-----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, D9YzYcCEH3GTLPNc6RvHxya6UXJtWIDR5cPBLLqAMxLD3mzu8/ldT3Ouyj03xUZo aOEGi5Ur90Anlac+aiGxBw== 0000805274-97-000013.txt : 19970520 0000805274-97-000013.hdr.sgml : 19970520 ACCESSION NUMBER: 0000805274-97-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL HEALTHCARE LP CENTRAL INDEX KEY: 0000805274 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 621293855 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09382 FILM NUMBER: 97608271 BUSINESS ADDRESS: STREET 1: 100 E VINE ST CITY: MURFREESBORO STATE: TN ZIP: 37130 BUSINESS PHONE: 6158902020 MAIL ADDRESS: STREET 1: P.O. BOX 1398 CITY: MURFREESBORO STATE: TN ZIP: 37130 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL HEALTHCORP LP DATE OF NAME CHANGE: 19960328 10-Q 1 3/31/97 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Under Section 13 of 15(d) of the Securities Exchange Act of 1934 For quarter ended March 31, 1997 Commission file number 33-9881 NATIONAL HEALTHCARE L.P. (Exact name of registrant as specified in its Charter) Delaware 62-1292855 (State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 100 Vine Street Murfreesboro, TN 37130 (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code (615) 890-2020 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. Yes x No (2) Has been subject to such filing requirements for the past 90 days. Yes x No 8,860,970 units were outstanding as of May 8, 1997. PART I. FINANCIAL INFORMATION Item 1. Financial Statements. NATIONAL HEALTHCARE L.P. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended March 31 1997 1996 (in thousands) REVENUES: Net patient revenues $ 94,583 $ 80,607 Other revenues 11,280 11,548 Net revenues 105,863 92,155 COSTS AND EXPENSES: Salaries, wages and benefits 59,215 51,869 Other operating 33,126 28,314 Depreciation and amortization 3,735 3,035 Interest 2,829 3,472 Total costs and expenses 98,905 86,690 NET INCOME $ 6,958 $ 5,465 EARNINGS PER UNIT: Primary $ .79 $ .64 Fully diluted $ .69 $ .56 WEIGHTED AVERAGE UNITS OUTSTANDING: Primary 8,797,164 8,575,499 Fully diluted 10,698,932 10,524,051 CASH DISTRIBUTIONS PAID PER UNIT $ .60 $ .52 NET INCOME ALLOCABLE TO PARTNERS: General Partners $ 70 $ 55 Limited Partners 6,888 5,410 $ 6,958 $ 5,465 The accompanying notes to interim condensed consolidated financial statements are an integral part of these statements. NATIONAL HEALTHCARE L.P. CONSOLIDATED BALANCE SHEETS (in thousands) ASSETS March 31 December 31 1997 1996 (unaudited) CURRENT ASSETS: Cash and cash equivalents $ 1,570 $ 1,881 Cash held by trustees 3,546 2,274 Marketable securities 16,889 17,968 Accounts receivable, less allowance for doubtful accounts of $5,116 and $4,739 55,974 50,902 Notes receivable 5,426 2,515 Inventory at lower of cost (first-in, first-out method) or market 4,301 3,572 Prepaid expenses and other assets 1,300 982 Total current assets 89,006 80,094 PROPERTY AND EQUIPMENT AND ASSETS UNDER ARRANGEMENT WITH OTHER PARTIES: Property and equipment at cost 252,914 234,934 Less accumulated depreciation and amortization (51,232) (48,171) Assets under arrangement with other parties 21,992 22,538 Net property, equipment and assets under arrangement with other parties 223,674 209,301 OTHER ASSETS: Bond reserve funds, mortgage replacement reserves and other deposits 186 141 Unamortized financing costs 1,554 1,601 Notes receivable 95,549 95,206 Notes receivable from National 13,076 12,153 Minority equity investments and other 6,367 6,244 Total other assets 116,732 115,345 $ 429,412 $404,740 The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. NATIONAL HEALTHCARE L.P. CONSOLIDATED BALANCE SHEETS (in thousands) LIABILITIES AND CAPITAL March 31 December 31 1997 1996 (Unaudited) CURRENT LIABILITIES: Current portion of long-term debt $ 7,776 $ 8,574 Trade accounts payable 14,053 11,835 Accrued payroll 24,500 28,963 Amount due to third-party payors 20,496 13,135 Accrued interest 725 501 Other current liabilities 10,015 9,795 Total current liabilities 77,565 72,803 LONG-TERM DEBT, less current portion 137,825 124,678 DEBT SERVICED BY OTHER PARTIES, LESS CURRENT PORTION 33,133 32,857 MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 787 791 COMMITMENTS, CONTINGENCIES AND GUARANTEES SUBORDINATED CONVERTIBLE NOTES 28,866 28,908 DEFERRED INCOME 16,054 16,166 PARTNERS' CAPITAL: General partners 1,427 1,408 Limited partners 133,755 127,129 Total partners' capital 135,182 128,537 $429,412 $404,740 The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. NATIONAL HEALTHCARE L.P. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31 1997 1996 (in thousands) CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: Net income $ 6,958 $ 5,465 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 3,564 3,146 Provision for doubtful accounts 621 643 Amortization of intangibles and deferred charges 244 396 Amortization of deferred income (112) (89) Equity in earnings of unconsolidated investments (16) (178) Distributions from unconsolidated investments 13 15 Changes in assets and liabilities: Increase in accounts receivable (5,693) (3,475) (Increase) decrease in inventory (729) 44 Increase in prepaid expenses and other assets (318) (149) Increase (decrease) in trade accounts payable 2,218 (2,221) Decrease in accrued payroll (4,463) (2,472) Increase (decrease) in amounts due to third party payors 7,361 (3,762) Increase in accrued interest 224 384 Increase (decrease) in other current liabilities 220 (680) 10,092 (2,933) CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: Additions to and acquisitions of property and equipment, net (17,936) (619) Investment in long-term notes receivable and loan participation agreements (7,938) (13,603) Collection of long-term notes receivable and loan participation agreements 3,762 11,135 (Increase) decrease in minority equity invest- ments and other (252) 221 (Increase) decrease in marketable securities 363 (1,600) (22,001) (4,466) CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: Proceeds from debt issuance 13,952 12,086 (Increase) decrease in cash held by trustee (1,272) 323 Increase in minority interests in subsidiaries (4) -- (Increase) decrease in bond reserve funds, mortgage replacement reserves and other deposits (45) 406 Issuance of partnership units 534 627 Collection of receivables 4,895 5 Payments on debt (1,385) (424) Cash distributions to partners (5,068) (4,327) Increase in financing costs (9) -- 11,598 8,696 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (311) 1,297 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,881 4,835 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,570 $ 6,132 Supplemental Information: Cash payments for interest expense $ 2,605 $ 3,103 The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. NATIONAL HEALTHCARE L.P. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31 1997 1996 (in thousands) During the three months ended March 31, 1997, NHC was released from its liability on debt serviced by others by the respective lenders Debt serviced by other parties $ --- $(2,536) Assets under arrangement with other parties --- 2,536 During the three months ended March 31, 1997 and March 31, 1996, respectively, $42,000 and $686,000 of convertible subordinated debentures were converted into 2,760 units and 45,112 units of NHC's partnership units: Convertible subordinated debentures (42) (686) Financing costs --- 1 Accrued interest --- (5) Partner's capital 42 690 NATIONAL HEALTHCARE L.P. CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (dollars in thousands)
Receivables Unrealized Total Number of From Sale of Gains(Losses) General Limited Partners' Units Units on Securities Partners Partners Capital BALANCE AT 12/31/96 8,467,959 $(22,674) $2,171 $1,408 $147,632 $128,537 Net income -- -- -- 70 6,888 6,958 Collection of receivables -- 4,895 -- -- -- 4,895 Units sold 389,466 (11,577) -- -- 12,111 534 Units in conversion of convertible debentures to partnership units 2,760 -- -- -- 42 42 Unrealized losses on securities -- -- (716) -- -- (716) Cash distributions ($.60 per unit) -- -- -- (51) (5,017) (5,068) BALANCE AT 3/31/97 8,860,185 $(29,356) $1,455 $1,427 $161,656 $135,182 BALANCE AT 12/31/95 8,353,114 $(26,196) $ 345 $1,290 $133,460 $108,899 Net income -- -- -- 55 5,410 5,465 Collection of receivables -- 5 -- -- -- 5 Units sold 25,670 -- -- -- 627 627 Units in conversion of convertible debentures to partnership units 45,112 -- -- -- 690 690 Unrealized gains on securities -- -- 83 -- -- 83 Cash distributions ($.52 per unit) -- -- -- (43) (4,284) (4,327) BALANCE AT 3/31/96 8,423,896 $(26,191) $ 428 $1,302 $135,903 $111,442
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. NATIONAL HEALTHCARE L.P. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 (Unaudited) Note 1 - CONSOLIDATED FINANCIAL STATEMENTS: The financial statements for the three months ended March 31, 1997 and 1996, which have not been examined by independent public accountants, reflect, in the opinion of management, all adjustments necessary to present fairly the data for such periods. The results of the operations for the three months ended March 31, 1997 are not necessarily indicative of the results that may be expected for the entire fiscal year ended December 31, 1997. The interim condensed balance sheet at December 31, 1996 is taken from the audited financial statements at that date. The interim condensed financial statements should be read in conjunction with the consolidated financial statements, including the notes thereto, for the periods ended December 31, 1996, December 31, 1995, and December 31, 1994. Note 2 - OTHER REVENUES: Three Months Ended March 31 1997 1996 (in thousands) Revenue from managed centers $ 8,282 $ 8,341 Guarantee fees 162 180 Advisory fee from NHI 775 797 Earnings on securities 521 61 Equity in earnings of unconsolidated investments -- 160 Interest income 981 1,589 Other 559 420 $11,280 $11,548 Revenues from managed centers include management fees and interest income on notes receivable from the managed centers. "Other" revenues include non-health care related earnings. Note 3 - INVESTMENTS IN MARKETABLE SECURITIES: NHC considers its investments in marketable securities as available for sale securities and unrealized gains and losses are recorded in partners' capital in accordance with SFAS 115. The adoption of SFAS 115 did not have a material effect on NHC's financial position or results of operations. Proceeds from the sale of investments in debt and equity securities during the period ended March 31, 1997 was $511,000. Gross investment gains of $149,000 were realized on these sales during the period ended March 31, 1997. Realized gains and losses from securities sales are determined on the specific identification of the securities. Note 4 - GUARANTEES: In order to obtain management agreements and to facilitate the construction or acquisition of certain health care centers which NHC manages for others, NHC has guaranteed some or all of the debt (principal and interest) on those centers. For this service NHC charges an annual guarantee fee of 1% to 2% of the outstanding principal balance guaranteed, which fee is in addition to NHC's management fee. The principal amounts outstanding under the guarantees is approximately $69,901,000 (net of available debt service reserves) at variable and fixed interest rates with a weighted average of 4.7% at March 31, 1997. NHC has entered into an interest rate cap arrangement with a managed entity under which NHC has guaranteed that the entity's weighted average interest rate on its first and second mortgage debt will not exceed 9.0%. The entity's first mortgage debt is tax-exempt, floating-rate bonds and its second mortgage debt is owed to NHC. The bond debt outstanding under the arrangement is $16,000,000 and the weighted average rate of both debts is 6.3% at March 31, 1997. NHC is obligated under the agreement only for the term of its management contract, as extended, and only so long as the tax-exempt bonds are outstanding. At March 31, 1997, NHC expects to have no additional liability as a result of this interest rate cap arrangement. Note 5 - NEW ACCOUNTING PRONOUNCEMENTS: In February 1997, the FASB issued Statement of Financial Accounting Standards No. 129, "Disclosure of Information about Capital Structure", ("SFAS 129"). SFAS 129 establishes standards for disclosing information about an entity's capital structure. NHC will be required to adopt SFAS 129 in the fourth quarter of 1997. Management does not expect the adoption to have a material impact on NHC's financial position, results of operation or cash flows. Statement of Financial Accounting Standards No. 128, "Earnings per Share", ("SFAS 128"), has been issued effective for fiscal periods ending after December 15, 1997. SFAS No. 128 establishes standards for computing and presenting earnings per share. NHC is required to adopt the provisions of SFAS No. 128 in the fourth quarter of 1997. Under the standards established by SFAS 128, earnings per share is measured at two levels: basic earnings per share and diluted earnings per share. Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares after considering the additional dilution related to preferred stock, convertible debt, options and warrants. Management does not expect the adoption to have a material impact on NHC's financial position, results of operation or cash flows. Note 6 - LEGAL PROCEEDINGS In March 1996, Florida Convalescent Centers, Inc. (FCC), an independent Florida corporation for whom the company manages sixteen licensed nursing centers in Florida, gave NHC notice of its intent not to renew a management contract. Pursuant to written agreements between the parties, NHC valued the center, offering to either purchase the center at the price so valued or require FCC to pay to NHC certain deferred compensation based upon that value. FCC responded on March 26, 1996, by filing a Declaratory Judgment suit in the Circuit Court of the Twelfth Judicial Circuit in and for Sarasota County, Florida, requesting the court to interpret the parties' rights under their contractual arrangements. This suit is still in the preliminary stages and no hearing date has been scheduled. In January, 1997, FCC notified NHC that it currently does not intend to renew an additional four contracts which mature in 1997, but has agreed that NHC will remain as manager until a final decision is reached by the Sarasota Court. The balance of the FCC contracts may be terminated in the years 2001-2002. The company is also a defendant in a lawsuit styled Braeuning et al vs. National HealthCare L.P. et al filed "under seal" in the U. S. District Court of the Northern district of Florida on April 9, 1996. The company has not yet been served in the suit. The court removed the seal from the complaint - but not the file itself - on March 20, 1997. The suit alleges that NHC has submitted cost reports containing "fraudulent allocation of routine nursing services to ancillary service cost centers" and improper allocation of skilled nursing service hours in four managed centers, all in the state of Florida. The suit was filed under what is commonly referred to as the "Whistleblower Act". In regard to the allegations contained in the lawsuit, NHC believes that the cost report information of the managed centers have been appropriately filed. Because the facilities are managed, any cost report settlements accrue to the owner of the managed center and not to NHC, except to the extent that the increase in revenues would increase NHC's 6% management fee. NHC cannot predict at this time the ultimate outcome of the suit but will strongly defend its action in this matter. Additionally, as reported in NHC's 1996 10-K, in October 1996 two managed centers in Florida were audited by representatives of the regional office of the Office of the Inspector General ("OIG"). As part of these audits, the OIG reviewed various records of the facilities relating to allocation of nursing hours and contracts with suppliers of outside services. At one center the OIG indicated during an exit conference that it had no further questions but has not yet issued a final report. At the second facility - which is one of four named in the Braeuning lawsuit - the OIG determined that certain records were insufficient and NHC supplied the additional requested information. The company is awaiting final disposition of these matters. Florida is one of the states in which governmental officials are conducting "Operation Restore Trust", a federal/state program aimed at detecting and eliminating fraud and abuse by providers in the Medicare and Medicaid programs. The OIG has increased its investigative actions in Florida as part of Operation Restore Trust. NHC will continue to monitor the progress of the OIG audit, and cannot predict whether the OIG will take further action or request additional information as a result of either of the two audits conducted or any that may be conducted in the future. Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations Overview National HealthCare L.P. (NHC, or the Company) operates and manages 100 long-term health care centers with 13,559 beds in ten states. NHC provides nursing care as well as ancillary therapy services to patients in a variety of settings including long-term care nursing centers, managed care specialty units, subacute care units, Alzheimer's care units, homecare programs, and facilities for assisted living. NHC also operates retirement centers. Results of Operations Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996. Results for the three month period ended March 31, 1997 include a 27% increase over the same period in 1996 in net income, a 23% increase in fully diluted earnings per unit, and a 15% increase in net revenues. The increased revenues for the quarter reflect the continued growth of operations. Compared to the quarter a year ago, NHC has increased the number of owned or leased long-term care beds by 120 beds from 6,661 beds to 6,781 beds. The number of long-term care beds managed for others has increased by 557 beds from 6,221 beds to 6,778 beds. Also contributing to increased revenues are improvements in both private pay and third party payor rates. Revenues also improved during 1997 due to increased emphasis on rehabilitative and managed care services. The Company has extended its rehabilitative services into additional geographic areas and to additional customers. Revenues from managed centers, which are included in the Statements of Income in Other Revenues, decreased 0.7% in 1997 from $8.34 million to $8.28 million due to decreased interest income from lower principal amounts on loans to managed centers. The decrease was offset in part by increased management fees from managed centers. The increased management fees are due to the increased number of beds being managed for others. Also, management fees are generally based upon a percentage of net revenues of the managed center and therefore tend to increase as a facility matures and as prices rise in general. Total costs and expenses for the 1997 quarter increased $12.2 million or 14.1% to $98.9 million from $86.7 million. Salaries, wages and benefits, the largest operating costs of this service company, increased $7.3 million or 14.2% to $59.2 million from $51.8 million. Other operating expenses increased $4.8 million or 17.0% to $33.1 million for the 1997 first quarter compared to $28.3 million in the 1996 period. Depreciation and amortization increased 23.1% to $3.7 million. Interest costs decreased $0.6 million or 18.5% to $2.8 million from $3.5 million for last year. Increases in salaries, wages and benefits are attributable to the increase in staffing levels due to long-term care bed additions, assisted living expansions, homecare growth, and the increased emphasis on rehabilitative services. Also contributing to higher costs of labor are inflationary increases for salaries and the associated benefits as well as adjustments in bonus and benefit programs for the quarter. Operating costs have increased due to the increased number of beds in operation, the expansion of assisted living services, the expansion of homecare services, the expansion of rehabilitative and managed care services, and due to the growth in management services provided to others, and due to the increase in rent expense as explained below. Depreciation and amortization increased as a result of the Company's placing of newly constructed or purchased assets in service and due to capital improvements at existing properties. Interest expense decreased compared to the quarter a year ago due primarily to capital transactions which occurred in late 1995. During December 1995, National Health Investors ("NHI") prepaid debt on which NHC had also been obligated in the amount of $20,544,000. In addition, NHC was released from its obligation on approximately $25,324,000 of debt which had been transferred to NHI in 1991. Since NHC is no longer obligated on transferred debt in the amount of $45,868,000, debt serviced by other parties and assets under arrangement with other parties were both reduced by $45,868,000. The leases with NHI provide that NHC shall continue to make non-obligated debt service rent payments equal to the debt service including principal and interest on the obligated debt which was prepaid and from which NHC has been released as a direct obligor. As a result, other operating expenses are increased by the amount of the rent payments, and interest expense is decreased by the amount of interest expense formerly associated with the debt serviced by other parties. The total census at owned and leased centers for the quarter averaged 94.8% compared to an average of 93.5% for the same quarter a year ago. Liquidity and Capital Resources During the first three months of 1997, the Company generated net cash of $10.1 million from operating activities, $3.7 million from the collection of long-term notes receivable, $14.0 million debt proceeds, $0.5 million from the issuance of partnership units, and $4.9 million from the collection of receivables. Of these funds, $17.9 million was used for additions to and acquisitions of property and equipment, $7.9 million for investment in long-term notes receivable and loan participation agreements, $0.4 million for investment in debt and equity securities, $1.4 million for payments on debt; and $5.1 million for cash distributions to partners. Cash and cash equivalents decreased $0.3 million during the period. At March 31, 1997, the Company's ratio of long-term obligations to convertible debt and capital is 1.0 to 1. NHC's convertible debt converts into units of limited partnership interest at $15.21 per unit - the units closed at $41.50 per unit on the American Stock Exchange the last trading day of this quarter. The ratio of current assets to current liabilities is 1.1 to 1. Working capital is $11.4 million. The Company is currently considering long-term and short term financing options. These financial resources with anticipated funds from future operations are expected to be adequate to enable the Partnership to meet its working capital requirements and expansion goals. Partnership Legislation On December 22, 1987, legislation passed which requires that most publicly traded limited partnerships, including NHC, be taxed as corporations for federal income tax purposes. A "grandfather" clause in that legislation allows NHC to avoid corporate taxation through 1997. It does not appear probable that Congress will extend this clause. Therefore, unless the Company makes some change in its structure, the Company will pay corporate taxes and its investors will pay ordinary income tax on cash dividends received by them, all commencing on January 1, 1998. Investors can anticipate their after tax cash return would be diminished, it being NHC's intent to retain substantially similar cash to that which it presently retains as a partnership. The Managing General Partner is currently reviewing options under current tax and regulatory laws to determine what avenues are available that will be most beneficial to unitholders. Development During the first three months of 1997, the Company added a net total of 677 licensed long-term care beds, 120 beds of which are owned or leased and 557 beds of which are managed for other owners. Currently, NHC has 894 long-term care beds under development at 18 owned, leased or managed health care centers in various locations. These beds are either under construction or a Certificate of Need has been received from the appropriate state agency authorizing the construction of additional centers or beds. In addition, NHC has 430 assisted living units at six locations and 180 retirement apartments at two locations under development, all of which are owned. PART II. OTHER INFORMATION Item 1. Legal Proceedings. The Company is subject to claims and suits in the ordinary course of business. While there are several worker's compensation and personal liability claims and other suits presently in the court system, management believes that the ultimate resolution of all pending proceedings will not have any material adverse effect on the Company or its operations. In March 1996, Florida Convalescent Centers, Inc. (FCC), an independent Florida corporation for whom the company manages sixteen licensed nursing centers in Florida, gave NHC notice of its intent not to renew a management contract. Pursuant to written agreements between the parties, NHC valued the center, offering to either purchase the center at the price so valued or require FCC to pay to NHC certain deferred compensation based upon that value. FCC responded on March 26, 1996, by filing a Declaratory Judgment suit in the Circuit Court of the Twelfth Judicial Circuit in and for Sarasota County, Florida, requesting the court to interpret the parties' rights under their contractual arrangements. FCC next sued on April 18, 1996 in the Circuit Court for Columbia County, Florida removed on May 1, 1996 to the United States District Court, Middle District, Florida, Jacksonville Division to obtain possession of the center for which it alleged the management contract had been terminated. This suit has now been dismissed, and the issue of possession will be decided by the Sarasota County Court. This suit is still in the preliminary stages and no hearing date has been scheduled. In January, 1997, FCC notified NHC that it currently does not intend to renew an additional four contracts which mature in 1997, but has agreed that NHC will remain as manager until a final decision is reached by the Sarasota Court. The balance of the FCC contracts may be terminated in the years 2001-2002. The company is also a defendant in a lawsuit styled Braeuning et al vs. National HealthCare L.P. et al filed "under seal" in the U. S. District Court of the Northern district of Florida on April 9, 1996. The company has not yet been served in the suit. The court removed the seal from the complaint - but not the file itself - on March 20, 1997. The suit alleges that NHC has submitted cost reports containing "fraudulent allocation of routine nursing services to ancillary service cost centers" and improper allocation of skilled nursing service hours in four managed centers, all in the state of Florida. The suit was filed under what is commonly referred to as the "Whistleblower Act". In regard to the allegations contained in the lawsuit, NHC believes that the cost report information of the managed centers have been appropriately filed. Because the facilities are managed, any cost report settlements accrue to the owner of the managed center and not to NHC, except to the extent that the increase in revenues would increase NHC's 6% management fee. NHC cannot predict at this time the ultimate outcome of the suit but will strongly defend its actions in this matter. Additionally, as reported in NHC's 1996 10-K, in October 1996 two managed centers in Florida were audited by representatives of the regional office of the Office of the Inspector General ("OIG"). As part of these audits, the OIG reviewed various records of the facilities relating to allocation of nursing hours and contracts with suppliers of outside services. At one center the OIG indicated during an exit conference that it had no further questions but has not yet issued a final report. At the second facility - which is one of four named in the lawsuit - the OIG determined that certain records were insufficient and NHC supplied the additional requested information. The company is awaiting final disposition of these matters. Florida is one of the states in which governmental officials are conducting "Operation Restore Trust", a federal/state program aimed at detecting and eliminating fraud and abuse by providers in the Medicare and Medicaid programs. The OIG has increased its investigative actions in Florida as part of Operation Restore Trust. NHC will continue to monitor the progress of the OIG audit, and cannot predict whether the OIG will take further action or request additional information as a result of either of the two audits conducted or any that may be conducted in the future. Item 2. Changes in Securities. Not applicable Item 3. Defaults Upon Senior Securities. None Item 4. Submission of Matters to Vote of Security Holders. None Item 5. Other Information. None Item 6. Exhibits and Reports on Form 8-K. (a) List of exhibits - Exhibit 27 - Financial Data Schedule (for SEC purposes only) (b) Reports on Form 8-K - none required SIGNATURES Pursuant to the requirements of the Security Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NATIONAL HEALTHCARE L.P. (Registrant) Date May 15, 1997 /s/ Richard F. LaRoche, Jr. Richard F. LaRoche, Jr. Secretary Date May 15, 1997 /s/ Donald K. Daniel Donald K. Daniel Vice President and Controller Principal Accounting Officer EX-27 2
5 0000805274 NATIONAL HEALTHCARE L.P. 3-MOS DEC-31-1997 MAR-31-1997 5,116,000 16,889,000 61,400,000 5,116,000 4,301,000 89,006,000 302,408,000 (78,734,000) 429,412,000 77,565,000 199,824,000 0 0 0 135,182,000 429,412,000 0 105,863,000 0 91,720,000 0 621,000 2,829,000 6,958,000 0 0 0 0 0 6,958,000 .79 .69
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