***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 February 28, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
Commission File Number 0-3997
GERIATRIC & MEDICAL COMPANIES, INC.
(Exact name of registrant as specified in the charter)
Delaware 23-1713341
(State or other jurisdiction (IRS Employer Identification
of incorporation or organization) Number)
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 April 11, 1995, there were 15,244,261 shares of common stock, $.10 par
value, outstanding.
GERIATRIC & MEDICAL COMPANIES,
INC. AND SUBSIDIARIES
INDEX
Part I Financial Information Page
Item 1 Financial Statements
Consolidated Balance Sheets ---
February 28, 1995 and May 31, 1994 3
Consolidated Statements of Operations ---
Three months and nine months ended
February 28, 1995 and February 28, 1994 4
Consolidated Statements of Cash Flows ---
Nine months ended February 28, 1995
and February 28, 1994 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 12
Item 1 Legal Proceedings
Item 6 Exhibits and Reports on Form 8-K
Signature 13
Exhibit 27 Article 5 - Financial Data Schedule 14
2
GERIATRIC & MEDICAL COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per common share)
(Unaudited)
FINANCIAL INFORMATION
ITEM 1 GERIATRIC & MEDICAL COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PAR VALUES AND SHARES)
February 28, May 31,
1995 1994
ASSETS (Unaudited)
[S] [S]
Current Assets:
Cash $ 1,248 $ 927
Restricted cash 541 837
Patients' funds 1,675 311
Accounts receivable, net of allowance
of $5,860 at February 28, 1995 and
$6,776 at May 31, 1994 25,316 20,716
Other receivables, net of allowance
of $975 7,823 5,555
Prepaids and other assets 5,927 4,039
Inventories 4,522 4,204
Due from third-party payors, net of
allowance of $3,813 at February 28, 1995
and $3,877 at May 31, 1994 8,892 9,314
Total current assets 55,944 45,903
Property and equipment:
Land 3,702 3,702
Building and improvements 99,869 89,471
Equipment and fixtures 38,757 36,248
Construction-in-progress 4,048 10,591
146,376 140,012
Less accumulated depreciation 59,087 53,688
87,289 86,324
Other noncurrent assets:
Restricted cash 5,701 7,090
Investments in joint ventures 582 582
Goodwill net of accumulated amortization
of $312 at February 28, 1995 and
$245 at May 31, 1994 2,547 2,236
Notes and other receivables 10,191 10,432
Deferred charges and other, net of
amortization of $2,467 at February 28, 1995
and $4,130 at May 31, 1994 10,220 10,157
29,241 30,497
$ 172,474 $ 162,724
February 28, May 31,
1995 1994
LIABILITIES (Unaudited)
Current Liabilities:
Current portion of long-term debt $ 2,312 $ 2,026
Accounts payable 20,602 16,943
Accrued expenses 11,068 9,937
Total current liabilities 33,982 28,906
Other long-term liabilities 3,154 3,438
Long-term debt 120,296 119,343
Subordinated debenture 1,000 -
Deferred income 492 492
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 1995 and 1994;
Issued and outstanding
15,236,448 and 15,159,661 at
February 28, 1995 and May 31, 1994,
respectively 1,524 1,516
Capital in excess of par value 14,625 14,601
Accumulated deficit (2,599) (5,572)
13,550 10,545
$ 172,474 $ 162,724
See accompanying notes to consolidated financial statements.
3
GERIATRIC & MEDICAL COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per common share)
(Unaudited)
Three Months Ended Nine Months Ended
Feb. 28, Feb. 28, Feb. 28, Feb. 28
1995 1994* 1995 1994*
Operating revenues, net $48,565 $43,520 $142,322 $130,977
Expenses:
Operating Expenses 40,845 36,654 120,800 110,160
Depreciation and amortization 2,238 2,202 6,390 6,495
Interest expense, net 2,792 2,725 8,160 8,639
Provision for costs on sale
of accounts receivable 1,174 903 3,254 2,495
47,049 42,484 138,604 127,789
Income before income taxes 1,516 1,036 3,718 3,188
Income taxes 308 258 745 803
Net Income 1,208 778 2,973 2,385
Earnings per common share 0.08 0.05 0.20 0.16
Average common shares
outstanding 15,201 15,302 15,201 15,302
*Reclassified for comparative purposes
GERIATRIC & MEDICAL COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
NINE MONTHS ENDED FEBRUARY 28, 1995 AND FEBRUARY 28, 1994
(IN THOUSANDS)
(UNAUDITED)
1995 1994*
CASH FLOWS FROM OPERATING ACTIVITIES:
[S] [S]
Net income $ 2,973 $ 2,385
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for uncollectible accounts 3,101 2,339
Depreciation and amortization 6,390 6,496
Other items 423 248
Changes in assets and liabilities, net of effects from
aquisitions
Increase in patients' funds and other, net (1,364) (4)
Increase in accounts receivable (7,181) (8,743)
(Increase) decrease in other receivables (2,268) 340
Increase in prepaids and other assets and inventories (2,206) (1,529)
Decrease in net amounts due from third party payors 422 2,015
Increase (decrease) in accounts payable
and accrued expenses 4,699 (1,177)
Decrease in other long-term liabilities (284) -
Net cash provided by operating activities 4,705 2,370
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,335) (1,646)
Capital expenditures financed by construction
and property improvement funds (1,856) (3,655)
Increase in joint ventures, net - (142)
Decrease in notes and other receivables 241 810
Acquisitions of ambulance companies, net of cash acquired (423) -
Other investing activities, net 114 82
Net cash used in investing activities (4,259) (4,551)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 1,308 5,571
Repayment of debt and subordinated debentures (2,229) (9,804)
Decrease in restricted cash 1,685 5,150
Expenditures for deferred charges (936) (1,187)
Proceeds from issuance of common stock 47 -
Net cash used in financing activities (125) (270)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 321 (2,451)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 927 2,845
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,248 $ 394
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 11,780 $ 12,041
Income taxes $ 138 $ 82
SUPPLEMENTAL SCHEDULE OF NONCASH ITEMS:
Assets acquired under capital leases $ 1,204 $ 632
Acquisitions of ambulance companies:
Fair value of assets acquired $ 2,470 $ -
Cash paid and debt issued (2,152) -
Liabilities assumed $ 318 $ -
* Reclassified for comparative purposes
See accompanying notes to consolidated financial statements.
5
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, 1995 and May
31, 1994, and the results of operations for the nine months
ended February 28, 1995 and February 28, 1994 and changes in
cash flows for the nine months ended February 28, 1995 and
February 28, 1994. 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, 1994. Results
of operations for the nine months ended February 28, 1995 and
February 28, 1994 are not necessarily indicative of results of
operations expected for the full year.
2. Accounts Receivable:
Effective November 4, 1993, the Company entered into a three
year $25,000,000 accounts receivable sale agreement with
recourse with a financial institution, retiring its previous
arrangement. The Company may sell, on a continuing basis, up
to $25,000,000 of certain qualifying accounts receivable.
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.
Under the terms of the agreement, the Company will pay program
costs at 9.84% on the outstanding balance. During the nine
month periods ended February 28, 1995 and 1994, the Company
sold approximately $82,704,000 and $69,575,000, respectively,
of certain qualifying accounts receivables. As of February
28, 1995 and 1994, the balance of the receivables submitted
for sale was approximately $17,995,000 and $16,494,000 of
which approximately $14,396,000 and $12,944,000 were funded,
respectively. The unfunded portion is included in other receivables
on the balance sheet.
In May 1994, the Company entered into an agreement to sell
certain long-term receivables due from third-party payors.
The program costs charged are 9.75% of the outstanding
balance. The maximum amount of cash available under this
agreement is $5,000,000. During the nine month period ended
February 28, 1995, the Company sold approximately $4,371,000
of certain qualifying accounts receivables. As of February
28, 1995, the balance of the receivables submitted for sale
was approximately $4,997,000. The unfunded portion is
included in other receivables on the balance sheet.
For the nine months ended February 28, 1995 and 1994, the
Company has recognized a provision for costs on sale of
accounts receivable of $3,254,000 and $2,495,000,
respectively. The provision for costs on sale of accounts
receivable consists of program and other costs incurred on
receivables sold and servicing costs relating to the
collection of receivables. Under the sale agreement, the
Company continues and is required to service the accounts
receivable.
3. Commitments and Contingencies:
In September, 1992 a class action lawsuit 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 of the Company's nursing homes. 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." Although the
outcome cannot be predicted, 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 its activities and operations. (Also see Item 1
Legal Proceedings.)
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. Other Transactions:
In May, 1993 the Company took back a mortgage in connection
with the sale of its Mt. Laurel facilities to Tomahawk Capital
Investments, Inc. (Tomahawk) which is controlled by an
executive officer of the Company. As of November 30, 1994 in
connection with the release of the mortgage, the Company
received an additional prepayment of $500,000 on the mortgage
and issued a
GERIATRIC & MEDICAL COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
$1,000,000 subordinated debenture to Tomahawk which is due
December 1, 1996. The interest is payable at a rate of 12%
per annum over eight quarters commencing March 1, 1995.
Tomahawk is required to maintain certain minimum net worth
requirements in connection with this transaction.
Tomahawk has issued on behalf of the Company, a $500,000
letter of credit in connection with the construction of a 120
bed facility in Cape May, NJ and a $74,380 letter of credit in
connection with the construction of a 120 bed facility in
Norristown, PA. The Company is paying Tomahawk $15,000 and
$1,800 per quarter, respectively for these letters of credit.
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
INTRODUCTION
Geriatric & Medical Companies, Inc., (hereinafter, together
with its subsidiaries, referred to as the "Company") provides
a broad line of healthcare support services in Pennsylvania
and New Jersey through various subsidiaries of the Company as
described below. The Company estimates its consolidated
operating revenues from various payor sources to be 19% from
Medicare, 57% from Medicaid and 24% from private and
institutional payors.
Life Support Ambulance, a transportation company, accredited
by the Commission on Accreditation of Ambulance Services,
provides a full range of services, including basic life
support, advanced life support, critical care transport and
coach transportation.
United Health Care Services is a Joint Commission accredited
and FDA approved company providing infusion therapy, hi-tech
respiratory therapy, durable medical equipment and home
medical supplies.
Innovative Pharmacy Services provides prescription services,
Medicare Part B billing, enteral nutrition products, infusion
therapy and services approximately 6,200 beds.
Healthcare Hospitality Services is a provider of contract
management services, including dietary, housekeeping, laundry,
pest control, and plant operations to approximately 6,600
beds.
Rehab Technologies provides portable x-ray, holter monitoring,
ultra sound, and echocardiograms through its Diversified
Diagnostic Division and manages rehab departments, providing
physical, speech and occupational therapy to long term care
facilities. For fiscal, 1995, this company is developing a
specialized care service to provide their management
capability and resources for subacute care.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(Continued)
Geriatric & Medical Services is a provider of long-term skilled
care, residential and independent living and subacute specialized
services in Pennsylvania and New Jersey. Through the approximately
4,000 beds it currently operates, it provides an important product
line to the entire spectrum of services marketed to HMO's and other
managed care providers.
Results of Operations
Net operating revenues, for the three months ended February 28,
1995 were $48,565,000 as compared to $43,520,000 for the
corresponding period of fiscal, 1994, an increase of $5,045,000 or
11.6%. Net operating revenues for the nine months ended February
28, 1995 were $142,322,000 as compared to $130,977,000 for the
corresponding period of fiscal, 1994, an increase of $11,345,000 or
8.7%.
The increase in the three months ended February 28, 1995 of
$5,045,000 is related to bed additions, improved reimbursement and
increased census in the long term care facilities, totalling
$2,930,000. The remainder resulted principally from acquisitions
by Life Support Ambulance.
The increase in the nine months ended February 28, 1995 of
$11,345,000 results from revenue generated from increased census,
expanded medicare reimbursed services ($8,248,000) and revenue from
acquired ambulance companies.
The increase in operating expenses for both the three month period
ended February 28, 1995 and the nine months ended February 28, 1995
principally relates to increased costs related to increased revenue
and the effects of inflation.
Depreciation and amortization increased $36,000 for the three
months ended February 28, 1995 as a result of the completion of new
projects in the third quarter of 1995. The decrease of $105,000 for
the nine months ended February 28, 1995 is primarily the result of
a decrease in amortization of financing costs for debt.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(Continued)
Interest expense increased $67,000 for the three month period,
resulting from debt related to the building of new facilities which
opened in 1995. The decrease for the nine month period principally
results from the early repayment of $2,868,000 of 16% debentures in
the third quarter of fiscal, 1994.
The increase in the provision for costs on sale of accounts
receivable is a result of increased utilization under the
receivable funding agreements resulting in additional program
charges.
Income tax decreased 5% as a percentage of pretax income resulting
from net operating losses being realized and recorded in fiscal,
1995.
Liquidity and Capital Resources
In November, 1993, the Company entered into a $25,000,000 accounts
receivable sale agreement, with recourse. This is a three year
agreement with program costs charged at 9.84% of the outstanding
balance. The Company accounts for this as a sale of receivables.
On May 19, 1994 the Company entered into an additional agreement to
sell certain long-term receivables due from third party payors. The
program cost charged is 9.75% of the outstanding balance. The
maximum amount of cash available under this agreement is
$5,000,000. The agreement expires in November, 1997. The Company
has accounted for these transactions as a sale of receivables (See
Note 2 of the Notes to Consolidated Financial Statements.)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(Continued)
A substantial part of the Company's revenues consists 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 had planned to switch to a prospective Medicaid
reimbursement system effective January, 1994 which did not occur.
It is not known whether Pennsylvania will institute a prospective
system during fiscal, 1995 and the effects of such system on the
cash flow or operations of the Company are not known. The
Commonwealth of Pennsylvania increased its rates as of July, 1994
and paid tentative settlements on its fiscal, 1994 cost reports in
March, 1995.
In December, 1994 the Company arranged its financing to construct
a 120 bed facility in North Cape May, New Jersey. The total cost
of the project is anticipated to be $6,137,000 of which $5,636,000 was
financed through HUD at 9.5% over 40 years. The remainder will be
funded by the Company through working capital.
The Company has received a tentative commitment to finance the
construction of a 120 bed facility in Norristown, PA. The cost of
construction is anticipated to be approximately $7,000,000.
The Company has received a commitment for a $7,000,000 equipment
lease line of credit of which $5,000,000 will be used for a sale
leaseback of existing equipment owned by the Company and $2,000,000
for new equipment purchases. The Company anticipates finalizing
this transaction by April 30, 1995.
The Company intends to meet its capital commitments and working
capital requirements from operations, the existing receivable sale
agreements, the collection of receivables due and the leasing
facility discussed above.
<PAGE>
PART II OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
The Company's subsidiary, Life Support Ambulance, Inc.
has recently received a notice of suspension of payment
pertaining to Medicare billings submitted by that company
to its Medicare intermediary. The suspension was imposed
because of evidence received by the intermediary that
prior payments may not have been billed correctly. Life
Support Ambulance, Inc. believes it has operated, at all
times, in substantial compliance with all provisions
required by Medicare for reimbursement of its services.
In as much as the notice has just been received, it is
not possible to determine the length of the suspension or
whether any such suspension will be material to the
operations or financial condition of the Company.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed with the Securities and Exchange
Commission a Current Report on Form 8-K, dated
January 26, 1995, with respect to Item 4, reporting
a change in the Company's Certifying Accountant.
<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.
GERIATRIC & MEDICAL COMPANIES, INC.
April 14, 1995 By:/s/James J.O'Malley
James J. O'Malley
Vice President and Chief Financial
Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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