,539 4,110 15,818 12,081 Impairment charge 13,349 - 13,349 - Merger costs 46,818 - 46,818 - Unusual charges - - 2,438 - ------ ------- ------- ------ Total costs and expenses 200,777 109,180 441,785 318,211 Gain from sale of a hospital - 9,026 - 9,026 Income (loss) from continuing operations before minority interests, income taxes and extraordinary loss (74,769) 4,496 (80,591) 8,366 Minority interests (362) (131) (1,767) (1,234) ------ ------- ------- ------ Income (loss) from continuing operations before income taxes and extraordinary loss (75,131) 4,365 (82,358) 7,132 Provision (benefit) for income taxes (29,783) 1,791 (32,846) 2,927 ------ ------ ------ ------ Income (loss) from continuing operations before extraordinary loss (45,348) 2,574 (49,512) 4,205 Discontinued operations: Income (loss) from operations of discontinued psychiatric hospitals, net ( 4,294) (4,847) (19,641) (2,786) Loss on disposal of discontinued psychiatric hospitals, net (14,902) - (14,902) - ------ ------ ------- ------ Income (loss) before extraordinary loss (64,544) (2,273) (84,055) 1,419 Extraordinary loss from early extinguishment of debt, net (4,557) - (4,557) - ------ ------ ------- ------ Net Income (Loss) $ (69,101) $(2,273) $(88,612) $ 1,419 ====== ====== ======= ======
(Continued) 7 PARACELSUS HEALTHCARE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands) (Unaudited) Restatement - See Note 2 ----------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1996 1995 1996 1995 -------- -------- ------- -------
Income (loss) per share: Continuing operations $ (1.08) $ 0.09 $ (1.46) $ 0.14 Discontinued operations (0.45) (0.17) (1.01) (0.09) Extraordinary losses (0.10) - (0.14) - ------ ------ ------ ------- Income (loss) per share $ (1.63) $ (0.08) $ (2.61) $ 0.05 ====== ====== ====== ======= Weighted average common and common equivalent shares outstanding 42,290 29,772 33,975 29,772 See notes to interim condensed consolidated financial statements.
8 PARACELSUS HEALTHCARE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Restatement - See Note 2 ------------------------- Nine Months Ended June 30, ------------------------- 1996 1995 ----------- ---------
Cash Flows from Operating Activities: Net income (loss) $(88,612) $ 1,419 Non-cash expenses and changes in operating assets and liabilities, excluding acquisitions 58,664 16,748 ------ ------ Net cash (used in) provided by operating activities (29,948) 18,167 ------ ------ Cash Flows from Investing Activities: Purchase of marketable securities (4,104) (4,392) Acquisitions, net of cash acquired (123,072) (3,010) Proceeds from disposal of facilities - 18,564 Purchase of property and equipment, net (3,260) (14,165) Decrease in minority interests (2,747) (1,315) (Increase)decrease in other assets 712 (2,062) -------- ------- Net cash used in investing activities (132,471) (6,380) ------- ------ Cash Flows from Financing Activities: Net proceeds from issuance of common stock 39,841 - Borrowings under Credit Facility 441,500 33,000 Repayments under Credit Facility (342,000) (37,500) Net proceeds from issuance of debt 320,342 - Repayment of long-term debt (262,193) (1,064) Dividends to stockholder (24,878) (5,278) ------- ------- Net cash provided by (used in) financing activities 172,612 (10,842) ------- ------- Increase in cash and cash equivalents 10,193 945 Cash and cash equivalents at beginning of period 4,418 2,004 ------ ------- Cash and cash equivalents at end of period $ 14,611 $ 2,949 ====== ======= Supplementary cash flow information: Cash paid during the period for: Income taxes $ 1,971 $ 13,908 Interest 15,713 10,438 Purchase of businesses, net: Fair value of assets acquired $(478,173) $ (3,010) Liabilities assumed 207,859 - Stock and stock options issued 147,242 -
See notes to interim condensed consolidated financial statements. 9 PARACELSUS HEALTHCARE CORPORATION NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 30, 1996 Note 1. Organization and Basis of Presentation - ---------------------------------------------- Organization - ------------ Paracelsus Healthcare Corporation (the Company") was incorporated in November 1980 for the principal purpose of owning and operating acute care and related healthcare businesses in selected markets. Prior to August 16, 1996, the Company was wholly owned by Park Hospital GmbH, a German company that is wholly owned by Dr. Manfred G. Krukemeyer, the Company's Chairman of the Board of Directors. On August 16, 1996, the Company acquired Champion Healthcare Corporation ("Champion") (the "Merger")and completed an initial public equity offering . The results of Champion have been included in the operations of the Company since August 16, 1996. As of September 30, 1996, the Company operated 31 hospitals with 3,245 licensed beds in 11 states (including five psychiatric hospitals with 437 licensed beds (see Note 4)). Basis of Presentation - -------------------- The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included (see Note 2). The balance sheet at December 31, 1995 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The Company's business is seasonal in nature and subject to general economic conditions and other factors. Accordingly, operating results for the three and nine months ended September 30, 1996 are not indicative of the results that may be expected for the year ending December 31, 1996. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 1996 included in the Company's Annual Report on Form 10-K for such period, which include restated financial results for calendar years 1992 through 1995 and for the quarterly 1995 and 1996 periods. On September 12, 1996, the Company changed its fiscal year end from September 30 to December 31. Accordingly, this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 1996 is filed for the third quarter of the new calendar year ending on December 31, 1996. Concurrent with the change in fiscal year end, the Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," effective for the third quarter of the calendar year ending December 31, 1996 (see Note 5). 10 The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain account balances for the three and nine months ended September 30, 1995 have been reclassified to conform to the Company's current presentation. Net Income (Loss) Per Share - --------------------------- Net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common and common equivalent shares outstanding. Fully diluted net income (loss) per share is not presented since it equals primary net income (loss) per share. Weighted average number of common and common equivalent shares outstanding for the quarter and nine months ended September 30, 1995 have been adjusted to reflect the 66,159.426-for-one stock split in conjunction with the Merger. NOTE 2. RESTATEMENT OF FINANCIAL STATEMENTS In October 1996, the Board of Directors appointed a Special Committee consisting of non-management members, to supervise and direct the conduct of an inquiry by outside legal counsel regarding, among other things, the Company's accounting and financial reporting practices and procedures for the periods prior to the quarter ended September 30, 1996. Such inquiry resulted in the Company restating its financial statements for the periods commencing January 1, 1992 through the nine months ended September 30, 1996. The need for prior period restatements was the result of accounting errors and irregularities in four areas: (i) overstatement of receivables due from Medicare and other government programs; (ii) use of corporate reserves; (iii) provisions for bad debt expense relating principally to two of the Company's psychiatric hospitals in the Los Angeles area; and (iv) deferral of facility closure costs which only affected the 1996 quarterly information. The impact of the restatement entries on the Company's financial results for the quarterly and nine month periods ended September 30, 1996 and 1995 is summarized in the following tables. Certain reclassifications between reporting line items and between continuing operations and discontinued operations is also being reflected under the "Adjustments" column. Certain adjustments to the financial data for the three months and nine months ended September 30, 1996 reflect items originally recorded in those reporting periods that have now been reclassified or reallocated to earlier periods as a result of the Special Committee's investigation. See Part I - Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" for further detailed analysis of items (i) through (iv) above, which equal to the total net income/loss revision amounts for the applicable periods. 11 QUARTER ENDED SEPTEMBER 30, 1996 - -------------------------------- As Previously Adjustments As Reported to Restated Quarter Quarter Quarter Ended Ended Ended Sept. 30, Sept. 30, Sept.30, (In 000's) 1996 1996 1996 --------- ---------- ----------
Net revenue $109,855 $ 16,153 $ 126,008 Costs and expenses: Salaries and benefits 58,718 49 58,767 Other operating expenses 47,334 7,534 54,868 Provision for bad debts 10,489 (450) 10,039 Interest 9,383 14 9,397 Depreciation and amortization 7,416 123 7,539 Impairment charge 13,349 13,349 Merger costs 46,818 46,818 ------- ----- ------ Total costs and expenses 193,507 7,270 200,777 Loss from continuing operations before minority interests, income taxes and extraordinary loss (83,652) 8,883 (74,769) Minority interests 52 (414) (362) ------- ------ ------ Loss from continuing operations before income taxes and extraordinary loss (83,600) 8,469 (75,131) Income tax benefit (33,355) 3,572 (29,783) ------ ------ ----- Loss from continuing operations before extraordinary loss (50,245) 4,897 (45,348) Discontinued operations: Loss from operations of discontinued operations, net (10,419) 6,125 (4,294) Loss on disposal of discontinued operations, net (14,902) - (14,902) ------ ----- ------ Loss before extraordinary loss (75,566) 11,022 (64,544) Extraordinary loss from early extinguishment of debt, net (4,557) - (4,557) ------ ------- ----- Net loss $(80,123) $ 11,022 $(69,101) ====== ======= ====== Loss per share: Continuing operations $ (1.19) $ 0.11 $ (1.08) Discontinued operations (0.60) 0.15 (0.45) Extraordinary loss (0.10) - (0.10) ---- ---- ---- Loss per share $ (1.89) $ 0.26 $ (1.63) ==== ==== ==== Weighted average shares outstanding 42,290 42,290 42,290
12 QUARTER ENDED SEPTEMBER 30, 1995 - -------------------------------- As Reported Adjustments As on to Restated Quarter Quarter Quarter Ended Ended Ended Sept. 30, Sept. 30, Sept.30, 1995(a) 1995 1995 --------- ---------- ---------- (IN 000'S)
Net revenue $111,056 $ (6,406) $ 104,650 Costs and expenses: Salaries and benefits (b) 49,773 1,115 50,888 Other operating expenses 48,303 (3,252) 45,051 Provision for bad debts 7,700 (2,702) 4,998 Interest 4,142 (9) 4,133 Depreciation and amortization 4,111 (1) 4,110 ------- ----- ------ Total costs and expenses 114,029 (4,849) 109,180 Gain from sale of a hospital 9,026 - 9,026 Income from continuing operations before minority interests, income taxes and extraordinary loss 6,053 (1,557) 4,496 Minority interests (131) - (131) ------- ------ ------ Income from continuing operations before income taxes and extraordinary loss 5,922 (1,557) 4,365 Provision for income taxes 2,429 (638) 1,791 ------ ------ ----- Income from continuing operations 3,493 (919) 2,574 Loss from operations of discontinued operations, net (170) (4,677) (4,847) ------ ----- ----- Net income (loss) $ 3,323 (5,596) $(2,273) ====== ===== ===== Income (loss) per share: Continuing operations $ 0.12 $ (0.03) $ 0.09 Discontinued operations (0.01) (0.16) (0.17) ---- ----- ---- Loss per share $ 0.11 $ (0.19) $ (0.08) ==== ==== ==== Weighted average shares outstanding 29,772 29,772 29,772 (a) As reported in the Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, filed on November 19, 1996. (b) Includes special bonuses of $4.2 million paid to certain senior executive officers of the Company which was previously reported as an unusual charge.
13 NINE MONTHS ENDED SEPTEMBER 30, 1996 - ------------------------------------ As Previously Adjustments As Reported to Restated Nine Months Nine Months Nine Months Ended Ended Ended Sept. 30, Sept. 30, Sept.30, (In 000's) 1996 1996 1996 --------- ---------- ----------
Net revenue $350,200 $ 10,994 $ 361,194 Costs and expenses: Salaries and benefits 165,223 49 165,272 Other operating expenses 137,937 17,739 155,676 Provision for bad debts 24,453 (450) 24,003 Interest 18,433 (22) 18,411 Depreciation and amortization 15,529 289 15,818 Impairment charge 13,349 13,349 Merger costs 46,818 46,818 Unusual charge 2,438 2,438 ------- ----- ------ Total costs and expenses 424,180 17,605 441,785 Loss from continuing operations before minority interests, income taxes and extraordinary loss (73,980) (6,611) (80,591) Minority interests (1,595) (172) (1,767) ------- ------ ------ Loss from continuing operations before income taxes and extraordinary loss (75,575) (6,783) (82,358) Income tax benefit (30,066) (2,780) (32,846) ------ ------ ----- Loss from continuing operations before extraordinary loss (45,509) (4,003) (49,512) Discontinued operations: Loss from operations of discontinued operations, net (21,896) 2,255 (19,641) Loss on disposal of discontinued operations, net (14,902) - (14,902) ------ ----- ------ Loss before extraordinary loss (82,307) (1,748) (84,055) Extraordinary loss from early extinguishment of debt, net (4,557) - (4,557) ------ ------- ----- Net loss $(86,864) $ (1,748) $(88,612) ====== ======= ====== Loss per share: Continuing operations $ (1.34) $ (0.12) $ (1.46) Discontinued operations (1.08) 0.07 (1.01) Extraordinary loss (0.14) - (0.14) ---- ---- ----- Loss per share $ (2.56) $ (0.05) $ (2.61) ==== ==== ==== Weighted average shares outstanding 33,975 33,975 33,975
14 NINE MONTHS ENDED SEPTEMBER 30, 1995 - ------------------------------------ As Adjustments As Reported to Restated Nine Months Nine Months Nine Months Ended Ended Ended Sept. 30, Sept. 30, Sept.30, 1995(a) 1995 1995 --------- ---------- ---------- (IN 000'S)
Net revenue $332,836 $(15,285) $ 317,551 Costs and expenses: Salaries and benefits (b) 147,306 914 148,220 Other operating expenses 133,976 (5,127) 128,849 Provision for bad debts 19,758 (2,701) 17,057 Interest 12,002 2 12,004 Depreciation and amortization 12,092 (11) 12,081 ------- ----- ------ Total costs and expenses 325,134 (6,923) 318,211 Gain from sale of a hospital 9,026 - 9,026 Income from continuing operations before minority interests and income taxes 16,728 (8,362) 8,366 Minority interests (1,234) - (1,234) ------- ------ ------ Income from continuing operations before income taxes and extraordinary loss 15,494 (8,362) 7,132 Provision for income taxes 6,351 (3,424) 2,927 ------ ------ ----- Income from continuing operations 9,143 (4,938) 4,205 Loss from operations of discontinued operations, net 1,362 (4,148) (2,786) ------ ----- ------ Net income (loss) $ 10,505 $ (9,086) $ 1,419 ====== ===== ===== Income (loss) per share: Continuing operations $ 0.31 $ (0.17) $ 0.14 Discontinued operations 0.04 (0.13) (0.09) ---- ---- ---- Loss per share $ 0.35 $ (0.30) $ 0.05 ==== ==== ==== Weighted average shares outstanding 29,772 29,772 29,772 (a) As reported in the Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, filed on November 19, 1996. (b) Includes special bonuses of $4.2 million paid to certain senior executive officers of the Company which was previously reported as an unusual charge.
15 Note 3. Marketable Securities - ----------------------------- On November 15, 1995, the Financial Accounting Standards Board staff issued a Special Report, A Guide to Implementation of SFAS No. 115 on Accounting for Certain Investments in Debt and Equity Securities. In accordance with the provisions in that Special Report, the Company chose to reclassify securities from held-to-maturity to available-for-sale (or trading). The amortized cost of those securities when transferred was $2.0 million and the unrealized loss on those securities was $13,000, which was included in stockholders' equity in December 1995. The Company's wholly owned insurance subsidiary maintains the marketable securities for statutory purposes. Note 4. Discontinued Operations - --------------------------------- The Company's operations are classified into two lines of business: acute care and psychiatric care. In September 1996, the Company approved a plan to exit the psychiatric hospital business through the disposition of all of its psychiatric hospitals (the "discontinued operations"), including one of which was previously closed in April 1995. Management anticipates that the sale or closure of all such operations will be completed on or before December 31, 1997. The Company recorded an estimated net loss on disposal of the discontinued operations of $14.9 million (net of tax benefit of $10.4 million) to reduce the related assets to estimated realizable value and for estimated after-tax operating losses of approximately $1.5 million during the phase out period. Current and long-term net assets of $1.8 million and $28.5 million, respectively, of the discontinued operations have been segregated in the Condensed Consolidated Balance Sheet at September 30, 1996 under the captions "Current assets of discontinued operations, net" and "Long-term assets of discontinued operations, net", respectively. During the quarter ended March 31, 1996, the Company recognized a charge for settlement costs totaling $22.4 million regarding two lawsuits, of which $19.9 million ($11.8 million net of tax) was related to a case involving the operation of its psychiatric programs. Such charge consisted primarily of settlement payments, legal fees, and the write off of certain psychiatric accounts receivable. The Company did not admit liability in either case but resolved its dispute through the settlements in order to facilitate the Champion acquisition, re-establish a business relationship and/or avoid further legal costs in connection with the disputes. Operating results of the discontinued operations through the 1996 third quarter, including the after-tax settlement charge of $11.8 million but excluding the estimated disposal loss, have been reported separately as "Discontinued operations - Loss from operations of discontinued psychiatric hospitals" in the Consolidated Statements of Operations and are as follows: Restatement - See Note 2 ------------------------------------------ Three months ended Nine months ended September 30, September 30, ------------------ ----------------- (Dollars in thousands) 1996 1995 1996 1995 -------- ------- -------- ------- Net revenue $ 3,649 $ 10,954 $ 27,477 $ 43,921 Operating expenses 10,927 19,173 60,767 48,649 Loss before income tax benefit (7,278) (8,219) (33,290) (4,728) Income tax benefit (2,984) (3,372) (13,649) (1,942) Net loss from discontinued operations (4,294) (4,847) (19,641) (2,786) 16 Note 5 - Facilities Held for Disposition / Impairment Charge - ---------------------------------------------------------- In September 1996, the Company approved a plan to exit the Los Angeles metropolitan ("LA metro") market principally through the disposition of the under performing hospitals in that area, including one which was previously closed in March 1996. Such dispositions will enable the Company to exit a market heavily penetrated by managed care organizations where the Company is not a preeminent provider of healthcare services. Management anticipates that the sale or closure of all such operations will be completed on or before December 31, 1997. At September 30, 1996, net assets of $ 24.5 million related to these facilities were segregated from the remaining assets of the Company and classified in the Condensed Consolidated Balance Sheet as "Assets held for sale, net." Operating results of the LA metro hospitals included in the Consolidated Statements of Operations are as follows: Restatement - See Note 2 ------------------------------------------ Three months ended Nine months ended September 30 September 30 ------------------ ----------------- 1996 1995 1996 1995 -------- ------- -------- ------- (Dollars in thousands) Net revenue $ 20,602 $ 29,311 $ 71,236 $ 88,555 Operating income(loss)(a) (3,432) 4,617 (3,852) 10,301 ____________________ (a) Operating income (loss) was derived by subtracting from net revenue, salaries and benefits, provision for bad debts and other operating expenses. In conjunction with the disposition plan of these hospitals and the Company's adoption of SFAS No. 121, in the third quarter of 1996, the Company recorded an after-tax impairment charge of $ 7.9 million, or $(0.19) and $(0.23) per share, for the three and nine months ended September 30, 1996, respectively, to reduce the net assets of these facilities to their estimated fair value. The estimated impairment loss may be subject to further adjustments following completion of valuations by independent appraisers and ultimate disposition of the hospitals. In the opinion of management, there were no other events or circumstances which warrant impairment assessment for the Company's other assets. Note 6. Acquisitions / Closures / Merger Costs - ---------------------------------------------- On August 16, 1996, the Company acquired Champion, through the merger of a wholly owned subsidiary of the Company with and into Champion. The Company issued approximately 19.8 million shares of its common stock in exchange for all of the issued and outstanding shares of Champion's common stock and preferred stock, and assumed all of Champion's outstanding liabilities totaling approximately $236.2 million. Additionally, outstanding options, subscription rights, warrants and convertible notes to acquire Champion's common stock were converted to similar rights to acquire approximately 1.9 million shares of the Company's common stock. The total purchase price, including all costs associated with the transaction and liabilities assumed, was approximately $399.8 million. The Merger was accounted for using the purchase method of accounting. The Company has allocated the purchase price to the estimated fair value of the assets acquired and liabilities assumed. 17 The excess of purchase price over the net assets acquired of approximately $83.0 million has been recorded as goodwill and is being amortized over an estimated composite useful life of 25 years. The purchase price allocation is preliminary, and management is presently evaluating fair values assigned to assets acquired and liabilities assumed. Management is awaiting appraisals from third party consultants on values assigned to fixed assets and certain intangible assets. The Company incurred approximately $63.2 million in Merger-related costs, of which $46.8 million was expensed in the quarter ended September 30, 1996 and $16.4 million was capitalized as part of the purchase price of Champion. Merger costs of $46.8 million consisted primarily of cash payments, provision for benefits and grants of stock options to certain executives and employees of the Company in accordance with the Merger terms and corporate office consolidation costs. Capitalized merger costs of $16.4 million consisted primarily of payments for legal and other closing costs, cash payments and benefits provided to certain former Champion executives. On May 17, 1996, the Company acquired the 125-bed PHC Salt Lake Regional Hospital (the "PHC Hospital") in Salt Lake City, Utah, including certain current assets, for approximately $71.0 million in cash. The Company financed the acquisition with amounts borrowed under the then existing Credit Facility. The Company recorded goodwill of $16.0 million, which is being amortized on a straight line basis over an estimated useful life of 20 years. The results of PHC Regional Hospital have been included in the operations of the Company since May 17, 1996. On May 17, 1996, the Company acquired the 139-bed Pioneer Valley Hospital in West Valley City, Utah, the 120-bed Davis Hospital and Medical Center in Layton, Utah and the 129-bed Santa Rosa Medical Center in Milton, Florida from Columbia/HCA Healthcare Corporation ("Columbia")(the "Columbia Hospitals"). In exchange, Columbia received the Company's 119-bed Peninsula Medical Center in Ormond Beach, Florida, the 135-bed Elmwood Medical Center in Jefferson, Louisiana, the 190-bed Halstead Hospital in Halstead, Kansas (the "Exchanged Hospitals")and $38.5 million in cash, net of a working capital differential, which is subject to final agreement of the parties. The Company also purchased the real property of Elmwood and Halstead from a real estate investment trust ("REIT"), exchanged the Elmwood and Halstead real property for Pioneer real property and then sold the Pioneer real property to the REIT. The acquisition of the Columbia Hospitals was accounted for as a purchase transaction. The Company financed the cash portion of the acquisition from borrowings under the then existing Credit Facility. The Company recorded goodwill of $12.3 million, which is being amortized on a straight line basis over an estimated useful life of 20 years. The results of the Columbia Hospitals have been included in the operations of the Company since May 17, 1996. No material gain or loss was recorded on the disposition of the Exchanged Hospitals. On March 15, 1996, the Company closed the 119-bed Desert Palms Community Hospital, an acute care hospital located in Palmdale, California. The following unaudited pro forma consolidated results of operations for the nine months ended September 30, 1996 and 1995, assume that the following transactions were consummated on January 1, 1995: (i) the acquisition of Champion (ii) the acquisition and disposition of the Columbia Hospitals and the Exchanged Hospitals, (iii) the completion of a public debt offering and the redemption of the $75 million Senior Subordinated Notes (see Note 7) and 18 (iv) the completion of an equity offering (see Note 8). In addition, the operating results of the five psychiatric hospitals (see Note 4), have been restated for all periods presented to reflect as a loss from operations of discontinued operations. PHC Hospital has not been included in the pro formas because the predecessor owner operated the hospital as a captive cost center; accordingly, the inclusion of its historical operations would not be meaningful. The pro forma financial information does not reflect nonrecurring expenses of $46.8 million related to the Merger. It does not purport to be indicative of the results that would have been attained had the transactions described above occurred on January 1, 1995. Restatement - See Note 2 ----------------------- Nine months ended September 30 -------------------- 1996(a) 1995 -------- ------- (Dollars in thousands, except per share data) Net revenue $495,759 $428,973 ======= ======= Income(loss) from continuing operations (18,301) 810 Loss from discontinued operations, net (33,096) (1,271) ------- ------- Loss before extraordinary loss (51,397) (461) Extraordinary loss, net (4,557) - ------- ------- Net loss $(55,954) $ (461) ======= ======= Loss per common share: Continuing operations $ (0.33) $ 0.01 Discontinued operations (0.61) (0.02) Extraordinary losses (0.08) - -------- ------ Net loss per common share $ (1.02) $ (0.01) ======== ====== Weighted average common and common equivalent shares outstanding 54,813 54,813 ___________________ (a) Results for the nine months ended September 30, 1996 include after-tax impairment charge of $7.9 million, lawsuit settlement costs of $13.2 million and loss on disposal of the discontinued operations of $10.4 million. Note 7 - Long Term Debt - ----------------------- Credit Facility - --------------- On August 16, 1996, the Company entered into a new credit agreement (the "Credit Agreement"), which provides for a $400.0 million five-year Reducing Revolving Credit Facility (the "Credit Facility"). The Credit Facility is available for (i) general corporate purposes, including funding working 19 capital needs, acquisitions and capital expenditures, (ii) issuance of letters of credit up to $40.0 million, (iii) refinancing of existing indebtedness including the previous $230.0 million revolving line of credit and (iv) funding of Merger expenses. The Credit Facility is subject to mandatory reductions of $50.0 million on August 15, 1999 and an additional $50.0 million on August 15, 2000. Borrowings under the Credit Facility bear interest at the Company's option, at (i) LIBOR plus a margin ranging from .875% to 2.0% or (ii) the prime rate plus a margin ranging from zero to .75%. The Company is required to pay annual commitment fees ranging from .25% to .50% of the unused portion of the Credit Facility. Letters of credit issued under the Credit Facility require annual fees ranging from .875% to 2.0% of the outstanding amount of the letters of credit. The Company recognized an extraordinary loss for the write-off of deferred loan costs relating to the previous line of credit of $1.0 million (net of income tax benefit of $.7 million). As of September 30, 1996, the Company had outstanding borrowings of $141.0 million and outstanding letters of credit of $9.7 million under the Credit Facility. The Credit Facility is secured by a first priority interest in the capital stock of substantially all of the Company's present and future subsidiaries and upstream guarantees of these subsidiaries. Senior Subordinated Notes - ------------------------- On August 16, 1996, the Company completed a $325.0 million registered offering of 10% Senior Subordinated Notes (the "Notes"). Of the $315.2 million net proceeds received from the offering, $81.6 million was used to repay the 9.875% Senior Subordinated Notes (the "9.875% Notes"), including $3.9 million in tender and consent fees, $177.7 million to repay certain Champion existing debt assumed upon the consummation of the merger and other related merger costs, and the remaining $55.9 million to repay amounts outstanding under the Company's previous revolving line of credit. The Notes are general unsecured senior subordinated obligations of the Company and will mature on August 15, 2006. The Notes are not subject to any mandatory redemption and may not be redeemed prior to August 15, 2001. On August 22, 1996, all of the 9.875% Notes were redeemed, which resulted in an extraordinary loss of $3.6 million (net of income tax benefits of $2.5 million), consisting of $2.3 million in tender and consent fees and $1.3 million for the write-off of deferred financing costs. Other Debt - ---------- Pursuant to the terms of the Merger, the Company assumed approximately $179.1 million of Champion existing indebtedness, of which $172.6 million was repaid on August 16, 1996, using net proceeds from the Notes offering. The remaining assumed liabilities consisted primarily of capital lease obligations and miscellaneous notes payable. Pursuant to an agreement in conjunction with the Merger, Dr. Manfred G. Krukemeyer, the Company's Chairman of the Board, received a $7.2 million 6.51% subordinated note from the Company. The note provides for payments of principal and interest in an aggregate annual amount of $1.0 million over a term of 10 years. The terms of the various debt agreements include certain restrictive covenants. Among other restrictions, the covenants include limitations on investments, borrowings, liens, acquisitions and dispositions of assets and transactions 20 with affiliates, and require maintenance of certain ratios regarding interest coverage and leverage. Note 8 - Stockholders' Equity - ------------------------------ Pursuant to the Amended and Restated Articles of Incorporation adopted on August 13, 1996, the Company has 150.0 million authorized shares of common stock no stated value per share. Each share is entitled to one vote and does not have any cumulative voting rights. The Company is also authorized to issue 25.0 million shares of preferred stock at $.01 par value per share, which may be issued in such series and have such rights, preferences and other provisions as may be determined by the Board of Directors without approval by the holders of common stock. In connection with the adoption of a Shareholder Protection Rights Agreement on August 16, 1996, the Company designated 1.5 million of its 25.0 million authorized preferred shares as Participating Preferred Stock ("Preferred Share") and paid a dividend of one Preferred Share purchase right ("Right") for each outstanding share of the Company's common stock to stockholders of record as of August 15, 1996. Similar rights will be issued in respect of common stock subsequently issued. Each Preferred Share will be entitled to an aggregate quarterly dividend equal to the greater of 25% of each Right's exercise price or 100 times the quarterly dividend declared on the Company's common stock. In the event of liquidation, the holder of each Preferred Share will be entitled to receive a liquidation payment of $100 per share plus any accrued but unpaid dividends. Each Preferred Share will have 100 votes, voting together with the common stock. No Preferred Shares are currently outstanding. Each Right entitles the registered holder to purchase from the Company, one one-hundredth of a Preferred Share at a price of $42.50, subject to adjustment. The Rights currently are not exercisable and will be exercisable only if a person or group acquires beneficial ownership of 25% or more of the Company's outstanding shares of common stock (i.e. becomes an "Acquiring Person" as defined in the related Rights Agreement). The Rights, which expire on August 16, 2006, are redeemable in whole, but not in part, at the Company's option at any time prior to such time as any person or group becomes an Acquiring Person, at a price of $.01 per Right. In connection with the Merger, in August 1996, all 450 outstanding shares of the Company's common stock, which were solely owned by Dr. Krukemeyer, were split into an aggregate of 29.8 million shares as a result of a 66,159.426- for-one stock split. Upon the consummation of the Merger, each share of Champion common and preferred stock was exchanged for one and two shares of the Company's common stock, respectively. Accordingly, the Company issued 19.8 million shares of its common stock in connection with such exchange. On August 16, 1996, the Company's common stock began trading on the New York Stock Exchange under the symbol "PLS." During the 1996 period prior to the Merger, the Company paid cash dividends of $3.8 million to Dr. Krukemeyer. In conjunction with the Merger, the Company declared a dividend of $21.1 million to Dr. Krukemeyer, which was paid on August 30, 1996. After receipt of the $21.1 million dividend and accrued interest of $104,000, and pursuant to a related agreement, Dr. Krukemeyer paid approximately $3.0 million plus accrued interest in full satisfaction of a note payable to the Company. Additionally, Dr. Krukemeyer loaned the Company $7.2 million and received a $7.2 million 6.51% subordinated note from the Company (see Note 7). 21 On August 16, 1996, the Company completed a sale of 5.2 million shares of its common stock at $8.50 per share. Net proceeds of $39.8 million were used along with proceeds from the Notes offering (see Note 7) to repay existing and acquired indebtedness as well as pay for Merger related costs (see Note 6). On July 15, 1996, the Company adopted the 1996 Stock Incentive Plan (the "Incentive Plan") to provide stock-based incentive awards, including incentive stock options, non-qualified stock options, restricted stock, performance shares, stock appreciation rights and deferred stock, to key employees, consultants and advisors. A total of 8.7 million shares has been reserved for issuance under the Incentive Plan. Pursuant to the termination of the Company's Phantom Equity Long-Term Incentive Plan in connection with the Merger, options to purchase 1.6 million shares of the Company's common stock at an exercise price of $.01 per share ("Value Options") were granted to certain directors and officers of the Company in addition to aggregated cash payments of $20.7 million, which if combined, approximated the accrued value of the canceled phantom stock appreciation rights and/or preferred stock units thereunder. Additionally, pursuant to the various employment agreements, Value Options were granted to certain senior executive officers to purchase 1.2 million shares in addition to options to purchase 2.8 million shares of the Company's common stock at an exercise price of $8.50 per share. The Company recognized merger expenses totaling $36.9 million related to the cancellation of the Phantom Equity Long-Term Incentive Plan and the issuance of certain Value Options. In connection with the Merger, the Company also assumed and converted all Champion outstanding options, subscription rights, warrants and convertible notes to similar rights to acquire approximately 1.9 million shares of the Company's common stock. Note 9 - Supplemental Executive Retirement Plan ("SERP") - ------------------------------------------------------- As a result of a change in control from the Merger, officers and employees of the Company who were participants in the SERP prior to the Merger became fully vested in all benefits thereunder. The Company recognized Merger expenses of $5.1 million related to the vesting of such benefits. Pursuant to their respective employment agreements, certain Champion executives became participants in the SERP and received retroactive benefits for their years of service with Champion. The Company capitalized approximately $1.9 million of such non-cash charges as part of the purchase price of Champion. Note 10 - Contingencies - --------------------- The Company is a party to pending litigation in connection with several stockholder related matters. See "Item 1. Legal Proceedings" in Part II of this report for a description of such litigation. Due to the recent nature of such litigation, management is unable to determine the ultimate outcome of such lawsuits. The Company maintains insurance policies related to Directors and Officers liability which it believes to be adequate. The Company is subject to claims and suits in the ordinary course of business, including those arising from care and treatment afforded at its facilities. The Company maintains insurance and, where appropriate, reserves with respect to the possible liability arising from such claims. The Company believes that its insurance and loss reserves are adequate to cover potential claims that may be asserted and that the outcome of such claims will not have a material effect on the Company's financial position, results of operations or cash flows. 22 PART 1. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General - ------- Following changes in the Company's management which became effective as of the merger with Champion Healthcare Corporation on August 16, 1996 (the "Merger"), management determined that there were financial performance and accounting issues with the pre-merger operating results of the Company. In October 1996, the Company announced that its third quarter results would be substantially lower than expected. At the same time, the Board of Directors formed a Special Committee of non-management members to supervise the conduct of an inquiry by outside legal counsel as to the nature and reasons for the earnings shortfall and investigate the accounting and financial reporting practices and procedures in periods prior to September 30, 1996. As a result of its investigation, the Special Committee recommended to the Board that the Company restate its prior period financial statements. The need for the restatement of prior period financial statements was the result of accounting errors and irregularities at pre-merger Paracelsus as discussed in Item 1 - Note 2. The following table presents a summary of the impact of the restatements on the quarterly and nine months periods ended September 30, 1996 and 1995 ($ in 000's). Certain adjustments to the financial data for the three months and nine months ended September 30, 1996 reflect items originally recorded in those reporting periods that have now been reclassified or reallocated to earlier periods as a result of the Special Committee's investigation and are summarized under the "Reallocation to prior periods" column. QUARTER ENDED SEPTEMBER 30, 1996 - --------------------------------
As Previously Reported As Restated Quarter Quarter Ended Ended September 30, Reallocation September 30, 1996 to prior periods 1996 ------------ --------------- ----------- Net revenue $ 109,855 $ 16,153 $126,008 Net loss (80,123) 11,022 (69,101) Loss per share $ (1.89) $ 0.26 $ (1.63)
23 QUARTER ENDED SEPTEMBER 30, 1995 - --------------------------------
As Previously Reported As Restated Quarter Quarter Ended Ended September 30, September 30, 1995(a) Adjustments 1995 ------------ --------------- ----------- Net Revenue $111,056 $ (6,406) $104,650 Net income (loss) 3,323 (5,596) (2,273) Income per share $ 0.11 $ (0.19) $ (0.08)
_____________________ (a) As reported in the Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, filed on November 19, 1996. NINE MONTHS ENDED SEPTEMBER 30, 1996 - ------------------------------------
As Previously Reported As Restated Nine months Nine months Ended Reallocation Ended September 30, to September 30, 1996 Adjusmts. prior periods 1996 ------------ ---------- --------------- ------------ Net Revenue $ 350,200 $ (3,064) $14,058 $361,194 Net loss (86,864) (13,012) 11,264 (88,612) Loss per share $ (2.56) $ (0.38) $ 0.33 $ (2.61)
NINE MONTHS ENDED SEPTEMBER 30, 1995 - ------------------------------------
As Previously Reported As Restated Nine Months Nine Months Ended Ended September 30, September 30, 1995(a) Adjustments 1995 ------------ --------------- ----------- Net Revenue $332,836 $ (15,285) $317,551 Net income 10,505 (9,086) 1,419 Income per share $ 0.35 $ (0.30) $ 0.05
_____________________ (a) As reported in the Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, filed on November 19, 1996. 24 Net revision from previously reported amounts consisted primarily of: Three Months Ended September 30, --------------------- 1996 1995 -------- ------
Adjustments: - ----------- (i) Increase in deductions from revenue for receivables from Medicare and other government programs $ - $ (8,432) (ii) Increase in operating expenses from the reversal of corporate reserves - - (iii) Recording of bad debt expense that was deferred at two of the psychiatric hospitals - Increase in deductions from net revenue - (766) - Increase in provision for bad debts - (151) (iv) Increase in operating expenses for deferred facility closure costs - (140) ------- ------ Pre-tax adjustments - (9,489) Income tax benefit at 41% - (3,893) ------- ------ Net adjustments - (5,596) Net Reallocation to prior periods 11,022 - ------- ------ Net revision to previously reported net income/loss $ 11,022 $(5,596) ====== ======
25 Nine Months Ended September 30, --------------------- 1996 1995 -------- ------
(i) Increase in deductions from revenue for receivables from Medicare and other government programs $ (4,205) $(16,010) (ii) Increase in operating expenses from the reversal of corporate reserves (7,635) - (iii) Recording of bad debt expense that was deferred at two of the psychiatric hospitals - Increase in deductions from net revenue (1,833) 902 - Increase in provision for bad (5,885) (151) (iv) Increase in operating expenses for deferred facility closure costs (2,497) (140) ------- ------- Pre-tax adjustments (22,055) (15,399) Income tax benefit at 41% (9,043) (6,313) ------- ------ Net adjustments (13,012) (9,086) Net Reallocation to prior periods 11,264 - ------- ----- Net revision to previously reported net income/loss $ (1,748) $ (9,086) ====== =====
Result of Operations - -------------------- Paracelsus has made numerous acquisitions and divestitures during the three and nine months ended September 30, 1996. Accordingly, the Company's portfolio of operating hospitals during 1996 is substantially different from that which the Company operated during the three and nine months ended September 30, 1995. To more fully understand the comparability of the results of operations, management has included a discussion of same hospital results. Same hospitals as used in the following discussion consisted of hospitals owned throughout both quarters and nine months ended September 30, 1996 and 1995. "Same hospitals" exclude (i) Bellwood Health Center, Womans Hospital and Desert Palms Community Hospital which were closed or disposed in April 1995, September 1995 and March 1996, respectively, (ii) PHC Salt Lake Hospital which was acquired in May 1996, (iii) the "Exchanged Hospitals" and the "Columbia Hospitals" which were part of the exchange transaction completed in May 1996 and (iv) the Champion hospitals acquired in August 1996 pursuant to the Merger. Operating results of the Company's five psychiatric hospitals, including two of which were acquired through the Merger with Champion, for the periods prior to September 30, 1996 have been reclassified and presented under the caption " Discontinued Operations - Loss from operations of psychiatric hospitals" in the Consolidated Statements of Operations. The following information should be read in conjunction with the consolidated financial statements of the Company, and the related notes thereto, included in the Annual Report on Form 10-K for the year ended December 31, 1996, which included restated financial results for periods prior thereto. 26 Quarter ended September 30, 1996 Compared with Quarter ended September 30, 1995 - ---------------------------------------------- Net revenue for the three months ended September 30, 1996 was $126.0 million, an increase of $21.3 million , or 20.4%, from $104.7 million for the same period of 1995. The $21.3 million increase was primarily attributable to (i) an increase of $20.0 million contributed by hospitals acquired since October 1995, net of disposed hospitals and (ii) an increase of $1.3 million from "same hospitals." The $1.3 million increase in "same hospitals" net revenue was attributable to an increase of $5.1 million at hospitals located outside of the LA metro area, offset by a decrease of $3.8 million at hospitals located inside the LA metro area (the "LA metro hospitals"). The $5.1 million increase was due primarily to additional services offered and medical staff development efforts. The $3.8 million decrease was due mainly to the continued decline in net revenue as a result of a change in payor mix from private insurance to managed care and Medicare/Medicaid, which increased deductions from revenue, and a decline in patient acuity level. Expressed as a percentage of net revenue, operating expenses (salaries and benefits, provision for bad debts and other operating expenses) increased from 96.5% in 1995 to 98.1% in 1996 and operating margin decreased from 3.5% to 1.9%. The 1.6% decrease in operating margin in 1996 was primarily attributable to (i) the write off of assets related to the Exchanged Hospitals and other closed facilities and (ii) lower margins associated with the LA metro hospitals due to a reduction in net revenue attributable to factors other than volume (i.e., payor mix), offset by (iii) a decrease in salaries and wages, as a percentage of net revenue, as a result of special bonuses of $4.2 million paid in 1995 to certain senior executive officers. Depreciation and amortization increased to $7.5 million in 1996 from $4.1 million for the same period of 1995. Of the $3.4 million increase, $2.4 million was attributable to the facilities acquired, net of those that were sold since October 1995, and the remaining increase of $1.0 million was primarily from purchases of medical equipment, facility improvements, purchase of physician practices and clinics. Interest expense increased $5.3 million from $4.1 million in 1995 to $9.4 million in 1996, primarily due to an increase in outstanding indebtedness during 1996 from the issuance of the Notes in August 1996 and additional borrowings under the Credit Facility to finance acquisitions and to fund Merger costs, working capital requirements and capital expenditures, net of the redemption in August 1996 of $75.0 million of senior subordinated notes. Loss from operations of the discontinued psychiatric hospitals for the three months ended September 30, 1996 was $4.3 million, compared to $4.8 million for the same period in 1995. The Company also recorded an after-tax disposal loss of $14.9 million on these facilities to reduce the related assets to their estimated net realizable value and to accrue for estimated after-tax operating losses of approximately $1.5 million during the phase out period. 27 Net loss for the three months ended September 30, 1996 was $69.1 million, or $(1.63) per share, compared to $2.3 million, or $(0.08) per share, for the same period in 1995. Included in 1996 loss from continuing operations before income taxes, net loss and net loss per share were nonrecurring charges of $60.2 million, $59.3 million and $(1.40) per share, respectively. Included in 1995 income from continuing operations before income taxes, net loss and net loss per share were nonrecurring gains of $9.0 million, $.5 million and $0.02 per share, respectively. Aggregate nonrecurring gains (charges) for the three months ended September 30, 1996 and 1995 were comprised of the following items ($ in thousands, except per share amounts): Three months ended September 30, -------------------------------------------------------- 1996 1995 --------------------------- ---------------------------- Pre-Tax Net Loss EPS Pre-Tax Net Loss EPS ------- ---------- ------- --------- ---------- ----- Impairment charge $(13,349) $ (7,876) $(0.19) Merger costs (46,818) (27,623) (0.66) - - - Gain from sale of a hospital - - - 9,026 5,325 0.18 Discontinued operations - (19,196) (0.45) - (4,847) (0.16) Extraordinary losses - (4,557) (0.10) - - - ------- --------- ------- ------ ------ ----- Total impact of nonrecurring items $(60,167) $(59,252) $(1.40) $ 9,026 $ 478 $ 0.02 ======== ======== ====== ====== ====== ===== 28 Nine Months ended September 30, 1996 Compared with Nine Months ended September 30, 1995 - -------------------------------------------------- Net revenue for the nine months ended September 30, 1996 was $361.2 million, an increase of $43.6 million, or 13.7%, from $317.6 million for the same period of 1995. The $43.6 million increase was primarily attributable to (i) an increase of $25.3 million contributed by hospitals acquired since October 1995, net of disposed hospitals and (ii) an increase of $18.3 million from "same hospitals." The $18.3 million increase in "same hospitals" net revenue was attributable to an increase of $24.8 million at hospitals located outside of the LA metro area, offset by a decrease of $6.5 million at the LA metro hospitals. The $24.8 million increase was due primarily to additional services offered, medical staff development efforts and an increase in home health agency business. The $6.5 million decrease was due mainly to a continued decline in net revenue as a result of a change in payor mix from private insurance to managed care and Medicare/Medicaid, which increased deductions from revenue, and a decrease in patient acuity level. Expressed as a percentage of net revenue, operating expenses (salaries and benefits, provision for bad debts and other operating expenses) increased from 92.6% in 1995 to 95.5% in 1996 and operating margin decreased from 7.4% to 4.5%. The 2.9% decrease in operating margin in 1996 was primarily attributable to (i) the write off of assets related to the Exchanged Hospitals and other closed facilities, (ii) lower margins associated with the LA metro hospitals due to a reduction in net revenue attributable to factors other than volume (i.e., payor mix) and (iii) additional home health business which was profitable but produced lower margins than other types of services, offset by (iv) a decrease in salaries and wages, as a percentage of net revenue, as a result of special bonuses of $4.2 million paid in 1995 to certain senior executive officers. Depreciation and amortization increased to $15.8 million in 1996 from $12.1 million for the same period of 1995. Of the $3.7 million increase, $ 2.7 million was attributable to the facilities acquired, net of those that were disposed since October 1995, and the remaining increase of $1.0 million was from purchases of medical equipment, facility improvements, purchase of physician practices and clinics. Interest expense increased $6.4 million from $12.0 million in 1995 to $18.4 million in 1996, primarily due an increase in outstanding indebtedness from the issuance of the Notes in August 1996 and additional borrowings under the Credit Facility to finance acquisitions and to fund Merger costs, working capital requirements and capital expenditures, net of the redemption in August 1996 of the $75.0 million senior subordinated notes. Loss from operations of the discontinued psychiatric hospitals for the nine months ended September 30, 1996 was $19.6 million, compared to $2.8 million for the same period in 1995. The $16.8 million decrease was attributable to (i) an after-tax charge of $11.8 million relating to a lawsuit settled in March 1996 (see Note 4) and (ii) continuing accounts receivable collection issues attributable in general to the fact that insurance companies are becoming more stringent in their payments to providers of psychiatric care, and particularly in 1996, to the impact of the lawsuit (see Note 4). The Company also recorded an after-tax disposal loss of $14.9 million on these facilities to reduce the related assets to their estimated net realizable value and to accrue for estimated after-tax operating losses of approximately $1.5 million during the phase out period. 29 Net loss for the nine months ended September 30, 1996 was $88.6 million, or $(2.61) per share, compared to net income of $1.4 million, or $0.05 per share, for the same period of 1995. Included in 1996 loss from continuing operations before income taxes, net loss and net loss per share were nonrecurring charges of $62.6 million, $76.0 million and $2.24 per share, respectively. Included in 1995 income from continuing operations before income taxes, net income and net income per share were net aggregate nonrecurring gains of $9.0 million, $2.5 million and $0.09 per share, respectively. Aggregate nonrecurring gains (charges) for the nine months ended September 30, 1996 and 1995 were comprised of the following items ($ in thousands, except per share amounts): Nine months ended September 30, -------------------------------------------------------- 1996 1995 --------------------------- ---------------------------- Pre-Tax Net Loss EPS Pre-Tax Net Income EPS ------- ---------- ------- --------- ---------- ----- Impairment charge $(13,349) $( 7,876) $(0.23) $ - $ - $ - Merger costs (46,818) (27,623) (0.82) - - - Unusual charges (2,438) (1,438) (0.04) - - - Gain from sale of a hospital - - - 9,026 5,325 0.18 Discontinued operations - (34,543) (1.01) - (2,786) (0.09) Extraordinary loss - (4,557) (0.14) - - - ------- ------- ----- ------ ------- ----- Total impact of nonrecurring items $(62,605) $(76,037) $(2.24) $ 9,026 $ 2,539 $ 0.09 ======= ====== ===== ====== ======= ===== 30 Liquidity and Capital Resources - ------------------------------- Net cash used in operating activities for the nine months ended September 30, 1996 was $29.9 million, compared to net cash provided by operating activities of $18.2 million for the same period of 1995. The $48.1 million decrease in net cash provided by operating activities was mainly attributable to cash used during 1996 to pay for Merger-related costs and settlement of certain lawsuits. Net cash used in investing activities increased $126.1 million to $132.5 million from $6.4 million during 1995, primarily from an increase in the use of cash to finance the acquisition of hospitals. Net cash provided by financing activities during 1996 was $172.6 million, compared to net cash used in financing activities of $10.8 million during 1995. The $183.4 million increase during 1996 was due to the issuance of the $325.0 million Notes, the issuance of the 5.2 million shares of the Company's common stock and net incremental borrowings under the Credit Facility, net of amounts used therefrom to repay $75.0 million of senior subordinated notes, certain indebtedness assumed from the purchase of Champion and amounts outstanding under the previous $230.0 million revolving line of credit. Net working capital was $106.8 million, an increase of $49.8 million from $57.0 million at December 31, 1995. The increase was mainly attributable to an increase in current portion of deferred income taxes and refundable income taxes resulting from net loss recorded during 1996. The Company's long- term debt as a percentage of total capitalization was 72.9% at September 30, 1996, compared to 60.0% at December 31, 1995. The increase was primarily attributable to the issuance of the $325.0 million Notes, net incremental borrowings under the Credit Facility and a reduction in retained earnings for a net loss and dividend paid during 1996. Such increase was offset by the issuance of 19.8 million shares of the Company's common stock related to the Champion acquisition, the equity offering of 5.2 million shares of the Company's common stock and the repayment of certain indebtedness using the proceeds from the above financing activities. On August 16, 1996, the Company entered into a new Credit Agreement which provides for a revolving line of credit in the amount of $400.0 million. The Credit Facility is available for working capital purposes, to finance capital expenditures, to fund acquisitions and for the issuance of letters of credit. As of September 30, 1996, the Company had $249.3 million available under its Credit Facility. The Company anticipates that internally generated cash flows from earnings, proceeds from the sale of hospital accounts receivable under the Company's commercial paper program and borrowings under its Credit Facility will be sufficient to fund future acquisitions, capital expenditures and working capital requirements through fiscal year 1997. There can be no assurance that future developments in the hospital industry or general economic trends will not adversely affect the Company's operations or its ability to meet such funding requirements. Disposition of the Psychiatric Hospitals and other LA Metro Hospitals - --------------------------------------------------------------------- In September 1996, the Company adopted a plan to exit the psychiatric hospital business through the disposition of all of its psychiatric hospitals (four in the LA metro area, of which one was previously closed in April 1995). It also adopted a plan to exit the LA metro market principally through the disposition of the under performing hospitals in that area (including one which was previously closed in March 1996). The disposition of these hospitals will 31 enable the Company to remain focused on operating its acute care hospitals and to exit a market heavily penetrated by managed care organizations where it is not a preeminent provider of healthcare services. The Company expects to complete such dispositions by December 31, 1997. Disposition of psychiatric hospitals - ------------------------------------ Although the psychiatric hospitals have been operated at a loss in recent years, the deterioration of such operations accelerated significantly during 1996. Such deterioration was largely due to insurance companies becoming more stringent in their payments to providers of psychiatric care. Management expects that the deterioration of the psychiatric hospital business will continue although at a slower pace through the foreseeable future. To curtail further losses, the Company closed the inpatient unit at its Buena Park facility in July 1996 and may close other facilities. The Company recorded in September 1996 an estimated disposal loss of $14.9 million related to these facilities, including operating losses during the phase out period. It expects to complete the disposition of its psychiatric hospitals by December 31, 1997. Disposition of Other LA Metro Hospitals - --------------------------------------- Prior to 1996 , the acute care LA metro hospitals held for sale had been profitable (before allocation of corporate overhead and interest), although producing operating margins below the average of the Company's other hospitals. Commencing in 1996, due to a continuing change in payor mix from private insurance to managed care and Medicare/Medicaid, a change in patient acuity level and intense competition, and despite a combined increase in both inpatient and outpatient volume, the Company recorded a net operating loss (loss before allocation of corporate overhead and interest) of $2.6 million and $3.8 million for the three months and nine months ended September 30, 1996, respectively, as related to these hospitals, as compared to net operating income of $2.3 million and $4.6 million for the same respective 1995 periods. In conjunction with the disposition of these hospitals and the adoption of Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" effective September 30, 1996, the Company recorded an after-tax impairment charge of $7.9 million to reduce the net assets of these facilities to their estimated fair value. The estimated impairment loss may be subject to further adjustments following completion of valuations by independent appraisers and ultimate disposition of the hospitals. Stockholders' litigation and Special Committee's investigation - -------------------------------------------------------------- The Company is a party to pending litigation in connection with several stockholder related matters. See "Item 1. Legal Proceedings" in Part II of this report for a description of such litigation. Because these lawsuits are in their initial stages, the Company cannot predict their outcome or the length of time it will take to resolve these lawsuits. The Company maintains Directors and Officers liability insurance in amounts it believes to be adequate. 32 Regulatory Matters - ------------------ Healthcare reform legislation has been proposed at both federal and state levels. The Company cannot predict the effect that such reforms may have on its business and there can be no assurance that any such reforms will not have a material adverse effect on the Company's future revenues or liquidity. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS STOCKHOLDERS' LITIGATION On April 17, 1996, the Company and Champion were served with a lawsuit filed in the Court of Chancery of the State of Delaware in and for New Castle County by a Champion stockholder against certain directors and officers of Champion and the Company. This lawsuit, which among other things seeks class certification, alleges that the Merger and the consideration to be paid to Champion's stockholders are unfair and grossly inadequate and that the named defendants have violated their fiduciary duties to Champion and the stockholders of Champion. In this action, the plaintiff seeks to rescind the Merger transaction or award Champion stockholders rescissory damages, plus costs and attorneys' fees. Because the lawsuit is in the initial stages, the Company cannot predict the outcome of this litigation, the length of time it will take to resolve this litigation or the effect of any such outcome on the Company's financial condition or results of operations. Since October 11, 1996, six complaints have been filed against the Company, of which four have been served, by current or former stockholders of the Company, allegedly on behalf of all persons who received the Company's common stock through the Merger with Champion and who purchased common stock or a portion of the Notes between August 13, 1996 and October 9, 1996. Two of these complaints were filed in the Superior Court of the State of California, County of Los Angeles, one in the District Court of Harris County, Texas and two in the United States District Court for the Southern District of Texas, Houston Division. The named defendants in these lawsuits are the Company and certain current and former officers and directors of the Company. In these lawsuits, the plaintiffs have alleged violations of Federal, California and Texas securities laws. Additionally, the plaintiffs alleged that during the class period, the named defendants disseminated materially misleading statements and omitted disclosing material facts about the Company and its business, specifically in the reporting and disclosure of reserves, bad debt expenses, collection expenses and facility closure costs and that the price of the Company's common stock was artificially inflated. The plaintiffs also alleged that the named defendants failed to make a reasonable investigation and did not possess reasonable grounds for the belief that the statements contained in the various Registration Statements and Prospectuses filed during the class period were true, or that there was an omission of material facts necessary to make the statements contained therein not misleading. The plaintiffs seek damages in an unspecified amount and extraordinary, equitable or injunctive relief, plus costs and attorneys' fees. The Company is carefully considering the allegations made in these lawsuits and intends to respond to them at the appropriate time. 33 ITEM 2. CHANGE IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 2.1 (a) Amended and Restated Agreement and Plan of Merger dated as of May 29, 1996, by and among Paracelsus, Champion and PC Merger Sub. Inc. 3.4 Amended and Restated Articles of Incorporation of Paracelsus. 3.5 Amended and Restated Bylaws of Paracelsus. 4.1 Indenture, dated August 16, 1996 between Paracelsus and AmSouth Bank of Alabama, as Trustee (including the form of certificate representing the 10% Senior Subordinated Notes due 2006). 4.2 (b) Shareholder Protection Rights Agreement between Paracelsus and ChaseMellon Shareholder Services, L.L.C, as Rights Agent. 4.5 (c) Form of Warrant issued pursuant to Champion Series E Note Purchase Agreement, dated May 1, 1995, as amended. 4.6 (d) Form of Warrant issued pursuant to Champion Series D Note and Stock Purchase Agreement dated December 31, 1993, as amended. 4.9 Certificate representing Common Stock. 10.1 $400 Million Reducing Revolving Credit Facility, dated as of August 16, 1996, among Paracelsus, Bank of America National Trust and Savings Association, as agent, and other lenders named therein. 10.16 (e) The Restated Paracelsus Healthcare Corporation Supplemental Executive Retirement Plan. 10.17 Amendment No. 1 to the Supplemental Executive Retirement Plan. 10.28 (f) Amended and Restated Partnership Agreement of Dakota/Champion Partnership dated December 21, 1994. 10.29 (f) Operating Agreement between Dakota/Champion Partnership and Champion, dated December 21, 1994. 10.34 License Agreement between Dr. Manfred George Krukemeyer and Paracelsus. 10.36 Registration Rights Agreement between Paracelsus and Park Hospital GmbH. 10.37 Voting Agreement between Park Hospital GmbH and Messrs. Miller and VanDevender. 10.38 Services Agreement between Paracelsus and Dr. Manfred George Krukemeyer. 10.39 Insurance Agreement between Paracelsus and Dr. Manfred George Krukemeyer. 10.40 Non-Compete Agreement between Paracelsus and Dr. Manfred George Krukemeyer. 34 10.41 Shareholder Agreement between Paracelsus and Park Hospital GmbH, as guaranteed by Dr. Manfred George Krukemeyer. 10.42 Dividend and Note Agreement between Paracelsus and Park Hospital GmbH. 10.43 Employment Agreement between Charles R. Miller and Paracelsus, including the Management Rights Agreement. 10.44 Employment Agreement between R.J. Messenger and Paracelsus, including the Management Rights Agreement. 10.45 Employment Agreement between James G. VanDevender and Paracelsus. 10.46 Employment Agreement between Ronald R. Patterson and Paracelsus. 10.47 Employment Agreement between Robert C. Joyner and Paracelsus. 10.48 Paracelsus 1996 Stock Incentive Plan. 10.49 Paracelsus Healthcare Corporation Executive Officer Performance Bonus Plan. 10.50 First Refusal Agreement among Park Hospital GmbH, Dr. Manfred George Krukemeyer and Messrs. Messenger, Miller, VanDevender and Patterson. 10.54 Registration Rights Agreement among Paracelsus and certain Champion Investors. 10.56 Indemnity and Insurance Coverage Agreement between Paracelsus and certain Champion and Paracelsus executive officers. 10.64 Paracelsus' 6.51% Subordinated Notes Due 2006. 11.1 Statement regarding computation of per share earnings of Paracelsus 27 Financial Data Schedule. __________________________ (a) Incorporated by reference from Exhibit of the same number to the Company's Current Report on Form 8-K, dated May 29, 1996. (b) Incorporated by reference from Exhibit of the same number to the Company's Registration Statement on Form 8-A, filed on August 12, 1996. (c) Incorporated by reference from Exhibit 10.23(g) to Champion's Annual Report on Form 10-K for the year ended December 31, 1995. (d) Incorporated by reference from Exhibit 10.23(f) to Champion's Annual Report on Form 10-K for the year ended December 31, 1995. (e) Incorporated by reference from Exhibit of the same number to the Company's Registration Statement on Form S-4, Registration No. 333-8521. (f) Incorporated by reference from Exhibit 10 to Champion's Current Report on Form 8-K, dated December 21, 1994. (b) Reports on Form 8-K - The Company filed on September 13, 1996 a Current Report on Form 8-K, dated September 12, 1996, reporting pursuant to Item 8 thereof, that the Company had elected to change its fiscal year end from September 30 to December 31. - The Company filed on August 30, 1996 a Current Report on Form 8-K, dated August 16, 1996, reporting pursuant to Items 2, 5, and 7 thereof, the acquisition through merger of Champion, the completion of a public equity offering of 5.2 million shares (including 600,000 over-allotted shares ) of the Company's common stock at $8.50 per share and the completion of a public debt offering of $325.0 million of the Company's 10% Senior Subordinated Notes due 2006. In addition, the Company completed a tender offer to purchase all of the outstanding $75.0 million 9.875% Senior Subordinated Notes. Champion financial statements for the three years ended December 31, 1995 were incorporated by reference to the Company's Registration Statement on Form S-4 (Commission File No. 333-8521), with financial statements for period ending through June 30, 1996 filed therein. 35 - The Company filed on August 21, 1996 a Current Report on Form 8-K, dated August 14, 1996, reporting pursuant to Item 5 thereof, the declaration of a dividend of one right for each outstanding share of the Company's common stock, no stated value per share, held of record at the close of business on August 15, 1996, payable on August 16, 1996. - The Company filed on July 24, 1996 an Amendment No. 1 on Form 8-K/A to a Current Report on Form 8-K, dated May 17, 1996, reporting pursuant to Item 7 thereof, the historical financial statements for Davis Hospital and Medical Center, Pioneer Valley Hospital and Santa Rosa Medical Center and the Company's pro forma financial statements for the period through March 31, 1996. - The Company filed on July 24, 1996 a Current Report on Form 8-K, dated May 29, 1996, reporting pursuant to Item 5 thereof, the Amended and Restated Agreement and Plan of Merger, which amended and restated the Agreement and Plan of Merger, dated April 12, 1996, among the Company, Champion and Merger Sub. 36 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. Paracelsus Healthcare Corporation (Registrant) /s/ JAMES G. VANDEVENDER Dated: November 12, 1997 By: ____________________________ James G. VanDevender Senior Executive Vice President, Chief Financial Officer & Director EX-11 2 EXHIBIT 11.1 PARACELSUS HEALTHCARE CORPORATION COMPUTATION OF EARNINGS PER SHARE - AS RESTATED (In thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, ----------------- ----------------- 1996 1995 1996 1995 ------- ------ ------ ------ Primary: - ------- (1) Net income (loss) $(69,101) $(2,273) $(88,612) $ 1,419 ====== ====== ====== ====== Shares used in this computation: Weighted average common shares outstanding 42,290 29,772 33,975 29,772 Shares applicable to stock options and warrants, net of shares assumed to be purchased from proceeds at average market price (a) - (a) - ------ ------ ------ ------ (2) Total shares for net income per share computation 42,290 29,772 33,975 29,772 ====== ====== ====== ====== Income (loss) per share: Continuing operations $ (1.08) $ 0.09 $ (1.46) $ 0.14 Discontinued operations (0.45) (0.17) (1.01) (0.09) Extraordinary loss (0.10) - (0.14) - ------ ------ ------ ----- Net Income (loss) per share (1 divided by 2) $ (1.63) $ (0.08) $ (2.61) $ 0.05 ====== ===== ====== ===== Fully Diluted: - ------------- (3) Net income (loss) (1) $(69,101) $(2,273) $(88,612) $ 1,419 ====== ===== ====== ====== Shares used in this computation: Total primary shares (2) 42,290 29,772 33,975 29,772 Shares applicable to stock options and warrants in addition to those used in primary computation due to the use of period-end marker price when higher than average (a) - (a) - ------ ------ ------ ------ (4) Total fully diluted shares 42,290 29,772 33,975 29,772 ====== ====== ====== ====== Income (loss) per share: Continuing operations $ (1.08) $ 0.09 $ (1.46) $ 0.14 Discontinued operations (0.45) (0.17) (1.01) (0.09) Extraordinary loss (0.10) - (0.14) - ----- ----- ------ ----- Net Income (loss) per share (3 divided by 4) $ (1.63) $ (0.08) $ (2.61) $ 0.05 ===== ====== ====== ===== (a) The effect of options and warrants were anti-dilutive for the quarter and nine months ended September 30, 1996. EX-27 3
5 1000 9-MOS DEC-31-1996 SEP-30-1996 14,611 16,713 146,912 53,362 0 240,175 442,894 64,647 874,422 133,374 490,202 0 0 213,465 (31,419) 874,422 0 361,194 0 165,272 155,676 24,003 18,411 (82,358) (32,846) (49,512) (34,543) (4,557) 0 (88,612) (2.61) (2.61)
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