SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(MARK ONE)
X Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended August 31, 1994.
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 1-10426
THE HILLHAVEN CORPORATION
(Exact name of registrant as specified in its charter)
FOR THE QUARTER ENDED AUGUST 31, 1994
Nevada 91-1459952
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1148 Broadway Plaza
Tacoma, WA 98402
(Address of principal executive offices)
(206) 572-4901
(Registrant's telephone number, including area code)
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
The number of shares of Common Stock, par value $.75
per share, outstanding on October 1, 1994: 27,328,179
<PAGE>
<PAGE>
THE HILLHAVEN CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets
as of August 31, 1994 and
May 31, 1994 1
Consolidated Statements of
Operations for the Three Months
Ended August 31, 1994 and 1993 3
Consolidated Statements of Cash
Flows for the Three Months
Ended August 31, 1994 and 1993 4
Notes to Consolidated Financial
Statements 5
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
NOTE: Items 2 through 5 of Part II are omitted
because they are not applicable.
<PAGE>
<PAGE>
<TABLE>
THE HILLHAVEN CORPORATION
CONSOLIDATED BALANCE SHEETS
August 31, 1994 and May 31, 1994
(In thousands)
<CAPTION>
August 31, May 31,
1994 1994
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 56,714 $ 49,544
Accounts and notes receivable,
less allowance for doubtful
accounts of $10,768 at
August 31, 1994 and
$10,005 at May 31, 1994 144,987 147,956
Inventories 17,798 20,202
Prepaid expenses and other
current assets 35,768 34,527
Total current assets 255,267 252,229
Long-term notes receivable, less
allowance for doubtful accounts
of $14,831 at August 31, 1994
and $14,608 at May 31, 1994 83,323 84,944
Property and equipment, net 792,520 783,259
Intangible assets, net of
accumulated amortization of
$21,181 at August 31, 1994
and $19,336 at May 31, 1994 30,353 31,331
Other noncurrent assets, net 32,918 32,237
$1,194,381 $1,184,000
</TABLE>
See accompanying Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
<PAGE>
<PAGE>
<TABLE>
THE HILLHAVEN CORPORATION
CONSOLIDATED BALANCE SHEETS
August 31, 1994 and May 31, 1994
(In thousands, except share information)
<CAPTION>
August 31, May 31,
1994 1994
(unaudited)
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
debt $ 50,196 $ 43,427
Accounts payable 49,501 63,929
Employee compensation and
benefits 47,701 52,444
Other accrued liabilities 59,539 56,282
Total current liabilities 206,937 216,082
Long-term debt 580,116 577,951
Other long-term liabilities 34,761 28,598
Stockholders' equity:
Series C Preferred Stock,
$.15 par value; 35,000 shares
authorized, issued and
outstanding (liquidation
preference of $35,000) 5 5
Series D Preferred stock, $.15 par
value; 300,000 shares authorized;
61,467 and 60,546 issued and
outstanding at August 31, 1994
and May 31, 1994 (liquidation
preference of $61,467) 9 9
Common stock, $.75 par value;
60,000,000 shares authorized;
27,181,960 and 27,172,694
issued and outstanding at
August 31, 1994 and May 31, 1994 20,386 20,380
Additional paid-in capital 331,496 330,472
Retained earnings 22,951 13,714
Unearned compensation (2,280) (3,211)
Net stockholders' equity 372,567 361,369
$1,194,381 $1,184,000
</TABLE>
See accompanying Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
<PAGE>
<PAGE>
<TABLE>
THE HILLHAVEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended August 31, 1994 and 1993
(Unaudited)
(In thousands, except per share)
<CAPTION>
1994 1993
<S> <C> <C>
Net operating revenues $ 375,833 $ 354,814
Expenses:
Operating and administrative 322,837 303,142
Interest 11,988 14,245
Depreciation and amortization 13,876 13,565
Rent 12,667 12,852
Guarantee fees 1,375 2,451
Restructuring --- 1,679
Total expenses 362,743 347,934
Operating income 13,090 6,880
Interest income 3,333 3,890
Income before income taxes and
extraordinary charge 16,423 10,770
Income tax expense 5,421 2,746
Income before extraordinary charge 11,002 8,024
Extraordinary charge - early
extinguishment of debt, net of
income taxes of $55 (122) ---
Net income $ 10,880 $ 8,024
Primary income per common share:
Income before extraordinary charge $ .34 $ .31
Extraordinary charge --- ---
Net income $ .34 $ .31
Fully diluted income per common share:
Income before extraordinary charge $ .31
Extraordinary charge ---
Net income $ .31 N/A
Weighted average common shares and
equivalents outstanding
Primary 27,373 23,338
Fully diluted 35,432 N/A
</TABLE>
See accompanying Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
<PAGE>
<PAGE>
<TABLE>
THE HILLHAVEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended August 31, 1994 and 1993
(Unaudited)
(In thousands)
<CAPTION>
1994 1993
<S> <C> <C>
Net cash provided by operating activities
(including changes in all operating assets
and liabilities) $ 23,786 $ 20,962
Cash flows from investing activities:
Purchases of property and equipment (11,291) (8,170)
Purchase of previously leased
nursing centers (3,923) (760)
Proceeds from sales of property
and equipment 3,115 331
Proceeds from collection of notes
receivable 2,271 15,364
(Investments in) distributions from
joint ventures and partnerships (518) 181
Increase in other assets (392) (447)
Net cash provided by (used in)
investing activities (10,738) 6,499
Cash flows from financing activities:
Net increase in borrowings
under revolving lines of credit 10,000 ---
Proceeds from long-term debt 4,313 2,177
Payments of principal on long-term debt (10,484) (1,716)
Increase in intangible assets (320) (1,737)
Other items (9,387) (16,114)
Net cash used in financing
activities (5,878) (17,390)
Net increase in cash 7,170 10,071
Cash and cash equivalents at beginning
of period 49,544 73,159
Cash and cash equivalents at end of period $ 56,714 $ 83,230
Supplemental disclosures:
Cash paid for:
Interest $ 5,996 $ 13,854
Income taxes 1,666 362
Long-term debt incurred in connection
with purchase of previously leased
properties --- 9,900
Financing for equipment purchases 2,535 ---
</TABLE>
See accompanying Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<PAGE>
<PAGE>
THE HILLHAVEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share information)
1. The unaudited financial information furnished herein, in the
opinion of management, reflects all adjustments which are
necessary to state fairly the financial position, cash flows
and results of operations of The Hillhaven Corporation
("Hillhaven" or "the Company") as of and for the periods
indicated. Hillhaven presumes that users of the interim
financial information herein have read or have access to the
audited financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations
for the preceding fiscal year and that the adequacy of
additional disclosure needed for a fair presentation, except
in regard to material contingencies, may be determined in
that context. Accordingly, footnote and other disclosures
which would substantially duplicate the disclosures
contained in Hillhaven's most recent annual report to
stockholders have been omitted.
In December 1993, the Company announced the completion of
its facility disposition program. Accordingly, the revenues
and expenses related to facilities previously held for
disposition and subsequently retained have been reclassified
to ongoing operations in the consolidated statement of
income for all periods presented. In addition, certain other
reclassifications of prior year amounts have been made to
conform to current year classifications. The financial
information herein is not necessarily representative of a
full year's operations.
2. The provision for doubtful accounts and notes receivable is
included in operating and administrative expenses.
Provisions totalled $1,515 and $1,266 for the three months
ended August 31, 1994 and 1993, respectively.
3. On September 30, 1994, the Company sold its 30% ownership
interest in Evergreen Pharmaceutical, Inc. to Omnicare, Inc.
As consideration for the sale the Company received shares of
Omnicare, Inc. common stock with a market value at
September 30, 1994 of $10,144. The Company is restricted
from selling these shares until November 1994. Due to
possible fluctuations in the market price of Omnicare, Inc.
stock, the amount of gain to be ultimately realized cannot
be determined; however the Company expects to record a net
gain in the quarter ended November 30, 1994 of approximately
$6,000 to $9,000.
On October 10, 1994, the Company announced that it had
signed a definitive agreement to acquire closely-held CPS
Pharmaceutical Services, Inc. and Advanced Infusion Systems,
Inc. based in Mountain View, California. The purchase price
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share information)
will be approximately $29,000, consisting of approximately
1.3 million shares of Hillhaven common stock, subject to
certain adjustments, and will be accounted for as a pooling
of interests. The transaction is expected to close on
October 31, 1994.
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollars in thousands)
The following material should be read in conjunction with the
Consolidated Financial Statements of the Company and the related
notes thereto. All references in this discussion and analysis to
years are to fiscal years of the Company ended May 31 of such
year.
Results of Operations
In the first quarter of 1995, Hillhaven realized net income of
$10,880 compared to $8,024 in the prior year period. Income from
operations before income taxes and extraordinary charges
increased from $10,770 to $16,423 in the current quarter.
Net operating revenues were $375,833 and $354,814 in the three
months ended August 31, 1994 and 1993, respectively.
Operating income before property-related expenses (which are
comprised of rent, depreciation and amortization, interest and
guarantee fees) for the 1995 first quarter was $52,996 (14.1% of
net operating revenues), an increase of approximately 2.6% from
$51,672 (14.6% of net operating revenues) in the prior year
period.
The following table summarizes selected operating statistics.
<TABLE>
<CAPTION>
At August 31,
1994 1993
<S> <C> <C>
Nursing Centers
Number of nursing centers 273 284
Number of licensed beds 34,282 35,149
Centers managed for others 15 17
Pharmacy Outlets 56 82
Retirement Housing Communities 19 21
</TABLE>
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollars in thousands)
The following table identifies the Company's sources of net
operating revenues.
<TABLE>
<CAPTION>
Three Months Ended
August 31,
1994 1993
<S> <C> <C>
Percentage of net operating revenues:
Nursing Centers:
Long term care 60.6% 64.0%
Subacute medical and rehabilitation 23.3 19.8
Other operating revenues 2.5 2.2
Total nursing centers 86.4 86.0
Pharmacies 11.3 11.9
Retirement Housing 2.3 2.1
Total 100.0% 100.0%
Net patient revenues per patient day:
Long term care $ 87.88 $ 83.29
Subacute medical and rehabilitation $257.87 $236.23
Combined $107.57 $ 98.38
Average number of beds available 34,243 35,142
Average occupancy 93.1% 93.4%
Nursing center net operating revenues, comprised primarily of
patient revenues, increased 6.5% in the 1995 first quarter to
$324,825 from $304,993 in the prior year period.
Patient revenues are affected by changes in Medicare and Medicaid
reimbursement rates, private pay and other rates charged by
Hillhaven, occupancy levels, the nature of services provided and
the payor mix.
Data for nursing center operations with respect to sources of net
patient revenues and patient mix by payor type are set forth
below. Included in private and other revenues are per diem
amounts received from managed care contracts.
</TABLE>
<TABLE>
<CAPTION>
Net Patient Revenues Patient Census
Three Months Ended Three Months Ended
August 31, August 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Medicaid 48.2% 51.8% 65.9% 67.6%
Private and other 27.1 26.6 23.5 23.1
Medicare 24.7 21.6 10.6 9.3
</TABLE>
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollars in thousands)
In the past year, Hillhaven received rate increases from Medicare
and Medicaid and increased its private pay rates.
The Company is continuing its strategy of improving its quality
mix of private pay and Medicare patients by expanding its
subacute medical and rehabilitation programs and services. These
higher revenue services include physical, occupational, speech
and respiratory therapy and subacute care services, such as
stroke therapy and wound care. The Company has increased the
number of managed care contracts it maintains with insurance
companies and other payors to provide subacute medical and
rehabilitation care to their insureds, offering a less expensive
alternative to acute care hospitals. The average daily number of
managed care patients in Hillhaven's nursing centers, including
long term care patients, was approximately 510 in the 1995 first
quarter compared to 350 in 1994.
Net operating revenues from pharmacy operations were $42,611 in
the 1995 first quarter and $42,180 in the prior year quarter.
Pharmacy operations produced operating income before property-
related expenses of $7,012 in the current quarter (16.5% of net
operating revenues), an increase of approximately 38.0% from
$5,082 (12.0% of net operating revenues) in the prior year
quarter. Institutional revenues accounted for approximately 84%
of pharmacy net operating revenues in the first quarter of 1995
versus 75% in the same period in 1994. The growing contribution
from institutional operations reflects the Company's increasing
focus on the nursing home market, disposition of retail outlets
and continuing pricing pressure in the retail operations. The
leases of the remaining 14 Wal-Mart outlets were terminated in
the 1995 first quarter. Institutional revenues increased by 12.9%
to $35,896 in the three months ended August 31, 1994 from $31,785
in the prior year period. This increase is the result of an
increase in the number of nursing center beds serviced and higher
sales volumes per bed. The increase in per bed sales reflects
the Company's strategy of aggressively marketing higher margin
ancillary products and services, such as respiratory and
intravenous therapies and enteral and urological supplies.
Net operating revenues from retirement housing operations
amounted to $8,397 in the 1995 first quarter compared to $7,641
in the prior year period. This increase was due to improvements
in average occupancy, which increased to 95.2% in the 1995 first
quarter from 94.5% in the same period in 1994, and increases in
rates charged.
Operating and administrative expenses of the Company's nursing
centers increased by 8.1% in the 1995 first quarter to $281,575
from $260,455 in 1994. These increases were attributable
primarily to the expansion of subacute and medical rehabilitation
services. Labor and related benefits, which represented
approximately 77% of nursing center operating and administrative
expenses in 1995, increased by 7.1% in 1995 to $217,274 from
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollars in thousands)
$202,872 in 1994. These increases were the result of an increase
in the number of therapists and nurses in the Company's nursing
centers to accommodate the increase in the number of medically
complex patients, as well as general wage rate increases.
The increases in the non-labor components of operating and
administrative expenses, including ancillary supplies, reflect
the higher costs associated with caring for higher acuity
patients.
Combined interest and guarantee fee expense decreased by 20% in
the 1995 first quarter to $13,363 from $16,696 in the prior year
period. This decrease is due to the refinancing of certain of
the Company's indebtedness as part of the recapitalization
program completed in 1994.
Liquidity and Capital Resources
Hillhaven believes that it will generate sufficient cash to fund
operations and meet its debt and lease obligations for the
current fiscal year. Cash provided by operations in the quarter
ended August 31, 1994 amounted to $23,786 compared to $20,962 in
the prior year. The increase is due primarily to higher pretax
earnings.
Net cash used in investing activities amounted to $10,738 in the
1995 first quarter compared to $6,499 provided by investing
activities in the prior year period. Cash provided in the three
months ended August 31, 1993 included unscheduled payoffs of
notes receivable totalling $14,311.
In the 1995 first quarter, capital expenditures for routine
replacements and refurbishment of facilities and capital
additions amounted to $11,291, compared to $8,170 in the prior
year period.
Net cash used in financing activities decreased to $5,878 from
$17,390 in the prior year quarter. In the current year period
the Company utilized its available credit facilities to finance
its operating activities. Such borrowings were not required in
the prior year period.
The Company has an $85,000 revolving bank line of credit, the
availability of which allows the Company to maintain lower cash
balances and may facilitate repayments of higher-rate debt or
provide cash for investment or other corporate purposes. At
August 31, 1994, the revolving bank line of credit had an
outstanding balance of $13,000.
The Company also has an accounts receivable-backed revolving bank
line of credit which provides for borrowings of up to $40,000, of
which $35,000 was available at August 31, 1994.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
On August 22, 1994, the Company was served
with a lawsuit in the matter of Nita P.
Heckendorn vs. The Hillhaven Corporation
et. al. Ms. Heckendorn is a former
director and officer of the Company. Ms.
Heckendorn, who joined the Company in
1992, alleges breach of implied employment
contract; discharge in violation of public
policy (sex and ethnic discrimination);
tortious interference with prospective
economic advantage; and intentional
infliction of emotional distress. The
suit seeks damages for wages, earnings and
other benefits, punitive damages,
attorneys fees and costs of suit. The
case has not been set for trial. The
Company believes that Ms. Heckendorn's
claims are without merit and intends to
vigorously defend the case.
Items 2 - 5 are not applicable.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
(11) Statement Re: Computation of per share
earnings for the three months ended
August 31, 1994 and 1993.
(B) Reports filed on Form 8-K:
None.
<PAGE>
<PAGE>
SIGNATURE
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.
THE HILLHAVEN CORPORATION
(Registrant)
Date: October 13, 1994 /s/ Michael B. Weitz
Michael B. Weitz*
Vice President and
Principal Accounting
Officer
* Michael B. Weitz is signing in the dual capacities
as i) principal accounting officer, and ii) a duly
authorized officer of the Company.
<PAGE>
<PAGE>
<PAGE>
<TABLE>
PART I - EXHIBIT 11
THE HILLHAVEN CORPORATION
Statement Re: Computation of Per Share Earnings
(in thousands, except per share amounts)
<CAPTION>
Three Months Ended
August 31,
1994 1993
<S> <C> <C>
FOR PRIMARY EARNINGS PER SHARE
Shares outstanding at beginning
of period 27,173 20,979
Shares issued upon exercise of
stock options 2 3
Dilutive effect of outstanding
stock options and contingent shares 198 207
Dilutive effect of warrants held
by NME --- 2,149
Weighted average number of shares and
share equivalents outstanding (1) <F1> 27,373 23,338
Income before extraordinary charge $ 11,002 $ 8,024
Preferred stock dividends (1,643) (722)
Adjusted income 9,359 7,302
Extraordinary charge - early
extinguishment of debt,
net of income taxes (122) ---
Net income as adjusted $ 9,237 $ 7,302
Primary earnings per share:
Income before extraordinary charge $ .34 $ .31
Extraordinary charge --- ---
Net income $ .34 $ .31
(Continued on next page)
</TABLE>
<PAGE>
<PAGE>
<TABLE>
PART I - EXHIBIT 11
THE HILLHAVEN CORPORATION
Statement Re: Computation of Per Share Earnings
(in thousands, except per share amounts)
<CAPTION>
Three Months Ended
August 31,
1994 1993
<S> <C> <C>
FOR FULLY DILUTED EARNINGS PER SHARE
Weighted average number of shares
used in primary calculation 27,373 23,338
Assumed conversion of convertible
debentures 8,046 8,385
Additional dilutive effect of stock
options and warrants 13 ---
Fully diluted weighted average
number of shares (1) <F1> 35,432 31,723
Income before extraordinary charge,
adjusted per primary calculation $ 9,359 $ 7,302
Adjustment for interest expense 2,430 2,128
Income tax effect (632) (543)
Interest on convertible debentures,
net of tax 1,798 1,585
Adjusted income used in fully diluted
calculation 11,157 8,887
Extraordinary charge - early
extinguishment of debt, net of
income taxes (122) ---
$ 11,035 $ 8,887
Fully diluted earnings per share:
Income extraordinary charge $ .31 $ .28
Extraordinary charge --- ---
Net income $ .31 $ .28 (2) <F2>
----------
<FN>
(1)<F1> All shares in these tables are weighted on the basis of the
number of days the shares were outstanding or assumed to be
outstanding during each period.
(2)<F2> This calculation is submitted in accordance with Regulation S-K
item 601(b)(11) although it is contrary to paragraphs 37 and 40
of APB Opinion No. 15.
</TABLE>
<PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The
Consolidated Financial Statements of The Hillhaven Corporation at and for the
Three Months Ended August 31, 1994 and the related notes thereto 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> MAY-31-1995
<PERIOD-END> AUG-31-1994
<CASH> 56,714
<SECURITIES> 0
<RECEIVABLES> 155,755
<ALLOWANCES> 10,768
<INVENTORY> 17,798
<CURRENT-ASSETS> 255,267
<PP&E> 1,021,030
<DEPRECIATION> 228,510
<TOTAL-ASSETS> 1,194,381
<CURRENT-LIABILITIES> 206,937
<BONDS> 580,116
<COMMON> 20,386
0
14
<OTHER-SE> 352,167
<TOTAL-LIABILITY-AND-EQUITY> 1,194,381
<SALES> 0
<TOTAL-REVENUES> 375,833
<CGS> 0
<TOTAL-COSTS> 321,322
<OTHER-EXPENSES> 27,918
<LOSS-PROVISION> 1,515
<INTEREST-EXPENSE> 11,988
<INCOME-PRETAX> 16,423
<INCOME-TAX> 5,421
<INCOME-CONTINUING> 11,002
<DISCONTINUED> 0
<EXTRAORDINARY> (122)
<CHANGES> 0
<NET-INCOME> 10,880
<EPS-PRIMARY> .34
<EPS-DILUTED> .31
</TABLE>
