<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the period ended June 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 333-57279
FOUNTAIN VIEW, INC.
(Exact name of Registrant as specified in its charter)
Delaware 95-4644784
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2600 W. Magnolia Blvd., Burbank, CA 91505-3031
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 841-8750
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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Not Applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of June 30, 2000, the number of shares of each class of the Issuer's common
stock outstanding was as follows: Series A Common Stock: 1,000,000; Series B
Common Stock: 114,202; and Series C Common Stock: 20,742.
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TABLE OF CONTENTS
FOUNTAIN VIEW, INC.
<TABLE>
<CAPTION>
Pages
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<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations 1
Consolidated Balance Sheets 2, 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5 - 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results 7 - 9
of Operations
Item 3. Quantitative and Qualitative Disclosures of Market Risk 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FOUNTAIN VIEW, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
<S> <C> <C> <C> <C>
2000 1999 2000 1999
-------------------------------------------------
Net revenues $71,548 $68,001 $143,115 $137,017
Expenses:
Salaries and benefits 37,534 33,745 74,110 67,768
Supplies 9,334 7,882 18,386 15,411
Purchased services 7,000 7,806 13,916 16,450
Provision for doubtful accounts 1,093 1,130 2,156 2,310
Other expenses 5,774 5,498 10,973 10,447
Charge related to decertification of facility 1,715 - 3,413 -
Rent 1,331 1,296 2,635 2,599
Rent to related parties 462 444 924 888
Depreciation and amortization 3,996 3,902 7,934 7,764
Interest expense, net of interest income 6,237 6,148 12,379 11,765
-------------------------------------------------
Total expenses 74,476 67,851 146,826 135,402
-------------------------------------------------
Income (loss) before provision for income taxes (2,928) 150 (3,711) 1,615
Income tax provision (benefit) (990) 237 (1,123) 1,000
-------------------------------------------------
Net income (loss) $(1,938) $ (87) $ (2,588) $ 615
=================================================
</TABLE>
See accompanying notes.
1
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FOUNTAIN VIEW, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31,
2000 1999
---------------------------------------
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents $ - $ -
Accounts receivable, less allowance for doubtful accounts of $15,070 and
$13,996 at 2000 and 1999, respectively 45,640 45,243
Current portion of deferred income taxes 11,176 11,176
Other current assets 9,989 10,512
------------------------------------
Total current assets 66,805 66,931
Property and equipment, at cost:
Land and land improvements 25,065 25,064
Buildings and leasehold improvements 216,270 215,517
Furniture and equipment 30,892 30,209
Construction in progress 1,240 933
------------------------------------
273,467 271,723
Less accumulated depreciation and amortization (29,142) (23,056)
------------------------------------
244,325 248,667
Notes receivable, less allowance for doubtful accounts of $686 and $674 at
2000 and 1999, respectively 4,664 4,773
Goodwill, net 54,434 55,388
Deferred financing costs, net 9,798 10,258
Deferred income taxes 5,270 4,463
Other assets 4,749 4,556
------------------------------------
Total assets $ 390,045 $ 395,036
====================================
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
2
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FOUNTAIN VIEW, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands, except stock information)
<TABLE>
<S> <C> <C>
June 30, December 31,
2000 1999
----------------------------------
(Unaudited) (Note)
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 23,924 $ 22,455
Employee compensation and benefits 8,039 8,469
Accrued interest payable 4,347 3,605
Current portion of deferred income taxes 332 332
Current maturities of long-term debt and capital leases 13,426 13,247
---------------------------------
Total current liabilities 50,068 48,108
Long-term debt and capital leases, less current maturities 227,820 231,867
Deferred income taxes 33,266 33,582
---------------------------------
Total liabilities 311,154 313,557
Preferred Stock Series A, mandatorily redeemable, $0.01 par value:
1,000,000 shares authorized, 15,000 shares issued and outstanding at 2000
and 1999 (liquidation preference of $15 million) 15,000 15,000
Commitments and contingencies - -
Shareholders' equity:
Common Stock Series A, $0.01 par value: 1,500,000 shares authorized,
1,000,000 shares issued and outstanding at 2000 and 1999 10 10
Common Stock Series B, $0.01 par value: 200,000 shares authorized, 114,202
shares issued and outstanding at 2000 and 1999 1 1
Common Stock Series C, $0.01 par value: 1,300,000 shares authorized, 20,742
shares issued and outstanding at 2000 and 1999 - -
Additional paid-in capital 106,488 106,488
Accumulated deficit (40,068) (37,480)
Due from shareholder (2,540) (2,540)
---------------------------------
Total shareholders' equity 63,891 66,479
---------------------------------
Total liabilities and shareholders' equity $390,045 $395,036
=================================
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
3
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FOUNTAIN VIEW, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
<S> <C> <C>
2000 1999
--------------------------------
Operating activities:
Net income (loss) $(2,588) $ 615
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 7,934 7,764
Changes in operating assets and liabilities:
Accounts receivable (397) 5,555
Other current assets 376 (1,751)
Accounts payable and accrued liabilities 1,469 (4,798)
Employee compensation and benefits (430) 343
Accrued interest payable 742 857
Deferred income taxes (1,123) 961
-------------------------------
Total adjustments 8,571 8,931
-------------------------------
Net cash provided by operating activities 5,983 9,546
Investing activities:
Principal payments on notes receivable 256 430
Additions to property and equipment (1,744) (3,399)
Changes in other assets (211) (106)
-------------------------------
Net cash used in investing activities (1,699) (3,075)
Financing activities:
Additions to deferred financing costs (416) -
Decrease in capital lease obligations (468) (508)
Principal payments on long-term debt (3,750) (1,250)
Draw (pay down) on revolving loan facility, net 350 (1,711)
--------------------------------
Net cash used in financing activities (4,284) (3,469)
--------------------------------
Increase in cash and cash equivalents - 3,002
Cash and cash equivalents at beginning of period - -
-------------------------------
Cash and cash equivalents at end of period $ - $ 3,002
===============================
</TABLE>
See accompanying notes.
4
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Description of Business
Fountain View, Inc. ("Fountain View" or "Company") is a leading operator of
long-term care facilities and a leading provider of a full continuum of post-
acute care services, with a strategic emphasis on sub-acute specialty medical
care. Fountain View operates a network of facilities in California, Texas, and
Arizona, including 44 skilled nursing facilities ("SNFs") that offer sub-acute,
rehabilitative and specialty medical skilled nursing care, as well as six
assisted living facilities ("ALFs") that provide room and board and social
services in a secure environment. In addition, Fountain View provides a variety
of high-quality ancillary services such as physical, occupational and speech
therapy in Fountain View-operated facilities, unaffiliated facilities and acute
care hospitals. Fountain View also operates three institutional pharmacies (one
of which is a joint venture), which serve acute care hospitals as well as SNFs
and ALFs, both affiliated and unaffiliated with Fountain View, an outpatient
therapy clinic and a durable medical equipment ("DME") company.
2. Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. In the opinion of management, the unaudited financial information reflects
all adjustments (all of which are of a normal recurring nature), which are
considered necessary to fairly state the Company's financial position, its cash
flows and the results of operations. These statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with the
Company's audited financial statements for the year ended December 31, 1999. The
interim financial information herein is not necessarily representative of that
to be expected for a full year.
3. Reclassifications
Certain prior period amounts have been reclassified to conform to the current
period presentation.
4. Business Segments
The Company has three reportable segments: nursing services, therapy services,
and pharmacy services. The Company's reportable segments are business units that
offer different services and products. The reportable segments are each managed
separately due to the nature of the services provided or the products sold.
The Company evaluates performance and allocates resources based on an efficient
and cost-effective operating model which maximizes profitability and the quality
of care provided across the Company's entire facility network. Certain of
Fountain View's facilities are leased, under operating leases, and not owned.
Accordingly, earnings before interest, taxes, depreciation, amortization and
rent is used to determine and evaluate segment profit or loss. Corporate
overhead is not allocated for purposes of determining segment profit or loss,
and is included, along with the Company's DME subsidiary, in the "all other"
category in the selected segment financial data that follows. Intersegment
revenues are recorded at the Company's cost plus standard mark-up; intersegment
profit and loss has been eliminated in consolidation.
5
<PAGE>
The following table sets forth selected financial data by business segment (in
thousands):
Selected Financial Data:
<TABLE>
<CAPTION>
Nursing Therapy Pharmacy
Services Services Services All Other Totals
------------------------------------------------------------------------------------
Six Months Ended June 30, 2000:
<S> <C> <C> <C> <C> <C>
Revenues from external customers $125,341 $ 7,192 $10,485 $ 97 $143,115
Intersegment revenues - 12,153 2,992 4,057 19,202
------------------------------------------------------------------------------------
Total revenues $125,341 $19,345 $13,477 $ 4,154 $162,317
====================================================================================
Segment profit (loss) $ 22,120 $ 5,201 $ 1,281 $(8,441) $ 20,161
Six Months Ended June 30, 1999:
Revenues from external customers $120,741 $ 5,455 $10,817 $ 4 $137,017
Intersegment revenues - 7,063 2,349 1,702 11,114
------------------------------------------------------------------------------------
Total revenues $120,741 $12,518 $13,166 $ 1,706 $148,131
====================================================================================
Segment profit (loss) $ 26,800 $ 2,941 $ 1,773 $(6,883) $ 24,631
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
-----------------------------------------
<S> <C> <C>
Revenues:
External revenues for reportable segments $143,115 $137,017
Intersegment revenues for reportable segments 19,202 11,114
Elimination of intersegment revenues (19,202) (11,114)
----------------------------------------
Total consolidated revenues $143,115 $137,017
========================================
</TABLE>
5. Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), establishes standards for the reporting of comprehensive
income and its components in a full set of general purpose financial statements.
Comprehensive income is defined as the change in equity (net assets) of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. SFAS 130 uses the term comprehensive
income to describe the total of all components of comprehensive income, that is,
net income plus other comprehensive income. Other comprehensive income items
include unrealized gains and losses on available-for-sale securities; foreign
currency translation adjustments; changes in the market value of certain futures
contracts; and changes in certain minimum pension liabilities. Fountain View has
no items of other comprehensive income in the periods reported, and, therefore,
comprehensive income (loss) is equal to net income (loss), as reported.
6. Income Taxes
The income tax provision (benefit) is calculated using a federal tax rate of 34%
and a blended state tax rate of 6%. The difference between the federal and
blended state tax rates and the effective rate is primarily due to the non-
deductible portion of goodwill.
6
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7. Charge Related to Decertification of Facility
In November 1999, one of the Company's SNF's was decertified from the Medicare
and Medicaid Programs. The Company continues to vigorously contest this
decertification. The previously anticipated May 2000 recertification did not
occur and, in July, a new recertification process was begun which is expected to
be completed in November 2000. Pretax losses related to this matter are
approximately $600,000 a month. If not resolved, these losses could possibly
cause the Company to be out of compliance with certain financial covenants of
its term loan and revolving loan facilities in the third quarter of 2000.
Item 2. Management's Discussion And Analysis of Financial Condition And Results
of Operations (Unaudited)
Quarter Ended June 30, 2000 Compared to Quarter Ended June 30, 1999 (Dollars in
Thousands)
Net revenues increased $3,547 or 5.2% from $68,001 for the quarter ended June
30, 1999 to $71,548 for the quarter ended June 30, 2000. Total average occupancy
was 81.9% for the quarter ended June 30, 2000 and 83.0% for the quarter ended
June 30, 1999. Although the total average occupancy declined between quarters,
net revenues increased primarily due to additional external business at the
Company's therapy subsidiary, higher Medicare census and higher Medicare rates
effective April 1, 2000.
Expenses increased $6,389 or 11.4% from $56,061 for the quarter ended June 30,
1999 to $62,450 for the quarter ended June 30, 2000. As a percent of net
revenues, expenses increased from 82.4% of net revenues for the quarter ended
June 30, 1999 to 87.3% for the quarter ended June 30, 2000. This increase was
primarily due to higher salaries and benefits ($3,789), higher supplies costs
related primarily to nursing services and pharmacy services ($1,452), and the
charge related to decertification of a facility ($1,715). Salaries and benefits
were 52.5% of net revenues for the quarter ended June 30, 2000 compared to 49.6%
for the quarter ended June 30, 1999. The increase in salaries and benefits was
largely due to additional personnel related to expansion of the Company's
therapy operations and increases in wage rates and staffing levels at the
Company's nursing facilities.
Income before rent, rent to related parties, depreciation and amortization and
interest expense decreased $2,842 or 23.8% from $11,940 for the quarter ended
June 30, 1999 to $9,098 for the quarter ended June 30, 2000 and was 12.7% of net
revenues for the quarter ended June 30, 2000 compared to 17.6% for the quarter
ended June 30, 1999.
Rent, rent to related parties, depreciation and amortization and interest
expense increased $236 or 2.0% from $11,790 for the quarter ended June 30, 1999
to $12,026 for the quarter ended June 30, 2000. Substantially all of this
increase was due to higher interest expense due in part to higher interest rates
on the Company's term loan credit and revolving loan facilities.
Net loss increased from $87 for the quarter ended June 30, 1999 to $1,938 for
the quarter ended June 30, 2000.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
(Dollars in Thousands)
Net revenues increased $6,098 or 4.5% from $137,017 for the six months ended
June 30, 1999 to $143,115 for the six months ended June 30, 2000. Total average
occupancy was 82.3% for the six months ended June 30, 2000 and 83.3% for the six
months ended June 30, 1999. Although the total average occupancy declined
between periods, net revenues increased primarily due to additional external
business at the Company's therapy subsidiary, higher Medicare census and higher
Medicare rates effective April 1, 2000.
Expenses increased $10,568 or 9.4% from $112,386 for the six months ended June
30, 1999 to $122,954 for the six months ended June 30, 2000. As a percent of net
revenues, expenses increased from 82.0% of net revenues for the six months ended
June 30, 1999 to 85.9% for the six months ended June 30, 2000. This increase was
primarily due to higher salaries and benefits ($6,342), higher supplies costs
related primarily to nursing services and pharmacy services ($2,975), and the
charge related to decertification of a facility ($3,413), partially offset by
decreased purchased services ($2,534). Salaries and benefits were 51.8% of net
revenues for the six months ended June 30, 2000 compared to 49.5% for the six
months ended June 30, 1999. The increase in salaries and benefits was largely
due to additional personnel related to expansion of the Company's therapy
operations and increases in wage rates and staffing levels at the Company's
nursing facilities. The decrease in purchased services was primarily due to the
conversion of therapy business from outside contractors to the Company's therapy
operations.
7
<PAGE>
Income before rent, rent to related parties, depreciation and amortization and
interest expense decreased $4,470 or 18.1% from $24,631 for the six months ended
June 30, 1999 to $20,161 for the six months ended June 30, 2000 and was 14.1% of
net revenues for the six months ended June 30, 2000 compared to 18.0% for the
six months ended June 30, 1999.
Rent, rent to related parties, depreciation and amortization and interest
expense increased $856 or 3.7% from $23,016 for the six months ended June 30,
1999 to $23,872 for the six months ended June 30, 2000. Substantially all of
this increase was due to higher interest expense due in part to higher interest
rates on the Company's term loan credit and revolving loan facilities.
Net income was $615 for the six months ended June 30, 1999 compared to a net
loss of $2,588 for the six months ended June 30, 2000.
Selected statistics are shown below:
<TABLE>
<CAPTION>
2000 1999 (Decrease)
--------------------------------------------------------------------
<S> <C> <C> <C>
Facilities in operation at:
March 31 50 50 -
June 30 50 50 -
Nursing center beds at:
March 31 6,032 6,032 -
June 30 6,032 6,032 -
Assisted living beds at:
March 31 700 700 -
June 30 700 700 -
Total beds at:
March 31 6,732 6,732 -
June 30 6,732 6,732 -
Total occupancy:
First quarter 82.7% 83.7% (1.0)%
Second quarter 81.9% 83.0% (1.1)%
Nursing center occupancy:
First quarter 84.4% 85.2% (0.8)%
Second quarter 83.5% 84.5% (1.0)%
Assisted living center occupancy:
First quarter 68.6% 70.7% (2.1)%
Second quarter 68.8% 69.7% (0.9)%
</TABLE>
Liquidity and Capital Resources (Dollars in Thousands)
At June 30, 2000, the Company had $0 in cash and cash equivalents and working
capital of $16,737. The Company utilizes its cash balances to reduce amounts
drawn on its revolving credit facility; as such, the cash and cash equivalents
balance is minimal. During the six months ended June 30, 2000, the Company's
cash and cash equivalents remained unchanged.
Net cash provided by operating activities decreased $3,563 from $9,546 for the
six months ended June 30, 1999 to $5,983 for the six months ended June 30, 2000.
This decrease was primarily due to a reduction in earnings in 2000.
8
<PAGE>
Long-term debt, including current maturities, totaling $241,246 at June 30, 2000
consisted of mortgage and capital lease obligations of $18,746, a term loan
credit facility of $82,500, senior subordinated notes of $120,000, and
borrowings on the Company's revolving loan facility of $20,000.
The Company had $10,000 in available borrowings on its revolving loan facility
at June 30, 2000. The Company believes that it has sufficient cash flow from its
existing operations and from its bank line of credit to service long-term debt
due within one year of $13,426 to make normal recurring capital replacements,
additions and improvements of approximately $6,000 planned for the next 12
months and to meet other long-term working capital needs and obligations.
Impact of Inflation
The health care industry is labor intensive. Wages and other expenses increase
more rapidly during periods of inflation and when shortages in the labor market
occur. In addition, suppliers pass along rising costs in the form of higher
prices. Increases in reimbursement rates under Medicaid generally lag behind
actual cost increases, so that the Company may have difficulty covering these
cost increases in a timely fashion. In addition, Medicare SNFs are now paid a
per diem rate under PPS, in lieu of the former cost-based reimbursement rate.
Increases in the federal portion of the per diem rates may also lag behind
actual cost increases.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 relating to
future events or the future financial performance of the Company including, but
not limited to, statements contained in "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations". These forward-
looking statements may include, among other things, the success of the Company's
business strategy, the Company's ability to develop and expand its business in
regional markets, the Company's ability to increase the level of sub-acute and
specialty medical care it provides, the effects of government regulation and
healthcare reform, litigation, the Company's anticipated future revenues and
additional revenue opportunities, capital spending and financial resources, the
liquidity demands of the Company, the Company's ability to meet its liquidity
needs, and other statements contained in this Quarterly Report on Form 10-Q that
are not historical facts. Although management of the Company believes that the
assumptions on which these forward-looking statements are based are reasonable,
any of those assumptions could prove to be inaccurate and, as a result, the
forward-looking statements based on those assumptions also could be materially
incorrect. Readers are cautioned that such forward-looking statements, which may
be identified by words including "anticipates," "believes," "intends,"
"estimates," "plans," and other similar expressions, are only predictions or
estimations and are subject to known and unknown risks and uncertainties, over
which the Company has little or no control. In evaluating such statements,
readers should consider the various factors identified above which could cause
actual events, performance or results to differ materially from those indicated
by such statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Certain of the Company's debt obligations are sensitive to changes in interest
rates. The rates on the term loan credit and revolving loan facilities, which
both bear interest at LIBOR plus an applicable margin, are reset at various
intervals, thus limiting their risk. The Company has not experienced significant
changes in market risk due to the relative stability of interest rates during
the six months ended June 30, 2000.
9
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
(27) Financial Data Schedule
The Company did not file any reports on Form 8-K during the six months ended
June 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FOUNTAIN VIEW, INC.
Date: August 14, 2000 By: /s/ PAUL C. RATHBUN
--------------------------
Paul C. Rathbun
Senior Vice President - Finance,
Chief Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
10
