-----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, P1CrdVRSn15IZHX8Itv4Kfyg/ehD2kGQwjS+vf0HZEjW9hll0bo5FtXvYhv/iABB lv9XdTChZwJbwmGGnW8B+g== 0000898430-00-001618.txt : 20000516 0000898430-00-001618.hdr.sgml : 20000516 ACCESSION NUMBER: 0000898430-00-001618 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOUNTAIN VIEW INC CENTRAL INDEX KEY: 0001055468 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-57279 FILM NUMBER: 633024 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 10-Q 1 FORM 10-Q PART I - FINANCIAL INFORMATION Item 1. Financial Statements FOUNTAIN VIEW, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands)
Three Months Ended March 31, 2000 1999 ------------------------------------ Net revenues $71,567 $69,016 Expenses: Salaries and benefits 36,576 34,023 Supplies 9,052 7,529 Purchased services 6,916 8,644 Provision for doubtful accounts 1,063 1,180 Other expenses 5,199 4,949 Charge related to decertification of facility 1,698 - Rent 1,304 1,303 Rent to related parties 462 444 Depreciation and amortization 3,938 3,862 Interest expense, net of interest income 6,142 5,617 ----------------------------------- Total expenses 72,350 67,551 ----------------------------------- Income (loss) before provision for income taxes (783) 1465 Income tax provision (benefit) (133) 763 ----------------------------------- Net income (loss) $ (650) $ 702 ===================================
See accompanying notes. 1 FOUNTAIN VIEW, INC. CONSOLIDATED BALANCE SHEETS (In thousands)
March 31, December 31, 2000 1999 ------------------------------------------------- (Unaudited) (Note) Assets Current assets: Cash and cash equivalents $ - $ - Accounts receivable, less allowance for doubtful accounts of $14,561 and $13,996 at 2000 and 1999, respectively 48,176 45,243 Current portion of deferred income taxes 11,176 11,176 Other current assets 9,230 10,512 ------------------------------------------------- Total current assets 68,582 66,931 Property and equipment, at cost: Land and land improvements 25,064 25,064 Buildings and leasehold improvements 215,966 215,517 Furniture and equipment 30,584 30,209 Construction in progress 988 933 ------------------------------------------------- 272,602 271,723 Less accumulated depreciation and amortization (26,082) (23,056) ------------------------------------------------- 246,520 248,667 Notes receivable, less allowance for doubtful accounts of $680 and $674 at 2000 and 1999, respectively 4,718 4,773 Goodwill, net 54,911 55,388 Deferred financing costs, net 10,217 10,258 Deferred income taxes 4,438 4,463 Other assets 4,540 4,556 ------------------------------------------------- Total assets $393,926 $395,036 =================================================
Note: The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes. 2 FOUNTAIN VIEW, INC. CONSOLIDATED BALANCE SHEETS (Continued) (In thousands, except stock information)
March 31, December 31, 2000 1999 ---------------------------------------------- (Unaudited) (Note) Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 22,301 $ 22,455 Employee compensation and benefits 8,461 8,469 Accrued interest payable 6,909 3,605 Current portion of deferred income taxes 332 332 Current maturities of long-term debt and capital leases 14,476 13,247 ---------------------------------------------- Total current liabilities 52,479 48,108 Long-term debt and capital leases, less current maturities 227,194 231,867 Deferred income taxes 33,424 33,582 ---------------------------------------------- Total liabilities 313,097 313,557 Preferred Stock Series A, mandatorily redeemable, $0.01 par value: 1,000,000 shares authorized, 15,000 shares issued and outstanding at 2000 and 1999 (liquidation preference of $15 million) 15,000 15,000 Commitments and contingencies - - Shareholders' equity: Common Stock Series A, $0.01 par value: 1,500,000 shares authorized, 1,000,000 shares issued and outstanding at 2000 and 1999 10 10 Common Stock Series B, $0.01 par value: 200,000 shares authorized, 114,202 shares issued and outstanding at 2000 and 1999 1 1 Common Stock Series C, $0.01 par value: 1,300,000 shares authorized, 20,742 shares issued and outstanding at 2000 and 1999 - - Additional paid-in capital 106,488 106,488 Accumulated deficit (38,130) (37,480) Due from shareholder (2,540) (2,540) ---------------------------------------------- Total shareholders' equity 65,829 66,479 ---------------------------------------------- Total liabilities and shareholders' equity $393,926 $395,036 ==============================================
Note: The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes. 3 FOUNTAIN VIEW, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Three Months Ended March 31, 2000 1999 ---------------------------------------------- Operating activities: Net income (loss) $ (650) $ 702 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 3,938 3,862 Changes in operating assets and liabilities: Accounts receivable (2,933) 845 Other current assets 1,135 (1,326) Accounts payable and accrued liabilities (154) (3,378) Employee compensation and benefits (8) 1,053 Accrued interest payable 3,304 3,589 Deferred income taxes (133) 763 ---------------------------------------------- Total adjustments 5,149 5,408 ---------------------------------------------- Net cash provided by operating activities 4,499 6,110 Investing activities: Principal payments on notes receivable 202 227 Additions to property and equipment (879) (1,609) Changes in other assets 7 (19) ---------------------------------------------- Net cash used in investing activities (670) (1,401) Financing activities: Bank financing fee (385) - Decrease in capital lease obligations (244) (251) Principal payments on long-term debt (1,250) - Pay down on revolving loan facility, net (1,950) (4,000) ---------------------------------------------- Net cash used in financing activities (3,829) (4,251) ---------------------------------------------- Increase in cash and cash equivalents - 458 Cash and cash equivalents at beginning of period - - ---------------------------------------------- Cash and cash equivalents at end of period $ - $ 458 ==============================================
See accompanying notes. 4 FOUNTAIN VIEW, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Description of Business Fountain View, Inc. ("Fountain View" or "Company") is a leading operator of long-term care facilities and a leading provider of a full continuum of post- acute care services, with a strategic emphasis on sub-acute specialty medical care. Fountain View operates a network of facilities in California, Texas, and Arizona, including 44 skilled nursing facilities ("SNFs") that offer sub-acute, rehabilitative and specialty medical skilled nursing care, as well as six assisted living facilities ("ALFs") that provide room and board and social services in a secure environment. In addition, Fountain View provides a variety of high-quality ancillary services such as physical, occupational and speech therapy in Fountain View-operated facilities, unaffiliated facilities and acute care hospitals. Fountain View also operates three institutional pharmacies (one of which is a joint venture), which serve acute care hospitals as well as SNFs and ALFs, both affiliated and unaffiliated with Fountain View, an outpatient therapy clinic and a durable medical equipment ("DME") company. 2. Basis of Presentation The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the unaudited financial information reflects all adjustments (all of which are of a normal recurring nature), which are considered necessary to fairly state the Company's financial position, its cash flows and the results of operations. These statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the Company's audited financial statements for the year ended December 31, 1999. The interim financial information herein is not necessarily representative of that to be expected for a full year. 3. Reclassifications Certain prior period amounts have been reclassified to conform to the current period presentation. 4. Business Segments The Company has three reportable segments: nursing services, therapy services, and pharmacy services. The Company's reportable segments are business units that offer different services and products. The reportable segments are each managed separately due to the nature of the services provided or the products sold. The Company evaluates performance and allocates resources based on an efficient and cost-effective operating model which maximizes profitability and the quality of care provided across the Company's entire facility network. Certain of Fountain View's facilities are leased, under operating leases, and not owned. Accordingly, earnings before interest, taxes, depreciation, amortization and rent is used to determine and evaluate segment profit or loss. Corporate overhead is not allocated for purposes of determining segment profit or loss, and is included, along with the Company's DME subsidiary in the "all other" category in the selected segment financial data that follows. Intersegment revenues are recorded at the Company's cost plus standard mark-up; intersegment profit and loss has been eliminated in consolidation. 5 The following table sets forth selected financial data by business segment (in thousands): Selected Financial Data:
Nursing Therapy Pharmacy Services Services Services All Other Totals ------------------------------------------------------------------------------------ Three Months Ended March 31, 2000: Revenues from external customers $63,229 $3,106 $5,181 $ 51 $71,567 Intersegment revenues - 6,249 1,612 2,023 9,884 ------------------------------------------------------------------------------------ Total revenues $63,229 $9,355 $6,793 $ 2,074 $81,451 ==================================================================================== Segment profit (loss) $11,842 $2,704 $ 790 $(4,273) $11,063 Three Months Ended March 31, 1999: Revenues from external customers $60,552 $2,892 $5,572 $ - $69,016 Intersegment revenues - 3,428 1,104 816 5,348 ------------------------------------------------------------------------------------ Total revenues $60,552 $6,320 $6,676 $ 816 $74,364 ==================================================================================== Segment profit (loss) $13,516 $1,356 $1,050 $(3,231) $12,691
Three Months Ended March 31, 2000 1999 ----------------------------------------- Revenues: External revenues for reportable segments $71,567 $69,016 Intersegment revenues for reportable segments 9,884 5,348 Elimination of intersegment revenues (9,884) (5,348) ----------------------------------------- Total consolidated revenues $71,567 $69,016 =========================================
5. Comprehensive Income Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), establishes standards for the reporting of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. SFAS 130 uses the term comprehensive income to describe the total of all components of comprehensive income, that is, net income plus other comprehensive income. Other comprehensive income items include unrealized gains and losses on available-for-sale securities; foreign currency translation adjustments; changes in the market value of certain futures contracts; and changes in certain minimum pension liabilities. Fountain View has no items of other comprehensive income in the periods reported, and, therefore, comprehensive income (loss) is equal to net income (loss), as reported. 6. Income Taxes The income tax provision (benefit) is calculated using a federal tax rate of 34% and a blended state tax rate of 6%. The difference between the federal and blended state tax rates and the effective rate is primarily due to the non- deductible portion of goodwill. 6 7. Charge Related to Decertification of Facility In November 1999, one of the Company's SNF's was decertified from the Medicare and Medicaid Programs. The Company continues to vigorously contest this decertification. The Company anticipates that this SNF will be reinstated into the Medicare and Medicaid Programs in May 2000. In addition, the Company anticipates an additional pre-tax charge of approximately $800,000 in the second quarter of 2000 relating to this decertification. Item 2. Management's Discussion And Analysis of Financial Condition And Results of Operations (Unaudited) Quarter Ended March 31, 2000 Compared to Quarter Ended March 31, 1999 (Dollars in Thousands) Net revenues increased $2,551 or 3.7% from $69,016 for the quarter ended March 31, 1999 to $71,567 for the quarter ended March 31, 2000. Total average occupancy was 82.7% for the quarter ended March 31, 2000 and 83.7% for the quarter ended March 31, 1999. Although the total average occupancy declined between quarters, net revenues increased primarily due to greater Medicare census in the current quarter. Expenses, consisting of salaries and benefits, supplies, purchased services, provision for doubtful accounts, other expenses and charge related to decertification of facility as a percent of net revenues increased from 81.6% of net revenues for the quarter ended March 31, 1999 to 84.5% for the quarter ended March 31, 2000. Expenses increased $4,179 or 7.4% from $56,325 for the quarter ended March 31, 1999 to $60,504 for the quarter ended March 31, 2000. This increase was primarily due to salaries and benefits and the charge related to decertification of a facility. Salaries and benefits were 51.1% of net revenues for the quarter ended March 31, 2000 compared to 49.3% for the quarter ended March 31, 1999. The increase in salaries and benefits was largely due to additional personnel related to expansion of the Company's therapy operations. Income before rent, rent to related parties, depreciation and amortization and interest expense decreased $1,628 or 12.8% from $12,691 for the quarter ended March 31, 1999 to $11,063 for the quarter ended March 31, 2000 and was 15.5% of net revenues for the quarter ended March 31, 2000 compared to 18.4% for the quarter ended March 31, 1999. Rent, rent to related parties, depreciation and amortization and interest expense increased $620 or 5.5% from $11,226 for the quarter ended March 31, 1999 to $11,846 for the quarter ended March 31, 2000. Substantially all of this increase was due to higher interest expense due in part to higher interest rates on the Company's term loan credit and revolving loan facilities. Net income decreased from $702 for the quarter ended March 31, 1999 to a net loss of $650 for the quarter ended March 31, 2000. 7 Selected statistics are shown below:
2000 1999 (Decrease) -------------------------------------------------------------------- Facilities in operation at: March 31 50 50 - Nursing center beds at: March 31 6,032 6,032 - Assisted living beds at: March 31 700 700 - Total beds at: March 31 6,732 6,732 - Total occupancy: First quarter 82.7% 83.7% (1.0)% Nursing center occupancy: First quarter 84.4% 85.2% (0.8)% Assisted living center occupancy: First quarter 68.6% 70.7% (2.1)%
Liquidity and Capital Resources (Dollars in Thousands) At March 31, 2000, the Company had $0 in cash and cash equivalents and working capital of $16,103. The Company utilizes its cash balances to reduce amounts drawn on its revolving credit facility; as such, the cash and cash equivalents balance is minimal. During the three months ended March 31, 2000, the Company's cash and cash equivalents remained unchanged. Net cash provided by operating activities decreased $1,611 from $6,110 for the three months ended March 31, 1999 to $4,499 for the three months ended March 31, 2000. This decrease was primarily due to a reduction in earnings between quarters. Long-term debt, including current maturities, totaling $241,670 at March 31, 2000 consisted of mortgage and capital lease obligations of $18,970, a term loan credit facility of $85,000, senior subordinated notes of $120,000, and borrowings on the Company's revolving loan facility of $17,700. The Company had $12,300 in available borrowings on its revolving loan facility at March 31, 2000. The Company believes that it has sufficient cash flow from its existing operations and from its bank line of credit to service long-term debt due within one year of $14,476, which includes a capital lease purchase option of $3,584 on a skilled nursing facility in Texas which the Company plans to purchase in June 2000, to make normal recurring capital replacements, additions and improvements of approximately $6,000 planned for the next 12 months and to meet other long-term working capital needs and obligations. The Company expects, on a selective basis, to pursue expansion of its existing centers and the acquisition or development of additional centers in markets where demographics and competitive factors are favorable. 8 Impact of Inflation The health care industry is labor intensive. Wages and other expenses increase more rapidly during periods of inflation and when shortages in the labor market occur. In addition, suppliers pass along rising costs in the form of higher prices. Increases in reimbursement rates under Medicaid generally lag behind actual cost increases, so that the Company may have difficulty covering these cost increases in a timely fashion. In addition, as described above, Medicare SNFs are now paid a per diem rate under PPS, in lieu of the former cost-based reimbursement rate. Increases in the federal portion of the per diem rates may also lag behind actual cost increases. Special Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to future events or the future financial performance of the Company including, but not limited to, statements contained in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations". These forward- looking statements may include, among other things, the success of the Company's business strategy, the Company's ability to develop and expand its business in regional markets, the Company's ability to increase the level of sub-acute and specialty medical care it provides, the effects of government regulation and healthcare reform, litigation, the Company's anticipated future revenues and additional revenue opportunities, capital spending and financial resources, the liquidity demands of the Company, the Company's ability to meet its liquidity needs, and other statements contained in this Quarterly Report on Form 10-Q that are not historical facts. Although management of the Company believes that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate and, as a result, the forward-looking statements based on those assumptions also could be materially incorrect. Readers are cautioned that such forward-looking statements, which may be identified by words including "anticipates," "believes," "intends," "estimates," "plans," and other similar expressions, are only predictions or estimations and are subject to known and unknown risks and uncertainties, over which the Company has little or no control. In evaluating such statements, readers should consider the various factors identified above which could cause actual events, performance or results to differ materially from those indicated by such statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk Certain of the Company's debt obligations are sensitive to changes in interest rates. The rates on the term loan credit and revolving loan facilities, which both bear interest at LIBOR plus an applicable margin, are reset at various intervals, thus limiting their risk. The Company has not experienced significant changes in market risk due to the relative stability of interest rates during the three months ended March 31, 2000. 9 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K The following exhibits are included herein: (27) Financial Data Schedule The Company did not file any reports on Form 8-K during the three months ended March 31, 2000. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FOUNTAIN VIEW, INC. Date: May 15, 2000 By: /s/PAUL C. RATHBUN ---------------------------------- Paul C. Rathbun Senior Vice President - Finance, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) Date: May 15, 2000 By: /s/JOHN L. FARBER ----------------------------------- John L. Farber Vice President - Controller and Assistant Secretary 10 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT COMPANY CONSOLIDATED BALANCE SHEET (UNAUDITED) FOR MARCH 31, 2000 AND CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-2000 MAR-31-2000 0 0 62,737 14,561 3,285 68,582 272,602 26,082 393,926 52,479 120,000 15,000 0 11 65,818 393,926 0 71,567 0 72,350 0 0 6,142 (783) (133) (783) 0 0 0 (650) 0 0
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