<PAGE> 1
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 December 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
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
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
December 31, 1996 -- 6,772,800
<PAGE>
SUMMIT CARE CORPORATION
FORM 10-Q
Quarter Ended December 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page of
Form 10-Q
---------
<S> <C>
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 10
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
<PAGE>
PART I
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net revenues $ 46,181 $ 42,801 $ 95,088 $ 84,071
Expenses:
Salaries and benefits 22,309 19,147 43,386 37,717
Supplies 5,337 4,510 10,381 8,989
Purchased services 12,237 8,529 24,144 15,966
Provision for doubtful accounts 721 401 967 751
Other expenses 2,824 3,100 6,258 5,919
Rental 713 655 1,410 1,313
Depreciation and amortization 1,840 1,559 3,632 3,080
Interest (net of interest income,
$179 and $393 in 1996 and $126
and $262 in 1995, respectively) 1,934 1,500 4,057 3,012
------ ------ ------ ------
47,915 39,401 94,235 76,747
------- ------- ------- ------
Income (loss) before provision for
income taxes (1,734) 3,400 853 7,324
Provision (benefit) for income taxes (685) 1,357 337 2,922
----- ----- ----- ------
Net income (loss) $(1,049) $ 2,043 $ 516 $ 4,402
======= ======= ======= =======
Earnings (loss) per share $( .15) $ .30 $ .08 $ .64
======= ======= ======= =======
Weighted average number
of shares of common
stock outstanding 6,841 6,898 6,854 6,895
======= ======= ======= =======
</TABLE>
See accompanying notes
<PAGE>
SUMMIT CARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1996
(Unaudited) (Note)
----------------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,632 $ 2,658
Accounts receivable, less allowance for
doubtful accounts: December 1996 - $2,337;
June 1996 - $2,084 32,957 27,930
Supplies inventory, at cost 2,124 2,058
Other current assets 14,939 13,032
------ ------
Total current assets 51,652 45,678
Property and equipment, at cost:
Land and land improvements 17,163 16,018
Buildings and leasehold improvements 145,928 136,907
Furniture and equipment 21,032 18,668
Construction in progress 14,562 15,043
------- -------
198,685 186,636
Less accumulated depreciation
and amortization 25,196 21,713
------- -------
173,489 164,923
Notes receivable 4,682 4,845
Other assets 9,191 7,606
------- -------
$239,014 $223,052
======== ========
</TABLE>
NOTE: The balance sheet at June 30, 1996 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>
December 31, 1996 June 30, 1996
(Unaudited) (Note)
----------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Payable to bank $ 2,936 $ 4,165
Accounts payable 26,700 19,895
Employee compensation and benefits 4,032 3,738
Income taxes payable -- 989
Long-term debt due within one year 2,866 2,985
------- -------
Total current liabilities 36,534 31,772
Long-term debt 118,073 107,389
Deferred income taxes 2,605 2,605
------- -------
Total liabilities 157,212 141,766
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, 6,775 and 6,773 issued
and outstanding, respectively 51,486 51,486
Retained earnings 30,316 29,800
------- -------
Total shareholders' equity 81,802 81,286
------- -------
$239,014 $223,052
======== ========
</TABLE>
NOTE: The balance sheet at June 30, 1996 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>
<CAPTIVE>
Six Months Ended
December 31,
1996 1995
---- ----
Operating activities:
<S> <C> <C>
Net income $ 516 $ 4,402
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 3,632 3,080
(Increase) in accounts receivable, net (5,027) (6,622)
(Increase) decrease in supplies inventory (66) 93
(Increase) in other assets (1,602) (7,332)
Increase in accounts payable 6,805 6,134
Increase (decrease) in employee compensation
and benefits 294 (1,317)
(Decrease) increase in income taxes payable ( 989) 265
----- -----
Total adjustments 3,047 (5,699)
----- ------
Net cash provided by (used in)
operating activities 3,563 (1,297)
----- -----
Investing activities:
Issuance of notes receivable (550) --
Principal payments of notes receivable 253 301
Additions to property and equipment (12,049) (11,342)
Investment in limited liability company (1,579) --
------ ------
Net cash (used in) investing activities (13,925) (11,041)
------ ------
Financing activities:
(Decrease) increase in payable to bank (1,229) 414
Principal payments on long-term debt (8,435) (49,444)
Proceeds from long-term debt 19,000 64,500
Proceeds from exercise of stock options -- 82
------ ------
Net cash provided by financing activities 9,336 15,552
------ ------
(Decrease) increase in cash and cash equivalents (1,026) 3,214
Cash and cash equivalents at beginning of year 2,658 3,101
------ ------
Cash and cash equivalents at end of the period $ 1,632 $ 6,315
======= =======
</TABLE>
<PAGE>
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTIVE>
Six Months Ended
December 31,
1996 1995
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 5,161 $ 2,362
Income taxes 1,654 1,585
</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 except for a special charge recorded in December 1996, see Note 6.),
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 June 30,
1996. 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 6,854 for the six months ended
December 31, 1996 and 6,895 for the six months ended December 31, 1995.
4. Other current assets consist of the following:
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1996
----------------- -------------
<S> <C> <C>
Due from third-party payors $ 7,466 $ 8,055
Deferred tax assets 2,137 1,810
Notes receivable 1,132 672
Prepaid expenses 2,602 952
Other receivables 1,602 1,543
------ ------
$14,939 $13,032
======= =======
5. In July 1996, the Company issued $15 million Senior Secured Notes
("Notes") which represented the second and last issuance of $70 million of
Notes. The first issuance of $55 million occurred in December 1995. The
second series of notes have the same terms as the first series except that
the interest rates are 0.05% higher than the fixed rates for the first series
of notes. The proceeds from the July 1996 Notes were used to repay $6,000 in
bank credit line loans and the balance of $9,000 was invested in short-term,
high credit quality financial instruments. There are currently $4,000
in outstanding bank credit line loans.
In July 1996, the Company exercised a purchase option in its lease of a
90-bed skilled nursing care center in Rockport, Texas. The purchase price
of $2,022 was financed with funds from the Notes issued in July 1996 (see
above). In August 1996, the Company opened its 210-bed skilled nursing care
center in White Settlement (Fort Worth), Texas and opened 51 additional beds
at its skilled nursing care center in Fresno, California, which initially
opened in January 1996 with 108 beds.
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(Unaudited)
(In thousands)
In December 1996, the Company entered into a limited liability company
("LLC") agreement to operate a pharmacy in Austin, Texas. The purchase
price for its 50% membership interest was $1,579 in cash. The pharmacy will
service nursing centers in Texas operated by either the Company, the other
LLC member or non-affiliated nursing center owners.
6. In December 1996, the Company recorded a special charge of $4,000 against
revenues as a result of adjustments proposed by Medicare in connection with
an audit of fiscal 1995 completed in the quarter ended December 31, 1996,
which would have an effect on revenues for that fiscal year, fiscal 1996 and
the six months ending December 31, 1996.
7. In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed Of"
("SFAS 121"), was issued. SFAS 121 requires impairment losses to be
recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. SFAS
121 also addresses the accounting for long-lived assets that are expected to
be disposed of. The Company believes, based on current circumstances,
that there are no indicators of impairment to its long-lived assets, and
the Company presently has no expectations for disposing of any long-lived
assets.
8. Recent Accounting Pronouncement: In October 1995, Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), was issued which, if elected, would require companies to use a
new fair value method of valuing stock-based compensation plans. The Company
has elected to continue following present accounting rules under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
which uses an intrinsic value method and often results in no compensation
expense. However, at the end of fiscal year 1997, in accordance with SFAS
123, the Company will provide pro forma disclosure of what net income and
earnings per share would have been had the new fair value method been used.
<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 December 31, 1996 Compared to Quarter Ended December 31, 1995
Net revenues increased $3,380 or 7.9% from $42,801 for the quarter ended
December 31, 1995 to $46,181 for the quarter ended December 31, 1996. The
increase occurred due to the following:
</TABLE>
<TABLE>
<CAPTION>
Amount Percent
------ -------
<S> <C> <C>
1. Rehabilitative and other specialty services $1,433 42.4%
2. New beds opened in fiscal years 1996 and 1997 3,497 103.5
3. Increased census days and revenue rates 1,715 50.7
4. Pharmacy operations 735 21.7
5. Special Charge to Medicare revenues (4,000) (118.3)
----- -----
$3,380 100.0%
====== ======
</TABLE>
The special charge to Medicare revenues reflects the result of adjustments
proposed by Medicare in connection with an audit of fiscal 1995, which would
have an effect on revenues for that fiscal year, fiscal 1996 and the six
months ending December 31, 1996. Average occupancy was 84.4% in the second
quarter ended December 31, 1996 and 85.5% in the second quarter ended
December 31, 1995. Excluding newly constructed beds, the average occupancy
was 86.8% in the second quarter ended December 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 69.5% in the
second quarter ended December 31, 1996 and 65.0% in the second quarter ended
December 31, 1995.
Expenses, consisting of salaries and benefits, supplies, purchased services,
provision for doubtful accounts and other as a percent of net revenues,
before the effect of the special charge, increased from 83.4% of net
revenues in the second quarter ended December 31, 1995 to 86.5% in the
second quarter ended December 31, 1996. Total salaries and employee related
benefits were 44.5% of net revenues in the second quarter ended December 31,
1996 compared to 44.7% of net revenues, before the effect of the special
charge, in the second quarter ended December 31, 1995. Purchases of
rehabilitative and other specialty services were 19.8% of net revenues,
before the effect of the special charge, in the second quarter ended
December 31, 1996 compared to 17.5% of net revenues in the same period last
year. Expenses increased $7,741 or 21.7%
<PAGE>
SUMMIT CARE CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont.)
from $35,687 in the second quarter ended December 31, 1995 to $43,428 in the
second quarter ended December 31, 1996 for the following reasons:
<TABLE>
<CAPTION>
Amount Percent
------ -------
<S> <C> <C>
1. Rehabilitative and other specialty services $2,473 32.0%
2. Expenses relating to new beds opened
in fiscal years 1996 and 1997 3,264 42.2
3. Salaries and benefits 1,791 23.1
4. Other expenses 213 2.7
----- ----
$7,741 100.0%
====== =====
</TABLE>
Income before rental, depreciation and amortization and interest expense,
net of interest income, decreased $4,361 or 61.3% from $7,114 in the second
quarter ended December 31, 1995 to $2,753 in the second quarter ended
December 31, 1996 and was 6.0% of net revenues in the second quarter ended
December 31, 1996 (and 13.5% of net revenues before the special charge to
revenues) compared to 16.6% in the second quarter ended December 31, 1995.
Rental, depreciation and amortization and interest expense, net of interest
income, increased by $773 or 20.8% from $3,714 in the second quarter ended
December 31, 1995 to $4,487 in the second quarter ended December 31, 1996.
The increase was due primarily to interest expense related to higher long-
term debt of $16,095.
The Company's effective tax rate was 39.5% of income in the second quarter
ended December 31, 1996 and 39.9% of income in the second quarter ended
December 31, 1995. There was a net loss of $1,049 in the second quarter
ended December 31, 1996, including $2,420 for the special charge described
earlier. Net income after taxes before the special charge, decreased $672
or 32.9% from $2,043 in the second quarter ended December 31, 1995 to $1,371
in the second quarter ended December 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
- ---------------------
Six Months Ended December 31, 1996 Compared to Six Months Ended
December 31, 1995
Net revenues increased $11,017 or 13.1% from $84,071 for the six months
ended December 31, 1995 to $95,088 for the six months ended December 31,
1996. The increase occurred due to the following:
<TABLE>
<CAPTION>
Amount Percent
------ -------
<S> <C> <C>
1. Rehabilitative and other specialty services $4,657 42.3%
2. New beds opened in fiscal years 1996 and 1997 5,919 53.7
3. Increased census days and revenue rates 3,101 28.1
4. Pharmacy operations 1,340 12.2
5. Special charge to Medicare revenues (4,000) (36.3)
----- -----
$11,017 100.0%
======= =====
</TABLE>
The special charge to Medicare revenues reflects the result of adjustments
proposed by Medicare in connection with an audit of fiscal 1995, which would
have an effect on revenues for that fiscal year, fiscal 1996 and the six
months ending December 31, 1996. Average occupancy was 84.0% in the six
months ended December 31, 1996 and 86.3% in the six months ended December
31, 1995. Excluding newly constructed beds, the average occupancy was 86.6%
in the six months ended December 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 69.7% in the
six months ended December 31, 1996 and 64.5% in the six months ended
December 31, 1995.
Expenses, consisting of salaries and benefits, supplies, purchased services,
provision for doubtful accounts and other as a percent of net revenues,
before the effect of the special charge, increased from 82.5% of net revenues
in the six months ended December 31, 1995 to 85.9% in the six months ended
December 31, 1996. Total salaries and employee related benefits were 43.8%
of net revenues, before the effect of the special charge, in the six months
ended December 31, 1996 compared to 44.9% of net revenues in the six months
ended December 31, 1995. Purchases of rehabilitation and other specialty
services were 20.0% of net revenues, before the effect of the special charge,
in the period ending December 31, 1996 compared with 16.5% of the net
<PAGE>
SUMMIT CARE CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont.)
revenues in the same period last year. Expenses increased $15,794 or 22.8%
from $69,342 in the six months ended December 31, 1995 to $85,136 in the six
months ended December 31, 1996 for the following reasons:
<TABLE>
<CAPTION>
Amount Percent
------ -------
<S> <C> <C>
1. Rehabilitative and other specialty services $5,942 37.6%
2. Expenses relating to new beds opened
in fiscal years 1996 and 1997 5,627 35.6
3. Salaries and benefits 3,342 21.2
4. Other expenses 883 5.6
------ -----
$15,794 100.0%
======= =====
</TABLE>
Income before rental, depreciation and amortization and interest expense,
net of interest income, decreased $4,777 or 32.4% from $14,729 in the six
months ended December 31, 1995 to $9,952 in the six months ended December
31, 1996 and was 10.5% of net revenues in the six months ended December 31,
1996 (and 14.1% of net revenues before the special charge to revenues)
compared to 17.5% in the six months ended December 31, 1995.
Rental, depreciation and amortization and interest expense, net of interest
income, increased by $1,694 or 22.9% from $7,405 in the six months ended
December 31, 1995 to $9,099 in the six months ended December 31, 1996. This
increase was due primarily to interest expense related to higher long-term
debt of $16,095.
The Company's effective tax rate was 39.5% of income in the six months ended
December 31, 1996 and 39.9% of income in the six months ended December 31,
1995. Net income was $516 for the six months ended December 31, 1996
including $2,420 for the special charge described earlier. Net income after
taxes before the special charge, decreased $1,466 or 33.3% from $4,402 in the
six months ended December 31, 1995 to $2,936 in the six months ended December
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
1997 1996 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Facilities in operation at:
September 30 39 37 2
December 31 39 37 2
Nursing center beds at:
September 30 4,629 4,294 335
December 31 4,629 4,294 335
Assisted living beds at:
September 30 468 468 0
December 31 468 468 0
Total beds at:
September 30 5,097 4,762 335
December 31 5,097 4,762 335
Total occupancy:
First quarter 83.6% 87.2% (3.6)%
Second quarter 84.4% 85.5% (1.1)%
Nursing center occupancy:
(based on licensed beds)
First quarter 84.1% 88.1% (4.0)%
Second quarter 84.9% 86.2% (1.3)%
Assisted living center occupancy:
First quarter 78.7% 78.7% 0%
Second quarter 79.6% 79.3% .3%
Percentage of revenues from
Private, managed care and
Medicare (Quality Mix):
First quarter 69.9% 64.0% 5.9%
Second quarter 69.5% 65.0% 4.5%
Percentage of revenues from
Medicaid:
First quarter 30.1% 36.0% (5.9)%
Second quarter 30.5% 35.0% (4.5)%
</TABLE>
<PAGE>
SUMMIT CARE CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont.)
Liquidity and Capital Resources
- -------------------------------
At December 31, 1996, the Company had $1,632 in cash and cash equivalents
and working capital of $15,118. During the six months ended December 31,
1996, the Company's cash and cash equivalents decreased by $1,026.
Net cash provided by operating activities increased $4,860 from a negative
$1,297 in the first six months of fiscal 1995 to a positive $3,563 in the
first six months of 1996. Net cash provided by operating activities, plus
proceeds of $15,000 in new long-term debt and additional credit line
borrowings of $4,000, were used principally for capital expenditure of
$12,049 for existing centers and the initial payoff of the line of credit of
$6,000, the purchase of a lease option of $1,975, and the acquisition of a
50% interest in a limited liability company for $1,579.
Accounts receivable increased $5,027 primarily due to an increase in Medicare
and managed care revenues. At December 31, 1996, the Company's average
accounts receivable days outstanding were 41 as compared to 43 days out-
standing at December 31, 1995.
Long-term debt consisted of mortgage indebtedness of $8,510 on three
properties, $13,429 on five capitalized leases, $95,000 in senior secured
debt (see next paragraph), and credit line borrowings of $4,000 totaling
$120,939 as of December 31, 1996.
In December 1995, the Company issued $55,000 of Senior Secured Notes ("New
Notes"), the initial funding of $70,000 in New Notes. The remaining amount
of $15,000 was issued in July 1996. In transactions related to the New
Notes, the Company reduced its bank line of credit from $60,000 to $40,000
at more favorable interest rates and amended the indenture for its $25,000
Senior Secured Notes ("Current Notes"). Also, the bank line of credit's
repayment period following the revolving commitment was reduced from four
years to three years. Holders of the Current Notes and the New Notes and
the Company's bank lenders have entered into an intercreditor agreement
and collateral agreement which provide a security interest in certain real
estate on a pari passu basis and except for certain permitted liens, a
negative pledge on the Company's assets. The New Notes are payable at the
end of the fifth year ($7,000), the end of the sixth year ($5,000), annually
from the eighth year through the twelfth year ($48,000) and at the end of
the fifteenth year ($10,000). The annual, fixed interest rate on each New
Note ranges from 7.38% on the earliest maturing New Note to 8.14% on the last
New Note to mature and averages 7.8% when weighted.
<PAGE>
SUMMIT CARE CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont.)
(Dollars in thousands)
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
$2,866, to make normal recurring capital replacements, additions and improve-
ments of approximately $7,000 planned for the next 12 months, to develop
properties over the next 12 months costing approximately $7,500 and to meet
other long-term working capital needs and obligations. 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 currently has
plans, or is developing plans, to construct and open 114 new beds in four
centers by the fall of 1997.
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.
Recent Accounting Pronouncement
- -------------------------------
See Note 8 to Consolidated Financial Statements.
<PAGE>
PART II
SUMMIT CARE CORPORATION
OTHER INFORMATION
Quarter Ended
December 31, 1996
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
NONE
(b) Reports on Form 8-K
NONE
<PAGE>
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 under-
signed thereunto duly authorized.
SUMMIT CARE CORPORATION
Date: February 13, 1997 By: S/DERWIN WILLIAMS
------------------------
Derwin L. Williams
Sr.Vice President-Finance
and Chief Financial Officer
Date: February 13, 1997 By: S/MELODYE STOK
------------------------
Melodye Stok
Vice President-Controller and
Chief Accounting Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
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