-----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, Kr4zCLbSOTLpUy3g0UTnOdiPYvIEet+WpM/3XoGFNFv72WLMxSf5+SyMY1+0zSi2 tm6dBFHrGOoQJKwiceGgxQ== 0000950116-97-000285.txt : 19970222 0000950116-97-000285.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950116-97-000285 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970214 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENESIS HEALTH VENTURES INC /PA CENTRAL INDEX KEY: 0000874265 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 061132947 STATE OF INCORPORATION: PA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11666 FILM NUMBER: 97533195 BUSINESS ADDRESS: STREET 1: 148 W STATE ST STE 100 CITY: KENNETT SQUARE STATE: PA ZIP: 19348 BUSINESS PHONE: 6104446350 MAIL ADDRESS: STREET 1: 148 W STATE STREET CITY: KENNETT SQUARE STATE: PA ZIP: 19348 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1996 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: 1-11666 GENESIS HEALTH VENTURES, INC. (Exact name of registrant as specified in its charter) Pennsylvania 06-1132947 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 148 West State Street Kennett Square, Pennsylvania 19348 (Address, including zip code, of principal executive offices) (610) 444-6350 (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 [ ] Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of February 7, 1997, 34,921,063 shares of common stock outstanding TABLE OF CONTENTS
Page ---- Part I: FINANCIAL INFORMATION Item 1. Financial Statements.............................................................1 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations .......................................................6 Part II OTHER INFORMATION Item 1. Legal Proceedings...............................................................10 Item 2. Changes in Securities...........................................................10 Item 3. Defaults Upon Senior Securities.................................................10 Item 4 Submission of Matters to a Vote of Security Holders.............................10 Item 5. Other Information...............................................................10 Item 6 Exhibits and Reports on Form 8-K................................................10 SIGNATURES .......................................................................................11
PART I: FINANCIAL INFORMATION Item 1. Financial Statements Genesis Health Ventures, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in thousands, except share data)
December 31, September 30, - -------------------------------------------------------------------------------------------------------------------------------- 1996 1996 - -------------------------------------------------------------------------------------------------------------------------------- Assets (Unaudited) Current assets: Cash and equivalents $ 8,140 $ 12,763 Accounts receivable, net of allowance for doubtful accounts of $34,977 at December 31, 1996 and $11,131 at September 30, 1996 185,168 141,716 Cost report receivables 55,465 41,575 Inventory 22,974 17,051 Prepaid expenses and other current assets 25,829 19,616 - -------------------------------------------------------------------------------------------------------------------------------- Total current assets 297,576 232,721 - -------------------------------------------------------------------------------------------------------------------------------- Property, plant, and equipment 604,705 416,766 Accumulated depreciation (72,662) (65,837) - -------------------------------------------------------------------------------------------------------------------------------- 532,043 350,929 Notes receivable and other investments 97,982 92,574 Other long-term assets 48,169 24,595 Goodwill and other intangibles, net 306,287 249,850 - -------------------------------------------------------------------------------------------------------------------------------- Total assets $1,282,057 $950,669 - -------------------------------------------------------------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued expenses $97,378 $ 73,084 Current installments of long-term debt 6,582 3,720 Income taxes payable 5,265 426 - -------------------------------------------------------------------------------------------------------------------------------- Total current liabilities 109,225 77,230 - -------------------------------------------------------------------------------------------------------------------------------- Long-term debt 578,836 338,933 Deferred income taxes 15,465 13,812 Deferred gain and other long-term liabilities 10,077 6,086 Shareholders' equity: Common stock, par $.02, authorized 60,000,000 shares, issued and outstanding 35,180,512 and 35,134,911 at December 31, 1996; 31,981,393 and 31,935,792 at September 30, 1996 698 640 Additional paid-in capital 454,305 411,472 Retained earnings 113,694 102,739 Treasury stock, at cost (243) (243) - -------------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 568,454 514,608 - -------------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $1,282,057 $950,669 - --------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements 1 Genesis Health Ventures, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (in thousands, except share and per share data)
(Unaudited) Three months ended December 31, - ------------------------------------------------------------------------------------------------------------------------- 1996 1995 - ------------------------------------------------------------------------------------------------------------------------- Net revenues: Basic healthcare services $ 134,092 $ 72,194 Specialty medical services 114,179 53,190 Management services and other, net 10,273 7,394 - ------------------------------------------------------------------------------------------------------------------------- Total net revenues 258,544 132,778 - ------------------------------------------------------------------------------------------------------------------------- Operating expenses: Salaries, wages and benefits 125,055 65,042 Other operating expenses 80,132 37,596 General corporate expense 9,622 4,839 Depreciation and amortization 9,481 5,148 Lease expense 6,938 3,793 Interest expense, net 9,195 6,040 Debenture conversion expense - 1,090 - ------------------------------------------------------------------------------------------------------------------------- Earnings before income taxes and extraordinary item 18,121 9,230 Income taxes 6,613 3,372 - ------------------------------------------------------------------------------------------------------------------------- Earnings before extraordinary item 11,508 5,858 Extraordinary item, net of tax (553) - - ------------------------------------------------------------------------------------------------------------------------- Net income $ 10,955 5,858 - ------------------------------------------------------------------------------------------------------------------------- Per common share data: Primary: Earnings before extraordinary item $ 0.34 0.25 Extraordinary item (0.02) - Net income $ 0.32 0.25 Weighted average shares of common stock and equivalents 34,219,921 23,801,866 - ------------------------------------------------------------------------------------------------------------------------- Fully diluted: Earnings before extraordinary item $ 0.33 0.23 Extraordinary item (0.02) - Net income $ 0.31 0.23 Weighted average shares of common stock and equivalents 36,110,603 28,668,828 - -------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements 2 Genesis Health Ventures, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (in thousands)
(Unaudited) Three months ended December 31, 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 10,955 $ 5,858 Adjustments to reconcile net income to net cash provided by operating activities: Charges (credits) included in operations not requiring funds: Provision for deferred taxes 1,653 843 Depreciation and amortization 9,481 5,148 Amortization of deferred gain (115) (115) Debenture conversion expense - 1,090 Extraordinary loss 553 - Changes in assets and liabilities excluding the effects of acquisitions Accounts receivable (15,543) (7,062) Cost reports receivable (7,012) (5,005) Inventory (3,344) 632 Prepaid expenses and other current assets (962) 15,916 Accounts payable and accrued expenses (6,132) (12,938) Income taxes payable 3,863 (1,230) - ------------------------------------------------------------------------------------------------------------------------------- Total adjustments (17,558) (2,721) - ------------------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by operations (6,603) 3,137 - ------------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities Capital expenditures (13,949) (7,979) Payments for acquisitions, net of cash acquired (222,170) (70,034) Notes receivable and other investment and asset additions, net 369 (2,895) - ------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (235,750) (80,908) Cash flows from financing activities Net borrowings under working capital revolving credit 118,113 75,300 Repayment of long term debt (1,780) (104) Proceeds from issuance of long-term debt 125,000 - Debt issuance costs (3,750) - Debenture conversion expense - (1,090) Common stock options exercised 147 161 - ------------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 237,730 74,267 - ------------------------------------------------------------------------------------------------------------------------------- Net decrease in cash and equivalents (4,623) (3,504) Cash and equivalents Beginning of period 12,763 10,387 End of period $ 8,140 $ 6,883 - ------------------------------------------------------------------------------------------------------------------------------- Supplemental disclosure of cash flow information Interest paid $ 7,198 $ 8,095 Income taxes paid $ 1,774 $ 4,553 - -------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements 3 GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. General The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's annual report for the fiscal year ended September 30, 1996. The information furnished is unaudited but reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial information for the periods shown. Such adjustments are of a normal recurring nature. Interim results are not necessarily indicative of results expected for the full year. 2. Earnings Per Share Primary and fully-diluted earnings per share are based on the weighted average number of common shares outstanding and the dilutive effect of stock options, convertible debentures and other common stock equivalents. 3. Long-Term Debt In October 1996, the Company entered into an agreement with the lenders of the credit facility to increase the revolving credit facility from $200,000,000 to $300,000,000 (the "Revolving Credit Facility") and the lease financing facility from $85,000,000 to $150,000,000 (the "Lease Financing Facility") and to release liens on accounts receivable, inventory and personal property. The Revolving Credit Facility bears interest at a floating rate equal, at the Company's option, to prime rate or LIBOR up to 1.5%. The Lease Financing Facility bears interest at a floating rate equal, at the Company's option, to prime rate or LIBOR plus a margin up to 1.5%. In October 1996, the Company completed an offering of $125,000,000 9 1/4% Senior Subordinated Notes due 2006 (the "1996 Note Offering"). The Company used the net proceeds of approximately $121,250,000 together with borrowings under the Revolving Credit Facility, to pay the cash portion of the purchase price of the GMC Transaction, to repay certain debt assumed as a result of the GMC Transaction and to repurchase GMC accounts receivable which were previously financed. 4. Proforma Financial Information Effective October 1, 1996, Geriatric & Medical Companies, Inc. ("GMC") merged with a wholly-owned subsidiary of Genesis (The "GMC Transaction"). Under the terms of the merger agreement, GMC shareholders received $5.75 per share in cash for each share of GMC common stock. The total consideration paid, including assumed indebtedness of approximately $132,000,000, was approximately $223,000,000. The merger was financed in part with approximately $121,250,000 in net proceeds from the 1996 Note Offering. The remaining consideration was financed through borrowings under the Company's Revolving Credit Facility. The GMC Transaction added to Genesis 24 owned eldercare centers with approximately 3,300 beds. GMC also operated businesses which provided a number of ancillary healthcare services including ambulance services; respiratory therapy, infusion therapy and enteral therapy; distribution of durable medical equipment and home medical supplies; and information management services. In connection with the GMC Transaction, the Company has preliminarily recorded approximately $56,000,000 of goodwill, which is being amortized on a straight-line basis over lives ranging from 20 to 40 years, and approximately $20,000,000 of deferred tax assets which are included in other long term assets. 4 In July 1996, the Company acquired the outstanding stock of National Health Care Affiliates, Inc., Oak Hill Center, Inc., Derby Nursing Center Corporation, Eidos, Inc. and Versalink, Inc. (collectively, "National Health"). Prior to the closing of the stock acquisitions, an affiliate of a financial institution purchased nine of the eldercare centers for $67,700,000 and subsequently leased the centers to a subsidiary of Genesis under the Lease Financing Facility. The balance of the total consideration paid to National Health was funded with available cash of $51,800,000 and assumed indebtedness of $7,900,000. National Health added 16 eldercare centers in Florida, Virginia and Connecticut with approximately 2,200 beds to Genesis. National Health also provided enteral nutrition and rehabilitation therapy services to the eldercare centers which it owned and leased. In June 1996, the Company acquired the outstanding stock of NeighborCare Pharmacies, Inc. and its related entities (collectively, "NeighborCare"), a privately held institutional pharmacy, infusion therapy and retail professional pharmacy business based in Baltimore, Maryland. Total consideration was approximately $57,250,000, comprised of approximately $47,250,000 in cash and 312,744 shares of Genesis common stock. On November 30, 1995, the Company acquired McKerley Health Care Centers, Inc. and its related entities (collectively, "McKerley") for total consideration of approximately $68,700,000. The transaction also provided for up to an additional $6,000,000 of contingent consideration payable upon the achievement of certain financial objectives through October 1997. McKerley added 15 geriatric care facilities in New Hampshire and Vermont with a total of 1,535 beds to Genesis. McKerley also provided a home healthcare company. The acquisition was financed with borrowings under the Revolving Credit Facility and assumed indebtedness. The following unaudited proforma statement of operations information gives effect to the GMC, National Health, NeighborCare and McKerley transactions described above as though they had occurred at the beginning of the period presented, after giving effect to certain adjustments, including amortization of goodwill, additional depreciation expense, increased interest expense on debt related to the acquisitions and related income tax effects. The proforma financial information does not necessarily reflect results of operations that would have occurred had the acquisitions occurred at the beginning of the period presented.
(In thousands, except per share data) Three Months Ended Pro Forma Statement of Operations Information: December 31, 1995 ------------------- Total net revenues $ 230,660 Net income 9,616 Primary earnings per share 0.31 Fully diluted earnings per share $ 0.29
5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General Since the Company began operations in July 1985, it has focused its efforts on providing an expanding array of specialty medical and community-based services to the elderly. The delivery of these services was originally concentrated in the eldercare centers owned and leased by the Company, but now also includes managed eldercare centers, independent healthcare facilities, outpatient clinics and home health care. The Company generates revenues from three sources: basic healthcare services, specialty medical services and management services and other. The Company includes in basic healthcare services revenues all room and board charges for its eldercare customers at its owned and leased eldercare centers. Specialty medical services include all revenues from providing rehabilitation therapies, institutional pharmacy and medical supply services, community-based pharmacy, subacute care programs, home health care, physician services, and other specialized services. Management services and other include fees earned for management of eldercare centers, development of life care communities and revenues from the group purchasing, staff replacement and vending businesses and transactional revenues. Certain Transactions Effective October 1, 1996, Geriatric & Medical Companies, Inc. ("GMC") merged with a wholly-owned subsidiary of Genesis (The "GMC Transaction"). Under the terms of the merger agreement, GMC shareholders received $5.75 per share in cash for each share of GMC common stock. The total consideration paid, including assumed indebtedness of approximately $132,000,000, was approximately $223,000,000. The merger was financed in part with approximately $121,250,000 in net proceeds from an offering of 9 1/4% Senior Subordinated Notes issued in October 1996 (the "1996 Note Offering"). The remaining consideration was financed through borrowings under the Company's $300,000,000 revolving credit facility (the "Revolving Credit Facility"). The GMC Transaction added to Genesis 24 owned eldercare centers with approximately 3,300 beds. GMC also operated businesses which provided a number of ancillary healthcare services including ambulance services; respiratory therapy, infusion therapy and enteral therapy; distribution of durable medical equipment and home medical supplies; and information management services. In July 1996, the Company acquired the outstanding stock of National Health Care Affiliates, Inc., Oak Hill Center, Inc., Derby Nursing Center Corporation, Eidos, Inc. and Versalink, Inc. (collectively, "National Health"). Prior to the closing of the stock acquisitions, an affiliate of a financial institution purchased nine of the eldercare centers for $67,700,000 and subsequently leased the centers to a subsidiary of Genesis under a $150,000,000 lease financing facility (the "Lease Financing Facility"). The balance of the total consideration paid to National Health was funded with available cash of $51,800,000 and assumed indebtedness of $7,900,000. National Health added 16 eldercare centers in Florida, Virginia and Connecticut with approximately 2,200 beds to Genesis. National Health also provided enteral nutrition and rehabilitation therapy services to the eldercare centers which it owned and leased. In June 1996, the Company acquired the outstanding stock of NeighborCare Pharmacies, Inc. and its related entities (collectively, "NeighborCare"), a privately held institutional pharmacy, infusion therapy and retail pharmacy business based in Baltimore, Maryland. Total consideration was approximately $57,250,000, comprised of approximately $47,250,000 in cash and 312,744 shares of Genesis common stock. 6 On November 30, 1995, the Company acquired McKerley Health Care Centers, Inc. and its related entities (collectively, "McKerley") for total consideration of approximately $68,700,000. The transaction (the "McKerley Transaction") also provided for up to an additional $6,000,000 of contingent consideration payable upon the achievement of certain financial objectives through October 1997. McKerley added 15 geriatric care facilities in New Hampshire and Vermont with a total of 1,535 beds to Genesis and operated a home healthcare company. The acquisition was financed with borrowings under the Revolving Credit Facility and assumed indebtedness. Results of Operations Three months ended December 31, 1996 compared to three months ended December 31, 1995. The Company's total net revenues for the quarter ended December 31, 1996 were $258,544,000 compared to $132,778,000 for the quarter ended December 31, 1995, an increase of $125,766,000 or 95%. Basic healthcare services increased $61,898,000 or 86% of which approximately $32,900,000 is attributed to the GMC Transaction, approximately $15,000,000 is attributed to the National Health transaction, approximately $9,900,000 is due to the inclusion of eldercare centers acquired in the McKerley Transaction for the full quarter in 1996 versus one month in the prior year quarter and the remaining increase of approximately $4,100,000 is due to providing care to higher acuity patients and to rate increases. Specialty medical services revenue increased $60,989,000 or 115% of which approximately $13,800,000 is attributed to the GMC Transaction, approximately $21,700,000 is due to the NeighborCare transaction, approximately $5,000,000 is attributed to the National Health transaction, approximately $1,500,000 is due to the inclusion of the eldercare centers acquired in the McKerley Transaction for the full quarter in 1996 versus one month in the prior year quarter and the remaining increase of approximately $19,000,000 is due to other volume growth in the institutional pharmacy, medical supply and contract therapy divisions and increased acuity in the health centers division. Specialty medical service revenue per patient day in the health centers division increased 34% to $28.43 in the quarter ended December 31, 1996 compared to $21.18 in the quarter ended December 31, 1995 primarily due to treatment of higher acuity patients. Management services and other income increased $2,879,000 or 39%. This increase is primarily due to other service related business acquired in the GMC Transaction. The Company's operating expenses before depreciation, amortization, lease expense, interest expense and excluding debenture conversion expense were $214,809,000 for the quarter ended December 31, 1996 compared to $107,477,000 for quarter ended December 31, 1995, an increase of $107,332,000 or 100%, of which approximately $84,900,000 is due to the impact of acquisitions and the remaining increase of approximately $22,400,000 is attributed to growth in the institutional pharmacy, medical supply and contract therapy divisions. Interest expense increased $3,155,000 or 52%. This increase in interest expense was primarily due to additional borrowings used to finance recent acquisitions, including the 1996 Note Offering used to finance the GMC Transaction, offset by the repayment of debt with proceeds of $202,280,000 from the May 1996 equity offering. Increased depreciation and amortization, and lease expense are attributed to the GMC Transaction, the National Health transaction, the NeighborCare transaction and the McKerley Transaction. In the quarter ended December 31, 1995 the Company converted approximately $33,500,000 of its 6% Convertible Senior Subordinated Debentures (the "Debentures") due 2003. In connection with the early conversion of the Debentures, the Company paid approximately $1,090,000 representing the prepayment of interest to converting debenture holders. The non-recurring cash payment is presented as debenture conversion expense in the results of operations for the quarter ended December 31, 1995. In connection with the early repayment of debt and the restructuring and amendment of its bank credit facility in the quarter ended December 31, 1996, the Company recorded an extraordinary loss, net of tax, of approximately $553,000 to write off unamortized deferred financing fees. 7 Liquidity and Capital Resources Working capital increased to $188,351,000 at December 31, 1996 from $155,491,000 at September 30, 1996. Accounts receivable increased to $185,168,000 at December 31, 1996 from $141,716,000 at September 30, 1996. Approximately $29,800,000 of this increase relates to the GMC transaction, while the remaining $13,652,000 relates primarily to the continuing shift in business mix to specialty medical services including the acquisition of NeighborCare in June 1996. The allowance for doubtful accounts increased approximately $23,846,000, primarily as a result of reserves provided in connection with the GMC Transaction. Days revenue in accounts receivable increased to 68 days during this period from 62 days for the quarter ended September 30, 1996, primarily attributed to the timing of payments from fiscal intermediaries. Cost report receivables increased $13,900,000, of which approximately $9,200,000 is attributed to the GMC Transaction. All remaining balance sheet changes were primarily due to the GMC Transaction and normal growth in operations. The Company's cash flow from operations for the three months ended December 31, 1996 resulted in a use of cash of approximately $6,600,000 compared to a source of cash of approximately $3,137,000 for the three months ended December 31, 1995. Of the $6,600,000 use of operating cash for the three months ended December 31, 1996, approximately $4,100,000 is attributed to the GMC operations, with the remaining approximately $2,500,000 due to accelerated payments to vendors and the timing of receivable collections. Investing activities for the quarter ended December 31, 1996 include approximately $13,949,000 of capital expenditures primarily related to betterments and expansion of eldercare centers and investment in data processing hardware and software. In connection with the GMC Transaction, the Company has preliminarily recorded approximately $56,000,000 of goodwill, which is being amortized on a straight-line basis over lives ranging from 20 to 40 years, and approximately $20,000,000 of deferred tax assets which are included in other long term assets. In February 1997, the Company expects to make a payment of approximately $4,000,000 for contingent consideration in connection with the McKerley Transaction. In January 1997, the Company acquired $2,500,000 of convertible preferred stock of Doctors Health System, Inc. ("Doctors Health"), an independent physician owned and controlled integrated delivery system and practice management company. The convertible preferred stock carries an 8% cumulative dividend and is convertible into common stock. To date, the Company has purchased $10,000,000 of Doctors Health convertible preferred stock that, if converted, would represent an approximate 10% ownership interest in Doctors Health. Also, the Company is committed to purchase an additional $10,000,000 of convertible preferred stock upon Doctors Health's achievement of certain operational and financial benchmarks. In February 1997, the Company advanced to Doctors Health a loan of approximately $2,800,000. In November 1996, the Company called for redemption the then outstanding Debentures at a redemption price equal to 104.2% of the principal amount. The Debenture holders had the option to tender Debentures at the redemption price or to convert the Debentures at a conversion price of $15.104 per share. All of the approximately $43,800,000 of Debentures outstanding were converted to Common Stock in the quarter ended December 31, 1996. In the quarter ended December 31, 1995, the Company converted approximately $33,500,000 of Debentures. The conversions improved the Company's ratio of debt to equity and provides the Company with the ability to borrow under its revolving credit facilities at lower rates. In October 1996, the Company completed an offering of $125,000,000 9 1/4% Senior Subordinated Notes due 2006. The Company used the net proceeds of approximately $121,250,000 together with borrowings under the Credit Facility, to pay the cash portion of the purchase price of the GMC Transaction, to repay certain debt assumed as a result of the GMC Transaction and to repurchase GMC accounts receivable which were previously financed. In October 1996, the Company entered into an agreement with the lenders of the credit facility to increase the revolving credit facility to $300,000,000 and the lease financing facility to $150,000,000 and to release liens on accounts receivable, inventory and personal property. The revolving credit facility bears interest at a floating rate equal, at the Company's option, to prime rate or LIBOR plus 1.5%. The lease financing facility bears interest at a floating rate equal, at the Company's option, to prime rate or LIBOR plus a margin up to 1.5%. Certain of the Company's outstanding loans contain covenants which, without the prior consent of the lenders, limit certain activities of the Company. Such covenants contain limitations relating to the merger or consolidation of the Company and the Company's ability to secure indebtedness, make guarantees, grant security interests and declare dividends. In addition, the Company must maintain certain minimum levels of cash flow and debt service coverage, and must maintain certain liabilities to net worth. 8 Under these loans, the Company is restricted from paying cash dividends on the Common Stock, unless certain conditions are met. The Company has not declared or paid any cash dividends on its Common Stock since its inception. Legislative and regulatory action has resulted in continuing change in the Medicare and Medicaid reimbursement programs which has adversely impacted the Company. The changes have limited, and are expected to continue to limit, payment increases under these programs. Also, the timing of payments made under the Medicare and Medicaid programs is subject to regulatory action and governmental budgetary constraints; in recent years, the time period between submission of claims and payment has increased. Implementation of the Company's strategy to expand specialty medical services to independent providers should reduce the impact of changes in the Medicare and Medicaid reimbursement programs on the Company as a whole. Within the statutory framework of the Medicare and Medicaid programs, there are substantial areas subject to administrative rulings and interpretations which may further affect payments made under those programs. Further, the federal and state governments may reduce the funds available under those programs in the future or require more stringent utilization and quality reviews of eldercare centers. The Company believes that its liquidity needs can be met by expected operating cash flow and availability of borrowings under its credit facilities. At February 11, 1997, approximately $327,000,000 was outstanding under the revolving credit facility and lease financing facility, and approximately $105,300,000 was available under the credit facilities after giving effect to approximately $17,700,000 in outstanding letters of credit issued under the credit facilities. Seasonality The Company's earnings generally fluctuate from quarter to quarter. This seasonality is related to a combination of factors which include the timing of Medicaid rate increases, seasonal census cycles and the number of calendar days in a given quarter. Impact of Inflation The healthcare industry is labor intensive. Wages and other labor costs are especially sensitive to inflation and marketplace labor shortages. To date, the Company has offset its increased operating costs by increasing charges for its services and expanding its services. Genesis has also implemented cost control measures to limit increases in operating costs and expenses but cannot predict its ability to control such operating cost increases in the future. 9 PART II: OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits -------- Number Description ------ ----------- 11 Statement re computation of per share earnings 27 Financial Data Schedule (b) Reports on Form 8-K ------------------- The Company filed a Report on Form 8-K/A dated July 11, 1996 reporting the agreement to acquire Geriatric and Medical Companies which did not include financial statements. 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereto duly authorized. GENESIS HEALTH VENTURES, INC. Date: February 14, 1997 /s/ George V. Hager Jr. -------------------------- George V. Hager, Jr. Senior Vice President and Chief Financial Officer 11 EX-11 2 EXHIBIT 11 Exhibit 11 GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES STATEMENT RE COMPUTATION OF EARNINGS PER SHARE QUARTERS ENDED DECEMBER 31, 1996 AND 1995 (in thousands, except share and per share data)
December 31, December 31, 1996 1995 ------------------ ----------------- Primary Earnings Per Share: Reported earnings before debenture conversion expense and extraordinary item $ 11,508 $ 6,556 Debenture conversion expense, net of tax - (698) Extraordinary item, net of tax (553) - ------------------ ----------------- Reported net income $ 10,955 $ 5,858 ------------------ ----------------- Weighted average shares & CSE's: 34,219,921 23,801,866 Primary EPS before debenture conversion expense and extraordinary item $ 0.34 $ 0.27 Primary EPS - debenture conversion expense - (0.02) Primary EPS - extraordinary item, net of tax (0.02) - ------------------ ----------------- Primary EPS - Net income $ 0.32 $ 0.25 ================== ================= Fully Diluted Earnings Per Share: Reported earnings before debenture conversion expense and extraordinary item $ 11,508 $ 6,556 Debenture conversion expense, net of tax - (698) Extraordinary item, net of tax (553) - ------------------ ----------------- Reported net income $ 10,955 $ 5,858 ------------------ ----------------- Adjustments to net income Interest expense, amortization and other costs related to the assumed conversion of the convertible debentures, net of tax 304 788 ------------------ ----------------- Adjusted net income $ 11,259 $ 6,646 ------------------ ----------------- Weighted average shares & CSE's: Common shares 34,219,921 23,801,866 Additional option shares 144,477 167,544 Convertible debenture shares 1,746,205 4,699,418 ------------------ ----------------- Total 36,110,603 28,668,828 ------------------ ----------------- Fully diluted EPS before debenture conversion expense and extraordinary item $ 0.33 $ 0.25 Fully diluted EPS - debenture conversion expense - (0.02) Fully diluted EPS - extraordinary item, net of tax (0.02) - ------------------ ----------------- Fully diluted EPS - Net income $ 0.31 $ 0.23 ================== =================
EX-27 3 FINANCIAL DATA SCHEDULE
5 U.S. 3-MOS SEP-30-1997 OCT-1-1996 DEC-31-1996 1 8,140,000 5,517,000 220,145,000 (34,977,000) 22,974,000 297,576,000 604,705,000 (72,662,000) 1,282,057,000 109,225,000 0 0 0 698,000 567,756,000 1,282,057,000 258,544,000 258,544,000 214,809,000 231,228,000 0 0 9,195,000 18,121,000 6,613,000 11,508,000 0 (553,000) 0 10,955,000 0.32 0.31
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