<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FOUNTAIN VIEW, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
------------------------------------
<S> <C> <C>
Net revenues $71,567 $69,016
Expenses:
Salaries and benefits 36,576 34,023
Supplies 9,052 7,529
Purchased services 6,916 8,644
Provision for doubtful accounts 1,063 1,180
Other expenses 5,199 4,949
Charge related to decertification of facility 1,698 -
Rent 1,304 1,303
Rent to related parties 462 444
Depreciation and amortization 3,938 3,862
Interest expense, net of interest income 6,142 5,617
-----------------------------------
Total expenses 72,350 67,551
-----------------------------------
Income (loss) before provision for income taxes (783) 1465
Income tax provision (benefit) (133) 763
-----------------------------------
Net income (loss) $ (650) $ 702
===================================
</TABLE>
See accompanying notes.
1
<PAGE>
FOUNTAIN VIEW, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------------------------------------------------
(Unaudited) (Note)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ - $ -
Accounts receivable, less allowance for doubtful accounts of $14,561 and
$13,996 at 2000 and 1999, respectively 48,176 45,243
Current portion of deferred income taxes 11,176 11,176
Other current assets 9,230 10,512
-------------------------------------------------
Total current assets 68,582 66,931
Property and equipment, at cost:
Land and land improvements 25,064 25,064
Buildings and leasehold improvements 215,966 215,517
Furniture and equipment 30,584 30,209
Construction in progress 988 933
-------------------------------------------------
272,602 271,723
Less accumulated depreciation and amortization (26,082) (23,056)
-------------------------------------------------
246,520 248,667
Notes receivable, less allowance for doubtful accounts
of $680 and $674 at 2000 and 1999, respectively 4,718 4,773
Goodwill, net 54,911 55,388
Deferred financing costs, net 10,217 10,258
Deferred income taxes 4,438 4,463
Other assets 4,540 4,556
-------------------------------------------------
Total assets $393,926 $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
<PAGE>
FOUNTAIN VIEW, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands, except stock information)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------------------------------------------
(Unaudited) (Note)
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 22,301 $ 22,455
Employee compensation and benefits 8,461 8,469
Accrued interest payable 6,909 3,605
Current portion of deferred income taxes 332 332
Current maturities of long-term debt and capital leases 14,476 13,247
----------------------------------------------
Total current liabilities 52,479 48,108
Long-term debt and capital leases, less current maturities 227,194 231,867
Deferred income taxes 33,424 33,582
----------------------------------------------
Total liabilities 313,097 313,557
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 (38,130) (37,480)
Due from shareholder (2,540) (2,540)
----------------------------------------------
Total shareholders' equity 65,829 66,479
----------------------------------------------
Total liabilities and shareholders' equity $393,926 $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
<PAGE>
FOUNTAIN VIEW, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
----------------------------------------------
<S> <C> <C>
Operating activities:
Net income (loss) $ (650) $ 702
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 3,938 3,862
Changes in operating assets and liabilities:
Accounts receivable (2,933) 845
Other current assets 1,135 (1,326)
Accounts payable and accrued liabilities (154) (3,378)
Employee compensation and benefits (8) 1,053
Accrued interest payable 3,304 3,589
Deferred income taxes (133) 763
----------------------------------------------
Total adjustments 5,149 5,408
----------------------------------------------
Net cash provided by operating activities 4,499 6,110
Investing activities:
Principal payments on notes receivable 202 227
Additions to property and equipment (879) (1,609)
Changes in other assets 7 (19)
----------------------------------------------
Net cash used in investing activities (670) (1,401)
Financing activities:
Bank financing fee (385) -
Decrease in capital lease obligations (244) (251)
Principal payments on long-term debt (1,250) -
Pay down on revolving loan facility, net (1,950) (4,000)
----------------------------------------------
Net cash used in financing activities (3,829) (4,251)
----------------------------------------------
Increase in cash and cash equivalents - 458
Cash and cash equivalents at beginning of period - -
----------------------------------------------
Cash and cash equivalents at end of period $ - $ 458
==============================================
</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
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Three Months Ended March 31, 2000:
Revenues from external customers $63,229 $3,106 $5,181 $ 51 $71,567
Intersegment revenues - 6,249 1,612 2,023 9,884
------------------------------------------------------------------------------------
Total revenues $63,229 $9,355 $6,793 $ 2,074 $81,451
====================================================================================
Segment profit (loss) $11,842 $2,704 $ 790 $(4,273) $11,063
Three Months Ended March 31, 1999:
Revenues from external customers $60,552 $2,892 $5,572 $ - $69,016
Intersegment revenues - 3,428 1,104 816 5,348
------------------------------------------------------------------------------------
Total revenues $60,552 $6,320 $6,676 $ 816 $74,364
====================================================================================
Segment profit (loss) $13,516 $1,356 $1,050 $(3,231) $12,691
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
-----------------------------------------
<S> <C> <C>
Revenues:
External revenues for reportable segments $71,567 $69,016
Intersegment revenues for reportable segments 9,884 5,348
Elimination of intersegment revenues (9,884) (5,348)
-----------------------------------------
Total consolidated revenues $71,567 $69,016
=========================================
</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
<PAGE>
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 Company anticipates that this SNF will be reinstated into
the Medicare and Medicaid Programs in May 2000. In addition, the Company
anticipates an additional pre-tax charge of approximately $800,000 in the second
quarter of 2000 relating to this decertification.
Item 2. Management's Discussion And Analysis of Financial Condition And Results
of Operations (Unaudited)
Quarter Ended March 31, 2000 Compared to Quarter Ended March 31, 1999 (Dollars
in Thousands)
Net revenues increased $2,551 or 3.7% from $69,016 for the quarter ended March
31, 1999 to $71,567 for the quarter ended March 31, 2000. Total average
occupancy was 82.7% for the quarter ended March 31, 2000 and 83.7% for the
quarter ended March 31, 1999. Although the total average occupancy declined
between quarters, net revenues increased primarily due to greater Medicare
census in the current quarter.
Expenses, consisting of salaries and benefits, supplies, purchased services,
provision for doubtful accounts, other expenses and charge related to
decertification of facility as a percent of net revenues increased from 81.6% of
net revenues for the quarter ended March 31, 1999 to 84.5% for the quarter ended
March 31, 2000. Expenses increased $4,179 or 7.4% from $56,325 for the quarter
ended March 31, 1999 to $60,504 for the quarter ended March 31, 2000. This
increase was primarily due to salaries and benefits and the charge related to
decertification of a facility. Salaries and benefits were 51.1% of net revenues
for the quarter ended March 31, 2000 compared to 49.3% for the quarter ended
March 31, 1999. The increase in salaries and benefits was largely due to
additional personnel related to expansion of the Company's therapy operations.
Income before rent, rent to related parties, depreciation and amortization and
interest expense decreased $1,628 or 12.8% from $12,691 for the quarter ended
March 31, 1999 to $11,063 for the quarter ended March 31, 2000 and was 15.5% of
net revenues for the quarter ended March 31, 2000 compared to 18.4% for the
quarter ended March 31, 1999.
Rent, rent to related parties, depreciation and amortization and interest
expense increased $620 or 5.5% from $11,226 for the quarter ended March 31, 1999
to $11,846 for the quarter ended March 31, 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 decreased from $702 for the quarter ended March 31, 1999 to a net
loss of $650 for the quarter ended March 31, 2000.
7
<PAGE>
Selected statistics are shown below:
<TABLE>
<CAPTION>
2000 1999 (Decrease)
--------------------------------------------------------------------
<S> <C> <C> <C>
Facilities in operation at:
March 31 50 50 -
Nursing center beds at:
March 31 6,032 6,032 -
Assisted living beds at:
March 31 700 700 -
Total beds at:
March 31 6,732 6,732 -
Total occupancy:
First quarter 82.7% 83.7% (1.0)%
Nursing center occupancy:
First quarter 84.4% 85.2% (0.8)%
Assisted living center occupancy:
First quarter 68.6% 70.7% (2.1)%
</TABLE>
Liquidity and Capital Resources (Dollars in Thousands)
At March 31, 2000, the Company had $0 in cash and cash equivalents and working
capital of $16,103. 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 three months ended March 31, 2000, the Company's
cash and cash equivalents remained unchanged.
Net cash provided by operating activities decreased $1,611 from $6,110 for the
three months ended March 31, 1999 to $4,499 for the three months ended March 31,
2000. This decrease was primarily due to a reduction in earnings between
quarters.
Long-term debt, including current maturities, totaling $241,670 at March 31,
2000 consisted of mortgage and capital lease obligations of $18,970, a term loan
credit facility of $85,000, senior subordinated notes of $120,000, and
borrowings on the Company's revolving loan facility of $17,700.
The Company had $12,300 in available borrowings on its revolving loan facility
at March 31, 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 $14,476, which includes a capital lease purchase
option of $3,584 on a skilled nursing facility in Texas which the Company plans
to purchase in June 2000, 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. The
Company expects, on a selective basis, to pursue expansion of its existing
centers and the acquisition or development of additional centers in markets
where demographics and competitive factors are favorable.
8
<PAGE>
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, as described above, 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 three months ended March 31, 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 three months ended
March 31, 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: May 15, 2000 By: /s/PAUL C. RATHBUN
----------------------------------
Paul C. Rathbun
Senior Vice President - Finance,
Chief Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
Date: May 15, 2000 By: /s/JOHN L. FARBER
-----------------------------------
John L. Farber
Vice President - Controller and
Assistant Secretary
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT COMPANY CONSOLIDATED BALANCE SHEET (UNAUDITED) FOR MARCH 31, 2000
AND CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 62,737
<ALLOWANCES> 14,561
<INVENTORY> 3,285
<CURRENT-ASSETS> 68,582
<PP&E> 272,602
<DEPRECIATION> 26,082
<TOTAL-ASSETS> 393,926
<CURRENT-LIABILITIES> 52,479
<BONDS> 120,000
15,000
0
<COMMON> 11
<OTHER-SE> 65,818
<TOTAL-LIABILITY-AND-EQUITY> 393,926
<SALES> 0
<TOTAL-REVENUES> 71,567
<CGS> 0
<TOTAL-COSTS> 72,350
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,142
<INCOME-PRETAX> (783)
<INCOME-TAX> (133)
<INCOME-CONTINUING> (783)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (650)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
