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 September 30, 1997
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to _______.
Commission File Number: 0-19815
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CAREMATRIX CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 04-3069586
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
197 First Avenue, Needham, MA 02194
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(Address of principal executive offices) (Zip Code)
(617) 433-1000
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(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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 10, 1997
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Common Stock, $.05 par value 17,211,476 shares
<PAGE>
CAREMATRIX CORPORATION
Table of Contents
PART I - FINANCIAL INFORMATION
FINANCIAL STATEMENTS Page
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Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 3
Statements of Operations for the three and nine month
periods ended September 30, 1997 and September 30, 1996 4
Statements of Cash Flows for the nine month periods
ended September 30, 1997 and September 30, 1996 5
Notes to Consolidated Financial Statements 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS 15
ITEM 2: CHANGES IN SECURITIES 15
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 15
<PAGE>
CAREMATRIX CORPORATION
CONSOLIDATED BALANCE SHEETS
as of September 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $137,487,732 $ 57,966,360
Restricted cash 3,118,637 836,745
Receivables:
Accounts receivable, net 6,167,336 3,959,233
Accounts receivable-related party 7,941,329 938,910
Other receivables 315,000 309,613
Prepaid expenses and other current assets 3,204,733 1,772,995
Assets held for sale -- 576,573
------------ ------------
Total current assets 158,234,767 66,360,429
Lease acquisition costs, net 9,193,172 2,753,332
Property and equipment, net 4,162,511 9,503,011
Due from stockholder 1,295,662 356,740
Deposits and other assets 10,189,712 3,129,974
Goodwill, net 27,192,519 25,961,658
------------ ------------
Total assets $210,268,343 $108,065,144
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Current portion of long-term debt $ 2,373,807 $ 2,776,522
Accounts payable 1,707,376 1,346,140
Accrued compensation 971,050 693,120
Accrued liabilities 6,701,694 4,565,503
Other current liabilities 1,881,909 539,265
Assets held for sale 472,534 --
------------ ------------
Total current liabilities 14,108,370 9,920,550
Long-term debt -- 8,903,156
Convertible subordinated notes 100,000,000 --
Other long-term liabilities 1,823,236 1,205,881
Commitments and contingencies -- --
Stockholders' equity 94,336,737 88,035,557
------------ ------------
Total liabilities and stockholders' equity $210,268,343 $108,065,144
============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE>
CAREMATRIX CORPORATION
STATEMENTS OF OPERATIONS (unaudited)
for the three and nine month periods ended September 30, 1997
and September 30, 1996
<TABLE>
<CAPTION>
Consolidated Combined Consolidated Combined
------------ -------- ------------ --------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, 1997 September 30, 1996 September 30, 1997 September 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenue:
Resident operations $14,777,715 $ 1,869,204 $34,726,460 $ 4,258,274
Resident operations---related party 1,286,773 -- 2,171,245 --
Development fee income 563,949 -- 2,108,728 --
Development fee income---related party 4,190,144 -- 9,834,145 --
----------- ----------- ----------- -----------
Total revenue 20,818,581 1,869,204 48,840,578 4,258,274
----------- ----------- ----------- -----------
Expenses:
Facility operating expenses 11,449,766 1,373,368 26,017,062 3,628,079
Facility lease expense 725,168 280,772 1,924,845 825,548
Facility lease expense---related party 1,711,659 -- 3,427,361 --
General and administrative 3,719,974 -- 10,890,928 --
General and administrative---related party -- 2,299,125 -- 5,025,640
Depreciation and amortization 574,407 45,698 1,552,922 110,862
----------- ----------- ----------- -----------
Total expenses 18,180,974 3,998,963 43,813,118 9,590,129
----------- ----------- ----------- -----------
Income (loss) from operations 2,637,607 (2,129,759) 5,027,460 (5,331,855)
Interest income (expense):
Interest income 1,515,813 22,138 3,083,364 46,510
Interest expense (907,357) (315,825) (1,428,600) (874,876)
Interest expense---related party -- -- -- --
----------- ----------- ----------- -----------
Total interest income (expense) 608,456 (293,687) 1,654,764 (828,366)
----------- ----------- ----------- -----------
Earnings (loss) before income taxes and
preferred dividends 3,246,063 (2,423,446) 6,682,224 (6,160,221)
Income taxes 1,305,107 -- 2,686,254 --
----------- ----------- ----------- -----------
Earnings (loss) before preferred dividends 1,940,956 (2,423,446) 3,995,970 (6,160,221)
Preferred dividends 5,825 -- 17,875 --
----------- ----------- ----------- -----------
Net earnings (loss) applicable to common
stockholders $ 1,935,131 $(2,423,446) $ 3,978,095 $(6,160,221)
=========== =========== =========== ===========
Primary earnings (loss) per share
applicable to common stockholders $ 0.11 $ (0.24) $ 0.23 $ (0.62)
=========== =========== =========== ===========
Weighted average shares outstanding 17,610,043 10,000,000* 17,438,726 10,000,000*
=========== =========== =========== ===========
</TABLE>
* Reflects pro forma shares outstanding
prior to combination of entities under
common control (see Note 1)
The accompanying notes are an integral part of the financial statements.
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<PAGE>
CAREMATRIX CORPORATION
STATEMENTS OF CASH FLOWS (unaudited)
for the nine month periods ended September 30, 1997 and September 30, 1996
<TABLE>
<CAPTION>
Consolidated Combined
Nine Month Period Ended Nine Month Period Ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 3,978,095 $(6,160,221)
Noncash items included in net earnings (loss):
Depreciation of fixed assets 481,365 110,862
Amortization of intangible assets 1,071,557 --
Issuance of stock to employees -- 1,200,000
Accretion of deferred rent liability 48,336 --
Accretion of bargain purchase option 228,769 --
Changes in current assets (10,146,319) (560,215)
Changes in current liabilities 899,942 442,617
Changes in other assets -- (287,826)
------------ -----------
Net cash used by operating activities (3,438,255) (5,254,783)
------------ -----------
Cash flows from investing activities:
Purchase of working capital note (300,000) --
Additions to property and equipment (1,296,985) (845,577)
Net change in assets held for sale (348,300) --
Increase in notes receivable (1,198,975) (921,943)
Change in restricted cash (1,639,543) --
Increase in lease acquisition costs, net of cash acquired (7,132,949) --
Change in other long-term assets (466,523) --
------------ -----------
Net cash used by investing activities (12,383,275) (1,767,520)
------------ -----------
Cash flows from financing activities:
Net (decrease) increase in amounts due from stockholder (142,035) 9,443,828
Proceeds from issuance of convertible subordinated notes 97,250,000 --
Repayment of debt (2,602,398) --
Other, net 837,335 --
------------ -----------
Net cash provided by financing activities 95,342,902 9,443,828
------------ -----------
Increase in cash and cash equivalents 79,521,372 2,421,525
Cash and cash equivalents, beginning of period 57,966,360 144,643
------------ -----------
Cash and cash equivalents, end of period $137,487,732 $ 2,566,168
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE>
CAREMATRIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
CareMatrix Corporation (the "Company") develops, manages and operates
assisted living facilities and various other health care facilities.
Prior to the Merger (as described herein), the Company consisted of
business entities which were operated since their date of inception (June 24,
1994) under common control by Abraham D. Gosman ("Mr. Gosman"), who serves as
both the Company's Chairman and is, as trustee, the Company's principal
stockholder.
On October 4, 1996, twelve wholly-owned subsidiaries of The Standish
Care Company, Inc. ("Standish") were merged into certain business entities (the
"CareMatrix Affiliates") controlled by Mr. Gosman with the stockholders of the
CareMatrix Affiliates receiving approximately 92% (10,000,000 shares) of
Standish common stock then outstanding (the "Merger"). Following the Merger,
Standish changed its name to CareMatrix Corporation. The Merger was accounted
for as a reverse acquisition, whereby the CareMatrix Affiliates were treated as
the acquiror for accounting purposes. Accordingly, the financial information for
the three and nine month periods ended September 30, 1996 is that of the
CareMatrix Affiliates prior to the Merger.
The accompanying interim unaudited financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such regulations. The
financial statements reflect all adjustments and disclosures which are, in the
opinion of management, necessary for a fair presentation of the financial
position and results of operations for the periods presented. All such
adjustments are of a normal recurring nature. The interim financial statements
should be read in conjunction with the Company's Form 10-K and Form 10-K/A for
the fiscal year ended December 31, 1996, for additional disclosures. The results
of operations for the interim periods presented are not necessarily indicative
of the results that may be achieved for the full year. Certain reclassifications
have been made on the prior quarter's financial statements to conform to current
quarter presentations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
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<PAGE>
CAREMATRIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. BASIS OF PRESENTATION (continued)
PRINCIPLES OF CONSOLIDATION (continued)
Effective January 1, 1997, the Company entered into management
contracts with a related party for two long-term care facilities. In addition,
on January 1, 1997, the Company exercised its options to lease from a related
party two facilities that it had been managing. In February 1997, the Company
entered into a lease with a third party to operate an assisted living facility
in Maryland. On each of April 1, and August 1, 1997, the Company exercised its
option to lease from a related party a senior facility that it had been
managing. On July 1, 1997, the Company entered into a sublease with a related
party to operate an assisted living facility in Florida and made a lease deposit
of $4.8 million.
2. ASSETS HELD FOR SALE
In connection with the Merger, the Company initiated a plan to dispose
of certain of the acquired Standish facilities. The net assets associated with
these facilities and the estimated costs to dispose of the facilities have been
separately recorded on the balance sheet.
The assets held for sale are comprised of two operating facilities
containing 142 beds which were previously owned by Standish. The net assets
include fixed assets and various other operating assets and current liabilities
and long-term debt associated with the facilities. The Company estimated the
fair market value of the facilities assuming an orderly disposal, less costs to
sell the facilities as well as an estimate of the results of the facilities'
operations through the expected date of disposition. The Company disposed of one
of these facilities in November 1997 and expects to dispose of the second in the
next few months. During the third quarter and nine months of fiscal 1997, the
facilities generated $112,627 and $276,811 of losses, respectively, which have
been excluded from the Company's consolidated statement of operations and
accounted for as an adjustment to the carrying amount of the assets.
3. LONG-TERM DEBT
In April, approximately $1.8 million of debt related to the Company's
facility in New Hampshire matured and was repaid. In connection with the
repayment of this debt, the Company also purchased from the 49% minority partner
in the joint venture its remaining interest in the partnership at the book value
of the partners' debt.
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<PAGE>
CAREMATRIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. CONVERTIBLE SUBORDINATED NOTES
In August 1997, the Company completed a private offering of $100
million 6 1/4% Convertible Subordinated Notes (the "Notes") due August 15, 2004.
Interest is payable semi-annually in February and August, beginning February
1998. The Notes are convertible into Common Stock of the Company at any time
through the close of business on the final maturity date of the Notes, unless
previously redeemed or repurchased, at a conversion price of $28.875 per share,
subject to adjustment under certain conditions. Prior to August 18, 2000, the
Notes are not redeemable at the option of the Company. Thereafter, the Notes are
redeemable at the option of the Company, in whole or in part, at declining
redemption prices. The Notes are unsecured obligations of the Company and are
subordinated to all existing and future Senior Indebtedness, as defined, and all
liabilities of the Company and its subsidiaries. The proceeds of the offering
will be used for general corporate purposes, including, but not limited to,
capital expenditures, working capital and acquisitions. In October 1997, the
over-allotment option on the Notes was exercised in full and the Company
received an additional $14.6 million in cash upon the issuance of $15.0 million
principal amount of Notes.
5. RELATED PARTY TRANSACTIONS
As used herein, a "related party" is Chancellor Senior Housing Group,
Inc. or a company in which Mr. Gosman and/or members of the Company's senior
management and/or stockholders have a significant ownership interest.
During the first quarter of 1997, the Company exercised its option, at
a cost of $1.8 million, to lease from a joint venture, of which Mr. Gosman is a
partner, a senior living facility which it had been managing.
In January 1997, the Company purchased, for $2.1 million, a
subordinated working capital loan related to a facility that it is managing. The
loan has a face value of $2.4 million, bears interest at 8.5% and matures
November 2024. Payment of accrued interest on the note is subordinated to the
facility achieving certain financial performance measures.
The Company subleases a portion of its principal office space in
Needham, Massachusetts to Meditrust, a publicly traded real estate investment
trust company, of which Mr. Gosman is the Chairman of the Board and Chief
Executive Officer. Accordingly, general and administrative expenses for the
third quarter and first nine months of fiscal 1997 has been reduced by $44,814
and $134,442, respectively, to reflect Meditrust's portion of the rent.
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<PAGE>
CAREMATRIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS
128). FAS 128 establishes standards for computing and presenting earnings per
share (EPS) and supersedes APB Opinion No. 15, "Earnings per Share." FAS 128
replaces primary earnings per share with basic earnings per share and requires
dual presentation of basic and diluted earnings per share on the face of the
income statement. The Company does not expect the adoption of FAS 128 to have a
material impact.
FAS 128 is effective for financial statements issued for periods ending
after December 15, 1997 and requires restatement of all prior period EPS data
presented.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company is a provider of assisted living services to the elderly.
At September 30, 1997, the Company operated 22 facilities in 8 states with a
capacity of approximately 2,200 residents, including 17 facilities owned or
leased by the Company or in which it has ownership interests and 5 facilities
which it manages. In addition, at September 30, 1997, the Company had
approximately 60 facilities under development with a capacity of approximately
7,200 residents. The Company provides assistance with the activities of daily
living and other personalized support services in a residential setting for
elderly residents who cannot live independently but who do not need the level of
medical care provided in a skilled nursing facility. The Company also provides
additional specialized care and services to residents with certain low acuity
medical needs and residents with Alzheimer's disease or other forms of dementia.
By offering this full range of services, the Company is able to accommodate the
changing needs of residents as they age within a facility and develop further
physical or cognitive frailties.
The Company derives its revenues from three primary sources: (i)
resident fees for the delivery of assisted living services (including revenues
for services provided at skilled nursing facilities which are dependent, in
part, on reimbursement from Medicare, state Medicaid programs and private
insurers); (ii) management services income for management of facilities; and
(iii) fee income from the development and construction of facilities. Resident
fees typically are paid monthly by residents, their families or other
responsible parties. Resident fees and management fees are recognized as
revenues when services are provided. Development fee revenue is recognized on
the percentage of completion basis.
On October 4, 1996, twelve wholly-owned subsidiaries of The Standish
Care Company, Inc. ("Standish") were merged into certain business entities (the
"CareMatrix Affiliates") controlled by Mr. Gosman with the stockholders of the
CareMatrix Affiliates receiving approximately 92% (10,000,000 shares) of
Standish common stock then outstanding (the "Merger"). Following the Merger,
Standish changed its name to CareMatrix Corporation. The Merger was accounted
for as a reverse acquisition, whereby the CareMatrix Affiliates were treated as
the acquiror for accounting purposes. Accordingly, the financial information for
the three and nine month periods ended September 30, 1996 is that of the
CareMatrix Affiliates prior to the Merger.
The following discussion, as well as other portions of this document,
includes certain statements which are or may be construed as forward looking
about the Company's business, sales and expenses, and operating and capital
requirements. Any such statements are subject to risks that could cause the
actual results or requirements to vary materially.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The quarter ended September 30, 1997 compared to the quarter ended
September 30, 1996
REVENUES. Net revenues for the third quarter of 1997 increased $18.9
million compared to the same period in 1996.
Resident operations revenue increased $14.2 million in the third
quarter of fiscal 1997 compared to the same period in 1996. New facilities
operations and management services contributed $14.1 million of this increase.
During the quarter ended September 30, 1996, the Company's resident operations
revenues were derived from the operation of a long-term care facility in
Maryland.
Development services revenue was $4.8 million in the third quarter of
fiscal 1997 versus none in the same period in 1996, as the Company did not begin
development activity until the fourth quarter of 1996.
FACILITY EXPENSES. Facility expenses, including lease expense, for the
third quarter of 1997 increased by $12.2 million compared to the same period in
fiscal 1996. New facilities contributed $12.2 million of this increase.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
third quarter of 1997 increased to $3.7 million from $2.3 million in the same
period of fiscal 1996. As a percentage of operating revenue, general and
administrative expenses in the third quarter of 1997 declined to 17.9% from
123.0% in the third quarter of 1996. The increase in expense is primarily due to
an increase in salary and benefits expenses relating to the hiring of additional
corporate staff in anticipation of the Company's growth plans.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
third quarter of 1997 increased $529,000 compared to the same period in fiscal
1996. The increase is due primarily to $260,000 of amortization of goodwill
incurred as a result of the Merger, $82,000 related to new facilities, and
$120,000 from the amortization of lease acquisition costs.
INTEREST INCOME. Interest income for the third quarter of 1997 was $1.5
million compared to $22,000 for the same period in fiscal 1996. The increase in
interest income was primarily due to higher
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The quarter ended September 30, 1997 compared to the quarter ended
September 30, 1996 (continued)
average cash balances as a result of the net proceeds from the private offering
of the Notes in August 1997 (see Note 4 of Notes to Consolidated Financial
Statements) and a secondary offering of common stock in October 1996 (see Note 9
of the Notes to Financial Statements contained in the Company's 1996 Annual
Report on Form 10-K).
INTEREST EXPENSE. Interest expense for the third quarter of 1997
increased to $907,000 from $316,000 for the same period in 1996. The increase is
primarily due to higher average borrowings during 1997 compared to 1996 as a
result of net proceeds from the private offering of the Notes in August 1997
(see Note 4 of Notes to Consolidated Financial Statements).
INCOME TAXES. The Company's effective tax rate during the third quarter
of 1997 was 40.2%. During the same period in 1996, the entities included in
these financial statements were S corporations or partnerships; accordingly, any
income tax liabilities were the responsibility of the respective owners or
partners. Provisions for income taxes and deferred assets and liabilities of the
taxable entities were not reflected since there was no taxable income on a
combined basis.
The nine months ended September 30, 1997 compared to the nine months ended
September 30, 1996
REVENUES. Net revenues for the first nine months of 1997 increased
$44.6 million compared to the same period in 1996.
Resident operations revenue increased $32.6 million in the first nine
months of fiscal 1997 compared to the same period in 1996. New facilities
operations and management services contributed $31.6 million of this increase.
During the same period in 1996, the Company's resident operations revenues were
derived from the operation of a long-term care facility in Maryland and the
management of two facilities in Florida.
Development fee income was $11.9 million in the first nine months of
fiscal 1997 versus none in the same period in 1996 as the Company did not begin
development activity until the fourth quarter of 1996.
FACILITY EXPENSES. Facility expenses, including lease expense, for the
first nine months of 1997 increased by $26.9 million compared to the same period
in fiscal 1996. New facilities contributed $26.4 million of this increase.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The nine months ended September 30, 1997 compared to the nine months ended
September 30, 1996 (continued)
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
first nine months of 1997 increased to $10.9 million from $5.0 million in the
same period of fiscal 1996. As a percentage of operating revenue, general and
administrative expenses in the period declined to 22.3% from 118.0% in the same
period of 1996. The increase in expense is primarily due to an increase in
salary and benefits expenses relating to the hiring of additional corporate
staff in anticipation of the Company's growth plans.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
first nine months of 1997 increased $1.4 million compared to the same period in
fiscal 1996. The increase is due primarily to $779,000 of amortization of
goodwill incurred as a result of the Merger, $267,000 from new facilities, and
$262,000 from the amortization of lease acquisition costs.
INTEREST INCOME. Interest income for the first nine months of 1997 was
$3.1 million compared to $47,000 for the same period in fiscal 1996. The
interest income was primarily due to higher average cash balances as a result of
the net proceeds from the private offering of the Notes in August 1997 (see Note
4 of Notes to Consolidated Financial Statements) and a secondary offering of
common stock in October 1996 (see Note 9 of the Notes to Financial Statements
contained in the Company's 1996 Annual Report on Form 10-K).
INTEREST EXPENSE. Interest expense for the first nine months of 1997
increased to $1.4 million from $0.9 million for the same period in 1996. The
increase is primarily due to higher average borrowings during 1997 compared to
1996 as a result of the net proceeds from the private offering of the Notes in
August 1997 (see Note 4 of Notes to Consolidated Financial Statements).
INCOME TAXES. The Company's effective tax rate during the first nine
months of 1997 was 40.2%. During the same period in 1996, the entities included
in these financial statements were S corporations or partnerships; accordingly,
any income tax liabilities were the responsibility of the respective owners or
partners. Provisions for income taxes and deferred assets and liabilities of the
taxable entities were not reflected since there was no taxable income on a
combined basis.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at September 30, 1997 were $137.5 million
compared to $58.0 million at December 31, 1996, an increase of approximately
$79.5 million.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
Cash used in operations was $3.4 million in the first nine months of
fiscal 1997 compared to $5.3 million for the same period in fiscal 1996. The
decrease in the use of cash is due primarily to increased earnings, partially
offset by increases in accounts receivable due to new facilities and an increase
in development fees receivable of $6.4 million.
Cash used in investing activities was $12.4 million in the first nine
months of fiscal 1997 compared to $1.8 million for the same period in fiscal
1996. The increase in the use of cash is due primarily to the payment of $6.6
million to acquire the lease rights to two facilities, $1.2 million of advances,
$1.6 million increase in restricted cash, and $1.3 million of capital
expenditures for the remodeling of existing facilities.
Cash provided by financing activities were $95.3 million in the first
nine months of fiscal 1997 compared to $9.4 million in the same period in fiscal
1996. The increase is primarily due to the net proceeds from the convertible
debt offering, net of issuance costs, in August. The $9.4 million source of cash
in the prior year reflected an increase in the net obligation owed to the
Company's principal stockholder for funding the Company's start-up losses,
capital expenditures and investments.
The Company will require resources in the future to fund the planned
acquisition and development of additional assisted living, supportive
independent and extended care facilities as well as its working capital
requirements. The Company expects to partially fund these resource requirements
with its cash on hand as well as related party or third-party financing of
assisted living facilities to be developed. The Company and certain related
parties are presently in discussions with a number of third parties to secure
commitments regarding sources of additional financing. Furthermore, the Company
intends to seek bank borrowings and other debt or equity financings to provide
additional sources of capital in the future.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is, from time to time, a party to litigation in the
ordinary course of business. The Company does not believe that any such
litigation will have a material adverse effect on its business, financial
position or results of operations.
ITEM 2. CHANGES IN SECURITIES
On August 18, 1997, the Company completed the private offering of
$100,000,000 aggregate principal amount of 6 1/4% Convertible Subordinated Notes
due 2004 (the "Notes"). The initial purchasers of the Notes were Robertson,
Stephens & Company LLC, Morgan Stanley & Co. Incorporated, Paine Webber
Incorporated, Salomon Brothers Inc. and Smith Barney Inc. (collectively, the
"Initial Purchasers"). The aggregate offering price was $100,000,000 and the
aggregate discounts and commissions equaled $2,750,000. The Notes were offered
only (i) inside the United States to "Qualified Institutional Buyers" (as
defined in Rule 144A under the Securities Act of 1933, as amended (the "Act"))
in compliance with Rule 144A of the Act, (ii) inside the United States to a
limited number of other institutional "accredited investors" (as deigned in Rule
501(a)(1), (2), (3) or (7) under the Act) in reliance on Regulation D of the
Act, and (iii) outside the United States to persons other than U.S. persons in
reliance on Regulation S under the Act. The Notes are convertible into shares of
the Company's common stock at a conversion price of $28.875 per share.
On August 22, 1997, pursuant to the Warrant Agreement dated
November 10, 1993 (the "Warrant Agreement") by and among the Company and Health
Care REIT, Inc. ("HCR"), the Company issued to HCR an immediately exercisable
warrant to purchase 11,038 shares of the Company's common stock. This warrant
was issued in connection with the lease financing by HCR of a facility of the
Company currently under development. On September 18, 1997, also pursuant to the
Warrant Agreement, the Company issued to HCR an immediately exercisable warrant
to purchase 3,677 shares of the Company's common stock. This warrant was issued
in connection with construction/term loan financing by HCR of a facility of the
Company currently under development. The initial exercise price of each warrant
is $16.55 per share, subject to adjustment for stock splits, stock dividends and
other similar action with respect to the Company's common stock. Both of such
warrants were issued pursuant to an exemption from registration under Section
4(2) of the Securities Act of 1933, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). The following documents are filed as part of this report:
4.1(1) Indenture, dated as of August 15, 1997, between the Company
and State Street Bank and Trust Company, providing for the
terms and conditions of up to $115,000,000 of the Notes.
10.1(1) Purchase Agreement, dated August 12, 1997, by and among the
Company, and the Initial Purchasers.
10.2(1) Registration Rights Agreement, dated as of August 15, 1997, by
and among the Company and the Initial Purchasers.
10.3(2) Registration Agreement, dated as of October 23, 1997, by and
between the Company and BancAmerica Robertson Stephens.
11 Statement re: computation of per share earnings
27 Financial Data Schedule
-15-
<PAGE>
PART II - OTHER INFORMATION (continued)
--------------------------------------
(1) Incorporated by reference to the Company's Registration
Statement on Form S-3 filed by the Registrant on October 17,
1997 (File No. 333-38113).
(2) Incorporated by reference to the Company's Registration
Statement on Form S-3 filed by the Registrant on
November 12, 1997 (File No. 333-40015).
(b). Reports on Form 8-K
The Registrant filed reports on Form 8-K on August 5, 1997 and
August 19, 1997.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities and Exchange Act of 1934, as amended, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAREMATRIX CORPORATION
Date: November 13, 1997 By: /s/ Robert M. Kaufman
--------------------------------
Robert M. Kaufman
Chief Executive Officer
and Principal Accounting Officer
-17-
Exhibit 11
CAREMATRIX CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Quarter Ended
-------------
September 30, September 30,
1997 1996
---- ----
<S> <C> <C>
Weighted average primary shares outstanding
- -------------------------------------------
Weighted average number of common shares
assumed to be outstanding during the period 17,150,878 10,000,000
Assumed conversion of preferred stock 20,566 --
Assumed exercise of stock options 383,348 --
Assumed conversion of debt -- --
Assumed exercise of warrants 55,251 --
----------- -----------
17,610,043 10,000,000
=========== ===========
Weighted average fully-diluted shares outstanding
- -------------------------------------------------
Weighted average number of common shares
assumed to be outstanding during the period 17,150,878 10,000,000
Assumed conversion of preferred stock 20,566 --
Assumed exercise of stock options 438,293 --
Assumed conversion of debt -- --
Assumed exercise of warrants 71,666 --
----------- -----------
17,681,403 10,000,000
=========== ===========
</TABLE>
Note: This calculation is presented in accordance with Item 602 of Regulation
S-K although it is not required by APB Opinion No. 15.
<PAGE>
Exhibit 11
CAREMATRIX CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30, September 30,
1997 1996
---- ----
<S> <C> <C>
Weighted average primary shares outstanding
- -------------------------------------------
Weighted average number of common shares
assumed to be outstanding during the period 17,125,115 10,000,000
Assumed conversion of preferred stock 21,068 --
Assumed exercise of stock options 270,432 --
Assumed conversion of debt -- --
Assumed exercise of warrants 22,111 --
----------- -----------
17,438,726 10,000,000
=========== ===========
Weighted average fully-diluted shares outstanding
- -------------------------------------------------
Weighted average number of common shares
assumed to be outstanding during the period 17,125,115 10,000,000
Assumed conversion of preferred stock 21,068 --
Assumed exercise of stock options 411,855 --
Assumed conversion of debt -- --
Assumed exercise of warrants 71,666 --
----------- -----------
17,629,704 10,000,000
=========== ===========
</TABLE>
Note: This calculation is presented in accordance with Item 602 of Regulation
S-K although it is not required by APB Opinion No. 15.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 140,606,369
<SECURITIES> 0
<RECEIVABLES> 15,657,889
<ALLOWANCES> (1,234,224)
<INVENTORY> 0
<CURRENT-ASSETS> 158,234,767
<PP&E> 4,894,109
<DEPRECIATION> (731,598)
<TOTAL-ASSETS> 210,268,343
<CURRENT-LIABILITIES> 14,108,370
<BONDS> 100,000,000
0
233,000
<COMMON> 858,921
<OTHER-SE> 93,244,816
<TOTAL-LIABILITY-AND-EQUITY> 210,268,343
<SALES> 48,840,578
<TOTAL-REVENUES> 48,840,578
<CGS> 0
<TOTAL-COSTS> 31,369,268
<OTHER-EXPENSES> 12,191,139
<LOSS-PROVISION> 252,711
<INTEREST-EXPENSE> 1,428,600
<INCOME-PRETAX> 6,682,224
<INCOME-TAX> 2,686,254
<INCOME-CONTINUING> 3,978,095
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,978,095
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
