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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 333-43549
EXTENDICARE HEALTH SERVICES, INC.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
DELAWARE 8051 98-0066268
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
111 WEST MICHIGAN STREET
MILWAUKEE, WI 53203-2903
(Address of Principal Executive Offices and Zip Code)
(414) 908-8000
(Registrant's telephone number, including area code)
SEE TABLE OF ADDITIONAL REGISTRANTS
- -------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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EXTENDICARE HEALTH SERVICES, INC.
INDEX
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<CAPTION>
PART I. FINANCIAL INFORMATION Page
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<S> <C> <C>
Item 1 Condensed Financial Statements
Consolidated Statements of Earnings
for the three months ended
March 31, 1999 and 1998 3
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998 4
Consolidated Statements of Cash Flows
for the three months ended
March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis 8
Item 3 Quantitative and Qualitative Disclosures
about Market Risk 18
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 21
Item 2 Change in Securities 21
Item 3 Defaults Upon Senior Securities 21
Item 4 Submission of Matters to a
Vote of Security Holders 21
Item 5 Other Information 21
Item 6 Exhibits and Reports on Form 8-k 21
SIGNATURES 23
</TABLE>
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EXTENDICARE HEALTH SERVICES, INC.
CONSOLIDATED STATEMENTS OF NET (LOSS) EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ending Ending
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
REVENUES:
Nursing and assisted living centers $ 227,846 $ 247,902
Medical supplies and outpatient therapy 11,415 42,570
Other 2,280 1,900
--------- ---------
241,541 292,372
COSTS AND EXPENSES:
Operating 211,154 244,247
General and administrative 9,523 12,176
Lease costs 4,645 3,706
Depreciation and amortization 12,707 13,614
Interest expense 12,382 15,332
Interest income (354) (703)
--------- ---------
250,057 288,372
--------- ---------
(Loss) earnings from operations (8,516) 4,000
(BENEFIT) PROVISION FOR INCOME TAXES (2,708) 1,880
--------- ---------
(Loss) earnings before minority interests (5,808) 2,120
MINORITY INTERESTS 15 (213)
--------- ---------
Net (loss) earnings $ (5,793) $ 1,907
========= =========
PER COMMON SHARE:
Net (loss) earnings per common share $ (6) $ 2
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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EXTENDICARE HEALTH SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(Dollars in Thousands)
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<CAPTION>
ASSETS March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,574 $ 1,084
Accounts receivable, less
allowances of $26,897 and $25,899 175,870 188,100
Inventories, supplies and prepaid expenses 10,890 10,803
Income taxes receivable 5,807 3,321
Deferred state income taxes 4,540 4,128
Debt service trust funds 166 202
Due from shareholder -
Deferred federal income taxes 23,845 21,294
---------- ----------
Total current assets 226,692 228,932
PROPERTY AND EQUIPMENT, NET 696,414 700,141
GOODWILL, NET 141,329 142,349
IDENTIFIABLE INTANGIBLE ASSETS, NET 9,733 9,621
OTHER ASSETS 50,560 54,434
---------- ----------
$1,124,728 $1,135,477
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable, accrued liabilities and due to shareholder $ 148,474 $ 190,808
Current maturities of long-term debt 24,980 20,647
---------- ----------
Total current liabilities 173,454 211,455
LONG-TERM DEBT 566,292 527,101
OTHER LONG-TERM LIABILITIES 9,127 13,410
DUE TO SHAREHOLDER AND AFFILIATES
Deferred federal income taxes and other 60,275 60,150
DEFERRED STATE INCOME TAXES 11,096 10,801
MINORITY INTERESTS 916 931
SHAREHOLDER'S EQUITY:
Common stock, $1 par value, 1,000 shares authorized,
947 shares issued and outstanding 1 1
Additional paid-in capital 208,787 209,787
Accumulated other comprehensive (loss) income (2,081) 187
Retained earnings 96,861 102,654
---------- ----------
Total shareholder's equity 303,568 311,629
---------- ----------
$1,124,728 $1,135,477
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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EXTENDICARE HEALTH SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Dollars in Thousands)
(Unaudited)
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<CAPTION>
Three Months Three Months
ended ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) earnings $ (5,793) $ 1,907
Adjustments to reconcile net income to net cash (used for)
provided from operating activities:
Depreciation and amortization 13,234 14,349
Provision for uncollectible accounts receivable 2,860 2,799
Deferred income taxes (1,029) (1,279)
Minority interests (15) 213
Changes in assets and liabilities:
Accounts receivable 9,370 (15,173)
Inventories, supplies and prepaid expenses (87) 1,028
Debt service trust funds 36 247
Bank indebtedness - (376)
Accounts payable and accrued liabilities (17,335) 20,146
Income taxes receivable (2,486) 150
Other long-term liabilities (4,283) 889
-------- --------
Cash (used for) provided from operating activities (5,528) 24,900
INVESTING ACTIVITIES:
Payment for acquisitions - (3,786)
Payments for purchase of property and equipment (7,262) (17,312)
Proceeds from sale of property and equipment 95 2,832
Income taxes paid on sale of operations (25,000) -
Changes in other non-current assets (1,339) (2,111)
-------- --------
Cash used for investing activities (33,506) (20,377)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 44,000 9,000
Payments of long-term debt (476) (9,098)
Distribution of minority interest - (100)
-------- --------
Cash provided from (used for) financing activities 43,524 (198)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 4,490 4,325
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 1,084 1,418
-------- --------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 5,574 $ 5,743
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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NOTES TO FINANCIAL STATEMENTS
1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The accompanying financial statements reflect the operations of
Extendicare Health Services, Inc. ("Extendicare" or the "Company"). Extendicare,
a Delaware corporation is a wholly owned subsidiary of Extendicare Inc.
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of the
Company and its majority-owned subsidiaries. All transactions between
Extendicare and its majority-owned subsidiaries have been eliminated.
The financial information presented as of any date other than December
31 has been prepared from the books and record without audit. The accompanying
consolidated financial statements have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and the
footnotes required by generally accepted accounting principles for complete
statements. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of such
financial statements, have been included.
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.
These consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto for the year ended
December 31, 1998 contained in the Company's 10-K.
RECLASSIFICATIONS
The Corporation has reclassified certain 1998 line items within revenue to
conform to the 1999 presentation. Under the new Prospective Payment System,
Medicare ancillary services provided to the Corporation's residents are now
combined with routine care revenue as part of the per diem rate for nursing
residents. As a result, the Corporation has reclassified the prior year medical
specialty revenue provided to affiliated residents to nursing and assisted
living centers revenue. Medical supplies and outpatient therapy revenue includes
revenue to non-affiliated residents and individuals in their own homes,
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and for 1998 includes revenue from pharmacy services provided to non-affiliated
residents.
2- RECENTLY ISSUED ACCOUNTING STANDARD
In June, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS No. 133 is not expected to significantly impact the
Company's reporting and disclosures.
3- COMMITMENTS AND CONTINGENCIES
CAPITAL EXPENDITURES
The Company as of March 31, 1999 had capital expenditure purchase commitments
outstanding of approximately $2,595.
LITIGATION
The Company periodically is a defendant in actions brought against it in
connection with its operations. Management believes, on the basis of information
furnished by legal counsel, that none of these actions will have a material
effect on the financial position or results of operations of the Company.
4- SUBSEQUENT EVENT
SENIOR CREDIT FACILITY AMENDED
Subsequent to March 31, 1999, the Company amended its $412.6 million senior
credit facility, consisting of a $200.0 million revolving credit facility and
term loans of $212.6 million. The amendments to the credit facility include
revision to the financial covenants to reflect the financial impact of the
Medicare Prospective Payment System (PPS) and include increased interest rates.
Following the amendment, the applicable interest rate margins in the pricing
matrix pertaining to the Company's Revolving Credit Facility and Tranche A Term
Loan range from 0.75% to 2.75% for Eurodollar loans and 0.50% to 2.00% for base
rate loans. The applicable margin for the Tranche B Term Loan is 3.00% for
Eurodollar loans and a range of 1.25% to 2.75% for base rate loans. Effective
April 29, 1999, the applicable margins under the Revolving Credit Facility and
Tranche A Term Loan were 2.75% for Eurodollar loans and 2.00% for base rate
loans, and the applicable margin under the Tranche B Term Loan was 3.00% for
Eurodollar loans and 2.75% for base rate loans.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company is one of the largest providers of long-term care and related
services in the United States. The Company operated 204 nursing (21,868
operational beds) and 43 assisted living and retirement facilities (1,802 units)
at March 31, 1999. The Company's facilities are located in 14 states.
The Company's revenues are derived through the provision of healthcare services
in its network of facilities, including long-term care services such as skilled
nursing care, assisted living care and related support services and medical
specialty services such as subacute care and rehabilitative therapy, and medical
equipment, supplies and services. As a result of PPS, the Company has
reclassified its revenue components. Nursing and assisted living centers revenue
are derived from the provision of routine and ancillary services for the
Company's residents. Medical supplies and outpatient therapy revenues are
derived from providing medical supplies and outpatient therapy services to
non-affiliated residents and individuals in their own home.
The Company derives its revenue from Medicare, Medicaid and private pay sources.
The following table sets forth the Company's private pay, Medicare and Medicaid
sources of revenue by percentage of total revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------------
1999 1998
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<S> <C> <C>
Private pay 37% 35%
Medicare 22 29
Medicaid 41 36
</TABLE>
Private Pay. The Company classifies payments from individuals who pay directly
for services without governmental assistance as private pay revenue. The
private-pay classification also includes revenues from commercial insurers,
health maintenance organizations ("HMOs"), preferred provider organizations
("PPOs") and other charge-based payment sources as well as revenue from HMO
Medicare risk plans. Blue Cross and Veterans' Administration payments are
included in private pay and are made pursuant to renewable contracts with these
payors.
Medicare. Medicare is a health insurance program funded and administered by the
federal government primarily for individuals entitled to Social Security who are
age 65 or older. Medicare covers the first 20 days of stay in a skilled nursing
facility ("SNF") in full, and the next 80 days above a daily coinsurance amount,
after the individual has qualified by a three-day hospital stay. The Medicare
program consists of two parts: Medicare Part A and Medicare Part B. Medicare
Part A covers inpatient services for hospitals, nursing facilities, and certain
other healthcare providers, and patients requiring daily professional skilled
nursing and other rehabilitative care. Medicare Part B covers services for
suppliers of certain medical items, outpatient services, and doctor's services.
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The Balanced Budget Act of 1997 (the "Balanced Budget Act"), signed into law on
August 5, 1997, makes numerous changes to the Medicare and Medicaid programs
which affect the Company. With respect to the Medicare program, the new law
established a Prospective Payment System ("PPS") for SNF services. Under the
PPS, long-term care providers are reimbursed for Medicare Part A services based
on federally established per diem rates for 44 various categories of care
associated with the medical complexities and needs of the patients. The
patient's payment category dictates the amount that the provider will receive to
care for the patient on a daily basis. This new legislation became effective for
cost report periods commencing July 1, 1998 and after. For the Company, this new
system became effective for three facilities during 1998. The remainder of the
Company's facilities became PPS funded as of January 1, 1999. Under certain
criteria, a three-year phase-in to the PPS is effective. This change will reward
efficient providers and penalize those that are inefficient.
Prior to the implementation of the new Medicare PPS the Company was reimbursed
under the Medicare program for its direct costs plus an allocation of indirect
costs up to a regional limit. The costs of care for Medicare patients receiving
specialty medical services often exceeded the regional reimbursement limits. The
Company in such cases filed for routine cost limit ("RCL") exceptions in an
attempt to recover such additional costs. There can be no assurance that the
Company will be able to recover such excess costs under pending or future
exception requests. In addition, on-going efforts by third-party payors to
contain healthcare costs by limiting reimbursement rates, increasing case
management reviews and negotiating reduced contract pricing could affect the
Company's future revenues and profitability.
Medicaid. Medicaid is a state-administered program financed by state funds and
matching federal funds. The program provides for medical assistance to the
indigent and certain other eligible persons. Medicaid reimbursement formulas are
established by each state with the approval of the federal government in
accordance with federal guidelines. All of the states in which the Company
operates currently use cost-based reimbursement systems which generally may be
categorized as prospective or retrospective in nature. Under a prospective
system, per diem rates are established based upon the historical cost of
providing services during a prior year, adjusted to reflect factors such as
inflation and any additional services which are required to be performed. Many
of the prospective payment systems under which the Company operates contain an
acuity measurement system which adjusts rates based on the care needs of the
patient. Retrospective systems operate much like the Medicare program. Nursing
facilities are paid on an interim basis for services provided, subject to
adjustments based on allowable costs, which are generally submitted on an annual
basis. Additional payment to a nursing facility by the state or repayment from a
nursing facility to the state can result from the submission of cost reports and
their ultimate settlement. The majority of the states in which the Company
operates nursing facilities use prospective systems.
The Balanced Budget Act repealed the federal payment standard (known as the
Boren
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Amendment), which required state Medicaid programs to pay rates that were
reasonable and adequate to meet the costs which must be incurred by efficiently
and economically operated nursing facilities. As a result, for Medicaid services
provided on or after October 1, 1997, states have considerable flexibility in
establishing payment rates. The Company is not able to predict whether any
states will adopt changes in their Medicaid reimbursement systems, or, if
adopted and implemented, what effect such initiatives would have on the Company.
Nevertheless, there can be no assurance that such changes in Medicaid
reimbursement to nursing facilities will not have an adverse effect on the
Company. The Balanced Budget Act also allows states to mandate enrollment in
managed care systems without seeking approval from the Secretary of Health and
Human Services for waivers from certain Medicaid requirements as long as certain
standards are met. Although historically these managed care programs have
exempted institutional care, no assurance can be given that these waiver
projects ultimately will not change the reimbursement system for long-term care
facilities from fee-for-service to managed care negotiated or capitated rates or
otherwise affect the levels of payment to the Company.
Funds received by the Company under Medicare and Medicaid are subject to audit
with respect to proper application of various payment formulas. Such audits can
result in retroactive adjustments to revenue. The Company believes that the
payment formulas applicable to it have been properly applied and that any future
adjustments will not have a material impact on its operations.
The following is a summary of significant events in 1999 and 1998.
ACQUISITIONS
The Company acquired five nursing facilities (456 operational beds) and one
assisted living facility (88 units) for $19.1 million, including the assumption
of $2.7 million of debt and the assets of four medical specialty services
related businesses for $3.5 million during 1998. The Company also added one
nursing facility (76 beds) through an operating lease in 1998.
CONSTRUCTION
The Company completed construction of a nursing facility (120 operational beds)
during the first three months of 1999.
The Company completed construction of four nursing facilities (384 operational
beds), one nursing facility addition (47 operational beds), five assisted living
facilities (244 units) and two therapy additions during 1998.
DIVESTITURES
In 1998, the Company sold its institutional pharmacy business to Omnicare, Inc.
for proceeds of $258.0 million. The sale resulted in a pre-tax gain of $97.8
million and related income tax expense of $72.6 million. Goodwill and other
intangible assets were reduced by $90 million as part of the sale.
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The Company applied the after-tax net proceeds of the sale to reduce $165
million of debt.
In connection with the debt reduction, related deferred financing costs of $2.7
million, or $1.7 million after-tax, were written off and classified as an
extraordinary item.
The divestiture follows a 1997 management decision that the pharmacy operations
were non-strategic assets. The transaction realized the value of the Company's
pharmacy operations, reduced its debt-to-equity ratio and significantly lowered
interest expense.
RESULTS OF OPERATIONS
The following table sets forth details of revenues and earnings as a percentage
of total revenues:
<TABLE>
<CAPTION>
Three Months
Ended
March 31
-----------------------------------
1999 1998
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<S> <C> <C>
Revenues
Nursing and assisted living 94.3 84.8
Medical supplies and outpatient therapy 4.7 14.5
Other 1.0 0.7
----- -----
100.0 100.0
Operating and general
and administrative costs 91.3 87.7
Lease costs, depreciation and amortization 7.2 5.9
Interest, net 5.0 5.0
(Loss) earnings before taxes (3.5) 1.4
Income taxes (1.1) 0.6
(Loss) earnings before minority interests (2.4) 0.8
----- -----
Net (Loss) Earnings (2.4) 0.7
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1998
Revenues in the three months ended March 31, 1999 were $241.5 million,
representing a decrease of $50.8 million (17.4%) from $292.4 million in the
three months ended March 31, 1998. The decrease in revenues of $50.8 million
included decreases in nursing and assisted living centers revenues of $20.0
million, medical supplies and outpatient therapy revenues of $31.2 million,
partially offset by an increase in other revenues of $0.4 million.
The decrease in nursing and assisted living centers revenues of $20.0 million
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included an increase of $6.3 million from the opening of newly constructed
facilities, the acquisition of one facility effective January 31, 1998, one
facility effective April 1, 1998, and four facilities effective November 1,
1998, partially offset by a facility closure. Revenues from facilities which the
Company operated during each of 1999 and 1998 ("same-facility") decreased $26.3
million when comparing periods. Same-facility revenues decreased between periods
due to the effects of PPS and lower occupancy. Under PPS, the average Medicare
rate per day was reduced to approximately $310.60 per patient day during the
first quarter of 1999 compared to approximately $402.21 per patient day for the
first quarter of 1998. Same-facility occupancy, defined as patient days for
nursing facilities and units occupied for assisted living facilities, declined
1.6%. Average percentage occupancy for same-facilities, based on beds/units in
operation, was 86.2% in the first quarter of 1999 compared with 87.7% in the
comparable period of 1998.
The decrease in medical supplies and outpatient therapy revenues of $31.2
million (73.2%) included $31.4 million from divestitures during 1998 and 1999
(primarily pharmacy operations of $30.1 million), net of acquisitions. The
remaining increase of $0.2 million is primarily due to growth in outpatient and
contracted services operations.
OPERATING AND GENERAL AND ADMINISTRATIVE COSTS
Operating and general and administrative costs decreased $35.7 million or 13.9%
between periods. The decrease included decreases in costs relating to
divestitures, net of acquisitions and newly constructed facilities, of
approximately $18.0 million. The remaining decrease in operating and general and
administrative costs of $17.7 million (7.8%) included decreased costs of $26.2
million, primarily due to decreased therapy activity as a result of PPS,
partially offset by an increase in wage-related costs of $8.5 million. The
increase in wage-related costs included an increase of $8.7 million to attract
and retain qualified personnel, offset by a decrease in workers' compensation
costs of $0.2 million due to more favorable actuarial adjustments for prior
years in 1999 compared to 1998.
LEASE COSTS, DEPRECIATION AND AMORTIZATION
Total lease costs and depreciation and amortization were constant at $17.3
million when comparing 1999 to 1998. Lease costs increased $0.9 million when
comparing the three months ended March 31, 1999 to the three months ended March
31, 1998 due to the new corporate office facility and upgrade of the computer
system, offset by a decrease in amortization expense of $0.9 million primarily
due to the sale of the pharmacy operation and related goodwill.
INTEREST
Net interest expense decreased $2.6 million to $12.0 million in the three months
ended March 31, 1999 compared with $14.6 million in the comparable period in
1998. The decrease is due to a decrease in the average debt level to $586.1
million during the first quarter of 1999 compared to $717.5 million during the
first quarter of 1998 resulting from the company's use of pharmacy sale proceeds
to paydown debt and due to a decrease in the weighted average interest rate of
all long-term debt to approximately 8.45% during the first quarter of 1999
compared to approximately 8.55% during the first quarter of 1998.
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Net interest expense was also affected by less favorable investment earnings in
the first quarter of 1999 compared to the first quarter of 1998.
START-UP COSTS
The Company has absorbed pre-tax start-up losses associated with newly
constructed facilities in the first quarter of 1999 of $1.4 million compared to
$1.9 million in the first quarter of 1998. The $0.5 million decrease when
comparing periods was due to the timing of facility openings in 1999 versus
1998.
INCOME TAXES
Income taxes in the three months ended March 31, 1999 decreased to a $2.7
million tax benefit from a $1.9 million provision for taxes in the comparable
period in 1998 as a result of decreased earnings.
NET (LOSS) EARNINGS
The net loss in the three months ended March 31, 1999 was $5.8 million, a
decrease of $7.7 million over net earnings of $1.9 million in the comparable
period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $5.6 million at March 31, 1999 and
$1.1 million at December 31, 1998.
Cash flow generated from operations before working capital changes was $9.3
million for the three months ended March 31, 1998 compared with $18.0 in the
comparable period of 1998. The decrease in cash flow from operations before
working capital changes is the result of a decline in operating earnings.
The Company experienced an increase in working capital since December 31, 1998,
excluding cash and borrowings included in current liabilities, of $35.6 million.
The increase in working capital resulted from a decrease in taxes payable of
$31.9 million and a $15.8 million decrease in accounts payable and accrued
liabilities. Taxes payable included a payment of $25.0 million related to the
sale of the pharmacy operation and a tax benefit of $4.6 million. Accounts
receivable at March 31, 1999, were $175.9 million compared with $188.1 million
at December 31, 1998, representing a decrease of $12.2 million. The reduction in
accounts receivable included a decrease within the nursing operations of $5.5
million, a decline within the Company's UPC Health Network medical supplies and
outpatient therapy operations of $5.3 million and a decline in prior policy year
workers' compensation receivables of $1.4 million due to collections. Billed
patient care and other receivables decreased $6.7 million while third-party
payor settlement receivables increased $1.2 million within the nursing
operations. The decrease in billed patient care receivables of $6.7 million
included a decrease of $3.5 million primarily due to a decline in Medicare
revenues as a result of changes in the Federal reimbursement policies. The
remaining decrease in billed patient
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care receivables of $3.2 million was due to the timing of the receipt of
remittances between periods. The increase in settlement receivables of $1.2
million between periods included $1.4 million due to favorable Medicare rate
accruals adjustments resulting from 1995 cost reimbursement findings partially
offset by decrease of $0.2 million from the collection of Medicaid program
settlements. The decrease in UPC Health Network receivables of $5.3 million
between periods is primarily due to decreased therapy operations as a result of
PPS.
Property and equipment decreased $3.7 million from December 31, 1998 to a total
of $696.4 million at March 31, 1999. The decrease was the result of depreciation
expense of $11.3 million offset by, capital expenditures and asset transfers of
$7.6 million. Property and equipment capital expenditures during 1998 included
approximately $3.1 million related to the construction of new facilities and bed
and therapy unit additions to existing facilities. The Company had under
construction at March 31, 1999 one nursing facility, one nursing bed addition
and, two assisted living facilities at a total cost of $13.4 million, of which
$11.8 million was incurred prior to March 31, 1999.
Total borrowings, including both current and long-term maturities of debt,
totaled $591.3 million at March 31, 1999 for an increase of $43.5 million from
December 31, 1998. The increase was attributable to the payment of taxes
associated with the sale of the pharmacy operations, deferred compensation
payments and as a result of the growth in property and equipment due to capital
expenditures. The weighted average interest rate of all long-term debt was 7.93%
at March 31, 1999 and such debt had maturities ranging from 1999 to 2015.
The Company had a $200 million revolving credit agreement at March 31, 1999.
Borrowing availability under this line of credit totaled $43.5 million at March
31, 1999.
The principal source of liquidity for the Company is cash flow from operations
and approximately $43.5 million (net of letters of credit in the amount of $35.5
million) in additional borrowing availability under the revolving credit
facility. The Company contemplates incurring capital expenditures (excluding any
acquisitions) of approximately $19.6 million in 1999, of which approximately
$4.6 million relates to the completion of projects in progress at March 31,
1999. The Company believes that internally generated cash flow, together with
borrowings under the Revolving Credit Facility, will be sufficient to meet the
Company's current operational cash requirements to fund its capital expenditure
program and to meet current debt obligations.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 problem arises from the potential inability of information systems
and other computer-based technology to properly recognize the process
data-sensitive information for dates after December 31, 1999. The Year 2000
issue presents potential problems not only for the Company's computer hardware
and software but also for devices that have embedded technology (including
building infrastructure and medical devices utilized in the Company's
facilities) and issues relating to third parties with which the Company has
material relationship.
14
<PAGE> 15
The Company derives a substantial portion of its revenues from government
programs. According to a published report on Year 2000 readiness, HCFA is
confident that all Medicare claims processes will be ready to function by
January 1, 2000.
The Company intends to confirm the Year 2000 readiness status for each
intermediary and to take all possible and necessary measures to ensure
appropriate continuing payments for services rendered to all government-insured
patients.
In 1998, the Company initiated a program to identify and resolve its Year 2000
issues. The program followed a standard methodology for Year 2000 compliance and
includes the following phases:
I. Planning and awareness of the Company's Year 2000 program, where
compliance is defined, the complexity and depth of the Year 2000 problem
is communicated and the business impact of non-compliance is identified.
II. Inventory is performed to identify all systems, catalog electronic
partners and interfaces, ascertain those systems that will be affected by
the Year 2000 date and assess technical risks associated with each system.
III. Complete a detailed assessment of the compliance of the essential systems
that will be remediated, which includes business risks, a determination to
repair, replace, or retire each system, and then develop detailed plans,
schedules and costs for the correction cycle. This includes an assessment
of critical suppliers, customers, and other third parties.
IV. Correction of non-compliant systems and equipment - which includes
resolution, resource allocation, testing and deployment.
The Company has completed its inventory and assessment of its information
technology ("IT") systems and equipment. The inventory of non-IT systems and
equipment (embedded technology) has been completed. The Year 2000 risks
identified were:
I. Any embedded technology within the Company's facilities that could pose a
threat to overall patient health and safety. This included but is not
limited to: telephone, nurse call, elevator or fire control systems; and
clinical equipment such as ventilators and infusion pumps.
II. External systems not within the control of the Company such as
governmental agencies, investment management companies, and other
financial intermediaries, that could pose a significant risk to the cash
management and health of the Company.
The Company has:
15
<PAGE> 16
I. completed an upgrade of corporate servers to Year 2000 compliant
systems in the third quarter of 1998;
II. remediated, tested and deployed the Fixed Assets and Budget systems;
and
III. made initial contacts to key vendors regarding their Year 2000
compliance status;
IV. tested the Accounts Receivable and Accounts Payable systems,
V. remediated the General Ledger and Minimum Data Set systems,
VI. updated or replaced all personal computers at the corporate office,
VII. assessed compliance of embedded systems within the facilities to
ensure our patients' continued health and safety,
VIII. contacted, and continue to pursue, key suppliers to gain assurance that
they will be Year 2000 compliant. Most key suppliers who have responded
to inquiries have indicated that they expect to be Year 2000 compliant
in a timely fashion. As a contingency, the Company maintains a broad
base of vendors and does not believe it is at risk with respect to any
individual vendor or supplier who may be non-compliant,
Activities have also included the introduction of a new Payroll system and the
installation of approximately 1,000 new personal computer workstations in the
facilities. While these activities will resolve Year 2000 problems related to
theses systems, they have been planned for some time and are not considered to
be directly related to Year 2000 readiness.
The Company is planning to be Year 2000 compliant for all its essential systems
and equipment by September 30, 1999, although there can be no assurance that it
will achieve its objective by such date or by January 1, 2000.
The Company currently estimates that its aggregate costs directly related to
Year 2000 compliance efforts will be approximately $600,000 for corporate
applications and approximately $1,400,000 for all of the Company's facilities,
of which approximately $700,000 has been spent through March 31, 1999. The
Company's Year 2000 efforts are ongoing and its overall plan and cost
estimations will continue to evolve, as new information becomes available. All
costs, except long-lived assets, are expensed as incurred.
The ultimate impact of the Year 2000 issue depends not only on the Company's
actions to mitigate problems, but also on how the issue is addressed by third
parties with which the Company has a material relationship. Risks for the
Company could include the inability to receive reimbursement form government
agencies (directly or through intermediaries). In addition, uncertainties exist
as to the Company's ability to detect all Year 2000 problems and to resolve all
identified issues in a timely manner. The Company is unable to quantify the
potential effect on its operations, liquidity and financial position should any
of these events occur. While the Company expects to resolve all Year 2000 risks
without a material adverse impact on its results of operations and financial
position, there can be no assurance as to its ultimate success.
16
<PAGE> 17
The Company's has developed contingency plans for the Company's Year
2000-related issues, which include, but are not limited to, identification of
alternate suppliers, technologies and manual systems.
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, and other information provided by the
Company from time to time, contains certain "forward-looking" statements as
that term is defined by the Private Securities Litigation Reform Act of 1995.
All statements regarding the Company's expected future financial position,
results of operations, cash flows, continued performance improvements, ability
to service its debt obligations, finance growth opportunities, respond to
changes in government regulations, and similar statements including, without
limitation, those containing words such as "believes," "anticipates,"
"expects," "intends," "estimates," "plans," and other similar expressions are
forward-looking statements. Forward-looking statements involve known and unknown
risks and uncertainties that may cause the Company's actual results in future
periods to differ materially from those projected or contemplated in the
forward-looking statements as a result of, but not limited to, the following
factors: national and local economic conditions, the effect of government
regulation and changes in regulations governing the healthcare industry,
including the Company's compliance with such regulations; changes in Medicare
and Medicaid payment levels; liabilities and other claims asserted against the
Company; the ability to attract and retain qualified personnel; the
availability and terms of capital to fund acquisitions; the competitive
environment in which the Company operates; demographic changes; the ability to
timely locate and correct all relevant computer codes prior the year 2000; and
the availability and cost of labor and materials. Given these risks and
uncertainties, the Company can give no assurances that these forward-looking
statements will, in fact, transpire and, therefore, cautions investors not to
place undue reliance on them.
17
<PAGE> 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
QUALITATIVE DISCLOSURES
OBJECTIVES AND CONTEXT
The Company uses variable-rate debt to finance its operations. In particular, a
portion of the Company's short-term and long-term debt obligation is based upon
floating LIBOR rates. These debt obligations expose the Company to variability
in interest payments due to changes in interest rates. If interest rates
increase, interest expense increases. Conversely, if interest rates decrease,
interest expense also decreases.
Management believes that in the current interest rate environment that it is
prudent to limit the variability of a portion of its interest payments. It is
the Company's objective to hedge between 50 to 80 percent of its interest rate
exposure.
Furthermore, the Company also holds stock and stock warrants obtained in
connection with a recent sale of the Company's pharmacy operations. In effect,
these holdings can be considered contingent purchase price whose value, if any,
may not be realized for several years. These stock and warrant holdings are
subject to various trading and exercise limitations and will be held until such
time that management feels the market opportunity is appropriate to trade or
exercise such holdings.
STRATEGIES
To meet these objectives, management enters into various types of derivative
instruments to manage fluctuations in cash flows resulting from interest rate
risk. These instruments consist of interest rate swaps. The interest rate swaps
change the variable rate cash-flow exposure on the short-term and long-term
interest payments to fixed-rate cash flows by entering into receive-variable,
pay-fixed interest rate swaps. Under the interest rate swaps, the Company
receives variable interest rate payments and makes fixed interest rate
payments, thereby creating fixed-rate short-term and long-term debt.
With respect to the stock and warrant holdings, management monitors the market
to adequately determine the appropriate market timing to act in order to
maximize the value of these instruments. With the exception of the above
holdings, the Company does not enter into derivative instruments for any
purpose other than cash flow hedging purposes. That is, the Company does not
speculate using derivative instruments.
RISK MANAGEMENT POLICIES
The Company assesses interest rate cash flow risk by continually identifying
and monitoring changes in interest rate exposures that may adversely impact
expected future cash flows and by evaluating hedging opportunities.
18
<PAGE> 19
QUANTITATIVE DISCLOSURES
The Company is a party to several interest rate swap agreements to reduce the
impact of changes in interest rates on certain of its floating rate long-term
debt. The first agreement, entered into in 1995, effectively changes the
Company's interest rate exposure on $32 million of floating rate Industrial
Development Bonds due in 2014 to a fixed rate of 4.155% through October, 2000.
During 1998, the Company entered into five agreements (each $50 million of
principal) with three banks which effectively changes the interest rates on
LIBOR based borrowings to fixed rates ranging from 5.53% to 5.84% plus
applicable margins, for periods over three to seven years. The differential
between the fixed rates and the variable rate interest to be paid or received
will be accrued as interest rates change and recognized over the life of the
agreement. The Company may be exposed to credit loss in the event of
non-performance by the banks under the swap agreements but does not anticipate
such non-performance.
Interest expense for the three months ended March 31, 1999 includes $839 of net
expense relating to the cash flow hedge's ineffectiveness. The component
relating to the hedges' ineffectiveness was not deemed maternal.
Since the Company has not adopted SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, changes in the fair value of interest rate
swaps designed to hedge the variability of cash flows associated with the
floating-rate, long-term debt obligations are not reported in accumulated other
comprehensive income (AOCI). If this statement were adopted as of December 31,
1998, AOCI would reflect a loss of $3,171 based upon quoted market prices
provided by the financial institutions which are counterparts to the swaps.
Changes in the fair values of the stock and warrant holdings are reported in
AOCI net of related deferred tax accruals required under SFAS 115. The amount
reflected in AOCI for 1999 related to stock and warrant holdings equals $2,268.
The estimated net amount of the gains or losses that are expected to be
reclassified into earnings within the next 12 months is uncertain due to the
uncertainty of stock market conditions and the interest rate environment.
However, if market opportunities arise, it is management's intention to reduce
the amount of fixed interest debt to levels existing previous the disposition of
the Company's pharmacy operations.
As of March 31, 1999, the maximum length of time over which the Company is
hedging its exposure to the variability in future cash flows associated with
variable-rate, long-term debt is seven years.
For the three months ended March, 31, 1999, there were no gains or losses
reclassified from AOCI as a result of the early extinguishment of a portion of a
hedged debt obligation.
19
<PAGE> 20
The table below presents principal (or notional) amounts and related weighted
average interest rates by year of maturity for the Company's debt obligations
and interest rate swaps.
<TABLE>
<CAPTION>
Fair
1999 2000 2001 2002 2003 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term Debt
Fixed Rate.................. 2,054 4.685 1,750 648 632 209,543 219,312 245,722
Average Interest Rate....... 9.22% 9.22% 9.22% 9.22% 9.22% 9.22% 9.22%
Variable Rate............... 18,117 18,195 20,979 23,762 23,776 267,131 371,960
Average Interest Rate....... 6.88% 6.87% 6.84% 6.81% 6.78% 6.78% 6.90% 360,285
Interest Rate Swaps
Variable to Fixed........... -- 32,000 -- 50,000 100,000 100,000 282,000 (3,171)
Average Pay Rate............ 5.53% 5.70% 5.70% 5.69% 5.74% 5.74% 5.53%
Average Receive Rate........ 4.81% 5.00% 5.00% 5.00% 5.00% 5.00% 4.81%
</TABLE>
The above table incorporates only those exposures that exist as of March 31,
1999 excluding the First Amendment to the Credit Agreement which became
effective April 29, 1999 and does not consider those exposures or positions
which could arise after that date or future interest rate movements. As a
result, the information presented above has limited predictive value. The
Company's ultimate results with respect to interest rate fluctuations will
depend upon the exposure that arise during the period, the Company's hedging
strategies at the time and interest rate movements.
20
<PAGE> 21
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
There are no material pending legal proceedings other than litigation
arising in the ordinary course of business. Management believes, on
the basis of information furnished by legal counsel, that none of
these actions will have a material effect on the financial position
results of operations of the Company.
ITEM 2. Change in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits:
10.0 First Amendment to Credit Agreement
11.0 Computation of earnings per share for the three months ended
March 31, 1999
27.0 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended March
31, 1999.
21
<PAGE> 22
EXTENDICARE HEALTH SERVICES, INC.
EXHIBIT INDEX
Exhibit No. Description
10.0 First Amendment to Credit Agreement
11.0 Computation of earnings per share for the three months ended
March 31, 1999
27.0 Financial Data Schedule
22
<PAGE> 23
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.
EXTENDICARE HEALTH SERVICES, INC.
Date: May 14, 1999 By: /s/ Stephen F. Dineley
Stephen F. Dineley
Vice President, Chief Financial Officer,
Treasurer and Director (principal
financial officer and principal
accounting officer)
23
<PAGE> 1
EXHIBIT 10.0
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as
of April 28, 1999, is entered into by and among EXTENDICARE HEALTH SERVICES,
INC., a Delaware corporation (the "Borrower"), each of the Persons identified as
a "Guarantor" on the signature pages hereto, each of the Persons identified as a
"Lender" on the signature pages hereto and NATIONSBANK, N. A., as Agent for the
Lenders (in such capacity, the "Agent").
RECITALS
A. The Borrower, the Guarantors, the Lenders and the Agent, are party
to that certain Credit Agreement dated as of November 26, 1997 (as previously
amended prior to the date hereof, the "Credit Agreement"). Unless otherwise
defined herein or the context otherwise requires, capitalized terms used in this
Amendment, including its preamble and recitals, have the meanings provided in
the Credit Agreement.
B. The Credit Parties have requested that the Required Lenders amend
the Credit Agreement.
C. The Required Lenders have agreed to amend the Credit Agreement as
set forth herein.
NOW, THEREFORE, in consideration of the agreements herein contained,
the parties hereto hereby agree as follows:
1. Amendments.
(a) The pricing grid contained in the definition of "Applicable
Percentage" appearing in Section 1.1 of the Credit Agreement is amended and
replaced with the pricing grid set forth below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
APPLICABLE APPLICABLE
TOTAL PERCENTAGE PERCENTAGE APPLICABLE
PRICING LEVERAGE APPLICABLE PERCENTAGE FOR APPLICABLE PERCENTAGE FOR FOR STANDBY FOR TRADE PERCENTAGE
LEVEL RATIO EURODOLLAR LOANS BASE RATE LOANS LETTER OF LETTER OF FOR UNUSED
CREDIT FEE CREDIT FEE FEES
- ------------------------------------------------------------------------------------------------------------------------------
REVOLVING REVOLVING
LOANS, LOANS,
TRANCHE A TRANCHE A
TERM LOANS TRANCHE B TERM LOANS TRANCHE B
AND TRANCHE C TERM LOANS AND TRANCHE C TERM LOANS
TERM LOANS TERM LOANS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I < 3.0 to 1.0 0.75% 3.00% 0.50% 01.25% 0.75% 0.375% 0.25%
-
- ------------------------------------------------------------------------------------------------------------------------------
II < 3.5 to 1.0 1.00% 3.00% 0.75% 1.50% 1.00% 0.50% 0.25%
-
but
> 3.0 to 1.0
- ------------------------------------------------------------------------------------------------------------------------------
III < 4.0 to 1.0 2.00% 3.00% 1.00% 1.75% 2.00% 1.00% 0.3125%
-
but
> 3.5 to 1.0
- ------------------------------------------------------------------------------------------------------------------------------
IV < 4.5 to 1.0 2.25% 3.00% 1.25% 2.00% 2.25% 1.125% 0.3125%
-
but
> 4.0 to 1.0
- ------------------------------------------------------------------------------------------------------------------------------
V < 5.0 to 1.0 2.25% 3.00% 1.50% 2.25% 2.25% 1.125% 0.375%
-
but
> 4.5 to 1.0
- ------------------------------------------------------------------------------------------------------------------------------
VI > 5.0 to 1.00 2.50% 3.00% 1.75% 2.50% 2.50% 1.25% 0.50%
but < 6.0 to 1.0
-
- ------------------------------------------------------------------------------------------------------------------------------
VII >6.0 to 1.0 2.75% 3.00% 2.00% 2.75% 2.75% 1.375% 0.50%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
(b) The definition of "Collateral Documents" appearing in Section 1.1
of the Credit Agreement is hereby amended and restated in its entirety to read
as follows:
"Collateral Documents" means a collective reference
to the Pledge Agreement, the Security Agreement, the Mortgage
Instruments and such other documents executed and delivered in
connection with the attachment and perfection of the Agent's
security interests and liens arising thereunder.
(c) The following new definitions are hereby added to Section 1.1 of
the Credit Agreement in the appropriate alphabetical order and shall read as
follows:
"Excluded Property" means, with respect to any
Consolidated Party, including any Person after the Closing
Date that is required to execute a Joinder Agreement as
contemplated by Section 7.12, any Property of such
Consolidated Party which, subject to the terms of Section 8.11
and Section 8.15, is subject to a Lien of the type described
in clause (vii) of the definition of "Permitted Liens" set
forth in Section 1.1 pursuant to documents which prohibit such
Consolidated Party from granting any other Liens in such
Property.
"Mortgage Instruments" shall have the meaning
assigned such term in Section 7.13(b).
"Mortgage Policies" shall have the meaning assigned
such term in Section 7.13(b).
"Mortgaged Properties" shall have the meaning
assigned such term in Section 7.13(b).
"Security Agreement" means that certain security
agreement executed in favor of the Agent by each of the Credit
Parties, as amended, modified, restated or supplemented from
time to time.
(d) A new sentence is hereby added to the end of Section 2.1(a) to read
as follows:
Notwithstanding anything to the contrary contained herein, so long as
the Total Leverage Ratio (as calculated in the officer's certificate
required to be delivered pursuant to Section 7.1(c) of the Credit
Agreement) is greater than or equal to 6.0 to 1.0, the Borrower shall
maintain at least $25,000,000 of undrawn availability under the
Revolving Loans.
2
<PAGE> 3
(e) Clauses (a), (b) and (c) of Section 7.11 of the Credit Agreement
are hereby amended and restated in their entireties to read as follows:
7.11 FINANCIAL COVENANTS.
(a) Fixed Charge Coverage Ratio. The Fixed Charge Coverage
Ratio, as of the last day of each fiscal quarter of the Consolidated
Parties set forth below, shall be greater than or equal to:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Fiscal Year March 31 June 30 September 30 December 31
- -------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
1999 0.90 to 1.00 0.90 to 1.00 0.95 to 1.00 1.00 to 1.00
- -------------------------------------------------------------------------------------------------------------
thereafter 1.00 to 1.00
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Senior Leverage Ratio. The Senior Leverage Ratio, as of
the last day of each fiscal quarter of the Consolidated Parties set
forth below, shall be less than or equal to:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Fiscal Year March 31 June 30 September 30 December 31
- -------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
1999 4.75 to 1.00 5.00 to 1.00 4.75 to 1.00 4.25 to 1.00
- -------------------------------------------------------------------------------------------------------------
2000 4.25 to 1.00 4.00 to 1.00 3.75 to 1.00 3.75 to 1.00
- -------------------------------------------------------------------------------------------------------------
2001 3.75 to 1.00 3.50 to 1.00 3.50 to 1.00 3.50 to 1.00
- -------------------------------------------------------------------------------------------------------------
2002 3.50 to 1.00 3.50 to 1.00 3.50 to 1.00 3.00 to 1.00
- -------------------------------------------------------------------------------------------------------------
thereafter 3.00 to 1.00
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(c) Total Leverage Ratio. The Total Leverage Ratio, as of the
last day of each fiscal quarter of the Consolidated Parties set forth
below, shall be less than or equal to:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Fiscal Year March 31 June 30 September 30 December 31
- -------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
1999 6.50 to 1.00 6.75 to 1.00 6.75 to 1.00 6.00 to 1.00
- -------------------------------------------------------------------------------------------------------------
2000 6.00 to 1.00 5.75 to 1.00 5.50 to 1.00 5.25 to 1.00
- -------------------------------------------------------------------------------------------------------------
2001 5.25 to 1.00 5.25 to 1.00 5.00 to 1.00 5.00 to 1.00
- -------------------------------------------------------------------------------------------------------------
2002 5.00 to 1.00 4.75 to 1.00 4.75 to 1.00 4.50 to 1.00
- -------------------------------------------------------------------------------------------------------------
2003 4.50 to 1.00 4.50 to 1.00 4.25 to 1.00 4.00 to 1.00
- -------------------------------------------------------------------------------------------------------------
thereafter 4.00 to 1.00
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(f) Section 7.13 of the Credit Agreement is hereby amended and restated
in its entirety to read as follows:
7.13 PLEDGED ASSETS.
(a) The Credit Parties will cause (i) 100% of the Capital
Stock in the Borrower and in each direct or indirect Subsidiary of the
Borrower to be subject at all
3
<PAGE> 4
times to a first priority, perfected Lien in favor of the Agent
pursuant to the terms and conditions of the Collateral Documents or
such other security documents as the Agent shall reasonably request and
(ii) all of the owned personal property located in the United States
other than Excluded Property of the Borrower and each direct or
indirect Subsidiary of the Borrower to be subject at all times to a
perfected Lien in favor of the Agent pursuant to the terms and
conditions of the Collateral Documents or such other security documents
as the Agent shall reasonably request.
(b) Except with respect to the Real Properties identified on
Schedule 7.13(c) hereto, the Credit Parties shall deliver to the Agent
(or, in the case of items relating to leased Mortgaged Property (as
defined below), will use commercially reasonable efforts to deliver to
the Agent):
(i) fully executed and notarized mortgages, deeds of
trust or deeds to secure debt (each, as the same may be
amended, modified, restated or supplemented from time to time,
a "Mortgage Instrument" and collectively the "Mortgage
Instruments") encumbering the fee interest and/or leasehold
interest of the Parent or any Credit Party in each Real
Property identified in Schedule 7.13(b) and hereafter acquired
(each a "Mortgaged Property" and collectively the "Mortgaged
Properties");
(ii) a title report obtained by the Credit Parties in
respect of each of the Mortgaged Properties;
(iii) in the case of each real property leasehold interest
of the Parent or any Credit Party constituting Mortgaged
Property, (a) such estoppel letters, consents and waivers from
the landlords on such real property as may be required by the
Agent, which estoppel letters shall be in the form and
substance reasonably satisfactory to the Agent and (b)
evidence that the applicable lease, a memorandum of lease with
respect thereto, or other evidence of such lease in form and
substance reasonably satisfactory to the Agent, has been or
will be recorded in all places to the extent necessary or
desirable, in the reasonable judgment of the Agent, so as to
enable the Mortgage Instrument encumbering such leasehold
interest to effectively create a valid and enforceable first
priority lien (subject to Permitted Liens) on such leasehold
interest in favor of the Agent (or such other Person as may be
required or desired under local law) for the benefit of
Lenders;
(iv) maps or plats of an as-built survey of the sites of
the real property covered by the Mortgage Instruments
certified to the Agent and the title insurance company issuing
the policy referred to in Section 7.13(b)(v) (the "Title
Insurance Company") in a manner reasonably satisfactory to
each of the Agent and the Title Insurance Company, dated a
date reasonably satisfactory to each of the Agent and the
Title Insurance Company by an independent professional
licensed land surveyor, which maps or plats and the surveys on
which they are based shall be
4
<PAGE> 5
sufficient to delete any standard printed survey exception
contained in the applicable title policy and be made in
accordance with the Minimum Standard Detail Requirements for
Land Title Surveys jointly established and adopted by the
American Land Title Association and the American Congress on
Surveying and Mapping in 1992, and, without limiting the
generality of the foregoing, there shall be surveyed and shown
on such maps, plats or surveys the following: (A) the
locations on such sites of all the buildings, structures and
other improvements and the established building setback lines;
(B) the lines of streets abutting the sites and width thereof;
(C) all access and other easements appurtenant to the sites
necessary to use the sites; (D) all roadways, paths,
driveways, easements, encroachments and overhanging
projections and similar encumbrances affecting the site,
whether recorded, apparent from a physical inspection of the
sites or otherwise known to the surveyor; (E) any
encroachments on any adjoining property by the building
structures and improvements on the sites; and (F) if the site
is described as being on a filed map, a legend relating the
survey to said map;
(v) ALTA mortgagee title insurance policies issued by a
title insurance company reasonably acceptable to the Agent
(the "Mortgage Policies"), in amounts reasonably acceptable to
the Agent with respect to any particular Mortgaged Property,
assuring the Agent that each of the Mortgage Instruments
creates a valid and enforceable first priority mortgage lien
on the applicable Mortgaged Property, free and clear of all
defects and encumbrances except Permitted Liens, which
Mortgage Policies shall be in form and substance reasonably
satisfactory to the Agent and shall provide for affirmative
insurance and such reinsurance as the Agent may reasonably
request, all of the foregoing in form and substance reasonably
satisfactory to the Agent;
(vi) evidence as to (A) whether any Mortgaged Property is
in an area designated by the Federal Emergency Management
Agency as having special flood or mud slide hazards (a "Flood
Hazard Property") and (B) if any Mortgaged Property is a Flood
Hazard Property, (1) whether the community in which such
Mortgaged Property is located is participating in the National
Flood Insurance Program, (2) the Parent or the applicable
Credit Party's written acknowledgment of receipt of written
notification from the Agent (a) as to the fact that such
Mortgaged Property is a Flood Hazard Property and (b) as to
whether the community in which each such Flood Hazard Property
is located is participating in the National Flood Insurance
Program and (3) copies of insurance policies or certificates
of insurance of the Consolidated Parties evidencing flood
insurance satisfactory to the Agent and naming the Agent as
sole loss payee on behalf of the Lenders; and
(vii) evidence satisfactory to the Agent that each of
the Mortgaged Properties, and the uses of the Mortgaged
Properties, are in compliance in all material respects with
all applicable laws, regulations and ordinances including
without limitation health and environmental protection laws,
erosion control
5
<PAGE> 6
ordinances, storm drainage control laws, doing business and/or
licensing laws, zoning laws (the evidence submitted as to
zoning should include the zoning designation made for each of
the Mortgaged Properties, the permitted uses of each such
Mortgaged Properties under such zoning designation and zoning
requirements as to parking, lot size, ingress, egress and
building setbacks) and laws regarding access and facilities
for disabled persons including, but not limited to, the
federal Architectural Barriers Act, the Fair Housing
Amendments Act of 1988, the Rehabilitation Act of 1973 and the
Americans with Disabilities Act of 1990.
(c) With respect to each Real Property identified on Schedule
7.13(c), which is owned by the Parent or the Credit Parties as of April
30, 2000 and which is not subject to a written contract for the sale
thereof, the Credit Parties shall deliver to the Agent the documents of
the types described in Section 7.13(b) with respect to each such Real
Property.
(g) Clause (d) appearing in Section 8.5 of the Credit Agreement is
hereby amended and restated in its entirety to read as follows:
(d) the aggregate net book value of all of the assets sold or
otherwise disposed of in all such transactions during any fiscal year
of the Consolidated Parties shall not exceed $60,000,000,
(h) A new Schedule 7.13(b) is hereby added to the Credit Agreement
which shall read as Schedule 7.13(b) attached hereto. Such Schedule 7.13(b)
shall contain a list of 120 Real Properties. On May 28, 1999, the Credit Parties
shall amend Schedule 7.13(b) by adding to such schedule all other Real
Properties which are not at that time listed on either Schedule 7.13(b) or
Schedule 7.13(c).
(i) On May 28, 1999, a new Schedule 7.13(c) will be added to the Credit
Agreement. Such Schedule 7.13(c) shall contain a list of up to 50 Real
Properties.
2. Restrictions on Permitted Acquisitions and Consolidated
Growth Capital Expenditures. Notwithstanding anything contained in the Credit
Agreement to the contrary, the Credit Parties will not permit the Parent or any
Consolidated Party to make any Permitted Acquisitions or make Consolidated
Growth Capital Expenditures until such time as the Total Leverage Ratio (as
calculated in the officer's certificate required to be delivered pursuant to
Section 7.1(c) of the Credit Agreement) is less than 6.0 to 1.0; provided,
however, the Parent and the Consolidated Parties can continue to make
Consolidated Capital Expenditures to complete certain existing facilities
identified on Exhibit A hereto.
3. Immediate Prepayment of Loans with Net Cash Proceeds
Received from Asset Dispositions. Notwithstanding anything contained in Section
3.3(b) and Section 8.5 of the Credit Agreement to the contrary and until such
time as the Total Leverage Ratio (as calculated in the officer's certificate
required to be delivered pursuant to Section 7.1(c) of the Credit Agreement) is
6
<PAGE> 7
less than 5.5 to 1.0, following the receipt of Net Cash Proceeds from any Asset
Disposition, the Credit Parties shall immediately and without regard to any
Application Period, apply such Net Cash Proceeds to the prepayment of the Loans
in accordance with Section 3.3(b)(ii).
4. Legal Opinion. On or before May 14, 1999, the Credit
Parties shall deliver to the Agent an opinion of legal counsel to the Credit
Parties in form and substance reasonably satisfactory to it.
5. Effective Date. This Amendment shall be and become
effective when all of the following conditions shall have been satisfied:
(a) The Agent shall have received executed counterparts (or
other evidence of execution, including facsimile signatures,
satisfactory to the Agent) of this Amendment, which collectively shall
have been duly executed on behalf of each of the Credit Parties and the
Required Lenders; and
(b) The Agent shall have received, for the account of each
Lender approving this Amendment on or before April 28, 1999, an
amendment fee equal to 25 basis points on such Lender's Commitments.
(c) The Agent shall have received, for its own account, a
structuring fee in an amount agreed by the Borrower and the Agent.
Notwithstanding anything contained in this Amendment or the other
Credit Documents to the contrary, at such time as this Amendment
becomes effective pursuant to this Paragraph 4, the Applicable
Percentage shall be based on Pricing Level VII until the next
Calculation Date occurring after the date of this Amendment.
6. Security Interests and Liens Required by the Amendments to Section
7.13.
(a) Notwithstanding anything to the contrary contained herein or in any
other Credit Document, the Credit Parties shall have until May 28, 1999 to
deliver to the Agent a perfected security interest in accounts receivable. At
the time the Credit Parties execute the Security Agreement, the Credit Parties
shall deliver to the Agent an opinion of legal counsel to the Credit Parties
with respect to the Security Agreement which shall be in form and substance
reasonably satisfactory to the Agent.
(b) Notwithstanding anything to the contrary contained herein or in any
other Credit Document, the Credit Parties shall have until August 31, 1999 or
such later date as the Agent reasonably determines to comply with the
requirements set forth in Section 7.13(b) with respect to each Real Property
identified on Schedule 7.13(b).
7. Construction. This Amendment is a Credit Document executed pursuant
to the Credit Agreement and shall (unless otherwise expressly indicated therein)
be construed, administered and applied in accordance with the terms and
provisions of the Credit Agreement.
7
<PAGE> 8
Any Credit Party's failure to comply with any of the terms or restrictions set
forth herein shall constitute an Event of Default pursuant to Section 9.1(d) of
the Credit Agreement.
8. References. At such time as this Amendment shall become effective
pursuant to the terms of paragraph B above, all references in the Credit
Documents to the "Credit Agreement" shall be deemed to refer to the Credit
Agreement as amended by this Amendment.
9. Representations and Warranties. Each Credit Party hereby represents
and warrants that (i) each Credit Party that is party to this Amendment: (a) has
the requisite corporate power and authority to execute, deliver and perform this
Amendment, as applicable and (b) is duly authorized to, and has been authorized
by all necessary corporate action, to execute, deliver and perform this
Amendment, (ii) the representations and warranties contained in Section 6 of the
Credit Agreement are true and correct in all material respects on and as of the
date hereof upon giving effect to this Amendment as though made on and as of
such date (except for those which expressly relate to an earlier date) and (iii)
no Default or Event of Default exists under the Credit Agreement on and as of
the date hereof upon giving effect to this Amendment.
10. Acknowledgment. The Guarantors acknowledge and consent to all of
the terms and conditions of this Amendment and agree that this Amendment does
not operate to reduce or discharge the Guarantors' obligations under the Credit
Agreement (as amended by this Amendment) or the other Credit Documents. The
Guarantors further acknowledge and agree that the Guarantors have no claims,
counterclaims, offsets, or defenses to the Credit Documents and the performance
of the Guarantors' obligations thereunder or if the Guarantors did have any such
claims, counterclaims, offsets or defenses to the Credit Documents or any
transaction related to the Credit Documents, the same are hereby waived,
relinquished and released in consideration of the Lenders' execution and
delivery of this Amendment.
11. Counterparts. This Amendment may be executed by the parties hereto
in several counterparts, each of which shall be deemed to be an original and all
of which shall constitute together but one and the same agreement.
12. Binding Effect. This Amendment, the Credit Agreement and the other
Credit Documents embody the entire agreement between the parties and supersede
all prior agreements and understandings, if any, relating to the subject matter
hereof. These Credit Documents represent the final agreement between the parties
and may not be contradicted by evidence of prior, contemporaneous or subsequent
oral agreements of the parties. Except as expressly modified and amended in this
Amendment, all the terms, provisions and conditions of the Credit Documents
shall remain unchanged and shall continue in full force and effect.
13. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
8
<PAGE> 9
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Amendment to be duly executed and delivered as of the date first above
written.
BORROWER: EXTENDICARE HEALTH SERVICES, INC.,
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
GUARANTORS: EXTENDICARE HOLDINGS, INC.,
a Wisconsin corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
EXTENDICARE HEALTH FACILITY
HOLDINGS, INC.,
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
EXTENDICARE HEALTH FACILITIES, INC.,
a Wisconsin corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
COVENTRY CARE, INC.,
a Pennsylvania corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
[Signatures Continued.]
<PAGE> 10
NORTHERN HEALTH FACILITIES, INC.,
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
EXTENDICARE HOMES, INC.,
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
UNITED PROFESSIONAL COMPANIES, INC.,
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
THE PROGRESSIVE STEP CORPORATION,
a Wisconsin corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
EXTENDICARE OF INDIANA, INC.,
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
UNITED REHABILITATION SERVICES, INC.,
a Wisconsin corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
[Signatures Continued.]
S-2
<PAGE> 11
EDGEWOOD NURSING CENTER, INC.,
a Pennsylvania corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
ELDER CREST, INC.,
a Pennsylvania corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
HAVEN CREST, INC.,
a Pennsylvania corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
MEADOW CREST, INC.,
a Pennsylvania corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
OAK HILL HOME OF REST AND CARE, INC.,
a Pennsylvania corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
EXTENDICARE GREAT TRAIL, INC.,
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
[Signatures Continued.]
S-3
<PAGE> 12
FIR LANE TERRACE CONVALESCENT
CENTER, INC.,
a Washington corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
UNITED PROFESSIONAL SERVICES, INC.,
a Wisconsin corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
ARBOR HEALTH CARE COMPANY,
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
ADULT SERVICES UNLIMITED, INC.,
a Pennsylvania corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
ALTERNACARE PLUS ENTERPRISES, INC.,
an Ohio corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
ARBORS EAST, INC.,
an Ohio corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
[Signatures Continued.]
S-4
<PAGE> 13
ARBORS AT FT. WAYNE, INC.,
an Indiana corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
ARBORS AT TOLEDO, INC.,
an Ohio corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
BAY GERIATRIC PHARMACY, INC.,
a Florida corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
THE DRUGGIST, INC.,
an Ohio corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
HEALTH POCONOS, INC.,
a Pennsylvania corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
[Signatures Continued.]
S-5
<PAGE> 14
HOME CARE PHARMACY, INC. OF
FLORIDA,
a Florida corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
MARSHALL PROPERTIES, INC.,
an Ohio corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
POLY-STAT COMPUTER
APPLICATIONS, INC.
an Ohio corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
POLY-STAT SUPPLY CORPORATION,
an Ohio corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Q.D. PHARMACY, INC.,
a Michigan corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
AHC ACQUISITION CORP.,
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-6
<PAGE> 15
LENDERS: NATIONSBANK, N. A.,
individually in its capacity as a
Lender and in its capacity as Agent
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-7
<PAGE> 16
ROYAL BANK OF CANADA
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-8
<PAGE> 17
FIRSTAR BANK MILWAUKEE, N.A.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-9
<PAGE> 18
CREDIT LYONNAIS NEW YORK BRANCH
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-10
<PAGE> 19
PARIBAS
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-11
<PAGE> 20
THE BANK OF NOVA SCOTIA
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-12
<PAGE> 21
KEY CORPORATE CAPITAL INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-13
<PAGE> 22
LASALLE NATIONAL BANK
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-14
<PAGE> 23
TORONTO DOMINION (TEXAS), INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-15
<PAGE> 24
FIRST NATIONAL BANK OF CHICAGO
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-16
<PAGE> 25
BANK ONE, N.A.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-17
<PAGE> 26
BANK OF MONTREAL
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-18
<PAGE> 27
THE BANK OF NEW YORK
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-19
<PAGE> 28
THE FUJI BANK, LTD., CHICAGO BRANCH
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-20
<PAGE> 29
U.S. BANK NATIONAL ASSOCIATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-21
<PAGE> 30
BANK OF TOKYO-MITSUBISHI
TRUST COMPANY
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-22
<PAGE> 31
COMERICA BANK
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-23
<PAGE> 32
AMSOUTH BANK
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-24
<PAGE> 33
VAN KAMPEN PRIME
RATE INCOME TRUST
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-25
<PAGE> 34
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-26
<PAGE> 35
PILGRIM AMERICA PRIME RATE TRUST
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-27
<PAGE> 36
BANKBOSTON, N.A.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-28
<PAGE> 37
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-29
<PAGE> 38
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management, LP, as
Investment Advisor
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-30
<PAGE> 39
PARIBAS CAPITAL FUNDING LLC
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-31
<PAGE> 40
CRESCENT/MACH I PARTNERS, L.P.
By: TCW Asset Management Company,
its Investment Manager
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-32
<PAGE> 41
KZH CRESCENT-2 LLC
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-33
<PAGE> 42
ROYALTON COMPANY
By: Pacific Investment Management Company,
as its Investment Advisor
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-34
<PAGE> 43
JACKSON NATIONAL LIFE INSURANCE
COMPANY
By: PPM America, Inc., as attorney-in-fact,
on behalf of Jackson National Life
Insurance Company
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-35
<PAGE> 44
This page has been intentionally left blank.
S-36
<PAGE> 45
THE ING CAPITAL SENIOR SECURED
HIGH INCOME FUND, L.P.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-37
<PAGE> 46
SENIOR DEBT PORTFOLIO
By: By Boston Management and Research, as
Investment Advisor
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-38
<PAGE> 47
EATON VANCE INSTITUTIONAL SENIOR
LOAN FUND
By: Eaton Vance Management, as
Investment Advisor
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-39
<PAGE> 48
CYPRESSTREE INVESTMENT PARTNERS I, LTD.
By: CypressTree Investment Management Company,
Inc., as Portfolio Manager
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-40
<PAGE> 49
JOHN HANCOCK MUTUAL LIFE
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-41
<PAGE> 50
JOHN HANCOCK VARIABLE LIFE
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-42
<PAGE> 51
NATIONAL CITY BANK
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-43
<PAGE> 52
CITY NATIONAL BANK
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-44
<PAGE> 53
INDOSUEZ CAPITAL FUNDING III,
LIMITED
By: Indosuez Capital Luxembourg SA,
as Collateral Manager
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-45
<PAGE> 54
VAN KAMPEN SENIOR
INCOME TRUST
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S-46
<PAGE> 55
EXHIBIT A
EXISTING FACILITIES
<PAGE> 56
SCHEDULE 7.13(b)
MORTGAGED PROPERTIES
<PAGE> 1
EXHIBIT 11.0
EXTENDICARE HEALTH SERVICES, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months ended
March 31
------------------------
1998 1997
-------- --------
<S> <C> <C>
Net Earnings $ (5,793) $ 1,907
Weighted Average Number of
Common Shares Outstanding 947 947
-------- -------
Net earnings per Common Share $ (6) $ 2
======== =======
</TABLE>
The Company does not have a complex capital structure and therefore, only has
basic earnings per share.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF EXTENDICARE HEALTH SERVICES, INC. FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,574
<SECURITIES> 0
<RECEIVABLES> 202,767
<ALLOWANCES> 26,897
<INVENTORY> 1,730
<CURRENT-ASSETS> 226,692
<PP&E> 913,361
<DEPRECIATION> 216,947
<TOTAL-ASSETS> 1,124,728
<CURRENT-LIABILITIES> 173,454
<BONDS> 566,292
0
0
<COMMON> 1
<OTHER-SE> 303,567
<TOTAL-LIABILITY-AND-EQUITY> 1,124,728
<SALES> 0
<TOTAL-REVENUES> 241,541
<CGS> 0
<TOTAL-COSTS> 250,057
<OTHER-EXPENSES> 27,075
<LOSS-PROVISION> 2,860
<INTEREST-EXPENSE> 12,028
<INCOME-PRETAX> (8,516)
<INCOME-TAX> (2,708)
<INCOME-CONTINUING> (5,793)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,793)
<EPS-PRIMARY> (6)
<EPS-DILUTED> (6)
</TABLE>
