-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, n8DdDkqmVkD03YcRd184PkZa1rJFuQr1sud3Zoi+X7mem13qpZsr7+eOwrAU6dq2 X2bORx00kKOyRXz+b43Pmw== 0000276477-95-000021.txt : 19950414 0000276477-95-000021.hdr.sgml : 19950406 ACCESSION NUMBER: 0000276477-95-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950228 FILED AS OF DATE: 19950405 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HILLHAVEN CORP CENTRAL INDEX KEY: 0000276477 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-NURSING & PERSONAL CARE FACILITIES [8050] IRS NUMBER: 911459952 STATE OF INCORPORATION: NV FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10426 FILM NUMBER: 95526962 BUSINESS ADDRESS: STREET 1: 1148 BROADWAY PLZ CITY: TACOMA STATE: WA ZIP: 98402 BUSINESS PHONE: 2065724901 FORMER COMPANY: FORMER CONFORMED NAME: MERIT CORP DATE OF NAME CHANGE: 19600201 10-Q 1 FOR QUARTER ENDED FEB 28, 1995 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 February 28, 1995. OR Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to . Commission file number 1-10426 THE HILLHAVEN CORPORATION (Exact name of registrant as specified in its charter) FOR THE QUARTER ENDED FEBRUARY 28, 1995 Nevada 91-1459952 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1148 Broadway Plaza Tacoma, WA 98402 (Address of principal executive offices) (206) 572-4901 (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 The number of shares of Common Stock, par value $.75 per share, outstanding on April 1, 1995: 32,848,863. THE HILLHAVEN CORPORATION INDEX PART I. FINANCIAL INFORMATION Page No. Item 1. Financial Statements: Consolidated Balance Sheets as of February 28, 1995 and May 31, 1994 1 Consolidated Statements of Income for the Three Months and Nine Months Ended February 28, 1995 and 1994 3 Consolidated Statements of Cash Flows for the Nine Months Ended February 28, 1995 and 1994 5 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings 17 Item 2. Change in Securities 18 Item 6. Exhibits and Reports on Form 8-K 19 Signature 21 NOTE: Items 3 - 5 of Part II are omitted because they are not applicable. THE HILLHAVEN CORPORATION CONSOLIDATED BALANCE SHEETS February 28, 1995 and May 31, 1994 (Unaudited) (In thousands)
February 28, May 31, 1995 1994 (restated) ASSETS Current assets: Cash and cash equivalents $ 48,965 $ 49,888 Accounts and notes receivable, less allowance for doubtful accounts of $12,124 at February 28, 1995 and $10,337 at May 31, 1994 164,713 152,962 Inventories 17,163 20,772 Prepaid expenses and other current assets 33,849 35,011 Total current assets 264,690 258,633 Long-term notes receivable, less allowance for doubtful accounts of $14,822 at February 28, 1995 and $14,608 at May 31, 1994 85,365 84,944 Property and equipment, net 811,559 784,337 Intangible assets, net of accumulated amortization of $20,787 at February 28, 1995 and $19,336 at May 31, 1994 29,096 31,331 Other noncurrent assets, net 42,872 33,248 $ 1,233,582 $1,192,493
See accompanying Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. THE HILLHAVEN CORPORATION CONSOLIDATED BALANCE SHEETS February 28, 1995 and May 31, 1994 (Unaudited) (In thousands, except share information)
February 28, May 31, 1995 1994 (restated) LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 38,765 $ 46,389 Accounts payable 58,944 65,150 Employee compensation and benefits 49,252 52,444 Other accrued liabilities 55,803 56,977 Total current liabilities 202,764 220,960 Convertible debentures 132,645 134,223 Other long-term debt 456,974 444,812 Other long-term liabilities 36,511 28,751 Stockholders' equity: Series C Preferred Stock, $0.15 par value; 35,000 shares authorized, issued and outstanding (liquidation preference of $35,000) 5 5 Series D Preferred Stock, $0.15 par value; 300,000 shares authorized, 63,402 and 60,546 issued and outstanding at February 28, 1995 and May 31, 1994 (liquidation preference of $63,402) 10 9 Common stock, $0.75 par value; 60,000,000 shares authorized; 32,824,463 and 28,434,756 issued and outstanding at February 28, 1995 and May 31, 1994 24,618 21,326 Additional paid-in capital 421,772 329,537 Retained earnings 49,718 16,081 Unearned compensation (3,587) (3,211) 492,536 363,747 Less 4,179,520 Common shares held in trust (87,848) --- Total stockholders' equity 404,688 363,747 $ 1,233,582 $1,192,493
See accompanying Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. THE HILLHAVEN CORPORATION CONSOLIDATED STATEMENTS OF INCOME Three Months and Nine Months Ended February 28, 1995 and 1994 (Unaudited) (In thousands, except per share amounts)
Three Months Nine Months 1995 1994 1995 1994 (restated) (restated) Net revenues $396,167 $373,121 $1,177,640 $1,107,155 Expenses: Operating and administrative 339,139 315,917 999,460 938,732 Depreciation and amortization 14,452 13,557 42,646 40,738 Rent 13,445 14,101 40,648 41,829 Interest 12,108 12,573 36,664 41,677 Restructuring --- --- --- (20,225) Total expenses 379,144 356,148 1,119,418 1,042,751 Income before income taxes and extraordinary charge 17,023 16,973 58,222 64,404 Income tax expense 5,635 5,029 19,248 18,165 Income before extraordinary charge 11,388 11,944 38,974 46,239 Extraordinary charge - early extinguishment of debt, net of income taxes (48) (73) (222) (1,013) Net income $ 11,340 $ 11,871 $ 38,752 $ 45,226
See accompanying Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. THE HILLHAVEN CORPORATION CONSOLIDATED STATEMENTS OF INCOME Three Months and Nine Months Ended February 28, 1995 and 1994 (Unaudited) (In thousands, except per share amounts)
Three Months Nine Months 1995 1994 1995 1994 (restated) (restated) Primary income per common share: Income before extraordinary charge $ .33 $ .37 $ 1.18 $ 1.61 Extraordinary charge --- --- (.01) (.04) Net income $ .33 $ .37 $ 1.17 $ 1.57 Fully diluted income per common share: Income before extraordinary charge $ .31 $ .32 $ 1.07 $ 1.34 Extraordinary charge --- --- (.01) (.03) Net income $ .31 $ .32 $ 1.06 $ 1.31 Weighted average common shares and equivalents outstanding: Primary 28,864 25,244 28,765 24,922 Fully diluted 36,836 33,754 36,800 33,831
See accompanying Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. THE HILLHAVEN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended February 28, 1995 and 1994 (Unaudited) (In thousands)
1995 1994 (restated) Net cash provided by operating activities (including changes in all operating assets and liabilities) $ 73,500 $ 56,597 Cash flows from investing activities: Purchases of property and equipment (36,699) (30,495) Purchase of previously leased nursing centers (13,032) (1,668) Proceeds from sales of property and equipment 4,009 14,842 Proceeds from collection of notes receivable 3,186 16,640 (Investments in) distributions from joint ventures and partnerships, net (1,876) 770 Increase in other noncurrent assets (4,901) (3,475) Net cash used in investing activities (49,313) (3,386) Cash flows from financing activities: Net increase in borrowings under revolving lines of credit 21,000 8,000 Proceeds from long-term debt 17,521 358,805 Payments of principal on long-term debt (52,277) (495,091) Proceeds from sale of preferred stock --- 63,399 Increase in intangible assets (2,193) (14,731) Other, net (9,161) (9,415) Net cash used in financing activities (25,110) (89,033) Net decrease in cash (923) (35,822) Cash and cash equivalents at beginning of period 49,888 73,253 Cash and cash equivalents at end of period $ 48,965 $ 37,431
THE HILLHAVEN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended February 28, 1995 and 1994 (Unaudited) (In thousands)
1995 1994 (restated) Supplemental disclosures Cash paid for: Interest $ 32,778 $ 29,415 Income taxes 16,411 7,691 Noncash investing and financing activities: Long-term debt incurred in connection with purchase of previously leased properties 2,720 13,705 Adjustment to property and equipment and capital lease obligations --- 23,600 Notes receivable issued in connection with sale of nursing centers 500 1,540 Preferred stock issued to retire debt --- 56,601 Financing for equipment purchases 2,535 --- Preferred stock tendered for the purchase of common stock --- 63,300 Common stock placed in grantor trust 88,279 ---
See accompanying Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. THE HILLHAVEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) 1. The unaudited financial information furnished herein, in the opinion of management, reflects all adjustments which are necessary to state fairly the financial position, cash flows and results of operations of The Hillhaven Corporation ("Hillhaven" or "the Company") as of and for the periods indicated. Hillhaven presumes that users of the interim financial information herein have read or have access to the Company's audited financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations for the preceding fiscal year and that the adequacy of additional disclosure needed for a fair presentation, except in regard to material contingencies, may be determined in that context. Accordingly, footnote and other disclosures which would substantially duplicate the disclosures contained in Hillhaven's most recent annual report to stockholders have been omitted. 2. The provision for doubtful accounts and notes receivable is included in operating and administrative expenses. Provisions totalled $93, $3,393, $3,994 and $6,876 for the three months and nine months ended February 28, 1995 and 1994, respectively. 3. Interest income is included in net revenues and totalled $3,194, $9,620, $3,256 and $10,391 for the three months and nine months ended February 28, 1995 and 1994, respectively. 4. The extraordinary charges resulted from the write-off of capitalized financing costs in connection with the refinancing of certain of the Company's industrial revenue bonds and are shown net of the tax effect of $25 and $110 in the three and nine months ended February 28, 1995, respectively, and $33 and $459 in the three and nine months ended February 28, 1994, respectively. 5. On September 30, 1994, the Company sold its 30% ownership interest in a closely-held institutional pharmacy and recognized a pretax gain of $8,077. 6. On October 28, 1994, the Company restructured its bank financing and increased its available borrowing capacity by $20,000. The amended $320,000 commercial bank facility, with a syndicate of 22 major banks, lowers borrowing costs, extends the term of the agreement to five years, reduces principal repayment requirements and relaxes many covenants. Proceeds and enhanced cash flow from reduced repayment terms will be used to expand subacute programs, repay higher cost debt and fund future acquisition opportunities. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7. On October 31, 1994, the Company acquired closely-held CPS Pharmaceutical Services, Inc. (CPS) and Advanced Infusion Systems, Inc. (AIS) in a business combination accounted for as a pooling of interests. CPS and AIS, which provide diversified pharmaceutical and infusion services through locations in Northern California, became part of the Company's Medisave Pharmacies subsidiary through the exchange of 1,262,062 shares of the Company's common stock valued at approximately $29,000. The accompanying financial statements for the three and nine months ended February 28, 1995 are presented on the basis that the companies were combined for the entire period, and financial statements of the prior-year periods have been restated to give effect to the combination. Summarized results of operations of the separate companies for the period from June 1, 1994 through October 31, 1994, the date of acquisition, are as follows:
Hillhaven CPS/AIS Net operating revenues $ 636,305 $ 10,164 Income (loss) before extraordinary item $ 23,790 $ (240) Net income (loss) $ 23,616 $ (240)
Following is a reconciliation of the amounts of net revenues and net income previously reported for the three and nine months ended February 28, 1994:
Three Nine Months Months Net revenues: As previously reported $ 367,229 $1,090,605 Acquired companies 5,892 16,550 As restated $ 373,121 $1,107,155 Net income: As previously reported $ 11,634 $ 44,530 Acquired companies 237 696 As restated $ 11,871 $ 45,226
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. In January 1995, the Company established a grantor trust to pre-fund future obligations under Hillhaven's employee benefit plans. The grantor trust is a vehicle for supporting existing, previously approved employee plans which use Hillhaven common stock, including the Performance Investment Plan, the 1990 Stock Incentive Plan and the Employee Stock Purchase Plan, and does not change those plans or the amount of stock to be issued for those plans. Hillhaven transferred 4,200,000 newly issued shares of its common stock to the grantor trust. The establishment of the grantor trust will not affect earnings per share. 9. On February 27, 1995, Hillhaven signed a definitive agreement to acquire Nationwide Care, Inc. ("Nationwide") and its affiliated corporations and partnerships through (i) the merger of Nationwide, Phillippe Enterprises, Inc. and Meadowvale Skilled Care Center, Inc. with and into NCI Acquisition Corp. (a newly formed wholly-owned subsidiary of the Company) and (ii) the assignment of outstanding partnership interests in Camelot Care Centers, Shangri-La Partnership and Evergreen Woods, Ltd. to NCI Acquisition Corp. (the "Merger"). The consideration for the Merger will be 5,000,000 shares of the Company's common stock, $0.75 par value per share ("Company Stock"). The Company will issue up to 500,000 additional shares of Company Stock to ensure that the value of the shares of Company Stock paid will have a minimum value of $120 million. The transaction will be structured as a pooling of interests and as a tax-free reorganization under Section 368 of the Internal Revenue Code. The closing is currently anticipated to occur on June 30, 1995. The following summarized operating data gives effect to the acquisition had it occurred on June 1, 1993:
Nine months ended February 28, 1995 1994 Net revenues $1,272,919 $ 1,187,496 Net income $ 41,662 $ 49,060 Primary earnings per share $ 1.08 $ 1.44 Fully diluted earnings per share $ 1.01 $ 1.26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands) The following material should be read in conjunction with the consolidated financial statements of the Company and the related notes thereto. All references in this discussion and analysis to years are to fiscal years of the Company ended May 31 of such year. Acquisitions On October 31, 1994, the Company acquired closely-held CPS Pharmaceutical Services, Inc. (CPS) and Advanced Infusion Systems, Inc. (AIS) in a business combination accounted for as a pooling of interests. CPS and AIS, which provide diversified pharmaceutical and infusion services through locations in Northern California, became part of the Company's Medisave Pharmacies subsidiary (Medisave) through the exchange of 1,262,062 shares of the Company's common stock valued at approximately $29,000. The accompanying financial statements for the three and nine months ended February 28, 1995 are presented on the basis that the companies were combined for the entire period, and financial statements of the prior-year periods have been restated to give effect to the combination. See Note 7 of Notes to Consolidated Financial Statements. Results of Operations In the 1995 third quarter, Hillhaven realized earnings of $11,340 compared to $11,871 in the prior-year period. Net income for the nine months ended February 28, 1995 and 1994 amounted to $38,752 and $45,226, respectively. Earnings for the nine months ended February 28, 1994 include a $21,904 credit resulting from the conclusion of the Company's facility disposition program. Net revenues were $396,167, $1,177,640, $373,121 and $1,107,155 in the three and nine months ended February 28, 1995 and 1994, respectively. Operating income before property-related expenses (which are comprised of rent, depreciation and amortization and interest) and restructuring credits for the three and nine months ended February 28, 1995 was $57,028 (14.4% of net revenues) and $178,180 (15.1% of net revenues), respectively, compared to $57,204 (15.3% of net revenues) and $168,423 (15.2% of net revenues) in the same periods in the prior year. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The following table summarizes selected operating statistics:
At February 28, 1995 1994 Nursing Centers Number of nursing centers 271 272 Number of licensed beds 34,074 34,143 Centers managed for others 15 16 Pharmacy Outlets 58 85 Retirement Housing Communities 19 20
The following table identifies the Company's sources of net revenues.
Three months ended Nine months ended February 28, February 28, 1995 1994 1995 1994 Percentage of net revenues: Nursing Centers: Long term care 57.3% 58.8% 58.0% 60.9% Subacute medical and rehabilitation 26.1 21.4 24.4 20.2 Other revenues 3.0 4.2 2.9 3.5 Total nursing centers 86.4 84.4 85.3 84.6 Pharmacies 11.2 13.3 12.4 13.2 Retirement Housing 2.4 2.3 2.3 2.2 Total 100.0% 100.0% 100.0% 100.0% Net patient revenues per patient day: Long term care $ 91.46 $ 85.35 $ 89.61 $ 84.38 Subacute medical and rehabilitation $278.02 $243.24 $270.72 $241.13 Combined $115.82 $103.24 $111.76 $100.65 Average number of beds available 34,159 34,547 34,218 34,963 Average occupancy 92.8% 93.2% 93.0% 93.5%
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Nursing center net revenues, comprised primarily of patient revenues, increased 8.7% and 7.3% in the three and nine months ended February 28, 1995 to $342,128 and $1,005,056, respectively, from $314,866 and $937,104 in the same periods in the prior year. Revenues for the three and nine months ended February 28, 1994 include gains on the sale of 13 nursing centers in the amount of $5,102. Patient revenues are affected by changes in Medicare and Medicaid reimbursement rates, private pay and other rates charged by Hillhaven, occupancy levels, the nature of services provided and the payor mix. Data for nursing center operations with respect to sources of net patient revenues and patient mix by payor type are set forth below. Included in private and other revenues are per diem amounts received from managed care contracts.
Three Months Ended Nine Months Ended February 28, February 28, 1995 1994 1995 1994 Net Patient Revenues Medicaid 45.9% 49.2% 47.0% 50.9% Private and other 26.1 26.8 26.6 26.6 Medicare 28.0 24.0 26.4 22.5 Patient Census Medicaid 65.0% 65.9% 65.5% 67.1% Private and other 23.1 23.6 23.3 23.2 Medicare 11.9 10.5 11.2 9.7
In the past year, Hillhaven received rate increases from Medicare and Medicaid and increased its private pay rates. The Company is continuing its strategy of improving its quality mix of private pay and Medicare patients by expanding its subacute medical and rehabilitation programs and services. These higher revenue services include physical, occupational, speech and respiratory therapy and subacute care services, such as stroke therapy and wound care. The Company has increased the number of managed care contracts it maintains with insurance companies and other payors to provide subacute medical and rehabilitation care to their insureds, offering a less expensive alternative to acute care hospitals. The average daily number of managed care patients in Hillhaven's nursing centers, including long term care patients, was approximately 542 in the first nine months of 1995 compared to 417 in 1994. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Net revenues from pharmacy operations decreased to $44,435 in the three months ended February 28, 1995 from $49,747 in the prior- year period and increased to $145,833 in the nine months ended February 28, 1995 from $145,719 in 1994. Pharmacy operations produced operating income before property-related expenses of $5,207 in the current quarter (11.7% of net revenues), compared to $6,553 (13.2% of net revenues) in the prior-year quarter. For the nine months ended February 28, 1995, operating income before property-related expenses amounted to $27,199 (18.7% of net revenues) compared to $19,004 (13.0% of net revenues) in the same period in the prior year. Revenues and operating income for the nine months ended February 28, 1995 include an $8,077 gain on the sale of a closely-held institutional pharmacy and costs associated with the acquisition of AIS and CPS amounting to $1,038. On February 1, 1995, Hillhaven formed the MediLife Pharmacy Network Partnership (MediLife), a joint venture between Medisave and Life Care Centers of America (Life Care) and began providing pharmaceutical and consulting services to certain of Life Care's long term and subacute care facilities. Medisave contributed five of its existing institutional pharmacies to the joint venture and accounts for its 50% ownership interest by the equity method. Medisave will receive a management fee for managing MediLife. As a result of its contribution of five pharmacies to the joint venture, subsequent to February 1, 1995, the Company will report a decrease in pharmacy net revenues. However, this transaction is not expected to result in a material decrease in income for the Company for the year ended May 31, 1995. Institutional revenues accounted for approximately 94% and 92% of pharmacy net revenues in the three and nine months ended February 28, 1995, respectively, versus 79% in both the three-and nine- month periods in the prior year. The growing contribution from institutional operations reflects the Company's increasing focus on the nursing home market and disposition of retail outlets. The leases of the remaining 14 Wal-Mart outlets were terminated in the 1995 first quarter. Institutional revenues increased by 6.0% and 16.6% to $41,619 and $133,482 in the three and nine months ended February 28, 1995, respectively, from $39,245 and $114,459 in the prior-year periods. These increases are the result of an increase in the number of nursing center beds serviced and higher sales volumes per bed. The increase in per bed sales reflects the Company's strategy of aggressively marketing higher-margin ancillary products and services, such as respiratory and intravenous therapies and enteral and urological supplies. Net revenues from retirement housing operations increased to $9,604 and $26,751 in the three and nine months ended February 28, 1995 respectively, from $8,508 and $24,332 in the prior-year periods. These increases were due to increases in rates charged. Retirement housing average occupancy was 93.8% MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) and 94.8% in the three and nine months ended February 28, 1995, respectively and 96.7% and 95.9% in the three and nine months ended February 28, 1994, respectively. Operating and administrative expenses of the Company's nursing centers increased by 10.0% and 8.6% in the three and nine months ended February 28, 1995 to $293,674 and $863,360, respectively, from $267,017 and $795,269 in the same periods in the prior year. These increases were attributable primarily to the expansion of subacute and medical rehabilitation services. Labor and related benefits, which represented approximately 77% of nursing center operating and administrative expenses in both the current three- and nine-month periods, increased by 10.4% and 7.9% to $225,010 and $662,869 in the three and nine months ended February 28, 1995, respectively, from $203,726 and $614,592 in the prior-year periods. These increases were the result of an increase in the number of therapists in the Company's nursing centers to accommodate the increase in the number of medically complex patients, as well as general wage rate increases. Nursing wages and benefits, accounting for approximately 52% of total nursing center labor costs in both the three and nine months ended February 28, 1995, increased by 5.3% in the 1995 third quarter and by 2.8% in the nine months ended February 28, 1995 compared to the prior year periods. The increase in the non-labor components of operating and administrative expenses, including ancillary supplies, reflects the higher costs associated with caring for higher acuity patients. Interest expense decreased by $465 to $12,108 in the current quarter and by $5,013 to $36,664 in the current nine-month period. This decrease is due to the refinancing of certain of the Company's indebtedness as part of the recapitalization program completed in 1994 as well as the restructuring of the Company's bank financing in October 1994. Cash Flows and Financial Condition Cash provided by operations in the first nine months of 1995 amounted to $73,500, compared to $56,597 in the prior year. The increase is due primarily to higher operating income before property-related expenses and fluctuations in current assets and liabilities. Net cash used in investing activities amounted to $49,313 in the first nine months of 1995 compared to $3,386 in the prior-year period. During the nine months ending February 28, 1995, Hillhaven purchased six nursing centers previously leased from third parties for an aggregate purchase price of $17,355. These transactions were partially financed by borrowings of $2,720 with the balance settled in cash. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) In the prior year, the Company received cash proceeds from unscheduled notes receivable payoffs totalling $14,621. On December 31, 1993, Hillhaven completed the sale of thirteen nursing centers and received cash for the $15,594 aggregate sales price. Capital expenditures for routine replacements and refurbishment of facilities and capital additions amounted to $36,699 in the current nine-month period compared to $30,495 in the prior year. Net cash used in financing activities decreased to $25,110 from $89,033 in the prior year. During the nine months ended February 28, 1994, Hillhaven reduced its debt level and expended $14,829 for financing costs in connection with the recapitalization program. The Company has an $85,000 revolving bank line of credit, of which $61,000 was available at February 28, 1995. The Company also has an accounts receivable-backed revolving bank line of credit which provides for borrowings of up to $40,000, of which $35,000 was available at February 28, 1995. On October 28, 1994, the Company restructured its bank financing and increased its available borrowing capacity by $20,000. The amended $320,000 commercial bank facility, with a syndicate of 22 major banks, lowers borrowing costs, extends the term of the agreement to five years, reduces principal repayment requirements and relaxes many covenants. Proceeds and enhanced cash flow from reduced repayment terms will be used to expand subacute programs, repay higher-cost debt and fund future acquisition opportunities. Major Developments On February 27, 1995, the Company entered into a definitive agreement to acquire Nationwide Care, Inc. ("Nationwide") and certain related entities for approximately $120,000 in Hillhaven common stock. Nationwide operates 28 nursing centers and retirement housing centers in Indiana, Ohio and Florida. The transaction is expected to close in June 1995 and will be accounted for as a pooling of interests. See Note 9 of Notes to Consolidated Financial Statements. On January 25, 1995, Horizon Healthcare Corporation ("Horizon") made a proposal to acquire Hillhaven in a stock merger valued by Horizon at $28.00 per share. On February 5, 1995, a Special Committee of Hillhaven's Board of Directors considered the proposal with its advisors and concluded that the proposal was inadequate. On March 7, 1995, Horizon made another offer to acquire Hillhaven in a stock merger valued by Horizon at $31.00 per share. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) In light of the March 7, 1995 Horizon proposal and expressions of interest received by Hillhaven from other parties desiring to explore an acquisition transaction, on March 20, 1995, the Special Committee instructed Merrill Lynch to explore strategic alternatives, including the possible sale of Hillhaven to a third party. The Hillhaven Special Committee has established a process to evaluate all alternatives available to Hillhaven. As part of this process, Hillhaven intends to engage in discussions with parties interested in acquiring Hillhaven. Following completion of this process, the Special Committee will evaluate all alternatives, including whether any proposal to acquire Hillhaven is in the best interest of Hillhaven, its stockholders and other constituents. The Special Committee may conclude that the best available alternative for Hillhaven is to remain a publicly-owned company pursuing its existing strategy for enhancing value and serving its constituents. As a result of the Special Committee's decision to explore and evaluate all alternatives, the Special Committee has not taken a position with respect to Horizon's March 7, 1995 proposal at this time. Horizon announced that its proposal expired on March 21, 1995. It also announced a major acquisition on March 31, 1995. There can be no assurance that Horizon will continue to participate in the process; however, the Special Committee intends to invite Horizon to participate in the process. Part II. OTHER INFORMATION Item 1 Legal Proceedings A number of litigations have resulted from Horizon's proposal to acquire the Company: On February 6, 1995, the Company filed a complaint against Horizon in the United States District Court for the District of Nevada seeking injunctive and declaratory relief that a business combination between Horizon and the Company is prohibited by the Nevada statute regarding business combinations with interested stockholders (NRS Sections 78.411 through 78.444) by reason of Horizon's arrangements with Tenet Healthcare Inc. (formerly National Medical Enterprises, Inc.) On February 27, 1995, Horizon filed an answer and a counterclaim alleging that, among other things, the Company and all of its directors (other than Messrs. de Wetter and Andersons) have breached their fiduciary duties to the Company's stockholders in connection with their consideration of Horizon's acquisition proposal and certain actions recently taken by the Company, including the formation of a grantor trust, the amendment of the Company's rights plan and the filing of a shelf registration statement with the Securities and Exchange Commission. The counterclaim seeks injunctive and declaratory relief and compensatory and punitive damages in unspecified amounts. The Company has answered the counterclaim and believes Horizon's claims are without merit. By stipulation among the parties, all proceedings in this action have been stayed until May 8, 1995. The Company and its directors are named as defendants in a number of putative class action complaints filed on behalf of the Company's stockholders in Nevada state court and California state court. These complaints raise virtually identical allegations that the Company and its directors have breached their fiduciary duties to the Company's stockholders in connection with the consideration of Horizon's acquisition proposal and certain recent corporate actions also cited in Horizon's counterclaim. These actions seek declaratory and injunctive relief and money damages in unspecified amounts. The Service Employees International Union (AFL- CIO) and Joann Sforza, a Company employee and union member, are seeking to intervene as party plaintiffs in one of the putative class actions brought on behalf of the Company's stockholders, alleging that their interests as stockholders and employees of the Company are not adequately represented. The Company has opposed this intervention. In addition, National Medical Enterprises, Inc. filed a complaint against the Company and two of its Part II. OTHER INFORMATION (Continued) directors, Bruce Busby and Christopher Marker, in state court in California seeking declaratory and injunctive relief and alleging, among other things, that they have breached their fiduciary duties to National Medical Enterprises and the Company's other stockholders in connection with their consideration of Horizon's acquisition proposal and certain of the other corporate actions cited in the Horizon and putative class action complaints. The Company believes these actions are without merit. By stipulation of the parties, all proceedings in these actions have been stayed until May 8, 1995. Item 2 Changes in Securities On January 16, 1995, the Board of Directors authorized an amendment to Hillhaven's rights plan to effectively limit to 30% of the outstanding shares of common stock the amount of common stock NME can acquire without the Company's prior approval. This amendment puts NME in substantially the same position as all shareholders with respect to the Rights Plan. The Rights Plan is designed to protect Hillhaven and its shareholders from certain non-negotiated takeover attempts which could result in a change of control of Hillhaven on terms not in the best interest of the Company, its stockholders and other constituents. On February 7, 1995, a Special Committee of the Board of Directors authorized further amendments to the Rights Plan in order to maintain Hillhaven's ability to redeem or amend the rights. In connection with its rejection of the January 25, 1995 merger proposal from Horizon, the Special Committee concluded that Horizon had become the beneficial owner of Hillhaven's common stock by virtue of Horizon's arrangements with NME. Because of Horizon's beneficial ownership, the rights would have become nonredeemable if the Special Committee had not amended the Rights Plan. The Rights Plan was also amended to defer the distribution of certificates representing the rights, which would have been required as a result of Horizon's actions. In addition, the Rights Plan was amended to permit NME and parties other than Horizon who do not own 20% or more of Hillhaven's common shares to elect directors who can ultimately vote to redeem the rights. Items 3 - 5 are not applicable. Part II. OTHER INFORMATION (Continued) Item 6 Exhibits and Reports on Form 8-K (A) Exhibits: (10) Form of Amendment to Severance Agreement (11) Statement Re: Computation of per share earnings for the three months and nine months ended February 28, 1995 and 1994. (27) Financial Data Schedule (included only in the EDGAR filing) (B) Reports filed on Form 8-K 1. A Form 8-K, dated January 27, 1995, was filed during the quarter to disclose the creation of a grantor trust to pre-fund future obligations under existing Hillhaven employee benefit plans, as follows: The Hillhaven Corporation (the "Company") established The Hillhaven Corporation Grantor Stock Trust as of January 16, 1995, and, as of that same date, entered into an agreement (the "Stock Purchase Agreement") with Wachovia Bank of North Carolina, N.A. (the "Trustee") to sell to the Trustee on behalf of the Trust Fund an aggregate of 4.2 million shares of the Company's Common Stock, par value $0.75 per share (the "Shares"), at a purchase price per share equal to $21.01875 (the "Purchase Price"). The Purchase Price is equal to the average of the high and low prices of the Company's Common Stock on the New York Stock Exchange for the ten trading days immediately preceding the date of the Stock Purchase Agreement. The Stock Purchase Agreement provides that $.075 per share of the Purchase Price will be paid in cash (with funds contributed to the Trustee by the Company), and the remainder will be evidenced by a Promissory Note. The purchase of 3,180,000 of the Shares was consummated on January 27, 1995. Under the terms of the Stock Purchase Agreement, the purchase of the remaining 1,020,000 Shares will be consummated as promptly as possible following the termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Part II. OTHER INFORMATION (Continued) No financial statements were filed with the Form 8-K. 2. A Form 8-K, dated February 27, 1995, was filed during the quarter to disclose an agreement to acquire Nationwide Care, Inc. and its affiliated corporations and partnerships as follows: On February 27, 1995, The Hillhaven Corporation (the "Company") signed a definitive agreement to acquire Nationwide Care, Inc. ("Nationwide") and its affiliated corporations and partnerships through (i) the merger of Nationwide, Phillippe Enterprises, Inc. and Meadowvale Skilled Care Center, Inc. with and into NCI Acquisition Corp. (a newly formed wholly-owned subsidiary of the Company) and (ii) the assignment of all of the outstanding partnership interests in Camelot Care Centers, Shangri-La Partnership and Evergreen Woods, Ltd. to NCI Acquisition Corp. (the "Merger"). The consideration for the Merger will be 5.0 million shares of the Company's common stock, $0.75 par value per share ("Company Stock"). The Company will issue up to 500,000 additional shares of Company Stock to protect a minimum purchase price of $120 million. The transaction will be structured as a pooling of interests and as a tax-free reorganization under Section 368 of the Internal Revenue Code. The closing is scheduled for June 30, 1995. No financial statements were filed with the Form 8-K. SIGNATURE 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. THE HILLHAVEN CORPORATION (Registrant) Date: April 3, 1995 /s/ Michael B. Weitz Michael B. Weitz Vice President and Principal Accounting Officer * Michael B. Weitz is signing in the dual capacities as i) principal accounting officer, and ii) a duly authorized officer of the Company. EX-11 2 COMPUTATION OF PER SHARE EARNINGS Exhibit 11 THE HILLHAVEN CORPORATION Statement Re: Computation of Per Share Earnings(In thousands, except per share amounts)
Three Months Ended Nine Months Ended February 28, February 28, 1995 1994 1995 1994 FOR PRIMARY EARNINGS PER SHARE Shares outstanding at beginning of period (1) 28,624 22,282 28,435 22,241 Shares issued upon exercise of stock options and convertible debentures 8 13 38 35 Dilutive effect of outstanding stock options and contingent shares 232 210 210 213 Dilutive effect of warrants held by NME --- 2,739 --- 2,438 Restricted shares issued (forfeited) --- --- 82 (5) Weighted average number of shares and share equivalents outstanding (2) 28,864 25,244 28,765 24,922 Income before extraordinary item (1) $11,388 $ 11,944 $38,974 $ 46,239 Preferred stock dividends (1,736) (2,645) (5,116) (6,012) Adjusted income 9,652 9,299 33,858 40,227 Extraordinary charge - early extinguishment of debt, net of tax (48) (73) (222) (1,013) Net income as adjusted $ 9,604 $ 9,226 $33,636 $39,214 Primary earnings per share: Income before extraordinary item $ .33 $ .37 $ 1.18 $ 1.61 Extraordinary charge --- --- (.01) (.04) Net income $ .33 $ .37 $ 1.17 $ 1.57
(Continued on next page) Exhibit 11 (Continued) THE HILLHAVEN CORPORATION Statement Re: Computation of Per Share Earnings(In thousands, except per share amounts)
Three Months Ended Nine Months Ended February 28, February 28, 1995 1994 1995 1994 FOR FULLY DILUTED EARNINGS PER SHARE Weighted average number of shares used in primary calculation 28,864 25,244 28,765 24,922 Additional dilutive effect of stock options and warrants 12 292 24 580 Assumed conversion of dilutive convertible debentures 7,960 8,218 8,011 8,329 Fully diluted weighted average number of shares (2) 36,836 33,754 36,800 33,831 Income before extraordinary charge adjusted per primary calculation $ 9,652 $ 9,299 $33,858 $40,227 Adjustment for interest expense 2,443 2,336 7,286 6,823 Income tax effect (635) (607) (1,894) (1,774) Interest on convertible debentures, net of tax 1,808 1,729 5,392 5,049 Adjusted income 11,460 11,028 39,250 45,276 Extraordinary charge - early extinguishment of debt, net of tax (48) (73) (222) (1,013) Adjusted income used in fully- diluted calculation $11,412 $10,955 $39,028 $44,263 Fully diluted earnings per share: Income before extraordinary charge $ .31 $ .32 $ 1.07 $ 1.34 Extraordinary charge --- --- (.01) (.03) Net income $ .31 $ .32 $ 1.06 $ 1.31 ---------- (1) Income and share amounts have been adjusted for the acquisition in October 1994 of CPS Pharmaceutical Services, Inc. and Advanced Infusion Systems, Inc. The transaction was accounted for as a pooling of interests. (2) All shares in these tables are weighted on the basis of the number of days the shares were outstanding or assumed to be outstanding during each period.
EX-10 3 FORM OF AMENDMENT TO SEVERANCE AGREEMENT AMENDMENT NO. 1 TO AGREEMENT This Amendment No. 1 to Agreement dated as of December 6, 1994 (this "Amendment"), between The Hillhaven Corporation, a Nevada corporation (the "Company"), and _____________ (the "Executive"). WITNESSETH: WHEREAS, the Company and the Executive are parties to that certain Agreement dated as of May 24, 1994 (the "Agreement"); and WHEREAS, the Agreement provides for certain payments by the Company to the Executive in the event that a Change of Control, as defined in the Agreement, occurs; and WHEREAS, the Board of Directors of the Company has authorized the Company to amend all compensation, incentive and benefit plans and other employment arrangements which contain a "Change of Control" provision in the manner set forth below; and WHEREAS, the Employee also desires to amend the Agreement in the manner set forth below. NOW, THEREFORE, for and in consideration of the premises, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Amendment. The Agreement is hereby amended by deleting Section 1 in its entirety and substituting the following in lieu thereof: "1. Definitions. For purposes of this Agreement, the terms set forth in this Section shall have the following meanings: A. A "Change of Control" shall be deemed to occur if any of the following events has occurred: i. A Person, alone or together with its Affiliates and Associates, or "group", within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, becomes, after the date hereof, the beneficial owner of 20% or more of the general voting power of the Company. Notwithstanding the preceding sentence, a Change of Control shall not be deemed to occur if the "Person" described in the preceding sentence has acquired 20% or more of the general voting power of the Company as consideration in a transaction or series of related transactions involving the Company's acquisition (by stock acquisition, merger, asset purchase or otherwise) of one or more businesses approved prior to such transactions or series of transactions by the Incumbent Board (as defined in (ii) below), and, provided that, if such transaction or series of transactions results in the merger, consolidation or reorganization of the Company and such Person, the Company is the surviving entity following such merger, consolidation or reorganization. ii. Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board"), cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934) shall be considered as though such person were a member of the Incumbent Board. iii. Consummation or effectiveness of: a. a merger, consolidation or reorganization involving the Company (a "Business Combination"), unless 1. the stockholders of the Company, immediately before the Business Combination, own, directly or indirectly immediately following the Business Combination, at least fifty-one percent (51%) of the combined voting power of the outstanding voting securities of the corporation resulting from the Business Combination (the "Surviving Corporation") in substantially the same proportion as their ownership of the voting securities immediately before the Business Combination, and 2. the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for the Business Combination constitute at least a majority of the members of the Board of Directors of the Surviving Corporation, and 3. no Person (other than any Person who, immediately prior to the Business Combination, had beneficial ownership of twenty percent (20%) or more of the then outstanding Voting Securities) has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities; b. a complete liquidation or dissolution of the Company; or c. the sale or other disposition of all or substantially all of the assets of the Company to any Person. B. "Affiliate or Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934. C. "Person," for the purpose of this Section, means an individual, firm, corporation or other entity or any successor to such entity, but "Person" shall not include the Company, any subsidiary of the Company, any employee benefit plan or employee stock plan (including a trust relating thereto) of the Company or any subsidiary of the Company, or any Person organized, appointed, established or holding Voting Stock by, for or pursuant to the terms of such a plan. "Person" shall also not include National Medical Enterprises, Inc. ("NME"), any subsidiary of NME, any Affiliate or Associate of NME, any employee benefit plan or employee stock plan of NME or any subsidiary of NME to the extent that such entities, individually or collectively, own any or all of (x) the 8,878,147 shares of the Company's common stock (approximately 31% of the general voting power of the Company as of the date hereof) registered in the name of NME or any subsidiary of NME as of the date of this Agreement, or (y) such additional number of shares of the Company's common stock issued to NME or any subsidiary of NME in exchange for shares of the Company's Series C Preferred Stock or Series D Preferred Stock so long as such exchange has been approved in advance by the Incumbent Board. D. "Voting Stock" means shares of the Company's capital stock having general voting power, with "voting power" meaning the power under ordinary circumstances (and not merely upon the happening of a contingency) to vote in the election of directors. E. "Cause" shall mean: the willful, substantial, continued and unjustified refusal of the Executive to perform the duties of his or her office to the extent of his or her ability to do so; any conduct on the part of the Executive which constitutes a breach of any statutory or common law duty of loyalty to the Company; any illegal or publicly immoral act by the Executive which materially and adversely affects the business of the Company; the physical or mental disability of the Executive as determined by the Board of Directors of the Company and resulting in his or her inability to perform his or her duties hereunder; or the death of the Executive." 2. Effect on Agreement. Except as expressly amended by this Amendment, all of the terms and conditions of the Agreement shall remain in full force and effect. 3. Captions. The captions and headings used herein are for convenience of reference only and shall not be construed in any manner to limit or modify any of the terms hereof. 4. Counterparts. This Amendment may be executed in counterparts, each of which shall be an original, but all of which together shall constitute but one and the same instrument. 5. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Washington. IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the date first set forth above. THE HILLHAVEN CORPORATION By:____________________________________ Its:___________________________________ ______________________________________ Executive EX-27 4 FINANCIAL DATA SCHEDULE FEB 28, 1995
5 This schedule contains summary financial information extracted from The Consolidated Financial Statements of The Hillhaven Corporation at and for the nine months ended February 28, 1995 and the related notes thereto and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS MAY-31-1995 FEB-28-1995 48,965 0 176,837 12,124 17,163 264,690 1,063,983 252,424 1,233,582 202,764 589,619 24,618 0 15 380,055 1,233,582 0 1,177,640 0 996,067 83,294 3,393 36,664 58,222 19,248 38,974 0 (222) 0 38,752 1.17 1.06
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