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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
--------------
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
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CENTENNIAL HEALTHCARE CORPORATION
---------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1839701
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) (identification No.)
400 Perimeter Center Terrace, Suite 650, Atlanta, Georgia 30346
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 770-698-9040
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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 11,923,618 shares of Common Stock outstanding as of May 5, 1998
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CENTENNIAL HEALTHCARE INC
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
INDEX
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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ITEM I - FINANCIAL STATEMENTS
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
March 31, December 31,
1998 1997
--------- ------------
ASSETS
Current assets:
Cash and cash equivalents ........................... $ 3,626 $ 4,011
Patient accounts receivable and
third-party payor settlements, net of
allowance for doubtful accounts of
approximately $3,100 and $3,000.................... 79,372 72,222
Other receivables ................................... 24,165 14,612
Deferred income taxes ............................... 2,511 2,511
Prepaid expenses and other current assets ........... 2,978 1,259
-------- --------
Total current assets .............................. 112,652 94,615
Property and equipment, net.......................... 75,592 74,379
Intangible assets, net .............................. 50,862 51,331
Notes receivable and other assets ................... 22,832 23,324
-------- --------
Total assets....................................... $261,938 $243,649
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ............ $ 39,941 $ 40,785
Other current liabilities............................ 8,524 8,270
-------- --------
Total current liabilities.......................... 48,465 49,055
Long-term debt, less current maturities............... 93,892 78,913
Other long-term liabilities .......................... 2,531 2,577
-------- --------
144,888 130,545
Commitments and contingencies
Shareholders' equity:
Common stock with par value of $.01; 50,000,000
shares authorized; 11,877,645 and 11,862,320
shares issued and outstanding ..................... 119 119
Paid-in capital ..................................... 101,419 101,299
Retained earnings.................................... 16,040 12,214
-------- --------
117,578 113,632
Note receivable from shareholder...................... (528) (528)
-------- --------
Net shareholders' equity .......................... 117,050 113,104
-------- --------
Total liabilities and shareholders' equity ........ $261,938 $243,649
======== ========
See accompanying notes to condensed consolidated financial statements.
3
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CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months
Ended March 31,
--------------------
1998 1997
------- -------
Revenues:
Net patient service revenues.......................... $83,379 $62,372
Management fees and other revenues.................... 3,693 1,863
------- -------
Total revenues....................................... 87,072 64,235
------- -------
Expenses:
Facility operating expenses:
Salaries, wages and benefits......................... 41,572 33,273
Other operating expenses............................. 24,698 16,399
Lease expense......................................... 5,409 5,083
Corporate administrative costs ....................... 4,943 3,368
Depreciation and amortization ........................ 2,283 1,521
------- -------
Total operating expenses ............................ 78,905 59,644
------- -------
8,167 4,591
------- -------
Other income (expense):
Interest income ...................................... 121 148
Interest expense ..................................... (1,913) (2,629)
------- -------
Total other expense ................................. (1,792) (2,481)
------- -------
6,375 2,110
Provision for income taxes ............................ 2,486 796
------- -------
Income before minority interest
and extraordinary loss ............................. 3,889 1,314
Minority interest in net income
of subsidiary, net of income taxes ................. (63) (74)
------- -------
Net income .......................................... 3,826 1,240
Dividends and accretion on preferred stock............. - 786
------- -------
Income applicable to common stock...................... $ 3,826 $ 454
======= =======
Income applicable to common stock
per common stock and common stock
equivalent share:
Basic ................................................ $ 0.32 $ 0.09
======= =======
Diluted .............................................. $ 0.32 $ 0.09
======= =======
Weighted average number of common stock and
common stock equivalents outstanding:
Basic ................................................ 11,866 4,789
======= =======
Diluted .............................................. 12,202 4,827
======= =======
See accompanying notes to condensed consolidated financial statements.
4
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CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Note
Common Stock Receivable
--------------- Paid-in Retained from
Shares Amount Capital Earnings Shareholder Net
------- ------- ------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997.... 11,862 $119 $101,299 $12,214 $(528) $113,104
Exercise of stock options....... 15 - 120 - - 120
Net income...................... - - - 3,826 - 3,826
------ ---- -------- ------- ----- --------
Balance at March 31, 1998....... 11,877 $119 $101,419 $16,040 $(528) $117,050
====== ==== ======== ======= ===== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Three Months
Ended March 31,
--------------------
1998 1997
------- -------
Operating Activities:
Net income............................................ $ 3,826 $ 1,240
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization....................... 2,283 1,521
Amortization of discount on subordinated debt....... - 22
Deferred income taxes............................... - 690
Consulting expenses offset against
note receivable................................... 31 31
Minority interest .................................. 103 74
Provision for doubtful accounts..................... 152 146
Change in assets and liabilities:
Accounts receivable............................... (7,303) (3,843)
Prepaid expenses and other assets................. (5,206) 12
Accounts payable, accrued liabilities and
other current liabilities....................... (391) (3,348)
Other ............................................ (11) 165
------- -------
Cash used in operating activities............... (6,516) (3,290)
------- -------
Investing Activities:
Purchases of property and equipment................... (2,553) (876)
Notes and advances receivable, net of repayments ..... (6,046) -
Other ................................................ (220) (1,064)
------- -------
Cash used in investing activities .............. (8,819) (1,940)
------- -------
Financing Activities:
Proceeds from issuance of preferred stock ............ - 10,000
Proceeds from the exercise of stock options .......... 120 9
Proceeds from borrowings ............................. 15,200 -
Distributions paid to minority partners .............. (74) (74)
Payments of dividends to preferred shareholders....... - (85)
Borrowings from related party, net of repayments...... (75) 332
Principal payments on long-term debt.................. (221) (475)
------- -------
Cash provided by financing activities........... 14,950 9,707
------- -------
Net increase (decrease) in cash and cash equivalents... (385) 4,477
Cash and cash equivalents, beginning of period......... 4,011 6,030
------- -------
Cash and cash equivalents, end of period............... $ 3,626 $10,507
======= =======
See accompanying notes to condensed consolidated financial statements.
6
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CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
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 statement 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, 1997
and notes thereto contained in Centennial HealthCare Corporation's Annual Report
on Form 10-K filed with the Securities and Exchange Commission (Commission File
No. 001-35118).
The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1998 or any interim period.
Certain amounts in the 1997 financial statements have been reclassified for
comparative purposes.
NOTE 2--MANAGEMENT AGREEMENTS
During the first quarter of 1998, Centennial HealthCare Corporation
("Centennial" or the "Company"), entered into management agreements
for six skilled nursing facilities, with a total of 836 licensed available beds,
located in North Carolina. The agreements each have a five-year term, and
provide the Company with a right of first refusal to purchase the related
facilities.
Also in the first quarter of 1998, the Company entered into a management
agreement for a 59-bed rural hospital in northern Florida. The agreement has an
initial term of three years with a subsequent renewal option and provides the
Company with a right of first refusal to purchase the facility. The Company has
also agreed to provide the lessor of the facility with a revolving working
capital line of credit of up to $500,000.
NOTE 3--EARNINGS PER SHARE
The calculation of earnings per share (EPS) is as follows (in thousands,
except per share amounts):
Three Months Ended
March 31,
1998 1997
------- ------
Income before dividends and accretion on preferred stock..... $ 3,826 $1,240
Deduct: dividends and accretion of preferred stock........... - 786
------- ------
Income applicable to common stock............................ 3,826 454
======= ======
Weighted average common shares outstanding................... 11,866 4,789
======= ======
BASIC EARNINGS PER COMMON SHARE.............................. $ 0.32 $ 0.09
======= ======
Income applicable to common stock............................ 3,826 454
Interest savings on convertible debt (net of tax)............ 24 -
------- ------
Income applicable to common stock............................ 3,850 454
======= ======
Weighted average common shares outstanding................... 11,866 4,789
Dilutive effect of stock options............................. 336 38
------- ------
Shares applicable to diluted EPS............................. 12,202 4,827
======= ======
DILUTED EARNINGS PER COMMON SHARE............................ $ 0.32 $ 0.09
======= ======
NOTE 4--RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information", (SFAS No.
131). SFAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual and interim
financial statements. SFAS No. 131 is required to be applied beginning with the
Company's 1998 annual financial statements. The Company has not yet determined
the effect, if any, of this statement on its consolidated financial statements.
7
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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 three-month
period ended March 31, 1998 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 Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements include
statements regarding the intent, belief or current expectations of Centennial
HealthCare Corporation and members of its management team. Management cautions
that a variety of factors could cause Centennial HealthCare's actual results to
differ materially from the anticipated results expressed in such Forward-Looking
Statements. Important factors currently known to management that could cause
actual results to differ materially from those in Forward-Looking Statements are
set forth in Centennial HealthCare's cautionary statements regarding Forward-
Looking Statements (Exhibit 99.1 to this report), which statements are
incorporated herein by reference.
RESULTS OF OPERATIONS
Centennial's revenues and earnings for the three-month period ended March 31,
1998 as compared to the same period for 1997 continued to grow from both
expansion and increases in current operations and as a result of acquisitions.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
NET PATIENT SERVICE REVENUES. Net patient service revenues increased from $62.4
million in the first quarter of 1997 to $83.4 million in the same period in
1998, an increase of $21.0 million or 33.7%. Total revenues associated with
Total Care Consolidated, Inc., ("TCC"), which the Company acquired in May 1997,
approximated $6.7 million during the first quarter of 1998. In August 1997, the
Company acquired substantially all of 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. Total
revenues associated with the CCI contracts approximated $4.2 million in the
first quarter of 1998. In March and June 1997, the Company began operating two
rural hospitals (the "Hospitals"), located in northern Florida. For the first
quarter of 1998, revenues associated with the Hospitals approximated $2.7
million. In December 1997, Centennial acquired a 58-bed skilled nursing
facility in Florida, (the "Florida Facility"), which had previously been managed
by the Company since June 1991. Total revenues associated with the Florida
Facility approximated $883,000 in the first quarter of 1998. The remaining
increase of $6.5 million was attributable to growth in existing facility
revenues and therapy contract revenues. The increase in existing facility
revenues during 1997 of approximately $4.3 million resulted primarily from an
increase in the quality revenue mix of the facilities due to increasing
admissions of higher acuity
8
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patients and from the increase in the delivery of specialty services. The
Company also experienced general rate increases at its nursing facilities which
increased patient service revenues in the first quarter of 1998 compared to the
same period in 1997. The increase in revenues at the Company's subsidiary
providing therapy services of approximately $2.2 million resulted from the net
addition of 17 rehabilitation therapy services contracts.
MANAGEMENT FEES AND OTHER REVENUES. Management fees and other revenues
increased from $1.9 million in the first quarter of 1997 to $3.7 million in the
first quarter of 1998, an increase of $1.8 million, or 98.2%, which was
attributable primarily to the addition of facility management agreements
subsequent to the first quarter of 1997 and revenue for the performance of
additional services to existing managed facilities.
FACILITY OPERATING EXPENSES. Facility operating expenses increased from $49.7
million in the first quarter of 1997 to $66.3 million in the same period in
1998, an increase of $16.6 million or 33.4%, of which TCC and the CCI therapy
contracts added approximately $6.4 million and $3.1 million, respectively, in
the first quarter of 1998 compared to the same period in 1997. The Hospitals
and the Florida Facility added $2.2 million and approximately $665,000 to
operating expenses, respectively, during the first quarter of 1998 compared to
1997. The Company's expenses from existing contract therapy services increased
$1.4 million in the first quarter of 1998 over the prior year period due
primarily to growth in therapy contracts. The remaining $2.8 million was
attributable primarily to an increase in costs at existing long-term care
facilities and to providing care for higher acuity patients in the first quarter
of 1998 as compared to the prior year period.
LEASE EXPENSE. Lease expense increased from $5.1 million in 1997 to $5.4
million in 1998, an increase of approximately $326,000, or 6.4%. The Hospitals
added approximately $90,000 in the first quarter of 1998 compared to the first
quarter of 1997. The remaining increase of approximately $236,000 was due
primarily to rent escalations in certain facility leases, which are tied to
increases in operating revenue and income.
CORPORATE ADMINISTRATIVE COSTS. Corporate administrative costs increased from
$3.4 million in 1997 to $4.9 million in 1998, an increase of $1.5 million, or
46.8%, which was due primarily to additional overhead incurred to accommodate
the expansion in therapy services contracts, including the acquisition of the
CCI contracts, the addition of long-term care facility management agreements,
and the acquisition of TCC and the Hospitals.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from
$1.5 million in the first quarter of 1997 to $2.3 million in the same period in
1998, an increase of approximately $762,000, or 50.1%, which was primarily
attributable to acquisitions and additional depreciation expense incurred as a
result of fixed asset purchases.
INTEREST EXPENSE. Interest expense decreased from $2.6 million in 1997 to $1.9
million in 1998, a decrease of approximately $716,000, or 27.2%, which was
primarily attributable to the repayment of $25.3 million of subordinated debt in
the third quarter of 1997, repayment of $35.1 million outstanding under the
Company's Second Amended and Restated Credit Facility with CoreStates Bank, N.A.
and NationsBank, N.A. as agents and lenders and the other lenders named therein
(the "Senior Credit Facility") in the third and fourth quarters of 1997, as a
result of the completion of the Company's initial public offering, (which
occurred in July 1997), and the increase in debt of approximately $44.0 million
related to borrowings for acquisitions and working capital.
9
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PROVISION FOR INCOME TAXES. The Company's effective tax rate increased from
37.7% in the first quarter of 1997 to 39.0% in the first quarter of 1998, an
increase in the rate of 1.3%. This increase was primarily attributable to an
anticipated increase in the Company's average state tax rate and a proportional
increase in non-deductible expenses for federal tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash during the first quarter of 1998 was
borrowings under its Senior Credit Facility. Cash was used by the Company for
capital improvements at several existing facilities, working capital advances
under arrangements with certain of the Company's managed 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 growth in operations of
its existing facilities, the expansion and development of specialty services,
and the acquisition or management of additional long-term care facilities and
related service providers.
Working capital increased from $45.6 million at December 31, 1997, to $64.2
million at March 31, 1998 primarily attributable to increases in patient
accounts receivable, working capital advances under arrangements with certain of
the Company's managed facilities, and annual deposits for the Company's 1998
insurance contracts. Patient accounts receivable increased from $72.2 million
at December 31, 1997 to $79.4 million at March 31, 1998, an increase of $7.2
million. Of this increase, approximately $3.5 million was due primarily to
increases in Medicare reimbursement rates at many of the Company's long-term
care facilities associated with the Company's continued expansion of specialty
services. Costs incurred under the Medicare program are reimbursed on a
retroactive basis, which extends the collection time of these receivables. In
addition, during the first quarter of 1998, the Company experienced a general
slow-down in payments from Medicare and several Medicaid payors resulting from
Medicare's expanded review of long-term care billing practices, delays in the
processing of non-resident eligibility documentation in the District of Columbia
and increases in payment turnover from previous levels at the Company's
facilities in Michigan. These factors resulted in an increase of approximately
$3.0 million in patient accounts receivable during the first quarter of 1998.
The balance of approximately $700,000 relates to general increases at the
facilities. Working capital advances under arrangements with certain of the
Company's managed facilities increased by approximately $6.1 million, and annual
deposits related to the Company's insurance contracts increased by approximately
$1.7 million in the first quarter of 1998.
The Company continued to invest in its leased and owned facilities through
capital expenditures of approximately $2.6 million or approximately $439 per bed
for the three-month period. These expenditures included the expansion of
existing facilities and the selected renovation of certain facilities.
During the first quarter of 1998, the Company borrowed $15.2 million in working
capital loans under the Senior Credit Facility which were utilized primarily to
finance capital expenditures at existing facilities and to provide working
capital. As of March 31, 1998, the Company had $56.5 million outstanding and
approximately $61.5 million available under its Senior Credit Facility, net of
issued standby letters of credit of approximately $7.0 million.
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.
10
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HEALTH CARE REFORM
The Balanced Budget Act of 1997, (the "Act"), enacted in August 1997, has
targeted the Medicare program for reductions in spending growth of approximately
$9.5 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 payment rate, which reimburses for routine
service, ancillary and capital costs, will initially be a blended rate based on
(i) a facility-specific payment 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 freestanding (skilled nursing facility) 1995 costs
reports, adjusted to remove geographic, wage-related, inflationary and case mix
differences between facilities. 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 released by the Secretary of the Department of Health and Human
Services.
Management believes that, due to the cost structure at its facilities in 1995
and its costs 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. During the first quarter of 1998, the Company derived 20% of its
revenues from Medicare at its long-term care facilities.
The Act has also targeted the Medicare home health program for reductions in
spending of approximately $16.2 billion over the next five years, also primarily
through the implementation of a prospective payment system. An interim payment
system ("IPS") will remain in effect until the new prospective payment system is
implemented for cost reporting periods beginning on or after October 1, 1999.
The interim payment system is effective for cost reporting periods beginning on
or after October 1, 1997. The Act requires home health agencies to be
reimbursed through IPS at the lesser of:
. Actual costs
. Per visit cost limits reduced to 105% of the median per visit costs for
freestanding home health agencies; or
. A new blended agency-specific per beneficiary annual limit applied to the
agency's unduplicated census count of Medicare patients and based on 98% of
fiscal year 1994 reasonable costs.
Implementation of these new limits could effectively reduce reimbursement 15-20%
according to industry experts. During the first quarter of 1998, the Company
derived 8% of its revenues from home health care.
Effective April 10, 1998, regulations were adopted by Health Care Financing
Administration which temporarily change the basis of reimbursement for contract
therapy services, including physical therapy, respiratory therapy, occupational
therapy and speech language pathology. These regulations impose regionally-
adjusted salary equivalency rates as reimbursement caps for occupational, speech
and physical therapy. In most locations the reduced rates have the effect of
11
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reducing the amount of reimbursement for a unit of occupational or speech
therapy and increasing the amount of reimbursement for a unit of physical
therapy. The Company believes that such rate reductions will be completely or
partially offset by cost reductions, changes in the method of delivering such
services and the addition of new therapy contracts. This salary equivalency
rate methodology for reimbursement effectively phases out with the
implementation of the prospective payment system for skilled nursing facilities
as summarized above. Due to these changes in operations and cost structure and
the relative size of the Company's therapy business, the Company does not expect
these reimbursement changes to have a material long-term adverse effect on the
Company. During the first quarter of 1998, the Company derived 14% of its
revenues contract therapy services.
12
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As of March 31, 1998, the Company did not have any pending legal
proceedings that separately or in the aggregate would be likely to
have a material adverse effect on the business or results of
operations of the Company. The Company is, and may be in the future,
party to litigation or administrative proceedings which arise in the
normal course of its business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
Effective January 1, 1998, Centennial entered into long-term
management agreements for six skilled nursing facilities, with a total
of 836 licensed available beds, located in eastern North Carolina.
Under the terms of these five year management agreements, the Company
will receive a management fee equal to 6.5% of each facility's
revenues. In addition, the Company entered into a management
agreement for a 59-bed rural hospital in northern Florida, where the
Company currently provides home health services and operates a nursing
home and two other rural hospitals.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1 Third Amended and Restated Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 of the
Company's Registration Statement on Form S-1, Registration
No. 333-24267, as amended)
3.2 Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 of the Company's Registration
Statement on Form S-1 Registration No. 333-24267, as
amended).
4.1 Third Amended and Restated Articles of Incorporation of the
Company, including without limitation Article III and
Article VII (incorporated by reference to Exhibit 3.1 of the
Company's Registration Statement on Form S-1, Registration
No. 333-24267, as amended).
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.
13
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 14, 1998 CENTENNIAL HEALTHCARE CORPORATION
By: /s/ J. Stephen Eaton
----------------------------------------
J. Stephen Eaton, Chairman of the Board,
President and Chief Executive Officer
Date: May 14, 1998
By: /s/ Alan C. Dahl
----------------------------------------
Alan C. Dahl, Executive Vice President
and Chief Financial Officer
14
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Third Amended and Restated Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 of the
Company's Registration Statement on Form S-1, Registration
No. 333-24267, as amended)
3.2 Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 of the Company's Registration
Statement on Form S-1 Registration No. 333-24267, as
amended).
4.1 Third Amended and Restated Articles of Incorporation of the
Company, including without limitation Article III and
Article VII (incorporated by reference to Exhibit 3.1 of the
Company's Registration Statement on Form S-1, Registration
No. 333-24267, as amended).
11.1 Statement Regarding Computation of Per Share Earnings
27.1 Financial Data Schedule (For SEC use only)
99.1 Cautionary Statements
15
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EXHIBIT 11.1
CENTENNIAL HEALTHCARE CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
------- ------
Income before dividends and accretion on preferred stock..... $ 3,826 $1,240
Deduct: dividends and accretion of preferred stock........... - 786
------- ------
Income applicable to common stock............................ 3,826 454
======= ======
Weighted-average common shares outstanding................... 11,866 4,789
======= ======
BASIC EARNINGS PER COMMON SHARE.............................. $ 0.32 $ 0.09
======= ======
Income applicable to common stock............................ 3,826 454
Interest savings on convertible debt (net of tax)............ 24 -
------- ------
Income applicable to common stock............................ 3,850 454
======= ======
Weighted-average common shares outstanding................... 11,866 4,789
Dilutive effect of stock options............................. 336 38
------- ------
Shares applicable to diluted EPS............................. 12,202 4,827
======= ======
DILUTED EARNINGS PER COMMON SHARE............................ $ 0.32 $ 0.09
======= ======
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10Q PERIOD
ENDING MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,626
<SECURITIES> 0
<RECEIVABLES> 106,637
<ALLOWANCES> (3,100)
<INVENTORY> 0
<CURRENT-ASSETS> 112,652
<PP&E> 87,533
<DEPRECIATION> (11,941)
<TOTAL-ASSETS> 261,938
<CURRENT-LIABILITIES> (48,465)
<BONDS> (93,892)
0
0
<COMMON> (119)
<OTHER-SE> (116,931)
<TOTAL-LIABILITY-AND-EQUITY> (261,938)
<SALES> 0
<TOTAL-REVENUES> (87,072)
<CGS> 0
<TOTAL-COSTS> 78,753
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 152
<INTEREST-EXPENSE> 1,913
<INCOME-PRETAX> (6,375)
<INCOME-TAX> 2,486
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,826)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</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
Section 27A of the Securities Act of 1933, as amended (the "1933 Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "1934 Act").
The Company desires to take advantage of certain "safe harbor" provisions of the
1933 Act and 1934 Act and is including this reference to enable the Company to
do so. Forward-looking statements included in this Form 10-Q or in documents
incorporated by reference, 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 continue 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.
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. Changes in federal or state legislation or budgetary controls that may
negatively impact the amount and method of Medicaid payments, especially in
North Carolina, Michigan and Indiana, in which states a majority of the
Company's facilities are located.
10. 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.
<PAGE>
11. 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.
12. The continued availability of insurance for the inherent risks of liability
of providing services in the health care industry.
13. Price increases in medical supplies, durable medical equipment and other
items.
14. The Company's reputation for delivering high-quality care and its ability
to attract and retain patients, including patients with relatively high acuity
levels.
15. 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.
