<PAGE> 1
**CONFORMED**
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1994
-----------------
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ---------------- to ----------------
Commission File Number 0-3997
---------
Geriatric & Medical Companies, Inc.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 23-1713341
-------------------------------- ------------------------
(State or other jurisdiction (I.R.S. Employer Identi-
of incorporation or organization) fication Number)
</TABLE>
5601 Chestnut Street, Philadelphia, Pennsylvania 19139
------------------------------------------------------
(Address of principal executive offices)
(215) 476-2250
--------------------------------------------------
Registrant's telephone number, including area code
N/A
--------------------------------------------
Former name, former address and former
fiscal year, if changed since last report.
Indicate by check mark whether the registrant (i) 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 (ii) has been subject to
such filing requirements for the past 90 days.
X Yes No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
On April 8, 1994 there were 15,356,815 Shares of Common Stock, $.10 par value,
outstanding.
<PAGE> 2
GERIATRIC & MEDICAL COMPANIES, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I Financial Information
- ------
Item 1 Financial Statements
Consolidated Balance Sheets ---
February 28, 1994 and May 31, 1993 3
Consolidated Statements of Operations ---
Three months and nine months ended February 28, 1994
and February 28, 1993 4
Consolidated Statements of Cash Flows ---
Nine months ended February 28, 1994 and
February 28, 1993 5
Notes to Consolidated Financial Statements 6-7
Item 2 Management's Discussion and Analysis of
Results of Operations and Financial Condition 8-12
PART II Other Information
- -------
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURE 14
</TABLE>
2
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1 GERIATRIC & MEDICAL COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except par values and shares)
<TABLE>
<CAPTION>
February 28, May 31,
1994 1993
ASSETS (Unaudited) (Audited)
----------- ---------
<S> <C> <C>
Current Assets:
Cash $ 394 $ 2,845
Restricted cash 502 947
Patients' funds 275 271
Accounts receivable, net of allowance
of $3,585 at February 28, 1994 and
$6,595 at May 31, 1993 25,635 19,231
Other receivables, net of allowance
of $975 4,401 4,741
Prepaids and other assets 6,435 4,332
Inventories 4,038 4,612
Due from third-party payors, net of
allowance of $4,396 at February 28,
1994, and $4,090 at May 31, 1993 7,620 9,635
--------- ---------
Total current assets 49,300 46,614
--------- ---------
Property and equipment:
Land 3,702 3,702
Building and improvements 88,566 84,097
Equipment and fixtures 37,284 36,425
Construction-in-progress 8,642 8,991
--------- ---------
138,194 133,215
Less accumulated depreciation 52,064 47,533
--------- ---------
86,130 85,682
--------- ---------
Other noncurrent assets:
Restricted cash 7,900 12,605
Investments in joint ventures 1,063 921
Goodwill net of accumulated amortization
of $214 at February 28, 1994, and
$166 at May 31, 1993 1,409 1,457
Notes and other receivables 10,649 11,459
Deferred charges and other, net of
amortization of $3,721 at February 28,
1994, and $2,419 at May 31, 1993 7,574 7,651
--------- ---------
28,595 34,093
--------- ---------
$ 164,025 $ 166,389
========= =========
</TABLE>
<TABLE>
<CAPTION>
February 28, May 31,
1994 1993
LIABILITIES (Unaudited) (Audited)
----------- ---------
<S> <C> <C>
Current Liabilities:
Current portion of long-term debt and
subordinated debentures $ 1,683 $ 2,378
Accounts payable 14,665 15,871
Accrued expenses 11,568 11,539
--------- ---------
Total current liabilities 27,916 29,788
--------- ---------
Long-term debt 119,676 119,714
--------- ---------
Subordinated debentures - 2,868
--------- ---------
Deferred income 2,068 2,068
--------- ---------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par, authorized
15,000,000 shares; none were issued
or outstanding - -
Common stock, $.10 par, authorized
30,000,000 shares in 1994 and 1993;
issued and outstanding 15,333,222
and 15,273,531 at February 28,
1994 and May 31, 1993,
respectively 1,533 1,527
Capital in excess of par value 14,581 14,558
Accumulated deficit (1,749) (4,134)
--------- ---------
14,365 11,951
--------- ---------
$ 164,025 $ 166,389
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
GERIATRIC & MEDICAL COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per common share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Feb 28, Feb 28, Feb 28, Feb 28,
----------------------------- -----------------------------
1994 1993* 1994 1993*
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenues, net $ 43,520 $ 40,781 $ 130,977 $ 122,625
---------- ---------- ---------- ----------
Expenses:
Operating 36,647 34,729 110,065 104,288
Depreciation and amortization 2,202 2,327 6,495 6,540
---------- ---------- ---------- ----------
Total expenses 38,849 37,056 116,560 110,828
---------- ---------- ---------- ----------
Operating income 4,671 3,725 14,417 11,797
Interest expense, net (2,725) (2,877) (8,639) (8,530)
---------- ---------- ---------- ----------
Operating income after interest 1,946 848 5,778 3,267
Nonoperating income (loss), net (910) 142 (2,590) (933)
---------- ---------- ---------- ----------
Income before income taxes 1,036 990 3,188 2,334
Income tax provision 258 247 803 583
---------- ---------- ---------- ----------
Net income $ 778 $ 743 $ 2,385 $ 1,751
========== ========== ========== ==========
Earnings per common share:
Net income $ 0.05 $ 0.05 $ 0.16 $ 0.12
---------- ---------- ---------- ----------
Average Common Shares Outstanding 15,302 15,217 15,302 15,217
========== ========== ========== ==========
</TABLE>
*Reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
GERIATRIC & MEDICAL COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED FEBRUARY 28, 1994 AND FEBRUARY 28, 1993
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1993 *
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,385 $ 1,751
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for uncollectible accounts 2,339 2,868
Depreciation and amortization 6,496 6,540
Increase in patients' funds and other, net (4) (813)
Increase in accounts receivable (8,352) (9,164)
Decrease in other receivables 340 1,194
Increase in prepaids and other assets and inventories (1,529) (2,061)
(Increase) decrease in net amounts
due from third-party payors 5,915 (3,033)
Increase (decrease) in accounts payable (1,206) 2,057
Increase (decrease) in accrued expenses 29 (1,063)
---------- ----------
Net cash provided by (used in) operating activities 6,413 (1,724)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,278) (5,201)
Capital expenditures financed by construction
and property improvement funds (3,655) (4,155)
Increase in joint ventures, net (142) (124)
Expenditures for deferred charges and escrow payments/refunds, net (1,187) (1,553)
Decrease in notes and other receivables 810 1,047
Other investing activities, net 330 (291)
---------- ----------
Net cash used in investing activities (6,122) (10,277)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 6,203 11,972
Repayment of debt and subordinated debentures (9,804) (10,598)
Reduction in receivables financing (4,291) (1,049)
Decrease in restricted cash 5,150 7,189
---------- ----------
Net cash provided by (used in) financing activities (2,742) 7,514
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,451) (4,487)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,845 4,541
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 394 $ 54
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 12,041 $ 10,283
Income taxes $ 82 $ 73
</TABLE>
* Reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
GERIATRIC & MEDICAL COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF CONSOLIDATION AND PRESENTATION:
In the opinion of Management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the financial position as of February
28, 1994 and May 31, 1993, and the results of operations for the three months
and nine months ended February 28, 1994 and February 28, 1993 and changes in
cash flows for the nine months ended February 28, 1994 and February 28, 1993.
These financial statements should be read in conjunction with Geriatric &
Medical Companies, Inc.'s annual report filed with the Securities and
Exchange Commission for the year ended May 31, 1993. Results of operations
for the three months and nine months ended February 28, 1994 and February 28,
1993 are not necessarily indicative of results of operations expected for the
full year.
2. ACCOUNTS RECEIVABLE:
On November 4, 1993, the Company entered into a three year $25 million
accounts receivable funding agreement with a new financing source, retiring
its previous financing arrangement. The Company may sell, on a continuing
basis, up to $25 million of certain qualifying accounts receivable. The
Company receives, net of reserves, approximately 80% of accounts receivable
submitted. This transaction has been accounted for as a sale under Financial
Accounting Standards Board Statement No. 77 guidelines but may be treated as
a financing (borrowing) transaction for Medicare/Medicaid purposes. The
accounting for this transaction is consistent with the treatment under the
prior financing agreement.
Under the terms of the agreement, the Company will pay interest at 9.84% per
annum, which is fixed for the three year period, on the outstanding
receivables submitted. As of February 28, 1994, the outstanding balance of
the receivables submitted was approximately $16,494,000 of which
approximately $12,944,000 were funded, net of reserves. The portion not
received by the Company is included in other receivables on the balance
sheets. During the nine month periods ended February 28, 1994 and 1993, the
Company sold approximately $69,575,000 and $55,374,000, respectively, of
certain qualifying receivables.
The Company has recognized a provision for costs on sale of accounts
receivable of approximately $2,495,000 and $2,202,000 for the nine months
ended February 28, 1994 and 1993, respectively.
6
<PAGE> 7
GERIATRIC & MEDICAL COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3. SUBORDINATED DEBT:
On February 1, 1994, the Company redeemed $2,868,000 of 16% subordinated
debentures due December 31, 1994. The debentures were redeemed at par plus
accrued interest to the date of redemption.
4. COMMITMENTS AND CONTINGENCIES:
In September, 1992 a class action law suit was commenced against the Company,
GMS Management, Inc., and various current or former officers of the Company
in the United States District Court for the Eastern District of Pennsylvania.
The Complaint alleges that, among other things, various reports and press
releases issued by the Company misrepresented and omitted to state adverse
material facts concerning the quality of care given at two nursing homes
previously managed by the Company. The plaintiff did not seek a specified
sum other than "to pay to plaintiff and to all members of the class damages
in an amount to be proven at trial, with interest thereon." The Company and
the individual defendants deny any wrong doing and are vigorously defending
this action.
The Company is involved in various routine government inquiries, audit
surveys and administrative proceedings concerning the activities and
operations of both its GeriMed Services Group and Life Support Medical Group.
The Company is also involved in various claims and legal actions arising in
the ordinary course of business. The Company believes that the ultimate
disposition of all of these matters will not have a material adverse effect
on the Company's Consolidated Financial Statements.
7
<PAGE> 8
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
INTRODUCTION
Geriatric & Medical Companies, Inc. is a diversified health care provider that
is currently structured into two distinct groups: the GERIMED SERVICES GROUP
and the LIFE SUPPORT MEDICAL GROUP.
The GERIMED SERVICES GROUP owns and operates twenty-four long term care and
residential facilities. In addition, this Group provides financial services,
insurance and real estate development services to the long-term care
marketplace in Pennsylvania and New Jersey.
The LIFE SUPPORT MEDICAL GROUP provides pharmaceutical and specialized patient
care products, enteral/infusion therapy, respiratory therapy, durable medical
equipment, pain management, antibiotic and hydration therapies, portable
diagnostic services and ambulance transportation to long-term care facilities
and/or homebound patients. These services include providing urological and
ostomy products, respiratory services and equipment, decubitus care supplies
and prescription and non-prescription drugs. In addition, this group provides
hospitality services which include dietary, housekeeping and laundry services
to facilities serviced within the GeriMed Services Group and outside long term
care facilities.
RESULTS OF OPERATIONS
Consolidated net operating revenues for the three months ended February 28,
1994 are $43,520,000 as compared to $40,781,000 for the three months ended
February 28, 1993, an increase of $2,739,000 or 6.7%. Net operating revenues
for the nine months ended February 28, 1994 are $130,977,000 compared to
$122,625,000 for the same period last year, an increase of $8,352,000 or 6.8%.
Total expenses for the third quarter of fiscal 1994 are $38,849,000 compared to
$37,056,000 for the same period last year, an increase of $1,793,000 or 4.8%.
Total expenses for the first nine months of fiscal 1994 are $116,560,000
compared to $110,828,000 for the same period last year, an increase of
$5,732,000 or 5.2%.
Operating income for the three months is $4,671,000 compared to $3,725,000 for
the three months ended February 28, 1993, an increase of $946,000 or 25.4%.
Operating income for the nine months is $14,417,000 compared to $11,797,000 for
the nine months ended February 28, 1993, an increase of $2,620,000 or 22.2%.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(CONTINUED)
Nonoperating loss for the three months is $910,000 compared to nonoperating
income of $142,000 for the three months ended February 28, 1993. The variance
is principally the result of the recognition in fiscal 1993 of gains and
deferred income related to asset sales. Nonoperating loss for the nine months
is $2,590,000 versus $933,000 for the nine months ended February 28, 1993, an
increase of $1,657,000. This increase is attributable to an increase in the
provision for costs on sale of accounts receivable (see Note 2 of the Notes to
Consolidated Financial Statements) in fiscal 1994 and the recognition in fiscal
1993 of gains and deferred income related to asset sales.
Net interest expense for the three months is $2,725,000 compared to $2,877,000
for the same period last year, a decrease of $152,000 or 5.3%. This decrease
is attributable to the repayment of $2,868,000 of 16% subordinate debentures
and the recognition of interest income on outstanding receivables. Net
interest expense for the nine months is $8,639,000 compared to $8,530,000 for
the same period last year, an increase of $109,000 or 1.3%. This increase is
principally the result of a higher interest rate associated with the Company's
accounts receivable financing agreement entered into on November 4, 1993 (see
Note 2 of the Notes to Consolidated Financial Statements).
Net income for the three months is $778,000 compared to $743,000 for the same
period last year, an increase of $35,000 or 4.7%. Net income for the nine
months is $2,385,000 compared to $1,751,000 for the same period last year, an
increase of $634,000 or 36.2%.
GROUP NET OPERATING REVENUES AND OPERATING INCOME FOR THE THREE AND NINE MONTH
PERIODS ENDED FEBRUARY 28, 1994 AND FEBRUARY 28, 1993
<TABLE>
<CAPTION>
($'s in thousands)
Three months ended Nine months ended
------------------ --------------------
Feb. 28, Feb. 28, Increase % Feb. 28, Feb. 28, %
Operating Revenues, Net: 1994 1993(a) (Decrease) Change 1994 1993(a) Increase Change
- ----------------------- -------- --------- ---------- ------ -------- --------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GeriMed Services Group $31,543 $30,146 $ 1,397 4.6% $ 94,323 $ 89,559 $ 4,764 5.3%
Life Support Medical
Group 11,977 10,635 1,342 12.6% 36,654 33,066 3,588 10.9%
------- ------- ------- --------- ------- ------
Total $43,520 $40,781 $ 2,739 6.7% $ 130,977 $122,625 $ 8,352 6.8%
======= ======= ======= ========= ======== =======
Operating Income:
- ----------------
GeriMed Services Group $ 3,577 $ 2,455 $ 1,122 45.7% $ 10,183 $ 9,149 $ 1,034 11.3%
Life Support Medical
Group 1,094 1,270 (176) 13.9% 4,234 2,648 1,586 59.9%
------- ------- ------- --------- -------- -------
Total $ 4,671 $ 3,725 $ 946 25.4% $ 14,417 $ 11,797 $ 2,620 22.2%
======= ======= ======= ========= ======== =======
</TABLE>
(a) Reclassified for comparative purposes.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(CONTINUED)
CHANGES TO GROUP NET OPERATING REVENUES AND OPERATING INCOME FOR THE THREE AND
NINE MONTH PERIODS ENDED FEBRUARY 28, 1994 AND FEBRUARY 28, 1993
GERIMED SERVICES GROUP
For the three month period, net operating revenues increased $1,397,000 or 4.6%
compared to the same period last year. For the nine months ended February 28,
1994, net operating revenues increased $4,764,000 or 5.3% compared to the same
period last year. These increases are primarily attributable to improved
reimbursement from government programs, higher room rates for private pay
patients, new bed additions and other rate increases. Total expenses increased
$275,000 or 1.0% and $3,730,000 or 4.6% for the three and nine month periods
ended February 28, 1994 compared to the same periods last year due to costs
associated with growth in revenues net of the effect of the implementation of
cost efficiency programs.
LIFE SUPPORT MEDICAL GROUP
For the three month period ended February 28, 1994, net operating revenues
increased $1,342,000 and operating income decreased $176,000 over the same
period last year. The increase in net operating revenues for the three month
period ended February 28, 1994 over the same period last year resulted
primarily from expansion of the ambulance and hospitality services through
contracts with new accounts. The decrease in operating income is principally
related to costs incurred to expand into new market areas and change in
government reimbursement and regulation in the home care and supplies market.
For the nine month period ending February 28, 1994, operating revenues
increased $3,588,000 over the same period last year. This increase resulted
primarily from growth from the ambulance transportation and hospitality
services. Operating income for the nine months ended February 28, 1994
increased $1,586,000 over the same period last year. This increase is
primarily due to cost containment and efficiency programs implemented.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1993, the Company remarketed approximately $7,705,000 of
Industrial Development Bonds, a portion of which was used to cancel cash
collateralized letters of credit. This resulted in working capital of
$2,366,000 during fiscal 1993. The Company remarketed $1,315,000 in July, 1993
which resulted in $1,137,000 of additional working capital.
On February 28, 1993 Tomahawk Capital Investments, Inc., (Tomahawk) which is
controlled by the Chairman of the Board of the Company, purchased a note
receivable of the Company for $773,000 cash, plus accrued interest of $57,000,
the fair market value of the note as established by an independent appraisal.
On May 31, 1993, the Company sold its Mount Laurel, New Jersey facilities to
Tomahawk for a purchase price of $8,500,000, the fair market value as
established by an independent appraisal. The Company received $2,500,000 in
cash and a $6,000,000 note bearing interest at nine percent (9%) per annum.
The note is based on a 25-year amortization with a balloon payment due June of
2005. Tomahawk prepaid $1,000,000 of this note including accrued interest in
January 1994. The prepayment was used to redeem the 16% subordinate debentures
in February 1994.
Effective November 4, 1993 the Company entered into an accounts receivable
funding facility pursuant to which the Company may sell, on a continuing basis,
up to $25,000,000 of certain eligible accounts receivable.
The Company redeemed $2.8 million of 16% subordinated debentures due December
31, 1994 on February 1, 1994 at par plus accrued interest. The Company funded
this redemption through the collection of outstanding accounts receivables and
the prepayment of the mortgage and interest discussed above.
A substantial part of the Company's revenues consist of reimbursement under the
Pennsylvania Medicaid Program, a retrospective cost based program that
typically results in the generation of large receivables which are periodically
settled. Pennsylvania presently plans to switch to a prospective Medicaid
reimbursement system effective July 1994, which may reduce some of the
fluctuations in the Company's cash flow. The State of Pennsylvania increased
its rates as of July
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(CONTINUED)
1, 1992 and July 1, 1993. The Company expects these increases to improve its
working capital in fiscal 1994.
The Company instituted a cost reduction program and expects to improve its
working capital through additional efficiencies and cost reductions through
systems development. The Company further intends to meet its working capital
requirements from payments to be received on amounts due from third party
payors, increased rates, financing arrangements and/or the sale and refinancing
of other assets.
At February 28, 1994, the Company has restricted cash of approximately
$2,509,000 to be used for capital improvements and construction projects. The
Company has no significant capital commitments which are not fully funded in
the restricted cash accounts.
12
<PAGE> 13
PART II OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
13
<PAGE> 14
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.
GERIATRIC & MEDICAL COMPANIES, INC.
April 14, 1994
By: /s/ James J. O'Malley
-------------------------------
James J. O'Malley
Vice President and
Chief Financial Officer
14
