-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LprooslKY2HCa8GCipwdtBM631Mbhdb5e4BGxtZEQSSuUkS011Ag4ZYCGjqwlS42 tHazD3JNVwYYSyi0QEtTqg== 0000950144-98-009926.txt : 19980817 0000950144-98-009926.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950144-98-009926 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVOCAT INC CENTRAL INDEX KEY: 0000919956 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 621559667 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12996 FILM NUMBER: 98690421 BUSINESS ADDRESS: STREET 1: 277 MALLORY STATION RD STREET 2: STE 130 CITY: FRANKLIN STATE: TN ZIP: 37067 BUSINESS PHONE: 6157717575 MAIL ADDRESS: STREET 1: 227 MALLORY STATION ROAD STREET 2: SUITE 130 CITY: FRANKLIN STATE: TN ZIP: 37064 10-Q 1 ADVOCAT INC. FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q CHECK ONE: [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 1998 ------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSACTION PERIOD FROM _________ TO _________. COMMISSION FILE NO.: 1-12996 ------- ADVOCAT INC. ------------ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 62-1559667 - ------------------------------- --------------------------------- (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 277 MALLORY STATION ROAD, SUITE 130, FRANKLIN, TN 37067 ------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (615) 771-7575 -------------- (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) NONE - ------------------------------------------------------------------------------- (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT.) INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO --- --- 5,398,710 - ------------------------------------------------------------------------------- (OUTSTANDING SHARES OF THE ISSUER'S COMMON STOCK AS OF AUGUST 12, 1998) 2 PART I. FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS ADVOCAT INC. INTERIM CONSOLIDATED BALANCE SHEETS (IN THOUSANDS AND UNAUDITED)
JUNE 30, DECEMBER 31, 1998 1997 --------- ------------ CURRENT ASSETS: Cash and cash equivalents $ 1,649 $ 2,673 Receivables, less allowance for doubtful accounts of $2,417 and $2,702, respectively 27,414 26,010 Income taxes receivable 280 380 Inventories 1,063 1,097 Prepaid expenses and other assets 1,863 1,640 Deferred income taxes 1,330 830 --------- --------- Total current assets 33,599 32,630 --------- --------- PROPERTY AND EQUIPMENT, at cost 83,193 80,819 Less accumulated depreciation and amortization (13,759) (12,149) --------- --------- Net property and equipment 69,434 68,670 --------- --------- OTHER ASSETS: Deferred tax benefit 5,366 5,460 Deferred financing and other costs, net 1,450 1,643 Other 9,073 6,558 --------- --------- Total other assets 15,889 13,661 --------- --------- $ 118,922 $ 114,961 ========= =========
(Continued) -2- 3 ADVOCAT INC. INTERIM CONSOLIDATED BALANCE SHEETS (IN THOUSANDS AND UNAUDITED) (CONTINUED)
JUNE 30, DECEMBER 31, 1998 1997 --------- ------------ CURRENT LIABILITIES: Current portion of long-term debt $ 1,069 $ 762 Trade accounts payable 10,580 9,365 Accrued expenses: Payroll and employee benefits 5,470 5,576 Other 4,413 3,078 -------- -------- Total current liabilities 21,532 18,781 -------- -------- NONCURRENT LIABILITIES: Long-term debt, less current portion 60,453 58,373 Deferred gains with respect to leases, net 3,416 3,562 Other 2,850 3,512 -------- -------- Total noncurrent liabilities 66,719 65,447 -------- -------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred stock, authorized 1,000,000 shares, $.10 par value, none issued and outstanding -0- -0- Common stock, authorized 20,000,000 shares, $.01 par value, 5,377,000 issued and outstanding at June 30, 1998 and December 31, 1997, respectively 54 54 Paid-in capital 15,638 15,638 Retained earnings 14,979 15,041 -------- -------- Total shareholders' equity 30,671 30,733 -------- -------- $118,922 $114,961 ======== ========
The accompanying notes are an integral part of these interim consolidated balance sheets. -3- 4 ADVOCAT INC. INTERIM CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, AND UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- REVENUES: Patient revenues $ 43,108 $ 41,150 $ 84,946 $ 81,464 Resident revenues 8,629 2,093 17,334 4,267 Management fees 906 957 1,812 1,875 Interest 55 37 99 74 -------- -------- -------- -------- Net revenues 52,698 44,237 104,191 87,680 -------- -------- -------- -------- EXPENSES: Operating 42,131 34,859 83,383 68,932 Lease 4,809 3,744 9,563 7,615 General and administrative 2,730 2,406 5,456 4,719 Depreciation and amortization 832 671 1,794 1,333 Interest 1,254 472 2,499 1,014 Non-recurring charges 1,468 -0- 1,468 -0- -------- -------- -------- -------- Total expenses 53,224 42,152 104,163 83,613 -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES (526) 2,085 28 4,067 PROVISION (BENEFIT)FOR INCOME TAXES (189) 751 10 1,464 -------- -------- -------- -------- NET INCOME (LOSS) $ (337) $ 1,334 $ 18 $ 2,603 ======== ======== ======== ======== EARNINGS (LOSS) PER SHARE: Basic $ (.06) $ .25 $ .00 $ .49 ======== ======== ======== ======== Diluted $ (.06) $ .25 $ .00 $ .49 ======== ======== ======== ======== WEIGHTED AVERAGE SHARES: Basic 5,377 5,316 5,377 5,316 ======== ======== ======== ======== Diluted 5,377 5,339 5,391 5,334 ======== ======== ======== ========
The accompanying notes to interim financial statements are an integral part of these interim consolidated financial statements. -4- 5 ADVOCAT INC. INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN THOUSANDS AND UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- NET INCOME (LOSS) $ (337) $ 1,334 $ 18 $ 2,603 ------- ------- ------- ------- OTHER COMPREHENSIVE INCOME: Foreign currency translation adjustments (162) 9 (125) (44) Income tax (expense) benefit 58 (3) 45 16 ------- ------- ------- ------- (104) 6 (80) (28) ------- ------- ------- ------- COMPREHENSIVE INCOME (LOSS) $ (441) $ 1,340 $ (62) $ 2,575 ======= ======= ======= =======
The accompanying notes are an integral part of these interim consolidated financial statements. -5- 6 ADVOCAT INC. INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS AND UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------------- 1998 1997 ---- ---- CASH FLOWS (LOSS) FROM OPERATING ACTIVITIES: Net income $ 18 $ 2,603 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization 1,795 1,333 Provision for doubtful accounts 786 856 Equity earnings in joint ventures (42) (21) Amortization of deferred credits (278) (532) Deferred income taxes (360) 2,261 Non-recurring change write off 1,028 -0- Change in assets and liabilities: Receivables, net (2,332) (2,130) Inventories 34 (292) Prepaid expenses and other assets (478) (228) Trade accounts payable and accrued expenses 2,446 (515) Other 47 (62) ------ ------- Net cash provided from operating activities 2,664 3,273 ------ ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment, net (2,737) (1,193) Investment in TDLP (632) (655) Mortgage receivable, net (305) (307) Deposits, pre-opening and other costs (435) (40) Investment in joint ventures, net (1,345) 20 TDLP partnership distributions 152 99 ------- ------- Net cash used in investing activities (5,302) (2,076) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of debt obligations (411) (335) Net proceeds from bank line of credit 2,908 -0- Advances to TDLP, net (815) (139) Advances repaid by lessor, net -0- 442 Financing costs (68) (94) ------- ------- Net cash provided from (used in) financing activities $ 1,614 $ (126) ------- -------
(Continued) -6- 7 ADVOCAT INC. INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS AND UNAUDITED) (CONTINUED)
SIX MONTHS ENDED JUNE 30, ------------------------- 1998 1997 ---- ---- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $(1,024) $ 1,071 CASH AND CASH EQUIVALENTS, beginning of period 2,673 1,942 ------- ------- CASH AND CASH EQUIVALENTS, end of period $ 1,649 $ 3,013 ======= ======= SUPPLEMENTAL INFORMATION: Cash payments of interest $ 2,362 $ 1,014 ======= ======= Cash payments of income taxes $ 637 $ 957 ======= =======
The Company received net benefit plan deposits and earnings and recorded benefit plan liabilities of $286,000 and $9,000 in the six month periods ended June 30, 1998 and 1997, respectively. The accompanying notes to interim financial statements are an integral part of these interim consolidated financial statements. -7- 8 ADVOCAT INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 AND 1997 1. BUSINESS Advocat Inc. (together with its subsidiaries, "Advocat" or the "Company") is a leading provider of long-term care services to the elderly. The Company operates nursing homes and assisted living facilities in 11 states and in two Canadian provinces. As of June 30, 1998, the Company operates 116 facilities consisting of 64 nursing homes with 7,221 licensed beds and 52 assisted living facilities with 4,980 units. The Company owns seven nursing homes, leases 37 others and manages 20 nursing homes. The Company owns 18 assisted living facilities, leases 22 others and manages 12 assisted living facilities. The Company operates 52 nursing homes and 33 assisted living facilities in the United States and 12 nursing homes and 19 assisted living facilities in Canada. The Company's facilities provide a range of health care services to their patients and residents. In addition to the nursing and social services usually provided in the long-term care facilities, the Company offers a variety of comprehensive rehabilitative, nutritional, respiratory and other specialized ancillary services. The Company operates facilities in Alabama, Arkansas, Florida, Georgia, Kentucky, North Carolina, Ohio, South Carolina, Tennessee, Texas, West Virginia and the Canadian provinces of Ontario and British Columbia. 2. BASIS OF FINANCIAL STATEMENTS The interim financial statements for the three and six month periods ended June 30, 1998 and 1997, included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management of the Company, the accompanying interim consolidated financial statements reflect all adjustments (consisting of only normally recurring accruals) necessary to present fairly the financial position at June 30, 1998, the results of operations for the three and six month periods ended June 30, 1998 and 1997, and the cash flows for the six month periods ended June 30, 1998 and 1997. The results of operations for the three and six month periods ended June 30, 1998 and 1997 are not necessarily indicative of the operating results for the entire respective years. These interim financial statements should be read in connection with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. -8- 9 3. EARNINGS PER SHARE Information with respect to the calculation of basic and diluted earnings per share data follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Net income (loss) (numerator) $ (337,000) $1,334,000 $ 18,000 $2,603,000 ========== ========== ========== ========== Basic average shares outstanding (denominator) 5,377,000 5,316,000 5,377,000 5,316,000 Employee stock purchase plan N/A(1) 15,000 13,000 14,000 Options N/A(1) 8,000 1,000 4,000 ---------- ---------- ---------- ---------- Diluted average shares outstanding (denominator) 5,377,000 5,339,000 5,391,000 5,334,000 ========== ========== ========== ========== Basic earnings(loss) per share $ (.06) $ .25 $ .00 $ .49 ========== ========== ========== ========== Diluted earnings (loss) per share $ (.06) $ .25 $ .00 $ .49 ========== ========== ========== ==========
(1) Not applicable since inclusion would be anti-dilutive. 4. OTHER COMPREHENSIVE INCOME The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income. SFAS No. 130 requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. Information with respect to the accumulated other comprehensive income balance is presented below:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Foreign currency items: Beginning balance $(172) $ (47) $(196) $ (13) Current-period change, net of income tax (104) 6 (80) (28) ----- ----- ----- ----- Ending balance $(276) $ (41) $(276) $ (41) ===== ===== ===== =====
Positive amounts represent unrealized gains and negative amounts represent unrealized losses. 5. NON-RECURRING CHARGES During the quarter ended June 30, 1998, the Company recorded non-recurring charges in the amount of $1.5 million. Of this amount, $1.0 million was a restructuring charge related to the Company's management information systems conversion with respect to its U.S. nursing homes. Pursuant to this conversion, the Company will be abandoning much of its existing software and will be dismantling much of its regional infrastructure in favor of a centralized accounting organization. This charge represents the costs associated with the closing of certain regional offices, severance packages for affected personnel, the write-off of capitalized software costs, and other costs related to the systems being replaced. This restructuring charge includes a provision for approximately $380,000 of cash outlays expected to occur as the old systems are phased out over the remainder of 1998. In addition to the restructuring charge, the Company also recognized costs associated with prospective financing arrangements or acquisitions, each of which had been abandoned during the quarter, and costs related to legal issues that were settled during the quarter. -9- 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Advocat (together with its subsidiaries, "Advocat" or the "Company") provides long-term care services to nursing home patients and residents of assisted living facilities in 11 Southeastern states and two Canadian provinces. The Company completed its initial public offering in May 1994; however, its operational history can be traced to February 1980 through common senior management who were involved in different organizational structures. The Company's facilities provide a range of health care services to their patients and residents. In addition to the nursing, personal care and social services usually provided in long-term care facilities, the Company, through arrangements with third parties, offers a variety of comprehensive rehabilitation services as well as medical supply and nutritional support services. As of June 30, 1998, Advocat's portfolio includes 116 facilities composed of 64 nursing homes containing 7,221 licensed beds and 52 assisted living facilities containing 4,980 units. In comparison, at June 30, 1997, the Company operated 87 facilities composed of 65 nursing homes containing 7,341 licensed beds and 22 assisted living facilities containing 2,470 units. As of June 30, 1998, the Company owns seven nursing homes, leases 37 others and manages the remaining 20 nursing homes. Additionally, the Company owns 18 assisted living facilities, leases 22 others and manages the remaining 12 assisted living facilities. In the United States, the Company operates 52 nursing homes and 33 assisted living facilities, and in Canada, the Company operates 12 nursing homes and 19 assisted living facilities. Basis of Financial Statements. The Company's patient and resident revenues consist of the fees charged for the care of patients in the nursing homes and residents of the assisted living facilities owned and leased by the Company. Management fee revenues consists of the fees charged to the owners of the facilities managed by the Company. The management fee revenues are based on the respective contractual terms of the Company's management agreements, which generally provide for management fees ranging from 3.5% to 6.0% of the net revenues of the managed facilities. As a result, the level of management fees is affected positively or negatively by the increase or decrease in the average occupancy level rates of the managed facilities. Management fees also include consulting and development fee income. The Company's operating expenses include the costs, other than lease, depreciation and amortization expenses, incurred in the nursing homes and assisted living facilities owned and leased by the Company. The Company's general and administrative expenses consist of the costs of the corporate office and regional support functions, including the costs incurred in providing management services to other owners. The Company's depreciation, amortization and interest expenses include all such expenses across the range of the Company's operations. -10- 11 RESULTS OF OPERATIONS The following tables present the unaudited interim statements of income and related data for the three and six month periods ended June 30, 1998 and 1997.
(IN THOUSANDS) THREE MONTHS ENDED JUNE 30, -------------------------------------------------- 1998 1997 CHANGE % -------- -------- -------- ------- REVENUES: Patient revenues $ 43,108 $ 41,150 $ 1,958 4.8 Resident revenues 8,629 2,093 6,536 312.2 Management fees 906 957 (51) (5.4) Interest 55 37 18 48.3 -------- -------- -------- Net revenues 52,698 44,237 8,461 19.1 -------- -------- -------- EXPENSES: Operating 42,131 34,859 7,272 20.9 Lease 4,809 3,744 1,065 28.4 General and administrative 2,730 2,406 324 13.4 Depreciation and amortization 832 671 161 24.0 Interest 1,254 472 782 165.7 Non-recurring charges 1,468 -0- 1,468 N/A -------- -------- -------- Total expenses 53,224 42,152 11,072 26.3 -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES (526) 2,085 (2,611) (125.2) PROVISION (BENEFIT) FOR INCOME TAXES (189) 751 (940) (125.2) -------- -------- -------- NET INCOME (LOSS) $ (337) $ 1,334 $ (1,671) (125.2) ======== ======== ========
(IN THOUSANDS) SIX MONTHS ENDED JUNE 30, -------------------------------------------------- 1998 1997 CHANGE % -------- -------- -------- ------- REVENUES: Patient revenues $ 84,946 $ 81,464 $ 3,482 4.3 Resident revenues 17,334 4,267 13,067 306.2 Management fees 1,812 1,875 (63) (3.4) Interest 99 74 25 33.6 -------- -------- -------- Net revenues 104,191 87,680 16,511 18.8 -------- -------- -------- EXPENSES: Operating 83,383 68,932 14,451 21.0 Lease 9,563 7,615 1,948 25.6 General and administrative 5,456 4,719 737 15.6 Depreciation and amortization 1,794 1,333 461 34.7 Interest 2,499 1,014 1,485 146.6 Non-recurring charges 1,468 -0- 1,468 N/A -------- -------- -------- Total expenses 104,163 83,613 20,550 24.6 -------- -------- -------- INCOME BEFORE INCOME TAXES 28 4,067 (4,039) (99.3) PROVISION FOR INCOME TAXES 10 1,464 (1,454) (99.3) -------- -------- -------- NET INCOME $ 18 $ 2,603 $ (2,585) (99.3) ======== ======== ========
-11- 12 PERCENTAGE OF NET REVENUES
(IN THOUSANDS) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- REVENUES: Patient revenues 81.8% 93.0% 81.5% 92.9% Resident revenues 16.4 4.7 16.7 4.9 Management fees 1.7 2.2 1.7 2.1 Interest 0.1 0.1 0.1 0.1 ------ ----- ----- ----- Net revenues 100.0% 100.0% 100.0% 100.0% ------ ----- ----- ----- OPERATING EXPENSES: Operating 79.9 78.8 80.0 78.6 Lease 9.1 8.5 9.2 8.7 General and administrative 5.2 5.4 5.3 5.4 Depreciation and amortization 1.6 1.5 1.7 1.5 Interest 2.4 1.1 2.4 1.1 Non-recurring charges 2.8 0.0 1.4 0.0 ------ ----- ----- ----- Total expenses 101.0 95.3 100.0 95.3 ------ ----- ----- ----- INCOME (LOSS) BEFORE INCOME TAXES (1.0) 4.7 0.0 4.7 PROVISION (BENEFIT) FOR INCOME TAXES (0.4) 1.7 0.0 1.7 ------ ----- ----- ----- NET INCOME (LOSS) (0.6)% 3.0% 0.0% 3.0% ====== ===== ===== =====
GENERAL Non-Recurring Charges. During the quarter ended June 30, 1998, the Company recorded non-recurring charges in the amount of $1.5 million. Of this amount, $1.0 million was a restructuring charge related to the Company's management information systems conversion with respect to its U.S. nursing homes. Pursuant to this conversion, the Company will be abandoning much of its existing software and will be dismantling much of its regional infrastructure in favor of a centralized accounting organization. This charge represents the costs associated with the closing of certain regional offices, severance packages for affected personnel, the write-off of capitalized software costs, and other costs related to the systems being replaced. This restructuring charge includes a provision for approximately $380,000 of cash outlays expected to occur as the old systems are phased out over the remainder of 1998. In addition to the restructuring charge, the Company also recognized costs associated with prospective financing arrangements or acquisitions, each of which had been abandoned during the quarter, and costs related to legal issues that were settled during the quarter. Regulatory Issues. The Company's operating results have been profoundly affected by regulatory issues in the State of Alabama beginning in the third quarter of 1997. During the summer of 1997, the Company received notifications from the Alabama Department of Public Health that, as a result of certain deficiencies noted upon periodic surveys of its two facilities in Mobile, the facilities would be decertified from participation in the Medicare and Medicaid programs and that licensure revocation could be pursued. The Company appealed the proceedings, noting that none of the deficiencies were life-threatening, that the deficiencies noted did not warrant the penalty imposed and that in the case of one of the facilities, it was JCAHO accredited. The appeals were denied by the State agency, and as a result, -12- 13 the facilities were decertified in 1997 for 69 and 91 days, respectively, before resurveys found them to be in compliance. Both of the facilities have been recertified for participation in Medicare and Medicaid programs and the State has stayed its license revocation proceedings with respect to the two Alabama facilities, agreeing that the Company responded favorably toward the resolution of all issues. The Company has aggressively pursued improved communications with the State and has reached agreement with the State addressing its concerns. The Company's remaining five Alabama facilities have successfully passed their most recent annual licensure surveys. The Company, in response to the regulatory problems at the two Mobile facilities, entered into a reorganization of its regional and facility management, conducted in-depth reviews of all seven of the Company's Alabama facilities, engaged nationally recognized consultants to assist in achieving compliance and engaged local legal counsel familiar with the Alabama regulatory environment. Many of the costs associated with the decertifications were non-recurring and limited to the latter half of 1997. However, the Company's operations have continued to be impacted in 1998 on two broad fronts: census declines and permanent cost increases. Through June 30, 1998, the decertified facilities had recovered approximately 2/3 of the occupancy decline experienced at the lowest point of the decertification periods. The Company's response to the decertifications included permanent staffing increases affecting all Alabama facilities. Due to the nature of the Alabama reimbursement system, the Company will not begin to realize an improved Medicaid reimbursement rate relative to its higher staffing cost levels until July 1, 1998. The Company expects the Alabama operations to return to normal levels during the latter half of 1998. However, there can be no assurance that either of the facilities will return to the census and profitability levels experienced prior to the decertification. As a result of the lost revenues from census declines, the permanent cost increases incurred in response to the survey issues and miscellaneous other costs, the Company experienced an estimated negative impact on earnings for the six months ended June 30, 1998 of approximately $1.3 million after income taxes, or approximately $0.24 per share. Of this amount, approximately $400,000 after income taxes, or approximately $.07 per share, was attributable to the three months ended June 30, 1998. New Facilities. Since its inception as a public company in 1994, Advocat has sought to expand its operations through the acquisition of attractive properties via either purchase or lease. Management has conscientiously evaluated the acquisition opportunities that have been available to the Company in light of criteria that were established to help insure the long-term value of the acquisitions that have been completed. There have been no acquisitions in 1998, and all of the Company's acquisition activity in 1997 was consummated in the fourth quarter. The Company acquired 17 assisted living facilities through purchase and acquired leases with respect to an additional 15 assisted living facilities. These acquisitions added 2,483 units to the Company. The substantial portion of these were acquired in the Pierce Group Acquisition: 29 assisted living facilities, all located in North Carolina, with a total of 2,302 units. In the Pierce Group Acquisition, the Company purchased 15 facilities and leased 14 others. The Company holds the option to purchase 12 of the leased facilities for market value beginning at the fifth anniversary. With the Pierce Group Acquisition, the Company, which has long been involved in the provision of assisted living services in its Canadian operations, established a foundation from which it hopes to expand its presence in the growing assisted living market in the United States. -13- 14 The acquired facilities are hereafter referred to collectively or in part as the "New Facilities." The contribution of the New Facilities to selected components of operations is noted separately where such contribution is significant within their first year of operations. With the completion of the first year of operations following acquisition or opening, a facility becomes part of same store operations. THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1997 Revenues. Net revenues increased to $52.7 million in 1998 from $44.2 million in 1997, an increase of $8.5 million, or 19.1%. Patient revenues increased to $43.1 million in 1998 from $41.1 million in 1997, an increase of $2.0 million, or 4.8%. Resident revenues increased to $8.6 million in 1998 from $2.1 million in 1997, an increase of $6.5 million, or 312.2%. This increase is entirely attributable to the New Facilities. Revenue increases among nursing facilities operated at least one year were primarily due to inflationary increases rather than from expanded services. These increases were offset by foregone revenues with respect to occupancy declines in the facilities that had been decertified. Excluding these facilities, there was a 2.3% decline in patient and resident days (approximately 10,000 days) among facilities in operation for at least one year. While the recent increases in reimbursement rates received by the Company have met or exceeded expectations, the Company anticipates it is likely that state and federal governments will continue to seek ways to retard the rate of growth in Medicaid program rates. As a percent of patient and resident revenues, Medicare decreased to 25.8% in 1998 from 27.9% in 1997 while Medicaid and similar programs increased to 55.1% in 1998 from 54.3% in 1997. Ancillary service revenues, prior to contractual allowances, increased to $17.2 million in 1998 from $14.9 million in 1997, an increase of $2.3 million or 15.6%. The Company has emphasized expansion of ancillary services since its inception in 1994. However, the rate of growth began to decline in 1996. Management believes that the opportunities available for the expansion of ancillary services in its existing operations were essentially fully realized by the beginning of 1997. The 1998 increase is primarily due to benefits realized from the transition to a single therapy provider in a majority of its nursing homes and from an increase in sales to third parties. Because cost limits are expected to be placed on ancillary services as part of the transition to the Medicare prospective payment system and because of other cost limitation provisions that have been announced or could occur, the Company anticipates that ancillary service revenues with respect to its existing operations will begin trending down during the latter half of 1998. The ultimate effect on the Company's operations cannot be predicted at this time because the extent and composition of the cost limitations are not yet certain. Operating Expense. Operating expense increased to $42.1 million in 1998 from $34.8 million in 1997, an increase of $7.3 million, or 20.9%. Of this increase, $4.1 million is attributable to the New Facilities. As a percent of patient and resident revenues, operating expense increased to 81.4% in 1998 from 80.6% in 1997. This increase is attributable to increased costs relative to revenues in the nursing home segment. These increases include the costs associated with the structural changes made pursuant to the Alabama decertifications and increased liability insurance costs. With respect to facilities operated at least one year and excluding the Alabama region, the operating expense percentage was 83.5%. As a percent of resident revenues, operating expense of the New Facilities was 62.3%. All of the New Facilities are assisted living locations, which typically have lower operating costs than do nursing homes. The largest component of operating expense is wages, which increased to $18.9 million in 1998 from $15.7 million in 1997, an increase of $3.2 million, or 20.2%. Of this increase, $2.5 million is attributable to the New Facilities. Wages with respect to facilities in operation for at least one year increased $632,000, or 4.0%. The -14- 15 Company's wage increases are generally in line with inflation, however, the larger increase with respect to the same facility operations is due primarily to a 13.2% increase in Alabama that arose principally from staffing responses to the decertifications. Lease Expense. Lease expense increased to $4.8 million in 1998 from $3.7 million in 1997, an increase of $1.1 million, or 28.4%, which is primarily attributable to the New Facilities. General and Administrative Expense. General and administrative expense increased to $2.7 million in 1998 from $2.4 million in 1997, an increase of $324,000, or 13.4%. The increase in excess of inflation is primarily attributable to the expense of managing the New Facilities and structural costs added in response to the Alabama decertifications. As a percent of total net revenues, general and administrative expense decreased to 5.2% in 1998 from 5.4% in 1997. Depreciation and Amortization. Depreciation and amortization expenses increased to $832,000 in 1998 from $671,000 in 1997, an increase of $161,000, or 24.0%. This increase is primarily attributable to the New Facilities. Interest Expense. Interest expense increased to $1.3 million in 1998 from $547,000 in 1997, an increase of $782,000, or 65.7%. This increase is primarily attributable to financing associated with the New Facilities. Income (Loss) Before Income Taxes; Net Income (Loss); Earnings (Loss) Per Share. As a result of the above, as well as the non-recurring charges of $1.5 million, the Company lost $(526,000) before income taxes in 1998 as compared with a profit of $2.1 million in 1997, a decrease of $2.6 million, or (125.2)%. The effective combined federal, state and provincial income tax rate was 36.0% in both 1998 and 1997. The net loss was $(337,000) in 1998 as compared with net income of $1.3 million in 1997, a decrease of $1.5 million, and basic and diluted earnings (loss) per share were each $(.06) as compared with $.25. SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997 Revenues. Net revenues increased to $104.2 million in 1998 from $87.7 million in 1997, an increase of $16.5 million, or 18.8%. Patient revenues increased to $84.9 million in 1998 from $81.4 million in 1997, an increase of $3.5 million, or 4.3%. Resident revenues increased to $17.3 million in 1998 from $4.3 million in 1997, an increase of $13.1 million, or 306.2%. This increase is entirely attributable to the New Facilities. Revenue increases among nursing facilities operated at least one year were primarily due to inflationary increases rather than from expanded services. These increases were offset by foregone revenues with respect to occupancy declines in the facilities that had been decertified and to one facility that was closed in April 1997. Excluding these facilities, there was a 3.4% decline in patient and resident days (approximately 29,000 days) among facilities in operation for at least one year. While the recent increases in reimbursement rates received by the Company have met or exceeded expectations, the Company anticipates it is likely that state and federal governments will continue to seek ways to retard the rate of growth in Medicaid program rates. As a percent of patient and resident revenues, Medicare decreased to 25.8% in 1998 from 27.0% in 1997 while Medicaid and similar programs increased to 55.3% in 1998 from 54.7% in 1997. Ancillary service revenues, prior to contractual allowances, increased to $34.0 million in 1998 from $28.7 million in 1997, an increase of $5.3 million or 18.3%. The Company has emphasized expansion -15- 16 of ancillary services since its inception in 1994. However, the rate of growth began to decline in 1996. Management believes that the opportunities available for the expansion of ancillary services in its existing operations were essentially fully realized by the beginning of 1997. The 1998 increase is primarily due to benefits realized from the transition to a single therapy provider in a majority of its nursing homes and from an increase in sales to third parties. Because cost limits are expected to be placed on ancillary services as part of the transition to the Medicare prospective payment system and because of other cost limitation provisions that have been announced or could occur, the Company anticipates that ancillary service revenues with respect to its existing operations will begin trending down during the latter half of 1998. The ultimate effect on the Company's operations cannot be predicted at this time because the extent and composition of the cost limitations are not yet certain. Operating Expense. Operating expense increased to $83.4 million in 1998 from $68.9 million in 1997, an increase of $14.5 million, or 21.0%. Of this increase, $8.2 million is attributable to the New Facilities. As a percent of patient and resident revenues, operating expense increased to 81.5% in 1998 from 80.4% in 1997. This increase is attributable to increased costs relative to revenues in the nursing home segment. These increases include the costs associated with the Alabama decertifications and increased liability insurance costs. With respect to facilities operated at least one year and excluding the Alabama region, the operating expense percentage was 83.5%. As a percent of resident revenues, operating expense of the New Facilities was 62.1%. All of the New Facilities are assisted living locations, which typically have lower operating costs than do nursing homes. The largest component of operating expense is wages, which increased to $37.4 million in 1998 from $31.2 million in 1997, an increase of $6.2 million, or 20.0%. Of this increase, $4.9 million is attributable to the New Facilities. Wages with respect to facilities in operation for at least one year increased $1.3 million, or 4.1%. The Company's wage increases are generally in line with inflation, however, the larger increase with respect to the same facility operations is due primarily to a 16.5% increase in Alabama that arose principally from staffing responses to the decertifications. Lease Expense. Lease expense increased to $9.6 million in 1998 from $7.6 million in 1997, an increase of $2.0 million, or 25.6%, which is primarily attributable to the New Facilities. General and Administrative Expense. General and administrative expense increased to $5.4 million in 1998 from $4.7 million in 1997, an increase of $737,000, or 15.6%. The increase in excess of inflation is primarily attributable to the expense of managing the New Facilities and structural costs added in response to the Alabama decertifications. As a percent of total net revenues, general and administrative expense decreased to 5.3% in 1998 from 5.4% in 1997. Depreciation and Amortization. Depreciation and amortization expenses increased to $1.8 million in 1998 from $1.3 million in 1997, an increase of $462,000, or 34.7%. This increase is primarily attributable to the New Facilities. Interest Expense. Interest expense increased to $2.5 million in 1998 from $1.0 million in 1997, an increase of $1.5 million, or 146.6%. This increase is primarily attributable to financing associated with the New Facilities. Income Before Income Taxes; Net Income; Earnings Per Share. As a result of the above, as well as the non-recurring charges of $1.5 million, income before income taxes was $28,000 in 1998 as compared with $4.1 million in 1997, a decrease of $4.0 million, or (99.3)%. The effective combined federal, state and provincial income tax rate was 36.0% in both 1998 and 1997. Net income was $18,000 in 1998 as compared with -16- 17 $2.6 million in 1997, a decrease of $2.6 million, and basic and diluted earnings per share were each $.00 as compared with $.49. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1998 and December 31, 1997, the Company's working capital was $12.1 million and $13.8 million, respectively, and the current ratio was 1.6 and 1.7, respectively. Net cash provided from (used in) operating activities totaled $2.7 million and $3.3 million in the six month periods ended June 30, 1998 and 1997, respectively. These amounts primarily represent the cash flows from net income plus changes in non-cash components of operations and by working capital changes. Net cash used in investing activities totaled $5.3 million and $2.1 million the six month periods ended June 30, 1998 and 1997, respectively. These amounts primarily represent purchases of property plant and equipment, investments in joint ventures and additional investment in TDLP, a limited partnership for which the Company serves as the general partner. The Company has used between $2.4 million and $3.0 million for capital expenditures in each of the last three calendar years ending December 31, 1997. Substantially all such expenditures were for facility improvements and equipment, which were financed principally through working capital. For the year ended December 31, 1998, the Company anticipates that capital expenditures for improvements and equipment for its existing facility operations will be approximately $7.0 million, including $2.9 million for non-routine projects and $1.5 million for management information systems. The Company has announced its participation in several joint ventures. The Company will be a minority partner in four assisted living facilities to be developed in Canada. In addition, the Company has entered into an institutional pharmacy joint venture with NCS HealthCare Inc. For the six months ended June 30, 1998, the Company had net expenditures of $1.3 million relative to its joint venture activities. Management anticipates additional investments of up to $1.2 million will be required under its current joint venture commitments over the next 12 months. Net cash provided from (used in) financing activities totaled $1.6 million and $(126,000) for the six month periods ended June 30, 1998 and 1997, respectively. The net cash provided from or used in financing activities primarily represents net proceeds from issuance and repayment of debt and advances to or repayments from related parties. The Company has begun implementation of an integrated information management system that will provide enhanced monitoring and tracking of all its operations. Real-time information will be available to managers at all levels with respect to clinical care planning, reimbursement and financial control management. The changes are under the direction of the Company's new Vice President and Chief Information Officer. The conversion of all of the Company's U.S. nursing homes to this sophisticated information platform should be completed by November 1998. Along with the implementation of the new information system, Advocat will be centralizing the accounting function for its U.S. nursing home operations. The Company anticipates expenditures over the remainder of 1998 of up to $1.5 million related to this effort. At June 30, 1998, the Company had total debt outstanding of $61.5 million, of which $11.1 million was principally mortgage debt bearing interest at floating rates ranging from 6.3% to 10.0%. The Company also had outstanding a promissory note (the "Bridge Loan") in the amount of $34.1 million, which was used to fund the Pierce Group Acquisition. The Company's remaining debt of $16.3 million was drawn -17- 18 under the Company's lines of credit. Most of the Company's debt is at floating interest rates, generally at a spread above the London Interbank Offered Rate ("LIBOR"). At June 30, 1998, the Company's average interest rate on its indebtedness was 8.2%. The Company has a working capital line of credit and an acquisition line of credit. The working capital line of credit provides for working capital loans and letters of credit aggregating up to the lesser of $10.0 million or the borrowing base, as defined. The Company's obligations under the working capital line are secured by certain accounts receivable and substantially all other Company assets. Advances under the working capital line bear interest payable monthly at the Company's option of either LIBOR plus 2.50% or the bank's Index rate. The working capital line terminates and all outstanding borrowings are due in December 1999. As of both June 30, and August 12, 1998, the Company had drawn $4.35 million, had $5.65 million of letters of credit outstanding, and had no remaining borrowing capability under the working capital line of credit. The Company has received an increase from its lenders in the working capital line of credit availability of $1.25 million (the "Overline"), which has been increased to $4.0 million effective August 14, 1998. The Overline is subject to the same terms and conditions as the $10.0 million working capital line of credit. The Overline terminates and all outstanding borrowings are due January 15, 1999. As of June 30, 1998, the balance drawn under the Overline totaled $310,000. As of August 12, the Company had drawn the entire balance then available under the Overline, $1.25 million. The acquisition line of credit of $40.0 million, less outstanding borrowings, is available to fund approved acquisitions through October 1999. The Company's obligations under the acquisition line are secured by the assets acquired with the draws under the acquisition line. Advances under the acquisition line bear interest, payable monthly, at LIBOR plus a defined spread with respect to each facility based upon its loan-to-value ratio and debt service coverage. Individual advances made under the acquisition line are due three years from the date of initial funding. As of both June 30, 1998, and August 12, 1998, the Company has drawn $11.1 million under the acquisition line, which amount was secured by four nursing homes, and had $28.9 million available for future acquisitions. The Bridge Loan is unsecured. However, the Company has agreed not to pledge or otherwise encumber the assets acquired in the Pierce Group Acquisition or issue other debt without the banks' approval. As of both June 30, 1998 and August 12, 1998, the outstanding balance of the Bridge Loan was $34.1 million and the interest rate was 8.0%. The Bridge Loan, as amended, bears floating interest in relation to LIBOR and has a balloon maturity in July 1999. Prior to funding the Bridge Loan, the Company was required to obtain a commitment for replacement financing. The Company satisfied this requirement by obtaining a commitment for up to $30.0 million of long-term financing under which the Company may borrow and pledge the assets acquired in the Pierce Group Acquisition as collateral. Loans are available at up to 80.0% of the value of the pledged assets. Interest, which would be at LIBOR plus a defined spread, would be determined based upon the length of term selected (3, 10, or 20 years) and the loan-to-value ratio. This commitment is available through November 1999. However, the Company may not draw upon this commitment so long as the Bridge Loan remains outstanding. In addition to this commitment, the Company is exploring other alternatives for refinancing of the Bridge Loan. The Company's lines of credit and the Bridge Loan contain various financial covenants, the most restrictive of which relate to net worth, cash flow, debt to equity ratio requirements, and limits on the payment of dividends to shareholders. As of June 30, 1998, the Company was in compliance with the covenants or had received waivers in the event of non-compliance. -18- 19 Based upon the operations of the Company, management believes that available cash and funds generated from operations, as well as amounts available through its banking relationships, will be sufficient for the Company to satisfy its capital expenditures, working capital, and debt requirements for the next twelve months. The Company intends to satisfy the capital requirements for its acquisition activities primarily through its acquisition line of credit complemented as appropriate by various other possible means such as borrowings from commercial lenders, seller-financed debt, issuance of additional debt, financing obtained from sale and leaseback transactions and internally- generated cash from operations. On a long-term basis, management believes the Company will be able to satisfy the principal repayment requirements on its indebtedness with a combination of funds generated from operations and from refinancings with the existing or new commercial lenders or by accessing capital markets. RECEIVABLES The Company's operations could be adversely affected if it experiences significant delays in reimbursement of its labor and other costs from Medicare, Medicaid and other third-party revenue sources. The Company's future liquidity will continue to be dependent upon the relative amounts of current assets (principally cash, accounts receivable and inventories) and current liabilities (principally accounts payable and accrued expenses). In that regard, accounts receivable can have a significant impact on the Company's liquidity. Continued efforts by governmental and third-party payors to contain or reduce the acceleration of costs by monitoring reimbursement rates, by increasing medical review of bills for services or by negotiating reduced contract rates, as well as any delay by the Company in the processing of its invoices, could adversely affect the Company's liquidity and results of operations. Gross accounts receivable attributable to the provision of patient and resident services at June 30, 1998 and December 31, 1997, totaled $28.8 million and $27.2 million, respectively, representing approximately 51 and 50 days in accounts receivable, respectively. Accounts receivable from the provision of management services was $320,000 and $716,000 respectively, at June 30, 1998 and December 31, 1997 representing approximately 32 and 62 days in accounts receivable, respectively. The Company continually evaluates the adequacy of its bad debt reserves based on patient mix trends, agings of older balances, payment terms and delays with regard to third-party payors, collateral and deposit resources, as well as other factors. The Company continues to evaluate and implement additional procedures to strengthen its collection efforts and reduce the incidence of uncollectible accounts. Since 1991, the Company and its predecessor have included in their consolidated operations the operations of the six facilities of TDLP. The Company serves as the general partner of TDLP and has several continuing obligations to TDLP, one of which includes certain cash flow support through August 2001. As of June 30, 1998, the Company has provided advances for working capital funding and requirements under the cash flow guarantee to TDLP totaling $4.1 million. However, the Company is actively pursuing alternatives that could enhance its prospects with respect to the realization of the TDLP advances in the long term. As of June 30, 1998, the Company's recorded net assets and amounts available from TDLP exceed the combined value of its interests in TDLP. In the event these alternatives are not successful, the ultimate realization of existing or future advances to TDLP may require reserves to be recorded by the Company to offset future increases in the advances during the remainder of 1998. -19- 20 HEALTH CARE INDUSTRY The health care industry is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government health care program participation requirements, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Recently, government activity has increased with respect to investigations and allegations concerning possible violations by health care providers of fraud and abuse statutes and regulations. Violations of these laws and regulations could result in expulsion from government health care programs together with the imposition of significant fines and penalties as well as significant repayments for patient services previously billed. Management believes that the Company is in compliance with fraud and abuse laws and regulations as well as other applicable government laws and regulations. Compliance with such laws and regulations can be subject to future government review and interpretation as well as regulatory actions unknown or unasserted at this time. During 1997, the Federal government enacted the Balanced Budget Act of 1997 (the "BBA"), which contains numerous Medicare and Medicaid cost-saving measures. The BBA requires that nursing homes transition to a prospective payment system under the Medicare program during a three year "transition period," commencing with the first cost reporting period beginning on or after July 1, 1998. The BBA also contains certain measures that could lead to future reductions in Medicare therapy cost reimbursement and Medicaid payment rates. Given the recent enactment of the BBA, the Company is unable to predict the ultimate impact of the BBA on its future operations. However, any reductions in government spending for long-term health care could have an adverse effect on the revenues and results of operation of the Company. The Company will attempt to maximize the revenues available to it from governmental sources within the changes that will occur under the BBA. In addition, the Company will attempt to increase non-governmental revenues, including expansion of its assisted living operations, in order to offset the loss of governmental revenues as a result of the enactment of the BBA. FOREIGN CURRENCY TRANSLATION The Company has obtained its financing primarily in U.S. dollars; however, it incurs revenues and expenses in Canadian dollars with respect to Canadian management activities and operations of the Company's owned and leased facilities located in Canada. Therefore, if the currency exchange rate fluctuates, the Company may experience currency translation gains and losses with respect to the operations of these activities and the capital resources dedicated to their support. While such currency exchange rate fluctuations have not been material to the Company in the past, there can be no assurance that the Company will not be adversely affected by shifts in the currency exchange rates in the future. INFLATION Management does not believe that the Company's operations have been materially affected by inflation. The Company expects salary and wage increases for its skilled staff to continue to be higher than average salary and wage increases, as is common in the health care industry. To date, these increases as well as normal inflationary increases in other operating expenses have been adequately covered by revenue increases. -20- 21 RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 is effective for financial statement periods beginning after December 15, 1997. It establishes standards for the way public companies report information about operating segments in annual financial statements. SFAS No. 131 also requires that public companies report selected information about operating segments in interim financial reports issued to shareholders, although application to interim periods is not required in the first year of adoption. The Company will adopt the provision of this statement in association with its 1998 year-end financial statements. The Company does not expect the adoption of this standard to have a material effect on the Company's results of operations. The Accounting Standards Executive Committee has issued Statement of Position (SOP) 98-5, Reporting on the Costs of Start-Up Activities. SOP 98-5 requires that the cost of start-up activities be expensed as they are incurred. Start-up activities include one-time activities and organization costs. The Company anticipates adoption of the provisions of SOP 98-5 effective January 1, 1999. Upon adoption, the Company anticipates a pre-tax charge to income of approximately $300,000, which will be reported as the cumulative effect of a change in accounting principal. IMPACT OF THE YEAR 2000 The Company is currently reengineering its accounting and information systems. Management anticipates that the systems conversion of the United States nursing home operations will be completed by November 30, 1998. Included in the process of selecting hardware and software, assurances have been sought and received from the various vendors that their products are Year 2000 compliant. The Company continues to evaluate other areas that may be affected. To date, no issues of a material nature have been identified, and the costs of ensuring compliance are not expected to have a material impact on the Company's results of operations. In addition, the Company has ongoing relationships with third-party payors, suppliers, vendors, and others that may have computer systems with Year 2000 problems that the Company does not control. There can be no assurance that the fiscal intermediaries and governmental agencies with which the Company transacts business and who are responsible for payment to the Company under the Medicare and Medicaid programs, as well as other payors, will not experience significant problems with Year 2000 compliance. According to testimony before a U.S. House of Representatives subcommittee, the Department of Health and Human Services is far behind in remedying Year 2000 problems, which could delay payment of claims to providers. The failure of third parties to remedy Year 2000 problems could have a material adverse effect on the Company's business, financial condition and results of operations. FORWARD-LOOKING STATEMENTS The foregoing discussion and analysis provides information deemed by Management to be relevant to an assessment and understanding of the Company's consolidated results of operations and its financial condition. It should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Certain statements made by or on behalf of the Company, including those contained in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere, are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties including, but not limited to, changes in governmental reimbursement or regulation, health care reforms, the ability to execute on the Company's acquisition program, both in obtaining suitable acquisitions and financing therefor, changing economic conditions as well as others. Actual results may differ materially from those expressed or implied in forward-looking statements. The Company hereby makes reference to items set forth under the heading "Risk Factors" in the Company's Registration Statement on Form S-1, as amended (Registration No. 33-76150). Such cautionary statements identify important factors that could cause the Company's actual results to materially differ from those projected in forward-looking statements. In addition, the Company disclaims any intent or obligation to update these forward-looking statements. -21- 22 PART II -- OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders (a) The annual meeting of shareholders was held on May 15, 1998. (c) Matters voted upon at the meeting: - Election of Director:
William C. O'Neil, Jr. ---------------------- FOR 3,889,220 AGAINST -0- WITHHELD 329,427 ABSTENTIONS -0- NON-VOTING(1) 1,158,299 --------- ELIGIBLE SHARES 5,376,946 =========
(Continuing directors include Charles W. Birkett, M.D., Paul Richardson, Mary Margaret Hamlett, Edward G. Nelson, and J. Bransford Wallace) ------------------ (1) Including broker non-votes. - Proposal to amend the Company's 1994 Incentive and Nonqualified Stock Option Plan for Key Personnel to increase the number of shares of Common Stock reserved for issuance from 810,000 shares to 1,060,000 shares. FOR 2,386,926 AGAINST 1,819,607 WITHHELD -0- ABSTENTIONS 12,114 NON-VOTING(1) 1,158,299 --------- ELIGIBLE SHARES 5,376,946 ------------------ (1) Including broker non-votes. Item 6. Exhibits and Reports on Form 8-K. (a) The exhibits filed as part of the report on Form 10-Q are listed in the Exhibit Index immediately following the signature page. (b) Reports on Form 8-K: None. -22- 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ADVOCAT INC. August 14, 1998 By: /s/Mary Margaret Hamlett ----------------------------------------- Mary Margaret Hamlett Principal Financial Officer and Chief Accounting Officer and An Officer Duly Authorized to Sign on Behalf of the Registrant -23- 24 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------- ----------------------- 3.1 - Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement No.33-76150 on Form S-1). 3.2 - Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement No. 33-76150 on Form S-1). 3.3 - Amendment to Certificate of Incorporation dated March 23, 1995 (incorporated by reference to Exhibit A of Exhibit 1 to Form 8-A filed March 30, 1995). 4.1 - Form of Common Stock Certificate (incorporated by reference to Exhibit 4 to the Company's Registration Statement No. 33-76150 on Form S-1). 4.2 - Rights Agreement dated March 13, 1995, between the Company and Third National Bank in Nashville (incorporated by reference to Exhibit 1 to the Company's Current Report on Form 8-K dated March 13, 1995). 4.3 - Summary of Shareholder Rights Plan adopted March 13, 1995 (incorporated by reference to Exhibit B of Exhibit 1 to Form 8-A filed March 30, 1995). 4.4 - Rights Agreement of Advocat Inc. dated March 23, 1995 (incorporated by reference to Exhibit 1 to Form 8-A filed March 30, 1995). 10.1 - Renewal and Modification Promissory Note dated March 31, 1998, between the Company and AmSouth Bank. 10.2 - Renewal and Modification Promissory Note dated March 31, 1998, between the Company and First American National Bank. 10.3 - Second Amendment to Loan and Negative Pledge Agreement dated March 31, 1998, between Diversicare Assisted Living Services NC, LLC and First American National Bank, both individually and as Agent for AmSouth Bank. 27 - Financial Data Schedule (for SEC use only).
EX-10.1 2 RENEWAL & MODIFICATION PROMISSORY 1 EXHIBIT 1 RENEWAL AND MODIFICATION PROMISSORY NOTE (Nonrevolving) $17,050,000.00 Nashville, Tennessee As of March 31, 1998 FOR VALUE RECEIVED, the undersigned, Diversicare Assisted Living Services NC, LLC, a Tennessee limited liability company (the "Borrower") promises to pay to the order of AmSouth Bank (the "Bank"), the sum of Seventeen Million Fifty Thousand and 00/100 Dollars ($17,050,000.00), to be advanced hereunder in accordance with the terms of a Loan and Negative Pledge Agreement dated as of October 1, 1997, as amended from time to time (the "Loan Agreement"), between Bank, First American National Bank, the undersigned, and the Guarantors (as defined in the Loan Agreement). Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement. Interest shall accrue on the principal balance outstanding from time to time at a floating rate, as set forth in Section 2.2 of the Loan Agreement. In no event shall the interest rate charged herein exceed the Maximum Rate. Interest shall be computed for the actual number of days elapsed on the basis of a year consisting of 360 days. Interest shall be due and payable on the principal balance outstanding hereunder from time to time in accordance with Section 2.1 of the Loan Agreement. The outstanding principal balance, together with all accrued and unpaid interest, shall be due and payable in full on April 1, 1999 (the "Maturity Date"). Both principal and interest due on this Note are payable in Nashville, Tennessee, at par in lawful money of the United States of America, in the Main Office of Bank, or at such other place as Bank may designate in writing from time to time. Interest shall continue to accrue when payments are submitted by instruments representing funds not immediately available and until such funds are, in fact, collected. This Note is a further renewal and modification of a Promissory Note dated as of October 1, 1997, in the principal amount of $17,050,000, executed by the Borrower in favor of Bank, and, as such, is secured by the Guaranty Agreements, the Collateral Assignment, and the covenants and conditions in the Loan Agreement, as the same may be amended from time to time. Time is of the essence of this Note. It is hereby expressly agreed that in the event of an Event of Default (which is not cured within the notice and cure period set forth in the Loan Agreement); then, in such case, the entire unpaid principal sum evidenced by this Note, together with all accrued interest, shall, at the option of any holder, without further notice, become due and payable forthwith, regardless of the stipulated Maturity Date. Upon the occurrence of any Default, at the option of holder and without further notice to obligor, all accrued and unpaid interest, if any, shall be added to the outstanding principal balance hereof, and the entire outstanding principal balance, as so adjusted, shall bear interest thereafter until paid at an annual rate equal to Maximum Rate, regardless of whether or not there has been an acceleration of the payment of principal as set forth herein. All such interest shall be paid at the time of and as a condition precedent to the curing of any such Default. Failure of the holder to exercise this right of accelerating the maturity of the debt, or indulgence granted from time to time, shall in no event be considered as a waiver of said right of acceleration or stop the holder from exercising said right. PAGE 1 OF A 3 PAGE NOTE 2 To the extent permitted by applicable law, in addition to all other rights and remedies available to Bank, obligor shall pay to Bank a late charge equal to four percent (4%) of any payment hereunder that is more than fifteen (15) days past due, in order to cover the additional expenses incident to the handling and processing of delinquent payments. All persons or corporations now or at any time liable, whether primarily or secondarily, for the payment of the indebtedness hereby evidenced, for themselves, their heirs, legal representatives and assigns, waive demand, presentment for payment, notice of dishonor, protest, notice of protest, and diligence in collection and all other notices or demands whatsoever with respect to this Note or the enforcement hereof, and consent that the time of said payments or any part thereof may be extended by the holder hereof and assent to any substitution, exchange, or release of collateral permitted by the holder hereof, all without in any wise modifying, altering, releasing, affecting or limiting their respective liability. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. The term obligor, as used in this Note, shall mean all parties, and each of them, directly or indirectly obligated for the indebtedness that this Note evidences, whether as principal, maker, endorser, surety, guarantor or otherwise. It is expressly understood and agreed by all parties hereto, including obligors, that if it is necessary to enforce payment of this Note through an attorney or by suit, undersigned or any obligors shall pay reasonable attorney's fees, court costs and all costs of collection. All parties to the Loan Documents intend to comply with applicable usury law. All existing and future agreements evidencing or securing the Credit Facility are hereby limited and controlled by this provision. In no event (including but not limited to prepayment, default, demand for payment, or acceleration of maturity) shall the interest taken, reserved, contracted for, charged or received in connection with the Credit Facility under the Loan Documents or otherwise, exceed the maximum nonusurious amount permitted by applicable law. If, from any possible construction of any document, interest would otherwise be payable in excess of the Maximum Amount, then ipso facto, such document shall be reformed and the interest payable reduced to the Maximum Amount, without necessity of execution of any amendment or new document. If Bank ever receives interest in an amount which apart from this provision would exceed the Maximum Amount, the excess shall, without penalty, be applied to the unpaid principal balance of the Loan Obligations in inverse order of maturity of installments and not to the payment of interest, or be refunded to the Borrower, at the election of the Bank in its sole discretion or as required by applicable law. The Bank does not intend to charge or receive unearned interest on acceleration. All interest paid or agreed to be paid to the Bank in connection with the Credit Facility, or any portion thereof, shall be spread throughout the full term (including any renewal or extension) of the Loan so that the amount of interest paid does not exceed the Maximum Amount. This obligation is made and intended as a Tennessee contract and is to be so construed. (Remainder of page left intentionally blank) PAGE 2 OF A 3 PAGE NOTE 3 IN WITNESS WHEREOF, this Note has been duly executed by the undersigned the day and year first above written. DIVERSICARE ASSISTED LIVING SERVICES NC, LLC, a Tennessee limited liability company BY: /s/Mary Margaret Hamlett ----------------------------------------- TITLE: Executive Vice President --------------------------------------- RECEIVED AND ACKNOWLEDGED: AMSOUTH BANK BY: /s/Cathy Wind ----------------------------- TITLE: Vice President ------------------------- PAGE 3 OF A 3 PAGE NOTE EX-10.2 3 RENEWAL & MODIFICATION PROMISSORY 1 EXHIBIT 2 RENEWAL AND MODIFICATION PROMISSORY NOTE (NONREVOLVING) $17,050,000.00 Nashville, Tennessee As of March 31, 1998 FOR VALUE RECEIVED, the undersigned, Diversicare Assisted Living Services NC, LLC, a Tennessee limited liability company (the "Borrower") promises to pay to the order of First American National Bank (the "Bank"), the sum of Seventeen Million Fifty Thousand and 00/100 Dollars ($17,050,000.00), to be advanced hereunder in accordance with the terms of a Loan and Negative Pledge Agreement dated as of October 1, 1997, as amended from time to time (the "Loan Agreement"), between Bank, AmSouth Bank, the undersigned, and the Guarantors (as defined in the Loan Agreement). Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement. Interest shall accrue on the principal balance outstanding from time to time at a floating rate, as set forth in Section 2.2 of the Loan Agreement. In no event shall the interest rate charged herein exceed the Maximum Rate. Interest shall be computed for the actual number of days elapsed on the basis of a year consisting of 360 days. Interest shall be due and payable on the principal balance outstanding hereunder from time to time in accordance with Section 2.1 of the Loan Agreement. The outstanding principal balance, together with all accrued and unpaid interest, shall be due and payable in full on April 1, 1999 (the "Maturity Date"). Both principal and interest due on this Note are payable in Nashville, Tennessee, at par in lawful money of the United States of America, in the Main Office of Bank, or at such other place as Bank may designate in writing from time to time. Interest shall continue to accrue when payments are submitted by instruments representing funds not immediately available and until such funds are, in fact, collected. This Note is a further renewal and modification of a Promissory Note dated as of October 1, 1997, in the principal amount of $17,050,000, executed by the Borrower in favor of Bank, and, as such, is secured by the Guaranty Agreements, the Collateral Assignment, and the covenants and conditions in the Loan Agreement, as the same may be amended from time to time. Time is of the essence of this Note. It is hereby expressly agreed that in the event of an Event of Default (which is not cured within the notice and cure period set forth in the Loan Agreement); then, in such case, the entire unpaid principal sum evidenced by this Note, together with all accrued interest, shall, at the option of any holder, without further notice, become due and payable forthwith, regardless of the stipulated Maturity Date. Upon the occurrence of any Default, at the option of holder and without further notice to obligor, all accrued and unpaid interest, if any, shall be added to the outstanding principal balance hereof, and the entire outstanding principal balance, as so adjusted, shall bear interest thereafter until paid at an annual rate equal to Maximum Rate, regardless of whether or not there has been an acceleration of the payment of principal as set forth herein. All such interest shall be paid at the time of and as a condition precedent to the curing of any such Default. Failure of the holder to exercise this right of accelerating the maturity of the debt, or indulgence granted from time to time, shall in no event be considered as a waiver of said right of acceleration or stop the holder from exercising said right. PAGE 1 OF A 3 PAGE NOTE 2 To the extent permitted by applicable law, in addition to all other rights and remedies available to Bank, obligor shall pay to Bank a late charge equal to four percent (4%) of any payment hereunder that is more than fifteen (15) days past due, in order to cover the additional expenses incident to the handling and processing of delinquent payments. All persons or corporations now or at any time liable, whether primarily or secondarily, for the payment of the indebtedness hereby evidenced, for themselves, their heirs, legal representatives and assigns, waive demand, presentment for payment, notice of dishonor, protest, notice of protest, and diligence in collection and all other notices or demands whatsoever with respect to this Note or the enforcement hereof, and consent that the time of said payments or any part thereof may be extended by the holder hereof and assent to any substitution, exchange, or release of collateral permitted by the holder hereof, all without in any wise modifying, altering, releasing, affecting or limiting their respective liability. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. The term obligor, as used in this Note, shall mean all parties, and each of them, directly or indirectly obligated for the indebtedness that this Note evidences, whether as principal, maker, endorser, surety, guarantor or otherwise. It is expressly understood and agreed by all parties hereto, including obligors, that if it is necessary to enforce payment of this Note through an attorney or by suit, undersigned or any obligors shall pay reasonable attorney's fees, court costs and all costs of collection. All parties to the Loan Documents intend to comply with applicable usury law. All existing and future agreements evidencing or securing the Credit Facility are hereby limited and controlled by this provision. In no event (including but not limited to prepayment, default, demand for payment, or acceleration of maturity) shall the interest taken, reserved, contracted for, charged or received in connection with the Credit Facility under the Loan Documents or otherwise, exceed the maximum nonusurious amount permitted by applicable law. If, from any possible construction of any document, interest would otherwise be payable in excess of the Maximum Amount, then ipso facto, such document shall be reformed and the interest payable reduced to the Maximum Amount, without necessity of execution of any amendment or new document. If Bank ever receives interest in an amount which apart from this provision would exceed the Maximum Amount, the excess shall, without penalty, be applied to the unpaid principal balance of the Loan Obligations in inverse order of maturity of installments and not to the payment of interest, or be refunded to the Borrower, at the election of the Bank in its sole discretion or as required by applicable law. The Bank does not intend to charge or receive unearned interest on acceleration. All interest paid or agreed to be paid to the Bank in connection with the Credit Facility, or any portion thereof, shall be spread throughout the full term (including any renewal or extension) of the Loan so that the amount of interest paid does not exceed the Maximum Amount. This obligation is made and intended as a Tennessee contract and is to be so construed. (Remainder of page left intentionally blank) PAGE 2 OF A 3 PAGE NOTE 3 IN WITNESS WHEREOF, this Note has been duly executed by the undersigned the day and year first above written. DIVERSICARE ASSISTED LIVING SERVICES NC, LLC, a Tennessee limited liability company BY: /s/Mary Margaret Hamlett ------------------------------------------ TITLE: Executive Vice President --------------------------------------- RECEIVED AND ACKNOWLEDGED: FIRST AMERICAN NATIONAL BANK BY: /s/Sandy Hamrick ------------------------ TITLE: Senior Vice President --------------------- PAGE 3 OF A 3 PAGE NOTE EX-10.3 4 AMENDMENT TO LOAN & NEGATIVE PLEDGE 1 EXHIBIT 3 SECOND AMENDMENT TO LOAN AND NEGATIVE PLEDGE AGREEMENT This Second Amendment to Loan and Negative Pledge Agreement, made and entered into as of the 31st day of March, 1998, between First American National Bank, a national banking association, as Agent for AmSouth Bank, an Alabama banking corporation ("AmSouth"), First American National Bank ("FANB") (individually, a "Bank" and, collectively, the "Banks"), and Diversicare Assisted Living Services NC, LLC, a Tennessee limited liability company (the "Borrower"), W I T N E S S E T H: WHEREAS, pursuant to the terms of a Loan and Negative Pledge Agreement dated as of October 1, 1997, by and between FANB, AmSouth and Borrower (the "Loan Agreement"), the Banks agreed to make available to the Borrower, on a nonrevolving basis, up to $34,100,000, to finance the acquisition of the Facilities (capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms in the Loan Agreement); and, WHEREAS, Borrower has requested, and the Banks have agreed, to extend the Maturity Date of the Credit Facility to April 1, 1999, subject to the terms and conditions contained herein; and, WHEREAS, the Banks, the Borrower and the Guarantors desire to amend the Loan Agreement to reflect the extension of the Maturity Date, as set forth herein, NOW, THEREFORE, in consideration of the foregoing premises, and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties hereto hereby amend the Loan Agreement as follows: 1. Definitions. The following definitions set forth in Section 1 of the Loan Agreement are amended to read as follows: "Maturity Date" means April 1, 1999. "Notes" means the Renewal and Modification Promissory Notes of even date herewith, executed by the Borrower in favor of the Banks, together with all renewals, amendments and extensions thereof. 2. Credit Facility. The references to the monthly interest payment dates in Section 2.1 of the Loan Agreement are hereby modified to refer to April 20, 1998, as the first payment date. The Maturity Date referred to in Section 2.1 of the Loan Agreement is hereby modified to refer to April 1, 1999. 3. Section 2.5 of the Loan Agreement is hereby deleted, and the following is substituted as new Section 2.5: 1 2 2.5 Fees. In consideration for the Bank's agreements to extend the Maturity Date and to fund monies under the Loan in accordance with the Loan Agreement, Borrower shall pay the Agent a closing fee of 0.5% of the face amount of the Loan, to be distributed fifty percent (50%) to AmSouth and fifty percent (50%) to FANB. 4. Guarantors. The Guarantors have joined in the execution of this Second Amendment to acknowledge the renewal and extension of the Loan and to confirm to the Banks that the terms and provisions of the Guaranty Agreements remain in full force and effect and to confirm that that the Guaranty Agreements continue to secure the obligations under the Loan Agreement, in accordance with the terms of the Guaranty Agreements. 5. Collateral Assignment of Membership Interests. The undersigned, Diversicare Management Services Co. ("DMS") and Diversicare Assisted Living Services, Inc. ("DALS"), have joined in this Second Amendment for purposes of acknowledging the renewal and extension of the Loan and to further acknowledge that the terms and conditions of the Collateral Assignment of Membership Interests dated as of October 1, 1997, by and among the Banks, DMS and DALS (the "Collateral Assignment"), remain in full force and effect and to confirm that the Collateral Assignment continues to secure the Borrower's obligations under the Loan Agreement, in accordance with the terms of the Collateral Assignment. 6. Closing Expenses. In consideration for the extension of the Maturity Date and the other agreements of the Banks set forth herein, Borrower agrees to pay all out-of-pocket expenses incurred by the Banks in connection with the renewal and extension of the Loan, including, without limitation, reasonable attorneys fees. 7. Ratification. The Borrower hereby restates and ratifies all of the terms and conditions contained in the Loan Agreement as of the date hereof, and confirms that the Loan Agreement, as amended hereby, remains in full force and effect. (Remainder of Page Intentionally Left Blank) 2 3 IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as of the day and date first above written. FIRST AMERICAN NATIONAL BANK DIVERSICARE ASSISTED LIVING SERVICES NC, LLC BY: /s/Wallace Carter, III BY: /s/Mary Margaret Hamlett ----------------------------- ------------------------------ TITLE: Senior Vice President TITLE: Executive Vice President -------------------------- --------------------------- First American Center Chief Executive Office: Nashville, TN 37237 277 Mallory Station Road, Suite 130 Franklin, TN 37067 BANKS: FIRST AMERICAN NATIONAL BANK BY: /s/Wallace Carter, III ----------------------------------- TITLE: Senior Vice President -------------------------------- AMSOUTH BANK BY: /s/Cathy Wind ----------------------------------- TITLE: Vice President -------------------------------- GUARANTORS: ADVOCAT, INC., a Delaware corporation BY: /s/Mary Margaret Hamlett ----------------------------------- TITLE: Executive Vice President -------------------------------- 3 4 DIVERSICARE MANAGEMENT SERVICES CO., a Tennessee corporation BY: /s/Mary Margaret Hamlett ----------------------------------- TITLE: Executive Vice President -------------------------------- DIVERSICARE LEASING CORP., a Tennessee corporation BY: /s/Mary Margaret Hamlett ----------------------------------- TITLE: Executive Vice President -------------------------------- ADVOCAT ANCILLARY SERVICES, INC., a Tennessee corporation BY: /s/Mary Margaret Hamlett ----------------------------------- TITLE: Executive Vice President -------------------------------- DIVERSICARE CANADA MANAGEMENT SERVICES CO., INC., an Ontario, Canada corporation BY: /s/Mary Margaret Hamlett ----------------------------------- TITLE: Executive Vice President -------------------------------- DIVERSICARE GENERAL PARTNER, INC., a Texas corporation BY: /s/Mary Margaret Hamlett ---------------------------------- TITLE: Executive Vice President -------------------------------- 4 5 FIRST AMERICAN HEALTH CARE, INC., an Alabama corporation BY: /s/Mary Margaret Hamlett ----------------------------------- TITLE: Executive Vice President -------------------------------- ADVOCAT DISTRIBUTION SERVICES, INC., a Tennessee corporation BY: /s/Mary Margaret Hamlett ----------------------------------- TITLE: Executive Vice President -------------------------------- ADVOCAT FINANCE, INC., a Delaware corporation BY: /s/Mary Margaret Hamlett ----------------------------------- TITLE: Executive Vice President -------------------------------- DIVERSICARE LEASING CORP. OF ALABAMA, INC., an Alabama corporation BY: /s/Mary Margaret Hamlett ---------------------------------- TITLE: Executive Vice President -------------------------------- DIVERSICARE ASSISTED LIVING SERVICES, INC., a Tennessee corporation BY: /s/Mary Margaret Hamlett ---------------------------------- TITLE: Executive Vice President -------------------------------- 5 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF ADVOCAT INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q DATED FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 1,649 0 29,831 2,417 1,063 33,599 83,193 13,759 118,922 21,532 0 0 0 54 30,671 118,922 0 104,191 0 104,163 0 786 2,499 28 10 18 0 0 0 18 .00 .00
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