<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 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 001-35118
-----------
CENTENNIAL HEALTHCARE CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1839701
------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) (identification No.)
400 Perimeter Center Terrace, Suite 650, Atlanta, Georgia 30346
---------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 770-698-9040
------------
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date.
There were 11,861,653 shares of Common Stock outstanding as of November 1,
1997.
<PAGE>
CENTENNIAL HEALTHCARE INC
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
<PAGE>
ITEM I - FINANCIAL STATEMENTS
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
-------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................................ $ 6,029,763 $ 6,265,809
Patient accounts receivable and third-party payor settlements, net
of allowance for doubtful accounts of approximately
$2,500,000 and $2,200,000 .......................................................... 39,854,486 60,353,761
Other current assets ................................................................. 9,743,560 12,716,793
------------- --------------
Total current assets ............................................................. 55,627,809 79,336,363
Property and equipment, net .......................................................... 67,409,359 68,689,774
Restricted cash ...................................................................... 6,045,035 1,397,818
Licenses and other intangible assets, including goodwill, net ........................ 36,297,113 50,812,061
Notes receivable and other assets .................................................... 28,068,270 23,819,024
------------- --------------
Total assets ..................................................................... $ 193,447,586 $ 224,055,040
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ............................................. $ 37,991,634 $ 37,658,688
Other current liabilities ............................................................ 11,736,322 11,089,299
------------- --------------
Total current liabilities ........................................................ 49,727,956 48,747,987
Long-term debt, less current maturities ................................................ 83,437,633 63,027,303
Subordinated debt, less current maturities ............................................. 24,357,397 --
Other long-term liabilities ............................................................ 2,667,031 2,472,335
------------- --------------
160,190,017 114,247,625
Commitments and contingencies
Redeemable preferred stock ............................................................. 21,305,372 --
Shareholders' equity:
Common stock with par value of $.01; 50,000,000 shares authorized; 2,044,306
and 11,881,303 shares issued; 1,804,446 and 11,881,303 shares outstanding ....... 20,443 118,813
Special voting common stock with no par value; 5,000,000 shares
authorized; 2,941,325 and -0- shares issued and outstanding ..................... -- --
Paid-in capital ...................................................................... 5,707,467 101,879,374
Retained earnings .................................................................... 8,239,967 8,337,708
Treasury stock, at cost; 239,860 and -0- shares of common stock ...................... (1,487,200) --
------------- --------------
12,480,677 110,335,895
Note receivable from shareholder ....................................................... (528,480) (528,480)
------------- --------------
Net shareholders' equity ......................................................... 11,952,197 109,807,415
------------- --------------
Total liabilities and shareholders' equity ....................................... $ 193,447,586 $ 224,055,040
============= ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------------ ------------------------------
1996 1997 1996 1997
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Revenues:
Net patient service revenues ................................. $ 56,837,084 $ 79,963,585 $ 166,490,310 $ 212,536,843
Management fees and other revenues ........................... 1,503,884 1,982,324 4,130,484 5,582,760
------------- ------------- ------------- -------------
Total revenues ............................................. 58,340,968 81,945,909 170,620,794 218,119,603
------------- ------------- ------------- -------------
Expenses:
Facility operating expenses:
Salaries, wages and benefits ............................. 32,293,116 42,468,093 91,677,161 110,729,060
Other operating expenses ................................. 13,656,915 20,503,741 43,323,048 57,375,100
Lease expense ................................................ 4,737,986 5,769,822 13,885,573 16,122,110
Corporate administrative costs ............................... 2,764,924 4,121,687 8,436,248 11,335,795
Depreciation and amortization ................................ 1,206,673 1,810,940 3,570,664 4,944,806
------------- ------------- ------------- -------------
Total operating expenses .................................. 54,659,614 74,674,283 160,892,694 200,506,871
------------- ------------- ------------- -------------
3,681,354 7,271,626 9,728,100 17,612,732
------------- ------------- ------------- -------------
Other income (expense):
Interest income ............................................. 175,829 208,033 519,644 524,181
Interest expense ............................................ (2,549,294) (1,806,639) (7,238,480) (7,094,696)
Equity in income of unconsolidated partnerships ............. 36,250 -- 72,500 --
------------- ------------- ------------- -------------
Total other expense ...................................... (2,337,215) (1,598,606) (6,646,336) (6,570,515)
------------- ------------- ------------- -------------
1,344,139 5,673,020 3,081,764 11,042,217
Provision for income taxes ..................................... 551,900 2,212,477 1,275,301 4,306,464
------------- ------------- ------------- -------------
Income before minority interest and extraordinary loss ......... 792,239 3,460,543 1,806,463 6,735,753
Minority interest in net income of subsidiary,
net of income taxes .......................................... (47,755) (77,288) (132,925) (227,962)
------------- ------------- ------------- -------------
Income before extraordinary loss ............................... 744,484 3,383,255 1,673,538 6,507,791
Extraordinary loss on extinguishment of debt, net of
income tax benefit ........................................... -- (537,009) -- (537,009)
------------- ------------- ------------- -------------
Net income ............................................... 744,484 2,846,246 1,673,538 5,970,782
Dividends and accretion on preferred stock ..................... 648,296 4,654,419 1,592,248 5,873,040
------------- ------------- ------------- -------------
Income (loss) applicable to common stock ....................... $ 96,188 $ (1,808,173) $ 81,290 $ 97,742
============= ============= ============= =============
Net income (loss) per common and common equivalent share:
Proforma net income (Note 2): .................................. $ 0.14 $ 0.30 $ 0.37 $ 0.77
Primary (Note 4):
Income (loss) applicable to common stock before
extraordinary loss ......................................... $ 0.02 $ (0.11) $ 0.02 $ 0.09
Extraordinary loss on extinguishment of debt ................. 0.00 (0.05) 0.00 (0.08)
------------- ------------- ------------- -------------
Income (loss) applicable to common stock ................... $ 0.02 $ (0.16) $ 0.02 $ 0.01
============= ============= ============= =============
Fully diluted (Note 4):
Income applicable to common stock before
extraordinary loss ......................................... $ 0.02 $ 0.21 $ 0.02 $ 0.62
Extraordinary loss on extinguishment of debt ................. 0.00 (0.04) 0.00 (0.06)
------------- ------------- ------------- -------------
Income applicable to common stock .......................... $ 0.02 $ 0.17 $ 0.02 $ 0.56
============= ============= ============= =============
Weighted average number of common stock and
common stock equivalents outstanding..........................
Primary ...................................................... 4,784,118 11,744,929 4,780,857 7,142,423
============= ============= ============= =============
Fully diluted ................................................ 4,784,118 11,979,303 4,780,857 9,007,728
============= ============= ============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Special Voting
Common Stock Common Stock
----------------------------------- ---------------------------------- Paid-In
Shares Amount Shares Amount Capital
---------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996...... 1,804,446 $ 20,443 2,941,325 $ - $ 5,707,467
Dividends paid on
Series A, B and E
preferred stock............... - - - - -
Dividends accrued on
Series C preferred
stock.......................... - - - - -
Exercise of stock
options........................ 996 10 1,195 - 23,241
Accretion of preferred
stock to estimated
redemption value............... - - - - -
Issuance of common
shares......................... 63,846 638 - - 776,790
Public offering of
common stock................... 4,600,000 43,601 - - 66,917,198
Offering costs for
common stock................... - - - - (1,420,312)
Conversion of special
voting common stock
due to Offering................ 2,942,520 29,425 (2,942,520) - (29,425)
Redemption of Series E
preferred stock................ - - - - -
Conversion of Series A, B,
C and D preferred stock........ 2,532,582 25,326 - - 30,913,177
Repurchase of Series C
preferred stock................ (63,087) (630) - - (1,008,762)
Net income........................ - - - - -
---------------- --------------- --------------- --------------- --------------
Balance at September 30, 1997..... 11,881,303 $ 118,813 - $ - $ 101,879,374
================ =============== =============== =============== ==============
<CAPTION>
Note
Receivable
Retained Treasury From
Earnings Stock Shareholder Net
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996...... $ 8,239,967 $ (1,487,200) $ (528,480) $ 11,952,197
Dividends paid on
Series A, B and E
preferred stock............... (462,481) - - (462,481)
Dividends accrued on
Series C preferred
stock.......................... (864,518) - - (864,518)
Exercise of stock
options........................ - - - 23,251
Accretion of preferred
stock to estimated
redemption value............... (105,879) - - (105,879)
Issuance of common
shares......................... - - - 777,428
Public offering of
common stock................... - 1,487,200 - 68,447,999
Offering costs for
common stock................... - - - (1,420,312)
Conversion of special
voting common stock
due to Offering................ - - - -
Redemption of Series E
preferred stock................ (714,928) - - (714,928)
Conversion of Series A, B,
C and D preferred stock........ (3,725,235) - - 27,213,268
Repurchase of Series C
preferred stock................ - - - (1,009,392)
Net income........................ 5,970,782 - - 5,970,782
---------------- --------------- --------------- ---------------
Balance at September 30, 1997..... $ 8,337,708 $ - $ (528,480) $ 109,807,415
================ =============== =============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-------------------------------------------
1996 1997
---------------- ----------------
<S> <C> <C>
Operating Activities:
Net income.................................................................... $ 1,673,538 $ 5,970,782
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................................. 3,570,664 4,944,806
Amortization of discount on subordinated debt............................. 86,626 62,260
Extraordinary loss on extinguishment of debt.............................. - 880,342
Deferred income taxes..................................................... 1,727,023 3,977,716
Consulting expenses offset against note receivable........................ 62,500 62,500
Equity in income of unconsolidated partnerships........................... 72,500 -
Minority interest......................................................... 226,834 373,708
Provision for doubtful accounts........................................... 160,613 347,296
Change in assets and liabilities:
Accounts receivable.................................................... (9,461,533) (16,846,035)
Prepaid expenses and other assets...................................... (932,699) (5,702,901)
Refundable deposits.................................................... 177,171 142,055
Accounts payable, accrued liabilities and other current liabilities.... 7,728,221 (1,823,863)
---------------- ----------------
Cash provided by (used in) operating activities.................... 5,091,458 (7,611,334)
---------------- ----------------
Investing Activities:
Purchases of property and equipment........................................... (5,675,580) (4,354,466)
Decrease in restricted cash................................................... 68,363 4,647,217
Advances to managed facilities, net of repayments............................. (1,896,176) 280,206
Notes receivable from managed facilities...................................... (10,020,274) -
Deferred costs................................................................ (818,396) (982,371)
Acquisitions, net of cash acquired............................................ - (13,856,705)
---------------- ----------------
Cash used in investing activities.................................. (18,342,063) (14,266,119)
---------------- ----------------
Financing Activities:
Proceeds from the exercise of stock options................................... - 23,251
Proceeds from issuance of preferred stock..................................... - 10,000,000
Proceeds from borrowings...................................................... 16,000,000 13,000,000
Public offering of Common Stock............................................... - 68,448,000
Payment of stock offering costs............................................... - (1,420,312)
Distributions paid to minority partners....................................... (214,986) (222,156)
Payments of dividends to preferred shareholders............................... (255,672) (462,481)
Payments on amounts due to related party...................................... - (201,550)
Redemption of Series E Preferred Stock........................................ - (5,000,000)
Repurchase of Series C Preferred Stock........................................ - (1,009,392)
Principal payments on subordinated debt....................................... - (25,300,000)
Principal payments on long-term debt.......................................... (3,773,058) (35,741,861)
---------------- ----------------
Cash provided by financing activities.............................. 11,756,284 22,113,499
---------------- ----------------
Net increase (decrease) in cash and cash equivalents............................ (1,494,321) 236,046
Cash and cash equivalents, beginning of period.................................. 4,894,448 6,029,763
---------------- ----------------
Cash and cash equivalents, end of period........................................ $ 3,400,127 $ 6,265,809
================ ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 1997
NOTE 1 - BASIS OF PRESENTATION AND OTHER INFORMATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnote disclosures required by generally accepted accounting principles for
complete financial statements. In the opinion of management, the financial
statements reflect all adjustments considered necessary for a fair presentation
of the results of operations and financial position for the interim periods
presented. All such adjustments are of a normal recurring nature. These
unaudited interim financial statements should be read in conjunction with the
audited consolidated financial statements for the year ended December 31, 1996
and notes thereto contained in Centennial HealthCare Corporation's registration
statement on Form S-1 filed with the Securities and Exchange Commission
(Commission File No. 001-35118).
The results of operations for the nine months ended September 30, 1997 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1997 or any interim period.
Certain amounts in the 1996 financial statements have been reclassified for
comparative purposes.
NOTE 2 - INITIAL PUBLIC OFFERING
On July 2, 1997, Centennial HealthCare Corporation, ("Centennial" or "the
Company"), completed an initial public offering of 4,000,000 shares of the
Company's Common Stock at a price of $16.00 per share, (the "Offering"). In
connection with the Offering, the Company granted the underwriters an option to
purchase up to 600,000 additional shares of the Company's Common Stock at the
Offering price of $16.00 per share. This option was exercised and closed on July
31, 1997. Proceeds to the Company from the Offering and the exercise of the
underwriters' option totaled approximately $67,028,000, net of underwriting
discounts and commissions and Offering expenses.
The net proceeds of the Offering available to the Company were used to repay two
subordinated promissory notes aggregating $25.3 million, which accrued interest
at 10.8% and 11.7% per annum, to redeem the Series E Redeemable Preferred Stock
for $5.0 million, to repurchase approximately 84,000 shares of Common Stock,
which were received by the former holders of the Company's Series C Preferred
Stock, for approximately $1.3 million, and to repay approximately $35.3 million
outstanding under the Company's Senior Credit Facility with CoreStates Bank N.A.
as agent (the "Senior Credit Facility"), which accrues interest at approximately
8.3%. Centennial repaid the Senior Credit Facility during the third quarter and
early in the fourth quarter of 1997.
After the closing of the Offering, with the net proceeds of the exercise of the
underwriters overallotment option, Centennial offered the former holders of the
Company's Series C Preferred Stock pro-rata repurchase of their shares of Common
Stock received upon the conversion of their Series C Preferred Stock at the
Offering price of $16.00 per share.
7
<PAGE>
Holders of approximately 84,000 shares of the approximately 1.3 million shares
available for pro-rata repurchase elected to have such shares repurchased by the
Company. The Company repurchased the 84,000 shares of common stock for
approximately $1.3 million during the third quarter and early in the fourth
quarter of 1997. The Company made this repurchase offer as consideration for the
agreement by these former holders to the conversion of the Series C Preferred
Stock into Common Stock.
The Company repaid the two subordinated promissory notes during the third
quarter of 1997, resulting in a loss on early extinguishment of debt of
approximately $537,000, net of income tax benefit of approximately $343,000.
Concurrently with the closing of the Offering, the Company's Series A, B, C and
D Preferred Stock were converted into approximately 2.4 million shares of Common
Stock, net of anticipated stock repurchase. The following table presents
proforma earnings per share as if the Offering and the exercise of the
underwriters' option, the use of proceeds described above, the redemption of the
Company's Series E Redeemable Preferred Stock, and the preferred stock
conversions had taken place on January 1, 1996.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1997 1996 1997
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Proforma net income applicable
to Common Stock: $ 1,588,396 $ 3,548,261 $ 4,192,378 $ 9,129,792
============= ============= ============= =============
Proforma weighted average number
of common shares outstanding: 11,422,230 12,025,698 11,418,969 11,856,316
============= ============= ============== ==============
Proforma earnings per share: $ 0.14 $ 0.30 $ 0.37 $ 0.77
============= ============= ============== ==============
</TABLE>
The proforma amounts above reflect the estimated reduction in interest expense
(net of the related tax effect) of approximately $844,000 and $165,000 for the
three month period ended September 30, 1996 and 1997, respectively, and $2.5
million and $2.6 million for the nine month period ended September 30, 1996 and
1997, respectively. The above amounts also reflect the reduction in preferred
dividends and accretion of approximately $648,000 and $4.7 million for the three
month period ended September 30, 1996 and 1997, respectively, and $1.6 million
and $5.9 million for the nine month period ended September 30, 1996 and 1997,
respectively. The extraordinary loss recorded in the third quarter of 1997 due
to the early extinguishment of debt as previously discussed is excluded from
proforma net income applicable to Common Stock. As a result of the Offering and
the exercise of the underwriters' option, the conversion of preferred stock and
the repurchase of a portion of the Common Stock received by the former holders
of the Company's Series C Preferred Stock as described above, proforma Common
Stock increased by approximately 6.6 million and 281,000 shares for the three
month period ended September 30, 1996 and 1997, respectively, and by
approximately 6.6 million and 4.7 million shares for the nine month period ended
September 30, 1996 and 1997, respectively.
NOTE 3 - ACQUISITIONS
8
<PAGE>
During the first six months of 1997, the Company entered into nine additional
management agreements, which have various terms ranging from five to ten years
and contain subsequent renewal options. All of these management agreements
provide the Company with a right of first refusal to purchase the related
facilities. In addition, the Company entered into a lease of a rural hospital,
having a term of ten years with two five-year renewal options.
In May 1997, the Company acquired by merger Total Care Consolidated Inc.,
("TCC"), a provider of home health services, with 25 home health offices located
primarily in North Carolina. Total consideration of $8.0 million consisted of
$6.0 million in cash, which was funded under the Senior Credit Facility, and
$2.0 million in the form of a convertible promissory note due April 30, 1999.
The transaction was accounted for under the purchase method and the Company's
Unaudited Condensed Consolidated Financial Statements include TCC from the
effective date of the merger.
In August 1997, Centennial acquired substantially all the business and assets of
Complex Care, Inc., ("CCI"), a provider of physical, occupational and speech
therapy services through approximately 45 contracts with long-term care
facilities in Connecticut and Rhode Island. The Company paid total consideration
of $7.0 million, utilizing borrowings under its Senior Credit Facility.
Additional consideration of up to $500,000 may be paid by the Company under an
earn-out agreement. The transaction was accounted for under the purchase method
and the Company's Unaudited Condensed Consolidated Financial Statements include
CCI from the effective date of the acquisition.
NOTE 4 - EARNINGS PER SHARE
In June 1997, the Board of Directors and Shareholders of the Company
approved a reverse stock split of .6897 for one. All references to shares and
weighted shares outstanding used in the calculation of net income per share and
per share amounts have been retroactively adjusted to reflect this reverse stock
split.
Primary earnings per common and common equivalent share are based on income
(loss) applicable to common stock (net income reduced by the extraordinary loss
and preferred stock dividends and accretion) and the weighted average number of
common and common equivalent shares (stock options) outstanding in each period
and is computed in accordance with APB Opinion No. 15. Common Stock issued in
connection with the Offering, the exercise of the underwriters' option and the
conversion of the Company's Series A, B, C and D Preferred Stock have been
included in the weighted average number of shares outstanding subsequent to the
date of conversion. As a result of the preferred stock conversions and as
required by APB Opinion No. 15, fully diluted earnings per common and common
equivalent share has been presented for the periods shown based upon an "as if
the approximately 2.4 million shares issued in the preferred stock conversions
were outstanding from the beginning of the period" basis.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share". Statement No.
128 will replace APB Opinion No. 15 and is effective for periods ending after
December 15, 1997. Earlier application is not permitted. When effective,
Statement No. 128 will require restatement of all prior period earnings per
share data presented.
9
<PAGE>
Statement No. 128 replaces the current earnings per share presentation with
a dual presentation of basic and diluted earnings per share for entities with
complex capital structures. Basic earnings per share includes no dilution and is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share reflects the potential dilution of securities, such as stock options,
that could share in the earnings of an entity. The following table presents
basic and diluted earnings per share calculated in accordance with Statement No.
128.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1997 1996 1997
------------ --------------- ------------ --------------
<S> <C> <C> <C> <C>
Basic earnings (loss) per share:
Net income (loss) applicable to Common Stock: $ 96,188 $ (1,808,173) $ 81,290 $ 97,742
Weighted average number of common and common
equivalent shares outstanding: 4,745,785 11,579,108 4,740,447 7,092,669
Basic earnings (loss) per share: $ 0.02 $ (0.16) $ 0.02 $ 0.01
============ =============== ============ ==============
Diluted earnings (loss) per share:
Net income (loss) applicable to Common Stock: $ 96,188 $ (1,783,773) $ 81,290 $ 138,409
Weighted average number of common and common
equivalent shares outstanding: 4,784,118 11,869,929 4,780,857 7,211,867
Diluted earnings (loss) per share: $ 0.02 $ (0.15) $ 0.02 $ 0.02
============ ================ ============ ==============
</TABLE>
The primary difference between fully diluted earnings per share as calculated
under APB Opinion No. 15 and diluted earnings (loss) per share as calculated
above is the treatment of accretion and dividends on the converted Series A, B,
C and D Preferred Stock. As noted above, fully diluted earnings per common and
common equivalent share has been presented for the periods shown based upon an
"as if the approximately 2.4 million shares issued in the preferred stock
conversions were outstanding from the beginning of the period" basis.
NOTE 5 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income," and Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Both Statements are
effective for fiscal years beginning after December 15, 1997. The Company has
not yet determined the effect, if any, of these statements on its financial
statements.
NOTE 6 - LITIGATION
The Company is a party to a lawsuit filed in October 1995, alleging liability
for various accounts receivable factoring transactions between the prior owner
of Transitional Health Services, Inc., which was acquired by the Company
effective December 31, 1995, and the finance company. It is
10
<PAGE>
the belief of management that this lawsuit will be resolved without a material
adverse effect on the Company's financial position, results of operation or
liquidity.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying Unaudited Condensed Consolidated Statements of Operations for the
nine-month period ended September 30, 1996 and 1997.
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 Company
cautions investors that 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
significant 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 that the important factors set forth in the
Company's cautionary statements at Exhibit 99.1 to this Form 10-Q could cause
such a material difference to occur and investors are referred to Exhibit 99.1
for such cautionary statements.
RESULTS OF OPERATIONS
Centennial's revenues and proforma earnings for both the three and nine month
periods ended September 30, 1997, as compared to the same periods for 1996,
continued to grow from both expansion and increases in current operations and as
a result of strategic acquisitions.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
Net patient service revenues. Net patient service revenues increased from $56.8
million in 1996 to $80.0 million in 1997, an increase of $23.1 million or 40.7%,
of which approximately $5.9 million was attributable to the addition of the
operations of three long-term care facilities and two rural hospitals. Total
Care Consolidated Inc. (Total Care), the Company's home health agency, which was
acquired in May 1997, added revenues of approximately $7.0 million during the
third quarter of 1997. During August of 1997, the Company acquired 45
rehabilitation therapy contracts from Complex Care, Inc. ("CCI"), which
generated approximately $2.3 million in revenue during the third quarter of
1997. The remaining increase of $7.9 million was attributable to growth in
existing facility revenues and therapy contract revenues. The increase in
existing facility revenues during 1997 of approximately $5.3 million resulted
primarily from an increase in the quality revenue mix of the facilities, greater
than anticipated Medicaid increases, and favorable settlements of prior year
open cost reports. The increase in revenues at the Company's subsidiary
providing therapy services of approximately $2.6 million, exclusive of the CCI
contracts, resulted primarily from the net addition of 17 rehabilitation therapy
services contracts subsequent to the third quarter of 1996 as
11
<PAGE>
well as an overall increase in therapy revenue related to the new contracts
added during the first two quarters of 1996.
Management fees and other revenues. Management fees and other revenues increased
from $1.5 million in the third quarter of 1996 to $2.0 million in the third
quarter of 1997, an increase of approximately $478,000, or 31.8%, which was
attributable primarily to the Company's addition of facility management
agreements subsequent to the third quarter of 1996.
Facility operating expenses. Facility operating expenses increased from $46.0
million in the third quarter of 1996 to $63.0 million in the third quarter of
1997, an increase of $17.0 million or 37.0%, of which approximately $5.2 was
attributable to the addition of the operations of three long-term care
facilities and two rural hospitals. Total Care and the CCI therapy contracts
added approximately $6.4 million and $1.8 million, respectively, to operating
expenses during the third quarter of 1997. The Company's expenses from existing
contract therapy services increased $2.1 million over the prior year period
related primarily to growth in therapy contracts in 1997. The remaining $1.5
million was attributable primarily to an increase in costs at existing long-term
care facilities and to providing care for higher acuity patients during the
current year period.
Lease expense. Lease expense increased from $4.7 million in 1996 to $5.8 million
in 1997, an increase of $1.0 million, or 21.8%, which was due primarily to an
expansion of the Company's corporate office lease and rent escalations in
certain facility leases, which are tied to increases in operating revenue and
income.
Corporate administrative costs. Corporate administrative costs increased from
$2.8 million in 1996 to $4.1 million in 1997, an increase of $1.4 million, or
49.1%, which was due primarily to additional overhead to accommodate the
expansion in therapy services contracts, including the acquisition of the CCI
contracts, the addition of managed facilities, the Company's new home health
operations, and increases in the Company's administrative costs following the
Company's acquisition of Transitional Health Services ("THS"), which was
effective December 31, 1995.
Depreciation and amortization. Depreciation and amortization increased from $1.2
million in 1996 to $1.8 million in 1997, an increase of approximately $604,000,
or 50.1%, which was primarily attributable to the acquisition of two facilities
subsequent to the third quarter of 1996.
Interest expense. Interest expense decreased from $2.5 million in 1996 to $1.8
million in 1997, a decrease of approximately $743,000, or 29.1%, which was
primarily attributable to the reduction of debt by approximately $34.5 million
as a result of the Offering.
Provision for income taxes. The Company's effective tax rate decreased from
41.1% in 1996 to 39.0% in 1997, a decrease in the rate of 2.1%. This decrease
was primarily attributable to an expected decline in the Company's average state
tax rate and a proportional decrease in non-deductible expenses for federal tax
purposes.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Net patient service revenues. Net patient service revenues increased from $166.5
million in 1996 to $212.5 million in 1997, an increase of $46.0 million or
27.7%, of which approximately $14.1 million was attributable to the addition of
the operations of three long-term care facilities and two
12
<PAGE>
rural hospitals. Total Care and the CCI therapy contracts added revenues of
approximately $11.4 million and $2.3 million, respectively, during the nine
month period ended September 30, 1997. The remaining increase of $18.2 million
was attributable to growth in existing facility revenues and therapy services
contract revenues. The increase in existing facility revenues during 1997 of
approximately $12.9 million resulted primarily from an increase in the quality
revenue mix of the facilities, greater than anticipated Medicaid rate increases,
and favorable settlements of prior year open cost reports. The increase in
revenues at the Company's subsidiary providing therapy services of $5.3 million,
exclusive of the CCI contracts, resulted from the net addition of 17
rehabilitation therapy services contracts subsequent to the third quarter of
1996 as well as an overall increase in therapy revenue related to the new
contracts added during the first two quarters of 1996.
Management fees and other revenues. Management fees and other revenues increased
from $4.1 million in 1996 to $5.6 million in 1997, an increase of $1.5 million,
or 35.2%, which was primarily attributable to the Company's addition of facility
management agreements subsequent to the third quarter of 1996.
Facility operating expenses. Facility operating expenses increased from $135.0
million in 1996 to $168.1 million in 1997, an increase of $33.1 million or
24.5%, of which approximately $11.4 million was attributable to the addition of
the operations of three long-term care facilities and two hospitals. Total Care
and the CCI therapy contracts added approximately $10.3 million and $1.8
million, respectively, to operating expenses during the current year period. The
Company's expenses from existing contract therapy services increased $2.8
million over the prior year period related primarily to growth in therapy
contracts during 1997. The remaining $6.8 million was attributable primarily to
an increase in costs at existing long-term care facilities and to providing care
for higher acuity patients during the current year period.
Lease expense. Lease expense increased from $13.9 million in 1996 to $16.1
million in 1997, an increase of $2.2 million, or 16.1%, of which approximately
$667,000 was attributable to the addition of one leased facility previously
identified for disposal which was not disposed of as of December 31, 1996. The
remaining $1.5 million increase was due primarily to an expansion of the
Company's corporate office lease, and rent escalations in certain facility
leases, which are tied to increases in operating revenue and income.
Corporate administrative costs. Corporate administrative costs increased from
$8.4 million in 1996 to $11.3 million in 1997, an increase of $2.9 million, or
34.4%, which was primarily attributable to additional overhead to accommodate
the expansion in therapy services contracts, including the acquisition of the
CCI contracts, the addition of managed facilities, the Company's new home
health operations, new therapy services and hospital operations, and increases
in the Company's administrative costs following the Company's acquisition of
THS, which was effective December 31, 1995.
Depreciation and amortization. Depreciation and amortization increased from $3.6
million in 1996 to $4.9 million in 1997, an increase of $1.4 million, or 38.5%,
which was primarily attributable to the facility acquisitions subsequent to the
third quarter of 1996.
Interest expense. Interest expense decreased from $7.2 million in 1996 to $7.1
million in 1997, a decrease of approximately $144,000, or 2.0%, which was
attributable to the reduction of debt by approximately $34.5 million as a result
of the Offering, net of the additional expense incurred as a result of
borrowings for the acquisition of two long-term care facilities.
Provision for income taxes. The Company's effective tax rate decreased from
41.4% in 1996 to 39.0% in 1997, a decrease in the rate of 2.4%. This decrease
was attributable primarily to an expected decline in the Company's average state
tax rate and a proportional decrease in non-deductible expenses for federal tax
purposes.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of cash have been proceeds from the sales of its
preferred stock and borrowings under its Senior Credit Facility. Cash has been
used by the Company for acquisitions, capital improvements at several existing
facilities and the day-to-day operations of the Company's business. The Company
anticipates using borrowings under the Senior Credit Facility to fund the
anticipated growth in the operations of its existing facilities, and any
acquisition or management of additional long-term care facilities and related
service providers.
Working capital increased from $5.9 million at December 31, 1996, to $30.6
million at September 30, 1997 primarily attributable to increases in patient
accounts receivable. Patient accounts receivable increased from $39.9 million at
December 31, 1996 to $60.4 million at September 30, 1997, primarily attributable
to acquisitions, including the addition of the operations of three long-term
care facilities, the net addition of 17 rehabilitation therapy services
contracts, and the Company's new home health agency and leased rural hospital.
The largest component of the Company's receivables related to its long-term care
facilities ($42.7 million). Days outstanding for these receivables at September
30, 1997 remained constant with December 31, 1996. Also contributing to the
increase in working capital was the decrease in accounts payable and accrued
liabilities, despite the growth of the Company noted above. Restricted cash at
December 31, 1996 included certain certificates of deposit that were pledged for
letters of credit issued by banks in connection with various lease agreements.
Approximately $4.1 million of the certificates of deposit were unencumbered
during the period. The Company used a net $7.6 million in its operating
activities due primarily to the increase in receivables related to both the
expansion of existing operations and current year acquisitions.
The Company continued to invest in its leased and owned facilities through
capital expenditures of approximately $4.4 million or approximately $750 per bed
for the nine-month period. These expenditures included ordinary repairs and
maintenance, expansion of existing facilities, and the selected renovation
of certain facilities. During the first nine months of 1997, the Company entered
into contracts to manage nine additional facilities, including six facilities in
North Carolina, as well as a joint nursing facility and long-term care hospital
in Washington D.C. As part of the management agreements for the six North
Carolina facilities, the Company agreed to provide working capital. In May, the
Company acquired Total Care, a home health provider operating 25 offices, for
$8.0 million, consisting of $6.0 million in cash and $2.0 million in the form of
a convertible promissory note. In August, the Company acquired substantially all
the business and assets of CCI, a provider of physical, occupational and speech
therapy services through approximately 45 contracts with long-term care
facilities in Connecticut and Rhode Island. The Company paid total consideration
of $7.0 million, utilizing borrowings under its Senior Credit Facility.
Additional consideration of up to $500,000 may be paid by the Company under an
earn-out agreement.
The Company financed its activities during the first nine months of 1997 with
$10.0 million in proceeds from the issuance of preferred stock, $8.0 million in
borrowings for the Total Care acquisition and $7.0 million in borrowings for the
CCI acquisition from its Senior Credit Facility. During the first nine months of
1997, the Company repaid approximately $34.5 under its Senior Credit Facility as
a result of the Offering, and paid approximately $462,000 in cash dividends to
preferred shareholders. Amounts repaid under the Senior Credit Facility are
available for re-borrowing.
14
<PAGE>
Following the Offering and the related decrease in debt, interest expense fell
from $2.7 million in the second quarter of 1997 to $1.8 million in the third
quarter of 1997, a decrease of 32%. Additionally, the Company's debt to capital
ratio went from 91.0% at June 30, 1997 to 37.2% at September 30, 1997.
As of September 30, 1997, the Company had $25.5 million outstanding under its
Senior Credit Facility. The Company has initiated discussions for the expansion
of the Senior Credit Facility from its current capacity of $65 million to $125
million, and anticipates closing of the amended agreement during the fourth
quarter of 1997.
The Company believes that operating cash flow and availability under the Senior
Credit Facility will be sufficient to finance its activities and to fund future
acquisitions.
15
<PAGE>
HEALTHCARE LEGISLATION
The Balanced Budget Act of 1997, (the "Act"), enacted in August 1997, has
targeted the Medicare program for reductions in spending growth of approximately
$9.2 billion for skilled nursing facilities over the next five years, primarily
through the implementation of a Medicare prospective payment system for skilled
services. The Medicare prospective rate, which reimburses for routine service,
ancillary and capital costs, will initially be a blended rate based on (i) a
facility-specific rate derived from each facility's 1995 cost report, adjusted
by an inflation factor and (ii) a federal per diem rate derived from all
hospital-based and free-standing (skilled nursing facility) 1995 cost reports,
adjusted for geographic wage-related costs, inflation and wages. The blended
rate will be further adjusted by a facility-specific case mix (acuity) index.
The exact amount of these adjustments has not yet been determined by the
Secretary of the Department of Health and Human Services.
The Medicare prospective payment system begins for cost reporting periods
starting on or after July 1, 1998. For the Company's facilities, the initial
year of the four-year phase in period will begin January 1, 1999. In 1999, the
blended rate will be based 75% on the facility-specific rate and 25% on the
federal per diem rate. In 2000, the prospective rate will be based 50% on the
facility-specific rate and 50% on the federal per diem rate and so on until the
year 2002 when the prospective rate will be 100% of the federal per diem rate.
Additionally, the Act imposes fee schedules or per beneficiary limitations on
outpatient supplies and services and requires consolidated billing for all
Medicare beneficiaries residing in a skilled nursing facility. The Company has
already taken steps to comply with the consolidated billing requirements. The
impact of per beneficiary limitations on outpatient therapy services could
adversely affect the Company's skilled nursing facility revenue and its therapy
revenue. Currently, the Company derives approximately 21% of its revenue from
Medicare at its long-term care facilities. Additionally, the Congressional
Budget Office has revised economic projections which include Medicaid cuts of
$2.4 billion to Medicaid long-term care providers over the next five years.
Currently, the Company derives approximately 36% of its revenues from Medicaid
at its long-term care facilities.
Management believes that, due to the cost structure at its facilities as
compared to other facilities in its markets, the Company's overall reimbursement
rates should not be lower than current rates and could possibly be higher.
However, until the rates are ultimately determined under the prospective payment
system, the Company will not be able to determine the exact nature or long term
financial impact of the legislative changes. The Company can give no assurance
that payments under such programs in the future will remain at a level
comparable to the present level or increase, and decreases in the level of
payments could have a material adverse effect on the Company.
Although management believes that a prospective pay system will benefit
companies, such as Centennial, that have sophisticated information systems
allowing them to track and document acuity levels and costs, there can be no
assurance that the Company will recognize any such benefits. The Company
currently operates in many states having Medicaid programs with acuity-based
reimbursement levels and incentives for efficient, quality operations. The
Company has effectively operated in these programs utilizing both its patient
care information systems, for the documentation of patient acuity levels for
maximum reimbursement, and its management information systems, to control
expenses. In many instances, the Company's revenues have increased under this
form of reimbursement although there can be no assurance that such results will
be achieved under the payment systems described above. Prior to the enactment of
the Act, the Company anticipated that regulation and market changes would
result in a flattening of growth of its third party contract therapy business.
The latest legislative changes do not alter the Company's views. During the
third quarter, the Company derived 9% of its total revenues from therapy
contracts with facilities for which the Company is not the operator.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As reported in the Company's Form 10-Q for the quarter ended June 30,
1997, the Company continues to actively defend against claims made in an action
filed in the United States District Court for the Southern District of Ohio on
October 6, 1995 by NPF IV, Inc. against Transitional Health Services, Inc.
("THS"). The Company merged with THS effective December 31, 1995. There have
been no material developments since the Company reported this legal proceeding
on the Company's Form 10-Q for the quarter ended June 30, 1997.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Pursuant to the Company's Registration Statement on Form S-1
(Registration No. 333-24267) effective July 2, 1997, the Company offered and
sold all of the 4,000,000 shares of the Company's Common Stock at a price of
$16.00 per share (the "Offering"). In connection with the Offering, the Company
granted the underwriters (managed by Alex. Brown & Sons, Incorporated) an option
to purchase up to 600,000 additional shares of the Company's Common Stock at
$16.00 per share. This option was exercised and closed on July 31, 1997.
Proceeds to the Company from the Offering and the exercise of the underwriters'
option totaled approximately $73,600,000 and were used approximately as follows:
Repayment of two subordinated promissory notes $25,300,000
Redemption of the Company's Series E Preferred Stock 5,000,000
Repurchase of approximately 84,000 shares of Common
Stock from former holders of the Company's
Series C Preferred Stock 1,300,000
Repayment of amounts due under the Company's Senior
Credit Facility with CoreStates Bank N.A. 35,300,000
Underwriting Discounts and Commissions 5,152,000
Offering Expenses 1,300,000
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
In May, the Company acquired TCC, a home health provider operating 25
offices, for $8.0 million, consisting of $6.0 million in cash utilizing its
borrowing under the Senior Credit Facility, and $2.0 million in the form of a
convertible promissory note. In August, the Company acquired substantially all
the business and assets of Complex Care, Inc., ("CCI"), a provider of physical,
occupational and speech therapy services through approximately 45 contracts with
long-term care facilities in Connecticut and Rhode Island. The Company paid
total consideration of $7.0 million, utilizing borrowings under its Senior
Credit Facility. Additional consideration of up to $500,000 may be paid by the
Company under an earn-out agreement.
17
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit
Number Description
------ -----------
11.1 Statement Regarding Computation of Per Share Earnings
27.1 Financial Data Schedule (for SEC use only)
99.1 Cautionary Statements
b) Reports on Form 8-K
None.
18
<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.
Date: November 14, 1997 CENTENNIAL HEALTHCARE CORPORATION
By: /s/ J. Stephen Eaton
______________________________________
J. Stephen Eaton, Chairman of the Board,
President and Chief Executive Officer
Date: November 14, 1997 By: /s/ Alan C. Dahl
______________________________________
Alan C. Dahl, Senior Vice President and
Chief Financial Officer
19
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
11.1 Statement Regarding Computation of Per Share Earnings
27.1 Financial Data Schedule (for SEC use only)
99.1 Cautionary Statements
<PAGE>
Exhibit 11.1
CENTENNIAL HEALTHCARE CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE:
Earnings:
Income before extraordinary loss, 744,484 3,383,255 1,673,538 6,507,791
accretion and dividends
on preferred stock
Extraordinary loss (net of tax) -- (537,009) -- (537,009)
----------- ----------- ----------- -----------
Income applicable to common stock 744,484 2,846,246 1,673,538 5,970,782
before accretion and dividends
on preferred stock
Accretion and dividends on preferred stock 648,296 4,654,419 1,592,248 5,873,040
----------- ----------- ----------- -----------
Income (loss) applicable to common stock 96,188 (1,808,173) 81,290 97,742
=========== =========== =========== ===========
Shares used in the computation:
Weighted average common shares outstanding 4,745,785 11,579,108 4,740,447 7,092,669
Dilutive effect of common stock equivalents 38,333 165,821 40,410 49,754
----------- ----------- ----------- -----------
Shares used in computing earnings (loss) per common
and common equivalent share: 4,784,118 11,744,929 4,780,857 7,142,423
=========== =========== =========== ===========
Primary earnings (loss) per common and
common equivalent share:
Income (loss) applicable to common stock 0.02 (0.11) 0.02 0.09
before extraordinary loss
Extraordinary loss on extinguishment of 0.00 (0.05) 0.00 (0.08)
debt ----------- ----------- ----------- -----------
Income (loss) applicable to common stock 0.02 (0.16) 0.02 0.01
=========== =========== =========== ===========
FULLY DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Income before extraordinary loss, 744,484 3,383,255 1,673,538 6,507,791
accretion and dividends
on preferred stock
Income due to assumed conversion of -- 24,400 -- 40,667
convertible debt (net of tax)
Extraordinary loss (net of tax) -- (537,009) -- (537,009)
----------- ----------- ----------- -----------
Income applicable to common stock 744,484 2,870,646 1,673,538 6,011,449
before accretion and dividends
on preferred stock
Accretion and dividends on preferred stock (a) 648,296 842,325 1,592,248 920,102
----------- ----------- ----------- -----------
Income applicable to common stock 96,188 2,028,321 81,290 5,091,347
=========== =========== =========== ===========
Shares used in the computation:
Weighted average common shares outstanding 4,745,785 11,579,108 4,740,447 7,092,669
Effect of common stock equivalents 38,333 400,195 40,410 1,915,059
----------- ----------- ----------- -----------
Shares used in computing earnings per common
and common equivalent share: 4,784,118 11,979,303 4,780,857 9,007,728
=========== =========== =========== ===========
Fully diluted earnings per common and
common equivalent share:
Income applicable to common stock 0.02 0.21 0.02 0.62
before extraordinary loss
Extraordinary loss on extinguishment of 0.00 (0.04) 0.00 (0.06)
debt ----------- ----------- ----------- -----------
Income applicable to common stock 0.02 0.17 0.02 0.56
=========== =========== =========== ===========
</TABLE>
(a) For the quarter and nine month periods ended September 30, 1996,
the assumed conversion of Series A and B was antidilutive, thus the
conversion of these shares was not included in the average outstanding
shares used in the computation of per share earnings and the
dividends and accretion associated with these shares was deducted from
net earnings (loss) applicable to common stock.
For the quarter and nine month periods ended September 30, 1997,
the assumed conversion of Series A and B, prior to the Offering date,
was antidilutive; however, in accordance with APB Opinion No. 15,
the assumed conversion of Series A and B was included in the average
outstanding shares used in the computation of per share earnings and
the dividends and accretion associated with these shares was not deducted
from net earnings (loss) applicable to common stock.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10Q PERIOD
ENDING SEPTEMBER 30 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 6,265,809 6,265,809
<SECURITIES> 0 0
<RECEIVABLES> 62,533,761 62,553,761
<ALLOWANCES> 2,200,000 2,200,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 79,336,363 79,336,363
<PP&E> 78,561,458 78,561,458
<DEPRECIATION> (9,871,684) (9,871,684)
<TOTAL-ASSETS> 224,055,040 224,055,040
<CURRENT-LIABILITIES> (48,747,987) (48,747,987)
<BONDS> 0 0
0 0
0 0
<COMMON> (118,813) (118,813)
<OTHER-SE> (109,688,602) (109,688,602)
<TOTAL-LIABILITY-AND-EQUITY> (224,055,040) (224,055,040)
<SALES> 0 0
<TOTAL-REVENUES> (81,945,909) (218,119,603)
<CGS> 0 0
<TOTAL-COSTS> 74,623,538 200,159,575
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 50,745 347,296
<INTEREST-EXPENSE> 1,806,639 7,094,696
<INCOME-PRETAX> (5,673,020) (11,042,217)
<INCOME-TAX> 2,212,477 4,306,464
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 537,009 537,009
<CHANGES> 0 0
<NET-INCOME> (2,846,246) (5,970,782)
<EPS-PRIMARY> 0.16 (0.01)
<EPS-DILUTED> (0.17) (0.56)
</TABLE>
<PAGE>
EXHIBIT 99.1
CAUTIONARY STATEMENTS 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 risks, uncertainties and other
factors could cause such material differences 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 or to
profitably operate or successfully integrate acquired operations 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 health care system, including the Balanced
Budget Act of 1997, changes in reimbursement levels 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.
<PAGE>
7. The Company's ability to secure the capital and the related costs 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 health care personnel (including administrators), 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 health care and
changes in the regulatory system in the states in which the Company
operates that facilitate such competition.
11. The continued availability of insurance for the inherent risks of
liability of providing services in the health care industry.
12. Price increases in medical supplies, 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
health care coverage.
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.
