<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-10968
LIVING CENTERS OF AMERICA, INC.
(Exact name of registrant as specified in its Charter)
DELAWARE 74-2012902
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
15415 KATY FREEWAY, SUITE 800 77094
HOUSTON, TEXAS (Zip Code)
(Address of principal executive office)
(281) 578-4600
(Registrant's Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
Name of each exchange on
Title of each class which registered
--------------------- ------------------------
Common Stock, $.01 Par Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X
No ----------
----------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [X]
The aggregate market value of the outstanding Common Stock of the
registrant held by non-affiliates of the registrant as of November 25, 1996,
based on the closing sale price of the Common Stock on the New York Stock
Exchange on said date, was $369,851,000. For purpose of the foregoing sentence
only, all directors and officers of the registrant are assumed to be
affiliates.
There were 19,500,867 shares of Common Stock of the registrant
outstanding as of November 25, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
INCORPORATED DOCUMENT PART OF FORM 10-K
--------------------- -----------------
<S> <C>
Proxy Statement for the 1997 Part III
Annual Meeting of Stockholders
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Item 7 of Part II is hereby amended in its entirety to read as follows:
OVERVIEW
The Company provides a diverse range of services in the health care
continuum including long-term health care, rehabilitation therapy, and
pharmaceutical services. Services provided at the Company's long-term care
facilities, which comprise approximately 70% of the Company's total revenue,
include long-term nursing services and specialty care services including
assisted living services, subacute care, and care for individuals with
Alzheimer's disease. The Company is currently expanding or developing
additional specialty care services such as hospice care, geriatric physician
management services and home health care. See Business - Long-Term Care
Services Group. The Company's rehabilitation therapy group provides services
to over 600 skilled nursing and other health care facilities, offers therapy
program management services to long-term health care companies, and operates
approximately 134 outpatient clinics. The pharmaceutical group operates 31
institutional pharmacies and provides services to more than 100,000 long-term
health care beds through its various product lines.
When the Company began its operations as a separate, publicly-traded
company in 1992, it provided primarily long-term nursing services. From fiscal
year 1992 through fiscal year 1995 it grew rapidly through acquisitions, adding
specialty care services, rehabilitation therapy, and pharmaceutical services,
as well as additional long-term care facilities. During this period the
Company's net revenue increased from $351 million to $894 million and its net
income, adjusted for non-recurring merger and acquisition costs in 1995,
increased from $10.5 million to $36.1 million. During the fiscal year ending
September 30, 1995 the Company completed several significant acquisitions
including The Brian Center Corporation ("BCC"), Rehability, and TMI.
Accordingly, the fiscal year ended September 30, 1996 was the first year that
fully reflected the financial results from all of the Company's major
acquisitions. The Company's net revenue for the fiscal year ended September
30, 1996 increased to $1.1 billion and net income, excluding non-recurring
items, increased to $45.0 million.
During the fiscal year ended September 30, 1996, the Company turned its
focus to integrating the BCC, Rehability, and TMI operations and divesting its
DevCon subsidiary, which provided training and habilitation services to
individuals with mental retardation and developmental disabilities. During
fiscal year 1996, the Company finalized a plan originating in June 1995 to
restructure the operations and exit certain activities of ARS, including
closing or downsizing unprofitable clinics and offsite contracts. See Note 9
to the Consolidated Financial Statements. The divestiture of DevCon was
completed in September 1996 through the recapitalization and subsequent sale of
the majority of DevCon's stock for $47.5 million in cash. The Company's
results for the fiscal year ended September 30, 1996 and prior years reflect
the inclusion of the DevCon operations. DevCon's net revenue and income from
operations for fiscal year 1996 were $47.6 million and $5.7 million,
respectively. The Company expects its reported earnings to reflect the effects
of this divestiture until the proceeds from the divestiture are reinvested.
The Company's strategy is to utilize its core long-term care facilities
as a platform to deliver a comprehensive array of senior health care services.
As a consequence, the Company seeks to control the significant components of
its care continuum, while diversifying its sources of revenue and positioning
itself to be responsive to a variety of payors. Through the provision of
cost-effective quality care, the Company believes that it can enhance
profitability. However, future operating performance will continue to be
affected by the issues facing the senior health care industry including quality
of care, occupancy levels, availability of nursing, therapy and other
personnel, adequacy of funding of federal and state reimbursement programs in
addition to the Company's continued expansion of its non-nursing home
operations and its ability to control costs.
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RESULTS OF OPERATIONS
The following table sets forth data from the statement of income
expressed as a percentage of net revenues:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------
<S> <C> <C> <C>
1996 1995 1994
Net Revenues:
Nursing home 69.7% 82.6% 94.3%
Non-nursing home:
Pharmacy 11.4 10.4 4.0
Therapy 18.5 6.6 1.1
Other .4 .4 .5
----- ----- -----
100.0 100.0 100.0
----- ----- -----
Costs and Expenses:
Salaries and wages 40.9 40.3 42.0
Employee benefits 8.7 9.1 11.7
Nursing, dietary, and other supplies 5.4 6.3 6.6
Ancillary services 16.9 16.6 11.2
General and administrative 15.1 15.1 17.5
Depreciation and amortization 3.5 3.5 3.7
Provision for bad debts 1.5 1.3 .4
Life insurance proceeds ( .2) - -
Gain on sale (2.0) - -
Impairment of long-lived assets 2.3 - -
Other .3 - -
Mergers and acquisition cost - 1.4 -
----- ----- -----
Income from operations 7.6 6.4 7.0
Interest expense, net 1.1 1.2 1.5
----- ----- -----
Income before income taxes and equity earnings/ 6.5 5.2 5.5
minority interest
Provision for income taxes 2.8 2.4 1.9
----- ----- -----
Income before equity earnings/minority interest 3.7 2.8 3.6
Equity earnings/minority interest - - .2
----- ----- -----
Net income 3.7 2.8 3.8
Pro forma taxes (unaudited) - .1 .1
----- ----- -----
Pro forma net income (unaudited) 3.7% 2.7% 3.7%
===== ===== =====
</TABLE>
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Nursing home revenues are derived from two basic sources: routine
services ($630.7 million or 81.2 % in fiscal year 1996) and ancillary services
($145.8 million or 18.8 % in fiscal year 1996) and are a function of occupancy
rates in the long-term care facilities and the payor mix. Occupancy rates, as
identified in the following table, decreased in fiscal year 1996 partially due
to an increase in hospital-operated skilled units in key markets. The Company
has invested in the marketing and managed care areas and has implemented an
aggressive marketing program to increase census and improve quality mix.
<TABLE>
<CAPTION>
Years Ended September 30,
-----------------------------
1996 1995 1994
<S> <C> <C> <C>
Weighted licensed bed count 25,498 26,355 26,617
Total average residents 21,405 22,428 22,669
Average occupancy 83.9% 85.1% 85.2%
</TABLE>
Payor mix is the source of payment for the services provided and
consists of private pay, Medicare and Medicaid. Private pay includes revenue
from individuals who pay directly for services without governmental assistance,
managed care companies, commercial insurers, health maintenance organizations,
and Veteran's administration contractual payments. Managed care as a payor
source to health care providers is expected to increase over the next several
years. The Company has increased its managed care contracting capabilities and
has created a system which allows the centralized case management of these
patients within targeted markets. However, the impact to the Company of this
increasing payor source can not be determined at this time.
Reimbursement rates from government sponsored programs, such as Medicare
and Medicaid, are strictly regulated and subject to funding appropriations from
federal and state governments. To the extent unfavorable changes in economic
conditions impact payments under governmental or third-party payor programs,
the Company would be adversely affected. See Business - Government Regulation.
Revenues derived from the Company's pharmacy and therapy groups are also
influenced by payor mix. The table below presents the approximate percentage
of the Company's net patient revenues derived from the various sources of
payment for the periods indicated:
<TABLE>
<CAPTION>
Years Ended September 30,
-----------------------------
1996 1995 1994
<S> <C> <C> <C>
Private pay 31.9% 25.5% 23.7%
Medicare 25.5% 23.9% 17.5%
Medicaid 42.6% 50.6% 58.8%
</TABLE>
The increasing trend in the percentage of revenues derived from private
pay and Medicare sources is attributable primarily to the growth in the
Company's pharmacy and therapy operations. The revenue from these operations,
which is generated primarily from private pay and Medicare sources, results in
a reduction of the percentage of net revenue derived from the Medicaid program.
In addition, average reimbursement rates for Medicare patients have increased
more rapidly than for Medicaid residents due primarily to the higher
reimbursement rates associated with the increase in acuity levels. Although
cost reimbursement for Medicare residents generates a higher level of revenue
per patient day, profitability is not proportionally increased due to the
additional costs associated with the required higher level of care and other
services for such residents.
The administrative procedures associated with the Medicare cost
reimbursement program generally preclude final determination of amounts due the
Company until cost reports are audited or otherwise reviewed and settled with
the applicable administrative agencies. The Company does not expect any
differences between revenue recorded and as finally determined to have a
significant effect on the Company's results of operations or financial
position. See Note 1 to the Consolidated Financial Statements.
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Costs and expenses, excluding depreciation and amortization, primarily
consist of salaries, wages, and employee benefits. Various federal, state, and
local regulations impose, depending on the services provided, a variety of
regulatory standards for the type, quality and level of personnel required to
provide care or services. These regulatory requirements have an impact on
staffing levels, as well as the mix of staff, and therefore impact total costs
and expenses. See Business-Government Regulation. The cost of ancillary
services, which includes pharmaceuticals, is also affected by the level of
service provided and patient acuity. General and administrative expenses
include the cost of the Company's various insurance programs, except worker's
compensation. See Note 12 to the Consolidated Financial Statements.
FISCAL 1996 COMPARED TO FISCAL 1995. Net revenues comprising nursing
home and non-nursing home operations totaled $1.1 billion for the year ended
September 30, 1996, an increase of $220.6 million or 24.7%, as compared to
fiscal 1995. Nursing home operations contributed $38.1 million of the increase
which included rate increases of $37.2 million and higher ancillary service
billings resulting from the improvement in patient mix, primarily Medicare, of
$22.6 million. Divesture of nursing home operations decreased revenue $19.6
million and lower census reduced revenue by $7.6 million. Non-nursing home
operations contributed $182.5 million of the increase, consisting of $34.6
million from pharmacy operations, $146.5 million from therapy services and $1.4
million from medical supplies. Acquisitions, primarily Rehability, provided
$177.0 million of the $182.5 million increase in non-nursing home revenue.
Costs and expenses, including non-recurring items totaled, $1.0 billion
for the year ended September 30, 1996, an increase of $188.1 million or 22.5%,
as compared to fiscal 1995. Acquisitions, primarily Rehability and TMI, were
$171.0 million of the increase and divestitures reduced total expenses by $24.3
million. Other increases include payroll and related ($15.8 million) and
ancillary services ($28.4 million). The increase in ancillary services
corresponds to the increase in ancillary revenue and the higher level of
patient acuity as well as an increase in the cost of pharmaceuticals related to
higher pharmacy services revenue.
Non-recurring items reduced total costs and expenses in fiscal year 1996
by $1.1 million compared to the $12.4 million of merger and acquisition costs
from the BCC purchase in fiscal 1995. Non-recurring items included a $2.0
million gain from the receipt of life insurance proceeds on the former
President of the Rehabilitation Services Group. In addition the Company
recognized a $22.5 million gain in September 1996 on the sale of its DevCon
operations, which provided training and habilitation services to individuals
with mental retardation and developmental disabilities, through the
recapitalization and subsequent sale of the majority of DevCon's stock for
$47.5 million. The Company also recorded non-recurring charges of $2.9 million
primarily related to the closure of its medical supplies business and the
write-off of unamortized loan acquisition costs related to the Second Amended
and Restated Credit Agreement.
The adoption of SFAS 121, which occurred in the fourth quarter, resulted
in the identification and measurement of an impairment loss of $20.5 million
related to nursing facilities with a history of cash flow losses ($1.8
million), certain other nursing facilities where management believed an
impairment existed as a result of the competitive environment ($0.6 million),
goodwill, primarily TMI, ($9.7 million), and other assets to be disposed ($8.4
million). Management estimated the undiscounted cash flows to be generated by
each of these assets and compared them to their carrying value. If the
undiscounted future cash flow estimates were less than the carrying value of
the asset then the carrying value was written down to estimated fair value.
Goodwill associated with an impaired asset was included with the carrying value
of that asset in performing both the impairment test and in measuring the
amount of impairment loss related to the asset. Fair value was estimated based
on either management's estimate of fair value, present value of future cash
flows, or market value less estimated cost to sell for certain facilities to be
disposed. The facilities with a history of cash flow losses operated at a
loss for periods ranging from one to four years. The undiscounted cash flows
for TMI were estimated based on the operating results of TMI subsequent to the
death of the President of the rehabilitation services group (founder of TMI)
and adjusted for the loss of contracts and impending business changes as a
result of his death (See Note 7 to the Consolidated Financial Statements). The
decision regarding the disposition of certain nursing facilities, which had
operating losses of $0.4 million during fiscal 1996, was completed at the time
of adoption of SFAS 121. See Note 8 to the Consolidated Financial Statements.
Net interest expense totaled $12.5 million for the year ended September
30, 1996, an increase of $1.6 million or 15.2%, as compared to the same period
for fiscal 1995. The increase reflects a full year of interest expense for
fiscal 1996 versus three months of interest expense for fiscal 1995 on the
additional debt incurred to acquire Rehability.
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The provision for income taxes increased $12.0 million in fiscal year
1996 but resulted in a lower effective tax rate of 43.8% compared to 47.1% in
fiscal year 1995. The decrease in non-deductible merger and acquisition costs
reduced the effective tax rate by 7.2% while the elimination of the Targeted
Jobs Tax Credit, increased non-deductible goodwill amortization, and other
items resulted in an increase of 3.9%.
FISCAL 1995 COMPARED TO FISCAL 1994. Net revenues totaled $893.9
million for the year ended September 30, 1995, an increase of $185.0 million or
26.1%, as compared to fiscal 1994. Nursing home operations contributed $69.7
million of the increase, which includes $18.7 million of acquisitions and
approximately $32.4 million in rate increases and improvements in patient mix
over the prior period (primarily in the area of Medicaid and Medicare
services). Ancillary revenue in the nursing home operations increased
approximately $29.7 million due to higher acuity levels and an increase in
Medicare patients. Nursing home revenues were lower by $11.1 million due to
divestitures. Non-nursing home operations contributed $115.3 of the increase,
which includes $68.0 million of pharmacy acquisitions, primarily APS, and $51.2
million in therapy services, primarily Rehability and TMI.
Costs and expenses totaled $836.9 million for the year ended September
30, 1995, an increase of $177.5 million or 26.9%, as compared to the same
period for fiscal 1994. Acquisitions contributed $125.3 million of the
increase, which includes acquisitions, primarily APS($60.0 million),
Rehability ($41.2 million), TMI ($5.3 million) and nursing homes ($18.8
million). Other major expense increases included $22.5 million in payroll
related expenses, $3.0 million in nursing dietary and other supplies, $19.1
million in ancillary services (primarily from the higher resident acuity level
and the increase in the number of Medicare residents in the Company's nursing
home operations), $2.4 million in general and administrative expenses and $2.0
million in bad debt expense. All fiscal 1995 expense categories expressed as a
percentage of revenues reflect a significant change from fiscal 1994. This
percentage shift in expense categories is attributable to the inclusion of
APS's cost of products sold in the expense category "operating and
administrative" and, to a lesser extent, the lower labor intensity of the APS
operation. Non-recurring merger and acquisition and related costs were $14.3
million due to the acquisition of Rehability. Also, divestitures decreased
total expenses by $11.1 million.
Net interest expense totaled $10.8 million for the year ended September
30, 1995, a decrease of $.01 million or .7%, as compared to the same period for
fiscal 1994. Interest income from the Company's insurance subsidiary increased
and the Company used the proceeds from the February 1995 public offering of
Common Stock to retire existing debt. However, the effects of the common stock
offering were partially offset by additional debt incurred to acquire
Rehability.
Equity earnings/minority interests incurred a loss of $.2 million for
the year ended September 30, 1996, a decrease of $1.8 million, as compared to
the same period for fiscal 1994. This decrease is the result of APS recorded
as a fully consolidated subsidiary for fiscal 1995 as opposed to an
unconsolidated equity investment (49% ownership) for fiscal 1994.
Net income totaled $24.2 million for the year ended September 30, 1995,
a decrease of $2.4 million, or 8.9%, as compared to the same period for fiscal
1994. The decrease reflects the impact of the nonrecurring merger and
acquisition and related costs of $14.3 million, most of which is non-deductible
for federal income tax purposes. Excluding non-recurring merger and
acquisition and related costs, net income would have increased $7.8 million or
27.0% from fiscal 1994.
SEASONALITY
The Company's revenues and operating income generally fluctuate from
quarter to quarter. This seasonality is related to a combination of factors
which include the timing of Medicaid rate increases, the number of work days in
the period, and seasonal census cycles.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $21.4 million at September 30, 1996, a
$3.5 million increase from September 30, 1995 and working capital was $101.0
million, an increase of $66.5 million during fiscal year 1996. Cash provided
by operations was $31.8 million or $34.6 million less than fiscal year 1995.
Net income of $43.1 million, non-cash items totaling $44.9 million and an
increase in accrued expenses of $17.5 million contributed to the cash provided
by operations. The increase in income taxes payable is primarily the taxes due
on the gain on the sale of DevCon stock which will be paid
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in the first quarter of fiscal year 1997. These items were offset by the
reduction in accounts payable of $13.8 million due to the timing of payments
and an increase in receivables of $69.6 million. The increase in receivables
was primarily attributable to acquisitions ($15.6 million), timing of
collections on Medicare cost reports and other rate adjustments ($13.1
million), receivables due to LCA Insurance Company, Ltd. (see Note 12 to the
Consolidated Financial Statements) from third-party insurance companies ($11.7
million), and an increase in average days outstanding, net of allowance, ($13.0
million). The increase in receivables due to timing of collections on Medicare
cost reports and other rate adjustments is related to the Company filing a
large number of requests for exception to Medicare routine cost limits in
fiscal 1996. Review by the fiscal intermediary, approval by the Health Care
Financing Administration and processing for payment by the intermediaries of
the filed requests generally takes 12 to 18 months. In addition, Medicaid
rate increases in Colorado, which are normally collected in the fourth quarter
of each fiscal year, were not collected. These rate increases are expected to
be collected in the second quarter of fiscal 1997.
The increase in receivables resulting from an increase in average days
outstanding is primarily related to the Company's pharmacy and therapy
operations. The increase in receivables for the pharmacy operations primarily
reflects the requirement to obtain new provider numbers for certain pharmacy
acquisitions that occurred late in fiscal year 1996 and changes in the
procedures for processing Certificates of Medical ("CMN") on new or changed
prescriptions. The change in CMN procedures has temporarily increased the
billing cycle for the Medicare collection process on new or changed
prescriptions. The increase in receivables for the therapy operations is
related to the centralization of billing and collection (resulting in
temporarily delayed billing and a longer billing cycle), and focused billing
review, primarily in Texas. Focused billing review substantially increases the
processing time for payment of therapy services by fiscal intermediaries.
Excluding the $47.5 million in proceeds from the disposition of DevCon,
cash used in investing activities was $114.2 million in fiscal 1996 compared to
$139.9 million in fiscal year 1995. Investing activities in fiscal year 1996
included six pharmacy related acquisitions ($60.3 million), conversion of five
previously leased long-term care facilities to an ownership position ($14.8
million), construction of five assisted living facilities and expansion of
existing facilities ($13.3 million), the acquisition of a 50% interest in a
hospice operation ($2.8 million), and routine capital expenditures. Capital
commitments on four assisted living facilities remaining under construction and
expansion of existing long-term care facilities totaled $9.6 million at
September 30, 1996. These commitments are expected to be funded by cash from
operations or the Bank Credit Facility.
Financing activities provided $38.4 million during fiscal 1996. During
the fourth quarter the Company entered into an amended bank credit facility
(the "Bank Credit Facility") with a group of banks pursuant to which the banks
agreed to provide $500 million to the Company. A complete description of the
Bank Credit Facility is included in Note 5 to the Consolidated Financial
Statements. Total debt increased $57.4 million as funds were used in investing
activities and the purchase of $20.0 million of the Company's common stock in
accordance with a share repurchase program. The shares are to be utilized over
the next several years to fulfill the Company's obligations under its various
employee benefit programs.
In October 1996 the Company entered into a leasing program, initially
totaling $70.0 million, to be used as a funding mechanism for future assisted
living and skilled nursing facility construction, lease conversions, and other
facility acquisitions. This leasing program allows the Company to complete
these projects without committing significant financing resources. The lease is
an unconditional "triple net" lease for a period of seven years with the annual
lease obligation a function of the amount spent by the lessor to acquire or
construct the project, a variable interest rate, and commitment and other fees.
The Company guarantees a minimum of approximately 83% of the residual value of
the leased property and also has an option to purchase the properties at any
time prior to the maturity date at a price sufficient to pay the entire amount
financed, accrued interest, and certain expenses. The leasing program will be
accounted for as an operating lease.
The company's long-term strategy in managing working capital is to
maintain substantial available commitments under bank credit agreements or
other financial agreements to finance short-term capital requirements in excess
of internally generated cash.
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INSURANCE COVERAGES
The Company insures auto, general, and professional liability and
workers' compensation risks through insurance policies with third parties.
Some of these third-party policies subsequent to February 21, 1994 are subject
to reinsurance agreements between the insurer and LCA Insurance Company, Ltd.,
a wholly-owned subsidiary of the Company that was formed during 1994. The
business written by LCA Insurance Company, Ltd. is the reinsurance of policies
providing coverage for nursing home professional liability, automobile
liability, and workers' compensation. All of these are occurrence policies
which cover only the Company and its subsidiaries and their employees.
Pursuant to the reinsurance agreements, LCA Insurance Company, Ltd. is
responsible to pay all losses which are incurred by the company issuing the
policies. The maximum loss exposure with respect to these polices is $0.5
million per occurrence (policy periods prior to July 1, 1996) and $1.0 million
per occurrence (policy periods subsequent to July 1, 1996) for nursing home
professional liability; $0.25 million per occurrence for automobile liability;
and $0.5 million per occurrence for workers' compensation liability.
The liabilities for incurred losses are estimated by independent
actuaries on an undiscounted basis. The obligations of LCA Insurance Company,
Ltd. under the reinsurance agreements are collateralized through a security
trust account which has been designated as restricted investments to pay for
future claims experience applicable to policy periods subsequent to February
21, 1994. Restricted investments at September 30, 1996 and 1995 designated to
pay such claims were $31.0 million and $36.6 million, respectively.
In 1992, the Company elected under Texas law to decline to participate
in the Texas workers' compensation insurance program. As part of the election,
the Company implemented an employee benefit plan providing for employer-paid
benefits comparable to those provided under the Texas workers' compensation
program and obtained insurance that limits the Company's exposure for any
individual injury. During 1994, the Company established a trust in which to
fund the amount applicable to actuarially determined claims to be incurred for
fiscal year 1994 and subsequent years.
The BCC Entities are insured for current and past workers' compensation
claims under various types of insurance and financial plans, certain of which
are loss-sensitive in nature and design, which subject the Companies to
additional future premiums for losses incurred in a prior year but paid in a
subsequent fiscal period, as losses develop. The BCC Entities have recorded
expenses under these plans based upon actual and estimated losses based on the
available incurred loss structure.
Additionally, certain of these loss-sensitive workers' compensation
plans in which the Companies have participated were organized as pools or
funds, with joint and several or pro rata liability ascribed to its members.
Such plans may lead to the potential of future loss assessments for the BCC
Entities; however, the amount of such additional potential assessments, if any,
is not determinable at this time. It is the opinion of management that any
additional assessments will not have a material adverse effect on the financial
position or results of operations of the Companies. See Note 12 to the
Consolidated Financial Statements.
IMPACT OF INFLATION
The health care industry is labor intensive. Wages and other
labor-related costs are especially sensitive to inflation. Increases in wages
and other labor-related costs as a result of inflation, or the increase in
minimum wage requirements effective October 1996, without a corresponding
increase in Medicaid and Medicare reimbursement rates would adversely impact
the Company.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to be
signed on its behalf by the undersigned, thereunto duly authorized.
September 6, 1997 LIVING CENTERS OF AMERICA, INC.
(Registrant)
By: /s/ Charles B. Carden
----------------------------
Charles B. Carden
Executive Vice President and
Chief Financial Officer
By: /s/ Ronald W. Fleming
----------------------------
Ronald W. Fleming
Vice President and Controller
(Principal Accounting Officer)
9
