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 September 30, 1997
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 September 30, 1997 --
6,776,000
<PAGE>
SUMMIT CARE CORPORATION
FORM 10-Q
Quarter Ended
September 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page of
Form 10-Q
---------
Part I - Financial Information
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
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 13
Signatures 14
</TABLE>
<PAGE>
PART I
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except earnings per share)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
------------------
<S> <C> <C>
Net revenues $54,535 $48,907
Expenses:
Salaries and benefits 23,610 21,077
Supplies 5,170 5,044
Purchased services 13,367 11,907
Provision for doubtful accounts 823 246
Other expenses 3,746 3,434
Rental 763 697
Depreciation and amortization 2,084 1,792
Interest (net of interest income,
$202 in 1997 and $214 in 1996) 2,277 2,123
------ ------
51,840 46,320
Income before provision for income taxes 2,695 2,587
Provision for income taxes 1,065 1,022
------ ------
Net income $ 1,630 $ 1,565
======= =======
Earnings per share $ 0.24 $ 0.23
======= =======
Weighted average number of shares of
common stock outstanding 6,806 6,878
======= =======
</TABLE>
See accompanying notes
<PAGE>
SUMMIT CARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
Sept. 30, 1997 June 30, 1997
-------------- -------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,816 $ 3,994
Accounts receivable, less allowance for
doubtful accounts: September 1997 -
$2,139; June 1997 - $2,028 33,330 33,749
Supplies inventory, at cost 2,860 2,690
Other current assets 13,452 12,356
------- -------
Total current assets 57,458 52,789
Property and equipment, at cost:
Land and land improvements 19,514 19,513
Buildings and leasehold improvements 163,470 161,080
Furniture and equipment 24,758 23,978
Construction in progress 5,832 5,947
------- -------
213,574 210,518
Less accumulated depreciation
and amortization 30,610 28,605
------- -------
182,964 181,913
Notes receivable, less allowance for
doubtful accounts:
September 1997 - $341; June 1997 -$322 6,646 6,859
Other assets 8,994 8,955
------- -------
$256,062 $250,516
======== ========
</TABLE>
NOTE: The balance sheet at June 30, 1997 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 BALANCE SHEETS (Continued)
(In thousands)
<TABLE>
<CAPTION>
Sept. 30, 1997 June 30, 1997
-------------- -------------
(Unaudited) (Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Payable to bank $ 2,507 $ 4,678
Accounts payable 35,702 29,586
Employee compensation and benefits 4,916 5,877
Income taxes payable 1,037 --
------- -------
Total current liabilities 44,162 40,141
Long-term debt 121,347 121,452
Deferred income taxes 7,511 7,511
------- -------
Total liabilities 173,020 169,104
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; 6,776 issued
and outstanding in both periods 51,543 51,543
Retained earnings 31,499 29,869
------- -------
Total shareholders' equity 83,042 81,412
------- -------
$256,062 $250,516
======== ========
</TABLE>
NOTE: The balance sheet at June 30, 1997 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)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
-----------------
<S> <C> <C>
Operating activities:
Net income $ 1,630 $ 1,565
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 2,084 1,792
Decrease (increase) in accounts receivable, net 419 (3,230)
(Increase) in supplies inventory (170) ( 50)
(Increase) increase in other current assets (1,120) 1,187
Increase in accounts payable 6,116 2,146
(Decrease) increase in employee compensation
and benefits (961) 347
Increase in income taxes payable 1,037 606
------ ------
Total adjustments 7,405 2,798
------ ------
Net cash provided by operating activities 9,035 4,363
------ ------
Investing activities:
Issuance of notes receivable (1,790) (350)
Principal payments of notes receivable 2,028 100
Additions to property and equipment (3,056) (6,566)
(Increase) decrease in other assets ( 119) 93
------ ------
Net cash used in investing activities (2,937) (6,723)
------ ------
Financing activities:
(Decrease) in payable to bank (2,171) (1,303)
Principal payments on long-term debt (2,105) (8,208)
Proceeds from long-term debt 2,000 15,000
----- ------
Net cash (used in) provided by
financing activities (2,276) 5,489
----- ------
Increase in cash and cash equivalents 3,822 3,129
Cash and cash equivalents at beginning of period 3,994 2,658
------ ------
Cash and cash equivalents at end of period $ 7,816 $ 5,787
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 575 $ 946
Income taxes 28 416
</TABLE>
<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 on Form
10-K for the year ended June 30, 1997. 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 1998
presentations.
3. Earnings per share are based on the weighted average number of shares of
common stock outstanding, which was 6,806 for the three months ended
September 30, 1997 and 6,878 for the three months ended September 30, 1996.
4. Other current assets consist of the following:
<TABLE>
<CAPTION>
September 30, 1997 June 30, 1997
------------------ -------------
<S> <C> <C>
Due from third party payors $ 3,158 $ 2,491
Deferred tax assets 1,956 1,956
Notes receivable 1,228 1,253
Prepaid expenses 2,733 1,004
Income tax receivable 3,000 4,128
Other receivables 1,377 1,524
------ ------
$13,452 $12,356
======= =======
</TABLE>
5. In July 1997, the Company opened its fifth assisted living center with
66 beds in Orange, California, at a total cost of construction of $3,924.
In September 1997, the Company exercised a purchase option in its lease of
a 111-bed skilled nursing care center in La Grange, Texas. The purchase
price of $1,871 was financed with funds from the Company's bank line of
credit. In November 1997, the Company opened 47 additional beds at one of
its two skilled nursing care center in Lubbock, Texas, at an approximate cost
of construction of $1,900.
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(Unaudited)
(In thousands)
6. Accounting for Stock-Based Compensation. 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. In accordance with SFAS 123, disclosures
are not required for an interim quarterly report unless a complete set of
financial statements is presented for that period.
7. Recent Accounting Pronouncement: In February 1997, the Financial
Accounting Standards Board issued the Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"), which is effective
for fiscal years ending after December 15, 1997, including interim periods.
An entity with a June 30, 1997 year end will have to implement SFAS 128 in
its second quarter, the quarter ending December 31, 1997. Earlier adoption
is not permitted. The Company plans to adopt SFAS 128 in the quarter
ending December 31, 1997, and has not determined the impact, if any, of
adoption.
8. Recent Accounting Pronouncement: In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"), which is effective for fiscal years ending after December 15,
1997. This Statement is not required to be applied to interim financial
statements in the initial year of its application. SFAS 131 establishes
standards for the way that public enterprises report information about
operating segments in annual financial statements. It also requires that
those enterprises report selected information about operating segments in
interim financial reports issued to stockholders. Under existing accounting
standards, the Company has reported its operations as one line of business
because substantially all of its revenues have been derived from its skilled
nursing care centers and assisted living centers and closely related
ancillary services. The Company is presently evaluating the new standard
in order to determine its effect, if any, on the way the Company might
report its operations in the future.
<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 September 30, 1997 Compared to Quarter Ended September 30, 1996
Net revenues increased $5,628 or 11.5% from $48,907 for the quarter ended
September 30, 1996 to $54,535 for the quarter ended September 30, 1997. The
increase occurred due to the following:
<TABLE>
<CAPTION>
Amount Percent
------ -------
<S> <C> <C>
1. Increased census days and revenue rates $2,611 46.4%
2. New beds opened in fiscal years 1997 and 1998 1,956 34.7
3. Pharmacy operations 889 15.8
4. Rehabilitative and other specialty services 172 3.1
----- ----
$5,628 100.0%
</TABLE>
Average occupancy was 87.7% in the first quarter ended September 30, 1997
and 83.6% in the first quarter ended September 30, 1996. Excluding newly
constructed beds, the average occupancy was 91.1% in the first quarter ended
September 30, 1997 and 85.4% in the same quarter last year. The Company's
quality mix (revenues from Medicare, managed care and private pay patients
as a percentage of gross revenues excluding pharmacy revenues) was 69.1%
in the first quarter ended September 30, 1997 and 69.9% in the first quarter
ended September 30, 1996.
Expenses, consisting of salaries and benefits, supplies, purchased
services, provision for doubtful accounts and other expenses as a percent of
net revenues increased from 85.3% of net revenues in the first quarter ended
September 30, 1996 to 85.7% in the first quarter ended September 30, 1997.
Total salaries and employee related benefits were 43.3% of net revenues in
the first quarter ended September 30, 1997 compared to 43.1% of net revenues
in the first quarter ended September 30, 1996. Expenses increased $5,008
or 12.0% from $41,708 in the first quarter ended September 30, 1996 to
$46,716 in the first quarter ended September 30, 1997 for the following
reasons:
<TABLE>
<CAPTION>
Amount Percent
------ -------
<S> <C> <C>
1. Salaries and benefits $1,766 35.3%
2. Expenses relating to new beds opened
in fiscal years 1997 and 1998 1,558 31.1
3. Rehabilitative and other specialty services 908 18.1
4. Other expenses 776 15.5
----- ----
$5,008 100.0%
</TABLE>
<PAGE>
SUMMIT CARE CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont.)
Income before rental, depreciation and amortization and interest expense,
net of interest income, increased $620 or 8.6% from $7,199 in the first
quarter ended September 30, 1996 to $7,819 in the first quarter ended
September 30, 1997 and was 14.3% of net revenues in the first quarter ended
September 30, 1997 compared to 14.7% in the first quarter ended September
30, 1996.
Rental, depreciation and amortization and interest expense, net of interest
income, increased $512 or 11.1% from $4,612 in the first quarter ended
September 30, 1996 to $5,124 in the first quarter ended September 30, 1997.
Substantially all of this increase was due to depreciation expense related
to capital additions and interest expense related to higher debt.
The Company's effective tax rate was 39.5% of income in both periods. Net
income after taxes increased $65 or 4.2% from $1,565 in the first quarter
ended September 30, 1996 to $1,630 in the first quarter ended September 30,
1997.
<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
1998 1997 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Facilities in operation at:
September 30 40 39 1
Nursing center beds at:
September 30 4,631 4,629 2
Assisted living beds at:
September 30 475 468 7
Total beds at:
September 30 5,106 5,097 9
Total occupancy:
First quarter 87.7% 83.6% 4.1%
Nursing center occupancy:
First quarter 88.6% 84.1% 4.5%
Assisted living center occupancy:
First quarter 79.6% 78.7% 0.9%
Percentage of revenues from
private, managed care and
Medicare (quality mix):
First quarter 69.1% 69.9% (0.8)%
Percentage of revenues from
Medicaid:
First quarter 30.9% 30.1% 0.8%
</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 September 30, 1997, the Company had $7,816 in cash and cash equivalents
and working capital of $13,296. During the quarter ended September 30,
1997, the Company's cash and cash equivalents increased by $3,822.
Net cash provided by operating activities increased $4,672 from $4,363 in
the first quarter of 1996 to $9,035 in the first quarter of 1997. Net cash
provided by operating activities during the first quarter ended September 30,
1997, was used principally for capital expenditures of $3,056 for existing
centers, $2,105 in principal payments on long term debt and to increase cash
and cash equivalents by $3,822.
Accounts receivable, less allowance for doubtful accounts, decreased $419
during the quarter ended September 30, 1997, primarily due to increased
collections. The Company's average accounts receivable days outstanding were
39 at September 30, 1997 and 1996, and 41 at June 30, 1997.
Long-term debt consisted of mortgage indebtedness of $8,202 on three
properties, $11,145 on four capitalized leases, $7,000 in borrowings on the
Company's bank line of credit and $95,000 in senior secured debt totaling
$121,347 at September 30, 1997.
The Company believes that it has sufficient cash flow from its existing
operations and from its bank line of credit to service long-term debt due
within one year of $8,859 (the Company intends to borrow this amount against
its bank line of credit which has a revolver extending to September 30, 1998
followed by a three year payment period), to make normal recurring capital
replacements, additions and improvements of approximately $8,700 planned for
the next 12 months, to develop properties over the next 12 months costing
approximately $2,200 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 demographics and competitive factors are favorable.
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 Pronouncements
See Notes 7 and 8 to Consolidated Financial Statements.
<PAGE>
PART II
SUMMIT CARE CORPORATION
OTHER INFORMATION
Quarter Ended
September 30, 1997
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
undersigned thereunto duly authorized.
SUMMIT CARE CORPORATION
Date: November 12, 1997 By: \DERWIN L. WILLIAMS\
---------------------
Derwin L. Williams
Sr. Vice President - Finance,
Chief Financial Officer AND
Treasurer (Principal Financial
Officer)
Date: November 12, 1997 By: \JOHN L. FARBER\
---------------------
John L. Farber
Vice President - Controller
and Secretary (Principal
Accounting Officer)
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEPT-30-1997
<CASH> 7816
<SECURITIES> 0
<RECEIVABLES> 35469
<ALLOWANCES> 2139
<INVENTORY> 2860
<CURRENT-ASSETS> 57458
<PP&E> 213574
<DEPRECIATION> 30610
<TOTAL-ASSETS> 256062
<CURRENT-LIABILITIES> 44162
<BONDS> 0
0
0
<COMMON> 51543
<OTHER-SE> 31499
<TOTAL-LIABILITY-AND-EQUITY> 256062
<SALES> 0
<TOTAL-REVENUES> 54535
<CGS> 0
<TOTAL-COSTS> 51017
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 823
<INTEREST-EXPENSE> 2277
<INCOME-PRETAX> 2695
<INCOME-TAX> 1065
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1630
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0
</TABLE>
