SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the 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:
Commission file number 0-19411
SUMMIT CARE CORPORATION
(Exact name of Registrant as specified in its charter)
California 95-3656297
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2600 W. Magnolia Blvd.
Burbank, California 91505-3031
(address of principal executive offices)
(818) 841-8750
(Registrant's telephone number, including area code)
Indicate by checkmark whether the Registrant (1) has filed all reports requir-
ed 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 Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by checkmark whether the Registrant (1) has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares of Registrant's common stock outstanding at March 31, 1996 --
6,765,800
<PAGE>
SUMMIT CARE CORPORATION
FORM 10-Q
Quarter Ended
March 31, 1996
TABLE OF CONTENTS
Page of
Form 10-Q
---------
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
PART I
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Net revenues $ 45,232 $ 37,077 $129,303 $ 97,921
Expenses:
Salaries and benefits 19,934 17,195 57,651 45,525
Supplies 4,443 4,057 13,432 11,122
Purchased services 10,713 5,983 26,679 15,751
Provision for doubtful accounts 694 357 1,445 901
Other expenses 3,154 2,626 9,073 7,272
Rental 664 601 1,977 1,601
Depreciation and amortization 1,634 1,482 4,714 3,776
Interest (net of interest income,
$142 and $405 in 1996 and $94
and $401 in 1995, respectively) 1,919 1,613 4,931 3,247
-------- -------- -------- --------
43,155 33,914 119,902 89,195
-------- -------- -------- --------
Income before provision for
income taxes 2,077 3,163 9,401 8,726
Provision for income taxes 750 1,262 3,672 3,482
-------- -------- -------- --------
Net income $ 1,327 $ 1,901 $ 5,729 $ 5,244
======== ======== ======== ========
Earnings per share $ .19 $ .28 $ .83 $ .77
======== ======== ======== ========
Weighted average number
of shares of common
stock outstanding 6,849 6,849 6,886 6,836
======== ======== ======== ========
</TABLE>
See accompanying notes
<PAGE>
SUMMIT CARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
-------------- -------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 958 $ 3,101
Accounts receivable, less allowance for
doubtful accounts: March 1996 - $1,281;
June 1995 - $989 29,463 20,336
Supplies inventory, at cost 2,052 2,176
Other current assets 9,772 4,570
------ ------
Total current assets 42,245 30,183
Property and equipment, at cost:
Land and land improvements 15,480 13,653
Buildings and leasehold improvements 133,468 123,723
Furniture and equipment 17,280 14,967
Construction in progress 11,686 8,868
------- -------
177,914 161,211
Less accumulated depreciation and amortization 20,358 16,999
------- -------
157,556 144,212
Notes receivable 3,930 4,460
Other assets 8,639 5,625
-------- --------
$212,370 $184,480
======== ========
</TABLE>
NOTE: The balance sheet at June 30, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
See accompanying notes
(Continued)
<PAGE>
SUMMIT CARE CORPORATION
CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands)
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
-------------- -------------
(Unaudited) (Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Payable to bank $ 3,855 $ 2,972
Accounts payable 16,681 10,972
Employee compensation and benefits 2,647 4,008
Deferred income taxes, current 1,086 1,061
Long-term debt due within one year 2,983 1,009
------- -------
Total current liabilities 27,252 20,022
Long-term debt 103,628 88,779
Deferred income taxes 1,866 1,866
-------- --------
Total liabilities 133,374 110,667
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 2,000
authorized shares, none issued -- --
Common stock, no par value, 100,000 authorized
shares; 6,766 and 6,759 issued and outstanding,
respectively 51,404 51,322
Retained earnings 28,220 22,491
-------- --------
Total shareholders' equity 79,624 73,813
-------- --------
$212,370 $184,480
======== ========
</TABLE>
NOTE: The balance sheet at June 30, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
See accompanying notes
<PAGE>
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
Operating activities:
Net income $5,729 $5,244
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 4,714 3,776
(Increase) in accounts receivable, net ( 9,127) (4,984)
Decrease (increase) in supplies inventory 124 ( 665)
(Increase) in other assets ( 8,411) (3,289)
Increase in accounts payable 5,709 2,760
(Decrease) increase in employee compensation
and benefits ( 1,361) 594
Increase in deferred income tax liability 25 93
------- -------
Total adjustments ( 8,327) ( 1,715)
------- -------
Net cash (used) provided by operating activities ( 2,598) 3,529
------- -------
Investing activities:
Principal payments of notes receivable, net 503 7
Additions to property and equipment (17,836) ( 6,208)
Acquisitions of nursing centers -- (69,660)
Additions to other assets -- ( 3,279)
------- -------
Net cash (used) in investing activities (17,333) (79,140)
Financing activities:
Increase in payable to bank 883 1,582
Principal payments on long-term debt (49,677) ( 341)
Proceeds from long-term debt 66,500 58,332
Expenses on sale of common stock -- ( 186)
Proceeds from exercise of stock options 82 44
------- -------
Net cash provided by financing activities 17,788 59,431
------- -------
(Decrease) in cash and cash equivalents ( 2,143) (16,180)
Cash and cash equivalents at beginning of year 3,101 21,613
------- -------
Cash and cash equivalents at end of the period $ 958 $ 5,433
======== =======
</TABLE>
<PAGE>
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,553 $ 3,080
Income taxes 3,653 3,575
</TABLE>
See accompanying notes
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands)
1. The unaudited financial information included herein, in the opinion of
management, reflects all adjustments (all of which are of a normal
recurring nature), which are considered necessary to fairly state the
Company's financial position, its cash flows and the results of
operations. These statements do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements and should be read in conjunction with
the Company's annual report filed on Form 10-K for the year ended June
30, 1995. The interim financial information herein is not necessarily
representative of that to be expected for a full year.
2. Certain amounts have been reclassified to conform with fiscal 1996
presentations.
3. Earnings per share are based on the weighted average number of shares of
common stock outstanding, which was 6,886 for the nine months ended March
31, 1996 and 6,836 for the nine months ended March 31, 1995.
4. Other current assets consist of the following:
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
-------------- -------------
<S> <C> <C>
Prepaid expenses $ 1,735 $ 1,008
Due from third-party payor 5,257 804
Notes receivable 667 640
Other receivables 2,113 2,118
------- -------
$ 9,772 $ 4,570
======= =======
</TABLE>
<PAGE>
SUMMIT CARE CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands)
Results of Operations
Quarter Ended March 31, 1996 Compared to Quarter Ended March 31, 1995
Revenues increased by $8,155, or 22.0%, from $37,077 for the
quarter ended March 31, 1995 to $45,232 for the quarter ended March 31, 1996.
This increase occurred due to increases in census days and rates (35.1%), to
increased use of rehabilitative and other specialty services (60.0%) and to
increased pharmacy operations (4.9%). Average occupancy decreased to 84.7%
in the quarter ended March 31, 1996, from 85.8% in the quarter ended March 31,
1995. Average occupancy was 86.0% excluding the effect of newly constructed
beds added during the quarter ended March 31, 1996. The Company's quality mix
(revenues from Medicare, managed care and private pay patients as a percentage
of gross revenues excluding pharmacy revenues) was 68.6% in the quarter ended
March 31, 1996 and 62.1% in the quarter ended March 31, 1995.
Expenses, consisting of salaries and benefits, supplies, purchased
services, provision for doubtful accounts and other as a percent of revenues
increased from 81.5% of revenues in the quarter ended March 31, 1995 to 86.1%
in the quarter ended March 31, 1996. Total salaries and employee related
benefits were 44.1% of revenues in the quarter ended March 31, 1996 compared
to 46.4% of revenues in the quarter ended March 31, 1995. Expenses increased
$8,720 or 28.9% from $30,218 in the quarter ended March 31, 1995 to $38,938
in the quarter ended March 31, 1996. Of the increase in expenses in the
quarter ended March 31, 1996 compared with the same period a year ago,
salaries and benefits represent 31.4%, rehabilitative and other specialty
service costs represent 54.6%, this increase being due to greater utilization
of such services and other expenses represent 14.0%.
Income before rental, depreciation and amortization and interest
expense, net of interest income, decreased $565 or 8.2% from $6,859 in the
quarter ended March 31, 1995 to $6,294 in the quarter ended March 31, 1996 and
was 13.9% of revenues in the quarter ended March 31, 1996 compared to 18.5%
in the quarter ended March 31, 1995.
Rental, depreciation and amortization and interest expense, net of
interest income, increased by $521 or 14.1% from $3,696 in the quarter ended
March 31, 1995 to $4,217 in the quarter ended March 31, 1996. Of this
increase, interest expense represents 58.7% and is due to an increase in the
average outstanding long-term debt during the three months ended March 31,
1996 compared to the same period last year.
The Company's effective tax rate was 36.1% of income in the quarter
ended March 31, 1996 compared to 39.9% for the quarter ended March 31, 1995.
Net income after taxes decreased $574 or 30.2% from $1,901 in the quarter
ended March 31, 1995 to $1,327 in the quarter ended March 31, 1996.
<PAGE>
SUMMIT CARE CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands)
Results of Operations
Nine Months Ended March 31, 1996 Compared to Nine Months Ended
March 31, 1995
Revenues increased $31,382 or 32.1% from $97,921 for the nine months ended
March 31, 1995 to $129,303 for the nine months ended March 31, 1996. This
increase occurred primarily due to acquisitions (42.2%), increases in census
days and rate increases (24.7%), increased use of rehabilitative and other
specialty services (28.7%) and increased pharmacy operations (4.4%). Average
occupancy was 86.2% in the nine months ended March 31, 1996, as compared to
85.5% in the nine months ended March 31, 1995 including acquisitions.
Excluding acquisitions and newly constructed beds, the average occupancy was
89.8% in the nine months ended March 31, 1996. The company's quality mix
(revenues from Medicare, managed care and private pay patients as a
percentage of gross revenues excluding pharmacy revenues) was 66.0% in the
nine months ended March 31, 1996 and 62.7% in the nine months ended March 31,
1995.
Expenses, consisting of salaries and benefits, supplies, purchased services,
provision for doubtful accounts and other as a percent of revenues increased
from 82.3% of revenues in the nine months ended March 31, 1995 to 83.7% in the
nine months ended March 31, 1996. Total salaries and employee related
benefits were 44.6% of revenues in the nine months ended March 31, 1996
compared to 46.5% of revenues in the nine months ended March 31, 1995.
Expenses increased $27,709 or 34.4% from $80,571 in the nine months ended
March 31, 1995 to $108,280 in the nine months ended March 31, 1996.
Acquisitions represent 37.7% of this increase, salaries and benefits
represent 21.2%, rehabilitative and other specialty service
costs represent 30.3% this increase being due to greater utilization of such
services and other expenses increased 10.8%.
Income before rental, depreciation and amortization and interest expense,
net of interest income, increased $3,673 or 21.2% from $17,350 in the nine
months ended March 31, 1995 to $21,023 in the nine months ended March 31, 1996
and was 16.3% of revenues in the nine months ended March 31, 1996 compared
to 17.7% in the nine months ended March 31, 1995.
Rental, depreciation and amortization and interest expense, net of interest
income, increased by $2,998 or 34.8% from $8,624 in the nine months ended
March 31, 1995 to $11,622 in the nine months ended March 31, 1996.
Substantially all of this increase was due to depreciation and amortization,
rent and interest expense related to new acquisitions.
The Company's effective tax rate was 39.1% of income in the nine months
ended March 31, 1996 and 39.9% of income in the nine months ended March 31,
1995. Net income after taxes increased $485 or 9.25% from $5,244 in the nine
months ended March 31, 1995 to $5,729 in the nine months ended March 31, 1996.
<PAGE>
SUMMIT CARE CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont.)
Selected Statistics are Shown Below:
<TABLE>
<CAPTION>
Fiscal
Increase
1996 1995 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Facilities in Operation at:
September 30 37 25 12
December 31 37 37 0
March 31 38 37 1
Total beds at:
September 30 4,762 3,258 1,504
December 31 4,762 4,688 74
March 31 4,886 4,688 198
Total occupancy:
First quarter 87.2% 84.4% 2.8 %
Second quarter 86.8% 85.9% .9 %
Third quarter 84.7% 85.8% (1.1)%
Nursing center occupancy:
First quarter 88.2% 85.7% 2.5 %
Second quarter 87.6% 86.9% .7 %
Third quarter 85.5% 86.6% (1.1)%
Assisted living center occupancy:
First quarter 78.7% 76.5% 2.2 %
Second quarter 79.3% 78.0% 1.3 %
Third quarter 77.6% 78.7% (1.1)%
Percentage of revenues from
Private and Medicare:
First quarter 64.0% 64.3% (.3)%
Second quarter 65.0% 62.2% 2.8 %
Third quarter 68.6% 62.1% 6.5 %
Percentage of revenues from
Medicaid:
First quarter 36.0% 35.7% .3 %
Second quarter 35.0% 37.8% (2.8)%
Third quarter 31.4% 37.9% (6.5)%
</TABLE>
<PAGE>
SUMMIT CARE CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont.)
(Dollars in thousands)
Liquidity and Capital Resources
At March 31, 1996, the Company had $958 in cash and cash equivalents and
working capital of $15,093. During the nine months ended March 31, 1996,
the Company's cash and cash equivalents decreased by $2,143.
Net cash provided by operating activities decreased $6,127 from $3,529 in
the nine months ended March 31, 1995 to a negative $2,598 in the nine months
ended March 31, 1996. Net cash provided by loan proceeds of $55,000, coupled
with an $11,500 draw on the line of credit, offset by loan repayments of
$49,677 during the nine months ended March 31, 1996 was used principally for
capital expenditures of $17,836 for existing centers.
Accounts receivable increased $9,127 primarily as a result of increased
rehabilitative and other specialty medical services, lower collection activity
results and increased billings to slow paying managed care organizations and
to Medicare. At March 31, 1996, the Company's average accounts receivable
days outstanding were 39 as compared to 30 days outstanding at March 31, 1995.
Long-term debt consisted of mortgage indebtedness of $8,776, $15,835 on
six capitalized leases and $82,000 in senior secured notes totaling $106,611
as of March 31, 1996.
The Company believes that it has sufficient capital resources and cash flow
from its existing operations to service long-term debt due within one year
of $2,983, to make normal recurring capital additions and improvements
(approximately $7,500 is planned over the next 12 months), to develop
properties (approximately $14,000 is planned over the next 12 months) and to
meet other working capital needs for the next 24 months. The Company expects,
on a selective basis, to pursue expansion of its existing centers and the
acquisition or development of additional centers in markets where demo-
graphics and competitive factors are favorable. The Company with
a group of private investors and its banks has amended the indenture for its
$25,000 Senior Secured Notes ("Current Notes") to allow the Company to sell
$70,000 in Senior Secured Notes ("New Notes") and amended its bank line of
credit to reduce the line to $40,000. Holders of the Current Notes and the
New Notes and the Company's bank lenders have entered into a collateral
sharing agreement providing a security interest in certain real estate on a
pari passu basis and a negative pledge on accounts receivable and on shares
in the Company's wholly-owned subsidiary, Skilled Care Pharmacy. Proceeds of
$55,000 were received in December 1995 from the issuance of the New Notes.
The proceeds were used to pay issuance costs of $1,714 and to pay off bank
debt of $49,000. The balance of the proceeds, along with another $15,000 of
New Notes to be issued in July 1996, will be used to finance future
acquisitions and constructions projects.
<PAGE>
SUMMIT CARE CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont.)
(Dollars in thousands)
The New Notes are payable at the end of the fifth year ($7,000), the end of
the sixth year ($5,000), semi-annually from the eighth year through the
twelfth year ($48,000) and at the end of the fifteenth year ($10,000). The
annual interest rate on the New Notes is fixed ranging from 7.4% on the
earliest maturing New Note to 8.1% on the last New Note to mature and averages
7.8% when weighted. The terms of the bank credit agreement remain essentially
the same except the term period after the two year revolving period is reduced
from four years to three years and the interest rate margin over the
Eurodollar rate has been lowered.
Impact of Inflation
The health care industry is labor intensive. Wages and other expenses
increase more rapidly during periods of inflation and when shortages in the
labor market occur. In addition, suppliers pass along rising costs in the
form of higher prices. Increases in reimbursement rates under Medicaid
generally lag behind actual cost increases, so that the Company may have
difficulty covering them in a timely fashion.
<PAGE>
PART II
SUMMIT CARE CORPORATION
OTHER INFORMATION
Quarter Ended
March 31, 1996
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
NONE
(b) Reports on Form 8-K
NONE
SUMMIT CARE CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
there unto duly authorized.
SUMMIT CARE CORPORATION
Date: May 13, 1996 By: S/DERWIN L. WILLIAMS
--------------------
Derwin L. Williams
Sr.Vice President-Finance
Chief Financial Officer
Date: May 13, 1996 By: S/MELODYE STOK
--------------------
Melodye Stok
Vice President-Controller
Chief Accounting Officer
