-----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, NBCWWJo3Du6E2J9a+bmC8blPGbMrTE0pLA5N7pySp2esBv/BsSCf9ZheFz8/aFl6 c3lGjSxPUsKFPf2O3MgZ0Q== 0000898430-96-001322.txt : 19960416 0000898430-96-001322.hdr.sgml : 19960416 ACCESSION NUMBER: 0000898430-96-001322 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960229 FILED AS OF DATE: 19960415 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMUNITY PSYCHIATRIC CENTERS /NV/ CENTRAL INDEX KEY: 0000022764 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOSPITALS [8060] IRS NUMBER: 941599386 STATE OF INCORPORATION: NV FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07008 FILM NUMBER: 96547326 BUSINESS ADDRESS: STREET 1: 6600 W CHARLESTON BLVD STREET 2: STE 118 CITY: LAS VEGAS STATE: NV ZIP: 89102 BUSINESS PHONE: 7022593600 FORMER COMPANY: FORMER CONFORMED NAME: SUCCESSOR TO COMMUNITY PSYCHIATRIC CENTERS/CA/ DATE OF NAME CHANGE: 19600201 10-Q 1 FORM 10-Q FOR PERIOD ENDING FEBRUARY 29, 1996 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 29, 1996 ----------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________________ to _____________________ Commission file number 1-7008 ------------------------------------------------------- - -------------------------------------------------------------------------------- COMMUNITY PSYCHIATRIC CENTERS ------------------------------------------------------ (Exact name of registrant as specified in its charter) NEVADA 94-1599386 - ------------------------------- -------------------------- (State or other jurisdiction of (I.R.S. Employer I.D. No.) incorporation or organization) 6600 W. Charleston Boulevard, Suite 118, Las Vegas, Nevada 89102 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (702) 259-3600 ---------------------------- Not Applicable - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date: 44,396,000 as of March 31, ------------ 1996. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended February 29/28 1996 1995 (000s omitted ------------- except per share data) ---------------------- REVENUES: Net operating revenues $123,409 $119,541 Investment income and other 486 829 -------- -------- 123,895 120,370 COSTS AND EXPENSES: Operating expense 97,393 88,182 General and administrative expense 7,935 8,688 Bad Debt expense 4,703 7,684 Depreciation and amortization 5,643 5,013 Interest expense 1,373 1,080 Restructuring charge 843 -- -------- -------- 117,890 110,647 INCOME BEFORE TAXES 6,005 9,723 Income taxes 2,282 3,793 -------- -------- NET INCOME $ 3,723 $ 5,930 ======== ======== NET INCOME PER SHARE $ 0.09 $ 0.14 ======== ======== WEIGHTED AVERAGE COMMON SHARES 43,702 43,597 ======== ========
See notes to condensed consolidated financial statements. COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
February 29 November 30 1996 1995 (Unaudited) (Audited) ----------------------- ASSETS (000s omitted) - ------ CURRENT: Cash and cash equivalents $ 7,209 $ 17,263 Short-term investments 2,000 7,601 Accounts receivable, less allowances for doubtful accounts 1996 - $25,729/1995 - $24,682 119,136 113,686 Receivable from third parties under reimbursement contracts 5,196 4,550 Prepaid expenses and other current assets 19,038 14,756 Assets held for sale 19,169 15,512 Refundable and deferred income taxes 18,754 21,979 -------- -------- TOTAL CURRENT ASSETS 190,502 195,347 PROPERTY, BUILDINGS & EQUIPMENT-at cost less allowances for depreciation 354,223 354,192 Deferred income taxes 21,218 21,334 Other assets 25,573 24,862 Excess of investments in subsidiaries over net assets acquired 8,799 8,890 -------- -------- $600,315 $604,625 ======== ======== LIABILITIES & STOCKHOLDERS' EQUITY - ---------------------------------- CURRENT: Accounts payable and accrued expenses $ 46,781 $ 53,143 Income taxes payable 8,814 4,425 Accrued restructuring charges 1,875 3,693 Current maturities on long-term debt 68,758 18,764 -------- -------- TOTAL CURRENT LIABILITIES 126,228 80,025 LONG-TERM DEBT, EXCLUSIVE OF CURRENT MATURITIES 31,328 84,883 DEFERRED COMPENSATION 2,013 2,019 DEFERRED INCOME TAXES 17,007 17,659 Commitments and contingencies Obligation to be settled in common stock 21,250 21,250 STOCKHOLDERS' EQUITY: Preferred stock, par value $1.00, authorized 2,000 shares; none issued -- -- Common Stock, par value $1.00, authorized 100,000 shares; issued 1995 - 46,856 shares 1994 - 46,856 shares 46,856 46,856 Additional paid-in capital 62,139 62,096 Retained earnings 330,787 327,062 Foreign currency translation adjustment (3,197) (2,943) Less treasury stock-at cost 1996 - 3,150 shares and 1995 - 3,166 shares (34,096) (34,282) -------- -------- 402,489 398,789 -------- -------- $600,315 $604,625 ======== ========
NOTE: The balance sheet at November 30, 1995 has been derived from the audited financial statement at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended February 29/28 1996 (Unaudited) 1995 --------------------- (000s omitted) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,723 $ 5,930 Items not resulting in cash flows: Depreciation and amortization 5,643 5,013 Provision for uncollectible accounts 4,703 7,684 Restructuring charge 843 -- Gain on the sale of property (103) -- Other 1,091 2,100 Changes in assets and liabilities: Short-term investments 5,601 -- Accounts receivable (10,153) (22,610) Receivable from/payable to third parties under reimbursement contracts (646) 3,776 Prepaid expenses and other current assets (4,282) (1,681) Accounts payable and accrued expense (6,362) (6,207) Accrued restructuring charges (2,661) (79) Income taxes 7,078 420 -------- -------- Net cash provided from (used) for operations 4,475 (5,654) FINANCING: Proceeds from revolving credit facilities -- 851 Net proceeds from exercise of stock options 150 293 Payments on long-term debt (3,568) (4,167) -------- -------- Net cash used for financing activities (3,418) (3,023) INVESTING: Payments received on notes 341 70 Loans made to officers (750) -- Purchase of property, buildings and equipment (10,482) (9,879) Investment in pre-opening costs (282) (1,183) Proceeds from sale of property, buildings and equipment 62 -- Payment for business acquisitions: Property, buildings and equipment -- (728) Excess of purchase price over fair value of assets acquired -- (221) -------- -------- Net cash used for investing activities (11,111) (11,941) -------- -------- Net decrease in cash and cash equivalents (10,054) (20,618) Beginning cash and cash equivalents 17,263 37,263 -------- -------- Ending cash and cash equivalents $ 7,209 $ 16,645 ======== ========
See notes to condensed consolidated financial statements. COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 29, 1996 NOTE A: Basis of Presentation --------------------- The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes thereto included in the registrant's annual report on Form 10-K for the year ended November 30, 1995. NOTE B: Restructuring Charge -------------------- Effective February 29, 1996, the Company recorded a restructuring charge totalling $.8 million ($.5 million after tax) determined in accordance with the provisions of the January 1995 Financial Accounting Standards Board Emerging Issues Task Force Consensus No. 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs incurred in a Restructuring)", ("EITF 94-3"), in connection with the decision to close one psychiatric hospital in January of 1996. EITF 94-3 requires the accrual of certain employee termination costs and costs resulting from a plan to exit an activity that are not associated with or that do not benefit activities that will continue and prohibits accrual of expected future operating losses of the activity exited. The charge comprised $.6 million for employee termination benefits related to hospital operations and $.2 million for non-cancelable operating leases and other exit costs. Net operating revenue and net operating income or (loss) for the closed hospital totalled $1.1 million and ($.2 million) for the first two months of fiscal year 1996, $6.2 million and ($1 million) for fiscal year 1995, and $8.5 million and ($34,000) for fiscal year 1994. The fixed assets of this hospital were written down to their estimated fair market value in November 1995 in accordance with the provisions of Financial Accounting Standard No. 121 ("FAS 121"), "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of". This hospital is currently being held for sale. Subsequent to February 29, 1996, the Company has closed two additional U.S. psychiatric division hospitals. In the second quarter of 1996, the Company expects to record a restructuring charge of an undetermined amount related to exit costs associated with the closed facilities. One of these hospitals was sold for its book value in April of 1996. The second hospital was written down to its estimated fair market value in November of 1995 in accordance with the provisions of FAS 121. This hospital is currently being held for sale. Management continually reviews all facilities to evaluate potential closures, divestitures or conversions. Management may elect to close additional psychiatric facilities in the future which could result in additional charges to income for the costs necessary to exit the hospital operations. COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FEBRUARY 29, 1996 NOTE C: Recent Developments ------------------- Spin-off Transaction. On December 20, 1995, The Company announced that the CPC Board of Directors had preliminarily approved a plan to spin-off the U.S. psychiatric business in the form of a taxable dividend to the CPC shareholders. The plan calls for CPC to be split into two independent publicly held corporations, one providing psychiatric services in the U.S. and one operating THC, U.K. psychiatric operations and Puerto Rico psychiatric operations. The spin-off is subject to a number of conditions, including regulatory and other third party approvals, market conditions, final approval of the Board of Directors and shareholder approval, accordingly, there can be no assurance that the Company will be successful in consummating the spin- off. However, it is anticipated that the spin-off and related matters will be submitted to shareholders at the Annual Meeting to be scheduled at a later date. The special dividend is expected to be distributed by mid 1996. Indications of Interest Received for PHG. The Company has received a number of unsolicited indications of interest to acquire its United Kingdom subsidiary--the Priory Hospitals Group ("PHG"). There can be no assurance that these inquiries and related discussions will result in a sale of PHG. The Company is giving each indication of interest received to date careful consideration. PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES Results of Operations THREE MONTHS ENDED FEBRUARY 29, 1996 Net operating revenues for the quarter ended February 29, 1996 increased approximately 3.2% to $123.4 million from $119.5 million for the first quarter of the prior year. The increase was a result of a $14.9 million increase in THC revenue from $41.0 million in the first quarter of 1995 to $55.9 million in the first quarter of 1996. THC's same-store admissions and patient days increased 34.3% and 27.8%, respectively. Net operating revenues from the United States psychiatric hospitals decreased approximately $11.8 million from $64.1 million to $52.3 million primarily due to the closure of six U.S. psychiatric hospitals in November 1995 and one hospital in January 1996. The closed hospitals generated approximately $9.9 million of net revenue in the first quarter of the prior year. The remaining portion of the decrease in net operating revenues related to a decrease in same-store admissions and adjusted patient days of 2.6% and 5.0%, respectively. Net operating revenues from the Company's United Kingdom operations increased by 5.2% or approximately $.8 million as a result of additional patient days from two hospitals that were acquired during fiscal year 1995. The United Kingdom operations experienced reduced admissions and patient days in certain hospitals in the early part of the first quarter resulting in same-store declines of 4.1% and 5.2%, respectively. Operating expenses as a percentage of net operating revenues were 79.0% for the quarter ended February 29, 1996 compared to 73.8% for the comparable prior year quarter. The increase related to several factors including an increase in personnel costs at the U.S. psychiatric division as the Company is making an effort to (i) upgrade the quality of its operating and financial personnel in these hospitals and (ii) to expand the psychiatric and behavioral health services offered. The increase in operating expenses as a percentage of net operating revenues was also impacted by the decrease in patient days over the comparable period in the prior year for the U.S. psychiatric division and a decrease in same-store patient days for the U.K. psychiatric division. The Company maintains staffing levels at its hospitals necessary to promote high quality care while attempting to adapt the levels for census fluctuations. While census levels may decrease significantly during the holidays in the first quarter, the Company does not adjust staffing levels below what is mandated by regulatory bodies. In addition to the above, the Company incurred approximately $.9 million of operating expenses related to the seven U.S. psychiatric hospitals that have been closed since November of 1995. These costs were prohibited from being accrued for in any of the related restructuring charges as they did not qualify as exit costs as defined by EITF 94-3 (see Note B to the condensed consolidated financial statements related to EITF 94-3 and a description of the $.8 million restructuring charge for one U.S. psychiatric division hospital that was closed in January of 1996). General and administrative expense decreased $.8 million and as a percentage of net operating revenue to 6.4% from 7.3% in the prior year comparable period. Beginning in November of 1995, the Company closed three regional offices, consolidated certain positions at the Corporate office, and continued with further reductions in Corporate overhead personnel in January of 1996. PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations (continued) THREE MONTHS ENDED FEBRUARY 29, 1996 (continued) Bad debt expense decreased from 6.4% of net operating revenues in the first quarter of 1995 to 3.8% in the first quarter of 1996. Bad debt expense was higher in the first quarter of 1995 due to the fact that the Company experienced a slow down in billing and collections as it converted several U.S. psychiatric hospitals to a centralized billing office as well as a new computer system. Also included in the first quarter of 1995 was a charge of approximately $.7 million related to temporary interruptions in Medicare reimbursement to the Company and other partial hospitalization providers in California. Depreciation and amortization increased as the Company added two THC facilities, one U.K. psychiatric hospital and a new computer system since the first quarter of 1995. Following is a summary of net income by business segment, excluding the restructuring charge, for the three months ended February 29, 1996:
(000s) -------- U.S. Psychiatric division $ 596 U.K. Psychiatric division 1,364 Long-term critical care division 2,286 ------ Net income $4,246 ======
LIQUIDITY AND CAPITAL RESOURCES AT FEBRUARY 29, 1996 Cash flows provided from operations were $4.5 million for the three months ended February 29, 1996 compared to cash flows used for operations of $5.7 million for the comparable period of 1995. Net accounts receivable balances increased $5.5 million during the three months ended February 29, 1996 compared to $14.9 million during the comparable period of the prior year. The decline in the increase in accounts receivable was the principal cause of cash flows from operations improving by $10.2 million over the prior year. Days revenue in accounts receivable were 88 and 86 at February 29, 1996 and February 28, 1995, respectively. The increase in days revenue in accounts receivable is primarily the result of a $3.5 million increase in accounts receivable at one THC facility that was awaiting approval for their Medicare provider number at the end of the first quarter. The delay in receiving the facility's provider number, which is necessary for billing Medicare claims, was caused by a partial shutdown of the U.S. Government during the first quarter of 1996. The Company obtained the provider number in March of 1996 and is now being reimbursed for the services provided. Purchases of fixed assets totalled $10.4 million during the first quarter of 1996. This amount included $2.8 million for a new office that the Company is building on the campus of THC Las Vegas Hospital in Las Vegas, Nevada. This building and its parking structure will provide additional administrative offices, dining facilities, and parking for the hospital and will serve as the new location for the corporate office. Capital expenditures for the remainder of fiscal year 1996 are estimated to be $18 million for THC, $12 million for the U.K. psychiatric division, $10 million for the U.S. psychiatric division, and $3.3 million for the new office building in Las Vegas, Nevada. The Company believes that its current cash and cash equivalent balances, its operating cash flow, and its ability to borrow additional funds will be sufficient to fund the Company's operations and capital expenditures through the end of fiscal 1996. Additional funding sources will be necessary to support further expansion of THC and the U.K. psychiatric operations and to repay outstanding borrowings under credit facilities. COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES FEBRUARY 29, 1996 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ----------------- On September 28, 1995, the Company reached an agreement to settle certain consolidated securities class action lawsuits and a related shareholder derivative action. During the third and fourth quarters of 1995, the Company recorded charges totalling $46.0 million ($28.9 million after tax) relating to settlement of the lawsuits and associated legal fees and expenses. The suits, filed in late 1991, alleged violations of the federal securities laws by the Company and certain individuals between September 1990 and November 1991 arising from the activities of the U.S. Psychiatric Division. The principal terms of the agreement call for a settlement amount of $42.5 million consisting of a settlement fund of $21.25 million and the Company's common stock with an expected value of $21.25 million. The cash amount, plus interest, was paid in November 1995. The shares to be issued to the plaintiff class were previously repurchased by the Company pursuant to a stock buyback program during late 1991 through early 1993. The number of shares of common stock to be issued will be equal to $21.25 million divided by the average market value of the common stock over a 10-day trading period prior to the distribution of shares to settle claims, provided that in any event the minimum number of shares that will be issued is 1,931,818 and the maximum number of shares that will be issued is 3,035,714. The maximum limits would be triggered if the average market value of the common stock is at $7 per share or below. The class action lawsuit received final court approval on February 12, 1996. On March 4, 1996, the Company issued 689,189 of common shares to the plaintiffs' attorneys which represents a portion of the settlement to be made in common stock. The remaining shares will be issued pursuant to a schedule that will be agreed to by the plaintiffs' attorneys and the Company. Upon issuance, these shares have a dilutive effect on earnings per share. The derivative action is scheduled for a hearing for final court approval on April 30, 1996. While these cases allege actions taken before present management was in place, management continues to believe that the claims asserted in the shareholder suits lack merit. Nevertheless, the Company believed that it was prudent to settle these cases due to the continuing substantial costs of defense, the distraction of management's attention and the risks associated with litigation. On August 17, 1995 the Company reported developments pertaining to CPC Southwind Hospital in Oklahoma City, Oklahoma, which is operated by the Company's subsidiary, CPC Oklahoma, Inc. The first was the filing of a whistleblower suit against CPC Oklahoma, Inc. under the Federal False Claims Act, and the second concerned the seizure of certain of Southwind's records pursuant to a search warrant. On January 19, 1996, the Government filed an amended complaint alleging that Southwind Hospital submitted false claims to various federally-funded health care programs. The amended complaint contained an attached schedule of claims covering periods from 1990 through mid-1992. Since the service of the original complaint, Southwind Hospital has provided information to the Government on numerous issues based on internal review. The Company has responded to the government's complaint and continues to provide information to the government. Management is presently unable to evaluate the potential impact of the suit on the Company. The Company is subject to ordinary and routine litigation incidental to its business, including those arising from patient treatment, injuries or death for which it is covered by liability insurance, and those arising from actions involving employees. Management believes that the ultimate resolution of such proceedings will not have a material adverse effect on the Company. COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES FEBRUARY 29, 1996 PART II. OTHER INFORMATION (continued) ITEM 5: OTHER INFORMATION ----------------- Hartly Fleischmann resigned as a Director of the Company on March 20, 1996. ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K: -------------------------------- A) The following exhibits are included herein: Exhibit 10: Third Amendment to Credit Agreement Dated as of September 20, 1993 and Fifth Amendment to Credit Agreement Dated as of May 6, 1994 among Registrant, Transitional Hospitals Corporation, and Bank of America Trust and Savings Association, dated as of April 10, 1996. Exhibit 11: Computation of Earnings per Share Exhibit 27: Financial Data Schedule The registrant was not required to file a Form 8-K during the three months ended February 29, 1996. 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. COMMUNITY PSYCHIATRIC CENTERS (Registrant) Dated: April 15, 1996 /s/ WENDY SIMPSON ------------------------------ Wendy Simpson Chief Financial Officer EX-10 2 CREDIT AGREEMENT AMENDMENTS 3 AND 5 EXHIBIT 10 FIFTH AMENDMENT TO CREDIT AGREEMENT DATED AS OF MAY 6, 1994 AND THIRD AMENDMENT TO CREDIT AGREEMENT DATED AS OF SEPTEMBER 20, 1993 THIS FIFTH AMENDMENT TO CREDIT AGREEMENT DATED AS OF MAY 6, 1994 AND FOURTH AMENDMENT TO CREDIT AGREEMENT DATED AS OF SEPTEMBER 20, 1993 (this "Amendment") is made and dated as of April 10, 1996 among Community Psychiatric Centers, a Nevada corporation ("CPC"), Transitional Hospitals Corporation, a Delaware corporation ("THC") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("Bank") and amends (a) that certain Credit Agreement dated as of May 6, 1994, as amended by a First Amendment to Credit Agreement dated as of December 14, 1994, a Second Amendment to Credit Agreement dated as of February 28, 1995, a Third Amendment to Credit Agreement dated as of June 7, 1995 and a Fourth Amendment to Credit Agreement and Waiver dated as of February 26, 1996 and (b) that certain Credit Agreement dated as of September 20, 1993, among CPC, THC and Bank, as amended by a First Amendment to Credit Agreement dated as of May 6, 1994, and a Second Amendment to Credit Agreement dated as of June 7, 1995 (such Agreements, as amended or modified from time to time, collectively, the "Agreements"). RECITALS -------- The Company has requested, and the Bank has agreed, on the terms and conditions set forth herein, to amend the Agreements. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: 1. Terms. All terms used herein shall have the same meanings as in the Agreements unless otherwise defined herein. All references to the Agreements shall mean the Agreements as hereby amended. 2. Amendment to Agreements. The parties agree to amend the Agreements as follows: 2.1 The definition of "EBITDA" in Section 1.01 of the Agreements is amended by inserting the following before the proviso at the end thereof: - 1 - ", plus (f) Permitted Settlement and Impairment Costs incurred during such period;" 2.2 The following new definition is inserted in Section 1.01 of the Agreements as follows: "`Permitted Settlement and Impairment Costs' means costs incurred in settling certain securities class action lawsuits and impairment losses incurred by the Company because of its adoption of FASB 121, in an aggregate amount not exceeding $92,006,000 through the fiscal period ending November 30, 1995, plus an additional $10,000,000 in the aggregate for any impairment losses incurred by the Company because of its adoption of FASB 121 and restructuring charges incurred at any time thereafter." 2.3 Sections 7.14, 7.15 and 7.16 of the Agreements are amended and restated in their entirety as follows: "7.14 Net Funded Debt to EBITDA Ratio. The Company shall not permit its Net Funded Debt to EBITDA Ratio to be more than the applicable maximum amount set forth opposite such period below:
"Each Consecutive 12-Month Maximum Period Ending Ratio -------------------------- ------- February 1996 2.10 to 1 May 1996 2.10 to 1 August 1996 2.00 to 1 November 1996 1.50 to 1 February 1997 and thereafter 0.90 to 1
"7.15 EBITDA to Consolidated Net Interest Expense Ratio. The Company shall not permit its EBITDA to Consolidated Net Interest Expense Ratio to be less than the applicable minimum amount set forth opposite such period below:
"Each Consecutive 12-Month Minimum Period Ending Ratio -------------------------- ------- February 1996 8.00 to 1 May 1996 5.90 to 1 August 1996 5.50 to 1 November 1996 7.00 to 1 February 1997 and thereafter 10.00 to 1
- 2 - "7.16 Tangible Net Worth. The Company shall not permit (as of the end of any fiscal quarter) its Tangible Net Worth to be less than 100% of the Tangible Net Worth as of November 30, 1995 less $15,000,000 plus 75% of the Company's net income (not to be reduced by losses) earned in each fiscal quarter plus 75% of the Net Issuance Proceeds since the date hereof." 3. Representations and Warranties. The Company represents and warrants to Bank that, on and as of the date hereof, and after giving effect to this Amendment: 3.1 Authorization. The execution, delivery and performance of this Amendment have been duly authorized by all necessary corporate action by the Company and this Amendment has been duly executed and delivered by the Company. 3.2 Binding Obligation. This Amendment is the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. 3.3 No Legal Obstacle to Agreements. The execution, delivery and performance of this Amendment will not (a) contravene the terms of the Company's certificate of incorporation, by laws or other organization document; (b) conflict with or result in any breach or contravention of the provisions of any contract to which the Company is a party, or the violation of any law, judgment, decree or governmental order, rule or regulation applicable to the Company, or (c) result in the creation under any agreement or instrument of any security interest, lien, charge, or encumbrance upon any of the assets of the Company. No approval or authorization of any governmental authority is required to permit the execution, delivery or performance by the Company by this Amendment, or the transactions contemplated hereby. 3.4 Incorporation of Certain Representations. The representations and warranties of the Company set forth in Section 5 of the Agreements are true and correct in all respects on and as of the date hereof as though made on and as of the date hereof. 3.5 Default. No Default or Event of Default under the Agreements has occurred and is continuing. 4. Conditions, Effectiveness. The effectiveness of this Amendment shall be subject to the compliance by the Company with its agreements herein contained, and to the delivery of the following to the Bank in form and substance satisfactory to the Bank: - 3 - 4.1 Corporate Resolution. A copy of a resolution or resolutions passed by the Board of Directors of the Company, certified by the Secretary or an Assistant Secretary of the Company as being in full force and effect on the effective date of this Amendment, authorizing the amendments herein provided for and the execution, delivery and performance of this Amendment. 4.2 Authorized Signatories. A certificate, signed by the Secretary or an Assistant Secretary of the Company and dated the date of this Amendment, as to the incumbency of the person or persons authorized to execute and deliver this Amendment and any instrument or agreement required hereunder on behalf of the Company. 4.3 Other Evidence. Such other evidence with respect to the Company or any other person as the Bank may reasonably request in connection with this Amendment and the compliance with the conditions set forth herein. 5. Miscellaneous. 5.1 Effectiveness of the Agreements and the Loan Documents. Except as hereby expressly amended, the Agreements and each other Loan Document shall each remain in full force and effect, and are hereby ratified and confirmed in all respects on and as of the date hereof. 5.2 Waivers. This Amendment is limited solely to the matters expressly set forth herein and is specific in time and in intent and does not constitute, nor should it be construed as, a waiver or amendment of any other term or condition, right, power or privilege under the Agreements, the Loan Documents, or under any agreement, contract, indenture, document or instrument mentioned therein; nor does it preclude or prejudice any rights of the Bank thereunder, or any exercise thereof or the exercise of any other right, power or privilege, nor shall it require the Bank to agree to an amendment, waiver or consent for a similar transaction or on a future occasion, nor shall any future waiver of any right, power, privilege or default hereunder, or under any agreement, contract, indenture, document or instrument mentioned in the Agreements, constitute a waiver of any other default of the same or of any other term or provision. 5.3 Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. This Amendment shall not become effective until the Company and the Bank shall have signed a copy hereof, whether the same or counterparts, and the same shall have been delivered to the Bank. - 4 - 5.4 Jurisdiction. This Amendment shall be governed by and construed under the laws of the State of California. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above. COMMUNITY PSYCHIATRIC CENTERS By: /s/ Wendy L. Simpson ------------------------------------ Name: Wendy L. Simpson ---------------------------------- Title: Chief Financial Officer --------------------------------- TRANSITIONAL HOSPITALS CORPORATION By: /s/ Wendy L. Simpson ------------------------------------ Name: Wendy L. Simpson ---------------------------------- Title: Chief Financial Officer --------------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/ Wyatt Ritchie ------------------------------------- Wyatt Ritchie Vice President - 5 - CONSENT OF GUARANTORS --------------------- The undersigned Guarantors hereby acknowledge that they have reviewed and consent to the foregoing Fifth Amendment to Credit Agreement dated as of May 6, 1994 and Third Amendment to Credit Agreement dated as of September 20, 1993, among Community Psychiatric Centers ("CPC"), Transitional Hospitals Corporation ("THC") and Bank of America National Trust and Savings Association ("Bank"), amending (a) that certain Credit Agreement dated as of May 6, 1994, among CPC, THC and Bank, as amended, and (b) that certain Credit Agreement dated as of September 20, 1993, among CPC, THC and Bank, as amended, and hereby reaffirm that their respective General Continuing General Guaranties, continue in full force and effect on and as of the date hereof. Dated: April 10, 1996 EACH OF THE GUARANTORS LISTED ON ANNEX A TO EACH OF THE GUARANTIES, WHICH ARE INCORPORATED BY REFERENCE HEREIN BY THIS REFERENCE By: /s/ Richard Conte ------------------------------------- Title: Chairman and Chief Executive Officer ---------------------------------- By: /s/ Wendy L. Simpson ------------------------------------- Title: Chief Financial Officer ---------------------------------- - 6 - EX-11 3 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 COMMUNITY PSYCHIATRIC CENTERS AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
Three Months Ended February 29\28 1996 1995 ----------------------------- (000s, except per share data) Weighted average common shares* $ 43,702 $ 43,597 ======== ======== Net Earnings $ 3,723 $ 5,930 ======== ======== Earnings per share $ .09 $ .14 ======== ========
* Dilutive common stock equivalents are less than 3% of weighted average common shares outstanding. EX-27 4 FINANCIAL DATA SCHEDULE
5 3-MOS NOV-30-1996 DEC-01-1995 FEB-29-1996 7,209 0 119,136 25,729 0 190,502 354,223 102,034 600,315 126,228 31,328 0 0 46,856 355,633 600,315 123,409 123,895 97,393 97,393 14,421 4,703 1,373 6,005 2,282 3,723 0 0 0 3,723 .09 .09 Includes a restructuring charge of $843,000.
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