<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
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 quarterly period ended March 31, 1997
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 001-12621
GRANCARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4336136
(State or other jurisdiction of (I.R.S.Employer
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 23,815,742 shares outstanding of registrant's Common Stock, par value
$0.001 per share, as of May 12, 1997.
- --------------------------------------------------------------------------------
1
<PAGE>
GRANCARE, INC.
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets-
March 31, 1997 and December 31, 1996................................. 3
Condensed Consolidated Statements of Income-
Three Months Ended March 31, 1997 and 1996........................... 5
Condensed Consolidated Statements of Shareholders Equity -
Three Months Ended March 31, 1997 and 1996........................... 6
Condensed Consolidated Statements of Cash Flows-
Three Months Ended March 31, 1997 and 1996........................... 7
Notes to Condensed Consolidated Financial Statements................. 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the
Three Months Ended March 31, 1997...................................... 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................... 17
Item 2. Changes in Securities.................................................. 17
Item 3. Defaults Upon Senior Securities........................................ 17
Item 4. Submission of Matters to a Vote of Security Holders.................... 18
Item 5. Other Information...................................................... 18
Item 6. Exhibits and Reports on Form 8-K....................................... 18
Signatures...................................................................... 19
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
For financial reporting purposes, the reporting entity is the successor to
GranCare, Inc., a California corporation (the "Predecessor"). Effective
February 12, 1997, Vitalink Pharmacy Services, Inc. ("Vitalink") acquired the
Predecessor's institutional pharmacy business ("TeamCare" or the "Institutional
Pharmacy Business") through the merger (the "Merger") of the Predecessor with
and into Vitalink. Immediately prior to the Merger, all of the Predecessor's
non-institutional pharmacy businesses, including its skilled nursing, home
health care, assisted living and contract management businesses and related
assets (collectively, the "Skilled Nursing Business"), were transferred to
GranCare, Inc., a Delaware corporation (the "Successor") (then a wholly owned
subsidiary of the Predecessor) and all of the then outstanding stock of the
Successor was distributed (the "Distribution") to the shareholders of the
Predecessor. While the Successor is not the successor to the Predecessor for
Securities and Exchange Commission reporting purposes, it is the successor to
the Predecessor for financial reporting purposes. Accordingly, unless the
context otherwise requires, "GranCare" and the "Company" refer to GranCare,
Inc., a California corporation, and its subsidiaries for periods on or prior to
February 12, 1997 and to GranCare, Inc., a Delaware corporation, and its
subsidiaries for periods subsequent to February 12, 1997.
ITEM 1. FINANCIAL STATEMENTS
--------------------
GRANCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 10,267 $ 14,512
Accounts receivable, less allowance
for doubtful accounts
(1997 - $6,088 and 1996 - $11,209).... 215,729 233,335
Inventories............................ 2,067 17,312
Notes receivable.................... 24,520 24,520
Prepaid expenses and other current
assets................................ 22,223 18,786
Deferred income taxes.................. 5,887 9,239
----------- ------------
Total current assets.................. 280,693 317,704
Property and equipment.................. 248,802 271,536
Less accumulated depreciation.......... (54,648) (64,387)
----------- ------------
194,154 207,149
Other assets:
Investments, at fair value............. 36,175 38,933
Goodwill, less accumulated amortization
(1997 - $5,406 and 1996 - $10,332).... 56,241 133,152
Other intangibles, less accumulated
amortization (1997 - $5,181 and
1996 - $9,700)........................ 9,627 11,613
Other.................................. 28,533 39,488
----------- ------------
Total assets............................ $605,423 $748,039
=========== ============
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date.
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
GRANCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
(Unaudited) (Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.. $ 86,928 $ 79,824
Accrued wages and related liabilities.. 18,374 21,541
Interest payable....................... 5,509 8,235
Notes payable and current maturities
of long-term debt..................... 3,074 7,535
------------ ------------
Total current liabilities............. 113,885 117,135
Long-term debt.......................... 322,915 382,242
Deferred income taxes................... 17,439 23,084
Other................................... 11,108 11,278
Shareholders' equity:
Common stock; $0.001 par value;
50,000,000 shares authorized
(shares issued: 1997-23,804,988)...... 24 --
Paid in capital..................... 124,774 --
Common stock; no par value; 50,000,000
shares authorized
(shares issued: 1996-23,677,825)...... -- 123,378
Equity component of minimum pension
liability............................. (542) (542)
Unrealized gain on investments net of
income taxes (1997 -
$4,138 and 1996 - $4,573)............. 6,207 6,885
Retained earnings...................... 9,613 84,579
------------ ------------
140,076 214,300
------------ ------------
Total liabilities and shareholders'
equity................................. $605,423 $748,039
============ ============
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date. See Notes to Condensed Consolidated Financial
Statements.
4
<PAGE>
GRANCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Dollars And Shares In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------- ---------
1997 1996
--------- ---------
<S> <C> <C>
Revenues:
Net patient revenues.................. $222,926 $228,827
Investment and other revenue.......... 1,590 1,184
--------- ---------
Net revenues........................ 224,516 230,011
Expenses:
Operating expenses.................... 203,854 205,075
Depreciation and amortization......... 5,751 6,158
Interest expense and financing
charges............................ 8,537 8,149
Nonrecurring costs-merger and other
costs................................ 28,300 --
--------- ---------
Total expenses...................... 246,442 219,382
--------- ---------
Income (loss) before income taxes and
extraordinary charge............ (21,926) 10,629
Income taxes............................ (620) 4,039
--------- ---------
Income (loss) before extraordinary
charge................................. (21,306) 6,590
Extraordinary charge - loss on early
extinguishment of debt, net of income
tax benefit of $2,961................. 4,831 --
Net income (loss)................. $(26,137) $ 6,590
========= =========
Net income (loss) per common and common
equivalent share:
Primary:
Income (loss) before extraordinary
charge.............................. $ (0.90) $ 0.28
Extraordinary charge................. (0.20) --
Net income (loss).................... $ (1.10) $ 0.28
========= =========
Fully diluted:
Income (loss) before extraordinary
charge.............................. $ (0.90) $ 0.28
Extraordinary charge................. (0.20) --
Net income (loss).................... $ (1.10) $ 0.28
========= =========
Weighted average number of common and
common equivalent shares outstanding:
Primary............................. 23,740 23,785
========= =========
Fully diluted....................... 23,740 26,324
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
GRANCARE, INC.
--------------
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars In Thousands)
<TABLE>
<CAPTION>
Equity
Component
Common of Minimum Unrealized
Common Stock, Stock, Paid in Pension Gain on Retained
No Par $0.001 Par Capital Liability Investments Earnings Total
------------- ---------- --------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1997 $ 123,378 $ -- $ -- $(542) $6,885 $ 84,579 $214,300
TeamCare Merger transactions:
Conversion of Common
Stock.......................... (123,378) 24 123,354 -- -- -- --
Dividend of TeamCare........... -- -- -- -- -- (48,829) (48,829)
Issuance of 127,163 shares
of common stock on exercise of
options.......................... -- -- 1,420 -- -- -- 1,420
Unrealized loss on investments.... -- -- -- -- (678) -- (678)
Net income (loss)................. -- -- -- -- -- (26,137) (26,137)
--------- --------- --------- ----- ------ --------
Balances at March 31, 1997........ -- $ 24 $ 124,774 $(542) $6,207 $ 9,613 $140,076
</TABLE>
6
<PAGE>
GRANCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------- --------
OPERATING ACTIVITIES 1997 1996
---------- --------
<S> <C> <C>
Net income (loss)............................. $ (26,137) $ 6,590
Adjustments to reconcile net income to
net cash
used in operating activities:
Provision for doubtful accounts.............. 1,451 1,519
Depreciation and amortization................ 5,751 6,158
Gain on sale of assets....................... (72) (57)
Non-cash one-time charges.................... 5,916 ---
Amortization of deferred financing
costs....................................... 124 227
Changes in assets and liabilities net
of effect of acquisitions:
Accounts receivable......................... (35,159) (27,367)
Other current assets........................ (6,409) (2,890)
Other noncurrent assets..................... 1,772 (3,308)
Accounts payable and accrued expenses....... 24,892 (1,093)
Accrued wages and related liabilities....... 1,120 1,356
Interest payable............................ (2,592) (2,007)
Income taxes payable........................ ---- 3,366
Other noncurrent liabilities................ 315 1,044
---------- --------
Net cash used in operating
activities............................... (29,028) (16,462)
INVESTING ACTIVITIES
Acquisition of businesses..................... --- (4,858)
Purchases of property and equipment........... (6,685) (9,010)
Net proceeds from disposition of
TeamCare..................................... 88,233 ---
Proceeds from disposition of property
and equipment................................ --- 994
Net purchases and sales of investments........ 1,686 ---
Other......................................... (154) (267)
---------- --------
Net cash provided by (used in)
investing activities....................... 83,080 (13,141)
FINANCING ACTIVITIES
Proceeds from exercise of warrants and
options...................................... 1,420 1,489
Long-term debt payments....................... (253,212) (2,100)
Proceeds from long-term debt borrowings....... 196,000 28,000
Payment of debt issuance costs................ (2,505) (16)
---------- --------
Net cash (used in) provided by
financing activities....................... (58,297) 27,373
---------- --------
Net decrease in cash and cash
equivalents.................................. (4,245) (2,230)
Cash and cash equivalents at beginning
of period.................................... 14,512 17,738
---------- --------
Cash and cash equivalents at end of
period....................................... $ 10,267 $ 15,508
========== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
7
<PAGE>
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 month period ended March 31,
1997 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997. 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, 1996.
Note B - TeamCare Merger
- ------------------------
GranCare entered into an Amended and Restated Agreement and Plan of
Merger with Vitalink Pharmacy Services, Inc. (Vitalink) as of September 3, 1996.
The form of the transactions were: (1) GranCare's skilled nursing facilities,
along with its contract management and home health businesses were reorganized
into New GranCare, Inc. (New GranCare) and all of the shares of New GranCare
distributed to the GranCare shareholders in a tax-free spin off (the
Distribution); (2) GranCare (then consisting solely of the institutional
pharmacy and related business known as TeamCare) merged into and was acquired by
Vitalink through a tax-free exchange of shares of common stock of Vitalink for
shares of common stock of GranCare; and (3) New GranCare became a public company
upon consummation of the Distribution. Notwithstanding the legal structure of
the transactions, for accounting/financial reporting purposes such transactions
has been treated as the spin-off of TeamCare in the form of a dividend and the
reorganization/recapitalization of GranCare into New GranCare as New GranCare
has continued the majority of the GranCare businesses. No gain has been
recognized as a result of the distribution for the difference between the market
value of the Vitalink Common Stock received and the carrying value of the net
assets of TeamCare. New GranCare continues to reflect the historical cost basis
of assets and liabilities of the Company. These transactions were approved by
the GranCare shareholders on February 8, 1997 and the transactions closed on
February 12, 1997 (the Closing Date); the spin-off of TeamCare was reflected in
the first quarter of 1997.
In addition, as a consequence of the Vitalink merger, the Company
redeemed its 6 1/2% Convertible Subordinated Debentures (the Debentures) due
January 15, 2003 effective as of the Closing Date. GranCare deposited the
redemption price and accrued interest on each outstanding Debenture with the
trustee for the Debentures and interest ceased to accrue as of February 12,
1997. GranCare also completed a tender offer for its 9 3/8% Senior
Subordinated Notes (Senior Notes) due 2005. GranCare accepted $98 million
aggregate principal amount of Senior Notes (representing 98% of the outstanding
Senior Notes) for purchase pursuant to GranCare's cash tender offer at a
purchase price of $1,090 per $1,000 principal amount plus accrued and unpaid
interest up to, but not including, the payment date.
In February 1997, the Company recognized a merger charge in connection
with the aforementioned transactions. The components of the merger charge
recognized in New GranCare's operations in the first quarter of 1997 consist of
the following:
8
<PAGE>
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS
---------------------
Shared transaction costs:
<S> <C>
Redemption premium - $100
million Senior
Subordinated Notes............... $ 9,000
Redemption premium - $60 million
Convertible
Subordinated Debentures.......... 2,430
Investment banker fees........... 4,200
Consent fee paid to HRPT......... 5,500
Other professional fees and
merger related costs............ 5,470
--------
Total shared merger costs............... 26,600
Less costs to be paid by Vitalink....... (13,300)
--------
GranCare portion of shared transaction
costs.................................. 13,300
Other transaction related costs:
Consent fee paid to HRPT......... 4,500
Write-off to deferred financing
fees............................ 5,441
Amounts payable under GranCare
Shareholder Value Program..... 4,500
Amounts payable under Restricted
Stock Plan...................... 2,200
Other employee severance and
other related costs............. 6,059
--------
36,000
Less: Income taxes.................... (6,000)
--------
Total Merger costs, net of income taxes. $ 30,000
========
</TABLE>
Excluding TeamCare and merger and one-time charges, GranCare's total net
revenues and pre-tax income (loss) for the three month periods ended March 31,
1997 and 1996, respectively, would have been $203,719,000 and $177,541,000; and
$5,885,000 and $4,219,000.
Note C - 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. In April 1997, the
Company agreed to pay the seller of LTC $5.4 million in settlement of the
earnout provision. Of this settlement, Vitalink is obligated to fund $2.5
million. This settlement has been reflected in the accompanying financial
statement as in increase to GranCare's investment in TeamCare thereby increasing
the amount of the dividend recorded in connection with the TeamCare spin-off.
Note D - Non-Recurring Charge
- -----------------------------
During the third quarter of 1996, the Company recorded exit and other
one-time costs of $18.4 million as a charge to operations. Approximately $10.6
million of this charge relates to management's decision to close five Indiana
facilities which are operated under long term operating leases, as these
facilities did not fit the Company's operating strategies. The $10.6 million
reflects the remaining net book value of leasehold improvements at the dates of
closure and the remaining rent due to the landlord for periods after the dates
of closure. On March 6, 1997, the Company modified its plan from closing five
Indiana facilities to terminating most of its lease obligations and operations
in Indiana involving a total of 18 facilities. This modification did not
significantly impact the exit costs previously accrued in the third quarter of
1996. Management completed the lease terminations effective April 1, 1997.
Approximately $3 million of the charge relates to the write-off of notes
receivable for loans made by the Company to a sublease lessee to fund working
capital. Accounts receivable from the facility under lease serve as collateral
for the working capital loans. During the third quarter of 1996, the loans to
the lessee began to significantly exceed the collateral, indicating that the
loan would not be recoverable. Accordingly, the Company decided to terminate
the sublease arrangement and to write off the loans which it concluded would not
be recoverable. In addition, in the third quarter of 1996, the Company recorded
$4.8 million of other charges which included $2.9 million of additional bad debt
expense related to TeamCare. The charge for bad debt expense was necessary to
9
<PAGE>
provide for the increased risk of collection resulting from the deterioration in
the financial condition of certain customers in the third quarter of 1996.
Note E - Third Party Settlement Appeal
- --------------------------------------
During the fourth quarter of 1996, the Company received final settlement
on its 1994 cost reports for its California long-term health care facilities.
The final settlements made by the intermediary for seven facilities included
disallowances of a portion of speech and occupational therapy costs based on
their interpretation of the Medicare prudent buyer concept. In addition, the
intermediary has reopened the 1993 cost reports for two facilities for the same
issue. The Company has furnished therapy services to patients under
arrangements with outside therapy contractors. The contracts with the outside
contractors contain indemnification clauses regarding denial of payment for
services provided. The intermediary asserts that the Company did not act as a
prudent buyer of therapy services as the Company should have hired therapists
instead of contracting for their services. In the absence of prudent buyer
documentation to the contrary, the intermediary determined reasonable costs for
therapy services based on internally developed survey data and other factors.
The Company, in conjunction with a therapy company and another long-term care
company, has filed an expedited group appeal to the Provider Reimbursement
Review Board regarding these 1994 audit adjustments. A hearing is scheduled to
take place during the Company's second quarter. Management (based on the advise
of outside counsel) believes that it has a strong position in this matter and
will ultimately prevail. If the hearing results in an unfavorable outcome to
the Company and if the Company does not ultimately prevail on this matter, these
adjustments could have a material adverse impact to net income of a particular
future quarter or year.
Note F - Credit Facility
- ------------------------
In connection with the TeamCare merger described in Note B, the Company
replaced its Credit Facility with a new credit facility in the aggregate amount
of $300,000,000 (the New Credit Facility). The New Credit Facility consists of
two components: a $200,000,000 5-year revolving credit facility (which includes
a $40,000,000 sub-limit for the issuance of standby letters of credit) and a
$100,000,000 5-year term loan. Borrowings for working capital and general
corporate purposes may not exceed $75,000,000. The first $25,000,000 of
exposure for letters of credit issued under the letter of credit sub-facility
will correspondingly reduce availability under the working capital sub-facility.
The revolving credit portion of the New Credit Facility will mature in five
years. The term loan portion of the New Credit Facility will be amortized in
ten quarterly installments of $7,000,000 each commencing February 12, 1999,
thereafter increasing to $10,000,000 per quarter. All remaining principal and
accrued, unpaid interest shall be due and payable in full on the fifth
anniversary of the closing date of the New Credit Facility. Interest on
outstanding borrowings shall accrue, at the option of the Company, at the base
rate or at the Eurodollar rate plus, in each case, an applicable margin.
Note G - Taxes
- --------------
For the three-months ended March 31, 1997, the provision for income taxes is
affected by $19.0 million of merger expenses that are not tax deductible for
income tax purposes. Without the effect of such non-deductible expenses, the
effective tax rate for the 1997 period is consistent with the comparable period
in 1996.
Note H - FASB Statement No. 128
- -------------------------------
During the first quarter of 1997, the FASB released FASB Statement No. 128
(Statement No. 128), Earnings Per Share. As required, the Company intends to
adopt Statement No. 128 in the fourth quarter of 1997 and will restate earnings
per share for prior periods in conformity with the new rules.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
RECENT DEVELOPMENTS
On May 8, 1997, the Company announced the execution of agreements for a
business combination (the "LCA Merger") of Living Centers of America, Inc.
("LCA") with the Company immediately following a leveraged recapitalization of
LCA by Apollo Management, L.P.. The Company believes that the combined company
would be the second-largest long term care provider in the country, operating
over 330 facilities with more than 38,000 beds in 21 states. In addition to
operating skilled nursing facilities, the combined company would provide
pharmaceutical and rehabilitation services, assisted living, contract management
and geriatric specialty healthcare services nationwide. Consummation of the LCA
Merger is subject to numerous conditions including regulatory approval and
approval by the shareholders of LCA and the Company.
GENERAL
On February 12, 1997, the Company completed the Transactions, the practical
effect of which was to transfer on a tax advantaged basis the Predecessor's
Institutional Pharmacy Business to Vitalink and distribute the consideration for
such transfer to the Predecessor's shareholders. For financial reporting
purposes, the Company is the successor to GranCare, Inc., a California
corporation.
The Predecessor was incorporated in September 1987. Since inception, the
Predecessor has grown rapidly through acquisitions of long-term care facilities
and specialty medical businesses such as institutional pharmacy operations.
During 1996 the Predecessor acquired RN Health Care Services, Inc., a home
health agency in Michigan, Jennings Visiting Nurse Association, Inc., a home
health agency in Indiana, Emery Pharmacy, a provider of institutional pharmacy
services in upstate New York and RX Corporation, a provider of institutional
pharmacy services in southern California.
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 three-month
period ended March 31, 1997, the percentage of the Company's total gross patient
revenues derived from Medicaid and Medicare programs were 34% and 45%,
respectively.
Excluding the Institutional Pharmacy Business, for the three-month period
ended March 31, 1997, the percentage of the Company's total patient revenues
derived from the Medicaid and Medicare programs were 34% and 46%, respectively.
The Company derives its revenues by providing (i) skilled nursing, (ii)
pharmacy (through January 31, 1997), therapy, subacute and other specialty
medical services and (iii) 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.
The Company seeks to enhance its operating margins by increasing the proportion
of its revenues derived from specialty medical services.
While the initial results of the Transactions has been a decrease in the
percentage of revenue from specialty medical services received by the Company
because of the loss of the revenue from TeamCare, the Company believes that
opportunities exist to increase the percentage of its revenue derived from
specialty medical services from other sources such as from therapy and subacute
care.
In April 1997, the Company disposed of 18 underperforming facilities that no
longer fit within the Company's strategic focus. The Company continues to
evaluate certain long-term care facilities which are underperforming or do not
fit within the Company's long-term strategic plans. All or a portion of these
facilities may be divested in the future.
11
<PAGE>
RESULTS OF OPERATIONS
The following tables set forth, as a percentage of patient revenues, certain
income data for the periods indicated:
REVENUE COMPOSITION/PERCENTAGE OF PATIENT REVENUES (1)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Skilled Nursing and Subacute Care:
Routine services----------------------- 56.3% 62.1%
Specialty Medical:
Therapy, subacute and other ancillary
services------------------------------- 39.4 33.3
Contract Management-------------------- 4.3 4.6
---------- ----------
Subtotal----------------------------- 43.7 37.9
---------- ----------
Total-------------------------------- 100.0% 100.0%
========== ==========
</TABLE>
REVENUES PER PATIENT DAY DERIVED FROM SKILLED NURSING AND SUBACUTE CARE (1)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-------------------
1997 1996
--------- --------
<S> <C> <C>
Routine skilled nursing--------- $ 92.04 $ 88.15
Specialty medical services (2)-- 64.53 47.30
--------- --------
Total------------------------- $156.57 $135.45
========= ========
</TABLE>
(1) Excluding TeamCare for all periods presented.
(2) Excludes pharmacy and other specialty medical revenue from beds not
operated by the Company.
The Company's net revenues for the three-month period ended March 31, 1997
were $224.5 million compared to $230.0 million for the same period in 1996, a
decrease of 5.5 million, or 2.4%.
Excluding the Institutional Pharmacy Business, the Company's net revenues for
the three-month period ended March 31, 1997 were $203.7 million compared to
$177.5 million for 1996, an increase of $26.2 million, or 14.8% Same-store
growth increased, on a gross basis, $14.9 million from increases in specialty
medical services provided and an increase in average daily rates due to an
improved payor mix. Specialty medical revenues increased $21.5 million over the
same period in 1996. This was the result of growth in the number of Medicare
residents which utilize higher margin ancillary services (physical, respiratory,
occupational and speech therapy). Included in net revenues for the three-month
period ended March 31, 1997 and 1996 were $0.9 million and $0.4 million,
respectively, relating to routine cost limit exceptions. While the Company has
applied for these exceptions, and has only recognized a portion of the estimated
recovery, there can be no assurance that the actual revenues from routine cost
limit exceptions will equal those amounts recognized by the Company in the
three-month period ended March 31, 1997 and 1996.
Operating expenses (excluding rent and property expenses) for the three-month
period ended March 31, 1997 were $190.1 million compared to $191.6 million for
the same period in 1996, a decrease of $1.5 million.
Excluding the Institutional Pharmacy Business, operating expenses (excluding
rent and property expenses) for the three-month period ended March 31, 1997 were
$171.8 million compared to $148.4 million for the same period in 1996, an
increase of $23.4 million, or 15.8%. $10.6 million of the increase was
attributable to acquisitions, as well as costs associated with an increase of
specialty medical services provided. On a same-store basis, operating expenses
increased $12.7 million for the three-month period ended March 31, 1997 over the
same period in 1996. 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
12
<PAGE>
the growth realized in the specialty medical revenues. This increase was
partially offset by a reduction in costs from more appropriate staffing given
patient acuity levels at skilled nursing facilities and an increased use of
third-party vendors for therapy services.
Rent and property expenses for the three-month period ended March 31, 1997
were $13.8 million compared to $13.5 million for the same period in 1996, an
increase of $0.3 million, or 2.2%.
Excluding the Institutional Pharmacy Business, rent and property expenses for
the three-month period ended March 31, 1997 were $13.3 million compared to $12.3
million for the same period in 1996, an increase of $1.0 million, or 8.1%. This
increase was primarily attributable to additional facilities operated and
scheduled increases in rental expense.
Depreciation and amortization expenses for the three-month period ended March
31, 1997 were $5.8 million compared to $6.2 million for the same period in 1996,
a decrease of $0.4 million, or 6.5%.
Excluding the Institutional Pharmacy Business, depreciation and amortization
expenses for the three-month period ended March 31, 1997 were $5.2 million
compared to $4.7 million for 1996, an increase of $0.5 million, or 10.6%. This
increase was primarily the result of depreciation and amortization expenses
attributable to businesses acquired in 1996 and additions to property and
equipment.
Interest expense and financing charges for the three-month period ended March
31, 1997 were $8.5 million compared to $8.2 million for the same period in 1996,
an increase of $0.3 million, or 3.7%.
Excluding the Institutional Pharmacy Business, interest expenses and financing
charges for the three-month period ended March 31, 1997 were $7.5 million
compared to $8.0 million for the same period in 1996, a decrease of $0.5
million, or 6.3%. This decrease was due primarily from a reduction in
indebtedness related to debt extinguished in the TeamCare Merger offset in part
by interest on additional indebtedness to fund working capital.
During the first quarter of 1997, in conjunction with the TeamCare Merger, the
Company recorded merger and other one-time costs of $36.0 million (See Note B of
Notes to Condensed Consolidated Financial Statements). Of this aggregate
charge, $28.3 million is reflected as a charge to operations with the remaining
$7.7 million pertaining to costs associated with the early extinguishment of
debt being reflected as an extraordinary charge. The components of the merger
charge recognized in the first quarter of 1997 consist of the following:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS
---------------------
Shared transaction costs:
<S> <C>
Redemption premium - $100
million Senior
Subordinated Notes............... $ 9,000
Redemption premium - $60 million
Convertible
Subordinated Debentures.......... 2,430
Investment banker fees........... 4,200
Consent fee paid to HRPT......... 5,500
Other professional fees and 5,470
merger related costs............ --------
Total shared merger costs............... 26,600
Less costs to be paid by Vitalink....... (13,300)
--------
GranCare portion of shared transaction
costs.................................. 13,300
Other transaction related costs:
Consent fee paid to HRPT......... 4,500
Write-off to deferred financing
fees............................ 5,441
Amounts payable under GranCare
Shareholder Value Program..... 4,500
Amounts payable under Restricted
Stock Plan...................... 2,200
Other employee severance and
other related costs............. 6,059
--------
36,000
Less: Income taxes.................... (6,000)
--------
Total Merger costs, net of income taxes. $ 30,000
========
</TABLE>
13
<PAGE>
Income taxes (benefit) for the three-month period ended March 31, 1997
were $(3.6) million compared to $4.0 million for the same period in 1996.
Income taxes in 1997 are affected by approximately $19.0 million in non-
deductable merger expenses.
Excluding the Institutional Pharmacy Business, income taxes (benefit) for
the three-month period ended March 31, 1997 were ($3.7) million compared to $1.7
million for the same period in 1996.
As a result of the foregoing, net income (loss) for the three-month
period ended March 31, 1997 was $(26.1) million compared to $6.6 million for the
same period in 1996. Excluding the Institutional Pharmacy Business, net income
(loss) for the three-month period ended March 31, 1997 was $(26.4) million
compared to $2.5 million for the same period in 1996.
During the fourth quarter of 1996, the Company received final settlement
on its 1994 cost reports for its California long-term health care facilities.
The final settlements made by the intermediary for seven facilities included
disallowances of a portion of speech and occupational therapy costs based on
their interpretation of Medicare prudent buyer concept. In addition, the
intermediary has reopened the 1993 cost reports for two facilities for the same
issue. The Company has furnished therapy services to patients under
arrangements with outside therapy contractors. The contracts with the outside
contractors contain indemnification clauses regarding denial of payment for
services provided. The intermediary asserts that the Company did not act as a
prudent buyer of therapy services as the Company should have hired therapists
instead of contracting for their services. In the absence of prudent buyer
documentation to the contrary, the intermediary determined reasonable costs for
therapy services based on internally developed survey data and other factors.
The Company, in conjunction with a therapy company and another long-term care
company, has filed an expedited group appeal to the Provider Reimbursement
Review Board regarding these 1994 audit adjustments. A hearing is scheduled to
take place during the Company's second quarter. Management (based on the advise
of outside counsel) believes that it has a strong position in this matter and
will ultimately prevail. If the hearing results in an unfavorable outcome to
the Company and if the Company does not ultimately prevail on this matter, these
adjustments could have a material adverse impact to net income of a particular
future quarter or year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity at March 31, 1997 was $10.3
million in cash and cash equivalents compared to $14.5 million at December 31,
1996, a decrease of $4.2 million. The decrease in cash and cash equivalents was
due primarily to an increase in accounts receivable and repayment of long-term
debt offset by proceeds from disposition of TeamCare. Payments received by the
Company from the Medicaid and the Medicare programs are the Company's largest
source of cash from operations.
Accounts receivable at March 31, 1997 were $215.7 million compared to
$233.3 million at December 31, 1996, a decrease of $17.6 million or 7.5%.
Excluding the Institutional Pharmacy Business, accounts receivable at
March 31, 1997 were $215.7 million compared to $184.3 million at December 31,
1996, an increase of $31.4 million. This increase was due to increases in
revenues and the timing of certain settlement payments. The Company's accounts
receivable include 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. The Company accounts for such open cost reports by
taking appropriate reserves to offset potential audit adjustments. Specialty
medical services generally increase the amount of payments received on a delayed
basis.
14
<PAGE>
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 additional 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 estimated principal
payments, cash interest payments, rent and property expense obligations for 1997
are approximately $83.2 million.
Excluding the Institutional Pharmacy Business, the Company's estimated
principal payments, cash interest payments, rent and property expense
obligations for 1997 are approximately $81.7 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 marketing purposes. The Company estimates that capital
expenditures for the year ending December 31, 1997, will be approximately $35.0
million.
The Company maintained a $150.0 million credit facility (the "Predecessor
Credit Facility") with a syndicate of banks for whom First Union acted as lead
bank, which was used for working capital, other general corporate purposes and
acquisitions. In order to complete the Transactions, the Company replaced the
Predecessor Credit Facility with a new credit facility in the aggregate amount
of $300.0 million, with First Union and The Chase Manhattan Bank each committing
to $150.0 million (the "Credit Facility"). The Credit Facility consists of two
components: a $200.0 million 5-year revolving credit facility (which includes a
$40.0 million sub-limit for the issuance of standby letters of credit) and a
$100.0 million 5-year term loan. Borrowings for working capital and general
corporate purposes may not exceed $75.0 million. The first $25.0 million of
exposure for letters of credit issued under the letter of credit sub-facility
will correspondingly reduce availability under the working capital sub-facility.
As of March 31, 1997, the Company had approximately $15.0 million, excluding
letters of credit, outstanding under the working-capital sub-facility. The
revolving credit portion of the Credit Facility matures in February 2002. The
term loan portion of the Credit Facility will be amortized in ten quarterly
installments of $7.0 million each commencing in February 1999, thereafter
increasing to $10.0 million per quarter. All remaining principal and accrued
and unpaid interest shall be due and payable in full in February 2002. Interest
on outstanding borrowing shall accrue, at the option of the Company, at the base
rate or at the Eurodollar rate plus, in each case, an applicable margin. As of
March 31, 1997, approximately $196.0 million was outstanding under the Credit
Facility. On April 18, 1997, the Company amended the Credit Facility in order
to provide the Company with greater flexibility to pursue potential
acquisitions. The Credit Facility contains restrictions on the ability of the
Company to pay dividends to its stockholders upon the failure to satisfy certain
financial covenants.
In connection with the Transactions, the Company completed a tender offer
for its Senior Subordinated Notes due 2005 (the "Notes"), substantially all of
which were purchased in the tender offer with funds provided by Vitalink. The
remaining Notes became obligations of Vitalink in connection with the Merger.
Also in connection with the Transactions, the Company redeemed all of its
outstanding 6 1/2% Convertible Debentures due 2003 (the "Convertible
Debentures"). Accordingly, neither the Notes nor the Convertible Debentures
remain obligations of the Company following the Transactions.
In April 1997, the Company agreed to pay the seller of Long Term Care
Pharmaceutical Services Corporation I and Long Term Care Pharmaceutical Services
Corporation III (collectively, "LTC") $5.4 million in settlement of a contingent
earnout provision in the purchase agreement relating to the Company's 1994
acquisition of LTC. Pursuant to the documents entered into in connection with
the Transactions, Vitalink is obligated to fund $2.5 million of this payment.
The Company previously announced a pending acquisition with respect to
the purchase of 18 nursing facilities and ancillary businesses from an
15
<PAGE>
affiliated group in the State of Alabama. While the Company continues to have
discussions with the sellers, the Company at this time is unsure if the
acquisition will be consummated. In the event that the acquisition is
consummated, the Company will be required to obtain additional financing.
The Company believes that its cash from operations, existing working
capital and available borrowings under its line of credit will be sufficient to
fund the fixed obligations, capital expenditures and other obligations referred
to above (other than the LCA Merger) as well as to repay certain indebtedness
when due. 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.
In conjunction with a 1990 acquisition, the Company borrowed $15.0
million under a promissory note agreement with Health and Retirement Properties
Trust ("HRPT"). The note is secured by mortgages on two facilities and
1,000,000 shares of HRPT common stock owned by the Company. The HRPT note had a
balance of $8.7 million, with an interest rate of 13.75% at December 31, 1994.
During 1995, the Company renegotiated the note with HRPT, whereby the principal
balance of the promissory note was increased to $11.5 million, resulting in
additional proceeds to the Company. Minimum interest on the note is 11.5% per
year payable monthly in arrears. Additional interest became payable commencing
on January 1, 1996, in an amount equal to 75% of the percentage increase in the
Consumer Price Index, with certain defined limitations. Principal payments will
begin two years after the date of the note on a 30-year direct reduction basis,
with the remaining balance due December 31, 2010.
The Company has operating leases for 24 facilities, including land,
buildings, and equipment from HRPT under two Master Lease Documents. Subsequent
to December 31, 1994, the existing Master Lease Documents were amended. Under
the amended lease arrangements, minimum rent for the aggregate facilities is the
annual sum of $11,550,000, payable in equal monthly installment. In addition,
commencing January 1, 1996, the amended lease agreement provides for additional
rent to be paid monthly, in advance, based on 75% of the increase in the
Consumer Price Index multiplied by the minimum rent due, provided, however, that
the maximum rent (minimum rent plus additional rent) each January shall be
limited to a 2% increase over the total monthly rent paid in the prior December.
The operating leases for 17 facilities expire on December 28, 2010, and there
are two 10 year renewal options. The leases for seven facilities expire in June
2006 and there are two 10 1/2 year renewal options. The Company has subleased
six of the 24 facilities to unrelated parties.
The Company is a beneficial owner of 1,000,000 shares of stock of 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 the Company'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 a separate component
of equity.
The Company maintains a captive insurance subsidiary to provide
reinsurance 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.
Capital Resources. 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 any required indebtedness
when due, and further expand GranCare's business (other than the LCA Merger).
Also in connection with the Transactions, Vitalink assumed (as part of the
Merger) certain items of the Predecessor's consolidated indebtedness aggregating
approximately $108.0 million (which includes the Predecessor's obligations in
respect of the Notes). However, in the event that the Company continues to grow
through acquisitions, the Company may need to raise additional capital, either
through borrowings, sale-leaseback financings or the sale of debt or equity, to
finance the acquisition price and any additional working capital and capital
expenditure requirements related to such acquisitions. At this time, the Company
believes that any additional required
16
<PAGE>
financing may be obtained at market rates on terms that are acceptable to the
Company, although no assurance can be given regarding the terms that are
available of additional financing in the future.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
- ------- ------------------
From time to time, the Company has been a party to various legal proceedings in
the ordinary course of its business. In the opinion of the Company, there are
no proceedings which, individually or in the aggregate, after taking into
account the insurance coverage maintained by the Company, are reasonably likely
to have a material adverse effect on the Company's financial position or results
of operations.
On September 9, 1996, a shareholder of the Company filed a civil complaint in
the Superior Court of the State of California, County of Los Angeles: Howard
Gunty Profit Sharing v. Gene E. Burleson, Charles M. Blalack, Antoinette
Hubenette, Joel S. Kanter, Ronald G. Kenny, Robert L. Parker, William G. Petty,
Jr., Edward V. Regan, Gary U. Rolle and GranCare, Inc., Case No. BC156996.
This complaint alleged, generally, that the defendants breached their fiduciary
duties owed to the Company's shareholders by failing to take all reasonable
steps necessary to ensure that the Company's shareholders received maximum value
for their shares of Company common stock in connection with the Distribution and
Merger. The complaint further alleged that the directors of the Company acted
in concert as part of a scheme to deprive the putative class who owned shares
from August 29, 1996 through December 19, 1996 unfairly of its investment in the
Company and to unjustly enrich themselves. The plaintiffs sought to have the
Transactions rescinded and set aside, as well as an order requiring the
defendants to account to the plaintiff for all profits realized as a result of
such transactions. In addition, the plaintiffs sought unspecified compensatory
damages and costs, and to have the complaint certified as a class action.
On December 19, 1996, a Conditional Agreement and Stipulation of Settlement (the
"Settlement Agreement") was reached in this litigation, subject to notice to the
proposed class and a final hearing before the court, among other conditions and
considerations. On May 9, 1997, the Court certified the class for settlement
purposes only, approved the Settlement Agreement, and entered its judgment
dismissing the litigation.
The effect of the Settlement Agreement and the judgment was to extinguish the
claims contained in the action with prejudice, along with granting of a general
release from other claims, whether asserted or not, known or unknown, as allowed
by law. Pursuant to the judgment, the Settlement Agreement is binding on all
class members who were not previously excluded from the settlement class.
Plaintiff's counsel submitted an application seeking an award of attorney's fees
and expenses in an aggregate amount of $350,000, and the Company will pay this
amount which was awarded by the Court. The Defendants vigorously denied and
continue to deny all liability and allegations of wrongdoing, and the settlement
is not to be construed for any purpose as an inference or admission of liability
or wrongdoing by them..
ITEM 2. CHANGES IN SECURITIES.
- ------- ----------------------
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
- ------- --------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------- ----------------------------------------------------
Not applicable.
ITEM 5. OTHER INFORMATION.
- ----------------------------
17
<PAGE>
On May 8, 1997, the Company announced the execution of agreements for a business
combination of Living Centers of America, Inc. ("LCA") with the Company
immediately following a leveraged recapitalization of LCA by Apollo Management,
L.P.
The consummation of the LCA Merger is subject to numerous conditions including,
without limitation, the approval as the transactions by the stockholders of the
Company and LCA.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) The following exhibits are included herewith:
11 Computation of Net Income (Loss) Per Share
27 Financial Data Schedule
(b) Not applicable
18
<PAGE>
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: May 14, 1997 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)
19
<PAGE>
EXHIBIT 11
GRANCARE, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(Dollars and Shares in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1996
---------------------
<S> <C> <C>
Primary
Average shares outstanding................... 23,740 23,129
Net effect of conversion of stock
options (a)................................. -- 405
Net effect of conversion of warrants (a)..... -- 231
---------------------
Total.......................... 23,740 23,785
=====================
Net income (loss)............................ ($26,137) $ 6,590
=====================
Net income (loss) per common share........... ($1.10) $0.28
=====================
Fully diluted
Average shares outstanding................... 23,740 23,149
Net effect of conversion of stock
options (a)................................. -- 600
Net effect of conversion of warrants (a)..... -- 245
Net effect of conversion of
convertible securities (b).................. -- 2,330
---------------------
Total.......................... 23,740 26,324
=====================
Net income (loss)............................. $ (26,137) $ 6,590
Interest on convertible securities -
net of tax................................... -- 636
---------------------
$ (26,137) $ 7,226
=====================
Net income (loss) per common share............ $ (1.10) $0.28
=====================
</TABLE>
(a) Computed using the treasury stock method
(b) Computed using the "if-converted" method
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 10,267 14,512
<SECURITIES> 36,175 38,933
<RECEIVABLES> 240,249 257,855
<ALLOWANCES> (6,088) (11,209)
<INVENTORY> 2,067 17,312
<CURRENT-ASSETS> 280,693 317,704
<PP&E> 248,802 271,536
<DEPRECIATION> (54,648) (64,387)
<TOTAL-ASSETS> 605,423 748,039
<CURRENT-LIABILITIES> 113,885 117,135
<BONDS> 322,915 382,242
0 0
0 0
<COMMON> 124,798 123,378
<OTHER-SE> 15,278 90,922
<TOTAL-LIABILITY-AND-EQUITY> 605,423 748,039
<SALES> 224,516 230,011
<TOTAL-REVENUES> 224,516 230,011
<CGS> 0 0
<TOTAL-COSTS> 203,854 205,075
<OTHER-EXPENSES> 42,588 14,307
<LOSS-PROVISION> 1,451 1,519
<INTEREST-EXPENSE> 8,537 8,149
<INCOME-PRETAX> (21,926) 10,629
<INCOME-TAX> (620) 4,039
<INCOME-CONTINUING> (21,306) 6,590
<DISCONTINUED> 0 0
<EXTRAORDINARY> 4,831 0
<CHANGES> 0 0
<NET-INCOME> (26,137) 6,590
<EPS-PRIMARY> (1.10) 0.28
<EPS-DILUTED> (1.10) 0.28
</TABLE>
