Case 1:04-cv-01565-SLR
Document 124-3
Filed 04/17/2007
Page 1 of 30
CORAM HEALTHCARE CORPORATION
NOTES
FINANCIAL
June
TO UNAUIMTED CONDENSED CONSOLIDATED STATEMENTS Continued
in
30 1999
the
Company
its
was
compliance
with
all
of these and
covenants
other than
covenants
relating
to
certain
relationships
Coram
certain
Resource
parties
Network
that
Inc
Coram
to
Independent
services
Practice pursuant Healthcarc
certain
Association
to the
Inc
subsidiaries
have
with
were
contracted
provide with
Master
Agreement
effective
May
and
to
1998
USHC
Company
assurance waivers
the
Master Agreement
relating
its
Aetna
U.S
of
Inc
Aetna
The
be
or
Aetna
however
whether
to
certain
covenants
to
the
capitalization
subsidiaries
has
as
received
further at
waivers covenant
from
lenders
will to
regarding
in
such
noncompliance
periods and
There any
can
no
violations
occur
the
future
whether
necessaiy
will
be
forthcoming
that
time See Note
Companys
Unaudited
Condensed
Consolidated
Financial
Statements
Series
Notes
The
Series quarterly
Notes
in arrears to
mature
in
in
May
2001
and
bore
interest
at
an
initial
rate
of
at
9.875% pur annum
the
election to
payable
cash
or through
the issuance the
of
additional
Series
Notes
interest interest
of
the
Company
Notes exceeds
Pursuant
to
the
Note
Amendment
Holders ratio $4.5
lieu
parties
increased
the
to
rate in
applicable cash
if
the Series
11.5%
per
annum The
coverage
can
require
the
Company
ended
pay
the
Company
on
certain
interest
During the quarter
June
30 1999
Series such
interest
expense
totaling
the Series
Notes $4.5
was approximately
issued
in
million cash
On
July
15
1999
interest
additional
Notes
date
approximately
million were
of
payment of
due
through
Series
Notes
The
Series in
Notes mature
or
in
April 2008
and
bear
interest
at
the
rate at
of the
8%
per
annum
of the
are
payable
quarterly
in arrears to
cash
through
the issuance the
of additional
Series
Notes
of
election
Company
convertible anti-dilution obligations
Pursuant
into
the
of
Note
Amendment
adjustments
at
outstanding
at price
principal
amount
Series subject pursuant
to
Notes
shares
the
Companys Common
for
Stock
sale
of $2.00 stock
per share other than
at
customary
to existing
adjustments or
including
benefit
of
common
employee
in lieu
plans
price
below
the conversion
of
price
prevailing
the time of such the quarter
sale
Cash
June
will
be paid
of
fractional
shares
upon
conversion
the Series
Notes
$1.8 of
During million cash
ended 1999
30
1999
interest
expense
totaling
on
the Series
Notes
$1.8
was approximately
issued
On
July
15
additional
Series such
Notes
date
approximately
million were
in lieu
payment of
interest
due
through
The
in if
Series
and
Series
Notes of hold
are
redeemable
of the
in
whole
or
in
part
in
at
the option
of
the
Holders
thereof
connection the
with
any change ceases
to
control
Company
certain
as
by
defined
in
the
Securities
Exchange
subsidiaries
Agreement
or
Company
of the
and
control of
its
interests
its
significant
upon
the and
acquisition
Company
also
or
certain at
subsidiaries
third
party
In
such
instances
the
Series interest
Series Series
at at
Notes Notes
are are
redeemable
103%
at
of the then
outstanding
principal
amount upon
plus accrUed of the
The Notes
redeemable
the option
of the Holders
thereof
maturity
Series are
the outstanding any time
at
principal
amount thereof plus accrued
the then outstanding
principal
interest In addition
the Series
interest at
Notes
the
callable
103%
of
amount
plus
accrued
option
of
the
Company
Exchange
satisfaction
New
certain
Senior
Credit
Facility
to closing
The
consummation
Securities
of the
Exchange
was
contingent on June
upon
the All
of were
conditions with
prior
of the
Exchange
Agreement Company Company Agreement Exchange
to
30 1998
an
into
conditions
for
satisfied credit
the exception
of the condition on
to
requiring the
execute
agreement the
First
new
senior
facility
Accordingly
June
30 1998
the
the
entered and the
Amendment
consummated Company
under $60.0 the
to
and
Waiver
the
Amendment
for
the
Securities
Exchange
Securities
Exchange
requiring In
was
the
The Amendment waived
execute an agreement the Holders secured
or prior
the condition
under
credit
Agreement
new
senior
facility
on
or
prior
to to
June
30 1998
the the
addition up
to
Amendment
of senior on
of the Series
and Series
Senior Credit
Notes agreed Facility
extend
to
million
debt
to
the
New
Company
completion entered
subject the
of
definitive
agreements
September
30 1998
On August
20 1998
Company
into
CROWLEYKVN
016908
A61
Case 1:04-cv-01565-SLR
Document 124-3
Filed 04/17/2007
Page 2 of 30
CORAM HEALTHCARE
NOTES
FINANCIAL
CORPORATION
TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS Continued
Senior capital
calculations
definitive facility subject Facility for to
agreement
for
the
New
base
Credit
letters as
Facility of credit in
providing and other
for
the
availability
of the
$60.0
million
is
acquisitions
certain
working
corporate
purposes
The
availability
borrowing February
defined
the underlying of prime June
as well
agreement
The
New
Senior on
Credit the
first
matures
business secured
assets
day of each by the
capital
26 2001 and bears an interest month The interest rate was 9.25%
stock of the
rate at
plus
1.5% payable The
in arrears
30 1999
as
New
Senior Credit and
Facility
is
Companys
subsidiaries
the accounts Credit
receivable
certain
other
held by
fees the on the
the Company and Company was required
facility
its
subsidiaries pay an upfront per
Under
fee
the
New
in
Senior
Facility
is
to
of 1.0%
quarterly
or $0.6
million
and
liable
among other nominal for commitment fees ended
In
unused
of
of
fees
1.0% on the
annum
due
anears During
the quarter $0.8
June
30
1999
the
interest
and
related
New
Senior Credit provide
at for
Facility
were
approximately of warrants
to to
million
addition
million
terms of the of
New
1998
to
Senior
Credit
Facility
the issuance
purchase
up
to
1.9
shares
common
The
costs to
stock
of the
Company
were over
$0.01
at
life
per share
fair
subject
at
customary of issuance Facility
to
adjustments and were
the
1998
for
Warrants
as
Warrants
valued the
their of
value
the date
accounted
deferred
million
be
amortized expense
the
New
Senior
Credit
The
the
Company
1998
charged
$0.4 terms
interest
during
Facility
the quarter
also
fall
ended
for
June 30 1999
the issuance of
related
Warrants
The
of the that
New
Senior Credit
credit
provide below
letters
of
credit
of
provided
credit
available
would not
$17.1
zero
As of June 30 1999
the
the Holders
availability also
first
up to $25.0 million had issued letters of
the
totaling Facility
approximately
million
thereby of the
reducing
Companys
Facility
under
for
New
Senior per
Credit
by
that
amount The
letter
terms
credit
New
Senior Credit due
in arrears
provide business
fee of 1.0% of each
to
annum
on
the outstanding
of
obligations
also
on
the
fees
day
month
letter
The terms of the
of
credit issuer
New
Senior Credit
to
Facility
provide
related
for
additional
to
be paid on
demand
letters
any
pursuant
the
application fees
and were
documentation on the
under
which
such
of
credit
are
issued
As of June 30 1999 The
such
0.825% per annum
contains
certain
amount of outstanding
covenants and
letter
of
credit
obligations
New
Senior Credit
Facility in
other customary
all
events
of default
At June
relating
30 1999
to
the
Company
was
compliance
with
of these
covenants and
other
than
the covenants
earnings
before
interest ratio
expense
and
income
debt
iatio
taxes
depreciation
as
amortization 1999
EBITDA
certain
covenant matters can be
interest
coverage
covenant
covenant
its
of June
30
in
and
for
other
The no
Company
as will
has however
to
received further
at that
waivers covenant
from
lenders regarding
will
such future
noncompliance
periods and
There
whether
assurance waivers
whether
violations
occur
necessary
be
forthcoming the been with
letters
time had an
available to
At August which
delivered
16
1999 had
New
the of
Senior Credit including
Facility
borrowing the
letters
base of
of
$583
that
million of
$37.0
in
million
drawn
$14.5
million
relating
credit
had
been
accordance the other
as
Master Agreement
credit obligations
with
Aetna
$2.5
In
addition
total
after
deducting
from the
the
facility
borrowing
is
base
totaling
million the
available-under
$19.2
million
of
August
16
1999
Contingencies
Litigation Healthcare
filed in
On
November James
District to
21 1995
Sweeney
Court
receive filed for
suit
captioned
William
Hall
and
Barbara
Lisser
Coram was
class
Corporation States
Patrick
Fortune and Sam
District to
Leno No
on of
95-CV-2994WIiB
of
re
the United
the Northern
of Georgia the
behalf In
purported
of
plaintiffs
who
were
entitled
warrants an
pursuant
settlement on caused
T2 Medical 28 1996
on
in
Inc which and
Shareholder they
allege
Litigation
that
Plaintiffs
Amended
and
Class Action
Complaint
that
February fraud
the Defendants the price
alleges
made
of the
false
misleading stock
statements
the market through
artificially
inflated
Companys
of
during
the period of the
from August Act of
alleges
1994
August
lOb-5
1995
Such
Complaint
thereunder
violations
all
Section
10b
of the
Securities also
1934
and
Rule
promulgated
against
against
of the
Defendants
The Complaint
Securities
controlling
person further
liability alleges
the individual defendants
under
Section
20a
and
Exchange
Act
and
CROWLEYKVN
016909
A62
Case 1:04-cv-01565-SLR
Document 124-3
Filed 04/17/2007
Page 3 of 30
CORAM HEALTHCARE
NOTES
FINANCIAL
fraud
faith
CORPORATION
TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS Continued
under Georgia
by and
all
of the Defendants dealing by
all
law Finally
seek the
Plaintiffs
allege
breach
of the covenant
the
of good
in
fair
Defendants
as
Plaintiffs to
compensatory settlement stock
at
damages
In
re
reflecting
difference
value
between with
at
the warrants the trading
issued pursuant of the
of
its
12
Medical
and the
Inc
Shareholder
Litigation
price
Companys common Companys
on stock Class Action
actual
its
price
same number of The Defendants
warrants
filed
the
same exercise
to
price
with the
trading on
at
alleged
true
value
Molin
dismiss
to
the
Amended
Complaint
March The
13
1996
The
Court
granted
the
to
Companys Motion
the Eleventh
petition Circuit the
Dismiss
the Complaint which
February the
12
1997
on
Plaintiffs
appealed
the dismissal
Plaintiffs filed
Court
of Appeals
affirmed on the
dismissal
October
writ
15
of an
1998
The
with
to
United
States
Supreme 19
the
Court
March Supreme
15
1999 Court
for
certiorari
and
the the
Company
Plaintiffs
responded
petition .for
the petition
On May
ending
1999
entered
rder
denying
certiorari
thereby the the
matter
Service year
In
January
tax rcturn to that
1999
of
Internal
Revenue
for
IRS
ended The
completed
the examination
of
the
federal
incomc
Company
tax
the
of
September
30
1995
has
and agreed
proposed
to
substantial
adjustments $24.4
the million
the
prior
liabilities
the
loss
Company
Company
available
write-off affect
adjustments not agree the
of with
only
affect
the net operating regarding
carryforwards
The Company
of goodwill
prior
does and
other
proposed
adjustments 1995
the deduction
of warrants
specified
liability
portion
of the the
loss
which
would
if
the
IRS
notice
prevails of $12.7
the
years
tax to
liability
On
May
14
1999 The The
and
will
Company
is
received
totaled
statutory
deficiency
with
respect and
the
penalties
proposed
to
adjustments determined
litigation to
alleged
deficiency
approximately of most
million plus through
interest
be and
Company
vigorously
contesting
its
the notice
deficiency significant
administrative proposed
proceedings by the
losses
defend
to
position
The
adjustment
as
IRS
and
relates offset
the
ability
of the
Company
for
categorize the
certain
net operating
losses
specified in
liability
income
$12.7
for this
in prior
years
to
which
Company
of
final
has previously resolution be given the
that
received
refunds
the
amount
of approximately include the
early
million
Due
the uncertainly
Companys
the with
financial
statements
prevail
reserve phase of
these
potential
liabilities
No
assurance
can
in
matter
prevail
and
the uncertainties.inherent respect be
to
any proceeding
Company will the IRS or in
the
financial
given
If
litigation position
the
Company
of
does the the
not
with could
the proposed
material
adjustments
and
liquidity
Company
materially adversely affected
See Part II Item
Financial Statements Price
Legal
Proceedings
and
Note
to
Companys On
Unaudited
Condensed
the
in
Consolidated
July
1997
Company
the the
filed
suit
against
Waterhouse
California
filed
LLP
now
known
in
as
Priceof
waterhouseCOopers $165.0 million
LLP
part
Supreme
settlement
Court
that
of
San Francisco
case
seeking
damages
against
excess
As
of
resolved
by
the
Company
and
Caremark
to
International
-_
Inc
of
and Caremark
Inc
collectively
Caremark
against
Caremark
assigned
transferred
the
Company
This
lawsuit
all
Caremarksclaims
of claims includes
and causes of action
claims
for
Price
Waterhouse Caremark
LLP
in
Caremarks
and
auditors
settling
its
assignment with the
damages
sustained by the
court in
defending
Company
right to
The
re-file
case
in
was dismissed from
Illinois
California because the lawsuit
in in
of inconvenience court court
in
to
witnesses
with
The
to
Company
the
re-filed
state state
Illinois
PricewaterhouseCoopers
several filed set
LLP
their to
filed
motion
dismiss
Companys
1999
In an
lawsuit
the
in Illinois
on
grounds
another
but
motion
was denied
the
on
March
15
May
1999
PricewaterhouseCoopers
LLP
is
motion
dismiss and
Company
has submitted
into
opposition stage
The There
hearing can be
on no
the motion assurance
for
October
29 1999
The
lawsuit
has progressed
the discovery
of
any
recovery
from PricewaterhouseCoopers
LLP
complaint
On
States
June
30 1999
Court
forth
the
for
Company
filed
the
Coram Complaint
Civil Action
against
Aetna
in
the United
District sets to
the Eastern
against
District
of Pennsylvania
for
No
99-CV-3330 The Coram
of contract and
rescission
Complaint
relating
claims
Aetna
between
fraud
parties
misrepresentation
for ancillary
breach
the
Master Agreement Network
the
network
its
management
of termination
services of-
through
Corams
Resource
Division
R-Net
Coram
provided
notice
the
Master
10
CROWI..EYKVN
016910
A63
Case 1:04-cv-01565-SLR
Document 124-3
Filed 04/17/2007
Page 4 of 30
CORAM
NOTES
I-IEALTHCARE
CORPORATION
FINANCIAL 30 1999 home health Coram
Under
care began
TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS Continued
the
Agreement managed
monthly mately
effective
June
arrangement
for
that
was expected
enrollees
to
last for in
five
years
for
Coram
stated approxi.
and provided
fee
services
over
2000000 Aetna
enrollees
eight
states
per
enrollee
serving
Aetna
under
the
Master Agreement
on
July
stated
1998
in the
As
Coram
Complaint
Aetna
wrongfully other things
induced
Coram
to
enter
into
and
continue
utilization at
performing
of
under
the care
of
Master Agreement
services which
by among
As
also
its
misrepresenting higher
and
understating
home
health
utilization
has been
stated failure
substantially in to
than
Aetna
represented
the the
commencement
Master
totaling additional
the
Master Agreement
respects million
the pay
Coram
Complaint
Aetna has breached
the
Agreement
in
in several
including
amounts due under
Master Agreement
excess
of
for
$10.0 the
Furthermore
necessary and
Aetnas
to
piisrepresentations
its
induced the
Coram
to
expend In the
amounts Coram
June
is
infrastructure
perform
duties
under of
Master Agreement
million
lawsuit
seeking the
compensatory
punitive
damages
of
in
excess
50.0
On
filed
30 1999
on June
Company
1999
in
received of
copy
complaint Pleas and of
the Aetna Complaint Montgomery
relief
that
had
been
by
Aetna
29
Aetna
the Court
Common
equitable
County
to
Pennsylvania the
Case
to have
No
99-11025
under and
The
the
Complaint including
services right to
seeks the
to
declaratory
to
compel
Company
that
perform rendered
Agreement
to
payment
of compensation plan
the healthcare
stated in
providers
continue the
render
Aetnas
health the
members As On
motion
its
the
Aetna
Complaint
Aetna
disputes
Companys
to state
terminate court
Agreement
filed
approximately
to
July
to
1999
have
Coram
the case
removed the Aetna Complaint
transferred
federal
Then Aetna
remand seeking motion
District
back
is
to
court
in
Aetna
subsequently States
District
withdrew Court
for
remand
such
thai
the
Aetna
Civil
Complaint Action
also
pending
the United
the Eastern
of Pennsylvania
No
99-CV-3378 20 1999
Action
On
Coram
tation
its
July Civil
Aetna
filed
counterclaim
against to
Coram
in
the
federal
court
for
lawsuit fraud
to
brought misrepresen
by
No
99-CV-3330
and
motion
dismiss the claims has
filed
of
Coram
to
and
rescission
of the
Master Agreement
sued
Coram
among
never
an
opposition breach perform of the
the motion
dismiss. In and
counterclaim
Aetna
has
Coram
for
other
things
to for
the
Master Agreement
fraudulent tion
misrepresentation with other
in
contending
Coram
with
intended and
Master Agreement
with prospective seeks
defama
of
interference
contractual
relations that
providers bid
for
interference
contractual
in
relations
with
million
companies
allegedly
the
Master Agreement
Aetna
excess
$100.0
the lawsuit an agreed
plus punitive
damages
July
Pursuant fashion the
to
upon order dated
of
23 1999
Coram
the
is
transitioning
back
to
Aetna
has
in
an orderly
--
management
to
home
health care providers
for
services
under
Master Agreement
Coram
services as part
learned that
after
Aetna
July and
has agreed 1999
pay
network
its
properly
authorized
for
home
health
care
rendered of
its
23
while
reserving
rights
to
pursue
Coram
the
cost
is
of such
services to
complaint
counterclaim of
its
against
Coram The Companys R-Net
network
for services
division
continuing
process
claims
submitted
by
members
provider
rendered
through
June
30 1999
and
to
The Company
against
all
intends claims
to
pursue
its
claims
against
Aetna
vigorously and the
put
forth
vigorous
defense
to
of
the
brought
by
Aetna
against
Coram
other
Coram
parties
in
Due
the
uncertainties
inherent cannot
in litigation
the ultimate
disposition
of the has
Aetna
been
litigation
described
in
the preceding
paragraphs dated
presently
be
for
determined any recovery
in
and
or
no
loss
provision
that
recorded
the
Companys Consoli
Aetna on the
litigation financial
Financial
Statements
may
could
result
upon
resolution
of the
effect
described position
above
results
An
adverse
outcome and
such
litigation
have
material
adverse
of operations
also that
liquidity
of the
Company
legal actions arising actions
The Company Management
believes
is
party
to
various other
resolution
out of the normal
will
course material
of
its
business
effect
the ultimate
of such
other
not have
adverse
11
cROWLEY0169hl
A64
Case 1:04-cv-01565-SLR
Document 124-3
Filed 04/17/2007
Page 5 of 30
COItAM
HEALTHCARE
CORPORATION
NOTES
FINANCIAL
TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS Continued
of operations
or liquidity of
on
the
financial
position
results
the
Company
cannot be
Nevertheless presently be
due
to
the
uncertainties
inherent
in litigation
the ultimate
disposition
of these the
actions
determined
for
Contingencies
certain
The
Master Agreement
services
provides
to
that
Company would
in certain certain
financially
responsible based plans
covered
home
health
rendered
that to
covered
enrollees
Aetna
HMO
are
The
Master Agreement
for services
also
contemplates by
the
Company
of
certain
under such
circumstances
would reimburse Aetna
referred to in
paid
for as
directly
Aetna
providers
services
These
amounts
capitation
the
Master Agreement Company
as
leakage
for
Aetna withheld
amounts from each
claims
reserve $5.3
the reimbursement
of leakage
for
During the term
of leakage with
payment made to the of the Master Agreement
approximately
million
was withheld
required
to
by Aetna
to
payment
The Master
for
Agreement Aetna
to failed
Aetna
provide the
Company
monthly
reports
showing
that
its
claims did
leakage
but
do
so The most recent of approximately
$19.7
million to in
three leakage incurred review
reports
Aetna
provide
purported
show
approximately
leakage
claims
through of the
approximately
initial
March
revealed
1999
that
with the
potentially reports
more leakage
inaccurate
in
claims various
follow
The The
Companys Company
of
reports to
were
respects
reported
these
inaccuracies
it
Aetna
but
received
for
if
no
response
At
this
time the Company Aetna due
to
cannot
determine
whether
will
be held
estimate
are
responsible
the leakage
claims asserted by claims
are
the uncertainties
responsibility
litigation
and cannot These
how
much
the
any
of the leakage
ut
properly described
the
of the
Cothpany
matters
among
issues
dispute
in
the
litigation
above
Income Taxes
During $0.8 June
million
the and
six
months ended
million
differ
June
30
1999
and
1998
the
Company
tax rates
recorded
for federal
an
six
income month
state
tax
expense
of
$0.1
respectively
substantially rates as
The
from
effective the
income
the
30
1999
and
1998
expected of the
combined
and
full
periods ended income tax rates
reserve
calculated using applicable
its
statutory
result
Company
providing
valuation
against
deferred
tax
assets
As of June
deferred Deferred charge
that that are are
30 1999
is
deferred
tax
assets
are
net of of the
$134.7
million valuation
to in
allowance
Realization
in
of
tax
assets
dependent primarily
to
upon
the
ability
Company
consisting
for
generate part
taxable
income
the future costs the
taxes
for
relate
temporary
differences
of accrued and
restructuring
goodwill
and
other
for
long-lived tax
assets allowances purposes
until
doubtful
accounts
other
accrued
loss
liabilities
not deductible deductible
income
future
-internal
paid
or realized
and
to
net operating
carryforwards
against
taxable
income
Service year
In
January tax
1999
of
the the
Revenue
for
IRS
The
completed
the
examination and agreed
of
the federal
substantial
income
return
to
Company
tax
the of
ended
September
30
1995
has
proposed
to
adjustments $24.4
million
the
prior
liabilities
the
loss
Company
Company
available
adjustments not agree the
of with
that only
affect
the net operating regarding which received
totaled the
carryforwards
The Company does
of goodwill
prior
the other
liability
proposed
adjustments 1995
loss
the deduction
if
of warrants prevails of
write-off affect
and
tax to
specified
portion
of the the
would
the
IRS
the
years respect
liabilities
On
be
May
14
1999 The The
and
Company
statutory
notice
deficiency
with
the
penalties
proposed
to
adjustments determined
litigation to
alleged
deficiency
is
approximately notice of
$12.7
million plus through
interest
and
Company
vigorously
contesting
its
deficiency
significant
administrative proposed
proceedings
and
relates offset
will
defend
to
position
The most
adjustment
as specified in
by the IRS
losses
the
ability
of the
Company
for
categorize
certain
net operating
losses
liability
and
income
$12.7
for this
in prior
years
which the Company has previously received
of
final
refunds
the
amount of approximately
include the the
early
million
Due
to
the uncertainty
resolution be given
the
that
Companys
the with the
financial
statements given
If
reserve phase of
these
potential
liabilities uncertainties
No
assurance inherent
can
in
Company
IRS
will prevail
matter
and
the
any proceeding
or
in litigation
Company
does
12
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016912
A65
Case 1:04-cv-01565-SLR
Document 124-3
Filed 04/17/2007
Page 6 of 30
CORAM HEALTHCARE
NOTES
CORPORATION
TO UNAUDITED CONDENSED CONSOLIDATED FNANCIAL STATEMENTS Continued
the proposed material affected adjustments the
financial position
not
prevail
with could
respect be
to
and
liquidity
of
the
Company
materially adversely
Industry
Segment
and
Geographic evaluates basis
Area
Operations performance of the
are
Management
product
is
regularly
the operating
Company by
Infusion
alternate
reviewing and
results
on
or
service
provided base
Th
Companys
derives
reportable
its
segments primarily
R-Net
CPS
Infusion therapy physician mail-
the
Companys
revenue and other
is
business
which
revenue
from
to
site
infusion at-risk
R-Nets
groups order
derived
primarily care
from
management
fOr
services
offered
HMOs PPOs
managed
and
organizations
benefit
home
health
services
CPS
and
primarily provides
specialty
pharmacy
services six
pharmacy
the three
management
six
services June
The 30
other 1998
non-reportable
clinical
segment represents
services for
lithotripsy
for
and
months
ended
research
the
three
and
months ended
June 30 1999
interest
Coram
for
uses earnings before of performance inventory
expense income The
taxes
depreciation
for
and
amortization
assets
EBITDA
net accounts
purposes
measurement
and
measurement
and other
basis
segment
includes
receivable
net property
equipment
current
assets
13
CROWLEYKVN
016913
A66
Case 1:04-cv-01565-SLR
Document 124-3
Filed 04/17/2007
Page 7 of 30
CORAM
NOTES
I-IEALTHCARE
CORPORATION
FINANCIAL
TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS Continued
is
Summary
information
by segment
as
follows
in thousands
As
Three
of
and
for the
As
Six
of and
for
the
Months
June
Ended
Months
June
Ended 30
1998
30
1998 1999
1999
Infusion
Revenue
from
external revenue
customers
$108430 8202
23
$94724 3784
17 15
$214035 15405
45
$183522 7316
32 46
Intersegment
Interest
income
in
Equity
net
income
of unconsolidated
joint
ventures
Segment Segment Segment R-Net Revenue
EBITDA
assets asset
profit
11461 136535
14353 115408
953
23256 136535 2456
28021 115408 2293
expenditures
965
from external
revenue
customers
23226
$11621
59832
21393
Intersegment
Interest
income
in
15 of unconsolidated
joint
Equity Segnient
net
income
ventures
EB1TDA
assets asset
loss
29429
6608
287
714
6216
500
24498
6608
813
1706
6216
601
Segment Segment
expenditures
CPs
Revenue
from external revenue customers
21011
533
$10580 280
39666
615
19300 499
Intersegment
Interest
income
in
Equity
net
income
of unconsolidated
joint
vcntures 839 519
Segment Segment Segment
All
EBITDA
assets asset
profit
1406 18883
822
837
18883
expenditures 366
7077 70
7077
152
Other from external revenue customers 130 248 218 647
Revenue
Intersegment
Interest
income
in
Equity
net
income
of unconsolidated
joint
ventures
Segment Segment Segment
EBITDA
assets asset
profit
Toss
149
131
127
204
131
293
expenditures
14
CROWLEYKVN
016914
A67
Case 1:04-cv-01565-SLR
Document 124-3
Filed 04/17/2007
Page 8 of 30
CORAM HEALTHCARE
NOTES
FINANCIAL
of the
to
CORPORATION
TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS Coutmued
segment
reconciliation
Companys
revenue
in
segment
EBITDA
profit
loss
segment
are
assets as
and
other
significant
items
the corresponding
amounts
the Consolidated
Financial
Statements
follows
in thousands
As
Three of and
for
the
As
Six
Months
June
Ended
and Months
of June
for
the
Ended 30
1998
30
1998 1999
1999
Net Revenues
Total Other
for
reportable
segments
$161402
130 revenue revenue
$120989
248
$329553
218
$232030
647
revenue of intersegment consolidated
Elimination
8735
$152797
Interests
4064
$117173
16020
$313751
7815
$224862
Total
Loss Before
Total Other
Income
profit
Taxes
and
for
Minority reportable
EBITDA EBJTDA
loss
loss
expense
segments
$17129
14158
127
164
27152
293
profit
Goodwill
amortization and other
Depreciation
Interest
amortization
expense
expense
All other Loss Assets Total Other
income
before
expense
income
net
149 2716 2953 7524 6768
interests
2778 2937 6083 6313 3826
$128701 284561 $413262
204 5448 5752
14083 11799 $37l22
5543 5937
20258 13246 $17539
taxes andminority
$37239
assets assets
for
reportable
segments
$162026 278469
$162026 278469 $440495
$128701 284561 $413262
Consolidated
total
assets
$440495
For States
each
of the years presented maintains an
the
infusion to
Companys
operation
primary
in
operations
and the
assets assets
were within
and revenue
the United generated
The Company
business
Canada
however
from
this
are not
material
the
Companys
operations approximately
Net revenue
and 1999
from one
of the
customer
for
the
total
Companys
for for
reportable
segments
for
represented
13%
5%
and
respectively
Companys
consolidated the the
six
net revenue
the three
months
and
ended
June
30
1998
and
17% and and
5%
respectively programs of
months ended
June
30
and
1999
1998
Net revenue
represented
for
from
the
Medicare
Medicaid
Companys 23%
Infusion
CPS
segments
approximately
17% and
23%
respectively and
the
Companys
total
consolidated
for
net revenue
six
the
three
months ended
1999 and
June 30 1999
1998
and
17% and
respectively
the
months
ending
June
30
1998
Subsequent
In
Events
July
1999
Coram
laid ofr
114 employees
in
its
Whippany
result call
New
center
Jersey
lay
office
who were
be
responsible
for to
Costs incurred as managing the Aetna Master Agreement divisions Whippany New Jersey reorganize the R-Net
of these
offs
and other actions taken
will
operations
recognized
in
the
Companys
fnancial
statements
for
the
quarterly
period ended
September
30 1999
15
CR0 WLEYKVN
016915
A68
Case 1:04-cv-01565-SLR
Document 124-3
Filed 04/17/2007
Page 9 of 30
ITEM
This defined based
available in
Managements
Quarterly
Discussion
and Analysis
of Financial
Condition
and
Results
of Operations
Report
on
Form
10-Q contains Reform
of
certain
forward-looking
information
statements
relating to
as
such
term
that
is
the Private
beliefs
Securities
Litigation
Act of 1995 and
as well as actual
Coram
are
on
the
to
of the
management
of
in
Coram
assumptions
results
made by
as
and
information
currently
the
management made
Coram The Companys
report
may
vary materially
history
from the forwardlosses
looking
statements
this
due
to
important
factors
such
of
operating equity
in
and
uncertainties rights that
associated
existing
with debt
future
operating limited
results
significant
outstanding
related
indebtedness risks
shifts
conversion
parties large
held by pay
for
holders
liquidity
reimbursement on
relationships
the
mix of
the
Companys
competition
certain
services timing
legal
dependence of
or ability to
with
third
parties
concentration
regulation
of
payors health
trained
industry care
complete
acquisitions on key Stock
government
of the
home
of
industry
proceedings
of
dependence price
personnel
recruitment
listing
and
retention
personnel impacts
potential
volatility
stock
New
in
York
Exchange
Discussion
status
and
of
unantici Financial
pated
from the Year
of
2000 issue
See Item
Risk
Managements
the
and Analysis
Report on
Condition
and Results
for
Operations
Factors
Companys Annual
in this
Form
10-K
as
amended
the year ended
December
31 1998
and current
to
When
similar
used
report
are
the words
to to
estimate project
forward-looking events
actual
believe
statements
currently differ
anticipate Such
available
intend
expect
the
are
expressions of and
intended respect
that
identify
statements information
reflect
views
risks
Coram
with
future cause
are
based
results
on
to to
and
subject
in
uncertainties
could Readers
materially
from those
on these
obligation after
contemplated
such
forward-looking
statements only
as
cautioned
not
place
undue
reliance
forward-looking
to release
statements any
to
which speak
to
of the date
hereof
Coram
to
does
reflect
not undertake events
any
publicly
revisions reflect
these
forward-looking
statements events
or circumstances
the date
hereof
or
the occurrence
of unanticipated
Background
General hospital
The
Company
therapy
specialty clinical
is
engaged
in
four
principal
lines
of
business
alternate
site
outside
the
infusion
and
related
services
ancillary services
network and
management
services
pharmacy
benefit
management
clinical
and
for
mail-order research
pharmacy
and
centralized services medical
management Other
services
administrative
offered respiratory
and
support
trials
medical such
informatics
as
by Coram
therapy
include services
non-intravenous
home
health
products
durable
equipment
and
Business lead
to
Strategy
The
Companys
revenue
overall
business
strategy cost
is
focused
on
the basic control
factors
that
could
profitability
strategic
generation revenue
quality
is
programs
reduction include
and
quality
improvement
relationships alternate
and cash
collections
The
can
Companys
provide the high
generation of care
programs
focus In
on business
the
where the Company
site infusion
its
while
to
operating emphasize
it
profitably marketing
Companys
aimed
at
therapy
business
Company
and
continuing
efforts
improving
of
its
therapy
mix
physician
relationships at
payor
relationships
also
has continued
the development
specialty patients
programs with
aimed
erving
patients
requiring
intravenous
disorders
nutrition
as
and post-transplant pre-
patients and
at-risk
lIlY/AIDS
and other of the
efforts
and
patients
with
chronic
division
such focused reduce
their
hemophilia
on marketing of
their
immune
to
deficiencies
alpha-one physician through focused employer
as
antitrypsin
deficiency
The
R-Net
care
remains
to
HMOs
care the
PPOs
groups
managed
payors
services
desiring utilized
the
cost
health
expenditures
division
management
its
home
on
health
by
members Meanwhile
with with
CPS
plans
has
marketing plans
smaller
health plans care with
including and
companies
self-insured
self-funded needs such and
health and
labor
unions managed
patients
patients
payors
patient populations and of the chronic
specialized
pm-
post-transplant
is
IIV/AIDS
the reach
services
conditions
such
as
diabetes the
asthma
to
The Company
orders
prior for
its
pursuing
plan
to
expand
CPS
division
by developing
with the
site
capability
accept
specialty
mail-order 1999
its
pharmacy
revenues
efforts
over the Internet
in
appearing and
on
the
Internet
to
the
is
end
of
with
beginning toward data with
2000
The
Clinical
Research device
Medical
Informatics
ers that
division benefit that
directing
marketing
pharmaceutical
collection
and
medical
manufactur
offered
can
from the
provide of
their
centralized
management
and
integration to
services
by the most
Company
challenging
can
these
clinical
manufacturers
trials
the
opportunity
complete
some
of
the
aspects
more quickly
16
CROWLEYKVN
016916
A69
Case 1:04-cv-01565-SLR
Document 124-3
Filed 04/17/2007
Page 10 of 30
The
control
Company
cost
has
implemented
and of
cost
reduction
and
control
programs
focused
on
the
reduction and review
is
and
of
of
of
services
operating
quality
expenses
in
assessment
of poorly
infusion
performing therapy and
to
branches
branch
closely
efficiencies
Delivery through an
service
the
Companys Company
methods
is
division
in particular patient
being
monitored
internal
task force throughout
more rigorous reporting
the
independent concentrate assessment
satisfaction
surveys by and
Furthermore management improved
billing
continuing
on
reimbursement support
emphasizing support
for
and
cash
collections
and continued
of systems
reimbursement
alternatives currently in
its
Strategic
being
considered
that lines division
by
the permit
Company
the
include
among
others or
into
the
regional
evaluation business
of
potential
acquisitions
markets
would
of
either
through
one
of
principal
business
to transact
Company to grow its local ii CPSs upcoming entrance
business by
in
the
commerce
continued
Inforrnatics strategic
market investment
which
into
would and can
allow
the
over
the
Internet Research
and
iii the
Medical or other terms
development be
of
services
provided growth the
Will
the
its
Clinical
and
division
alternatives
There
will
no
or any
assurance
will
that
any
to
local
or
regional
business acceptable
be
effected that
be
available
Company
be
available
on
commercially
to
and
there can
be
no
assurance
investment
capital
the
Company
Factors Affecting Dispute immediately the case
is
Recent
Operating
Results
with
Aetna
U.S
Healthcare
Inc On June 30 1999 Agreement 2000
the
Company
is
notified
Aetna
that
effective
Coram
presently
had terminated
scheduled
for
the Master
trial
The Company
now
in litigation
with
Aetna
and
in
April
See Part II Item
during
the
Legal
three
Proceedings
six
The
June
Companys
1999
resulted
performance
in losses costs
under under
services
the
Master Agreement
of
and
month periods ended
and
30
the agreement paid and
into
approximately of
$29.l
$371
of
million million
$24.0
$55.4 leakage
as
million million claims
of
respectively respectively
including
of do
accrued
approximately
and
its
These
figures
not take of
account
in
the various claims these
for losses
Aetna
including
Also
due
to
the uncertainties the
litigation
calculating by
Coram
did not include claims and
part
the
recognized
actual
revenue
amounts previously retained
as
Aetna
of
rates
alleged leakage increased
included
only the
capitation
June
30 1999
as
payments received due to higher than
in
revenue
The
costs
service
during
the three been
months ended
by
expected
utilization
which
that
had
previously of the
misrepresented
Aetna
alleged
Corams
lawsuit
The
Company
believes
termination
Master Agreement
was
proper based cash flow
necessary step toward improving its operating profit and upon non-payments by Aetna and was The Company will take statements for costs associated with charge in its third quarter financial the
terminating
Master Agreement
six
in
an
amount
yet
to
be
determined
due
to
the
uncertainties
of
litigation
For the three and of the Master Apart under
month periods ended
represented
June 30 1999
revenue
related
to
the
Companys performance
of
the
Agreement
approximately
7%
and
12%
respectively branches have
Companys
served
in
total
revenue
enrollees for
from the Master Agreement
various
Corams
infusion
therapy
historically
Aetna
agreements fumihed
related to
including
to
all
national
enrollees
ancillary
services
agreement
executed
April 1998 aggregate ended notice
home
infusion
services
Aetna
of
its
not covered with
by the
Master Agreement
the three and
six
The
revenue June from
of
the
Company
it
relationships
Aetna
for
months
30
1999
was approximately
intends
to
13% and
17%
Aetna
terms
respectively 1998
Although
the
Company
for
has not received services with
Aetna
that
terminate
the April did on
national
to
agreement
infusion
the
that
CPS
was
division
received
to
notice
in
from
Aetna
that
its
not intend
renew
its
agreement
CPS
scheduled
expire
accordance
with
September 30 1999
related
The
effects
termination the
of
the
Master Agreement Network
the
services
and
dispute the
with
Aetna
Infusion
may
that
have
other
if for
negative
on
Companys
to
Resource
for
division
and by
in
Companys
to
business
are
example
outside with
if
Aetna
the
refuses
pay
claims or
if
rendered
its
Coram
Aetna
enrollees to
serviced
Master Agreement
Aetna
causes
newly ultimate
acquired impact the
Prudential the
alliliates
cease
doing
business but
Coram The Company
Further
to
Company
not
cannot
in
its
predict dispute
the
dispute could
with incur with
Aetna
may
the
have
the
does
prevail
with
Aetna
Company
fees
additional
substantial litigation
losses
related
the
Company
with
anticipates
incurring
significant
legal
associated
pursuing
the dispute
Aetna
17
CROWLEYKVN
016917
A70
Case 1:04-cv-01565-SLR
Document 124-3
Filed 04/17/2007
Page 11 of 30
Other
Factors operating
Affecting
Recent
Operating
financial
Results condition
Other
are as
significant
factors
currently
affecting
the
Companys
performance
and
follows
restructure January
of
its
credit
facilities
its
through
the repayment debt
of for
of
its
former
senior
credit
facility
in
1998
the exchange
in
of 1998
former
subordinated
the issuance Senior
of the Series
Facility in
Notes
and 1998
the Series and the
Notes
June
and
price
the establishment applicable
to
the
New
Credit
August
setting to
of the conversion the
Securities
the Series
offset
Notes
contemplated
interest rate
by the April 1999
applicable
to
amendment
Series
Exchange
in
Agreement
April 1999
by the increased
the
Notes
also
included
such
amendment
ii
expansion
and
improved
sales
efforts
in
the
Companys CPS
infusion
division
iii ongoing
in
pricing private
pressure indemnity
in
the
Companys
to
business
as
result
of an other
forth
unfavorable contracted the
shift
payor
mix from
insurers
managed
care
organizations
table
and
sets
payors
and
intense
competition of the
among
infusion
providers
The
following
approximate
percentages
Companys
infusion
therapy
net revenue
from
certain
categories Months March
1999
of payors Ended
Three June 1999
30
31
June 1998
30
Private Payors
Indemnity
Insurance
and
Other
Non-Contracted
24%
Care Organizations
and Other Contracted
23% 54% 23%
27% 47%
26%
Managed
Payors
54% and
Total
Medicare
Medicaid
Programs
22%
L2
competition through
their
iv
services
increased they
or offer
from
hospitals
and
physicians including
that
have
sought
to
increase the scope those
offered to
of
facilities into
and
offices
services
similar to
by the which
the
Company
they have
services
that
have
entered
control
risk-bearing
relationships
with
variety
third-party
payors care
pursuant
been
offered
delegated by the
over and
the provision of
wide
of health
services
including
Company
staffing
increased
costs
clinical
delivery
derivative
on-call and products
that
other
are
volume
short
related
costs
that
as
well
as increased
required
of
certain
blood
and
blood
patients
in
supply
division in short
have
been
by
the increasing of
patients
numbers of
served
that
by the
Companys infusion
products
that are
and
the increasing
numbers
receiving
the therapies
require
The
supply
18
CROWLEYKVN
016918
A71
Case 1:04-cv-01565-SLR
Document 124-3
Filed 04/17/2007
Page 12 of 30
Results
of Operations Quarterly
Certain
Gomparisbns
except per share
Unaudited
in
thousands
data
Three June
Months Msrch
1999
Ended
30
31
June 1998
30
1999
Net revenue
Cost Gross of
service
$152797 146846 5951
$160954 122815 38139
$117173 87882 29291
profit
Operating Selling Provision
expenses general
for
and
administrative
uncollectible
expenses accounts
28680 4452 2716
23829 4161 2732
950
21625 3577 2778
________
estimated
Amortization Restructuring Total Operating Other
of goodwill
costs
operating
expenses
35848
31672 6467
27980 1311
income
loss
29897
income
expenses
Interest
expense
7524
net taxes and minority
interests
6559
210 118 75 428
6083
946
Other
income loss
tax
182
Income Income
Minority
before income
37239
175 579
3826
400
302
expense
in
interests
net
income
of consolidated
joint
ventures
Net
Loss Loss
loss
$37993
common common
share share assuming
dilution
385
0.01 0.01
31 1999
4528
0.09 0.09
per per
0.77 0.77
With Three
Three
Months Ended
per
June 30
share
1999 Compared
Months Ended
March
unaudited
in
millions except
data
decreased
in
Net Revenue
June
Net
revenue
million
$8.3
million or ended
5.2%
to
$152.7
million decrease of
in
the be
quarter
attributed
ended
to
30
1999
in
from
at
$161.0 the
the quarter of
March
in
31 1999
the
are in
The
can
decrease
sales
R-Net
related
division to
$13.4
that
million
current
quarter
in
which
$10.0
million
represented
adjustments and
amounts
presently
dispute
overall
the
litigation in
between
the
Company
partially
Aetna
by an
See Part II Item
increase
in sales sales at
Legal
Proceedings and
The
divisions
decrease
million
net revenue and $2.4
was
offset
the Infusion
CPS
of $2.8
million
respectively
derived
from
internal
growth
$32.2 or
cost million to
Gross Profit ended June
is
Gross from
profit
decreased
million
$5.9 of
million in
or
gross
margin
of 3.9%
in
the quarter
30
due
1999
$38.1
to
gross
margin
23.7%
the quarter
for greater
ended
than
March
anticipated
31 1999
with of
The
reduction and
primarily
increased
of
service to
of $18.9 the the
million division
utilization
decreased
net revenue
as
of $10.0
million In
related
R-Net
infusion
and
certain reflected
costs
associated
cost
the
Master Agreement
relating supplies to variable
discussed
that
above
addition the of
business
higher higher
costs
service
costs
fluctuate
with
number
certain
of
patients
served
and See
of
drugs
and
caused
by
current and Part
market
shortages
blood
products
Factors
Affecting
Recent
Operating
Results
II Item
Legal
Proceedings
Selling General
in
and Administrative June 30 1999
$1.8
million
Expenses
$23.8
SGA increased
in
$4.9 ended
million
or
20.6%
to
$28.7
million in
the quarter quarter
ended 1999
from
million of note
the quarter receivable
March
in
31 1999
Excluding
is
the or
first
of
recovery
the increase
SGA
$3.1
million
13.0% See
Factors
Affecting
Recent Operating
Results
19
CROWLEYKVN
016919
A72
Case 1:04-cv-01565-SLR
Document 124-3
Filed 04/17/2007
Page 13 of 30
Operating
Income
June
Loss
1999
is
The
Company
to
had
an
operating
loss
of
$29.9
during
of
million
during
the three
months ended March
30
compared
due
operating
to
income
of $6.5
in
million
the three
months ended
with the
31 1999
in cost
The
of
decline
primarily
million
the decrease
net revenue
$8.3
as
million coupled
increases
service
of $24.0
and
SGA
costs
of $4.9
million
described
above
Net
Loss
Net
for
loss
for
the quarter ended
ended
June 30 1999
was
$38.0
above
$10.0
million
compared
is
to
net
loss
of
$0.4
cost
million service
the quarter
March
31 1999
and
revenue an
As discussed
decrease
in
the decline
million
due
primarily with the
to the
of
increaseS
of $18.9
related
million
of
associated million
Aetna
Master Agreement
and
dispute
and
increase
SGA expense
of $4.9
Three
Months
except
Ended
June 30
1999
Compared
With
Three
Months Ended
June 30
1998
unaudited
in
millions
per share
data
increased
in
Net June
Revenue
1999
million
Net
revenue
$35.5
million
or
30.3%
to
$152.7
million increase
to
in
is
the quarter primarily increase
revenu.e
ended
to
30
$9.9
from $117.2
increase
offset in
million net
the quarter from
shift
ended
June
30 1998
$15.7
The
due
revenue
the infusion
in
business
primarily
due
9.0%
in
in patient
census
partially division
by an
unfavorable
to the
payor
mix ii
million increase and of
net
from the
in
R-Net
revenue
sales
primarily the
relating
from
CPS
division
resulting
Master Agreement number from an increased
Operating
Aetna
iii
$10.1 served
million
increase by
net
patients
generated
internal
growth See Factors
Gross Profit June
results
Affecting
Recent
Results
to
Gross
profit
decreased
$23.4 or
million
$5.9
million or of
gross
margin
of 3.9% June
to
in
the
quarter
ended
30
1999
from $29.3
million
gross margin
million
25.0%
in cost
the quarter ended of
service relating
30
the
1998 Aetna
The
decrease
primarily from
as
the impact See
of $18.9
increased
Master Agreement
Selling General
in
described
above
Factors
Affecting
Recent
Operaling
Results
32.9%
million is
and Administrative
June
Expenses
$21.6
SGA increased
in
$7.1
million
or
to
$28.7
the quarter
to
ended
30
1999
from
million
the quarter ended
June 30 1998
The increase
due
primarily
the growth
of the
R-Net
and
CPS
divisions
See Factors Affecting
million
to
Recent Operating
in
Results
Interest
Expense
from
$6.1
Interest million
expense during
million
increased the three on
by $1.4
$7.5
million
the three
is
months ended
attributable to
June
30
1999
months ended
Credit change
June
30 1998
$3.8 Series
The increase
increase from
the addition Senior
of draws
of $22.5
the Senior and
rate
Facility on the
million
in
the Series
to
Subordinated on April
Unsecured 1999
Notes
Notes
9.875%
11.5%
beginning
Operating
Income
June
Loss
1999
is
The
Company
to
had
an
operating
loss
of
$29.9
during of $23.4
million
during
the
three
months ended
June
30
compared
due
operating
to
income
of $1.3
in
million profit
the three
million
months ended
increase
in
SGA of
Net
for
30 1998
$7.1
The
decline
as
primarily
the decrease
gross
and
million
described
above June 30 1999 above was $38.0
the decline
million to
Loss
Net
loss
for
the quarter ended
compared
attributed to
$4.5
million in
the quarter
ended
and
June
30 1998
in
As discussed
interest
can
be
the decrease
operating income
the increase
expense
See Factors
Affecting
Recent
Operating
Results
Six
Months
Ended
per
June 30
share
1999
Compared
With
Six
Months
Ended
June 30
1998
unaudited
in
millions
except
data
increased
in
Net Revenue
June
Net revenue
$224.9
$88.9
six
million
or
39.6%
to
$313.8
million
in
the
is
six
months ended
to in
30
$23.1
1999
from
million in net
the
months ended- June
the infusion
shift in
30 1998
The increase
due
to
primarily due 10.0%
in
million
increase
revenue
from
business
primarily $46.2
increase
patient
census
partially division
offset
by an
unfavorable
to
payor
mix ii
million increase
net revenue increase
in
from
net
the
R-Net
primarily
relating
the
Aetna Master Agreement
increased
and
of
iii $19.9
patients
million
revenue
sales
from the CPS
division
resulting
from an
Recent
number Results
served
generated
by
internal
growth See Factors Affecting
Operating
20
CROWLEYKVN
016920
A73
Case 1:04-cv-01565-SLR
Document 124-3
Filed 04/17/2007
Page 14 of 30
Gross
Profit
Gross
profit
decreased
$12.4
million
million
or
to
$44.1 margin
million
or
gross margin
in
of 14.1% ended
in
the
six
months ended 1998
June 30 1999
results
from $56.5
gross in
of
25.1%
the
six
months
in
June and
30 CPS
costs
The decrease
offset
primarily from
in cost
the increase
service
net revenue with the
costs
discussed
above
the
R-Net
divisions
that
by an
with of
increase
of
associated and
Aetna
Master Agreement
and supplies
variable
fluctuate
the
number
of
patients
served
higher
of drugs
caused
by current
market
shortages
certain
blood
products
See Factors
Affecting
Recent
$9.8
Operating
million
Results 23.0%
to
Selling General
in
is
and Administrative June 30 1999
growth of
Expenses
SGA increased
in
or June
$52.5
million
the due
six
months ended
to
from $42.7
Infusion
for
million
the
six
months ended
division and
primarily
the
the
business and
R-Net
benefits
the
30 1998 The increase CPS division Expenses
with additional
increased personnel Affecting
primarily such
as
from business
additional
rent
growth
for office
salary
along
with
costs
associated
space
telephone
and
business
insurance
expense
See Factors
Recent Operating Income
Results The Company had an operating
to loss
Operating ended June
Loss
compared
operating million
of
$23.4
million six
during the
six
months
30
1999
in
operating
is
income
of
$1.0
to
million
during
in
the
months ended
of $12.4
June
30
1998
with
The decrease
an
income
in
due
for
primarily
the decline ended June
increase of $9.8 Costs
SGA
gross
profit
million coupled
the quarter
30 1999
million
Restructuring
relating to
The
of the
Company
recorded
approximately
structure
$0.9
of
charges the
first
in
March
of
1999
reorganization
Companys management
expense decreased the
six to
completed
to
during
million
quarter
1999
Interest
Expense
Interest
by
$6.1
million
$14.1
in
the
six
is
months ended
primarily with
to
June
30
1999
from $20.2
million
million during
in interest
months ended
the Rollover of $3.2
to
June
30 1998
in interest
The decrease
in to
due
decrease
Securities
of $10.3
related
Note which
was cancelled
relating
connection the Warrants
of $7.1
the
Exchange
Agreement
and
decrease
related
million Securities
issued
under
the Rollover
to
Note
offset
Note Net
the
Unaudited
During
by Condensed
six
interest
the
Exchange
as
Agreement
of June
million
See
Consolidated ended of
Financial June
Statements the the
30 1999
net
loss
Loss
million
the
to
months
net
loss
30 1999
during
in
Company
six
recognized June
of
$38.4
discussed decrease
compared
the decline
$19.7
to
million
months ended income
30 1998
offset
As
by
above
in
can
be
attributed
the decrease Recent
operating
loss
partially
interest
expense See Factors
Affecting
Operating
Results
Liquidity
and
Capital uses working
Resources cash
The
Facility to
Company
fund
its
generated
from operations and
and operations
at
available
credit
under
the
New
capital
Senior
as
Credit
capital
requirements
to
The Companys working
of June
30
cash due
1999 the and
to
was $59.7
six
million
compared
$64.6
million
December
in
31 1998
assets
decrease
related to
of $4.9
million During
in
months ended
equivalents
June 30 1999
of $7.9 million increase
in
the primary
increases
in
current
an increase
cash
ii
in
an increase
sales
net accounts
receivable and
of $6.4
million primarily
an
approximate and due
three day
days
outstanding million the
DSO
The
Senior
additional in
sales
vOlume
at
the
CPS
was
division primarily purchases medical primarily
iii
to
decrease
inventory
of
$4.2 on
increase Credit and
in
cash
and
cash
equivalents and
borrowings consisted
for
net of of
repayments
million for
New
Facility Property and
equipment
of durable
primarily equipment
$2.1
computer
liabilities
systems
software the
six
the purchase June
$1.6
million Total
in
current
increased
million to
months ended
with
30
1999
due
to
an
increase million through the the
accounts changes
payable
of
$19.4
relate
coupled
decrease
for the
in
accrued
division
compensation business with
of $3.3
These
June
primarily
expenses
recognized
R-Net
Aetna
30 1999
did
As of June Under
defined borrowing $60.0 by
as
30 1999
of
Company
not have Credit
any
material
commitments
funds
the
for
capital
expenditures
to
the terms
the
New
Senior
Facility the
is
maximum
equal the
to
available
the the
Company
of
Revolving
as
Credit
Commitment
to
an
amount
or
lesser
of
credit
Companys
base
calculated
pursuant the
the agreement
total
revolving
commitment
million of
As of June 30 1999
obligations
Companys
million
Revolving
revolver
Credit
Commitment
of $22.5
was
$59.1 the
million Offset
total available
letter
credit
of $17.1
and
borrowings
million
21
CROWLEYKVN
016921
A74
Case 1:04-cv-01565-SLR
Document 124-3
Filed 04/17/2007
Page 15 of 30
credit
under
the
New
Senior Credit Credit
Facility
was $19.5 was
$58.7
million
as
of June
that
30 1999 As
$37.0
to
of August
million letters of
16
1999
the
Companys Revolving
against
Commitment
Facility
million $14.5
Of
amount
relating
had been
credit
drawn
the
New
in
Senior
Credit
which
includes
million
the
that
had
been
delivered
accordance
totaling
with the
$2.5
Aetna
Master Agreement
total available in
In
addition
facility certain
after
is
deducting
million
the other
as
letters
of credit
obligations
million the
under
the with
$19.2
of
August
16
set
1999
forth
As of June 30 1999
in
its
the
Company was
be
not
compliance
financial
and from
other covenants
its
principal
debi
agreements The
can
Company has however
as to
received
waivers
lenders regarding occur
in future
such
noncompliance
and whether
There any
no assurance
waivers
will
whether
further at
covenant
that
violations
will to
periods
necessary Financial
be
forthcoming
time See Note
the Unaudited
Condensed
Consolidated
Statements
reduction Master
in liquidity
The Company has experienced
described above debt
letter to
it
due
to
the higher than draws on
if
expected of
costs
of
service
as
with by of
respect $14.5
credit
to
the
Agreement
will
and
Aetnas
letters
credit
that
fail
increased use the
outstanding $14.5
million
million proceeds
Liquidity
to satisfy
be
further of
reduced
Aetna
should
to for
claims
participating
providers
against
Coram Aetna
the
services
rendered
that at
prior
June 30 1999
does not intend
faith
when
to
Coram
utilize
terminated
the
Master Agreement
letters to
and
has indicated
present
to
so
the funds
all
from
costs
the
of credit Although the Master
Company
due
costs to
has the be
sought
record of
good
estimate be
of
service that
related
Agreement
all
uncertainties presently
litigation If
there can does
no assurance
letter
the exact
credit
amount and nature of
to satisfy
such of
can
identified for services
Aetna
rendered
not use the
to
of
proceeds
additional
the claims should sources time
arise
participating to
providers Master
prior
June need
30
to
1999 seek
or
if
liabilities alternative at the
related liquidity
is
the
Agreement
is
the
to
Company
assess
may
additional
or
of
it
The
its
Company
business under
continuing
the impact plans
for for
of
the
Master Agreement
and cash
sane
reviewing and
plan and
formulating with
its
revised
operations
possible
flow without of and
its
the Master debt banks
Agreement agreements
and
private
is
discussions
also
current have
lenders
restructuring
principal
The
Company
sources
continues
to
discussions with of
capital to for
other commercial
its
investment
its
equity
regarding consider
will
other sources
strategic
refinancing any
debt
to
address
liquidity
needs The Company no assurance
that
may
also
alternatives
provide
needed
liquidity
There
can
be
the
Company
Year
effect
be
able
to
obtain
any
needed
liquidity
on
commercially
acceptable with the
terms Year 2000
all
2000
Issues
The
have
Company
on
third identified
believes
the payors
most
such
significant as
risk
problem
effects to
is
the
such
issues
may
in
party
Medicare
failure
While
of
the
of
such
noncompliance
have
not been timely
by the could
Company
the these with
any
of these
third
party due
payors
to
resolve
Year 2000
the
problems
of
manner
impact
Companys
payors
attribute
capital the
availability
slow
down
in
payment
accounts
to
receivable which be
associated can
While
to
Company
2000 impact
require
has noL
at
incurred any
any
payment payor no
adverse
available to
issues
date can
management
that
directly issues
the
Year
an and
problem could the
specific
assurance on
made
payment
to
will
not occur from
Such
have
material
to
effect capital
the
Companys
ability
generate
cash
operations delays
Company
use due by
from the
New
Senior Credit by
third
Facility
Significant
in collecting capital
accounts
to
receivable
Year 2000 problems
the
to
experienced base under
party payors of the
could
reduce
the
available
the
Company
reducing
borrowing the
the terms
New
the
Senior
Creait
Facility In
to
addition debt
such
payment
delays due
Year
Costs
2000 problem could Of
the
impact
Companys
accrued
ability
meet
costs
its
obligations estimates
Restructure
that
$3.2
million
of remaining
in
restructure
the
Company
June
thefuture June
to
cash
expenditures
will
be
made
the following and
periods June
35% through
30 2000
16%
through
subject
30 2001
it
17% through
and
June 30 2002
32% through
to successfully as
30 2003
1999 be
and
its
thereafter business future
or that
Although the
future
believes
adjustment has
the
Companys
and
is
ability liquidity that
implement
strategy
Company
related will to
adequate there
reserves
of
June
30
will
to
meet
expenditures the
the plans
sufficient
However
working
no
to
assurance
the
reserves
adequate
Company
generate
capital
meet future
expenditures
Year
2000
Issues
Background
calendar year data
Some computers
is
software only two
and
other
equipment of
this
include design
programming
decision
code
of
in
which
abbreviated
to
digits
As
result
some
these
systems
22
CROWLEYKVN
016922
A75
Case 1:04-cv-01565-SLR
Document 124-3
Filed 04/17/2007
Page 16 of 30
could These
fail
to
operate
are
or
fail
to
produce
to
correct
results in
if
00
is
interpreted
severity as
to
mean
1900
rather
than
2000
are
problems
widely
to as
expected
increase
frequency
and
the year
2000 approaches
and
commonly
referred
the
Millennium
2000 the
Bug
or
Year 2000 Problem
affect
Assessment
operated programs
or
The
Year
by
to
Problem
could
computers
the
software
is
and
other
its
equipment
internal
used
maintained systems
Company
that
Accordingly and
Company
will
reviewing
computer
and
ensure
the
programs
believes
systems
be
Year
2000
compliant of the
Internal
Infrastructure
The
Company
and
related to
that
it
has
in
identified
substantially
all
major
that
computers
software
applications
equipment
the
used
connection
with
its
internal to
operations
its
must be modified
upgraded
the
or replaced
minimize
activity as
possibility to
of material
disruption
business
The
of
all
Company
major
--
has
completed
that
majority of
identified for
related
the modification
upgrade
or replacement
all
systems
fully
have and
been
adversely tracking
collections
affected
by Year
accounting
2000
payroll
fully
To
date
work
has
been
completed
admissions Systems
for
tested
systems
asset
general-
branch
operations including and
in
pharmacy
management Network
division
billing
and
inventory
billing benefit
are
operational
compliance support our
our Resource
Group
for
are
compliant the
for
and
collections
Systems and mail
that
Coram
systems upgraded by
Prescription have and been
are
Services
both
that
pharmacy
our
for
management
order
pharmacy
have been
completed
in
Systems
support
call
Home
Medical Equipment
to
locations
also
operation
Current of
plans
the
Company
complete of the
final
systems
remediation claims
September
30 1999
These
areas
remediation
include
the upgrade
Resource
Network
adjudication
to
system final deployment hardware our data communications Year 2000
calculations
of our inventory and upgrade
or
management
replacement
system minor turnkey software upgrades
of personal
computer
equipment
that
does
not support
Suppliers any
potential to
At the end
adverse
of
1998
the
company
the
first
formally
six
communicated we
with have
its
major suppl
Free Appendix - District Court of Delaware - Delaware
| File Size: | 2,379.3 kB |
| Pages: | 30 |
| Date: | April 16, 2007 |
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| State: | Delaware |
| Category: | District Court of Delaware |
| Author: | unknown |
| Word Count: | 9,345 Words, 65,537 Characters |
| Page Size: | 612 x 805 pts |
| URL |
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