<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _________ .
COMMISSION FILE NUMBER 0-27374
UNISON HEALTHCARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 86-0684011
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
7272 E. INDIAN SCHOOL ROAD, SUITE 214
SCOTTSDALE, AZ 85251
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(602) 423-1954
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 ___
AS OF NOVEMBER 1, 1996 THERE WERE 6,044,371 SHARES OF $0.001 PAR VALUE
COMMON STOCK OUTSTANDING.
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<PAGE> 2
UNISON HEALTHCARE CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995.................................................... 3
Condensed Consolidated Statements of Operations
for the Three Months and Nine Months Ended September 30, 1996 and 1995... 4
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1996 and 1995........................ 5
Notes to Condensed Consolidated Financial Statements....................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..........................................................
Item 6. Exhibits and Reports on Form 8-K........................................... 15
Signature.................................................................. 16
Exhibit Index.............................................................. 17
NOTE: Items 2 through 5 of Part II are omitted because they are not applicable.
</TABLE>
2
<PAGE> 3
UNISON HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
1995
SEPTEMBER 30, ------------
1996
-------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 812 $ 6,097
Accounts receivable -- patient, less allowance for doubtful
accounts of $874 at September 30, 1996 and $709 at December
31, 1995...................................................... 23,728 14,771
Accounts receivable -- other, less allowance for doubtful
accounts of $74 at September 30, 1996 and December 31, 1995... 1,331 1,852
Prepaid expenses and other current assets........................ 3,444 2,245
------- -------
Total current assets.......................................... 29,315 24,965
Lease operating rights and other assets, net....................... 39,499 38,902
Goodwill, net...................................................... 11,124 7,473
Property and equipment, net........................................ 6,274 3,002
Security deposits.................................................. 3,303 3,189
------- -------
$89,515 $ 77,531
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit................................................... $ -- $ 789
Accounts payable................................................. 8,259 9,437
Accrued expenses................................................. 9,858 8,785
Notes payable and current portion of long-term debt due to
affiliates.................................................... 2,091 5,824
Current portion of other notes and long-term debt................ 802 636
Deferred taxes................................................... 720 703
------- -------
Total current liabilities..................................... 21,730 26,174
Line of credit..................................................... 9,751 --
Notes payable and long-term debt due to affiliates................. 12,459 13,691
Other notes payable and long-term debt............................. 10,778 4,693
Deferred taxes..................................................... 8,370 8,173
Leasehold liability, net........................................... 4,481 4,621
Other long-term liabilities........................................ 181 294
------- -------
Total liabilities............................................. 67,750 57,646
------- -------
Stockholders' equity:
Common stock, $.001 par value; 10,000,000 shares authorized;
3,994,937 and 3,673,748 issued and outstanding at
September 30, 1996 and December 31, 1995...................... 3 2
Additional paid-in capital....................................... 21,964 20,091
Accumulated deficit.............................................. (94) (208)
Unearned compensation............................................ (108) --
------- -------
Total stockholders' equity.................................... 21,765 19,885
------- -------
$89,515 $ 77,531
======= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
and Management's Discussion and Analysis of Financial Condition
and Results of Operations.
3
<PAGE> 4
UNISON HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net operating revenues........................ $ 37,592 $ 20,053 $ 102,589 $ 33,497
Expenses:
Wages and related........................... 19,492 10,146 51,939 17,632
Other operating............................. 12,604 6,896 33,776 11,483
Rent........................................ 3,875 2,191 10,528 3,342
Interest.................................... 905 587 2,357 770
Depreciation and amortization............... 607 449 1,661 537
Provision for loss on disposition of
facilities............................... 2,000 -- 2,000 --
--------- --------- --------- ---------
Total expenses........................... 39,483 20,269 102,261 33,764
--------- --------- --------- ---------
Income (loss) before income taxes............. (1,891) (215) 328 (267)
Income tax expense (benefit).................. (718) (31) 214 (30)
--------- --------- --------- ---------
Net income (loss)............................. $ (1,173) $ (184) $ 114 $ (237)
========= ========= ========= =========
Net income (loss) per share:
Primary..................................... $(.29) $(.15) $.03 $(.19)
Fully diluted............................... (.29) (.15) .03 (.19)
Shares used in per share calculation:
Primary..................................... 4,113,312 1,266,164 4,084,156 1,266,164
Fully diluted............................... 4,113,312 1,266,164 4,100,967 1,266,164
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's
Discussion and Analysis of Financial Condition and Results of Operations.
4
<PAGE> 5
UNISON HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1995
----------- --------
(UNAUDITED)
<S> <C> <C>
Net cash provided by (used in) operating activities (including
changes in all operating assets and liabilities)................... $(6,844) $ 2,012
------ ------
Cash flows from investing activities:
Purchase of equipment and leasehold improvements................... (3,001) (673)
Increase in intangibles and other assets........................... (1,461) (229)
(Increase) decrease in lease deposits.............................. (114) 33
Acquisitions....................................................... (932) 394
------ ------
Net cash used in investing activities........................... (5,508) (475)
------ ------
Cash flows from financing activities:
Net increase in borrowings under revolving lines of credit......... 8,962 (950)
Proceeds from long-term debt....................................... 10,136 22,337
Payments of principal on long-term debt............................ (12,077) (21,891)
Proceeds from exercise of stock options............................ 46 --
------ ------
Net cash provided by (used in) financing activities............. 7,067 (504)
------ ------
Net increase (decrease) in cash...................................... (5,285) 1,033
Cash and cash equivalents at beginning of period..................... 6,097 118
------ ------
Cash and cash equivalents at end of period........................... $ 812 $ 1,151
====== ======
Supplemental disclosures:
Cash paid for:
Interest........................................................... $ 1,538 $ 750
Income taxes....................................................... -- --
Acquisitions:
Increase in assets................................................. 5,031 58,469
Liabilities assumed and incurred................................... 4,031 59,421
Conversion of debenture into shares of common stock.................. 1,714 --
Equipment purchased under capital lease.............................. 648 --
Common stock warrants issued......................................... -- 150,000
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's
Discussion and Analysis of Financial Condition and Results of Operations.
5
<PAGE> 6
UNISON HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited financial information furnished herein, in the opinion of
management, contains all adjustments which are necessary to state fairly the
financial position, cash flows and results of operations of Unison HealthCare
Corporation and its subsidiaries ("Unison" or the "Company") as of and for
the periods indicated. Unison presumes that users of the interim financial
information herein have read or have access to the audited financial
statements and Management's Discussion and Analysis of Financial Condition
and Results of Operations for the preceding fiscal year and that the adequacy
of additional disclosure needed for a fair presentation, except in regard to
material contingencies, may be determined in that context. Accordingly,
footnote and other disclosures which would substantially duplicate the
disclosures contained in Unison's most recent annual report to stockholders
have been omitted. Operating results for the three months and nine months
ended September 30, 1996 are not necessarily indicative of the results which
may be expected for the year ending December 31, 1996.
2. Unison receives management fees for the management of long-term care
facilities on behalf of the owners. Net operating revenues include management
fees amounting to $187,000, $744,000, $412,000 and $1,348,000 for the three
months and nine months ended September 30, 1996 and 1995, respectively.
3. The provision for doubtful accounts receivable is included in other operating
expenses. Provisions totaled $155,000, $476,000, $37,000 and $87,000 for the
three months and nine months ended September 30, 1996 and 1995, respectively.
4. In August 1995, Unison acquired BritWill HealthCare Company ("BritWill"), a
long-term care company operating 28 facilities in Texas and Indiana. The
transaction was accounted for as a purchase.
On March 28, 1996, Unison entered into a definitive purchase and sale
agreement for the acquisition, effective February 1, 1996, of 90% of the
common stock of four rehabilitation therapy centers (collectively, "Sunbelt
Therapy"). In consideration for the stock of Sunbelt Therapy, Unison paid
$800,000 in cash, issued term notes for $1,000,000 in the aggregate (the
"Notes") and issued subordinated convertible debentures totaling $1,800,000
(the "Debentures"). In addition, contingent payments will be due if specified
pretax income targets are achieved, and Unison is required to purchase the
remaining 10% of the Sunbelt Therapy stock in 1998 at a formula price based
on 1997 operating results. The Notes and Debentures bear interest at 10%,
payable quarterly beginning May 1, 1996, and are convertible into Unison
common stock at the option of the holder at a conversion price equal to the
average closing price (85% of the average closing price with respect to the
Notes) of Unison's common stock for the 20-day trading period preceding the
date of conversion. The Notes mature in equal principal amounts on February
1, 1997 and 1998, and the Debentures mature in equal principal amounts on
February 1, 1997, 1998 and 1999. The transaction was accounted for as a
purchase.
In January 1996, Unison acquired an institutional pharmacy in Indiana. In
consideration for the $600,000 purchase price, the Company paid cash in the
amount of $200,000 and issued a note payable amounting to $400,000. On
October 1, 1996, Unison acquired an institutional pharmacy in Texas for a
cash purchase price of $200,000. The acquisitions were accounted for as
purchases. Had these transactions occurred as of January 1, 1995, the effect
on Unison's pro forma results of operations for the three and nine months
ended September 30, 1996 and 1995 would have been immaterial.
Effective August 1, 1996, Unison acquired the leasehold rights to two skilled
nursing facilities located in the State of Washington with an aggregate of
222 beds. These facilities were previously operated by Unison under a
management contract.
On October 31, 1996, Unison, through a newly formed wholly owned subsidiary,
completed a merger with American Professional Holding, Inc. ("Ampro") in
which the outstanding shares of Ampro Common Stock were converted into the
right to receive 521,000 shares of Unison Common Stock. Unison also completed
a merger with Memphis Clinical Laboratory, Inc. ("Memphis") in which three
shareholders who owned approximately 35% of the outstanding shares of Memphis
received pro rata portions of 19,000 shares of Unison Common Stock and the
holder of the remaining shares of Memphis received cash in the
6
<PAGE> 7
UNISON HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amount of $237,000 and a promissory note in the amount of $250,000. The Ampro
and Memphis mergers comprised a single, overall transaction that will be
accounted for as a pooling of interests.
On October 31, 1996, the Company completed the acquisition by merger of
Signature Health Care Corporation ("Signature Health Care") and four
affiliated companies, Douglas Manor, Inc. ("Douglas"), Safford Care, Inc.
("Safford"), Arkansas, Inc. ("Arkansas"), and Cornerstone, Inc.
("Cornerstone" and collectively with Signature Health Care, Douglas, Safford
and Arkansas, "Signature"). Signature operates 13 long-term care facilities
in Colorado and Arizona. Outstanding shares of Signature were converted into
the right to receive cash and promissory notes totaling approximately
$38,200,000 and 1,509,434 shares of Unison's Common Stock. In connection with
the Signature Acquisition, Unison also acquired all of the outstanding stock
of RehabWest, Inc. a related rehabilitation services company, for a cash
purchase price of $5,350,000 after a pre-sale distribution by RehabWest of
approximately $750,000. These acquisitions will be accounted for as
purchases.
On September 30, 1996, Unison announced a disposition plan designed to
improve its long-term financial strength and operating performance. The plan
includes the disposition of seven nursing facilities (the "Disposition
Facilities"), two of which are closed, which do not meet Unison's operational
or financial criteria. The aggregate number of licensed beds related to the
facilities currently in operation totals 565. Unison recorded a nonrecurring
charge in the quarter ended September 30, 1996 in the amount of $4,000,000
comprised of (i) $2,000,000 to establish reserves for costs to dispose of the
Disposition Facilities (primarily lease subsidies) and (ii) $2,000,000 to
establish reserves for potentially uncollectible third-party payor
settlements. Results of operations of the Disposition Facilities were as
follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -------------------
1996 1995 1996 1995
------ ------ ------- -------
<S> <C> <C> <C> <C>
Revenues......................................... $3,234 $3,767 $10,131 $11,055
Net income (loss)................................ (396) (89) (891) 77
</TABLE>
Summarized below are the unaudited pro forma consolidated results of
operations of Unison for the periods indicated, assuming the acquisitions and
dispositions described above and the private placement of the Senior Notes
described in Note 5 were consummated as of January 1, 1995. The unaudited pro
forma consolidated results of operations have been prepared for comparative
purposes only and are not necessarily indicative of what would have occurred
had these transactions occurred at January 1, 1995 or of results which may
occur in the future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ---------------------
1996 1995 1996 1995
------- ------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues.................................. $50,443 $37,964 $140,736 $100,659
Net income (loss)......................... (652) (1,195) (395) (1,590)
Net income per share...................... $(.11) $(.36) $(.06) $(.48)
</TABLE>
5. On October 31, 1996, Unison completed the private placement of $100,000,000
of 12 1/4% Senior Notes Due 2006 (the "Senior Notes"). The net proceeds to
Unison in the amount of $96,500,000 were used to complete the acquisitions of
Signature and RehabWest and repay certain debt and contingent obligations;
excess proceeds will be used for general corporate purposes including future
acquisitions and working capital.
In March 1996, Unison replaced its revolving lines of credit with a new
$10,000,000 revolving credit facility. Borrowings under this credit facility
bear interest at the prime rate plus 2.0% (10.25% at September 30, 1996),
mature in 1998 and are secured by the Company's eligible accounts receivable.
The credit agreement requires Unison to comply with certain financial and
operational covenants including limitations on additional borrowings and
sales of assets and alteration of the existing capital structure.
7
<PAGE> 8
UNISON HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unison also executed promissory notes with a lessor in the aggregate amount
of $4,000,000 with interest at 10.25% to 10.75%. In May 1996, Unison executed
a promissory note payable to the agent for the former holders of BritWill
stock immediately prior to the acquisition of BritWill in the amount of
$1,000,000. Interest is payable at 12.0% and the note is due on demand after
30 days from issuance. Outstanding balances under each of these credit
facilities were repaid with the proceeds from the Senior Notes.
In August 1996, Unison entered into a short-term loan agreement with Imperial
Bank providing for up to $7,500,000 of borrowings (the "Imperial Loan") and
drew $5,000,000 of this amount. The remaining $2,500,000 was drawn in October
1996. Unison issued stock purchase warrants for an aggregate of 300,464
shares in conjunction with the Imperial Loan. In August 1996, Unison also
delivered to one of its suppliers a $771,000 promissory note (the "Red Line
Note") issued in satisfaction of certain accounts payable. Both the Imperial
Loan and the Red Line Note were repaid with the proceeds from the Senior
Notes.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unison's statements regarding its potential for growth and liquidity and
capital resources are forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act and are based on
the assumptions set forth in this discussion and analysis of financial condition
and results of operations. While the Company believes that such assumptions are
reasonable, any of such assumptions could prove to be inaccurate. Important
factors which could cause actual growth and liquidity and capital resources to
vary from the discussion herein are set forth in such discussions and include
without limitation the factors discussed in "Item 1 -- Business" in Unison's
Annual Report on Form 10-K for the year ended December 31, 1995 and "Risk
Factors" in the Company's Prospectus filed as part of the registration statement
on Form S-4 (File No. 333-12263), as well as those factors discussed elsewhere
in this report or in any document incorporated herein by reference.
The following material should be read in conjunction with the Condensed
Consolidated Financial Statements of the Company and the related notes thereto.
RECENT ACQUISITIONS AND PENDING DISPOSITIONS
On March 28, 1996, Unison entered into a definitive purchase and sale
agreement for the acquisition, effective February 1, 1996, of 90% of the common
stock of four rehabilitation therapy centers (collectively, "Sunbelt Therapy")
(the "Sunbelt Acquisition"). The transaction was accounted for as a purchase. In
August 1995, Unison acquired BritWill Healthcare Company ("BritWill"), a
long-term care company operating 28 facilities in Texas and Indiana (the
"BritWill Acquisition"). The transaction was accounted for as a purchase.
Effective August 1, 1996, Unison acquired the leasehold rights to two
skilled nursing facilities located in the State of Washington with an aggregate
of 222 beds. These facilities were previously operated by Unison under a
management contract.
On October 31, 1996, Unison, through a newly formed wholly owned
subsidiary, completed a merger with American Professional Holding, Inc.
("Ampro"). In the merger, the outstanding shares of Ampro Common Stock were
converted into the right to receive 521,000 shares of Unison Common Stock.
Unison also completed a merger with Memphis Clinical Laboratory, Inc.
("Memphis"). In the merger, three shareholders who own approximately 35% of the
outstanding shares of Memphis received pro rata portions of 19,000 shares of
Unison Common Stock and the holder of the remaining shares of Memphis received
cash in the amount of $237,000 and a promissory note in the amount of $250,000.
The mergers comprised a single, overall transaction that will be accounted for
as a pooling of interests.
On October 31, 1996, the Company completed the acquisition by merger of
Signature Health Care Corporation ("Signature Health Care") and four affiliated
companies, Douglas Manor, Inc. ("Douglas"), Safford Care, Inc. ("Safford"),
Arkansas, Inc. ("Arkansas"), and Cornerstone, Inc. ("Cornerstone" and
collectively with Signature Health Care, Douglas, Safford and Arkansas,
"Signature") (the "Signature Acquisition"). Signature operates 13 long-term care
facilities in Colorado and Arizona. Outstanding shares of Signature were
converted into the right to receive cash and promissory notes equal to
approximately $38,200,000 and 1,509,434 shares of Unison Common Stock. In
connection with the Signature Acquisition, Unison also acquired all of the
outstanding stock of RehabWest, Inc. ("RehabWest") a related rehabilitation
services company, for a cash purchase price of $5,350,000 after a pre-sale
distribution by RehabWest of approximately $750,000. These acquisitions will be
accounted for as purchases. See Note 4 of Notes to Condensed Consolidated
Financial Statements.
9
<PAGE> 10
RESULTS OF OPERATIONS
The following table summarizes selected operating statistics.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------
1996 1995
----- -----
<S> <C> <C>
Leased Facilities:
Number of facilities...................................... 46 41
Number of licensed beds:
Long-term care......................................... 4,196 3,516
Assisted and independent living........................ 134 112
Managed Facilities:
Number of facilities...................................... 5 9
Number of licensed beds................................... 532 958
Institutional Pharmacies:
Number of outlets......................................... 2 --
Nonaffiliated facilities served........................... 32 7
Therapy locations:
Nonaffiliated entities served............................. 44 --
</TABLE>
The following table identifies the Company's sources of net operating
revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
1996 1995 1996 1995
------- ------ ------- -------
<S> <C> <C> <C> <C>
Percentage of total revenues:
Long-term care..................... 86.4% 99.0% 88.4% 99.2%
Therapy contracts.................. 7.7 -- 6.0 --
Pharmacies......................... 4.8 .6 4.4 .4
Medicare Part B billing and
supply.......................... 1.1 .4 1.2 .4
------- ------ ------- -------
Total...................... 100.0% 100.0% 100.0% 100.0%
======= ====== ======= =======
Patient days......................... 307,648 865,613 219,968 353,866
</TABLE>
Unison's revenues fluctuate from facility to facility based on various
factors, including total capacity, occupancy rates, reimbursement systems and
rates among the payor categories, payor mix and the scope and utilization of the
Company's ancillary services. Medicare patients generate the highest revenue per
patient day, although profitability is not always increased due to the
additional costs associated with the higher level of care required by such
patients. In general, private pay sources are more profitable to the Company
than governmental reimbursement sources. Unison generally derives a higher
profit margin from ancillary services than from basic nursing services.
Data for nursing center operations with respect to sources of net patient
revenues and patient mix by payor type are set forth below (long-term care
only).
<TABLE>
<CAPTION>
NET PATIENT REVENUES
-------------------------------------
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Medicaid........................................ 45.1% 52.2% 49.2% 54.1%
Medicare........................................ 40.4 28.0 35.5 26.2
Private and other............................... 14.5 19.8 15.3 19.7
</TABLE>
10
<PAGE> 11
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
In the 1996 third quarter ended September 30, 1996, Unison realized a net
loss of $1,173,000 compared to a net loss of $184,000 in the prior year quarter.
Loss before taxes amounted to $1,891,000 in the current quarter compared to
$215,000 in the prior year. Included in the pretax loss in the current quarter
is the $4,000,000 nonrecurring charge related to the Disposition Facilities and
write-off of potentially uncollectible third party payor settlements.
Net operating revenues were $37,592,000 in the 1996 third quarter compared
to $20,053,000 in the prior year quarter. The increase in net operating revenues
is primarily attributable to (i) the increase in the number of leased facilities
operated, including the acquisition of 28 facilities with the BritWill
Acquisition on August 10, 1995; (ii) the acquisitions of institutional
pharmacies and Sunbelt Therapy, and progress in providing ancillary products and
services to patients of Unison facilities and unrelated facilities; and (iii)
the increase in Unison's revenue quality mix to 54.9% for the three months ended
September 30, 1996 compared to 47.8% in the prior year period.
Wages and related expense increased from $10,146,000 in the 1995 third
quarter to $19,492,000 in the current quarter due primarily to the increase in
the number of leased facilities operated. Wages and related expense as a
percentage of revenues increased from 50.6% in the 1995 third quarter to 51.9%
in the 1996 third quarter.
Other operating expenses increased from $6,896,000 in the 1995 third
quarter to $12,604,000 in the 1996 third quarter. The increase is due primarily
to acquisitions. Other operating expenses as a percentage of revenues amounted
to 33.5% in the current quarter compared to 34.4% in the 1995 third quarter.
Rent expense increased from $2,191,000 in the 1995 third quarter to
$3,875,000 in the current quarter. The increase is due primarily to the increase
in the number of leased facilities operated. Rent expense as a percentage of
revenues increased from 10.9% in the 1995 period to 10.3% in the current
quarter.
Interest expense amounted to $905,000 in the current quarter compared to
$587,000 in the 1995 third quarter. The increase is the result of debt incurred
and assumed in connection with acquisitions as well as increases in borrowings
under lines of credit, partially offset by modifications of the terms of the
BritWill Acquisition that reduced interest expense but increased contingent
purchase price obligations. See "-- Liquidity and Capital Resources." Interest
expense as a percentage of revenues decreased from 2.9% in the 1995 third
quarter to 2.4% in the current period.
Depreciation and amortization expense increased from $449,000 in the third
quarter of 1995 to $607,000 in the current quarter. The increase is due
primarily to the increase in goodwill and lease operating rights associated with
acquisitions. Depreciation and amortization expense as a percentage of revenues
decreased from 2.2% in the 1995 third quarter to 1.6% in the current quarter.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
In the nine months ended September 30, 1996, Unison realized net income of
$114,000 compared to a loss of $237,000 in the prior year period. Income before
taxes amounted to $328,000 in the current period compared to a loss of $267,000
in the prior year. Included in the pretax income calculation in the current
nine-month period is the $4,000,000 nonrecurring charge related to the
Disposition Facilities and write-off of potentially uncollectible third-party
payor settlements.
Net operating revenues were $102,589,000 in the 1996 period compared to
$33,497,000 in the prior year. The increase in net operating revenues is
primarily attributable to (i) the increase in the number of leased
11
<PAGE> 12
facilities operated, including the acquisition of 28 facilities with the
BritWill Acquisition on August 10, 1995; (ii) the acquisitions of institutional
pharmacies and Sunbelt Therapy, and progress in providing ancillary products and
services to patients of Unison facilities and unrelated facilities; and (iii)
the increase in Unison's quality mix to 50.8% for the nine months ended
September 30, 1996 compared to 45.9% in the prior year period.
Wages and related expense increased from $17,632,000 for the first nine
months of 1995 to $51,939,000 in the nine months ended September 30, 1996 due
primarily to the increase in the number of leased facilities operated. Wages and
related expense as a percentage of revenues decreased from 52.6% for the first
nine months of 1995 to 50.6% in the 1996 period.
Other operating expenses increased from $11,483,000 to $33,776,000 in the
1996 period. The increase is due primarily to acquisitions. Other operating
expenses as a percentage of revenues amounted to 32.9% in 1996 compared to 34.3%
in the 1995 period.
Rent expense increased from $3,342,000 in the 1995 period to $10,528,000 in
the current period. The increase is due primarily to the increase in the number
of leased facilities operated, including the addition of the 28 facilities
acquired in connection with the BritWill Acquisition on August 10, 1995. Rent
expense as a percentage of revenues increased from 10.0% in 1995 to 10.3% in the
current period.
Interest expense amounted to $2,357,000 in the current period compared to
$770,000 in the prior year period. The increase is the result of debt incurred
and assumed in connection with acquisitions as well as increases in borrowings
under lines of credit. See "-- Liquidity and Capital Resources." Interest
expense as a percentage of revenues remained constant at 2.3% in both the 1995
period and in the current year period. Interest expense in 1996 was impacted by
the modification of the BritWill purchase agreement and the related subordinated
note payable to the former BritWill shareholders as described in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" in Unison's annual report on Form
10-K for the year ended December 31, 1995.
Depreciation and amortization expense increased from $537,000 in 1995 to
$1,661,000 in the current period. The increase is due primarily to the increase
in goodwill and lease operating rights associated with acquisitions.
Depreciation and amortization expense as a percentage of revenues was 1.6% in
both the 1995 period and in the first nine months of 1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, Unison had $812,000 in cash compared to $6,097,000
at December 31, 1995. The Company had working capital of $7,585,000 at September
30, 1996 compared to a working capital deficit at December 31, 1995 amounting to
$1,209,000.
Cash used in operations in the nine months ended September 30, 1996
amounted to $6,844,000 compared to cash provided amounting to $2,012,000 in the
prior year period. The change is due primarily to fluctuations in current assets
and liabilities. Of this increase in the use of cash, $2,515,000 is the result
of a change in the Company's accounts receivable-backed credit facility. In
March 1996, the agreement to sell accounts receivable was replaced with a line
of credit secured by eligible accounts receivable. As a result, accounts
receivable at September 30, 1996 include amounts which, under the sales
agreement, would have been deducted from the accounts receivable balance.
Net cash used in investing activities amounted to $5,508,000 in the 1996
period compared to $475,000 in the prior year period. In 1996, capital
expenditures amounted to $3,001,000 compared to $673,000 in the prior year
period. Expenditures for acquisitions, net of cash acquired, amounted to
$932,000 in the current period and increases in intangible and other assets
totaled $1,461,000.
Net cash provided by financing activities amounted to $7,067,000 compared
to $504,000 used in the prior year period.
On October 31, 1996, Unison completed the private placement of $100,000,000
of 12 1/4% Senior Notes Due 2006 (the "Senior Notes"). The net proceeds to
Unison in the amount of $96,500,000 were used to
12
<PAGE> 13
complete the acquisitions of Signature and RehabWest and prepay certain debt
obligations. Excess proceeds will be used (i) to repay the $8,000,000
subordinated note to the former BritWill shareholders in January 1997; (ii) to
repay $1,750,000 of the lump sum contingent obligation due to the former
BritWill shareholders in January 1997; (iii) to repay certain other debt
obligations and (iv) the approximately $15,000,000 of remaining proceeds will be
used for general corporate purposes including future acquisitions and working
capital.
After the sale of the Senior Notes and application of the net proceeds
thereof as described, Unison's remaining obligations associated with the
BritWill Acquisition will include: (i) scheduled contingent monthly payments
through August 2000 of $98,854 to $166,376 (contingent upon revenue targets
that, in light of the recent acquisitions, are likely to be achieved, and
subject to reduction or elimination of future payment obligations upon early
payment of the Lump Sum Contingent Obligation described below); and (ii) a
remaining contingent payment of $8,146,000 (the "Lump Sum Contingent
Obligation") due on the earlier of a sale by Unison of debt or equity securities
exceeding $10,000,000 million following the issuance of the Senior Notes or
August 9, 2000 (contingent, unless paid earlier, upon revenues during the 12
months ending June 30, 2000 exceeding $150,000,000).
Unison's outstanding long-term indebtedness and other obligations and its
minimum annual commitments for leaseholds, debt service and other fixed
obligations are expected to be as follows (in thousands):
<TABLE>
<CAPTION>
LONG-TERM OPERATING CONTINGENT TOTAL
DEBT LEASES PAYMENTS OBLIGATIONS
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Year ending December 31,
1997....................................... $ 563 $11,449 $1,367 $ 13,379
1998....................................... 847 11,546 1,494 13,887
1999....................................... 499 11,539 1,781 13,819
2000....................................... 317 11,057 9,477 20,851
2001....................................... 392 10,683 -- 11,075
Thereafter.................................... 117,214 69,420 -- 186,634
</TABLE>
To the extent that existing resources and future cash generated from
operations are insufficient to fund its activities and to repay its fixed and
contingent obligations, either near term or in future years, Unison will need to
raise additional funds through debt or equity financings. There can be no
assurance that such financings will be available, or if available, that
necessary financing will be available on terms favorable to the Company and its
shareholders.
Unison finances its working capital needs out of its operating cash flows
and under a $10,000,000 revolving credit facility. Unison also has a $1,000,000
credit facility from the same lender to finance the working capital needs of its
ancillary businesses, which Unison expects to refinance during the fourth
quarter of 1996 with a new line of credit for its ancillary businesses. At
September 30, 1996, borrowings under these credit facilities amounted to
$9,751,000 with interest payable at 10.25%. Unison repaid its outstanding
borrowings under these facilities with a portion of the proceeds of the Senior
Notes and availability under these lines of credit totals $10,000,000 in the
aggregate.
Unison's working capital lender recently advised Unison that it believed
that certain defaults had occurred respecting the application of cash collateral
and certain borrowing base calculations. Unison and such lender entered into an
Amendment No. 3 to Loan and Security Agreement dated as of October 7, 1996,
pursuant to which they agreed that (i) Unison would pay a $200,000 waiver fee
(since paid), (ii) Unison will have no right to terminate the facility prior to
January 2, 1997, and (iii) Unison will pay a termination fee (or a management
fee in lieu of a termination fee) of $500,000 upon the earlier of termination of
the facility or March 14, 1997. The Lender agreed that the facility would remain
in place at Unison's option until May 26, 1998.
Unison expects to take a number of steps that it believes will strengthen
its balance sheet and provide for Unison's working capital needs and future
growth. As part of this, Unison intends to refinance its working capital
facilities with a working capital and acquisition bank facility.
13
<PAGE> 14
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121"), requires that impairment losses be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. SFAS 121 also addresses the accounting for
long-lived assets to be disposed of, which relates to the Disposition
Facilities. See "-- Recent Acquisitions and Pending Dispositions."
14
<PAGE> 15
PART II. OTHER INFORMATION
Items 2 - 5 are not applicable.
ITEM 1. LEGAL PROCEEDINGS
Unison has received a complaint filed on October 22, 1996 in the Texas
state district court by RehabWorks, Inc. ("RehabWorks") a therapy services
provider, based on allegations that Unison breached a non-solicitation covenant
in a contract with RehabWorks and tortiously interfered with RehabWorks'
employment relationship with several of its former employees. RehabWorks also
claims that Unison is past due with respect to payment of fees owed the therapy
services provider in the amount of approximately $875,000 plus interest. The
complaint seeks injunctive relief plus a judgment for the unpaid fees, alleged
compensatory damages of not less than $1,500,000 and exemplary damages of not
less than $2,250,000, plus interest and attorneys' fees. Unison acknowledges
that it owes approximately $800,000 for fees, but believes that the other claims
are without merit and intends to respond accordingly.
Unison is also a defendant in a number of suits arising out of a fatal
traffic accident involving a Unison employee while on the job. Unison believes
that substantially all of its costs and liabilities arising from the accident
will be covered by insurance.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
See Exhibit Index following the Signature page, which index is
incorporated herein by reference.
(B) Reports filed on Form 8-K:
Unison filed the following reports on Form 8-K during the quarter ended
September 30, 1996:
<TABLE>
<CAPTION>
DATE OF REPORT ITEM REPORTED FINANCIAL STATEMENTS FILED
- ------------------------------ ------------------------------ ------------------------------
<S> <C> <C>
July 3, 1996.................. Item 5, Other Not Applicable.
Events -- Describing
agreements to acquire American
Professional Holding, Inc. and
Memphis Clinical Laboratory,
Inc. by merger.
August 1, 1996................ Item 2, Audited Financial Statements
(with amendment) Acquisition -- Describing the of Franciscan Health Care
acquisition by lease of the Centers at Enumclaw and Walla
Franciscan Health Care Centers Walla, including balance
at Enumclaw and Walla Walla. sheets at June 30, 1995 and
1996 and related statements of
operations and changes in net
assets, and cash flows for
each of the three years in the
period ended June 30, 1996.
</TABLE>
15
<PAGE> 16
SIGNATURE
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.
UNISON HEALTHCARE CORPORATION
(Registrant)
Date: November 14, 1996 /s/ CRAIG R. CLARK
--------------------------------------
Craig R. Clark
Executive Vice President and
Chief Financial Officer
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------
<S> <C> <C> <C>
11 -- Statement Re: Computation of per share earnings for the three months
and nine months ended September 30, 1996 and 1995......................
27 -- Financial Data Schedule (included only in the EDGAR filing)............
</TABLE>
17
<PAGE> 1
EXHIBIT 11
UNISON HEALTHCARE CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1996 1995 1996 1995
------- ------ ------ ------
<S> <C> <C> <C> <C>
FOR PRIMARY EARNINGS PER SHARE
Shares outstanding at beginning of period(1)........... 3,871 1,249 3,674 1,249
Conversion of debentures............................... -- -- 93 --
Exercise of stock purchase warrants.................... 39 -- 68 --
Exercise of employee stock options..................... 2 -- 1 --
Dilutive effect of outstanding stock options........... 91 -- 74 --
Dilutive effect of stock purchase warrants(2).......... 110 17 130 17
Assumed conversion of noninterest-bearing convertible
debentures........................................... -- -- 44 --
------ ------ ------ ------
Weighted average number of shares and share equivalents
outstanding.......................................... 4,113 1,266 4,084 1,266
====== ====== ====== ======
Net income (loss)...................................... $(1,173) $ (184) $ 114 $ (237)
====== ====== ====== ======
Primary income (loss) per share........................ $ (0.29) $(0.15) $ 0.03 $(0.19)
====== ====== ====== ======
FOR FULLY DILUTED EARNINGS PER SHARE
Weighted average number of shares used in primary
calculation.......................................... 4,113 1,266 4,084 1,266
Additional dilutive effect of stock options and
warrants............................................. -- -- 17 --
------ ------ ------ ------
Weighted average number of shares fully diluted........ 4,113 1,266 4,101 1,266
====== ====== ====== ======
Net income (loss)...................................... $(1,173) $ (184) $ 114 $ (237)
====== ====== ====== ======
Fully diluted income (loss) per share.................. $ (0.29) $(0.15) $ 0.03 $(0.19)
====== ====== ====== ======
</TABLE>
- ---------------
(1) Shares used in these tables are weighted based on the number of days the
shares were outstanding or assumed to be outstanding during each period.
(2) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, "Earnings Per Share Computation in an Initial Public Offering", an
aggregate of 16,667 common equivalent shares issued during the twelve-month
period prior to the initial public offering, at prices below the initial
public offering price, have been included as if they were outstanding for
all periods presented.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNISON'S
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE-MONTH PERIOD ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 812
<SECURITIES> 0
<RECEIVABLES> 26,007
<ALLOWANCES> 948
<INVENTORY> 1,256
<CURRENT-ASSETS> 29,315
<PP&E> 7,033
<DEPRECIATION> 759
<TOTAL-ASSETS> 89,515
<CURRENT-LIABILITIES> 21,730
<BONDS> 32,988
0
0
<COMMON> 3
<OTHER-SE> 21,762
<TOTAL-LIABILITY-AND-EQUITY> 89,515
<SALES> 0
<TOTAL-REVENUES> 102,589
<CGS> 0
<TOTAL-COSTS> 85,715
<OTHER-EXPENSES> 13,713
<LOSS-PROVISION> 476
<INTEREST-EXPENSE> 2,357
<INCOME-PRETAX> 328
<INCOME-TAX> 214
<INCOME-CONTINUING> 114
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 114
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
