-----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, RmgBnCBIll0RGJbUribT9rFJMXgMqzXbUEneYX8SAG3BmJDPl53WffIAJek+SZBM LOe3VXJ85hAE/5hlidYl0g== 0000950152-97-007727.txt : 19971111 0000950152-97-007727.hdr.sgml : 19971111 ACCESSION NUMBER: 0000950152-97-007727 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971110 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTH CARE & RETIREMENT CORP / DE CENTRAL INDEX KEY: 0000878736 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 341687107 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10858 FILM NUMBER: 97710993 BUSINESS ADDRESS: STREET 1: ONE SEAGATE CITY: TOLEDO STATE: OH ZIP: 43604-2616 BUSINESS PHONE: 4192525500 MAIL ADDRESS: STREET 1: ONE SEAGATE CITY: TOLEDO STATE: OH ZIP: 43604-2616 10-Q 1 HEALTH CARE AND RETIREMENT CORPORATION FORM 10-Q 1 ================================================================================ FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 1-10858 HEALTH CARE AND RETIREMENT CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 34-1687107 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) ONE SEAGATE, TOLEDO, OHIO 43604-2616 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (419) 252-5500 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 the close of business on October 31, 1997. Common stock, $0.01 par value -- 44,454,197 shares ================================================================================ 2
TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements (Unaudited) Number ------ Consolidated Balance Sheets - September 30, 1997 and December 31, 1996 3 Consolidated Statements of Income - Three months and nine months ended September 30, 1997 and 1996 4 Consolidated Statements of Cash Flows - Nine months ended September 30, 1997 and 1996 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings 9 Item 2. Changes in Securities 9 Item 3. Defaults Upon Senior Securities 9 Item 4. Submission of Matters to a Vote of Security Holders 9 Item 5. Other Information 9 Item 6. Exhibits and Reports on Form 8-K 9 SIGNATURES 10
2 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. --------------------- HEALTH CARE AND RETIREMENT CORPORATION CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1997 1996 (Unaudited) (Note) ------------- ------------ (Dollars in thousands) ASSETS Current assets: Cash and cash equivalents $ 2,904 $ 2,389 Receivables, less allowances for doubtful accounts of $15,829 and $13,335 140,040 114,777 Prepaid expenses 6,498 10,023 Deferred income taxes 19,801 19,801 -------- -------- Total current assets 169,243 146,990 Property and equipment, net of accumulated depreciation of $129,308 and $106,762 548,327 533,457 Intangible assets, net of amortization of $11,945 and $7,602 Goodwill 103,097 43,664 Other 35,636 32,472 Other assets 59,724 46,201 -------- -------- Total assets $916,027 $802,784 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 34,845 $ 32,218 Employee compensation and benefits 35,512 34,425 Accrued insurance liabilities 20,710 23,943 Other accrued liabilities 46,925 32,448 Long-term debt due within one year 2,058 1,417 -------- -------- Total current liabilities 140,050 124,451 Long-term debt 260,365 202,295 Deferred income taxes 66,798 66,798 Other liabilities 19,646 16,206 Stockholders' equity: Preferred stock, $.01 par value, 5,000,000 shares authorized Common stock, $.01 par value, 80,000,000 shares authorized, 48,860,406 shares issued 489 489 Capital in excess of par value 268,036 268,036 Retained earnings 258,433 210,306 -------- -------- 526,958 478,831 Less treasury stock, at cost (4,259,084 and 3,999,541 shares) (97,790) (85,797) -------- -------- Total stockholders' equity 429,168 393,034 -------- -------- Total liabilities and stockholders' equity $916,027 $802,784 ======== ========
Note: The balance sheet at December 31, 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 notes to consolidated financial statements. 3 4 HEALTH CARE AND RETIREMENT CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended September 30 September 30 ------------------------- ------------------------- 1997 1996 1997 1996 --------- --------- --------- --------- (In thousands, except earnings per share) Revenues $ 226,606 $ 199,205 $ 660,874 $ 581,117 Expenses: Operating 178,174 159,331 523,097 465,684 General and administrative 9,674 7,717 26,032 23,359 Depreciation and amortization 9,448 7,965 27,303 22,752 --------- --------- --------- --------- 197,296 175,013 576,432 511,795 --------- --------- --------- --------- Income from operations 29,310 24,192 84,442 69,322 Interest expense, net (3,979) (2,793) (11,698) (7,734) Equity in earnings of partnership 861 361 1,851 973 --------- --------- --------- --------- Income before income taxes 26,192 21,760 74,595 62,561 Income taxes 8,041 6,528 22,901 18,768 --------- --------- --------- --------- Net income $ 18,151 $ 15,232 $ 51,694 $ 43,793 ========= ========= ========= ========= Earnings per share - primary and fully diluted $ .39 $ .32 $ 1.10 $ .91 ========= ========= ========= ========= Weighted average common and common equivalent shares outstanding: Primary 46,832 47,372 46,807 48,074 Fully diluted 46,873 47,373 46,967 48,074
See notes to consolidated financial statements. 4 5 HEALTH CARE AND RETIREMENT CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30 ------------------------------ 1997 1996 -------- -------- (In thousands) OPERATING ACTIVITIES Net income $ 51,694 $ 43,793 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 27,484 23,917 Provision for bad debts 6,418 4,328 Equity in earnings of partnership (1,851) (973) Changes in assets and liabilities, excluding businesses acquired: Receivables (21,033) (14,237) Prepaid expenses and other assets (7,921) (11,760) Accounts payable 1,437 (129) Employee compensation and benefits 1,132 3,333 Accrued insurance and other liabilities 10,769 20,957 -------- -------- Total adjustments 16,435 25,436 -------- -------- Net cash provided by operating activities 68,129 69,229 INVESTING ACTIVITIES Purchases and construction of property and equipment (36,660) (29,085) Investment in partnership (600) (2,955) Cash paid to acquire businesses (55,497) (31,527) -------- -------- Net cash used in investing activities (92,757) (63,567) -------- -------- FINANCING ACTIVITIES Net borrowings under bank credit agreement 59,600 27,900 Principal payments of long-term debt (19,049) (1,353) Proceeds from exercise of stock options 2,705 1,748 Purchase of common stock for treasury (18,113) (38,269) -------- -------- Net cash provided by (used in) financing activities 25,143 (9,974) -------- -------- Net increase (decrease) in cash 515 (4,312) Cash and cash equivalents at beginning of year 2,389 7,742 -------- -------- Cash and cash equivalents at end of period $ 2,904 $ 3,430 ======== ========
See notes to consolidated financial statements. 5 6 HEALTH CARE AND RETIREMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - Principles of Consolidation and Presentation - ----------------------------------------------------- The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management of HCR, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results of the interim periods. Operating results for the three months and nine months ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in HCR's annual report on Form 10-K for the year ended December 31, 1996. NOTE 2 - Acquisitions - --------------------- In the first nine months of 1997, HCR paid $55,497,000 for the acquisition of various businesses including a privately held company, MileStone Healthcare, Inc., and contingent consideration related to prior year acquisitions. The businesses acquired provide rehabilitation therapy services and program management services for comprehensive medical rehabilitation and subacute care. The acquisitions were accounted for under the purchase method of accounting. HCR acquired assets of $12,000,000, assumed liabilities of $23,000,000 and recorded $67,000,000 of intangible assets. At September 30, 1997, HCR operated 129 long term care facilities, 74 outpatient rehabilitation clinics and 33 home health care offices. Within its facilities, HCR operated 63 medical specialty units which provide subacute, rehabilitation or Alzheimer's programs. Management services are provided to 62 subacute and rehabilitation units and 10 comprehensive outpatient rehabilitation facilities (CORFs), as well as to vision surgery and other treatment centers. NOTE 3 - New Accounting Standards - --------------------------------- In February 1997, the Financial Accounting Standards Board (FASB) issued Statement No. 128, "Earnings Per Share," which is effective December 31, 1997. At that time, HCR will be required to change the method currently used to compute earnings per share (EPS) and to restate all prior periods. Under the new requirements there are two EPS calculations, basic and diluted earnings per share. Basic EPS is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. Under this method, EPS is expected to be $.41 and $1.16 for the three months and nine months ended September 30, 1997, respectively, and $.34 and $.95 for the same periods in 1996, respectively. The second presentation, diluted EPS, gives effect to all dilutive potential common shares and is expected to be the same as the currently disclosed fully diluted EPS for the three months and nine months ended September 30, 1997 and 1996. 6 7 In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information" (FAS 131), which is effective December 31, 1998, with interim disclosures beginning in 1999. Comparative information for prior years is required to be restated. This Statement requires public business enterprises to report certain information about operating segments, their products and services, the geographic areas in which they operate, and their major customers. The operating segments should be based on the structure of the enterprise's internal organization whose operating results are regularly reviewed by the company's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. Management has not determined the effect, if any, of FAS 131 on the consolidated financial statements. Item 2. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations --------------------- FINANCIAL CONDITION In the first nine months of 1997, HCR paid $55,497,000 for the acquisition of various businesses including a privately held company, MileStone Healthcare, Inc., and contingent consideration related to prior year acquisitions. The businesses acquired provide rehabilitation therapy services and program management services for comprehensive medical rehabilitation and subacute care. The acquisitions were accounted for under the purchase method of accounting. HCR acquired assets of $12,000,000, assumed liabilities of $23,000,000 and recorded $67,000,000 of intangible assets. RESULTS OF OPERATIONS Revenues for the three months ended September 30, 1997 increased $27,401,000 or 14% to $226,606,000 as compared to the same period in 1996. Revenues for the nine months ended September 30, 1997 increased $79,757,000 or 14% to $660,874,000 as compared to the same period in 1996. Of the increases, 57% and 62% for the three months and nine months ended September 30, 1997, respectively, related to the acquisition of various businesses in 1997 and 1996. The remaining increases were due to mix changes and improved per diem rates, resulting from more specialized care, such as subacute medical care and rehabilitation services for more acutely ill patients. The occupancy levels were 89% for the three months and nine months ended September 30, 1996 and 1997. The mix of revenue from Medicare, private pay and insured patients increased from 68% for the three months and nine months ended September 30, 1996 to 70% for the same periods in 1997, primarily due to the growth in non-Medicaid revenue from acquisitions. Operating expenses for the three months ended September 30, 1997 increased $18,843,000 or 12% to $178,174,000 from the comparable period in 1996. Operating expenses for the nine months ended September 30, 1997 increased $57,413,000 or 12% to $523,097,000 from the same period in 1996. Of the increases, 62% and 65% for the three months and nine months ended September 30, 1997, respectively, related to the acquisition of various businesses in 1997 and 1996. The remaining increases were attributable to labor costs and other general expenses. Labor costs, excluding those related to the acquisitions, represented 32% and 33% of the increases for the three months and nine months ended September 30, 1997 as compared to the same periods in 1996, respectively. The increase in labor costs was attributable to average wage rate increases as well as growth in the staffing levels attributable to the medical specialty units, rehabilitative services and home health care. 7 8 General and administrative expense, which approximated 4% of revenue, increased $2,673,000 for the nine months ended September 30, 1997 as compared to the same period in 1996. The increase in depreciation of $781,000 and $2,096,000, for the three months and nine months ended September 30, 1997 as compared to the same periods in the prior year, related to additional depreciation for prior year capital expenditures. Amortization expense increased $702,000 and $2,455,000 for the three months and nine months ended September 30, 1997 as compared to the same periods in 1996, which was attributable to the intangible assets recorded in connection with 1996 and 1997 acquisitions. The increase in net interest expense of $3,964,000 for the nine months ended September 30, 1997 as compared to the same period in 1996 was due to an increase in debt levels. NEW ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board (FASB) issued Statement No. 128, "Earnings Per Share," which is effective December 31, 1997. At that time, HCR will be required to change the method currently used to compute earnings per share (EPS) and to restate all prior periods. Under the new requirements there are two EPS calculations, basic and diluted earnings per share. Basic EPS is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. Under this method, EPS is expected to be $.41 and $1.16 for the three months and nine months ended September 30, 1997, respectively, and $.34 and $.95 for the same periods in 1996, respectively. The second presentation, diluted EPS, gives effect to all dilutive potential common shares and is expected to be the same as the currently disclosed fully diluted EPS for the three months and nine months ended September 30, 1997 and 1996. In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information" (FAS 131), which is effective December 31, 1998, with interim disclosures beginning in 1999. Comparative information for prior years is required to be restated. This Statement requires public business enterprises to report certain information about operating segments, their products and services, the geographic areas in which they operate, and their major customers. The operating segments should be based on the structure of the enterprise's internal organization whose operating results are regularly reviewed by the company's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. Management has not determined the effect, if any, of FAS 131 on the consolidated financial statements. LIQUIDITY AND CAPITAL RESOURCES During the first nine months of 1997, HCR satisfied its cash requirements from a combination of cash generated from operating activities and borrowings under a bank credit agreement. HCR used the cash principally for capital expenditures, the acquisition of businesses, repayment of debt and the purchase of HCR common stock. At September 30, 1997, HCR maintained $2,904,000 in cash and cash equivalents, of which $1,500,000 was invested in short-term investments. Cash used in investing activities amounted to $92,757,000. Expenditures for property and equipment of $36,660,000 related to renovations, capital improvements and the construction of a new facility in Ann Arbor, Michigan which opened in the second quarter of this year. As part of the diversification into other health care services, HCR acquired various businesses and paid contingent consideration for prior year acquisitions for a total of $55,497,000 in the first nine months of 1997. 8 9 Net cash provided by financing activities during the first nine months of 1997 amounted to $25,143,000. The increase in debt under the credit agreement of $59,600,000 was partially used to repay other long-term debt of $19,049,000 which included debt assumed in the first quarter acquisitions and to purchase 619,300 shares of HCR stock for $18,113,000. The bank credit agreement permits HCR to borrow up to $325,000,000 through August 2, 2001, then the borrowing capacity is reduced to $295,000,000 through August 2, 2002. At September 30, 1997, HCR had borrowed $252,000,000 and issued letters of credit totalling $12,359,000 which left a remaining unused borrowing capacity of $60,641,000. HCR believes that its cash flow from operations will be sufficient to cover debt payments, future capital expenditures and operating needs. It is likely that HCR will pursue growth from acquisitions, partnerships and other ventures which would be funded from excess cash from operations, credit available under the bank credit agreement and other financing arrangements that are normally available in the marketplace. PART II. OTHER INFORMATION Item 1. Legal Proceedings. ------------------ There are no material pending legal proceedings other than litigation arising in the ordinary course of business for which the Company has insurance coverage. The Company does not believe the results of such litigation, even if the outcome were unfavorable to the Company, would have a material adverse effect on its financial position. 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 S-K Item 601 No. ------- 27 Financial Data Schedule for the nine months ended September 30, 1997 (b) Reports on Form 8-K None 9 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 thereunto duly authorized. HEALTH CARE AND RETIREMENT CORPORATION (Registrant) Date November 7, 1997 By /s/ Geoffrey G. Meyers --------------------- ---------------------- Geoffrey G. Meyers, Executive Vice-President, Chief Financial Officer and Treasurer 10 11 EXHIBIT INDEX Exhibit - ------- 27 Financial Data Schedule for the nine months ended September 30, 1997 11 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 2,904 0 155,869 15,829 0 169,243 677,635 129,308 916,027 140,050 260,365 0 0 489 428,679 916,027 0 660,874 0 523,097 27,303 6,418 0 74,595 22,901 51,694 0 0 0 51,694 1.10 1.10
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