Delaware
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13-4230695
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(State of Incorporation)
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(I.R.S. Employer Identification No.)
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Large accelerated filer o
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Accelerated filer x
|
Non-accelerated filer o
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Smaller reporting company o
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(Do not check if a smaller reporting company)
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Page
Numbers
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|||
PART I. FINANCIAL INFORMATION
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|||
Item 1.
|
Financial Statements:
|
||
Consolidated Balance Sheets (unaudited)
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3-4
|
||
As of September 30, 2011
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|||
As of December 31, 2010
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|||
Consolidated Income Statements (unaudited)
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5-6
|
||
For the three months ended September 30, 2011 and 2010
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|||
For the nine months ended September 30, 2011 and 2010
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|||
Consolidated Statements of Cash Flows (unaudited)
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7
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||
For the three months ended September 30, 2011 and 2010
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|||
For the nine months ended September 30, 2011 and 2010
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|||
Notes to Consolidated Financial Statements (unaudited)
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8-25
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||
Item 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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26-46
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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46
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Item 4.
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Controls and Procedures
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47
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Item 5.
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Other Information
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47
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PART II. OTHER INFORMATION
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|||
Item 1.
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Legal Proceedings
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47
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Item 1A.
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Risk Factors
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47-48
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Item 6.
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Exhibits
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48
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Signature
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48
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September 30, 2011
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December 31, 2010
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|||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 91,179 | $ | 81,163 | ||||
Restricted cash
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16,382 | 15,329 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $67,501
|
||||||||
and $66,607 at September 30, 2011 and December 31, 2010, respectively
|
213,858 | 218,040 | ||||||
Prepaid expenses and other assets
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26,380 | 16,859 | ||||||
Deferred tax assets
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71,996 | 69,800 | ||||||
Total current assets
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419,795 | 401,191 | ||||||
Property and equipment, net
|
145,611 | 139,860 | ||||||
Intangible assets, net
|
35,317 | 41,967 | ||||||
Goodwill
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35,679 | 348,047 | ||||||
Restricted cash, non-current
|
352 | 350 | ||||||
Deferred tax assets
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115,243 | 126,540 | ||||||
Other assets
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45,606 | 23,803 | ||||||
Total assets
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$ | 797,603 | $ | 1,081,758 |
September 30, 2011
|
December 31, 2010
|
|||||||
Current liabilities:
|
||||||||
Accounts payable
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$ | 49,659 | $ | 49,993 | ||||
Accrued compensation and benefits
|
49,328 | 61,518 | ||||||
Accrued self-insurance obligations, current portion
|
62,038 | 52,093 | ||||||
Other accrued liabilities
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56,457 | 53,945 | ||||||
Current portion of long-term debt and capital lease obligations
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11,033 | 11,050 | ||||||
Total current liabilities
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228,515 | 228,599 | ||||||
Accrued self-insurance obligations, net of current portion
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153,471 | 133,405 | ||||||
Long-term debt and capital lease obligations, net of current portion
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131,548 | 144,930 | ||||||
Unfavorable lease obligations, net
|
7,771 | 9,815 | ||||||
Other long-term liabilities
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52,394 | 52,566 | ||||||
Total liabilities
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573,699 | 569,315 | ||||||
Commitments and contingencies (Note 6)
|
||||||||
Stockholders' equity:
|
||||||||
Preferred stock of $.01 par value, authorized 3,333
|
||||||||
shares, zero shares issued and outstanding as of
|
||||||||
September 30, 2011 and December 31, 2010
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- | - | ||||||
Common stock of $.01 par value, authorized 41,667
|
||||||||
shares, 25,146 and 24,974 shares issued and outstanding
|
||||||||
as of September 30, 2011 and December 31, 2010, respectively
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251 | 250 | ||||||
Additional paid-in capital
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724,814 | 720,854 | ||||||
Accumulated deficit
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(500,008 | ) | (208,661 | ) | ||||
Accumulated other comprehensive loss, net
|
(1,153 | ) | - | |||||
Total stockholders' equity
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223,904 | 512,443 | ||||||
Total liabilities and stockholders' equity
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$ | 797,603 | $ | 1,081,758 |
For the
|
||||||||
Three Months Ended
|
||||||||
September 30, 2011
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September 30, 2010
|
|||||||
Total net revenues
|
$ | 485,850 | $ | 473,411 | ||||
Costs and expenses:
|
||||||||
Operating salaries and benefits
|
273,223 | 268,501 | ||||||
Self-insurance for workers’ compensation and general and
|
||||||||
professional liability insurance
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15,250 | 14,531 | ||||||
Operating administrative expenses
|
13,157 | 13,343 | ||||||
Other operating costs
|
100,636 | 97,333 | ||||||
Center rent expense
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37,184 | 18,954 | ||||||
General and administrative expenses
|
14,825 | 14,146 | ||||||
Depreciation and amortization
|
8,295 | 12,639 | ||||||
Provision for losses on accounts receivable
|
4,916 | 5,098 | ||||||
Interest, net of interest income of $103 and $59, respectively
|
4,835 | 10,527 | ||||||
Transaction costs
|
- | 4,747 | ||||||
Loss on sale of assets, net
|
809 | - | ||||||
Restructuring costs
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2,426 | - | ||||||
Loss on asset impairment
|
317,091 | - | ||||||
Total costs and expenses
|
792,647 | 459,819 | ||||||
(Loss) income before income taxes and discontinued operations
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(306,797 | ) | 13,592 | |||||
Income tax expense
|
1,569 | 5,559 | ||||||
(Loss) income from continuing operations
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(308,366 | ) | 8,033 | |||||
Discontinued operations:
|
||||||||
Loss from discontinued operations, net of related taxes
|
(359 | ) | (477 | ) | ||||
Loss on disposal of discontinued operations, net of related taxes
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(681 | ) | - | |||||
Loss from discontinued operations, net
|
(1,040 | ) | (477 | ) | ||||
Net (loss) income
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$ | (309,406 | ) | $ | 7,556 | |||
Basic earnings per common and common equivalent share:
|
||||||||
(Loss) income from continuing operations
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$ | (11.77 | ) | $ | 0.39 | |||
Loss from discontinued operations, net
|
(0.04 | ) | (0.02 | ) | ||||
Net (loss) income
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$ | (11.81 | ) | $ | 0.37 | |||
Diluted earnings per common and common equivalent share:
|
||||||||
(Loss) income from continuing operations
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$ | (11.77 | ) | $ | 0.39 | |||
Loss from discontinued operations, net
|
(0.04 | ) | (0.02 | ) | ||||
Net (loss) income
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$ | (11.81 | ) | $ | 0.37 | |||
Weighted average number of common and common
|
||||||||
equivalent shares outstanding:
|
||||||||
Basic
|
26,203 | 20,529 | ||||||
Diluted
|
26,203 | 20,550 |
For the
|
||||||||
Nine Months Ended
|
||||||||
September 30, 2011
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September 30, 2010
|
|||||||
Total net revenues
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$ | 1,457,421 | $ | 1,415,734 | ||||
Costs and expenses:
|
||||||||
Operating salaries and benefits
|
818,248 | 799,603 | ||||||
Self-insurance for workers’ compensation and general and
|
||||||||
professional liability insurance
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45,779 | 43,433 | ||||||
Operating administrative expenses
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39,913 | 38,932 | ||||||
Other operating costs
|
298,213 | 289,079 | ||||||
Center rent expense
|
111,110 | 56,306 | ||||||
General and administrative expenses
|
45,156 | 44,570 | ||||||
Depreciation and amortization
|
23,636 | 37,449 | ||||||
Provision for losses on accounts receivable
|
14,960 | 15,811 | ||||||
Interest, net of interest income of $244 and $222, respectively
|
14,689 | 34,105 | ||||||
Transaction costs
|
- | 6,995 | ||||||
Loss on sale of assets, net
|
809 | - | ||||||
Restructuring costs
|
2,728 | - | ||||||
Loss on asset impairment
|
317,091 | - | ||||||
Total costs and expenses
|
1,732,332 | 1,366,283 | ||||||
(Loss) income before income taxes and discontinued operations
|
(274,911 | ) | 49,451 | |||||
Income tax expense
|
14,642 | 19,990 | ||||||
(Loss) income from continuing operations
|
(289,553 | ) | 29,461 | |||||
Discontinued operations:
|
||||||||
Loss from discontinued operations, net of related taxes
|
(1,113 | ) | (1,734 | ) | ||||
Loss on disposal of discontinued operations, net
|
(681 | ) | - | |||||
Loss from discontinued operations, net
|
(1,794 | ) | (1,734 | ) | ||||
Net (loss) income
|
$ | (291,347 | ) | $ | 27,727 | |||
Basic earnings per common and common equivalent share:
|
||||||||
(Loss) income from continuing operations
|
$ | (11.12 | ) | $ | 1.69 | |||
Loss from discontinued operations, net
|
(0.07 | ) | (0.10 | ) | ||||
Net (loss) income
|
$ | (11.19 | ) | $ | 1.59 | |||
Diluted earnings per common and common equivalent share:
|
||||||||
Income from continuing operations
|
$ | (11.12 | ) | $ | 1.68 | |||
Loss from discontinued operations, net
|
(0.07 | ) | (0.09 | ) | ||||
Net (loss) income
|
$ | (11.19 | ) | $ | 1.59 | |||
Weighted average number of common and common
|
||||||||
equivalent shares outstanding:
|
||||||||
Basic
|
26,038 | 17,418 | ||||||
Diluted
|
26,038 | 17,485 |
For the
|
For the
|
|||||||||||||||
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30, 2011
|
September 30, 2010
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September 30, 2011
|
September 30, 2010
|
|||||||||||||
Cash flows from operating activities:
|
||||||||||||||||
Net (loss) income
|
$ | (309,406 | ) | $ | 7,556 | $ | (291,347 | ) | $ | 27,727 | ||||||
Adjustments to reconcile net (loss) income to net cash provided by
|
||||||||||||||||
operating activities, including discontinued operations:
|
||||||||||||||||
Depreciation and amortization
|
8,335 | 12,736 | 23,879 | 37,744 | ||||||||||||
Amortization of favorable and unfavorable lease intangibles
|
(492 | ) | (504 | ) | (1,466 | ) | (1,452 | ) | ||||||||
Provision for losses on accounts receivable
|
4,975 | 5,289 | 15,479 | 16,428 | ||||||||||||
Loss on sale of assets, including discontinued operations, net
|
1,925 | - | 1,925 | - | ||||||||||||
Loss on asset impairment
|
317,091 | - | 317,091 | - | ||||||||||||
Stock-based compensation expense
|
2,359 | 1,661 | 5,160 | 4,748 | ||||||||||||
Deferred taxes
|
(105 | ) | 3,286 | 9,871 | 14,976 | |||||||||||
Changes in operating assets and liabilities, net of acquisitions:
|
||||||||||||||||
Accounts receivable
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23 | (1,307 | ) | (12,555 | ) | (12,500 | ) | |||||||||
Restricted cash
|
52 | 2,769 | (1,876 | ) | 5,040 | |||||||||||
Prepaid expenses and other assets
|
(1,600 | ) | 5,399 | (1,410 | ) | 8,012 | ||||||||||
Accounts payable
|
1,595 | (4,909 | ) | (1,906 | ) | (3,628 | ) | |||||||||
Accrued compensation and benefits
|
(11,717 | ) | (2,117 | ) | (12,298 | ) | 1,945 | |||||||||
Accrued self-insurance obligations
|
3,618 | 199 | (294 | ) | 5,041 | |||||||||||
Income taxes payable
|
- | 1,267 | - | 1,605 | ||||||||||||
Other accrued liabilities
|
2,104 | 4,429 | 1,158 | 4,442 | ||||||||||||
Other long-term liabilities
|
(880 | ) | (676 | ) | (2,098 | ) | (5,775 | ) | ||||||||
Net cash provided by operating activities
|
17,877 | 35,078 | 49,313 | 104,353 | ||||||||||||
Cash flows from investing activities:
|
||||||||||||||||
Capital expenditures
|
(14,190 | ) | (13,774 | ) | (32,346 | ) | (41,488 | ) | ||||||||
Proceeds from sale of assets
|
1,809 | - | 1,809 | - | ||||||||||||
Acquisitions, net of cash acquired
|
- | - | (356 | ) | - | |||||||||||
Net cash used for investing activities
|
(12,381 | ) | (13,774 | ) | (30,893 | ) | (41,488 | ) | ||||||||
Cash flows from financing activities:
|
||||||||||||||||
Borrowings of long-term debt
|
- | 20,500 | - | 20,500 | ||||||||||||
Principal repayments of long-term debt and capital lease
|
||||||||||||||||
obligations
|
(2,806 | ) | (234,116 | ) | (8,404 | ) | (271,093 | ) | ||||||||
Payment to non-controlling interest
|
- | - | - | (2,025 | ) | |||||||||||
Distribution to non-controlling interest
|
- | - | - | (69 | ) | |||||||||||
Net proceeds from issuance of common stock
|
- | 226,001 | - | 226,001 | ||||||||||||
Deferred financing costs
|
- | (2,312 | ) | - | (2,312 | ) | ||||||||||
Net cash (used for) provided by financing activities
|
(2,806 | ) | 10,073 | (8,404 | ) | (28,998 | ) | |||||||||
Net increase in cash and cash equivalents
|
2,690 | 31,377 | 10,016 | 33,867 | ||||||||||||
Cash and cash equivalents at beginning of period
|
88,489 | 106,973 | 81,163 | 104,483 | ||||||||||||
Cash and cash equivalents at end of period
|
$ | 91,179 | $ | 138,350 | $ | 91,179 | $ | 138,350 | ||||||||
September 30, 2011
|
December 31, 2010
|
|||||||
Revolving loans
|
$ | - | $ | - | ||||
Mortgage notes payable due monthly through 2014, interest at
|
||||||||
a rate of 8.5%, collateralized by real property with
|
||||||||
carrying values totaling $1.8 million
|
2,260 | 7,979 | ||||||
Term loans
|
139,922 | 147,492 | ||||||
Capital leases
|
399 | 509 | ||||||
Total long-term obligations
|
142,581 | 155,980 | ||||||
Less amounts due within one year
|
(11,033 | ) | (11,050 | ) | ||||
Long-term obligations, net of current portion
|
$ | 131,548 | $ | 144,930 |
For the twelve months ending September 30:
|
||||
2012
|
$ | 11,033 | ||
2013
|
10,947 | |||
2014
|
10,679 | |||
2015
|
10,000 | |||
2016
|
10,000 | |||
Thereafter
|
89,922 | |||
$ | 142,581 |
Derivatives
|
|||||||||||
September 30, 2011
|
December 31, 2010
|
||||||||||
Balance Sheet
|
Balance Sheet
|
||||||||||
Location
|
Fair Value
|
Location
|
Fair Value
|
||||||||
Derivatives designated as
|
|||||||||||
hedging instruments:
|
|||||||||||
Interest rate hedging
|
Other Long-Term
|
||||||||||
agreements
|
Liabilities
|
$
|
1,922
|
N/A
|
$
|
-
|
Gain Reclassified from Accumulated
|
||||||||||||
Amount of (Loss)/Gain in
|
Other Comprehensive Income
|
|||||||||||
Other Comprehensive (Loss)/Income
|
to Income (ineffective portion)
|
|||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||
Derivatives designated as cash
|
||||||||||||
flow hedges:
|
||||||||||||
Interest rate hedging agreements
|
$
|
(535
|
)
|
$
|
1,020
|
$
|
-
|
$
|
-
|
Gain Reclassified from Accumulated
|
||||||||||||
Amount of (Loss)/Gain in
|
Other Comprehensive Income
|
|||||||||||
Other Comprehensive (Loss)/Income
|
to Income (ineffective portion)
|
|||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||
Derivatives designated as cash
|
||||||||||||
flow hedges:
|
||||||||||||
Interest rate hedging agreements
|
$
|
(1,153
|
)
|
$
|
3,029
|
$
|
-
|
$
|
-
|
September 30, 2011
|
December 31, 2010
|
|||||||||||||||
Carrying
|
Carrying
|
|||||||||||||||
Amount
|
Fair Value
|
Amount
|
Fair Value
|
|||||||||||||
Cash and cash equivalents
|
$ | 91,179 | $ | 91,179 | $ | 81,163 | $ | 81,163 | ||||||||
Restricted cash
|
$ | 16,734 | $ | 16,734 | $ | 15,679 | $ | 15,679 | ||||||||
Long-term debt and capital lease obligations,
|
||||||||||||||||
including current portion
|
$ | 142,581 | $ | 110,972 | $ | 155,980 | $ | 156,084 | ||||||||
Interest rate hedging agreements
|
$ | 1,922 | $ | 1,922 | $ | - | $ | - |
Level 1:
|
Unadjusted quoted market prices in active markets for identical assets or liabilities.
|
Level 2:
|
Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
|
Level 3:
|
Unobservable inputs for the asset or liability.
|
September 30, 2011
|
|||||||
Unadjusted Quoted
|
Significant Other
|
||||||
Market Prices
|
Observable Inputs
|
||||||
Total
|
(Level 1)
|
(Level 2)
|
|||||
Interest rate hedging agreements – liability
|
$
|
1,922
|
$
|
-
|
$
|
1,922
|
December 31, 2010
|
|||||||
Unadjusted Quoted
|
Significant Other
|
||||||
Market Prices
|
Observable Inputs
|
||||||
Total
|
(Level 1)
|
(Level 2)
|
|||||
Restricted cash – money market funds
|
$
|
1,465
|
$
|
1,465
|
$
|
-
|
For the Three Months Ended
|
|||||||||||||||||||
September 30, 2011
|
September 30, 2010
|
||||||||||||||||||
Inpatient
|
Inpatient
|
||||||||||||||||||
Services
|
Other
|
Total
|
Services
|
Other
|
Total
|
||||||||||||||
Net operating revenues
|
$
|
823
|
$
|
-
|
$
|
823
|
$
|
2,865
|
$
|
-
|
$
|
2,865
|
|||||||
Loss from discontinued operations, net (1)
|
$
|
(1,029
|
)
|
$
|
(11
|
)
|
$
|
(1,040
|
)
|
$
|
(468
|
)
|
$
|
(9
|
)
|
$
|
(477
|
)
|
|
(1)
|
Net of related tax benefit of $679 and $307, respectively
|
For the Nine Months Ended
|
|||||||||||||||||||
September 30, 2011
|
September 30, 2010
|
||||||||||||||||||
Inpatient
|
Inpatient
|
||||||||||||||||||
Services
|
Other
|
Total
|
Services
|
Other
|
Total
|
||||||||||||||
Net operating revenues
|
$
|
5,813
|
$
|
-
|
$
|
5,813
|
$
|
8,442
|
$
|
-
|
$
|
8,442
|
|||||||
Loss from discontinued operations, net (1)
|
$
|
(1,764
|
)
|
$
|
(30
|
)
|
$
|
(1,794
|
)
|
$
|
(1,674
|
)
|
$
|
(60
|
)
|
$
|
(1,734
|
)
|
|
(1)
|
Net of related tax benefit of $1,203 and $721, respectively
|
Professional
|
Workers’
|
||||||||
Liability
|
Compensation
|
Total
|
|||||||
Balance as of January 1, 2010
|
$
|
94,930
|
$
|
67,506
|
$
|
162,436
|
|||
Current year provision, continuing operations
|
7,341
|
7,100
|
14,441
|
||||||
Current year provision, discontinued operations
|
43
|
54
|
97
|
||||||
Claims paid, continuing operations
|
(4,219
|
)
|
(4,555
|
)
|
(8,774
|
)
|
|||
Claims paid, discontinued operations
|
(563
|
)
|
(633
|
)
|
(1,196
|
)
|
|||
Amounts paid for administrative services and other
|
(850
|
)
|
(1,696
|
)
|
(2,546
|
)
|
|||
Balance as of March 31, 2010
|
$
|
96,682
|
$
|
67,776
|
$
|
164,458
|
|||
Current year provision, continuing operations
|
7,339
|
7,122
|
14,461
|
||||||
Current year provision, discontinued operations
|
43
|
54
|
97
|
||||||
Claims paid, continuing operations
|
(3,605
|
)
|
(3,906
|
)
|
(7,511
|
)
|
|||
Claims paid, discontinued operations
|
(1,552
|
)
|
(690
|
)
|
(2,242
|
)
|
|||
Amounts paid for administrative services and other
|
(724
|
)
|
(1,620
|
)
|
(2,344
|
)
|
|||
Balance as of June 30, 2010
|
$
|
98,183
|
$
|
68,736
|
$
|
166,919
|
|||
Current year provision, continuing operations
|
7,128
|
7,403
|
14,531
|
||||||
Current year provision, discontinued operations
|
43
|
54
|
97
|
||||||
Claims paid, continuing operations
|
(5,533
|
)
|
(5,376
|
)
|
(10,909
|
)
|
|||
Claims paid, discontinued operations
|
(378
|
)
|
(438
|
)
|
(816
|
)
|
|||
Amounts paid for administrative services and other
|
(489
|
)
|
(1,585
|
)
|
(2,074
|
)
|
|||
Balance as of September 30, 2010
|
$
|
98,954
|
$
|
68,794
|
$
|
167,748
|
|||
For the Three Months Ended
|
For the Nine Months Ended
|
|||||||||||||||||
September 30, 2011
|
September 30, 2011
|
|||||||||||||||||
Professional
|
Workers’
|
Professional
|
Workers’
|
|||||||||||||||
Liability
|
Compensation
|
Total
|
Liability
|
Compensation
|
Total
|
|||||||||||||
Gross balance, beginning of period
|
$
|
109,315
|
$
|
96,186
|
$
|
205,501
|
$
|
113,971
|
$
|
96,585
|
$
|
210,556
|
||||||
Less: anticipated insurance recoveries
|
(2,273
|
)
|
(26,150
|
)
|
(28,423
|
)
|
(2,100
|
)
|
(28,100
|
)
|
(30,200
|
)
|
||||||
Net balance, beginning of period
|
$
|
107,042
|
$
|
70,036
|
$
|
177,078
|
$
|
111,871
|
$
|
68,485
|
$
|
180,356
|
||||||
Current year provision, continuing
|
||||||||||||||||||
operations
|
8,056
|
7,194
|
15,250
|
24,189
|
21,590
|
45,779
|
||||||||||||
Current year provision, discontinued
|
||||||||||||||||||
operations
|
90
|
75
|
165
|
255
|
222
|
477
|
||||||||||||
Claims paid, continuing operations
|
(6,959
|
)
|
(3,944
|
)
|
(10,903
|
)
|
(25,890
|
)
|
(12,817
|
)
|
(38,707
|
)
|
||||||
Claims paid, discontinued operations
|
(27
|
)
|
(281
|
)
|
(308
|
)
|
(614
|
)
|
(986
|
)
|
(1,600
|
)
|
||||||
Amounts paid for administrative
|
||||||||||||||||||
services and other
|
(790
|
)
|
(1,717
|
)
|
(2,507
|
)
|
(2,399
|
)
|
(5,131
|
)
|
(7,530
|
)
|
||||||
Net balance, end of period
|
$
|
107,412
|
$
|
71,363
|
$
|
178,775
|
$
|
107,412
|
$
|
71,363
|
$
|
178,775
|
||||||
Plus: anticipated insurance recoveries
|
2,273
|
26,150
|
28,423
|
2,273
|
26,150
|
28,423
|
||||||||||||
Gross balance, end of period
|
$
|
109,685
|
$
|
97,513
|
$
|
207,198
|
$
|
109,685
|
$
|
97,513
|
$
|
207,198
|
September 30, 2011
|
December 31, 2010
|
||||||||||||||||||
Professional
|
Workers’
|
|
|
Professional
|
Workers’
|
|||||||||||||||
Liability
|
Compensation
|
Total
|
|
|
Liability
|
Compensation
|
Total
|
|||||||||||||
Assets:
|
|
|
||||||||||||||||||
Restricted cash (1)
|
|
|
||||||||||||||||||
Current
|
$
|
6,232
|
$
|
10,056
|
$
|
16,288
|
|
|
$
|
3,659
|
$
|
10,864
|
$
|
14,523
|
||||||
Non-current
|
-
|
-
|
-
|
|
|
-
|
-
|
-
|
||||||||||||
$
|
6,232
|
$
|
10,056
|
$
|
16,288
|
|
|
$
|
3,659
|
$
|
10,864
|
$
|
14,523
|
|||||||
|
|
|||||||||||||||||||
Anticipated insurance recoveries (2)
|
|
|
||||||||||||||||||
Current
|
$
|
573
|
$
|
3,750
|
$
|
4,323
|
|
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
Non-current
|
1,700
|
22,400
|
24,100
|
|
|
-
|
-
|
-
|
||||||||||||
$
|
2,273
|
$
|
26,150
|
$
|
28,423
|
|
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
Total Assets
|
$
|
8,505
|
$
|
36,206
|
$
|
44,711
|
|
|
$
|
3,659
|
$
|
10,864
|
$
|
14,523
|
||||||
Liabilities (3)(4):
|
|
|
||||||||||||||||||
Self-insurance liabilities
|
|
|
||||||||||||||||||
Current
|
$
|
30,763
|
$
|
22,964
|
$
|
53,727
|
|
|
$
|
25,942
|
$
|
21,009
|
$
|
46,951
|
||||||
Non-current
|
78,922
|
74,549
|
153,471
|
|
|
85,929
|
47,476
|
133,405
|
||||||||||||
Total Liabilities
|
$
|
109,685
|
$
|
97,513
|
$
|
207,198
|
|
|
$
|
111,871
|
$
|
68,485
|
$
|
180,356
|
(1)
|
Total restricted cash includes cash collateral deposits and other cash held by third parties. Total restricted cash above excludes $446 and $1,156 at September 30, 2011 and December 31, 2010, respectively, held for bank collateral, various mortgages, bond payments and capital expenditures on HUD insured buildings.
|
|
(2)
|
Anticipated insurance recovery assets are presented as Other Assets (both current and long-term) in our September 30, 2011 consolidated balance sheet. See the Recent Accounting Pronouncements discussed in Note 1- “Nature of Business” for additional information.
|
|
(3)
|
Total self-insurance liabilities above exclude $8,311 and $5,142 at September 30, 2011 and December 31, 2010, respectively, related to our employee health insurance liabilities.
|
|
(4)
|
Total self-insurance liabilities for workers’ compensation claims are collateralized, in addition to the restricted cash, by letters of credit of $58,077 as of September 30, 2011 and $59,066 as of December 31, 2010.
|
As of and for the
|
||||||||||||||||||
Three Months Ended
|
||||||||||||||||||
September 30, 2011
|
||||||||||||||||||
Rehabilitation
|
Medical
|
|||||||||||||||||
Inpatient
|
Therapy
|
Staffing
|
Intersegment
|
|||||||||||||||
Services
|
Services
|
Services
|
Corporate
|
Eliminations
|
Consolidated
|
|||||||||||||
Revenues from external customers
|
$
|
435,271
|
$
|
29,568
|
$
|
20,996
|
$
|
15
|
$
|
-
|
$
|
485,850
|
||||||
Intersegment revenues
|
-
|
32,791
|
757
|
-
|
(33,548
|
)
|
-
|
|||||||||||
Total net revenues
|
435,271
|
62,359
|
21,753
|
15
|
(33,548
|
)
|
485,850
|
|||||||||||
Operating salaries and benefits
|
202,694
|
54,298
|
16,231
|
-
|
-
|
273,223
|
||||||||||||
Self-insurance for workers’
|
||||||||||||||||||
compensation and general and
|
||||||||||||||||||
professional liability insurance
|
14,206
|
633
|
344
|
67
|
-
|
15,250
|
||||||||||||
Other operating costs
|
128,821
|
2,374
|
2,989
|
-
|
(33,548
|
)
|
100,636
|
|||||||||||
General and administrative expenses(1)
|
10,308
|
2,309
|
540
|
14,825
|
-
|
27,982
|
||||||||||||
Provision for losses on
|
||||||||||||||||||
accounts receivable
|
4,772
|
73
|
71
|
-
|
-
|
4,916
|
||||||||||||
Segment operating income (loss)
|
$
|
74,470
|
$
|
2,672
|
$
|
1,578
|
$
|
(14,877
|
)
|
$
|
-
|
$
|
63,843
|
|||||
Center rent expense
|
36,874
|
140
|
170
|
-
|
-
|
37,184
|
||||||||||||
Depreciation and amortization
|
6,902
|
236
|
187
|
970
|
-
|
8,295
|
||||||||||||
Interest, net
|
(32
|
)
|
-
|
-
|
4,867
|
-
|
4,835
|
|||||||||||
Net segment income (loss)
|
$
|
30,726
|
$
|
2,296
|
$
|
1,221
|
$
|
(20,714
|
)
|
$
|
-
|
$
|
13,529
|
|||||
Identifiable segment assets
|
$
|
395,840
|
$
|
16,254
|
$
|
20,039
|
$
|
343,550
|
$
|
20,881
|
$
|
796,564
|
||||||
Goodwill
|
$
|
31,071
|
$
|
75
|
$
|
4,533
|
$
|
-
|
$
|
-
|
$
|
35,679
|
||||||
Segment capital expenditures
|
$
|
12,934
|
$
|
149
|
$
|
63
|
$
|
1,044
|
$
|
-
|
$
|
14,190
|
As of and for the
|
||||||||||||||||||
Three Months Ended
|
||||||||||||||||||
September 30, 2010
|
||||||||||||||||||
Rehabilitation
|
Medical
|
|||||||||||||||||
Inpatient
|
Therapy
|
Staffing
|
Intersegment
|
|||||||||||||||
Services
|
Services
|
Services
|
Corporate
|
Eliminations
|
Consolidated
|
|||||||||||||
Revenues from external customers
|
$
|
421,573
|
$
|
30,343
|
$
|
21,481
|
$
|
14
|
$
|
-
|
$
|
473,411
|
||||||
Intersegment revenues
|
-
|
21,397
|
724
|
-
|
(22,121
|
)
|
-
|
|||||||||||
Total net revenues
|
421,573
|
51,740
|
22,205
|
14
|
(22,121
|
)
|
473,411
|
|||||||||||
Operating salaries and benefits
|
209,375
|
42,860
|
16,266
|
-
|
-
|
268,501
|
||||||||||||
Self-insurance for workers’
|
||||||||||||||||||
compensation and general and
|
||||||||||||||||||
professional liability insurance
|
13,712
|
435
|
323
|
61
|
-
|
14,531
|
||||||||||||
Other operating costs
|
114,253
|
1,952
|
3,249
|
-
|
(22,121
|
)
|
97,333
|
|||||||||||
General and administrative expenses(1)
|
10,778
|
1,939
|
627
|
18,892
|
-
|
32,236
|
||||||||||||
Provision for losses on
|
||||||||||||||||||
accounts receivable
|
4,639
|
297
|
162
|
-
|
-
|
5,098
|
||||||||||||
Segment operating income (loss)
|
$
|
68,816
|
$
|
4,257
|
$
|
1,578
|
$
|
(18,939
|
)
|
$
|
-
|
$
|
55,712
|
|||||
Center rent expense
|
18,629
|
123
|
202
|
-
|
-
|
18,954
|
||||||||||||
Depreciation and amortization
|
11,536
|
173
|
181
|
749
|
-
|
12,639
|
||||||||||||
Interest, net
|
2,483
|
-
|
-
|
8,044
|
-
|
10,527
|
||||||||||||
Net segment income (loss)
|
$
|
36,168
|
$
|
3,961
|
$
|
1,195
|
$
|
(27,732
|
)
|
$
|
-
|
$
|
13,592
|
|||||
Identifiable segment assets
|
$
|
1,174,539
|
$
|
15,047
|
$
|
20,631
|
$
|
329,881
|
$
|
20,867
|
$
|
1,560,965
|
||||||
Goodwill
|
$
|
332,140
|
$
|
75
|
$
|
4,533
|
$
|
1,616
|
$
|
-
|
$
|
338,364
|
||||||
Segment capital expenditures
|
$
|
12,738
|
$
|
370
|
$
|
41
|
$
|
625
|
$
|
-
|
$
|
13,774
|
As of and for the
|
||||||||||||||||||
Nine Months Ended
|
||||||||||||||||||
September 30, 2011
|
||||||||||||||||||
Rehabilitation
|
Medical
|
|||||||||||||||||
Inpatient
|
Therapy
|
Staffing
|
Intersegment
|
|||||||||||||||
Services
|
Services
|
Services
|
Corporate
|
Eliminations
|
Consolidated
|
|||||||||||||
Revenues from external customers
|
$
|
1,302,431
|
$
|
89,645
|
$
|
65,309
|
$
|
36
|
$
|
-
|
$
|
1,457,421
|
||||||
Intersegment revenues
|
-
|
98,710
|
2,079
|
-
|
(100,789
|
)
|
-
|
|||||||||||
Total net revenues
|
1,302,431
|
188,355
|
67,388
|
36
|
(100,789
|
)
|
1,457,421
|
|||||||||||
Operating salaries and benefits
|
605,534
|
161,925
|
50,789
|
-
|
-
|
818,248
|
||||||||||||
Self-insurance for workers’
|
||||||||||||||||||
compensation and general and
|
||||||||||||||||||
professional liability insurance
|
42,614
|
1,918
|
1,043
|
204
|
-
|
45,779
|
||||||||||||
Other operating costs
|
383,372
|
7,082
|
8,548
|
-
|
(100,789
|
)
|
298,213
|
|||||||||||
General and administrative expenses(1)
|
30,970
|
7,139
|
1,804
|
45,156
|
-
|
85,069
|
||||||||||||
Provision for losses on
|
||||||||||||||||||
accounts receivable
|
14,200
|
713
|
47
|
-
|
-
|
14,960
|
||||||||||||
Segment operating income (loss)
|
$
|
225,741
|
$
|
9,578
|
$
|
5,157
|
$
|
(45,324
|
)
|
$
|
-
|
$
|
195,152
|
|||||
Center rent expense
|
110,203
|
394
|
513
|
-
|
-
|
111,110
|
||||||||||||
Depreciation and amortization
|
19,726
|
689
|
561
|
2,660
|
-
|
23,636
|
||||||||||||
Interest, net
|
(68
|
)
|
-
|
1
|
14,756
|
-
|
14,689
|
|||||||||||
Net segment income (loss)
|
$
|
95,880
|
$
|
8,495
|
$
|
4,082
|
$
|
(62,740
|
)
|
$
|
-
|
$
|
45,717
|
|||||
Identifiable segment assets
|
$
|
395,840
|
$
|
16,254
|
$
|
20,039
|
$
|
343,550
|
$
|
20,881
|
$
|
796,564
|
||||||
Goodwill
|
$
|
31,071
|
$
|
75
|
$
|
4,533
|
$
|
-
|
$
|
-
|
$
|
35,679
|
||||||
Segment capital expenditures
|
$
|
27,310
|
$
|
1,102
|
$
|
135
|
$
|
3,799
|
$
|
-
|
$
|
32,346
|
As of and for the
|
||||||||||||||||||
Nine Months Ended
|
||||||||||||||||||
September 30, 2010
|
||||||||||||||||||
Rehabilitation
|
Medical
|
|||||||||||||||||
Inpatient
|
Therapy
|
Staffing
|
Intersegment
|
|||||||||||||||
Services
|
Services
|
Services
|
Corporate
|
Eliminations
|
Consolidated
|
|||||||||||||
Revenues from external customers
|
$
|
1,258,271
|
$
|
89,723
|
$
|
67,712
|
$
|
28
|
$
|
-
|
$
|
1,415,734
|
||||||
Intersegment revenues
|
-
|
63,584
|
1,364
|
-
|
(64,948
|
)
|
-
|
|||||||||||
Total net revenues
|
1,258,271
|
153,307
|
69,076
|
28
|
(64,948
|
)
|
1,415,734
|
|||||||||||
Operating salaries and benefits
|
622,489
|
126,670
|
50,444
|
-
|
-
|
799,603
|
||||||||||||
Self-insurance for workers’
|
||||||||||||||||||
compensation and general and
|
||||||||||||||||||
professional liability insurance
|
40,999
|
1,298
|
953
|
183
|
-
|
43,433
|
||||||||||||
Other operating costs
|
338,182
|
5,947
|
9,898
|
-
|
(64,948
|
)
|
289,079
|
|||||||||||
General and administrative expenses(1)
|
30,907
|
6,065
|
1,959
|
51,566
|
-
|
90,497
|
||||||||||||
Provision for losses on
|
||||||||||||||||||
accounts receivable
|
14,904
|
722
|
185
|
-
|
-
|
15,811
|
||||||||||||
Segment operating income (loss)
|
$
|
210,790
|
$
|
12,605
|
$
|
5,637
|
$
|
(51,721
|
)
|
$
|
-
|
$
|
177,311
|
|||||
Center rent expense
|
55,326
|
364
|
616
|
-
|
-
|
56,306
|
||||||||||||
Depreciation and amortization
|
34,037
|
484
|
543
|
2,385
|
-
|
37,449
|
||||||||||||
Interest, net
|
7,826
|
-
|
(1
|
)
|
26,280
|
-
|
34,105
|
|||||||||||
Net segment income (loss)
|
$
|
113,601
|
$
|
11,757
|
$
|
4,479
|
$
|
(80,386
|
)
|
$
|
-
|
$
|
49,451
|
|||||
Identifiable segment assets
|
$
|
1,174,539
|
$
|
15,047
|
$
|
20,631
|
$
|
329,881
|
$
|
20,867
|
$
|
1,560,965
|
||||||
Goodwill
|
$
|
332,140
|
$
|
75
|
$
|
4,533
|
$
|
1,616
|
$
|
-
|
$
|
338,364
|
||||||
Segment capital expenditures
|
$
|
38,609
|
$
|
700
|
$
|
190
|
$
|
1,989
|
$
|
-
|
$
|
41,488
|
For the Three Months Ended
|
||||||
September 30,
|
||||||
2011
|
2010
|
|||||
Net segment income
|
$
|
13,529
|
$
|
13,592
|
||
Loss on sale of assets, net
|
809
|
-
|
||||
Restructuring costs
|
2,426
|
-
|
||||
Loss on asset impairment
|
317,091
|
-
|
||||
Consolidated (loss) income before income taxes and
|
||||||
discontinued operations
|
$
|
(306,797
|
)
|
$
|
13,592
|
For the Nine Months Ended
|
||||||
September 30,
|
||||||
2011
|
2010
|
|||||
Net segment income
|
$
|
45,717
|
$
|
49,451
|
||
Loss on sale of assets, net
|
809
|
-
|
||||
Restructuring costs
|
2,728
|
-
|
||||
Loss on asset impairment
|
317,091
|
-
|
||||
Consolidated (loss) income before income taxes and
|
||||||
discontinued operations
|
$
|
(274,911
|
)
|
$
|
49,451
|
ITEM 2.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
For the
|
For the
|
|||||||||||||||||||||||||||||||
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||||||||||||||||||
Sources of Revenues
|
September 30, 2011
|
September 30, 2010
|
September 30, 2011
|
September 30, 2010
|
||||||||||||||||||||||||||||
Consolidated:
|
||||||||||||||||||||||||||||||||
Medicaid
|
$ | 191,821 | 39.5 | % | $ | 193,013 | 40.8 | % | $ | 562,981 | 38.6 | % | $ | 569,222 | 40.2 | % | ||||||||||||||||
Medicare
|
154,953 | 31.9 | 137,606 | 29.1 | 472,652 | 32.4 | 419,846 | 29.7 | ||||||||||||||||||||||||
Private pay and other
|
114,689 | 23.6 | 118,650 | 25.0 | 348,026 | 23.9 | 354,190 | 25.0 | ||||||||||||||||||||||||
Managed care and
|
||||||||||||||||||||||||||||||||
commercial insurance
|
24,387 | 5.0 | 24,142 | 5.1 | 73,762 | 5.1 | 72,476 | 5.1 | ||||||||||||||||||||||||
Total
|
$ | 485,850 | 100.0 | % | $ | 473,411 | 100.0 | % | $ | 1,457,421 | 100.0 | % | $ | 1,415,734 | 100.0 | % | ||||||||||||||||
Inpatient Only:
|
||||||||||||||||||||||||||||||||
Medicaid
|
$ | 191,799 | 44.1 | % | $ | 192,980 | 45.8 | % | $ | 562,889 | 43.2 | % | $ | 569,125 | 45.2 | % | ||||||||||||||||
Medicare
|
150,016 | 34.5 | 132,831 | 31.5 | 458,589 | 35.2 | 405,896 | 32.3 | ||||||||||||||||||||||||
Private pay and other
|
69,320 | 15.9 | 71,889 | 17.0 | 207,998 | 16.0 | 211,619 | 16.8 | ||||||||||||||||||||||||
Managed care and
|
||||||||||||||||||||||||||||||||
commercial insurance
|
24,136 | 5.5 | 23,873 | 5.7 | 72,955 | 5.6 | 71,631 | 5.7 | ||||||||||||||||||||||||
Total
|
$ | 435,271 | 100.0 | % | $ | 421,573 | 100.0 | % | $ | 1,302,431 | 100.0 | % | $ | 1,258,271 | 100.0 | % |
For the
|
For the
|
||||||||||
Three Months Ended
|
Nine Months Ended
|
||||||||||
September 30, 2011
|
September 30, 2010
|
September 30, 2011
|
September 30, 2010
|
||||||||
$
|
519.12
|
$
|
463.45
|
$
|
519.70
|
$
|
464.51
|
|
·
|
If inpatient days of care provided to all patients at a hospice exceed 20% of the total days of hospice care provided by that hospice for an annual period, then payment for days in excess of this limit are paid for at the lower routine home care rate. None of our hospice programs exceeded the payment limits on inpatient services for 2010 or 2009.
|
|
·
|
Overall payments made by Medicare on a per hospice program basis are subject to a cap amount at the end of an annual period. The cap amount is calculated by multiplying the number of first time Medicare hospice beneficiaries during the year by the Medicare per beneficiary cap amount, resulting in that hospice’s aggregate cap, which is the allowable amount of total Medicare payments that hospice can receive for that cap year. If a hospice program exceeds its aggregate cap, then the hospice must repay the excess.
|
For the
|
For the
|
||||||||||
Three Months Ended
|
Nine Months Ended
|
||||||||||
September 30, 2011
|
September 30, 2010
|
September 30, 2011
|
September 30, 2010
|
||||||||
$
|
174.89
|
$
|
173.11
|
$
|
173.73
|
$
|
172.91
|
For the
|
For the
|
||||||||||
Three Months Ended
|
Nine Months Ended
|
||||||||||
September 30, 2011
|
September 30, 2010
|
September 30, 2011
|
September 30, 2010
|
||||||||
$
|
159.64
|
$
|
159.20
|
$
|
158.81
|
$
|
159.30
|
For the
|
For the
|
||||||||||
Three Months Ended
|
Nine Months Ended
|
||||||||||
September 30, 2011
|
September 30, 2010
|
September 30, 2011
|
September 30, 2010
|
||||||||
$
|
382.31
|
$
|
375.78
|
$
|
375.49
|
$
|
368.92
|
For the
|
For the
|
||||||||||
Three Months Ended
|
Nine Months Ended
|
||||||||||
September 30, 2011
|
September 30, 2010
|
September 30, 2011
|
September 30, 2010
|
||||||||
$
|
188.20
|
$
|
186.17
|
$
|
191.40
|
$
|
188.16
|
For the Three
|
For the Three
|
As a Percentage of Net Revenues
|
||||||||||||||
Months Ended
|
Months Ended
|
|||||||||||||||
September 30, 2011
|
September 30, 2010
|
September 30, 2011
|
September 30, 2010
|
|||||||||||||
Total net revenues
|
$ | 485,850 | $ | 473,411 | 100.0 | % | 100.0 | % | ||||||||
Costs and expenses:
|
||||||||||||||||
Operating salaries and benefits
|
273,223 | 268,501 | 56.2 | 56.7 | ||||||||||||
Self-insurance for workers’ compensation and
|
||||||||||||||||
general and professional liabilities
|
15,250 | 14,531 | 3.1 | 3.1 | ||||||||||||
Other operating costs (1)
|
113,793 | 110,676 | 23.4 | 23.4 | ||||||||||||
Center rent expense
|
37,184 | 18,954 | 7.7 | 4.0 | ||||||||||||
General and administrative expenses
|
14,825 | 14,146 | 3.1 | 3.0 | ||||||||||||
Depreciation and amortization
|
8,295 | 12,639 | 1.7 | 2.7 | ||||||||||||
Provision for losses on accounts receivable
|
4,916 | 5,098 | 1.0 | 1.1 | ||||||||||||
Interest, net
|
4,835 | 10,527 | 1.0 | 2.2 | ||||||||||||
Other (2)
|
320,326 | 4,747 | 65.9 | 1.0 | ||||||||||||
(Loss) income before income taxes and
discontinued operations
|
(306,797 | ) | 13,592 | (63.1 | ) | 2.9 | ||||||||||
Income tax expense
|
1,569 | 5,559 | 0.3 | 1.2 | ||||||||||||
(Loss) income from continuing operations
|
(308,366 | ) | 8,033 | (63.5 | ) | 1.7 | ||||||||||
Loss from discontinued operations, net
|
(1,040 | ) | (477 | ) | (0.2 | ) | (0.1 | ) | ||||||||
Net (loss) income
|
$ | (309,406 | ) | $ | 7,556 | (63.7 | )% | 1.6 | % | |||||||
Supplemental Financial Information (3):
|
||||||||||||||||
EBITDA
|
$ | (293,667 | ) | $ | 36,758 | (60.4 | )% | 7.8 | % | |||||||
Adjusted EBITDA
|
$ | 26,659 | $ | 36,758 | 5.5 | % | 7.8 | % | ||||||||
Adjusted EBITDAR
|
$ | 63,843 | $ | 55,712 | 13.1 | % | 11.8 | % |
For the Nine
|
For the Nine
|
As a Percentage of Net Revenues
|
||||||||||||||
Months Ended
|
Months Ended
|
|||||||||||||||
September 30, 2011
|
September 30, 2010
|
September 30, 2011
|
September 30, 2010
|
|||||||||||||
Total net revenues
|
$ | 1,457,421 | $ | 1,415,734 | 100.0 | % | 100.0 | % | ||||||||
Costs and expenses:
|
||||||||||||||||
Operating salaries and benefits
|
818,248 | 799,603 | 56.1 | 56.5 | ||||||||||||
Self-insurance for workers’ compensation and
|
||||||||||||||||
general and professional liabilities
|
45,779 | 43,433 | 3.1 | 3.1 | ||||||||||||
Other operating costs (1)
|
338,126 | 328,011 | 23.2 | 23.1 | ||||||||||||
Center rent expense
|
111,110 | 56,306 | 7.6 | 4.0 | ||||||||||||
General and administrative expenses
|
45,156 | 44,570 | 3.1 | 3.1 | ||||||||||||
Depreciation and amortization
|
23,636 | 37,449 | 1.6 | 2.6 | ||||||||||||
Provision for losses on accounts receivable
|
14,960 | 15,811 | 1.0 | 1.1 | ||||||||||||
Interest, net
|
14,689 | 34,105 | 1.0 | 2.4 | ||||||||||||
Other (2)
|
320,628 | 6,995 | 22.0 | 0.5 | ||||||||||||
(Loss) income before income taxes and
discontinued operations
|
(274,911 | ) | 49,451 | (18.9 | ) | 3.5 | ||||||||||
Income tax expense
|
14,642 | 19,990 | 1.0 | 1.4 | ||||||||||||
(Loss) income from continuing operations
|
(289,553 | ) | 29,461 | (19.9 | ) | 2.1 | ||||||||||
Loss from discontinued operations, net
|
(1,794 | ) | (1,734 | ) | (0.1 | ) | (0.1 | ) | ||||||||
Net (loss) income
|
$ | (291,347 | ) | $ | 27,727 | (20.0 | )% | 2.0 | % | |||||||
Supplemental Financial Information (3):
|
||||||||||||||||
EBITDA
|
$ | (236,586 | ) | $ | 121,005 | (16.2 | )% | 8.5 | % | |||||||
Adjusted EBITDA
|
$ | 84,042 | $ | 121,005 | 5.8 | % | 8.5 | % | ||||||||
Adjusted EBITDAR
|
$ | 195,152 | $ | 177,311 | 13.4 | % | 12.5 | % |
|
·
|
they do not reflect our cash expenditures, or future requirements for capital expenditures, or contractual commitments;
|
|
·
|
they do not reflect changes in, or cash requirements for, our working capital needs;
|
|
·
|
they do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
|
|
·
|
they do not reflect any income tax payments we may be required to make;
|
|
·
|
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future in order to remain competitive in the market, and EBITDA, Adjusted EBITDA and Adjusted EBITDAR do not reflect any cash requirements for such replacements;
|
|
·
|
they are not adjusted for all non-cash income or expense items that are reflected in our consolidated statements of cash flows; and
|
|
·
|
other companies in our industry may calculate these measures differently than we do, which may limit their usefulness as comparative measures.
|
For the Three Months Ended
|
For the Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Net (loss) income
|
$ | (309,406 | ) | $ | 7,556 | $ | (291,347 | ) | $ | 27,727 | ||||||
Plus:
|
||||||||||||||||
Loss from discontinued operations, net
|
1,040 | 477 | 1,794 | 1,734 | ||||||||||||
Income tax expense
|
1,569 | 5,559 | 14,642 | 19,990 | ||||||||||||
Interest expense, net
|
4,835 | 10,527 | 14,689 | 34,105 | ||||||||||||
Depreciation and amortization
|
8,295 | 12,639 | 23,636 | 37,449 | ||||||||||||
EBITDA
|
$ | (293,667 | ) | $ | 36,758 | $ | (236,586 | ) | $ | 121,005 | ||||||
Plus:
|
||||||||||||||||
Loss on sale of assets, net
|
809 | - | 809 | - | ||||||||||||
Restructuring costs
|
2,426 | - | 2,728 | - | ||||||||||||
Loss on asset impairment
|
317,091 | - | 317,091 | - | ||||||||||||
Adjusted EBITDA
|
$ | 26,659 | $ | 36,758 | $ | 84,042 | $ | 121,005 | ||||||||
Plus:
|
||||||||||||||||
Center rent expense
|
37,184 | 18,954 | 111,110 | 56,306 | ||||||||||||
Adjusted EBITDAR
|
$ | 63,843 | $ | 55,712 | $ | 195,152 | $ | 177,311 |
2011
|
2010
|
|||||||||||||||
Inpatient Services
|
$ | 435,271 | 89.6 | % | $ | 421,573 | 89.1 | % | ||||||||
Rehabilitation Therapy Services
|
62,359 | 12.8 | 51,740 | 10.9 | ||||||||||||
Medical Staffing Services
|
21,753 | 4.5 | 22,205 | 4.7 | ||||||||||||
Corporate
|
15 | - | 14 | - | ||||||||||||
Intersegment Eliminations
|
(33,548 | ) | (6.9 | ) | (22,121 | ) | (4.7 | ) | ||||||||
Total net revenues
|
$ | 485,850 | 100.0 | % | $ | 473,411 | 100.0 | % |
2011
|
2010
|
|||||||
Rehabilitation Therapy Services
|
$ | 32,791 | $ | 21,397 | ||||
Medical Staffing Services
|
757 | 724 | ||||||
Total intersegment revenue
|
$ | 33,548 | $ | 22,121 |
2011
|
2010
|
|||||||
Inpatient Services
|
$ | 30,726 | $ | 36,168 | ||||
Rehabilitation Therapy Services
|
2,296 | 3,961 | ||||||
Medical Staffing Services
|
1,221 | 1,195 | ||||||
Net segment income before Corporate
|
34,243 | 41,324 | ||||||
Corporate
|
(20,714 | ) | (27,732 | ) | ||||
Net segment income
|
$ | 13,529 | $ | 13,592 |
-
|
a $14.4 million increase in Medicare revenues as a result of a $13.3 million increase in revenues related to Medicare Part A rates, a $0.8 million increase due to an increased customer base, and a $0.3 million increase in Medicare Part B revenues;
|
-
|
a $3.6 million increase in hospice revenues due to internal growth and an acquisition of a hospice company in December 2010;
|
-
|
a $0.4 million increase in managed care and commercial insurance revenues driven primarily by improved rates;
|
-
|
a $0.2 million increase in other revenue including from veterans’ coverage and other various inpatient services; and
|
-
|
a $0.1 million increase in Medicaid revenues consisting of a $1.5 million increase related to higher rates, offset in part by a $1.4 million from a decrease in customer base;
|
Offset in part by:
|
-
|
a $2.7 million decrease due to closure of operations in 2010 and 2011; and
|
-
|
a $2.3 million decrease in private revenues primarily due to a lower customer base.
|
-
|
a decrease of $7.9 million in salaries, wages and benefits due primarily to the transfer of therapists from our Inpatient Services segment to our Rehabilitation Services segment, as well as the outsourcing of housekeeping services;
|
Offset in part by:
|
|
-
|
increases in compensation and related benefits of $1.2 million due to merit and cost of living adjustments.
|
-
|
a $10.5 million increase in contract labor resulting from use of therapists in our Rehabilitation Therapy Services segment who were formerly employed by our Inpatient Services segment;
|
-
|
a $1.3 million increase in purchased services primarily related to outsourced housekeeping contracts;
|
-
|
a $1.2 million increase in other supplies, principally food and oxygen;
|
-
|
a $1.2 million increase in provider taxes due to increased provider tax rates from a number of states in which we operate;
|
-
|
a $0.5 million increase in equipment rental costs; and
|
-
|
a $0.4 million increase in utility costs;
|
Offset in part by:
|
|
-
|
a $0.6 million decrease in administrative costs to manage the therapists that transferred to our Rehabilitation Therapy Services segment.
|
-
|
an increase of $11.6 million attributable to increased billable minutes, primarily due to the addition of 48 new affiliated contracts resulting from the transfer of therapy employees from our Inpatient Services segment to our Rehabilitation Therapy Services segment;
|
Offset in part by:
|
|
-
|
a decrease of $0.7 million due to a lower revenue per minute. This rate decrease was due to the negative impacts of the MPPR rule, which reduced Medicare Part B rates, that was put in place January 2011 in the amount of $1.6 million. The effects were partially offset by nonaffiliated and affiliated rate increases as well as other Part B rate increases; and
|
-
|
a decrease in other revenue of $0.2 million primarily due to a one-time legal settlement received in 2010.
|
-
|
a decrease of $0.2 million due to a decline in therapy and pharmacy staffing lines of business;
|
-
|
a decrease of $0.1 million due to a decrease in nursing hours; and
|
-
|
a decrease of $0.1 million due to lower fees earned from temporary placement of physicians.
|
2011
|
2010
|
|||||||||||||||
Inpatient Services
|
$ | 1,302,431 | 89.4 | % | $ | 1,258,271 | 88.9 | % | ||||||||
Rehabilitation Therapy Services
|
188,355 | 12.9 | 153,307 | 10.8 | ||||||||||||
Medical Staffing Services
|
67,388 | 4.6 | 69,076 | 4.9 | ||||||||||||
Corporate
|
36 | - | 28 | - | ||||||||||||
Intersegment Eliminations
|
(100,789 | ) | (6.9 | ) | (64,948 | ) | (4.6 | ) | ||||||||
Total net revenues
|
$ | 1,457,421 | 100.0 | % | $ | 1,415,734 | 100.0 | % |
2011
|
2010
|
|||||||
Rehabilitation Therapy Services
|
$ | 98,710 | $ | 63,584 | ||||
Medical Staffing Services
|
2,079 | 1,364 | ||||||
Total intersegment revenue
|
$ | 100,789 | $ | 64,948 |
2011
|
2010
|
|||||||
Inpatient Services
|
$ | 95,880 | $ | 113,601 | ||||
Rehabilitation Therapy Services
|
8,495 | 11,757 | ||||||
Medical Staffing Services
|
4,082 | 4,479 | ||||||
Net segment income before Corporate
|
108,457 | 129,837 | ||||||
Corporate
|
(62,740 | ) | (80,386 | ) | ||||
Net segment income
|
$ | 45,717 | $ | 49,451 |
-
|
an increase of $45.9 million in Medicare revenues as a result of a $40.5 million increase in revenues related to Medicare Part A rates, a $5.1 million increase due to an increased customer base, and a $0.3 million increase in Medicare Part B revenues;
|
-
|
a $10.0 million increase in hospice revenues due to internal growth and an acquisition of a hospice company in December 2010;
|
-
|
a $1.9 million increase in other revenue including from veterans’ coverage and other various inpatient services; and
|
-
|
a $1.7 million increase in managed care and commercial insurance revenues driven primarily by improved rates;
|
Offset in part by:
|
|
-
|
an $8.1 million decrease due to closure of operations in 2010 and 2011;
|
-
|
a decrease of $4.5 million in private revenues primarily due to a lower customer base; and
|
-
|
a $2.8 million decrease in Medicaid revenues consisting of a $1.3 million increase related to higher rates, offset by a $4.1 million from a decrease in customer base.
|
-
|
a decrease of $23.7 million in salaries, wages and benefits due primarily to the transfer of therapists from our Inpatient Services segment to our Rehabilitation Services segment, as well as the outsourcing of housekeeping services;
|
Offset in part by:
|
|
-
|
an increase in salaries and related benefits of $3.9 million related to an acquisition of a hospice company in December 2010; and
|
-
|
increases in compensation and related benefits of $2.8 million due to merit and cost of living adjustments.
|
-
|
a $34.0 million increase in contract labor resulting from use of therapists in with our Rehabilitation Therapy Services segment who were formerly employed by our Inpatient Services segment;
|
-
|
a $4.6 million increase in purchased services primarily related to outsourced housekeeping contracts;
|
-
|
a $4.4 million increase in other supplies, principally food and oxygen;
|
-
|
a $3.5 million increase in provider taxes due to increased provider tax rates from a number of states in which we operate;
|
-
|
a $1.5 million increase in utility costs; and
|
-
|
a $0.7 million increase in equipment rentals costs;
|
Offset in part by:
|
|
-
|
a $2.0 million decrease in administrative costs to manage the therapists that transferred to our Rehabilitation Therapy Services segment;
|
-
|
a $0.9 million decrease in education and training costs; and
|
-
|
a $0.6 million decrease in real estate tax expense.
|
-
|
an increase of $35.6 million attributable to increased billable minutes, primarily due to the addition of 48 new affiliated contracts resulting from the transfer of therapy employees from our Inpatient Services segment to our Rehabilitation Therapy Services segment; and
|
Offset in part by:
|
|
-
|
a decrease of $0.5 million attributable to a lower revenue per minute. This rate decrease was due to the negative impacts of the MPPR rule, which reduced Medicare Part B rates, that was put in place January 2011 in the amount of $4.6 million, mostly offset by nonaffiliated and affiliated rate increases as well as other Part B rate increases and adjustments.
|
-
|
a decrease of $1.4 million due to a decline in therapy and pharmacy staffing hours; and
|
-
|
a decrease of $1.0 million due to lower fees earned from the temporary placement of physicians;
|
Offset in part by:
|
|
-
|
an increase of $0.7 million due to an increase in billable hours for nurse staffing.
|
Fair Value
|
Fair Value
|
|||||||||||||||||||||||||||||||||||
Expected Maturity Dates
|
September 30, | December 31, | ||||||||||||||||||||||||||||||||||
2012
|
2013
|
2014
|
2015
|
2016
|
Thereafter
|
Total
|
2011 (1)
|
2010 (1)
|
||||||||||||||||||||||||||||
(Dollars in thousands)
|
||||||||||||||||||||||||||||||||||||
Long-term debt:
|
||||||||||||||||||||||||||||||||||||
Fixed rate debt
|
$ | 1,033 | $ | 947 | $ | 679 | $ | - | $ | - | $ | - | $ | 2,659 | $ | 2,532 | $ | 8,584 | ||||||||||||||||||
Rate
|
8.7 | % | 8.6 | % | 8.5 | % | - | % | - | % | - | % | ||||||||||||||||||||||||
Variable rate debt
|
$ | 10,000 | $ | 10,000 | $ | 10,000 | $ | 10,000 | $ | 10,000 | $ | 89,922 | $ | 139,922 | $ | 108,440 | $ | 147,500 | ||||||||||||||||||
Rate
|
11.5 | % | 7.5 | % | 7.5 | % | 7.5 | % | 7.5 | % | 7.5 | % | ||||||||||||||||||||||||
Interest rate hedges:
|
$ | 1,922 | $ | - | ||||||||||||||||||||||||||||||||
Cap
|
$ | 82,500 | $ | 82,500 | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||||||||
Maximum rate
|
1.75 | % | 1.75 | % | - | - | - | - | ||||||||||||||||||||||||||||
Variable to fixed
|
$ | - | $ | - | $ | 82,500 | $ | 82,500 | $ | - | $ | - | ||||||||||||||||||||||||
Average pay rate
|
- | - | 3.185 | % | 3.185 | % | - | - | ||||||||||||||||||||||||||||
Average receive rate
|
- | - | 1.75 | % | 1.75 | % | - | - |
(1)
|
The fair value of fixed and variable rate debt was determined based on the current rates offered for debt with similar risks and maturities.
|
31.1
|
Section 302 Sarbanes-Oxley Certification by Chief Executive Officer
|
31.2
|
Section 302 Sarbanes-Oxley Certification by Chief Financial Officer
|
32.1
|
Section 906 Sarbanes-Oxley Certification by Chief Executive Officer
|
32.2
|
Section 906 Sarbanes-Oxley Certification by Chief Financial Officer
|
101.INS
|
XBRL Instance Document
|
101.SCH
|
XBRL Taxonomy Extension Schema Document
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
SUN HEALTHCARE GROUP, INC.
|
By: /s/ L. Bryan Shaul
|
L. Bryan Shaul
|
Executive Vice President and Chief Financial Officer
|
(Principal Financial Officer)
|
Date: November 2, 2011
|
/s/ William A. Mathies
|
William A. Mathies
Chief Executive Officer (Principal Executive Officer)
|
Date: November 2, 2011
|
/s/ L. Bryan Shaul
|
L. Bryan Shaul
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
Date: November 2, 2011
|
/s/ William A. Mathies
|
William A. Mathies
|
Date: November 2, 2011
|
/s/ L. Bryan Shaul
|
L. Bryan Shaul
|
CONSOLIDATED BALANCE SHEETS (unaudited) (Parenthetical) (USD $) In Thousands, except Per Share data | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Current assets: | ||
Accounts receivable, allowance for doubtful accounts | $ 67,501 | $ 66,607 |
Stockholders' equity: | ||
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized (in shares) | 3,333,333 | 3,333,333 |
Preferred stock, shares issued (in shares) | 0 | 0 |
Preferred stock, shares outstanding (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (in shares) | 41,666,667 | 41,666,667 |
Common stock, shares issued (in shares) | 25,146,378 | 24,973,693 |
Common stock, shares outstanding (in shares) | 25,146,378 | 24,973,693 |
Document And Entity Information (USD $) | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Entity Registrant Name | SUN HEALTHCARE GROUP INC |
Entity Central Index Key | 0000904978 |
Current Fiscal Year End Date | --09-30 |
Entity Well-known Seasoned Issuer | No |
Entity Voluntary Filers | No |
Entity Current Reporting Status | Yes |
Entity Filer Category | Accelerated Filer |
Entity Public Float | $ 67,895,220 |
Entity Common Stock, Shares Outstanding | 25,146,378 |
Document Fiscal Year Focus | 2011 |
Document Fiscal Period Focus | Q3 |
Document Type | 10-Q |
Amendment Flag | false |
Document Period End Date | Sep. 30, 2011 |
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Commitments and Contingencies | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies | (6) Commitments and Contingencies (a) Insurance We self-insure for certain insurable risks, including general and professional liabilities, workers' compensation liabilities and employee health insurance liabilities, through the use of self-insurance or retrospective and self-funded insurance policies and other hybrid policies, which vary by the states in which we operate. There is a risk that amounts funded to our self-insurance programs may not be sufficient to respond to all claims asserted under those programs. Insurance reserves represent estimates of future claims payments. This liability includes an estimate of the development of reported losses and losses incurred but not reported. Provisions for changes in insurance reserves are made in the period of the related coverage. An independent actuarial analysis is prepared twice a year to assist management in determining the adequacy of the self-insurance obligations booked as liabilities in our financial statements. The methods of making such estimates and establishing the resulting reserves are reviewed periodically and are based on historical paid claims information and nationwide nursing home trends. Any adjustments resulting from such reviews are reflected in current earnings. Claims are paid over varying periods, and future payments may be different than the estimated reserves. We evaluate the adequacy of our self-insurance reserves on a quarterly basis and perform detailed actuarial analyses semi-annually in the second and fourth quarters. The analyses use generally accepted actuarial methods in evaluating the workers' compensation reserves and general and professional liability reserves. For both the workers' compensation reserves and the general and professional liability reserves, those methods include reported and paid loss development methods, expected loss method and the reported and paid Bornhuetter-Ferguson methods. Reported loss methods focus on development of case reserves for incurred losses through claims closure. Paid loss methods focus on development of claims actually paid to date. Expected loss methods are based upon an anticipated loss per unit of measure. The Bornhuetter-Ferguson method is a combination of loss development methods and expected methods. The foundation for most of these methods is our actual historical reported and/or paid loss data, over which we have effective internal controls. We utilize third-party administrators ("TPAs") to process claims and to provide us with the data utilized in our semi-annual actuarial analyses. The TPAs are under the oversight of our in-house risk management and legal functions. The purpose of these functions is to properly administer the claims so that the historical data is reliable for estimation purposes. Case reserves, which are approved by our legal and risk management departments, are determined based on our estimate of the ultimate settlement of individual claims. In instances where our historical data are not statistically credible, stable, or mature, we supplement our experience with skilled nursing industry benchmark reporting and payment patterns. The use of multiple methods tends to eliminate any biases that one particular method might have. Management's judgment based upon each method's inherent limitation is applied when weighting the results of each method. The results of each of the methods are estimates of ultimate losses which include the case reserves plus an estimate for future development of these reserves based on past trends, and an estimate for losses incurred but not reported. These results are compared by accident year, and an estimated unpaid loss and allocated loss adjustment expense is determined for the open accident years based on judgment reflecting the range of estimates produced by the methods. Activity in our professional liability and workers' compensation self-insurance reserves as of and for the periods ended September 30, 2011 and 2010 is as follows (in thousands):
The anticipated insurance recoveries relate primarily to our workers' compensation programs associated with policy years 1996 through 2001 where the claim losses have exceeded the policies' aggregate retention limits. Obligations above these retention limits are covered by our excess insurance carriers, which all have carrier ratings of at least "A," "XIV" or better. A summary of the assets and liabilities related to insurance risks at September 30, 2011 and December 31, 2010 is as indicated below (in thousands):
(b) Litigation We are a party to various legal actions and administrative proceedings and are subject to various claims arising in the ordinary course of our business, including claims that our services have resulted in injury or death to the residents of our centers and claims relating to employment and commercial matters. The ability to predict the ultimate outcome of such matters involves judgments, estimates and inherent uncertainties. Although we intend to vigorously defend ourselves in these matters, there can be no assurance that the outcomes of these matters will not have a material adverse effect on our results of operations, financial condition or cash flows. We operate in industries that are extensively regulated. As such, in the ordinary course of business, we are continuously subject to state and federal regulatory scrutiny, supervision and control. Such regulatory scrutiny often includes inquiries, investigations, examinations, audits, site visits and surveys, some of which are non-routine. In addition to being subject to direct regulatory oversight of state and federal regulatory agencies, the industries in which we operate are frequently subject to the regulatory supervision of fiscal intermediaries. If a provider is found to have engaged in improper practices, it could be subject to civil, administrative or criminal fines, penalties or restitutionary relief; and reimbursement authorities could also seek the suspension or exclusion of the provider or individual from participation in their program. We believe that there has been, and will continue to be, an increase in governmental investigations of long-term care providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Adverse determinations in legal proceedings or governmental investigations, whether currently asserted or arising in the future, could have a material adverse effect on our financial position, results of operations or cash flows. In September 2010, a lawsuit was filed in the Superior Court of California, County of Los Angeles, by a former employee of a subsidiary of our medical staffing company, alleging violation of various wage and hour provisions of the California Labor Code. We deny all of the allegations in the employee's complaint. The lawsuit, which was filed as a purported class action on behalf of the former employee and all those similarly situated, has been settled. The terms of the settlement are confidential pending court approval. We believe our reserves are adequate for this matter. In November 2010, a jury verdict was rendered in a Kentucky state court against us for $2.75 million in compensatory damages and $40 million in punitive damages. On February 25, 2011, the trial court judge reduced the punitive damage award to $24.75 million. The case involves claims for professional negligence resulting in wrongful death. We disagree with the jury's verdict and believe that it is not supported by the facts of the case or applicable law. We have appealed this judgment to the Kentucky Court of Appeals. We believe our reserves are adequate for this matter. (c) Other Inquiries From time to time, fiscal intermediaries and Medicaid agencies examine cost reports filed by predecessor operators of our skilled nursing centers. If, as a result of any such examination, it is concluded that overpayments to a predecessor operator were made, we, as the current operator of such centers, may be held financially responsible for such overpayments. At this time, we are unable to predict the outcome of any existing or future examinations. |
Loss on Asset Impariment | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Notes to Financial Statements [Abstract] | |
Loss On Asset Impairment | (2) Asset Impairment In addition to the annual testing requirements discussed in Note 6 - "Goodwill, Intangible Assets and Long-Lived Assets" of our 2010 Form 10-K, GAAP requires that goodwill, intangible assets and other long-lived assets be evaluated for potential impairment when a triggering event occurs during an interim time period. As a result of the CMS Final Rule, the prospective net decrease in Medicare reimbursement rates is 11.1%, after the application of the market basket increase of 2.7%, the productivity adjustment of -1.0% and the parity adjustment of -12.6%. Additionally, the CMS Final Rule changed group therapy reimbursement and introduced new change-of-therapy provisions as patients move through their post-acute stay that will further reduce our revenues from the Medicare program and/or increase our costs of providing such services. We determined that the CMS Final Rule announcement constituted a triggering event for evaluating whether the recoverability of goodwill, intangible assets and other long-lived assets in the operating segments of our Inpatient Services reportable segment affected by the CMS Final Rule was impaired. During the three months ended September 30, 2011, we recognized $317.1 million of non-cash loss on asset impairment for the healthcare facilities operating segments in our Inpatient Services reportable segment. The non-cash charges consisted of $314.7 million of goodwill impairment and $2.4 million of asset impairment for intangible assets for favorable lease obligations. The charges were determined in the following manner: Finite-Lived Intangibles Our finite-lived intangibles include tradenames and favorable lease obligations. When evaluating the recoverability of tradenames, we considered projections of future profitability and undiscounted cash flows for the affected portions of the Inpatient Services operating segments as compared to the carrying value of the tradenames assets. We determined that projected undiscounted cash flows were sufficient to recover the assets' carrying value. As a result, there was no impairment of tradenames during the three months ended September 30, 2011. When evaluating the recoverability of favorable lease obligations, we considered projections of future profitability and undiscounted cash flows for the affected portions of the Inpatient Services operating segments as compared to the carrying value of the favorable lease obligation intangible assets. We determined that projected undiscounted cash flows were not sufficient to recover the full carrying value of the assets and proceeded to determine a fair value of each asset. We determined fair value based upon estimates of market rental values for the centers associated with the favorable lease intangibles using valuations techniques broadly accepted by the long-term care industry in which we operate. We applied an industry average discount factor to the difference of this estimated market rental values to our contractually obligated lease payments over the remaining term of the leases, resulting in an appropriate estimate of fair value for the favorable lease intangible. We determined that certain favorable lease obligations had fair values less than their carrying values and recognized the $2.4 million loss on asset impairment described above. Indefinite-Lived Intangibles Our indefinite-lived intangibles consist of certificates of need ("CON") obtained through our acquisitions. We evaluate the recoverability of our CON intangibles by comparing the assets' respective carrying value to estimates of fair value. We determine the estimated fair value of these intangible assets through an estimate of incremental cash flows with the intangible assets versus cash flows without the intangible assets in place coupled with estimates of market pricing to determine the highest and best use for purposes of determining fair value. The resulting fair values exceeded the assets' carrying value and thus no impairment was recognized. Long-Lived Assets GAAP requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the estimated undiscounted cash flows associated with these assets are not sufficient to recover the assets' carrying amounts. In estimating the undiscounted projected cash flows for our impairment assessment, we primarily used our internally prepared projections and forecast information, including adjustments for the estimated impact of the CMS Final Rule. We determined that undiscounted projected cash flows were sufficient to ensure recoverability of our long-lived assets. Goodwill GAAP requires that impairment be assessed for reporting units of the affected operating segments. A reporting unit is a business for which discrete financial information is produced and reviewed by operating segment management and provides services that are distinct from the other components of the operating segment. For our Inpatient Services reportable segment, the reporting units for our annual goodwill impairment analysis were determined to be at the operating segment level, which were the divisional operating levels. The divisional operating levels of the Inpatient Services reportable segment include the northeast, southeast, central and west geographic divisions of SunBridge Healthcare Corporation ("SunBridge") as well as the SolAmor Hospice Corporation ("SolAmor") division and the Americare nutritional supplement division. We determine potential impairment by comparing the net assets of each reporting unit to their respective fair values, which GAAP describes as Step 1 of goodwill impairment testing. We determine the estimated fair value of each reporting unit using a discounted projected cash flow analysis and other appropriate valuation methodologies. In the event a unit's net assets exceed its fair value, an implied fair value of goodwill must be determined by assigning the unit's fair value to each asset and liability of the unit, which is referred to in GAAP as Step 2 of the impairment analysis. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is measured by the difference between the goodwill's carrying value and its implied fair value. In estimating the projected cash flows for our impairment assessment, we primarily used our internally prepared projections and forecast information including adjustments for the estimated impact of the CMS Final Rule. Other factors in the cash flow projections include anticipated funding from other payor sources such as Medicaid funding plus our plans to manage overhead costs, capital expenditures and patient care liability costs. The discounted cash flow model utilizes five years of projected cash flows for each reporting unit. The projected financial results are created from critical assumptions and estimates based upon management's business plan and historical trends while giving consideration to the overall economic environment. Determining fair value requires the exercise of significant judgments about appropriate discount rates, business growth rates, the amount and timing of expected future cash flows and market information relevant to our overall company value. In addition, to validate the reasonableness of our assumptions, we utilized our discounted cash flow model on a consolidated basis and compared the estimated fair value to our market capitalization as of September 30, 2011. Key assumptions in the discounted cash flow model are as follows: Business Growth Assumptions - In determining our projected Inpatient Services revenue growth rates for our discounted cash flow model, we focus on the two primary drivers: average daily census ("ADC") and reimbursement rates, particularly those rates impacted by the CMS Final Rule. Key revenue inputs include historical ADC adjusted for known trends and current Medicare and Medicaid rates adjusted for anticipated changes. ADC trends have been reasonably constant within a narrow range and may be influenced over the long run by a number of factors, including demographic changes in the population we serve and our ability to deliver quality service in an attractive environment. Generally long term care reimbursement rates are set annually by the payor. To estimate these rates, we evaluate the current reimbursement climate and adjust historical trends where appropriate. Significant adverse rate changes in any one year would cause us to reevaluate our projected rates. In recent years we have generated historical revenue growth of 1.4% to 6.2% annually. Expenses generally vary with ADC and have historically grown by approximately 2.9% to 5.6% annually. Labor is the largest component of our expenses. We consider labor market trends and staffing needs for the projected ADC levels in determining labor growth rates to be used in our projections. The projected growth rates used in our discounted cash flow model took into account the potential adverse effects of the current economic downturn on our projected revenue and expenses. Terminal Value EBITDAR Multiple - Consistent with commonly accepted valuation techniques, a terminal multiple for the final year's projected results is applied to estimate our value in the final year of the analysis. That multiple is applied to the final year's projected EBITDAR from continuing operations. Discount Rate - Market conditions indicated that a discount rate of 10.5% was appropriate at September 30, 2011. This discount rate is consistent with our overall market capitalization comparison. We consistently apply the same discount rate to the evaluation of each reporting unit. The goodwill impairment analysis is subject to impact from uncertainties arising from such events as changes in economic or competitive conditions, the current general economic environment, material changes in Medicare and Medicaid reimbursement that could positively or negatively impact anticipated future operating conditions and cash flows, and the impact of strategic decisions. The results of our interim 2011 impairment analysis showed that goodwill in each of reporting units tested was impaired. Based on the analysis performed, we recognized a loss on impairment of $314.7 million for the three months ended September 30, 2011, which represents the full carrying value of goodwill for the SunBridge divisional operating segments of our Inpatient Services reportable segment. The SolAmor division's prospective Medicare reimbursement rates were not impacted by the CMS Final Rule and thus no interim 2011 impairment event arose for SolAmor and Americare. |
Segment Information | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Notes to Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information | (8) Segment Information We operate predominantly in the long-term care segment of the healthcare industry. We are a provider of long-term, sub-acute and related ancillary care services to nursing home patients. Our reportable segments are composed of operating segments, which are aggregated, comprising strategic business units that provide different products and services. They are managed separately because each business has different marketing strategies due to differences in types of customers, distribution channels and capital resource needs. More complete descriptions and accounting policies of the segments are described in Note 13 - "Segment Information" and Note 2 - "Summary of Significant Accounting Policies" of our 2010 Form 10-K. The following tables summarize, for the periods indicated, operating results and other financial information, by business segment (in thousands):
______________________________________ (1) General and administrative expenses include operating administrative expenses. The term "segment operating income (loss)" is defined as earnings before center rent expense, depreciation and amortization, interest, transaction costs, restructuring costs, loss on asset impairment, income tax expense and discontinued operations. The term "net segment income (loss)" is defined as earnings before transaction costs, restructuring costs, loss on asset impairment, income tax expense and discontinued operations.
______________________________________ (1) General and administrative expenses include operating administrative expenses and transaction costs. The term "segment operating income (loss)" is defined as earnings before center rent expense, depreciation and amortization, interest, transaction costs, restructuring costs, loss on asset impairment, income tax expense and discontinued operations. The term "net segment income (loss)" is defined as earnings before transaction costs, restructuring costs, loss on asset impairment, income tax expense and discontinued operations.
______________________________________ (1) General and administrative expenses include operating administrative expenses. The term "segment operating income (loss)" is defined as earnings before center rent expense, depreciation and amortization, interest, transaction costs, restructuring costs, loss on asset impairment, income tax expense and discontinued operations. The term "net segment income (loss)" is defined as earnings before transaction costs, restructuring costs, loss on asset impairment, income tax expense and discontinued operations.
______________________________________ (1) General and administrative expenses include operating administrative expenses and transaction costs. The term "segment operating income (loss)" is defined as earnings before center rent expense, depreciation and amortization, interest, transaction costs, restructuring costs, loss on asset impairment, income tax expense and discontinued operations. The term "net segment income (loss)" is defined as earnings before transaction costs, restructuring costs, loss on asset impairment, income tax expense and discontinued operations. Measurement of Segment Income We evaluate financial performance and allocate resources primarily based on income or loss from operations before income taxes, excluding any unusual items. The following table reconciles net segment income to consolidated income before income taxes and discontinued operations (in thousands):
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Subsequent Events | 9 Months Ended |
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Sep. 30, 2011 | |
Notes to Financial Statements [Abstract] | |
Subsequent Events | (9) Subsequent Event On October 1, 2011, we acquired the operating assets of Harbinger Hospice, Inc., a privately-held, Medicare-certified hospice company that provides services to patients in Ohio, for $1.1 million in cash, excluding transaction costs of $0.1 million, consisting primarily of broker success fees, that we will expense during the fourth quarter of 2011 in accordance with GAAP. |
Income Taxes | 9 Months Ended |
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Sep. 30, 2011 | |
Notes to Financial Statements [Abstract] | |
Income Taxes | (7) Income Taxes The provision for income taxes totaled $1.6 million and $14.6 million for the three and nine months ended September 30, 2011, respectively. The loss on asset impairment was substantially nondeductible for tax purposes, thereby significantly impacting the income tax expense shown on the accompanying statements of operations relative to the pre-tax loss for the three and nine months ended September 30, 2011. Excluding the impact of the $317.1 million loss on asset impairment (see Note 2 - "Asset Impairment") and its related $1.8 million income tax benefit, the effective tax rates would have been 33% and 39% for the three and nine months ended September 30, 2011, respectively. The provision for income taxes of $5.6 million and $20.0 million for the three and nine months ended September 30, 2010 resulted in effective tax rates of approximately 41% and 40%, respectively. The realization of our deferred tax assets is dependent upon generation of taxable income during periods in which deductions and/or credits can be utilized. As a result, we consider the level of historical taxable income, historical non-recurring credits and charges, the scheduled reversal of deferred tax liabilities, tax-planning strategies and projected future taxable income in determining the amount of the valuation allowance. The valuation allowance of $18.1 million at September 30, 2011 and December 31, 2010 relates primarily to state net operating loss ("NOL") carryforwards and other deferred tax assets for which realization is uncertain. After consideration of the November 2010 restructuring of our former parent company, which, among other matters resulted in Sabra Health Care REIT, Inc. holding substantially all of our former parent's owned real property, and utilization of NOL carryforwards through 2010, the Internal Revenue Code ("IRC") Section 382 annual base limitation to be applied to our tax attribute carryforwards is approximately $7.4 million. Accordingly, our NOL, capital loss, and tax credit carryforwards have been reduced to take into account this limitation and the respective carryforward periods for these tax attributes. As a result of unused IRC Section 382 limitations from prior years and post-ownership change NOLs, we estimate there is approximately $65.1 million of NOLs which can be used to offset U.S. taxable income in 2011. Considering annual IRC Section 382 limitations and built-in gains, we estimate a total of approximately $170.8 million of utilizable NOL carryforwards to offset taxable income in 2011 and future years. |
Long-Term Debt and Capital Lease Obligations | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Notes to Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-Term Debt and Capital Lease Obligations | (3) Long-Term Debt and Capital Lease Obligations Long-term debt and capital lease obligations consisted of the following as of the periods indicated (in thousands):
The scheduled or expected maturities of long-term obligations as of September 30, 2011, were as follows (in thousands):
We manage interest expense using a mix of fixed and variable rate debt, and, to help manage borrowing costs, we may enter into interest rate swap agreements. Under these arrangements, we agree to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount. We also may enter into interest rate cap agreements that effectively limit the maximum interest rate that we pay on an agreed to notional principal amount. We use interest rate hedges to manage interest rate risk related to borrowings. Our intent is to only enter into such arrangements that qualify for hedge accounting treatment in accordance with GAAP. Accordingly, we designate all such arrangements as cash-flow hedges and perform initial and quarterly effectiveness testing using the hypothetical derivative method. To the extent that such arrangements are effective hedges, changes in fair value are recognized through other comprehensive income. Ineffectiveness, if any, would be recognized in earnings. Our credit agreement requires that at least 50% of our term loans be subject to at least a three-year hedging agreement. To satisfy this requirement, we executed two hedging instruments on January 18, 2011; a two-year interest rate cap and a two-year "forward starting" interest rate swap. The two-year interest rate cap limits our exposure to increases in interest rates for $82.5 million of debt through December 31, 2012. This cap is effective when LIBOR rises above 1.75%, effectively fixing the interest rate on $82.5 million of our term loans at 7.5% for two years. The fee for this interest rate cap arrangement was $0.3 million, which will be amortized to interest expense over the life of the arrangement. The two-year "forward starting" interest rate swap effectively converts the interest rate on $82.5 million of our term loans to a fixed rate from January 1, 2013 through December 31, 2014. LIBOR is fixed at 3.185%, making the all-in rate effectively a fixed 8.935% for this portion of the term loans. There was no fee for this swap agreement. Both arrangements qualify for hedge accounting treatment. The fair values of our hedging agreements as presented in the consolidated balance sheets are as follows (in thousands):
The effect of the interest rate swap agreements on our consolidated comprehensive income, net of related taxes, for the three months ended September 30 is as follows (in thousands):
The effect of the interest rate hedging agreements on our consolidated comprehensive income, net of related taxes, for the nine months ended September 30 is as follows (in thousands):
The amounts stated above for (loss)/gain from changes in the fair value of our hedging agreements are our only sources of other comprehensive (loss)/income, resulting in comprehensive income of $4.6 million and $22.1 million for the three and nine months ended September 30, 2011, respectively. Comprehensive income for the three and nine months ended September 30, 2010 was $8.6 million and $30.8 million, respectively. |
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Notes to Financial Statements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments | (4) Fair Value of Financial Instruments The estimated fair values of our financial instruments were as follows (in thousands):
The cash and cash equivalents and restricted cash carrying amounts approximate fair value because of the short maturity of these instruments. At September 30, 2011 and December 31, 2010, the fair value of our long-term debt, including current maturities, and our interest rate hedging agreements was based on estimates using present value techniques that are significantly affected by the assumptions used concerning the amount and timing of estimated future cash flows and discount rates that reflect varying degrees of risk. GAAP establishes a hierarchy for ranking the quality and reliability of the information used to determine fair values. The applicable guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
We endeavor to utilize the best available information in measuring fair value. The following tables summarize the valuation of our financial instruments by the above pricing levels as of September 30, 2011 and December 31, 2010, respectively (in thousands):
We currently have no other financial instruments subject to fair value measurement on a recurring basis. |
Discontinued Operations | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Discontinued Operations | (5) Discontinued Operations The results of operations of assets to be disposed of, disposed assets and the losses related to these divestitures have been classified as discontinued operations for all periods presented in the accompanying consolidated income statements as their operations and cash flows have been (or will be) eliminated from our ongoing operations and we will not have any significant continuing involvement in their operations after their disposal. During the nine months ended September 30, 2011, we disposed of a Maryland skilled nursing center in our Inpatient Services segment, whose results have been reclassified to discontinued operations for all periods presented in accordance with GAAP. The disposition, which was effective on August 1, 2011, resulted in cash proceeds to us of $1.8 million, net of the payoff of the $5.2 million mortgage payable for the center. During August 2011, we also divested two hospice operations in Oklahoma for a nominal price plus the assumption of certain liabilities by the buyer. The disposition resulted in a net loss of $0.7 million, net of related tax benefit. A summary of the discontinued operations for the periods presented is as follows (in thousands):
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CONSOLIDATED INCOME STATEMENTS (Unaudited) (Parenthetical) (USD $) In Thousands | 3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) [Abstract] | ||||
Interest income | $ 103 | $ 59 | $ 244 | $ 222 |
Nature of Business | 9 Months Ended |
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Sep. 30, 2011 | |
Notes to Financial Statements [Abstract] | |
Nature of Business | (1) Nature of Business References throughout this document to the Company include Sun Healthcare Group, Inc. and our consolidated subsidiaries. In accordance with the Securities and Exchange Commission's "Plain English" guidelines, this report has been written in the first person. In this document, the words "we," "our" and "us" refer to Sun Healthcare Group, Inc. and its direct and indirect consolidated subsidiaries and not any other person. Business Our subsidiaries provide long-term, post-acute and related specialty healthcare in the United States. We operate through three principal business segments: (i) inpatient services, (ii) rehabilitation therapy services, and (iii) medical staffing services. Inpatient services represent the most significant portion of our business. We operated 199 healthcare centers in 25 states as of September 30, 2011. Restructuring Costs On July 29, 2011, the Centers for Medicare and Medicaid Services ("CMS") released its final rule for skilled nursing facilities for the 2012 federal fiscal year, which became effective on October 1, 2011 (the "CMS Final Rule"). After the application of the market basket increase of 2.7%, the productivity adjustment of -1.0% and the parity adjustment of -12.6%, the prospective net decrease in Medicare reimbursement rates is 11.1%. Additionally, the CMS Final Rule changed group therapy reimbursement and introduced new change-of-therapy provisions as patients move through their post-acute stay that will further reduce our revenues from the Medicare program and/or increase our costs of providing such services. As a result of the expected negative impact of the CMS Final Rule on our business, we commenced a broad-based mitigation initiative, which includes infrastructure cost reductions without affecting the quality of our patient care. During our third quarter ended September 30, 2011, we incurred $2.4 million of restructuring costs in connection with our mitigation initiative, which consisted primarily of severance benefits resulting from reductions of staff. We will continue to focus on reducing costs to further mitigate the impact on our business of the reduced Medicare reimbursement rates. Other Information The accompanying unaudited consolidated financial statements have been prepared in accordance with our customary accounting practices and accounting principles generally accepted in the United States ("GAAP") for interim financial statements. In our opinion, the accompanying interim consolidated financial statements are a fair statement of our financial position at September 30, 2011, and our consolidated results of operations and cash flows for the three-month and nine-month periods ended September 30, 2011 and 2010, respectively. These statements are unaudited, and certain information and footnote disclosures normally included in our annual consolidated financial statements have been condensed or omitted, as permitted under the applicable rules and regulations of the Securities and Exchange Commission. The accompanying unaudited consolidated financial statements reflect all adjustments, consisting of only normal recurring items. Readers of these statements should refer to our audited consolidated financial statements and notes thereto for the year ended December 31, 2010, which are included in our Annual Report on Form 10-K for the year ended December 31, 2010 (the "2010 Form 10-K"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of significant contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include determination of impairment for goodwill and other long-lived assets, third-party payor settlements, allowances for doubtful accounts, self-insurance obligations, loss accruals and income taxes. Actual results could differ from those estimates. Recent Accounting Pronouncements The Emerging Issues Task Force of the FASB issued an Accounting Standards Update in August 2010 regarding the balance sheet presentation of medical malpractice claims and similar contingent liabilities and related insurance recoveries. The updated guidance requires the insurance recovery receivable to be presented as a gross asset instead of netting it against the related liability. The updated presentation was effective for us on January 1, 2011, is reflected in the accompanying consolidated balance sheet and has resulted in the reclassification of anticipated insurance recoverables to assets as of January 1, 2011 of $2.1 million and $28.1 million for general and professional liabilities and workers' compensation liabilities, respectively. There was no impact on our accumulated deficit due to adoption of this new standard. See the Insurance portion of Note 6 - "Commitments and Contingencies" for additional information. The FASB issued an Accounting Standards Update in June 2011 regarding the presentation of comprehensive income within financial statements. GAAP now requires that comprehensive income and its components of net income and other comprehensive income be presented in either (1) a single continuous statement of comprehensive income or (2) two separate but consecutive statements. This new guidance will be effective for us beginning with our March 31, 2012 interim reporting with retrospective presentation. The FASB issued an Accounting Standards Update in September 2011 regarding the testing of goodwill for impairment. The update permits the assessment of qualitative factors, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. This new guidance is effective for periods beginning after December 15, 2011. Early adoption is permitted. Reclassifications Certain reclassifications have been made to the prior period financial statements to conform to the 2011 financial statement presentation. We have reclassified the results of operations of the nurse practitioner services group and one skilled nursing center of our Inpatient Services segment (see Note 5 - "Discontinued Operations") for all periods presented to discontinued operations within the income statement, in accordance with GAAP. |