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Coram Healthcare Corp – ‘10-Q’ for 6/30/97

As of: Wednesday, 8/13/97 · For: 6/30/97 · Accession #: 1035704-97-90 · File #: 1-11343

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 8/13/97  Coram Healthcare Corp             10-Q        6/30/97    2:85K                                    Bowne BDN/FA

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Form 10-Q for Quarter Ended June 30, 1997             25    150K 
 2: EX-27       Financial Data Schedule                                1      6K

10-Q — Form 10-Q for Quarter Ended June 30, 1997
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Business Strategy Change in Securities Defaults Upon Senior Securities Exhibits and Reports on Form 8-K Factors Adversely Affecting Recent Operating Results Financial Statements Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Other Information Provision for Estimated Uncollectible Accounts Quantitative and Qualitative Disclosures About Market Risk Submission of Matters to Vote of Security Holders 27 -- Financial Data Schedule
1	1st Page - Filing Submission
2	Item 1. Financial Statements
6	Provision for Estimated Uncollectible Accounts
14	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
"	Business Strategy
"	Factors Adversely Affecting Recent Operating Results
21	Item 3. Quantitative and Qualitative Disclosures About Market Risk
"	Item 1. Legal Proceedings
22	Item 2. Change in Securities
"	Item 3. Defaults Upon Senior Securities
"	Item 4. Submission of Matters to Vote of Security Holders
"	Item 5. Other Information
23	Item 6. Exhibits and Reports on Form 8-K
"	27 -- Financial Data Schedule

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================================================================================

UNITED STATES
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 JUNE 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-11343

CORAM HEALTHCARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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DELAWARE 33-0615337
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1125 SEVENTEENTH STREET
SUITE 2100
DENVER, CO 80202
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (303) 292-4973

------------------------

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
--- ---

The number of shares outstanding of the Registrant's Common Stock, $.001 par
value, as of August 11, 1997, was 44,260,970.

================================================================================

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PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CORAM HEALTHCARE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

ASSETS

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JUNE 30, DECEMBER 31,
1997 1996
--------- ------------
(UNAUDITED)

Current assets:
Cash and cash equivalents................................. $ 6,676 $ 15,375
Restricted cash........................................... 2,433 3,917
Accounts receivable, net of allowance of $34,957 and
$40,256................................................ 94,090 106,763
Inventories............................................... 15,181 14,268
Receivable from Caremark (See Note 2)..................... 45,000 --
Deferred income taxes, net................................ 4,786 4,063
Other current assets...................................... 10,089 11,884
--------- ---------
Total current assets.............................. 178,255 156,270
Property and equipment, net................................. 19,665 16,998
Joint ventures and other assets............................. 23,224 24,654
Deferred income taxes, non-current.......................... 35 1,914
Other deferred costs........................................ 7,049 11,114
Goodwill, net of accumulated amortization of $57,709 and
$50,500................................................... 327,645 334,359
--------- ---------
Total assets...................................... $ 555,873 $ 545,309
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 33,825 $ 40,350
Current maturities of long-term debt...................... 188,838 198,033
Deferred income taxes..................................... 1,325 1,325
Reserve for litigation.................................... 2,689 3,273
Accrued merger and restructuring.......................... 10,456 13,533
Other accrued liabilities................................. 29,743 32,285
--------- ---------
Total current liabilities......................... 266,876 288,799
Long-term debt, including revolving lines of credit......... 150,774 266,641
Minority interest in consolidated joint ventures............ 4,208 4,544
Other liabilities........................................... 1,386 2,155
Deferred income taxes, non-current.......................... 3,496 4,652
Stockholders' equity (deficit):
Preference stock, par value $.001, authorized 10,000
shares, non issued..................................... -- --
Common Stock, par value $.001, authorized 75,000 shares,
issued 44,181 shares in 1997 and 42,404 shares in
1996................................................... 44 42
Additional paid-in capital................................ 406,858 390,741
Common stock to be issued................................. 17,938 25,625
Retained deficit.......................................... (295,707) (437,890)
--------- ---------
Total stockholders' equity (deficit).............. 129,133 (21,482)
--------- ---------
Total liabilities and stockholders' equity (deficit)........ $ 555,873 $ 545,309
========= =========

See accompanying notes.

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CORAM HEALTHCARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
--------- -------- --------- --------

Net revenue....................................... $ 118,115 $133,109 $ 239,830 $264,734
Cost of service................................... 83,040 91,150 164,765 189,308
--------- -------- --------- --------
Gross profit...................................... 35,075 41,959 75,065 75,426
Operating expenses:
Selling, general and administrative expenses.... 22,826 26,576 46,478 51,852
Provision for estimated uncollectible
accounts..................................... 4,104 6,831 8,392 15,584
Amortization of goodwill........................ 3,597 3,759 7,209 8,060
Provision for (income from) litigation
settlement................................... (156,792) 12,500 (156,792) 12,500
--------- -------- --------- --------
Total operating (income) expense........ (126,265) 49,666 (94,713) 87,996
--------- -------- --------- --------
Operating income (loss)........................... 161,340 (7,707) 169,778 (12,570)
Other income (expense):
Interest expense................................ (18,230) (20,553) (39,726) (39,582)
Termination fee................................. 15,182 -- 15,182 --
Other income, net............................... 1,057 914 1,704 1,563
--------- -------- --------- --------
Income (loss) before income taxes and minority
interest........................................ 159,349 (27,346) 146,938 (50,589)
Income tax expense (benefit).................... 201 (5,237) 250 (12,653)
Minority interest in net income of consolidated
joint ventures............................... 2,377 1,417 4,505 3,491
--------- -------- --------- --------
Net income (loss)................................. $ 156,771 $(23,526) $ 142,183 $(41,427)
========= ======== ========= ========
Earnings (loss) per share......................... $ 2.99 $ (0.58) $ 2.73 $ (1.02)
========= ======== ========= ========
Weighted average shares outstanding............... 52,471 40,858 52,023 40,762
========= ======== ========= ========

See accompanying notes.

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CORAM HEALTHCARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

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SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
-------- --------

Net cash provided by operating activities................... $ 22,976 $ 26,369
Cash flows from investing activities:
Purchases of property and equipment....................... (7,822) (2,258)
Payments for acquisition of businesses, net of cash
acquired............................................... (488) (6,712)
Cash provided by sale of businesses....................... -- 12,757
Other..................................................... (52) 352
-------- --------
Net cash (used in) provided by investing
activities...................................... (8,362) 4,139
-------- --------
Cash flows from financing activities:
Sales of stock, including exercise of stock options....... 384 234
Cash paid for debt restructuring.......................... -- (250)
Repayment of debt......................................... (23,697) (30,469)
-------- --------
Net cash used in financing activities............. (23,313) (30,485)
-------- --------
Net increase (decrease) in cash and cash equivalents........ $ (8,699) $ 23
======== ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Depreciation and amortization (including amortization of financing costs)
was $29,710 and $27,187 in the six-month periods ended June 30, 1997 and 1996,
respectively.

Interest expense for the six months ended June 30, 1997 and 1996 consisted
of the following:

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SIX MONTHS ENDED
JUNE 30,
-------------------
1997 1996
------- -------

Currently payable........................................... $ 6,617 $10,099
Deferred payment terms...................................... 18,241 15,592
Amortization of warrants and other debt costs............... 14,868 13,891
------- -------
Total interest expense............................ $39,726 $39,582
======= =======

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:

During the six months ended June 30, 1997, non-cash activity included
cancellation of the Company's Junior Subordinated PIK Notes totaling $120.0
million as a result of the litigation settlement with Caremark. See Note 2.

See accompanying notes.

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CORAM HEALTHCARE CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 1997

1. BASIS OF PRESENTATION

Business Activity. Coram Healthcare Corporation and its subsidiaries
("Coram" or the "Company") are primarily engaged in providing alternate site
(outside the hospital) infusion therapy and related services throughout the
United States. Other services offered by the Company include the provision of
lithotripsy, mail-order pharmacy, pharmacy benefit management and other
non-intravenous infusion products and services.

The operations of the Company commenced on July 8, 1994, as a result of a
merger (the "Four-Way Merger") of T(2) Medical, Inc. ("T(2)"), Curaflex Health
Services, Inc., HealthInfusion, Inc. and Medisys, Inc. (collectively the "Merged
Entities"). Each of these companies is a wholly-owned subsidiary of the Company.
The transaction was accounted for as a pooling of interests.

The Company has made a number of acquisitions since commencing operations,
the most significant of which was the acquisition of substantially all of the
assets and the assumption of certain specified liabilities of the alternate site
infusion business and certain related businesses (the "Caremark Business") from
Caremark Inc., a subsidiary of Caremark International, Inc. (collectively
"Caremark") effective April 1, 1995. See Note 2 for further information. In
addition, Coram acquired H.M.S.S., Inc. ("HMSS"), a leading regional provider of
home infusion therapies based in Houston, Texas, effective September 12, 1994.

Basis of Presentation. The accompanying unaudited condensed consolidated
financial statements have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such regulations. The unaudited condensed consolidated
financial statements reflect all adjustments and disclosures which are, in the
opinion of management, necessary for a fair presentation. All such adjustments,
other than the termination fee related to the proposed merger with Integrated
Health Services, Inc. and the Caremark Litigation Settlement, are of a normal
recurring nature. Certain amounts in the 1996 financial statements have been
reclassified to conform to the 1997 presentation. Management does not believe
the effects of such reclassification are material. The results of operations for
the interim period ended June 30, 1997 are not necessarily indicative of the
results of the full fiscal year. For further information, refer to the audited
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-K for the year ended December 31, 1996.

Goodwill and Other Long-Lived Assets. Goodwill represents the excess of
the purchase price over the fair value of net assets acquired through business
combinations accounted for as purchases and is amortized on a straight-line
basis over the periods expected to be benefited. In 1995 the Company implemented
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Accordingly, the carrying value of goodwill and other long-lived assets is
reviewed quarterly to determine if any impairment indicators are present. If it
is determined that such indicators are present and the review indicates that the
assets will not be recoverable, based on undiscounted estimated cash flows over
their remaining depreciation and amortization period, their carrying values are
reduced to estimated fair market value. Impairment indicators include, among
other conditions, cash flow deficits; a historic or anticipated decline in
revenue or operating profit; adverse legal, regulatory or reimbursement
developments; accumulation of costs significantly in excess of amounts
originally expected to acquire the asset; or a material decrease in the fair
value of some or all of the assets.

The evaluation of the recoverability of goodwill is significantly affected
by estimates of future cash flows from each of the Company's market areas. If
estimates of future cash flows from operations decrease, the

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CORAM HEALTHCARE CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

Company may be required to write down its goodwill and other long-lived assets
in the future. Any such write-down could have a material adverse effect on the
Company's financial position and results of operations.

As of October 1, 1995, the Company reduced the remaining useful lives for
goodwill to 25 years because of uncertainties in the Company's business
environment and recent adverse operating results. Prior to that date, goodwill
was amortized over useful lives ranging from 30 to 40 years. The Company
believes that the home health care market in which it operates provides
significant long-term business opportunities over an indeterminate period.
However, it also recognizes that competitive, legislative and technological
changes could affect the value of the relationships that its recorded goodwill
represents. The timing and extent of the effect, if any, of these uncertainties
beyond that experienced by the Company to date cannot be determined at this
time.

The Company believes that its goodwill is defined by its
relationships -- substantially all of which are non-contractual -- with
physicians, medical groups, hospitals, case managers and managed care
organizations and other referral sources to the Company in the marketplace.

Provision for Estimated Uncollectible Accounts. Management regularly
reviews the collectibility of accounts receivable utilizing system-generated
reports which track collection and write-off activity. Estimated write-off
percentages are then applied to each aging category by payor classification to
determine the allowance for estimated uncollectible accounts. The allowance for
estimated uncollectible accounts is adjusted as needed to reflect current
collection, write-off and other trends, including changes in assessment of
realizable value. While management believes the resulting net carrying amounts
for accounts receivable are fairly stated at each quarter-end and that the
Company has made adequate provision for uncollectible accounts based on all
information available, no assurance can be given as to the level of future
provisions for uncollectible accounts, or how they will compare to the levels
experienced in the past.

Earnings per Share. In February 1997, the Financial Accounting Standards
Board issued Statement No. 128, Earnings per Share, which the Company will be
required to adopt for its year ending December 31, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods. The impact of Statement 128 on the
calculation of primary earnings per share and fully diluted earnings per share
for the quarters ended June 30, 1997 and 1996, respectively, is not expected to
be material.

During the three and six months ended June 30, 1997, per share data was
computed by dividing net income by the weighted average number of common shares
and common stock equivalents outstanding during the period. Shares outstanding
are adjusted for the dilutive effect of common stock equivalents which include
stock options, warrants to acquire Common Stock and common shares to be issued.
In the three and six months ended June 30, 1996, per share data was computed by
dividing net loss by the weighted average number of common shares outstanding
during the period. In 1996, the computation does not give effect to common stock
equivalents (including options, warrants or common shares to be issued) as their
effect would have been anti-dilutive. Fully diluted per share calculations are
not presented in the financial statements because the assumed conversions of
convertible debt and any additional incremental shares would be either
anti-dilutive or cause de minimis dilution.

2. CAREMARK ACQUISITION & LITIGATION SETTLEMENT

Effective April 1, 1995, the Company acquired the Caremark Business for
$209 million in cash and $100 million aggregate principal amount of Junior
Subordinated Pay-In-Kind Notes (the "Junior Subordinated PIK Notes"). The
Company assumed only certain specified liabilities of the Caremark Business,
which expressly excluded any liabilities associated with the government
investigation of Caremark, which was settled by Caremark in June 1995. The
transaction was accounted for as a purchase.

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CORAM HEALTHCARE CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

The Company commenced a comprehensive examination of its business and
operations following the second quarter of 1995, which revealed that the
Caremark Business was significantly weaker than indicated by its 1994 financial
statements. The revenue of the acquired Caremark Business had declined
significantly in the second quarter of 1995 from $96.1 million (as reported by
Caremark) in the first quarter of 1995 to approximately $83.0 million in the
second quarter, or a 13.6% decline. The severity and persistence of the
under-performance of the Caremark Business and the negative impact of the June
1995 guilty plea by Caremark to criminal felony charges with respect to the
Company's referral sources and to employee morale, neither of which were
expected at the time of the acquisition, became evident in the third quarter of
1995. The Company expected the combined business to grow and expected to realize
substantial cost savings, principally through elimination of geographically
duplicative branches and consolidation of corporate functions. However, for the
years ended December 31, 1996 and 1995, revenue was significantly lower than the
pro forma combined 1994 revenue of $924.0 million. The anticipated cost savings
were offset by that revenue decline, and the Company incurred and has continued
to incur substantial losses since the acquisition of the Caremark Business.
During 1995, the Company reduced the valuation of the acquired receivables by an
aggregate of $37.0 million and charged that amount to operations upon concluding
that certain receivables for services rendered prior to April 1, 1995 were
uncollectible and its sole source of recovery was its lawsuit against Caremark.
The Company filed its initial complaint against Caremark on September 11, 1995.

On June 30, 1997, the Company entered into a settlement agreement with
Caremark. Under the terms of the settlement, the Junior Subordinated PIK Notes
totaling approximately $120.0 million as of June 30, 1997 were canceled with all
payments thereunder to be forgiven and Caremark agreed to pay $45.0 million in
cash to the Company on or before September 1, 1997. Additionally, as part of the
settlement Caremark assigned and transferred to Coram all of Caremark's claims
and causes of action against Caremark's auditors, Price Waterhouse LLP, related
to the lawsuit. This assignment of claims includes claims for damages sustained
by Caremark in defending and settling the lawsuit. See Note 8 and Part
II -- Item 1, "Legal Proceedings." During the quarter ended June 30, 1997, the
Company recorded settlement income of $156.8 million which represents the $165.0
million settlement less related costs of $8.2 million as follows: (i) legal
costs of $3.5 million related to the settlement, subrogation claims by Coram's
insurance carriers and the suit against Price Waterhouse (See Note 8). (ii) $2.2
million related to the reconciliation of amounts potentially due to Caremark and
(iii) $2.5 million related to uncollectible accounts receivable acquired from
Caremark in excess of established reserves.

3. TERMINATED MERGER WITH IHS

On October 19, 1996, the Company, Integrated Health Services, Inc. ("IHS")
and IHS Acquisition XIX, Inc., a wholly owned subsidiary of IHS ("Merger Sub")
entered into a definitive Agreement and Plan of Merger (the "Merger Agreement")
providing for the merger (the "IHS Merger") of Merger Sub with and into the
Company. If the IHS Merger had been consummated, the Company would have become a
wholly-owned subsidiary of IHS.

On March 30, 1997, Coram, IHS and Merger Sub executed an amendment to the
Merger Agreement (the "Amendment"), which was to become effective at 5:00 p.m.
E.S.T. on Friday, April 4, 1997. On April 4, 1997, the Company received from IHS
a written notice of termination of the Amendment and of the Merger Agreement.
Pursuant to the terms of the Merger Agreement and as a result of such
termination, IHS paid the Company $21.0 million on May 6, 1997. Accordingly, in
the second quarter of 1997 the Company recorded other income of $15.2 million,
representing the $21.0 million termination fee less legal, professional and
other costs related to the terminated merger of $5.8 million.

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CORAM HEALTHCARE CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

4. ACQUISITIONS AND RESTRUCTURING

During the first six months of 1997, the Company has not completed any
acquisitions. The Company's acquisition activity in 1996 was limited to the
completion of the purchase of certain minority interests in two lithotripsy
joint ventures for approximately $0.5 million and $4.2 million in the three and
six months ended June 30, 1996, respectively. Individually and in the aggregate,
the acquisitions were not considered material to the Company's financial
position or results of operations.

Certain agreements related to previously acquired businesses or interests
therein provide for additional contingent consideration to be paid by the
Company. The amount of additional consideration, if any, is based on the
financial performance of the acquired companies. The Company may be required to
pay approximately $2.6 million, subject to increase, under such contingent
obligations based, in certain cases, on the Company or its subsidiaries
exceeding certain revenue or income targets and changes in the market value of
the Company's stock. Subject to certain elections by the Company or the sellers,
a maximum of approximately $1.6 million of these contingent obligations, subject
to increase, may be paid in cash. If these contingent payments are made, they
will be recorded as additional goodwill in the period in which the payment
becomes probable. Payments made during the quarter and six months ended June 30,
1997 totaled $0.3 million and $0.5 million, respectively.

Merger and Restructuring. During September 1994, the Company initiated a
merger and restructuring plan (the "Coram Consolidation Plan") to reduce
operating costs, improve productivity and gain efficiencies through
consolidation of redundant infusion centers and corporate offices, reduction of
personnel, and elimination or discontinuance of investments in certain joint
ventures and other non-infusion facilities. As a result of the Coram
Consolidation Plan, the Company recorded charges of $28.5 million in estimated
merger costs and $95.5 million in estimated restructuring costs. During May
1995, the Company initiated a second restructuring plan (the "Caremark Business
Consolidation Plan") and charged $25.8 million to operations as a restructuring
cost. Certain additional restructuring costs totaling approximately $11.4
million were accounted for as adjustments to the purchase price of the Caremark
Business.

For both the Coram and the Caremark Business Consolidation Plans, personnel
reduction costs include severance payments, fringe benefits and taxes related to
employees to be terminated, costs of terminating executives and buying out
employment and consulting contracts, and incremental professional fees to
develop and implement the plans. Facility reduction costs consist of the cost of
fulfilling or buying out existing lease commitments on branch facilities and
corporate offices that will be closed as part of the restructuring, reduced by
any sublease income. They also include related costs for equipment leases and
facility closure expenses. Facility reduction costs resulting in non-cash
charges consist principally of the write-down, net of any proceeds on
disposition, of operating assets that have become redundant because of the
consolidation. They also include inventory that has no future value because of
the restructuring. For the Coram Consolidation Plan, merger costs consist of
executive severance payments directly related to the Four-Way Merger based on
the relevant employment agreements, investment banking fees, consulting, legal
and accounting fees and other costs incurred as a direct result of the merger.
Discontinuance costs are principally non-cash and consist of the estimated loss
on the disposal of non-core businesses.

In 1997, net revenue of the Company does not include revenue from non-core
businesses that were discontinued or disposed of as part of the Coram
Consolidation Plan. However, in the three and six months ended June 30, 1996 net
revenue included approximately $0.2 million and $3.0 million, respectively, in
revenue from non-core businesses. Operating results from businesses that were
discontinued or disposed were not material.

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CORAM HEALTHCARE CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

The Company has substantially completed the consolidation process
contemplated by both the Coram and Caremark Business Consolidation Plans. During
1995, a pre-tax benefit of $19.6 million was recorded to operations based on a
continuous evaluation of the accruals and estimated costs to complete the plans.

No amounts were recorded subsequent to December 31, 1995, however, the
Company may continue to adjust amounts recorded as contingencies related to
lease buyouts, contractual obligations and other facility reduction costs are
resolved. Under the two plans, the Company has made total payments and asset
disposals through June 30, 1997 as follows (in thousands):

[Enlarge/Download Table]

CHARGES THROUGH BALANCE AT
JUNE 30, 1997 JUNE 30, 1997
--------------------------------- ----------------------
CASH NON-CASH FUTURE CASH TOTAL
EXPENDITURES CHARGES TOTAL EXPENDITURES CHARGES
------------ -------- ------- ------------ -------

Coram Consolidation Plan:
Merger Costs.............................. $26,900 $ 600 $27,500 $1,000 $28,500
======= ======= ======= ====== =======
Personnel Reduction Costs................. $19,900 $ 600 $20,500 $ 700 $21,200
Facility Reduction Costs.................. 11,200 21,500 32,700 900 33,600
Discontinuance Costs...................... 1,450 29,400 30,850 850 31,700
------- ------- ------- ------ -------
Total Restructuring Costs......... $32,550 $51,500 $84,050 $2,450 $86,500
======= ======= ======= ====== =======
Caremark Business Consolidation Plan:
Personnel Reduction Costs................. $11,800 $ -- $11,800 $ -- $11,800
Facility Reduction Costs.................. 8,150 3,900 12,050 4,150 16,200
------- ------- ------- ------ -------
Total Restructuring Costs......... $19,950 $ 3,900 $23,850 $4,150 $28,000
======= ======= ======= ====== =======

The balance in the "Accrued Merger and Restructuring" liability at June 30,
1997 consists of future cash expenditures of $7.6 million referenced above and
$2.9 million of other accruals. The Company currently estimates that the future
cash expenditures related to both the Coram and Caremark Business Consolidation
Plans will be made in the following periods: 51% through June 30, 1998, 7%
through June 30, 1999, 3% through June 30, 2000, and 39% through June 30, 2001,
and thereafter. Although subject to future adjustment and the Company's ability
to successfully implement its business strategy, the Company believes it has
adequate reserves and liquidity as of June 30, 1997 to meet future expenditures
related to the Coram Consolidation Plan and the Caremark Business Consolidation
Plan. However, there is no assurance that the reserves will be adequate or that
the Company will generate sufficient working capital to meet future
expenditures.

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CORAM HEALTHCARE CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

5. LONG-TERM DEBT

Long-term debt is as follows (in thousands):

[Enlarge/Download Table]

JUNE 30, DECEMBER 31,
1997 1996
--------- ------------

Senior Credit Facility...................................... $ 135,000 $ 157,700
Rollover Note, including accrued interest (Bridge Note
through April 6, 1996).................................... 202,450 189,013
Junior convertible subordinated PIK note, due October 1,
2005, plus interest payable semiannually at 7%,
convertible into Common Stock at the conversion rate of
$27, including accrued interest........................... -- 84,609
Junior non-convertible subordinated PIK note, due October 1,
2005, plus interest payable semiannually at 12%, including
accrued interest.......................................... -- 30,669
Other obligations, including capital leases, at interest
rates ranging from 6% to 16%, collateralized by certain
property and equipment.................................... 2,162 2,683
--------- ---------
339,612 464,674
Less current scheduled maturities........................... (188,838) (198,033)
--------- ---------
$ 150,774 $ 266,641
========= =========

The Company's principal credit and debt agreements were entered into on
April 6, 1995 at the time of the acquisition of the Caremark Business. At
December 31, 1996, these agreements included (i) borrowings under a Credit
Agreement with Chase Manhattan Bank (formally Chemical Bank) as Agent ("the
Senior Credit Facility") (ii) a Rollover Note ("Rollover Note") issued to an
affiliate of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and
(iii) Junior Subordinated PIK Notes.

During the six months ended June 30, 1997 and in consideration of the then
proposed Merger Agreement with IHS, the Company entered into a Ninth Amendment
to the Senior Credit Facility on March 14, 1997 which extended the maturity date
from March 31, 1997 to May 31, 1997. 2, 1997, the Company refinanced $150.0
million owed its lenders under the Senior Credit Facility through a refinancing
transaction with Goldman Sachs Credit Partners L.P. ("GSCP"). GSCP acquired the
debt through an assignment from Chase Manhattan Bank and entered into a Tenth
Amendment to the Senior Credit Facility (the "Amendment"). The Amendment
extended the maturity date of the Senior Credit Facility from May 31, 1997 to
the earlier of (i) the date on which any obligation under the Rollover Note
becomes payable in cash (currently March 31, 1998) or (ii) May 31, 1998 (the
"Maturity Date"). The Amendment also reinstated the Company's ability to borrow
and repay loans under the revolving portion of the Senior Credit Facility,
allowed the Company to make certain business acquisitions not previously
permitted, modified interest rates and revised certain financial and other
covenants.

At June 30, 1997, the Company had $135.0 million outstanding under the
Senior Credit Facility. Interest is based on margins over certain domestic and
foreign indices and was 8.94% on June 30, 1997. The Senior Credit Facility is
secured by the stock of all of the Company's subsidiaries and a collateral
interest in the Company's principal bank accounts. All net proceeds from sales
of assets, other than those sold in the ordinary course of business, and any
excess cash balances, as modified by the Amendment, must be applied to
prepayment of the Senior Credit Facility. The Senior Credit Facility contains
financial covenants and conditions limiting the Company's ability to engage in
certain activities. The principal covenants relate to maintenance of minimum
levels of operating cash flow and minimum earnings before interest, taxes,
depreciation and amortization ("EBITDA"). At June 30, 1997, the Company was in
compliance with these covenants.

10-Q 11th Page of 25 TOC 1st Previous Next ↓Bottom Just 11th

CORAM HEALTHCARE CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

On October 13, 1995, in conjunction with the restructuring of the Senior
Credit Facility, Chase Manhattan Bank received warrants to purchase 2.6 million
shares of common stock of the Company or, at the option of the lenders, 6% of
the shares of Coram Inc., a wholly owned subsidiary of the Company and the
immediate parent of the Company's operating subsidiaries, exercisable at a
nominal price over five years. These warrants were valued at $8.0 million, their
fair value at date of issuance, and were accounted for as interest expense
through April 30, 1997. In the quarter and six months ended June 30, 1997, $0.5
million and $1.7 million, respectively, was charged to interest expense related
to these warrants.

The Rollover Note was originally issued to DLJ as an unsecured obligation
of the Company, in the principal amount of $150.0 million with a maturity date
of October 6, 2000. On May 1, 1997, a group of investors consisting of Cerberus
Partners, L.P., Goldman Sachs Credit Partners, L.P. and Foothill Capital
(collectively "the Holders") purchased the Rollover Note and all of the rights
to the warrants thereunder. The interest rate on the Rollover Note is based on
various indices plus a margin which increases by 0.25% quarterly, but not to
exceed 21% per annum. The rate as of June 30, 1997 was approximately 15.5%.
Pursuant to a letter agreement dated March 28, 1997 between the Company and DLJ,
payment of interest on the Rollover Note, the funding fee and the duration fees
which had been due March 31, 1997 was deferred to March 31, 1998. During the
quarter and six months ended June 30, 1997, an additional $6.5 million and $13.4
million, respectively, was accrued on the Rollover Note for a total unsecured
obligation in the amount of $202.5 million (including duration and funding fees
of approximately $5.0 million). The agreement pursuant to which the Rollover
Note was issued contains customary covenants and events of default. At June 30,
1997, the Company was in compliance with all of these covenants.

DLJ had previously been granted the right to receive certain warrants to
purchase common stock on an accelerated basis (see below), and the right to
appoint one director to the Company's Board of Directors, which occurred in
November 1995. Effective May 1, 1997, DLJ resigned its position on the Company's
Board of Directors concurrent with the sale of the Rollover Note. The Company
believes the Holders do not have the right to appoint a director.

As long as the Rollover Note is outstanding, the Holders have the right to
receive warrants to purchase up to 20% of the outstanding shares of Common Stock
of the Company, on a fully diluted basis, at a nominal exercise price in
accordance with the following table. The schedule, as follows, was accelerated
to commence December 30, 1995 and will continue on that basis until such time as
all deferred interest and duration fees (together with all interest due thereon)
have been paid in full, at which time it will revert back to the original
schedule with no return of issued warrants.

[Download Table]

0-89 days(Issued December 30, 1995)......................... 0.50%
90-179 days (Issued March 29, 1996)......................... 1.00%
180-269 days (Issued June 27, 1996)......................... 1.00%
270-359 days (Issued September 25, 1996).................... 1.50%
360-449 days (Issued December 24, 1996)..................... 2.00%
450-539 days (Issued March 24, 1997)........................ 2.50%
540-629 days (Issued June 22, 1997)......................... 2.50%
630-719 days................................................ 3.00%
720-809 days................................................ 3.00%
810 days and thereafter..................................... 3.00%
-----
20.00%
=====

Warrants issued to the Holders are accounted for as interest expense and
additional paid-in capital. Through June 30, 1997, warrants to purchase
approximately 4.7 million shares of the Company's common

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CORAM HEALTHCARE CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

stock have been reserved in escrow with a value of $19.0 million. The value was
determined as of the date the warrants were issued. Interest expense recorded
during the quarter and six months ended June 30, 1997, related to these
warrants, was $4.3 million and $8.6 million, respectively.

Pursuant to the terms of the Senior Credit Facility and the Rollover Note,
the Company is currently precluded from declaring or paying dividends on its
capital stock.

The Junior Subordinated PIK Notes were issued to Caremark in connection
with the acquisition of the Caremark Business. On June 30, 1997 the Company
entered into a settlement with Caremark. Under the terms of the settlement,
Caremark has canceled the Junior Subordinated PIK Notes totaling $120.0 million
as of June 30, 1997, with all payments thereunder to be forgiven. See Note 2,
Note 8 and Part II -- Item 1, "Legal Proceedings."

6. STOCK OPTION PLANS

On May 16, 1997, the Company's Board of Directors recognized that the
exercise price of certain stock options issued under the 1994 Coram Healthcare
Corporation Stock Option/Stock Issuance Plan were significantly out of the money
as a result of a substantial decline in Coram's stock price. To better
incentivize and retain employees of the Company, options held by substantially
all non-director employees to purchase in the aggregate 2.8 million shares of
the Company's Common Stock were repriced to reflect an exercise price of $2.625
per share, representing the fair market value on the date of such repricing.

7. INCOME TAXES

During the quarter and six months ended June 30, 1997, the Company recorded
income tax expense of $0.2 million and $0.3 million, respectively. Accordingly,
the effective income tax expense rates for the quarter and six months ended June
30, 1997 differ substantially from the expected combined federal and state
income tax expense rates calculated using applicable statutory rates.

The Company has deferred tax assets and liabilities of $4.8 million,
respectively. Deferred tax assets equal $113.7 million less a $108.9 million
valuation allowance. Realization of deferred tax assets is dependent upon the
ability of the Company to generate taxable income in the future. Deferred taxes
relate primarily to temporary differences consisting, in part, of accrued
restructuring costs, the charge for goodwill and other long-lived assets,
allowances for doubtful accounts that are not deductible for income tax purposes
until paid or realized and to net operating loss carryforwards that are
deductible against future taxable income.

8. LITIGATION

The Company is a party to certain litigation that could, if their outcomes
were unfavorable, have a material adverse effect on the Company's financial
position, results of operations and liquidity. This litigation includes actions
by plaintiffs in the Shareholder Litigation (as defined below) which was
initiated against T(2) in 1992 related to the T(2)Settlement Agreement and the
subrogation claims by Coram's insurance carriers as described below. The Company
intends to vigorously defend itself in these matters. Nevertheless, due to the
uncertainties inherent in litigation, the ultimate disposition of these matters
cannot be presently determined. See also Part II -- Item 1. "Legal Proceedings."

10-Q 13th Page of 25 TOC 1st Previous Next ↓Bottom Just 13th

CORAM HEALTHCARE CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

and the Shareholder Litigation. This claim has been submitted to binding
arbitration. If the carrier prevails, such carrier may be entitled to receive a
portion of the amount paid to Coram in settlement of the Caremark Litigation up
to the approximate $8.8 million such carrier contributed to the settlement of
the Shareholder Litigation. There can be no assurance that the other insurance
carrier, which paid $15.0 million in settlement of the Shareholder Litigation,
will not pursue similar claims against Coram.

On June 30, 1997, the Company entered into a settlement of a lawsuit filed
against Caremark (the "Caremark Litigation") relating to the acquisition of the
Caremark Business. The Caremark Litigation was originally filed in September
1995 in San Francisco Superior Court. Under the settlement, the Junior
Subordinated PIK Notes totaling $120.0 million as of June 30, 1997 were canceled
with all payments thereunder to be forgiven. Additionally, Caremark agreed to
pay $45.0 million in cash on or before September 1, 1997. As a result, the
Company recorded income from litigation settlement of $156.8 million during the
second quarter of 1997. See Note 2.

On July 7, 1997, Coram filed suit against Price Waterhouse LLP in the
Superior Court of San Francisco, California seeking damages in excess of $165.0
million. As part of the settlement of the Caremark Litigation, Caremark assigned
and transferred to Coram all of Caremark's claims and causes of action against
Caremark's auditors, Price Waterhouse LLP, related to the lawsuit. This
assignment of claims includes claims for damages sustained by Caremark in
defending and settling the lawsuit. See Note 2.

On August 8, 1996, the Company announced an agreement in principle to
settle certain shareholder class actions and derivative litigation ("Shareholder
Litigation"). The agreement in principle was approved by the Colorado District
Court on January 24, 1997. As consideration for the settlement, the Company paid
approximately $0.3 million and the Company's director's and officer's insurance
policies paid approximately $22.3 million. Additionally, the Company was
required to adopt certain disclosure policies with regard to certain public
statements. Under the agreement the Company is required to issue 5.0 million
freely tradable shares of Common Stock of which 1.5 million shares were issued
March 11, 1997. Subject to a claims administration process, the Company believes
that the remaining 3.5 million shares will be issued in the third or fourth
quarters of 1997. The Company recorded non-cash charges of $25.6 million and a
cash charge of $0.3 million during the year ended December 31, 1996. The $25.6
million, which was recorded in operations as a provision for shareholder
litigation settlement and in stockholders equity as common stock to be issued,
represents the 5.0 million shares at the stock price of $5.125 per share on the
date the settlement was approved.

10-Q 14th Page of 25 TOC 1st Previous Next ↓Bottom Just 14th

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This Quarterly Report on Form 10-Q contains certain forward-looking
statements (as such term is defined in the private Securities Litigation Reform
Act of 1995) and information relating to Coram that are based on the beliefs of
the management of Coram as well as assumptions made by and information currently
available to the management of Coram. When used in this Report, the words
"estimate," "project," "believe," "anticipate," "intend," "expect" and similar
expressions are intended to identify forward-looking statements. Such statements
reflect the current views of Coram with respect to future events and are subject
to risks and uncertainties that could cause actual results to differ materially
from those contemplated in such forward-looking statements. Readers are
cautioned not to place undue reliance on these forward looking statements, which
speak only as of the date hereof. Coram does not undertake any obligation to
release publicly any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

BACKGROUND

Business Strategy. The Company's business strategy is focused on the basic
factors that could lead to profitability: revenue generation programs, cost
reduction, quality improvement and cash collections. The Company continues to
focus on business relationships where it can assure high quality of care and
operate profitably. The Company is continuing to emphasize marketing efforts
aimed at improving its physician relationships and also has continued the
development of its specialty programs such as one-stop shopping for managed care
payors, disease-state carve-outs (i.e., vertical integration along
disease-specific categories), transplant programs, mail order prescription and
pharmacy benefit management services and women's health programs. Cost reduction
efforts have focused on field consolidation, reduction of corporate expenses,
assessment of poorly performing branches and a review of branch efficiencies.
Delivery of quality service is being closely monitored through an internal task
force, more rigorous reporting and independent patient satisfaction surveys
gathered throughout the year. Further, management continues to concentrate on
reimbursement through an emphasis on improving billing and cash collections and
continued assessment of systems support for reimbursement. While management
believes the implementation of its business strategy has improved operating
performance, no assurances can be given as to its ultimate success.

With the settlement of the Caremark Litigation and the termination of the
proposed IHS Merger, management of the Company is now able to consider strategic
alternatives for the Company and its operations to enable the Company to seek to
realize its potential in the changing market for alternate site infusion therapy
services. Strategic alternatives currently being considered by the Company
include, among others, (i) a refinancing of the Rollover Note during the third
quarter to reduce interest expense and to prevent further dilution through the
issuance of additional warrants, (ii) the pursuit of opportunities in its core
alternate site infusion therapy business, including consolidation with or
acquisition of other companies in its core business or in businesses
complimentary to the Company's core business and (iii) the sale of non-core
businesses including the Company's interests in the lithotripsy partnerships.
The Company has retained Bear Stearns & Co. Inc. to assist in its formulation of
its business strategy. Any sale of the Company's lithotripsy business would
require the consent of the partners of each partnership and there can be no
assurance that such consents could be obtained. Further, there can be no
assurance that the Company will be able to obtain refinancing or effect other
strategic alternatives pursued by the Company on commercially acceptable terms
to the Company.

Factors Adversely Affecting Recent Operating Results. The most significant
factor affecting the Company's operating performance and financial condition is
the continuing decline in revenue and patient census due to the following
factors:

(i) the under-performance of the Caremark Business from what the
Company expected at the time of acquisition. The Company incurred
substantial indebtedness to acquire the Caremark Business, which it
expected to service primarily through the operating income and cash flow of
the Caremark Business. However, the revenue of the acquired Caremark
Business declined significantly after the acquisition in

10-Q 15th Page of 25 TOC 1st Previous Next ↓Bottom Just 15th

the second quarter of 1995 and has continued through the second quarter of
1997. Further, the Company believes the guilty plea by Caremark related to
criminal felony charges in June 1995 has negatively impacted revenue
referral sources and employee morale throughout the Company, further
contributing to a loss of revenue. In addition, during the first quarter of
1996, Caremark announced a settlement with private indemnity payors with
whom Caremark did business before selling the Caremark Business to the
Company. The Company believes the causes underlying the Caremark
settlements have also had an adverse effect on its business. On June 30,
1997, the Company entered into a settlement with Caremark for $165.0
million. See Part II., Item 1, Legal Proceedings and Notes 2 and 8 to the
Unaudited Condensed Consolidated Financial Statements.

(ii) distractions in its revenue generation programs during the
pendency of the IHS Merger which the Company entered into on October 19,
1996. Pursuant to the terms of the Merger Agreement, IHS paid the Company
$21.0 million on May 6, 1997 following the termination of the Merger
Agreement on April 4, 1997. See Note 3 to the Unaudited Condensed
Consolidated Financial Statements.

(iii) ongoing pricing pressure in the Company's core infusion business
as a result of a continuing shift in payor mix from private indemnity
insurance to managed care and governmental payors and intense competition
among infusion providers. To date, the Company's arrangements with managed
care organizations have mostly been on a discounted fee-for-service basis.
The amounts of revenue the Company receives from its agreements with
managed care payors that include capitated or other risk sharing fee
arrangements are not material to the Company's infusion revenue taken as a
whole.

The following table sets forth the approximate percentages of the Company's
net revenue attributable to private indemnity, managed care and governmental
payors, respectively, for the three months ended, June 30, 1997, March 31, 1997,
December 31, 1996 and June 30, 1996:

[Enlarge/Download Table]

THREE MONTHS ENDED
-------------------------------------------------
JUNE 30, MARCH 31, DECEMBER 31, JUNE 30,
1997 1997 1996 1996
-------- --------- ------------ --------

Private Indemnity Insurance and Other Payors...... 28% 29% 31% 36%
Managed Care Organizations........................ 44% 43% 43% 34%
Medicare and Medicaid Programs.................... 28% 28% 26% 30%
--- --- --- ---
Total................................... 100% 100% 100% 100%
=== === === ===

(iv) technological advances in drug delivery systems and the
development of new medical treatments that cure certain complex diseases or
reduce the need for healthcare services. For example, oral drugs such as
protease inhibitors have assisted persons living with HIV and AIDS to
remain healthier longer, thereby reducing their need for multiple infusion
therapies provided by the Company.

The Company has also experienced a disruption in certain relationships as a
result of its headcount reductions and consolidation. In addition, the Company
has experienced increased competition from hospitals and physicians who have
sought to increase the scope of services they offer through their facilities and
offices, including services similar to those offered by the Company. The Company
also continued to experience a shift to higher cost therapies and shorter
lengths of stay which typically have a higher cost of service. There can be no
assurance that these factors will not continue which may have an adverse effect
on the financial position, results of operations and liquidity of the Company.

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RESULTS OF OPERATIONS

CERTAIN QUARTERLY COMPARISONS

THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1997

The following summarizes the Company's results of operations for the three
months ended June 30, 1997 and March 31, 1997 (unaudited; in thousands, except
per share data):

[Download Table]

THREE MONTHS ENDED
----------------------
JUNE 30, MARCH 31,
1997 1997
--------- ---------

Net revenue................................................. $ 118,115 $121,715
Cost of service............................................. 83,040 81,725
--------- --------
Gross profit................................................ 35,075 39,990
Operating expenses:
Selling, general and administrative expenses.............. 22,826 23,652
Provision for estimated uncollectible accounts............ 4,104 4,288
Amortization of goodwill.................................. 3,597 3,612
Income from litigation settlement......................... (156,792) --
--------- --------
Total operating expense........................... (126,265) 31,552
--------- --------
Operating income............................................ 161,340 8,438
Other income (expense):
Interest expense.......................................... (18,230) (21,496)
Termination fee........................................... 15,182 --
Other income, net......................................... 1,057 647
--------- --------
Income (loss) before income taxes and minority interest..... 159,349 (12,411)
Income tax expense........................................ 201 49
Minority interest in net income of consolidated joint
ventures............................................... 2,377 2,128
--------- --------
Net income (loss)........................................... $ 156,771 $(14,588)
========= ========
Net income (loss) per share................................. $ 2.99 $ (0.34)
========= ========
Weighted average common shares outstanding.................. 52,471 42,890
========= ========

Net Revenue. Net revenue decreased by $3.6 million or 3.0%, from $121.7
million in the first quarter of 1997 to $118.1 million in the second quarter of
1997. The decrease is due primarily to a decrease in patient census of
approximately 3.0% attributable to: (i) the continued impact of the
under-performance of the Caremark Business (ii) the distractions related to the
pendency of the IHS Merger (iii) the shift in the treatment of persons living
with HIV and AIDS away from infusion therapy and (iv) the continued shift to
higher cost therapies and shorter lengths of stay which typically have a higher
cost of service. In addition, the Company continues to experience a shift in
payor mix from private indemnity insurance to managed care organizations. See
"Factors Adversely Affecting Recent Operating Results."

Gross Profit. Gross profit decreased by $4.9 million from $40.0 million in
the first quarter of 1997 to $35.1 million in the second quarter of 1997. This
is due to a decrease in net revenue of $3.6 million and an increase in cost of
clinical service of $2.5 million offset by a decrease in the cost of goods sold
of $1.0 million.

Selling, General and Administrative. Selling, general and administrative
("SG&A") expenses decreased slightly to $22.8 million in the second quarter of
1997 compared from $23.7 million in the first quarter of 1997 as a result of the
continuing strategy to reduce unnecessary corporate and field administrative
costs. During the three months ended March 31, 1997 and June 30, 1997, SG&A
includes $0.6 million and $1.2 million, respectively, for collection agency fees
related to the Company's concentrated accounts receivable collection efforts.

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Income From Litigation Settlement. The Company recorded income from
litigation settlement, net of related costs, of $156.8 million in the second
quarter of 1997 in connection with the settlement of the Caremark Litigation.
See Part II -- Item 1. "Legal Proceedings" and Notes 2 and 8 to the Unaudited
Condensed Consolidated Financial Statements.

Operating Income. The Company recorded operating income of $161.3 million
for the second quarter of 1997 compared to $8.4 million for the first quarter of
1997. Eliminating the effects of the $156.8 million income from litigation
settlement, operating income for the second quarter ended June 30, 1997 was $4.5
million. The decrease can be attributed primarily to the decrease in net revenue
of $3.6 million and the increase in cost of service of $1.3 million.

Interest Expense. Interest expense decreased by $3.3 million, from $21.5
million in the first quarter of 1997 to $18.2 million in the second quarter of
1997. The decrease was due primarily to a decrease in the amortization of
deferred financing costs related to the Senior Credit Facility. Interest expense
currently payable was $3.3 million in both the first and second quarters of
1997. See Note 5 to the Unaudited Condensed Consolidated Financial Statements.

Termination Fee. The Company recorded termination fee income, net of
related costs, of $15.2 million in the second quarter of 1997 in connection with
the termination of the merger with IHS. See Note 3 to the Unaudited Condensed
Consolidated Financial Statements.

Net Income (Loss). The Company recorded net income of $156.8 for the
second quarter of 1997 compared with a net loss of $14.6 million for the first
quarter of 1997. The improvement is due primarily to the $156.8 million income
from litigation settlement and the $15.2 million termination fee recorded in the
second quarter of 1997.

THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1996

Net Revenue. Net revenue decreased $15.0 million or 11.3%, from $133.1
million in the second quarter of 1996 to $118.1 million in the second of 1997.
The decrease is due primarily to a 9.0% decrease in patient census attributable
to (i) the continued impact of the under-performance of the Caremark Business
(ii) the distractions related to the pendency of the IHS Merger (iii) the shift
in the treatment of persons living with HIV and AIDS away from infusion therapy
and (iv) the continued shift to higher cost therapies and shorter lengths of
stay which typically have a higher cost of service. In addition, the Company
continues to experience a shift in payor mix from private indemnity insurance to
managed care organizations. See "Factors Adversely Affecting Recent Operating
Results."

Gross Profit. Gross profit decreased $6.9 million from $42.0 million in
the second quarter of 1996 to $35.1 million in the second quarter of 1997. The
decrease is due to lower net revenue offset by the related reduction in cost of
service. See "Factors Adversely Affecting Recent Operating Results."

Selling, General and Administrative Expenses. SG&A decreased $3.8 million
or 14.1%, from $26.6 million in the second quarter of 1996 to $22.8 million in
the second quarter of 1997. The decrease is due primarily to the continuing
strategy to reduce unnecessary corporate and field administrative costs. The
Company continued to incur collection agency fees and legal expenses. During the
three months ended June 30, 1997 and 1996, SG&A includes $1.2 million and $0.9
million, respectively, for collection agency fees related to the Company's
concentrated accounts receivable collection efforts and $0.2 million and $2.2
million, respectively, of legal fees incurred to represent the Company in
various legal matters. SG&A also includes a non-recurring $1.4 million gain on
the conversion of certain debentures to equity recorded in the second quarter of
1996.

Provision for Estimated Uncollectible Accounts. The provision for
estimated uncollectible accounts was $4.1 million or 3.5% of net revenue in the
quarter ended June 30, 1997 compared to $6.8 million or 5.1% of net revenue in
the quarter ended June 30, 1996. The decrease in the provision from the second
quarter of 1996 to the second quarter of 1997 is due primarily to the Company's
concentrated collection efforts over the past year as evidenced by the decrease
in net days sales outstanding ("DSO") from 82 days in the second quarter of

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1996 to 72 days in the second quarter of 1997. See Note 1 to the Unaudited
Condensed Consolidated Financial Statements -- "Provision for Estimated
Uncollectible Accounts."

Provision For (Income From) Litigation Settlement. During the quarter
ended June 30, 1997, the Company recorded income from litigation settlement, net
of related costs, of $156.8 million in connection with the settlement of the
Caremark lawsuit. During the quarter ended June 30, 1996, the Company recorded a
non-cash provision of $12.5 million in connection with 5.0 million freely
tradeable shares to be issued at a future date under an agreement to settle
shareholder litigation. See Part II -- Item 1. "Legal Proceedings" and Notes 2
and 8 to the Unaudited Condensed Consolidated Financial Statements.

Operating Income (Loss). The Company recorded operating income of $161.3
million for the second quarter of 1997 compared to an operating loss of $7.7
million for the second quarter of 1996. Eliminating the effects of the $156.8
million income from litigation settlement and the $12.5 million non-cash
provision for shareholder litigation settlement, operating income for the
quarters ended June 30, 1997 and 1996 was $4.5 million and $4.8 million,
respectively.

Interest Expense. Interest expense decreased by $2.3 million, from $20.6
million in the second quarter of 1996 to $18.2 million in the second quarter of
1997. The decrease was due primarily to a decrease in amortization of deferred
financing costs related to the Senior Credit Facility of $3.1 million. Interest
expense currently payable was $3.3 million and $5.1 million in the second
quarter of 1997 and 1996, respectively. The warrants and interest terms on the
debt are described in Note 5 to the Unaudited Condensed Consolidated Financial
Statements.

Income Tax Expense (Benefit). During the quarter ended June 30, 1997, the
Company recorded income tax expense of $0.2 million compared to an income tax
benefit of $5.2 million in the quarter ended June 30, 1996. The 1996 benefit was
based on an estimate of 1996 carryback benefits available in relation to
estimated pre-tax results for the year, exclusive of any significant unusual
items.

Net Income (Loss). Net income for the second quarter of 1997 was $156.8
million compared to a net loss of $23.5 million for the second quarter of 1996.
Eliminating the effects of the $156.8 income from litigation settlement and the
$15.2 million termination fee recorded in the quarter ended June 30, 1997, and
the $12.5 million non-cash provision for shareholder litigation settlement and
the $5.2 million income tax benefit recorded during the quarter ended June 30,
1996, net loss was $15.2 million and $16.2 million for the quarters ended June
30, 1997 and 1996, respectively. The improvement was due primarily to the $3.8
million decrease in SG&A, the $2.7 million decrease in provision for estimated
uncollectible accounts and the $2.3 million decrease in interest expense offset
by a $6.9 million decrease in gross profit.

SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996

Net Revenue. Net revenue decreased $24.9 million or 9.4%, from $264.7
million in the six months ended June 30, 1996 to $239.8 million in the six
months ended June 30, 1997. The decrease is due primarily to a 9.6% decrease in
patient census which can be attributed to (i) the continued impact of the under-
performance of the Caremark Business (ii) the distractions related to the
pendency of the IHS Merger (iii) the shift in the treatment of persons living
with HIV and AIDS away from infusion therapy and (iv) the continued shift to
higher cost therapies and shorter lengths of stay which typically have a higher
cost of service. In addition, the Company continues to experience a shift in
payor mix from private indemnity insurance to managed care organizations. See
"Factors Adversely Affecting Recent Operating Results." Also contributing to the
decrease in net revenue was the sale or discontinuance of non-strategic or
unprofitable businesses with revenue of approximately $3.0 million in the first
six months of 1996.

Selling, General and Administrative Expenses. SG&A decreased $5.4 million
or 10.4%, from $51.9 million in six months ended June 30, 1996 to $46.5 million
in the six months ended June 30, 1997. Excluding the effects of a nonrecurring
$1.6 million gain on the disposal of non-core businesses and a non-recurring

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$1.4 million gain on the conversion of certain debentures to equity recorded in
the first six months of 1996, SG&A expense decreased $8.4 million or 16.2%. The
improvement is due primarily to the Company's continuing strategy to reduce
unnecessary corporate and field administrative costs. However, the Company
continues to incur collection agency fees and legal expenses associated
primarily with its Shareholder Litigation and the Caremark lawsuit. For the six
months ended June 30, 1997 and June 30, 1996, SG&A includes $1.8 million and
$1.1 million, respectively, for collection agency fees related to the Company's
concentrated accounts receivable collection efforts and $1.0 million and $3.5
million, respectively, of legal fees incurred to represent the Company in
various legal matters. See "Business Strategy" and Part II -- Item 1. "Legal
Proceedings."

Provision for Estimated Uncollectible Accounts. The provision for
estimated uncollectible accounts was $8.4 million or 3.5% of net revenue in the
six months ended June 30, 1997 compared to $15.6 million or 5.9% of net revenue
in the six months ended June 30, 1996. The decrease in the provision from the
six months ended June 30, 1996 to the six months ended June 30, 1997 is due
primarily to the Company's concentrated collection efforts over the past year as
evidenced by the decrease in DSO from 82 days in the six months ended June 30,
1996 to 72 days in the six months ended June 30, 1997. See Note 1 to the
Unaudited Condensed Consolidated Financial Statements -- "Provision for
Estimated Uncollectible Accounts."

Provision for (Income From) Litigation Settlement. During the six months
ended June 30, 1997, the Company recorded income from litigation settlement, net
of related costs, of $156.8 million in connection with the settlement of the
Caremark lawsuit. During the six months ended June 30, 1996, the Company
recorded a non-cash provision of $12.5 million in connection with the issuance
of 5.0 million freely tradeable shares that are scheduled to be issued at a
future date under an agreement to settle certain shareholder litigation. See
Part II -- Item 1. "Legal Proceedings" and Notes 2 and 8 to the Unaudited
Condensed Consolidated Financial Statements.

Operating Income (Loss). The Company recorded operating income of $169.8
million for the six months ended June 30, 1997 compared to an operating loss of
$12.6 million for the six months ended June 30, 1996. Eliminating the effects of
the $156.8 million income from litigation settlement recorded in the first six
months of 1997 and the $12.5 million non-cash provision for shareholder
litigation settlement, $1.4 million gain on conversion of debentures, and the
$1.6 million gain on disposal of non-core businesses recorded in the first six
months of 1996, operating income improved by $16.1 million. The improvement is
due primarily to decreases in the provision for estimated uncollectible accounts
and SG&A expenses of $8.4 million and $7.2 million, respectively.

Other Income (Expense). The Company recorded termination fee income, net
of related costs, of $15.2 million, in the second quarter of 1997 in connection
with the terminated merger with IHS. See Note 3 to the Unaudited Condensed
Consolidated Financial Statements.

Income Tax Expense (Benefit). Income tax expense of $0.3 million was
recorded in the first six months of 1997. During the first six months of 1996,
the Company recorded an income tax benefit of $12.7 million. The 1996 benefit
was based on an estimate of 1996 carryback benefits available in relation to
estimated pre-tax results for the year, exclusive of any significant unusual
items.

Net Income (Loss). Net income for the first six months of 1997 was $142.2
million compared to a net loss of $41.4 million for the first six months of
1996. Excluding the effects of the $156.8 million income from litigation
settlement and the $15.2 million termination fee recorded in the first six
months of 1997 and the $12.5 million non-cash provision for shareholder
litigation settlement, $1.4 million gain on conversion of debentures, and the
$1.6 million gain on disposal of non-core businesses recorded in the first six
months of 1996, net loss improved by $2.1 million. The improvement was due
primarily to the $8.4 million decrease in SG&A, the $7.2 million decrease in the
provision for estimated uncollectible accounts offset by a $12.9 million
decrease in income tax benefits.

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LIQUIDITY AND CAPITAL RESOURCES

The Company's cash and cash equivalents at June 30, 1997 were $6.7 million
(excluding restricted cash of $2.4 million which consists principally of cash
held by consolidated partnerships that may only be used for partnership
operations).

The Company's cash and cash equivalents decreased $8.7 million from $15.4
million at December 31, 1996 to $6.7 million at June 30, 1997. The decrease in
cash and cash equivalents was due primarily to cash used in financing activities
of $23.3 million and cash used in investing activities of $8.4 million. Cash
used in financing activities consists primarily of a reduction of debt totaling
$23.7 million. Cash used in investing activities consists primarily of the
purchase of fixed assets of $7.8 million. The decrease in cash related to
investing and financing activities was offset by cash provided by operations of
$23.0 million resulting from the (i) $21.0 million payment received as a result
of the termination of the proposed merger with IHS (ii) approximately $8.0
million of cash received in excess of cash disbursements due to improved cash
collections of accounts receivable and decreased disbursement levels offset by
(iii) approximately $4.1 million in deferred financing fees related to the
Senior Credit Facility. As the Company collects or writes off its older
accounts, its rate of cash collections in relation to net revenue billed may
decrease in future periods.

On February 26, 1997, the Company agreed to purchase up to $13.0 million of
multi-therapy infusion pumps and related proprietary telemedicine technology.
Through August 8, 1997, the Company has purchased pumps totaling approximately
$6.0 million through operating cash flow. The Company expects to continue to pay
for the pumps out of cash flow from operations; however, it would seek to
finance the purchase of these pumps, if necessary, to improve the Company's
liquidity.

On June 2, 1997, the Company refinanced $150.0 million owed its lenders
under the Senior Credit Facility through a refinancing transaction with GSCP.
GSCP acquired the debt through an assignment from Chase Manhattan Bank and
entered into a Tenth Amendment to the Senior Credit Facility. The Amendment
extends the maturity date of the Senior Credit Facility from May 31, 1997 to the
Maturity Date as defined in Note 5 of the Unaudited Condensed Consolidated
Financial Statements (currently March 31, 1998). The Amendment also reinstated
the Company's ability to borrow and repay loans under the revolving portion of
the Senior Credit Facility, allowed the Company to make certain business
acquisitions not previously permitted, modified interest rates and revised
certain financial and other covenants. In addition to the Senior Credit
Facility, interest and fees accrued on the Rollover Notes are due March 31,
1998. Upon receipt of the cash proceeds due to the Company in the settlement of
the Caremark Litigation, the Company intends to use substantially all net cash
proceeds to reduce outstanding debt. Additionally, the Company is currently
evaluating other strategic alternatives in meeting scheduled maturities of
principal and interest. These strategic alternatives include but are not limited
to additional equity or debt financing or sales of other non-core assets,
including its lithotripsy businesses. The sale by the Company of its interests
in the lithotripsy partnerships would require the consent of the partners of
each partnership. There can be no assurance that the Company would be able to
obtain such consents or that any financing sources will be available to the
Company or, if available, will be available on commercially acceptable terms to
the Company. As of August 10, 1997 and since October 13, 1995, the Company has
met all scheduled payments, resulting in a $85.0 million reduction in the term
loans and a $15.0 million reduction in the revolver balance of the Senior Credit
Facility.

Joint venture agreements within the Company's lithotripsy operations
contemplate that, in certain situations, the Company would be required to
purchase the minority interests in such joint ventures. During 1996, the Company
acquired certain minority interests in two additional partnerships for
approximately $4.7 million in cash. If, however, Coram were required to acquire
the minority interest of its partners in each of its lithotripsy partnerships,
the cost, in the aggregate, would be material to the Company. In addition there
is no assurance that the Company will have the resources to make the required
payments or that the lenders under the Senior Credit Facility will approve the
required payments.

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FUTURE HEALTH CARE PROPOSALS AND LEGISLATION

In recent years, an increasing number of legislative initiatives have been
introduced or proposed in Congress and in state legislatures that would effect
major changes in the health care system, either nationally or at the state
level. Among the proposals under consideration are various insurance market
reforms, forms of price control, expanded fraud and abuse and anti-referral
legislation and further reductions in Medicare and Medicaid reimbursement. Most
recently, on August 5, 1997, President Clinton signed into law the Budget
Reconciliation Act of 1997, which provides for reductions in Medicare and
Medicaid of over $115 billion and $13 billion, respectively, over five years.
The impact of these reductions on the health care industry in general and the
Company specifically cannot be determined at this time. Further, the Company
cannot predict whether any of the above proposals or any other proposals will be
adopted. No assurance can be given that the implementation of the Budget
Reconciliation Act or any other reforms will not have a material adverse effect
on the business of the Company.

In addition to the above, the Health Care Financing Administration ("HCFA")
previously issued a proposed rule that would, if implemented, significantly
reduce the amount Medicare would reimburse its beneficiaries for the cost of
lithotripsy procedures performed in an ambulatory surgery center or on an
outpatient basis at a hospital. Such a proposal might result in similar efforts
by other third-party payors to limit reimbursement for lithotripsy procedures.
HCFA announced the new lithotripsy rates in June 1997 which could take effect as
early as October 1997. The ruling, if implemented, could have an adverse effect
on the financial position, results of operations and liquidity of the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

One of Coram's insurance carriers, which contributed approximately $8.8
million to the settlement of the Shareholder Litigation (as defined below)
approved in January 1997, has asserted its contractual subrogation rights
against any recovery Coram has realized in the Caremark Litigation (as defined
below), including any amounts received in settlement thereof, based on the
alleged relationship between the Caremark Litigation and the Shareholder
Litigation. This claim has been submitted to binding arbitration. If the carrier
prevails, such carrier may be entitled to receive a portion paid to Coram, in
settlement of the Caremark Litigation up to the approximate $8.8 million such
carrier contributed to the settlement of the Shareholder Litigation. There can
be no assurance that the other insurance carrier, which paid $15.0 million in
settlement of the Shareholder Litigation, will not pursue similar claims against
Coram.

The Company intends vigorously to prosecute its claims and defend itself in
the matter described above. Nevertheless, due to the uncertainties inherent in
litigation, the ultimate disposition of the arbitration described in the
preceding paragraph cannot presently be determined. Accordingly, except for the
settlement of the Shareholder Litigation (see Note 8 to the Unaudited Condensed
Consolidated Financial Statements), and charges recorded for various litigation
settlements that are not individually material to the Company, no provision for
any loss that may result upon resolution of any suits or proceedings has been
made in the consolidated financial statements. An adverse outcome could be
material to the financial position, results of operations and liquidity of the
Company.

On November 2, 1995, a shareholder derivative suit captioned Martin J.
Siegal, on behalf of Coram Healthcare Corporation v. James Sweeney et al., Civil
Action No. 14646, was filed in the Court of Chancery of the State of Delaware.
The factual allegations in this suit were substantially similar to the
allegations in certain civil suits filed in the United States District Court for
the District of Colorado, which were ultimately consolidated into one suit, as
previously reported. In light of approval of a settlement in the Colorado
litigation

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in January 1997, as reported in the Company's Form 10-Q for the quarter ended
March 31, 1997, on June 11, 1997, the Siegal lawsuit was dismissed with
prejudice.

On August 8, 1996, the Company announced an agreement in principle to
settle the Shareholder Litigation. The agreement in principle was approved by
the Colorado District Court on January 24, 1997. As consideration for the
settlement, the Company paid approximately $0.3 million and the Company's
director's and officer's insurance policies paid approximately $22.3 million.
Additionally, the Company was required to adopt certain disclosure policies with
regard to certain public statements. Under the agreement the Company is required
to issue 5.0 million freely tradable shares of Common Stock of which 1.5 million
shares were issued March 11, 1997. Subject to a claims administration process,
the Company believes that the remaining 3.5 million shares will be issued in the
third or fourth quarters of 1997. The Company recorded non-cash charges of $25.6
million and a cash charge of $0.3 million during the year ended December 31,
1996. The $25.6 million, which was recorded in operations as a provision for
shareholder litigation settlement and in stockholders equity as common stock to
be issued, represents the 5.0 million shares at the stock price of $5.125 per
share on the date the settlement was approved.

The Company is also a party to various other legal actions arising out of
the normal course of its business. Management believes that the ultimate
resolution of such other actions will not have a material adverse effect on the
Company's financial position, results of operations and liquidity of the
Company. Nevertheless, due to the uncertainties inherent in litigation, the
ultimate disposition of these actions cannot presently be determined.

ITEM 2. CHANGE IN SECURITIES

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

10-Q 23rd Page of 25 TOC 1st Previous Next ↓Bottom Just 23rd

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) Exhibits

[Download Table]

EXHIBIT
NUMBER DESCRIPTION
------- -----------

27 -- Financial Data Schedule

*(B) Reports on Form 8-K
------------------------

* Previously Filed.

On June 13, 1997, the Company filed a report on Form 8-K reporting
repayment of $150 million owed its lenders under its Senior Credit Facility,
originally dated April 6, 1995, through a refinancing transaction with Goldman
Sachs Credit Partners L.P. as discussed in Note 4 to the Unaudited Condensed
Consolidated Financial Statements.

On June 27, 1997, the Company filed a report on Form 8-K reporting the
adoption of a Stockholders Rights Agreement which provides for a dividend of one
preferred share purchase right for each outstanding share of common stock, par
value $0.01 per share of the Company.

On July 9, 1997, the Company filed a report on Form 8-K reporting
settlement of its lawsuit against Caremark International, Inc. and Caremark,
Inc. as discussed in Note 7 to the Unaudited Condensed Consolidated Financial
Statements and Part II Item 1. Legal Proceedings.

10-Q 24th Page of 25 TOC 1st Previous Next ↓Bottom Just 24th

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

CORAM HEALTHCARE CORPORATION

By: /s/ RICHARD M. SMITH

--------------------------------------
Richard M. Smith
Chief Financial Officer

August 13, 1997

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EXHIBIT INDEX

[Enlarge/Download Table]

SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ------------------------------------------------------------------------ ------------

27 -- Financial Data Schedule..............................................

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q’ Filing	Date	First	Last	Other Filings

	10/1/05	10
	6/30/01	9		10-Q, NT 10-Q
	10/6/00	11
	6/30/00	9		10-Q, NT 10-Q
	6/30/99	9		10-Q, 8-K
	6/30/98	9		10-Q, 3
	5/31/98	10
	3/31/98	10	20	10-K, 10-Q
	12/31/97	6		10-K, 10-K/A
	9/1/97	7	22
	8/19/97
Filed on:	8/13/97	24
	8/11/97	1
	8/10/97	20
	8/8/97	20
	8/5/97	21
	7/9/97	23		8-K
	7/7/97	13	22
For Period End:	6/30/97	1	22	8-K
	6/27/97	23		8-K
	6/22/97	11
	6/13/97	23		8-K
	6/11/97	22
	6/2/97	20		8-K
	5/31/97	10	20
	5/16/97	12
	5/6/97	7	15
	5/1/97	11
	4/30/97	11
	4/4/97	7	15	8-K
	3/31/97	10	22	10-K, 10-Q
	3/30/97	7
	3/28/97	11
	3/24/97	11
	3/14/97	10
	3/11/97	13	22
	2/26/97	20
	1/24/97	13	22
	12/31/96	5	22	10-K
	12/24/96	11
	10/19/96	7	15	8-K
	9/25/96	11
	8/8/96	13	22
	6/30/96	4	19	10-Q, 10-Q/A, 8-K
	6/27/96	11		10-K405/A
	4/6/96	10
	3/29/96	11
	12/31/95	7	9	10-K405, 10-K405/A
	12/30/95	11
	11/2/95	21
	10/13/95	11	20	8-K
	10/1/95	6
	9/11/95	7
	4/6/95	10	23	8-K
	4/1/95	5	7
	9/12/94	5
	7/8/94	5
				List all Filings

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Coram Healthcare Corp – ‘10-Q’ for 6/30/97

As of: Wednesday, 8/13/97 · For: 6/30/97 · Accession #: 1035704-97-90 · File #: 1-11343

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Quarterly Report — Form 10-QFiling Table of Contents

10-Q — Form 10-Q for Quarter Ended June 30, 1997Document Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Quarterly Report — Form 10-Q
Filing Table of Contents

10-Q — Form 10-Q for Quarter Ended June 30, 1997
Document Table of Contents