-----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, Lx2MGsr9oQ7vZ6idyGaBOJMRRMoPP1p3mnJHMajzeZJsgDm3fLKNFUOj47fSY/gN pU3rGz/I8ggk+TAPIMMASQ== 0000950152-97-003802.txt : 19970514 0000950152-97-003802.hdr.sgml : 19970514 ACCESSION NUMBER: 0000950152-97-003802 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970513 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: 1934 Act SEC FILE NUMBER: 001-10858 FILM NUMBER: 97602245 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 / 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 March 31, 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 April 30, 1997. Common stock, $0.01 par value -- 44,552,321 shares =============================================================================== 2 TABLE OF CONTENTS Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets - March 31, 1997 and December 31, 1996 3 Consolidated Statements of Income - Three months ended March 31, 1997 and 1996 4 Consolidated Statements of Cash Flows - Three months ended March 31, 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
March 31, December 31, 1997 1996 --------- ------------ (Unaudited) (Note) (Dollars in thousands) ASSETS Current assets: Cash and cash equivalents $ 8,106 $ 2,389 Receivables, less allowances for doubtful accounts of $13,962 and $13,335 125,579 114,777 Prepaid expenses 9,166 10,023 Deferred income taxes 19,801 19,801 -------- -------- Total current assets 162,652 146,990 Property and equipment, net of accumulated depreciation of $114,017 and $106,762 539,431 533,457 Intangible assets, net of amortization of $8,975 and $7,602 Goodwill 100,478 43,664 Other 36,512 32,472 Other assets 50,499 46,201 -------- -------- Total assets $889,572 $802,784 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 30,764 $ 32,218 Employee compensation and benefits 31,523 34,425 Accrued insurance liabilities 22,869 23,943 Other accrued liabilities 44,734 32,448 Long-term debt due within one year 2,373 1,417 -------- -------- Total current liabilities 132,263 124,451 Long-term debt 273,626 202,295 Deferred income taxes 66,798 66,798 Other liabilities 17,326 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 268,036 268,036 Retained earnings 225,345 210,306 -------- -------- 493,870 478,831 Less treasury stock, at cost (4,264,606 and 3,999,541 shares) (94,311) (85,797) -------- -------- Total stockholders' equity 399,559 393,034 -------- -------- Total liabilities and stockholders' equity $889,572 $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 March 31 --------------------------- 1997 1996 ---- ---- (In thousands, except earnings per share) Revenues $213,912 $187,645 Expenses: Operating 170,415 150,296 General and administrative 7,808 7,889 Depreciation and amortization 8,766 7,225 -------- -------- 186,989 165,410 -------- -------- Income from operations 26,923 22,235 Interest expense, net (3,812) (2,627) Equity in earnings of partnership 444 294 -------- -------- Income before income taxes 23,555 19,902 Income taxes 7,231 5,971 -------- -------- Net income $ 16,324 $ 13,931 ======== ======== Earnings per share - primary and fully diluted $ .35 $ .29 ======== ======== Weighted average common and common equivalent shares outstanding: Primary 46,785 48,735 Fully diluted 46,821 48,735
See notes to consolidated financial statements. 4 5 HEALTH CARE AND RETIREMENT CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31 --------------------------- 1997 1996 ---- ---- (In thousands) OPERATING ACTIVITIES Net income $16,324 $13,931 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,836 7,618 Provision for bad debts 1,480 1,562 Equity in earnings of partnership (444) (294) Changes in assets and liabilities, excluding businesses acquired: Receivables (6,793) (6,236) Prepaid expenses and other assets (2,991) (3,073) Accounts payable (2,644) 693 Employee compensation and benefits (2,880) (1,314) Accrued insurance and other liabilities 8,417 11,172 ------- ------- Total adjustments 2,981 10,128 ------- ------- Net cash provided by operating activities 19,305 24,059 INVESTING ACTIVITIES Purchases and construction of property and equipment (12,693) (7,529) Investment in partnership (1,000) Cash paid to acquire businesses (45,201) (12,945) ------- ------- Net cash used in investing activities (57,894) (21,474) ------- ------- FINANCING ACTIVITIES Net borrowings under bank credit agreement 72,600 3,000 Principal payments of long-term debt (18,473) (762) Proceeds from exercise of stock options 804 1,182 Purchase of common stock for treasury (10,625) (944) ------- ------- Net cash provided by financing activities 44,306 2,476 ------- ------- Net increase in cash 5,717 5,061 Cash and cash equivalents at beginning of year 2,389 7,742 ------- ------- Cash and cash equivalents at end of period $ 8,106 $12,803 ======= =======
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 ended March 31, 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 quarter of 1997, HCR paid $45,201,000 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 $6,000,000, assumed liabilities of $23,000,000 and recorded $62,000,000 of intangible assets. At March 31, 1997, HCR operated 128 long term care facilities, 74 outpatient rehabilitation clinics and 33 home health care offices. Management services are provided to 66 subacute and rehabilitation units and 14 comprehensive outpatient rehabilitation facilities (CORFs), as well as to vision surgery and other treatment centers. NOTE 3 - LONG-TERM DEBT Effective January 24, 1997, HCR's loan commitment increased from $225,000,000 to $325,000,000. NOTE 4 - EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board 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 $.37 and $.30 for the quarters ended March 31, 1997 and 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 quarters ended March 31, 1997 and 1996. 6 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION In the first quarter of 1997, HCR paid $45,201,000 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 $6,000,000, assumed liabilities of $23,000,000 and recorded $62,000,000 of intangible assets. RESULTS OF OPERATIONS Revenues for the three months ended March 31, 1997 increased $26,267,000 or 14% to $213,912,000 as compared to the same period in 1996. Of the increase, 68% related to the acquisition of various businesses in the first quarter of 1997 and the last three quarters of 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 90% and 89% in the first quarter of 1996 and 1997, respectively. The mix of revenue from Medicare, private pay and insured patients increased from 67% for the first quarter of 1996 to 70% for the same period in 1997, primarily due to the growth in non-Medicaid revenue from acquisitions. Operating expenses for the three months ended March 31, 1997 increased $20,119,000 or 13% to $170,415,000 from the comparable period in 1996. Of the increase, 70% related to the acquisition of various businesses in the first quarter of 1997 and the last three quarters of 1996. The remaining increases were attributable to labor costs and other general expenses. Labor costs, excluding those related to the acquisitions, represented 29% of the increase which was attributable to average wage rate increases, as well as growth in the staffing levels related to medical specialty units, rehabilitative services and home health care. General and administrative expense, which approximated 4% of revenue in the first quarter of 1996 and 1997, remained constant. The increase in depreciation of $676,000 between the first quarter of 1996 and 1997 related to additional depreciation on prior year capital expenditures. Amortization expense increased $865,000 for the three months ended March 31, 1997 as compared to the same period in the prior year, which was attributable to the intangible assets recorded in connection with 1996 and 1997 acquisitions. The increase in net interest expense of $1,185,000 was attributable to an increase in debt levels partially offset by additional interest income earned on cash equivalents. 7 8 NEW ACCOUNTING STANDARD In February 1997, the Financial Accounting Standards Board 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 $.37 and $.30 for the quarters ended March 31, 1997 and 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 quarters ended March 31, 1997 and 1996. LIQUIDITY AND CAPITAL RESOURCES During the first quarter 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 and the purchase of HCR common stock. At March 31, 1997, the Company maintained $8,106,000 in cash and cash equivalents, of which $5,986,000 was invested in short-term investments. Cash used in investing activities amounted to $57,894,000. Expenditures for property and equipment of $12,693,000 related to renovations, capital improvements and the ongoing construction of a new facility in Ann Arbor, Michigan. 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 $45,201,000 in the first quarter of 1997. Net cash provided by financing activities during the first quarter of 1997 amounted to $44,306,000. The increase in debt under the credit agreement of $72,600,000 was partially used to repay other long-term debt of $18,473,000 which included debt assumed in the first quarter acquisitions and to purchase 387,000 shares of HCR common stock for $10,625,000. Effective January 24, 1997, the bank credit agreement was amended to increase the loan commitment from $225,000,000 to $325,000,000. The bank credit agreement matures on August 2, 2001. At March 31, 1997, HCR had borrowed $265,000,000 and issued letters of credit totalling $12,689,000 which left a remaining unused borrowing capacity of $47,311,000. 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. 8 9 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 three months ended March 31, 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 May 12, 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 three months ended March 31, 1997 11 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HEALTH CARE AND RETIREMENT CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 8,106 0 139,541 13,962 0 162,652 653,448 114,017 889,572 132,263 273,626 0 0 489 399,070 889,572 0 213,912 0 170,415 8,766 1,480 0 23,555 7,231 16,324 0 0 0 16,324 .35 .35
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