<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM --------- TO ---------
</TABLE>
COMMISSION FILE NUMBER: 0-19815
------------------------
CAREMATRIX CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 04-3069586
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
197 FIRST AVENUE, NEEDHAM, MA 02494
(Address of principal executive offices) (Zip Code)
(781) 433-1000
(Registrant's telephone number, including area code)
</TABLE>
------------------------
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/
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
CLASS OUTSTANDING AT NOVEMBER 10, 1999
- ------------------------------------------ ------------------------------------------
Common Stock, $.05 par value 18,032,697 shares
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CAREMATRIX CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I--FINANCIAL CONDITION
Consolidated Balance Sheets as of September 30, 1999 and
December 31, 1998......................................... 3
Consolidated Statements of Earnings for the three and nine
months ended September 30, 1999 and September 30, 1998.... 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and September 30, 1998........... 5
Notes to Consolidated Financial Statements.................. 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12
Quantitative and Qualitative Disclosures About Market
Risk...................................................... 18
PART II--OTHER INFORMATION
ITEM 1: Legal Proceedings................................... 19
ITEM 2: Changes in Securities............................... 20
ITEM 3: Defaults Upon Senior Securities..................... 20
ITEM 4: Submission of Matters to a Vote of Security
Holders................................................... 20
ITEM 5: Other Information................................... 20
ITEM 6: Exhibits and Reports of Form 8-K.................... 20
</TABLE>
2
<PAGE>
CAREMATRIX CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 9,143,986 $ 28,217,373
Restricted cash........................................... 2,475,308 22,305,371
Receivables:
Accounts receivable, net................................ 34,887,186 25,334,127
Accounts receivable--related party...................... 40,845,566 21,662,515
Prepaid expenses and other current assets................. 6,816,090 4,875,075
------------ ------------
Total current assets.................................. 94,168,136 102,394,461
Lease acquisition costs, net................................ 33,372,996 15,792,315
Property and equipment, net................................. 161,790,161 147,938,997
Other long-term assets, net................................. 59,712,111 41,023,981
Goodwill, net............................................... 39,794,786 42,496,693
------------ ------------
Total assets.......................................... $388,838,190 $349,646,447
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 989,032 $ 848,600
Accounts payable.......................................... 10,097,509 9,315,591
Accrued compensation and benefits......................... 3,389,929 2,262,161
Accrued liabilities....................................... 6,619,004 14,800,794
Other current liabilities................................. 1,749,993 1,246,007
------------ ------------
Total current liabilities............................... 22,845,467 28,473,153
Mortgages and notes payable................................. 76,797,915 43,029,548
Borrowings under line of credit............................. 24,863,687 20,863,687
Convertible subordinated notes.............................. 115,000,000 115,000,000
Other long-term liabilities................................. 6,680,361 7,859,818
Commitments and contingencies
Shareholders' equity........................................ 142,650,760 134,420,241
------------ ------------
Total liabilities and shareholders' equity............ $388,838,190 $349,646,447
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
CAREMATRIX CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Resident operations............. $41,127,109 $28,431,562 $119,543,145 $ 74,580,649
Resident operations--related
party......................... 3,267,939 4,741,116 14,947,896 10,582,925
Development fee income.......... 796,024 279,051 1,379,772 1,967,344
Development fee income--related
party......................... 1,439,299 6,153,218 15,056,855 16,286,378
----------- ----------- ------------ ------------
Total revenue................. 46,630,371 39,604,947 150,927,668 103,417,296
----------- ----------- ------------ ------------
Expenses:
Facility operating expenses..... 29,031,171 20,783,902 84,378,944 53,793,800
Facility lease expense.......... 290,678 297,930 664,124 1,475,628
Facility lease expense--related
party......................... 4,762,738 3,956,108 14,554,591 10,504,311
General and administrative...... 5,086,253 4,769,318 15,375,168 14,320,758
Restructuring and other
charges....................... 3,753,940 -- 3,753,940 --
Depreciation and amortization... 2,586,384 1,241,359 7,275,668 2,842,203
----------- ----------- ------------ ------------
Total expenses................ 45,511,164 31,048,617 126,002,435 82,936,700
----------- ----------- ------------ ------------
Earnings from operations.......... 1,119,207 8,556,330 24,925,233 20,480,596
Other income (expense):
Interest income--related
party......................... 916,820 245,484 2,566,459 963,957
Interest and other income
(expense)..................... (215,959) 1,789,529 1,695,234 5,562,402
Interest expense................ (3,824,040) (2,219,593) (11,011,854) (5,886,303)
----------- ----------- ------------ ------------
Total other income
(expense)................... (3,123,179) (184,580) (6,750,161) 640,056
----------- ----------- ------------ ------------
Earnings (loss) before income
taxes and preferred dividends... (2,003,972) 8,371,750 18,175,072 21,120,652
Income tax provision (benefit).... (791,569) 3,432,691 7,179,153 8,659,468
----------- ----------- ------------ ------------
Earnings (loss) before preferred
dividends....................... (1,212,403) 4,939,059 10,995,919 12,461,184
Preferred dividends............... 1,775 1,825 5,375 8,225
----------- ----------- ------------ ------------
Net earnings (loss)............... $(1,214,178) $ 4,937,234 $ 10,990,544 $ 12,452,959
=========== =========== ============ ============
Basic shares outstanding.......... 17,841,297 17,670,260 17,930,581 17,571,062
=========== =========== ============ ============
Basic earnings (loss) per share... $ (0.07) $ 0.28 $ 0.61 $ 0.71
=========== =========== ============ ============
Diluted shares outstanding........ 17,841,297 22,004,210 18,075,869 18,046,997
=========== =========== ============ ============
Diluted earnings (loss) per
share........................... $ (0.07) $ 0.27 $ 0.61 $ 0.69
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
CAREMATRIX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 10,990,544 $ 12,452,959
Noncash items included in net earnings:
Restructuring and other charges......................... 3,127,778 --
Depreciation of fixed assets............................ 3,852,554 910,731
Amortization of intangible assets....................... 2,705,378 1,480,882
Amortization of lease acquisition costs................. 717,736 450,590
Increase in accounts receivable......................... (29,493,032) (16,065,160)
Changes in current assets............................... (1,072,401) (4,342,252)
Increase (decrease) in current liabilities.............. (6,153,329) 9,621,867
Other noncash items..................................... -- 85,050
------------ -------------
Net cash provided (used) by operating activities...... (15,324,772) 4,594,667
------------ -------------
Cash flows from investing activities:
Additions to property and equipment....................... (3,549,435) (6,949,802)
Purchase of SeniorCare Group, Ltd. facility............... (5,780,000) (100,122,167)
Additions to lease deposits and other long-term assets.... (14,650,160) (25,539,143)
Increase in prepaid rent.................................. (5,800,000) --
Change in restricted cash................................. 19,830,063 (25,957,807)
Lease acquisition costs................................... (18,298,417) (7,237,553)
------------ -------------
Net cash used by investing activities................. (28,247,949) (165,806,472)
------------ -------------
Cash flows from financing activities:
Exercise of stock options and warrants.................... 234,649 4,334,747
Repurchase of common shares............................... (2,994,675) --
Borrowings under the line of credit....................... 4,000,000 8,500,000
Net proceeds from mortgage refinancing.................... 25,907,252 --
Repayment of debt, net.................................... (2,647,892) (322,132)
Other, net................................................ -- 60,454
------------ -------------
Net cash provided by financing activities............. 24,499,334 12,573,069
------------ -------------
Decrease in cash and cash equivalents....................... (19,073,387) (148,638,736)
Cash and cash equivalents, beginning of period.............. 28,217,373 152,619,435
------------ -------------
Cash and cash equivalents, end of period.................... $ 9,143,986 $ 3,980,699
============ =============
Other noncash items:
Conversion of convertible debentures into equity.......... $ 2,000,000
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<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.
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 Annual Report on Form 10-K for
the year ended December 31, 1998, 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 year's financial statements to conform to the
current year's 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.
2. RESTRICTED CASH
CASH COLLATERAL. Under the terms of an agreement to fix interest rates on
future leases with Chancellor Senior Housing Group, Inc. and certain affiliated
companies, the Company was required to maintain specified levels of cash
collateral with a financial institution. Interest on the funds held accrued to
the benefit of the Company. As of September 30, 1999, the Company had terminated
this agreement. At December 31, 1998, the amount held was $19.1 million.
3. RELATED PARTY TRANSACTIONS
As used herein, "Chancellor" or "Chancellor Entity" refers to Chancellor
Senior Housing Group, Inc., Abraham D. Gosman (Chief Executive Officer and
Chairman of the Board of the Company) or companies in which Mr. Gosman and
certain current and former members of the Company's senior management exercise
significant control.
The Company has entered into management and marketing agreements with
Chancellor Entities which provide for fees to be earned by the Company during
the fill-up and upon the initial move-in of residents into new facilities up to
the maximum occupancy of a facility and for fees based upon the revenues of a
facility. For the nine months ended September 30, 1999, the Company recognized
revenue of $14.9 million for marketing and management services provided to
various Chancellor Entities under the terms of these agreements compared to
revenue of $12.8 million for the year ended December 31, 1998.
During the quarter ended September 30, 1999, the Company purchased a
Chancellor Entity's rights to receive future cash flow distributions related to
development projects for $1.7 million. The Company expects to receive such
distributions on or before December 31, 2000. The Company also purchased options
to purchase land related to two development projects in Connecticut from certain
Chancellor Entities for approximately $1.2 million.
6
<PAGE>
CAREMATRIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
During the quarter ended June 30, 1999, the Company paid a Chancellor Entity
$4.2 million to purchase, at estimated fair market value, an interest in a
limited partnership. The investment is being accounted for under the equity
method, accordingly, the Company has recorded its share of the income or expense
from the investment in other income and expense. The Company recorded income of
$0.8 million in the second quarter of 1999 and an expense of $0.8 million in the
third quarter of 1999 as the value of the investment had declined below cost.
The Chancellor Entity has guaranteed the value of the investment at
$4.2 million. The Company received $3.3 million upon the liquidation of the
investment in the fourth quarter of 1999. The difference $0.9 million between
the purchase price and amount received will be reflected as a related party
receivable in the fourth quarter of 1999.
During the quarter ended June 30, 1999, the Company paid certain Chancellor
Entities $4.0 million for the right to receive each such Chancellor Entity's
share of cash flow for two facilities which are owned 50% by a Chancellor Entity
and 50% by third parties. The rights are being amortized over the term of the
related agreement. The Company also purchased, at cost, two parcels of land from
certain Chancellor Entities for approximately $4.0 million.
In addition, during 1999 the Company paid various Chancellor Entities
$5.8 million related to prepaid rent for four facilities which it is currently
leasing. The rent is being amortized over the terms of the related leases. The
Company has also paid various Chancellor Entities $14.3 million related to lease
rights for nine facilities which the Company is currently managing and expects
to lease within one to three fiscal quarters. These amounts will be amortized
over the terms of the related lease agreements.
During the quarter ended March 31, 1999, the Company paid a Chancellor
Entity $2.0 million for development and management rights related to a senior
community in New Jersey. The development rights are being amortized as the
related fees are earned.
As of September 30, 1999, the net receivable due from Chancellor Entities
was $40.8 million. The ability of the Chancellor Entities to pay a significant
portion of this amount is primarily dependent upon the successful consummation
of proposals being negotiated as part of the Company's evaluation of strategic
alternatives (see Note 8). There can be no assurance that a satisfactory
conclusion to the above-referenced negotiations, as they relate to the
receivables, will be reached. If a satisfactory conclusion to the negotiations
is not reached, then the Company would at that time evaluate the collectibility
of these receivables and take the appropriate action, which could include
write-downs to the value of certain of these assets. This action could have a
material adverse impact on the Company's financial position, results of
operations, and cash flows, and could result in the Company being in default of
certain debt covenants contained in its line of credit (see Note 9 of Notes to
Consolidated Financial Statements in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998).
At September 30, 1999, the Company also has approximately $42.0 million of
long-term assets, including lease acquisition, lease deposits, and prepaid rent,
which relate to Chancellor facilities or properties which are encumbered by
debt. If the related Chancellor Entities were to default under the terms of
their debt agreements, all or part of these assets could be put at risk
dependent upon the then existing facts and circumstances. The Company would
evaluate the recoverability of these assets as circumstances warrant.
7
<PAGE>
CAREMATRIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PURCHASE OF SENIORCARE GROUP, LTD. FACILITY
The Company completed the acquisition of the tenth SeniorCare Group, Ltd.
("SeniorCare") facility in January 1999 (see Note 3 of Notes to Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998). In connection with the acquisition of this facility,
the Company recorded the related fixed assets and debt at their estimated fair
market values of $18.5 million and $8.1 million, respectively.
5. DEBT REFINANCING
During the quarter ended June 30, 1999, the Company refinanced certain
mortgage debt assumed in the SeniorCare acquisition. The new loans have an
aggregate principal amount of $38.0 million and bear interest at 7.53%. The
loans mature June 2009 and payments of principal and interest began in
July 1999. The proceeds from the loan were used primarily for working capital.
In connection with the refinancing, the Company reduced goodwill by
approximately $1.5 million, which represents the net excess of the fair value of
the debt retired over its historical cost basis.
During the quarter ended March 31, 1999, the Company refinanced certain
mortgage debt assumed in the SeniorCare acquisition. The new mortgage has a
principal amount of $16.7 million, bears interest at 30 day LIBOR plus 3% and
matures January 31, 2002. Interest payments are due monthly and began in
March 1999. The proceeds from the loan were used primarily to complete the
acquisition of SeniorCare and to repay the existing mortgage.
8
<PAGE>
CAREMATRIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. EARNINGS PER SHARE
Earnings per share has been computed in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per share."
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------
BASIC LOSS PER SHARE LOSS SHARES PER SHARE
- -------------------- ------------ ----------- ---------
<S> <C> <C> <C>
Loss available to common shareholders...................... $(1,214,178) 17,841,297 $(0.07)
Effect of dilutive securities:
Stock options and warrants............................. -- -- --
6.25% Convertible Debentures........................... -- -- --
Conversion of preferred stock.......................... -- -- --
----------- ---------- ------
Diluted loss per share..................................... $(1,214,178) 17,841,297 $(0.07)
=========== ========== ======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------
BASIC EARNINGS PER SHARE EARNINGS SHARES PER SHARE
- ------------------------ ------------ ----------- ---------
<S> <C> <C> <C>
Earnings available to common shareholders.................. $10,990,544 17,930,581 $ 0.61
Effect of dilutive securities:
Stock options and warrants............................. -- 145,288 --
6.25% Convertible Debentures........................... -- -- --
Conversion of preferred stock.......................... -- -- --
----------- ---------- ------
Diluted earnings per share................................. $10,990,544 18,075,869 $ 0.61
=========== ========== ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1998
-------------------------------------
BASIC EARNINGS PER SHARE EARNINGS SHARES PER SHARE
- ------------------------ ----------- ----------- ---------
<S> <C> <C> <C>
Earnings available to common shareholders................... $4,937,234 17,670,260 $0.28
Effect of dilutive securities:
Stock options and warrants.............................. -- 351,266 --
6.25% Convertible Debentures............................ 1,060,156 3,982,684 --
---------- ---------- -----
Diluted earnings per share.................................. $5,997,390 22,004,210 $0.27
========== ========== =====
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
--------------------------------------
BASIC EARNINGS PER SHARE EARNINGS SHARES PER SHARE
- ------------------------ ------------ ----------- ---------
<S> <C> <C> <C>
Earnings available to common shareholders.................. $12,452,959 17,571,062 $0.71
Effect of dilutive securities:
Stock options and warrants............................. -- 452,231 --
8.5% Convertible Debentures............................ 12,961 23,704 --
----------- ---------- -----
Diluted earnings per share................................. $12,465,920 18,046,997 $0.69
=========== ========== =====
</TABLE>
7. COMMON STOCK
In February 1999, the Company announced that its Board of Directors
authorized a share repurchase program of up to one million shares of its
outstanding common stock from time to time in open market transactions. As of
September 30, 1999, the Company had repurchased 191,400 shares at an average
price
9
<PAGE>
CAREMATRIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMON STOCK (CONTINUED)
of $15.59. Pending resolution of the Company's review of strategic alternatives
(see Note 8), the Company has suspended purchases under the program.
In April 1999, the Company was approved to be listed on the Nasdaq Stock
Market. The Company's common stock began trading under the symbol "CMDC" on
April 23, 1999.
8. STRATEGIC ALTERNATIVES
On July 22, 1999, the Company announced that the Board of Directors had
instructed management to explore various strategic alternatives to maximize
shareholder value. A member of the Company's Board of Directors has been engaged
by the Company as a consultant to help identify strategic alternatives.
On August 10, 1999, the Company's Board of Directors authorized the
retention of the investment banking firms DeutscheBancAlex.Brown and PaineWebber
Incorporated, to assist in further identifying strategic alternatives. Also, a
special committee of the Board of Directors has been formed with the authority
to engage financial advisors to assist it in considering for the benefit of the
Company and its shareholders any proposal which may arise.
During the quarter ended September 30, 1999, as part of its evaluation of
strategic alternatives, the Company terminated approximately 30 projects in its
development pipeline as a result of both Chancellor's inability to obtain
adequate financing to continue developing these projects and the Company's
decision to discontinue projects in markets where competitive factors have
resulted in slower than expected facility fill rates and overbuilding. The
balance of outstanding development fees receivable on these projects at
September 30, 1999, was $5.9 million, which amount Chancellor has agreed to pay.
The Company expects that Chancellor's inability to obtain financing to sustain
its development pipeline and the competitive factors noted above will continue
to adversely impact the Company's financial position, results of operations, and
cash flows for the foreseeable future.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," the Company also assessed the recoverability of its long-lived
assets by comparing anticipated discounted future cash flows with the carrying
value of the related assets. As a result of this assessment, the Company
recorded a charge of $3.1 million to write down the value of various third-party
investments and notes to their expected net realizable value. This amount has
been reflected in Restructuring and Other Charges in the Consolidated Statement
of Earnings.
As a result of the reduction in the Company's development pipeline, the
Company also restructured its corporate overhead by eliminating development
positions in markets where the Company will no longer be developing projects.
The Company also initiated a program to reduce overall corporate overhead due to
the reduced growth plans. The costs associated with these reductions in
personnel, including severance and related benefits, approximated $0.6 million
and have been included in Restructuring and Other Charges on the Consolidated
Statement of Earnings. There can be no assurance that the savings produced by
the reduction in overhead will completely offset the revenue lost due to the
reduction in the development pipeline.
10
<PAGE>
CAREMATRIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LITIGATION
The Company and each of its directors have been named as defendants in a
class action lawsuit filed in the Court of Chancery of the State of Delaware for
New Castle County. This class action was filed by the Howard Gunty Profit
Sharing Plan on August 18, 1999. The complaint alleges that the defendants are
engaged in a course of conduct that constitutes a breach of their fiduciary and
other common law duties to the public shareholders of the Company. Specifically,
the complaint alleges that the defendants are preparing to execute a
management-led buy-out or other strategic alternatives that would be unfair to
the public shareholders of the Company. Plaintiffs seek an injunction preventing
any such buy-out or, in the event that such a buy-out is consummated, an order
from the court setting it aside. Plaintiffs also seek damages and costs of an
unspecified amount.
The Company and five of its officers and directors have been named as
defendants in seven class action lawsuits filed in the United States District
Court for the District of Massachusetts, one filed by Jonathan Polansky on
November 3, 1999, another filed by the Howard Gunty Profit Sharing Plan on
November 5, 1999, another filed by Michael E. Glass on November 5, 1999, another
filed by John P. Delmonico on November 5, 1999, another filed by James Cosentino
on November 5, 1999, another filed by Miriam Nathan on November 5, 1999 and
another filed by Patti Lisa on November 5, 1999. The complaints all make
substantially the same claims. Each complaint alleges that defendants violated
the federal securities laws by making material misstatements and omissions in
certain of the Company's public filings and statements during 1998 and 1999.
Specifically, the complaints allege that such statements and omissions had the
effect of artificially inflating the market price for the Company's common stock
until the disclosure by the Company on October 7, 1999 of its expectation that
results for the third quarter and for the full year were not likely to meet
analysts' consensus anticipated levels. Damages are unspecified.
A subsidiary of the Company (the "Subsidiary") has been named as a defendant
in a lawsuit filed in the Supreme Court of the State of New York, County of
Nassau. This lawsuit was filed on October 26, 1999 in the name of Great Neck
Holding, LLC and the Mayfair at Glen Cove, LLC, the Owners of two senior housing
facilities located in Long Island. The amended complaint alleges that the
Subsidiary has breached its duties under certain management agreements covering
the two facilities. The plaintiffs seek an accounting by the Subsidiary as to
all funds received and expended by it with respect to the facilities covered by
the management agreements, as well as damages of at least $1,000,000 and costs.
In addition, the plaintiffs are seeking injunctive relief, preventing the
Subsidiary from entering the subject properties or otherwise interfering with
the plaintiffs' operation of the subject properties. The Subsidiary has filed a
lawsuit in the same court against plaintiffs and another entity and two
individuals who acted to allegedly terminate the Subsidiary as Manager without
notice or cause as required under the management agreements. The complaint in
the Subsidiary's action seeks to enjoin those parties from taking any further
action to terminate the management agreements, as well as damages and costs. The
Subsidiary has also sued the company allegedly hired to replace the Subsidiary
as Manager, for tortiously interfering with the Subsidiary's rights and
performance of its obligations under the management agreements. That action was
filed in the United States District of New York. The complaint in this lawsuit
seeks damages, costs, and injunctive relief.
The Company believes it has meritorious defenses to each of the actions
described above and intends to vigorously defend each such action. The Company
does not currently expect the outcome of any of the litigation, referenced
above, to have a material adverse impact on its financial position, results of
operations and cash flows.
11
<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, 1999, the Company operated 61 facilities in 18 states with a
capacity of approximately 7,400 units. Of the facilities, 32 are owned/leased,
and 29 are managed. 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 independent and assisted living and other long-term
care services; (ii) management services income for management of and marketing
for 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 using the achievement of
specific milestones in the development process.
The Company has made forward-looking statements in this Report (and in
documents that are incorporated by reference) that are subject to risks and
uncertainties. Forward-looking statements include information concerning
possible or future results of operations of CareMatrix. Also, when the Company
uses words such as "believes," "expects," "anticipates" or similar expressions,
it is often, but not always, making forward-looking statements. Stockholders
should note that many factors could affect our future financial results and
could cause such results to differ materially from those expressed in our
forward-looking statements. Those factors include, but are not limited to, the
following:
- risks related to the Company's operating history and available financing;
- risks related to the Company's anticipated growth and acquisition
strategy;
- risks inherent in the construction and development industry;
- uncertainty about the changing regulatory environment;
- risks related to the Year 2000 problem;
- risks related to competition;
- risks related to the Company's ability to attract and retain key
personnel; and
- risks related to the ability of the Chancellor Entities' (the entities
that own a majority of the facilities the Company develops and operates)
to obtain adequate financing to fund the facilities during start-up and
any equity needed, including cash for operating losses, to meet bank
covenants, and to fund any amounts owed to the Company. Any inability to
do so, or any default by Chancellor under its debt obligations, could have
a material adverse effect on the Company's financial position, results of
operations, and cash flows (see Notes 1 and 3 and Note 13 of the Notes to
Consolidated Financial Statements in the Company's Annual Report on
Form 10K for the year ended December 31, 1998). As used herein
"Chancellor" or "Chancellor Entities" refer to Chancellor Senior Housing
Group, Inc., Abraham D. Gosman (Chief Executive Officer and Chairman of
the Board of the Company) or companies in which Mr. Gosman and certain
current and former members of the Company's senior management exercise
significant control.
All references to "Notes" contained herein refer to Notes to Consolidated
Financial Statements in this Form 10-Q, unless otherwise specified.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
THE QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO THE QUARTER ENDED
SEPTEMBER 30, 1998
REVENUES. Resident operations revenue increased by $11.2 million for the
third quarter of 1999 compared to the same period in 1998. The increase is
comprised principally of revenue from facilities leased or owned for less than
one year, including $6.0 million from seven facilities acquired in the
SeniorCare Group, Ltd. ("SeniorCare") acquisition (see Note 3 of Notes to
Consolidated Financial Statements in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998), less a decrease in fees related to
management contracts and other services as a result of the decrease in the total
number of facilities under construction and in operation. Included in resident
operations revenue in the third quarter of 1999 is $2.7 million earned from
marketing and management services provided to facilities under construction per
the terms of existing development agreements compared to $3.0 million in the
third quarter of 1998.
As described in Note 3, during 1999 the Company amended existing management
contracts with certain Chancellor Entities to increase its base management fees.
The impact of this change increased revenue during the quarter by $0.4 million.
The Company's comparable nursing home revenue declined $1.8 million during
the third quarter of 1999 primarily due to the impact of the implementation of
the Medicare prospective payment system ("PPS"). Under the terms of the
Company's existing leases, it has been indemnified by the various Chancellor
Entity lessors for this change in governmental regulations. Included in facility
operating expenses is a credit of $1.2 million, which represents the
reimbursement for lost revenue due to PPS, to reflect the impact of these
indemnification agreements.
Development fee income was $2.2 million in the third quarter of 1999 versus
$6.4 million in the same period in 1998. The decline in revenue is due to the
termination of approximately 30 facilities in the Company's development pipeline
(see Note 8). Included in development fee income during the quarter ended
September 30, 1999, is a net gain of $2.1 million in development profits from
the sale of development rights related to the Company's interest in certain
phases of a campus community in New York. The gain is net of a $1.8 million
charge which represented the unamortized purchase price of these rights.
FACILITY EXPENSES. Facility operating expenses were $29.0 million in the
third quarter of 1999 compared to $20.8 million in the same period of 1998, an
increase of $8.2 million. The increase is primarily due to operating expenses
from facilities leased or owned less than one year.
Facility lease expense was $5.1 million in the third quarter of 1999
compared to $4.3 million in the same period in 1998. The increase of
$0.8 million is primarily due to facilities leased less than one year.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $5.1
in the third quarter of 1999 compared to $4.8 million in the comparable period
in 1998. As a percentage of operating revenue, general and administrative
expenses in the third quarter of 1999 decreased to 10.9% from 12.0% in the third
quarter of 1998. The increase in expenses is primarily due to salary and
benefits expenses as a result of the Company's growth. General and
administrative expenses in the third quarter of 1999 do not reflect the full
impact of the reductions in corporate overhead (see Note 8).
RESTRUCTURING AND OTHER CHARGES. Restructuring and other charges includes
$3.1 million from the write-down of certain long-lived assets to their estimated
net realizable value and $0.6 million of severance and related benefits due to
the restructuring of corporate overhead (see Note 8).
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the third
quarter of 1999 increased $1.3 million compared to the same period in 1998. The
increase is due primarily to $0.9 million
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
of depreciation from facilities open less than one year and $0.3 million from
the amortization of other intangible assets.
INTEREST AND OTHER INCOME AND INTEREST EXPENSE. Interest and other income
for the third quarter of 1999 was $0.7 million compared to $2.0 million for the
same period in 1998. Included in other expense in the third quarter of 1999 is a
$0.8 million charge which reflects the decrease in the fair market value of the
Company's investment in a limited partnership (see Note 3). Also included in
interest and other income is $0.3 million which reflects the Company's share of
income received under the terms of an interest rate swap agreement with a third
party. The decrease in interest income is due to lower average cash balances
during 1999 compared to 1998. Interest expense for the third quarter of 1999
increased to $3.8 million from $2.2 million for the same period in 1998. The
increase is primarily due to incremental interest expense of $1.2 million from
SeniorCare debt assumed or refinanced and $0.5 million from borrowings under the
line of credit.
INCOME TAXES. The Company's effective tax rate during the third quarter of
1999 was 39.5% compared to 41.0% in 1998. The decrease in the effective tax rate
is due to the expected reduction in the effective state tax rate to 4.5% for
1999 from 6.5% for 1998.
THE NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUES. Resident operations revenue increased by $49.3 million for the
nine months ended September 30, 1999, compared to the same period in 1998. The
increase is comprised principally of revenue from facilities leased or owned for
less than one year, including $21.3 million from seven facilities acquired in
the SeniorCare acquisition, and from fees related to management contracts and
other services as a result of the increase in the average number of facilities
under construction and in operation. Included in resident operations revenue in
the nine months ended September 30, 1999, is $9.7 million earned from marketing
and management services provided to facilities under construction per the terms
of existing development agreements compared to $6.6 million in the comparable
period in 1998.
As described in Note 3, the Company amended existing management contracts
with certain Chancellor Entities to increase its base management fees. The
impact of this change increased revenue during the nine months ended
September 30, 1999 by $1.1 million.
The Company's comparable nursing home revenue declined $4.4 million or 14.0%
during the nine months ended September 30, 1999, primarily due to the impact of
the implementation of PPS. Under the terms of the Company's existing leases, it
has been indemnified by the various Chancellor Entity lessors for this change in
governmental regulations. Included in facility operating expenses is a credit of
$4.0 million, which represents the reimbursement for lost revenue due to PPS, to
reflect the impact of these indemnification agreements.
Development fee income was $16.4 million during the nine months ended
September 30, 1999 versus $18.3 million in the same period in 1998. The decrease
in revenue is primarily due to the termination of approximately 30 projects in
the Company's development pipeline (see Note 8). Included in development fee
income during the nine months ended September 30, 1999, is a net gain of
$2.1 million in development profits from the sale of development rights related
to the Company's interest in certain phases of a campus community in New York.
The gain is net of a $1.8 million charge which represented the unamortized
purchase price of these rights.
FACILITY EXPENSES. Facility operating expenses for the first nine months of
1999 increased by $30.6 million compared to the same period in 1998. The
increase is due primarily to operating expenses from facilities leased or owned
less than one year.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Facility lease expense was $15.2 million in the first nine months of 1999
compared to $12.0 million in the same period in 1998. The increase of
$3.2 million is primarily due to facilities leased less than one year.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
first nine months of 1999 increased to $15.4 million from $14.3 million in the
same period of 1998. As a percentage of operating revenue general and
administrative expenses in the first nine months of 1999 declined to 10.2% from
13.8% in the first nine months of 1998. The increase in expense is primarily due
to an increase in salary and benefits expenses as a result of the Company's
growth.
RESTRUCTURING AND OTHER CHARGES. Restructuring and other charges includes
$3.1 million from the write-down of certain long-lived assets to their estimated
net realizable value and $0.6 million of severance and related benefits due to
the restructuring of corporate overhead (see Note 8).
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the first
nine months of 1999 increased $4.4 million compared to the same period in 1998.
The increase is due primarily to $3.1 million of depreciation from facilities
open less than one year and $0.9 million from the amortization of other
intangible assets.
INTEREST AND OTHER INCOME AND INTEREST EXPENSE. Interest income for the
first nine months of 1999 was $4.3 million compared to $6.5 million for the same
period in 1998. The decrease in interest income is due to lower average cash
balances during 1999 compared to 1998. Interest expense for the first nine
months of 1999 increased to $11.0 million from $5.9 million for the same period
in 1998. The increase is primarily due to incremental interest expense of
$3.5 million from SeniorCare debt assumed or refinanced and $1.5 million from
borrowings under the line of credit.
INCOME TAXES. The Company's effective tax rate during the first nine months
of 1999 was 39.5% compared to 41.0% in 1998. The decrease in the effective tax
rate is due to the expected reduction in the effective state tax rate to 4.5%
for 1999 from 6.5% for 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and restricted cash at September 30, 1999 were
$11.6 million compared to $50.5 million at December 31, 1998, a decrease of
$38.9 million.
Cash used by operations was $15.3 million in the first nine months of 1999.
This is comprised of $21.4 million of net earnings before depreciation and
amortization and restructuring charges offset by a $29.5 million increase in
accounts receivable, primarily from new facilities in development and operation,
and a $7.2 million increase in other working capital items.
Cash used in investing activities was $28.2 million in the first nine months
of 1999 compared to a use of $165.8 million for the same period in 1998. The use
of cash was due to $5.8 million used to complete the SeniorCare acquisition (see
Note 4), $24.1 million used for prepaid rent, lease commitment fees, and cash
flow rights for 15 facilities (see Note 3), $4.2 million for an investment in a
limited partnership (see Note 3). $3.5 million in additions to property and
equipment, $2.0 million used to purchase the development and management rights
to a senior community, $4.0 million used for the purchase of or investment in
two parcels of land (see Note 3), $1.7 million for the rights to receive future
cash flow distributions related to development projects (see Note 3), and
$2.4 million used for purchase deposits on four parcels of land. The Company
received $19.4 million from the return of cash held in a cash collateral account
(see Note 2).
Cash flows provided by financing activities were $24.5 million in the first
nine months of 1999 compared to $12.6 million for the same period in 1998. The
increase is due primarily to $26.0 million of net
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
proceeds from various mortgage refinancings (see Note 5) and a $4.0 million
increase in borrowings under the line of credit (see Note 9 of Notes to
Consolidated Financial Statements in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998), partially offset by $3.0 million used to
repurchase the Company's common shares on the open market (see Note 7) and
$2.6 million of debt repayments, which includes $0.8 million related to assets
held for sale (see Note 5 of Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998).
The Company will require resources in the future to fund the planned
acquisition and development of additional assisted living, independent and
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, borrowings under its $35.0 million line of
credit (of which $7.1 million was available for general corporate purposes at
September 30, 1999) as well as related party or third-party financing of
facilities to be developed. Furthermore, the Company intends to seek bank
borrowings and other debt or equity financings to provide additional sources of
capital in the future (see Note 8).
Although Chancellor continues to seek additional sources of capital to
finance its development pipeline, there can be no assurance that it will be
successful in doing so. If Chancellor cannot obtain adequate capital or reduces
the number and/or size of the projects in its development pipeline, then the
Company's development fee revenue will decline. Currently, the Company expects
that its development fee revenue will continue to decline in the fourth quarter
of 1999 and for the foreseeable future.
As of September 30, 1999, the net receivable due from Chancellor Entities
was $40.8 million. The ability of the Chancellor Entities to pay a significant
portion of this amount is primarily dependent upon the successful consummation
of proposals being negotiated as part of the Company's evaluation of strategic
alternatives (see Note 8). There can be no assurance that a satisfactory
conclusion to the above-referenced negotiations, as they relate to the
receivables, will be reached. If a satisfactory conclusion to the negotiations
is not reached, then the Company would at that time evaluate the collectibility
of these receivables and take the appropriate action, which could include
write-downs to the value of certain of these assets. This action could have a
material adverse impact on the Company's financial position, results of
operations, and cash flows, and could result in the Company being in default of
certain debt covenants contained in its line of credit (see Note 9 of Notes to
Consolidated Financial Statements in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998).
At September 30, 1999, the Company also has approximately $42.0 million of
long-term assets, including lease acquisition, lease deposits, and prepaid rent,
which relate to Chancellor facilities or properties which are encumbered by
debt. If the related Chancellor Entities were to default under the terms of
their debt agreements, all or part of these assets could be out at risk
dependent upon the then existing facts and circumstances. The Company would
evaluate the recoverability of these assets as circumstances warrant.
YEAR 2000
The Year 2000 problem concerns the inability of information systems to
recognize properly and process date-sensitive information beyond December 31,
1999. In July 1998, the Company initiated a formal program to identify and
resolve Year 2000 issues. The scope of the program includes the investigation of
all Company functions and services, including embedded systems in what are not
traditionally considered information technology systems.
The Company has identified its resident billing and general ledger as
internal systems that present a high level of risk from a Year 2000 perspective.
The Company has also identified several key external
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
systems that could pose a significant risk to the Company: those of various
governmental agencies, particularly Medicare and Medicaid, its payroll provider,
and its investment management companies and other financial intermediaries. The
Company has also acquired several facilities and/or utilizes third-party
management companies to provide financial information. These acquired systems
must also be brought into the Company's program.
The Company has completed the planning and awareness and systems inventory
phases of the program. The assessment and correction phases are scheduled to be
completed in the fourth quarter of fiscal 1999. In April 1999, the Company
completed the upgrade of its general ledger system so that it is now Year 2000
compliant. The Company has begun the process of assessing the risk of supplier
readiness, and in selected cases will review the preparedness of individual
suppliers for the Year 2000 problem. The Company currently expects that it will
not complete this process before December 31, 1999.
The Company currently estimates the cost of the Year 2000 program will
approximate $200,000, with a range of plus or minus twenty-five percent. The
Company's corporate personnel who directly oversee functions at the facility
level will also assist in the Year 2000 program as part of their regular duties.
This is expected to help reduce Year 2000 costs. All costs, except long-lived
assets, are expenses as incurred. These costs include the costs of outside
consultants, systems replacements, and other equipment requirements. The costs
incurred to date are not material.
Ultimately, the potential impact of the Year 2000 issue will depend not only
on the corrective measures the Company undertakes, but also on the way in which
the Year 2000 issue is addressed by governmental agencies, businesses and other
entities whose financial condition or operational capability is important to the
Company. Communications with significant third parties will be initiated to
determine the extent of risk created by those third parties' failure to
remediate their own Year 2000 issues; however, it is not possible, at present,
to determine the financial effect if their remediation efforts are not completed
in a timely manner. While the Company expects to resolve all Year 2000 risks
without a material adverse impact on its results of operations and financial
position, there can be no assurance as to the ultimate success of the program.
Uncertainties exist as to the Company's ability to detect all Year 2000 problems
as well as its ability to achieve successful and timely resolution of all Year
2000 issues. A "reasonably likely worst case" scenario of Year 2000 risks for
the Company could include the inability to receive reimbursement from Medicare
and Medicaid, and problems involving the inability of the Company's financial
intermediaries to accurately reflect the Company's cash position. The
consequences of these issues may include lost revenue and lower cash receipts.
The Company is unable to quantify the potential effect of these items on its
results of operations, liquidity, and financial position should some or a
combination of these events occur.
In addition, because the Company's day-to-day operations are heavily
dependent on its ability to communicate information throughout its network of
facilities, the Company would be particularly susceptible to any possible
effects that the Year 2000 issue has on local and national communications
systems, including without limitation, telephone and data lines, because of the
difficulty in implementing viable contingency plans. Any interruption or
malfunction of such systems could have a material adverse effect on the Company.
As the correction phase of the program is addressed in late 1999, the
Company expects to have developed contingency plans, which would augment
existing contingency plans, for the then current risks.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk from exposure to changes in interest
rates based on its financing, investing and cash management activities. The
Company does not expect changes in interest rates to have a material effect on
income or cash flows for the year ended December 31, 1999, although there can be
no assurances that interest rates will not significantly change.
17
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and five of its officers and directors have been named as
defendants in seven class action lawsuits filed in the United States District
Court for the District of Massachusetts, one filed by Jonathan Polansky on
November 3, 1999, another filed by the Howard Gunty Profit Sharing Plan on
November 5, 1999, another filed by Michael E. Glass on November 5, 1999, another
filed by John P. Delmonico on November 5, 1999, another filed by James Cosentino
on November 5, 1999, another filed by Miriam Nathan on November 5, 1999, and
another filed by Patti Lisa on November 5, 1999. The complaints all make
substantially the same claims. Each complaint alleges that defendants violated
the federal securities laws by making material misstatements and omissions in
certain of the Company's public filings and statements during 1998 and 1999.
Specifically, the complaints allege that such statements and omissions had the
effect of artificially inflating the market price for the Company's common stock
until the disclosure by the Company on October 7, 1999 of its expectation that
results for the third quarter and for the full year were not likely to meet
analysts' consensus anticipated levels. Damages are unspecified.
The Company and each of its directors have been named as defendants in a
class action lawsuit filed in the Court of Chancery of the State of Delaware for
New Castle County. This class action was filed by the Howard Gunty Profit
Sharing Plan on August 18, 1999. The complaint alleges that the defendants are
engaged in a course of action that constitutes a breach of their fiduciary and
other common law duties to the public shareholders of the Company. Specifically,
the complaint alleges that the defendants are preparing to execute a
management-led buy-out or other strategic alternatives that would be unfair to
the public shareholders of the Company. Plaintiffs seek an injunction preventing
any such buy-out or, in the event that such a buy-out is consummated, an order
from the court setting it aside. Plaintiffs also seek damages and costs of an
unspecified amount.
A subsidiary of the Company (the "Subsidiary") has been named as a defendant
in a lawsuit filed in the Supreme Court of the State of New York, County of
Nassau. This lawsuit was filed on October 26, 1999 in the name of Great Neck
Holding, LLC and The Mayfair at Glen Cove, LLC, the Owners of two senior housing
facilities located in Long Island. The amended complaint alleges that the
Subsidiary has breached its duties under certain management agreements covering
the two facilities. The plaintiffs seek an accounting by the Subsidiary as to
all funds received and expended by it with respect to the facilities covered by
the management agreements, as well as damages of at least $1,000,000 and costs.
In addition, the plaintiffs are seeking injunctive relief, preventing the
Subsidiary from entering the subject properties or otherwise interfering with
the plaintiffs' operation of the subject properties. The Subsidiary has filed a
lawsuit in the same court against plaintiffs and another entity and two
individuals who acted to allegedly terminate the Subsidiary as Manager without
notice or cause as required under the management agreements. The complaint in
the Subsidiary's action seeks to enjoin those parties from taking any further
action to terminate the management agreements, as well as damages and costs. The
Subsidiary has also sued the company allegedly hired to replace the Subsidiary
as Manager, for tortiously interfering with the Subsidiary's rights and
performance of its obligations under the management agreements. That action was
filed in the United States District Court for the Eastern District of New York.
The complaint in this lawsuit seeks damages, costs, and injunctive relief.
The Company is a party to other 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.
19
<PAGE>
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). The following exhibits are filed as part of this report:
<TABLE>
<S> <C>
3.01 Corrected Third Restated Certificate of Incorporation of
CareMatrix Corporation(2)
3.02 By-laws of CareMatrix Corporation, as amended through
December 9, 1996(1)
27 Financial Data Schedule(*)
</TABLE>
(b). Reports on Form 8-K
None.
- ------------------------
(*) Filed herewith.
(1) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
(2) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
20
<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.
<TABLE>
<S> <C> <C>
CAREMATRIX CORPORATION
By: /s/ ABRAHAM D. GOSMAN
-----------------------------------------
Abraham D. Gosman
CHIEF EXECUTIVE OFFICER
By: /s/ MICHAEL J. ZACCARO
-----------------------------------------
Michael J. Zaccaro
CHIEF OPERATING OFFICER AND
CHIEF ACCOUNTING OFFICER
</TABLE>
Dated: November 15, 1999
21
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<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JAN-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 JUN-30-1998 MAR-31-1998
<EXCHANGE-RATE> 1 1 1
<CASH> 33,640,974 151,246,159 150,555,289
<SECURITIES> 0 0 0
<RECEIVABLES> 39,944,931 29,716,528 29,604,269
<ALLOWANCES> (1,495,206) (1,369,147) (1,133,770)
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 82,660,722 187,835,271 182,435,544
<PP&E> 155,651,101 6,986,214 5,610,089
<DEPRECIATION> (9,543,791) (1,218,576) (556,084)
<TOTAL-ASSETS> 325,944,531 249,563,919 238,434,831
<CURRENT-LIABILITIES> 31,145,223 19,853,419 14,400,785
<BONDS> 167,513,935 115,000,000 115,000,000
0 0 0
73,000 73,000 183,000
<COMMON> 883,636 883,273 876,314
<OTHER-SE> 120,960,986 111,964,740 106,130,360
<TOTAL-LIABILITY-AND-EQUITY> 325,944,531 249,563,919 238,434,831
<SALES> 103,417,296 63,812,349 29,645,703
<TOTAL-REVENUES> 103,417,296 63,812,349 29,645,703
<CGS> 0 0 0
<TOTAL-COSTS> 65,773,739 40,735,799 19,166,777
<OTHER-EXPENSES> 17,162,961 11,152,284 5,199,594
<LOSS-PROVISION> 801,238 703,133 122,617
<INTEREST-EXPENSE> 5,886,303 3,666,710 1,838,128
<INCOME-PRETAX> 21,120,652 12,748,902 5,770,146
<INCOME-TAX> 8,659,468 5,226,777 2,400,381
<INCOME-CONTINUING> 12,452,959 7,515,725 3,365,190
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 12,452,959 7,515,725 3,365,190
<EPS-BASIC> 0.71 0.43 0.19
<EPS-DILUTED> 0.69 0.42 0.19
</TABLE>
