<PAGE> 1
**CONFORMED**
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 30, 1993
--------------------
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 the charter)
<TABLE>
<S> <C>
Delaware 23-1713341
- --------------------------------- ----------------------------
(State or other jurisdiction (IRS Employer Identification
of incorporation or organization) Number)
</TABLE>
5601 Chestnut Street, Philadelphia, Pennsylvania 19139
----------------------------------------------------------------
(Address of principal executive offices) (zip code)
(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 (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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
On January 11, 1994, there were 15,295,847 shares of common stock, $.10 par
value, outstanding.
<PAGE> 2
GERIATRIC & MEDICAL COMPANIES,
INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
<S> <C>
Item 1 Financial Statements
Consolidated Balance Sheets ---
November 30, 1993 (unaudited)
and May 31, 1993 (audited) 3
Consolidated Statements of
Operations (unaudited) ---
Three months and six months ended
November 30, 1993 and November 30, 1992 4
Consolidated Statements of
Cash Flows (unaudited) ---
Six months ended November 30, 1993
and November 30, 1992 5
Notes to Consolidated Financial Statements 6-7
Item 2 Management's Discussion and Analysis of Results of
Operations and Financial Condition 8-11
PART II OTHER INFORMATION
- ------- -----------------
Item 6 Exhibits and Reports on Form 8-K 12
SIGNATURE 13
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION GERIATRIC & MEDICAL COMPANIES, INC. AND SUBSIDIARIES
ITEM I CONSOLIDATED BALANCE SHEETS
($'s in thousands except par values and shares)
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
November 30, May 31,
1993 1993
ASSETS (Unaudited) (Audited)
<S> <C> <C>
Current Assets:
Cash $ 2,759 $ 2,845
Restricted cash 759 947
Patients' funds 271 271
Accounts receivable, net of allowance
of $4,486 at November 30, 1993 and
$6,595 at May 31, 1993 26,916 19,231
Other receivables, net of allowance
of $975 3,494 4,741
Prepaids and other assets 5,615 4,332
Inventories 3,680 4,612
Due from third-party payors, net of
allowance of $4,389 at November 30,
1993, and $4,090 at May 31, 1993 7,204 9,635
--------- ---------
Total current assets 50,698 46,614
--------- ---------
Property and equipment:
Land 3,702 3,702
Building and improvements 88,380 84,097
Equipment and fixtures 36,372 36,425
Construction-in-progress 6,983 8,991
--------- ---------
135,437 133,215
Less accumulated depreciation 50,314 47,533
--------- ---------
85,123 85,682
--------- ---------
Other noncurrent assets:
Restricted cash 9,253 12,605
Investments in joint ventures 978 921
Goodwill net of accumulated amortization
of $361 at November 30, 1993, and
$166 at May 31, 1993 1,502 1,457
Notes and other receivables 10,906 11,459
Deferred charges and other, net of
amortization of $3,277 at November 30,
1993, and $2,419 at May 31, 1993 7,905 7,651
--------- ---------
30,544 34,093
--------- ---------
$ 166,365 $ 166,389
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
November 30, May 31,
1993 1993
LIABILITIES (Unaudited) (Audited)
<S> <C> <C>
Current Liabilities:
Current portion of long-term debt and
subordinated debentures $ 5,188 $ 2,378
Accounts payable 14,395 15,871
Accrued expenses 11,516 11,539
--------- ---------
Total current liabilities 31,099 29,788
--------- ---------
Long-term debt 119,622 119,714
--------- ---------
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 1993 and 1992;
issued and outstanding
15,295,847 and 15,273,531 at
November 30, 1993 and May 31, 1993,
respectively 1,530 1,527
Capital in excess of par value 14,573 14,558
Accumulated deficit (2,527) (4,134)
--------- ---------
13,576 11,951
--------- ---------
$ 166,365 $ 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)
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------- -----------------------
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
----------------------- -----------------------
1993 1992* 1993 1992*
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Operating revenues, net $ 44,404 $ 41,238 $ 87,457 $ 81,844
-------- -------- -------- --------
Expenses:
Operating 37,125 34,949 73,418 69,559
Depreciation and amortization 2,126 2,194 4,293 4,213
-------- -------- -------- --------
Total expenses 39,251 37,143 77,711 73,772
-------- -------- -------- --------
Operating income 5,153 4,095 9,746 8,072
Interest expense, net (3,015) (2,848) (5,914) (5,653)
-------- -------- -------- --------
Operating income after interest 2,138 1,247 3,832 2,419
Nonoperating loss, net (949) (436) (1,680) (1,075)
-------- -------- -------- --------
Income before income taxes 1,189 811 2,152 1,344
Income tax provision 304 204 545 336
-------- -------- -------- --------
Net income $ 885 $ 607 $ 1,607 $ 1,008
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per common share:
Net income $ 0.06 $ 0.04 $ 0.11 $ 0.07
-------- -------- -------- --------
-------- -------- -------- --------
Average Common Shares Outstanding 15,295 15,205 15,295 15,205
-------- -------- -------- --------
-------- -------- -------- --------
</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
SIX MONTHS ENDED NOVEMBER 30, 1993 AND NOVEMBER 30, 1992
(IN THOUSANDS)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1993 1992 *
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,607 $ 1,008
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for uncollectible accounts 1,492 1,782
Depreciation and amortization 4,293 4,213
Decrease in patients' funds and other, net - 176
Increase in accounts receivable (7,844) (7,060)
Decrease in other receivables 1,247 2,138
Increase in prepaids and other assets and inventories (351) (407)
(Increase) decrease in net amounts
due from third-party payors 6,331 (1,582)
Increase (decrease) in accounts payable (1,476) 143
Increase (decrease) in accrued expenses (23) 39
Net cash provided by operating activities 5,276 450
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,037) (4,399)
Capital expenditures financed by construction
and property improvement funds (2,093) (1,965)
Increase in joint ventures, net (57) (86)
Expenditures for deferred charges and escrow payments/refunds, net (1,072) (928)
(Increase) decrease in notes and other receivables 553 (192)
Other investing activities, net 187 111
Net cash used in investing activities (3,519) (7,459)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 4,358 8,173
Repayment of debt and subordinated debentures (4,508) (6,626)
Reduction in receivables financing (5,233) (314)
Decrease in restricted cash 3,540 1,296
Net cash provided by (used in) financing activities (1,843) 2,529
NET DECREASE IN CASH AND CASH EQUIVALENTS (86) (4,480)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,845 4,541
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,759 $ 61
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 8,095 $ 8,365
Income taxes $ 52 $ 51
</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 November 30, 1993 and May 31, 1993, and the results of
operations for the six months ended November 30, 1993 and November 30,
1992 and changes in cash flows for the six months ended November 30,
1993 and November 30, 1992. These financial statements should be read
in conjunction with Geriatric & Medical Companies, Inc's (the
"Company") annual report filed with the Securities and Exchange
Commission for the year ended May 31, 1993. Results of operations for
the six months ended November 30, 1993 and November 30, 1992 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 $25 million accounts
receivable funding facility 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% percent per annum on the outstanding receivables submitted. As
of November 30, 1993, the outstanding balance of the receivables
submitted was approximately $15,305,000, of which approximately
$12,322,000 were funded, net of reserves. The portion not received by
the Company is included in other receivables on the balance sheets.
During the six month periods ended November 30, 1993 and 1992, the
Company sold approximately $44,642,000 and $42,855,000, respectively,
of certain qualifying receivables.
The Company has recognized a provision for costs on sale of accounts
receivable of approximately $1,592,000 and $1,470,000 for the six
months ended November 30, 1993 and 1992, respectively.
3. 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
6
<PAGE> 7
GERIATRIC & MEDICAL COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
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 United Health Care
Services 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.
4. SUBSEQUENT EVENT:
In January, 1994 the Company announced its call to redeem all of the
$2.8 million outstanding 16% subordinate debentures due December 31,
1994 on February 1, 1994 at par plus accrued interest to the date of
redemption.
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 UNITED HEALTH CARE SERVICES GROUP.
The GERIMED SERVICES GROUP provides contract management, financial,
rehabilitation and hospitality services to facilities with approximately 5,000
beds. In addition, this group provides insurance and real estate development
services to the long-term care marketplace in Pennsylvania and New Jersey.
The UNITED HEALTH CARE SERVICES 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 performing
medical records management functions in long-term care facilities and providing
urological and ostomy products, respiratory services and equipment, decubitus
care supplies and prescription and non-prescription drugs.
RESULTS OF OPERATIONS
Net operating revenues for the three months ended November 30, 1993 are
$44,404,000 as compared to $41,238,000 for the three months ended November 30,
1992, an increase of $3,166,000 or 7.7%. Net operating revenues for the six
months ended November 30, 1993 are $87,457,000 as compared to $81,844,000 for
the six months ended November 30, 1992, an increase of $5,613,000 or 6.9%.
Total expenses for the second quarter of fiscal 1994 are $39,251,000 compared
to $37,143,000 for the same period last year, an increase of $2,108,000 or
5.7%. Total expenses for the first half of fiscal 1994 are $77,711,000
compared to $73,772,000 for the same period last year, an increase of
$3,939,000 or 5.3%.
Operating income for the three months is $5,153,000 compared to $4,095,000 for
the three months ended November 30, 1992, an increase of $1,058,000 or 25.8%.
Operating income for the six months is $9,746,000 compared to $8,072,000 for
the six months ended November 30, 1992, an increase of $1,674,000 or 20.7%.
Net interest expense for the three months is $3,015,000 compared to $2,848,000
for the same period last year, an increase of $167,000 or 5.9%. This increase
is attributable to additional debt combined with an increased weighted average
interest rate. Net interest expense for the
8
<PAGE> 9
six months is $5,914,000 compared to $5,653,000 for the same period last year,
an increase of $261,000 or 4.6%.
Nonoperating loss, net for the three months is $949,000 compared to $436,000
for the three months ended November 30, 1992, an increase of $513,000 or
117.7%. Nonoperating loss, net for the six months is $1,680,000 compared to
$1,075,000 for the same period last year, an increase of $605,000 or 56.3%. The
increases are principally attributable to increased costs in connection with
the sale of receivables and adjustments to gains of assets previously sold.
See Note 2 to the consolidated financial statements.
Net income for the three months is $885,000 compared to $607,000 for the same
period last year, an increase of $278,000 or 45.8%. Net income for the six
months ended is $1,607,000 compared to $1,008,000 for the same period last
year, an increase of $599,000 or 59.4%.
GROUP NET OPERATING REVENUES AND OPERATING INCOME FOR THE THREE AND SIX MONTH
PERIODS ENDED NOVEMBER 30, 1993 AND NOVEMBER 30, 1992
<TABLE>
<CAPTION>
($'s in thousands)
Three months ended Six months ended
--------------------- --------------------
Nov. 30, Nov. 30, % Nov. 30, Nov. 30, %
Operating Revenues, Net: 1993 1992(a) Increase Change 1993 1992(a) Increase Change
- ----------------------- -------- --------- ---------- ------ -------- --------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GeriMed Services Group $ 33,826 $ 31,033 $ 2,793 9.0% $ 67,068 $ 62,097 $ 4,971 8.0%
United Health Care
Services Group 10,578 10,205 373 3.7% 20,389 19,747 642 3.3%
--------- -------- ------- -------- --------- -------
Total $ 44,404 $ 41,238 $ 3,166 7.7% $ 87,457 $ 81,844 $ 5,613 6.9%
========= ======== ======= ======== ========= =======
Operating Income:
- ----------------
GeriMed Services Group $ 3,871 $ 3,322 $ 549 16.5% $ 7,359 $ 6,528 831 12.7%
United Health Care
Services Group 1,282 773 509 65.8% 2,387 1,544 843 54.6%
--------- -------- ------- -------- --------- -------
Total $ 5,153 $ 4,095 $ 1,058 25.8% $ 9,746 8,072 $ 1,674 20.7%
========= ======== ======= ======== ========= =======
</TABLE>
(a) Reclassified for comparative purposes.
CHANGES TO GROUP NET OPERATING REVENUES AND OPERATING INCOME FOR THE THREE AND
SIX MONTH PERIODS ENDED NOVEMBER 30, 1993 AND NOVEMBER 30, 1992
GERIMED SERVICES GROUP
For the three month period, net operating revenues increased $2,793,000 or 9.0%
compared to the same period last year. For the six months ended November 30,
1993, net operating revenues increased $4,971,000 or 8.0% compared to the same
period last year. These increases are primarily attributable to improved
reimbursement from government programs and improved census volume. Total
expenses increased $2,244,000 or 8.1% for the three month period and $4,140,000
or 7.5% for the six month period ended November 30, 1993 due to costs
associated with the growth in revenues net of the effect of the implementation
of cost efficiency programs.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(CONTINUED)
- --------------------------------------------------------------------------------
UNITED HEALTH CARE SERVICES GROUP
For the three month period ended November 30, 1993, net operating revenues
increased $373,000 and operating income increased $509,000 over the same period
last year. For the six month period ended November 30, 1993, net operating
revenues and operating income increased $642,000 and $843,000, respectively,
over the same period last year. These increases resulted primarily from the
growth in retail pharmacy and ambulance service revenues. The increase in
operating income is the result of the implementation of cost efficiency
programs in the current fiscal year and growth in revenues.
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., which is controlled by
the Chairman of the Board of the Company, purchased a note receivable of the
Company for $773,000 cash, the fair market value of the note as established by
an independent appraisal, plus accrued interest of $57,000.
On May 31, 1993, the Company sold its Mount Laurel, New Jersey facilities to
Tomahawk Capital Investments, Inc. for a purchase price of $8.5 million, the
fair market value as established by an independent appraisal. The Company
received $2.5 million in cash and a $6.0 million 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.
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.
A substantial part of the Company's revenues consists of reimbursements 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 1, 1992 and July 1, 1993. The Company expects these
increases to improve its working capital in fiscal 1994.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(CONTINUED)
- --------------------------------------------------------------------------------
The Company instituted a cost reduction program and expects to improve its
working capital in 1994 through additional efficiencies and cost reductions
through systems development. The Company further intends to meet its working
capital requirements in fiscal 1994 from increased rates, financing
arrangements and/or the sale and refinancing of other assets.
At November 30, 1993, the Company has restricted cash of approximately
$3,903,000 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.
The Company announced in January, 1994 its call to redeem $2.8 million
outstanding 16% subordinate debentures due December 31, 1994 on February 1,
1994 at par plus accrued interest. The Company intends to fund this redemption
through the collection of outstanding accounts and other receivables.
11
<PAGE> 12
<TABLE>
<S> <C>
PART II OTHER INFORMATION
- ------- -----------------
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
- ------ --------------------------------
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
</TABLE>
12
<PAGE> 13
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.
<TABLE>
<S> <C>
GERIATRIC & MEDICAL COMPANIES, INC.
January 14, 1994 By: /s/ James J. O'Malley
----------------------------------------------------
James J. O'Malley
Vice President and Chief Financial Officer
</TABLE>
13
