-----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, Ex202a/UVz/4/BQxZLlOMFUecsrrZ49M+kbtmOUF/vRvVigfjzrC+T2KBnHOAQWL A1RdraKcYp2vPJo+VFIH/Q== 0000875192-97-000001.txt : 19970222 0000875192-97-000001.hdr.sgml : 19970222 ACCESSION NUMBER: 0000875192-97-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970213 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUMMIT CARE CORP CENTRAL INDEX KEY: 0000875192 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 953656297 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19411 FILM NUMBER: 97528986 BUSINESS ADDRESS: STREET 1: 2600 W MAGNOLIA BLVD CITY: BURBANK STATE: CA ZIP: 91505-3031 BUSINESS PHONE: 8189724035 MAIL ADDRESS: STREET 1: 2600 W MAGNOLIA BLVD CITY: BURBANK STATE: CA ZIP: 91505-3031 10-Q 1 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the 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: Commission file number 0-19411 SUMMIT CARE CORPORATION (Exact name of Registrant as specified in its charter) California 95-3656297 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2600 W. Magnolia Blvd. Burbank, California 91505-3031 (address of principal executive offices) (818) 841-8750 (Registrant's telephone number, including area code) Indicate by checkmark 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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by checkmark whether the Registrant (1) has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Shares of Registrant's common stock outstanding at December 31, 1996 -- 6,772,800 SUMMIT CARE CORPORATION FORM 10-Q Quarter Ended December 31, 1996 TABLE OF CONTENTS
Page of Form 10-Q --------- Part I - Financial Information Item 1. Financial Statements Consolidated Statements of Income 3 Consolidated Balance Sheets 4 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K 17 Signatures 18
PART I SUMMIT CARE CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data)
Three Months Ended Six Months Ended December 31, December 31, 1996 1995 1996 1995 ------ ------ ------ ------ Net revenues $ 46,181 $ 42,801 $ 95,088 $ 84,071 Expenses: Salaries and benefits 22,309 19,147 43,386 37,717 Supplies 5,337 4,510 10,381 8,989 Purchased services 12,237 8,529 24,144 15,966 Provision for doubtful accounts 721 401 967 751 Other expenses 2,824 3,100 6,258 5,919 Rental 713 655 1,410 1,313 Depreciation and amortization 1,840 1,559 3,632 3,080 Interest (net of interest income, $179 and $393 in 1996 and $126 and $262 in 1995, respectively) 1,934 1,500 4,057 3,012 ------ ------ ------ ------ 47,915 39,401 94,235 76,747 ------- ------- ------- ------ Income (loss) before provision for income taxes (1,734) 3,400 853 7,324 Provision (benefit) for income taxes (685) 1,357 337 2,922 ----- ----- ----- ------ Net income (loss) $(1,049) $ 2,043 $ 516 $ 4,402 ======= ======= ======= ======= Earnings (loss) per share $( .15) $ .30 $ .08 $ .64 ======= ======= ======= ======= Weighted average number of shares of common stock outstanding 6,841 6,898 6,854 6,895 ======= ======= ======= =======
See accompanying notes SUMMIT CARE CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands)
December 31, 1996 June 30, 1996 (Unaudited) (Note) ----------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 1,632 $ 2,658 Accounts receivable, less allowance for doubtful accounts: December 1996 - $2,337; June 1996 - $2,084 32,957 27,930 Supplies inventory, at cost 2,124 2,058 Other current assets 14,939 13,032 ------ ------ Total current assets 51,652 45,678 Property and equipment, at cost: Land and land improvements 17,163 16,018 Buildings and leasehold improvements 145,928 136,907 Furniture and equipment 21,032 18,668 Construction in progress 14,562 15,043 ------- ------- 198,685 186,636 Less accumulated depreciation and amortization 25,196 21,713 ------- ------- 173,489 164,923 Notes receivable 4,682 4,845 Other assets 9,191 7,606 ------- ------- $239,014 $223,052 ======== ========
NOTE: The balance sheet at June 30, 1996 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes (Continued) SUMMIT CARE CORPORATION CONSOLIDATED BALANCE SHEETS (Continued) (In thousands)
December 31, 1996 June 30, 1996 (Unaudited) (Note) ----------------- -------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Payable to bank $ 2,936 $ 4,165 Accounts payable 26,700 19,895 Employee compensation and benefits 4,032 3,738 Income taxes payable -- 989 Long-term debt due within one year 2,866 2,985 ------- ------- Total current liabilities 36,534 31,772 Long-term debt 118,073 107,389 Deferred income taxes 2,605 2,605 ------- ------- Total liabilities 157,212 141,766 Commitments and contingencies Shareholders' equity: Preferred stock, no par value, 2,000 authorized shares, none issued -- -- Common stock, no par value, 100,000 authorized shares, 6,775 and 6,773 issued and outstanding, respectively 51,486 51,486 Retained earnings 30,316 29,800 ------- ------- Total shareholders' equity 81,802 81,286 ------- ------- $239,014 $223,052 ======== ========
NOTE: The balance sheet at June 30, 1996 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes SUMMIT CARE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) Six Months Ended December 31, 1996 1995 ---- ---- Operating activities: Net income $ 516 $ 4,402 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation and amortization 3,632 3,080 (Increase) in accounts receivable, net (5,027) (6,622) (Increase) decrease in supplies inventory (66) 93 (Increase) in other assets (1,602) (7,332) Increase in accounts payable 6,805 6,134 Increase (decrease) in employee compensation and benefits 294 (1,317) (Decrease) increase in income taxes payable ( 989) 265 ----- ----- Total adjustments 3,047 (5,699) ----- ------ Net cash provided by (used in) operating activities 3,563 (1,297) ----- ----- Investing activities: Issuance of notes receivable (550) -- Principal payments of notes receivable 253 301 Additions to property and equipment (12,049) (11,342) Investment in limited liability company (1,579) -- ------ ------ Net cash (used in) investing activities (13,925) (11,041) ------ ------ Financing activities: (Decrease) increase in payable to bank (1,229) 414 Principal payments on long-term debt (8,435) (49,444) Proceeds from long-term debt 19,000 64,500 Proceeds from exercise of stock options -- 82 ------ ------ Net cash provided by financing activities 9,336 15,552 ------ ------ (Decrease) increase in cash and cash equivalents (1,026) 3,214 Cash and cash equivalents at beginning of year 2,658 3,101 ------ ------ Cash and cash equivalents at end of the period $ 1,632 $ 6,315 ======= =======
SUMMIT CARE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited) (Dollars in thousands) Six Months Ended December 31, 1996 1995 ---- ---- Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 5,161 $ 2,362 Income taxes 1,654 1,585
See accompanying notes SUMMIT CARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands) 1. The unaudited financial information included herein, in the opinion of management, reflects all adjustments (all of which are of a normal recurring nature except for a special charge recorded in December 1996, see Note 6.), which are considered necessary to fairly state the Company's financial position, its cash flows and the results of operations. These statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements June 30, 1996. The interim financial information herein is not necessarily representative of that to be expected for a full year. 2. Certain amounts have been reclassified to conform with fiscal 1996 presentations. 3. Earnings per share are based on the weighted average number of shares of common stock outstanding, which was 6,854 for the six months ended December 31, 1996 and 6,895 for the six months ended December 31, 1995. 4. Other current assets consist of the following:
December 31, 1996 June 30, 1996 ----------------- ------------- Due from third-party payors $ 7,466 $ 8,055 Deferred tax assets 2,137 1,810 Notes receivable 1,132 672 Prepaid expenses 2,602 952 Other receivables 1,602 1,543 ------ ------ $14,939 $13,032 ======= ======= 5. In July 1996, the Company issued $15 million Senior Secured Notes ("Notes") which represented the second and last issuance of $70 million of Notes. The first issuance of $55 million occurred in December 1995. The second series of notes have the same terms as the first series except that the interest rates are 0.05% higher than the fixed rates for the first series of notes. The proceeds from the July 1996 Notes were used to repay $6,000 in bank credit line loans and the balance of $9,000 was invested in short-term, high credit quality financial instruments. There are currently $4,000 in outstanding bank credit line loans. In July 1996, the Company exercised a purchase option in its lease of a 90-bed skilled nursing care center in Rockport, Texas. The purchase price of $2,022 was financed with funds from the Notes issued in July 1996 (see above). In August 1996, the Company opened its 210-bed skilled nursing care center in White Settlement (Fort Worth), Texas and opened 51 additional beds at its skilled nursing care center in Fresno, California, which initially opened in January 1996 with 108 beds. SUMMIT CARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.) (Unaudited) (In thousands) In December 1996, the Company entered into a limited liability company ("LLC") agreement to operate a pharmacy in Austin, Texas. The purchase price for its 50% membership interest was $1,579 in cash. The pharmacy will service nursing centers in Texas operated by either the Company, the other LLC member or non-affiliated nursing center owners. 6. In December 1996, the Company recorded a special charge of $4,000 against revenues as a result of adjustments proposed by Medicare in connection with an audit of fiscal 1995 completed in the quarter ended December 31, 1996, which would have an effect on revenues for that fiscal year, fiscal 1996 and the six months ending December 31, 1996. 7. In March 1995, Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of" ("SFAS 121"), was issued. SFAS 121 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company believes, based on current circumstances, that there are no indicators of impairment to its long-lived assets, and the Company presently has no expectations for disposing of any long-lived assets. 8. Recent Accounting Pronouncement: In October 1995, Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), was issued which, if elected, would require companies to use a new fair value method of valuing stock-based compensation plans. The Company has elected to continue following present accounting rules under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" which uses an intrinsic value method and often results in no compensation expense. However, at the end of fiscal year 1997, in accordance with SFAS 123, the Company will provide pro forma disclosure of what net income and earnings per share would have been had the new fair value method been used. SUMMIT CARE CORPORATION FORM 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands) Results of Operations - --------------------- Quarter Ended December 31, 1996 Compared to Quarter Ended December 31, 1995 Net revenues increased $3,380 or 7.9% from $42,801 for the quarter ended December 31, 1995 to $46,181 for the quarter ended December 31, 1996. The increase occurred due to the following:
Amount Percent ------ ------- 1. Rehabilitative and other specialty services $1,433 42.4% 2. New beds opened in fiscal years 1996 and 1997 3,497 103.5 3. Increased census days and revenue rates 1,715 50.7 4. Pharmacy operations 735 21.7 5. Special Charge to Medicare revenues (4,000) (118.3) ----- ----- $3,380 100.0% ====== ======
The special charge to Medicare revenues reflects the result of adjustments proposed by Medicare in connection with an audit of fiscal 1995, which would have an effect on revenues for that fiscal year, fiscal 1996 and the six months ending December 31, 1996. Average occupancy was 84.4% in the second quarter ended December 31, 1996 and 85.5% in the second quarter ended December 31, 1995. Excluding newly constructed beds, the average occupancy was 86.8% in the second quarter ended December 31, 1996. The Company's quality mix (revenues from Medicare, managed care and private pay patients as a percentage of gross revenues excluding pharmacy revenues) was 69.5% in the second quarter ended December 31, 1996 and 65.0% in the second quarter ended December 31, 1995. Expenses, consisting of salaries and benefits, supplies, purchased services, provision for doubtful accounts and other as a percent of net revenues, before the effect of the special charge, increased from 83.4% of net revenues in the second quarter ended December 31, 1995 to 86.5% in the second quarter ended December 31, 1996. Total salaries and employee related benefits were 44.5% of net revenues in the second quarter ended December 31, 1996 compared to 44.7% of net revenues, before the effect of the special charge, in the second quarter ended December 31, 1995. Purchases of rehabilitative and other specialty services were 19.8% of net revenues, before the effect of the special charge, in the second quarter ended December 31, 1996 compared to 17.5% of net revenues in the same period last year. Expenses increased $7,741 or 21.7% SUMMIT CARE CORPORATION FORM 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont.) from $35,687 in the second quarter ended December 31, 1995 to $43,428 in the second quarter ended December 31, 1996 for the following reasons:
Amount Percent ------ ------- 1. Rehabilitative and other specialty services $2,473 32.0% 2. Expenses relating to new beds opened in fiscal years 1996 and 1997 3,264 42.2 3. Salaries and benefits 1,791 23.1 4. Other expenses 213 2.7 ----- ---- $7,741 100.0% ====== =====
Income before rental, depreciation and amortization and interest expense, net of interest income, decreased $4,361 or 61.3% from $7,114 in the second quarter ended December 31, 1995 to $2,753 in the second quarter ended December 31, 1996 and was 6.0% of net revenues in the second quarter ended December 31, 1996 (and 13.5% of net revenues before the special charge to revenues) compared to 16.6% in the second quarter ended December 31, 1995. Rental, depreciation and amortization and interest expense, net of interest income, increased by $773 or 20.8% from $3,714 in the second quarter ended December 31, 1995 to $4,487 in the second quarter ended December 31, 1996. The increase was due primarily to interest expense related to higher long- term debt of $16,095. The Company's effective tax rate was 39.5% of income in the second quarter ended December 31, 1996 and 39.9% of income in the second quarter ended December 31, 1995. There was a net loss of $1,049 in the second quarter ended December 31, 1996, including $2,420 for the special charge described earlier. Net income after taxes before the special charge, decreased $672 or 32.9% from $2,043 in the second quarter ended December 31, 1995 to $1,371 in the second quarter ended December 31, 1996. SUMMIT CARE CORPORATION FORM 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands) Results of Operations - --------------------- Six Months Ended December 31, 1996 Compared to Six Months Ended December 31, 1995 Net revenues increased $11,017 or 13.1% from $84,071 for the six months ended December 31, 1995 to $95,088 for the six months ended December 31, 1996. The increase occurred due to the following:
Amount Percent ------ ------- 1. Rehabilitative and other specialty services $4,657 42.3% 2. New beds opened in fiscal years 1996 and 1997 5,919 53.7 3. Increased census days and revenue rates 3,101 28.1 4. Pharmacy operations 1,340 12.2 5. Special charge to Medicare revenues (4,000) (36.3) ----- ----- $11,017 100.0% ======= =====
The special charge to Medicare revenues reflects the result of adjustments proposed by Medicare in connection with an audit of fiscal 1995, which would have an effect on revenues for that fiscal year, fiscal 1996 and the six months ending December 31, 1996. Average occupancy was 84.0% in the six months ended December 31, 1996 and 86.3% in the six months ended December 31, 1995. Excluding newly constructed beds, the average occupancy was 86.6% in the six months ended December 31, 1996. The Company's quality mix (revenues from Medicare, managed care and private pay patients as a percentage of gross revenues excluding pharmacy revenues) was 69.7% in the six months ended December 31, 1996 and 64.5% in the six months ended December 31, 1995. Expenses, consisting of salaries and benefits, supplies, purchased services, provision for doubtful accounts and other as a percent of net revenues, before the effect of the special charge, increased from 82.5% of net revenues in the six months ended December 31, 1995 to 85.9% in the six months ended December 31, 1996. Total salaries and employee related benefits were 43.8% of net revenues, before the effect of the special charge, in the six months ended December 31, 1996 compared to 44.9% of net revenues in the six months ended December 31, 1995. Purchases of rehabilitation and other specialty services were 20.0% of net revenues, before the effect of the special charge, in the period ending December 31, 1996 compared with 16.5% of the net SUMMIT CARE CORPORATION FORM 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont.) revenues in the same period last year. Expenses increased $15,794 or 22.8% from $69,342 in the six months ended December 31, 1995 to $85,136 in the six months ended December 31, 1996 for the following reasons:
Amount Percent ------ ------- 1. Rehabilitative and other specialty services $5,942 37.6% 2. Expenses relating to new beds opened in fiscal years 1996 and 1997 5,627 35.6 3. Salaries and benefits 3,342 21.2 4. Other expenses 883 5.6 ------ ----- $15,794 100.0% ======= =====
Income before rental, depreciation and amortization and interest expense, net of interest income, decreased $4,777 or 32.4% from $14,729 in the six months ended December 31, 1995 to $9,952 in the six months ended December 31, 1996 and was 10.5% of net revenues in the six months ended December 31, 1996 (and 14.1% of net revenues before the special charge to revenues) compared to 17.5% in the six months ended December 31, 1995. Rental, depreciation and amortization and interest expense, net of interest income, increased by $1,694 or 22.9% from $7,405 in the six months ended December 31, 1995 to $9,099 in the six months ended December 31, 1996. This increase was due primarily to interest expense related to higher long-term debt of $16,095. The Company's effective tax rate was 39.5% of income in the six months ended December 31, 1996 and 39.9% of income in the six months ended December 31, 1995. Net income was $516 for the six months ended December 31, 1996 including $2,420 for the special charge described earlier. Net income after taxes before the special charge, decreased $1,466 or 33.3% from $4,402 in the six months ended December 31, 1995 to $2,936 in the six months ended December 31, 1996. SUMMIT CARE CORPORATION FORM 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont.) Selected Statistics are Shown Below:
Fiscal ------ Increase 1997 1996 (Decrease) ---- ---- ---------- Facilities in operation at: September 30 39 37 2 December 31 39 37 2 Nursing center beds at: September 30 4,629 4,294 335 December 31 4,629 4,294 335 Assisted living beds at: September 30 468 468 0 December 31 468 468 0 Total beds at: September 30 5,097 4,762 335 December 31 5,097 4,762 335 Total occupancy: First quarter 83.6% 87.2% (3.6)% Second quarter 84.4% 85.5% (1.1)% Nursing center occupancy: (based on licensed beds) First quarter 84.1% 88.1% (4.0)% Second quarter 84.9% 86.2% (1.3)% Assisted living center occupancy: First quarter 78.7% 78.7% 0% Second quarter 79.6% 79.3% .3% Percentage of revenues from Private, managed care and Medicare (Quality Mix): First quarter 69.9% 64.0% 5.9% Second quarter 69.5% 65.0% 4.5% Percentage of revenues from Medicaid: First quarter 30.1% 36.0% (5.9)% Second quarter 30.5% 35.0% (4.5)%
SUMMIT CARE CORPORATION FORM 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont.) Liquidity and Capital Resources - ------------------------------- At December 31, 1996, the Company had $1,632 in cash and cash equivalents and working capital of $15,118. During the six months ended December 31, 1996, the Company's cash and cash equivalents decreased by $1,026. Net cash provided by operating activities increased $4,860 from a negative $1,297 in the first six months of fiscal 1995 to a positive $3,563 in the first six months of 1996. Net cash provided by operating activities, plus proceeds of $15,000 in new long-term debt and additional credit line borrowings of $4,000, were used principally for capital expenditure of $12,049 for existing centers and the initial payoff of the line of credit of $6,000, the purchase of a lease option of $1,975, and the acquisition of a 50% interest in a limited liability company for $1,579. Accounts receivable increased $5,027 primarily due to an increase in Medicare and managed care revenues. At December 31, 1996, the Company's average accounts receivable days outstanding were 41 as compared to 43 days out- standing at December 31, 1995. Long-term debt consisted of mortgage indebtedness of $8,510 on three properties, $13,429 on five capitalized leases, $95,000 in senior secured debt (see next paragraph), and credit line borrowings of $4,000 totaling $120,939 as of December 31, 1996. In December 1995, the Company issued $55,000 of Senior Secured Notes ("New Notes"), the initial funding of $70,000 in New Notes. The remaining amount of $15,000 was issued in July 1996. In transactions related to the New Notes, the Company reduced its bank line of credit from $60,000 to $40,000 at more favorable interest rates and amended the indenture for its $25,000 Senior Secured Notes ("Current Notes"). Also, the bank line of credit's repayment period following the revolving commitment was reduced from four years to three years. Holders of the Current Notes and the New Notes and the Company's bank lenders have entered into an intercreditor agreement and collateral agreement which provide a security interest in certain real estate on a pari passu basis and except for certain permitted liens, a negative pledge on the Company's assets. The New Notes are payable at the end of the fifth year ($7,000), the end of the sixth year ($5,000), annually from the eighth year through the twelfth year ($48,000) and at the end of the fifteenth year ($10,000). The annual, fixed interest rate on each New Note ranges from 7.38% on the earliest maturing New Note to 8.14% on the last New Note to mature and averages 7.8% when weighted. SUMMIT CARE CORPORATION FORM 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont.) (Dollars in thousands) The Company believes that it has sufficient capital resources and cash flow from its existing operations to service long-term debt due within one year of $2,866, to make normal recurring capital replacements, additions and improve- ments of approximately $7,000 planned for the next 12 months, to develop properties over the next 12 months costing approximately $7,500 and to meet other long-term working capital needs and obligations. The Company expects, on a selective basis, to pursue expansion of its existing centers and the acquisition or development of additional centers in markets where demo- graphics and competitive factors are favorable. The Company currently has plans, or is developing plans, to construct and open 114 new beds in four centers by the fall of 1997. Impact of Inflation - ------------------- The health care industry is labor intensive. Wages and other expenses increase more rapidly during periods of inflation and when shortages in the labor market occur. In addition, suppliers pass along rising costs in the form of higher prices. Increases in reimbursement rates under Medicaid generally lag behind actual cost increases, so that the Company may have difficulty covering them in a timely fashion. Recent Accounting Pronouncement - ------------------------------- See Note 8 to Consolidated Financial Statements. PART II SUMMIT CARE CORPORATION OTHER INFORMATION Quarter Ended December 31, 1996 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits NONE (b) Reports on Form 8-K NONE SUMMIT CARE CORPORATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the under- signed thereunto duly authorized. SUMMIT CARE CORPORATION Date: February 13, 1997 By: S/DERWIN WILLIAMS ------------------------ Derwin L. Williams Sr.Vice President-Finance and Chief Financial Officer Date: February 13, 1997 By: S/MELODYE STOK ------------------------ Melodye Stok Vice President-Controller and Chief Accounting Officer EX-27 2 5-FDS
5 1,000 6-MOS JUN-30-1997 OCT-01-1996 DEC-31-1996 1632 0 35294 2337 2124 51652 198685 25196 239014 36534 0 0 0 51486 30316 239014 0 46181 0 45260 0 721 1934 (1734) (685) 0 0 0 0 (1049) (.15) 0
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