FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 of 15(d)
of the Securities Exchange Act of 1934
For quarter ended September 30, 1995 Commission file number 33-9881
NATIONAL HEALTHCARE L.P.
(Exact name of registrant as specified in its Charter)
Delaware 62-1292855
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
100 Vine Street
Murfreesboro, TN 37130
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (615) 890-2020
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.
Yes x No
(2) Has been subject to such filing requirements for the past 90
days.
Yes x No
7,827,051 units were outstanding as of October 31, 1995.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
NATIONAL HEALTHCARE L.P.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
(in thousands) (in thousands)
REVENUES:
Net patient revenues $ 80,637 $ 69,051 $229,448 $ 195,535
Other revenues 9,905 6,513 30,133 19,755
Net revenues 90,542 75,564 259,581 215,290
COSTS AND EXPENSES:
Salaries, wages and benefits 49,832 40,465 141,250 117,157
Other operating 27,545 24,432 80,791 68,447
Depreciation and amortization 3,708 3,549 11,021 10,262
Interest 3,853 3,054 12,157 8,687
Total costs and expense 84,938 71,500 245,219 204,553
NET INCOME $ 5,604 $ 4,064 $ 14,362 $ 10,737
EARNINGS PER UNIT:
Primary $ .71 $ .52 $ 1.83 $ 1.37
Fully diluted $ .62 $ .46 $ 1.60 $ 1.23
WEIGHTED AVERAGE UNITS OUTSTANDING:
Primary 7,907,042 7,822,962 7,862,842 7,834,197
Fully diluted 9,879,908 9,813,174 9,879,294 9,813,110
CASH DISTRIBUTIONS PAID PER UNIT:
Regular $ .52 $ .31 $ 1.36 $ .86
Special $ .00 $ .00 $ .00 $ 1.10
NET INCOME ALLOCABLE TO PARTNERS:
General Partners $ 56 $ 41 $ 144 $ 107
Limited Partners 5,548 4,023 14,218 10,630
$ 5,604 $ 4,064 $ 14,362 $ 10,737
The accompanying notes to interim condensed consolidated financial statements
are an integral part of these statements.
2
<PAGE>
NATIONAL HEALTHCARE L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
Sept. 30 December 31
1995 1994
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 24,122 $ 1,442
Cash held by trustees 2,326 1,604
Marketable securities 1,504 4,010
Accounts receivable, less allowance for
doubtful accounts of $4,626 and $3,367 42,650 42,953
Notes receivable 32,042 4,922
Note receivable from NHI -- 22,847
Loan participation agreements -- 9,784
Inventory at lower of cost (first-in,
first-out method) or market 3,001 2,952
Amounts receivable from third-party payors - 5,419
Prepaid expenses and other assets 1,327 1,573
Total current assets 106,972 97,506
PROPERTY AND EQUIPMENT AND ASSETS UNDER
ARRANGEMENT WITH OTHER PARTIES:
Property and equipment at cost 147,426 136,757
Less accumulated depreciation and
amortization (36,729) (31,094)
Assets under arrangement with other parties. 77,276 81,746
Net property, equipment and assets under
arrangement with other parties 187,973 187,409
OTHER ASSETS:
Bond reserve funds, mortgage replacement
reserves and other deposits 1,771 1,720
Unamortized financing costs 2,934 2,811
Notes receivable 80,854 87,180
Notes receivable from National 12,298 12,296
Minority equity investments and other 6,898 7,211
Total other assets 104,755 111,218
$ 399,700 $396,133
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
3
<PAGE>
NATIONAL HEALTHCARE L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
LIABILITIES AND CAPITAL
Sept. 30 December 31
1995 1994
(Unaudited)
CURRENT LIABILITIES:
Current portion of long-term debt $ 9,616 $ 6,330
Trade accounts payable 4,982 17,052
Accrued payroll 22,542 18,644
Amounts due to third-party payors 4,348 4,396
Accrued interest 1,624 2,223
Other current liabilities 11,984 6,393
Total current liabilities 55,096 55,038
LONG-TERM DEBT, less current portion 106,272 104,243
DEBT SERVICED BY OTHER PARTIES, LESS
CURRENT PORTION 86,375 89,764
MINORITY INTERESTS IN CONSOLIDATED
SUBSIDIARIES 809 802
COMMITMENTS, CONTINGENCIES AND GUARANTEES
SUBORDINATED CONVERTIBLE NOTES 30,000 30,000
DEFERRED INCOME 15,769 15,280
PARTNERS' CAPITAL:
General partners 1,133 1,095
Limited partners 104,246 99,911
Total partners' capital 105,379 101,006
$399,700 $396,133
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
4
<PAGE>
NATIONAL HEALTHCARE L.P.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30
1995 1994
(in thousands)
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $14,362 $ 10,737
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 10,668 9,947
Provision for doubtful accounts 2,036 1,655
Amortization of intangibles and deferred charges 671 634
Amortization of deferred income (391) (271)
Equity in earnings of unconsolidated investments (211) (222)
Distributions from unconsolidated investments 221 180
Changes in assets and liabilities:
Increase in accounts receivable (1,733) (6,682)
(Increase) Decrease in inventory (49) 62
(Increase) Decrease in prepaid expenses
and other assets 246 (804)
Decrease in trade accounts payable (12,070) (684)
Increase in accrued payroll 3,898 3,289
Increase (Decrease) in amounts due to third-party
payors 5,371 (1,533)
Increase (Decrease) in accrued interest payable (599) 765
Increase in other current liabilities 5,591 2,046
28,011 19,119
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Additions to and acquisitions of property and
equipment, net (11,213) (20,018)
Investment in long-term notes receivable (24,585) (18,966)
Collection of long-term notes receivable 36,420 47,492
(Increase) Decrease in minority equity investments
and other 831 (4,757)
(Increase) Decrease in debt and equity securities 2,360 (8,279)
3,813 (4,528)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from debt issuance 4,609 3,535
Increase in cash held by trustee (722) (124)
Increase in minority interest in subsidiaries 7 19
Issuance of partnership units 1 0
Increase in bond reserve funds, mortgage
replacement reserves and other deposits (51) (40)
Collection of receivables 788 422
Payments on debt (2,771) (2,788)
Cash distributions to partners (10,632) (15,222)
Increase in financing costs (373) 0
(9,144) (14,198)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 22,680 393
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,442 145
CASH AND CASH EQUIVALENTS, END OF PERIOD $24,122 $ 538
Supplemental Information:
Cash payments for interest expense $12,755 $ 7,922
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
5
<PAGE>
NATIONAL HEALTHCARE L.P.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Receivables Unrealized Total
Number of From Sale of Gains(Losses) General Limited Partners'
Units Units on Securities Partners Partners Capital
BALANCE AT 12/31/94 7,826,165 $(14,697) $ 480 $1,095 $114,128 $101,006
Net income -- -- -- 144 14,218 14,362
Collection of
receivables -- 788 -- -- 788
Units issued 886 -- -- -- 1 1
Unrealized losses on
securities -- -- (146) -- -- (146)
Cash distributions
($1.36 per unit) -- -- -- (106) (10,526) (10,632)
BALANCE AT 9/30/95 7,827,051 $(13,909) $ 334 $1,133 $117,821 $105,379
BALANCE AT 12/31/93 7,796,433 $(15,134) $ -- $1,027 $106,633 $ 92,526
Net income -- -- -- 107 10,630 10,737
Collection of
receivables -- 422 -- -- -- 422
Other 150 -- -- 1 3 4
Unrealized losses on
securities -- -- 564 -- -- 564
Cash distributions
($.55 per unit) -- -- -- (66) (6,580) (6,646)
BALANCE AT 9/30/94 7,796,583 $(14,712) $ 564 $1,069 $110,686 $ 97,607
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
</TABLE>
6
<PAGE>
NATIONAL HEALTHCARE L.P.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
Note 1 - CONSOLIDATED FINANCIAL STATEMENTS:
The financial statements for the nine months ended September 30,
1995 and 1994, which have not been examined by independent public
accountants, reflect, in the opinion of management, all adjustments
necessary to present fairly the data for such periods. The results of
the operations for the nine months ended September 30, 1995 are not
necessarily indicative of the results that may be expected for the
entire fiscal year ended December 31, 1995. The interim condensed
balance sheet at December 31, 1994 is taken from the audited financial
statements at that date. The interim condensed financial statements
should be read in conjunction with the consolidated financial
statements, including the notes thereto, for the periods ended
December 31, 1994, December 31, 1993, and December 31, 1992. Certain
reclassifications have been made to the December 31, 1994 financial
statements to conform to the September 30, 1995 presentation.
Note 2 - OTHER REVENUES:
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
(in thousands) (in thousands)
Revenue from managed centers $ 5,983 $ 4,494 $18,020 $12,579
Guarantee fees 183 218 630 710
Advisory fee from NHI 797 458 2,391 1,370
Earnings on securities 28 (208) 422 191
Equity in earnings of
unconsolidated investments 55 95 206 212
Interest income 1,383 1,152 4,697 3,791
Other 1,476 304 3,767 902
$ 9,905 $ 6,513 $30,133 $19,755
Revenues from managed centers include management fees and
interest income on notes receivable from the managed centers. "Other"
revenues include non-health care related earnings.
Note 3 - INVESTMENT IN MARKETABLE SECURITIES:
Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities" was
issued by the Financial Accounting Standards Board effective for
fiscal years beginning after December 15, 1993. As required by SFAS
115, securities are classified as trading, held-to-maturity or
available for sale. Trading securities are bought and held
principally for the purpose of selling them in the near term.
Securities are classified as held-to-maturity when the Company has
both the positive intent and ability to hold them to maturity. All
other securities are classified as available for sale. NHC considers
its investments in marketable securities as available for sale
securities and unrealized gains and losses are recorded in partners'
capital in accordance with SFAS 115.
7
<PAGE>
Partners' capital for the period ended September 30, 1995 was
decreased by approximately $146,000 to reflect the net unrealized
investment loss on marketable securities without stated maturities
classified as available for sale.
Proceeds from the sale of investments in debt and equity
securities for the period ended September 30, 1995 were $2,696,000,
resulting in gross investment gains of $336,000 realized on these
sales. Realized gains and losses from securities sales are determined
on the specific identification of the securities. The adoption of
SFAS 115 did not have a material effect on NHC's financial position or
results of operations.
Note 4 - GUARANTEES:
In order to obtain management agreements and to facilitate the
construction or acquisition of certain health care centers which NHC
manages for others, NHC has guaranteed some or all of the debt
(principal and interest) on those centers. For this service NHC
charges an annual guarantee fee of 1% to 2% of the outstanding
principal balance guaranteed, which fee is in addition to NHC's
management fee. The principal amounts outstanding under the
guarantees is approximately $79,867,000 (net of available debt service
reserves) at variable and fixed interest rates with a weighted average
of 5.1% at September 30, 1995. In addition, NHC has guaranteed a
letter of credit in the amount of approximately $8,200,000 for which
an annual fee of 2% is charged.
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations
Overview
National HealthCare L.P. (NHC, or the Company) operates and
manages 96 long-term health care centers with 12,493 beds in nine
states. NHC provides nursing care as well as ancillary therapy
services to patients in a variety of settings including long-term care
nursing centers, managed care specialty units, subacute care units,
Alzheimer's care units, homecare programs, and facilities for assisted
living. NHC also operates retirement centers. (Prior to January 1,
1995, the name of NHC was National HealthCorp L.P.)
Results of Operations
Three Months Ended September 30, 1995 Compared to Three Months Ended
September 30, 1994.
Results for the three month period ended September 30, 1995
include a 38% increase over the same period in 1994 in net income, a
35% increase in fully diluted earnings per unit, and a 20% increase in
net revenues.
The increased revenues for the quarter reflect the continued
growth of operations. Compared to the quarter a year ago, NHC has
increased the number of owned or leased long-term care beds from 6,290
beds to 6,406 beds. The number of long-term care beds managed for
others has increased from 6,013 beds to 6,087 beds. Also contributing
to increased revenues are improvements in both private pay and third
party payor rates.
8
<PAGE>
Revenues also improved during 1995 due to increased emphasis on
rehabilitative and managed care services. To boost the ability to
offer physical, speech and occupational therapy to greater numbers of
patients, the Company is continuing to increase the size of its staff
of professionally licensed therapists. The Company has also signed
managed care contracts with private insurance companies to provide
subacute care to their insurees, offering a less expensive alternative
to acute care and rehabilitative hospitals. NHC also now has a
network of case managers to assure appropriate placement and payment
for subacute patients in the NHC system.
Revenues from management services, which are included in the
Statements of Income in Other Revenues, increased 29% in 1995 from
$4.5 million to $5.8 million due to the increased number of beds being
managed for others, increased management fees, and increased interest
income from higher principal amounts and interest rates on floating
rate and fixed rate loans to managed centers. Management fees are
generally based upon a percentage of net revenues of the managed
center and therefore tend to increase as a facility matures and as
prices rise in general.
Total costs and expenses for the 1995 quarter increased $13.4
million or 19% to $84.9 million from $71.5 million. Salaries, wages
and benefits, the largest operating costs of this service company,
increased $9.3 million or 23% to $49.8 million from $40.5 million.
Other operating expenses increased $3.1 million or 13% to $27.5
million for the 1995 third quarter compared to $24.4 million in the
1994 period. Depreciation and amortization increased 4% to $3.7
million. Interest costs increased $0.8 million or 26% to $3.9 million
from $3.1 million for last year.
Increases in salaries, wages and benefits are attributable to the
increase in staffing levels due to long-term care bed additions,
homecare expansions, and the increased emphasis on rehabilitative
services. Also contributing to higher costs of labor are inflationary
increases for salaries and the associated benefits as well as
adjustments in benefit programs for the quarter.
Operating costs have increased due to the increased number of
beds in operation, the expansion of homecare services, the expansion
of rehabilitative and managed care services, and due to the growth in
management services provided to others.
Depreciation and amortization increased as a result of the
Company's placing of newly constructed or purchased assets in service
and due to capital improvements at existing properties.
Interest expense increased due to additional borrowing for newly
purchased or constructed long-term care beds and due to increased
interest rates of floating rate debt. Approximately 40% of the
Company's long-term debt is at floating rates.
The total census at owned and leased centers for the quarter
averaged 92.9% compared to an average of 92.3% for the same quarter a
year ago.
Nine Months Ended September 30, 1995 Compared to Nine Months Ended
September 30, 1994.
Results for the nine month period ended September 30, 1995
include a 34% increase over the same period in 1994 in net income, a
30% increase in fully diluted earnings per unit, and a 21% increase in
net revenues. 9
<PAGE>
The increased revenues for the nine months this year reflect the
continued growth of operations. Compared to the nine month period a
year ago, NHC has increased the number of owned, leased, and managed
long-term care beds by 190 beds from 12,303 beds to 12,493 beds. Also
contributing to increased revenues are improvements in both private
pay and third party payor rates.
Revenues also improved during 1995 due to increased emphasis on
rehabilitative and managed care services. To boost the ability to
offer physical, speech and occupational therapy to greater numbers of
patients, the Company is continuing to increase the size of its staff
of professionally licensed therapists. The Company has also signed
managed care contracts with private insurance companies to provide
subacute care to their insurees, offering a less expensive alternative
to acute care and rehabilitative hospitals. NHC also now has a
network of case managers to assure appropriate placement and payment
for subacute patients in the NHC system.
Revenues from management services, which are included in the
Statements of Income in Other Revenues, increased 41% in 1995 from
$12.6 million to $17.7 million due to the increased number of beds
being managed for others, increased management fees, and increased
interest income from higher principal amounts and interest rates on
floating rate and fixed rate loans to managed centers. Management
fees are generally based upon a percentage of net revenues of the
managed center and therefore tend to increase as a facility matures
and as prices rise in general.
Total costs and expenses for the 1995 nine month period increased
$40.7 million or 20% to $245.2 million from $204.6 million. Salaries,
wages and benefits, the largest operating costs of this service
company, increased $24.1 million or 21% to $141.3 million from $117.2
million. Other operating expenses increased $12.3 million or 18% to
$80.8 million for the 1995 second quarter compared to $68.4 million in
the 1994 period. Depreciation and amortization increased 7% to $11.0
million. Interest costs increased $3.5 million or 40% to $12.2
million from $8.7 million for last year.
Increases in salaries, wages and benefits are attributable to the
increase in staffing levels due to long-term care bed additions,
homecare expansions, and the increased emphasis on rehabilitative
services. Also contributing to higher costs of labor are inflationary
increases for salaries and the associated benefits.
Operating costs have increased due to the increased number of
beds in operation, the expansion of homecare services, the expansion
of rehabilitative and managed care services, and due to the growth in
management services provided to others.
Depreciation and amortization increased as a result of the
Company's placing of newly constructed or purchased assets in service
and due to capital improvements at existing properties.
Interest expense increased due to additional borrowing for newly
purchased or constructed long-term care beds and due to increased
interest rates of floating rate debt. Approximately 40% of the
Company's long-term debt is at floating rates.
The total census at owned and leased centers for the nine months
averaged 92.9% compared to an average of 91.1% for the same nine
months a year ago.
10
<PAGE>
Liquidity and Capital Resources
During the first nine months of 1995, the Company generated net
cash of $28.0 million from operating activities, $36.4 million from
the collection of long-term notes receivable, $2.4 million from the
decrease in debt or equity securities, $0.8 million from the decrease
in minority equity investments and $4.6 million in debt proceeds. Of
these funds, $11.2 million was used for additions to and acquisitions
of property and equipment, $24.6 million for investments in long-term
notes receivable, $2.7 million for payments on debt, and $10.6million
for cash distributions to partners. Cash and cash equivalents
increased $22.7 million during the quarter.
At September 30, 1995, the Company's ratio of long-term
obligations to convertible debt and capital is 1.4 to 1.
The ratio of current assets to current liabilities is 1.9 to 1.
Working capital is $51.9 million. These financial resources with
anticipated funds from future operations are expected to be adequate
to enable the Partnership to meet its working capital requirements and
expansion goals.
Development
During the first nine months of 1995, the Company added a net
total of 185 licensed long-term care beds, of which 111 beds are owned
or leased at two centers and 74 beds are managed at three centers.
Currently, NHC has 1,196 beds under development at 22 owned,
leased or managed health care centers in various locations. These
beds are either under construction or a Certificate of Need has been
received from the appropriate state agency authorizing the
construction of additional centers or beds.
Legislative Outlook
Federal budget and reform plans are being considered by both the
House and Senate that would, if adopted, reduce payments to skilled
nursing facilities for services provided to patients under the
Medicare and Medicaid programs. Proposals being considered include
the reduction of payments for capital costs, the extension of the
current freeze on increases in routine cost limits, and the
application of new limits for non-routine therapy services. It is
management's belief, however, that the provision of quality health
care services in the lowest cost environment will be rewarded by
consumers and the government.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is subject to claims and suits in the
ordinary course of business. While there are several
worker's compensation and personal liability claims and
other suits presently in the court system, management
believes that the ultimate resolution of all pending
proceedings will not have any material adverse effect on the
Company or its operations.
Item 2. Changes in Securities. Not applicable
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to Vote of Security Holders. None
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K.
(a) List of exhibits - Exhibit 27 - Financial Data Schedule
(for SEC purposes only)
(b) Reports on Form 8-K - none required
SIGNATURES
Pursuant to the requirements of the Security Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NATIONAL HEALTHCARE L.P.
(Registrant)
Date November 9, 1995 S/Richard F. LaRoche, Jr.
Richard F. LaRoche, Jr.
Secretary
Date November 9, 1995 S/Donald K. Daniel
Donald K. Daniel
Vice President and Controller
Principal Accounting Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the interim condensed
consolidated statements of income and the consolidated balance sheets and is
qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 26,448,000
<SECURITIES> 1,504,000
<RECEIVABLES> 79,318,000
<ALLOWANCES> (4,626,000)
<INVENTORY> 3,001,000
<CURRENT-ASSETS> 106,972,000
<PP&E> 224,702,000
<DEPRECIATION> (36,729,000)
<TOTAL-ASSETS> 399,700,000
<CURRENT-LIABILITIES> 55,096,000
<BONDS> 222,647,000
<COMMON> 0
0
0
<OTHER-SE> 105,379,000
<TOTAL-LIABILITY-AND-EQUITY> 399,700,000
<SALES> 0
<TOTAL-REVENUES> 259,581,000
<CGS> 0
<TOTAL-COSTS> 245,219,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,036,000
<INTEREST-EXPENSE> 12,157,000
<INCOME-PRETAX> 14,362,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,362,000
<EPS-PRIMARY> 1.83
<EPS-DILUTED> 1.60
</TABLE>
