-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, swqVvNGl16/yZk2EKvutt1dv4SejF3Gc3KnKvmJ5uFMPJWiPoQB0Lxxg5PAoVCe5 R/X2JfhRvYrcxLRRDu2gPw== 0000950109-94-000260.txt : 19940216 0000950109-94-000260.hdr.sgml : 19940216 ACCESSION NUMBER: 0000950109-94-000260 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940214 DATE AS OF CHANGE: 19940215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONTINENTAL MEDICAL SYSTEMS INC /DE/ CENTRAL INDEX KEY: 0000802284 STANDARD INDUSTRIAL CLASSIFICATION: 8051 IRS NUMBER: 510287965 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 34 SEC FILE NUMBER: 000-15088 FILM NUMBER: 94508044 BUSINESS ADDRESS: STREET 1: 600 WILSON LN STREET 2: P O BOX 715 CITY: MECHANICSBURG STATE: PA ZIP: 17055 BUSINESS PHONE: 7177908300 10-Q 1 FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------- FORM 10-Q ------------- (Mark One) X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities ----- Exchange Act of 1934 For the quarterly period ended December 31, 1993 or Transition Report Pursuant to Section 13 or 15(d) of the Securities ----- Exchange Act of 1934 Commission file number 0-15088 CONTINENTAL MEDICAL SYSTEMS, INC. (Exact name of registrant as specified in its charter) Delaware 51-0287965 (State of incorporation) (I.R.S. Employer Identification No.) 600 Wilson Lane P.O. Box 715 Mechanicsburg, PA 17055 Telephone Number (717) 790-8300 ----------------------------------- 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 January 31, 1994, there were 37,610,967 shares of the Registrant's $.01 par value Common Stock outstanding. ================================================================================ Continental Medical Systems, Inc. and Subsidiaries Consolidated Balance Sheets December 31, 1993 and June 30, 1993
December 31, June 30, Assets 1993 1993 - -------------------------------------------------------------------------------- (In thousands, except share data) Current assets: Cash and cash equivalents $ 75,558 $ 64,444 Accounts receivable, net of allowance for doubtful accounts ($15,249, December 31, 1993 $17,426, June 30, 1993) 242,651 220,122 Other receivables 11,916 10,801 Prepaid income taxes 3,412 Deferred income taxes 10,212 5,062 Prepaid expenses 15,170 14,243 -------- -------- 355,507 318,084 -------- -------- Property and equipment, net 288,349 289,822 -------- -------- Other: Goodwill, net 74,222 58,461 Investments 15,958 16,694 Notes receivable 28,947 29,461 Deferred income taxes 2,847 Deferred costs, new facilities, net 25,483 28,634 Other assets 29,638 28,225 -------- -------- 174,248 164,322 -------- -------- $818,104 $772,228 ======== ======== Liabilities and Stockholders' Equity - -------------------------------------------------------------------------------- Current liabilities: Current portion of long-term debt $ 3,667 $ 3,809 Current portion of deferred income 875 1,163 Accounts payable 19,785 27,515 Accrued expenses 72,885 64,602 Due to third-party payors 12,280 13,857 Income taxes payable 1,696 -------- -------- 111,188 110,946 Long-term debt, net of current portion 412,139 382,602 Deferred income 3,200 3,549 Deferred income taxes 710 Other liabilities 2,695 4,005 -------- -------- 529,932 501,102 -------- -------- Minority interests 14,843 13,430 -------- -------- Commitments and Contingencies (Note 4) Stockholders' equity: Preferred stock, $.01 par; authorized 10,000,000 shares; none issued Common stock, $.01 par; authorized 80,000,000 shares; 37,550,293 shares issued and outstanding, December 31, 1993 (36,934,546, June 30, 1993) 375 369 Capital in excess of par 184,453 180,187 Retained earnings 88,501 77,140 -------- -------- 273,329 257,696 -------- -------- $818,104 $772,228 ======== ========
See notes to consolidated financial statements. Continental Medical Systems, Inc. and Subsidiaries Consolidated Statements of Income
Three Months Ended Six Months Ended December 31, December 31, 1993 1992 1993 1992 - --------------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) Net operating revenues $ 249,041 $ 218,536 $ 498,803 $ 428,425 ---------- ---------- ---------- ---------- Costs and expenses: Cost of services 217,281 184,334 429,463 364,856 General and administrative 5,936 5,066 11,856 9,447 Interest expense 9,751 4,873 19,003 8,292 Depreciation and amortization 9,734 7,206 18,776 13,436 ---------- ---------- ---------- ---------- 242,702 201,479 479,098 396,031 ---------- ---------- ---------- ---------- Income from operations 6,339 17,057 19,705 32,394 Other income, principally interest 890 703 1,762 1,312 ---------- ---------- ---------- ---------- Income before minority interests and income taxes 7,229 17,760 21,467 33,706 Minority interests (863) (1,638) (2,374) (2,908) ---------- ---------- ---------- ---------- Income before income taxes 6,366 16,122 19,093 30,798 Income taxes 2,578 6,126 7,732 11,707 ---------- ---------- ---------- ---------- Net income $ 3,788 $ 9,996 $ 11,361 $ 19,091 ========== ========== ========== ========== Net income per common share and common equivalent share (Note 5): Primary $ .10 $ .26 $ .30 $ .50 ========== ========== ========== ========== Fully diluted $ .10 $ .26 $ .29 $ .50 ========== ========== ========== ========== Weighted average number of shares outstanding: Primary 38,364,233 37,866,946 38,146,140 37,778,713 Fully diluted 38,598,379 38,100,591 38,410,534 38,013,357
See notes to consolidated financial statements. Continental Medical Systems, Inc. and Subsidiaries Consolidated Statement of Stockholders' Equity Six Months Ended December 31, 1993 - --------------------------------------------------------------------------------
Common Stock ------------------- Capital Shares in excess Retained issued Amount of par earnings Total --------------------------------------------------- (In thousands, except shares issued) Balance, July 1, 1993 36,934,546 $ 369 $ 180,187 $ 77,140 $ 257,696 Stock issued pursuant to: Employee benefit plans 123,740 1 722 723 Acquisition agreements 492,007 5 3,544 3,549 Net income for the six months 11,361 11,361 ---------- ------- --------- -------- --------- Balance, December 31, 1993 37,550,293 $ 375 $ 184,453 $ 88,501 $ 273,329 ========== ======= ========= ======== =========
See notes to consolidated financial statements. Continental Medical Systems, Inc. and Subsidiaries Consolidated Statements of Cash Flows
Six Months Ended December 31, 1993 1992 - ------------------------------------------------------------------ (In thousands) Cash flows from operating activities: Net income $ 11,361 $ 19,091 -------- --------- Adjustments: Depreciation and amortization 18,776 13,436 Other (1,049) 2,669 Increase (decrease) in cash from changes in assets and liabilities, excluding effects of acquisitions and dispositions: Accounts receivable (22,230) (38,877) Other assets (4,965) (6,247) Accounts payable and accrued expenses (540) (1,504) Other liabilities (3,524) (6,945) Income taxes 4,451 (6,473) -------- --------- Total adjustments (9,081) (43,941) -------- --------- Net cash provided by (used in) operating activities 2,280 (24,850) -------- --------- Cash flows from investing activities: Payments pursuant to acquisition agreements, net of cash acquired (14,010) (73,578) Cash proceeds from sale of property and equipment 13,464 Deferred costs, new facilities (2,654) (4,787) Acquisition of property and equipment (17,660) (59,289) Notes receivable 514 (8,596) Other investing activities 726 (8,152) -------- --------- Net cash used in investing activities (19,620) (154,402) -------- --------- Cash flows from financing activities: Long-term debt borrowing 88,274 324,989 Long-term debt repayment (59,193) (151,259) Deferred financing costs (866) (8,145) Issuance of common stock 723 5,835 Capital contributions by minority interests 1,408 168 Dividends of pooled company (79) Distributions to minority interests (1,892) (1,516) -------- --------- Net cash provided by financing activities 28,454 169,993 -------- --------- Increase (decrease) in cash and cash equivalents 11,114 (9,259) Cash and cash equivalents, beginning of period 64,444 35,426 -------- --------- Cash and cash equivalents, end of period $ 75,558 $ 26,167 ======== =========
Continental Medical Systems, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Cont'd)
Six Months Ended December 31, 1993 1992 - ---------------------------------------------------------------------------- (In thousands) Supplemental disclosures of cash flow information: Cash paid during the period for: Interest, net of amounts capitalized ($1,227 and $2,808 in fiscal 1994 and 1993, respectively) $ 19,894 $ 5,234 ======= ======= Income taxes $ 3,838 $ 18,919 ======= ======= Supplemental schedule of noncash investing and financing activities: The company issued stock pursuant to various acquisition agreements $ 3,549 $ 2,146 ======= =======
See notes to consolidated financial statements. Continental Medical Systems, Inc. and Subsidiaries Notes to Consolidated Financial Statements ________________________________________________________________________________ 1. Basis of presentation: In the opinion of the Company, the accompanying interim consolidated financial statements present fairly the Company's financial position at December 31, 1993, the results of its operations, and its cash flows for the three and six month periods then ended. All adjustments are of a normal and recurring nature. These statements are presented in accordance with the rules and regulations of the United States Securities and Exchange Commission ("SEC"). Accordingly, they are unaudited, and certain information and footnote disclosures normally included in the Company's annual consolidated financial statements have been condensed or omitted, as permitted under the applicable rules and regulations. Readers of these statements should refer to the Company's audited consolidated financial statements and notes thereto which were presented in the Company's 1993 Annual Report to Stockholders and incorporated by reference in its Form 10-K for the year ended June 30, 1993. The results of operations presented in the accompanying financial statements are not necessarily representative of operations for an entire year due to, among other things, new hospital development, acquisitions, interest rate changes and fluctuations in effective tax rates. Comparisons to the prior year might also be affected for similar reasons. Certain items in the fiscal 1993 financial statements have been reclassified to conform to the classifications in the fiscal 1994 financial statements. 2. Long-term debt: On December 31, 1993, the Company amended its credit facility with Citibank, N.A., as agent for a group of several banks. The amendment extended the revolving loan period under the facility to December 31, 1996, increased the commitments under the credit facility from $225,000,000 to $235,000,000 and amended certain financial covenants. 3. Income taxes: Effective July 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (FAS 109), Accounting for Income Taxes. The adoption of FAS 109 changes the Company's method of accounting for income taxes from the deferred method (APB 11) to an asset and liability approach. Previously the Company deferred the past tax effects of timing differences between financial reporting and taxable income. The asset and liability approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of other assets and liabilities. As permitted by this new accounting standard, the Company has elected not to restate the financial statements of prior years. The cumulative effect of adopting FAS 109 was not material; in addition, there was no effect on pre-tax income for this prospective adoption. Continental Medical Systems, Inc. and Subsidiaries Notes to Consolidated Financial Statements ________________________________________________________________________________ 3. Income taxes (continued): Deferred tax liabilities (assets) were comprised of the following at July 1, 1993 (in thousands): Deferred tax liabilities: Depreciation $ 3,939 Other 1,574 ------- Total 5,513 ------- Deferred tax assets: Development and pre-opening costs (1,461) Bad debt reserves (6,448) Investment valuations (2,353) Malpractice accrual (1,218) Health insurance accrual (648) Deferred revenue (1,691) Accrued vacation pay (1,564) Other (2,053) -------- Total (17,436) -------- Valuation allowance for deferred tax assets 671 -------- Excess deferred tax assets over liabilities ($11,252) =========
The valuation allowance is the result of the uncertain state tax benefits resulting from states requiring separate return filings and with no loss carryover provisions. On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 increased the top corporate tax rate from 34% to 35% effective retroactive to January 1, 1993. The effects of this tax law change were not material to the Company's net deferred tax assets and are included in the operating income tax provision. 4. Contingencies: The Company has terminated certain contractual arrangements in its contract therapy business with certain third party providers. As a result, the Company is potentially subject to increased credit risk with regard to the accounts receivable related to the former arrangements. The Company is currently negotiating with these payors to secure payment of these receivables. However, the Company is unable to estimate the ultimate outcome of these negotiations and its subsequent collections. The receivable net of allowances related to these arrangements at December 31, 1993 is $17,000,000. The Company guarantees payment throughout the term of a bond issue to an economic development authority of amounts due and payable by the owner of a long-term care facility previously managed by the Company. The outstanding bonds totalled approximately $6,177,000 at December 31, 1993. Continental Medical Systems, Inc. and Subsidiaries Notes to Consolidated Financial Statements ________________________________________________________________________________ 4. Contingencies (continued): Outstanding letters of credit aggregated approximately $25,355,000 at December 31, 1993. The Company is subject to legal proceedings and claims which have arisen in the ordinary course of its business and have not been finally adjudicated, including without limitation malpractice claims covered under the Company's insurance policies. In the opinion of management, after consulting with company counsel, the outcome of these actions will not have a material effect on the financial position or results of operations of the Company. 5. Earnings per share: Net income per common and common equivalent share is based upon the weighted average number of common shares outstanding during the period plus the effect of common shares contingently issuable, primarily from stock options and acquisition agreements requiring the issuance of shares contingent on future earnings. Fully diluted earnings per share are determined on the assumption that the 7 3/4% convertible subordinated debentures were converted July 1, 1992. Net income was adjusted for the interest on the debentures, net of the related income tax benefits. Continental Medical Systems, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q - For the Quarter ended December 31, 1993 ________________________________________________________________________________ Overview The Company's results of operations for the three and six months ended December 31, 1993 and 1992 reflect the growth of the Company's contract therapy businesses as well as the development of new inpatient hospitals and outpatient facilities. This discussion should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations presented in the Company's fiscal 1993 Annual Report to Stockholders and incorporated by reference in its Form 10-K for the fiscal year ended June 30, 1993. During the six months ended December 31, 1992, the Company began construction of three new inpatient rehabilitation hospitals and commenced operations at two inpatient rehabilitation hospitals adding 107 beds. In addition, the Company opened 16 outpatient clinics. During the remainder of the fiscal year, the Company opened four new inpatient rehabilitation hospitals adding 240 beds and opened 23 outpatient clinics. In February 1993, the Company acquired Kron Medical Corporation ("Kron"), a physician/locum tenens business. The acquisition of Kron was accounted for as a pooling of interests, and accordingly, the Company's financial results have been restated to include the results of Kron prior to February 1993. During the six months ended December 31, 1993, the Company opened three new inpatient rehabilitation hospitals adding 166 beds and opened 23 outpatient clinics. In addition, construction began on an inpatient rehabilitation hospital which will be operated by a joint venture controlled by the Company. The real estate to this project will be financed by third parties and owned by a partnership in which the Company has a minority interest. At December 31, 1993, there were two rehabilitation hospitals, including the previously mentioned hospital owned through a partnership, with 108 beds under construction. Continental Medical Systems, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q - For the Quarter ended December 31, 1993 - -------------------------------------------------------------------------------- Results of Operations The following table sets forth, for the periods indicated, the relative percentages of net operating revenues which certain items in the Company's Consolidated Statements of Income represent.
Three Months Ended Six Months Ended December 31, December 31, 1993 1992 1993 1992 - ------------------------------------------------------------------------------------------------------------------------- Net operating revenues 100.0% 100.0% 100.0% 100.0% ------ ------ ------ ------ Costs and expenses: Cost of services 87.3 84.4 86.1 85.2 General and administrative 2.4 2.3 2.4 2.2 Interest expense 3.9 2.2 3.8 1.9 Depreciation and amortization 3.9 3.3 3.8 3.1 ----- ----- ----- ----- 97.5 92.2 96.1 92.4 ----- ----- ----- ----- Income from operations 2.5 7.8 3.9 7.6 Other income (expenses): Income, principally interest .4 .3 .4 .3 ------ ------ ------ ------ Income before minority interests and income taxes 2.9 8.1 4.3 7.9 Minority interests (.4) (.8) (.5) (.7) ------ ------ ------ ------ Income before income taxes 2.5 7.3 3.8 7.2 Income taxes 1.0 2.8 1.6 2.7 ----- ----- ------ ------ Net income 1.5% 4.5% 2.2% 4.5% ===== ===== ===== =====
The federal government as well as state governments continue to discuss, propose and implement various measures to control rising healthcare costs, improve quality and provide funding for those who currently lack health insurance. Moreover, within the private sector the healthcare delivery system is experiencing rapidly changing market conditions primarily attributable to increased competition and the increased influence of managed care on pricing and utilization. The Company cannot predict how these regulatory and market changes will affect future operating results. Continental Medical Systems, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q - For the Quarter ended December 31, 1993 - -------------------------------------------------------------------------------- Results of Operations (continued) Net operating revenues: Net operating revenues for the second quarter of fiscal 1994 increased by 14% to $249,041,000 from $218,536,000 for the same period of the prior year. During the six months ended December 31, 1993, net operating revenues increased 16% to $498,803,000 from $428,425,000 for the same period in the prior year. The following table summarizes the net operating revenues for each of the Company's operating groups (in thousands):
Three Months Ended Six Months Ended December 31, Increase December 31, Increase 1993 1992 (Decrease) 1993 1992 (Decrease) - --------------------------------------------------------------------------------------------------------------------------------- Rehabilitation group: Hospitals (Fiscal year of opening): Pre-1993 (28 hospitals) $106,277 $112,207 (5%) $214,430 $224,141 (4%) 1993 Openings (6 hospitals) 17,215 4,397 292% 33,594 8,092 315% 1994 Openings (3 hospitals) 5,467 N/A N/A 8,710 N/A N/A --------- --------- -------- ---------- 128,959 116,603 11% 256,734 232,233 11% Other rehab related 4,757 2,366 101% 10,001 5,136 95% --------- --------- --------- --------- Total 133,716 118,969 12% 266,735 237,369 12% --------- --------- --------- --------- Contract services group: Physician services 22,823 24,739 (8%) 49,370 50,993 (3%) Contract therapy 88,766 69,295 28% 175,432 130,709 34% --------- --------- --------- --------- 111,589 94,034 19% 224,802 181,702 24% --------- --------- --------- --------- Other 3,736 5,533 (32%) 7,266 9,354 (22%) --------- --------- --------- -------- $249,041 $218,536 14% $498,803 $428,425 16% ======== ======== ======== ========
"Other rehab related" revenues referred to in the above table include revenues from unit management and certain outpatient operations. Both the rehabilitation hospital group and the contract therapy services offer outpatient rehabilitation services. "Other" revenues referred to in the above table consist principally of revenues from long-term care operations at two rehabilitation inpatient hospitals and Medicare reimbursement of certain home office costs which comprise general and administrative costs. Continental Medical Systems, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q - For the Quarter ended December 31, 1993 - -------------------------------------------------------------------------------- Results of Operations (continued) Rehabilitation hospital group: The increases in net operating revenues generated by the rehabilitation hospital group resulted from new hospital openings. Net operating revenues generated by the Company's 28 rehabilitation hospitals opened for all of fiscal 1993 and the six months ended December 31, 1993 (the "Pre-1993 Hospitals") declined 5% and 4% during the three and six months ended December 31, 1993, respectively, as compared to the prior year. These declines are principally due to the under-performance of the Company's six rehabilitation hospitals located in California (excluding the Company's California facilities, the Pre-1993 Hospitals' net operating revenues declined 3% and 1% during the three and six months ended December 31, 1993), the impact of the Company's new transitional units which provide sub-acute rehabilitation services, and decreasing census. Net operating revenues at the Company's Pre-1993 Hospitals in California decreased 16% and 17% for the three and six months ended December 31, 1993, as compared to the same periods in the prior year. The declines in net operating revenues at the Company's California facilities are due to lower census at the facilities which the Company generally attributes to changes in the healthcare delivery system in California. California's market is now dominated by alliances between physicians and acute care hospitals which have formed in response to the significant penetration of large payors and other managed care plans within the state. This penetration has reduced utilization of inpatient services at the Company's rehabilitation hospitals. The Company is a provider to managed care payors in many of its markets in addition to its California facilities. Managed care programs are designed to encourage more efficient utilization and cost containment of medical services. Additionally, managed care payors are negotiating discounted or per diem rates directly with the Company's rehabilitation hospitals which may adversely affect the revenue growth and operating margins of the rehabilitation hospital group. The Company is establishing cost accounting systems as well as outcomes documentation and resource consumption information in order to demonstrate the cost effectiveness of rehabilitation services. The Company believes this data will be instrumental in its ability to negotiate with managed care payors. The Company has opened 14 transitional units, with a total of 196 beds, within its Pre-1993 Hospitals since December 31, 1992. Transitional units provide a lower level of care and consequently generate significantly lower revenues per occupied bed than an acute rehabilitation bed. However, the Company believes that its transitional units will increase its overall inpatient utilization at its hospitals and expand its continuum of services at various levels of care and cost. The Company believes the transitional units enable it to more effectively compete with other rehabilitation providers, including general acute care hospital based rehabilitation units, sub-acute units, skilled nursing facilities and other providers. The Company plans to open transitional units in all of its hospitals. Continental Medical Systems, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q - For the Quarter ended December 31, 1993 - -------------------------------------------------------------------------------- Results of Operations (continued) Rehabilitation hospital group (continued): Following are selected statistics for the Pre-1993 Hospitals (excluding the Company's California facilities):
Three Months Six Months Ended Ended December 31, December 31, 1993 1992 % Change 1993 1992 % Change - ------------------------------------------------------------------------------------------------------------------ Occupancy percentage 68.0% 70.4% (3%) 69.0% 70.5% (2%) Admissions 4,302 3,953 9% 8,478 7,919 7% Average length of stay (days) 21.9 23.3 (6%) 22.3 23.8 (6%) Patient days 93,543 94,400 (1%) 188,917 188,878 0% Outpatient treatments 586,405 514,190 14% 1,178,203 1,029,522 14% Outpatient % of net revenue 19.1% 18.4% 4% 20.0% 19.0% 5%
Excluding the California facilities, occupancy percentage for the Pre-1993 Hospitals for the three months ended December 31, 1993 was 68% as compared to 70.4% during the same period in the prior year. These same facilities' occupancy for the six months ended December 31, 1993 was 69% as compared to 70.5% during the same period in the prior year. These declines in occupancy percentage from fiscal 1993 were due to a lower patient average length of stay in fiscal 1994 -21.9 days and 22.3 days for the three and six months ended December 31, 1993, respectively, as compared to 23.3 days and 23.8 days for the three and six months ended December 31, 1992, respectively. Average length of stay declined, in part, due to cost control and case management review by private payors and efficiencies in treatments as the Company's hospitals mature. However, due to changes in reimbursement methods, such as the Tax Equity and Fiscal Responsibility Act ("TEFRA") regulations, the number of admissions in addition to occupancy percentages and average length of stay are important in monitoring the results of these hospitals as revenue growth becomes increasingly dependent upon patient volume. The lower patient average length of stay in both the three and six month periods was partially offset by increases in admissions of 9% and 7% in the three and six months ended December 31, 1993, respectively, as compared to the prior period. The timing of new hospital openings during fiscal 1993 makes a comparison of occupancy percentages for the three and six month periods ended December 31, 1993 with the comparable periods in the prior fiscal year for these hospitals not meaningful. The rehabilitation hospitals opened in fiscal 1993 (the "1993 Hospitals") increased their patient days to 22,162 for the three months ended December 31, 1993 from 5,547 for the three months ended December 31, 1992. The 1993 Hospitals increased their patient days to 41,358 for the six months ended December 31, 1993 from 9,743 for the same period of the prior year. The occupancy percentages for the 1993 Hospitals for the three and six months ended December 31, 1993 were 69% and 65%, respectively. The occupancy percentage for rehabilitation hospitals opened in fiscal 1994 (the "1994 Hospitals") was 33% for both the three and six months ended December 31, 1993. The 1994 Hospitals' patient days were 4,893 and 7,997 for the three and six months ended December 31, 1993, respectively. Continental Medical Systems, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q - For the Quarter ended December 31, 1993 - -------------------------------------------------------------------------------- Results of Operations (continued) Rehabilitation hospital group (continued): Total outpatient treatments for the rehabilitation hospital group for the three months ended December 31, 1993 rose to 756,733, a 32% increase over 573,829 provided in the same period of the prior year. For the six months ended December 31, 1993, outpatient treatments were 1,492,775, a 31% increase over the same period of the prior year. Outpatient services represented approximately 16% and 15% of the rehabilitation group's net operating revenues for the comparative three month periods ended December 31, 1993 and 1992, respectively, and 17% and 16% for the six months ended December 31, 1993 and 1992, respectively. The percentage of net operating revenues generated by Medicare/Medicaid patients at the rehabilitation hospitals was 64% for the three months ended December 31, 1993 and 1992, and 62% and 63% for the six months ended December 31, 1993 and 1992, respectively. The Company's neurological center in Maryland has also had a negative impact on results due to certain limitations placed on its charges by the state of Maryland. The Company has obtained a temporary rate increase which will become permanent upon the resolution of the Company's negotiations with the state of Maryland to expand the levels of treatment at its neurological center. The Company is unable at this time to predict the final outcome of these actions or their impact on its results. Contract services group: Contract therapy services: The increases in net operating revenues generated by the contract therapy companies resulted from same company growth through the addition of new contracts with both existing and new providers. The number of facilities served increased by 3% over the same period in the prior year. The contract therapy companies now serve over 2,400 facilities. Approximately 77% and 78% of the net operating revenues in the three and six months ended December 31, 1993, respectively, and 73% of the net operating revenues in both the three and six months ended December 31, 1992 were generated through the provision of therapist services to skilled nursing facilities, while the remainder was generated by therapy services to hospitals, schools, clinics and other institutions. The percentage of net operating revenues generated from direct services to Medicare/Medicaid patients was 20% for both the three and six months ended December 31, 1993. This represents an increase from 16% for both the three and six months ended December 31, 1992. The principal reason for the increases in fiscal 1994 is the Company's decision to terminate its contractual arrangements with certain third party providers. Under these arrangements, the Company provided therapy services to Medicare patients through a certified intermediary. As a result of terminating these arrangements, the Company, in many instances, now provides the same services directly to Medicare patients; therefore, the Company expects this percentage to increase. Continental Medical Systems, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q - For the Quarter ended December 31, 1993 - -------------------------------------------------------------------------------- Results of Operations (continued) Contract services group (continued): Contract therapy services (continued): During the six months ended December 31, 1993, productivity per therapist has declined which negatively impacted results. The Company is in the process of consolidating homogeneous contract therapy product lines to gain efficiency and consistency in delivery of care. Additionally, the group's contract respiratory services' revenues have declined because of changes in reimbursement in the state of Indiana. Physician/locum tenens services: The declines in the Company's physician/locum tenens services net operating revenues were a result of reduced demand and pricing pressures in the specialist product line of the Company's physician/locum tenens services. Net operating revenues for the specialist product line for the three months ended December 31, 1993 declined 20% as compared to the same quarter of the prior year and declined 14% for the six months ended December 31, 1993 as compared to the same period of the prior year. This decline was partially offset by the 30% and 26% increase in revenues for the primary care product line during the three and six months ended December 31, 1993, respectively. The following tables set forth filled days by discipline:
Three Months Ended December 31, 1993 1992 - ------------------------------------------------------------------------------- Number Number Increase of days % of days % (decrease) Physicians: Primary care 11,962 42.0 9,705 30.5 23.3% Specialty care 12,586 44.2 15,586 49.0 (19.2%) Allied professionals 3,926 13.8 6,510 20.5 (39.7%) ------ ----- ------ ----- 28,474 100.0 31,801 100.0 (10.5%) ====== ===== ====== =====
Continental Medical Systems, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q - For the Quarter ended December 31, 1993 - -------------------------------------------------------------------------------- Results of Operations (continued) Contract services group (continued): Physician/locum tenens services (continued):
Six Months Ended December 31, 1993 1992 - ------------------------------------------------------------------------------ Number Number Increase of days % of days % (decrease) Physicians: Primary care 23,262 38.1 19,167 29.3 21.4% Specialty care 27,809 45.4 32,167 49.2 (13.6%) Allied professionals 10,064 16.5 14,013 21.5 (28.2%) ------ ----- ------ ----- 61,135 100.0 65,347 100.0 (6.4%) ====== ===== ====== =====
The decline in specialty care and allied professional days is due to reduced demand as a result of the uncertainty regarding healthcare reform and additional competition in local markets. Allied professionals represent approximately 10% of physician/locum tenens services net operating revenues for the three months ended December 31, 1993 and 11% for the six months ended December 31, 1993. The increase in primary care filled days and its relative increase as a percentage of total filled days reflects the increased demand for primary care physicians and the Company's increased emphasis on this product line. The Company believes the primary care physician product line has greater growth prospects than its specialist product line. Costs and expenses: Cost of services increased to $217,281,000 for the three months ended December 31, 1993, an 18% increase over the cost of services for the three months ended December 31, 1992 of $184,334,000. For the six months ended December 31, 1993, cost of services was $429,463,000, an increase of 18% over $364,856,000 for the same period of the prior year. This increase is attributable to the opening of new rehabilitation hospitals and outpatient clinics, and expansion of businesses within the contract services group. Cost of services as a percentage of net operating revenues increased from 84.4% for the three months ended December 31, 1992 to 87.3% for the three months ended December 31, 1993. For the six months ended December 31, 1993, the percentage was 86.1%, an increase from 85.2% for the comparable period in the prior year. The increases in cost of services as a percentage of net operating revenues are due to the under-performance of the California hospitals; within contract therapy business, the decline in per therapist productivity, pricing pressures principally within the Company's respiratory therapy services, and the elimination of certain contractual arrangements with third party providers; and the declines in the physician services/locum tenens specialist line revenues and filled days. In addition, increased development costs have contributed to the increase in cost of services as a percentage of net operating revenues as a result of the Company's change in accounting policy at June 30, 1993 regarding the deferral of such costs. Continental Medical Systems, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q - For the Quarter ended December 31, 1993 - -------------------------------------------------------------------------------- Results of operations (continued) Costs and expenses (continued): General and administrative expenses increased in the second quarter of fiscal 1994 and the six months then ended as compared to the comparable periods in fiscal 1993 in total dollars and as a percentage of net operating revenues. This is due to increased staffing to support the operating groups and a redeployment of the Company's resources formerly involved with the development of hospitals as a result of changes in the Company's development strategy. Interest expense for the three months ended December 31, 1993 totalled $9,751,000 compared to $4,873,000 for the three months ended December 31, 1992, an increase of $4,878,000. For the six months ended December 31, 1993, interest expense totalled $19,003,000, an increase of $10,711,000 from the six months ended December 31, 1992. The increases in fiscal 1994 are due to a higher average outstanding debt balance and a higher average interest rate resulting from the issuance of $150,000,000 of senior subordinated notes in March 1993. In addition, interest expense was impacted by a reduction in the amount of interest capitalized related to new hospital construction, as the Company has fewer hospitals under construction in fiscal 1994. For the three and six month periods ended December 31, 1993, interest costs of $360,000 and $1,227,000, respectively, related to the rehabilitation hospitals under construction were capitalized. For both the three and six months ending December 31, 1992, interest costs of $1,796,000 and $2,808,000 were capitalized, respectively. Depreciation and amortization as a percentage of net operating revenues increased in both the three and six months ended December 31, 1993. This increase resulted from the depreciation on the new rehabilitation hospitals which are owned rather than leased by the Company and an increase in goodwill amortization resulting from acquisitions. Minority Interests: Minority interests in net income decreased for both the three and six months ended December 31, 1993. This decline is primarily due to declining earnings at the Company's joint ventured California rehabilitation hospitals. Income Taxes: Effective July 1, 1993, the Company adopted Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes." See note 3 of the Notes to Consolidated Financial Statements for a description of the Statement and its implementation. Income taxes as a percentage of income before income taxes were 40.5% for both the three and six months ended December 31, 1993 and 38% for both the three and six months ended December 31, 1992. The rate for fiscal 1993 reflects the restatement for Kron, which as an S-Corporation prior to its acquisition made no provision for income taxes. The pro forma effective rate excluding Kron prior to its acquisition was 39.1% for the three and six months ended December 31, 1992. The increase in the effective rate was due to an increase in non-deductible goodwill costs, the mix of state income which was not as favorable as in the prior fiscal years and the impact of the Omnibus Budget Reconciliation Act of 1993. Continental Medical Systems, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q - For the Quarter ended December 31, 1993 - -------------------------------------------------------------------------------- Capital Resources and Liquidity For the six months ended December 31, 1993, operating activities provided $2,280,000 of cash. The primary uses of cash for operating activities were to fund the increase in accounts receivable, repay accrued cost reimbursement adjustments due to Medicare and the semi-annual payments of interest for the Company's Senior Subordinated debentures. The increase in accounts receivable was caused primarily by the Company's increased revenue from the new rehabilitation hospitals opened in fiscal 1994 and 1993. Growth in consolidated days sales outstanding at December 31, 1993 to 94 days over 89 days at June 30, 1993, also, contributed to the increase in accounts receivable. The increase in consolidated days sales outstanding is primarily due to an increase in amounts due from the federal government's Medicare program under interim payment plans. Investing activities, primarily development, construction and acquisition activities, resulted in uses of cash of $19,620,000 during the six months ended December 31, 1993. Real estate and other assets were sold resulting in cash inflows of $13,464,000. In addition to available cash, net long-term borrowings of $29,081,000 were used to fund these cash requirements. See the Consolidated Statements of Cash Flows for a detailed analysis of the components of cash flow. Long-term debt outstanding at December 31, 1993 totalled $415,806,000 including $3,667,000 which represents the current portion of long-term debt. The Company's Credit Facility was amended on December 31, 1993, to provide up to $235,000,000 in a revolving line of credit, of which up to $35,000,000 is available in the form of letters of credit. At December 31, 1993, approximately $57,000,000 of working capital borrowing, and $25,355,000 of letters of credit were outstanding under the Credit Facility. The amendment also extended the revolving loan period to December 31, 1996 and amended certain financial covenants. See footnote 6 to the Notes to the Consolidated Financial Statements for the year ended June 30, 1993 for further explanation of long-term debt. The Company has terminated certain contractual arrangements in its contract therapy business with certain third party providers. As a result, the Company is potentially subject to increased credit risk with regard to the accounts receivable related to the former arrangements. The Company is currently negotiating with these payors to secure payment of these receivables. However, the Company is unable to estimate the ultimate outcome of these negotiations and its subsequent collection. The receivable net of allowances related to these arrangements at December 31, 1993 is $17,000,000. The Company's ongoing capital requirements relate principally to routine capital expenditures, costs associated with its rehabilitation hospitals under construction, future development projects (including outpatient clinics), potential acquisitions and growth of its contract services companies. The Company's commitments under various construction agreements approximated $1,137,000 at December 31, 1993. The Company presently expects to construct fewer freestanding rehabilitation hospitals during fiscal 1994 than in prior years. In addition, capital may be required to make contingent payments required in connection with the Company's previous acquisitions and for working capital needs. Continental Medical Systems, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q - For the Quarter ended December 31, 1993 - -------------------------------------------------------------------------------- Capital Resources and Liquidity (continued) The Company has historically expanded its business, in part, through selective acquisitions and intends to pursue additional acquisition opportunities from time to time. It is anticipated that future acquisitions will be funded through the issuance of capital stock and payment of cash and other considerations. Management believes that current sources of liquidity are sufficient to meet the needs of the Company's business for fiscal 1994. Liquidity on a short-term basis will be provided internally from the Company's operating cash flow and externally from its Credit Facility. At December 31, 1993 the Company had $152,645,000 of unused borrowing capacity (subject to applicable covenants which may limit borrowing capacity) under its Credit Facility, of which $9,645,000 is available in the form of letters of credit. Additionally, the Company believes it has the capacity to obtain additional debt and equity financing to supplement its operating cash flow in order to meet the Company's needs beyond those anticipated in fiscal 1994. The Company announced on February 1, 1994, that it is currently refining its business plan, which could include a restructuring of certain elements of its business. The Company is unable at the present time to predict the impact this will have, if any, on its operating results and its liquidity. Continental Medical Systems, Inc. and Subsidiaries Form 10-Q - For the Quarter ended December 31, 1993 - -------------------------------------------------------------------------------- Item 4. Submission of Matters to a Vote of Security Holders (a) The Registrant's Annual Meeting of Stockholders was held on November 10, 1993. (b) Proxies for the Annual Meeting were solicited pursuant to Regulation 14 under the Securities Exchange Act of 1934. There was no solicitation in opposition to management's nominees to elect two Class II directors for a term expiring in 1996 as listed in the proxy statement, and all such nominees were elected. (c) The matters voted on at the meeting and the results of the votes were as follows: (1) To elect two Class II directors for a term expiring in 1996. The vote on the proposal was as follows: For Withheld --- -------- Frank DeFazio 28,565,290 5,264,419 Robert A. Ortenzio 28,566,490 5,263,219
(2) To approve the adoption of the 1994 Stock Option Plan. The vote on the proposal was as follows: Broker For Against Abstain Non-Votes --- ------- ------- --------- 15,326,867 13,567,677 494,906 4,440,259
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (4) Seventh Amendment dated December 31, 1993 to the Amended and Restated Credit Agreement. (11) Computation of earnings per share (b) Reports on Form 8-K (1) Report dated January 25, 1994 (subsequently amended by Form 8-K/A dated January 28, 1994) reporting the dismissal of Price Waterhouse and the engagement of Ernst & Young as the Registrant's principal accountants. Continental Medical Systems, Inc. and Subsidiaries Signature Form 10-Q - For the Quarter ended December 31, 1993 - -------------------------------------------------------------------------------- Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CONTINENTAL MEDICAL SYSTEMS, INC. Date: February 14, 1994 By: /S/ Dennis L. Lehman ----------------------------- Dennis L. Lehman Senior Vice-President - Finance and Chief Financial Officer Signing on the behalf of the registrant and as principal financial officer. EXHIBIT INDEX
Exhibit Number Document Page - ------ -------- ---- 4. Seventh Amendment dated December 31, 1993 to the Amended and Restated Credit Agreement 11. Computation of earnings per share
EX-4 2 EXHIBIT 4 SEVENTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT ------------------------------------- THIS SEVENTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT is dated as of the 10th day of December, 1993, among CONTINENTAL MEDICAL SYSTEMS, INC., a Delaware corporation ("Borrower"), the Lenders party to the Credit Agreement described below, NATIONSBANK OF TENNESSEE, N.A. , a national banking association, successor by assignment to Maryland National Bank, as Co-Agent, and CITIBANK, N.A., a national banking association, as Agent (the "Agent"). WITNESSETH: ---------- WHEREAS, the Borrower, Lenders, and Agent entered into an Amended and Restated Credit Agreement dated as of August 28, 1991, as amended as of December 31, 1991, March 31, 1992, July 8, 1992, September 23, 1992, February 26, 1993 and March 26, 1993 (the "Credit Agreement"); WHEREAS, the Borrower has requested an increase in the commitments under the Credit Agreement to $235,000,000, the addition of another lender and other amendments to the Credit Agreement; and WHEREAS, the Agent and the Lenders have agreed to make such amendments upon the terms and conditions set forth below; NOW, THEREFORE, for valuable consideration hereby acknowledged, the Borrower, the Lenders and the Agent agree as follows: Section 1. Definitions. Unless otherwise defined herein, terms are used ----------- herein as defined in the Credit Agreement. Section 2. Amendment of Section 1.01. Section 1.01 of the Credit ------------------------- Agreement is hereby amended by (a) deleting the definitions of "Total Liabilities" and "Tangible Net Worth," (b) adding the following new definitions of "Future Minimum Rent Obligations" and "Net Stock Repurchase Amount," and (c) deleting the definitions of "Co-Agent," "Commitment," "Conversion Date," "EBDIT," "Fixed Charge Coverage Ratio," "Interest Coverage Ratio," "Quarterly Compliance Certificate," "Related Business," "Specified Percentage," and "Total Senior Debt" and inserting in place thereof the following new definitions thereof (all in the appropriate alphabetical order): "Co-Agent" means NationsBank of Tennessee, N.A., a national banking -------- association. "Commitment" means $235,000,000, as reduced from time to time ---------- pursuant to Section 2.04 hereof. "Conversion Date" means the last Business Day of December 1996, as --------------- extended (if extended) pursuant to Section 2.05 hereof. "EBDIT" means, for any Person and its Subsidiaries determined on a ----- consolidated basis, the sum of pre-Tax income (before deduction of minority interests), plus depreciation, amortization, and interest expense, all determined in accordance with GAAP, minus Dividends paid in cash pursuant to Section 6.08 hereof to the extent not otherwise deducted in the calculation of income, and adjusted (a) to exclude (i) any extraordinary or non- recurring non-cash items deducted from or included in the calculation of pre-Tax income, (ii) the proportionate share of such income for the period prior to sale that is attributable to any equity interest in a consolidated Subsidiary that has been sold, and (iii) the income statement effect attributable to any consolidated Subsidiary (or any business or entity included therein) of which substantially all assets have been sold and (b) to include, in the case of any acquisition of any business or entity that becomes or is included in a consolidated Subsidiary of the Borrower in accordance with Section 6.06(b) or (c) hereof, the sum of pre-Tax income (before deduction of minority interests), plus depreciation, amortization and interest expense of such business or entity, during the period, if any, that such business or entity was not included in the consolidated financial statements of the Borrower and its Subsidiaries, all determined in accordance with GAAP and adjusted to exclude any extraordinary or non- recurring non-cash items deducted from or included in the calculation of pre-Tax income during such period. "Fixed Charge Coverage Ratio" means, for the Borrower and its --------------------------- Subsidiaries determined on a consolidated basis and calculated for the four fiscal quarters ending on the date of calculation, the ratio of (a) EBDIT (as adjusted below), (i) plus operating lease payments, (ii) minus Dividends paid in cash to minority interests (as adjusted below), Capital Expenditures not financed by borrowed money or by Capital Leases (excluding the costs of any acquisition permitted under Section 6.06(e) hereof), and Taxes paid in cash, and (iii), in the case of any acquisition of any business or entity that becomes or is included in a consolidated Subsidiary of the Borrower in accordance with Section 6.06(b) or (c) hereof, plus (A) operating lease payments of such business or entity for the period, if 2 any, during such four fiscal quarters that such business or entity was not included in the consolidated financial statements of the Borrower and its Subsidiaries, and minus (B) Capital Expenditures not financed by borrowed money or by Capital Leases for such business or entity and Taxes paid in cash for such business or entity, determined on a pro forma basis for such period as if such business or entity had been separately taxable, to (b) principal paid with respect to Debt (excluding revolving lines of credit that do not mature within one year and Debt refinanced in accordance with this Agreement), interest expensed with respect to Debt, and operating lease payments, plus, in the case of any such acquisition, (i) (without duplication) interest expensed with respect to Debt incurred or assumed by the Borrower or any of its Subsidiaries in connection with such acquisition, determined on a pro forma basis for the period, if any, during such four fiscal quarters that such business or entity was not included in the consolidated financial statements of the Borrower and its Subsidiaries as if the acquisition had been made at the beginning of such period and assuming, in the case of variable rate interest, that the interest rate of such Debt equaled the average interest rate payable under this Agreement during such period, and (ii) operating lease payments of such business or entity for such period. Solely for determining compliance with Section 6.01(c) hereof, the following adjustments shall be made as to each rehabilitation hospital located on or constituting part of real property leased by the Borrower or any Subsidiary under an operating lease if such operating lease does not expressly provide that the Agent may become the owner of or assign to another Person the Borrower's or such Subsidiary's interest in such lease and related agreements, so long as the Agent becomes the owner or the assignee is reasonably acceptable to the lessor or the lessor's lender, unless such lease was in effect on August 28, 1991: 1. there shall be excluded from EBDIT 50% of the EBDIT attributable to such rehabilitation hospital (accounting for such rehabilitation hospital as a separate Subsidiary or division of the Borrower); and 2. in the case of a Subsidiary which operates such a rehabilitation hospital, only 50% of the Dividends paid in cash to minority interests and attributable to such rehabilitation hospital shall be deducted from EBDIT. 3 "Future Minimum Rent Obligations" means, as of any date, the present ------------------------------- value of all future minimum lease payments under all non-cancelable operating leases of facilities and equipment of the Borrower and its Subsidiaries (exclusive of contingent lease payments), on a consolidated basis. For the purposes of the foregoing, such minimum lease payments under any operating lease shall be determined in accordance with GAAP, and the present value of such minimum lease payments shall be determining using as a discount rate the base lease rate of the lessor specified in or reasonably implied from such lease (or, in the absence of such specification or implication, the average of all base lease rates in such leases which specify or reasonably imply a base lease rate) compounded monthly. "Interest Coverage Ratio" means, for the Borrower and its Subsidiaries ----------------------- determined on a consolidated basis and calculated for the four fiscal quarters ending on the date of calculation, the ratio of (a) EBDIT (as adjusted below), plus operating lease payments, plus, in the case of any acquisition of any business or entity that becomes or is included in a consolidated Subsidiary of the Borrower in accordance with Section 6.06(b) or (c) hereof, operating lease payments of such business or entity for the period, if any, during such four fiscal quarters that such business or entity was not included in the consolidated financial statements of the Borrower and its Subsidiaries, to (b) interest expensed with respect to Debt and operating lease payments, plus, in the case of any such acquisition, (i) (without duplication) interest expensed with Debt incurred or assumed by the Borrower or any of its Subsidiaries in connection with such acquisition, determined on a pro forma basis for the period, if any, during such four fiscal quarters that such business or entity was not included in the consolidated financial statements of the Borrower and its Subsidiaries as if the acquisition had been made at the beginning of such period and assuming, in the case of variable rate interest, that the interest rate of such Debt equaled the average interest rate payable under this Agreement during such period, and (ii) operating lease payments of such business or entity for such period. Solely for determining compliance with Section 6.01(d) hereof, EBDIT shall be adjusted to exclude therefrom 50% of the EBDIT attributable to each rehabilitation hospital (accounting for such rehabilitation hospital as a separate Subsidiary or division of the Borrower) located on or constituting part of real property leased by the Borrower or any Subsidiary under an operating lease if such operating lease does not expressly provide that the Agent may become the owner of or assign to another Person 4 the Borrower's or such Subsidiary's interest in such lease and related agreements, so long as the Agent becomes the owner or the assignee is reasonably acceptable to the lessor's lender, unless such lease was in effect on August 28, 1991. "Net Stock Repurchase Amount" means, as of any date, the aggregate --------------------------- purchase price for all repurchases of capital stock of the Borrower made during the period of determination pursuant to the last proviso in Section 6.08 hereof, less the aggregate net cash proceeds, if any, received by the Borrower from the sales of any such repurchased capital stock held in treasury and the issuance of shares of capital stock of the Borrower during such period. "Quarterly Compliance Certificate" means a certificate of the chief -------------------------------- financial officer or the treasurer of the Borrower, substantially in the form of Exhibit 1 to the Seventh Amendment to this Agreement, (a) certifying that such individual has no knowledge that a Default or Event of Default has occurred and is continuing, or if a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action being taken or proposed to be taken with respect thereto, (b) setting forth detailed calculations with respect to the representations set forth in Section 5.13 hereof and the covenants described in Sections 6.01, 6.05(a), 6.06(b), 6.07, 6.08 and 6.10(iv) hereof and (c) in the case of the calculations for Section 6.01(g) hereof, providing the elements of such calculations for Future Minimum Rent Obligations. "Related Business" means the provision of medical rehabilitation ---------------- programs and services (whether in an inpatient or outpatient setting or on a contract services basis), the provision of therapy services and locum tenens services and the provision of management services for healthcare institutional, physician and other providers, including without limitation the operation of inpatient and outpatient centers, residential care centers, transitional living centers and ambulatory surgery centers, the provision of home healthcare, diagnostic testing and laboratory services, and the provision of practice management and other healthcare provider management services, and activities incidental to or supporting the competitive position of the Borrower and its Subsidiaries in any of such businesses. "Specified Percentage" means, as to any Lender, the percentage -------------------- indicated beside its name on the signature pages of the Seventh Amendment to this Agreement, or 5 specified in a notice by the Agent to the Borrower in connection with an assignment pursuant to Section 9.04 hereof or a reduction in the Commitment pursuant to Section 2.04(a) hereof. "Total Senior Debt" means for the Borrower and its Subsidiaries ----------------- determined on a consolidated basis, the aggregate amount owing with respect to all Debt for borrowed money, except Subordinate Debt. Section 3. Amendment of Section 2.03. Section 2.03 of the Credit Agree- ------------------------- ment is hereby amended by adding the following new subsection (g): (g) The Borrower agrees to pay to the Agent, for the account of each Lender (other than Corestates Bank, N.A., for which the applicable fee is the subject of a separate letter agreement), an amendment fee equal to 0.1875% times the dollar amount represented by such Lender's Specified Percentage of the Commitment after giving effect to the Seventh Amendment to this Agreement. The Lenders acknowledge that no amendment fee shall be payable pursuant to subsection (f) of this Section 2.03. Section 4. Amendment of Section 2.05. Section 2.05 of the Credit ------------------------- Agreement is hereby amended by deleting the word "September" in subsection (b) thereof and inserting in place thereof the word "December." Section 5. Amendment of Section 5.06. Section 5.06 of the Credit ------------------------- Agreement is hereby amended by deleting the period at the end of the second sentence thereof and inserting in place thereof the following: ", except that the Borrower may repurchase shares of its capital stock in accordance with Section 6.08 hereof." Section 6. Amendment of Section 6.01. Section 6.01 of the Credit ------------------------- Agreement is hereby amended by (a) deleting the texts of subsections (a) and (b) in their entirety and inserting in place thereof the phrase "[Intentionally Omitted]," (b) deleting the date "June 30, 1994" from subsections (c) and (d) thereof and inserting in place thereof the words "the Conversion Date," and (c) deleting subsection (f) and inserting in place thereof new subsections (f) and (g) to read as follows: (f) Total Senior Debt shall not at any time exceed 6.5 times the net income of the Borrower and its Subsidiaries for the most recent four fiscal quarters, determined in accordance with GAAP on a consolidated basis, minus Dividends paid in cash pursuant to Section 6.08 hereof, plus $80,000,000 for any calculation 6 made from April 1, 1992 through September 30, 1992, and adjusted (i) to exclude (A) the effect of any extraordinary or non-recurring non-cash items, (B) the proportionate share of net income for the period prior to sale that is attributable to any equity interest in a Subsidiary that has been sold, and (C) the net income attributable to any Subsidiary (or any business or entity included therein) of which substantially all assets have been sold and (ii) to include, in the case of any acquisition of any business or entity that becomes or is included in a Subsidiary of the Borrower in accordance with Section 6.06(b) or (c) hereof, (A) the net income of such business or entity, determined in accordance with GAAP and adjusted to exclude the effect of any extraordinary or non-recurring non-cash items, for the period, if any, during such four fiscal quarters that such business or entity was not included in consolidated financial statements of the Borrower and its Subsidiaries, less (B) (without duplication) interest expense (net of any related Tax savings associated with such expense) for any Debt incurred or assumed by the Borrower or any of its Subsidiaries in connection with such acquisition, determined on a pro forma basis for such period as if such acquisition had been made at the beginning of such period and assuming, in the case of variable rate interest, that the interest rate of such Debt equaled the average interest rate payable under this Agreement during such period. Notwithstanding any provision in this Section 6.01(f) to the contrary, net income of the Borrower and its Subsidiaries shall be adjusted to exclude 50% of the net income attributable to each rehabilitation hospital (accounting for such rehabilitation hospital as a separate Subsidiary or division of the Borrower) located on or constituting part of real property leased by the Borrower or any Subsidiary under an operating lease if such operating lease does not expressly provide that the Agent may become the owner of or assign to another Person the Borrower's or such Subsidiary's interest in such lease and related agreements, so long as the Agent becomes the owner, or the assignee is reasonably acceptable to the lessor or the lessor's lender, unless such lease was in effect on August 28, 1991. (g) The ratio of (i) the sum of (A) Total Debt and (B) Future Minimum Rent Obligations to (ii) the sum of (A) Total Debt, (B) Future Minimum Rent Obligations and (C) shareholders' equity (including minority interests of operating subsidiaries) shall not be greater than the following at the end of any fiscal quarter of the Borrower ending during the following periods: 7
Period Ratio ------ ----- December 31, 1993 0.750 to 1 through June 29, 1994 June 30, 1994 0.725 to 1 through June 29, 1995 June 30, 1995 0.700 to 1 through June 29, 1996 June 30, 1996 0.675 to 1 through June 29, 1997 June 30, 1997 0.650 to 1 and thereafter
Section 7. Amendment of Section 6.02. Section 6.02 of the Credit ------------------------- Agreement is hereby amended by deleting the phrase "Total Liabilities," from subsection (k) thereof. Section 8. Amendment of Section 6.08. Section 6.08 of the Credit ------------------------- Agreement is hereby amended by deleting the period at the end thereof and inserting in place thereof the following: ; and provided also that, in addition to the foregoing, the Borrower may repurchase shares of its capital stock so long as no Default or Event of Default shall then exist or would result therefrom (after giving pro forma effect thereto as if such repurchase had occurred at the end of the fiscal quarter of the Borrower then most recently ended for the purposes Section 6.01 hereof) and provided that, after giving effect thereto, (i) the Net Stock Repurchase Amount during the period beginning January 1, 1994 and ending on the date of determination shall not exceed $50,000,000, less the aggregate amount of any loans or guarantees made pursuant to Section 6.10(iv) hereof outstanding as of the date of determination and (ii) the Net Stock Repurchase Amount during any fiscal year of the Borrower may not exceed the sum of $10,000,000 plus, in the case of fiscal years after fiscal 1994, (to the extent not theretofore utilized for any other fiscal year) 50% of the sum of the respective amounts, if any, by which $10,000,000 exceeded the Net Stock Repurchase Amount during each preceding fiscal year commencing with fiscal 1994. Section 9. Amendment of Section 6.10. Section 6.10 of the Credit ------------------------- Agreement is hereby amended by deleting the first sentence thereof in its entirety and inserting in place thereof the following: 8 The Borrower shall not, and shall not permit any of its Subsidiaries to, make any Investment, except (i) Investments in Cash Equivalents, (ii) loans made to Borrowing Subsidiaries in accordance with Section 6.19 hereof, (iii) Investments in a minority equity interest in a Person in accordance with Section 6.06(b) and (c) hereof, so long as no Default or Event of Default shall then exist or result therefrom, and (iv) loans from the Borrower or any of its Subsidiaries made to, or guaranties by the Borrower or any of its Subsidiaries of loans made by others to, any entity in which the Borrower or any of its Subsidiaries has a minority equity interest or to which the Borrower or any of its Subsidiaries provides as part of a Related Business contract services, provided that such loans and guaranties do not exceed in aggregate amount $50,000,000, less the then Net Stock Repurchase Amount, at any time outstanding, and provided further that the following conditions are satisfied: (A) no Default or Event of Default shall then exist or result therefrom, (B) the use of the proceeds of any such loans (whether from the Borrower, any of its Subsidiaries or others) shall be reasonably expected by the Borrower to further a Related Business of the Borrower or any of its Subsidiaries, (C) the Borrower or its Subsidiary shall have customary rights of subrogation in respect of any such guaranty, (D) any such loan (whether from the Borrower, any of its Subsidiaries or others) shall be payable in equal installments (whether annually or more frequently) under no more than a 30-year amortization schedule with a final maturity of no more than ten years, and (E) such loan and such entity's obligations in respect of such guaranty shall be evidenced by a promissory note or other repayment agreement which shall be pledged to the Agent, together with all evidences thereof, pursuant to a security agreement, creating a first priority security interest, substantially in the form of the Amended and Restated Security Agreement of Borrower. Section 10. Amendment of Section 6.18. Section 6.18 of the Credit ------------------------- Agreement is hereby amended by inserting before the phrase "and for other general corporate purposes" the following phrase: "to repurchase shares of its capital stock to the extent permitted by the last proviso in Section 6.08 hereof." Section 11. Amendment of Pledge Agreement. Section 1.01 of the Amended ----------------------------- and Restated Pledge Agreement of Borrower is hereby amended by inserting after the words "Insurance Subsidiary" the following phrase: "or the Pledgor." 9 Section 12. New Lender; Outstanding Amounts. Immediately prior to the ------------------------------- close of business on December 31, 1993, (i) The Dai-ichi Kangyo Bank, Limited will assign all of its interests, representing $10,000,000 in the aggregate of the Commitment, in all outstanding Advances and Letters of Credit to Citibank, N.A., (ii) Maryland National Bank will assign all of its interests, representing $30,000,000 in the aggregate of the Commitment, as Co-Agent, in all outstanding Advances and Letters of Credit to NationsBank of Tennessee, N.A., (iii) and NationsBank of Tennessee, N.A. will then assign a portion of its interests, representing $10,000,000 in the aggregate of the Commitment, in all outstanding Advances and Letters of Credit to Corestates Bank, N.A., each pursuant to Section 9.04(a) of the Credit Agreement. In addition, effective as of the close of business on such date, the $10,000,000 increase in the Commitment under the Credit Agreement effected by this Seventh Amendment will be assumed by Corestates Bank, N.A. Each of such assignments and such assumption are subject to the satisfaction of the conditions set forth in Section 13(b) hereof. At all times before such assignments and such assumption, the Lenders shall fund all Advances and participate in all Letters of Credit under the Credit Agreement, and be entitled to all interest, fees and other amounts payable in respect thereof, as provided in the Credit Agreement prior to the effectiveness of the amendments effected by this Seventh Amendment. From and after such assignments and such assumption, the Lenders shall fund all Advances and participate in all Letters of Credit under the Credit Agreement, and be entitled to all interest, fees and other amounts payable in respect thereof, in accordance with their Specified Percentages (after giving effect to the amendments effected by this Seventh Amendment). The Borrower shall cause all Advances outstanding immediately prior to such assignment and such assumption to be Base Rate Advances. Effective as of the close of business on December 31, 1993, the Borrower shall prepay all Advances then outstanding pursuant to Section 2.06(a) of the Credit Agreement from the proceeds of simultaneous Advances pursuant to Section 2.01(a) of the Credit Agreement. The Lenders shall make such adjustments among themselves as the Agent may reasonably request to give effect to the foregoing. Section 13. Effectiveness of Seventh Amendment; Conditions to Amendments. ------------------------------------------------------------ (a) This Seventh Amendment shall be effective pursuant to Section 9.01 of the Credit Agreement upon the execution of this Seventh Amendment by the Agent and all of the Lenders. (b) The amendments effected by Sections 2 through 11 of this Seventh Amendment shall become effective on 10 the close of business on December 31, 1993, provided that the following shall be satisfied, in a manner acceptable to the Agent, on or before such date: (i) The Borrower shall have delivered a Note payable to the order of Corestates Bank, N.A., in the maximum principal amount of such Lender's Specified Percentage of the Commitment (after giving effect to the amendments effected by this Seventh Amendment), which Note shall be duly executed, with all blanks appropriately completed. (ii) The Borrower and each corporate Subsidiary executing the Consent and Agreement attached hereto shall have delivered to the Agent a Secretary's Certificate certifying (A) that the copies of its certificate or articles of incorporation and bylaws previously delivered to the Agent are in full force and effect, without amendment in any material respect which affects the transaction contemplated by this Seventh Amendment, (B) that the copy of its resolutions authorizing the execution and delivery of this Seventh Amendment and the other documents contemplated thereby is true and correct, and that such resolutions are in full force and effect, and (C) that the certificates previously delivered to the Agent certifying the incumbency, name, and signature of each officer authorized to sign Loan Papers on its behalf are true and complete, and in full force and effect. Each Subsidiary of the Borrower that is a partnership and is executing such Consent and Agreement shall have delivered to the Agent a Certificate of a General Partner certifying (1) that the copy of its partnership agreement previously delivered to the Agent is in full force and effect, without amendment in any material respect which affects the transaction contemplated by this Seventh Amendment, and (2) that the certificates previously delivered to the Agent certifying the incumbency, name, and capacity of each person authorized to sign Loan Papers on its behalf are true and complete, and in full force and effect. The Agent, Lenders, and Issuing Bank may conclusively rely on certificates delivered pursuant to this paragraph until the Agent receives notice in writing to the contrary. (iii) All of the Subsidiary Guarantors and Borrowing Subsidiaries shall have executed and delivered the Consent and Agreement attached to this Seventh Amendment. 11 (iv) The Agent shall have received an opinion of counsel to the Borrower and its Subsidiaries, in form and substance satisfactory to the Agent, (A) that this Seventh Amendment and the other Loan Papers delivered pursuant to this Seventh Amendment have been duly authorized, executed and delivered by the Borrower and its Subsidiaries and constitute the legal, valid, and binding obligations of the Borrower and its Subsidiaries, enforceable in accordance with their respective terms (subject as to enforcement of remedies to any applicable bankruptcy, reorganization, moratorium, or similar Laws or principles of equity affecting enforcement of creditors' rights generally), (B) that the execution, delivery and performance of this Seventh Amendment and such Loan Papers do not violate any law of the Commonwealth of Pennsylvania or any federal Law of the United States of America or constitute a breach of or a default under, or result in or require the creation of any Lien under, any indenture, instrument, or other agreement, known to such counsel, pursuant to which the Borrower has borrowed money or issued securities, and (C) as to such other matters as the Agent deems appropriate. (v) On December 31, 1993, (A) no Default or Event of Default under the Credit Agreement (before and after giving effect to the transactions contemplated hereby) shall exist, (B) the representations and warranties set forth in Article V of the Credit Agreement shall be true and correct (before and after giving effect to the transactions contemplated hereby), and (C) the Borrower shall have complied with all agreements and conditions to be complied with by it under the Credit Agreement and other Loan Papers by such date; and the Borrower shall have delivered to the Agent a certificate of a duly authorized officer to such effect. (vi) The Agent shall have received certificates from the Secretaries of State and other appropriate officials of the States of Delaware and Pennsylvania, to the effect that the Borrower is in good standing and duly organized. (vii) The Borrower shall have paid the fees required by Section 2.03(g) of the Credit Agreement, as amended hereby. (viii) The Agent shall have received such other documents, instruments, and certificates as it shall 12 deem necessary or appropriate in connection with this Seventh Amendment and the transactions contemplated hereby. Section 14. Representations and Warranties. The Borrower represents and ------------------------------ warrants that this Seventh Amendment has been duly authorized, executed and delivered by the Borrower and constitutes the Borrower's legal, valid, and binding obligation, enforceable in accordance with its terms (subject as to enforcement of remedies to any applicable bankruptcy, reorganization, moratorium, or similar laws or principles of equity affecting the enforcement of creditors' rights generally). The Borrower further represents and warrants that (a) there exists no Default or Event of Default under the Credit Agreement on the date hereof (before and after giving effect to the transactions contemplated hereby), (b) the representations and warranties set forth in Article V of the Credit Agreement are true and correct on the date hereof (before and after giving effect to the transactions contemplated hereby), and (c) it has complied with all agreements and conditions to be complied with by it under the Credit Agreement and other Loan Papers by the date hereof. Section 15. Entire Agreement; Ratification. This Seventh Amendment ------------------------------ embodies the entire agreement of the parties, and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of any parties. This Seventh Amendment supersedes any prior agreements or understandings with respect to the subject matter hereof. Except as modified or supplemented in connection herewith, the Credit Agreement and all other Loan Papers shall continue in full force and effect. SECTION 16. GOVERNING LAW. THIS SEVENTH AMENDMENT SHALL BE GOVERNED BY ------------- AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE UNITED STATES OF AMERICA. Section 17. Counterparts. This Seventh Amendment may be executed in any ------------ number of counterparts, all of which taken together shall constitute one and the same instrument. In making proof hereof, it shall not be necessary to produce or account for any counterpart other than one signed by the party against which enforcement is sought. 13 IN WITNESS WHEREOF, this Seventh Amendment to Amended and Restated Credit Agreement is executed as of the date first set forth above. BORROWER: CONTINENTAL MEDICAL SYSTEMS, INC. By /s/ Dennis L. Lehman ---------------------------- Title: Dennis L. Lehman Senior Vice President AGENT: CITIBANK, N.A., as Agent By /s/ Barbara A. Cohen ---------------------------- Title: Barbara A. Cohen Vice President LENDERS: Specified CITIBANK, N.A., individually Percentage: 25.5319149% By /s/ Barbara A. Cohen ---------------------------- Title: Barbara A. Cohen Vice President Specified NATIONSBANK OF TENNESSEE, N.A. Percentage: 19.1489362% (formerly known as Sovran Bank/Tennessee) By /s/ Patrick J. Neal ---------------------------- Title: Patrick J. Neal Assistant Vice President Specified MELLON BANK Percentage: 10.6382979% By /s/ Amy L. Evans ---------------------------- Title: Amy L. Evans Assistant Vice President 14 Specified PNC BANK, NATIONAL ASSOCIATION Percentage: 12.7659574% (formerly known as Pittsburgh National Bank) By /s/ Frank Taucher ---------------------------- Title Frank Taucher Vice President Specified THE BANK OF CALIFORNIA, N.A. Percentage: 10.6382979% By /s/ Richard Lopatt ---------------------------- Title Richard Lopatt Vice President Specified THE CHASE MANHATTAN BANK, N.A. Percentage: 12.7659574% By /s/ Elliott Jones ---------------------------- Title Elliott Jones Managing Director Specified CORESTATES BANK, N.A. Percentage: 8.5106383% By /s/ Paul Hogan ---------------------------- Title Paul Hogan Assistant Vice President 15 CONSENT AND AGREEMENT The undersigned, being all of the Subsidiary Guarantors and Borrowing Subsidiaries (each as defined in the Credit Agreement), hereby consent and agree to the foregoing Seventh Amendment to the Credit Agreement and hereby confirm their respective guarantees and grants of security interests and other obligations under the Loan Papers (as defined in the Credit Agreement), which shall remain in full force and effect and be applicable to the Credit Agreement and the Loan Papers, as amended by the foregoing Seventh Amendment, including without limitation the Note referred to in Section 13(b)(i) of the foregoing Seventh Amendment and the increase in the amount of the Commitment (as defined in the Credit Agreement) effected by the foregoing Seventh Amendment. ADVANCED CARE MEDICINE, INC. APCO MEDICAL LABORATORIES, INC. AURORA REHABILITATION HOSPITAL, INC. (SPECIFIED DEBT) BATON ROUGE REHAB, INC. BRAINTREE REHABILITATION VENTURES, INC. CAPITAL REHABILITATION HOSPITAL, INC. (formerly New London Rehabilitation Hospital, Inc.) CENTRAL ARIZONA REHABILITATION HOSPITAL, INC. CENTRAL ARKANSAS OUTPATIENT CENTERS, INC. CHICO REHABILITATION HOSPITAL, INC. CLEAR LAKE REHABILITATION HOSPITAL, INC. CMS ALEXANDRIA REHABILITATION, INC. CMS BATON ROUGE REHABILITATION, INC. CMS BEAUMONT REHABILITATION, INC. CMS CONTRA COSTA CLINIC, INC. (formerly Unit Management Group, Inc., formerly Northeast Wisconsin Rehabilitation Hospital, Inc.) CMS DENVER REHABILITATION, INC. CMS DEVELOPMENT AND MANAGEMENT COMPANY, INC. CMS ELIZABETHTOWN, INC. CMS FAYETTEVILLE REHABILITATION, INC. CMS FORT WORTH REHABILITATION, INC. CMS FRESNO REHABILITATION, INC. CMS HOUSTON REHABILITATION, INC. CMS KANSAS CITY REHABILITATION, INC. CMS OF OHIO, INC. [SIGNATURES CONTINUED ON NEXT PAGE] 16 CMS OUTPATIENT CENTERS OF NORTH TEXAS, INC. CMS OUTPATIENT CENTERS OF SOUTH TEXAS, INC. CMS PENNSYLVANIA, INC. (formerly CMS Pennsylvania Rehabilitation, Inc.) CMS REHABILITATION CENTER OF HIALEAH, INC. CMS RUSTON REHABILITATION, INC. CMS SAN DIEGO REHAB, INC. CMS SHERWOOD REHABILITATION, INC. CMS SOUTH MIAMI REHAB, INC. CMS SPORTSMED CLINIC, INC. (formerly CMS Los Gatos, Inc.) CMS TOPEKA REHABILITATION, INC. CMS TRI-CITIES REHABILITATION HOSPITAL, INC. CMS TUSTIN REHABILITATION, INC. CMS UNIT MANAGEMENT, INC. CMS WICHITA REHABILITATION, INC. CMS WORK-ABLE, INC. CMS WORK-ABLE OF PARAGOULD, INC. CMS WORKNET OF BATON ROUGE, INC. CMSI SYSTEMS OF TEXAS, INC. COLORADO OUTPATIENT CENTERS, INC. (formerly CMS Kokomo Rehabilitation, Inc.) COMMUNI-CARE OF AMERICA, INC. (SPECIFIED DEBT) COMMUNI-CARE/PRO REHAB MANAGEMENT, INC. (formerly, Alta Petens, Inc.) (SPECIFIED DEBT) COMPHEALTH, INC. COMPHEALTH MEDICAL STAFFING, INC. CONTINENTAL MEDICAL OF ARIZONA, INC. CONTINENTAL MEDICAL OF COLORADO, INC. CONTINENTAL MEDICAL OF KENTUCKY, INC. CONTINENTAL MEDICAL OF PALM BEACH, INC. CONTINENTAL MEDICAL SYSTEMS OF FLORIDA, INC. CONTINENTAL REHAB OF W.F., INC. CONTINENTAL REHABILITATION HOSPITAL OF ARIZONA, INC. ELIZABETHTOWN MANAGEMENT COMPANY, INC. FAIRFIELD REHABILITATION HOSPITAL, INC. [SIGNATURES CONTINUED ON NEXT PAGE] 17 FAIRLAND NURSING AND RETIREMENT HOME, INC. GREAT PLAINS REHABILITATION HOSPITAL, INC. HARTFORD REHABILITATION HOSPITAL, INC. HCA WESLEY REHABILITATION CLINIC OF LIBERAL, INC. (formerly CMS Chico Rehabilitation, Inc.) HCA WESLEY REHABILITATION HOSPITAL, INC. (SPECIFIED DEBT) HIALEAH CONVALESCENT CENTERS, INC. INDIANA OUTPATIENT CENTERS, INC. K.C. REHABILITATION HOSPITAL, INC. (SPECIFIED DEBT) KANSAS OUTPATIENT CENTERS, INC. KENTFIELD HOSPITAL CORPORATION KOKOMO REHABILITATION HOSPITAL, INC. LAFAYETTE REHABILITATION HOSPITAL, INC. (formerly New Bern Rehabilitation Hospital, Inc.) LOUISIANA OUTPATIENT CENTERS, INC. MANAGEMENT CARE THERAPY SERVICES, INC. MARYLAND REHABILITATION HOSPITAL, INC. MEMPHIS REHABILITATION HOSPITAL, INC. NEVADA REHABILITATION HOSPITAL, INC. NEW ALBANY REHABILITATION HOSPITAL, INC. NORTHEAST OKLAHOMA REHABILITATION HOSPITAL, INC. NORTH LOUISIANA REHABILITATION CENTER, INC. (SPECIFIED DEBT) NORTHEAST ARKANSAS REHABILITATION UNIT, INC. NORTHERN VIRGINIA REHABILITATION HOSPITAL, INC. (formerly Iliff Nursing Home, Inc.) ORANGE REHABILITATION HOSPITAL, INC. P.G. REHABILITATION HOSPITAL, INC. PALM SPRINGS REHABILITATION HOSPITAL, INC. PARK MANOR NURSING HOME, INC. PIKEVILLE REHABILITATION HOSPITAL, INC. PINELLAS-RODRIGUEZ REHABILITATIVE ASSOCIATES LIMITED, INC. PRO THERAPY OF AMERICA, INC. PRO-REHAB, INC. (SPECIFIED DEBT) PROFESSIONAL MANAGEMENT RESOURCES, INC. PROFESSIONAL THERAPY INTERNATIONAL, INC. PROFESSIONAL THERAPY STAFFING, INC. [SIGNATURES CONTINUED ON NEXT PAGE] 18 RCM MANAGEMENT COMPANY, INC. REHAB JOINT VENTURES, INC. REHAB RESOURCES, INC. (formerly Rehab America Management Services, Inc.) REHABILITATIVE ASSOCIATES, INC. REHABILITATION HOSPITAL OF COLORADO SPRINGS, INC. REHABILITATION HOSPITAL OF FORT WAYNE, INC. REHABILITATION HOSPITAL OF NEVADA - LAS VEGAS, INC. (formerly SR Sub, Inc.) REHABILITATION HOSPITAL OF PLANO, INC. REHABWORKS, INC. REHABWORKS OF CALIFORNIA, INC. (formerly, California Therapy, Inc.) RIVERDALE GARDENS NURSING HOME, INC. RMS CLINICS, INC. (formerly Continental Rehabilitation of Alexandria, Inc.) ROMANO REHABILITATION HOSPITAL, INC. SD ACQUISITION CORPORATION SD PARTNERS, INC. SAN BERNARDINO REHABILITATION HOSPITAL, INC. SELECTIVE REHABILITATIVE SERVICES, INC. SHERWOOD REHABILITATION HOSPITAL, INC. SIERRA PAIN AND OCCUPATIONAL REHABILITATION CENTER, INC. (formerly Coastal Empire Rehabilitation Hospital, Inc.) SOUTHEAST TEXAS REHABILITATION HOSPITAL, INC. TARRANT COUNTY REHABILITATION HOSPITAL, INC. TERRE HAUTE REHABILITATION HOSPITAL, INC. THE KELTON CORPORATION THE NURSING HOME AT CHEVY CHASE, INC. THE REHAB SOURCE, INC. TULSA REHABILITATION HOSPITAL, INC. TYLER REHABILITATION HOSPITAL, INC. WESTERN NEURO CARE, INC. WESTERN NEUROLOGIC RESIDENTIAL CENTERS, INC. WESTERN NEURO RESIDENTIAL, INC. WICHITA FALLS REHABILITATION HOSPITAL, INC. BEAUMONT REHAB ASSOCIATES LIMITED PARTNERSHIP (SPECIFIED DEBT) By Southeast Texas Rehabilitation Hospital, Inc., General Partner [SIGNATURES CONTINUED ON NEXT PAGE] 19 CENTRAL ARIZONA REHAB ASSOCIATES, L.P. By Central Arizona Rehabilitation Hospital, Inc., General Partner CENTRAL ARKANSAS REHABILITATION ASSOCIATES, L.P. (SPECIFIED DEBT) By Sherwood Rehabilitation Hospital, Inc., General Partner CENTRAL LOUISIANA REHAB ASSOCIATES, L.P. (SPECIFIED DEBT) By CMS Alexandria Rehabilitation, Inc., General Partner CMS REHAB OF W.F., L.P. (SPECIFIED DEBT) By Continental Rehab of W.F., Inc., General Partner CMS REHABILITATION CENTER OF SOUTH MIAMI (SPECIFIED DEBT) By CMS South Miami Rehab, Inc., General Partner COLLIN COUNTY REHAB ASSOCIATES LIMITED PARTNERSHIP (SPECIFIED DEBT) By Rehabilitation Hospital of Plano, Inc., General Partner HELMWOOD ASSOCIATES LIMITED PARTNERSHIP (SPECIFIED DEBT) By CMS Elizabethtown, Inc., General Partner HOUSTON REHABILITATION ASSOCIATES (SPECIFIED DEBT) By Romano Rehabilitation Hospital, Inc., General Partner KOKOMO REHABILITATION HOSPITAL, L.P. By Kokomo Rehabilitation Hospital, Inc., General Partner LAKEVIEW REHABILITATION GROUP PARTNERS (SPECIFIED DEBT) By Continental Medical Of Kentucky, Inc., General Partner LIFELINES REHABILITATION SERVICES (SPECIFIED DEBT) By Rehab Joint Ventures, Inc., General Partner [SIGNATURES CONTINUED ON NEXT PAGE] 20 MARYLAND REHAB ASSOCIATES, L.P. By Maryland Rehabilitation Hospital, Inc., General Partner NORTHEAST OKLAHOMA REHAB ASSOCIATES, L.P. By Northeast Oklahoma Rehabilitation Hospital, Inc., General Partner NORTHWEST ARKANSAS REHABILITATION ASSOCIATES (SPECIFIED DEBT) By CMS Fayetteville Rehabilitation, Inc., General Partner PHYSICAL THERAPY AND SPORTS MEDICINE CENTER PARTNERSHIP (SPECIFIED DEBT) By Pro Therapy of America, Inc., General Partner PRIDE/BRAINTREE JOINT VENTURE By Braintree Rehabilitation Ventures, Inc., General Partner REHAB HOSPITAL OF FORT WAYNE GENERAL PARTNERSHIP (SPECIFIED DEBT) By Rehabilitation Hospital of Fort Wayne, Inc. REHABILITATION HOSPITAL OF NEVADA - LAS VEGAS, L.P. By Rehabilitation Hospital of Nevada- Las Vegas, Inc., General Partner RENO REHAB ASSOCIATES, LIMITED PARTNERSHIP By Nevada Rehabilitation Hospital, Inc., General Partner SAN BERNARDINO REHABILITATION HOSPITAL (SPECIFIED DEBT) By San Bernardino Rehabilitation Hospital, Inc., General Partner [SIGNATURES CONTINUED ON NEXT PAGE] 21 SAN DIEGO HEALTH ASSOCIATES LIMITED PARTNERSHIP By SD Acquisition Corporation, General Partner SAN DIEGO REHAB LIMITED PARTNERSHIP (SPECIFIED DEBT) By San Diego Rehabilitation Associates, General Partner By CMS San Diego Rehab, Inc., General Partner SAN DIEGO REHABILITATION ASSOCIATES (SPECIFIED DEBT) By CMS San Diego Rehab, Inc., General Partner SAN JOAQUIN VALLEY REHABILITATION HOSPITAL, A DELAWARE LIMITED PARTNERSHIP (SPECIFIED DEBT) By Orange Rehabilitation Hospital, Inc., General Partner SOUTH DADE NURSING HOME, LTD. (SPECIFIED DEBT) By Continental Medical Systems of Florida, Inc., General Partner SOUTHERN ARIZONA REGIONAL REHABILITATION HOSPITAL, L.P. (SPECIFIED DEBT) By Continental Rehabilitation Hospital of Arizona, Inc., General Partner SPORTSMED ASSOCIATES (SPECIFIED DEBT) By CMS Sportsmed Clinic, Inc., General Partner TERRE HAUTE REGIONAL REHABILITATION HOSPITAL, L.P. (SPECIFIED DEBT) By Terre Haute Rehabilitation Hospital, Inc., General Partner TRI-CITIES REHABILITATION HOSPITAL, L.P. (SPECIFIED DEBT) By CMS Tri-Cities Rehabilitation Hospital, Inc., General Partner TULSA REHAB HOSPITAL, L.P. By Tulsa Rehabilitation Hospital, Inc., General Partner [SIGNATURES CONTINUED ON NEXT PAGE] 22 TYLER REHAB ASSOCIATES, L.P. (SPECIFIED DEBT) By Tyler Rehabilitation Hospital, Inc., General Partner By: /s/ Dennis L. Lehman ------------------------------------ Dennis L. Lehman, Vice President ACMED THERAPY TECHNOLOGIES CORP. CHS THERAPY TECHNOLOGIES CORP. CMS CAPITAL VENTURES, INC. CMS REHAB TECHNOLOGIES CORP. COA THERAPY TECHNOLOGIES CORP. REHAB CONCEPTS CORP. RWI THERAPY TECHNOLOGIES CORP. VTA THERAPY TECHNOLOGIES CORP. (formerly CMS Appleton Rehabilitation, Inc.) By: /s/ William L. Pegler ------------------------------------ William L. Pegler, Vice President ENCOMPUS, INC. By: /s/ Brad E. Hollinger ------------------------------------ Brad E. Hollinger, Vice President KANSAS REHABILITATION HOSPITAL, INC. (SPECIFIED DEBT) By: /s/ Thomas C. Kanavy ------------------------------------ Thomas C. Kanavy, Vice President CMS SAN DIEGO SURGICAL, INC. VTA MANAGEMENT SERVICES, INC. By: /s/ David G. Nation ------------------------------------ David G. Nation, Vice President 23 CMS PHYSICIAN SERVICES, INC. (formerly CMS Washington Rehabilitation, Inc.) By: /s/ Dennis L. Lehman --------------------------------- Dennis L. Lehman, Treasurer (The Exhibit to the Seventh Amendment to the Amended and Restated Credit Agreement has been omitted) 24 EX-11 3 EXHIBIT 11 Exhibit 11 Continental Medical Systems, Inc. and Subsidiaries Computation of Earnings per Share
Three Months Ended Six Months Ended December 31, March 31, 1993 1992 (1) 1993 1992 (1) ---------------------------------------- (In thousands, except per share data) Primary: Shares outstanding at beginning of period 37,168 35,888 36,935 35,560 Weighted average shares issued pursuant to: Employee benefit plans 56 111 107 210 Acquisition agreements 220 63 244 111 Dilutive effect of outstanding stock options 319 1,300 252 1,373 Contingent shares issuable pursuant to acquisition agreements 601 505 608 525 -------- -------- -------- -------- Weighted average number of shares and equivalent shares outstanding 38,364 37,867 38,146 37,779 ======== ======== ======== ======== Net income $3,788 $9,996 $11,361 $19,091 Additional goodwill amortization from contingent shares issuable pursuant to acquisition agreements (44) (47) (88) (100) Adjusted net income used in -------- -------- -------- -------- primary calculation $3,744 $9,949 $11,273 $18,991 ======== ======== ======== ======== Net income per share and equivalent share $0.10 $0.26 $0.30 $0.50 ======== ======== ======== ======== Fully Diluted: Weighted average number of shares and equivalent shares used in primary calculation 38,364 37,867 38,146 37,779 Additional dilutive effect of stock options 31 Assumed conversion of dilutive convertible debentures 234 234 234 234 -------- -------- -------- -------- Fully diluted weighted average number of shares and equivalent shares outstanding 38,598 38,101 38,411 38,013 ======== ======== ======== ======== Net income used in primary calculation $3,744 $9,949 $11,273 $18,991 Adjustment for interest expense, net of related income tax benefits 23 24 46 48 -------- -------- -------- -------- Adjusted net income used in fully diluted calculation $3,767 $9,973 $11,319 $19,039 ======== ======== ======== ======== Fully diluted net income per share and equivalent share $0.10 $0.26 $0.29 $0.50 ======== ======== ======== ========
(1) On February 23, 1993, CMS acquired Kron in a business combination accounted for as a pooling of interests. Accordingly, all share data at the beginning of the period has been restated to include the shares issued in the combination, and all financial results have been restated to include the financial results of Kron prior to February 23, 1993. -----END PRIVACY-ENHANCED MESSAGE-----