-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CYzS9of1XUIWYgbCvPs0S+Tmf8IQ9tOozq1hwuKFN2Jt3vyV52vvgyJt8UXk52Lo ig5bfiFHyMUZxW0eKojSvg== 0000874212-99-000008.txt : 19991117 0000874212-99-000008.hdr.sgml : 19991117 ACCESSION NUMBER: 0000874212-99-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CURATIVE HEALTH SERVICES INC CENTRAL INDEX KEY: 0000874212 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 411503914 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19370 FILM NUMBER: 99756104 BUSINESS ADDRESS: STREET 1: 150 MOTOR PARKWAY CITY: HAUPPAUGE STATE: NY ZIP: 11788-5145 BUSINESS PHONE: 5162327000 MAIL ADDRESS: STREET 1: 150 MOTOR PARKWAY CITY: HAUPPAUGE STATE: NY ZIP: 117885145 FORMER COMPANY: FORMER CONFORMED NAME: CURATIVE TECHNOLOGIES INC /MN DATE OF NAME CHANGE: 19930328 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- FORM 10Q ----------------- (Mark One) X Quarterly report pursuant to Section 13 or 15(d) of the Securities - ------------Exchange Act of 1934 For the quarterly period ended September 30, 1999 OR Transition report pursuant to Section 13 or 15 (d) of the Securities - ------------Exchange Act of 1934 Commission File Number: 000-19370 Curative Health Services, Inc. (Exact name of registrant as specified in its charter) MINNESOTA 41-1503914 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 150 Motor Parkway Hauppauge, NY 11788-5108 (Address of principal executive offices) Telephone Number (631) 232-7000 ------------------------------------- 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 November 1, 1999 there were 10,090,110 shares of the Registrant's Common Stock, $.01 par value, outstanding. 1 Curative Health Services, Inc. and Subsidiary INDEX Part I Financial Information Page No. Item 1 Condensed Consolidated Financial Statements: Condensed Consolidated Statements of Operations Three and Nine Months ended September 30, 1999 and 1998 3 Condensed Consolidated Balance Sheets September 30, 1999 and December 31, 1998 4 Condensed Consolidated Statements of Cash Flows Nine Months ended September 30, 1999 and 1998 5 Notes to Condensed Consolidated Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3 Quantitative and Qualitative Disclosures About Market Risk 12 Part II Other Information Page No. Item 1 Legal Proceedings 14 Item 6 Exhibits and Reports on Form 8-K 14 Signatures 15 2 Part I. Financial Information Item 1. Condensed Consolidated Financial Statements Curative Health Services, Inc. and Subsidiary CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Ended Nine Months Ended -------------------------------------- September 30, September 30, ---------------------------------- 1999 1998 1999 1998 --------------------------------- Revenues $25,979 $26,722 $76,842 $77,271 Costs and operating expenses: Cost of sales and services 15,717 14,409 45,280 41,731 Selling, general and administrative 7,150 5,944 19,652 17,530 ----- ----- ------ ------ Total costs and operating expenses 22,867 20,353 64,932 59,261 ------ ------ ------ ------ Income from operations 3,112 6,369 11,910 18,010 Interest income 469 687 1,504 1,951 --- --- ----- ----- Income before taxes 3,581 7,056 13,414 19,961 Income taxes 1,380 2,664 5,082 7,496 ----- ----- ----- ----- Net income $2,201 $4,392 $8,332 $12,465 ====== ====== ====== ======= Net income per common share, basic $.22 $.34 $.78 $.98 ==== ==== ==== ==== Net income per common share, diluted $.22 $.34 $.77 $.95 ==== ==== ==== ==== Weighted average common shares, basic 10,090 12,741 10,679 12,686 ====== ====== ====== ====== Weighted average common shares, diluted 10,121 13,041 10,847 13,080 ====== ====== ====== ======
3 Curative Health Services, Inc. and Subsidiary CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) September 30, 1999 December 31, 1998 (Unaudited) ------------------------------------- ASSETS Cash and cash equivalents $12,933 $24,222 Marketable securities held-to-maturity 30,675 45,830 Accounts receivable, net 21,488 19,871 Deferred tax assets 1,042 1,042 Prepaids and other current assets 1,312 1,179 ----- ----- Total current assets 67,450 92,144 Property and equipment, net 12,523 13,366 Other assets 4,236 3,611 ----- ----- Total assets $84,209 $109,121 ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $12,700 $13,497 Accrued liabilities 2,068 2,221 Current portion capital lease obligations - 7 ------- ------- Total current liabilities 14,768 15,725 Stockholders' equity Common stock 100 127 Additional paid in capital 46,739 79,000 Retained earnings 22,602 14,269 ------ ------ Total stockholders' equity 69,441 93,396 ------ ------ Total liabilities and stockholder's equity $84,209 $109,121 ======= ======== 4 Curative Health Services, Inc. and Subsidiary CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Nine Months Ended September 30, ------------------------------- 1999 1998 ---- ---- OPERATING ACTIVITIES: Net income $ 8,332 $ 12,465 Adjustments to reconcile net income to net cash provided by operating activities: Equity in operations of investee 408 - Depreciation and amortization 2,983 2,194 Changes in operating assets and liabilities (2,772) (2,560) ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 8,951 12,099 INVESTING ACTIVITIES: Investment in Accordant Health Services, Inc. (1,000) (2,000) Purchase of property and equipment (2,101) (5,888) Sales (Purchases) of marketable securities 15,155 (31,095) ------ -------- NET CASH PROVIDED BY(USED IN) INVESTING ACTIVITIES 12,054 (38,983) FINANCING ACTIVITIES: Stock repurchases (32,320) - Proceeds from exercise of stock options 33 1,863 Principal payments on loans and capital lease obligations (7) (30) -------- ------ NET CASH (USED IN)PROVIDED BY FINANCING ACTIVITIES (32,294) 1,833 DECREASE IN CASH AND CASH EQUIVALENTS (11,289) (25,051) Cash and cash equivalents at beginning of period 24,222 39,746 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,933 $ 14,695 ======== ======== SUPPLEMENTARY CASH FLOW INFORMATION: Interest paid $ 0 $ 3 = =
5 Curative Health Services, Inc. and Subsidiary NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1. Basis of Presentation The condensed consolidated financial statements are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 1998 and notes thereto contained in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. The results of operations for the nine months ended September 30, 1999 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 1999. Note 2. Net Income per Common Share Net income per common share, basic is computed by dividing the net income by the weighted average number of common shares outstanding. Net income per common share, diluted is computed by dividing net income by the weighted average number of shares outstanding plus dilutive common share equivalents. The following table sets forth the computation of basic and diluted earnings per share (in thousands): Three Month Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 ---------------------------------------- Weighted average shares, basic 10,090 12,741 10,679 12,686 Effect of diluted stock options 31 300 168 394 -- --- --- --- Weighted average shares, diluted 10,121 13,041 10,847 13,080 ====== ====== ====== ====== Note 3. Legal Proceedings On April 7, 1999 the Company announced that it had received a document subpoena from the Office of Inspector General of the U.S. Department of Health and Human Services, Region II (New York, NY). The subpoena directs the Company to produce a broad range of documents from January 1, 1993 to the present relating to various areas including, among others, the Wound Care Centers, wound care treatment programs and general business practices. The subpoena states that it has been delivered in connection with a "Health Care Investigation". The Company is complying with the subpoena and is furnishing the requested documents. 6 On April 12, 1999 the Company announced that a press release from the United States Department of Justice was released on Friday, April 9, 1999, alleging that the Company made improper charges to Columbia/HCA hospitals as well as other hospitals. The Company has obtained a copy of the complaint filed by a "whistleblower" relator under the Federal civil False Claims Act. The case has been filed as United States ex rel. Joseph "Mickey" Parslow v. Columbia/HCA Healthcare Corporation and Curative Health Services, Inc., and has been assigned civil case number 98-1260-civ-T-23F, in the Federal District Court for the Middle District of Florida, Tampa Division. An amended complaint, originally anticipated to be filed by August 6, 1999, was extended until October 22, 1999. The Department of Justice contacted the Company, through its outside legal counsel, seeking an additional four month extension. The Company has agreed to an extension and anticipates receiving the amended complaint on or before February 18, 2000. The "whistleblower's" complaint alleges that: the Company's charges were excessive; the Company shifted costs from non-allowable services to allowable services; included charges for advertising costs that were not allowable to the hospital claiming reimbursement from the Medicare program; and violated the "anti-kickback" statute because a portion of the Company's fee was based on the number of new patients seen in the Wound Care Centers managed by the Company. The Company disagrees with these characterizations of its contractual arrangements, its services, and the fees it charges for those services. The Company does not believe that it "refers, recommends or arranges" for a hospital's services in exchange for kickbacks. The Company also believes that its charges are fair market value for the services that it furnishes, as supported by the fact that more than 170 hospitals have entered into contracts with the Company for its services in managing Wound Care Centers. The Company's charges cover not only direct costs for management services but also the Company's intellectual property, which includes a unique data base and clinical pathways that have proven effective in healing intractable wounds in more than 80 percent of the patients that have completed treatment. These are patients who otherwise would likely have had to have amputations or other invasive, expensive, and possibly disabling or disfiguring services. The Company has expended millions of dollars in developing and maintaining its clinical pathways, and also in training physicians and other clinicians in its clinical pathways. The Company notes that the contracts challenged in the "whistleblower's" civil suit are contracts that its hospital customers have generally been required to furnish to Medicare auditors as part of annual cost report filings. In hundreds of instances, the Company's fees to its hospital customers have been allowed in full, sometimes after a detailed audit. The Company, itself, is neither a provider nor a supplier participating in the Medicare program and does not receive payments from the Medicare program. The Company has a formal compliance program and management believes that the Company is in material compliance with applicable laws and ethical business practices. In the conduct of its business, the Company has relied on the advice and guidance of nationally recognized law firms in structuring its business relationships with its hospitals. In this pending litigation, the Company intends to defend itself vigorously. Subsequent to the disclosure of the Justice Department action, the Company and, in some cases, certain of its officers and directors were named in four shareholder lawsuits filed in the United States District Court for the Eastern District of New York. The lawsuits allege generally that the Company and its officers violated federal securities laws by disseminating materially false and misleading statements and failing to disclose material information relating to the contractual relationships with Columbia/HCA Healthcare Corporation and other hospitals, and certain purported misrepresentations in connection therewith. The suits seek to recover unspecified damages from defendants. The Company denies the allegations and intends to vigorously defend the suits. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Revenues. The Company's revenues for the third quarter of fiscal year 1999 decreased 2.8 percent to $25,979,000 compared to $26,722,000 for the third quarter of the prior fiscal year. During the third quarter of 1999 the Company opened 2 new Wound Care Centers , closed 2 and signed 5 new contracts. The Company ended the third quarter 1999 with 8 Wound Care Centers contracted to open. The Company operated 160 hospital based Wound Care Centers at the end of the third quarter 1999 compared to 152 at the end of the third quarter 1998. The revenue decrease for the third quarter 1999 is attributable to the renegotiation of several existing contracts which resulted in reduced revenues to the Company, including 24 with Columbia/HCA Healthcare Corporation, contract terminations, and a reduction in Procuren revenues as the result of a decline in Procuren patients. At any time during the year, 10 percent to 20 percent of the Company's contracts are being re-negotiated with the client hospital for a variety of contractual terms or issues. Historically, some contracts have expired without renewal and others have been terminated by the Company or the client hospital for various reasons prior to their scheduled expiration. Hospitals are currently facing financial challenges associated with lower occupancy rates and reduced revenue streams due to pricing pressures from third party payors. Program terminations by client hospitals have been effected for such reasons as financial restructuring, layoffs, bankruptcies or even hospital closings. The termination or non-renewal of a material number of management contracts could result in a continued decline in the Company's revenue. As the result of the recent legal action against the Company, further unanticipated terminations or non-renewals may take place. Additionally, new business development has been slower than normal given the legal uncertainties facing the Company. Any inability of the Company to develop new Wound Care Centers could further the revenue decline. The Company has a number of initiatives to counter the decline in revenue, although there can be no assurance that the initiatives will be successful. Total new patients increased 4 percent from 15,551 in the third quarter of 1998 to 16,225 for the same period in 1999. The total number of new patients receiving Procuren(R) therapy decreased from 2,047 in the third quarter of 1998 to 1,359 in the third quarter of 1999. The percentage of patients receiving Procuren(R) therapy decreased during the third quarter of 1999 to 8 percent from 13 percent for the same period in 1998. For the first nine months of 1999 revenues totalled $76,842,000 compared to $77,271,000 for the same period in 1998 representing flat year over year growth. The lack of growth in revenues for the nine months ended September 30, 1999 is attributable to the renegotiations of contracts, contract terminations and a reduction in Procuren revenues as the result of a decline in Procuren patients. During the nine months ended September 30, 1999 the Company opened 22 new Wound Care Centers and had contract terminations at 16 existing Wound Care Centers. The 16 contract terminations included 8 Columbia/HCA Wound Care Centers. Additionally, one contract terminated prior to opening. The Company signed contracts for 13 new Wound Care Centers for the nine months ended September 30, 1999. Total new patients to the wound care facilities for the first nine months of 1999, were 46,706 compared to 44,066 for the same period in 1998, an increase of 6 percent. The total number of new patients receiving Procuren therapy decreased 26 percent to 4,665 in the first nine months of 1999 from 6,298 in the first nine months of 1998. The Company believes that this decrease is attributable to an increase in the percentage of less severe chronic wounds being treated at the Company's Wound Care Centers(R), for which physicians are less likely to prescribe Procuren(R), a lack of available reimbursement for Medicare patients, the inability of hospitals to assume collection risks due to financial constraints and increased competition from other wound healing products. The Company anticipates that the percentage of patients receiving Procuren(R) will continue to decline gradually in the future. 8 Costs of Product Sales and Services. Costs of product sales and services for the third quarter increased from $14,409,000 in 1998 to $15,717,000 in 1999, an increase of 9 percent and for the first nine months of 1999 totalled $45,280,000 compared to $41,731,000 for the same period in 1998. For the third quarter 1999 the increase is attributable to additional clinical staffing and operating expenses of approximately $792,000 associated with the operation of 10 additional under arrangement Wound Care Centers at the end of the quarter of 1999 as compared with the same period in 1998, and an increase of $367,000 of clinical and staffing expenses at existing under arrangement centers. As a percentage of revenues, costs of product sales and services for the third quarter of 1999 was 60 percent compared to 54 percent for the same period in 1998. The six percent increase is attributed to the lower revenue and negative same store sales growth which decreased margins and created an inability to leverage expenses over a broader revenue base. For the first nine months of 1999, cost of product sales and services increased 8 percent. The increase is attributable to additional staffing and operating expenses of approximately $2,958,000 associated with the operation of 32 additional Wound Care Centers at the end of the third quarter 1999, offset by $2,522,000 associated with 24 closed centers. Further, the operating Wound Care Centers include 10 additional under arrangement Wound Care Centers at which the services component of costs is higher than at the Company's other centers due to the additional clinical staffing and expenses that these models require. As compared with the first nine months of 1998, the higher services components at these centers along with existing under arrangement centers accounted for $3,302,000 of the increase in product costs and services for the first nine months of 1999. Selling, General and Administrative. Selling, general and administrative expenses for the third quarter increased from $5,944,000 in 1998 to $7,150,000 in 1999, an increase of 20 percent and for the first nine months of 1999 increased 12 percent to $19,652,000 compared to $17,530,000 for the same period in 1998. The increases for both the third quarter and nine months are primarily attributable to legal and other costs of approximately $750,000 and $1,500,000, respectfully, related to the Department of Justice action, the Office of Inspector General's document subpoena and shareholder class action lawsuits. The Company expects to continue to incur significant legal and other related costs until the aforementioned actions are resolved. As a percentage of revenues, selling, general and administrative expenses were 28 percent in the third quarter of 1999 compared to 22 percent in the third quarter of 1998 and for the nine months were 26 percent compared to 23 percent for the same period in 1998. Net Income. Net income was $2,201,000 or $0.22 per diluted share in the third quarter of 1999 compared to $4,392,000 or $0.34 per diluted share in the third quarter of 1998, and for the first nine months of 1999 net income was $.77 per diluted share compared to $.95 per diluted share for the same period in 1998. The decrease in earnings for the third quarter and first nine months of 1999 is attributable to a reduced revenue base which impacted wound care center margins and the additional unanticipated legal and other costs. Liquidity and Capital Resources. Working capital was $52.7 million at September 30, 1999 compared to $76.4 million at December 31, 1998. Total cash, cash equivalents and marketable securities held-to-maturity as of September 30, 1999 was $43.6 million and was invested primarily in highly liquid money market funds, commercial paper and government securities. The Company's cash and cash equivalents declined from $70 million at December 31, 1998 to $43.6 million at September 30, 1999. The decline is primarily attributable to the use of $32 million for the repurchase of 2.7 million shares of the Company's common stock during the first quarter of 1999. The ratio of current assets to current liabilities was 5.9:1 at December 31, 1998 and 4.6:1 at September 30, 1999. The Company's decrease in working capital and current ratio is primarily attributable to the stock repurchase. 9 Cash flows provided by operations for the first nine months of 1999 totaled $8,951,000 which was primarily attributable to the net income for the period. Cash flows provided by investing activities totaled $12,054,000 which was primarily attributable to sales of marketable securities to fund the stock repurchase. Cash flows used in financing activities totaled $32,294,000 which was primarily attributable to the repurchase of shares. For the first nine months of 1999, the Company experienced a $1,617,000 net increase in accounts receivable and an increase in the average number of days receivables outstanding to 74 days as of September 30, 1999 compared to 66 as of December 31, 1998, due to financial and cash flow constraints being experienced at some hospitals. Further, the Company's accounts payable and accrued expenses decreased $950,000 as of September 30, 1999 compared to December 31, 1998. The Company's longer term cash requirements include working capital for the expansion of its wound care business. Other cash requirements are anticipated for capital expenditures in the normal course of business, the acquisition of software, computers and equipment related to the Company's upgrade of management information systems, and the repurchase of Company stock. Additionally the Company expects to incur significant legal costs related to the Department of Justice action and shareholder class action lawsuits filed against the Company during April 1999 (See Legal Proceedings, Part II Item 1). The Company expects that based on its current business plan, its existing cash, cash equivalents and marketable securities will be sufficient to satisfy its working capital needs for the foreseeable future. The effects of inflation and foreign currency translation risks are considered immaterial. Year 2000 Compliance Many currently installed computer systems and software are coded to accept only two-digit entries in the date code fields. These date code fields will need to accept four-digit entries to distinguish 21st century dates from 20th century dates. This problem could result in system failures or miscalculations causing disruptions of business operations (including, among other things, a temporary inability to process transactions, send invoices or engage in other similar business activities.) As a result, many companies' computer systems and software will need to be upgraded or replaced in order to comply with Year 2000 requirements. The potential global impact of the Year 2000 problem is not known, and, if not corrected in a timely manner, could affect the Company and the U.S. and world economy generally. The Company has formed a project team (consisting of representatives from its information technology, finance, manufacturing, sales, marketing and legal departments) to address other internal and external Year 2000 issues. The Company's internal financial, manufacturing and other computer systems are being reviewed to assess and remediate Year 2000 problems. The Company's assessment of internal systems includes its information technology ("IT") as well as non-IT systems (which systems contain embedded technology in manufacturing or process control equipment containing microprocessors or other similar circuitry). The Company's Year 2000 compliance program includes the following phases: identifying systems that need to be modified or replaced; carrying out remediation work to modify existing systems or convert to new systems; and conducting validation testing of systems and applications to ensure compliance. For its significant IT and non IT systems the Company has completed the remediation phase of this program. 10 During 1997 and 1998 the Company was implementing a management information technology plan which included developing and acquiring new software as well as acquiring and replacing hardware. The cost of this management information technology plan was approximately $7 million. Since the Company has replaced a significant portion of its financial and operational systems in the last few years, management believes that the new equipment and software substantially addresses Year 2000 issues. The Company has modified some of its existing hardware and software in order for its computer systems to function properly in the Year 2000 and thereafter. The Company estimates that it will complete the validation phase of its Year 2000 compliance program for all of its significant internal systems during the fourth quarter of fiscal year 1999. In addition, the Company is requesting assurances from its major suppliers that they are addressing the Year 2000 issue and that products purchased by the Company from such suppliers will function properly in the year 2000. The Company has made inquiry and continues to follow up with its hospital customers to assess Year 2000 compliance. These actions are intended to help mitigate the possible external impact of the Year 2000 problem. However, it is impossible to fully assess the potential consequences in the event service interruptions from suppliers occur or in the event that there are disruptions in such infrastructure areas as utilities, communications, transportation, banking and government. The Company has no way of assuring and it is unknown whether computer applications of contract hospital clients, Medicare and other payors will be year 2000 compliant. The Company has not determined the extent to which any disruption in the billing practices of its hospital clients or the payment practices of Medicare or other payors to the hospital clients caused by the year 2000 issues will affect the Company's operations. However, any such disruption in the billing or reimbursement process could have substantial adverse impact on Medicare or Medicaid payments to the hospitals and, in turn, payments to the Company. Any such disruption could have a material adverse effect upon the Company's business, financial condition and results of operations. The Company expects the total cost associated with resolving the Company's internal Year 2000 issues will not be material including replacing non-complaint internal systems. These costs will be primarily incurred during the fiscal year 1999 and be charged to expense as incurred. The Company's estimates of Year 2000 costs are based on numerous assumptions, and there can be no assurance that the estimates are correct or that actual costs will not be materially greater than anticipated. Based on its assessments to date, the Company believes it will not experience any material disruption as a result of Year 2000 problems in internal manufacturing processes, information processing or interface with major customers, or with processing orders and billing. However, if certain critical third-party providers, such as those providers supplying electricity, water or telephone service, experience difficulties resulting in disruption of service to the Company, a shutdown of the Company's operations at individual facilities could occur for the duration of the disruption. The Company has not identified issues requiring the development of a contingency plan to provide for continuity of processing in such event of various problem scenarios, but it will assess the need to develop such a plan based on the outcome of its validation phase of its Year 2000 compliance program and the results of surveying its major suppliers and customers. Assuming no major disruption in service from utility companies or other critical third-party providers, the Company believes that it will be able to manage its total Year 2000 transition without any material effect on the Company's results of operations or financial condition. Because of the many uncertainties associated with Year 2000 compliance issues, and because the Company's assessment is necessarily based on information from third party vendors and suppliers, there can be no assurance that the Company's assessment is correct or as to the materiality or effect of any failure of such assessment to be correct. 11 Cautionary Statements This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include statements regarding intent, belief or current expectations of the Company and its management. These forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that may cause the Company's actual results to differ materially from the results discussed in these statements. Factors that might cause such differences include, but are not limited to, changes in the Company's level of business with Columbia/HCA Healthcare Corporation, terminations or non-renewal of a material number of contracts or inability to obtain new contracts, changes in the government regulations relating to the Company's wound care operations or Procuren(R), uncertainties relating to health care reform initiatives, changes in the availability of third party reimbursements for the Company's product and services, uncertainties relating to the U. S. Department of Justice action and related shareholder class action lawsuits filed in April 1999 and the other risks and uncertainties detailed throughout this report and from time to time in the Company's filings with the Securities and Exchange Commission. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company does not have operations subject to risks of material foreign currency fluctuations, nor does it use derivative financial instruments in its operations or investment portfolios. The Company places its investments in instruments that meet high credit quality standards, as specified in the Company's investment policy guidelines. The Company does not expect any material loss with respect to its investment portfolio or exposure to market risks associated with interest rates. 12 Curative Health Services, Inc. and Subsidiary Part II. Other Information Item 1. Legal Proceedings In Item 1 of Part II of its Form 10-Q for the quarter ended March 31, 1999, the Company announced that a press release from the United States Department of Justice was released alleging that the Company made improper charges to Columbia/HCA hospitals as well as other hospitals and the filing of a complaint against the Company entitled United States ex rel. Joseph "Mickey" Parslow v. Columbia/HCA Healthcare Corporation and Curative Health Services, Inc. An amended complaint, originally anticipated to be filed by August 6, 1999, was extended until October 22, 1999. The Department of Justice contacted the Company, through its outside legal counsel, seeking an additional four month extension. The Company has agreed to an extension and anticipates receiving the amended complaint on or before February 18, 2000. For further information, see the Company's Form 10-Q for the quarter ended March 31, and June 30, 1999. Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 27. Financial Data Schedule (b) Reports on Form 8-K filed during the quarter ended September 30, 1999 (i) There were no reports on form 8-K filed during the quarter. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: November 15, 1999 Curative Health Services, Inc. (Registrant) /s/ John Vakoutis ------------------------------------------------ John Vakoutis President and Chief Executive Officer /s/ John C. Prior ------------------------------------------------ John C. Prior Chief Financial Officer (Principal Financial and Accounting Officer) 14 EX-27 2 FDS
5 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 12,933 30,675 21,488 0 0 67,450 25,058 12,535 84,209 14,768 0 0 0 100 69,341 84,209 76,842 76,842 45,280 64,932 0 0 0 13,414 5,082 8,332 0 0 0 8,332 0.78 0.77
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