<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 2
(Amending Part I- Items 1 and 2)
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1997
Commission File No. 1-14114
RETIREMENT CARE ASSOCIATES, INC.
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(Exact Name of Registrant as Specified in its Charter)
Colorado 43-1441789
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
6000 Lake Forrest Drive, Suite 200, Atlanta, Georgia 30328
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(Address of Principal Executive Offices)
(404) 255-7500
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(Registrant's Telephone Number, Including Area Code)
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 report(s), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [ X ] No [ ]
As of March 31, 1997, 14,284,977 shares of Common Stock were outstanding.
<PAGE> 2
RETIREMENT CARE ASSOCIATES AND SUBSIDIARIES
Form 10-Q/A For the Quarter Ended March 31, 1997
<TABLE>
<CAPTION>
INDEX Page(s)
<S> <C> <C>
PART I. Financial Information
Item 1. Consolidated Financial Statements
Introduction 3
Consolidated Statements of Operations
(Unaudited) - Three Months Ended
March 31, 1997 and March 31, 1996 4
Consolidated Statements of Operations
(Unaudited) - Nine Months Ended
March 31, 1997 and March 31, 1996 5
Consolidated Balance Sheets - (Unaudited)
March 31, 1997 and (Audited) June 30, 1996 6-7
Consolidated Statements of Cash Flows
(Unaudited) - Nine Months Ended March 31,
1997 and March 31, 1996 8-9
Notes to Consolidated Financial Statements
(Unaudited) 10-13
Item 2. Managements' Discussion and Analysis of
Results of Operations and Financial
Condition 13-16
Signatures 17
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
INTRODUCTION - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures have been condensed
or omitted pursuant to such rules and regulations. In the opinion of
Management, all adjustments, which were of a normal recurring nature, necessary
to present fairly the consolidated financial position and results of operations
and cash flows for the periods presented have been included. These
consolidated financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Annual Report on
Form 10-K, Retirement Care Associates, Inc. (the "Company") for the fiscal year
ended June 30, 1996, File No. 1-14114.
The Company has restated its financial (collectively, the "Restated Entries")
information for periods commencing June 30, 1996 through the nine months ended
March 31, 1997, as reflected in the Company's Quarterly Reports on Forms 10-Q
for the quarters ended September 30, 1996, December 31, 1996 and March 31,
1997. Adjustments and reclassifications were necessary to correct entries
relating to (i) receivables due from third-party payors, (ii) the Company's
inventory for such periods, (iii)provisions for doubtful accounts, (iv)
provisions for contractual allowances for third-party payors, (v) provisions
for accrued liabilities, and (vi) pre-recorded operating leases (collectively,
the "Restated Entries").
To show the impact of the Restated Entries with respect to previously reported
amounts for each period restated, the Company has provided a description of the
Restated Entries and a reconciliation of historical results for each period as
previously reported in the filed quarterly report to restated results.
Certain statement in this Form 10-Q are "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements involve a number of risks and
uncertainties. Factors which may cause the Company's actual results in future
periods to differ materially from forecast results include, but are not limited
to: general economic and business conditions, both nationally and in the
regions in which the Company operates; industry capacity; demographic changes;
existing government regulations and changes in, or the failure to comply with,
government regulations; legislative proposals for reform; the ability to enter
into lease and management contracts and arrangements on acceptable terms;
changes in Medicare and Medicaid reimbursement levels; liability and other
claims asserted against the Company; competition; changes in business strategy
or development plans; the ability to attract and retain qualified personnel;
the significant indebtedness of the Company; and the availability and terms of
capital to fund the expansion of the Company's business, including the
acquisition of additional facilities.
The financial information included in this report has been prepared by the
Company, without audit, and should not be relied upon to the same extent as
audited financial statements.
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Retirement Care Associates, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations
for the Three Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
<S> <C> <C>
Revenues
Patient service revenue $ 53,044,270 $ 32,004,561
Medical supply revenue 11,736,583 2,100,600
Management fee revenue:
From affiliates 525,001 957,000
From others 107,579 73,882
Other operating revenue 250,193 486,370
65,663,626 35,622,413
Expenses
Cost of patient services 36,301,050 18,814,605
Cost of medical supplies sold 7,944,318 2,751,524
Lease expense 3,668,546 1,542,445
General and administrative 10,704,253 6,848,798
Depreciation and amortization 1,668,117 926,608
Interest 3,430,696 1,837,484
Provision for bad debts 100,000
63,816,980 32,721,464
Income before minority interest and
income taxes 1,846,646 2,900,949
Minority interest (36,900) (58,097)
Income before income taxes 1,809,746 2,842,852
Income taxes 650,000 1,106,272
Net Income $ 1,159,746 $ 1,736,580
Net income per common and common equivalent
share .07 .15
Weighted average shares outstanding 15,567,830 11,861,885
</TABLE>
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Retirement Care Associates, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations for
the Nine Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
<S> <C> <C>
Revenues
Patient service revenue: $142,969,704 $ 86,182,010
Medical supply revenue 34,592,701 5,294,915
Management fee revenue:
From affiliates 1,777,500 2,538,171
From others 347,701 296,506
Other operating revenue 2,493,323 1,181,165
182,180,929 95,492,767
Expenses
Cost of patient services 107,278,120 52,466,995
Cost of medical supplies sold 23,156,604 6,171,863
Lease expense 9,683,743 5,023,376
General and administrative 32,520,978 15,619,316
Depreciation and amortization 4,181,243 2,004,397
Interest 8,944,547 4,110,317
Provision for bad debts 2,600,000 --
188,365,235 85,396,264
Income (loss) before minority interest
and income taxes (6,184,306) 10,096,503
Minority interest (44,400) (127,057)
Income (loss) before income taxes and
extraordinary item (6,228,706) 9,969,446
Income tax provision (benefit) (2,350,000) 3,854,135
Income (loss) before extraordinary item (3,878,706) 6,115,311
Extraordinary item, less applicable
income taxes (490,000) --
Net Income (loss) $(4,368,706) $ 6,115,311
Income (loss) per common and common
equivalent share before extraordinary item (.25) .52
Net income per common and common
equivalent share (.29) .52
Weighted average shares outstanding 15,247,055 11,861,885
</TABLE>
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Retirement Care Associates, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheets as of
March 31, 1997 and Audited at June 30, 1996
<TABLE>
<CAPTION>
Unaudited Audited
March 31, June 30,
1997 1996
<S> <C> <C>
Assets
Current
Cash and cash equivalents $ 356,197 $ 45,365
Accounts receivable 39,772,073 20,556,920
Inventory 7,065,172 4,849,819
Deferred income taxes 420,000 461,214
Note and accrued interest receivable 627,500 713,750
Restricted Bond Fund 3,400,000 2,342,565
Prepaid expenses and other 4,342,014 1,791,442
Total current assets 55,982,956 30,761,075
Property and equipment 149,505,579 114,682,082
Other assets
Marketable equity securities 895,846 33,645
Investments in unconsolidated affiliates 734,514 496,800
Deferred lease and loan costs 11,232,824 7,665,891
Goodwill, net of accumulated amortiza-
tion 11,068,691 3,976,675
Notes and advances due from non-
affiliates 1,649,191 1,422,247
Notes and advances due from affiliates -- 14,316,661
Restricted bond funds 6,136,604 3,514,969
Other assets 3,150,805 2,687,602
Total other assets 34,868,475 34,114,490
$240,357,010 $179,557,647
</TABLE>
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Retirement Care Associates, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheets as of
March 31, 1997 and Audited at June 30, 1996
<TABLE>
<CAPTION>
Unaudited Audited
March 31, June 30,
1997 1996
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities
Lines of credit $ 3,500,000 $ 1,456,535
Note payable 9,750,000 --
Current maturities of long-term debt 7,970,922 2,055,880
Accounts payable 23,862,246 11,201,976
Accrued expenses 9,793,846 7,543,131
Income taxes payable -- 3,889,809
Deferred gain 40,000 40,000
Total current liabilities 54,917,014 26,187,331
Deferred gain 191,370 371,370
Deferred income taxes 1,465,877 1,465,877
Long-term debt, less current maturities 140,051,551 110,375,799
Minority interest 5,140,556 4,068,147
Redeemable convertible preferred stock 1,800,000 2,400,000
Shareholders' equity
Common stock, $.0001 par value;
300,000,000 shares authorized;
14,284,977 and 12,145,875 shares
outstanding 1,429 1,215
Preferred stock 3,767,000 8,765,250
Additional paid-in capital 42,391,319 26,972,655
Retained earnings (9,369,106) (929,877)
Treasury stock ( -- ) (120,120)
Total shareholders' equity 36,790,642 34,689,123
Total Liabilities and shareholders'
equity $240,357,010 $179,557,647
</TABLE>
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<PAGE> 8
Retirement Care Associates, Inc.
Unaudited Consolidated Statements of Cash Flows for
the Nine Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
<S> <C> <C>
Operating activities
Net income $(4,368,706) $ 6,115,311
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 4,181,243 1,947,411
Provision for bad debt 2,600,000
Amortization of deferred gain (180,000) --
Minority interest 1,072,409 127,057
Deferred income taxes 41,214 --
Changes in current assets and liabili-
ties net of effects of acquisitions:
Accounts receivable (21,815,153) (12,552,151)
Inventory (2,215,353) (1,494,627)
Prepaid expense and other assets (3,013,775) (6,814,868)
Accounts payable and accrued expenses 11,021,176 6,299,946
Increase in deferred lease and loan
costs (4,067,891) (1,916,123)
Cash (used in) operating activities (16,744,836) (8,288,044)
Investing activities
Purchase of property and equipment (38,503,782) (41,025,608)
Issuance of notes receivable and
advances to affiliates 14,316,661 (2,285,205)
Investment in and advances to Atrium
Ltd. -- (1,278,684)
Restricted bond funds (3,679,070) --
Changes in marketable equity securities (862,201) (574,766)
Change in receivable (140,694) 2,396,667
Investment in unconsolidated subsidiaries (237,714) --
Cash (used in) investing activities (29,106,800) (42,767,596)
</TABLE>
-8-
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Retirement Care Associates, Inc.
Unaudited Consolidated Statements of Cash Flows for
the Nine Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
<S> <C> <C>
Financing activities
Dividends on preferred stock (150,000) (225,000)
Redemption of preferred stock (600,000) (600,000)
Net proceeds from issuance of:
Line of credit 2,043,465 --
Common stock 1,080,628 355,161
Long-term debt 39,893,357 48,036,000
Preferred stock 9,340,000 --
Payments on long-term debt (1,644,579) (1,377,466)
Purchase and retirement of common stock (3,800,403) --
Cash provided by financing activities 46,162,468 46,188,695
Net increase (decrease) in cash and
cash equivalents 310,832 (4,866,945)
Cash and cash equivalents, beginning of
year 45,365 5,207,185
Cash and cash equivalents, end of year $ 356,197 $ 340,240
</TABLE>
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RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These consolidated financial
statements and the notes thereto should be read in conjunction with the
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1996, File No 1-14114.
In the opinion of management of the Company, the accompanying unaudited
consolidated financial statements contain all necessary adjustments to present
fairly the financial position, the results of operations and cash flows for the
periods reported. All adjustments are of a normal recurring nature.
NOTE 2. RESTATEMENT
The consolidated financial statements for the nine months ended March 31, 1997,
as originally reported, reflect certain accounting policies and estimates which
were subsequently determined to be incorrect and, accordingly, the consolidated
financial statements have been restated as follows (in thousands):
<TABLE>
<CAPTION>
As Previously Reported As Restated
---------------------- -----------
<S> <C> <C>
Revenues $182,191 $182,181
Operating Expenses $174,367 $188,365 *
Net Earnings (Loss) $ 3,747 $ (4,369)
Shareholders' Equity $ 44,906 $ 36,790
</TABLE>
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* Restated Operating Expenses include (in thousands) (i) an additional
accrual for employee benefits of $6,200, (ii) restated inventory of
$3,800, (iii) restated operating lease expense of $817, (iv) a
provision for doubtful accounts of $2,600, and (v) restated
miscellaneous expenses of $581.
NOTE 3. ACCOUNTS RECEIVABLE AND COST REIMBURSEMENTS
Accounts receivable and operating revenue include net amounts reimbursed by
Medicaid under the provisions of cost reimbursement formulas in effect. The
Company operates under a prospective payment system with Medicare, under which
annual rates are assigned based on estimated reimbursements. Differences
between estimated provisions and final settlement are reflected as adjustments
to future rates.
NOTE 4. INVENTORIES
Inventories consist of the following at March 31, 1997:
<TABLE>
<S> <C>
Raw material $ 352,485
Work in process 84,181
Finished goods 6,628,506
-----------
$ 7,065,172
</TABLE>
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RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 5: NOTES RECEIVABLE AND ADVANCES TO AFFILIATES
At March 31, 1997 and June 30, 1996, the Company had notes and advances to
affiliates totaling approximately $0 and $14,316,661, respectively. The notes
were repaid by the sale of two retirement homes to the Company at fair market
value and the retirement of 399,992 shares of the Companies stock held by the
affiliates. (See Note 8)
NOTE 6: LONG-TERM DEBT
Long-term debt payable consisted of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
<S> <C> <C>
Amounts outstanding under
Revenue Bonds secured by
retirement facilities $ 64,295,000 $59,986,000
Other debt secured by
retirement and nursing
facilities 52,127,681 39,848,938
Other debt 12,751,211 12,596,741
Capital leases 18,848,581
Totals 148,022,473 112,431,679
Current maturities 7,970,922 2,055,880
Total long-term debt $ 140,051,551 $110,375,799
</TABLE>
NOTE 7: COMMITMENTS AND CONTINGENCIES
The Company is involved in legal proceedings arising in the ordinary course of
business. In addition, the Company is in dispute with the Internal Revenue
Service ("IRS") concerning the application of certain income and payroll tax
liabilities and payments. The IRS contends that the Company is delinquent in
the payment of certain taxes and has charged penalties and interest in
connection with the alleged underpayments. The Company contends that the IRS
has misapplied payments between income and payroll taxes and between the
Company and its affiliates. The Company has estimated in the accompanying
financial statements amounts for ultimate settlement of this dispute, and has
recorded an accrual of $600,000, which is based upon the best available
information after consulting with the Company's advisors concerning this
matter. Further, the Company has filed lawsuits against the IRS related to
this matter. In the opinion of management, the ultimate resolution of pending
legal proceedings and the IRS dispute will not have a material effect on the
Company's financial positions or results of operations.
NOTE 8: FACILITY ACQUISITIONS
During the quarter ended December 31, 1996, the Company entered into a series
of transactions with Winter Haven, Gordon Jensen Health Care Association, Inc.
("Gordon Jensen"), National Assistance Bureau, Inc. ("NAB"), Southeastern
Cottages, Inc. ("Southeastern"), Chamber Health Care Society, Inc. ("Chamber"),
and Senior Care, Inc. ("Senior"); all are entities which principal shareholders
of the Company either own or control. The result of the transactions was to
eliminate all notes receivable and advances due to the Company from affiliates.
The following is a summary of the transactions:
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RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 8: FACILITY ACQUISITIONS (Continued)
On September 30, 1996, Winter Haven sold to the Company two retirement
facilities for their fair value, based on independent appraisal, totaling
$19,200,000. The facilities were acquired by the Company subject to bond debt
of $7,670,000, resulting in debt due to Winter Haven from the Company of
$11,530,000. As part of the sales agreement, the Company and Winter Haven
agreed that the debt of $11,530,000 would be applied to eliminate the
receivable, totaling $11,214,320, due to the Company by Winter Haven.
On September 27, 1996, Gordon Jensen contributed to the treasury of the Company
400,000 shares of stock in the Company which had a fair market value of
$3,000,000. This transaction results in the elimination of the debt, totaling
$2,982,000, due to the Company by Gordon Jensen and a reduction of
stockholders' equity of the Company by $3,000,000.
NOTE 9: OTHER TRANSACTIONS
On August 6, 1996, Contour acquired all of the outstanding stock of Atlantic
Medical Supply Company, Inc. ("Atlantic"), a distributor of disposable medical
supplies and a provider of third-party billing services to the nursing home and
home health care markets. The acquisition was made retroactively to July 1,
1996. Contour paid $1.4 million in cash and $10.5 million in promissory notes
for all of the outstanding stock of Atlantic. The promissory notes bear
interest at 7% per annum and were due in full on January 10, 1997. In the
event of a default in the payment of the promissory notes, they were
convertible into shares of common stock of the Company. On January 10, 1997,
Contour retired all outstanding notes due to sellers of Atlantic in the
aggregate principal amount of $10,850,000, along with accrued interest. The
retirement of these notes was funded by a loan of $9,750,000 from the Company,
with the balance funded from Contour's existing line of credit with Barnett
Bank. The loan from the Company was evidenced by a convertible promissory note
bearing interest at 9% per annum and payable upon demand. This note was
convertible into 1,950,000 shares of Contour's Common Stock, and on January 10,
1997, the Company exercised this conversion right.
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RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 9: OTHER TRANSACTIONS (Continued)
During the period from September 27 through October 2, 1996, the Company sold
1,000,000 shares of Series F Convertible Preferred Stock in an offering to
foreign investors at $10.00 per share. Holders of the Series F Preferred Stock
have no voting rights except as required by law, and have liquidation
preference of $10.00 per share plus 4% per annum from the date of issuance.
The shares of Series F Preferred Stock are convertible into shares of common
stock at a conversion price of the lessor of (a) $7.665625, or (b) 85% of the
average closing bid price for the five trading days prior to the date of
conversion. The maximum number of shares of common stock which can be issued
upon conversion of the Series F Preferred Stock is 2,588,000. At the time of
conversion, the holder is also entitled to additional shares equal to $10.00
per share of Series F Preferred Stock converted multiplied by 8% per annum from
the date of issuance divided by the applicable conversion price. Each holder
of the Series F Preferred Stock has the option to convert up to one-third of
such holder's shares at any time from and after the 60th day following the date
of issuance, up to an additional one-third of the shares from and after the
90th day following the date of issuance, and all remaining shares may be
converted from and after the 120th day following the date of issuance.
For purposes of computing earnings per share, the Series F Preferred Stock has
been determined to be a common stock equivalent. Accordingly, weighted average
shares outstanding includes the common shares issuable upon conversion of these
shares after consideration of accumulated dividends.
NOTE 10: EXTRAORDINARY ITEMS
During the quarter ended December 31, 1996, the Company recorded an
extraordinary charge of $490,000, net of taxes of $300,000. The gross
extraordinary charge consists of $790,000 of charges associated with the early
extinguishment of approximately $9.2 million of long term debt associated with
the Company's retirement facilities located in Destin, Florida.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1996
The Company's total revenues for the three months ended March 31, 1997, were
$65,663,626 compared to $35,622,413 for the three months ended March 31, 1996.
Due to the increased number of facilities owned or leased by the Company,
patient service revenue increased from $32,004,561 for the quarter ended March
31, 1996, to $53,044,270 for the quarter ended March 31, 1997. The Company was
operating 86 facilities for the quarter ended March 31, 1997 compared to 54 for
the quarter ended March 31, 1996. The cost of patient services in the amount
of $18,814,605 for the quarter ended March 31, 1996, represented 59% of patient
service revenue, as compared to $36,301,050 or 68% of patient service revenue
during the quarter ended March 31, 1997. This increase is attributed to the
Company acquiring skilled nursing facilities which require more skilled care
and to delays in Medicaid rate increases discussed in the comparison of the
nine month periods ended March 31 below.
Medical supply revenue increased from $2,100,600 during the quarter ended March
31, 1996, to $11,736,583 during the quarter ended March 31, 1997. These
revenues, which are revenues of Contour Medical, Inc. ("Contour"), a
majority-owned subsidiary, increased primarily as a result of two acquisitions
made by Contour. Contour acquired AmeriDyne Corporation ("AmeriDyne")
effective March 1, 1997, and Atlantic Medical Supply Company, Inc. ("Atlantic")
effective July 1, 1996. Cost of medical supplies sold as a percentage of
medical supply revenue decreased to approximately 67.6% during the quarter
ended March 31, 1997,
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<PAGE> 14
as compared to approximately 100% of such revenue during the same period last
year. The reduced percentage is primarily a result of higher gross profit
margins on the products sold by AmeriDyne and Atlantic.
Management fees decreased from $1,030,882 in the quarter ended March 31, 1996
to $632,580 in the quarter ended March 31, 1997, due to the number of
facilities which the Company manages. As of March 31, 1996, the Company was
managing 24 facilities, and as of March 31, 1997, the Company was managing 11
facilities. The Company has leased or purchased 13 facilities it managed at
March 31, 1996. Management anticipates that the number of facilities only
managed by the company will continue to decline as a result of acquisition of
such facilities by the Company.
Owning or leasing a facility is distinctly different from managing a facility
with respect to operating results and cash flows. For an owned or leased
facility, the entire revenue/expense stream of the facility is recorded on the
Company's income statement. In the case of a management agreement, only the
management fee is recorded. The expenses associated with management revenue
are somewhat indirect as the infrastructure is already in place to manage the
facility. Therefore, the profitability of managing a facility appears more
lucrative on a margin basis than that of an owned/leased facility. However,
the risk of managing a facility is that the contract generally can be canceled
on a relatively short notice, which results in loss of all revenue attributable
to the contract. Furthermore, with an owned or leased property the Company
benefits from the increase in value of the facility as its performance
increases. With a management contract, the owner of the facility maintains the
equity value. From a cash flow standpoint, a management contract is more
lucrative because the Company does not have to support the ongoing operating
cash flow of the facility.
General and administrative expenses for the three months ended March 31, 1997
were $10,704,253, representing 16% of total revenues, as compared to
$6,848,798, representing 19% of total revenues, for the three months ended
March 31, 1996. This increase in the dollar amount is due to the general and
administrative expenses related to operating the additional facilities owned or
leased by the Company and the acquisition by Contour of Atlantic and AmeriDyne.
For the quarter ended March 31, 1997, the Company incurred expense for income
taxes of $650,000, which represents an effective tax rate of 36%, as compared
to expenses for income taxes of $1,106,272, which represents an effective tax
rate of 39%, for the quarter ended March 31, 1996.
During the quarter ended December 31, 1996, the Company recorded an
extraordinary charge of $490,000, net of taxes of $300,000. The gross
extraordinary charge consists of $790,000 of charges associated with the early
extinguishment of approximately $9.2 million of long term debt.
The net income of $1,159,746 for the quarter ended March 31, 1997, decreased
from the net income of $1,736,580 for the quarter ended March 31, 1996. The
decrease of net income for the quarter ended March 31, 1997 is a result of the
increase in the cost of patient services as described above.
Most of the revenue from the management services division of the Company's
business is received pursuant to management agreements with entities controlled
by Messrs. Brogdon and Lane, two of the Company's officers and directors.
These management agreements have five year terms, however, they are subject to
termination on 60 days notice, after the end of the third year of the Agreement
with or without cause by either the Company or the owners. Therefore, Messrs.
Brogdon and Lane have full control over whether or not these management
agreements, and thus the management service revenue, continue in the future.
NINE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE NINE MONTHS ENDED
MARCH 31, 1996
The Company's total revenues for the nine months ended March 31, 1997, were
$182,180,929 compared to $95,492,767 for the nine months ended March 31, 1996.
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Due to the increased number of facilities owned or leased by the Company,
patient service revenue increased from $86,182,000 for the nine months ended
March 31, 1996, to $142,969,704 for the nine months ended March 31, 1997. The
Company was operating 86 facilities in the nine months ended March 31, 1997
compared to 54 for the nine months ended March 31, 1996. The cost of patient
services in the amount of $107,278,120 for the nine months ended March 31,
1997, represented 75% of patient service revenue, as compared to $52,466,995 or
61% of patient service revenue during the nine months ended March 31, 1996.
This increase is attributed to the Company acquiring skilled nursing facilities
which require more skilled care and to delays in Medicaid rate increases
discussed below.
Medical supply revenues increased from $5,294,915 during the quarter ended
March 31, 1996, to $34,592,701 during the quarter ended March 31, 1997. These
revenues, which are revenues of Contour, a majority-owned subsidiary, increased
primarily as a result of two acquisitions made by Contour. Contour acquired
AmeriDyne effective March 1, 1996, and Atlantic effective July 1, 1996. Cost
of medical supplies sold as a percentage of medical supply revenue decreased to
approximately 66.5% during the quarter ended March 31, 1997, as compared to
approximately 100% of such revenue during the same period last year. The
reduced percentage is primarily a result of higher gross profit margins on the
products sold by AmeriDyne and Atlantic.
Management fees decreased from $2,834,677 in the nine months ended March 31,
1996 to $2,125,201 in the nine months ended March 31, 1997 because the Company
purchased or leased 13 facilities it managed at March 31, 1996. As of March
31, 1996, the Company was managing 24 facilities, and as of March 31, 1997 the
Company was managing 11 facilities.
General and administrative expenses for the nine months ended March 31, 1997
were $32,520,978 representing 18% of total revenues, as compared to $15,619,316
representing 16% of total revenues, for the nine months ended March 31, 1996.
This increase is due to the general and administrative expenses related to
operating the additional facilities owned or leased by the Company, and the
acquisition by Contour of Atlantic Medical.
For the nine months ended March 31, 1997, the Company received an income tax
benefit of $2,350,000 which represents an effective tax benefit of 38%, as
compared to expenses for income taxes of $3,854,135 which represents an
effective rate of 39% for the nine months ended March 31, 1996.
The net loss of $4,368,706 for the nine months ended March 31, 1997, compares
to net income of $6,115,311 for the nine months ended March 31, 1996. The net
loss for the nine months ended March 31, 1997 is a result of (1) an
extraordinary charge relating to a restructuring of debt, as described below,
and (2) the increase in the cost of patient services, as described above, and
the result of delays in annual Medicaid rate increases, which are usually in
effect on July 1 of each year. This year the rate increases in Georgia were
delayed until August 16, 1996, and the rate increases in Tennessee were delayed
until November 1, 1996. Most of the long-term care facilities operated by the
Company are located in these two states. The delays in Medicaid rate increases
are not related to the extraordinary charge.
During the quarter ended December 31, 1996, the Company recorded an
extraordinary charge of $490,000, net of taxes of $300,000. The gross
extraordinary charge consists of $790,000 of charges associated with the early
extinguishment of approximately $9.2 million of long term debt.
Most of the revenue from the management services division of the Company's
business is received pursuant to management agreements with entities controlled
by Messrs. Brogdon and Lane, two of the Company's officers and directors.
These management agreements have five year terms, however, they are all subject
to termination on 60 days notice, with or without cause by either the Company
or the owners. Therefore, Messrs. Brogdon and Lane have full control over
whether or not these management agreements, and thus the management services
revenue, continue in the future.
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LIQUIDITY AND CAPITAL RESOURCES
At March 31. 1997, the Company had $1,065,942 in working capital compared to
$4,573,744 at June 30, 1996.
During the nine months ended March 31, 1997, cash used by operating activities
was 16,744,836 as compared to 8,288,044 for the quarter ended March 31, 1996.
The 8,456,792 increase was primarily due to the increase in accounts receivable
for the nine months ended March 31, 1997 of $21,815,153. These increases in
non-cash assets were partially offset by increases in accounts payable and
accrued expense of $11,021,176.
Cash used in investing activities during the nine months ended March 31, 1997
was 29,106,800. The expenditures related to purchases of equipment,
securities, investments in subsidiaries and advances to affiliates.
Cash provided by financing activities during the nine months ended March 31,
1997 consisted of $39,893,357 in long term loans and $9,340,000 in issuance of
preferred stock. Cash used in financing activities consisted of ($1,644,579)
in payments of long term debt and the purchase and retirement of common stock
of (3,800,403).
The Company has no commitments to make material capital expenditures.
IMPACT OF PENDING FEDERAL HEALTH CARE LEGISLATION
Management is uncertain what the financial impact will be of the pending
federal health care reform package since the legislation has not been
finalized. However, based on information which has been released to the public
thus far, management does not believe that there will be cuts in reimbursements
paid to nursing homes.
Legislative and regulatory action at the state and federal level, has resulted
in continuing changes in the Medicare and Medicaid reimbursement programs. The
changes have limited payment increases under those programs. Also, the timing
of payments made under Medicare and Medicaid programs are subject to regulatory
action and governmental budgetary constraints. Within the statutory framework
of the Medicare and Medicaid programs, there are substantial areas subject to
administrative rulings and interpretations which may further affect payments
made under these programs. Further, the federal and state governments may
reduce the funds available under those programs in the future or require more
stringent utilization and quality review of health care facilities.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
RETIREMENT CARE ASSOCIATES, INC.
DATED: August 25, 1997 By: /s/ Darrell C. Tucker
----------------------------
Darrell C. Tucker, Treasurer
