<PAGE>
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 March 31, 1999
---------------------------------------------
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
--------------------------------------
Harborside Healthcare Corporation
- --------------------------------------------------------------------------------
Delaware 04-3307188
- --------------------------------------------------------------------------------
(State or other jurisdiction (IRS employer identification no.)
of incorporation or organization)
One Beacon Street, Boston, Massachusetts 02108
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(617) 646-5400
- --------------------------------------------------------------------------------
(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
------ ------
Number of shares of common stock, par value $0.01 per share outstanding as of
May 12, 1999: 7,261,332.
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
Table of Contents
Page
----
Part I. Financial Information
Condensed Consolidated Balance Sheets as of
December 31, 1998 and March 31, 1999 3
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1998 and 1999 4
Condensed Consolidated Statement of Changes
in Stockholders' Equity (Deficit) for the three months
ended March 31, 1999 5
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1998 and 1999 6
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Part II Other Information 20
Signatures 21
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
- -------
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 896 $ 2,812
Accounts receivable, net of allowances for doubtful
accounts of $2,864 and $2,620, respectively 49,946 49,070
Prepaid expenses and other 10,934 14,034
Prepaid income taxes 3,873 7,446
Deferred income taxes 4,084 4,084
--------- ---------
Total current assets 69,733 77,446
Restricted cash 2,110 2,304
Property and equipment, net 160,504 163,237
Intangible assets, net 18,173 18,344
Other assets, net 4,300 4,000
Note receivable 7,487 7,487
Deferred income taxes 2,229 2,229
--------- ---------
Total assets $ 264,536 $ 275,047
========= =========
LIABILITIES
Current liabilities:
Current maturities of long-term debt $ 207 $ 210
Current portion of capital lease obligation 4,278 4,364
Accounts payable 7,401 11,001
Employee compensation and benefits 13,220 15,565
Other accrued liabilities 7,485 8,350
Accrued interest 62 122
Current portion of deferred income 677 677
--------- ---------
Total current liabilities 33,330 40,289
Long-term portion of deferred income 3,104 2,936
Long-term debt 134,473 144,239
Long-term portion of capital lease obligation 51,253 50,949
--------- ---------
Total liabilities 222,160 238,413
--------- ---------
Exchangeable preferred stock, redeemable, $.01 par value
with a liquidation value of $1,000 per share;
500,000 shares authorized; 42,293 and
43,714 shares issued and outstanding, respectively 42,293 43,714
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value; 19,000,000 shares
authorized; 7,261,332 shares issued and outstanding 146 146
Additional paid-in capital 204,607 203,180
Less common stock in treasury, at cost, 7,349,832 shares (183,746) (183,746)
Retained deficit (20,924) (26,660)
--------- ---------
Total stockholders' equity (deficit) 83 (7,080)
--------- ---------
Total liabilities and stockholders' equity (deficit) $ 264,536 $ 275,047
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-3-
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands, except per share amounts)
-------------------------
<TABLE>
<CAPTION>
For the three months ended
March 31,
---------------
1998 1999
---- ----
<S> <C> <C>
Total net revenues $ 72,454 $ 71,704
-------- --------
Expenses:
Facility operating 57,381 62,705
General and administrative 3,365 4,792
Service charges paid to affiliate 313 296
Amortization of prepaid management fee - 300
Depreciation and amortization 1,085 2,541
Facility rent 5,556 5,611
-------- --------
Total expenses 67,700 76,245
-------- --------
Income (loss) from operations 4,754 (4,541)
Other:
Interest expense, net 1,650 4,800
Other expense 31 63
-------- --------
Income (loss) before income taxes 3,073 (9,404)
Income tax expense (benefit) 1,198 (3,668)
-------- --------
Net income (loss) $ 1,875 $ (5,736)
======== ========
Earnings (loss) per common share (Note D):
Basic $ 0.23 $ (0.99)
======== ========
Diluted $ 0.23 $ (0.99)
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-4-
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-In Treasury Retained
Stock Capital Stock Deficit Total
---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Stockholders' equity, December 31, 1998 $ 146 $ 204,607 $ (183,746) $ (20,924) $ 83
Preferred stock dividends - (1,427) - - (1,427)
Net loss for the three months ended
March 31, 1999 - - - (5,736) (5,736)
-------- --------- ---------- --------- ---------
Stockholders' equity (deficit), March 31, 1999 $ 146 $ 203,180 $ (183,746) $ (26,660) $ (7,080)
======== ========= ========== ========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-5-
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
For the three months ended March 31,
------------------------------------
1998 1999
-------- ---------
<S> <C> <C>
Operating activities:
Net income (loss) $ 1,875 $(5,736)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation of property and equipment 930 1,664
Amortization of intangible assets 155 873
Amortization of prepaid management fee - 300
Amortization of deferred income (128) (168)
Accretion of senior subordinated discount notes - 2,844
Amortization of loan costs and fees (included in interest expense) 71 14
Accretion of interest on capital lease obligation 766 828
------- -------
3,669 619
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (6,870) 876
(Increase) decrease in prepaid expenses and other 85 (3,100)
(Increase) in prepaid income taxes - (3,573)
Increase (decrease) in accounts payable (1,407) 3,600
Increase in employee compensations and benefits 3,490 2,345
Increase (decrease) in accrued interest (5) 60
Increase in other accrued liabilities 93 865
(Decrease) in income taxes payable (757) -
------- -------
Net cash provided (used) by operating activities (1,702) 1,692
------- -------
Investing activities:
Additions to property and equipment (3,419) (4,397)
Additions to intangibles (404) (1,058)
Transfers to restricted cash, net (237) (194)
------- -------
Net cash (used) by investing activities (4,060) (5,649)
------- -------
Financing activities:
Borrowings under revolving line of credit - 7,000
Payment of long-term debt (47) (75)
Principal payments of capital lease obligation (781) (1,046)
Exercise of stock options 23 -
Dividends paid on exchangeable preferred stock - (6)
------- -------
Net cash provided (used) by financing activities (805) 5,873
------- -------
Net increase (decrease) in cash and cash equivalents (6,567) 1,916
Cash and cash equivalents, beginning of period 8,747 896
------- -------
Cash and cash equivalents, end of period $ 2,180 $ 2,812
======= =======
Supplemental Disclosure:
Interest paid $ 1,040 $ 1,382
======= =======
Income taxes paid $ 1,776 $ 47
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-6-
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. General
Harborside Healthcare Corporation and its subsidiaries (the "Company") operate
long-term care facilities and provide rehabilitation therapy services. As of
March 31, 1999, the Company owned twenty-two facilities, operated twenty-seven
additional facilities under various leases, managed one facility and owned a
rehabilitation therapy services company. The Company accounts for its investment
in one 75% owned facility using the equity method.
B. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's Form 10-K for the year ended December 31, 1998. In
the opinion of management, the accompanying unaudited financial statements
reflect all adjustments (consisting of only normal recurring accruals)
necessary to present fairly the Company's financial position as of March 31,
1999, the results of its operations for the three-month periods ended March
31, 1998 and 1999 and its cash flows for the three-month periods ended March 31,
1998 and 1999. The results of operations for the three-month period ended
March 31, 1999 are not necessarily indicative of the results which may be
expected for the full year. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
report.
C. Significant Accounting Policies
Certain reclassifications have been made to conform prior periods' data to the
current period presentation.
D. Earnings (Loss) Per Common Share
The following table sets forth the computation of basic and diluted earnings
(loss) per Common Share for the periods ended March 31, 1998 and 1999:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1999
---------- -----------
<S> <C> <C>
Numerator:
Net income (loss) $1,875,000 $(5,736,000)
Preferred Stock dividends - (1,427,000)
---------- -----------
Earnings (loss) available for Common Shares $1,875,000 $(7,163,000)
========== ===========
Denominator:
Denominator for basic earnings (loss) per
Common Share weighted average shares 8,059,000 7,261,000
Effect of dilutive securities employee stock options 245,000 -
---------- -----------
Denominator for diluted earnings (loss) per Common
Share - adjusted weighted-average shares and
assumed conversions 8,304,000 7,261,000
========== ===========
Basic earnings (loss) per Common Share $ 0.23 $ (0.99)
========== ===========
Diluted earnings (loss) per Common Share $ 0.23 $ (0.99)
========== ===========
</TABLE>
-7-
<PAGE>
E. Condensed Consolidating Financial Information
Certain of the Company's subsidiaries are precluded from guaranteeing the debt
of the parent company (the "Non-Guarantors"), based on current agreements in
effect. The Company's remaining subsidiaries (the "Guarantors") are not
restricted from serving as guarantors of the parent company debt. The Guarantors
are comprised of Harborside Healthcare Limited Partnership, Belmont Nursing
Center Corp., Orchard Ridge Nursing Center Corp., Oakhurst Manor Nursing Center
Corp., Riverside Retirement Limited Partnership, Harborside Toledo Limited
Partnership, Harborside Connecticut Limited Partnership, Harborside of Florida
Limited Partnership, Harborside of Ohio Limited Partnership, Harborside
Healthcare Baltimore Limited Partnership, Harborside of Cleveland Limited
Partnership, Harborside of Dayton Limited Partnership, Harborside Massachusetts
Limited Partnership, Harborside of Rhode Island Limited Partnership, Harborside
North Toledo Limited Partnership, Harborside Healthcare Advisors Limited
Partnership, Harborside Toledo Corp., KHI Corporation, Harborside Acquisition
Limited Partnership V, Harborside Acquisition Limited Partnership VI, Harborside
Acquisition Limited Partnership VII, Harborside Acquisition Limited Partnership
VIII, Harborside Acquisition Limited Partnership IX, Harborside Acquisition
Limited Partnership X, Sailors, Inc., New Jersey Harborside Corp., Bridgewater
Assisted Living Limited Partnership, Maryland Harborside Corp., Harborside
Homecare Limited Partnership, Harborside Rehabilitation Limited Partnership,
Harborside Healthcare Network Limited Partnership and Harborside Health I
Corporation.
The information which follows presents the condensed consolidating financial
position as of December 31, 1998 and March 31, 1999; the condensed consolidating
results of operations for the three-month periods ended March 31, 1998 and 1999;
and the consolidating cash flows for the three-months ended March 31, 1998 and
1999 of (a) the parent company only ("the Parent"), (b) the combined
Guarantors, (c) the combined Non-Guarantors, (d) eliminating entries and (e) the
Company on a consolidated basis.
-8-
<PAGE>
E. Condensed Consolidating Financial Information (Continued)
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
Condensed Consolidating Balance Sheet
As of December 31, 1998
(Unaudited)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Parent Guarantors Non-Guarantors Elimination Consolidated
--------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 51 $ 99 $ 746 $ - $ 896
Accounts receivable, net of allowance - 36,485 15,733 (2,272) 49,946
Intercompany receivable 116,555 - - (116,555) -
Prepaid expenses and other 1,268 7,291 2,804 (429) 10,934
Prepaid income taxes 3,873 - - - 3,873
Deferred income taxes 2,150 1,934 - - 4,084
--------- -------- ------- --------- ---------
Total current assets 123,897 45,809 19,283 (119,256) 69,733
Restricted cash - 2,162 472 (524) 2,110
Investment in limited partnership 15,584 - 4,044 (19,628) -
Property and equipment, net - 142,383 18,595 (474) 160,504
Intangible assets, net 10,532 6,176 1,642 (177) 18,173
Other assets, net 4,300 - - - 4,300
Note receivable - 7,487 - - 7,487
Deferred income taxes 71 2,158 - - 2,229
--------- -------- ------- --------- ---------
Total assets $154,384 $206,175 $44,036 $(140,059) $264,536
========= ======== ======= ========= ========
LIABILITIES
Current liabilities:
Current maturities of long-term debt $ - $ 22 $ 185 $ - $ 207
Current portion of capital lease
obligation - 4,278 - - 4,278
Accounts payable - 5,010 3,159 (768) 7,401
Intercompany payable - 90,284 8,923 (99,207) -
Employee compensation and benefits 9,853 3,367 - 13,220
Other accrued liabilities 3,254 3,306 925 - 7,485
Accrued interest 1,385 3,260 - (4,583) 62
Current portion of deferred income - - - 677 677
--------- -------- ------- --------- ---------
Total current liabilities 4,639 116,013 16,559 (103,881) 33,330
Long-term portion of deferred income - 1,202 2,579 (677) 3,104
Long-term debt 112,243 2,721 16,109 3,400 134,473
Long-term portion of capital lease obligation - 54,348 - (3,095) 51,253
--------- -------- ------- --------- ---------
Total liabilities 116,882 174,284 35,247 (104,253) 222,160
--------- -------- ------- --------- ---------
Exchangeable preferred stock, redeemable,
$.01 par value with a liquidation value of
$1,000 per share; 500,000 shares authorized;
42,293 shares issued and outstanding 42,293 - - - 42,293
--------- -------- ------- --------- ---------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 19,000,000
shares authorized; 7,261,332 shares issued
and outstanding 146 2,569 3,885 (6,454) 146
Additional paid-in capital 204,381 - - 226 204,607
Less common stock in treasury, at
cost, 7,349,832 shares (183,746) - - - (183,746)
Retained earnings (deficit) (25,572) 4,567 (2,170) 2,251 (20,924)
Partners' equity - 24,755 7,074 (31,829) -
--------- -------- ------- --------- ---------
Total stockholders' equity (4,791) 31,891 8,789 (35,806) 83
--------- -------- ------- --------- ---------
Total liabilities and stockholders' equity $154,384 $206,175 $44,036 $(140,059) $ 264,536
========= ======== ======= ========= =========
</TABLE>
-9-
<PAGE>
E. Condensed Consolidating Financial Information (Continued)
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
Condensed Consolidating Balance Sheet
As of March 31, 1999
(Unaudited)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Parent Guarantors Non-Guarantors Elimination Consolidated
-------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 50 $ 2,672 $ 90 $ - $ 2,812
Accounts receivable, net of allowance - 32,842 16,228 - 49,070
Intercompany receivable 119,616 4,081 - (123,697) -
Prepaid expenses and other 1,044 10,625 2,365 - 14,034
Prepaid income taxes 7,446 - - - 7,446
Deferred income taxes 2,150 1,934 - - 4,084
-------- -------- ------- --------- --------
Total current assets 130,306 52,154 18,683 (123,697) 77,446
Restricted cash - 1,789 515 - 2,304
Investment in limited partnership 15,584 - 4,044 (19,628) -
Property and equipment, net - 144,225 19,012 - 163,237
Intangible assets, net 11,290 5,476 1,578 - 18,344
Other assets, net 4,000 - - - 4,000
Note receivable - 7,487 - - 7,487
Deferred income taxes 71 2,158 - - 2,229
Total assets -------- -------- ------- --------- --------
$161,251 $213,289 $43,832 $(143,325) $275,047
LIABILITIES ======== ======== ======= ========= ========
Current liabilities:
Current maturities of long-term debt $ - $ 23 $ 187 $ - $ 210
Current portion of capital lease
obligation - 4,364 - - 4,364
Accounts payable - 8,691 2,310 - 11,001
Intercompany payable - 92,733 9,707 (102,440) -
Employee compensation and benefits - 11,548 4,017 - 15,565
Other accrued liabilities 3,254 3,980 1,116 - 8,350
Accrued interest 2,096 5,453 - (7,427) 122
Current portion of deferred income - 677 - - 677
Total current liabilities -------- -------- ------- --------- --------
5,350 127,469 17,337 (109,867) 40,289
Long-term portion of deferred income - 1,126 2,487 (677) 2,936
Long-term debt 119,243 2,830 15,922 6,244 144,239
Long-term portion of capital lease obligation - 54,130 - (3,181) 50,949
-------- -------- ------- --------- --------
Total liabilities 124,593 185,555 35,746 (107,481) 238,413
-------- -------- -------- --------- --------
Exchangeable preferred stock, redeemable,
$.01 par value with a liquidation value of
$1,000 per share; 500,000 shares authorized;
43,714 shares issued and outstanding 43,714 - - - 43,714
-------- -------- ------- --------- --------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value; 19,000,000
shares authorized; 7,261,332 shares issued
and outstanding 146 2,569 3,885 (6,454) 146
Additional paid-in capital 202,954 - - 226 203,180
Less common stock in treasury, at
cost, 7,349,832 shares (183,746) - - - (183,746)
Partners' equity - 24,755 7,074 (31,829) -
Retained earnings (deficit) (26,410) 410 (2,873) 2,213 (26,660)
-------- -------- ------- --------- --------
Total stockholders' equity (deficit) (7,056) 27,734 8,086 (35,844) (7,080)
-------- -------- ------- --------- --------
Total liabilities and stockholders' equity
(deficit) $161,251 $213,289 $43,832 $(143,325) $275,047
======== ======== ======= ========= ========
</TABLE>
-10-
<PAGE>
E. Condensed Consolidating Financial Information (Continued)
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Operations
For the three months ended March 31, 1998 and 1999
(Unaudited)
(dollars in thousands)
For the three months ended March 31, 1998:
<TABLE>
<CAPTION>
Parent Guarantors Non-Guarantors Elimination Consolidated
-------- ----------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Total net revenues $ - $53,575 $25,563 $(6,684) $72,454
------- ------- ------- ------- -------
Expenses:
Facility operating - 42,970 21,277 (6,866) 57,381
General and administrative 115 3,226 24 - 3,365
Service charges paid to affiliate - 290 - 23 313
Depreciation and amortization - 718 367 - 1,085
Facility rent - 3,535 2,113 (92) 5,556
Management fees paid to affiliates - (1,607) 1,607 - -
------- ------- ------- ------- -------
Total expenses 115 49,132 25,388 (6,935) 67,700
------- ------- ------- ------- -------
Income (loss) from operations (115) 4,443 175 251 4,754
Other:
Interest expense, net - 1,249 147 254 1,650
Other expense (income) - - - 31 31
------- ------- ------- ------- -------
Income (loss) before income taxes (115) 3,194 28 (34) 3,073
Income tax expense (benefit) (45) 1,246 11 (14) 1,198
------- ------- ------- ------- -------
Net income (loss) $ (70) $ 1,948 $ 17 $ (20) $ 1,875
======= ======= ======= ======= =======
For the three months ended March 31, 1999:
Parent Guarantors Non-Guarantors Elimination Consolidated
-------- ----------- ---------------- -------------- ---------------
Total net revenues $ 7 $53,436 $23,149 $(4,888) $71,704
------- ------- ------- ------- -------
Expenses:
Facility operating - 47,689 19,904 (4,888) 62,705
General and administrative 10 4,782 - - 4,792
Service charges paid to affiliate - 296 - - 296
Amortization of prepaid manangement fee 300 - - - 300
Depreciation and amortization 374 1,745 422 - 2,541
Facility rent - 3,468 2,143 - 5,611
Management fees paid to affiliates - (1,402) 1,402 - -
------- ------- ------- ------- -------
Total expenses 684 56,578 23,871 (4,888) 76,245
------- ------- ------- ------- -------
Income (loss) from operations (677) (3,142) (722) - (4,541)
Other:
Interest expense, net 697 3,673 430 - 4,800
Other expense (income) - - - 63 63
------- ------- ------- ------- -------
Income (loss) before income taxes (1,374) (6,815) (1,152) (63) (9,404)
Income tax expense (benefit) (536) (2,658) (449) (25) (3,668)
------- ------- ------- ------- -------
Net income (loss) $ (838) $(4,157) $ (703) $ (38) $(5,736)
======= ======= ======= ======= =======
</TABLE>
-11-
<PAGE>
E. Condensed Consolidating Financial Information (Continued)
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statement of Cash Flows
For the three months ended March 31, 1998
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Parent Guarantors Non-Guarantors Elimination Consolidated
--------- ----------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net cash provided (used) by operating activities: $(2,042) $ 2,668 $ (973) $(1,355) $(1,702)
------- ------- ------- ------- -------
Investing activities:
Additions to property and equipment - (1,468) (1,243) (708) (3,419)
Additions to intangibles (29) (231) - (144) (404)
Transfers (to) from restricted cash, net - 1,773 (1,158) (852) (237)
------- ------- ------- ------- -------
Net cash provided (used) by investing activities (29) 74 (2,401) (1,704) (4,060)
------- ------- ------- ------- -------
Financing activities:
Payment of long-term debt - 1,218 (20) (1,245) (47)
Principal payments of capital lease obligation - (3,017) - 2,236 (781)
Exercise of stock options 23 - - - 23
------- ------- ------- ------- -------
Net cash provided (used) by financing activities 23 (1,799) (20) 991 (805)
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents (2,048) 943 (3,394) (2,068) (6,567)
Cash and cash equivalents, beginning of period 698 4,383 3,666 - 8,747
------- ------- ------- ------- -------
Cash and cash equivalents, end of period $(1,350) $ 5,326 $ 272 $(2,068) $ 2,180
======= ======= ======= ======= =======
Supplemental Disclosure:
Interest paid $ - $ 194 $ 846 $ - $ 1,040
======= ======= ======= ======= =======
Income taxes paid $ 1,776 $ - $ - $ - $ 1,776
======= ======= ======= ======= =======
</TABLE>
-12-
<PAGE>
E. Condensed Consolidating Financial Information (Continued)
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statement of Cash Flows
For the three months ended March 31, 1999
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Parent Guarantors Non-Guarantors Elimination Consolidated
-------- ---------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net cash provided (used) by operating activities: $(5,258) $ 5,832 $ 120 $ 998 $ 1,692
------- ------- ----- ----- -------
Investing activities:
Additions to property and equipment - (3,145) (778) (474) (4,397)
Additions to intangibles (1,737) 678 1 - (1,058)
Transfers (to) from restricted cash, net - 373 (43) (524) (194)
------- ------- ----- ----- -------
Net cash (used) by investing activities (1,737) (2,094) (820) (998) (5,649)
------- ------- ----- ----- -------
Financing activities:
Borrowings under revolving line of credit 7,000 - - - 7,000
Payment of long-term debt - (119) 44 - (75)
Principal payments of capital lease obligation - (1,046) - - (1,046)
Dividends paid on exchangeable preferred stock (6) - - - (6)
------- ------- ----- ----- -------
Net cash provided by financing activities 6,994 (1,165) 44 - 5,873
------- ------- ----- ----- -------
Net (decrease) in cash and cash equivalents (1) 2,573 (656) - 1,916
Cash and cash equivalents, beginning of period 51 99 746 - 896
------- ------- ----- ----- -------
Cash and cash equivalents, end of period $ 50 $ 2,672 $ 90 $ - $ 2,812
======= ======= ===== ===== =======
Supplemental Disclosure:
Interest paid $ 201 $ 1,057 $ 124 $ - $ 1,382
======= ======= ===== ===== =======
Income taxes paid $ 47 $ - $ - $ - $ 47
======= ======= ===== ===== =======
</TABLE>
-13-
<PAGE>
Item 2.
- ------
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements including those concerning
Management's expectations regarding future financial performance and future
events. These forward-looking statements involve significant risk and
uncertainties, including those described herein and included under "Special Note
Regarding Forward-Looking Statements" below. Actual results may differ
materially from those anticipated by such forward-looking statements.
OVERVIEW
Harborside Healthcare Corporation, ("Harborside" or the "Company") is a leading
provider of high-quality long-term care and specialty medical services in the
eastern United States. The Company has focused on establishing strong local
market positions with high-quality facilities in five principal regions: the
Southeast (Florida), the Midwest (Ohio and Indiana), New England (Massachusetts
and New Hampshire), the Northeast (Connecticut and Rhode Island), and the Mid-
Atlantic (New Jersey and Maryland). As of March 31, 1999, the Company operated
50 facilities (22 owned, 27 leased and one managed) with a total of 6,124
licensed beds. The Company provides a broad continuum of medical services
including: (i) traditional skilled nursing care and (ii) specialty medical
services, including a variety of subacute care programs such as orthopedic
rehabilitation, CVA/stroke care, cardiac recovery, pulmonary rehabilitation and
wound care, as well as distinct programs for the provision of care to
Alzheimer's and hospice patients. As part of its subacute services, the Company
provides physical, occupational and speech rehabilitation therapy services, both
at Company-operated and non-affiliated facilities, through its wholly owned
subsidiary, Theracor.
The following table sets forth the number of facilities and the number of
licensed beds operated by the Company:
As of March 31,
------------------
1998 1999
---- ----
Facilities operated (1) 45 50
Licensed beds (1) 5,468 6,124
The following table sets forth certain operating data for the periods indicated:
For the three months ended March 31,
------------------------------------
1998 1999
---- ----
Patient days (2):
Private and other 120,103 124,030
Medicare 48,222 50,741
Medicaid 264,829 303,790
------- -------
Total 433,154 478,561
======= =======
Total net revenues:
Private and other 32.4% 30.8%
Medicare 26.6% 21.0%
Medicaid 41.0% 48.2%
------- -------
Total 100.0% 100.0%
======= =======
Average Occupancy Rate (3) 93.1% 90.6%
Quality Mix (4) 59.0% 51.8%
(1) Includes two managed facilities with 178 licensed beds on March 31, 1998 and
one managed facility with 106 licensed beds on March 31, 1999.
(2) "Patient Days" includes billed bed days for facilities operated by the
Company excluding billed bed days of managed facilities and the one facility
accounted for using the equity method.
(3) "Average Occupancy Rate" is computed by dividing the number of billed bed
days by the total number of available licensed bed days during each of the
periods indicated. This calculation includes all facilities operated by the
Company excluding the managed facility.
(4) "Quality Mix" consists of the percentage of revenues derived from Medicare,
commercial insurers and other private payors.
-14-
<PAGE>
RESULTS OF OPERATIONS
The Company's total net revenues include net patient service revenues and
rehabilitation therapy service revenues from contracts with non-affiliated long-
term care facilities. Private net patient service revenues are recorded at
established per diem billing rates. Net patient service revenues to be
reimbursed under contracts with third-party payers, primarily the Medicare and
Medicaid programs, are recorded at amounts estimated to be realized under these
contractual arrangements.
The Company's facility operating expenses consist primarily of payroll and
employee benefits related to nursing, housekeeping and dietary services provided
to patients, as well as maintenance and administration of the facilities. Other
significant facility operating expenses include the cost of rehabilitation
therapy services, medical and pharmacy supplies, food, utilities, insurance and
taxes. The Company's facility operating expenses also include the general and
administrative costs associated with the operation of the Company's
rehabilitation therapy business. The Company's general and administrative
expenses include all costs associated with its regional and corporate
operations.
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1999
Total Net Revenues. Total net revenues decreased by $750,000 or 1.0%, from
$72,454,000 in the first quarter of 1998 to $71,704,000 in the first quarter of
1999. This decrease was attributable to reductions in revenues of $4,515,000 at
"same store" facilities and reductions in revenues of $3,596,000 generated by
providing rehabilitation therapy services to non-affiliated long-term care
facilities. These reductions were partially offset by the following revenue
increases at facilities acquired in 1998: $2,416,000 from the acquisition of two
North Toledo, Ohio facilities (the "North Toledo Facilities") on April 1, 1998;
$2,855,000 from the acquisition of two Rhode Island facilities (the "Rhode
Island Facilities") on May 8, 1998, and $2,090,000 from the acquisition of two
Danbury, Connecticut facilities (the "Danbury Facilities") on December 1, 1998.
The average occupancy rate at all of the Company's facilities decreased from
93.1% during the first quarter of 1998 to 90.6% during the first quarter of
1999. Average net patient service revenues per patient day at "same store"
facilities decreased from $155.39 in the first quarter of 1998 to $148.31 in the
first quarter of 1999. This decrease in average net patient service revenues per
patient day was a result of the implementation of the new Medicare Prospective
Payment System ("PPS") which became effective at all of the Company's facilities
on January 1, 1999. Implementation of PPS caused the Company's average Medicare
Part A per diem rate to decrease from $369 per Medicare patient day in the first
quarter of 1998 to $287 per Medicare patient day in the first quarter of 1999.
During the first quarter of 1999, the Company also experienced reduced revenues
generated through the provision of Medicare Part B services to residents at its
facilities. This reduction was due primarily to lower productivity by Company
therapists during the first quarter as they adjusted to the newly implemented
Medicare reimbursement system. Additionally, PPS established certain annual per
patient limitations on the amount of Part B therapy that is reimbursable through
the Medicare program. Management believes that the introduction of these annual
limits resulted in reduced revenues during the first quarter of 1999 as affected
parties adapted to the new regulatory environment. Implementation of PPS also
caused a decrease in revenues generated by providing rehabilitation therapy
services to non-affiliated long-term care facilities. In response to reduced
reimbursement from the Medicare program, non-affiliated facilities reduced the
amount of therapy services provided at their facilities. Additionally, the
Company (consistent with other rehabilitation service providers) has seen
reduced pricing levels and the Company also terminated certain low profit
contracts with non-affiliated facilities. The Company's quality mix of private,
Medicare and insurance revenues was 59.0% for the three months ended March 31,
1998 as compared to 51.8% during the same period of 1999. This reduction in
quality mix of revenues was the result of the changes in revenues caused by the
implementation of PPS.
Facility Operating Expenses. Facility operating expenses increased by
$5,324,000, or 9.3%, from $57,381,000 in the first quarter of 1998 to
$62,705,000 in the first quarter of 1999. Of this increase, $457,000 was due to
the operation of "same store" facilities, $2,255,000 was due to the operation of
the North Toledo Facilities, $2,821,000 was due to the operations of the Rhode
Island Facilities and $1,667,000 was due to the operation of the Danbury
Facilities. Partially offsetting these increases, was a reduction in operating
expenses associated with the provision of rehabilitation therapy services at
non-affiliated facilities. Additional reductions in facility operating
expenses are planned -- see "Liquidity and Capital Resources".
General and Administrative; Service Charges Paid to Affiliate. General and
administrative expenses increased by $1,427,000, or 42.4% from $3,365,000 in the
first quarter of 1998 to $4,792,000 in the first quarter of 1999. Of this
increase, $700,000, or 49% of the total increase, resulted from a charge related
to the costs associated with the indefinite deferral of an acquisition which the
Company had begun reviewing in the latter half of 1998. The remainder of the
increase resulted from the acquisition of new facilities resulting in the
expansion of regional and corporate support, and additional travel, consulting
and systems development expenses associated with the Company's growth. The
Company reimbursed a former affiliate for certain data processing and
administrative services provided to the Company. During the first quarter of
1998, such reimbursements totaled $313,000 compared to $296,000 during the first
quarter of 1999.
Depreciation and Amortization. Depreciation and amortization increased from
$1,085,000 in the first quarter of 1998 to $2,541,000 in the first quarter of
1999 primarily due to the acquisition of new facilities and the amortization of
costs related to the leveraged recapitalization completed by the Company on
August 11, 1998.
Facility Rent. Facility rent expense for the first quarter increased by
$55,000, from $5,556,000 in 1998 to $5,611,000 in 1999. The increase in rent
expense is the result of the acquisition of the Danbury Facilities by means of a
synthetic lease, partially offset by a reduction in rent expense resulting from
the exercise of purchase options on seven previously-leased facilities. The
exercise of these purchase options was funded through financing arranged in
connection with the leveraged recapitalization.
Interest Expense, net. Interest expense, net, increased from $1,650,000 in the
first quarter of 1998 to $4,800,000 in the first quarter of 1999. This net
increase is primarily due to the issuance of $99,500,000 of 11.0% Senior
Subordinated Discount Notes in connection with the leveraged recapitalization.
The interest associated with these notes accretes until cash payments begin on
August 1, 2003.
Income Tax Expense (Benefit). As a result of a loss incurred in the first
quarter of 1999, an income tax benefit of $3,668,000 was recognized for that
period compared to income tax expense of $1,198,000 for the same period of 1998.
-15-
<PAGE>
Net Income. Net income was $1,875,000 in the first quarter of 1998 as compared
to a loss of $5,736,000 in the first quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs are for acquisitions, capital expenditures,
working capital, debt service and general corporate purposes. The Company has
historically financed these requirements primarily through a combination of
internally generated cash flow, mortgage financing and operating leases, in
addition to funds borrowed under a credit facility. In addition, in 1996 the
Company financed the acquisition of four facilities located in Ohio
by means of a lease which is accounted for as a capital lease for
financial reporting purposes. The Company's existing leased facilities are
leased from either the owner of the facilities, from a real estate investment
trust which has purchased the facilities from the owner, or through synthetic
lease borrowings. The Company's existing facility leases generally require it to
make monthly lease payments and pay all property operating costs. The Company
generally negotiates leases which provide for extensions beyond the initial
lease term and an option to purchase the leased facility. In some cases, the
option to purchase the leased facility is at a price based on the fair market
value of the facility at the time the option is exercised. In other cases, the
lease for the facility sets forth a fixed purchase option price which the
Company believes is equal to the fair market value of the facility at the
inception date of such lease, thus allowing the Company to realize the value
appreciation of the facility while maintaining financial flexibility. In
connection with the leveraged recapitalization completed on August 11, 1998, the
Company obtained gross proceeds of $99.5 million through the issuance of 11%
Senior Subordinated Discount Notes (the "Discount Notes") due 2008 and $40
million through the issuance of 13.5% Exchangeable Preferred Stock (the
"Preferred Stock") mandatorily redeemable in 2010. Interest on the Discount
Notes accretes at 11% per annum with cash interest on the Discount Notes not
payable until August 1, 2003. Dividends on the Preferred Stock are payable, at
the option of the Company, in additional shares of the Preferred Stock until
August 1, 2003. After that date dividends may only be paid in cash. The Company
also entered into a new $250 million collateralized credit facility (the "New
Credit Facility"). The terms of the New Credit Facility provide up to $75
million on a revolving credit basis plus an additional $175 million initially
funded on a revolving basis that converts to a term loan on an annual basis on
each anniversary of the closing. During the first four years of the facility,
any or all of the full $250 million of availability under the facility may be
used for synthetic lease financings. Proceeds of loans under the facility may be
used for acquisitions, working capital purposes, capital expenditures and
general corporate purposes. Interest is based on either LIBOR or prime rates of
interest (plus applicable margins determined by the Company's leverage ratio) at
the election of the Company. The New Credit Facility contains various financial
and other restrictive covenants and limits aggregate borrowings under the New
Credit Facility to a predetermined multiple of EBITDA.
During the first quarter of 1999, the Company determined that its anticipated
financial results for that quarter would cause the Company to be out of
compliance with certain financial covenants of the New Credit Facility. The
Company's expected lower first quarter results were attributable to transitional
difficulties associated with the implementation of the new Medicare prospective
payment system which became effective at all of the Company's facilities on
January 1, 1999. Such transitional difficulties resulted in lower than expected
revenues, primarily due to fewer than expected Medicare patient days, lower
Medicare Part A rates, reduced revenues from therapy services provided to non-
affiliated long term care centers and a reduction in revenues from the provision
of Medicare Part B services. In response, during the first quarter the Company
initiated additional facility-based training directed towards the documentation
requirements of the revised Medicare reimbursement system. The Company also
continued to refine its admission and assessment protocols in order to increase
patient admissions and introduced a series of targeted initiatives to lower
operating expenses. Such initiatives have included wage and staffing reductions
(primarily related to the delivery of rehabilitative therapy services and
indirect nursing support) renegotiation of vendor contracts and ongoing efforts
to reduce the Company's reliance on outside nurse agency personnel. All of the
staffing reductions were implemented on or prior to April 1, 1999. Effective
March 30, 1999, the Company obtained an amendment to the New Credit Facility
which limits borrowings under the New Credit Facility to an aggregate of
$58,500,000 (exclusive of undrawn letters of credit outstanding as of March 30,
1999) and which modifies certain financial covenants. Access to additional
borrowings for acquisitions and general corporate purposes under the New Credit
Facility are permitted to the extent the Company achieves certain financial
targets. The amendment allows the Company access to the entire $250 million
facility if the Company's operating performance returns to the level of
compliance contemplated by the original financial covenants. As of March 31,
1999, total borrowings under the New Credit Facility (exclusive of undrawn
letters of credit) were approximately $33,500,000 and the Company was in
compliance with the financial covenants of the New Credit Facility.
The Company's operating activities during the first quarter of 1999 generated
net cash of $1.7 million as compared to the use of $1.7 million during the same
period in 1998. The increase in net cash generated by operations during the
first three months of 1999 was primarily due to a decrease in accounts
receivable and increases in accounts payable and accrued employee compensation
during the quarter.
Net cash used by investing activities was $5.6 million during the first three
months of 1999 as compared to $4.1 million used during the same period in 1998.
Net cash invested in each period was used primarily to fund additions to
property and equipment at the facilities. Additionally, during the first quarter
of 1999, approximately $1,000,000 was expended in connection with obtaining the
amendment of the Company's New Credit Facility.
Net cash provided by financing activities during the first three months of 1999
was $5,873,000 as compared to net cash used of $805,000 during the first three
months of 1998. During the first three months of 1999 the Company borrowed
$7.0 million under the New Credit Facility.
In addition to the Discount Notes, as of March 31, 1999, the Company had two
mortgage loans outstanding in the aggregate amount of $17.8 million, in addition
to advances outstanding under its revolving credit facility, and $55.3 million
of capital lease obligations. One of the Company's mortgage loans had an
outstanding balance of $16.2 million, of which $15.1 million is due at maturity
in 2004. This loans bears interest at an annual rate of 10.65% plus additional
interest equal to 0.3% of the difference between the annual operating revenues
of four mortgaged facilities and the actual revenues of these facilities during
a twelve month base period. The Company's other mortgage loan, which encumbers a
single facility, had an outstanding principal balance of $1.6 million, of which
$1.3 million is due in 2010.
-16-
<PAGE>
The Company had expected that its capital expenditures for 1999, excluding
acquisitions of new long-term care facilities, would aggregate approximately
$12,000,000. The Company is in the process of identifying which of these
projects can be deferred in order to improve cash flow. The Company's expected
capital expenditures relate to maintenance capital expenditures, systems
enhancements, special construction projects and other capital improvements. The
Company expects that its future facility acquisitions will be financed with
borrowings under the Company's revolving credit facility, direct operating
leases or assumed debt. The Company may be required to obtain additional equity
financing to finance any significant acquisitions in the future.
Harborside's principal sources of funds are cash flow from operations and
borrowings under the New Credit Facility. These funds are being used to finance
working capital, meet debt service and capital expenditure requirements, finance
acquisitions and for general corporate purposes. Harborside believes that
operating cash flow and availability under the New Credit Facility will be
adequate to meet its liquidity needs for the foreseeable future, although no
assurance can be given in this regard
SEASONALITY
The Company's earnings generally fluctuate from quarter to quarter. This
seasonality is related to a combination of factors which include, among other
things, the timing of Medicaid rate increases, seasonal census cycles and the
number of calendar days in a given quarter.
INFLATION
The healthcare industry is labor intensive. Wages and other labor related costs
are especially sensitive to inflation. Shortages in the labor market or general
inflationary pressure could have a significant effect on the Company. In
addition, suppliers attempt to pass along rising costs to the Company in the
form of higher prices. When faced with increases in operating costs, the
Company has generally increased its charges for services. The Company's
operations could be adversely affected if it is unable to recover future cost
increases or if it experiences significant delays in Medicare and Medicaid
revenue sources increasing their rates of reimbursement.
THE YEAR 2000 ISSUE
The Company is in the process of evaluating and addressing risks that could
arise in connection with the potential inability of computer programs to
recognize dates that follow December 31, 1999 (the "Year 2000 Issue"). The
Company's focus has been on evaluating the impact that the Year 2000 Issue might
have on essential equipment and systems of the Company as well as major
suppliers, customers and other third parties. The Company has formulated and
implemented a remediation plan in connection with those systems that will not be
Year 2000 compliant. As of December 31, 1998 the Company has tested and
evaluated approximately 90% of its information technology ("IT") systems and
equipment and approximately 90% of its facility based operating equipment. The
Company is also evaluating the compliance of its major suppliers and their
respective products with the Year 2000 Issue.
With respect to the Year 2000 compliance of critical third parties, the Company
derives a significant portion of its revenues from the Medicare and Medicaid
programs. The Health Care Finance Administration ("HCFA"), the governmental
agency that administers the Medicare program, has publicly stated that it will
be Year 2000 compliant by December 31, 1998. HCFA has imposed the same
December 31, 1998 deadline on its fiscal intermediaries and has stated that it
expects state Medicaid agencies to be compliant by March 1999. The General
Accounting Office cannot make any assurances that the government payment systems
will be Year 2000 compliant on time. The Company derives its governmental
payments through fiscal intermediaries, however, there can be no assurance that
the payments from the fiscal intermediaries will not be negatively impacted by
any Year 2000 issues not corrected in a timely manner. The Company intends to
actively pursue assurances of the status of the remediation efforts and Year
2000 compliance by the government and its fiscal intermediaries.
The Company began replacing critical IT systems for Year 2000 issues in
connection with a comprehensive evaluation of system wide operational IT
efficiencies in 1996. The Company has recently completed the conversion of
certain of its financial reporting systems to new software that has been
certified as Year 2000 compliant. The Company is in the process of upgrading
and consolidating its remaining financial applications to new Year 2000
compliant software by September 30, 1999. Additionally, the Company has
received Year 2000 compliance certification from its remaining software
suppliers with respect to operating systems that will not be upgraded. The
Company's Year 2000 systems conversions and upgrades have been funded from
operating cash flow and existing credit facilities.
The Company, as part of its comprehensive ongoing evaluation process, is
testing and upgrading where necessary, all local area networks ("LANS") personal
computers and related operating software for compliance with Year 2000 Issues.
The Company expects to substantially complete the evaluation by April 30, 1999,
and implement any required remediation before September 30, 1999. The Company
plans to remediate any Year 2000 issues discovered in its review of LANS through
the installation of upgraded hardware and software. The Company on a going
forward basis is endeavoring to ensure that all software and hardware purchased
is Year 2000 compliant.
The Company has undertaken an evaluation of facility operating systems for
potential problems associated with Year 2000 Issues. The Company has evaluated
and tested virtually all of its facility heating, cooling and ventilation
("HVAC") systems, life safety and security systems, and mechanical systems for
Year 2000 compliance. In connection with the review and testing procedures, the
Company has contacted the manufacturer of the respective systems for further
assurance of potential exposure to Year 2000 Issues. Based on the results of
testing to date, the Company does not believe that above referenced facility
operating systems will have any significant risk associated with the Year 2000
Issue.
To date, the Company has expended approximately $5.5 million to remedy problems
associated with the Year 2000 issue and estimates that it will expend an
additional $1.5 million in the future. The Company's Year 2000 plans are still
evolving and estimated expenditures may vary, as new information becomes
available.
-17-
<PAGE>
The Company is developing contingency plans in the event that the IT systems
conversion scheduled for completion before December 31, 1999 is unavoidably
delayed. The Company is planning to be fully Year 2000 compliant before
December 31, 1999 although there can be no assurance that it will achieve its
objective by such date or by January 1, 2000. The Company can make no
assurance that its failure to achieve 100% Year 2000 compliance by such date
will not have a material adverse impact on the Company's business, financial
condition, or results of operations. Additionally, there can be no assurance
that the Company's critical suppliers and third parties will be compliant by
January 1, 2000 and that any such non compliance will not have a material
adverse impact on the Company's business, its financial condition or results of
operations.
-18-
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q, including information set forth under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations", constitute "Forward-Looking Statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). The
Company desires to take advantage of certain "safe harbor" provisions of the
Reform Act and is including this special note to enable the Company to do so.
Forward-looking statements included in this Form 10-Q, or hereafter included in
other publicly available documents filed with the Securities and Exchange
Commission, reports to the Company's stockholders and other publicly available
statements issued or released by the Company involve known and unknown risks,
uncertainties, and other factors which could cause the Company's actual results,
performance (financial or operating) or achievements to differ materially from
the future results, performance (financial or operating) or achievements
expressed or implied by such forward-looking statements. The Company believes
the following important factors could cause such a material difference to occur:
1. The Company's ability to grow through the acquisition and development of
long-term care facilities or the acquisition of ancillary businesses.
2. The Company's ability to identify suitable acquisition candidates, to
consummate or complete construction projects, or to profitably
operate or successfully integrate enterprises into the Company's other
operations.
3. The occurrence of changes in the mix of payment sources utilized by the
Company's patients to pay for the Company's services.
4. The adoption of cost containment measures by private pay sources such as
commercial insurers and managed care organizations, as well as efforts by
governmental reimbursement sources to impose cost containment measures.
5. Changes in the United States healthcare system, including changes in
reimbursement levels and the method of reimbursement, under Medicaid and
Medicare, and other changes in applicable government regulations that might
affect the profitability of the Company.
6. The Company's continued ability to operate in a heavily regulated
environment and to satisfy regulatory authorities, thereby avoiding a
number of potentially adverse consequences, such as the imposition of
fines, temporary suspension of admission of patients, restrictions on the
ability to acquire new facilities, suspension or decertification from
Medicaid or Medicare programs, and in extreme cases, revocation of a
facility's license or the closure of a facility, including as a result of
unauthorized activities by employees.
7. The Company's ability to secure the capital and the related cost of such
capital necessary to fund its future growth through acquisition and
development, as well as internal growth.
8. Changes in certificate of need laws that might increase competition in the
Company's industry, including, particularly, in the states in which the
Company currently operates or anticipates operating in the future.
9. The Company's ability to staff its facilities appropriately with qualified
healthcare personnel, including in times of shortages of such personnel and
to maintain a satisfactory relationship with labor unions.
10. The level of competition in the Company's industry, including without
limitation, increased competition from acute care hospitals, providers of
assisted and independent living and providers of home healthcare and
changes in the regulatory system in the state in which the Company operates
that facilitate such competition.
11. The continued availability of insurance for the inherent risks of liability
in the healthcare industry.
12. Price increases in pharmaceuticals, durable medical equipment and other
items.
13. The Company's reputation for delivering high-quality care and its ability
to attract and retain patients, including patients with relatively high
acuity levels.
14. Changes in general economic conditions, including changes that pressure
governmental reimbursement sources to reduce the amount and scope of
healthcare coverage.
15. The Company's, its vendors, banks and payors ability to address computer
system concerns related to the Year 2000 issue.
The foregoing review of significant factors should not be construed as
exhaustive or as an admission regarding the adequacy of disclosures
previously made by the Company.
-19-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of matters to a vote of security holders
None
Item 5. Other Information
None
-20-
<PAGE>
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.
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: May 17, 1999
-21-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,812
<SECURITIES> 0
<RECEIVABLES> 51,690
<ALLOWANCES> (2,620)
<INVENTORY> 59,928<F1>
<CURRENT-ASSETS> 77,446
<PP&E> 163,237
<DEPRECIATION> 0
<TOTAL-ASSETS> 275,047
<CURRENT-LIABILITIES> 40,289
<BONDS> 198,124<F2>
43,714
0
<COMMON> 146
<OTHER-SE> (7,226)<F3>
<TOTAL-LIABILITY-AND-EQUITY> 275,047
<SALES> 0
<TOTAL-REVENUES> 71,704
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 76,245
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,800
<INCOME-PRETAX> 0
<INCOME-TAX> (3,668)
<INCOME-CONTINUING> (5,736)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,736)
<EPS-PRIMARY> (0.99)
<EPS-DILUTED> (0.99)
<FN>
<F1>Includes the following assets: prepaid expenses and other of $14,034,
prepaid income taxes of $7,446, deferred income taxes-current of $4,084,
deferred income taxes--long-term of $2,229, restricted cash of $2,304, note
receivable of $7,487, and intangible assets, net of $18,344 and other assets,
net of $4,000.
<F2>Includes the following long-term liabilities: deferred income of $2,936,
capital lease obligation of $50,949, and long-term debt of $144,239.
<F3>Includes the following equity accounts: additional paid-in capital of
$203,180, treasury stock $(183,746), and retained earnings (deficit) of
$(26,660).
<FN>
</TABLE>
