-----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, WvtZdbYbJ4BuGBfGw5POaL7yLePWxq1QmmVrBjCTnsOk9YaG9XZ3vYNk/V7lkkyf B4we9Lz+DcolHSM5XwesGQ== 0000875192-97-000002.txt : 19970515 0000875192-97-000002.hdr.sgml : 19970515 ACCESSION NUMBER: 0000875192-97-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 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: 97603899 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 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 March 31, 1997 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 March 31, 1997 -- 6,772,800 SUMMIT CARE CORPORATION FORM 10-Q Quarter Ended March 31, 1997
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 Nine Months Ended March 31, March 31, 1997 1996 1997 1996 ---- ---- ---- ---- Net revenues $ 52,012 $ 45,232 $147,100 $129,303 Expenses: Salaries and benefits 22,159 19,934 65,545 57,651 Supplies 4,750 4,443 15,131 13,432 Purchased services 13,375 10,713 37,519 26,679 Provision for doubtful accounts 588 694 1,555 1,445 Other expenses 4,022 3,154 10,280 9,073 Rental 732 664 2,142 1,977 Depreciation and amortization 1,893 1,634 5,525 4,714 Interest (net of interest income, $85 and $478 in 1997 and $142 and $405 in 1996, respectively) 2,099 1,919 6,156 4,931 ------ ------ ------ ------ 49,618 43,155 143,853 119,902 Income before provision for income taxes 2,394 2,077 3,247 9,401 Provision for income taxes 946 750 1,283 3,672 ------ ------ ------ ------ Net income $1,448 $1,327 $1,964 $5,729 ====== ====== ====== ====== Earnings per share $ .21 $ .19 $ .29 $ .83 ====== ====== ====== ====== Weighted average number of shares of common stock outstanding 6,828 6,849 6,829 6,886 ====== ====== ====== ======
See accompanying notes SUMMIT CARE CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands)
March 31, 1997 June 30, 1996 (Unaudited) (Note) -------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 2,218 $ 2,658 Accounts receivable, less allowance for doubtful accounts: March 1997 - $1,584; June 1996 - $2,084 34,786 27,930 Supplies inventory, at cost 2,261 2,058 Other current assets 10,708 13,032 ------ ------ Total current assets 49,973 45,678 Property and equipment, at cost: Land and land improvements 17,167 16,018 Buildings and leasehold improvements 148,199 136,907 Furniture and equipment 21,345 18,668 Construction in progress 16,862 15,043 ------- ------- 203,573 186,636 Less accumulated depreciation and amortization 26,805 21,713 ------- ------- 176,768 164,923 Notes receivable 4,756 4,845 Other assets 8,927 7,606 ------- ------- $240,424 $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)
March 31, 1997 June 30, 1996 (Unaudited) (Note) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Payable to bank $ 3,524 $ 4,165 Accounts payable 28,265 19,895 Employee compensation and benefits 3,479 3,738 Income taxes payable 598 989 Long-term debt due within one year 960 2,985 ------- ------- Total current liabilities 36,826 31,772 Long-term debt 117,743 107,389 Deferred income taxes 2,605 2,605 ------- ------- Total liabilities 157,174 141,766 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, 6,773 issued and outstanding, in both periods 51,486 51,486 Retained earnings 31,764 29,800 ------- ------- Total shareholders' equity 83,250 81,286 ------- ------- $240,424 $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)
Nine Months Ended March 31, 1997 1996 ---- ---- Operating activities: Net income $ 1,964 $ 5,729 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation and amortization 5,525 4,714 (Increase) in accounts receivable, net (6,856) (9,127) (Increase) decrease in supplies inventory ( 203) 124 Decrease (increase) in other assets 2,982 (8,411) Increase in accounts payable 8,370 5,709 (Decrease) in employee compensation and benefits ( 259) (1,361) (Decrease) increase in income taxes payable ( 391) 25 ----- ----- Total adjustments 9,168 (8,327) ----- ----- Net cash provided by (used in) operating activities 11,132 (2,598) ------ ------ Investing activities: Issuance of notes receivable ( 825) -- Principal payments of notes receivable 386 503 Additions to property and equipment (17,120) (17,836) Investment in limited liability company (1,701) -- ------- ------- Net cash used in investing activities (19,260) (17,333) ------- ------- Financing activities: (Decrease) increase in payable to bank ( 641) 883 Principal payments on long-term debt (15,671) (49,677) Proceeds from long-term debt 24,000 66,500 Proceeds from exercise of stock options -- 82 ------- ------- Net cash provided by financing activities 7,688 17,788 ------- ------- (Decrease) in cash and cash equivalents ( 440) (2,143) Cash and cash equivalents at beginning of year 2,658 3,101 ------- ------- Cash and cash equivalents at end of the period $ 2,218 $ 958 ======= =======
SUMMIT CARE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited) (Dollars in thousands)
Nine Months Ended March 31, 1997 1996 ---- ---- Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $5,727 $4,553 Income taxes 1,674 3,653
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 and should be read in conjunction with the Company's annual report filed on Form 10-K for the year ended 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 6,829 for the nine months ended March 31, 1997 and 6,886 for the nine months ended March 31, 1996. 4. Other current assets consist of the following:
March 31, 1997 June 30, 1996 -------------- ------------- Due from third-party payors $ 5,002 $ 8,055 Deferred tax assets 2,137 1,810 Notes receivable 1,201 672 Prepaid expenses 2,133 952 Other receivables 235 1,543 ------ ------ $10,708 $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 $2,000 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 110 beds of its planned 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 $1,701 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 and $2,420 against net income or $0.35 per share 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. The Company has current maturities of long-term debt of $6,021 that it intends to refinance with funds borrowed against its bank line of credit which has a revolver extending to September 30, 1998 followed by a three year payment period. Accordingly, this amount has been classified as long-term debt. 8. 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 circum- stances, 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. 9. 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 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 March 31, 1997 Compared to Quarter Ended March 31, 1996 Net revenues increased $6,780 or 15.0% from $45,232 for the quarter ended March 31, 1996 to $52,012 for the quarter ended March 31, 1997. The increase occurred due to the following:
Amount Percent ------ ------- 1. Rehabilitative and other specialty services $1,343 19.8% 2. New beds opened in fiscal years 1996 and 1997 3,376 49.8 3. Increased census days and revenue rates 1,407 20.7 4. Pharmacy operations 654 9.7 ----- ---- $6,780 100.0%
Average occupancy was 85.6% in the third quarter ended March 31, 1997 and 84.7% in the third quarter ended March 31, 1996. Excluding newly constructed beds, the average occupancy was 87.7% in the third quarter ended March 31, 1997. The Company's quality mix (revenues from Medicare, managed care and private pay patients as a percentage of gross revenues excluding pharmacy revenues) was 70.0% in the third quarter ended March 31, 1997 and 68.6% in the third quarter ended March 31, 1996. Expenses, consisting of salaries and benefits, supplies, purchased services, provision for doubtful accounts and other as a percent of net revenues increased from 86.1% of net revenues in the third quarter ended March 31, 1996 to 86.3% in the third quarter ended March 31, 1997. Total salaries and employee related benefits were 42.6% of net revenues in the third quarter ended March 31, 1997 compared to 44.1% of net revenues in the third quarter ended March 31, 1996. Purchases of rehabilitative and other specialty services were 20.8% of net revenues in the third quarter ended March 31, 1997 compared to 20.7% of net revenues in the same period last year. Expenses increased $5,956 or 15.3% from $38,938 in the third quarter ended SUMMIT CARE CORPORATION FORM 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont.) March 31, 1996 to $44,894 in the third quarter ended March 31, 1997 for the following reasons:
Amount Percent ------ ------- 1. Rehabilitative and other specialty services $1,446 24.3% 2. Expenses relating to new beds opened in fiscal years 1996 and 1997 2,858 48.0 3. Salaries and benefits 1,096 18.4 4. Other expenses 556 9.3 ------ ---- $5,956 100.0% ====== ======
Income before rental, depreciation and amortization and interest expense, net of interest income, increased $824 or 13.1% from $6,294 in the third quarter ended March 31, 1996 to $7,118 in the third quarter ended March 31, 1997 and was 13.7% of net revenues in the third quarter ended March 31, 1997 compared to 13.9% in the third quarter ended March 31, 1996. Rental, depreciation and amortization and interest expense, net of interest income, increased by $507 or 12.0% from $4,217 in the third quarter ended March 31, 1996 to $4,724 in the third quarter ended March 31, 1997. The increase was due to primarily depreciation of additions to property and equipment and interest expense related to higher long-term debt of $12,092. The Company's effective tax rate was 39.5% of income in the third quarter ended March 31, 1997 and 36.1% of income in the third quarter ended March 31, 1996. Net income after taxes increased $121 or 9.1% from $1,327 in the third quarter ended March 31, 1996 to $1,448 in the third quarter ended March 31, 1997. SUMMIT CARE CORPORATION FORM 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands) Results of Operations - --------------------- Nine months Ended March 31, 1997 Compared to Nine months Ended March 31, 1996 Net revenues increased $17,797 or 13.8% from $129,303 for the nine months ended March 31, 1996 to $147,100 for the nine months ended March 31, 1997. The increase occurred due to the following:
Amount Percent ------ ------- 1. Rehabilitative and other specialty services $6,000 33.7% 2. New beds opened in fiscal years 1996 and 1997 9,295 52.2 3. Increased census days and revenue rates 4,508 25.3 4. Pharmacy operations 1,994 11.2 5. Special charge to Medicare revenues (4,000) (22.4) ------ ----- $17,797 100.0%
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 84.5% in the nine months ended March 31, 1997 and 86.2% in the nine months ended March 31, 1996. Excluding newly constructed beds, the average occupancy was 86.9% in the nine months ended March 31, 1997. The Company's quality mix (revenues from Medicare, managed care and private pay patients as a percentage of gross revenues excluding pharmacy revenues) was 69.8% in the nine months ended March 31, 1997 and 66.0% in the nine months ended March 31, 1996. 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 83.7% of net revenues in the nine months ended March 31, 1996 to 86.1% in the nine months ended March 31, 1997. Total salaries and employee related benefits were 43.4% of net revenues, before the effect of the special charge, in the nine months ended March 31, 1997 compared to 44.6% of net revenues in the nine months ended March 31, 1996. Purchases of rehabilitation and other specialty services were 20.3% of net revenues, before the effect of the special charge, in the period ending March 31, 1997 compared with 18.0% of the net revenues SUMMIT CARE CORPORATION FORM 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont.) in the same period last year. Expenses increased $21,750 or 20.1% from $108,280 in the nine months ended March 31, 1996 to $130,030 in the nine months ended March 31, 1997 for the following reasons:
Amount Percent ------ ------- 1. Rehabilitative and other specialty services $7,388 34.0% 2. Expenses relating to new beds opened in fiscal years 1996 and 1997 8,485 39.0 3. Salaries and benefits 4,438 20.4 4. Other expenses 1,439 6.6 ------ ---- $21,750 100.0%
Income before rental, depreciation and amortization and interest expense, net of interest income, decreased $3,953 or 18.8% from $21,023 in the nine months ended March 31, 1996 to $17,070 in the nine months ended March 31, 1997 and was 11.6% of net revenues in the nine months ended March 31, 1997 (and 13.9% of net revenues before the special charge to revenues) compared to 16.3% in the nine months ended March 31, 1996. Rental, depreciation and amortization and interest expense, net of interest income, increased by $2,201 or 18.9% from $11,622 in the nine months ended March 31, 1996 to $13,823 in the nine months ended March 31, 1997. This increase was due to primarily depreciation of additions to property and equipment and interest expense related to higher long-term debt of $12,092. The Company's effective tax rate was 39.5% of income in the nine months ended March 31, 1997 and 39.1% of income in the nine months ended March 31, 1996. Net income was $1,964 for the nine months ended March 31, 1997 including $2,420 for the special charge described earlier. Net income after taxes before the special charge, decreased $1,345 or 23.5% from $5,729 in the nine months ended March 31, 1996 to $4,384 in the nine months ended March 31, 1997. 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 March 31 39 38 1 Nursing center beds at: September 30 4,629 4,294 335 December 31 4,629 4,294 335 March 31 4,623 4,418 205 Assisted living beds at: September 30 468 468 0 December 31 468 468 0 March 31 468 468 0 Total beds at: September 30 5,097 4,762 335 December 31 5,097 4,762 335 March 31 5,091 4,886 205 Total occupancy: First quarter 83.6% 87.2% (3.6)% Second quarter 84.4% 86.8% (2.4)% Third quarter 85.6% 84.7% 0.9 % Nursing center occupancy: (based on licensed beds) First quarter 84.1% 88.2% (4.1)% Second quarter 84.9% 87.6% (2.7)% Third quarter 86.0% 85.5% 0.5 % Assisted living center occupancy: First quarter 78.7% 78.7% 0% Second quarter 79.6% 79.3% .3% Third quarter 81.2% 77.6% 3.6% 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% Third quarter 70.0% 68.6% 1.4% Percentage of revenues from Medicaid: First quarter 30.1% 36.0% (5.9)% Second quarter 30.5% 35.0% (4.5)% Third quarter 30.0% 31.4% (1.4)%
SUMMIT CARE CORPORATION FORM 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont.) Liquidity and Capital Resources - ------------------------------- At March 31, 1997, the Company had $2,218 in cash and cash equivalents and working capital of $13,147. During the nine months ended March 31, 1997, the Company's cash and cash equivalents decreased by $440. Net cash provided by operating activities increased $13,730 from a negative $2,598 in the first nine months of fiscal 1996 to a positive $11,132 in the first nine months of 1997. Net cash provided by operating activities, plus proceeds of $15,000 in new long-term debt and additional net credit line borrowings of $2,000, were used principally for capital expenditures of $17,120 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 $1,701. Accounts receivable increased $6,856 primarily due to an increase in Medicare and managed care revenues. At March 31, 1997 and March 31, 1996, the Company's average accounts receivable days outstanding were 39. Long-term debt consisted of mortgage indebtedness of $8,415 on three properties, $13,288 on five capitalized leases, $95,000 in senior secured debt (see next paragraph), and credit line borrowings of $2,000 totaling $118,703 as of March 31, 1997. 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 cash flow from its existing operations and from its bank line of credit to service long-term debt due within one year of $6,981 (of which the Company intends to borrow $6,021 against its bank line of credit which has a revolver extending to September 30, 1998 followed by a three year payment period), to make normal recurring capital replacements, additions and improvements of approximately $13,500 planned for the next 12 months, to develop properties over the next 12 months costing approximately $5,500 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 demographics 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 9 to Consolidated Financial Statements. PART II SUMMIT CARE CORPORATION OTHER INFORMATION Quarter Ended March 31, 1997 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 undersigned thereunto duly authorized. SUMMIT CARE CORPORATION Date: May 14, 1997 By: S/DERWIN L. WILLIAMS ------------------------ Derwin L. Williams Sr.Vice President-Finance and Chief Financial Officer Date: May 14, 1997 By: S/MELODYE STOK ----------------------- Melodye Stok Vice President-Controller and Chief Accounting Officer EX-27 2 FDS
5 9-MOS JUN-30-1997 JAN-01-1997 MAR-31-1997 2218 0 36370 1584 2261 49973 203573 26805 240424 36826 0 0 0 51486 31764 240424 0 52012 0 46931 0 588 2099 2394 946 0 0 0 0 1448 .21 0
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