SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K\A
AMENDMENT NO. 1
(MARK ONE)
[x] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
[Fee Required]
For the fiscal year ended May 31, 1994
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
[No Fee Required]
For the transition period from ________ to ________
Commission file number 1-10426
THE HILLHAVEN CORPORATION
(Exact name of registrant as specified in its charter)
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 (Zip Code)
executive offices)
Registrant's telephone number,
including area code: (206) 572-4901
________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
Common Stock, Par Value $0.75
per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
7-3/4% Convertible Subordinated
Debentures New York Stock Exchange
________________
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ___
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
As of August 8, 1994, there were 27,174,778 shares of Common
Stock, par value $0.75 per share, outstanding. The aggregate
market value of the shares of Common Stock held by non-affiliates
of the registrant on August 8, 1994, was approximately
$339,401,272. For purposes of the foregoing calculation only,
National Medical Enterprises, Inc. and all directors and
executive officers of the registrant have been deemed affiliates.
Portions of the definitive Proxy Statement for the
registrant's Annual Meeting of Stockholders have been
incorporated by reference into Part III of this Report.
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TABLE OF CONTENTS
ANNUAL REPORT ON FORM 10-K/A 1994
THE HILLHAVEN CORPORATION AND SUBSIDIARIES
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Page
Part I
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Item 1. Business 1
Item 2. Properties 21
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of
Security Holders 21
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 21
Item 6. Selected Financial Data 22
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 25
Item 8. Financial Statements and Supplementary Data 33
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 33
Part III
Item 10. Directors and Executive Officers of the
Registrant 33
Item 11. Executive Compensation 33
Item 12. Security Ownership of Certain Beneficial
Owners and Management 33
Item 13. Certain Relationships and Related
Transactions 33
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 34
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PART I
Item 1. Business
General
The Hillhaven Corporation, a Nevada corporation
("Hillhaven", the "Registrant" or the "Company"), operates
nursing centers, pharmacies and retirement housing communities.
Hillhaven was incorporated in May 1989 by National Medical
Enterprises, Inc. (together with its subsidiaries, "NME") in
anticipation of a spin-off by NME of substantially all of its
domestic long term care operations in a dividend distribution of
Hillhaven common stock to NME shareholders that was effected in
January 1990 (the "Spin-off"). As part of the Spin-off,
Hillhaven and NME entered into certain agreements which included
the leasing of initially 115 nursing centers and four retirement
housing communities adjacent thereto, the borrowing of certain
sums of money and the managing of certain nursing centers located
on NME hospital campuses. These relationships are discussed in
more detail under "Certain Transactions" in the Proxy Statement
for the Company's 1994 Annual Meeting of Stockholders.
Based upon the number of beds in service and net operating
revenues, Hillhaven is the second largest long term care provider
in the United States and believes that it is one of the leading
providers of Alzheimer's care. At May 31, 1994, the Company
operated 288 nursing centers (of which 194 were owned, 78 were
leased and 16 were managed for others) with 36,249 licensed beds.
The nursing centers are located in 33 states and range in
capacity from 42 to 692 beds. For the year ended May 31, 1994,
average nursing center occupancy was 93.4%. Pharmacy operations
are conducted through the Company's subsidiary, Medisave
Pharmacies, Inc. ("Medisave"), which, as of May 31, 1994,
consisted of 40 institutional pharmacies and 32 retail pharmacies
located in 19 states. The Company also operates 19 retirement
housing communities containing an aggregate of 2,622 apartment
units located in 14 states.
The Company provides a wide range of diversified health care
services, including long term care and subacute medical and
rehabilitation services, such as wound care, oncology treatment,
brain injury care, stroke therapy and orthopedic therapy.
Subacute medical and rehabilitation services are offered at all
of the Company's nursing centers and are the fastest growing
component of the Company's nursing center operations,
constituting approximately 24.7% of nursing center net operating
revenues in fiscal 1994, 19.4% in fiscal 1993 and 13.6% in fiscal
1992. Hillhaven believes that it is also one of the largest
providers of physical, occupational and speech therapies in the
United States. In addition, the Company currently provides long
term care to residents of the Company's nursing centers with
Alzheimer's disease through 61 Alzheimer's care units with 1,870
beds. The Company does not presently maintain designated beds
for specialty care services, other than for Alzheimer's care,
where the patients benefit from segregated facilities. The
Company's experience has been that subacute medical and
rehabilitation services, particularly rehabilitation, can be
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effectively and successfully integrated into its standard nursing
center operations at the majority of its centers, in most cases
with little physical reconfiguration of or modification to the
facilities.
Nursing center net operating revenues, comprised primarily
of net patient revenues, accounted for 85.5% and 84.9% of
Hillhaven's total net operating revenues for fiscal 1994 and
1993, respectively. In fiscal 1994, the Company derived 50.2% of
its net patient revenues from Medicaid, 26.8% from private pay
and other sources and 23.0% from Medicare. In fiscal 1993, the
comparable figures were 54.8%, 26.8% and 18.4%, respectively.
Pharmacy operations accounted for 12.2% and 13.1% of Hillhaven's
total net operating revenues for fiscal 1994 and 1993,
respectively. In fiscal 1994, institutional pharmacy operations
constituted approximately 76% of Medisave's total net operating
revenues, compared to 63% in fiscal 1993. Retirement housing
operations represented 2.3% and 2.0% of Hillhaven's total net
operating revenues for fiscal 1994 and 1993, respectively. Under
segment reporting criteria, Hillhaven believes its only material
business segment is "health care," which contributed
substantially all of the Company's net operating revenues and
substantially all of its operating profits for fiscal 1994.
The Recapitalization
Since the Spin-off, it has been management's intention to
improve Hillhaven's balance sheet (in particular, its debt-to-
equity ratio) and to gradually decrease the extent of the
relationship between Hillhaven and NME. To this end, prior to
September 1993, the Company had purchased all but 23 of the 115
nursing centers originally leased from NME, had restructured its
leases relating to the NME-owned nursing centers to eliminate
contingent rent provisions and to fix the purchase option prices,
had repaid $96.8 million of the $145.9 million principal amount
of notes issued by Hillhaven to NME at the time of the Spin-off,
had issued $35 million of its 8-1/4% cumulative nonvoting Series
C Preferred Stock (the "Series C Preferred Stock") to NME and
used the proceeds to repay higher cost debt and had reduced the
amount of obligations guaranteed by NME, for which the Company
pays a guarantee fee, to $699.0 million at May 31, 1993.
On September 2, 1993, Hillhaven substantially completed a
recapitalization plan (the "Recapitalization") which improved its
balance sheet, extended maturities of outstanding indebtedness,
increased operating flexibility through the acquisition of
previously leased facilities, fixed the interest rates on a
portion of its previously floating rate indebtedness and also
reduced the extent of the relationship between the Company and
NME.
Through the Recapitalization, the Company's relationship
with NME was modified by (i) the purchase of the remaining 23
facilities leased from NME (the "Leased Facilities") for $111.8
million, (ii) the repayment of all existing debt to NME in the
aggregate principal amount of $147.2 million, (iii) the release
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of NME guarantees on approximately $400 million of debt, (iv) the
limitation of the annual fee payable to NME in connection with
the maintenance of the remaining guarantees to 2% of the
remaining amount guaranteed and (v) the amendment of existing
agreements to eliminate obligations of NME to provide additional
financing to the Company.
The Recapitalization was financed through (i) the issuance
to NME of $120 million of a newly created series of payable-in-
kind preferred stock (the "Series D Preferred Stock"), (ii) the
incurrence by First Healthcare Corporation, the Company's
principal operating subsidiary ("FHC"), of a $175 million five-
year term loan under a secured credit facility with a syndicate
of banks (the "Bank Term Loan"), (iii) the issuance of $175
million of 10-1/8% Senior Subordinated Notes due 2001 (the
"Offering"), (iv) the borrowing of $30 million under an accounts
receivable-backed credit facility (the "Accounts Receivable
Financing") and (v) the use of approximately $39 million of cash.
The Recapitalization included a $100 million letter of
credit facility to be used to provide credit enhancement for and
replace NME guarantees on the Company's industrial revenue bonds,
and an $85 million revolving bank line of credit. In February
1994, the letter of credit facility was reduced to $90 million.
The availability of the revolving line of credit 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.
Following the Recapitalization, NME has continued to be a
substantial shareholder of the Company, but is no longer a lessor
to or creditor of the Company. NME has continued as a guarantor
of certain leases and a significantly reduced portion of the
Company's debt. In the short term, the removal of NME as a
guarantor of certain of the Company's indebtedness has caused the
Company to incur debt at higher interest rates than may have been
available previously. However, this cost has been balanced by
the reduction of guarantee fees paid to NME and the replacement
of $120 million of indebtedness with the Series D Preferred
Stock. In addition, the Company has benefited by capping at 2%
NME's guarantee fee, which otherwise would have escalated to 3%.
New funds are anticipated to be obtained at rates which the
Company believes will be lower than the rates which it would have
otherwise obtained on financing provided by NME.
The Recapitalization is discussed in more detail under
"Certain Transactions" in the Proxy Statement for the Company's
1994 Annual Meeting of Stockholders.
Industry Trends
The Company believes that several industry trends will
contribute to growth opportunities. These trends include an
aging population, the increasing shift of patients from acute
care and rehabilitation hospitals to nursing centers due to the
nationwide emphasis on health care cost containment, the health
care system reform proposals being considered by the federal and
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state governments and others, the growth in demand for long term
care services and centers currently exceeding the growth in
supply and the increasing complexity of and more burdensome
operating standards for the delivery of pharmaceutical products
and services to nursing centers and other institutions.
Aging Population. People over the age of 65 are the primary
users of long term care. Based on U.S. Census Bureau data, this
segment of the population in the United States has grown from
approximately 25 million in 1980 to approximately 31 million in
1990. This age group is expected to increase to approximately 35
million by the year 2000. The fastest growing segment of the
United States population is the over-85 age group, which is
expected to increase from approximately 3.4 million in 1991 to
approximately 4.6 million in 2000. Advances in medical
technology have increased life expectancies; as a result, an
increasing number of elderly patients require a high level of
care not historically available outside an acute care hospital.
Earlier Hospital Discharge to Nursing Centers. Based on
reports in health care industry journals, in recent years,
average lengths of stay in hospitals have been decreasing, in
part as a result of governmental and private pay sources
attempting to control health care costs by adopting reimbursement
strategies that encourage earlier discharge from hospitals. Many
patients leaving hospitals require skilled nursing care and
rehabilitation services of the type that the Company provides.
Health Care System Reforms. In an effort to combat
increasing health care costs, governmental entities and insurance
companies are considering ways to contain costs, including
adjusting Medicaid eligibility requirements and encouraging
patients to obtain treatment from lower cost providers. The
Company believes that, as a low cost provider of subacute medical
and rehabilitation services, it is well-positioned to benefit
from these reforms.
Nursing Center Supply/Demand Imbalance. Based on reports in
long term care industry journals, while demand for nursing center
beds has increased in recent years, the supply has remained
relatively unchanged. Construction and expansion of nursing
centers is regulated in most states, and the ability to obtain
financing for these activities in the past was adversely affected
by lending limitations imposed by the financial institutions
industry.
Increasing Complexity of Institutional Pharmaceutical
Requirements. The Company believes that the implementation of
the Omnibus Budget Reconciliation Act of 1987 ("OBRA") in October
1990 has further increased the demand for the Company's
pharmaceutical services. Nursing centers are responsible for
complying with more stringent standards of care established by
OBRA, which include planning, monitoring and reporting the
progress of prescription drug therapy. Based on reports in long
term care industry journals, nursing center administrators and
directors of nursing now seek sophisticated and experienced
pharmacies with trained consultant pharmacists and computerized
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documentation programs to help ensure regulatory compliance.
Retail pharmacies, which generally lack the breadth of service
and do not focus on the special requirements of nursing centers,
are being replaced with institutional pharmacies that can more
effectively serve this market.
Business Strategy
Operating Strategy
The Company's operating strategy is designed to take
advantage of several important industry trends, a number of which
are favorable, and includes expanding higher revenue specialty
care services, increasing private pay and Medicare census,
maintaining high occupancy levels and expanding Medisave's
institutional pharmacy operations.
Expansion of Specialty Care Services. Hillhaven intends to
continue to expand its specialty care programs and services.
These services generally produce higher revenues than do routine
nursing care services and serve to differentiate the Company's
facilities from others in a given market. The Company intends to
expand its subacute medical and rehabilitation services, which
include wound care, oncology treatment, brain injury care, stroke
therapy and orthopedic therapy. The expansion of these services
is designed to increase private pay and Medicare revenues which
are higher than reimbursement rates for traditional long term
care services.
Increasing Private Pay and Medicare Census. Hillhaven is
also working to increase private pay and Medicare census by
further developing and maintaining relationships with traditional
referral sources and by entering into contracts with private
insurance companies to provide subacute medical and
rehabilitation services to their insureds. Increasing the number
of managed care patients in the Company's nursing centers is an
increasingly important component of the Company's marketing
strategy. Hillhaven's subacute medical and rehabilitation
services offer a less expensive alternative to hospital care for
patients who need specialized nursing care but do not require
many of the other services provided in an acute care hospital.
As of May 31, 1994, the Company was operating under 139 such
managed health care contracts.
Maintaining High Occupancy Levels. The Company believes in
maintaining high occupancy levels in existing facilities through
(i) an enhanced emphasis on local marketing efforts in which
nursing center employees are charged with actively marketing
their services within the community, (ii) broadening the scope
and character of services provided in each nursing center and
(iii) favorable demographic trends. The Company believes that
maintaining high occupancy levels enables it to realize greater
economies of scale. In fiscal 1994, Hillhaven had an average
occupancy in its ongoing nursing centers of 93.4%. However,
certain facilities, particularly in the western states, have
lower occupancy rates, and management's strategy is to increase
occupancy levels in the nursing centers in these states.
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Expansion of Institutional Pharmacy Business. The Company
is a leading provider of comprehensive pharmacy services to
nursing centers and their patients. Medisave has a growth
strategy which includes (i) continued penetration of existing
markets, (ii) expansion into selected new markets and
(iii) increasing infusion and enteral therapy revenues by
targeting specific health care providers.
Financial Strategy
The Company's financial strategy is designed to increase the
equity base of the Company over time and to provide flexibility
to capitalize on attractive business opportunities. The key
elements of this financial strategy include reducing or
refinancing indebtedness, purchasing leased nursing centers and
divesting nursing centers that do not perform satisfactorily.
Reducing or Refinancing Indebtedness. The Company's plan to
reduce or refinance indebtedness is designed to improve the
Company's debt-to-equity ratio, reduce the overall interest rates
on indebtedness (including guarantee fees) and extend the
maturities and amortization of the Company's indebtedness.
Purchasing Leased Nursing Centers. Since the Spin-off,
Hillhaven has purchased 136 of the 239 nursing centers that were
leased at that time. The acquisition of the Leased Facilities
completed the Company's purchase of all of the 115 facilities
previously leased from NME. The Company generally considers
ownership of nursing centers preferable to leasing, both in the
short term and in the long term, because it provides increased
operating flexibility and the opportunity to benefit from future
real estate appreciation.
Conclusion of the Disposition Program. On December 5, 1991,
Hillhaven announced a restructuring plan designed to improve its
long-term financial strength and operating performance by
disposing of underperforming nursing centers, restructuring
facility leases with NME and selling $35 million of Series C
Preferred Stock to NME in order to prepay indebtedness owed to
NME. The plan involved the sale or sublease of 82 nursing
centers, which disposition was intended to allow the Company to
concentrate on markets and services that offer higher profits, as
well as to realize reductions in overhead costs. As of
November 30, 1993, the Company had completed the disposition of
50 of these nursing centers, as well as three retirement housing
facilities which, prior to March 1, 1992, had been recorded as
discontinued operations. During the second quarter of fiscal
1994, the Company reviewed its asset disposition program and,
because of improvements in reimbursement rates and results of
operations, decided not to pursue the sale of the remaining
nursing homes and a retirement housing facility, but instead
reinstated these facilities as ongoing operations. On
December 31, 1993, the Company completed the sale of 13
additional nursing centers, nine of which had previously been
held for disposition.
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Nursing Centers
Hillhaven's nursing center operations provide skilled
nursing, residential and rehabilitative care in 288 nursing
centers in 33 states. At May 31, 1994, Hillhaven owned 194 and
leased 78 nursing centers. These nursing centers had a total of
34,162 licensed beds, with individual nursing center capacities
ranging from 42 to 692 beds. In addition, seven nursing centers
are managed for partnerships or joint ventures in which Hillhaven
has an equity interest and nine nursing centers are managed for
NME and other third parties for management fees usually based
upon a percentage of nursing center revenues.
Hillhaven is a leading provider of rehabilitation services,
including physical, occupational and speech therapies.
Rehabilitation services are provided in all of the Company's
nursing centers. The majority of patients in rehabilitation
programs stay for eight weeks or less. Patients in
rehabilitation programs generally provide for higher revenues
than other nursing center patients because they use a higher
level of ancillary services. In addition, management believes
that Hillhaven is one of the leading providers of care for
patients with Alzheimer's disease. At May 31, 1994, the Company
offered treatment in approximately 1,870 beds in 61 nursing
centers for patients suffering from Alzheimer's disease. Many of
these patients reside in separate units within the nursing
centers and are cared for by teams of professionals specializing
in the unique problems experienced by Alzheimer's patients.
Marketing
The factors which affect consumers' selection of a nursing
center vary from community to community and include competition
and a provider's relationships with local referral sources.
Competition creates the standards against which nursing centers
in a given market are judged by various referral sources, which
include physicians, hospital discharge planners, community
organizations and families. Therefore, Hillhaven's marketing
efforts are conducted at the local market level by the nursing
center administrators, admissions coordinators and others.
Nursing center personnel are assisted in carrying out their
marketing strategies by regional marketing staffs. The Company's
marketing efforts are directed toward improving the payor mix at
the nursing centers by increasing the census of private pay
patients, patients covered by managed care contracts and Medicare
patients. To this end, the Company is working to educate the
various referral sources about the value of Hillhaven's nursing
centers as an attractive lower cost alternative to acute care and
rehabilitation hospitals for subacute medical care and specialty
services.
Operations
Each nursing center is managed by a state licensed
administrator who is supported by other professional personnel,
including a director of nursing, staff development professional
(responsible for employee training), activities director,
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business office manager and, in general, physical, occupational
and speech therapists. The directors of nursing are state
licensed nurses who supervise nursing staffs which include
registered nurses, licensed practical nurses and nursing
assistants. Staff size and composition vary depending on the
size and occupancy of each nursing center and on the level of
care provided by the nursing center. The nursing centers
contract with physicians who serve as medical directors and serve
on quality assurance committees.
The nursing centers are supported by regional staff in the
areas of nursing, dietary and rehabilitation services,
maintenance, human resources, marketing and financial services.
In addition, corporate staff in Tacoma, Washington provide other
services in the areas of marketing assistance, human resource
management, state and federal reimbursement, state licensing and
certification, legal, finance and accounting support. Financial
control is maintained principally through fiscal and accounting
policies established at the corporate level for use at the
nursing centers.
Quality of care is monitored and enhanced by quality
assurance committees, regional quality assurance teams and family
satisfaction surveys. The quality assurance committees oversee
patient health care needs and resident and staff safety.
Additionally, physicians serve on the quality assurance
committees as medical directors and advise on health care
policies and practices. Regional consultants visit each nursing
center periodically to review practices and recommend
improvements where necessary in the level of care provided and to
assure compliance with requirements under applicable Medicare and
Medicaid regulations. Surveys of residents' families are
conducted from time to time in which the families are asked to
rate various aspects of service and the physical condition of the
nursing centers. These surveys are reviewed by nursing center
administrators to help ensure quality care.
Hillhaven provides training programs for nursing center
administrators, managers, nurses and nursing assistants. These
programs are designed to provide career opportunities for
employees and to maintain high levels of quality patient care.
Approximately 99% of the nursing centers are currently
certified to receive benefits provided under Medicare and
Medicaid programs. Medicare is a federal health insurance
program primarily for the elderly. Medicaid is a joint
federal/state program providing medical assistance to the
indigent. A nursing center's qualification to participate in
such programs depends upon many factors, including, among other
things, accommodations, equipment, services, safety, personnel,
physical environmental and adequate policies and procedures.
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Occupancy Level
The following table sets forth for the periods indicated
data with respect to numbers of owned or leased nursing centers
operated by Hillhaven, numbers of beds and occupancy levels.
(Data with respect to facilities managed by the Company for
partnership and joint ventures in which the Company has an equity
interest and for third parties are not included. See
"Facilities.")
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No. of
Operating
Nursing No. of
Fiscal Year Centers Beds Average
Ended May 31, At Year End At Year End Occupancy
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1994 272 34,162 93.4%
1993 284 35,139 93.4
1992 334 41,089 91.6
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Sources of Revenues
Net patient care revenues are derived principally from
Medicare and Medicaid programs and from private pay patients.
Consistent with the nursing home industry generally, changes in
the mix of Hillhaven's patient population among these three
categories significantly affect the profitability of Hillhaven's
operations. Although the level of cost reimbursement for
Medicare patients generally produces the most revenue per patient
day, profitability is reduced by the costs associated with the
higher level of nursing care and other services required by such
patients. The Company believes that private pay patients
generally constitute the most profitable and Medicaid patients
generally constitute the least profitable category.
The table below sets forth certain data for the periods
shown with respect to the payor mix of owned or leased nursing
centers that were operated by Hillhaven. (Data with respect to
facilities managed by the Company for partnerships and joint
ventures in which the Company has an equity interest and for
third parties are not included. See "Facilities.")
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Fiscal
Year Medicaid Private and Other Medicare
Ended Patient Net Patient Net Patient Net
May 31, Days Revenues Days Revenues Days Revenues
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1994 66.6% 50.2% 23.4% 26.8% 10.0% 23.0%
1993 68.4 54.8 23.3 26.8 8.3 18.4
1992 68.9 57.3 24.6 28.2 6.5 14.5
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Both governmental and private third-party payors have
employed cost containment measures designed to limit payments
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made to health care providers such as the Company. Those
measures include the adoption of initial and continuing recipient
eligibility criteria which may limit payment for services, the
adoption of coverage criteria which limit the services that will
be reimbursed and the establishment of payment ceilings which set
the maximum reimbursement that a provider may receive for
services. Furthermore, government reimbursement programs are
subject to statutory and regulatory changes, retroactive rate
adjustments, administrative rulings and government funding
restrictions, all of which may materially increase or decrease
the rate of program payments to the Company for its services.
There can be no assurance that payments under governmental and
private third-party payor programs will remain at levels
comparable to present levels or will be sufficient to cover the
costs allocable to patients eligible for reimbursement pursuant
to such programs. In addition, there can be no assurance that
facilities owned, leased or managed by the Company, or the
provision of services and supplies by the Company, will meet the
requirements for participation in such programs. The Company
could be adversely affected by the continuing efforts of
governmental and private third-party payors to contain the amount
of reimbursement for health care services. In an attempt to
limit the federal budget deficit, there have been, and the
Company expects that there will continue to be, a number of
proposals to limit Medicare and Medicaid reimbursement for health
care services.
Medicare
The Medicare Part A program provides reimbursement for
extended care services furnished to Medicare beneficiaries who
are admitted to skilled nursing centers after at least a three-
day stay in an acute care hospital. Covered services include
supervised nursing care, room and board, social services,
physical and occupational therapies, pharmaceuticals, supplies
and other necessary services provided by skilled nursing centers.
Under the Medicare program, skilled nursing center
reimbursement is based upon actual costs incurred as reported by
each nursing center at the end of each annual reporting period.
Revenues under this program are subject to audit and retroactive
adjustment. Provisions for estimated third-party payor
settlements are provided for in the period the related services
are rendered and are adjusted as final settlements are
determined. To date, these settlements have not resulted in
material adjustments to earnings.
Medicaid
Medicaid is a state-administered program financed by state
funds and matching federal funds. The program provides for
medical assistance to the indigent and certain other eligible
persons. Although administered under broad federal regulations,
states are given flexibility to construct programs and payment
methods consistent with their individual goals. These programs,
therefore, differ from state to state in many respects.
Federal law requires Medicaid programs to pay rates that are
reasonable and adequate to meet the costs incurred by an
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efficiently and economically operated nursing center providing
quality care and services in conformity with all applicable laws
and regulations. However, despite these federal requirements,
disagreements frequently arise between nursing centers and states
regarding the adequacy of Medicaid payments. In addition, the
Medicaid programs are subject to statutory and regulatory
changes, administrative rulings, interpretations of policy by the
state agencies and certain government funding limitations, all of
which may materially increase or decrease the level of program
payments to nursing centers operated by Hillhaven. Management
believes that, at present, the payments under these programs are
not sufficient on an overall basis to cover the costs of serving
residents participating in these programs. Furthermore, OBRA
mandates an increased emphasis on ensuring quality patient care,
which has resulted in additional expenditures by nursing centers.
There can be no assurance that the payments under these
state programs will remain at levels comparable to current levels
or, in the future, will be sufficient to cover the costs incurred
in serving residents participating in such programs. Hillhaven
provides to eligible individuals Medicaid-covered services
consisting of nursing care, room and board and social services.
In addition, states may at their option cover other services such
as physical, occupational and speech therapies and
pharmaceuticals.
Private Payment and Medicare Patients
Hillhaven seeks private payment and Medicare patients and
has specific marketing and referral programs aimed at enhancing
its private census. In particular, the Company has implemented a
strategy to increase the number of managed care patients.
Private payment patients typically have financial resources
(including insurance coverage) to pay for their monthly services
and therefore do not rely on Medicaid for support. Private
payment billings are sent monthly, with any collection efforts
handled primarily through the nursing centers. Patients either
pay directly or funds are received from family members, insurance
companies, health maintenance organizations or other private
third-party payors.
Competition
Hillhaven's nursing centers compete on a local and regional
basis with other long term care providers. Hillhaven's
competitive position varies from nursing center to nursing center
within the various communities served. Hillhaven believes that
the quality care provided, reputation, location and physical
appearance of its nursing centers and, in the case of private
patients, the rates or charges for services are significant
competitive factors. There is limited, if any, price competition
with respect to Medicare and Medicaid patients, since revenues
received for services provided to such patients are strictly
controlled and based on fixed rates or cost reimbursement
principles.
The long term care industry is divided into a variety of
competitive areas which market similar services. These
competitors include nursing centers, hospitals, extended care
<PAGE>
<PAGE>
centers, retirement housing facilities and communities, home
health agencies and similar institutions. The industry includes
government-owned, church-owned, secular not-for-profit and for-
profit institutions.
Facilities
The following table lists, by state, the number of nursing
centers operated by the Company for its own account as of May 31,
1994. Sixteen nursing centers, accounting for 2,087 beds,
managed at that date for partnerships and joint ventures in which
the Company has an equity interest and for others are not
included in the table.
<TABLE>
<CAPTION>
Leased
From
Licensed Third
Number Beds Owned Parties
<S> <C> <C> <C> <C>
Alabama (1)<F1> 3 447 3 --
Arizona 7 970 5 2
Arkansas 1 174 1 --
California 39 4,140 21 18
Colorado 7 935 2 5
Connecticut (1)<F1> 6 716 6 --
Florida (1)<F1> 10 1,291 8 2
Georgia (1)<F1> 3 370 3 --
Hawaii (1)<F1> 1 60 1 --
Idaho 9 903 7 2
Indiana (1)<F1> 9 1,323 3 6
Kentucky (1)<F1> 15 1,914 12 3
Maine (1)<F1> 11 880 11 --
Massachusetts (1)<F1> 36 4,055 33 3
Minnesota 1 159 1 --
Mississippi (1)<F1> 1 120 -- 1
Montana (1)<F1> 3 456 2 1
Nebraska (1)<F1> 1 157 -- 1
Nevada (1)<F1> 3 312 3 --
New Hampshire (1)<F1> 3 512 3 --
North Carolina (1)<F1> 29 3,241 20 9
Ohio (1)<F1> 11 1,546 7 4
Oklahoma (1)<F1> 1 126 1 --
Oregon (1)<F1> 4 468 2 2
Tennessee (1)<F1> 16 2,652 5 11
Utah 5 620 5 --
Vermont (1)<F1> 1 160 1 --
Virginia (1)<F1> 5 764 4 1
Washington (1)<F1> 13 1,530 10 3
Wisconsin (1)<F1> 14 2,710 10 4
Wyoming (1)<F1> 4 451 4 --
Number of nursing centers 272 194 78
Total number of licensed beds 34,162 24,242 9,920
<FN>
(1)<F1> These states have Certificate of Need regulations. See
"Business - Government Regulation."
</TABLE>
<PAGE>
<PAGE>
In addition to its interests in nursing centers, as
described above, as of May 31, 1994, Hillhaven had 50% interests
in seven partnerships and joint ventures that own nursing centers
managed by Hillhaven with an aggregate of 772 beds in five
states. Hillhaven also manages nine nursing centers owned by NME
and other third parties. These nursing centers are managed by
Hillhaven for varying management fees. The aggregate net
operating revenues received in connection with the management of
these facilities was $5.7 million in fiscal 1994 and $5.5 million
in fiscal 1993.
Pharmacies
Through Medisave, the Company provides institutional and
retail pharmacy services. As of May 31, 1994, Medisave operated
40 institutional pharmacies and 32 retail pharmacies in 19
states. In fiscal 1994, Medisave's net operating revenues were
$176.2 million, representing 12.2% of the Company's net operating
revenues. Medisave's net operating revenues of $179.3 million
accounted for 13.1% of Hillhaven's net operating revenues in
fiscal 1993, compared to 12.0% in fiscal 1992.
The institutional pharmacy division focuses on providing a
full array of pharmacy services to approximately 400 nursing
centers and specialized care centers. Institutional pharmacy
sales encompass a wide variety of products including prescription
medication, prosthetics, respiratory and infusion services and
enteral therapies. In addition, Medisave provides a variety of
pharmaceutical consulting services designed to assist nursing
centers in program administration. The disposition of 50 nursing
centers as part of the restructuring announced in December 1991
has not had a material adverse effect on the results of
operations of the institutional pharmacy division. Institutional
pharmacy operations accounted for approximately 76% of total
pharmacy revenues and approximately 90% of Medisave's operating
profits in fiscal 1994. In fiscal 1993, the comparable figures
were 63% and 80%, respectively.
Medisave's retail pharmacy operations consist of discount
retail pharmacy and optical stores in leased facilities. In 1993
and 1994, the Company terminated leases of 36 retail outlets in
Wal-Mart stores. The leases of the remaining 14 Wal-Mart outlets
were terminated in the 1995 first quarter. The termination of
these leases is not expected to have a material effect on
pharmacy operating income. Retail operations accounted for
approximately 24% of Medisave's total pharmacy revenues and
approximately 10% of its operating profits in fiscal 1994. In
fiscal 1993, the comparable figures were 37% and 20%,
respectively.
<PAGE>
<PAGE>
The following table lists by state the number of pharmacies
operated by Medisave as of May 31, 1994.
<TABLE>
<CAPTION>
State Number
<S> <C>
Arizona 1
California 12
Colorado 1
Florida 3
Idaho 1
Illinois 3
Kansas 6
Louisiana 4
Massachusetts 2
Mississippi 5
Missouri 1
Nevada 2
North Carolina 4
Ohio 2
Tennessee 3
Texas 15
Utah 1
Virginia 3
Wisconsin 3
Total 72
</TABLE>
Retirement Housing Communities
Hillhaven's retirement housing operations consist of 19
retirement housing communities. These centers include 2,622
apartment units and are located in 14 states. Of the total
number of retirement housing centers, 14 are owned by Hillhaven,
one is leased by Hillhaven and four are owned by partnerships in
which Hillhaven has an equity interest. Retirement housing
operations represented approximately 2.3%, 2.0% and 1.7% of
Hillhaven's total net operating revenues for fiscal 1994, 1993
and 1992, respectively.
Retirement housing communities serve more independent and
self-sufficient residents than do the nursing centers. A
retirement housing community consists of studio, one-bedroom and
two-bedroom apartment units. Residents typically receive weekly
housekeeping and linen service, local transportation, 24-hour
emergency call system and daily food service.
Residents are responsible for monthly fees which typically
are paid by the resident or the resident's family members.
Retirement housing operations do not presently qualify for
reimbursement under Medicare, Medicaid or Veterans Administration
health care programs because they do not offer the levels of care
required under such programs. Monthly fees paid by residents are
based upon the resident's apartment size, the number of meals the
resident elects to purchase and the level of personal care
required by the resident.
<PAGE>
<PAGE>
The following table lists, by state, the number of
retirement housing communities operated by the Company as of
May 31, 1994.
<TABLE>
<CAPTION>
Leased
From
Third
State Number Owned(1)<F1> Parties
<S> <C> <C> <C>
Arizona 4 4 -
California 1 1 -
Colorado 1 1 -
Florida 2 2 -
Idaho 1 1 -
Kansas 1 1 -
Massachusetts 2 2 -
Missouri 1 1 -
New Hampshire 1 1 -
Ohio 1 - 1
Oklahoma 1 1 -
Oregon 1 1 -
Utah 1 1 -
Washington 1 1 -
Totals 19 18 1
<FN>
(1)<F1> Includes retirement housing communities owned by
partnerships in which Hillhaven has a limited and/or general
partnership interest that are managed by Hillhaven for such
partnerships.
</TABLE>
Government Regulation
The federal government and all states in which the Company
operates regulate various aspects of the Company's business. In
particular, the development and operation of long term care
facilities and retirement communities and the provision of health
care services are subject to federal, state and local laws
relating to the adequacy of medical care, distribution of
pharmaceuticals, equipment, personnel, operating policies, fire
prevention, rate-setting and compliance with building codes and
environmental laws. Long term care facilities are subject to
periodic inspection by governmental and other authorities to
assure continued compliance with various standards, their
continued licensing under state law, certification under the
Medicare and Medicaid programs and continued participation in the
Veterans Administration program. Retirement communities and
their owners are subject to periodic inspection by governmental
authorities to assure compliance with various standards including
standards relating to the financial condition of the owners of
such communities. The failure to obtain or renew any required
regulatory approvals or licenses could adversely affect the
Company's operations.
<PAGE>
<PAGE>
Effective October 1, 1990, OBRA increased the enforcement
powers of state and federal certification agencies. Additional
sanctions were authorized to correct noncompliance with
regulatory requirements, including fines, temporary suspension of
admission of new patients to nursing centers and, in extreme
circumstances, decertification from participation in the Medicare
or Medicaid programs.
Nursing centers managed and operated by Hillhaven are
licensed either on an annual or bi-annual basis and certified
annually for participation in Medicare and/or Medicaid by the
respective states through various regulatory agencies which
determine compliance with federal, state and local laws. These
legal requirements relate to the quality of the nursing care
provided, the qualifications of the administrative personnel and
nursing staff, the adequacy of the physical plant and equipment
and continuing compliance with the laws and regulations governing
the operation of nursing centers. Hillhaven endeavors to comply
with federal, state and local regulatory requirements for the
maintenance and operation of its nursing centers. From time to
time Hillhaven's nursing centers receive statements of
deficiencies from regulatory agencies. In response, Hillhaven
implements plans of correction with respect to these nursing
centers to address the alleged deficiencies. Hillhaven believes
that its nursing centers are in material compliance with all
applicable regulations or laws.
In certain circumstances, federal law mandates that
conviction of certain abusive or fraudulent behavior with respect
to one health care facility may subject other facilities under
common control or ownership to disqualification for participation
in Medicare and Medicaid programs. In addition, some state
regulations provide that all facilities under common control or
ownership within a state are subject to delicensure if any one or
more of such facilities is delicensed.
In addition to license requirements, many states in which
Hillhaven operates have statutes that require a Certificate of
Need to be obtained prior to the construction of a new nursing
center, the addition of new beds or services or the incurring of
certain capital expenditures. Certain states also require
regulatory approval prior to certain changes in ownership of a
nursing center. A total of eight states in which Hillhaven
operates have eliminated their Certificate of Need programs and a
number of other states are considering alternatives to their
Certificate of Need programs. To the extent that Certificates of
Need or other similar approvals are required for expansion of
Company operations, either through facility acquisitions or
expansion or provision of new services or other changes, such
expansion could be adversely affected by the failure or inability
to obtain the necessary approvals, changes in the standards
applicable to such approvals or possible delays and expenses
associated with obtaining such approvals.
<PAGE>
<PAGE>
Pharmaceutical operations are subject to regulation by the
various states in which the Company conducts its business as well
as by the federal government. The Company's pharmacies are
regulated under the Food, Drug and Cosmetic Act and the
Prescription Drug Marketing Act, which are administered by the
United States Food and Drug Administration. Under the
Comprehensive Drug Abuse Prevention and Control Act of 1970,
which is administered by the United States Drug Enforcement
Administration ("DEA"), dispensers of controlled substances must
register with the DEA, file reports of inventories and
transactions and provide adequate security measures. Failure to
comply with such requirements could result in civil or criminal
penalties.
The Company is also subject to federal and state laws which
govern financial and other arrangements between health care
providers. These laws often prohibit certain direct and indirect
payments or fee-splitting arrangements between health care
providers that are designed to induce or encourage the referral
of patients to, or the recommendation of, a particular provider
for medical products and services. Such laws include the anti-
kickback provisions of the federal Medicare and Medicaid Patients
and Program Protection Act of 1987. These provisions prohibit,
among other things, the offer, payment, solicitation or receipt
of any form of remuneration in return for the referral of
Medicare and Medicaid patients. In addition, some states
restrict certain business relationships between physicians and
pharmacies, and many states prohibit business corporations from
providing, or holding themselves out as a provider of, medical
care. Possible sanctions for violation of any of these
restrictions or prohibitions include loss of licensure or
eligibility to participate in reimbursement programs as well as
civil and criminal penalties. These laws vary from state to
state and have seldom been interpreted by the courts or
regulatory agencies.
Insurance Coverage and Availability
The Company has liability insurance policies providing
insurance coverage which it believes to be adequate. There can
be no assurance, however, that claims in excess of the Company's
insurance coverage or claims not covered by the Company's
coverage will not be asserted against the Company. In addition,
the Company's insurance policies must be renewed annually.
Although the Company has obtained various insurance coverages at
a reasonable cost in the past, there can be no assurance that it
will be able to do so in the future. Although the Company has
had access to other insurance options, through May 31, 1994,
substantially all of the professional and general liability risks
of Hillhaven were insured by a company that is wholly-owned by
NME because it offered more competitive rates. All matters
arising after May 31, 1994 will be insured through the Company's
newly formed captive insurance company, Cornerstone Insurance
Company.
<PAGE>
<PAGE>
Other Real Property
The Company owns unimproved real property with a book value
of approximately $11.4 million at May 31, 1994.
Employees
As of May 31, 1994, Hillhaven employed approximately 38,100
individuals, of whom approximately 25,600 full-time and 9,800
part-time employees work at Hillhaven's nursing centers,
approximately 850 employees work at the corporate and regional
offices, approximately 1,350 employees work in Hillhaven's
pharmacy operations and approximately 500 employees work in the
retirement housing communities. Among its professional staff,
Hillhaven employs approximately 2,900 registered nurses, 4,800
licensed practical nurses and 2,600 licensed therapists.
Hillhaven has 22 collective bargaining agreements covering
approximately 4,500 employees. The Company believes that its
relations with its employees are good.
Executive Officers of the Registrant
Set forth below are the names, ages, titles and present and
past positions of the persons who are executive officers of
Hillhaven.
Name and Age Position and Experience
Bruce L. Busby (50) Chief Executive Officer and
Chairman of the Board. Mr. Busby
has been a director and the Chief
Executive Officer of the Company
since April 1991 and Chairman of
the Company since September 1993.
Before joining the Company,
Mr. Busby served NME as Chief
Executive Officer and President of
the Venture Development Group from
April 1988 to March 1991, Chairman
and Chief Executive Officer of the
Long Term Care Group from August
1986 to March 1988 and President
of the Retail Services Group from
June 1986 to November 1987.
Christopher J. Marker (51) President. Mr. Marker has been a
director and the President of the
Company since December 1989. He
served as President of the
Company's predecessor, an NME
subsidiary, from April 1988 to
January 1990. Prior to that,
Mr. Marker was Executive Vice
President of Westin Hotels and
Resorts from January 1984 to March
1988.
<PAGE>
<PAGE>
Name and Age Position and Experience
Jeffrey M. McKain (43) Executive Vice President.
Mr. McKain has served Hillhaven as
Executive Vice President since
January 1992 and as Senior Vice
President from April 1991 to
January 1992. He served as Senior
Vice President, Operations of
First Healthcare Corporation, a
wholly-owned subsidiary of the
Company, from April 1990 to April
1991 and as Vice President of
Operations of FHC from January
1986 to March 1990.
Robert F. Pacquer (49) Senior Vice President and Chief
Financial Officer. Mr. Pacquer
has served the Company as Senior
Vice President and Chief Financial
Officer since December 1989 and as
Treasurer from that date to March
1992. He served as Senior Vice
President and Chief Financial
Officer of the Company's
predecessor from October 1986 to
January 1990.
Richard P. Adcock (39) Senior Vice President, Secretary
and General Counsel. Mr. Adcock
has served the Company as Senior
Vice President since December 1989
and as Vice President, Secretary
and General Counsel since May
1989. He served as Vice
President, Secretary and General
Counsel of the Company's
predecessor from May 1987 to
January 1990.
Kris Scoumperdis (50) Senior Vice President. Mr.
Scoumperdis has served the Company
as Senior Vice President since
February 1991 and as Vice
President from March 1990 to
January 1991. Before joining the
Company he served as Vice
President, Human Resources of the
Frank Russell Company, a pension
asset consulting firm, from
November 1988 to March 1990, and
as Vice President, Human Resources
and Support Services of Good
Samaritan, Inc., a health care
company, from November 1984 to
October 1988.
<PAGE>
<PAGE>
Name and Age Position and Experience
Carl Napoli (56) Chief Executive Officer, President
and Chief Operating Officer of
Medisave. Mr. Napoli has served
as Chief Executive Officer of
Medisave Pharmacies, Inc. since
July 19, 1994, as President and
Chief Operating Officer since May
1992, and he previously served as
Executive Vice President of
Operations from September 1984 to
May 1992.
Edward L. Hiller (63) Vice President/Acquisitions of
Medisave. Mr. Hiller has served
as Vice President/Acquisitions of
Medisave since July 19, 1994.
Mr. Hiller served as Chief
Executive Officer of Medisave
Pharmacies, Inc. from April 1992
to July 19, 1994 and as President
from July 1975 to March 1992.
Robert K. Schneider (46) Vice President and Treasurer.
Mr. Schneider has served as Vice
President and Treasurer since
April 1992 and as Vice President,
Treasury from August 1990 to April
1992. Before joining Hillhaven,
he served as a Vice President and
Manager of Seafirst Bank from
September 1985 to August 1990.
Michael B. Weitz (44) Vice President of Finance.
Mr. Weitz has served as Vice
President of Finance and principal
accounting officer since April
1992 and as Vice President,
Finance from June 1991 to April
1992. From November 1990 to May
1991, he was a self-employed
independent certified public
accountant. From June 1989 to
October 1990, he served as Vice
President of Finance and Treasurer
of Chemical Processors, Inc., an
environmental company.
<PAGE>
<PAGE>
Item 2. Properties
The response to this item is included in Item 1.
Item 3. Legal Proceedings
There are no material legal proceedings pending to which the
Registrant is a party, or to which any of its property is
subject, nor is such litigation threatened, other than ordinary
routine litigation which is incidental to its business.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year ended May 31, 1994.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
At May 31, 1994, there were approximately 8,700 holders of record
of the Company's common stock. Approximately 33,300 additional
stockholders held shares under beneficial ownership in nominee
name or within clearing house positions of brokerage firms and
banks. The Company's common stock has been listed and traded on
the New York Stock Exchange since November 2, 1993 and was
previously listed and traded on the American Stock Exchange under
the symbol "HIL." The stock prices below are the high and low
sales prices as reported on the composite tape as adjusted to
reflect a one-for-five reverse stock split.
<TABLE>
<CAPTION>
Fiscal 1994 Fiscal 1993
High Low High Low
<S> <C> <C> <C> <C>
First quarter 18-3/4 14-3/8 13-3/4 10-5/8
Second quarter 20-5/16 14-11/16 16-7/8 10
Third quarter 21-3/8 17-7/8 21-7/8 12-13/16
Fourth quarter 22-7/8 18-1/2 17-1/2 13-1/8
</TABLE>
The Company has not paid a common dividend and does not
anticipate declaring a common dividend in the near future.
<PAGE>
<PAGE>
Item 6. Selected Financial Data<TABLE>
The following selected financial data have been derived from the Consolidated Financial Statements
of The Hillhaven Corporation and its subsidiaries ("Hillhaven" or the "Company"). The data set
forth below should be read in conjunction with the Consolidated Financial Statements and related
notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" which follow.
(Dollars in thousands, except share information)
<CAPTION>
Predecessor
4 Months 8 Months
ended ended
Years ended May 31, May 31, Jan. 31,
1994 1993 1992 1991 1990 1990
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net operating revenues $1,448,734 $1,362,830 $1,304,126 $1,241,973 $ 382,755 $ 734,542
Expenses:
General and
administrative 1,235,652 1,166,607 1,132,285 1,083,260 331,833 639,762
Interest 52,531 57,451 52,450 40,254 12,630 43,016
Depreciation and
amortization 54,109 53,448 46,594 33,551 10,063 28,400
Rent 52,440 52,537 67,144 97,526 34,543 39,361
Guarantee fees 6,684 9,644 8,336 7,016 2,000 ---
Restructuring (20,225) 5,769 92,529 --- --- ---
Adjustment to carrying
value of properties
previously reported
as discontinued
operations --- --- 20,736 --- --- ---
Net expenses 1,381,191 1,345,456 1,420,074 1,261,607 391,069 750,539
</TABLE>
<PAGE>
<PAGE>
<TABLE><CAPTION> Predecessor
4 Months 8 Months
ended ended
Years ended May 31, May 31, Jan. 31,
1994 1993 1992 1991 1990 1990
<S> <C> <C> <C> <C> <C> <C>
Income (loss) from
operations 67,543 17,374 (115,948) (19,634) (8,314) (15,997)
Interest income 13,635 16,006 12,820 17,013 6,309 8,704
Income (loss) before
income taxes,
reinstatement of
discontinued operations,
extraordinary charge
and cumulative effect
of accounting change 81,178 33,380 (103,128) (2,621) (2,005) (7,293)
Income tax (expense)
benefit (22,653) 7,367 (407) --- (225) 3,132
Reinstatement of
discontinued
operations --- --- 24,743 4,379 2,647 5,785
Extraordinary
charge - early
extinguishment
of debt, net of
income taxes (1,062) (565) --- --- --- ---
Cumulative effect of
change in accounting
for income taxes --- (1,103) --- --- --- ---
Net income (loss) $ 57,463 $ 39,079 $ (78,792) $ 1,758 $ 417 $ 1,624
Net income (loss)
per common share
- primary $2.02 $1.59 $(3.86) $.09 $.02 ---
- fully diluted $1.71 --- --- --- --- ---
Balance Sheet Data:
Working capital $ 36,147 $ 77,870 $ 58,951 $ 77,867 $ 89,956 $ 44,382
Total assets 1,184,000 1,218,237 1,174,595 813,488 679,896 557,482
Long-term debt 577,951 818,248 833,779 442,233 336,836 250,184
Stockholders' equity 361,369 180,226 140,057 181,106 171,464 446,131
</TABLE>
<PAGE>
<PAGE>
<TABLE><CAPTION> Predecessor
4 Months 8 Months
ended ended
Years ended May 31, May 31, Jan. 31,
1994 1993 1992 1991 1990 1990
<S> <C> <C> <C> <C> <C> <C>
Other Information
(unaudited):
Nursing Centers
(at end of period)
Number of nursing centers 272 284 334 342 343 343
Number of licensed beds 34,162 35,139 41,089 42,239 42,409 42,367
Average occupancy rate
for the year 93.4% 93.4% 91.6% 90.6% 90.4% 90.8%
Nursing centers managed
for others 16 17 17 19 19 18
Pharmacy Outlets 72 83 126 113 116 122
Retirement Housing
Communities 19 21 27 27 24 24
</TABLE>
<PAGE>
<PAGE>
Item 7. 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
Selected Financial Data and the Consolidated Financial Statements
of the Company and the related notes thereto. All references in
this section to years are to fiscal years of the Company ended
May 31 of such year.
Significant Events
In the 1994 second quarter, Hillhaven completed a
recapitalization plan which improved its balance sheet and
modified its relationship with National Medical Enterprises,
Inc. (NME).
A one-for-five reverse split of the Company's common stock was
effected in the 1994 second quarter.
Also in the second quarter, the Company completed its facility
disposition program and recorded a $21,904 pretax
restructuring credit.
In 1994, Hillhaven realized earnings of $57,463, compared to
$39,079 in 1993 and a net loss of $78,792 in 1992. The 1992
loss included a $90,000 pretax restructuring charge, as
described below.
The Recapitalization
On September 2, 1993, Hillhaven substantially completed a
recapitalization plan (the "Recapitalization") which improved the
Company's balance sheet, extended the maturities of outstanding
indebtedness, increased operating flexibility through the
acquisition of leased facilities, fixed the interest rate on a
portion of its previously floating rate indebtedness and also
modified the relationship between Hillhaven and NME.
The Company's relationship with NME was modified by (i) the
purchase of the remaining 23 nursing centers leased from NME for
$111,800, (ii) the repayment of all existing debt to NME in the
aggregate principal amount of $147,202, (iii) the release of NME
guarantees on approximately $400,000 of debt, (iv) the limitation
of the annual fee payable to NME to 2% of the remaining amount
guaranteed and (v) the amendment of existing agreements to
eliminate obligations of NME to provide additional financing to
the Company. The Recapitalization was financed through (i) the
issuance to NME of $120,000 of payable-in-kind Series D Preferred
Stock, (ii) the incurrence of a $175,000 five-year term loan
under a secured credit facility with a syndicate of banks (the
"Bank Term Loan"), (iii) the issuance of $175,000 of 10-1/8%
Senior Subordinated Notes due 2001, (iv) borrowings of $30,000
<PAGE>
<PAGE>
under an accounts receivable-backed credit facility and (v) the
use of approximately $39,000 of cash. Hillhaven refinanced
third-party debt in the aggregate amount of $266,737 with
proceeds from the Recapitalization. At May 31, 1994, the Bank
Term Loan had a balance of $165,000 bearing interest at 6.1%.
The Recapitalization included a $100,000 letter of credit
facility to be used to provide credit enhancement for and replace
NME guarantees on the Company's industrial revenue bonds, and an
$85,000 revolving bank line of credit. In February 1994, the
letter of credit facility was reduced to $90,000. The
availability of the revolving line of credit 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 May 31, 1994, letters of credit
outstanding under the letter of credit facility totalled $69,418
and the revolving bank line of credit had an outstanding balance
of $8,000.
Conclusion of the Disposition Program
On December 5, 1991, Hillhaven announced a restructuring plan
designed to improve its long-term financial strength and
operating performance by disposing of underperforming nursing
centers, restructuring facility leases with NME and selling
$35,000 of Series C Preferred Stock to NME in order to prepay
indebtedness owed to NME. The plan involved the sale or sublease
of 82 nursing centers, which disposition was intended to allow
the Company to concentrate on markets and services that offer
higher profits, as well as to realize reductions in overhead
costs. A pretax restructuring charge of $90,000 was recorded in
the 1992 second quarter ended November 30, 1991, which included
provisions for estimated losses on the disposition of the 82
nursing centers, operating losses of these centers during an
estimated two-year disposition period and other related costs.
As of November 30, 1993, the Company had completed the
disposition of 50 of these nursing centers, as well as three
retirement housing facilities which, prior to March 1, 1992, had
been recorded as discontinued operations. During the 1994 second
quarter, the Company reviewed its asset disposition program.
Because of improvements in reimbursement rates and results of
operations, the Company decided not to pursue the sale of the
remaining nursing centers and a retirement housing facility. In
addition, several parcels of land which had been held for
development have been reclassified to other noncurrent assets.
Accrued loss reserves remaining at September 1, 1993 amounted to
$54,550. Revenues and expenses related to the 32 nursing centers
and other properties previously held for disposition have been
reclassified to ongoing operations in the consolidated statements
of operations for all periods presented. See Note 2 of Notes to
Consolidated Financial Statements. Net assets of these
facilities, less adjustments to asset carrying values and
remaining accrued restructuring costs aggregating $32,646, have
been reclassified from net assets held for disposition to
appropriate balance sheet accounts.
<PAGE>
<PAGE>
On December 31, 1993, the Company sold 13 nursing centers, nine
of which had previously been held for disposition. The sale
resulted in a gain of $5,102, which is included in net operating
revenues.
Results of Operations
Net operating revenues were $1,448,734 in 1994, $1,362,830 in
1993 and $1,304,126 in 1992. Net operating revenues for 1993 and
1992 are not directly comparable because revenues and expenses of
the 50 nursing centers disposed of in connection with the
December 1991 restructuring have been excluded from results of
operations for periods after November 1991. Net income (loss)
was $57,463, $39,079 and $(78,792) in 1994, 1993 and 1992,
respectively. Net income for 1994 includes the $21,904 pretax
restructuring credit. The net loss in 1992 was due largely to
the $90,000 pretax restructuring charge.
The following table identifies the Company's sources of net
operating revenues.
<TABLE>
<CAPTION>
Year ended May 31,
1994 1993 1992
<S> <C> <C> <C>
Percentage of net
operating revenues:
Nursing Centers:
Long term care 61.7% 66.3% 71.7%
Subacute medical and
rehabilitation 21.2 16.5 12.4
Other operating revenues 2.6 2.1 2.2
Total nursing centers 85.5 84.9 86.3
Pharmacies 12.2 13.1 12.0
Retirement Housing 2.3 2.0 1.7
Total 100.0% 100.0% 100.0%
Net patient revenues
per patient day:
Long term care $84.59 $82.05 $76.13
Subacute medical and
rehabilitation $240.87 $215.77 $189.50
Combined $101.38 $93.59 $83.51
Average number of
beds available 34,760 35,356 35,865
Average occupancy 93.4% 93.4% 91.6%
</TABLE>
<PAGE>
<PAGE>
Nursing center net operating revenues, comprised primarily of
patient revenues, increased 7.1% in 1994 to $1,239,317 and 2.7%
in 1993 to $1,156,766 from $1,126,094 in 1992. These increases
were due to the increases in revenues per patient day, offset in
part by the disposition of nursing centers.
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>
Net Patient Revenues Patient Census
1994 1993 1992 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Medicaid 50.2% 54.8% 57.3% 66.6% 68.4% 68.9%
Private and other 26.8 26.8 28.2 23.4 23.3 24.6
Medicare 23.0 18.4 14.5 10.0 8.3 6.5
</TABLE>
In 1994 and 1993, 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 435 in 1994
compared to 211 in 1993 and 29 in 1992.
Net operating revenues from pharmacy operations decreased to
$176,178 in 1994 from $179,299 in 1993 and increased from
$156,107 in 1992. The decrease in revenues in 1994 is the
result of the disposition of 61 marginally performing retail
outlets in 1994 and late 1993. Institutional revenues,
accounting for approximately 76% of pharmacy net operating
revenues in 1994, versus 63% in 1993 and 55% in 1992, increased
by 17.9% and 31.9% to $133,988 and $113,676 in 1994 and 1993,
respectively, from $86,189 in 1992. The growing contribution
from institutional operations reflects the Company's increasing
focus on the nursing center market, the disposition of retail
outlets and continuing pricing pressure in the retail
operations. The increase in institutional revenues
<PAGE>
<PAGE>
is due to 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.
In 1993 and 1994, the Company terminated leases of 36 retail
outlets in Wal-Mart stores. The leases of the remaining 14 Wal-
Mart outlets were terminated in the 1995 first quarter. The
termination of these leases is not expected to have a material
effect on pharmacy income.
Net operating revenues from retirement housing operations
increased to $33,239 in 1994 from $26,765 in 1993 and $21,926 in
1992. These increases were primarily due to improvements in
occupancy, which averaged 96.1% in 1994 compared to 92.0% in
1993 and 85.5% in 1992.
General and administrative expenses of the Company's nursing
centers increased by 7.1% in 1994 to $1,062,442 and by 1.3% in
1993 to $992,149 from $979,633 in 1992. These increases were
attributable primarily to the expansion of subacute and medical
rehabilitation services, as discussed previously, offset in part
by the disposition of nursing centers. Labor and related
benefits, which represented approximately 77% of nursing center
general and administrative expenses in 1994, increased by 7.2%
in 1994 to $820,065 and by 1.8% in 1993 to $765,276. 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. The Company employed approximately
3,400 therapists at May 31, 1994 compared to 2,400 and 1,700 at
May 31, 1993 and 1992, respectively. Nursing wages and
benefits, accounting for approximately 54.4% of total nursing
center labor and benefit costs in 1994, increased by 2.0% in
1994 and decreased by 1.1% in 1993. Hilllhaven employed
approximately 7,700 nurses at May 31, 1994, compared to 7,800
nurses at May 31, 1993, and 8,500 nurses at May 31, 1992. The
decreases were due to the disposition of nursing centers.
Increases in labor and benefit costs in 1994 and 1993 were
mitigated by the reduced use of higher-cost contract nurses and
favorable results of workers' compensation loss experience as
actuarially computed.
The increases in the non-labor components of general and
administrative expenses, including ancillary supplies, reflect
the higher costs associated with caring for higher acuity
patients. Nursing center supplies increased by 17.9% in 1994 to
$53,069 and by 1.8% in 1993 to $45,005.
Combined interest and guarantee fee expense decreased by 11.7%
to $59,215 in 1994 due to the refinancing of certain of the
Company's indebtedness. See "The Recapitalization." Property-
related costs in 1993 were impacted by the purchase of
previously leased nursing centers, related increases in debt
(discussed below) and the restructuring of the NME leases. As a
result of the restructuring of the terms of the NME leases,
<PAGE>
<PAGE>
these leases were recorded as capital leases beginning in
December 1991. This increased both property and long-term debt
by the aggregate fixed option price of $299,500. Primarily as a
result of these transactions, total interest, depreciation and
amortization and guarantee fees increased in 1993 by $13,163 and
rent expense decreased in 1993 by $14,607.
Interest income is earned from notes receivable and invested
cash. Interest income decreased by 14.8% in 1994 to $13,635 due
to lower balances of invested cash and notes receivable.
Interest income increased by 24.9% to $16,006 in 1993 as a
result of an increase of $36,338 in notes receivable arising
from the sale of nursing centers.
As a result of the refinancing of certain of the Company's
industrial revenue bond issues, extraordinary charges of $1,062
and $565 (net of income taxes) were reported in 1994 and 1993,
respectively, due to the write-off of previously capitalized
financing costs.
Effective June 1, 1992, Hillhaven adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS 109). Adoption of SFAS 109 resulted in a charge of $1,103
to the 1993 statement of operations. Including the impact of
this charge, the effect of the adoption of SFAS 109 in 1993 was
a reduction of net income tax expense and an increase in net
income of $7,710 as compared to amounts that would have been
reported under APB Opinion No. 11. See Note 7 of Notes to
Consolidated Financial Statements. The Company has recorded net
deferred tax assets of $18,023 at May 31, 1994, the realization
of which is dependent upon future pretax earnings.
Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan" (SFAS 114), establishes
standards to determine in what circumstances a creditor should
measure impairment based on either the present value of expected
future cash flows related to the loan, the market price of the
loan or the fair value of the underlying collateral. SFAS 114
relates to the Company's portfolio of notes receivable. The
Company anticipates that the adoption of SFAS 114 on the
required application date of June 1, 1995 will not have a
material adverse impact on Hillhaven's financial position or
results of operations.
Cash Flows and Financial Condition
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 1994
totalled $74,638 compared to $67,475 in 1993 and $55,067 in
1992. These increases are due primarily to higher pretax
earnings. Working capital at May 31, 1994 amounted to $36,147
compared to $77,870 and $58,951 at May 31, 1993 and 1992,
respectively. The decrease in working capital in 1994 is due
primarily to a decrease in cash and an increase in the current
portion of long-term debt resulting from the Recapitalization.
<PAGE>
<PAGE>
At May 31, 1994, Hillhaven had available $117,000 under short-
and long-term revolving lines of credit which allows the Company
to maintain lower levels of cash.
Net cash used in investing activities amounted to $8,889 in 1994
compared to $2,917 in 1993 and $55,182 in 1992. In connection
with the Recapitalization, the Company expended $14,816 for
financing costs. On December 31, 1993, Hillhaven completed the
sale of 13 nursing centers and received cash for the $15,594
aggregate sales price.
In 1993, Hillhaven purchased 62 nursing centers previously
leased from NME for an aggregate purchase price of $179,890.
The purchase was financed with the proceeds from the sale of
$74,750 of 7-3/4% Convertible Subordinated Debentures due 2002
(the "Debentures"), the assumption of underlying debt amounting
to $4,825 and NME financing in the amount of $92,256, with the
balance settled in cash. The Company also acquired seven
previously leased nursing centers from third parties in 1993 for
an aggregate purchase price of $26,791. These transactions were
partially financed by the assumption of underlying debt and
borrowings aggregating $15,095, with the balance settled in
cash. During this same period, the Company disposed of 47
nursing centers and a retirement housing facility for an
aggregate sales price of $59,355. Hillhaven provided financing
for $36,338 of the total sales price and received cash for the
balance. In 1992, the Company acquired 24 previously leased
nursing centers, of which 20 were purchased from NME, for an
aggregate purchase price of $108,951. These transactions were
partially financed by the assumption of underlying debt and
additional borrowings aggregating $76,212.
In 1994, capital expenditures for routine replacements and
refurbishment of facilities and capital additions amounted to
$43,568 compared to $30,526 in 1993 and $30,597 in 1992. The
increase in 1994 is due primarily to the expansion of certain
nursing centers to accommodate the growth in subacute and
medical rehabilitation programs. Capital expenditures of
approximately $50,000 are budgeted for 1995, the majority of
which are anticipated to be funded from cash flow from
operations.
Net cash used in financing activities totalled $89,364 in 1994,
$37,331 in 1993 and $16,310 in 1992. See "The
Recapitalization." In 1993, the Company sold the Debentures,
the proceeds of which were used to purchase certain facilities
leased from NME which had escalating rent provisions. In 1992,
Hillhaven sold its 8-1/4% Series C Preferred Stock in the amount
of $35,000 to NME to repay debt to NME bearing interest at 10%.
The Company repaid an additional $61,800 owed to NME with the
proceeds from its 1991 Performance Investment Plan.
In April 1994, the Company replaced the financing for its
accounts receivable-backed liquidity facility with a revolving
bank line of credit and increased the facility from $30,000 to
$40,000. At May 31, 1994, there were no borrowings outstanding
under this credit facility.
<PAGE>
<PAGE>
On February 28, 1994, NME exercised its warrants to purchase
6,000,000 shares of Hillhaven common stock. NME tendered shares
of the Company's payable-in-kind Series D Preferred Stock in
payment of the $63,300 purchase price. At May 31, 1994, NME
owned approximately 32.7% of the Company's outstanding common
stock.
Legislative Action
On August 10, 1993, the Omnibus Budget Reconciliation Act of
1993 ("OBRA-93") was enacted. OBRA-93 contains certain
provisions which impact Hillhaven's Medicare reimbursement. For
cost report periods beginning after October 1, 1993, a return on
equity has been eliminated as a reimbursable item. For federal
fiscal years 1994 and 1995, there will be no increases in the
limits on reimbursable costs. The Company has and will continue
to file for exceptions based on its costs to care for higher
acuity patients. Hillhaven expects to offset much of these
revenue reductions by containing operating cost increases and
increasing the number of patients under managed care contracts.
In addition, other provisions in OBRA-93 will benefit Hillhaven,
such as the extension of the targeted jobs tax credit.
Management believes that the provisions of OBRA-93, in the
aggregate, will not have a material adverse impact on the future
operations of the Company.
On October 27, 1993, President Clinton submitted the American
Health Security Act of 1993 (the "Health Security Act") to
Congress for consideration. The Health Security Act, which is
designed to guarantee health coverage to all United States
citizens and legal residents and to create regional alliances to
negotiate contracts with qualified health plans, is currently
being studied by the relevant Congressional committees. At the
same time, numerous other health care reform proposals have been
introduced by members of the House of Representatives and the
Senate. These proposals range from the formation of a single
payor system to the creation of health plan purchasing
cooperatives to pool the purchasing power of individuals and
employees of small businesses, or the formation of purchasing
groups to negotiate contracts with health plans and offer them
to individuals. These proposals also differ on the treatment of
long term care services. Health care reform legislation may or
may not be enacted; whether or not any such effect will be
beneficial or adverse to the Company cannot be determined at
this time.
<PAGE>
<PAGE>
Item 8. Financial Statements and Supplementary Data
Financial Statements are contained on pages F-1 through
F-29 of this report and are incorporated hereby by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning the directors of the Registrant is
included on pages 2, 3 and 19 of the definitive Proxy Statement
for the Registrant's 1994 Annual Meeting of Stockholders. The
required information is hereby incorporated by reference.
Similar information regarding executive officers of the
Registrant is set forth in Item 1.
Item 11. Executive Compensation
The response to this item is included on pages 8 through 15
and 19 through 23 of the definitive Proxy Statement for the
Registrant's 1994 Annual Meeting of Stockholders. The required
information is hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The response to this item is included on pages 4, 5 and 25
of the definitive Proxy Statement for the Registrant's 1994
Annual Meeting of Stockholders. The required information is
hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions
The response to this item is included on pages 15 through
19 of the definitive Proxy Statement for the Registrant's 1993
Annual Meeting of Stockholders. The required information is
hereby incorporated by reference.
<PAGE>
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) Documents filed as part of this report:
1. Financial Statements. Page
Independent Auditors' Report F-1
Consolidated Balance Sheets -- F-2
As of May 31, 1994 and 1993
Consolidated Statements of Operations -- F-4
Years Ended May 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows -- F-6
Years Ended May 31, 1994, 1993 and 1992
Consolidated Statements of Changes in
Stockholders' Equity --
Years Ended May 31, 1994, 1993 and 1992 F-8
Notes to Consolidated Financial Statements F-10
Quarterly Financial Summary F-28
2. Financial Statement Schedules.
Schedule V Property and Equipment S-1
Schedule VI Accumulated Depreciation and S-5
Amortization of Property
and Equipment
Schedule VIII Valuation and Qualifying S-6
Accounts
Schedule X Supplementary Income S-8
Statement Information
All other schedules are omitted because they are not
applicable or not required or because the required information
is included in the consolidated financial statements or notes
thereto.
<PAGE>
<PAGE>
3. Exhibits
Exhibit
No. Item/Document
(3) Articles of Incorporation and By-Laws
3.01 Amended and Restated Articles of Incorporation
of Hillhaven (Incorporated by reference to
Exhibit J to Exhibit 2 to the document referred
to in Note 1 below)
3.02 Amended and Restated By-Laws of Hillhaven
(4) Instruments Defining the Rights of Security Holders
4.01 Amended and Restated Articles of Incorporation
of Hillhaven (See Exhibit 3.01)
4.02 Amended and Restated By-Laws of Hillhaven (See
Exhibit 3.02)
4.03 Form of Common Stock Certificate of Hillhaven
(Incorporated by reference to Exhibit 4.3 to
the document referred to in Note 1 below)
4.04 Warrant and Registration Rights Agreement among
Hillhaven, NME and Manufacturers Hanover Trust
Company of California, dated as of January 31,
1990 (Incorporated by reference to Exhibit 4.4
to the document referred to in Note 1 below)
4.05 Rights Agreement between Hillhaven and
Manufacturers Hanover Trust Company of
California, dated as of January 31, 1990
(Incorporated by reference to Exhibit 4.6 to
the document referred to Note 1 below)
4.06 Form of Rights Certificate (Incorporated by
reference to Exhibit A to Exhibit 4.6 to the
document referred to in Note 1 below)
4.07 Agreement concerning purchase by NME Properties
Corp., of Series C Preferred Stock of Hillhaven
and prepayment by First Healthcare Corporation
of indebtedness to NME Properties Corp. dated
at or prior to 11:59 p.m. on November 30, 1991
between NME, NME Properties Corp., Hillhaven
and First Healthcare Corporation (Incorporated
by reference to Exhibit 4(a) to the document
referred to in Note 2 below)
4.08 Certificate of Designation, Preferences and
Rights of Series C Preferred Stock of Hillhaven
(Incorporated by reference to Exhibit 4(b) to
the document referred to in Note 2 below)
<PAGE>
<PAGE>
Exhibit
No. Item/Document
4.09 Certificate of First Amendment to Certificate
of Designation, Preferences and Rights of
Series C Preferred Stock of The Hillhaven
Corporation (Incorporated by reference to
Exhibit 4(b) to the document referred to in
Note 9 below)
4.10 Form of Indenture between Hillhaven and Bankers
Trust Company, as Trustee with respect to the
7-3/4% Convertible Subordinated Debentures Due
2002 (Incorporated by reference to Exhibit 4.14
to the document referred to in Note 4 below)
4.11 Form of 7-3/4% Convertible Subordinated
Debenture Due 2002 (Incorporated by reference
to Exhibit 4.15 to the document referred to in
Note 4 below)
4.12 Form of Indenture between Hillhaven and State
Street Bank and Trust Company, as Trustee with
respect to the 10-1/8% Senior Subordinated
Notes due 2001 (Incorporated by reference to
Exhibit 4.01 to the document referred to in
Note 5 below)
4.13 Form of 10-1/8% Senior Subordinated Note due
2001 (Incorporated by reference to Exhibit 4.02
to the document referred to in Note 5 below)
4.14 Agreement Concerning Purchase by NME Properties
Corp. and Certain Subsidiaries of Series D
Preferred Stock of The Hillhaven Corporation,
dated as of September 1, 1993 among Hillhaven,
First Healthcare Corporation, NME, NME
Properties Corp. and certain subsidiaries of
NME Properties Corp.
4.15 Certificate of Designation, Preferences and
Rights of Series D Preferred Stock of The
Hillhaven Corporation (Incorporated by
reference to Exhibit 4(a) to the document
referred to in Note 9 below)
4.16 Certificate Concerning Reverse Stock Split of
The Hillhaven Corporation (Incorporated by
reference to Exhibit 4(c) to the document
referred to in Note 9 below)
4.17 Credit Agreement dated as of September 2, 1993,
between First Healthcare Corporation, as
lender, and Hillhaven PIP Funding I, Inc., as
borrower (Incorporated by reference to Exhibit
4.07 to the document referred to in Note 8
below)
<PAGE>
<PAGE>
Exhibit
No. Item/Document
4.18 The Hillhaven Corporation 1991 Performance
Investment Plan (Incorporated by reference to
Exhibit 10.24 to the document referred to in
Note 1 below)
4.19 Certificate of Designation, Preferences and
Rights of Series B Convertible Preferred Stock
(Incorporated by reference to Exhibit 4.03 to
the document referred to in Note 8 below)
4.20 Form of Indenture between Hillhaven and
Chemical Bank, as Trustee with respect to the
Convertible Debentures due May 29, 1999
(Incorporated by reference to Exhibit 4.01 to
the document referred to in Note 8 below)
4.21 Form of Convertible Debenture due May 29, 1999
(Incorporated by reference to Exhibit 4.02 to
the document referred to in Note 8 below)
(10) Material Contracts
10.01 Services Agreement between Hillhaven and NME,
dated as of January 31, 1990 (Incorporated by
reference to Exhibit 10.2 to the document
referred to in Note 1 below)
10.02 Tax Sharing Agreement between Hillhaven and
NME, dated as of January 31, 1990 (Incorporated
by reference to Exhibit 10.3 to the document
referred to in Note 1 below)
10.03 Government Programs Agreement between Hillhaven
and NME, dated January 31, 1990 (Incorporated
by reference to Exhibit 10.4 to the document
referred to in Note 1 below)
10.04 Insurance Agreement between Hillhaven and NME,
dated as of January 31, 1990 (Incorporated by
reference to Exhibit 10.5 to the document
referred to in Note 1 below)
*10.05 Employee and Employee Benefits Agreement
between Hillhaven and NME, dated as of
January 31, 1990 (Incorporated by reference to
Exhibit 10.6 to the document referred to in
Note 1 below)
*10.06 Resignation Agreement and General Release
between Hillhaven and Richard K. Eamer, dated
as of September 15, 1993
*10.07 Employment Agreement between Hillhaven and
Leonard Cohen, dated as of January 31, 1990
(Incorporated by reference to Exhibit 10.21 to
the document referred to in Note 1 below)
<PAGE>
<PAGE>
Exhibit
No. Item/Document
*10.08 Amendment No. One to Employment Agreement
between Hillhaven and Leonard Cohen, dated as
of May 31, 1994
*10.09 Severance Agreement among Hillhaven, NME and
Christopher J. Marker, dated as of January 31,
1990 (Incorporated by reference to Exhibit
10.23 to the document referred to in Note 1
below)
*10.10 Severance Agreement between Hillhaven and
Christopher J. Marker, dated as of May 24, 1994
*10.11 Form of Severance Agreement between Hillhaven
and certain of its officers
10.12 Form of Indemnification Agreement between
Hillhaven and certain of its executive officers
(Incorporated by reference to Exhibit 4.8 to
the document referred to in Note 1 below)
*10.13 Hillhaven Directors' Stock Option Plan
(Incorporated by reference to Exhibit 10.18 to
the document referred to in Note 1 below)
*10.14 The Hillhaven Corporation Board of Directors
Retirement Plan
*10.15 Hillhaven Deferred Savings Plan (Incorporated
by reference to Exhibit 10.11 to the document
referred to in Note 1 below)
*10.16 Hillhaven 1990 Stock Incentive Plan
(Incorporated by reference to Exhibit 10.12 to
the document referred to in Note 1 below)
*10.17 Hillhaven Annual Incentive Plan (Incorporated
by reference to Exhibit 10.13 to the document
referred to in Note 1 below)
*10.18 Hillhaven Long Term Incentive Plan
(Incorporated by reference to Exhibit 10.14 to
the document referred to in Note 1 below)
*10.19 Hillhaven Deferred Compensation Master Plan
(Incorporated by reference to Exhibit 10.15 to
the document referred to in Note 1 below)
*10.20 Hillhaven Senior Management Deferred
Compensation Plan (Incorporated by reference to
Exhibit 10.16 to the document referred to in
Note 1 below)
<PAGE>
<PAGE>
Exhibit
No. Item/Document
*10.21 First Restatement of the Hillhaven Supplemental
Executive Retirement Plan
*10.22 Hillhaven Individual Retirement Annuity Plan
(Incorporated by reference to Exhibit 10.19 to
the document referred to in Note 1 below)
10.23 Form of Assignment and Assumption of Lease
Agreement between Hillhaven and certain
subsidiaries, on the one hand, and NME and
certain subsidiaries on the other hand,
together with the related Guaranty by
Hillhaven, dated on or prior to January 31,
1990 (Incorporated by reference to Exhibit 10.7
to the document referred to in Note 1 below)
10.24 Form of Management Agreement between First
Healthcare Corporation and certain NME
subsidiaries, dated on or prior to January 31,
1990 (Incorporated by reference to Exhibit
10.10 to the document referred to in Note 1
below)
10.25 Reorganization and Distribution Agreement
between Hillhaven and NME, dated as of
January 8, 1990, as amended on January 30, 1990
(Incorporated by reference to Exhibit 2.01 to
the document referred to in Note 1 below)
10.26 Guarantee Reimbursement Agreement between
Hillhaven and NME, dated as of January 31, 1990
(Incorporated by reference to Exhibit 10.8 to
the document referred to in Note 1 below)
10.27 First Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of October 30, 1990
10.28 First Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of May 30, 1991 (Incorporated by reference to
Exhibit 10.45 to the document referred to in
Note 3 below)
10.29 Second Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of October 2, 1991 (Incorporated by reference
to Exhibit 10.46 to the document referred to in
Note 3 below)
<PAGE>
<PAGE>
Exhibit
No. Item/Document
10.30 Third Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of April 1, 1992 (Incorporated by reference to
Exhibit 10.47 to the document referred to in
Note 3 below)
10.31 Fourth Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of November 12, 1992 (Incorporated by reference
to Exhibit 10.13 to the document referred to in
Note 6 below)
10.32 Fifth Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of February 19, 1993 (Incorporated by
reference to Exhibit 10.14 to the document
referred to in Note 6 below)
10.33 Sixth Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of May 28, 1993 (Incorporated by reference to
Exhibit 10.15 to the document referred to in
Note 6 below)
10.34 Seventh Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of May 28, 1993
10.35 Eighth Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of September 2, 1993
10.36 Amended and Restated Loan Agreement among
Hillhaven, New Pond Village Associates and
BayBank of Boston, N.A., dated as of August 25,
1989 and effective November 1, 1991
(Incorporated by reference to Exhibit 10.52 to
the document referred to in Note 3 below)
10.37 Facility Purchase and Sale Agreements, each
dated as of February 12, 1992, between First
Healthcare Corporation and Zevco Enterprises,
Inc. for the four nursing centers in Houston,
Texas (Incorporated by reference to Exhibit
10.41 to the document referred to in Note 3
below)
10.38 Facility Agreement among First Healthcare
Corporation and Certain Limited Partnerships,
dated as of April 23, 1992 relating to the sale
of 32 nursing centers (Incorporated by
reference to Exhibit 10.42 to the document
referred to in Note 3 below)
<PAGE>
<PAGE>
Exhibit
No. Item/Document
10.39 First Amendment to Facility Agreement among
First Healthcare Corporation and Certain
Limited Partnerships, dated as of July 31, 1992
relating to the sale of 32 nursing centers
(Incorporated by reference to Exhibit 10.43 to
the document referred to in Note 3 below)
10.40 Letter Agreement dated July 14, 1992,
concerning acquisition by Hillhaven from NME of
26 nursing centers and two adjacent retirement
housing communities (Incorporated by reference
to Exhibit 10.49 to the document referred to in
Note 3 below)
10.41 Letter Agreement dated August 4, 1992, between
Hillhaven and NME, amending the July 14, 1992
letter agreement concerning acquisition by
Hillhaven from NME of 26 nursing centers and
two adjacent retirement communities
(Incorporated by reference to Exhibit 10.50 to
the document referred to in Note 3 below)
10.42 Letter Agreement dated October 14, 1992,
between Hillhaven and NME, amending the
July 14, 1992 letter concerning acquisition by
Hillhaven from NME of 34 nursing centers and
two adjacent retirement housing communities
(Incorporated by reference to Exhibit 10.58 to
the document referred to in Note 6 below)
10.43 Purchase and Sale Agreement and Escrow
Instructions between First Healthcare
Corporation and certain NME subsidiaries, dated
as of November 4, 1992 relating to the
acquisition of 24 nursing centers (Incorporated
by reference to Exhibit 10.59 to the document
referred to in Note 6 below)
10.44 Purchase and Sale Agreement and Escrow
Instructions between First Healthcare
Corporation and certain NME subsidiaries, dated
as of February 1, 1993, relating to the
acquisition of 17 nursing centers (Incorporated
by reference to Exhibit 10.60 to the document
referred to in Note 6 below)
10.45 Facility Purchase and Sale Agreement, each
dated April 1, 1993, between First Healthcare
Corporation and Zevco Enterprises, Inc., an
Illinois corporation, relating to the sale of
13 nursing centers (Incorporated by reference
to Exhibit 10.61 to the document referred to in
Note 6 below)
<PAGE>
<PAGE>
Exhibit
No. Item/Document
10.46 Purchase and Sale Agreement and Escrow
Instructions between First Healthcare
Corporation and certain NME subsidiaries, dated
as of May 20, 1993 relating to the acquisition
of 11 nursing centers (Incorporated by
reference to Exhibit 10.62 to the document
referred to in Note 6 below)
10.47 Letter of Intent dated June 22, 1993 between
Hillhaven and NME (Incorporated by reference to
Exhibit 10.63 to the document referred to in
Note 6 below)
10.48 Credit Agreement dated as of September 1, 1993
among First Healthcare Corporation, The
Hillhaven Corporation, the Banks referred to
therein, the LC Issuing Banks referred to
therein, Morgan Guaranty Trust Company of New
York, Chemical Bank and J. P. Morgan Delaware
(Incorporated by reference to Exhibit B to the
document referred to in Note 7 below)
10.49 Amendment No. 1 to Credit Agreement, dated as
of October 12, 1993, among First Healthcare
Corporation, The Hillhaven Corporation, the
Banks referred to therein, the LC Issuing Banks
referred to therein, Morgan Guaranty Trust
Company of New York, Chemical Bank and J. P.
Morgan Delaware
10.50 Amendment No. 2 to Credit Agreement, dated as
of December 30, 1993, among First Healthcare
Corporation, The Hillhaven Corporation, the
Banks referred to therein, the LC Issuing Banks
referred to therein, Morgan Guaranty Trust
Company of New York, Chemical Bank and J. P.
Morgan Delaware
10.51 Amendment No. 3 to Credit Agreement, dated as
of May 27, 1994, among First Healthcare
Corporation, The Hillhaven Corporation, the
Banks referred to therein, the LC Issuing Banks
referred to therein, Morgan Guaranty Trust
Company of New York, Chemical Bank and J. P.
Morgan Delaware
10.52 Agreement and Waiver, dated as of September 2,
1993, by and among Hillhaven, First Healthcare
Corporation, NME and certain NME subsidiaries
<PAGE>
<PAGE>
Exhibit
No. Item/Document
10.53 Novation Agreement among Hillhaven Funding
Corporation, Banque Indosuez, New York Branch,
Banque Nationale de Paris, San Francisco
Agency, Bank of America National Trust and
Savings Association and Seattle-First National
Bank, dated as of April 29, 1994
10.54 Amended and Restated Master Sale and Servicing
Agreement among Hillhaven Funding Corporation,
Hillhaven and certain Hillhaven subsidiaries,
dated as of April 29, 1994
10.55 Amended and Restated Liquidity Agreement
between Hillhaven Funding Corporation, Bank of
America National Trust and Savings Association
and Seattle-First National Bank dated as of
April 29, 1994
(11) Computation of Per Share Earnings
11.01 Statement re: Computation of Per Share Earnings
(21) Subsidiaries
21.01 Subsidiaries of the Registrant
(23) Consent of Experts and Counsel
23.01 Consent of Independent Accountants, KPMG Peat
Marwick LLP
<PAGE>
<PAGE>
Note
Reference Document
1. Quarterly Report on Form 10-Q for the quarter ended
November 30, 1989, as amended.
2. Quarterly Report on Form 10-Q for the quarter ended
November 30, 1991, as amended.
3. Annual Report on Form 10-K for the year ended May 31,
1992, as amended.
4. Registration Statement on Form S-1 (File No. 33-48755).
5. Registration Statement on Form S-3 (File No. 33-65718).
6. Annual Report on Form 10-K for the year ended May 31,
1993.
7. Current Report on Form 8-K dated September 2, 1993.
8. Registration Statement on Form S-3 (File No. 33-50833).
9. Quarterly Report on Form 10-Q for the quarter ended
November 30, 1993.
___________________
* Management contracts and compensatory plans or
arrangements required to be filed as an Exhibit to comply
with Item 14(a)(3).
(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: August 11, 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>
Independent Auditors' Report
The Board of Directors and Stockholders
The Hillhaven Corporation:
We have audited the accompanying consolidated balance
sheets of The Hillhaven Corporation and subsidiaries
(Hillhaven) as of May 31, 1994 and 1993, and the
related consolidated statements of operations, cash
flows and changes in stockholders' equity for each of
the years in the three-year period ended May 31, 1994.
In connection with our audits of the consolidated
financial statements, we also have audited the
financial statement schedules as listed in the index on
page 34 of this annual report. These consolidated
financial statements and financial statement schedules
are the responsibility of the management of Hillhaven.
Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are
free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles
used and significant estimates made by management, as
well as evaluating the overall financial statement
presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the aforementioned consolidated
financial statements present fairly, in all material
respects, the financial position of The Hillhaven
Corporation and subsidiaries as of May 31, 1994 and
1993 and the results of their operations and their cash
flows for each of the years in the three-year period
ended May 31, 1994 in conformity with generally
accepted accounting principles. Also, in our opinion,
the related financial statement schedules, when
considered in relation to the basic consolidated
financial statements taken as a whole, present fairly,
in all material respects, the information set forth
therein.
As discussed in Note 7 to the consolidated financial
statements, effective June 1, 1992 the Company changed
its method of providing for income taxes by adopting
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
KPMG PEAT MARWICK LLP
Seattle, Washington
July 8, 1994
<PAGE>
<PAGE>
<TABLE>
Consolidated Balance Sheets
(In thousands)
<CAPTION>
May 31,
1994 1993
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 49,544 $ 73,159
Accounts and notes receivable, less
allowance for doubtful accounts
of $10,005 and $8,700 in 1994
and 1993 147,956 131,383
Inventories 20,202 21,527
Prepaid expenses and other current
assets 34,527 29,078
Total current assets 252,229 255,147
Long-term notes receivable, less
allowance for doubtful accounts
of $14,608 and $11,386 in
1994 and 1993 84,944 112,506
Property and equipment, net 783,259 766,998
Net assets held for disposition --- 29,122
Intangible assets, net of accumulated
amortization of $19,336 and
$16,128 in 1994 and 1993 31,331 20,305
Other noncurrent assets, net 32,237 34,159
$1,184,000 $ 1,218,237
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Consolidated Balance Sheets
(In thousands, except share information)
<CAPTION>
May 31,
1994 1993
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 43,427 $ 18,835
Accounts payable 63,929 61,423
Employee compensation and benefits 52,444 54,370
Other accrued liabilities 56,282 42,649
Total current liabilities 216,082 177,277
Debt payable to NME, a related company --- 147,160
Other long-term debt 577,951 671,088
Other long-term liabilities 28,598 42,486
Commitments and contingencies
Stockholders' equity:
Series C Preferred Stock, $0.15 par
value; 35,000 shares authorized,
issued and outstanding in 1994
and 1993(liquidation preference
of $35,000) 5 5
Series D Preferred Stock, $0.15 par
value; 300,000 shares authorized;
60,546 issued and outstanding
(liquidation preference
of $60,546) 9 ---
Common stock, $0.75 par value;
authorized 60,000,000 shares;
27,172,694 and 20,978,862
issued and outstanding in
1994 and 1993 20,380 15,734
Additional paid-in capital 330,472 208,157
Retained earnings (accumulated
deficit) 13,714 (37,538)
Unearned compensation (3,211) (6,132)
Total stockholders' equity 361,369 180,226
$1,184,000 $ 1,218,237
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements Of Operations
(In thousands)
<CAPTION>
Years ended May 31,
1994 1993 1992
<S> <C> <C> <C>
Net operating revenues $1,448,734 $ 1,362,830 $1,304,126
Expenses:
General and administrative 1,235,652 1,166,607 1,132,285
Interest 52,531 57,451 52,450
Depreciation and amortization 54,109 53,448 46,594
Rent 52,440 52,537 67,144
Guarantee fees 6,684 9,644 8,336
Restructuring (20,225) 5,769 92,529
Adjustment to carrying value
of properties previously
reported as discontinued
operations --- --- 20,736
Net expenses 1,381,191 1,345,456 1,420,074
Income (loss) from operations 67,543 17,374 (115,948)
Interest income 13,635 16,006 12,820
Income (loss) before income taxes,
reinstatement of discontinued
operations, extraordinary
charge and cumulative effect
of accounting change 81,178 33,380 (103,128)
Income tax (expense) benefit (22,653) 7,367 (407)
Income (loss) before reinstatement
of discontinued operations,
extraordinary charge and
cumulative effect of
accounting change 58,525 40,747 (103,535)
Reinstatement of discontinued
operations --- --- 24,743
Income (loss) before extraordinary
charge and cumulative effect of
accounting change 58,525 40,747 (78,792)
Extraordinary charge - early
extinguishment of debt, net
of income taxes (1,062) (565) ---
Cumulative effect of change in
accounting for income taxes --- (1,103) ---
Net income (loss) $ 57,463 $ 39,079 $ (78,792)
Income available to common
stockholders (net income less
preferred stock dividends) $ 49,808 $ 36,191 $ (80,236)
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements Of Operations
<CAPTION>
Years ended May 31,
1994 1993 1992
<S> <C> <C> <C>
Primary income (loss) per
common share:
Income (loss) before
extraordinary charge
and cumulative effect of
accounting change $2.06 $1.66 $(3.86)
Extraordinary charge (.04) (.02) ---
Cumulative effect of change
in accounting for income
taxes --- (.05) ---
Net income (loss) per share $2.02 $1.59 $(3.86)
Fully diluted income per
common share:
Income (loss) before
extraordinary charge $1.74 --- ---
Extraordinary charge (.03) --- ---
Net income per share $1.71 N/A N/A
Weighted average common shares and
equivalents outstanding:
Primary 24,689,959 23,132,103 20,811,243
Fully diluted 33,064,288 N/A N/A
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements Of Cash Flows
(In thousands)
<CAPTION>
Years ended May 31,
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss) $ 57,463 $ 39,079 $ (78,792)
Adjustments to reconcile net
income (loss) to net cash
provided by operations:
Restructuring charges (credits) (21,904) --- 90,000
Adjustment to carrying value
of properties previously
reported as discontinued
operations --- --- 20,736
Reinstatement of discontinued
operations --- --- (21,127)
Cumulative effect of change in
accounting for income taxes --- 1,103 ---
Depreciation and amortization 54,109 53,448 46,594
Provision for losses on
accounts and notes
receivable 8,094 4,029 5,962
Gain on sales of property
and equipment (9,224) (841) (1,762)
Deferred income taxes 7,967 (13,734) (5,792)
Amortization of unearned stock
compensation 3,627 3,442 3,928
Changes in net assets of
discontinued operations --- --- (2,544)
Other charges and credits, net (8,472) (8,616) (227)
Changes in operating
assets and liabilities, net
of acquisitions and
dispositions:
Accounts and notes
receivable (21,440) (6,659) (7,642)
Inventories 174 (628) (1,271)
Prepaid expenses and
other current assets (824) (2,984) 701
Accounts payable 2,494 (3,410) 914
Other accrued liabilities 2,574 3,246 5,389
Net cash provided by operating
activities 74,638 67,475 55,067
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements Of Cash Flows
(In thousands)
<CAPTION>
Years ended May 31,
1994 1993 1992
<S> <C> <C> <C>
Cash flows from investing
activities:
Purchases of property and
equipment (43,568) (30,526) (30,597)
Purchase of previously leased
nursing centers (1,667) (14,444) (30,596)
Proceeds from sales of property
and equipment 15,877 22,330 7,686
Proceeds from collection of
notes receivable 21,983 22,480 5,725
Investments in joint ventures
and partnerships (1,347) (1,757) (2,333)
Distributions from joint
ventures and partnerships 2,283 3,833 150
Increase in other assets (2,450) (4,833) (5,217)
Net cash used in investing
activities (8,889) (2,917) (55,182)
Cash flows from financing
activities:
Net increase (decrease) in
borrowings under
revolving lines of
credit 8,000 (13,000) (21,952)
Proceeds from sale of
preferred stock 63,399 --- 35,000
Preferred stock dividends (2,888) (2,888) (722)
Proceeds from long-term
debt 363,525 95,140 158,000
Payments of principal on
long-term debt (506,590) (114,266) (183,572)
Proceeds from exercise of
stock options 587 246 301
Increase in intangible assets (15,127) (4,084) (1,884)
Other, net (270) 1,521 (1,481)
Net cash used in financing
activities (89,364) (37,331) (16,310)
Increase (decrease) in cash (23,615) 27,227 (16,425)
Cash and cash equivalents at
beginning of period 73,159 45,932 62,357
Cash and cash equivalents
at end of period $ 49,544 $ 73,159 $ 45,932
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements Of Changes In Stockholders' Equity
(In thousands, except share information)
<CAPTION>
Years Ended May 31, 1994, 1993 and 1992
Retained
Additional Earnings Unearned
Preferred Common Paid-In (Accumulated Stock
Stock Stock Capital Deficit) Compensation
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1991 --- $ 15,590 $ 174,056 $ 2,175 $(10,715)
Net loss --- --- --- (78,792) ---
Issuance of
preferred stock $ 5 --- 34,995 --- ---
Restricted share
awards, net
of forfeitures --- 32 710 --- (742)
Stock options
exercised --- 41 218 --- ---
Preferred stock
dividends
($41.25 per share) --- --- (1,444) --- ---
Amortization of
unearned stock
compensation --- --- --- --- 3,928
Balance, May 31, 1992 5 15,663 208,535 (76,617) (7,529)
Net income --- --- --- 39,079 ---
Restricted share
awards, net of
forfeitures --- 34 1,104 --- (1,138)
Performance shares --- --- 907 --- (907)
Stock options
exercised --- 37 209 --- ---
Preferred stock
dividends
($82.50 per share) --- --- (2,888) --- ---
Amortization of
unearned stock
compensation --- --- --- --- 3,442
Tax benefit
associated
with exercise
of stock options --- --- 290 --- ---
Balance, May 31, 1993 5 15,734 208,157 (37,538) (6,132)
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements Of Changes In Stockholders' Equity
(In thousands, except share information)
<CAPTION>
Years Ended May 31, 1994, 1993 and 1992
Retained
Additional Earnings Unearned
Preferred Common Paid-In (Accumulated Stock
Stock Stock Capital Deficit) Compensation
<S> <C> <C> <C> <C> <C>
Net income --- --- --- 57,463 ---
Issuance of
preferred stock 18 --- 119,982 --- ---
Preferred stock
tendered to
exercise stock
purchase warrants (10) --- (63,290) --- ---
Stock purchase
warrants exercised --- 4,500 58,800 --- ---
Conversion of
debentures --- 86 1,809 --- ---
Restricted share
awards, net of
forfeitures --- (12) (188) --- 200
Performance shares --- --- 906 --- (906)
Stock options
exercised --- 73 514 --- ---
Preferred stock
dividends ($82.50
per share) --- --- (1,444) (1,444) ---
Fractional shares
repurchased --- (1) (17) --- ---
Amortization of
unearned stock
compensation --- --- --- --- 3,627
Tax benefit
associated with
exercise of
stock options --- --- 477 --- ---
Preferred
stock dividends-
in-kind 1 --- 4,766 (4,767) ---
Balance,
May 31, 1994 $14 $ 20,380 $ 330,472 $ 13,714 $ (3,211)
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
The Hillhaven Corporation And Subsidiaries
Notes To Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
1. Significant Accounting Policies
Basis of Presentation. The consolidated financial statements
include the accounts of The Hillhaven Corporation and its wholly-
owned subsidiaries ("Hillhaven" or the "Company"). Significant
intercompany transactions and balances have been eliminated.
The Company completed its facility disposition program in the
quarter ended November 30, 1993 (Note 2). Revenues and expenses
related to facilities remaining at the end of the disposition
period have been reclassified to ongoing operations in the
consolidated statements of operations for periods after December
1, 1991. In addition, certain other reclassifications of prior
years' amounts have been made to conform to 1994 classifications.
Net Operating Revenues. Revenues are recognized when services
are provided and products are delivered.
Net operating revenues consist primarily of patient care revenues
which are reported at the net amounts realizable from residents,
third-party payors and others for services provided. A provision
for estimated uncollectible patient accounts and notes receivable
is included in general and administrative expenses and was
$8,094, $4,029 and $5,962 for the years ended May 31, 1994, 1993
and 1992, respectively.
Approximately 73%, 73% and 72% of net patient care revenues for
the years ended May 31, 1994, 1993 and 1992, respectively, are
from participation of the nursing centers in Medicare and
Medicaid programs. Revenues under these programs are subject to
audit and retroactive adjustment. Provisions for estimated
third-party payor settlements are provided in the period the
related services are rendered and are adjusted as final
settlements are determined. Accounts receivable from Medicare
and Medicaid amounted to $16,189 and $64,022, respectively, at
May 31, 1994, and $15,520 and $63,006, respectively, at May 31,
1993.
Net operating revenues also include revenues from pharmacy
operations of $176,178, $179,299 and $156,107 for the years ended
May 31, 1994, 1993 and 1992, respectively.
<PAGE>
<PAGE>
Inventories. Inventories, which are stated at the lower of cost
(first-in, first-out) or market, are comprised of the following:
<TABLE>
<CAPTION>
May 31,
1994 1993
<S> <C> <C>
Pharmaceutical products $12,371 $13,023
Nursing center supplies 7,831 8,504
$20,202 $21,527
</TABLE>
Property and Equipment. Owned land, buildings, leasehold
improvements and equipment are stated at cost. Capitalized
leases are stated at the lower of the present value of minimum
lease payments or fair value at the inception of the lease.
Depreciation and amortization are computed using the straight-
line method over the useful lives of the assets, estimated as
follows: buildings, 20-45 years; leasehold improvements and
certain capitalized leases, over the lesser of the estimated
useful life or the lease term; and equipment, 5-10 years.
Fair Value of Financial Instruments. Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments", requires that Hillhaven disclose
estimated fair values for its financial instruments. The
estimated fair values have been determined by the Company using
available market information and appropriate valuation
methodologies. Because no market exists for a significant
portion of Hillhaven's financial instruments, considerable
judgment is necessarily required in interpreting the data to
develop the estimates of fair value. The use of different market
assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
The carrying amounts of cash equivalents, accounts receivable and
accounts payable approximate fair value because of the short
maturity of these instruments. The fair value estimates for
notes receivable (Note 3) and long-term debt (Note 6) are based
on information available to the Company as of May 31, 1994.
Intangible Assets. Costs incurred in obtaining long-term
financing are amortized over the terms of the related
indebtedness, primarily using the straight-line method. Costs
related to the acquisition of leases are amortized using the
straight-line method over the lease term.
Hillhaven recorded extraordinary charges of $1,543 ($1,062 net of
tax) and $743 ($565 net of tax) for the years ended May 31, 1994
and 1993, respectively, primarily in connection with the early
retirement of industrial revenue bonds which were refinanced.
Income (Loss) Per Share. Primary income (loss) per share is
calculated by dividing net income (loss), after deducting
dividends on preferred stock, by the weighted average number of
common shares and equivalents outstanding for the period. Common
stock equivalents are stock purchase warrants and employee stock
<PAGE>
<PAGE>
options. Fully diluted income per share further assumes
conversion of the Company's convertible debentures. Conversion
of the debentures was not assumed for the 1993 calculation
because the exercise prices of the debentures exceeded the market
price at May 31, 1993. Common stock equivalents were not
included in the 1992 calculation of loss per share as their
effect was anti-dilutive. All share and per share data have been
restated for a one-for-five reverse stock split effective
November 1, 1993.
Cash Equivalents. Highly liquid investments with maturities of
three months or less at the date of acquisition are considered
cash equivalents. Interest earned on these investments amounted
to $1,027, $911 and $1,024 for the years ended May 31, 1994, 1993
and 1992, respectively.
2. Restructuring Plan
On December 5, 1991, Hillhaven announced a restructuring plan
designed to improve its long-term financial strength and
operating performance. The plan included the disposition of 82
nursing centers over an estimated 24-month period. In the second
quarter of fiscal 1992, the Company recorded a $90,000 pretax
charge, comprised of $25,700 for the projected losses from
operations of the 82 nursing centers during the disposition
period and $64,300 for estimated losses from the dispositions.
Also as part of the restructuring, Hillhaven exercised options to
purchase nine nursing centers leased from National Medical
Enterprises, Inc. (NME), modified terms of the remaining leases
with NME and sold preferred stock to NME in the amount of
$35,000, the proceeds of which were used to prepay debt owed to
NME (Note 8).
As of November 30, 1993, the Company had completed the
disposition of 50 of these nursing centers, as well as three
retirement housing facilities which, prior to March 1, 1992, had
been recorded as discontinued operations. During the three
months ended November 30, 1993, the Company reviewed its asset
disposition program. Because of improvements in reimbursement
rates and results of operations, the Company decided not to
pursue the sales of the remaining nursing centers and a
retirement housing facility. In addition, several parcels of
land which had been held for development have been reclassified
to other noncurrent assets (Note 13). Assets related to the
Company's restructuring program were as follows:
<TABLE>
<CAPTION>
September 1,
1993 May 31,
(Unaudited) 1993
<S> <C> <C>
Assets $ 85,183 $ 85,768
Restructuring reserve (54,550) (56,646)
Net assets $ 30,633 $ 29,122
</TABLE>
<PAGE>
<PAGE>
Accrued loss reserves remaining at the date of reinstatement were
comprised of $17,668 for losses from operations and $36,882 for
estimated future losses on sale. Pretax losses charged to the
reserve were as follows:
<TABLE>
<CAPTION>
Three months
ended Year Six months ended
August 31, ended May 31,
1993 May 31, 1992
(Unaudited) 1993 (Unaudited)
<S> <C> <C> <C>
Loss from operations $ 235 $ 5,418 $4,263
Loss on
dispositions 1,861 41,010 3,790
$2,096 $46,428 $8,053
</TABLE>
Revenues and expenses related to the 32 nursing centers and other
properties previously held for disposition have been reclassified
to ongoing operations in the consolidated statements of
operations for all periods presented. Total revenues and
expenses of these facilities were as follows:
<TABLE>
<CAPTION>
Three months
ended Year Six months ended
August 31, ended May 31,
1993 May 31, 1992
(Unaudited) 1993 (Unaudited)
<S> <C> <C> <C>
Revenues $30,326 $114,758 $53,760
Expenses 28,647 108,989 51,231
Income from
operations before
income taxes $ 1,679 $ 5,769 $ 2,529
</TABLE>
Net assets of these facilities as of September 1, 1993, less
adjustments to asset carrying values and remaining accrued
restructuring costs aggregating $32,646, have been reclassified
from net assets held for disposition to appropriate balance sheet
accounts.
On December 31, 1993, Hillhaven completed the sale of 13 nursing
centers for an aggregate sales price of $15,594. Nine of these
nursing centers had previously been held for disposition. The
sale resulted in a gain of $5,102, which is included in net
operating revenues.
<PAGE>
<PAGE>
3. Notes Receivable
Notes receivable consist primarily of notes originated upon the
sale of nursing centers to third parties. Generally the notes
receivable are secured by mortgages and deeds of trust on the
properties sold. Notes receivable, net of the allowance for
doubtful accounts, totalled $87,921 and $115,978 as of May 31,
1994 and 1993, respectively.
The aggregate estimated fair value of notes receivable was
$91,084 and $114,855 at May 31, 1994 and 1993, respectively. The
fair value of performing notes is calculated by discounting the
projected cash flows using estimated market discount rates that
reflect the credit and interest rate risk inherent in the notes
and using specific borrower information. Fair values for
nonperforming notes (notes delinquent more than 90 days) and
notes with no set maturity are determined based on individual
circumstances and are valued net of specific reserves.
4. Investments In Unconsolidated Partnerships
Hillhaven has ownership interests ranging from 35% to 50% in a
number of unconsolidated general and limited partnerships. These
investments are accounted for by the equity method and are
included in other noncurrent assets. All of these partnerships
own or lease real and personal property and operate nursing
centers or retirement housing communities. Combined summarized
unaudited financial information for these partnerships is as
follows:
<TABLE>
<CAPTION>
May 31,
1994 1993
<S> <C> <C>
Current assets $ 8,902 $ 7,935
Property and equipment 46,696 60,528
Total assets $55,598 $68,463
Current liabilities $ 6,999 $ 5,452
Long-term debt to unrelated parties 37,400 45,196
Long-term debt to Hillhaven 4,377 7,749
Partners' equity 6,822 10,066
Total liabilities and equity $55,598 $68,463
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Years ended May 31,
1994 1993 1992
<S> <C> <C> <C>
Net operating revenues $47,857 $54,314 $58,004
Net income 2,747 4,204 2,303
Recognized by Hillhaven:
Equity in income 1,554 2,081 724
Interest income 367 697 952
Management fees 2,412 2,710 2,485
</TABLE>
Hillhaven manages seven nursing centers and one retirement
housing community for partnerships in which the Company has an
equity interest. Management fees earned are usually based upon a
percentage of revenues, ranging from 5% to 9%.
5. Property And Equipment
Property and equipment at May 31 is comprised of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Land $ 77,043 $ 71,297
Buildings 718,983 690,868
Leasehold improvements 17,208 18,433
Equipment 172,992 152,692
Construction in progress 14,376 6,919
1,000,602 940,209
Less accumulated depreciation
and amortization (217,343) (173,211)
Net property and equipment $ 783,259 $ 766,998
</TABLE>
Property and equipment includes buildings acquired under capital
leases of $1,997 at May 31, 1994. At May 31, 1993, capitalized
lease assets were comprised of: land, $11,105; buildings,
$119,056; and equipment, $7,236. Related accumulated
depreciation and amortization amounted to $1,776 and $9,401 at
May 31, 1994 and 1993, respectively.
6. Long-Term Debt
The Recapitalization. In September 1993, Hillhaven completed a
recapitalization plan (the "Recapitalization") which included the
modification of the Company's relationship with NME (Note 8) to
(i) purchase 23 nursing centers leased from NME for a purchase
price of $111,800, (ii) repay all existing debt to NME in the
aggregate principal amount of $147,202, (iii) release NME
guarantees on approximately $400,000 of debt, (iv) limit the
annual fee payable to NME to 2% of the remaining amount
guaranteed and (v) amend existing agreements to eliminate
obligations of NME to provide additional financing to the
<PAGE>
<PAGE>
Company. The Recapitalization was financed through (i) the
issuance to NME of $120,000 of payable-in-kind Series D Preferred
Stock, (ii) the incurrence of a $175,000 term loan under a
secured credit facility with a syndicate of banks, (iii) the
issuance of $175,000 of 10-1/8% Senior Subordinated Notes due
2001, (iv) borrowings of $30,000 under an accounts receivable-
backed credit facility and (v) the use of approximately $39,000
of cash.
Long-term debt at May 31 is comprised of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Debt under bank credit agreement (1) <F1> $ 113,527 $ ---
Floating rate convertible
debentures (2) <F2> 59,473 65,053
Industrial revenue bonds, payable
in installments to 2016 (3) <F3> 124,895 140,794
Mortgage notes, payable monthly
to 2027 (3) <F3> 50,369 47,016
Other notes, payable in installments
to 2002 (3) <F3> 21,994 19,801
Capitalized lease obligations
(Notes 8 and 9) 1,965 137,517
10-1/8% unsecured notes due 2001 174,405 ---
7-3/4% convertible debentures (4) <F4> 74,750 74,750
Secured term loans under mortgage
pool financing facilities
(Note 8) (5) <F5> --- 204,937
Debt payable to NME (Note 8) --- 147,215
621,378 837,083
Less current portion (43,427) (18,835)
$ 577,951 $ 818,248
<FN>
(1)<F1> In connection with the Recapitalization, Hillhaven
entered into a credit agreement with a syndicate of banks. The
credit agreement includes a $175,000 term loan facility, an
$85,000 revolving credit facility and a $90,000 letter of credit
facility (collectively, the "Facilities"). The letter of credit
facility was obtained to provide credit enhancement for the
Company's industrial revenue bonds. Borrowings under the credit
agreement are secured by 85 nursing centers, certain accounts
receivable and the stock of certain subsidiaries of the Company.
The Facilities bear interest at either a base rate plus 3/4% to
1-5/8% or the London Interbank Offered Rate ("LIBOR") plus 1-3/4%
to 2-5/8%, the spreads being dependent on the type of facility
and leverage ratios. The Facilities will mature on September 1,
1998. Commitment fees are required on the unused portions of the
revolving credit facility and letter of credit facility and are
paid at a rate of 3/8% to 1/2% depending on leverage ratios. At
May 31, 1994, $165,000 was outstanding under the term loan
facility, including $59,473 as substituted debt for the PIP
Debentures (discussed below), with interest payable at 6.1%. The
term loan is subject to scheduled principal repayments.
<PAGE>
<PAGE>
Borrowings under the revolving credit facility amounted to $8,000
at May 31, 1994, with interest payable at 6.6%. Letters of
credit outstanding at May 31, 1994 under the letter of credit
facility totalled $69,418.
(2)<F2> Under Hillhaven's 1991 Performance Investment Plan, on
May 29, 1992, the Company privately placed $65,053 of convertible
debentures (the "PIP Debentures") to a wholly-owned, special
purpose subsidiary. The subsidiary financed 95% of the purchase
with three-year term loans from a syndicate of commercial banks
and 5% from the sale to key employees of options to acquire the
PIP Debentures. The bank loans were guaranteed by NME. In
September 1993, Hillhaven refinanced the term loans using its
term loan facility. Because the proceeds from the exercise of
the options must be used by the Company to retire the debt
underlying the PIP Debentures, these borrowings, together with
the outstanding balance of the options, are classified as
floating rate convertible debentures in the above table. The
interest rate was 6.1% at May 31, 1994. Interest is not payable
on the options. The PIP Debentures mature and the options
terminate on May 29, 1999, and both the PIP Debentures and
options are subject to mandatory redemption on that date or
upon the occurrence of certain events. The options permit the
holder to purchase PIP Debentures at 95% of their face value and
to ultimately convert them into shares of common stock at an
effective conversion price of $16.5375 per share. The options
vest 25% per year beginning in December 1993, with accelerated
vesting in certain events. The Company may repurchase the
options at any time after May 29, 1997 by paying a redemption
premium. As options are exercised, the Company's taxable income
will be reduced by any excess of the fair market value of the
common stock at the date of conversion over the principal amount
of the PIP Debentures redeemed.
(3)<F3> Mortgage notes, industrial revenue bonds and the
majority of other notes are principally secured by Hillhaven's
property and equipment. The industrial revenue bonds were issued
by various governmental authorities to finance the construction
or acquisition of nursing centers and retirement housing
facilities. The use of escrowed funds of $6,156 and $8,990 at
May 31, 1994 and 1993, respectively, is limited to specific
facility capital improvements or payment of principal and
interest on the bonds. These amounts are included in other
noncurrent assets. Average interest rates for the mortgage
notes, industrial revenue bonds and other notes at May 31, 1994
were 5.6%, 5.4% and 8.9%, respectively.
(4)<F4> On November 4, 1992, the Company sold $74,750 of its
7-3/4% Convertible Subordinated Debentures (the "Debentures") due
2002. The Debentures are convertible into common stock at the
option of the holder at any time prior to maturity at a
conversion price of $16.795 per share. On or after November 1,
1995, the Company may redeem the Debentures, in whole or in part,
at specified redemption prices. The Debentures are unsecured and
subordinated to all other indebtedness of Hillhaven.
<PAGE>
<PAGE>
(5)<F5> Hillhaven participated in two mortgage financing
arrangements which were guaranteed by NME. Borrowings under
these arrangements were repaid with proceeds from the
Recapitalization.
</TABLE>
Hillhaven participates in a $40,000 accounts receivable-backed
credit facility whereby eligible Medicaid receivables of selected
nursing centers are sold to a wholly-owned subsidiary of
Hillhaven, formed specifically for the purpose of such
transactions. The purchase of receivables by the subsidiary may
be financed by a bank line of credit with interest payable at
either LIBOR plus 3/4% or the lenders' cost of funds. At May 31,
1994, the subsidiary had total assets of approximately $65,378,
which cannot be used to satisfy claims against Hillhaven or any
of its subsidiaries.
Certain loan agreements have, among other requirements,
restrictions on cash dividends, investments and borrowings and
require maintenance of specified operating ratios, levels of
working capital and net worth. Management believes that
Hillhaven is in compliance with all material covenants. There
are no compensating balance requirements for any of the credit
lines or borrowings.
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending May 31,
<S> <C>
1995 $ 43,427
1996 49,163
1997 55,994
1998 33,852
1999 24,996
Later years 413,946
$621,378
</TABLE>
The fair value of the Company's long-term borrowings at May 31,
1994 and 1993, excluding capitalized lease obligations, is
estimated to be $638,751 and $702,317 based on quoted market
prices or by discounting future cash flows at current rates
offered to the Company for debt of comparable types and
maturities.
7. Income Taxes
Effective June 1, 1992, Hillhaven adopted Statement of Financial
Accounting Standards No. 109 , "Accounting for Income Taxes"
("SFAS 109"). The implementation of SFAS 109 changes the
Company's method of accounting for income taxes from the deferred
method of APB Opinion No. 11 ("APB 11") to an asset and liability
approach. Under the asset and liability method of SFAS 109,
deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
<PAGE>
<PAGE>
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
Pursuant to the deferred method under APB 11, which was applied
in fiscal 1992 and prior years, deferred income taxes were
recognized for income and expense items that were reported in
different years for financial reporting purposes and income tax
purposes using the tax rate applicable for the year of the
calculation. Under the deferred method, deferred taxes were not
adjusted for subsequent changes in tax rates.
Adoption of SFAS 109 resulted in a charge of $1,103 to the 1993
statement of operations as the cumulative effect of a change in
accounting principle. Including the impact of this charge, the
effect on the year ended May 31, 1993 of the adoption of SFAS 109
was a reduction of net income tax expense and an increase in net
income of $7,710 as compared to amounts that would have been
reported under APB 11.
Income tax (expense) benefit on income (loss) from operations
before income taxes, reinstatement of discontinued operations,
extraordinary charge and cumulative effect of accounting change
consists of the following amounts:
<TABLE>
<CAPTION>
Years ended May 31,
1994 1993 1992
<S> <C> <C> <C>
Current (expense) federal $(12,193) $(5,400) $(4,079)
Current (expense) state (2,493) (967) (930)
(14,686) (6,367) (5,009)
Deferred (expense) benefit
federal (7,338) 12,609 4,079
Deferred (expense) benefit
state (629) 1,125 523
(7,967) 13,734 4,602
$(22,653) $ 7,367 $ (407)
</TABLE>
<PAGE>
<PAGE>
n analysis of Hillhaven's effective income tax rate is as
follows:
<TABLE>
<CAPTION>
Years ended May 31,
1994 1993 1992
<S> <C> <C> <C>
Statutory federal income tax rate 35% 34% 34%
Income tax (expense) benefit at
federal rate $ (28,412) $(11,349) $ 35,064
State income tax (expense)
benefit net of federal income
tax benefit (2,029) 104 (269)
Employee stock compensation 491 255 (470)
Nondeductible fees (21) (26) 151
Limitation on recognition of net
operating loss --- --- (34,742)
Nondeductible wages (968) (488) ---
Valuation allowance adjustment 1,090 18,992 ---
Targeted jobs tax credits
utilized 6,780 --- ---
Other 416 (121) (141)
Income tax (expense) benefit on
income (loss) from operations
before reinstatement of
discontinued operations,
extraordinary charge and
cumulative effect of
accounting change $(22,653) $ 7,367 $ (407)
</TABLE>
Under APB 11, deferred income tax (expense) benefits were created
by timing differences in the recognition of revenues and expenses
for tax and financial statement purposes. Deferred income tax
(expense) benefit for the year ended May 31, 1992 was comprised
of the following:
<TABLE>
<CAPTION>
<S> <C>
Excess of tax depreciation over book
depreciation $ (883)
Gain on sales of properties (128)
State income tax expense (345)
Compensation plans 847
Equity in partnership results of
operations 423
Restructuring charge 28,212
Direct write-off method for doubtful
accounts 998
Insurance liability 1,462
Vacation accruals 668
Limitation on recognition of net
operating loss (26,961)
Alternative minimum tax rate reduction 1,230
Other (921)
Total deferred income tax benefit $ 4,602
</TABLE>
<PAGE>
<PAGE>
The tax effects of temporary differences that give rise to
significant portions of the federal and state deferred tax assets
(liabilities) are comprised of the following:
<TABLE>
<CAPTION>
Years ended May 31,
1994 1993
<S> <C> <C>
Depreciation $(16,847) $(24,912)
Installment sales (1,691) (3,685)
Other (3,551) (1,148)
Gross deferred tax liabilities (22,089) (29,745)
Capital leases 8,110 7,090
Deferred partnership revenue 1,960 2,662
Insurance reserves 9,573 8,033
Vacation accruals 5,691 4,955
Deferred gain 4,350 5,882
Bad debt reserves 8,788 7,093
Restructuring reserves --- 20,293
Targeted jobs tax credits 5,296 7,546
Alternative minimum tax credits 2,649 1,534
Other 4,972 3,014
Gross deferred tax assets 51,389 68,102
Less valuation allowance (11,277) (12,367)
Deferred tax assets, net 40,112 55,735
Net deferred tax assets 18,023 25,990
Less amount included in
other current assets (18,946) (15,762)
Amount included in other
noncurrent assets (liabilities) $ (923) $ 10,228
</TABLE>
The decrease in the valuation allowance for deferred tax assets
of $1,090 was attributable to taxable income earned in the year
ended May 31, 1994 and, to a lesser extent, an increase in the
estimate of future income to be earned. For the Company to
realize its net deferred tax assets, it must continue to achieve
future pretax earnings. Although the Company believes such
pretax earnings will be achieved, a lack of earnings could result
in an increased provision for income taxes.
As of May 31, 1994, Hillhaven had $5,296 of targeted jobs tax
credits which expire between May 31, 2006 and May 31, 2009.
The Tax Reform Act of 1986 enacted an alternative minimum tax
system for corporations. The alternative minimum tax is assessed
at a rate of 20% on Hillhaven's alternative minimum taxable
income. Alternative minimum taxable income is determined by
making statutory adjustments to the Company's regular taxable
income. For the years ended May 31, 1994 and 1993, utilization
of regular tax credits was limited by alternative minimum tax
expense of $11,043 and $5,400, respectively. For the years ended
May 31, 1994, 1993 and 1992, regular income tax expense (before
utilization of tax credits) exceeded the alternative minimum tax
expense and resulted in the utilization of tax credits of $6,780,
$915, and $123, respectively.
<PAGE>
<PAGE>
8. Transactions with NME
Lending and Related Agreements. In connection with the spin-off
from NME in January 1990 (the "Spin-off"), Hillhaven entered into
certain financial arrangements with its former parent company.
Hillhaven issued unsecured notes to NME in the aggregate amount
of $145,859. The Company used the proceeds from the sale of both
the 8-1/4% Series C Preferred Stock to NME and the PIP Debentures
to repay $96,800 of these notes (Notes 2 and 6). As of May 31,
1993, one of the notes had been paid in full, and the outstanding
indebtedness on the remaining note was $49,059. NME also
provided mortgage financing to Hillhaven on certain nursing
centers purchased by the Company from NME. At May 31, 1993,
$98,156 was outstanding under these arrangements. In fiscal
1994, Hillhaven repaid all of the NME notes in the aggregate
principal amount of $147,202 with proceeds from the
Recapitalization. The Company also repaid debt which was
guaranteed by NME in the aggregate amount of $266,737 (Note 6).
Interest expense on NME notes totalled $3,696, $7,061 and $12,345
for the years ended May 31, 1994, 1993 and 1992.
Guarantee Reimbursement Agreement. NME and Hillhaven entered
into a guarantee reimbursement agreement providing for the
payment by Hillhaven of a fee in consideration of NME's guarantee
of certain Hillhaven obligations. At May 31, 1994 and 1993, an
aggregate total of approximately $279,000 and $699,000,
respectively, of long-term debt (Note 6), leases (Note 9) and
contingent liabilities (Note 11) were subject to this agreement.
In addition, NME guarantees $7,057 of Hillhaven debt and leases
for which Hillhaven is not charged a guarantee fee.
Insurance. Through May 31, 1994, substantially all of the
professional and general liability risks of Hillhaven were
insured by an insurance company which is owned by NME. Such
insurance expense amounted to $7,627, $7,344 and $6,025 for the
years ended May 31, 1994, 1993 and 1992, respectively. Beginning
June 1, 1994, Hillhaven obtained separate coverage for its
professional and general liability exposure.
Leases. At the time of the Spin-off, Hillhaven leased 115
nursing centers from NME. During the three years ended May 31,
1993, the Company purchased 92 of the leased nursing centers for
an aggregate purchase price of $346,900. At May 31, 1993,
Hillhaven leased 23 nursing centers from NME which were recorded
as capital leases at the aggregate purchase option price of
$135,400. As part of the Recapitalization (Note 6), the Company
purchased the remaining 23 nursing centers leased from NME for an
aggregate purchase price of $111,800. Interest expense on the
NME leases for the years ended May 31, 1994 and 1993 and the six
months ended May 31, 1992 amounted to $3,401, $19,889 and
$12,825, respectively. Rent expense on NME leases for the six
months ended November 30, 1991 amounted to $15,117.
Hillhaven is leasing certain nursing centers from Health Care
Property Partners, a joint venture in which NME has a minority
interest. Lease payments to this joint venture amounted to
$9,923, $9,699 and $9,507 for the years ended May 31, 1994, 1993
and 1992, respectively.
<PAGE>
<PAGE>
Equity Ownership. On November 30, 1991, NME purchased 35,000
shares of Hillhaven's 8-1/4% cumulative nonvoting Series C
Preferred Stock. The proceeds, $35,000, were used to reduce
notes payable to NME. NME is entitled to a cumulative dividend,
payable quarterly, at the annual rate of 8-1/4% of the $35,000
liquidation value. The Series C Preferred Stock is redeemable at
the option of the Company at any time, in whole or in part.
In connection with the Recapitalization, Hillhaven issued to NME
$120,000 of cumulative nonvoting payable-in-kind Series D
Preferred Stock. On February 28, 1994, NME tendered shares of
the Series D Preferred Stock in the amount of $63,300 in order to
exercise its warrants to purchase 6,000,000 shares of Hillhaven
common stock.
NME is entitled to receive cumulative quarterly dividends on the
Series D Preferred Stock at an annual rate of 6-1/2% of the
liquidation value which, as of May 31, 1994, was $60,546. The
dividends are payable in additional shares of Series D Preferred
Stock, compounded annually, until September 1998, when the
dividends will be paid in cash. The Company may, at its option,
redeem the Series D Preferred Stock at any time, in whole or in
part, subject to restrictions included in certain loan
agreements.
Management Agreement. Hillhaven provides management, consulting
and advisory services in connection with the operation of seven
nursing centers owned or leased by NME or its subsidiaries. In
return for such services, Hillhaven receives a management fee and
is reimbursed for certain costs and expenses. Hillhaven earned
$2,543, $2,440 and $2,300 for such services during fiscal 1994,
1993 and 1992, respectively. Management fees receivable from NME
amounted to $610 at May 31, 1994 and $545 at May 31, 1993.
9. Leases
As of May 31, 1994, Hillhaven leases 122 nursing centers, 78 of
which are operated by the Company. Most lease agreements cover
periods from 10 to 20 years and contain renewal options of 5 to
40 years. Hillhaven's pharmacy outlets are leased under terms
generally ranging from three to five years with three-year
renewal options.
<PAGE>
<PAGE>
Minimum lease payments under noncancelable leases and related
sublease income are as follows:
<TABLE>
<CAPTION>
Sublease
Year ending May 31, Capital Operating Income
<S> <C> <C> <C>
1995 $ 367 $ 38,570 $(12,047)
1996 369 33,954 (10,130)
1997 374 29,238 (7,732)
1998 378 26,963 (7,488)
1999 383 19,553 (5,819)
Thereafter 1,034 61,615 (20,560)
Total minimum lease
payments (income) 2,905 $209,893 $(63,776)
Less amount representing
interest (940)
Present value of net minimum
lease payments 1,965
Less current portion (168)
Long-term obligations $1,797
</TABLE>
Rent expense under operating leases is as follows:
<TABLE>
<CAPTION>
Years ended May 31,
1994 1993 1992
<S> <C> <C> <C>
Rent expense $ 52,440 $ 52,537 $ 67,144
Sublease rental income (13,563) (10,390) (6,060)
$ 38,877 $ 42,147 $ 61,084
</TABLE>
10. Benefit Plans
Hillhaven's 1990 Stock Incentive Plan (the "1990 Plan") provides
for incentive stock option, nonqualified stock option, restricted
stock, stock appreciation right and cash bonus awards to certain
executive officers and other key employees of Hillhaven.
Incentive stock options are granted at an exercise price equal to
the fair market value of the shares on the date of grant, and
nonqualified stock options are granted at an exercise price of
not less than 50% of fair market value on the date of grant.
Restricted shares are issued at no cost to the employee, and
restrictions on such shares generally lapse over five years from
the date of the award as long as the employee continues to be
employed by Hillhaven.
In addition, Hillhaven has replaced its long-term cash bonus plan
with performance share awards ("Performance Shares") under the
1990 Plan. The Compensation Committee of the Board of Directors
identified key management employees who are eligible to receive
Performance Shares. Performance Shares represent potential
rights to receive common stock based upon the Company achieving
specified financial targets over a three-year period. Subject to
the Compensation Committee's sole discretion to award all or any
<PAGE>
<PAGE>
portion of the Performance Shares, participants may receive
shares of common stock based upon actual performance in relation
to the financial targets.
The fair market value on the date of award of restricted shares
and the excess of the fair market value of the Hillhaven shares
on the date of grant of nonqualified stock options over the
exercise price represents compensation which is deferred and
charged to operations as the forfeiture restrictions lapse and as
the nonqualified options vest. An estimate of the fair market
value of Performance Shares expected to be awarded also
represents compensation and is deferred and charged to operations
over a three-year period. Unearned compensation is recorded as a
deduction from stockholders' equity. No stock appreciation
rights or cash bonuses have been awarded under the 1990 Plan. At
May 31, 1994, there were 2,401,629 shares of common stock
available under the 1990 Plan for future awards.
Hillhaven also has a Directors' Stock Option Plan for directors
who are not employees of Hillhaven and are not eligible to
participate in the 1990 Plan. Nonstatutory options to purchase
2,000 shares of common stock are granted each year to each
qualified director at the fair market value of the shares on the
date of grant.
Information regarding stock option plans follows:
<TABLE>
<CAPTION>
1990 Directors'
Stock Stock
Incentive Option
Plan Plan
<S> <C> <C>
Shares under option:
Outstanding at May 31, 1991 305,597 20,000
Granted --- 12,000
Exercised (52,345) (2,000)
Canceled (4,350) ---
Outstanding at May 31, 1992 248,902 30,000
Granted 101,647 10,000
Exercised (49,079) ---
Canceled (1,542) (2,000)
Outstanding at May 31, 1993 299,928 38,000
Granted 66,002 10,000
Exercised (95,785) (2,000)
Canceled (6,532) (6,000)
Outstanding at May 31, 1994 263,613 40,000
Average option price per share $9.85 $14.41
Options exercisable at May 31, 1994 204,625 30,000
Average price of options exercised:
Year ended May 31, 1992 $5.00 $5.15
Year ended May 31, 1993 $5.02 ---
Year ended May 31, 1994 $5.84 $13.75
</TABLE>
<PAGE>
<PAGE>
Shares of common stock issued in the last three fiscal years in
connection with employee and director compensation and benefit
plans were 97,785 in 1994, 135,079 in 1993 and 134,345 in 1992.
Restricted shares forfeited and retired in the last three fiscal
years were 16,000 in 1994, 39,670 in 1993 and 37,915 in 1992.
Hillhaven maintains defined contribution retirement plans
covering substantially all full-time employees, whereby employee
contributions to the plans are matched by Hillhaven up to certain
limits. Defined contribution pension expense totalled $3,938,
$4,556 and $3,812 for the years ended May 31, 1994, 1993 and
1992, respectively.
Hillhaven also maintains supplemental retirement plans covering
outside directors, executive officers and certain other
management employees under which benefits are determined based
primarily upon the participants' compensation and length of
service to the Company. Expense under these plans amounted to
$730, $262 and $393 for the years ended May 31, 1994, 1993 and
1992, respectively. Accrued benefits under the plans amounted to
$2,518 and $1,829 at May 31, 1994 and 1993, respectively, and are
included in other long-term liabilities.
11. Commitments And Contingencies
Hillhaven is contingently liable at May 31, 1994 for $34,099
primarily as a guarantor of indebtedness of partnerships in which
Hillhaven has an ownership interest (Note 4) or with which it has
a management agreement. It is not practicable to estimate the
fair value of these off-balance sheet obligations. NME has
guaranteed $16,421 of these obligations for which Hillhaven has
agreed to indemnify NME under the terms of the Guarantee
Reimbursement Agreement (Note 8).
The Company maintains insurance coverage for its workers
compensation exposure. The estimated liability for retrospective
workers compensation premiums (included in other accrued
liabilities and other long-term liabilities) is based on
actuarially projected estimates discounted at an 8.4% average
rate to their present value, which amounted to $8,619 at May 31,
1994 and $16,805 at May 31, 1993.
Hillhaven is subject to various claims and lawsuits in the
ordinary course of business which are covered by insurance or
adequately provided for in Hillhaven's financial statements. In
the opinion of management, the ultimate resolution of these
matters will not have a material adverse effect on Hillhaven's
results of operations or liquidity.
<PAGE>
<PAGE>
12. Statements of Cash Flows
Supplemental disclosures of cash flow information are as follows:
<TABLE>
<CAPTION>
Years ended May 31,
1994 1993 1992
<S> <C> <C> <C>
Cash paid for:
Interest $ 44,966 $ 56,144 $ 53,454
Income taxes 10,925 7,250 5,678
Noncash investing and
financing activities:
Acquisition of previously
leased nursing centers
and pharmacies
Long-term debt assumed
and incurred 13,705 39,609 76,403
Adjustment to property
and equipment and
capital lease
obligations 23,600 6,780 ---
Notes received in connection
with sales of nursing centers 3,340 36,338 16,304
Preferred stock issued to
retire debt 56,601 --- ---
Consolidation of previously
unconsolidated investees
and reinstatement of
retirement housing
operations
Increase in assets 6,243 4,155 93,113
Increase in liabilities 6,292 4,942 66,367
Capitalization of leases --- --- 299,500
Preferred stock tendered
for the purchase of
common stock 63,300 --- ---
Reclassification of property
and equipment and
intangible assets to/from
assets held for disposition 52,537 --- 96,328
</TABLE>
13. Reinstatement of Discontinued Operations
During 1987, the Company's predecessor adopted a plan to
discontinue and dispose of its retirement housing, development,
construction and hospital management businesses. During 1989,
disposition of all significant businesses, except retirement
housing, was completed.
Since the Spin-off, management concentrated its efforts on
improving occupancy levels in these facilities to increase their
market values. Because of significant improvements in occupancy,
<PAGE>
<PAGE>
results of operations and cash flows, Hillhaven announced on
May 27, 1992 its decision to retain the retirement housing
business as a component of continuing operations.
Substantially all of the accrued losses remaining at the date of
reinstatement, amounting to $21,127, were related to estimated
future losses on sale.
At the date of reinstatement the Company reclassified four of the
retirement housing facilities and several parcels of undeveloped
land to net assets held for disposition (Note 2). These assets
were recorded net of loss reserves totalling $20,736 which
consisted of the following estimates: loss on sale, $16,450, and
operating losses during the disposition period, $4,286. At
May 31, 1992, net assets of the four retirement housing
facilities and parcels of land to be disposed of totalled
$13,548, comprised of assets amounting to $33,516 net of loss
reserves of $19,968.
<PAGE>
<PAGE>
<TABLE>
Quarterly Financial Summary (Unaudited)
<CAPTION>
Year ended May 31, 1994
Quarters
First Second Third Fourth
<S> <C> <C> <C> <C>
Net operating
revenues (1)<F1> $354,814 $361,427 $363,973 $368,520
Income before
extraordinary
charge (2)<F2> $8,024 $25,812 $11,707 $12,982
Extraordinary charge --- (940) (73) (49)
Net income $8,024 $24,872 $11,634 $12,933
Income per share
- primary: (3)<F3>
Income before
extraordinary charge $.31 $.98 $.37 $.41
Extraordinary charge --- (.04) --- ---
Net income $.31 $.94 $.37 $.41
Income per share - fully
diluted: (3)<F3>
Income before
extraordinary charge $.28 $.77 $.33 $.37
Extraordinary charge --- (.03) --- ---
Net income $.28 $.74 $.33 $.37
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Year ended May 31, 1993
Quarters
First Second Third Fourth
<S> <C> <C> <C> <C>
Net operating
revenues (1)<F1> $331,992 $342,681 $344,065 $344,092
Income before
extraordinary charge
and cumulative effect $8,803 $11,117 $9,432 $11,395
Extraordinary charge --- --- (565) ---
Cumulative effect of
accounting change (1,103) --- --- ---
Net income $7,700 $11,117 $8,867 $11,395
Income per share -
primary: (3)<F3>
Income before
extraordinary charge
and cumulative effect $.37 $.46 $.36 $.47
Extraordinary charge --- --- (.02) ---
Cumulative effect of
accounting change (.05) --- --- ---
Net income $.32 $.46 $.34 $.47
<FN>
(1)<F1> Amounts for periods prior to September 1, 1993 have been
restated to include the revenues of facilities
previously held for disposition (Note 2).
(2)<F2> Includes a $21,904 restructuring credit recorded in the
1994 second quarter (Note 2).
(3)<F3> Adjusted to reflect a one-for-five reverse stock split
effected in November 1993.
</TABLE>
<PAGE>
<PAGE>
<TABLE> SCHEDULE V
THE HILLHAVEN CORPORATION
PROPERTY AND EQUIPMENT
(Dollar amounts are expressed in thousands)
<CAPTION>
Classification Balance at Balance at
beginning of Additions Sales and Other end of
period at cost (1)<F1> retirements changes(2)<F2> period
<S> <C> <C> <C> <C> <C>
Year ended
May 31, 1992
Land $ 32,161 $ 8,652 $ (2,316) $ 2,765 a $ 41,262
Buildings 345,612 102,731 (20,805) (2,774) a 424,764
Leasehold
improvements 28,445 4,530 (833) (10,862) a 21,280
Equipment 128,810 24,057 (9,033) (19,922) a 123,912
Construction in
progress 7,185 568 --- (1,466) b 6,287
Capitalized leases 5,515 299,500 --- (1,007) b 304,008
$547,728 $ 440,038 $ (32,987) $ (33,266) $ 921,513
Year ended
May 31, 1993
Land $ 41,262 $ 2,749 $ (944) $ 17,125 c $ 60,192
Buildings 424,764 20,880 (8,960) 135,128 c 571,812
Leasehold
improvements 21,280 3,016 (623) (5,240) c 18,433
Equipment 123,912 14,687 (4,524) 11,381 c 145,456
Construction in
progress 6,287 719 --- (87) c 6,919
Capitalized leases 304,008 --- (6,311) (160,300) c 137,397
$921,513 $ 42,051 $ (21,362) $ (1,993) $ 940,209
</TABLE>
<PAGE>
<PAGE>
<TABLE> SCHEDULE V
THE HILLHAVEN CORPORATION
PROPERTY AND EQUIPMENT
(Dollar amounts are expressed in thousands)
<CAPTION>
Classification Balance at Balance at
beginning of Additions Sales and Other end of
period at cost (1)<F1> retirements changes(2)<F2> period
<S> <C> <C> <C> <C> <C>
Year ended
May 31, 1994
Land $ 60,192 $ 2,459 $ (4,007) $ 18,399 d $ 77,043
Buildings 571,812 18,828 (25,505) 151,851 d 716,986
Leasehold
improvements 18,433 1,914 (155) (2,984) d 17,208
Equipment 145,456 22,844 (15,096) 19,788 d 172,992
Construction
in progress 6,919 7,296 --- 161 d 14,376
Capitalized
leases 137,397 --- --- (135,400) d 1,997
$940,209 $ 53,341 $ (44,763) $ 51,815 $1,000,602
</TABLE>
<PAGE>
<PAGE>
[FN]
(1)<F1> 1992 additions include the purchase of 24 previously
leased nursing centers and one retirement housing
facility: land, $7,420; buildings, $95,088; and
equipment, $7,397. Total consideration for the purchase
included debt totaling $76,212. Additions also include
the capitalization of 76 leases: land, $28,983;
buildings, $251,031; and equipment, $19,486, as part of
the restructuring transaction as described in Note 2 of
Notes to Consolidated Financial Statements.
(2)<F2> a. Reclassification to net assets held for disposition
as part of restructuring transaction: land,
$(8,473); buildings $(83,467); leasehold
improvements, $(10,963); equipment, $(26,820); and
construction in progress, $(261). The
restructuring is described in Note 2 of Notes to
Consolidated Financial Statements
Reinstatement of discontinued operations: land,
$11,309; building, $74,437; leasehold improvements,
$127; and equipment, $5,818.
Consolidation of previously unconsolidated
investee: land, $1, building, $5,611; and
equipment, $561. Adjustment to basis of retirement
housing property: land $(24); building, $(1,315);
and equipment, $(35).
b. Reclassification to other property and equipment
accounts.
c. Purchase of nursing centers, previously recorded as
capitalized leases: land $17,303; buildings
$131,095; and equipment $11,902. Adjustment to
building ($1,486) in connection with purchase of
partnership interests.
Reclassification to other property and equipment
accounts.
d. Purchase of 23 nursing centers and two retirement
housing facilities previously recorded as
capitalized leases: land, $11,105; buildings,
$117,059; and equipment, $7,236. Discount on
purchase of nursing centers, previously recorded as
capitalized leases: land, $(197); buildings,
$(22,880); and equipment, $(523). Reclassification
of leasehold improvements to buildings in
connection with the acquisition of previously
leased nursing centers, $4,048.
Consolidation of a previously unconsolidated
investee: land, $989; buildings, $7,874; and
equipment, $396.
<PAGE>
<PAGE>
[FN]
Effect of reinstatement of assets held for
disposition: land, $6,876; buildings, $47,042;
leasehold improvements, $1,061; equipment, $12,722;
and construction in progress, $347.
Reclassification to other property and equipment
accounts.
The annual provision for depreciation and amortization
is computed using the straight-line method over the
following useful lives: 20 to 45 years for buildings
and improvements, 5 to 10 years for equipment and the
lesser of the estimated useful life or the lease term
for leasehold improvements and certain capital leases.
<PAGE>
<PAGE>
<TABLE> SCHEDULE VI
THE HILLHAVEN CORPORATION
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY AND EQUIPMENT
(In thousands)
<CAPTION>
Additions
Balance at charged to Balance at
beginning of costs & Sales and Other end of
Description period expenses retirements changes period
<S> <C> <C> <C> <C> <C>
Year ended (19,101) (1)<F1>
May 31, 1992 $124,157 $ 41,485 $ (9,077) $ (1,737) (3)<F3> $135,727
Year ended (261) (2)<F2>
May 31, 1993 $135,727 $ 48,030 $ (6,526) $ (3,759) (3)<F3> $173,211
Year ended
May 31, 1994 $173,211 $ 48,356 $(20,055) $ 15,831 (3)<F3> $217,343
<FN>
(1)<F1> Reclassification to net assets held for disposition as
part of restructuring transaction. The restructuring is
described in Note 2 of Notes to Consolidated Financial
Statements $(25,181)
Reinstatement of discontinued operations 6,254
Reclassification to buildings upon acquisition of
previously leased nursing centers (185)
Consolidation of previously unconsolidated investees 593
Reclassification to buildings upon transfer of
property and equipment to a consolidated investee (582)
$(19,101)
(2)<F2> Reclassification to buildings upon acquisition of previously leased nursing centers.
(3)<F3> Effect of reinstatement of assets held for disposition; $15,766.
</TABLE>
<PAGE>
<PAGE>
<TABLE> SCHEDULE VIII
THE HILLHAVEN CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<CAPTION>
Additions
Balance at charged to Balance at
beginning costs & end of
Description of period expenses Deductions period
<S> <C> <C> <C> <C>
Year ended May 31, 1992:
Valuation accounts deducted
from assets:
Allowance for doubtful $ (5,370) (1)<F1>
accounts and notes 18 (2)<F2>
receivable $ 20,517 $ 5,962 478 (5)<F5> $21,605
Reserve for loss on
discontinued operations $ 23,753 $ --- $(23,753) (3)<F3> $---
Reserve for loss on assets
held for disposition $ --- $110,736 $ (7,662) (4)<F4> $103,074
Year ended May 31, 1993:
Valuation accounts deducted
from assets:
Allowance for doubtful
accounts and notes $ (5,686) (1)<F1>
receivable $ 21,605 $ 4,029 138 (5)<F5> $20,086
Reserve for loss on assets
held for disposition $103,074 $ --- $(46,428) (4)<F4> $56,646
Year ended May 31, 1994:
Valuation accounts deducted
from assets:
Allowance for doubtful
accounts and notes
receivable $ 20,086 $ 8,094 $ (3,567) (1)<F1> $24,613
Reserve for loss on assets $ (2,096) (4)<F4>
held for disposition $ 56,646 $ --- (54,550) (6)<F6> $---
</TABLE>
<PAGE>
<PAGE>
[FN]
(1)<F1> Write-off of accounts and notes receivable.
(2)<F2> Effect of reinstatement of discontinued operations.
(3)<F3> Elimination of loss reserve upon reinstatement of
discontinued operations.
(4)<F4> Operating losses related to nursing centers and
retirement housing facilities held for disposition were
charged to the reserve. See Note 2 of Notes to
Consolidated Financial Statements.
(5)<F5> Provision related to nursing centers and retirement
housing facilities held for disposition was charged to
the reserve for loss on assets held for disposition.
(6)<F6> Elimination of loss reserve upon reinstatement of assets
held for disposition.
<PAGE>
<PAGE>
<TABLE>
SCHEDULE X
THE HILLHAVEN CORPORATION
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In thousands)
<CAPTION>
Charged to costs and expenses
Year Ended May 31,
1994 1993 1992
<S> <C> <C> <C>
Repairs and maintenance $13,753 $13,148 $ 12,491
Taxes, other than payroll and
income taxes $16,644 $15,633 $ 17,359
Amortization of intangible assets and advertising costs are
less than one percent of net operating revenues. There are no
royalties.
</TABLE>
<PAGE>
<PAGE>
