UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(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, 1997
---------------------------------------
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 01-14358
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Harborside Healthcare Corporation
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(Exact name of registrant as specified in its charter)
Delaware 04-3307188
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
470 Atlantic Avenue, Boston, Massachusetts 02210
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(617) 556-1515
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(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 No X
--- ---
Number of shares of common stock, par value $0.01 per share, outstanding as of
June 24, 1998: 8,011,164.
<PAGE>
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
10.1* First Amendment to Revolving Credit
Agreement among Harborside Healthcare
Corporation and the other Borrowers
specified therein, the Lenders party thereto
and Chase Manhattan Bank, as Administrative
Agent, dated as of August 1, 1997
10.2* Second Amendment to Revolving Credit
Agreement among Harborside Healthcare
Corporation and the other Borrowers
specified therein, the Lenders party thereto
and Chase Manhattan Bank, as Administrative
Agent, dated as of August 28, 1997.
23.1** Consent of Landa & Altsher
27.1* Financial Data Schedule
99.1*** Financial Statements of Cushman Management
Associates and Affiliates
* Previously filed.
** Filed herewith.
*** Replaces previously filed exhibit.
(b) Reports on Form 8-K
None.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
Harborside Healthcare Corporation
By: /s/ Stephen L. Guillard
-----------------------
Stephen L. Guillard
Chairman, President and Chief Executive Officer
By: /s/ William H. Stephan
----------------------
William H. Stephan
Senior Vice President and Chief Financial Officer
DATE: June 25, 1998
3
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statement on Form S-8 (Registration No. 333-10571) of Harborside Healthcare
Corporation of our report dated October 22, 1997, on our audit of the combined
financial statements of Cushman Management Associates, Inc. and Affiliates,
which report is included as Exhibit 99.1 to this Quarterly Report on Form
10-Q/A.
/s/ Landa & Altsher, P.C.
-------------------------
Landa & Altsher, P.C.
Randolph, Massachusetts
June 25, 1998
EXHIBIT 99.1
INDEX TO FINANCIAL STATEMENTS OF
CUSHMAN MANAGEMENT ASSOCIATES, INC. AND AFFILIATES
Page
----
Independent Auditors' Report............................................ 2
Combined Balance Sheet at December 31, 1995 and 1996.................... 3
Combined Statements of Operations and Owners' Equity for the years ended
December 31, 1995 and 1996............................................. 4
Combined Statement of Cash Flows for the years ended December 31, 1995
and 1996............................................................... 5
Notes to Combined Financial Statements.................................. 6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Cushman Management Associates, Inc. and Affiliates
Topsfield, Massachusetts
We have audited the accompanying combined balance sheets of Cushman
Management Associates, Inc. and Affiliates as of December 31, 1995 and 1996, and
the related combined statements of income and owners' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Cushman Management Associates, Inc. and Affiliates as of December 31, 1995 and
1996, and the combined results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ Landa & Altsher
- -------------------
Randolph, MA
October 22, 1997
2
<PAGE>
CUSHMAN MANAGEMENT ASSOCIATES, INC. AND AFFILIATES
COMBINED BALANCE SHEET AS OF DECEMBER 31,
(DOLLARS IN THOUSANDS)
ASSETS
1995 1996
------ ------
Current assets:
Cash......................................................... $1,026 $1,607
Accounts receivable--net of allowance for doubtful accounts
of $75...................................................... 2,189 2,004
Prepaid expenses and other................................... 107 159
------ ------
Total current assets....................................... 3,322 3,770
Property, plant and equipment, net............................. 3,732 3,490
Intangible assets, net......................................... 19 6
------ ------
Total assets................................................... $7,073 $7,266
====== ======
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Current maturities on long-term debt......................... $ 61 $ 61
Accounts payable............................................. 396 443
Employee compensation and benefits........................... 709 755
Other accrued liabilities.................................... 67 136
Accrued interest............................................. 49 72
Due to related parties....................................... 209 35
Income taxes payable......................................... 3 244
------ ------
Total current liabilities.................................. 1,494 1,746
Long-term debt, net of current maturities...................... 1,379 1,320
------ ------
Total liabilities.............................................. 2,873 3,066
------ ------
Owners' equity:
Common stock, 17,500 shares authorized without par value,
2,000 shares issued and 1,970 outstanding with 30 held in
treasury.................................................... 310 310
Additional paid-in capital................................... 172 172
Retained earnings and partners' capital...................... 3,738 3,738
------ ------
4,220 4,220
Less--treasury stock, at cost................................ (20) (20)
------ ------
Total owners' equity....................................... 4,200 4,200
------ ------
Total liabilities and owners' equity........................... $7,073 $7,266
====== ======
See accompanying notes to financial statements.
3
<PAGE>
CUSHMAN MANAGEMENT ASSOCIATES, INC. AND AFFILIATES
COMBINED STATEMENT OF OPERATIONS AND OWNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
1995 1996
------- -------
Total net revenue............................................. $17,993 $19,368
------- -------
Expenses:
Facility operating.......................................... 14,100 14,313
General and administrative.................................. 2,111 2,250
Depreciation and amortization............................... 323 322
------- -------
Total expenses............................................ 16,534 16,885
------- -------
Income from operations........................................ 1,459 2,483
Other:
Interest expense, net....................................... 109 92
------- -------
Income before income taxes.................................... 1,350 2,391
Income taxes.................................................. -- 241
------- -------
Net income.................................................... 1,350 2,150
Owners' equity--beginning of year............................. 4,300 4,200
Less--distributions to owners................................. (1,450) (2,150)
------- -------
Owners' equity--end of year................................... $ 4,200 $ 4,200
======= =======
See accompanying notes to financial statements.
4
<PAGE>
CUSHMAN MANAGEMENT ASSOCIATES, INC. AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
1995 1996
------- -------
Cash flows from operating activities:
Net income................................................. $ 1,350 $ 2,150
Adjustments to reconcile net income to net cash provided by
operations:
Depreciation and amortization............................ 323 322
Provisions for losses on accounts receivable............. 47 116
Changes in assets and liabilities:
Accounts receivable...................................... (210) 69
Prepaid expenses and other............................... (13) (52)
Accounts payable and accrued liabilities................. (62) 185
Income taxes payable..................................... -- 241
------- -------
Net cash provided by operating activities.................... 1,435 3,031
------- -------
Cash flows from investing activities:
Proceeds from sale of property and equipment............... 8 --
Purchases of property and equipment........................ (94) (68)
------- -------
Net cash used by investing activities........................ (86) (68)
------- -------
Cash flows from financing activities:
Repayment of debt.......................................... (55) (59)
Distributions to owners.................................... (1,450) (2,150)
Repayment of related party debt............................ (192) (173)
------- -------
Net cash used by financing activities........................ (1,697) (2,382)
------- -------
Net increase (decrease) in cash.............................. (348) 581
Cash at beginning of year.................................... 1,374 1,026
------- -------
Cash at end of year.......................................... $ 1,026 $ 1,607
======= =======
Supplementary disclosure:
Interest paid.............................................. $ 121 $ 118
======= =======
See accompanying notes to financial statements.
5
<PAGE>
CUSHMAN MANAGEMENT ASSOCIATES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
The financial statements presented are the combined financial
statements of Cushman Management Associates, Inc. (the management company),
Cedar Glen Nursing Home, Danvers Twin Oaks Nursing Home, Inc., Saugus Nursing
Home, Inc., d/b/a Louise Caroline Rehabilitation and Nursing Center, and Evtan
Nursing Home, Inc., d/b/a Maplewood Manor Nursing Home, (collectively, the
"Companies"). The majority stockholders of Cushman Management Associates, Inc.
own a majority interest in the above nursing homes. Cushman Management
Associates, Inc. is a Subchapter S Corporation and operates a management company
in Topsfield, Massachusetts. Cushman Management Associates, Inc. provides
various services to nursing homes including administration, bookkeeping, and
other patient related services. Danvers Twin Oaks Nursing Home, Inc.; Saugus
Nursing Home, Inc., and Evtan Nursing Home, Inc. are Subchapter S Corporations
and operate nursing homes of 101, 80 and 120 beds, respectively. Cedar Glen
Nursing Home is a limited partnership and operates a 100-bed nursing home.
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Companies' significant accounting policies follows:
a) BASIS ON COMBINATION: The combined financial statements include all
the accounts of the above-named entities. All significant intercompany
balances and transactions have been eliminated.
b) PATIENT SERVICE REVENUE: Private patient service revenue is reported
at the estimated net realizable amounts. Third-party payor revenues are
recorded as indicated in Note 2.
c) PROPERTY AND EQUIPMENT: Property and equipment are recorded at cost.
Depreciation of building and improvements is calculated using the
straight-line and accelerated methods over the estimated useful lives that
range from five to forty years. Depreciation of equipment and motor
vehicles is calculated using the straight-line and accelerated methods over
the estimated useful lives that range from three to ten years. Depreciation
charged to operations amounted to $309 and $310 for 1995 and 1996,
respectively.
d) CASH AND CASH EQUIVALENTS: The Companies consider all short-term
debt securities purchased with an original maturity of three months or less
to be cash equivalents.
e) INCOME TAXES: Cushman Management Associates, Inc.; Danvers Twin Oaks
Nursing Home, Inc.; Saugus Nursing Home, Inc.; and Evtan Nursing Home,
Inc.; have elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code. Under those provisions, the Companies do not pay
federal income taxes on their taxable income. Instead, the stockholders are
liable for individual income taxes on their respective share of the
Companies' taxable income.
As a result of an audit by the Massachusetts Department of Revenue in
1996, the Companies are considered to be engaged in a unitary business and
have exceeded certain gross income limitations for state income tax
purposes. Consequently, the Companies are liable for state corporate income
taxes on its taxable income and were assessed additional state income taxes
for the years 1993 through 1995 which have been recorded in 1996.
No income taxes are payable by or provided for Cedar Glen Nursing Home,
a Limited Partnership. Partners are liable for individual federal and state
income taxes on their respective share of the Partnership's taxable income.
f) INTANGIBLE ASSETS: Intangible assets are stated on the basis of cost
and are amortized on a straight-line basis, over the estimated future
periods to be benefited, ranging from 3 to 5 years. Amortization charged to
operations amounted to $14 and $12 for 1995 and 1996, respectively.
g) ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the reporting period. Actual costs could differ from those estimates.
6
<PAGE>
CUSHMAN MANAGEMENT ASSOCIATES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
h) PROMOTIONAL ADVERTISING: Promotional advertising costs are expensed
as incurred. Promotional advertising costs charged to operations amounted
to $104 and $72 for 1995 and 1996, respectively.
NOTE 2--PATIENT SERVICE REVENUES FROM THIRD PARTY PAYORS
SUMMARY OF THE PAYMENT ARRANGEMENTS WITH THIRD PARTY PAYORS
MEDICAID--PROSPECTIVE RATE SYSTEM--The Companies receive reimbursement
from the Commonwealth of Massachusetts under the prospective rate of payment
system for the care and services rendered to publicly-aided patients in
long-term care facilities pursuant to regulations promulgated by the Division of
Health Care Finance and Policy (the Division). Under the regulations, the
current year rates are calculated utilizing base year costs adjusted for
inflation. The base year costs are subject to audit which could result in a
retroactive rate adjustment for the current year.
As a result of the audit of prior years' cost reports by the Division,
the Companies have received amended prospective rates for the years 1991 and
1992. The amended rates resulted in a retroactive adjustment due the Companies
of $133 and $150 for 1991 and 1992, respectively. These settlements have been
received in 1996 and such settlements have been reflected under the caption
"Total Net Revenue" on Exhibit B to the extent not previously reflected.
Management estimates that the Companies have underspent the OBRA
component of the prospective rate during 1991, 1992 and 1993, resulting in a
retroactive adjustment due the Commonwealth of $15, $11 and $14 for 1991, 1992
and 1993, respectively. These retroactive adjustments have been settled in 1996
and such settlements have been reflected under the caption "Total Net Revenue"
on Exhibit B to the extent not previously recorded.
MEDICARE--The Companies receive reimbursement for patient care under
the federally sponsored Medicare program through an insurance intermediary.
During the year, an interim rate is assigned based upon the cost experience of a
prior year modified by its current regulations, and the facilities are paid at
this rate during the year. A cost report is filed with, and audited by, the
insurance intermediary. A final rate which may be subject to cost limitations is
then established and final settlement of the difference is called for under the
regulations.
Final settlements have been received through 1994 and such settlements
have been included in the caption "Total Net Revenue" on Exhibit B, to the
extent that they had not been reflected in prior years.
In as much as the final settlement rates for 1995 and 1996 cannot be
determined with sufficient accuracy for proper recording in these financial
statements, the income for these years has been recorded at the interim rate of
payment. The actual amounts will be accrued in the year of settlement.
NOTE 3--ACCOUNTS RECEIVABLE
BALANCE AT
DECEMBER 31,
--------------
1995 1996
------ ------
Private patients................................................ $ 133 $ 103
Prepaid room and board.......................................... (12) (11)
Medicare patients............................................... 304 334
Publicly aided patients......................................... 1,834 1,648
Managed facilities.............................................. 34 5
Allowance for uncollectibles.................................... (104) (75)
------ ------
Accounts receivable, net........................................ $2,189 $2,004
====== ======
Bad debts expense charged to operations amounted to $47 and $116 for
1995 and 1996, respectively.
7
<PAGE>
CUSHMAN MANAGEMENT ASSOCIATES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
NOTE 4--RELATED PARTY TRANSACTIONS
The Companies have entered into the following transactions with related
parties:
(a) MANAGEMENT FEES--Danvers Twin Oaks Nursing Home, Inc. recorded
management fees of $47 to an officer and stockholder of Cushman Management
Associates, Inc. for 1996.
(b) Related party loans which have no fixed repayment terms, are as
follows:
BALANCE AT
DECEMBER 31,
--------------------
INTEREST
RATE 1995 1996
---------- ---- ----
Due from related parties:
Federal
Officers and stockholders................................. Funds Rate $108 $124
---- ----
Due to related parties:
Officers and stockholders............................... 9% 141 88
Partners................................................ 9% 81 27
Other related parties................................... 9% 95 44
---- ----
Total due to related parties.......................... 317 159
---- ----
Net due to related parties................................ $209 $ 35
==== ====
Net interest expense incurred on the above related party loans amounted
to $36 and $21 for 1995 and 1996, respectively.
NOTE 5--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are comprised of the following at
December 31, 1995 and 1996:
1995 1996
------- -------
Land.......................................................... $ 195 $ 195
Building and improvements..................................... 5,490 5,528
Equipment..................................................... 2,658 2,688
Motor vehicles................................................ 39 39
Construction in process....................................... 5 5
------- -------
8,387 8,455
Less: Accumulated Depreciation................................ (4,655) (4,965)
------- -------
Property, plant and equipment, net............................ $ 3,732 $ 3,490
======= =======
The Companies have incurred and capitalized $5 of engineering costs
related to the replacement of two HVAC systems. As of December 31, 1996, no date
has been set for the start of the work on the HVAC systems.
8
<PAGE>
CUSHMAN MANAGEMENT ASSOCIATES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
NOTE 6--LONG-TERM DEBT
The Companies are obligated under long-term debt at December 31, 1995
and 1996 as follows:
1995 1996
------ ------
9% first mortgage to Salem Five, secured by real estate and
guaranteed by a majority of the shareholders, payable in
monthly payments of $8, including interest with a balloon
payment of all unpaid principal and interest due on October 8,
1999........................................................... $ 811 $ 791
9% 3-year mortgage to Salem Five, due November 17, 1999, secured
by real estate and guaranteed by a majority of the
shareholders, payable in monthly installments of $6 including
interest with a balloon payment due November 17, 1999.......... 387 352
9% 25-year first mortgage to Ipswich Savings Bank, due October
1, 2017, secured by land and buildings of Cushman Management
Associates, Inc., payable in monthly installments of $2
including interest............................................. 242 238
------ ------
Total........................................................... 1,440 1,381
Current maturities.............................................. 61 61
------ ------
Long-term debt, net............................................. $1,379 $1,320
====== ======
Interest incurred on the above long-term debt amounted to $121 and $119 for
1995 and 1996, respectively.
Following are maturities of long-term debt for each of the next five years:
Amount
------
1997..................................................................... $ 61
1998..................................................................... 69
1999..................................................................... 1,027
2000..................................................................... 5
2001..................................................................... 6
NOTE 7--CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Companies to
concentrations of credit risk consist principally of the following:
a.) CASH: The Companies maintain cash balances in several federally
insured financial institutions in the same geographic area. The cash
exceeding federally insured limits totaled $995 at December 31, 1996. There
may be times during the year when uninsured cash is significantly higher.
b.) ACCOUNTS RECEIVABLE: The Companies extend unsecured credit to their
private patients and patients covered under third-party payor arrangements.
Accounts receivable from private patients and third-party payors totaled
$2,015 at December 31, 1996. See Note (2) and Note (3) for details of
third-party payor arrangements and receivable balances, respectively.
c.) DUE FROM RELATED PARTIES: The Companies extend unsecured credit to
their affiliates and owners. The balance due from related parties totaled
$124 at December 31, 1996. See Note (4) for further details.
NOTE 8--COMMITMENTS AND CONTINGENCIES
a) Pursuant to the Commonwealth of Massachusetts Medical Assistance
Program regulations, the Companies are members of a group of related nursing
homes (the Group) which are considered to be under common ownership.
Consequently, all members of the Group are contingently liable for the
recoupments of liabilities of other members of the Group.
9
<PAGE>
CUSHMAN MANAGEMENT ASSOCIATES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
NOTE 8--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
b) A significant portion of the Companies' revenues are derived from
services reimbursable under the Medicaid program, (See Note 2). The base year
costs utilized in calculating the Medicaid prospective rates are subject to
audit which could result in a retroactive rate adjustment for all years in which
that base year's costs are utilized in calculating the prospective rate. It is
not possible at this time to determine whether the Companies will be audited or
if a retroactive rate adjustment would result.
c.) A portion of the Companies' revenues are derived from services
under the Medicare program, (see Note 2). Under this program all cost report
years are subject to audit which could result in a retroactive rate adjustment.
It is not possible at this time to determine whether the Companies will be
audited or if a retroactive rate adjustment will result.
If the Companies' Medicare Fiscal Intermediary were to issue prudent
buyer adjustments for 1996 using the same methodology as applied to 1995, as
detailed in Note 9 (b), this would result in a payable to the Medicare program
of approximately $280. The Companies would vigorously contest any adjustments
made by the fiscal intermediary. In addition, the Companies contract with
outside suppliers of therapy services provides for indemnification to the
Companies in the event that Medicare limits reimbursement to less then cost.
Consequently, no provision has been made to the accompanying financial
statements.
NOTE 9--SUBSEQUENT EVENTS
a.) SALE OF THE NURSING HOMES: In August 1997, the Companies sold their
nursing home property, equipment and operating licenses for $16,450 resulting in
a gain of 11,447. The nursing home companies retained all assets, other than
property and equipment, and all liabilities. In addition, the Management Company
sold for $100 its contracts with outside nursing facilities.
b.) MEDICARE SETTLEMENTS: In 1997, the Companies' Medicare Fiscal
Intermediary issued settlements for 1995, which include a limitation of the
ancillary therapy services to less than cost. These settlements result in a
payable to the Medicare program of approximately $130. The Companies strongly
disagree with these settlements and will vigorously contest these settlements
through the appeal process.
The Companies contract with outside suppliers of therapy services
provides for indemnification to the Companies in the event that Medicare limits
reimbursement to less than the providers cost, consequently, no provision has
been made in the accompanying financial statement for this retroactive
adjustment.
10
