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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 2
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[_] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-12100
GRANCARE, INC.
(Exact name of registrant as specified in its charter)
California 95-4299210
(State or other jurisdiction (I.R.S.Employer
of incorporation or organization) Identification No.)
One Ravinia Drive, Suite 1500
Atlanta, Georgia 30346
(Address of principal executive offices) (Zip Code)
(770) 393-0199
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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 X No
--------- ----------
There were 23,371,721 shares outstanding of registrant's Common Stock, no par
value, as of August 12, 1996.
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Page 1
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GRANCARE, INC.
INDEX
-----
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets-
June 30, 1996 and December 31, 1995........................ 3
Condensed Consolidated Statements of Income-
Three Months Ended June 30, 1996 and 1995 and
Six Months Ended June 30, 1996 and 1995.................... 5
Condensed Consolidated Statements of Cash Flows-
Six Months Ended June 30, 1996 and 1995.................... 6
Notes to Condensed Consolidated Financial Statements....... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the
Three and Six Months Ended June 30, 1996................... 9
PART II - OTHER INFORMATION
Signatures ............................................................13
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
GRANCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $12,929 $17,738
Accounts receivable, less allowance
for doubtful accounts
(1996 - $11,260 and 1995 - $10,856)........... 214,880 173,068
Inventories............................................ 16,000 13,527
Prepaid expenses and other current assets............. 37,821 16,498
Deferred income taxes.................................. 10,933 10,933
------------ ------------
Total current assets.......................... 292,563 231,764
Property and equipment.................................. 268,501 270,042
Less accumulated depreciation.......................... (62,393) (55,689)
------------ ------------
206,108 214,353
Other assets:
Investments, at fair value............................. 36,767 30,305
Goodwill, less accumulated amortization
(1996 - $7,965 and 1995 - $5,535)............ 125,495 120,946
Other intangibles, less accumulated amortization
(1996 - $9,451 and 1995 - $8,051)............. 9,036 9,793
Other.................................................. 41,423 38,000
------------ ------------
Total assets............................................ $711,392 $645,161
============ ============
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date. See Notes to Condensed Consolidated Financial
Statements.
3
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GRANCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
(Unaudited) (Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses....................... $77,841 $72,935
Accrued wages and related liabilities....................... 23,741 24,069
Interest payable............................................ 8,226 6,793
Income taxes payable........................................ 1,396 -
Notes payable and current maturities of long-term debt...... 3,287 4,937
------------ ------------
Total current liabilities........................... 114,491 108,734
Long-term debt............................................... 375,212 334,668
Deferred income taxes........................................ 16,616 16,735
Other........................................................ 13,043 12,425
Shareholders' equity:
Common stock; no par value; 50,000,000 shares authorized
(shares issued: 1996-23,481,998 and 1995-23,948,728)..... 125,163 134,699
Treasury stock (1996-200,000 shares and 1995-915,000 shares) (5,030) (18,700)
Equity component of minimum pension liability............... (465) (465)
Unrealized gain on investments net of income taxes
(1996 - $3,822 and 1995 - $3,453).......................... 5,733 5,206
Retained earnings........................................... 66,629 51,859
------------ ------------
192,030 172,599
------------ ------------
Total liabilities and shareholders' equity................... $711,392 $645,161
============ ============
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date. See Notes to Condensed Consolidated Financial
Statements.
4
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GRANCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars And Shares In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
1996 1995 1996 1995
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Net patient revenues............................. $245,427 $203,148 $474,254 $394,129
Investment and other revenue..................... 1,844 1,278 3,028 1,978
---------- --------- --------- ---------
Net revenues................................... 247,271 204,426 477,282 396,107
Expenses:
Operating expenses............................... 218,646 180,318 423,721 351,413
Depreciation and amortization.................... 6,514 4,959 12,672 9,676
Interest expense and financing charges........... 8,918 6,717 17,067 12,750
---------- --------- --------- ---------
Total expenses................................. 234,078 191,994 453,460 373,839
---------- --------- --------- ---------
Income before income taxes............................. 13,193 12,432 23,822 22,268
Income taxes........................................... 5,013 4,719 9,052 8,476
---------- --------- --------- ---------
Net income..................................... $8,180 $7,713 $14,770 $13,792
========== ========= ========= =========
Net income per common and common equivalent share:
Primary........................................ $0.34 $0.32 $0.62 $0.57
========== ========= ========= =========
Fully diluted.................................. $0.33 $0.32 $0.61 $0.57
========== ========= ========= =========
Weighted average number of common and common
equivalent shares outstanding:
Primary........................................ 24,077 24,252 23,932 24,188
========== ========= ========= =========
Fully diluted.................................. 26,570 26,582 26,484 26,518
========== ========= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
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GRANCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars In Thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1996 1995
------------- ------------
<S> <C> <C>
Operating activities
Net income.......................................................... $ 14,770 $ 13,792
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Provision for doubtful accounts.................................. 3,607 2,753
Depreciation and amortization.................................... 12,672 9,676
Gain on sale of assets........................................... (114) (114)
Amortization of deferred financing costs......................... 468 133
Changes in assets and liabilities net of
effect of acquisitions:
Accounts receivable......................................... (44,728) (17,834)
Other current assets........................................ (4,096) (807)
Other noncurrent assets..................................... (3,641) (6,945)
Accounts payable and accrued expenses....................... 1,682 6,622
Accrued wages and related liabilities....................... (469) (1,456)
Interest payable............................................ 1,433 1,223
Income taxes payable........................................ 1,928 1,834
Other noncurrent liabilities................................ 76 634
------------- ------------
Net cash (used in) provided by operating activities....... (16,412) 9,511
Investing activities
Acquisition of businesses........................................... (5,929) (54,287)
Purchases of property and equipment................................. (16,364) (10,808)
Proceeds from disposition of property and equipment................. 994 4,021
Repayments of notes receivable...................................... --- 2,287
Purchases of investments............................................ (5,119) (4,083)
Other............................................................... (1,400) (1,560)
------------- ------------
Net cash used in investing activities..................... (27,818) (64,430)
Financing activities
Proceeds from exercise of warrants and options...................... 1,992 572
Long-term debt payments............................................. (4,571) (56,556)
Proceeds from long-term debt borrowings............................. 42,250 114,650
Payment of debt issuance costs...................................... (250) (965)
------------- ------------
Net cash provided by financing activities................. 39,421 57,701
------------- ------------
Net (decrease) increase in cash and cash equivalents................ (4,809) 2,782
Cash and cash equivalents at beginning of period.................... 17,738 28,611
------------- ------------
Cash and cash equivalents at end of period.......................... $ 12,929 $ 31,393
============= ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
6
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GRANCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars In Thousands)
SUPPLEMENTAL SCHEDULE OF INVESTING ACTIVITIES:
In January 1996, the Company completed the acquisition of RN Health Care
Services, Inc. ("RN Services"), a home health care business located in Detroit,
Michigan, for $2,350 in cash. In conjunction with the acquisition, the Company
advanced $2,500 to the former owners in the form of a short-term note secured by
RN Services' accounts receivable.
Also in the first quarter of 1996, the Company acquired a leasehold
interest in a long-term health care facility located in Naperville, Illinois,
and a hospice business located in Detroit, Michigan.
In April 1996, the Company completed the acquisition of Jennings Visiting
Nurse Association, Inc. ("Jennings"), a home health care business based in North
Vernon, Indiana, for $937 in cash and a promissory note for $250.
Also in the second quarter of 1996, the Company acquired a leasehold
interest in a long-term health care facility located in Summerville, South
Carolina.
The above 1996 acquisitions had the following effect on cash:
Fair value of assets acquired ($7,315)
Fair value of liabilities assumed 1,386
--------
Net effect on cash ($5,929)
========
In conjunction with the sale of four long-term health care facilities
located in Michigan in the first quarter of 1996, the Company provided purchase
money financing in the amount of $17,550 evidenced by an interest-bearing
promissory note, due and payable in 1997.
See Notes to Condensed Consolidated Financial Statements.
7
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GRANCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Presentation
- ------------------------------
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and Rule 10-
01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1996 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996. For further information, refer to the
consolidated financial statements and the footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1995.
Note B - Change in Accounting Principle
- ---------------------------------------
During the first quarter of 1996, the Company adopted as required FASB
Statement No. 121 ("Statement No. 121"), Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of. In accordance with
Statement No. 121, the Company records impairment losses on long-lived assets
used in operations when events and circumstances indicate the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets may be less than the carrying amounts of those assets. This new
standard had no effect on the financial statements.
Note C - Treasury Stock
- -----------------------
During the second quarter of 1996, the Company cancelled 715,000
shares of treasury stock which the Company had repurchased in July, 1995.
Note D - Contingent Earn-Out Provision
- --------------------------------------
The purchase agreement with respect to the 1994 acquisition of Long
Term Care Pharmaceutical Services Corporation I and Long Term Care
Pharmaceutical Services Corporation III (collectively, "LTC"), contains a
contingent earnout provision for the two year period ended June 30, 1996. An
additional $5.5 million could be paid to LTC (in the form of a subordinated
promissory note) provided certain operating results were obtained for this
period. Management has not completed its analysis of the amount payable under
this provision.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
General
The Company was incorporated in September 1987. Since its inception, the
Company has grown rapidly through acquisitions of long-term care facilities and
specialty medical businesses such as institutional pharmacy operations. In this
regard, during the last year, the Company has made two significant acquisitions.
In April 1995, the Company acquired Cornerstone Health Management Company, a
contract management firm that specializes in the implementation and management
of subacute and other specialized medical programs in acute care hospitals. In
addition, on July 20, 1995, the Company acquired Evergreen Healthcare, Inc. by
merger in a transaction accounted for as a pooling-of-interests for financial
reporting purposes. In addition to the above, the Company during the three
month period ended June 30, 1996 acquired Jennings Visiting Nurse Association,
Inc., a home health agency in Indiana, and leased Hallmark HealthCare Center, a
skilled nursing facility in South Carolina. Also, on July 1, 1996, the Company
acquired Emery Pharmacy, a provider of institutional pharmacy services in
upstate New York.
The Company's revenues and profitability are affected by ongoing efforts of
third-party payors to contain health care costs by limiting reimbursement rates,
increasing case management review and negotiating reduced contract pricing.
Government payors, such as state-administered Medicaid programs and, to a lesser
extent, the federal Medicare program, generally provide more restricted coverage
and lower reimbursement rates than private pay sources. For the six months
ended June 30, 1996, the percentage of the Company's net patient revenues
derived from Medicaid and Medicare programs were 38.9% and 38.4%, respectively,
of the Company's total revenues. For the year ended December 31, 1995, the
percentage of the Company's net patient revenues derived from Medicaid and
Medicare programs were 44.7% and 30.2%, respectively, of the Company's total
revenues.
The Company derives its revenues by providing skilled nursing, pharmacy,
therapy, subacute and other specialty medical services and contract management
of specialty medical programs for acute care hospitals. In general, the Company
generates higher revenues and profitability from the provision of specialty
medical services than from routine skilled nursing care, and the Company
believes that this trend will continue. Accordingly, the Company has in the past
sought to enhance its operating margins by increasing the proportion of its
revenues derived from specialty medical services. While the Company intends to
continue pursuing this course, the Company is also currently exploring ways to
enhance shareholder value through various strategic alternatives involving its
pharmacy operations.
Results of Operations
The following tables set forth, as a percentage of patient revenues, certain
income data for the periods indicated:
9
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<TABLE>
<CAPTION>
Revenue Composition
Percentage of Patient Revenues
---------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
Skilled Nursing and Subacute Care:
Routine services.................... 43.7% 53.9% 44.9% 55.2%
Specialty Medical:
Therapy, Subacute and Home Health... 26.2% 19.5% 25.5% 18.8%
Pharmacy (1)........................ 26.6% 22.8% 26.1% 24.1%
Contract Management (1).......... .. 3.5% 3.8% 3.5% 1.9%
------------ ----------- ---------- ----------
Subtotal......................... 56.3% 46.1% 55.1% 44.8%
------------ ----------- ---------- ----------
Total............................ 100.0% 100.0% 100.0% 100.0%
============ =========== ========== ==========
<CAPTION>
Revenue Per Patient Day
Derived from Skilled Nursing and Subacute
Care
---------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
Routine skilled nursing................ $90.05 $86.62 $89.09 $86.73
Specialty medical services (2)......... 61.33 34.59 57.51 32.64
------------ ----------- ---------- ----------
Total............................ $151.38 $121.21 $146.60 $119.37
============ =========== ========== ==========
Average occupancy rate................. 84% 86% 85% 87%
</TABLE>
(1) Before elimination of intercompany sales.
(2) Excludes revenue from patients outside GranCare facilities.
The Company's net revenues for the three and six month periods ended June 30,
1996, were $247.3 and $477.3 million, respectively, compared to $204.4 and
$396.1 million for the same periods in 1995, a net increase of $42.9 and $81.2
million, respectively, or 21.0% and 20.5%. For the three and six month periods,
$24.0 and $49.5 million, respectively, resulted from acquisitions and $23.8
million and $40.9 million, respectively, was primarily attributable to same-
store growth. For the same periods, these increases were partially offset by
loss of revenue of $4.9 million and $9.2 million, respectively, from facilities
divested or to be divested. For the three and six month periods, specialty
medical revenues increased $43.3 million and $81.9 million, respectively, over
the same periods in 1995. This was primarily the result of the growth in the
number of Medicare residents which utilize higher margin ancillary services
(physical, respiratory, occupational and speech therapy).
Operating expenses for the three and six month periods ended June 30, 1996,
were $218.6 and $423.7 million, respectively, compared to $180.3 and $351.4
million for the same periods in 1995, a net increase of $38.3 and $72.3 million,
respectively, or 21.2% and 20.6%. For the three and six month periods, $21.9 and
$44.8 million, respectively, resulted from acquisitions and $21.3 million and
$36.5 million, respectively, was primarily attributable to same-store growth
increases in expenses. For the same periods, these increases were partially
offset by a reduction of expenses of $4.9 million and $9.0 million,
respectively, from facilities divested. Specialty medical revenues generate
additional costs from the higher staffing levels required to care for the higher
acuity Medicare residents. The additional ancillary services (physical,
respiratory, occupational and speech therapy) utilized generate additional costs
in line with the growth realized in the specialty medical revenues.
Depreciation and amortization expenses for the three and six month periods
ended June 30, 1996, were $6.5 and $12.7 million, respectively, compared to $5.0
and $9.7 million for the same periods in 1995, an increase of $1.5 and $3.0
million, respectively, or 30.0% and 30.9%. This increase was primarily the
result of depreciation and amortization expenses attributable to businesses
acquired and additions to property and equipment.
Interest expense and financing charges for the three and six-month periods
ended June 30, 1996, were $8.9 and $17.1 million, respectively, compared to $6.7
and $12.8 million for the same periods in 1995, an increase of $2.2 and $4.3
million, respectively, or 32.8% and 33.6%. These increases were primarily due
to interest on additional indebtedness incurred in connection with acquisitions,
the issuance of $100 million of Senior Subordinated Notes and to a lesser
extent, borrowings to fund working capital.
Income taxes for the three and six month periods ended June 30, 1996, were
$5.0 million and $9.1 million, respectively, compared to $4.7 and $8.5 million
for the same periods in 1995, an increase of $0.3 million and $0.6 million,
respectively.
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As a result of the foregoing, net income for the three and six month periods
ended June 30, 1996, was $8.2 and $14.8 million, respectively, compared to $7.7
and $13.8 million for the same periods in 1995, an increase of $0.5 and $1.0
million, respectively.
During the first quarter of 1996, the Company adopted as required FASB
Statement No. 121 ("Statement No. 121"), Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of. In accordance with
Statement No. 121, the Company records impairment losses on long-lived assets
used in operations when events and circumstances indicate the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets may be less than the carrying amounts of those assets. This new standard
had no effect on the financial statements.
Liquidity and Capital Resources
The Company's primary source of liquidity at June 30, 1996, was $12.9 million
in cash and cash equivalents compared to $17.7 million at December 31, 1995, a
decrease of $4.8 million. The decrease in cash and cash equivalents was due
primarily to cash utilized by operations for the six month period ended June 30,
1996. Payments received by the Company from the Medicaid and Medicare programs
are the Company's largest source of cash from operations.
Accounts receivable at June 30, 1996, were $214.9 million compared to $173.1
million at December 31, 1995, an increase of $41.8 million. The Company's
accounts receivable includes receivables from third-party reimbursement
programs, primarily Medicaid and Medicare settlements. The Company receives
payment for skilled nursing services based on rates set by individual state
Medicaid programs. Although payment cycles for these programs vary, payments
generally are made within 30 to 60 days of services provided, except in Illinois
where the Medicaid program delays payments for 120 days. The federal Medicare
program, a cost-reimbursement system, pays interim rates, based on estimated
costs of services, on a 30 to 45 day basis. Final cost settlements, based on
the difference between audited costs and interim rates, are paid following final
cost report audits by Medicare fiscal intermediaries. Because of the cost
report and audit process, final settlement may not occur until up to 24 months
after services are provided. Specialty medical services provided to third
parties are billed on terms negotiated with individual customers, which often
are tied to their reimbursement cycles. If the expansion of specialty medical
revenues continues at historic rates or if the Company is successful in
expanding its specialty medical programs in the Evergreen facilities, average
days receivable likely will equal or exceed current levels and may require
additional working capital.
While federal regulations do not provide states with grounds to curtail
payments under their Medicaid reimbursement programs due to state budget
deficiencies or delays in enactment of new budgets, states have nevertheless
curtailed payments in such circumstances in the past. In particular, some
states have delayed the payment of significant amounts owed to health care
providers such as the Company for health care services provided under their
respective Medicaid programs.
In addition to principal and interest payments on its long-term indebtedness,
the Company has significant rent obligations relating to its leased facilities
as well as property expenses (principally property taxes and insurance) relating
to all of its facilities. The Company's anticipated principal payments, cash
interest payments, rent and property expense obligations for 1996 are estimated
at $100.0 million.
The Company's operations require capital expenditures for renovations of
existing facilities in order to continue to meet regulatory requirements, to
upgrade facilities for the treatment of subacute patients and to accommodate the
addition of specialty medical services, and to improve the physical appearance
of its facilities for
11
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marketing purposes. Total capital expenditures for the six month period ended
June 30, 1996, were $16.4 million. The Company estimates that capital
expenditures for the year ending December 31, 1996, will be approximately $32.0
million.
The Company maintains a $150.0 million credit facility with First Union
National Bank of North Carolina ("First Union") and a syndicate of banks which
may be used for working capital, other general corporate purposes and
acquisitions (the "Credit Facility"). As of June 30, 1996, approximately $80.0
million was outstanding under the Credit Facility. The Company will be able to
borrow under the Credit Facility through June 1998, at which time it will
convert to a term loan unless it is refinanced or extended. Upon conversion,
the amount then outstanding will be payable in equal quarterly installments
through June 2002.
On August 5, 1996, the Company sold its entire interest in Alternative Living
Services, Inc., resulting in net proceeds to the Company of approximately $23.0
million. The Company intends to use the proceeds from this sale primarily to
repay amounts outstanding under its Credit Facility and, to a lesser extent,
fund working capital requirements (See Item 5).
The Company believes that its cash from operations, existing working capital
and available borrowings under the Credit Facility will be sufficient to fund
the fixed obligations, capital expenditures and other obligations referred to
above, as well as to repay certain indebtedness when due, and further expand the
Company's business. However, in the event that the Company continues to grow
through acquisitions, the Company may need to raise additional capital, either
through borrowings (including an increase in the Credit Facility), sale-
leaseback financings, or the sale of debt or equity securities to finance the
acquisition price and any additional working capital and capital expenditure
requirements related to such acquisitions. In this regard, the Company has
recently had discussions with First Union and certain other lenders regarding
obtaining additional financing in connection with future transactions. Based on
these discussions, at this time the Company believes that any additional
required financing could be obtained at market rates on terms that are
acceptable to the Company, although no assurance can be given regarding the
terms or availability of additional financing in the future.
The Company is a beneficial owner of 1,000,000 shares of stock of Health and
Retirement Properties Trust ("HRPT") which are held in trust and pledged as
collateral for the obligations of two of the Company's subsidiaries under
mortgage notes and lease obligations with HRPT. The pledge agreement strictly
limits GranCare's ability to sell the shares until its obligations to HRPT are
satisfied, which will not be until the year 2010. As a result, these shares
cannot be sold to meet other financial obligations. In addition, such mortgage
notes and lease obligations contain provisions that restrict, upon the
occurrence of an event of default thereunder, the ability of such subsidiaries
to make dividends, loans or advances to the Company. In accordance with FASB
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," the HRPT stock is carried at fair market value, with unrealized
gains and losses reported as separate components of equity. The Credit Facility
and indenture pursuant to which the Notes were issued also contain restrictions
on the ability of the Company to pay dividends to its shareholders upon the
failure to satisfy certain financial covenants.
The Company maintains a captive insurance subsidiary to provide for its
obligations under workers compensation and general and professional liability
plans. These obligations are funded with long-term fixed income investments
which are not available to satisfy other obligations of the Company.
12
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SIGNATURES
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.
Date: December 31, 1996 GRANCARE, INC.
/s/ Jerry A. Schneider
----------------------
Jerry A. Schneider
Executive Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial
and Accounting Officer)
13
