April 15, 1996
Securities and Exchange Commission
Washington, DC 20549
Gentlemen:
Pursuant to the requirements of the Securities and Exchange Act of
1934, we are transmitting herewith the attached Form 10-Q for the third
quarter ended February 29, 1996, for Geriatric & Medical Companies, Inc.
Sincerely,
James J. O'Malley
Vice President and
Chief Financial Officer
THIS DOCUMENT IS A COPY OF THE FORM 10-Q FOR THE QUARTER FOR THE
QUARTER ENDED FEBRUARY 29, 1996 FILED ON APRIL 16, 1996 PURSUANT
TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION
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 29, 1996
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 12, 1996, there were 15,429,600 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 29, 1996 and May 31, 1995 3
Consolidated Statements of Operations ---
Three months and nine months ended
February 29, 1996 and February 28, 1995 4
Consolidated Statements of Cash Flows ---
Nine months ended February 29, 1996
and February 28, 1995 5
Notes to Consolidated Financial Statements 6-8
Item 2 Management's Discussion and Analysis of Results of
Operations and Financial Condition 9-15
Part II Other Information
Item 6 Legal Proceedings 16
Item 6 Exhibits and Reports on Form 8-K 16
Signature 17
Exhibit 27 Article 5 - Financial Data Schedule 18
PART I FINANCIAL INFORMATION
ITEM 1 GERIATRIC & MEDICAL COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PAR VALUES AND SHARES)
February 29, May 31,
1996 1995 *
ASSETS (Unaudited)
Current Assets:
Cash $ 592 $ 3,368
Restricted cash 4,663 715
Patients' funds 3,151 1,388
Accounts receivable, net of allowance
of $8,658 at February 29, 1996 and
$7,733 at May 31, 1995 36,221 24,145
Other receivables, net of allowance
of $975 5,130 5,919
Prepaids and other assets 2,863 6,622
Inventories 4,457 5,154
Due from third-party payors, net of
allowance of $4,093 at February 29,
1996 and $3,391 at May 31, 1995 15,837 13,948
Total current assets 72,914 61,259
Property and equipment:
Land 3,614 3,702
Building and improvements 99,814 99,971
Equipment and fixtures 39,571 38,299
Construction-in-progress 12,549 5,259
155,548 147,231
Less accumulated depreciation 65,105 59,293
90,443 87,938
Other noncurrent assets:
Restricted cash 2,910 3,021
Investments in joint ventures 385 385
Goodwill net of accumulated amortization
of $467 at February 29, 1996 and
$359 at May 31, 1995 2,481 2,567
Notes and other receivables 9,418 11,132
Deferred charges and other, net of
accumulated amortization of $3,537
at February 29, 1996 and $2,891
at May 31, 1995 9,935 10,415
25,129 27,520
$ 188,486 $ 176,717
February 29, May 31,
1996 1995
(Unaudited)
LIABILITIES
Current liabilities:
Current portion of long-term debt and
subordinated debenture $ 4,475 $ 2,906
Accounts payable 23,647 23,770
Accrued expenses 12,069 10,151
Total current liabilities 40,191 36,827
Other long-term liabilities 3,166 3,090
Long-term debt 126,220 120,660
Subordinated debenture - 1,000
Deferred gains 492 492
Commitments and contingencies
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.10 par, authorized
15,000,000 shares; none were issued
or outstanding
Common stock, $.10 par, authorized - -
30,000,000 shares in 1996 and 1995;
issued and outstanding 15,429,600, as of
February 29, 1996 and 15,244,261
as of May 31, 1995 1,543 1,524
Capital in excess of par value 14,736 14,643
Retained earnings (deficit) 2,138 (1,519)
18,417 14,648
$188,486 $176,717
* Reclassified for comparative purposes
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. 29, Feb. 28, Feb. 29, Feb. 28,
1996 1995 1996 1995
Operating revenues, net
$ 49,186 $ 48,565 $ 148,101 $ 142,322
Expenses:
Operating expenses 41,611 40,845 124,874 120,800
Depreciation and amortization 2,295 2,238 6,788 6,390
Interest expense, net 2,604 2,792 8,577 8,160
Provision for costs on sale
of accounts receivable 1,050 1,174 3,109 3,254
47,560 47,049 143,348 138,604
Income before income taxes 1,626 1,516 4,753 3,718
Income taxes 374 308 1,096 745
Net Income $ 1,252 $ 1,208 $ 3,657 $ 2,973
Earnings per common share $ 0.08 $ 0.08 $ 0.24 $ 0.20
Average common shares
outstanding 15,351 15,201 15,351 15,201
See accompanying notes to consolidated financial statements
4
GERIATRIC & MEDICAL COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
(IN THOUSANDS)
(UNAUDITED)
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,657 $ 2,973
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for uncollectible accounts 2,168 3,101
Depreciation and amortization 6,788 6,390
Other items 134 423
Changes in assets and liabilities, net of effects from acquisitions:
Increase in patients' funds and other, net (1,763) (1,364)
Increase in accounts receivable (14,244) (7,181)
(Increase) decrease in other receivables 789 (2,268)
(Increase) decrease in prepaids and other 4,456 (2,206)
assets and inventories
(Increase) decrease in net amounts due (1,889) 422
from third party payors
Increase in accounts payable and accrued 1,795 4,699
expenses
Increase (decrease) in other long-term 76 (284)
liabilities
Net cash provided by operating activities 1,967 4,705
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,179) (2,335)
Capital expenditures financed by construction
and property improvement funds (6,900) (1,856)
Decrease in notes and other receivables 1,714 241
Acquisitions of ambulance companies, net of cash - (423)
acquired
Other investing activities, net 532 114
Net cash used in investing activities (5,833) (4,259)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 8,721 1,308
Repayment of debt (3,505) (2,229)
Increase (decrease) in restricted cash (3,837) 1,685
Expenditures for deferred charges (299) (936)
Proceeds from issuance of common stock 10 47
Net cash provided by (used in) 1,090 (125)
financing activities
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENT (2,776) 321
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,368 927
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 592 $ 1,248
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 12,152 $ 11,780
Income taxes $ 346 $ 138
SUPPLEMENTAL SCHEDULE OF NONCASH ITEMS:
Assets acquired under capital leases $ 913 $ 1,204
Acquisitions of ambulance companies:
Fair value of assets acquired $ - $ 2,470
Cash paid and debt issued - (2,152)
Liabilities assumed $ - $ 318
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 29, 1996 and May 31, 1995,
and the results of operations for the three and nine months
ended February 29, 1996 and February 28, 1995 and
changes in cash flows for the nine months ended
February 29, 1996 and February 28, 1995. 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, 1995. Results of operations for the three and nine
months ended February 29, 1996 and February 28, 1995 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 receivables submitted and sold. During the nine month
periods ended February 29, 1996 and February 28, 1995, the Company submitted
and sold approximately $83,390,000 and $82,704,000, respectively, of certain
qualifying accounts receivables. As of February 29, 1996 and February
28, 1995, the balance of the receivables submitted for sale was approximately
$15,063,000 and $17,995,000 of which approximately $12,051,000 and
$14,396,000 were funded, respectively. The unfunded portion is included in
other receivables on the balance sheets.
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 receivables submitted and sold.
The maximum amount of cash available under this agreement
is $5,000,000. The Company received, net of the reserves 80% of net
third party receivables sold. During the nine month period ended February 29,
1996 and February 28, 1995, the Company submitted
and sold approximately $4,500,000 and $4,371,000 of certain qualifying accounts
receivables. As of February 29, 1996 and February 28, 1995, the
balance of the receivables submitted for sale was approximately $4,740,000 and
$4,997,000 respectively.
For the nine months ended February 29, 1996 and February 28, 1995, the Company
has recognized a provision for costs on sale of accounts receivable
of $3,109,000 and $3,254,000 respectively. The provision for costs on sale of
accounts receivable consists of: (A) program and other costs incurred on
receivables sold; and (B) servicing costs relating to the collection of
receivables sold. Under the sale agreement, the Company continues and is
required to service the accounts receivable.
3. Commitments and Contingencies:
The following are updates of commitments and contingencies previously
disclosed:
A. Geriatric & Medical Companies, Inc. (the "Company") was named a
defendant, together with GMS Management, Inc., and various current and former
officers of the Company, in a class action suit which was filed in September,
1992, in the United States District Court for the Eastern District of
Pennsylvania in Philadelphia. On March 29, 1996, the Company reached an
agreement in principal to settle the claims of the plaintiff class. This
agreement is subject to execution of a definitive
agreement and court review and approval to settle the claims in connection
with this suit. A payment up to a maximum of $1,900,000 will be made to a
claims settlement fund, of which 50% will be paid by the Company's insurance
carrier. This fund will be used to resolve all claims of the members of the
plaintiff class on a claims made basis and to pay the attorneys'fees and
costs incurred by the plaintiff class.
The ultimate amount of this settlement cannot be determined at this time.
When the ultimate amount is known, the Company will record a provision for
that amount which is anticipated to be less than the Company's maximum share
of $950,000.
B. On February 21, 1996, a Company subsidiary reached an agreement with
the U.S. Attorney to settle the previously reported matter involving
reimbursement for certain nutritional services provided at a nursing
facility (the "Facility") previously managed by that subsidiary. The Company
entered into this settlement, without admitting any wrongdoing, in order
to avoid the substantial expense and management disruption of litigation.
The settlement resulted in a charge in the quarter ended February 29, 1996 of
$429,000, before taxes. The Company's management agreement with the Facility
provides that the Facility indemnify and hold the Company harmless with respect
to claims such as that alleged by the U.S. Attorney. However,
it is unclear whether the Facility has, or would have, the funds necessary to
provide such indemnification.
C. Life Support Ambulance, Inc. (LSA), a subsidiary of the Company,
received notice of suspension of payments relating to
Medicare billing submitted to its Medicare intermediary, effective April 6,
1995. The intermediary has alleged that overpayments have occurred related to
prior LSA billings.
In August, 1995, the intermediary partially lifted the suspension and has since
paid LSA 75% of all subsequent approved billings. As of February 29, 1996, the
intermediary had withheld approximately $4,200,000 in escrow pending resolution
of this matter. The amount is included in restricted cash in the accompanying
balance sheets.
On April 2, 1996, LSA received notice of the results of the intermediary's
audit, including a calculated overpayment of approximately $5,000,000
through March 31, 1995. LSA is reviewing the intermediary's results and
believes there are errors in, among other things, (i) the sampling techniques
used; (ii) the conclusions reached relative to the appropriateness of
payments for claims in the audit sample, and (iii) the projection technique of
the ultimate overpayment calculation. LSA intends to vigorously defend its
position and utilize all available administrative and legal processes to
protect its rights in this matter.
LSA believes that it has operated at all times in substantial compliance with
all provisions required by Medicare relating to reimbursement for services.
The Company is not able, at this time, to predict the ultimate outcome of
this matter.
D. The Company is involved in routine government inquiries, audit survey
and administrative proceedings concerning its activities and operations. The
Company is also involved in various claims and legal actions arising
in the ordinary course of business. The Company believes that the outcome of
these other matters will not have a material adverse effect
on the Company's operations, financial position and cash flows.
4. Interest Expense:
Interest expense is reflected net of interest income of approximately $706,000
and $402,000 for the three month periods ended February 29, 1996 and
February 28, 1995 and $1,352,000 and $1,171,000 for the nine month periods
ended February 29, 1996 and February 28, 1995 respectively.
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
1 INTRODUCTION
Geriatric & Medical Companies, Inc., (hereinafter, together with its
subsidiaries, referred to as the ("Company") is a Mid-Atlantic
health care company providing support services to hospitals, HMO's physician
groups and nursing homes. It also is a major long term care services provider
in Pennsylvania and New Jersey. The Company operates through the following
companies:
The Operating Companies
Life Support Ambulance (LSA), provides a full range of medical transportation
services to hospitals, nursing homes, rehabilitation centers, and other health
care facilities throughout Pennsylvania and New Jersey. LSA services include
basic life support, advanced life support, critical care transport and
paratransit transportation. LSA has in place a state of the art vehicle
tracking system enabling it to maximize efficiencies. This satellite driven
system allows LSA to provide in excess of 8,000 transports monthly. LSA is one
of approximately 45 transportation companies in the country fully accredited
by the Commission on Accreditation of Ambulance Services.
United Health Care Services (UHCS), provides a full range of respiratory
therapy, infusion therapy and enteral therapy (delivery of
nutrients through feeding tubes) to adult and pediatric patients primarily
in the home care setting and distributes durable medical
equipment and home medical supplies. UHCS serves its patients through its
branches located in Philadelphia, Reading, Easton, and Pittsburgh,
Pennsylvania and Clifton, New Jersey. UHCS is accredited by the Joint
Commission on the Accreditation of Health Care Organizations ("JCAHO").
Innovative Pharmacy Services (IPS) is a full service institutional pharmacy
which provides pharmaceutical services and enteral nutrition products
to health care
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
2
institutions through its full service pharmacies located in Philadelphia,
Pennsylvania and Blackwood, New Jersey. IPS also operates a
retail pharmacy in West Philadelphia, Pennsylvania.
IPS currently fills approximately 45,000 prescriptions each month and
provides various products and services to approximately
5,900 long term care and residential beds.
Healthcare Hospitality Services (HCHS), provides contract management services
including dietary, housekeeping, laundry, pest control, plant operations and
facilities management services to nursing homes, personal care facilities,
and retirement communities. HCHS operates with full time, on site management
which are supported by a regional team of specialists. HCHS
provides such contract services to approximately 6,700 long term care and
residential beds.
Diagnostic and Rehab Technologies (DRT) provides diagnostic and
rehabilitative management services including portable x-ray,
Holter monitoring, ultra sound, echocardiograms, and physical, speech and
occupational therapy, primarily to skilled nursing
facilities. The Diagnostics division provides portable x-ray, Holter
monitoring, ultra sound and echocardiograms to approximately 6,000 long
term care beds. The Rehab Tech Division provides comprehensive rehabilitation
programs to approximately 4,000 long term care beds which include physical
and occupational therapists, speech pathologists and
administrative personnel. The division also manages subacute-medical
specialty units in skilled nursing facilities. These units provide
rehabilitation, non-acute cardiac care, wound care, infusion therapy,
neurological, oncology, pulmonary and post surgical care at
units located within long term care facilities.
Geriatric and Medical Services (GMS), provides sub-acute, rehab, long term
skilled care, residential and independent living services to approximately
4,000 beds at 29 locations in Pennsylvania and New Jersey. GMS operates 19
long term care, 8 residential and 2 independent living facilities.
Services provided include the prescribed type of nursing care, room and
board, special diets as needed, occupational, physical and recreational therapy
and other services as specified by the patient's physician.
The Company is focused on the development of its sub-acute and specialized
care wings. GMS now operates 19 Medicare certified distinct part
units with approximately 411 beds. This includes 5 "Rehab Tech Units"
which provide lower cost alternatives as compared to acute care
settings for rehabilitative and sub-acute services.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
3
Results of Operations
Net operating revenues, for the three months ended February 29, 1996 and
February 28, 1995, were $49,186,000 as compared to $48,565,000 for the
corresponding period of fiscal, 1995, an increase of $621,000 or 1.2%.
Net operating revenues for the nine months ended February 29, 1996
and February 28, 1995 were $148,101,000 as compared to $142,322,000 for the
corresponding period of fiscal, 1995, an increase of $5,779,000 or 4%.
The increases for the three and nine month periods ended February 29, 1996
and February 28, 1995, are primarily a result of increased revenues generated
from Medicare certified and sub-acute units and increases generated from higher
volumes in certain of the Company's support service businesses.
These increases are partially offset by lower Pennsylvania Medicaid rates at
the Company's Pennsylvania facilities effective January 1, 1996.
Operating expenses increased $766,000 and $4,074,000 for the three and nine
month periods ended February 29, 1996. This includes a non-recurring charge
of $429,000 in the quarter ended February 29, 1996 related to a settlement
of a matter relating to reimbursement for nutritional services provided
at a nursing facility previously managed by a subsidiary (see Note
3 to the Notes to Consolidated Financial Statements). After giving effect to
the non-recurring charge the operating expenses have decreased as a percentage
of revenues due to continued cost containment and operating efficiencies.
Depreciation and amortization increased $57,000 for the three months
ended February 29, 1996 and $398,000 for the nine months
ended February 29, 1996 as the result of depreciation on new beds added and
the acquisition of ambulance businesses and amortization of goodwill.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
4
Income tax expense increased as a percentage of pretax income as compared
to the same period of the prior year resulting primarily from the full
utilization of federal net operating loss carry forwards and tax credits
during fiscal 1996.
Liquidity and Capital Resources
In November 1993, the Company entered into a $25 million accounts receivable
sale agreement, with recourse. This is a three year agreement with program
costs charged at 9.84% of the outstanding receivables sold. In May 1994,
the Company entered into an additional agreement to sell certain receivables
due from third-party payors. The program cost charged is 9.75% of
outstanding amounts sold. The maximum amount to be sold under this agreement
is $5,000,000. The amount outstanding at February 29, 1996 under these
agreements was $16,791,000. These agreements expire in November,
1996. The Company anticipates renewing or replacing these agreements when they
expire. The Company has accounted for these transactions as a sale but may
be treated as a financing (borrowing) transaction for Medicare/Medicaid
purposes.
On December 28, 1995 the Company entered into a $5,000,000 line of credit
agreement with a commercial bank. The line of credit is secured by certain
real estate and private receivables not sold under the accounts receivable
financing agreement discussed above. Interest on the line is at prime plus
1%. The line is renewable annually and may, at the Company's option, be
converted to a three (3) year term loan. At February 29, 1996, the Company
had approximately $1,573,000 of letters of credit outstanding under this
agreement. The letters of credit were in place to support
the Company's worker's compensation insurance program ($1,000,000) and to
support new construction projects ($573,000).
A substantial part of the Company's revenues consists of reimbursements under
the Pennsylvania Medicaid Program. Historically this was a
retrospective cost based program that typically resulted in the generation of
large receivables which were periodically settled.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
5 Effective January 1, 1996, Pennsylvania adopted regulations to
implement a new case-mix payment system which it had been working on since
1987 to replace its retrospective cost reimbursement system. While the
regulations were published in October, 1995, and the Department of Public
Welfare ("DPW") issued revised rates effective January 1, 1996,
many details of the new system have not been finalized. Implementation
of the new system ultimately contingent on federal review and approval
of state plan amendments ("SPA") submitted by DPW related to funding
arrangements for the new program (SPA submitted in December, 1995) and
the new system's compliance with federal requirements (SPA submitted on
March 29, 1996). DPW has not received approval for its submitted SPAs.
The revised rates issued on January 1, 1996 are lower than the interim rates
received under the old system. The Company is continuing to pursue
increases to these rates through various administrative and legal processes.
The Company continues to reduce costs and pursue its aggressive program to
reduce its concentration on Medicaid programs and shift to other payor
programs and opportunities. The Company believes that the results of these
activities will be to mitigate what could otherwise be a substantial adverse
effect on the Company's results from the implementation of the new system.
On March 29, 1996, the Company reached an agreement in principal to settle the
claims of the plaintiff class in connection with its outstanding shareholder
class action suit. A payment up to a maximum of $1,900,000 will be made to a
claims settlement fund, of which 50% will be paid by the Company's insurance
carrier. This fund will be used to resolve all claims of the members of the
plaintiff class on a claims made basis and to pay the attorneys' fees and
costs incurred by the plaintiff class. This agreement is subject to execution
of a definitive agreement and court review and approval to settle the claims
in connection with this suit.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
6 The ultimate amount of this settlement is not determinable by the
Company at this time, although it is anticipated to be less than the maximum.
February 21, 1996, a Company subsidiary reached an agreement with the U.S.
Attorney to settle the previously reported matter involving reimbursement for
certain nutritional services provided at a nursing facility (the "Facility")
previously managed by that subsidiary. The Company entered into this
settlement, without admitting any wrongdoing, in order to avoid the substantial
expense and management disruption of litigation. The Company has agreed to pay
the settlement amount over 30 months with no interest. The Company's
management agreement with the Facility provides that the Facility indemnify and
hold the Company harmless with respect to claims such as that alleged by the
U.S. Attorney. However, it is unclear whether the Facility has, or would have,
the funds necessary to provide such indemnification.
Life Support Ambulance, Inc. (LSA), a subsidiary of the Company, received
notice of suspension of payments relating to Medicare billing submitted to its
Medicare intermediary, effective April 6, 1995. The intermediary has alleged
that overpayments have occurred related to prior LSA billings.
In August, 1995, the intermediary partially lifted the suspension and has since
paid LSA 75% of all subsequent approved billings. As of February 29, 1996, the
intermediary had withheld approximately $4,200,000 in escrow pending resolution
of this matter. The amount is included in restricted cash in the accompanying
balance sheets.
On April 2, 1996, LSA received notice of the results of the intermediary's
audit, including a calculated overpayment of approximately $5,000,000 through
March 31, 1995. LSA is reviewing the intermediary's results and believes there
are errors in, among other things, (i) the sampling techniques used; (ii) the
conclusions reached relative to the appropriateness of payments for claims in
the audit sample, and (iii) the projection technique of the ultimate
overpayment calculation. LSA intends to vigorously defend its position and
utilize all available administrative and legal processes to protect its rights
in this matter.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
7
LSA believes that is has operated at all times in substantial compliance with
all provisions required by Medicare relating to reimbursement for services.
The Company is not able, at this time, to predict the ultimate outcome of this
matter.
The Company reached a settlement in Fiscal 1994, with the Office of the United
States Attorney for the Eastern District of Pennsylvania regarding the joint
venture and management arrangements of its subsidiary United Health Care
Services, Inc. whereby the Company is required to pay $30,000 per month for the
next 19 months.
The Company's net trade receivables have increased $12,076,000 for the nine
months ended February 29, 1996 primarily as a result of the suspension and a
slowdown, of payments to LSA, discussed above, and a slow down in payment for
services provided to outside long term care facilities. The outside long term
care facilities are experiencing a temporary slow down in cashflow as they
await tentative payment for their fiscal, 1995 cost reports.
As more fully discussed in Note 3, the Company is a party to various legal and
other matters asserted against the Company. The ultimate liability resulting
from the foregoing matters cannot presently be determined. Accordingly, no
provision for any liability that may result has been made to the accompanying
consolidated financial statements.
The Company intends to meet its capital commitments and working capital
requirements in fiscal 1996 from operations, existing financing arrangements,
or the sale or refinancing of other assets.
PART II OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Article 5 FDS
(b) Reports on Form 8-K
The Company filed with the Securities and Exchange Commission
a Current Report on Form 8-K, dated February 12, 1996, with
respect to Item 5, updating legal proceedings.
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 15, 1996 By:
James J. O'Malley
Vice President and Chief Financial Officer
