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 February 28, 1995.
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 FEBRUARY 28, 1995
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 April 1, 1995: 32,848,863.
<PAGE>
<PAGE>
THE HILLHAVEN CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets as of
February 28, 1995 and May 31, 1994 1
Consolidated Statements of Income for
the Three Months and Nine Months Ended
February 28, 1995 and 1994 3
Consolidated Statements of Cash Flows
for the Nine Months Ended
February 28, 1995 and 1994 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Change in Securities 18
Item 6. Exhibits and Reports on Form 8-K 19
Signature 21
NOTE: Items 3 - 5 of Part II are omitted because they are
not applicable.
<PAGE>
<PAGE>
<TABLE>
THE HILLHAVEN CORPORATION
CONSOLIDATED BALANCE SHEETS
February 28, 1995 and May 31, 1994
(Unaudited)
(In thousands)
<CAPTION>
February 28, May 31,
1995 1994
(restated)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 48,965 $ 49,888
Accounts and notes receivable, less
allowance for doubtful accounts of
$12,124 at February 28, 1995 and
$10,337 at May 31, 1994 164,713 152,962
Inventories 17,163 20,772
Prepaid expenses and other current assets 33,849 35,011
Total current assets 264,690 258,633
Long-term notes receivable, less allowance
for doubtful accounts of $14,822 at
February 28, 1995 and $14,608 at May 31, 1994 85,365 84,944
Property and equipment, net 811,559 784,337
Intangible assets, net of accumulated
amortization of $20,787 at February 28, 1995
and $19,336 at May 31, 1994 29,096 31,331
Other noncurrent assets, net 42,872 33,248
$ 1,233,582 $1,192,493
</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
February 28, 1995 and May 31, 1994
(Unaudited)
(In thousands, except share information)
<CAPTION>
February 28, May 31,
1995 1994
(restated)
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 38,765 $ 46,389
Accounts payable 58,944 65,150
Employee compensation and benefits 49,252 52,444
Other accrued liabilities 55,803 56,977
Total current liabilities 202,764 220,960
Convertible debentures 132,645 134,223
Other long-term debt 456,974 444,812
Other long-term liabilities 36,511 28,751
Stockholders' equity:
Series C Preferred Stock, $0.15 par value;
35,000 shares authorized, issued and
outstanding (liquidation preference
of $35,000) 5 5
Series D Preferred Stock, $0.15 par value;
300,000 shares authorized, 63,402 and
60,546 issued and outstanding at
February 28, 1995 and May 31, 1994
(liquidation preference of $63,402) 10 9
Common stock, $0.75 par value; 60,000,000
shares authorized; 32,824,463 and
28,434,756 issued and outstanding at
February 28, 1995 and May 31, 1994 24,618 21,326
Additional paid-in capital 421,772 329,537
Retained earnings 49,718 16,081
Unearned compensation (3,587) (3,211)
492,536 363,747
Less 4,179,520 Common shares held in trust (87,848) ---
Total stockholders' equity 404,688 363,747
$ 1,233,582 $1,192,493
</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 INCOME
Three Months and Nine Months Ended February 28, 1995 and 1994
(Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Three Months Nine Months
1995 1994 1995 1994
(restated) (restated)
<S> <C> <C> <C> <C>
Net revenues $396,167 $373,121 $1,177,640 $1,107,155
Expenses:
Operating and
administrative 339,139 315,917 999,460 938,732
Depreciation and
amortization 14,452 13,557 42,646 40,738
Rent 13,445 14,101 40,648 41,829
Interest 12,108 12,573 36,664 41,677
Restructuring --- --- --- (20,225)
Total expenses 379,144 356,148 1,119,418 1,042,751
Income before income
taxes and
extraordinary
charge 17,023 16,973 58,222 64,404
Income tax expense 5,635 5,029 19,248 18,165
Income before
extraordinary charge 11,388 11,944 38,974 46,239
Extraordinary charge -
early extinguishment
of debt, net of
income taxes (48) (73) (222) (1,013)
Net income $ 11,340 $ 11,871 $ 38,752 $ 45,226
</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 INCOME
Three Months and Nine Months Ended February 28, 1995 and 1994
(Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Three Months Nine Months
1995 1994 1995 1994
(restated) (restated)
<S> <C> <C> <C> <C>
Primary income per
common share:
Income before
extraordinary
charge $ .33 $ .37 $ 1.18 $ 1.61
Extraordinary charge --- --- (.01) (.04)
Net income $ .33 $ .37 $ 1.17 $ 1.57
Fully diluted income per
common share:
Income before
extraordinary
charge $ .31 $ .32 $ 1.07 $ 1.34
Extraordinary charge --- --- (.01) (.03)
Net income $ .31 $ .32 $ 1.06 $ 1.31
Weighted average common
shares and equivalents
outstanding:
Primary 28,864 25,244 28,765 24,922
Fully diluted 36,836 33,754 36,800 33,831
</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
Nine Months Ended February 28, 1995 and 1994
(Unaudited)
(In thousands)
<CAPTION>
1995 1994
(restated)
<S> <C> <C>
Net cash provided by operating activities
(including changes in all operating
assets and liabilities) $ 73,500 $ 56,597
Cash flows from investing activities:
Purchases of property and equipment (36,699) (30,495)
Purchase of previously leased
nursing centers (13,032) (1,668)
Proceeds from sales of property
and equipment 4,009 14,842
Proceeds from collection of notes
receivable 3,186 16,640
(Investments in) distributions from
joint ventures and partnerships, net (1,876) 770
Increase in other noncurrent assets (4,901) (3,475)
Net cash used in
investing activities (49,313) (3,386)
Cash flows from financing activities:
Net increase in borrowings under
revolving lines of credit 21,000 8,000
Proceeds from long-term debt 17,521 358,805
Payments of principal on long-term debt (52,277) (495,091)
Proceeds from sale of preferred stock --- 63,399
Increase in intangible assets (2,193) (14,731)
Other, net (9,161) (9,415)
Net cash used in financing
activities (25,110) (89,033)
Net decrease in cash (923) (35,822)
Cash and cash equivalents at beginning
of period 49,888 73,253
Cash and cash equivalents at end of period $ 48,965 $ 37,431
</TABLE>
<PAGE>
<PAGE>
<TABLE>
THE HILLHAVEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended February 28, 1995 and 1994
(Unaudited)
(In thousands)
<CAPTION>
1995 1994
(restated)
<S> <C> <C>
Supplemental disclosures
Cash paid for:
Interest $ 32,778 $ 29,415
Income taxes 16,411 7,691
Noncash investing and financing activities:
Long-term debt incurred in connection with
purchase of previously leased properties 2,720 13,705
Adjustment to property and equipment and
capital lease obligations --- 23,600
Notes receivable issued in connection
with sale of nursing centers 500 1,540
Preferred stock issued to retire debt --- 56,601
Financing for equipment purchases 2,535 ---
Preferred stock tendered for the purchase
of common stock --- 63,300
Common stock placed in grantor trust 88,279 ---
</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)
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
Company's 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.
2. The provision for doubtful accounts and notes receivable is
included in operating and administrative expenses.
Provisions totalled $93, $3,393, $3,994 and $6,876 for the
three months and nine months ended February 28, 1995 and
1994, respectively.
3. Interest income is included in net revenues and totalled
$3,194, $9,620, $3,256 and $10,391 for the three months and
nine months ended February 28, 1995 and 1994, respectively.
4. The extraordinary charges resulted from the write-off of
capitalized financing costs in connection with the
refinancing of certain of the Company's industrial revenue
bonds and are shown net of the tax effect of $25 and $110 in
the three and nine months ended February 28, 1995,
respectively, and $33 and $459 in the three and nine months
ended February 28, 1994, respectively.
5. On September 30, 1994, the Company sold its 30% ownership
interest in a closely-held institutional pharmacy and
recognized a pretax gain of $8,077.
6. On October 28, 1994, the Company restructured its bank
financing and increased its available borrowing capacity by
$20,000. The amended $320,000 commercial bank facility,
with a syndicate of 22 major banks, lowers borrowing costs,
extends the term of the agreement to five years, reduces
principal repayment requirements and relaxes many covenants.
Proceeds and enhanced cash flow from reduced repayment terms
will be used to expand subacute programs, repay higher cost
debt and fund future acquisition opportunities.
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. On October 31, 1994, the Company acquired closely-held CPS
Pharmaceutical Services, Inc. (CPS) and Advanced Infusion
Systems, Inc. (AIS) in a business combination accounted for
as a pooling of interests. CPS and AIS, which provide
diversified pharmaceutical and infusion services through
locations in Northern California, became part of the
Company's Medisave Pharmacies subsidiary through the
exchange of 1,262,062 shares of the Company's common stock
valued at approximately $29,000. The accompanying financial
statements for the three and nine months ended February 28,
1995 are presented on the basis that the companies were
combined for the entire period, and financial statements of
the prior-year periods have been restated to give effect to
the combination.
Summarized results of operations of the separate companies
for the period from June 1, 1994 through October 31, 1994,
the date of acquisition, are as follows:
<TABLE>
<CAPTION>
Hillhaven CPS/AIS
<S> <C> <C>
Net operating revenues $ 636,305 $ 10,164
Income (loss) before
extraordinary item $ 23,790 $ (240)
Net income (loss) $ 23,616 $ (240)
</TABLE>
Following is a reconciliation of the amounts of net revenues
and net income previously reported for the three and nine
months ended February 28, 1994:
<TABLE>
<CAPTION>
Three Nine
Months Months
<S> <C> <C>
Net revenues:
As previously reported $ 367,229 $1,090,605
Acquired companies 5,892 16,550
As restated $ 373,121 $1,107,155
Net income:
As previously reported $ 11,634 $ 44,530
Acquired companies 237 696
As restated $ 11,871 $ 45,226
</TABLE>
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. In January 1995, the Company established a grantor trust to
pre-fund future obligations under Hillhaven's employee
benefit plans. The grantor trust is a vehicle for
supporting existing, previously approved employee plans
which use Hillhaven common stock, including the Performance
Investment Plan, the 1990 Stock Incentive Plan and the
Employee Stock Purchase Plan, and does not change those
plans or the amount of stock to be issued for those plans.
Hillhaven transferred 4,200,000 newly issued shares of its
common stock to the grantor trust. The establishment of the
grantor trust will not affect earnings per share.
9. On February 27, 1995, Hillhaven signed a definitive
agreement to acquire Nationwide Care, Inc. ("Nationwide")
and its affiliated corporations and partnerships through (i)
the merger of Nationwide, Phillippe Enterprises, Inc. and
Meadowvale Skilled Care Center, Inc. with and into NCI
Acquisition Corp. (a newly formed wholly-owned subsidiary of
the Company) and (ii) the assignment of outstanding
partnership interests in Camelot Care Centers, Shangri-La
Partnership and Evergreen Woods, Ltd. to NCI Acquisition
Corp. (the "Merger"). The consideration for the Merger will
be 5,000,000 shares of the Company's common stock, $0.75 par
value per share ("Company Stock"). The Company will issue
up to 500,000 additional shares of Company Stock to ensure
that the value of the shares of Company Stock paid will have
a minimum value of $120 million. The transaction will be
structured as a pooling of interests and as a tax-free
reorganization under Section 368 of the Internal Revenue
Code. The closing is currently anticipated to occur on
June 30, 1995.
The following summarized operating data gives effect to the
acquisition had it occurred on June 1, 1993:
<TABLE>
<CAPTION>
Nine months ended
February 28,
1995 1994
<S> <C> <C>
Net revenues $1,272,919 $ 1,187,496
Net income $ 41,662 $ 49,060
Primary earnings per
share $ 1.08 $ 1.44
Fully diluted earnings
per share $ 1.01 $ 1.26
</TABLE>
<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.
Acquisitions
On October 31, 1994, the Company acquired closely-held CPS
Pharmaceutical Services, Inc. (CPS) and Advanced Infusion
Systems, Inc. (AIS) in a business combination accounted for as a
pooling of interests. CPS and AIS, which provide diversified
pharmaceutical and infusion services through locations in
Northern California, became part of the Company's Medisave
Pharmacies subsidiary (Medisave) through the exchange of
1,262,062 shares of the Company's common stock valued at
approximately $29,000. The accompanying financial statements for
the three and nine months ended February 28, 1995 are presented
on the basis that the companies were combined for the entire
period, and financial statements of the prior-year periods have
been restated to give effect to the combination. See Note 7 of
Notes to Consolidated Financial Statements.
Results of Operations
In the 1995 third quarter, Hillhaven realized earnings of $11,340
compared to $11,871 in the prior-year period. Net income for the
nine months ended February 28, 1995 and 1994 amounted to $38,752
and $45,226, respectively. Earnings for the nine months ended
February 28, 1994 include a $21,904 credit resulting from the
conclusion of the Company's facility disposition program.
Net revenues were $396,167, $1,177,640, $373,121 and $1,107,155
in the three and nine months ended February 28, 1995 and 1994,
respectively. Operating income before property-related expenses
(which are comprised of rent, depreciation and amortization and
interest) and restructuring credits for the three and nine months
ended February 28, 1995 was $57,028 (14.4% of net revenues) and
$178,180 (15.1% of net revenues), respectively, compared to
$57,204 (15.3% of net revenues) and $168,423 (15.2% of net
revenues) in the same periods in the prior year.
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
The following table summarizes selected operating statistics:
<TABLE>
<CAPTION>
At February 28,
1995 1994
<S> <C> <C>
Nursing Centers
Number of nursing centers 271 272
Number of licensed beds 34,074 34,143
Centers managed for others 15 16
Pharmacy Outlets 58 85
Retirement Housing Communities 19 20
</TABLE>
The following table identifies the Company's sources of net
revenues.
<TABLE>
<CAPTION>
Three months ended Nine months ended
February 28, February 28,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Percentage of net
revenues:
Nursing Centers:
Long term care 57.3% 58.8% 58.0% 60.9%
Subacute medical and
rehabilitation 26.1 21.4 24.4 20.2
Other revenues 3.0 4.2 2.9 3.5
Total nursing
centers 86.4 84.4 85.3 84.6
Pharmacies 11.2 13.3 12.4 13.2
Retirement Housing 2.4 2.3 2.3 2.2
Total 100.0% 100.0% 100.0% 100.0%
Net patient revenues
per patient day:
Long term care $ 91.46 $ 85.35 $ 89.61 $ 84.38
Subacute medical and
rehabilitation $278.02 $243.24 $270.72 $241.13
Combined $115.82 $103.24 $111.76 $100.65
Average number of
beds available 34,159 34,547 34,218 34,963
Average occupancy 92.8% 93.2% 93.0% 93.5%
</TABLE>
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Nursing center net revenues, comprised primarily of patient
revenues, increased 8.7% and 7.3% in the three and nine months
ended February 28, 1995 to $342,128 and $1,005,056, respectively,
from $314,866 and $937,104 in the same periods in the prior year.
Revenues for the three and nine months ended February 28, 1994
include gains on the sale of 13 nursing centers in the amount of
$5,102.
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>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net Patient Revenues
Medicaid 45.9% 49.2% 47.0% 50.9%
Private and other 26.1 26.8 26.6 26.6
Medicare 28.0 24.0 26.4 22.5
Patient Census
Medicaid 65.0% 65.9% 65.5% 67.1%
Private and other 23.1 23.6 23.3 23.2
Medicare 11.9 10.5 11.2 9.7
</TABLE>
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 542 in the first nine
months of 1995 compared to 417 in 1994.
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Net revenues from pharmacy operations decreased to $44,435 in the
three months ended February 28, 1995 from $49,747 in the prior-
year period and increased to $145,833 in the nine months ended
February 28, 1995 from $145,719 in 1994. Pharmacy operations
produced operating income before property-related expenses of
$5,207 in the current quarter (11.7% of net revenues), compared
to $6,553 (13.2% of net revenues) in the prior-year quarter. For
the nine months ended February 28, 1995, operating income before
property-related expenses amounted to $27,199 (18.7% of net
revenues) compared to $19,004 (13.0% of net revenues) in the same
period in the prior year. Revenues and operating income for the
nine months ended February 28, 1995 include an $8,077 gain on the
sale of a closely-held institutional pharmacy and costs
associated with the acquisition of AIS and CPS amounting to
$1,038.
On February 1, 1995, Hillhaven formed the MediLife Pharmacy
Network Partnership (MediLife), a joint venture between Medisave
and Life Care Centers of America (Life Care) and began providing
pharmaceutical and consulting services to certain of Life Care's
long term and subacute care facilities. Medisave contributed
five of its existing institutional pharmacies to the joint
venture and accounts for its 50% ownership interest by the equity
method. Medisave will receive a management fee for managing
MediLife. As a result of its contribution of five pharmacies to
the joint venture, subsequent to February 1, 1995, the Company
will report a decrease in pharmacy net revenues. However, this
transaction is not expected to result in a material decrease in
income for the Company for the year ended May 31, 1995.
Institutional revenues accounted for approximately 94% and 92% of
pharmacy net revenues in the three and nine months ended February
28, 1995, respectively, versus 79% in both the three-and nine-
month periods in the prior year. The growing contribution from
institutional operations reflects the Company's increasing focus
on the nursing home market and disposition of retail outlets.
The leases of the remaining 14 Wal-Mart outlets were terminated
in the 1995 first quarter. Institutional revenues increased by
6.0% and 16.6% to $41,619 and $133,482 in the three and nine
months ended February 28, 1995, respectively, from $39,245 and
$114,459 in the prior-year periods. These increases are 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 revenues from retirement housing operations increased to
$9,604 and $26,751 in the three and nine months ended
February 28, 1995 respectively, from $8,508 and $24,332 in the
prior-year periods. These increases were due to increases in
rates charged. Retirement housing average occupancy was 93.8%
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
and 94.8% in the three and nine months ended February 28, 1995,
respectively and 96.7% and 95.9% in the three and nine months
ended February 28, 1994, respectively.
Operating and administrative expenses of the Company's nursing
centers increased by 10.0% and 8.6% in the three and nine months
ended February 28, 1995 to $293,674 and $863,360, respectively,
from $267,017 and $795,269 in the same periods in the prior year.
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 both the current three-
and nine-month periods, increased by 10.4% and 7.9% to $225,010
and $662,869 in the three and nine months ended February 28,
1995, respectively, from $203,726 and $614,592 in the prior-year
periods. These increases were the result of an increase in the
number of therapists in the Company's nursing centers to
accommodate the increase in the number of medically complex
patients, as well as general wage rate increases. Nursing wages
and benefits, accounting for approximately 52% of total nursing
center labor costs in both the three and nine months ended
February 28, 1995, increased by 5.3% in the 1995 third quarter
and by 2.8% in the nine months ended February 28, 1995 compared
to the prior year periods.
The increase in the non-labor components of operating and
administrative expenses, including ancillary supplies, reflects
the higher costs associated with caring for higher acuity
patients.
Interest expense decreased by $465 to $12,108 in the current
quarter and by $5,013 to $36,664 in the current nine-month
period. This decrease is due to the refinancing of certain of
the Company's indebtedness as part of the recapitalization
program completed in 1994 as well as the restructuring of the
Company's bank financing in October 1994.
Cash Flows and Financial Condition
Cash provided by operations in the first nine months of 1995
amounted to $73,500, compared to $56,597 in the prior year. The
increase is due primarily to higher operating income before
property-related expenses and fluctuations in current assets and
liabilities.
Net cash used in investing activities amounted to $49,313 in the
first nine months of 1995 compared to $3,386 in the prior-year
period. During the nine months ending February 28, 1995,
Hillhaven purchased six nursing centers previously leased from
third parties for an aggregate purchase price of $17,355. These
transactions were partially financed by borrowings of $2,720 with
the balance settled in cash.
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
In the prior year, the Company received cash proceeds from
unscheduled notes receivable payoffs totalling $14,621. On
December 31, 1993, Hillhaven completed the sale of thirteen
nursing centers and received cash for the $15,594 aggregate sales
price.
Capital expenditures for routine replacements and refurbishment
of facilities and capital additions amounted to $36,699 in the
current nine-month period compared to $30,495 in the prior year.
Net cash used in financing activities decreased to $25,110 from
$89,033 in the prior year. During the nine months ended February
28, 1994, Hillhaven reduced its debt level and expended $14,829
for financing costs in connection with the recapitalization
program.
The Company has an $85,000 revolving bank line of credit, of
which $61,000 was available at February 28, 1995. 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 February 28, 1995.
On October 28, 1994, the Company restructured its bank financing
and increased its available borrowing capacity by $20,000. The
amended $320,000 commercial bank facility, with a syndicate of 22
major banks, lowers borrowing costs, extends the term of the
agreement to five years, reduces principal repayment requirements
and relaxes many covenants. Proceeds and enhanced cash flow from
reduced repayment terms will be used to expand subacute programs,
repay higher-cost debt and fund future acquisition opportunities.
Major Developments
On February 27, 1995, the Company entered into a definitive
agreement to acquire Nationwide Care, Inc. ("Nationwide") and
certain related entities for approximately $120,000 in Hillhaven
common stock. Nationwide operates 28 nursing centers and
retirement housing centers in Indiana, Ohio and Florida. The
transaction is expected to close in June 1995 and will be
accounted for as a pooling of interests. See Note 9 of Notes to
Consolidated Financial Statements.
On January 25, 1995, Horizon Healthcare Corporation ("Horizon")
made a proposal to acquire Hillhaven in a stock merger valued by
Horizon at $28.00 per share. On February 5, 1995, a Special
Committee of Hillhaven's Board of Directors considered the
proposal with its advisors and concluded that the proposal was
inadequate. On March 7, 1995, Horizon made another offer to
acquire Hillhaven in a stock merger valued by Horizon at $31.00
per share.
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
In light of the March 7, 1995 Horizon proposal and expressions of
interest received by Hillhaven from other parties desiring to
explore an acquisition transaction, on March 20, 1995, the
Special Committee instructed Merrill Lynch to explore strategic
alternatives, including the possible sale of Hillhaven to a third
party. The Hillhaven Special Committee has established a process
to evaluate all alternatives available to Hillhaven. As part of
this process, Hillhaven intends to engage in discussions with
parties interested in acquiring Hillhaven. Following completion
of this process, the Special Committee will evaluate all
alternatives, including whether any proposal to acquire Hillhaven
is in the best interest of Hillhaven, its stockholders and other
constituents. The Special Committee may conclude that the best
available alternative for Hillhaven is to remain a publicly-owned
company pursuing its existing strategy for enhancing value and
serving its constituents.
As a result of the Special Committee's decision to explore and
evaluate all alternatives, the Special Committee has not taken a
position with respect to Horizon's March 7, 1995 proposal at this
time. Horizon announced that its proposal expired on March 21,
1995. It also announced a major acquisition on March 31, 1995.
There can be no assurance that Horizon will continue to
participate in the process; however, the Special Committee
intends to invite Horizon to participate in the process.
<PAGE>
<PAGE>
Part II. OTHER INFORMATION
Item 1 Legal Proceedings
A number of litigations have resulted from Horizon's
proposal to acquire the Company:
On February 6, 1995, the Company filed a complaint
against Horizon in the United States District Court for
the District of Nevada seeking injunctive and declaratory
relief that a business combination between Horizon and
the Company is prohibited by the Nevada statute regarding
business combinations with interested stockholders (NRS
Sections 78.411 through 78.444) by reason of Horizon's
arrangements with Tenet Healthcare Inc. (formerly
National Medical Enterprises, Inc.) On February 27,
1995, Horizon filed an answer and a counterclaim alleging
that, among other things, the Company and all of its
directors (other than Messrs. de Wetter and Andersons)
have breached their fiduciary duties to the Company's
stockholders in connection with their consideration of
Horizon's acquisition proposal and certain actions
recently taken by the Company, including the formation of
a grantor trust, the amendment of the Company's rights
plan and the filing of a shelf registration statement
with the Securities and Exchange Commission. The
counterclaim seeks injunctive and declaratory relief and
compensatory and punitive damages in unspecified amounts.
The Company has answered the counterclaim and believes
Horizon's claims are without merit. By stipulation among
the parties, all proceedings in this action have been
stayed until May 8, 1995.
The Company and its directors are named as defendants in
a number of putative class action complaints filed on
behalf of the Company's stockholders in Nevada state
court and California state court. These complaints raise
virtually identical allegations that the Company and its
directors have breached their fiduciary duties to the
Company's stockholders in connection with the
consideration of Horizon's acquisition proposal and
certain recent corporate actions also cited in Horizon's
counterclaim. These actions seek declaratory and
injunctive relief and money damages in unspecified
amounts. The Service Employees International Union (AFL-
CIO) and Joann Sforza, a Company employee and union
member, are seeking to intervene as party plaintiffs in
one of the putative class actions brought on behalf of
the Company's stockholders, alleging that their interests
as stockholders and employees of the Company are not
adequately represented. The Company has opposed this
intervention. In addition, National Medical Enterprises,
Inc. filed a complaint against the Company and two of its
<PAGE>
<PAGE>
Part II. OTHER INFORMATION (Continued)
directors, Bruce Busby and Christopher Marker, in state
court in California seeking declaratory and injunctive
relief and alleging, among other things, that they have
breached their fiduciary duties to National Medical
Enterprises and the Company's other stockholders in
connection with their consideration of Horizon's
acquisition proposal and certain of the other corporate
actions cited in the Horizon and putative class action
complaints. The Company believes these actions are
without merit. By stipulation of the parties, all
proceedings in these actions have been stayed until
May 8, 1995.
Item 2 Changes in Securities
On January 16, 1995, the Board of Directors authorized an
amendment to Hillhaven's rights plan to effectively limit
to 30% of the outstanding shares of common stock the
amount of common stock NME can acquire without the
Company's prior approval. This amendment puts NME in
substantially the same position as all shareholders with
respect to the Rights Plan. The Rights Plan is designed
to protect Hillhaven and its shareholders from certain
non-negotiated takeover attempts which could result in a
change of control of Hillhaven on terms not in the best
interest of the Company, its stockholders and other
constituents.
On February 7, 1995, a Special Committee of the Board of
Directors authorized further amendments to the Rights
Plan in order to maintain Hillhaven's ability to redeem
or amend the rights. In connection with its rejection of
the January 25, 1995 merger proposal from Horizon, the
Special Committee concluded that Horizon had become the
beneficial owner of Hillhaven's common stock by virtue of
Horizon's arrangements with NME. Because of Horizon's
beneficial ownership, the rights would have become
nonredeemable if the Special Committee had not amended
the Rights Plan. The Rights Plan was also amended to
defer the distribution of certificates representing the
rights, which would have been required as a result of
Horizon's actions. In addition, the Rights Plan was
amended to permit NME and parties other than Horizon who
do not own 20% or more of Hillhaven's common shares to
elect directors who can ultimately vote to redeem the
rights.
Items 3 - 5 are not applicable.
<PAGE>
<PAGE>
Part II. OTHER INFORMATION (Continued)
Item 6 Exhibits and Reports on Form 8-K
(A) Exhibits:
(10) Form of Amendment to Severance Agreement
(11) Statement Re: Computation of per share
earnings for the three months and nine months
ended February 28, 1995 and 1994.
(27) Financial Data Schedule (included only in the
EDGAR filing)
(B) Reports filed on Form 8-K
1. A Form 8-K, dated January 27, 1995, was filed
during the quarter to disclose the creation of a
grantor trust to pre-fund future obligations
under existing Hillhaven employee benefit plans,
as follows:
The Hillhaven Corporation (the "Company")
established The Hillhaven Corporation Grantor
Stock Trust as of January 16, 1995, and, as of
that same date, entered into an agreement (the
"Stock Purchase Agreement") with Wachovia Bank
of North Carolina, N.A. (the "Trustee") to sell
to the Trustee on behalf of the Trust Fund an
aggregate of 4.2 million shares of the Company's
Common Stock, par value $0.75 per share (the
"Shares"), at a purchase price per share equal
to $21.01875 (the "Purchase Price"). The
Purchase Price is equal to the average of the
high and low prices of the Company's Common
Stock on the New York Stock Exchange for the ten
trading days immediately preceding the date of
the Stock Purchase Agreement. The Stock
Purchase Agreement provides that $.075 per share
of the Purchase Price will be paid in cash (with
funds contributed to the Trustee by the
Company), and the remainder will be evidenced by
a Promissory Note. The purchase of 3,180,000 of
the Shares was consummated on January 27, 1995.
Under the terms of the Stock Purchase Agreement,
the purchase of the remaining 1,020,000 Shares
will be consummated as promptly as possible
following the termination of the applicable
waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976.
<PAGE>
<PAGE>
Part II. OTHER INFORMATION (Continued)
No financial statements were filed with the Form
8-K.
2. A Form 8-K, dated February 27, 1995, was filed
during the quarter to disclose an agreement to
acquire Nationwide Care, Inc. and its affiliated
corporations and partnerships as follows:
On February 27, 1995, The Hillhaven Corporation
(the "Company") signed a definitive agreement to
acquire Nationwide Care, Inc. ("Nationwide") and
its affiliated corporations and partnerships
through (i) the merger of Nationwide, Phillippe
Enterprises, Inc. and Meadowvale Skilled Care
Center, Inc. with and into NCI Acquisition Corp.
(a newly formed wholly-owned subsidiary of the
Company) and (ii) the assignment of all of the
outstanding partnership interests in Camelot
Care Centers, Shangri-La Partnership and
Evergreen Woods, Ltd. to NCI Acquisition Corp.
(the "Merger"). The consideration for the
Merger will be 5.0 million shares of the
Company's common stock, $0.75 par value per
share ("Company Stock"). The Company will issue
up to 500,000 additional shares of Company Stock
to protect a minimum purchase price of $120
million. The transaction will be structured as
a pooling of interests and as a tax-free
reorganization under Section 368 of the Internal
Revenue Code. The closing is scheduled for
June 30, 1995.
No financial statements were filed with the Form
8-K.
<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: April 3, 1995 /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>
<TABLE>
Exhibit 11
THE HILLHAVEN CORPORATION
Statement Re: Computation of Per Share Earnings(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
FOR PRIMARY EARNINGS PER SHARE
Shares outstanding at beginning
of period (1) <F1> 28,624 22,282 28,435 22,241
Shares issued upon exercise of
stock options and convertible
debentures 8 13 38 35
Dilutive effect of outstanding stock
options and contingent shares 232 210 210 213
Dilutive effect of warrants held
by NME --- 2,739 --- 2,438
Restricted shares issued
(forfeited) --- --- 82 (5)
Weighted average number of shares
and share equivalents
outstanding (2) <F2> 28,864 25,244 28,765 24,922
Income before extraordinary
item (1) $11,388 $ 11,944 $38,974 $ 46,239
Preferred stock dividends (1,736) (2,645) (5,116) (6,012)
Adjusted income 9,652 9,299 33,858 40,227
Extraordinary charge - early
extinguishment of debt,
net of tax (48) (73) (222) (1,013)
Net income as adjusted $ 9,604 $ 9,226 $33,636 $39,214
Primary earnings per share:
Income before extraordinary
item $ .33 $ .37 $ 1.18 $ 1.61
Extraordinary charge --- --- (.01) (.04)
Net income $ .33 $ .37 $ 1.17 $ 1.57
</TABLE>
(Continued on next page)
<PAGE>
<PAGE>
<TABLE>
Exhibit 11 (Continued)
THE HILLHAVEN CORPORATION
Statement Re: Computation of Per Share Earnings(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
FOR FULLY DILUTED EARNINGS PER SHARE
Weighted average number of shares
used in primary calculation 28,864 25,244 28,765 24,922
Additional dilutive effect of
stock options and warrants 12 292 24 580
Assumed conversion of dilutive
convertible debentures 7,960 8,218 8,011 8,329
Fully diluted weighted average
number of shares (2) <F2> 36,836 33,754 36,800 33,831
Income before extraordinary
charge adjusted per
primary calculation $ 9,652 $ 9,299 $33,858 $40,227
Adjustment for interest expense 2,443 2,336 7,286 6,823
Income tax effect (635) (607) (1,894) (1,774)
Interest on convertible
debentures, net of tax 1,808 1,729 5,392 5,049
Adjusted income 11,460 11,028 39,250 45,276
Extraordinary charge - early
extinguishment of debt,
net of tax (48) (73) (222) (1,013)
Adjusted income used in fully-
diluted calculation $11,412 $10,955 $39,028 $44,263
Fully diluted earnings per share:
Income before extraordinary
charge $ .31 $ .32 $ 1.07 $ 1.34
Extraordinary charge --- --- (.01) (.03)
Net income $ .31 $ .32 $ 1.06 $ 1.31
----------
<FN>
(1)<F1> Income and share amounts have been adjusted for the acquisition in
October 1994 of CPS Pharmaceutical Services, Inc. and Advanced
Infusion Systems, Inc. The transaction was accounted for as a
pooling of interests.
(2)<F2> 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.
</TABLE>
<PAGE>
<PAGE>
AMENDMENT NO. 1 TO AGREEMENT
This Amendment No. 1 to Agreement dated as of December 6,
1994 (this "Amendment"), between The Hillhaven Corporation, a
Nevada corporation (the "Company"), and _____________ (the
"Executive").
WITNESSETH:
WHEREAS, the Company and the Executive are parties to that
certain Agreement dated as of May 24, 1994 (the "Agreement"); and
WHEREAS, the Agreement provides for certain payments by the
Company to the Executive in the event that a Change of Control,
as defined in the Agreement, occurs; and
WHEREAS, the Board of Directors of the Company has
authorized the Company to amend all compensation, incentive and
benefit plans and other employment arrangements which contain a
"Change of Control" provision in the manner set forth below; and
WHEREAS, the Employee also desires to amend the Agreement in
the manner set forth below.
NOW, THEREFORE, for and in consideration of the premises,
and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Amendment. The Agreement is hereby amended by deleting
Section 1 in its entirety and substituting the following in lieu
thereof:
"1. Definitions. For purposes of this Agreement, the
terms set forth in this Section shall have the
following meanings:
A. A "Change of Control" shall be deemed to
occur if any of the following events has
occurred:
i. A Person, alone or together with its
Affiliates and Associates, or "group",
within the meaning of Section 13(d)(3)
of the Securities Exchange Act of 1934,
becomes, after the date hereof, the
beneficial owner of 20% or more of the
general voting power of the Company.
Notwithstanding the preceding sentence,
<PAGE>
<PAGE>
a Change of Control shall not be deemed
to occur if the "Person" described in
the preceding sentence has acquired 20%
or more of the general voting power of
the Company as consideration in a
transaction or series of related
transactions involving the Company's
acquisition (by stock acquisition,
merger, asset purchase or otherwise) of
one or more businesses approved prior to
such transactions or series of
transactions by the Incumbent Board (as
defined in (ii) below), and, provided
that, if such transaction or series of
transactions results in the merger,
consolidation or reorganization of the
Company and such Person, the Company is
the surviving entity following such
merger, consolidation or reorganization.
ii. Individuals who, as of the date hereof,
constitute the Board (the "Incumbent
Board"), cease for any reason to
constitute at least a majority of the
Board, provided that any person becoming
a director subsequent to the date hereof
whose election, or nomination for
election by the Company's stockholders,
was approved by a vote of at least a
majority of the directors then
comprising the Incumbent Board (other
than an election or nomination of an
individual whose initial assumption of
office is in connection with an actual
or threatened election contest relating
to the election of the directors of the
Company, as such terms are used in Rule
14a-11 of Regulation 14A promulgated
under the Securities Exchange Act of
1934) shall be considered as though such
person were a member of the Incumbent
Board.
iii. Consummation or effectiveness of:
a. a merger, consolidation or reorganization
involving the Company (a "Business
Combination"), unless
1. the stockholders of the Company,
immediately before the Business
Combination, own, directly or indirectly
immediately following the Business
Combination, at least fifty-one percent
(51%) of the combined voting power of
the outstanding voting securities of the
<PAGE>
<PAGE>
corporation resulting from the Business
Combination (the "Surviving
Corporation") in substantially the same
proportion as their ownership of the
voting securities immediately before the
Business Combination, and
2. the individuals who were members of
the Incumbent Board immediately prior to
the execution of the agreement providing
for the Business Combination constitute
at least a majority of the members of
the Board of Directors of the Surviving
Corporation, and
3. no Person (other than any Person
who, immediately prior to the Business
Combination, had beneficial ownership of
twenty percent (20%) or more of the then
outstanding Voting Securities) has
Beneficial Ownership of twenty percent
(20%) or more of the combined voting
power of the Surviving Corporation's
then outstanding voting securities;
b. a complete liquidation or dissolution of
the Company; or
c. the sale or other disposition of all or
substantially all of the assets of the
Company to any Person.
B. "Affiliate or Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of
the General Rules and Regulations under the
Securities Exchange Act of 1934.
C. "Person," for the purpose of this Section, means
an individual, firm, corporation or other entity
or any successor to such entity, but "Person"
shall not include the Company, any subsidiary of
the Company, any employee benefit plan or employee
stock plan (including a trust relating thereto) of
the Company or any subsidiary of the Company, or
any Person organized, appointed, established or
holding Voting Stock by, for or pursuant to the
terms of such a plan. "Person" shall also not
include National Medical Enterprises, Inc.
("NME"), any subsidiary of NME, any Affiliate or
Associate of NME, any employee benefit plan or
employee stock plan of NME or any subsidiary of
NME to the extent that such entities, individually
or collectively, own any or all of (x) the
8,878,147 shares of the Company's common stock
(approximately 31% of the general voting power of
the Company as of the date hereof) registered in
<PAGE>
<PAGE>
the name of NME or any subsidiary of NME as of the
date of this Agreement, or (y) such additional
number of shares of the Company's common stock
issued to NME or any subsidiary of NME in exchange
for shares of the Company's Series C Preferred
Stock or Series D Preferred Stock so long as such
exchange has been approved in advance by the
Incumbent Board.
D. "Voting Stock" means shares of the Company's capital
stock having general voting power, with "voting power"
meaning the power under ordinary circumstances (and not
merely upon the happening of a contingency) to vote in
the election of directors.
E. "Cause" shall mean: the willful, substantial,
continued and unjustified refusal of the Executive to
perform the duties of his or her office to the extent
of his or her ability to do so; any conduct on the part
of the Executive which constitutes a breach of any
statutory or common law duty of loyalty to the Company;
any illegal or publicly immoral act by the Executive
which materially and adversely affects the business of
the Company; the physical or mental disability of the
Executive as determined by the Board of Directors of
the Company and resulting in his or her inability to
perform his or her duties hereunder; or the death of
the Executive."
2. Effect on Agreement. Except as expressly amended by
this Amendment, all of the terms and conditions of the Agreement
shall remain in full force and effect.
3. Captions. The captions and headings used herein are
for convenience of reference only and shall not be construed in
any manner to limit or modify any of the terms hereof.
4. Counterparts. This Amendment may be executed in
counterparts, each of which shall be an original, but all of
which together shall constitute but one and the same instrument.
5. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Washington.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Amendment as of the date first set forth above.
THE HILLHAVEN CORPORATION
By:____________________________________
Its:___________________________________
______________________________________
Executive
<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
nine months ended February 28, 1995 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> 9-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> FEB-28-1995
<CASH> 48,965
<SECURITIES> 0
<RECEIVABLES> 176,837
<ALLOWANCES> 12,124
<INVENTORY> 17,163
<CURRENT-ASSETS> 264,690
<PP&E> 1,063,983
<DEPRECIATION> 252,424
<TOTAL-ASSETS> 1,233,582
<CURRENT-LIABILITIES> 202,764
<BONDS> 589,619
<COMMON> 24,618
0
15
<OTHER-SE> 380,055
<TOTAL-LIABILITY-AND-EQUITY> 1,233,582
<SALES> 0
<TOTAL-REVENUES> 1,177,640
<CGS> 0
<TOTAL-COSTS> 996,067
<OTHER-EXPENSES> 83,294
<LOSS-PROVISION> 3,393
<INTEREST-EXPENSE> 36,664
<INCOME-PRETAX> 58,222
<INCOME-TAX> 19,248
<INCOME-CONTINUING> 38,974
<DISCONTINUED> 0
<EXTRAORDINARY> (222)
<CHANGES> 0
<NET-INCOME> 38,752
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.06
</TABLE>
