-----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, U3eTAG4wG18Mp8Ojl0DkLW+NqdIYndqQabfJrn/DeemojQzIs5XGzek6ZDE9o08q hJ3sOjGuNB9hYgdAEtEc5Q== 0000950152-98-006758.txt : 19980817 0000950152-98-006758.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950152-98-006758 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: 98687507 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 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 June 30, 1998 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 July 31, 1998. Common stock, $0.01 par value -- 44,776,477 shares ================================================================================ 2 TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements (Unaudited) Number ------ Consolidated Balance Sheets - June 30, 1998 and December 31, 1997 3 Consolidated Statements of Income - Three months and six months ended June 30, 1998 and 1997 4 Consolidated Statements of Cash Flows - Six months ended June 30, 1998 and 1997 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings 10 Item 2. Changes in Securities 10 Item 3. Defaults Upon Senior Securities 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Item 5. Other Information 10 Item 6. Exhibits and Reports on Form 8-K 10 SIGNATURES 11
2 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. --------------------- HEALTH CARE AND RETIREMENT CORPORATION CONSOLIDATED BALANCE SHEETS
June 30, December 31, 1998 1997 ----------- ------------ (Unaudited) (Note) (Dollars in thousands) ASSETS Current assets: Cash and cash equivalents $ 8,461 $ 7,455 Receivables, less allowances for doubtful accounts of $18,384 and $19,184 144,110 138,049 Prepaid expenses 4,704 5,408 Deferred income taxes 19,839 19,839 -------- -------- Total current assets 177,114 170,751 Property and equipment, net of accumulated depreciation of $154,455 and $137,484 560,110 552,973 Intangible assets, net of amortization of $16,163 and $13,764: Goodwill 110,047 102,078 Other 31,168 32,124 Other assets 93,816 78,425 -------- -------- Total assets $972,255 $936,351 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 35,937 $ 36,580 Employee compensation and benefits 34,138 36,855 Accrued insurance liabilities 19,310 17,873 Other accrued liabilities 48,073 29,162 Long-term debt due within one year 883 854 -------- ---------- Total current liabilities 138,341 121,324 Long-term debt 282,497 292,951 Deferred income taxes 67,276 67,276 Other liabilities 21,245 20,794 Stockholders' equity: Preferred stock, $.01 par value, 5,000,000 shares authorized Common stock, $.01 par value, 160,000,000 shares authorized, 49,199,906 and 48,860,406 shares issued 492 489 Capital in excess of par value 274,303 273,325 Retained earnings 308,352 275,519 -------- -------- 583,147 549,333 Less treasury stock, at cost (4,437,529 and 4,637,597 shares) (120,251) (115,327) --------- --------- Total stockholders' equity 462,896 434,006 -------- -------- Total liabilities and stockholders' equity $972,255 $936,351 ======== ========
Note: The balance sheet at December 31, 1997 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 June 30 Six Months Ended June 30 -------------------------- ------------------------ 1998 1997 1998 1997 ---- ---- ---- ---- (In thousands, except earnings per share) Revenues $229,766 $220,356 $456,278 $434,268 Expenses: Operating 178,159 174,508 354,864 344,923 General and administrative 9,417 8,550 18,855 16,358 Depreciation and amortization 9,984 9,089 19,642 17,855 -------- -------- -------- -------- 197,560 192,147 393,361 379,136 ------- ------- ------- ------- Income from operations 32,206 28,209 62,917 55,132 Interest expense, net (3,943) (3,907) (8,053) (7,719) Equity in earnings of partnership 1,260 546 2,451 990 --------- -------- -------- -------- Income before income taxes 29,523 24,848 57,315 48,403 Income taxes 9,064 7,629 17,596 14,860 -------- -------- -------- -------- Net income $ 20,459 $ 17,219 $ 39,719 $ 33,543 ======== ======== ======== ======== Earnings per share: Basic $ .46 $ .39 $ .89 $ .75 Diluted $ .44 $ .37 $ .86 $ .72
See notes to consolidated financial statements. 4 5 HEALTH CARE AND RETIREMENT CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30 ------------------------ 1998 1997 ---- ---- (In thousands) OPERATING ACTIVITIES Net income $39,719 $33,543 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 20,261 17,991 Provision for bad debts 2,576 3,522 Equity in earnings of partnership (2,451) (990) Gain from sale of property and equipment (887) Changes in assets and liabilities, excluding businesses acquired: Receivables (8,637) (6,887) Prepaid expenses and other assets (12,585) (6,808) Accounts payable (643) 1,854 Employee compensation and benefits (2,112) (489) Accrued insurance and other liabilities 12,176 10,372 ------ ------ Total adjustments 7,698 18,565 ------- ------ Net cash provided by operating activities 47,417 52,108 INVESTING ACTIVITIES Purchases and construction of property and equipment (24,028) (27,290) Proceeds from sale of property and equipment 920 Cash paid to acquire businesses (9,536) (54,848) ------- ------- Net cash used in investing activities (32,644) (82,138) ------- ------- FINANCING ACTIVITIES Net borrowings (repayments) under bank credit agreement (10,000) 61,500 Principal payments of long-term debt (425) (18,843) Proceeds from exercise of stock options 752 1,337 Purchase of common stock for treasury (4,094) (14,753) ------- ------- Net cash provided by (used in) financing activities (13,767) 29,241 ------- ------- Net increase (decrease) in cash 1,006 (789) Cash and cash equivalents at beginning of year 7,455 2,389 ------- ------- Cash and cash equivalents at end of period $ 8,461 $ 1,600 ======= =======
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 six months ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. 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, 1997. At June 30, 1998 HCR operates 129 long term care facilities, 77 outpatient rehabilitation clinics and 33 home health offices. Within its facilities, HCR operates 65 medical specialty units which provide subacute, rehabilitation or Alzheimer's programs. Management services are provided to 48 subacute and rehabilitation units and 6 comprehensive outpatient rehabilitation facilities, as well as to vision surgery and other treatment centers. NOTE 2 - Earnings Per Share - --------------------------- The calculation of earnings per share (EPS) is as follows:
Three months ended Six months ended June 30 June 30 ------------------------- -------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- (In thousands, except earnings per share) Numerator: Net income (income available to common stockholders) $20,459 $17,219 $39,719 $33,543 ======= ======= ======= ======= Denominator: Denominator for basic EPS - weighted-average shares 44,444 44,562 44,386 44,617 Effect of dilutive securities: Stock options 1,694 1,939 1,797 1,906 Nonvested restricted stock 30 30 ------- ------- ------- ------- Denominator for diluted EPS - adjusted for weighted-average shares and assumed conversions 46,168 46,501 46,213 46,523 ====== ====== ====== ====== Basic EPS $.46 $.39 $.89 $.75 Diluted EPS $.44 $.37 $.86 $.72
6 7 NOTE 3 - New Accounting Standard - -------------------------------- In June 1997, the Financial Accounting Standards Board 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. NOTE 4 - Merger - --------------- HCR and Manor Care, Inc.,(Manor Care) have signed an Agreement and Plan of Merger (Merger Agreement) dated June 10, 1998. The Merger Agreement provides that, with certain limited exceptions, the owner of each issued and outstanding share of Manor Care common stock shall be converted into the right to receive one share of HCR common stock. Upon completion of the transaction, Manor Care will be a wholly owned subsidiary of HCR and the stockholders of Manor Care will become stockholders of HCR. The transaction will be accounted for as a pooling of interests. The merger is subject to certain conditions, including stockholder approval, regulatory approvals and the expiration of antitrust regulatory waiting periods. 7 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations ------------- RESULTS OF OPERATIONS Revenues for the three months ended June 30, 1998 increased $9,410,000 or 4% to $229,766,000 as compared to the same period in 1997. Revenues for the six months ended June 30, 1998 increased $22,010,000 or 5% to $456,278,000 as compared to the same period in 1997. The revenue increases related to improved per diem rates from inflation that represented 90% of the increase for the three month period and 80% for the six month period The remaining increases were due to the acquisition of various businesses in 1997. The occupancy levels were 88% and 89% for the three months and six months ended June 30, 1997, respectively, and 89% for the same periods in 1998, respectively. The mix of revenue from Medicare, private pay and insured patients remained constant at 70% for the three months and six months ended June 30, 1997 and 1998. Operating expenses for the three months ended June 30, 1998 increased $3,651,000 or 2% to $178,159,000 from the comparable period in 1997. Operating expenses for the six months ended June 30, 1998 increased $9,941,000 or 3% to $354,864,000 from the same period in 1997. The major component of the operating expense increases related to labor costs that were attributable to average wage rate increases. Labor costs, excluding those related to acquisitions, represented 77% of the increase for the three month period and 68% for the six month period. The remainder of the increases were primarily attributable to the acquisition of various businesses in 1997. General and administrative expense, which approximated 4% of revenue, increased $867,000 and $2,497,000 for the three months and six months ended June 30, 1998 as compared to the same periods in 1997, respectively, due to increased labor and consulting costs from the implementation of new information systems as well as normal inflationary increases in other expenses. The increase in depreciation and amortization of $895,000 and $1,787,000 for the three months and six months ended June 30, 1998, respectively, as compared to the same periods in the prior year, related to additional depreciation for prior year capital expenditures. The increase in net interest expense of $334,000 for the six months ended June 30, 1998 as compared to the same period in 1997 was due to an increase in debt levels partially offset by additional interest income. The equity earnings of the partnership increased $1,461,000 for the first half of 1998 as compared to the same period in 1997 as a result of the growth in supplying pharmaceutical needs of HCR centers and Omnicare pharmacies. NEW ACCOUNTING STANDARD In June 1997, the Financial Accounting Standards Board 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. 8 9 LIQUIDITY AND CAPITAL RESOURCES During the first half of 1998, HCR satisfied its cash requirements from cash generated from operating activities. HCR used the cash principally for capital expenditures, the acquisition of businesses and repayment of debt. At June 30, 1998, the Company maintained $8,461,000 in cash and cash equivalents, of which $4,500,000 was invested in short-term investments. Net cash used in investing activities amounted to $32,644,000. Expenditures for property and equipment of $24,028,000 related to renovations, capital improvements, information systems and the completion of construction of a new facility near Milwaukee, Wisconsin that opened in July, 1998. As part of the diversification into other health care services, HCR made one acquisition and paid contingent consideration for prior year acquisitions for a total of $9,536,000 in the first half of 1998. Net cash used in financing activities during the first half of 1998 amounted to $13,767,000. This included $10,000,000 to repay debt under the credit agreement and $4,094,000 for the purchase of HCR common stock. This use was partially offset by $752,000 received from the exercise of stock options. 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 June 30, 1998, HCR had borrowed $275,000,000 and issued letters of credit totalling $9,966,000 which left a remaining unused borrowing capacity of $40,034,000. 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. 9 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings. ------------------ The Company is party to various legal proceedings arising in the ordinary course of business. The Company does not believe the results of such proceedings, even if 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. ---------------------------------------------------- At the Company's Annual Meeting of Stockholders held on May 5, 1998 the stockholders approved the following items: a) elect John J. Clair, Jr., as a director, b) elect Paul A. Ormond as a director, c) approve the increase in authorized common shares and d) ratify selection of Ernst & Young LLP as independent public accountants for the year ending December 31, 1998. The items were approved by a vote as follows:
Item For Against Withheld Abstain Not Voted ---- --- ------- -------- ------- --------- a 37,107,244 430,763 b 37,106,595 431,412 c 35,835,281 1,677,108 25,618 d 37,513,610 14,954 9,443
Item 5. Other Information. ------------------ None Item 6. Exhibits and Reports on Form 8-K. --------------------------------- (a)Exhibits S-K Item 601 No. ------- 3 Certificate of Amendment of Certificate of Incorporation dated June 5, 1998 27 Financial Data Schedule for the six months ended June 30, 1998 (b) Reports on Form 8-K The Company filed a Form 8-K on June 16, 1998 and under Item 5 reported that HCR and Manor Care, Inc. announced a definitive agreement to merge the two companies in an exchange of shares. 10 11 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 August 14, 1998 By /s/ Geoffrey G. Meyers ------------------ --------------------------------------- Geoffrey G. Meyers, Executive Vice President, Chief Financial Officer and Treasurer 11 12 EXHIBIT INDEX Exhibit - ------- 3 Certificate of Amendment of Certificate of Incorporation dated June 5, 1998 27 Financial Data Schedule for the six months ended June 30, 1998 12 EX-3 2 EXHIBIT 3 1 EXHIBIT 3 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF HEALTH CARE AND RETIREMENT CORPORATION -------------------------------------- Health Care and Retirement Corporation, a corporation existing under the laws of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: FIRST: That the Board of Directors of the Corporation, at a regularly scheduled meeting held on January 29, 1998 adopted resolutions proposing and declaring advisable the following amendment to Article Four of the Certificate of Incorporation of the Corporation: RESOLVED, that the first paragraph of Article IV of the Certificate of Incorporation is amended to increase from 80,000,000 to 160,000,000 the authorized shares of Common Stock of the Corporation and that such first paragraph, after amendment, shall read: "The total number of shares of capital stock which the corporation shall have authority to issue is One Hundred Sixty-Five Million (165,000,000), consisting of One Hundred Sixty Million (160,000,000) shares of common stock, par value $.01 per share (hereinafter called the "Common Stock") and Five Million (5,000,000) shares of preferred stock, par value $.01 per share (hereinafter called "Preferred Stock"). SECOND: The Board of Directors of the Corporation approved the foregoing amendment pursuant to the provisions of Sections 141(f) and 242 of the General Corporation Law of the State of Delaware. THIRD: The stockholders of the Corporation approved the foregoing amendment pursuant to the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware, and the foregoing amendments have been duly adopted in accordance with Section 242 of the General Corporation Law of the State of Delaware. 2 IN WITNESS WHEREOF, Health Care and Retirement Corporation has caused this Certificate of Amendment to be signed by R. Jeffrey Bixler its Vice President this 5th day of June, 1998. HEALTH CARE AND RETIREMENT CORPORATION By: ---------------------------------- R. Jeffrey Bixler, Vice President EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 8,461 0 162,494 18,384 0 177,114 714,565 154,455 972,255 138,341 282,497 0 0 492 462,404 972,255 0 456,278 0 354,864 19,642 2,576 0 57,315 17,596 39,719 0 0 0 39,719 .89 .86
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