-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C6L/x+Y1Kvco4ss/VCxStlfK/X8l+OoykQa9B9GzYHZa2Utz6UI2LdaRC1TP7kCc 0Gl7Quf8NfARfPUTmMSsEQ== 0000927016-99-002087.txt : 19990518 0000927016-99-002087.hdr.sgml : 19990518 ACCESSION NUMBER: 0000927016-99-002087 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARBORSIDE HEALTHCARE CORP CENTRAL INDEX KEY: 0001011693 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 043307188 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-64679 FILM NUMBER: 99627240 BUSINESS ADDRESS: STREET 1: 470 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6175561515 MAIL ADDRESS: STREET 1: 470 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 10-Q 1 FORM 10-Q 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 March 31, 1999 --------------------------------------------- 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 01-14358 -------------------------------------- Harborside Healthcare Corporation - -------------------------------------------------------------------------------- Delaware 04-3307188 - -------------------------------------------------------------------------------- (State or other jurisdiction (IRS employer identification no.) of incorporation or organization) One Beacon Street, Boston, Massachusetts 02108 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (617) 646-5400 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) 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 ------ ------ Number of shares of common stock, par value $0.01 per share outstanding as of May 12, 1999: 7,261,332. HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES Table of Contents Page ---- Part I. Financial Information Condensed Consolidated Balance Sheets as of December 31, 1998 and March 31, 1999 3 Condensed Consolidated Statements of Operations for the three months ended March 31, 1998 and 1999 4 Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficit) for the three months ended March 31, 1999 5 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1999 6 Notes to Condensed Consolidated Financial Statements 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Part II Other Information 20 Signatures 21 -2- PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS - ------- HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share amounts)
December 31, March 31, 1998 1999 ----------- ----------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 896 $ 2,812 Accounts receivable, net of allowances for doubtful accounts of $2,864 and $2,620, respectively 49,946 49,070 Prepaid expenses and other 10,934 14,034 Prepaid income taxes 3,873 7,446 Deferred income taxes 4,084 4,084 --------- --------- Total current assets 69,733 77,446 Restricted cash 2,110 2,304 Property and equipment, net 160,504 163,237 Intangible assets, net 18,173 18,344 Other assets, net 4,300 4,000 Note receivable 7,487 7,487 Deferred income taxes 2,229 2,229 --------- --------- Total assets $ 264,536 $ 275,047 ========= ========= LIABILITIES Current liabilities: Current maturities of long-term debt $ 207 $ 210 Current portion of capital lease obligation 4,278 4,364 Accounts payable 7,401 11,001 Employee compensation and benefits 13,220 15,565 Other accrued liabilities 7,485 8,350 Accrued interest 62 122 Current portion of deferred income 677 677 --------- --------- Total current liabilities 33,330 40,289 Long-term portion of deferred income 3,104 2,936 Long-term debt 134,473 144,239 Long-term portion of capital lease obligation 51,253 50,949 --------- --------- Total liabilities 222,160 238,413 --------- --------- Exchangeable preferred stock, redeemable, $.01 par value with a liquidation value of $1,000 per share; 500,000 shares authorized; 42,293 and 43,714 shares issued and outstanding, respectively 42,293 43,714 --------- --------- STOCKHOLDERS' EQUITY (DEFICIT) Common stock, $.01 par value; 19,000,000 shares authorized; 7,261,332 shares issued and outstanding 146 146 Additional paid-in capital 204,607 203,180 Less common stock in treasury, at cost, 7,349,832 shares (183,746) (183,746) Retained deficit (20,924) (26,660) --------- --------- Total stockholders' equity (deficit) 83 (7,080) --------- --------- Total liabilities and stockholders' equity (deficit) $ 264,536 $ 275,047 ========= =========
The accompanying notes are an integral part of the condensed consolidated financial statements. -3- HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (dollars in thousands, except per share amounts) -------------------------
For the three months ended March 31, --------------- 1998 1999 ---- ---- Total net revenues $ 72,454 $ 71,704 -------- -------- Expenses: Facility operating 57,381 62,705 General and administrative 3,365 4,792 Service charges paid to affiliate 313 296 Amortization of prepaid management fee - 300 Depreciation and amortization 1,085 2,541 Facility rent 5,556 5,611 -------- -------- Total expenses 67,700 76,245 -------- -------- Income (loss) from operations 4,754 (4,541) Other: Interest expense, net 1,650 4,800 Other expense 31 63 -------- -------- Income (loss) before income taxes 3,073 (9,404) Income tax expense (benefit) 1,198 (3,668) -------- -------- Net income (loss) $ 1,875 $ (5,736) ======== ======== Earnings (loss) per common share (Note D): Basic $ 0.23 $ (0.99) ======== ======== Diluted $ 0.23 $ (0.99) ======== ========
The accompanying notes are an integral part of the condensed consolidated financial statements. -4- HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited) (dollars in thousands)
Additional Common Paid-In Treasury Retained Stock Capital Stock Deficit Total ---------- ---------- --------- --------- --------- Stockholders' equity, December 31, 1998 $ 146 $ 204,607 $ (183,746) $ (20,924) $ 83 Preferred stock dividends - (1,427) - - (1,427) Net loss for the three months ended March 31, 1999 - - - (5,736) (5,736) -------- --------- ---------- --------- --------- Stockholders' equity (deficit), March 31, 1999 $ 146 $ 203,180 $ (183,746) $ (26,660) $ (7,080) ======== ========= ========== ========= =========
The accompanying notes are an integral part of the condensed consolidated financial statements. -5- HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (dollars in thousands)
For the three months ended March 31, ------------------------------------ 1998 1999 -------- --------- Operating activities: Net income (loss) $ 1,875 $(5,736) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation of property and equipment 930 1,664 Amortization of intangible assets 155 873 Amortization of prepaid management fee - 300 Amortization of deferred income (128) (168) Accretion of senior subordinated discount notes - 2,844 Amortization of loan costs and fees (included in interest expense) 71 14 Accretion of interest on capital lease obligation 766 828 ------- ------- 3,669 619 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (6,870) 876 (Increase) decrease in prepaid expenses and other 85 (3,100) (Increase) in prepaid income taxes - (3,573) Increase (decrease) in accounts payable (1,407) 3,600 Increase in employee compensations and benefits 3,490 2,345 Increase (decrease) in accrued interest (5) 60 Increase in other accrued liabilities 93 865 (Decrease) in income taxes payable (757) - ------- ------- Net cash provided (used) by operating activities (1,702) 1,692 ------- ------- Investing activities: Additions to property and equipment (3,419) (4,397) Additions to intangibles (404) (1,058) Transfers to restricted cash, net (237) (194) ------- ------- Net cash (used) by investing activities (4,060) (5,649) ------- ------- Financing activities: Borrowings under revolving line of credit - 7,000 Payment of long-term debt (47) (75) Principal payments of capital lease obligation (781) (1,046) Exercise of stock options 23 - Dividends paid on exchangeable preferred stock - (6) ------- ------- Net cash provided (used) by financing activities (805) 5,873 ------- ------- Net increase (decrease) in cash and cash equivalents (6,567) 1,916 Cash and cash equivalents, beginning of period 8,747 896 ------- ------- Cash and cash equivalents, end of period $ 2,180 $ 2,812 ======= ======= Supplemental Disclosure: Interest paid $ 1,040 $ 1,382 ======= ======= Income taxes paid $ 1,776 $ 47 ======= =======
The accompanying notes are an integral part of the condensed consolidated financial statements. -6- HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) A. General Harborside Healthcare Corporation and its subsidiaries (the "Company") operate long-term care facilities and provide rehabilitation therapy services. As of March 31, 1999, the Company owned twenty-two facilities, operated twenty-seven additional facilities under various leases, managed one facility and owned a rehabilitation therapy services company. The Company accounts for its investment in one 75% owned facility using the equity method. B. Basis of Presentation The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 1998. In the opinion of management, the accompanying unaudited financial statements reflect all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company's financial position as of March 31, 1999, the results of its operations for the three-month periods ended March 31, 1998 and 1999 and its cash flows for the three-month periods ended March 31, 1998 and 1999. The results of operations for the three-month period ended March 31, 1999 are not necessarily indicative of the results which may be expected for the full year. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this report. C. Significant Accounting Policies Certain reclassifications have been made to conform prior periods' data to the current period presentation. D. Earnings (Loss) Per Common Share The following table sets forth the computation of basic and diluted earnings (loss) per Common Share for the periods ended March 31, 1998 and 1999:
Three Months Ended March 31, 1998 1999 ---------- ----------- Numerator: Net income (loss) $1,875,000 $(5,736,000) Preferred Stock dividends - (1,427,000) ---------- ----------- Earnings (loss) available for Common Shares $1,875,000 $(7,163,000) ========== =========== Denominator: Denominator for basic earnings (loss) per Common Share weighted average shares 8,059,000 7,261,000 Effect of dilutive securities employee stock options 245,000 - ---------- ----------- Denominator for diluted earnings (loss) per Common Share - adjusted weighted-average shares and assumed conversions 8,304,000 7,261,000 ========== =========== Basic earnings (loss) per Common Share $ 0.23 $ (0.99) ========== =========== Diluted earnings (loss) per Common Share $ 0.23 $ (0.99) ========== ===========
-7- E. Condensed Consolidating Financial Information Certain of the Company's subsidiaries are precluded from guaranteeing the debt of the parent company (the "Non-Guarantors"), based on current agreements in effect. The Company's remaining subsidiaries (the "Guarantors") are not restricted from serving as guarantors of the parent company debt. The Guarantors are comprised of Harborside Healthcare Limited Partnership, Belmont Nursing Center Corp., Orchard Ridge Nursing Center Corp., Oakhurst Manor Nursing Center Corp., Riverside Retirement Limited Partnership, Harborside Toledo Limited Partnership, Harborside Connecticut Limited Partnership, Harborside of Florida Limited Partnership, Harborside of Ohio Limited Partnership, Harborside Healthcare Baltimore Limited Partnership, Harborside of Cleveland Limited Partnership, Harborside of Dayton Limited Partnership, Harborside Massachusetts Limited Partnership, Harborside of Rhode Island Limited Partnership, Harborside North Toledo Limited Partnership, Harborside Healthcare Advisors Limited Partnership, Harborside Toledo Corp., KHI Corporation, Harborside Acquisition Limited Partnership V, Harborside Acquisition Limited Partnership VI, Harborside Acquisition Limited Partnership VII, Harborside Acquisition Limited Partnership VIII, Harborside Acquisition Limited Partnership IX, Harborside Acquisition Limited Partnership X, Sailors, Inc., New Jersey Harborside Corp., Bridgewater Assisted Living Limited Partnership, Maryland Harborside Corp., Harborside Homecare Limited Partnership, Harborside Rehabilitation Limited Partnership, Harborside Healthcare Network Limited Partnership and Harborside Health I Corporation. The information which follows presents the condensed consolidating financial position as of December 31, 1998 and March 31, 1999; the condensed consolidating results of operations for the three-month periods ended March 31, 1998 and 1999; and the consolidating cash flows for the three-months ended March 31, 1998 and 1999 of (a) the parent company only ("the Parent"), (b) the combined Guarantors, (c) the combined Non-Guarantors, (d) eliminating entries and (e) the Company on a consolidated basis. -8- E. Condensed Consolidating Financial Information (Continued) HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES Condensed Consolidating Balance Sheet As of December 31, 1998 (Unaudited) (dollars in thousands, except per share amounts)
Parent Guarantors Non-Guarantors Elimination Consolidated --------- ---------- -------------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 51 $ 99 $ 746 $ - $ 896 Accounts receivable, net of allowance - 36,485 15,733 (2,272) 49,946 Intercompany receivable 116,555 - - (116,555) - Prepaid expenses and other 1,268 7,291 2,804 (429) 10,934 Prepaid income taxes 3,873 - - - 3,873 Deferred income taxes 2,150 1,934 - - 4,084 --------- -------- ------- --------- --------- Total current assets 123,897 45,809 19,283 (119,256) 69,733 Restricted cash - 2,162 472 (524) 2,110 Investment in limited partnership 15,584 - 4,044 (19,628) - Property and equipment, net - 142,383 18,595 (474) 160,504 Intangible assets, net 10,532 6,176 1,642 (177) 18,173 Other assets, net 4,300 - - - 4,300 Note receivable - 7,487 - - 7,487 Deferred income taxes 71 2,158 - - 2,229 --------- -------- ------- --------- --------- Total assets $154,384 $206,175 $44,036 $(140,059) $264,536 ========= ======== ======= ========= ======== LIABILITIES Current liabilities: Current maturities of long-term debt $ - $ 22 $ 185 $ - $ 207 Current portion of capital lease obligation - 4,278 - - 4,278 Accounts payable - 5,010 3,159 (768) 7,401 Intercompany payable - 90,284 8,923 (99,207) - Employee compensation and benefits 9,853 3,367 - 13,220 Other accrued liabilities 3,254 3,306 925 - 7,485 Accrued interest 1,385 3,260 - (4,583) 62 Current portion of deferred income - - - 677 677 --------- -------- ------- --------- --------- Total current liabilities 4,639 116,013 16,559 (103,881) 33,330 Long-term portion of deferred income - 1,202 2,579 (677) 3,104 Long-term debt 112,243 2,721 16,109 3,400 134,473 Long-term portion of capital lease obligation - 54,348 - (3,095) 51,253 --------- -------- ------- --------- --------- Total liabilities 116,882 174,284 35,247 (104,253) 222,160 --------- -------- ------- --------- --------- Exchangeable preferred stock, redeemable, $.01 par value with a liquidation value of $1,000 per share; 500,000 shares authorized; 42,293 shares issued and outstanding 42,293 - - - 42,293 --------- -------- ------- --------- --------- STOCKHOLDERS' EQUITY Common stock, $.01 par value; 19,000,000 shares authorized; 7,261,332 shares issued and outstanding 146 2,569 3,885 (6,454) 146 Additional paid-in capital 204,381 - - 226 204,607 Less common stock in treasury, at cost, 7,349,832 shares (183,746) - - - (183,746) Retained earnings (deficit) (25,572) 4,567 (2,170) 2,251 (20,924) Partners' equity - 24,755 7,074 (31,829) - --------- -------- ------- --------- --------- Total stockholders' equity (4,791) 31,891 8,789 (35,806) 83 --------- -------- ------- --------- --------- Total liabilities and stockholders' equity $154,384 $206,175 $44,036 $(140,059) $ 264,536 ========= ======== ======= ========= =========
-9- E. Condensed Consolidating Financial Information (Continued) HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES Condensed Consolidating Balance Sheet As of March 31, 1999 (Unaudited) (dollars in thousands, except per share amounts)
Parent Guarantors Non-Guarantors Elimination Consolidated -------- ---------- -------------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 50 $ 2,672 $ 90 $ - $ 2,812 Accounts receivable, net of allowance - 32,842 16,228 - 49,070 Intercompany receivable 119,616 4,081 - (123,697) - Prepaid expenses and other 1,044 10,625 2,365 - 14,034 Prepaid income taxes 7,446 - - - 7,446 Deferred income taxes 2,150 1,934 - - 4,084 -------- -------- ------- --------- -------- Total current assets 130,306 52,154 18,683 (123,697) 77,446 Restricted cash - 1,789 515 - 2,304 Investment in limited partnership 15,584 - 4,044 (19,628) - Property and equipment, net - 144,225 19,012 - 163,237 Intangible assets, net 11,290 5,476 1,578 - 18,344 Other assets, net 4,000 - - - 4,000 Note receivable - 7,487 - - 7,487 Deferred income taxes 71 2,158 - - 2,229 Total assets -------- -------- ------- --------- -------- $161,251 $213,289 $43,832 $(143,325) $275,047 LIABILITIES ======== ======== ======= ========= ======== Current liabilities: Current maturities of long-term debt $ - $ 23 $ 187 $ - $ 210 Current portion of capital lease obligation - 4,364 - - 4,364 Accounts payable - 8,691 2,310 - 11,001 Intercompany payable - 92,733 9,707 (102,440) - Employee compensation and benefits - 11,548 4,017 - 15,565 Other accrued liabilities 3,254 3,980 1,116 - 8,350 Accrued interest 2,096 5,453 - (7,427) 122 Current portion of deferred income - 677 - - 677 Total current liabilities -------- -------- ------- --------- -------- 5,350 127,469 17,337 (109,867) 40,289 Long-term portion of deferred income - 1,126 2,487 (677) 2,936 Long-term debt 119,243 2,830 15,922 6,244 144,239 Long-term portion of capital lease obligation - 54,130 - (3,181) 50,949 -------- -------- ------- --------- -------- Total liabilities 124,593 185,555 35,746 (107,481) 238,413 -------- -------- -------- --------- -------- Exchangeable preferred stock, redeemable, $.01 par value with a liquidation value of $1,000 per share; 500,000 shares authorized; 43,714 shares issued and outstanding 43,714 - - - 43,714 -------- -------- ------- --------- -------- STOCKHOLDERS' EQUITY (DEFICIT) Common stock, $.01 par value; 19,000,000 shares authorized; 7,261,332 shares issued and outstanding 146 2,569 3,885 (6,454) 146 Additional paid-in capital 202,954 - - 226 203,180 Less common stock in treasury, at cost, 7,349,832 shares (183,746) - - - (183,746) Partners' equity - 24,755 7,074 (31,829) - Retained earnings (deficit) (26,410) 410 (2,873) 2,213 (26,660) -------- -------- ------- --------- -------- Total stockholders' equity (deficit) (7,056) 27,734 8,086 (35,844) (7,080) -------- -------- ------- --------- -------- Total liabilities and stockholders' equity (deficit) $161,251 $213,289 $43,832 $(143,325) $275,047 ======== ======== ======= ========= ========
-10- E. Condensed Consolidating Financial Information (Continued) HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES Condensed Consolidating Statements of Operations For the three months ended March 31, 1998 and 1999 (Unaudited) (dollars in thousands) For the three months ended March 31, 1998:
Parent Guarantors Non-Guarantors Elimination Consolidated -------- ----------- ---------------- -------------- --------------- Total net revenues $ - $53,575 $25,563 $(6,684) $72,454 ------- ------- ------- ------- ------- Expenses: Facility operating - 42,970 21,277 (6,866) 57,381 General and administrative 115 3,226 24 - 3,365 Service charges paid to affiliate - 290 - 23 313 Depreciation and amortization - 718 367 - 1,085 Facility rent - 3,535 2,113 (92) 5,556 Management fees paid to affiliates - (1,607) 1,607 - - ------- ------- ------- ------- ------- Total expenses 115 49,132 25,388 (6,935) 67,700 ------- ------- ------- ------- ------- Income (loss) from operations (115) 4,443 175 251 4,754 Other: Interest expense, net - 1,249 147 254 1,650 Other expense (income) - - - 31 31 ------- ------- ------- ------- ------- Income (loss) before income taxes (115) 3,194 28 (34) 3,073 Income tax expense (benefit) (45) 1,246 11 (14) 1,198 ------- ------- ------- ------- ------- Net income (loss) $ (70) $ 1,948 $ 17 $ (20) $ 1,875 ======= ======= ======= ======= ======= For the three months ended March 31, 1999: Parent Guarantors Non-Guarantors Elimination Consolidated -------- ----------- ---------------- -------------- --------------- Total net revenues $ 7 $53,436 $23,149 $(4,888) $71,704 ------- ------- ------- ------- ------- Expenses: Facility operating - 47,689 19,904 (4,888) 62,705 General and administrative 10 4,782 - - 4,792 Service charges paid to affiliate - 296 - - 296 Amortization of prepaid manangement fee 300 - - - 300 Depreciation and amortization 374 1,745 422 - 2,541 Facility rent - 3,468 2,143 - 5,611 Management fees paid to affiliates - (1,402) 1,402 - - ------- ------- ------- ------- ------- Total expenses 684 56,578 23,871 (4,888) 76,245 ------- ------- ------- ------- ------- Income (loss) from operations (677) (3,142) (722) - (4,541) Other: Interest expense, net 697 3,673 430 - 4,800 Other expense (income) - - - 63 63 ------- ------- ------- ------- ------- Income (loss) before income taxes (1,374) (6,815) (1,152) (63) (9,404) Income tax expense (benefit) (536) (2,658) (449) (25) (3,668) ------- ------- ------- ------- ------- Net income (loss) $ (838) $(4,157) $ (703) $ (38) $(5,736) ======= ======= ======= ======= =======
-11- E. Condensed Consolidating Financial Information (Continued) HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES Condensed Consolidating Statement of Cash Flows For the three months ended March 31, 1998 (Unaudited) (dollars in thousands)
Parent Guarantors Non-Guarantors Elimination Consolidated --------- ----------- --------------- ------------ ------------- Operating activities: Net cash provided (used) by operating activities: $(2,042) $ 2,668 $ (973) $(1,355) $(1,702) ------- ------- ------- ------- ------- Investing activities: Additions to property and equipment - (1,468) (1,243) (708) (3,419) Additions to intangibles (29) (231) - (144) (404) Transfers (to) from restricted cash, net - 1,773 (1,158) (852) (237) ------- ------- ------- ------- ------- Net cash provided (used) by investing activities (29) 74 (2,401) (1,704) (4,060) ------- ------- ------- ------- ------- Financing activities: Payment of long-term debt - 1,218 (20) (1,245) (47) Principal payments of capital lease obligation - (3,017) - 2,236 (781) Exercise of stock options 23 - - - 23 ------- ------- ------- ------- ------- Net cash provided (used) by financing activities 23 (1,799) (20) 991 (805) ------- ------- ------- ------- ------- Net increase (decrease) in cash and cash equivalents (2,048) 943 (3,394) (2,068) (6,567) Cash and cash equivalents, beginning of period 698 4,383 3,666 - 8,747 ------- ------- ------- ------- ------- Cash and cash equivalents, end of period $(1,350) $ 5,326 $ 272 $(2,068) $ 2,180 ======= ======= ======= ======= ======= Supplemental Disclosure: Interest paid $ - $ 194 $ 846 $ - $ 1,040 ======= ======= ======= ======= ======= Income taxes paid $ 1,776 $ - $ - $ - $ 1,776 ======= ======= ======= ======= =======
-12- E. Condensed Consolidating Financial Information (Continued) HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES Condensed Consolidating Statement of Cash Flows For the three months ended March 31, 1999 (Unaudited) (dollars in thousands)
Parent Guarantors Non-Guarantors Elimination Consolidated -------- ---------- -------------- ------------ ------------- Operating activities: Net cash provided (used) by operating activities: $(5,258) $ 5,832 $ 120 $ 998 $ 1,692 ------- ------- ----- ----- ------- Investing activities: Additions to property and equipment - (3,145) (778) (474) (4,397) Additions to intangibles (1,737) 678 1 - (1,058) Transfers (to) from restricted cash, net - 373 (43) (524) (194) ------- ------- ----- ----- ------- Net cash (used) by investing activities (1,737) (2,094) (820) (998) (5,649) ------- ------- ----- ----- ------- Financing activities: Borrowings under revolving line of credit 7,000 - - - 7,000 Payment of long-term debt - (119) 44 - (75) Principal payments of capital lease obligation - (1,046) - - (1,046) Dividends paid on exchangeable preferred stock (6) - - - (6) ------- ------- ----- ----- ------- Net cash provided by financing activities 6,994 (1,165) 44 - 5,873 ------- ------- ----- ----- ------- Net (decrease) in cash and cash equivalents (1) 2,573 (656) - 1,916 Cash and cash equivalents, beginning of period 51 99 746 - 896 ------- ------- ----- ----- ------- Cash and cash equivalents, end of period $ 50 $ 2,672 $ 90 $ - $ 2,812 ======= ======= ===== ===== ======= Supplemental Disclosure: Interest paid $ 201 $ 1,057 $ 124 $ - $ 1,382 ======= ======= ===== ===== ======= Income taxes paid $ 47 $ - $ - $ - $ 47 ======= ======= ===== ===== =======
-13- Item 2. - ------ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements including those concerning Management's expectations regarding future financial performance and future events. These forward-looking statements involve significant risk and uncertainties, including those described herein and included under "Special Note Regarding Forward-Looking Statements" below. Actual results may differ materially from those anticipated by such forward-looking statements. OVERVIEW Harborside Healthcare Corporation, ("Harborside" or the "Company") is a leading provider of high-quality long-term care and specialty medical services in the eastern United States. The Company has focused on establishing strong local market positions with high-quality facilities in five principal regions: the Southeast (Florida), the Midwest (Ohio and Indiana), New England (Massachusetts and New Hampshire), the Northeast (Connecticut and Rhode Island), and the Mid- Atlantic (New Jersey and Maryland). As of March 31, 1999, the Company operated 50 facilities (22 owned, 27 leased and one managed) with a total of 6,124 licensed beds. The Company provides a broad continuum of medical services including: (i) traditional skilled nursing care and (ii) specialty medical services, including a variety of subacute care programs such as orthopedic rehabilitation, CVA/stroke care, cardiac recovery, pulmonary rehabilitation and wound care, as well as distinct programs for the provision of care to Alzheimer's and hospice patients. As part of its subacute services, the Company provides physical, occupational and speech rehabilitation therapy services, both at Company-operated and non-affiliated facilities, through its wholly owned subsidiary, Theracor. The following table sets forth the number of facilities and the number of licensed beds operated by the Company: As of March 31, ------------------ 1998 1999 ---- ---- Facilities operated (1) 45 50 Licensed beds (1) 5,468 6,124 The following table sets forth certain operating data for the periods indicated: For the three months ended March 31, ------------------------------------ 1998 1999 ---- ---- Patient days (2): Private and other 120,103 124,030 Medicare 48,222 50,741 Medicaid 264,829 303,790 ------- ------- Total 433,154 478,561 ======= ======= Total net revenues: Private and other 32.4% 30.8% Medicare 26.6% 21.0% Medicaid 41.0% 48.2% ------- ------- Total 100.0% 100.0% ======= ======= Average Occupancy Rate (3) 93.1% 90.6% Quality Mix (4) 59.0% 51.8% (1) Includes two managed facilities with 178 licensed beds on March 31, 1998 and one managed facility with 106 licensed beds on March 31, 1999. (2) "Patient Days" includes billed bed days for facilities operated by the Company excluding billed bed days of managed facilities and the one facility accounted for using the equity method. (3) "Average Occupancy Rate" is computed by dividing the number of billed bed days by the total number of available licensed bed days during each of the periods indicated. This calculation includes all facilities operated by the Company excluding the managed facility. (4) "Quality Mix" consists of the percentage of revenues derived from Medicare, commercial insurers and other private payors. -14- RESULTS OF OPERATIONS The Company's total net revenues include net patient service revenues and rehabilitation therapy service revenues from contracts with non-affiliated long- term care facilities. Private net patient service revenues are recorded at established per diem billing rates. Net patient service revenues to be reimbursed under contracts with third-party payers, primarily the Medicare and Medicaid programs, are recorded at amounts estimated to be realized under these contractual arrangements. The Company's facility operating expenses consist primarily of payroll and employee benefits related to nursing, housekeeping and dietary services provided to patients, as well as maintenance and administration of the facilities. Other significant facility operating expenses include the cost of rehabilitation therapy services, medical and pharmacy supplies, food, utilities, insurance and taxes. The Company's facility operating expenses also include the general and administrative costs associated with the operation of the Company's rehabilitation therapy business. The Company's general and administrative expenses include all costs associated with its regional and corporate operations. Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1999 Total Net Revenues. Total net revenues decreased by $750,000 or 1.0%, from $72,454,000 in the first quarter of 1998 to $71,704,000 in the first quarter of 1999. This decrease was attributable to reductions in revenues of $4,515,000 at "same store" facilities and reductions in revenues of $3,596,000 generated by providing rehabilitation therapy services to non-affiliated long-term care facilities. These reductions were partially offset by the following revenue increases at facilities acquired in 1998: $2,416,000 from the acquisition of two North Toledo, Ohio facilities (the "North Toledo Facilities") on April 1, 1998; $2,855,000 from the acquisition of two Rhode Island facilities (the "Rhode Island Facilities") on May 8, 1998, and $2,090,000 from the acquisition of two Danbury, Connecticut facilities (the "Danbury Facilities") on December 1, 1998. The average occupancy rate at all of the Company's facilities decreased from 93.1% during the first quarter of 1998 to 90.6% during the first quarter of 1999. Average net patient service revenues per patient day at "same store" facilities decreased from $155.39 in the first quarter of 1998 to $148.31 in the first quarter of 1999. This decrease in average net patient service revenues per patient day was a result of the implementation of the new Medicare Prospective Payment System ("PPS") which became effective at all of the Company's facilities on January 1, 1999. Implementation of PPS caused the Company's average Medicare Part A per diem rate to decrease from $369 per Medicare patient day in the first quarter of 1998 to $287 per Medicare patient day in the first quarter of 1999. During the first quarter of 1999, the Company also experienced reduced revenues generated through the provision of Medicare Part B services to residents at its facilities. This reduction was due primarily to lower productivity by Company therapists during the first quarter as they adjusted to the newly implemented Medicare reimbursement system. Additionally, PPS established certain annual per patient limitations on the amount of Part B therapy that is reimbursable through the Medicare program. Management believes that the introduction of these annual limits resulted in reduced revenues during the first quarter of 1999 as affected parties adapted to the new regulatory environment. Implementation of PPS also caused a decrease in revenues generated by providing rehabilitation therapy services to non-affiliated long-term care facilities. In response to reduced reimbursement from the Medicare program, non-affiliated facilities reduced the amount of therapy services provided at their facilities. Additionally, the Company (consistent with other rehabilitation service providers) has seen reduced pricing levels and the Company also terminated certain low profit contracts with non-affiliated facilities. The Company's quality mix of private, Medicare and insurance revenues was 59.0% for the three months ended March 31, 1998 as compared to 51.8% during the same period of 1999. This reduction in quality mix of revenues was the result of the changes in revenues caused by the implementation of PPS. Facility Operating Expenses. Facility operating expenses increased by $5,324,000, or 9.3%, from $57,381,000 in the first quarter of 1998 to $62,705,000 in the first quarter of 1999. Of this increase, $457,000 was due to the operation of "same store" facilities, $2,255,000 was due to the operation of the North Toledo Facilities, $2,821,000 was due to the operations of the Rhode Island Facilities and $1,667,000 was due to the operation of the Danbury Facilities. Partially offsetting these increases, was a reduction in operating expenses associated with the provision of rehabilitation therapy services at non-affiliated facilities. Additional reductions in facility operating expenses are planned -- see "Liquidity and Capital Resources". General and Administrative; Service Charges Paid to Affiliate. General and administrative expenses increased by $1,427,000, or 42.4% from $3,365,000 in the first quarter of 1998 to $4,792,000 in the first quarter of 1999. Of this increase, $700,000, or 49% of the total increase, resulted from a charge related to the costs associated with the indefinite deferral of an acquisition which the Company had begun reviewing in the latter half of 1998. The remainder of the increase resulted from the acquisition of new facilities resulting in the expansion of regional and corporate support, and additional travel, consulting and systems development expenses associated with the Company's growth. The Company reimbursed a former affiliate for certain data processing and administrative services provided to the Company. During the first quarter of 1998, such reimbursements totaled $313,000 compared to $296,000 during the first quarter of 1999. Depreciation and Amortization. Depreciation and amortization increased from $1,085,000 in the first quarter of 1998 to $2,541,000 in the first quarter of 1999 primarily due to the acquisition of new facilities and the amortization of costs related to the leveraged recapitalization completed by the Company on August 11, 1998. Facility Rent. Facility rent expense for the first quarter increased by $55,000, from $5,556,000 in 1998 to $5,611,000 in 1999. The increase in rent expense is the result of the acquisition of the Danbury Facilities by means of a synthetic lease, partially offset by a reduction in rent expense resulting from the exercise of purchase options on seven previously-leased facilities. The exercise of these purchase options was funded through financing arranged in connection with the leveraged recapitalization. Interest Expense, net. Interest expense, net, increased from $1,650,000 in the first quarter of 1998 to $4,800,000 in the first quarter of 1999. This net increase is primarily due to the issuance of $99,500,000 of 11.0% Senior Subordinated Discount Notes in connection with the leveraged recapitalization. The interest associated with these notes accretes until cash payments begin on August 1, 2003. Income Tax Expense (Benefit). As a result of a loss incurred in the first quarter of 1999, an income tax benefit of $3,668,000 was recognized for that period compared to income tax expense of $1,198,000 for the same period of 1998. -15- Net Income. Net income was $1,875,000 in the first quarter of 1998 as compared to a loss of $5,736,000 in the first quarter of 1999. LIQUIDITY AND CAPITAL RESOURCES The Company's primary cash needs are for acquisitions, capital expenditures, working capital, debt service and general corporate purposes. The Company has historically financed these requirements primarily through a combination of internally generated cash flow, mortgage financing and operating leases, in addition to funds borrowed under a credit facility. In addition, in 1996 the Company financed the acquisition of four facilities located in Ohio by means of a lease which is accounted for as a capital lease for financial reporting purposes. The Company's existing leased facilities are leased from either the owner of the facilities, from a real estate investment trust which has purchased the facilities from the owner, or through synthetic lease borrowings. The Company's existing facility leases generally require it to make monthly lease payments and pay all property operating costs. The Company generally negotiates leases which provide for extensions beyond the initial lease term and an option to purchase the leased facility. In some cases, the option to purchase the leased facility is at a price based on the fair market value of the facility at the time the option is exercised. In other cases, the lease for the facility sets forth a fixed purchase option price which the Company believes is equal to the fair market value of the facility at the inception date of such lease, thus allowing the Company to realize the value appreciation of the facility while maintaining financial flexibility. In connection with the leveraged recapitalization completed on August 11, 1998, the Company obtained gross proceeds of $99.5 million through the issuance of 11% Senior Subordinated Discount Notes (the "Discount Notes") due 2008 and $40 million through the issuance of 13.5% Exchangeable Preferred Stock (the "Preferred Stock") mandatorily redeemable in 2010. Interest on the Discount Notes accretes at 11% per annum with cash interest on the Discount Notes not payable until August 1, 2003. Dividends on the Preferred Stock are payable, at the option of the Company, in additional shares of the Preferred Stock until August 1, 2003. After that date dividends may only be paid in cash. The Company also entered into a new $250 million collateralized credit facility (the "New Credit Facility"). The terms of the New Credit Facility provide up to $75 million on a revolving credit basis plus an additional $175 million initially funded on a revolving basis that converts to a term loan on an annual basis on each anniversary of the closing. During the first four years of the facility, any or all of the full $250 million of availability under the facility may be used for synthetic lease financings. Proceeds of loans under the facility may be used for acquisitions, working capital purposes, capital expenditures and general corporate purposes. Interest is based on either LIBOR or prime rates of interest (plus applicable margins determined by the Company's leverage ratio) at the election of the Company. The New Credit Facility contains various financial and other restrictive covenants and limits aggregate borrowings under the New Credit Facility to a predetermined multiple of EBITDA. During the first quarter of 1999, the Company determined that its anticipated financial results for that quarter would cause the Company to be out of compliance with certain financial covenants of the New Credit Facility. The Company's expected lower first quarter results were attributable to transitional difficulties associated with the implementation of the new Medicare prospective payment system which became effective at all of the Company's facilities on January 1, 1999. Such transitional difficulties resulted in lower than expected revenues, primarily due to fewer than expected Medicare patient days, lower Medicare Part A rates, reduced revenues from therapy services provided to non- affiliated long term care centers and a reduction in revenues from the provision of Medicare Part B services. In response, during the first quarter the Company initiated additional facility-based training directed towards the documentation requirements of the revised Medicare reimbursement system. The Company also continued to refine its admission and assessment protocols in order to increase patient admissions and introduced a series of targeted initiatives to lower operating expenses. Such initiatives have included wage and staffing reductions (primarily related to the delivery of rehabilitative therapy services and indirect nursing support) renegotiation of vendor contracts and ongoing efforts to reduce the Company's reliance on outside nurse agency personnel. All of the staffing reductions were implemented on or prior to April 1, 1999. Effective March 30, 1999, the Company obtained an amendment to the New Credit Facility which limits borrowings under the New Credit Facility to an aggregate of $58,500,000 (exclusive of undrawn letters of credit outstanding as of March 30, 1999) and which modifies certain financial covenants. Access to additional borrowings for acquisitions and general corporate purposes under the New Credit Facility are permitted to the extent the Company achieves certain financial targets. The amendment allows the Company access to the entire $250 million facility if the Company's operating performance returns to the level of compliance contemplated by the original financial covenants. As of March 31, 1999, total borrowings under the New Credit Facility (exclusive of undrawn letters of credit) were approximately $33,500,000 and the Company was in compliance with the financial covenants of the New Credit Facility. The Company's operating activities during the first quarter of 1999 generated net cash of $1.7 million as compared to the use of $1.7 million during the same period in 1998. The increase in net cash generated by operations during the first three months of 1999 was primarily due to a decrease in accounts receivable and increases in accounts payable and accrued employee compensation during the quarter. Net cash used by investing activities was $5.6 million during the first three months of 1999 as compared to $4.1 million used during the same period in 1998. Net cash invested in each period was used primarily to fund additions to property and equipment at the facilities. Additionally, during the first quarter of 1999, approximately $1,000,000 was expended in connection with obtaining the amendment of the Company's New Credit Facility. Net cash provided by financing activities during the first three months of 1999 was $5,873,000 as compared to net cash used of $805,000 during the first three months of 1998. During the first three months of 1999 the Company borrowed $7.0 million under the New Credit Facility. In addition to the Discount Notes, as of March 31, 1999, the Company had two mortgage loans outstanding in the aggregate amount of $17.8 million, in addition to advances outstanding under its revolving credit facility, and $55.3 million of capital lease obligations. One of the Company's mortgage loans had an outstanding balance of $16.2 million, of which $15.1 million is due at maturity in 2004. This loans bears interest at an annual rate of 10.65% plus additional interest equal to 0.3% of the difference between the annual operating revenues of four mortgaged facilities and the actual revenues of these facilities during a twelve month base period. The Company's other mortgage loan, which encumbers a single facility, had an outstanding principal balance of $1.6 million, of which $1.3 million is due in 2010. -16- The Company had expected that its capital expenditures for 1999, excluding acquisitions of new long-term care facilities, would aggregate approximately $12,000,000. The Company is in the process of identifying which of these projects can be deferred in order to improve cash flow. The Company's expected capital expenditures relate to maintenance capital expenditures, systems enhancements, special construction projects and other capital improvements. The Company expects that its future facility acquisitions will be financed with borrowings under the Company's revolving credit facility, direct operating leases or assumed debt. The Company may be required to obtain additional equity financing to finance any significant acquisitions in the future. Harborside's principal sources of funds are cash flow from operations and borrowings under the New Credit Facility. These funds are being used to finance working capital, meet debt service and capital expenditure requirements, finance acquisitions and for general corporate purposes. Harborside believes that operating cash flow and availability under the New Credit Facility will be adequate to meet its liquidity needs for the foreseeable future, although no assurance can be given in this regard SEASONALITY The Company's earnings generally fluctuate from quarter to quarter. This seasonality is related to a combination of factors which include, among other things, the timing of Medicaid rate increases, seasonal census cycles and the number of calendar days in a given quarter. INFLATION The healthcare industry is labor intensive. Wages and other labor related costs are especially sensitive to inflation. Shortages in the labor market or general inflationary pressure could have a significant effect on the Company. In addition, suppliers attempt to pass along rising costs to the Company in the form of higher prices. When faced with increases in operating costs, the Company has generally increased its charges for services. The Company's operations could be adversely affected if it is unable to recover future cost increases or if it experiences significant delays in Medicare and Medicaid revenue sources increasing their rates of reimbursement. THE YEAR 2000 ISSUE The Company is in the process of evaluating and addressing risks that could arise in connection with the potential inability of computer programs to recognize dates that follow December 31, 1999 (the "Year 2000 Issue"). The Company's focus has been on evaluating the impact that the Year 2000 Issue might have on essential equipment and systems of the Company as well as major suppliers, customers and other third parties. The Company has formulated and implemented a remediation plan in connection with those systems that will not be Year 2000 compliant. As of December 31, 1998 the Company has tested and evaluated approximately 90% of its information technology ("IT") systems and equipment and approximately 90% of its facility based operating equipment. The Company is also evaluating the compliance of its major suppliers and their respective products with the Year 2000 Issue. With respect to the Year 2000 compliance of critical third parties, the Company derives a significant portion of its revenues from the Medicare and Medicaid programs. The Health Care Finance Administration ("HCFA"), the governmental agency that administers the Medicare program, has publicly stated that it will be Year 2000 compliant by December 31, 1998. HCFA has imposed the same December 31, 1998 deadline on its fiscal intermediaries and has stated that it expects state Medicaid agencies to be compliant by March 1999. The General Accounting Office cannot make any assurances that the government payment systems will be Year 2000 compliant on time. The Company derives its governmental payments through fiscal intermediaries, however, there can be no assurance that the payments from the fiscal intermediaries will not be negatively impacted by any Year 2000 issues not corrected in a timely manner. The Company intends to actively pursue assurances of the status of the remediation efforts and Year 2000 compliance by the government and its fiscal intermediaries. The Company began replacing critical IT systems for Year 2000 issues in connection with a comprehensive evaluation of system wide operational IT efficiencies in 1996. The Company has recently completed the conversion of certain of its financial reporting systems to new software that has been certified as Year 2000 compliant. The Company is in the process of upgrading and consolidating its remaining financial applications to new Year 2000 compliant software by September 30, 1999. Additionally, the Company has received Year 2000 compliance certification from its remaining software suppliers with respect to operating systems that will not be upgraded. The Company's Year 2000 systems conversions and upgrades have been funded from operating cash flow and existing credit facilities. The Company, as part of its comprehensive ongoing evaluation process, is testing and upgrading where necessary, all local area networks ("LANS") personal computers and related operating software for compliance with Year 2000 Issues. The Company expects to substantially complete the evaluation by April 30, 1999, and implement any required remediation before September 30, 1999. The Company plans to remediate any Year 2000 issues discovered in its review of LANS through the installation of upgraded hardware and software. The Company on a going forward basis is endeavoring to ensure that all software and hardware purchased is Year 2000 compliant. The Company has undertaken an evaluation of facility operating systems for potential problems associated with Year 2000 Issues. The Company has evaluated and tested virtually all of its facility heating, cooling and ventilation ("HVAC") systems, life safety and security systems, and mechanical systems for Year 2000 compliance. In connection with the review and testing procedures, the Company has contacted the manufacturer of the respective systems for further assurance of potential exposure to Year 2000 Issues. Based on the results of testing to date, the Company does not believe that above referenced facility operating systems will have any significant risk associated with the Year 2000 Issue. To date, the Company has expended approximately $5.5 million to remedy problems associated with the Year 2000 issue and estimates that it will expend an additional $1.5 million in the future. The Company's Year 2000 plans are still evolving and estimated expenditures may vary, as new information becomes available. -17- The Company is developing contingency plans in the event that the IT systems conversion scheduled for completion before December 31, 1999 is unavoidably delayed. The Company is planning to be fully Year 2000 compliant before December 31, 1999 although there can be no assurance that it will achieve its objective by such date or by January 1, 2000. The Company can make no assurance that its failure to achieve 100% Year 2000 compliance by such date will not have a material adverse impact on the Company's business, financial condition, or results of operations. Additionally, there can be no assurance that the Company's critical suppliers and third parties will be compliant by January 1, 2000 and that any such non compliance will not have a material adverse impact on the Company's business, its financial condition or results of operations. -18- SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements in this Form 10-Q, including information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations", constitute "Forward-Looking Statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). The Company desires to take advantage of certain "safe harbor" provisions of the Reform Act and is including this special note to enable the Company to do so. Forward-looking statements included in this Form 10-Q, or hereafter included in other publicly available documents filed with the Securities and Exchange Commission, reports to the Company's stockholders and other publicly available statements issued or released by the Company involve known and unknown risks, uncertainties, and other factors which could cause the Company's actual results, performance (financial or operating) or achievements to differ materially from the future results, performance (financial or operating) or achievements expressed or implied by such forward-looking statements. The Company believes the following important factors could cause such a material difference to occur: 1. The Company's ability to grow through the acquisition and development of long-term care facilities or the acquisition of ancillary businesses. 2. The Company's ability to identify suitable acquisition candidates, to consummate or complete construction projects, or to profitably operate or successfully integrate enterprises into the Company's other operations. 3. The occurrence of changes in the mix of payment sources utilized by the Company's patients to pay for the Company's services. 4. The adoption of cost containment measures by private pay sources such as commercial insurers and managed care organizations, as well as efforts by governmental reimbursement sources to impose cost containment measures. 5. Changes in the United States healthcare system, including changes in reimbursement levels and the method of reimbursement, under Medicaid and Medicare, and other changes in applicable government regulations that might affect the profitability of the Company. 6. The Company's continued ability to operate in a heavily regulated environment and to satisfy regulatory authorities, thereby avoiding a number of potentially adverse consequences, such as the imposition of fines, temporary suspension of admission of patients, restrictions on the ability to acquire new facilities, suspension or decertification from Medicaid or Medicare programs, and in extreme cases, revocation of a facility's license or the closure of a facility, including as a result of unauthorized activities by employees. 7. The Company's ability to secure the capital and the related cost of such capital necessary to fund its future growth through acquisition and development, as well as internal growth. 8. Changes in certificate of need laws that might increase competition in the Company's industry, including, particularly, in the states in which the Company currently operates or anticipates operating in the future. 9. The Company's ability to staff its facilities appropriately with qualified healthcare personnel, including in times of shortages of such personnel and to maintain a satisfactory relationship with labor unions. 10. The level of competition in the Company's industry, including without limitation, increased competition from acute care hospitals, providers of assisted and independent living and providers of home healthcare and changes in the regulatory system in the state in which the Company operates that facilitate such competition. 11. The continued availability of insurance for the inherent risks of liability in the healthcare industry. 12. Price increases in pharmaceuticals, durable medical equipment and other items. 13. The Company's reputation for delivering high-quality care and its ability to attract and retain patients, including patients with relatively high acuity levels. 14. Changes in general economic conditions, including changes that pressure governmental reimbursement sources to reduce the amount and scope of healthcare coverage. 15. The Company's, its vendors, banks and payors ability to address computer system concerns related to the Year 2000 issue. The foregoing review of significant factors should not be construed as exhaustive or as an admission regarding the adequacy of disclosures previously made by the Company. -19- PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of matters to a vote of security holders None Item 5. Other Information None -20- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Harborside Healthcare Corporation By: /s/ Stephen L. Guillard ------------------------------------------ Stephen L. Guillard Chairman, President, and Chief Executive Officer By: /s/ William H. Stephan ------------------------------------------ William H. Stephan Senior Vice President and Chief Financial Officer DATE: May 17, 1999 -21- EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1999 MAR-31-1999 2,812 0 51,690 (2,620) 59,928 77,446 163,237 0 275,047 40,289 198,124 43,714 0 146 (7,226) 275,047 0 71,704 0 0 76,245 0 4,800 0 (3,668) (5,736) 0 0 0 (5,736) (0.99) (0.99) Includes the following assets: prepaid expenses and other of $14,034, prepaid income taxes of $7,446, deferred income taxes-current of $4,084, deferred income taxes--long-term of $2,229, restricted cash of $2,304, note receivable of $7,487, and intangible assets, net of $18,344 and other assets, net of $4,000. Includes the following long-term liabilities: deferred income of $2,936, capital lease obligation of $50,949, and long-term debt of $144,239. Includes the following equity accounts: additional paid-in capital of $203,180, treasury stock $(183,746), and retained earnings (deficit) of $(26,660).
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