FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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: 1-11144
Regency Health Services, Inc.
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Delaware 33-0210226
Regency Health Services, Inc.
2742 Dow Avenue
Tustin, California 92680
714-544-4443
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
ofv1934 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 ____ No X
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding
Common stock 16,705,265
<PAGE>
Part I. Financial Information
Item 1. Financial Statements.
<TABLE>
REGENCY HEALTH SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
ASSETS
<CAPTION>
March 31, December 31,
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 33,955 $ 104,238
Restricted cash 3,925 -
Accounts receivable, net of allowances of $4,259 at
March 31, 1996 and $3,757 at December 31, 1995 71,500 54,050
Notes and other receivables 1,736 2,182
Deferred income taxes 5,447 5,447
Assets held for sale 7,751 8,970
Other current assets 8,286 6,396
------------- -------------
Total current assets 132,600 181,283
------------- -------------
PROPERTY AND EQUIPMENT:
Land 21,249 21,249
Buildings and improvements 98,481 96,396
Leasehold interest - other 17,549 17,556
Leasehold interest - related party 2,075 2,075
Equipment 27,710 24,610
------------- -------------
167,064 161,886
Less - accumulated depreciation and amortization (36,965) (34,679)
------------- -------------
Total property and equipment 130,099 127,207
------------- -------------
OTHER ASSETS:
Mortgage notes receivable, net of allowances of $950 at
March 31, 1996 and $951 at December 31, 1995 4,929 5,163
Goodwill, net of accumulated amortization of $1,207 at
March 31, 1996 and $563 at December 31, 1995 59,515 13,621
Other assets, net of accumulated amortization of $2,641 at
March 31, 1996 and $2,206 at December 31, 1995 27,163 15,697
------------- -------------
Total other assets 91,607 34,481
------------- -------------
$ 354,306 $ 342,971
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
REGENCY HEALTH SERVICES, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands, except par value)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
March 31, December 31,
1996 1995
------------ -------------
(Unaudited)
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,706 $ 4,371
Accounts payable 25,854 22,285
Accrued expenses 5,330 5,946
Accrued compensation 18,894 18,051
Accrued workers' compensation 4,653 5,377
Deferred revenue 1,829 1,743
Accrued interest 6,082 4,231
------------ -------------
Total current liabilities 64,348 62,004
LONG-TERM DEBT, NET OF CURRENT PORTION 184,148 179,615
OTHER LIABILITIES AND NONCURRENT RESERVES 12,938 13,017
DEFERRED INCOME TAXES 9,413 7,946
------------ -------------
Total liabilities 270,847 262,582
------------ -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized - 35,000 shares; 16,705 and
16,670 shares issued and outstanding at March 31, 1996
and December 31, 1995, respectively 167 167
Additional paid-in capital 57,012 56,679
Retained earnings 26,280 23,543
------------ -------------
Total stockholders' equity 83,459 80,389
------------ -------------
$ 354,306 $ 342,971
============ =============
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
REGENCY HEALTH SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<CAPTION>
Three months ended
March 31,
------------------------------------------
1996 1995
---- ----
(Unaudited)
<S> <C> <C> <C> <C>
NET OPERATING REVENUE $ 129,962 $ 97,548
------------------- --------------------
COSTS AND EXPENSES:
Operating expenses 106,967 78,972
Corporate general and administrative 5,126 5,248
Rent expense 5,607 4,153
Depreciation and amortization 3,175 2,286
Interest expense 4,327 1,910
------------------- --------------------
Total costs and expenses 125,202 92,569
------------------- --------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 4,760 4,979
PROVISION FOR INCOME TAXES 2,023 1,892
------------------- --------------------
NET INCOME $ 2,737 $ 3,087
=================== ====================
INCOME PER COMMON SHARE:
Primary $ 0.16 $ 0.19
=================== ====================
Fully diluted $ 0.16 $ 0.18
=================== ====================
WEIGHTED AVERAGE SHARES OF COMMON STOCK
AND EQUIVALENTS:
Primary 16,803 16,587
=================== ====================
Fully diluted 20,755 20,540
=================== ====================
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<PAGE>
REGENCY HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The unaudited consolidated financial statements and related notes have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have not been presented. The accompanying
unaudited financial statements and related notes should be read in conjunction
with the consolidated financial statements and related notes included in Regency
Health Services, Inc.'s ("Regency" or the "Company") 1995 Annual Report on Form
10-K.
In the opinion of the management of Regency, all material adjustments
necessary to present fairly the Company's financial condition, results of
operations, and changes in financial position have been made. All material
intercompany balances, profits, and transactions have been eliminated. The
consolidated results of operations presented are not necessarily indicative of
the consolidated results for a full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain amounts in the 1995 financial statements have been reclassified
to conform to the 1996 presentation.
2. Net Income per Share
For the three months ended March 31, 1996 and 1995, primary income per
share was calculated based on the weighted average number of common and common
equivalent shares outstanding during the periods. For the three months ended
March 31, 1996 and 1995, fully diluted income per share was computed as
described above and includes the issuance of common shares upon the assumed
conversion of the Convertible Subordinated Debentures. Additionally, interest
and amortization of underwriting costs related to such debentures were added,
net of tax, to income for the purpose of calculating fully diluted income per
share. Such amounts aggregated $488,000 and $510,000 for the three months ended
March 31, 1996 and 1995, respectively.
3. Acquisitions
Effective February 1, 1996, the Company acquired leasehold interests in
18 health care facilities in Tennessee and North Carolina with 2,375 beds from
Liberty Healthcare Limited Partnership ("Liberty") through an asset purchase for
$39.3 million cash and a note payable for $2.2 million. The Company also
acquired Executive Pharmacy with a $763,000 note payable and an enteral feeding
business for $1.5 million cash from businesses affiliated with Liberty. In
addition, the Company paid $400,000 cash for the inventory of Liberty. A portion
of the purchase was funded with notes payable may be reduced as a result of
certain seller liabilities and audit adjustments. Escrow accounts established at
the time of purchase were funded with $2.96 million for payment on the notes
payable and are included in other assets on the accompanying consolidated
balance sheet as of March 31, 1996.
Effective January 2, 1996, the Company completed the acquisition of the
assets of Assist-A-Care, a pharmacy located in San Diego, California. The
purchase price was $5.8 million, comprised of $3.2 million cash and a $2.6
million note payable.
These transactions were accounted for using the purchase method of
accounting under generally accepted accounting principles. Revenues and expenses
are included in the accompanying financial statements subsequent to the purchase
date. The purchase price allocation related to these transactions has not yet
been finalized.
The following unaudited proforma condensed consolidated statements of
earnings present the summarized consolidated results of operations of the
Company after giving effect to the acquisitions of Liberty and affiliated
businesses to Liberty for the three months ended March 31, 1996 and 1995, as if
such acquisitions had been consummated on January 1, 1995 (in thousands, except
per share data): <TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net operating revenue $136,768 $117,447
Total costs and expenses 131,427 112,243
- --------------------------------------------------------------------------------------------------------------
Income before provisions for income taxes 5,341 5,204
Provision for income taxes 2,256 1,982
- --------------------------------------------------------------------------------------------------------------
Net income $ 3,085 $ 3,222
- --------------------------------------------------------------------------------------------------------------
Income per common share:
Primary $.18 $.19
Fully diluted $.17 $.18
==============================================================================================================
</TABLE>
The pro forma results are presented for informational purposes only and
are not necessarily indicative of what results of operations actually would have
been had such acquisitions been consummated at the beginning of such period or
of future operations or results. The effect of the other acquisition is
immaterial.
4. Dispositions
On March 1, 1996, the Company disposed of a 98-bed facility in Lynwood,
California resulting in a net loss of $182,000 charged against the reserve
established in the fourth quarter 1995.
5. Workers' Compensation Claims Trust
In 1995, the Company established a revocable workers' compensation
claims payment trust ("Trust") to pre-fund its workers' compensation
obligations. The Trust was funded in March 1996 with approximately $10.6 million
from available cash. At March 31, 1996, $3.9 million of the amount funded was
classified as current restricted cash and $6.7 million was classified as other
long-term assets.
6. Subsequent Events
On April 1, 1996, the Company completed the acquisition of the assets
of Buena Vista Nursing Center, a health care facility with 64 skilled nursing
beds and 22 assisted living beds, located in Lexington, North Carolina. The
purchase price was $2.875 million, consisting of $2.675 million in cash and a
$200,000 deferred note. Payment of the note is dependent upon certain financial
performance targets being achieved.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
General
The following table sets forth certain operating data for the Company
on the dates indicated:
<TABLE>
<CAPTION>
March 31,
1996 1995
<S> <C> <C>
---- ----
Long-term care operations...................................
Facilities............................................. 111 93
Licensed beds.......................................... 11,455 9,134
Subacute beds.......................................... 1,108 879
Subacute facilities.................................... 46 35
Contract rehabilitation therapy operations
Non-affiliated facilities served....................... 78 --
Regency operated facilities served..................... 34 --
------ -----
Total........................................ 112 --
====== =====
Pharmacy operations
Non-affiliated facilities served....................... 78
Regency operated facilities served..................... 53 34
------ ----
Total........................................ 131 39
====== ===
Home health operations
Visits per period...................................... 74,977 62,015
Hours per period....................................... 105,879 67,406
</TABLE>
Long-Term Care Operations
The Company's long-term care operations derive its net operating
revenue from the performance of routine and ancillary services at the Company's
facilities. Revenue from routine services is comprised of charges for room and
board and basic nursing services for the care of patients, including those in
the Company's subacute specialty units. Long-term care operations revenue from
ancillary services is comprised of charges for rehabilitative services, subacute
specialty services, and pharmaceutical products and services provided to
patients at the Company's facilities. The long-term care operations derive most
of its ancillary services revenue from Medicare and HMO eligible patients.
During the fourth quarter of 1995 the Company exchanged leasehold
interests in three healthcare facilities with 360 beds in New Mexico for
leasehold interests in four healthcare facilities with 461 beds in Ohio
previously operated by another company. In October 1995, the Company also opened
a newly constructed facility and disposed of one additional facility that was
not announced in 1994.
Effective December 31, 1995, the Company determined to dispose of 13
facilities located in California as part of its strategic plan of diversifying
from California. The results of operations of these facilities will continue to
be reflected in the Company's financial statements until the disposition is
completed, which is expected in 1996. Effective March 1, 1996, the Company
disposed of one of the thirteen facilities.
Effective February 1, 1996, the Company acquired 18 healthcare
facilities with 2,375 beds, 2 pharmacies and an enteral feeding business in
Tennessee and North Carolina, accounted for under the purchase method of
accounting (See Note 3 to the Consolidated Financial Statements).
Ancillary Businesses Operations
In July 1995, the Company acquired SCRS & Communicology, Inc. ("SCRS")
accounted for under the purchase method of accounting. SCRS provides
rehabilitation services to Company operated and third party healthcare
facilities in 14 states in the West, Midwest, and Southeast. In the first
quarter 1996, 72% of SCRS revenues were derived from providing services to
non-affiliated healthcare providers.
The Company's pharmacy operations provide prescription services and
basic pharmaceutical dispensing programs to Company and third party healthcare
facilities. During the first quarter of 1996 and 1995, 66% and 55%,
respectively, of revenues from pharmacy operations were derived from providing
services to non-affiliated healthcare providers and patients at Regency
facilities billed directly to third-party payors. In January and February of
1996, the Company acquired three additional pharmacy operations accounted for
under the purchase method of accounting.
The Company's home health operations provide skilled nursing,
rehabilitation and other services in selected areas in California and Ohio. The
Company has positioned its home healthcare capabilities to serve its facilities'
home health needs.
The Company's growth strategy includes the selective acquisition of
both new facilities as well as other service providers. The Company incurs
certain costs and operating inefficiencies in connection with the acquisition of
a new facility following such acquisition, relating to the integration of such
facility's financial and administrative systems, physical plant and other
aspects of its operations into those of the Company. In addition, the
introduction of a substantial portion of the Company's contract rehabilitation
therapy, pharmacy and other ancillary services to a new facility may take as
long as 12 months to fully implement. There can be no assurance that each of the
service providers the Company may acquire will be profitable, or that the
acquisition of new facilities that result in significant integration costs and
inefficiencies will not adversely affect the Company's profitability.
The acquisitions occurring in the first quarter 1996 will be
collectively referred to as the "1996 Acquisitions."
<PAGE>
Results of Operations
The following table sets forth the amounts of certain elements of net
operating revenue and the percentage of total net operating revenue for the
periods presented:
<TABLE>
<CAPTION>
Three months ended March 31,
1996 1995
<S> <C> <C> <C> <C>
(dollars in thousands)
Long term care - basic nursing............................. $66,547 51% $57,277 59%
Long term care - subacute and rehabilitation............... 41,544 32 31,326 32
--------- ----- --------- ----
Subtotal long term care............................... 108,091 83 88,603 91
Home health operations..................................... 8,692 6 6,913 7
Contract rehabilitation therapy operations to
non-affiliates (1).................................... 7,463 6 -- --
Pharmacy operations to non-affiliates (2).................. 4,726 4 1,532 2
Interest................................................... 990 1 500 0
--------- ----- --------- ----
Total................................................. $129,962 100% $ 97,548 100%
======== ==== ======== ====
(1) Net of intercompany billings of $2,928,000 for the three months ended March 31, 1996.
(2) Net of intercompany billings of $2,472,000 and $1,252,000 for the three months ended March 31, 1996 and 1995, respectively.
</TABLE>
The following table presents the percentage of net operating revenue
represented by certain items reflected in the Company's Consolidated Statements
of Operations for the three months ended March 31: <TABLE>
<S> <C> <C>
1996 1995
Net operating revenue........................................... 100.0% 100.0%
------ ------
Costs and expenses:
Operating expenses.............................................. 82.3 81.0
Corporate general and administrative............................ 4.0 5.4
Rent expense.................................................... 4.3 4.2
Depreciation and amortization................................... 2.4 2.3
Interest expense................................................ 3.3 2.0
----- -----
Total costs and expenses.................................... 96.3 94.9
----- -----
Income before provision for income taxes ...................... 3.7% 5.1%
====== ======
</TABLE>
<PAGE>
Quarter Ended Comparison 1996 to 1995
Net Operating Revenue
The Company's net operating revenue for the three months ended March 31,
1996 ("First Quarter 1996") was $130.0 million compared to $97.5 million for the
three months ended March 31, 1995 ("First Quarter 1995"), an increase of $32.5
million or 33.2%.
Net operating revenue from long-term care operations increased $19.5
million or 22.0% due to the 1996 acquisition of 18 long-term care facilities,
increased levels of reimbursement, and a shift in payor mix from Medicaid to
Medicare and managed care, partially offset by a slight decrease in total
patient days on a same store basis. Net operating revenue from the 1996
acquisition of 18 long-term care facilities for First Quarter 1996 was $12.6
million. On a same store basis, the average increase in reimbursement rates per
patient day was 8.1% and was primarily due to providing services to higher
acuity patients. The Company experienced a 0.3% net decrease in total patient
days in First Quarter 1996 from First Quarter 1995 on a same store basis,
consisting of a decrease of 8,114 and 6,781 from Medicaid and private and other
sources, respectively, and an increase of 5,379 and 7,614 from Medicare and
managed care, respectively.
Net operating revenue from home health operations grew $1.8 million or
25.7% in First Quarter 1996 over First Quarter 1995, primarily reflecting
additional patient visits and treatment hours. Pharmacy operations revenues
increased $3.2 million or 208.5% in First Quarter 1996 over First Quarter 1995,
primarily due to the acquisition of Assist-A-Care in January 1996 and Executive
Pharmacy in February 1996 (collectively, the "Pharmacy Acquisitions"). Net
operating revenue from the Pharmacy Acquisitions for First Quarter 1996 was $2.7
million. Net operating revenue from contract rehabilitation therapy operations
are a result of the purchase of SCRS in July 1995. The Company had no net
operating revenue from contract rehabilitation therapy operations in the First
Quarter 1995.
Interest income increased $0.5 million in First Quarter 1996 over First
Quarter 1995 due to investment of proceeds from the issuance of the 9-7/8%
Senior Subordinated Notes ("Subordinated Notes") in an aggregate amount of $110
million in October 1995.
Costs and Expenses
Total costs and expenses for First Quarter 1996 increased $32.6 million, or
35.3%, to $125.2 million (96.3% of net operating revenue) from $92.6 million
(94.9% of net operating revenue) for First Quarter 1995.
Operating expenses as a percentage of net operating revenue increased to
82.3% for First Quarter 1996, from 81.0% for First Quarter 1995. The increase is
a result of incurring increased labor costs while reimbursement rates per
patient day for room and board charges remained relatively flat. In addition,
the home health agency participating in the Medicare Prospective Pay System
pilot project beginning in 1996 did not adequately reduce costs at the outset of
this program.
Corporate general and administrative expense is the corporate overhead and
regional costs related to the supervision of operations. This expense decreased
as a percentage of net operating revenue to 4.0% for First Quarter 1996 from
5.4% in First Quarter 1995. The decrease as a percentage of revenues is
attributed to achieving economies of scale through acquisition and same store
growth.
Depreciation and amortization expense as a percentage of net operating
revenue increased to 2.4% in First Quarter 1996 from 2.3% in First Quarter 1995
primarily due to goodwill amortization related to the purchase of SCRS in July
1995 and Liberty in February 1996.
Interest expense as a percentage of net operating revenue increased to 3.3%
in First Quarter 1996 from 2.0% in First Quarter 1995 primarily due to the
Company issuing the Subordinated Notes partially offset by the repayment of the
Senior Secured Notes in October 1995.
Liquidity and Capital Resources
Working capital at March 31, 1996 decreased $51.0 million to $68.3 million
(including cash and cash equivalents of $34.0 million) from $119.3 million
(including cash and cash equivalents of $104.2 million) at December 31, 1995.
The decrease was primarily attributable to the 1996 Acquisitions. During the
First Quarter 1996, the Company funded approximately $16 million in receivables
primarily related to the deferral of Medicare and Medicaid billings until the
second quarter 1996 caused by delays in securing provider numbers for certain of
the 18 healthcare facilities acquired in the 1996 Acquisitions. In addition, the
Company established a revocable workers' compensation claims payment trust to
pre-fund its workers' compensation obligations which was funded in March 1996
with approximately $10.6 million from available cash. Of the amount funded, $3.9
million is classified as current restricted cash and $6.7 million is classified
as other long-term assets as of March 31, 1996 (See Note 5 to the Consolidated
Financial Statements).
The Company's major requirements for liquidity relate to funding working
capital, capital improvements and debt service obligations. The Company must
also provide funding to cover potential delays, temporary cessations or
interruption in payments by third-party payors due to political or budgetary
constraints. Management believes that these liquidity needs can be met from
available cash, internally generated funds and existing borrowing capacity under
the NationsBank credit agreement (discussed below).
The Company's capital expenditures for the three months ended March 31,
1996 and 1995 were approximately $2.6 million and $4.1 million, respectively.
These capital expenditures have been financed through a combination of
internally generated funds and debt. The Company expects to spend approximately
$13.0 million for capital expenditures during 1996. The Company's healthcare
facilities require capital improvements for renovations and improvements in
physical appearance. In addition, capital improvements may be required in the
future as a result of routine regulatory inspections.
The Company has financed its acquisitions from a combination of borrowings
and funds generated by operations. The Company expects to finance future
acquisitions from a combination of existing cash, the NationsBank credit
facility, and alternative sources such as real estate investment trusts.
Depending on the numbers, size and timing of any such transactions, the Company
may in the future require additional financing in order to continue to make
acquisitions.
Periodically, the Company has funded temporary delays in reimbursement from
third-party payors. For example, in July 1995, the State of California, due to
budgetary constraints, delayed payment of significant amounts owed to healthcare
providers under the Medi-Cal program. In 1992, the State of California
reimbursed providers with registered warrants, which some banks temporarily
refused to redeem at face value. The Company has been able to mitigate the
effects of such payment delays by monitoring the related activities of the
California legislature, expediting billings through its direct access electronic
billing arrangement, and obtaining the agreement of creditors to extend the due
date for payables. The Company has not recently experienced any material adverse
effects on its liquidity as a result of such delays. There can be no assurance,
however, that the Company will be able to mitigate the effects of any future
funding delays by the State of California or other third-party payors.
On December 28, 1995 the Company entered into a revolving credit loan
agreement ("Credit Agreement") with NationsBank of Texas, N.A. as agent for a
group of banks, which provides up to $50,000,000 in a revolving line of credit
and letters of credit. As of April 30, 1996, no borrowings have been drawn on
the Credit Agreement and approximately $9,000,000 of standby letters of credit
have been issued in connection with the Company's self-insured workers'
compensation programs. Seasonality
The Company's income from operations before fixed charges generally
fluctuates from quarter to quarter. The fluctuation is related to several
factors: the timing of Medicaid rate increases, seasonal census cycles, and the
number of calendar days in a given quarter. As a result, the Company's income
from operations before fixed charges tends to be higher in its third and fourth
quarters when compared to the first and second quarters.
Impact of Inflation
The healthcare industry is labor intensive. Wages and other labor costs are
especially sensitive to inflation. Increases in wages and other labor costs as a
result of inflation, or increases in federal or state minimum wages without a
corresponding increase in Medicare and Medicaid reimbursement rates, could
adversely impact the Company.
Reimbursement
The majority of the Company's net operating revenue is derived from
services provided under the Medicare and Medicaid programs. Numerous proposals
relating to healthcare reform have been or may be introduced in the United
States Congress, state legislatures or by governmental agencies who regulate the
Medicare and Medicaid programs. It is uncertain what reform will ultimately be
enacted by the federal government, any state government or governmental agencies
and therefore, the Company cannot predict at this time the impact on the Company
of any proposed reforms.
As discussed above, the Company provides contract rehabilitation and
pharmacy services to both Regency operated and non-affiliated facilities. Under
current Medicare regulations, reimbursement for these services provided to
Medicare eligible patients in Regency facilities is based upon the related
entity's cost to provide the services unless a significant portion of the
related entity's revenues is derived from non-affiliated facilities. If a
significant portion of the related entity's revenues is derived from
non-affiliated facilities, Medicare will reimburse the facility's cost, which
includes a profit paid to the related entity. During 1995 and prior years, the
Company was reimbursed by Medicare based on its pharmacy operation costs on
billings to Regency facilities, as it did not meet the significant portion
criteria. After the acquisition of Assist-A-Care Pharmacy and Executive Pharmacy
in 1996, the Company believes it meets the "significant portion" criteria and
began recording a profit on billings for pharmacy services provided to Medicare
eligible patients in Regency facilities. The Company believes it meets the
"significant portion" criteria for its contract rehabilitation therapy
operations provided by SCRS, and therefore has recorded a profit on billings to
Regency facilities since the acquisition of SCRS. Medicare regulations do not
define a "significant portion," therefore, the Company's and Medicare's
interpretations could differ, which could result in retroactive adjustments
related to the profit on billings to Regency facilities for pharmacy and
contract rehabilitation services.
In the recently enacted federal budget deficit reduction bill, various
reimbursement rules and regulations were adopted by the federal government that
pertain to the Company. The recently effective changes to regulations
promulgated under OBRA, some of which expand the remedies available to enforce
regulations mandating minimum healthcare standards, may have an adverse effect
on the Company's operations. The Company is unable to predict the particular
effect on the Company until the manner in which these regulations is implemented
becomes known.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings.
None
Item 6. Exhibits and Reports on Form 8-K.
1) The Company filed a current report on Form 8-K, dated February 15,
1996, which reported under Item 2 the acquisition of (i) 18 skilled
long-term care facilities from Liberty Healthcare Limited Partnership,
(ii) an enteral feeding business from Liberty Assisted Living Center
Limited Partnership, and (iii) Executive Pharmacy Services, Inc.
effective February 1, 1996.
2) The Company filed a Current Report on Form 8-K/A, dated April 12, 1996,
which amended the Form 8-K dated February 15, 1996, and provided
financial statements and exhibits required under Item 7.
<PAGE>
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.
REGENCY HEALTH SERVICES, INC.
BRUCE D. BROUSSARD
By:_____________________________________________________
Bruce D. Broussard
Executive Vice President and Chief Financial Officer
Date: June 24, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<CASH> 33,955
<SECURITIES> 0
<RECEIVABLES> 75,759
<ALLOWANCES> 4,259
<INVENTORY> 0
<CURRENT-ASSETS> 132,600
<PP&E> 167,064
<DEPRECIATION> 36,965
<TOTAL-ASSETS> 354,306
<CURRENT-LIABILITIES> 64,348
<BONDS> 184,148
0
0
<COMMON> 167
<OTHER-SE> 83,292
<TOTAL-LIABILITY-AND-EQUITY> 354,306
<SALES> 0
<TOTAL-REVENUES> 129,962
<CGS> 0
<TOTAL-COSTS> 106,967
<OTHER-EXPENSES> 8,782
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,327
<INCOME-PRETAX> 4,760
<INCOME-TAX> 2,023
<INCOME-CONTINUING> 2,737
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,737
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
