-----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, S+/HX8b2zHvYzyEpj2dULg+DHUQGLgM0aIQoM8HIvb1zteWAFPIFGrPTiKz5HOaC dm64Dq15c/LG54QuBGIBrA== 0000805274-97-000016.txt : 19970815 0000805274-97-000016.hdr.sgml : 19970815 ACCESSION NUMBER: 0000805274-97-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97664010 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 6/30/97 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 June 30, 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 8,862,187 units were outstanding as of July 31, 1997. PART I. FINANCIAL INFORMATION Item 1. Financial Statements. NATIONAL HEALTHCARE L.P. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended June 30 June 30 1997 1996 1997 1996 (in thousands) (in thousands) REVENUES: Net patient revenues $ 94,657 $ 81,078 $189,240 $ 161,685 Other revenues 11,534 10,551 22,814 22,099 Net revenues 106,191 91,629 212,054 183,784 COSTS AND EXPENSES: Salaries, wages and benefits 58,414 50,137 117,629 102,006 Other operating 33,214 29,653 66,340 57,967 Depreciation and amortization 3,977 3,135 7,712 6,170 Interest 3,244 2,697 6,073 6,169 Total costs and expenses 98,849 85,622 197,754 172,312 NET INCOME $ 7,342 $ 6,007 $ 14,300 $ 11,472 EARNINGS PER UNIT: Primary $ .83 $ .70 $ 1.62 $ 1.34 Fully diluted $ .72 $ .62 $ 1.41 $ 1.18 WEIGHTED AVERAGE UNITS OUTSTANDING: Primary 8,861,960 8,586,893 8,829,472 8,578,654 Fully diluted 10,759,346 10,518,688 10,727,760 10,527,339 CASH DISTRIBUTIONS PAID PER UNIT $ .60 $ .52 $ 1.20 $ 1.04 NET INCOME ALLOCABLE TO PARTNERS: General Partners $ 73 $ 60 $ 143 $ 115 Limited Partners 7,269 5,947 14,157 11,357 $ 7,342 $ 6,007 $ 14,300 $ 11,472
The accompanying notes to interim condensed consolidated financial statements are an integral part of these statements. 2 NATIONAL HEALTHCARE L.P. CONSOLIDATED BALANCE SHEETS (in thousands) ASSETS
June 30 December 31 1997 1996 (unaudited) CURRENT ASSETS: Cash and cash equivalents $ 12,193 $ 1,881 Cash held by trustees 3,752 2,274 Marketable securities 17,298 17,968 Accounts receivable, less allowance for doubtful accounts of $5,472 and $4,079 78,586 50,902 Notes receivable 9,189 2,515 Inventory at lower of cost (first-in, first-out method) or market 4,077 3,572 Prepaid expenses and other assets 1,184 982 Total current assets 126,279 80,094 PROPERTY AND EQUIPMENT AND ASSETS UNDER ARRANGEMENT WITH OTHER PARTIES: Property and equipment at cost 256,345 234,934 Less accumulated depreciation and amortization (54,479) (48,171) Assets under arrangement with other parties 21,472 22,538 Net property, equipment and assets under arrangement with other parties 223,338 209,301 OTHER ASSETS: Bond reserve funds, mortgage replacement reserves and other deposits 282 141 Unamortized financing costs 1,505 1,601 Notes receivable 93,980 95,206 Notes receivable from National 10,647 12,153 Minority equity investments and other 6,474 6,244 Total other assets 112,888 115,345 $ 462,505 $404,740
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 3 NATIONAL HEALTHCARE L.P. CONSOLIDATED BALANCE SHEETS (in thousands) LIABILITIES AND CAPITAL
June 30 December 31 1997 1996 (Unaudited) CURRENT LIABILITIES: Current portion of long-term debt $ 7,865 $ 8,574 Trade accounts payable 29,361 11,835 Accrued payroll 30,259 28,963 Amount due to third-party payors 21,725 13,135 Accrued interest 1,067 501 Other current liabilities 12,002 9,795 Total current liabilities 102,279 72,803 LONG-TERM DEBT, less current portion 144,867 124,678 DEBT SERVICED BY OTHER PARTIES, LESS CURRENT PORTION 32,024 32,857 MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 784 791 COMMITMENTS, CONTINGENCIES AND GUARANTEES SUBORDINATED CONVERTIBLE NOTES 28,839 28,908 DEFERRED INCOME 15,945 16,166 PARTNERS' CAPITAL: General partners 1,447 1,408 Limited partners 136,320 127,129 Total partners' capital 137,767 128,537 $462,505 $404,740
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 4 NATIONAL HEALTHCARE L.P. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30 1997 1996 (in thousands) CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: Net income $14,300 $ 11,472 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 7,342 5,785 Provision for doubtful accounts 1,253 1,140 Amortization of intangibles and deferred charges 418 638 Amortization of deferred income (221) (130) Equity in earnings of unconsolidated investments (40) (107) Distributions from unconsolidated investments 154 180 Changes in assets and liabilities: (Increase) Decrease in accounts receivable (28,937) 1,362 Increase in inventory (505) (504) Increase in prepaid expenses and other assets (202) (84) Increase in trade accounts payable 17,527 3,355 Increase (Decrease) in accrued payroll 1,296 (3,753) Increase (Decrease) in amounts due to third party payors 8,590 (6,130) Increase (Decrease) in accrued interest payable 566 (746) Increase in other current liabilities 2,206 172 23,747 12,650 CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: Additions to and acquisitions of property and equipment, net (21,379) (11,592) Investment in long-term notes receivable and loan participation agreements (18,022) (15,132) Collection of long-term notes receivable and loan participation agreements 14,080 24,654 Increase in minority equity investments and other (574) (2,850) (Increase) Decrease in debt and equity securities 362 (15,395) (25,533) (20,315) CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: Proceeds from debt issuance 23,166 13,311 Increase in cash held by trustee (1,478) (1,358) Decrease in minority interest in subsidiaries (7) (3) Increase (Decrease) in bond reserve funds, mortgage replacement reserves and other deposits (141) 1,081 Issuance of partnership units 539 571 Collection of receivables 5,014 3,340 Payments on debt (4,601) (3,639) Cash distributions to partners (10,384) (8,708) Increase in financing costs (10) (94) 12,098 4,501 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,312 (3,164) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,881 4,835 CASH AND CASH EQUIVALENTS, END OF PERIOD $12,193 $ 1,671 Supplemental Information: Cash payments for interest expense $ 6,920 $ 6,920
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 5 NATIONAL HEALTHCARE L.P. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30 1997 1996 (in thousands) During the six months ended June 30, 1996, NHC was released from its liability on debt serviced by others by the respective lenders Debt serviced by other parties $(3,841) $(3,841) Assets under arrangement with other parties 3,841 3,841 During the six months ended June 30, 1997 and June 30, 1996, respectively $69,000 and $686,000 of convertible subordinated debentures were converted into 4,534 and 45,112 units of NHC's partnership units: Convertible subordinated debentures (69) (686) Financing costs 1 1 Accrued interest (1) (5) Partner's capital 69 690
6 NATIONAL HEALTHCARE L.P. CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE SIX MONTHS ENDED JUNE 30, 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 -- -- -- 143 14,157 14,300 Collection of receivables -- 5,014 -- -- -- 5,014 Units sold 389,694 (11,577) -- -- 12,116 539 Units in conversion of convertible debentures to partnership units 4,534 -- -- -- 69 69 Unrealized losses on securities -- -- (308) -- -- (308) Cash distributions ($1.20 per unit) -- -- -- (104) (10,280) (10,384) BALANCE AT 6/30/97 8,862,187 $(29,237) $1,863 $1,447 $163,694 $137,767 BALANCE AT 12/31/95 8,353,114 $(26,196) $ 345 $1,290 $133,460 $108,899 Net income -- -- -- 115 11,357 11,472 Collection of receivables -- 3,340 -- -- -- 3,340 Units sold 24,270 -- -- -- 571 571 Units in conversion of convertible debentures to partnership units 45,112 -- -- -- 690 690 Unrealized losses on securities -- -- (191) -- -- (191) Cash distributions ($1.04 per unit) -- -- -- (87) (8,621) (8,708) BALANCE AT 6/30/96 8,422,496 $(22,856) $ 154 $1,318 $137,457 $116,073
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 7 NATIONAL HEALTHCARE L.P. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 (Unaudited) Note 1 - CONSOLIDATED FINANCIAL STATEMENTS: The financial statements for the six months ended June 30, 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 six months ended June 30, 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 Six Months Ended June 30 June 30 1997 1996 1997 1996 (in thousands) (in thousands) Revenue from managed centers $ 8,713 $ 7,943 $16,995 $16,284 Guarantee fees 150 185 312 365 Advisory fee from NHI 776 797 1,551 1,594 Earnings on securities 370 64 891 125 Equity in earnings of unconsolidated investments 24 (59) 24 101 Interest income 968 1,133 1,949 2,722 Other 533 488 1,092 908 $11,534 $10,551 $22,814 $22,099
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. 8 NATIONAL HEALTHCARE L.P. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 (Unaudited) Note 3 - INVESTMENT 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 for the period ended June 30, 1996 was $511,000. Gross investment gains of $149,000 were realized on these sales during the period ended June 30, 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 $69,362,000 (net of available debt service reserves) at variable and fixed interest rates with a weighted average of 4.7% at June 30, 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 $15,600,000 and the weighted average rate of both debts is 6.9% at June 30, 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 June 30, 1997, NHC expects to have no additional liability as a result of this interest rate cap arrangement. 9 NATIONAL HEALTHCARE L.P. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 (Unaudited) 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 operations or cash flows. Statement of Financial Accounting Standards No.128,"Earnings per Share", ("SFAS 129") 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 options 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 at one of the centers. 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. Since that time, FCC has amended the suit to allege, among other items, that NHC has "self-dealt" with or mismanaged the centers, that the deferred compensation creates a usurious rate of interest, and that the recorded mortgages securing FCC's debt to NHC do not secure the payment of the deferred compensation. NHC has denied all allegations and conclusions. The suit is still in the preliminary stages and no trial date has been scheduled. In January, 1997, NHC was notified that FCC currently does not intend to renew an additional four contracts which mature in 1997, but FCC 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 2001-2003. 10 NATIONAL HEALTHCARE L.P. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 (Unaudited) 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 court removed the seal from the complaint - but not the file itself - on March 20, 1997 and service of process occurred on July 8, 1997, with the government participation as an intervening plaintiff. The suit alleges that NHC has submitted cost reports and routine cost limit exception requests 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 the Qui Tam provisions of the Federal False Claims Act, commonly referred to as the "Whistleblower Act". In regard to the allegations contained in the lawsuit, NHC believes that the cost report information of its centers have been either appropriately filed or, upon appropriate amendment, will reflect adjustments only for the correction of unintentional misallocations. Prior to the filing of the suit, the Company had commenced an in-depth review of the nursing time allocation process at its owned, leased and managed centers. A significant number of amended cost reports have been filed and the Company continues to schedule and prepare revised cost reports and exception requests. It is anticipated that any years in question will be reviewed prior to there being further action in this matter at the judicial level. The Company is fully cooperating with the agovernment in an attempt to determine dollar amounts involved, and intends to aggressively pursue an amicable settlement of this matter. The cost report periods under review include periods from 1991 through 1995. NHC would be responsible for any settlement related to its owned facilities and to the extent that managed centers have settlements, NHC's 6% management fee would be impacted. NHC's revenue policy is to not reflect routine cost limit exception requests as income until the process, including cost report audits, is completed. NHC cannot predict at this time the ultimate outcome of the suit but will strongly defend its actions in this matter. 11 NATIONAL HEALTHCARE L.P. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 (Unaudited) 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. These audits have been incorporated into the lawsuit. 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 (and has now opened a Tennessee office) as part of Operation Restore Trust. NHC will continue to review and monitor the cost reporting process and its compliance with all government reimbursement standards, but cannot predict whether the OIG or other government officials will take further action or request additional information as a result of the Braeuning suit or any other audit that may be conducted in the future. 12 NATIONAL HEALTHCARE L.P. June 30, 1997 (Unaudited) 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 110 long-term health care centers with 13,775 beds in nine 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 June 30, 1997 Compared to Three Months Ended June 30, 1996. Results for the three month period ended June 30, 1997 include a 22% increase over the same period in 1996 in net income, a 16% increase in fully diluted earnings per unit, and an 16% 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 528 beds from 6,469 beds to 6,997 beds. The number of long-term care beds managed for others has increased by 497 beds from 6,281 beds to 6,778 beds. The number of assisted living beds increased by 288 beds to 629 beds from 341 beds. The number of homecare locations has increased from 31 locations to 33 locations. Also contributing to increased revenues are improvements in both private pay and third party payor rates. Revenues improved during 1997 also due to increased emphasis on rehabilitation and managed care services. The Company has extended its rehabilitative services into additional geographic areas and to additional customers. 13 NATIONAL HEALTHCARE L.P. June 30, 1997 (Unaudited) Revenues from managed centers, which are included in the Statements of Income in Other Revenues, increased 9.7% in 1997 from $7.9 million to $8.7 million due to the increased number of beds being managed for others and due to increased management fees. 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. The increases were offset in part by decreased interest income from lower principal amounts on loans to managed centers. Total costs and expenses for the 1997 second quarter increased $13.2 million or 15.4% to $98.8 million from $85.6 million. Salaries, wages and benefits, the largest operating costs of this service company, increased $8.3 million or 16.5% to $58.4 million from $50.1 million. Other operating expenses increased $3.5 million or 12.0% to $33.2 million for the 1997 second quarter compared to $29.7 million in the 1996 period. Depreciation and amortization increased $0.8 million or 26.9% to $4.0 million. Interest costs increased $0.5 million or 20.3% to $3.2 million from $2.7 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 expansions, and the increased emphasis on rehabilitative services. Also contributing to higher costs of labor are inflationary increases for salaries and the associated benefits. Operating costs have increased due to the increased number of beds in operation, the growth in assisted living beds, the expansion of homecare services, the expansion of rehabilitative and managed care services, and the growth in management services provided to others. 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 increased due to additional borrowing for newly purchased or constructed long-term care beds. The total census at owned and leased centers for the quarter averaged 92.0% compared to an average of 92.9% for the same quarter a year ago. 14 NATIONAL HEALTHCARE L.P. June 30, 1997 (Unaudited) Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996. Results for the six month period ended June 30, 1997 include a 25% increase over the same period in 1996 in net income, a 19% increase in fully diluted earnings per unit, and a 15% increase in net revenues. The increased revenues for the six months this year reflect the continued growth of operations. Compared to the six month period a year ago, NHC has increased the number of owned, leased, and managed long-term care beds by 1,025 beds from 12,750 beds to 13,775 beds. The number of homecare locations has increased from 31 locations to 33 locations. Also contributing to increased revenues are improvements in both private pay and third party payor rates. Revenues improved during 1997 also 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 management services, which are included in the Statements of Income in Other Revenues, increased 4.4% for the six month period in 1997 compared to the same period in 1996 from $16.3 million to $17.0 million due to the increased number of beds being managed for others and due to increased management fees. 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 six month period increased $25.4 million or 14.8% to $197.8 million from $173.2 million. Salaries, wages and benefits, the largest operating costs of this service company, increased $15.6 million or 15.3% to $117.6 million from $102.0 million. Other operating expenses increased $8.4 million or 14.4% to $66.3 million for the 1997 second quarter compared to $58.0 million in the 1996 period. Depreciation and amortization increased 25.0% to $7.7 million. Interest costs decreased $0.1 million or 1.6% to $6.1 million from $6.2 million for last year. 15 NATIONAL HEALTHCARE L.P. June 30, 1997 (Unaudited) Increases in salaries, wages and benefits are attributable to the increase in staffing levels due to long-term care bed additions, assisted living expenses, homecare expansions, and the increased emphasis on rehabilitative services. Also contributing to higher costs of labor are inflationary increases for salaries and the associated benefits. Operating costs have increased due to the increased number of beds in operation, the opening of three new assisted living projects, the expansion of homecare services, the expansion of rehabilitative and managed care services, and the growth in management services provided to others. 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. The total census at owned and leased centers for the six months averaged 93.2% compared to an average of 93.2% for the same six months a year ago. Health Care Revenues NHC's principal business is operating and managing long-term health care centers, including the provision of routine and ancillary services. Approximately 60% of NHC's net revenues in 1996 and 1995 and 61% in 1994 are from participation in Medicare and Medicaid programs. Amounts paid under these programs are generally based on a facility's allowable costs or a fixed rate subject to program cost ceilings. Revenues are recorded at standard billing rates less allowances and discounts principally for patients covered by Medicare, Medicaid and other contractual programs. Amounts earned under the Medicare and Medicaid programs are subject to review by the third party payors and as disclosed in the notes to the financial statements, by the Office of the Inspector General. In the opinion of management, adequate provision has been made for any adjustments that may result from such reviews. (See Part II, Item 1: Legal Proceedings) However, substantial cash payments may be required at the time of finalization if material adjustments are made by auditors. Any differences between estimated settlements and final determinations are reflected in operations in the year finalized. NHC has submitted various requests for exceptions to Medicare routine cost limitations for reimbursement. NHC has received approval on certain requests, and others are pending approval. NHC will record revenues associated with the approved requests when such approvals, including cost report audits, are assured. Liquidity and Capital Resources During the first six months of 1997, the Company generated net cash of $23.7 million from operating activities, $14.1 million from the collection of long-term notes receivable, $23.2 million debt proceeds, $0.5 million from the issuance of partnership units, and $5.0 million from the collection of receivables. Of these funds, $21.4 million was used for additions to and acquisitions of property and equipment; $18.0 million for investment in long-term notes receivable and loan participation agreements; $4.6 million for payments on debt; and $10.4 million for cash distributions to partners. Cash and cash equivalents increased $10.3 million during the quarter. 16 NATIONAL HEALTHCARE L.P. June 30, 1997 (Unaudited) At June 30, 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 $44.625 per unit on the American Stock Exchange the last trading day of this quarter. The ratio of current assets to current liabilities is 1.2 to 1. Working capital is $24.0 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. Development During the first six months of 1997, the Company added a net total of 893 licensed long-term care beds, of which 336 are owned or leased and 577 of which are managed for other parties. Additionally, 252 assisted living units in three newly constructed projects were opened. Currently, NHC has 871 beds under development at 12 owned or leased centers and six 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. 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 compen- sation 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. 17 NATIONAL HEALTHCARE L.P. June 30, 1997 (Unaudited) 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 at one of the centers. 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. Since that time, FCC has amended the suit to allege, among other items, that NHC has "self-dealt" with or mismanaged the centers, that the deferred compensation creates a usurious rate of interest, and that the recorded mortgages securing FCC's debt to NHC do not secure the payment of the deferred compensation. NHC has denied all allegations and conclusions. The suit is still in the preliminary stages and no trial date has been scheduled. In January, 1997, NHC was notified that FCC currently does not intend to renew an additional four contracts which mature in 1997, but FCC 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 2001-2003. 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 court removed the seal from the complaint - but not the file itself - on March 20, 1997 and service of process occurred on July 8, 1997 with the govern- ment participating as an intervening plaintiff. The suit alleges that NHC has submitted cost reports and routine cost limit exception requests 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 the Qui Tam provisions of the Federal False claims Act, commonly referred to as the "Whistleblower Act". In regard to the allegations contained in the lawsuit, NHC believes that the cost report information of its centers have been either appropriately filed or, upon appropriate amendment, will reflect adjustments only for the correction of unintentional misallocations. Prior to the filing of the suit, the Company had commenced an in-depth review of the nursing time allocation process at its owned, leased and managed centers. A significant number of amended cost reports have been filed and the Company continues to schedule and prepare additional revised cost reports and excpetion requests. It is anticipated that any years in question will be reviewed prior to there being further action in this matter at the judicial level. The Company is fully cooperating with the government in an attempt to determine dollar amounts involved, and intends to aggressively pursue an amicable settlement of this matter. The cost report periods under review include periods from 1991 through 1995. 18 NATIONAL HEALTH CARE L.P. June 30, 1997 (Unaudited) NHC would be responsible for any settlement related to its owned facilities and to the extent that managed centers have settlements, NHC's 6% management fee would be impacted. NHC's revenue policy is to not reflect routine cost limit exception requests as income until the process, including cost report audits, is completed. NHC cannot predict at this time the ultimate outcome of the suit but will strongly defend its actions in this matter. 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. These audits have been incorporated into the lawsuit. 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 (and has now opened a Tennessee office) as part of Operation Restore Trust. NHC will continue to review and monitor the cost reporting process and its compliance with all government reimbursement standards, but cannot predict whether the OIG or other government officials will take further action or request additional information as a result of the Braeuning suit or any other audit that may be conducted in the future. Item 2. Changes in Securities. Not applicable Item 3. Defaults Upon Senior Securities. None 19 NATIONAL HEALTHCARE L.P. June 30, 1997 (Unaudited) 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 August 14, 1997 S/Richard F. LaRoche, Jr. Richard F. LaRoche, Jr. Secretary Date August 14, 1997 S/Donald K. Daniel Donald K. Daniel Vice President and Controller Principal Accounting Officer 20 EX-27 2
5 0000805274 NATIONAL HEALTHCARE L.P. 6-MOS DEC-31-1997 JUN-30-1997 15,945,000 17,298,000 84,058,000 5,472,000 4,077,000 126,279,000 305,843,000 (26,453,000) 462,505,000 120,867,000 205,730,000 0 0 0 137,767,000 462,505,000 0 212,054,000 0 182,716,000 0 1,253,000 6,073,000 14,300,000 0 0 0 0 0 14,300,000 1.62 1.41
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