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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 1, 1999
CENTENNIAL HEALTHCARE CORPORATION
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(Exact name of registrant as specified in its charter)
Georgia 000-22771 58-1839701
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation Identification No.)
400 Perimeter Center Terrace, Suite 650, Atlanta, Georgia 30346
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(Address of principal executive offices) (Zip Code)
(770) 698-9040
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(Registrant's telephone number, including area code)
Not applicable
(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets
------------------------------------
Effective January 1, 1999 (the "Effective Date"), Centennial HealthCare
Corporation ("Centennial") completed its acquisition of certain of the assets of
Thomas J. Flatley and Charlotte Flatley d/b/a Flatley Rehabilitation & Nursing
Centers ("Seller"), comprising six skilled nursing facilities, with a total of
795 licensed, available beds, located in the metropolitan Boston area pursuant
to a Purchase and Sale Agreement, dated as of September 2, 1998. Centennial used
funds available under the lease component of its Senior Credit Facility with
NationsBank, N.A. and First Union, N.A. as lenders and agents for the other
lenders to pay the $64.0 million purchase price in cash. The consideration paid
was determined through arms-length negotiations between representatives of
Centennial and Seller. Seller used the acquired physical assets in its operation
of the facilities as skilled nursing facilities and Centennial will continue to
use such assets in such manner. A complete description of the acquisition is
contained in the Purchase Agreement attached as Exhibit 2.1 to the Company's
Form 8-K dated January 15, 1999, which is incorporated herein by this reference.
The above acquisition was previously reported on the Company's current
report on Form 8-K dated January 15, 1999. This filing provides the required
audited financial information.
Item 7. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements of Business Acquired.
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REPORT OF INDEPENDENT ACCOUNTANTS
March 15, 1999
To the Flatley Rehabilitation and Nursing Centers
In our opinion, the accompanying combined balance sheet of Flatley
Rehabilitation and Nursing Centers (consisting of six skilled nursing facilities
owned by Thomas J. and Charlotte Flatley doing business as Flatley
Rehabilitation and Nursing Centers) and the related statement of operations and
owner's equity, and cash flows present fairly, in all material respects, the
combined financial position of Flatley rehabilitation and Nursing Centers as of
December 31, 1998, and the results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.
These combined financial statements are the responsibility of Flatley
Rehabilitation and Nursing Centers' management; our responsibility is to express
an opinion on these combined financial statements based on our audit. We
conducted our audit of these combined financial statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the combined financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the combined
financial statements, assessing the accounting principles used and significant
estimates made by management, and assessing the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
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FLATLEY REHABILITATION AND NURSING CENTERS
Combined Balance Sheet
December 31, 1998
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ASSETS
Current assets
Cash....................................... $ 8,125
Patient accounts receivable and
third-party payor settlements,
net of allowance for doubtful
accounts of $1,200,000................... 5,088,827
Prepaid expenses and other current
assets................................... 101,571
-----------
Total current assets................... 5,198,523
Property and equipment, net.................. 9,692,948
-----------
Total assets........................... $14,891,471
===========
LIABILITIES AND OWNER'S EQUITY
Current liabilities
Accounts payable and accrued expenses...... $ 607,291
Accrued payroll............................ 1,092,045
Accrued workers' compensation.............. 200,000
Deferred revenue........................... 355,325
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Total current liabilities.............. 2,254,661
Commitments and contingencies................ -
Owner's equity............................... 12,636,810
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Total liabilities and owner's equity... $14,891,471
===========
The accompanying notes are an integral part of these combined financial
statements.
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FLATLEY REHABILITATION AND NURSING CENTERS
Combined Statement of Operations and Owner's Equity
For the Year Ended December 31, 1998
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Revenues
Net patient service revenues................. $39,267,440
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Operating Expenses
Facility operating expenses
Salaries, wages and benefits............... 23,450,159
Other operating expenses................... 8,337,062
Management fee............................... 1,488,289
Depreciation................................. 863,414
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Total operating expenses................. 34,138,924
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5,128,516
Other expense
Interest expense............................. 303,985
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Net income............................... 4,824,531
Owner's equity, beginning of year............ 6,444,227
Net contributions from owner................... 1,368,052
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Owner's equity, end of year............ $12,636,810
===========
The accompanying notes are an integral part of these combined financial
statements.
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FLATLEY REHABILITATION AND NURSING CENTERS
Combined Statement of Cash Flows
For the Year Ended December 31, 1998
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<TABLE>
<S> <C>
Operating activities
Net income........................................................... $ 4,824,531
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation..................................................... 863,414
Provision for doubtful accounts.................................. 265,000
Change in assets and liabilities
Patient accounts receivable and thirty-party settlements....... (1,767,466)
Prepaid expenses and other current assets...................... 31,778
Accounts payable and accrued expenses.......................... (350,338)
Accrued payroll................................................ 66,944
Deferred revenue............................................... (75,938)
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Cash provided by operating activities............................ 3,857,925
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Investing activities
Purchases of property and equipment.................................. (671,693)
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Financing activities
Net contributions from owner......................................... 1,368,052
Principal payments on long-term debt................................. (4,552,159)
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Cash used in financing activities................................ (3,184,107)
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Net increase in cash................................................... 2,125
Cash, beginning of period.............................................. 6,000
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Cash, end of period.................................................... $ 8,125
===========
Supplemental disclosure
Interest paid........................................................ $ 303,985
===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
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FLATLEY REHABILITATION AND NURSING CENTERS
Notes to Combined Financial Statements
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY
The Flatley Rehabilitation and Nursing Centers (the Company), consists of
six skilled nursing facilities (the Facilities) which are owned under a sole
proprietorship of Mr. Thomas J. and Charlotte Flatley doing business as the
Company, organized under the laws of the State of Massachusetts. The
Facilities' principal business is to provide basic and specialty healthcare
services to patients in a post acute setting. The Facilities are located in
the Boston metropolitan area and have a total of 795 licensed available
beds.
Effective December 31, 1998, substantially all of the assets and outstanding
liabilities of the Facilities were purchased by two unrelated third-parties
pursuant to a Purchase and Sale Agreement, dated as of September 2, 1998,
for $67.8 million.
BASIS OF PRESENTATION
The combined financial statements include the accounts of the Flatley
Rehabilitation and Nursing Centers known as Charlwell House, Hollywell,
Kathleen Daniel, Kimwell, Milton Health Care and Parkwell. The combined
financial statements do not include the accounts or operations of the
Flatley Company, an affiliated company owned by Thomas J. Flatley, or its
owners that are not associated with the Facilities.
REVENUES
Revenues to be received from patients at the long-term care facilities are
recorded at established billing rates. Amounts received from patients in
advance of the related services are recognized as deferred revenue in the
combined balance sheet. Revenues to be reimbursed by contracts with third-
party payors, primarily Medicare and Medicaid programs, are recorded at the
amount estimated to be realized under these contractual arrangements.
Revenues from Medicare and Medicaid are generally based on reimbursement of
allowable costs of providing services to program beneficiaries. The
Facilities estimate amounts due from third-party payors and record the
revenue in the period services are rendered. Amounts ultimately payable by
Medicare and Medicaid are determined based on annual cost reports which are
subject to audit and retroactive adjustment by the payor. Changes in
estimated revenues due in connection with Medicare and Medicaid may be
recorded by the Facilities subsequent to the year of origination and prior
to final settlement based on improved estimates. Differences between
estimated amounts due from the Medicare and Medicaid programs and ultimate
settlements with these programs are recognized in the year of final
settlement.
Accounts receivable, net, at December 31, 1998 includes $4,612,839 of
amounts due from Medicare and Medicaid programs.
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FLATLEY REHABILITATION AND NURSING CENTERS
Notes to Combined Financial Statements
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The Facilities are not aware of any material claims, disputes, or other
unsettled matters related to third-party reimbursements, other than those
reflected on its balance sheet, and believe retroactive adjustments related to
these receivables will not be material.
CONCENTRATIONS
A significant portion of the Facilities' revenues are derived from the Medicare
and Medicaid programs. The Balanced Budget Act of 1997, (the "Act"), enacted
in August 1997, has targeted the Medicare program for reductions in spending
growth over the next five years, primarily through the implementation of a
Medicare prospective payment system for skilled services. In addition to the
Act, there have been, and the Facilities expect that there will continue to be,
a number of additional proposals to limit reimbursements to long-term care
facilities under the Medicare and Medicaid programs. The Facilities cannot
predict whether any of these additional proposals will be adopted, or if adopted
and implemented, what effect such proposals would have on the Company.
Approximately 62.7% of the Facilities' total revenues for the year ended
December 31, 1998, are from the Medicare and Medicaid programs.
FACILITY OPERATING EXPENSES
Facility operating expenses include direct operating costs at the facility
level. The majority of these costs consist of payroll and employee benefits
related to nursing, housekeeping and dietary services provided to patients, as
well as maintenance and administration of the facilities. Other significant
facility operating expenses include medical and pharmacy supplies, food,
utilities, and the cost of rehabilitation therapies.
INCOME TAXES
The Facilities are treated as sole proprietorships for tax purposes. Any income
tax liability is passed through to Mr. Thomas J. and Charlotte Flatley. Thus, no
provision for income taxes has been recorded in the combined financial
statements.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is computed by the straight-line method over the estimated useful
lives of ten years for equipment and furniture and 20 to 30 years for buildings
and improvements.
ASSESSMENT OF LONG-LIVED ASSETS
The Facilities periodically review the carrying values of their long-lived
assets (primarily property and equipment) whenever events or circumstances
provide evidence that suggest that the carrying amount of long-lived assets may
not be recoverable. If this review indicates that long-lived assets may not be
recoverable, the Facilities review the expected undiscounted future net
operating cash flows, as well as valuations obtained in connection with various
refinancings. Any permanent impairment in value is recognized as a charge
against earnings in the statement of operations. As of December 31, 1998, the
Facilities do not believe there is any indication that the amortization period
of their long-lived assets needs to be adjusted.
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FLATLEY REHABILITATION AND NURSING CENTERS
Notes to Combined Financial Statements
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USE OF ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. OPERATING LEASES
The Facilities lease certain equipment under noncancelable operating
leases. Minimum future rent payments under these leases are summarized as
follows:
YEAR AMOUNT
1999 $20,338
2000 5,029
2001 1,960
2002 164
2003 -
Thereafter -
-------
$27,491
=======
Rent expense under these operating lease agreements totaled $28,056 for the
year ended December 31, 1998.
3. TOTAL REVENUE
The distribution of total revenue by class of payor for the year ended
December 31, 1998 is as follows:
CLASS OF PAYOR
Private pay $14,621,491
Medicaid 19,724,605
Medicare 4,921,344
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$39,267,440
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The above revenue amounts are net of third-party contractual allowances of
$16,800,914.
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FLATLEY REHABILITATION AND NURSING CENTERS
Notes to Combined Financial Statements
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4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1998:
Land $ 1,038,617
Buildings and improvements 12,491,097
Furniture and equipment 4,736,846
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18,266,560
Less accumulated depreciation (8,573,612)
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$ 9,692,948
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Depreciation expense for the year ended December 31, 1998, totaled
$863,414.
5. LONG-TERM DEBT
The Facilities had mortgage debt outstanding totaling $4,552,159 at
December 31, 1997. In anticipation of the disposition of the Facilities as
described in Note 1, the mortgage debt was paid in full on December 31,
1998.
6. TRANSACTIONS WITH RELATED PARTIES
During 1998, the Flatley Company provided operational management services
for the Facilities which includes corporate office support and treasury
functions. The Facilities reimburse the Flatley Company for all direct and
allocated expenses on a monthly basis. Fees totaling $1,488,289 were paid
by the Facilities to the Flatley Company during 1998.
In connection with the treasury function support provided to the
Facilities, the Flatley Company maintains a centralized cash management
system whereby all of the revenues received by the Facilities are
transferred to the Flatley Company. The operating expenses and other
cash needs of the Facilities are funded by the Flatley Company's
centralized cash balances. These transactions are reflected in the
combined financial statements as net contributions to and from owner. The
owner's equity at December 31, 1998 is net of cumulative contributions to
the Flatley Company totaling $48,520,049.
7. COMMITMENTS AND CONTINGENCIES
The Facilities are self-insured for workers' compensation for their
employees. The Facilities recognized as an expense and accrued for
estimated workers' compensation claims incurred but not reported as of
December 31, 1998.
8. CONCENTRATIONS OF CREDIT RISK
The Flatley Company maintains its cash in bank deposit accounts, which, at
times, may exceed federally incurred limits. Neither the Flatley Company
nor the Facilities have
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FLATLEY REHABILITATION AND NURSING CENTERS
Notes to Combined Financial Statements
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experienced any losses in such accounts. The Facilities believe they are
not exposed to any significant credit risk on these cash balances.
9. EMPLOYEE BENEFITS
The Facilities, through the Flatley Company, have 401(k) savings plans
available to substantially all their employees depending on their length
of service. Employees may defer up to 16% of their salary, subject to the
maximum permitted by law. The Flatley Company matches employee
contributions in accordance with the terms of the plan. The Facilities
incurred $265,310 during 1998 as a match to the employee contributions.
The Facilities, through the Flatley Company, have an employee profit
sharing plan available to substantially all their employees depending on
their length of service. On an annual basis, the Facilities contribute
two percent of each employee's gross salaries and wages for the year into
a trust fund held for the employee's benefit. The Facilities incurred
$108,327 during 1998 in connection with the employee profit sharing plan.
10. 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 (PPS) for skilled services. The PPS per diem, which would
cover routine service, ancillary and capital related 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 cost reports, adjusted for
case mix and geographic variations in labor costs. The blended rate will
be further adjusted by a facility-specific case mix (acuity) index.
The Facilities 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 Facilities. During the year ended December 31, 1998,
the Facilities derived approximately 12.5% of its revenues from Medicare.
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(b) Pro Forma Financial Information.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED CONDENSED FINANCIAL STATEMENT
Following is an Unaudited Pro Forma Combined Consolidated Condensed Statement of
Operations for Centennial HealthCare Corporation ("CHC") for the year ended
December 31, 1998. Such Unaudited Pro Forma Combined Consolidated Condensed
Financial Statement includes historical amounts for CHC, adjusted to reflect the
acquisition through leases of six nursing facilities in Massachusetts (the
"Flatley Acquisition"). Reference is made to the Notes to the Unaudited Pro
Forma Combined Consolidated Condensed Financial Statement for a discussion of
this transaction. For purposes of preparing the Unaudited Pro Forma Combined
Consolidated Condensed Income Statement for the year ended December 31, 1998,
the transaction is considered to have occurred on January 1, 1998.
Certain data and notes normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. The Unaudited Pro Forma Combined Consolidated Condensed Financial
Statement does not purport to present the results of operations of CHC had the
Flatley Acquisition actually been completed as of the date indicated. In
addition, the Unaudited Pro Forma Combined Consolidated Condensed Financial
Statement is not necessarily indicative of the future results of operations of
CHC and the accompanying Unaudited Pro Forma Combined Consolidated Condensed
Financial Statement and notes thereto should be read in conjunction with CHC's
Consolidated Financial Statements for the year ended December 31, 1998, which
will be filed on CHC's Form 10K by March 31, 1999.
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Centennial HealthCare Corporation
Proforma Combined Consolidated Condensed Statement of Operations
For the Year Ended December 31, 1998
(Unaudited, dollars in thousands, except earnings per share)
<TABLE>
<CAPTION>
Flatley Pro Forma Pro Forma
CHC (1) Historical Adjustments Combined CHC
--------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues $359,645 $39,268 $ - $398,913
Expenses 345,862 34,139 5,850 2 385,851
--------- ------- ------- --------
Operating and other income 13,783 5,129 (5,850) 13,062
Interest expense, net 7,154 304 (151) 3 7,307
--------- ------- ------- --------
Income before provision (benefit)
for income taxes 6,629 4,825 (5,699) 5,755
Provision (benefit) for income taxes 2,585 - (341) 4 2,244
--------- ------- ------- --------
Net income $ 4,044 $ 4,825 $(5,358) $ 3,511
========= ======= ======= ========
Net income per common and common equivalent share:
Basic $ 0.29
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Diluted $ 0.29
========
Weighted average number of common stock and
common stock equivalents outstanding (In thousands)
Basic 11,906
========
Diluted 12,078
========
See notes to unaudited pro forma combined consolidated condensed financial statement
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</TABLE>
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NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED CONDENSED FINANCIAL
STATEMENT
On September 2, 1998, CHC executed definitive agreements to acquire through
leases six nursing facilities in Massachusetts. These lease agreements were
effective January 1, 1999. In connection with the lease transactions CHC did not
acquire any assets or liabilities other than the patient accounts receivable and
employee related liabilities which were acquired on December 31, 1998. An
Unaudited Pro Forma Combined Consolidated Condensed Balance Sheet has not been
presented since the assets acquired and liabilities assumed are included in
CHC's historical consolidated balance sheet as of December 31, 1998.
1. The historical statements of operations of CHC for the year ended December
31, 1998 includes a loss on closure of nursing facility and provision for
asset revaluation totaling $16.1 million.
2. Reflects lease expense of $5.4 million annually on the Flatley facilities
plus additional corporate administrative costs of $350,000 associated with
management of the six nursing facilities and amortization of intangibles in
connection with the net assets acquired totaling $60,000.
On December 31, 1998, CHC acquired the patient accounts receivable and
assumed the employee related liabilities in connection with the lease
transaction for a total net purchase price of $3.8 million. The transaction
was accounted for under the purchase method where the assets acquired and
liabilities assumed are stated at their fair value. The excess of the
purchase price over the fair value of the identified assets acquired and
total liabilities assumed, totaled $1.2 million.
The excess of the purchase price over the fair value of identified assets
acquired and liabilities assumed is amortized over a 20 year period. CHC
will perform a more extensive review of the intangible assets and reevaluate
the amortization period.
3. Represents the elimination of the historical Flatley interest expense as
the related long-term debt was paid in full on December 31, 1998 plus
interest expense that will be incurred to fund the current operations of the
Flatley facilities.
4. Reflects federal and state income tax affect pro forma adjustments at a
blended effective rate of 39%.
(c) Exhibits.
None.
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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.
CENTENNIAL HEALTHCARE CORPORATION
(Registrant)
Date: March 17, 1999 By: /s/ ALAN C. DAHL
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Alan C. Dahl, Executive Vice President
and Chief Financial Officer
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