UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
---------- Exchange Act of 1934
For the quarterly period ended March 31, 1996
---------- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _____________
Commission File No. 34-22090
THE MULTICARE COMPANIES, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 22-3152527
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification #)
411 Hackensack Avenue
Hackensack, New Jersey 07601
--------------------- -----
Address of principal executive offices Zip Code
Registrant's telephone number, including area code (201) 488-8818
---------------
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 3, 1996
- --------------------------------- ---------------------------------
Common Stock ($.01 Par Value) 17,688,012 shares
<PAGE>
THE MULTICARE COMPANIES, INC.
Index
-----
Page
----
Part I. Financial Information
Consolidated Balance Sheets
December 31, 1995 and March 31, 1996 2
Consolidated Statements of Operations
Three months ended March 31, 1995 and 1996 3
Consolidated Statements of Cash Flows
Three months ended March 31, 1995 and 1996 4
Notes to Consolidated Financial Statements 5-6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
Part II. Other Information 9
Signatures 10
<PAGE>
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE><CAPTION>
December 31, March 31,
1995 1996
---- ----
Assets (Unaudited)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,921 3,139
Marketable securities 210 52
Accounts receivable, net 86,168 98,773
Prepaid expenses and other current assets 7,971 14,059
Deferred taxes 3,353 3,475
------- -------
Total current assets 101,623 119,498
------- -------
Property, plant and equipment, net 286,767 370,630
Goodwill, net 59,610 115,686
Debt issuance costs, net 4,738 5,319
Other assets 18,220 19,383
------- -------
$ 470,958 630,516
======= =======
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable 13,619 14,849
Accrued liabilities 30,850 38,741
Current portion of long-term debt and
capitalized lease obligations 1,612 1,878
------- -------
Total current liabilities 46,081 55,468
------- -------
Long-term debt and capitalized lease obligations 281,470 408,842
Deferred taxes 24,200 42,336
Contingent stock purchase commitment 5,312 5,312
Stockholders' equity:
Preferred stock, par value $.01, 3,000,000 shares authorized,
none issued --- ---
Common stock, par value $.01, 30,000,000 shares authorized;
17,680,932 and 17,682,648 issued and outstanding in 1995 and
1996, respectively 177 177
Additional paid-in-capital 75,419 75,366
Retained earnings 38,299 43,015
------- -------
Total stockholders' equity 113,895 118,558
------- -------
$ 470,958 630,516
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
<TABLE><CAPTION>
Three months ended
March 31,
---------
1995 1996
---- ----
<S> <C> <C>
Net revenues $ 81,700 120,057
Expenses:
Operating expenses 62,363 93,770
Corporate, general and administrative 3,943 6,155
Depreciation and amortization 3,044 4,654
------ ------
Total expenses 69,350 104,579
------ ------
Income from operations 12,350 15,478
Other income (expense):
Investment income 111 81
Interest expense (4,243) (5,544)
------ ------
Total other income (expense) (4,132) (5,463)
------ ------
Income before income taxes and extraordinary item 8,218 10,015
Income tax expense 3,124 3,818
------ ------
Income before extraordinary item 5,094 6,197
Extraordinary item - loss on extinguishment of debt,
net of tax benefit --- 1,481
------ ------
Net income $ 5,094 4,716
====== ======
Net income per share data:
Income before extraordinary item per share $ .29 .35
=== ===
Net income per share $ .29 .27
=== ===
Weighted average number of shares outstanding 17,669 17,682
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE><CAPTION>
Three months ended
March 31,
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net cash used in operating activities (2,109) (2,434)
------ ------
Cash flows from investing activities:
Net marketable securities sold 138,556 281
Net marketable securities purchased (178,638) (123)
Assets and operations acquired (12,951) (121,281)
Capital expenditures (9,849) (15,916)
Other assets (612) 2,781
------ ------
Net cash used in investing activities (63,494) (134,258)
------ ------
Cash flows from financing activities:
Proceeds from exercise of stock options 153 29
Proceeds from long-term debt 152,492 164,800
Payments of long-term debt and capitalized lease obligations (75,689) (26,987)
Debt issuance costs (3,497) (1,850)
Other --- (82)
------ -------
Net cash provided by financing activities 73,459 135,910
Increase (decrease) in cash and cash equivalents 7,856 (782)
Cash and cash equivalents at beginning of period 8,009 3,921
------ ------
Cash and cash equivalents at end of period $ 15,865 3,139
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued.
March 31, 1996
(Unaudited)
(In thousands, except share data)
(1) Organization and Basis of Presentation
--------------------------------------
The Multicare Companies, Inc. and Subsidiaries (Multicare or the
Company) own, operate and manage skilled nursing facilities which
provide long-term care and specialty medical services in selected
geographic regions within the eastern and midwestern United States. In
addition, the Company operates institutional pharmacies, medical supply
companies, outpatient rehabilitation centers and other ancillary
healthcare businesses.
The financial information as of March 31, 1996 and for the three months
ended March 31, 1995 and 1996, is unaudited and has been prepared in
conformity with the accounting principles and practices as reflected in
the Company's audited annual financial statements. The unaudited
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial
position as of March 31, 1996 and the operating results and cash flows
for the three months ended March 31, 1995 and 1996. Results for interim
periods are not necessarily indicative of those to be expected for the
year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from these estimates.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these consolidated financial statements be read in conjunction
with the consolidated financial statements and notes thereto
incorporated in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
All significant intercompany transactions and accounts of the Company
have been eliminated.
(2) Commitments and Contingencies
-----------------------------
A significant portion of the Company's net revenues and accounts
receivable are due from services reimbursable under the Medicaid and
the Medicare programs. There are numerous healthcare reform proposals
being considered on the federal and state levels. Although no reform
legislation changes have been implemented, the current proposals for
the Medicare program include a shift to a prospective payment system, a
limit on interim payments for ancillary services, a reduction of
reimbursement for capital costs, a continued freeze on routine cost
limits, and salary equivalency limits for occupational and speech
therapies. In addition, current Medicaid proposals being considered
include the elimination of the Boren amendment and the establishment of
state block grants. The Company cannot predict at this time whether any
of these proposals will be adopted or, if adopted and implemented, what
effect such proposals would have on the Company.
The Company is from time to time subject to claims and suits arising in
the ordinary course of business. In the opinion of management, the
ultimate resolution of pending legal proceedings will not have a
material effect on the Company's financial statements.
5
<PAGE>
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued.
March 31, 1996
(Unaudited)
(In thousands, except share data)
(3) Financing Obligations
---------------------
In February 1996, the Company restructured its credit agreement with a
group of banks led by The Chase Manhattan Bank, N.A. (Chase) to extend
the amount of credit available from $200,000 to $300,000. In April
1996, the Company received a commitment from Chase to increase the
amount of credit available to $350,000.
(4) Acquisitions
------------
In December 1995, the Company completed the acquisition of Glenmark
Associates, Inc. (Glenmark). The Company acquired the outstanding
capital stock of Glenmark for approximately $32,000 including
transaction costs, repaid approximately $24,200 of debt, and assumed
historical debt of approximately $24,700. Total goodwill approximated
$25,600.
In February 1996, the Company completed the acquisition of Concord
Health Group, Inc. (Concord). The Company acquired the outstanding
capital stock and warrants of Concord for approximately $75,000
including transaction costs, repaid approximately $41,000 of debt, and
assumed historical debt of approximately $4,000. Total goodwill
approximated $55,000.
The following unaudited pro forma financial information gives effect to
the acquisitions of Glenmark and Concord as if such transactions
occurred on January 1, 1995:
Pro forma Pro forma
three months ended three months ended
March 31, 1995 March 31, 1996
-------------- --------------
Net revenues $ 106,107 128,420
Income before
extraordinary item 4,795 6,127
Net income 4,795 4,646
Income before extraordinary
item per share .27 .35
Net income per share .27 .26
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company has experienced significant growth, primarily through acquisitions
of long-term care facilities and ancillary businesses and increased utilization
of specialty medical services. It is the Company's strategy to expand through
construction and development of new facilities and selective acquisitions with
geographically concentrated operations. Summarized below are the recent
significant acquisitions completed in 1995 and 1996:
In December 1995, the Company acquired the outstanding capital
stock of Glenmark Associates, Inc., a long-term care provider
through 21 facilities and several ancillary businesses with
approximately 1,700 beds, located mainly in West Virginia.
In February 1996, the Company acquired the outstanding capital
stock of Concord Health Group, Inc., a long-term care provider
through 15 long-term care facilities with approximately 2,600
beds and ancillary businesses in Pennsylvania.
Results of Operations
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Net Revenues. Net revenues increased to $120.1 million for the three months
ended March 31, 1996 from $81.7 million for the comparable period in 1995, an
increase of $38.4 million or 46.9%. Of this increase, $32.7 million was due to
the inclusion of revenues for the recent acquisitions previously described. The
balance principally represents higher payor rates and growth in specialty
medical service revenues. Specialty medical services revenues increased to $45.3
million in the first quarter of 1996, compared to $30.9 million in the
corresponding period in 1995. The Company's quality mix of private, Medicare and
insurance revenues was 59% of revenues for the three months ended March 31, 1996
compared to 62% in the similar period of 1995.
Operating Expenses. Operating expenses increased to $93.8 million for the three
months ended March 31, 1996 from $62.4 million for the comparable period in
1995, an increase of $31.4 million or 50.4%. Salaries, wages and benefits
increased to $60.0 million for the three months ended March 31, 1996 from $39.3
million for the comparable period in 1995, an increase of $20.7 million or
52.7%. Of this increase, $16.2 million was due to the acquisitions previously
described. The remainder of the increase was due to the expanded utilization of
salaried therapists and nursing staffing levels to support higher usage of
specialty medical services, in addition to cost of living increases. Other
operating expenses increased to $33.8 million for the three months ended March
31, 1996 from $23.1 million for the comparable period in 1995, an increase of
$10.7 million or 46.3%. Other operating expenses include independent contractor
fees for therapy, dietary supplies and food, utilities, facility maintenance and
housekeeping. The increase in these expenses was due principally to the
inclusion of the recent acquisitions.
Corporate, General and Administrative. Corporate, general and administrative
expense increased to $6.2 million in the first quarter of 1996 from $3.9 million
in the same period of 1995, an increase of $2.3 million. This increase was
primarily attributable to additional resources devoted to operations, finance,
accounting, and information systems in order to support the new facilities
acquired and leased and for present and planned growth.
Depreciation and Amortization. Depreciation and amortization increased to $4.7
million in the first quarter of 1996 from $3.0 million in the same period of
1995, an increase of $1.7 million. The increase was primarily due to the
inclusion of depreciation and amortization for the recently acquired facilities.
Interest Expense. Interest expense increased to $5.5 million in 1996 from $4.2
million in 1995, an increase of $1.3 million. This increase was due primarily to
higher borrowing levels on the Company's credit agreement and interest
associated with the Company's Convertible Debentures.
7
<PAGE>
Liquidity and Capital Resources
The Company maintains that working capital from operating cash flows and lines
of credit are adequate for continuing operations, debt payments, and anticipated
capital expenditures.
At March 31, 1996, the Company had working capital of $64.0 million, compared to
$55.5 million at December 31, 1995.
In February 1996, the Company restructured its credit agreement with a group of
banks led by The Chase Manhattan Bank, N.A. (Chase) to extend the amount of
credit available to it from $200 million to $300 million. At March 31, 1996, the
amount outstanding under the line of credit approximated $252.9 million. In
April 1996, the Company received a commitment from Chase to increase the amount
of credit available to $350,000.
Net accounts receivable were $98.8 million at March 31, 1996, compared to $86.2
million at December 31, 1995. This increase is primarily attributable to the
recent acquisitions, the utilization of specialty medical services for higher
acuity level patients, and the timing of third-party interim and settlement
payments. The allowance for doubtful accounts represents approximately 6% and 5%
of gross accounts receivable at March 31, 1996 and December 31, 1995,
respectively. Legislative and regulatory action and government budgetary
constraints could change the timing of payments and reimbursement rates of the
Medicare and Medicaid programs in the future. These changes could have a
material adverse effect on the Company's future operating results and cash
flows.
A significant portion of the Company's net revenues and accounts receivable are
due from services reimbursable under the Medicaid and the Medicare programs.
There are numerous healthcare reform proposals being considered on the federal
and state levels. Although no reform legislation changes have been implemented,
the current proposals for the Medicare program include a shift to a prospective
payment system, a limit on interim payments for ancillary services, a reduction
of reimbursement for capital costs, a continued freeze on routine cost limits,
and salary equivalency limits for occupational and speech therapies. In
addition, current Medicaid proposals being considered include the elimination of
the Boren amendment and the establishment of state block grants. The Company
cannot predict at this time whether any of these proposals will be adopted or,
if adopted and implemented, what effect such proposals would have on the
Company.
The Company plans to continue its growth oriented strategy for the foreseeable
future. The Company anticipates using operating cash flows, bank credit
facilities, leasing arrangements, and the sale of additional debt or equity
securities to finance its growth. The Company estimates its capital requirements
for the construction of new facilities and the expansion and renovation of
existing facilities to approximate $35.0 million based on existing certificates
of need. These amounts will be expended over estimated construction periods
approximating two years.
8
<PAGE>
Part II-Other Information
Item 1. Legal Proceedings. None.
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. (a) None.
(b) Reports on Form 8-K.
On February 12, 1996, the Company filed a Current Report on
Form 8-K/A relating to the acquisition of Concord pursuant to
Item 7(4) of Form 8-K, which allows the filing of required
financial statements and pro forma financial information
within 60 days after the date on which the report on Form 8-K
must be filed.
On February 16, 1996, the Company filed a Current Report on
Form 8-K reporting that the Company completed its tender offer
for Concord Health Group, Inc.
9
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
The Multicare Companies, Inc.
By: DANIEL E. STRAUS
-----------------------------------------
Daniel E. Straus
President and Co-Chief Executive Officer
STEPHEN R. BAKER
-----------------------------------------
Stephen R. Baker
Executive Vice President
and Chief Financial Officer
May 13, 1996
10
