<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report: June 7, 1996
THE MULTICARE COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
COMMISSION FILE NO. 34-22090
DELAWARE 22-3152527
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
411 HACKENSACK AVENUE
HACKENSACK, NEW JERSEY 07601
---------------------- -----
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (201) 488-8818
--------------
<PAGE>
This Form 8-K/A amends and supersedes a filing on Form 8-K by the Registrant on
Form 8-K/A, dated February 12, 1996 which amended a filing dated December 15,
1995, pursuant to which Registrant had reported its acquisition of Glenmark
Associates, Inc. Such Form 8-K is hereby amended by changing Item 7 thereof to
read as follows, and by filing herewith the attached financial statements
and information.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial statements:
- Audited balance sheets of Glenmark Associates, Inc. as of
December 31, 1993 and 1994 and the related consolidated
statements of income, stockholders' equity and cash flows
for each of the years in the two year period ended December
31, 1994.
- Unaudited balance sheet of Glenmark Associates, Inc. as of
September 30, 1995 and the related consolidated statement of
income for the nine months ended September 30, 1995.
(b) Pro forma financial information:
- Pro forma condensed consolidated balance sheet of The
Multicare Companies, Inc. and subsidiaries and Glenmark
Associates, Inc. as of September 30, 1995.
- Pro forma condensed consolidated statement of operations of
The Multicare Companies, Inc. and subsidiaries and Glenmark
Associates, Inc. for the year ended December 31, 1994.
- Pro forma condensed consolidated statement of operations of
The Multicare Companies, Inc. and subsidiaries and Glenmark
Associates, Inc. for the nine months ended September 30,
1995.
(c) Exhibits. None.
2
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1994 and the nine months ended
September 30, 1995, have been prepared as if the acquisition of Glenmark
Associates, Inc. (Glenmark) had been consummated on January 1, 1994. The
accompanying unaudited pro forma condensed consolidated balance sheet at
September 30, 1995, has been prepared as if the acquisition of Glenmark had been
consummated on September 30, 1995. The unaudited pro forma financial
information has been prepared on the basis of assumptions described in the notes
to the unaudited pro forma condensed consolidated financial statements. The
unaudited pro forma condensed consolidated financial statements are not
necessarily indicative of actual results that would have been achieved had the
acquisitions actually been completed as of the dates indicated. The unaudited
pro forma condensed consolidated financial statements should be read in
conjunction with the respective historical financial statements of the Company
and Glenmark and the related notes thereto.
3
<PAGE>
THE MULTICARE COMPANIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
------------------------------------------
GLENMARK SABRATON
MULTICARE HISTORICAL PLAZA PRO FORMA MULTICARE
HISTORICAL (1a) (1b) ADJUSTMENTS PRO FORMA
---------- ---- ---- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $39,504 $44 ($23,000) (2) $16,548
Marketable securities 9,790 9,790
Accounts receivable, net 74,857 7,898 (17) 82,738
Prepaid expense and other current assets 7,185 3,408 (2) 10,591
Deferred taxes 3,000 3,000
----------------------------------------------------- --------
Total current assets 134,336 11,350 (19) (23,000) 122,667
Property, plant, and equipment 246,863 44,387 (1,377) 14,701 (3) 304,574
Less accumulated depreciation 34,970 8,052 (43) (8,009) (3) 34,970
----------------------------------------------------- --------
211,893 36,335 (1,334) 22,710 (3) 269,604
Goodwill, net 33,780 4,548 16,794 (4) 55,122
Debt issuance costs, net 6,190 953 (953) (5) 6,190
Other assets 11,142 3,788 1,288 5,642 (5) 21,860
----------------------------------------------------- --------
$397,341 $56,974 ($65) $21,193 $475,443
----------------------------------------------------- --------
----------------------------------------------------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 10,040 1,610 11,650
Accrued liabilities 23,315 3,719 (18) 2,200 (6) 29,216
Current portion of long-term debt 990 990
Current portion of capitalized lease obligations 509 509
----------------------------------------------------- --------
Total current liabilities 33,864 6,319 (18) 2,200 42,365
Long-term debt 207,300 45,053 13,279 (7) 265,632
Capitalized lease obligations 25,712 25,712
Deferred taxes 14,039 10,893 (8) 24,932
Other liabilities 595 (219) (5) 376
Redeemable preferred stock 3,350 (3,350) (9)
Stockholders' equity:
Preferred stock 5,791 (5,791) (9)
Common stock 177 177
Additional paid-in-capital 80,237 1,032 (1,032) (9) 80,237
Retained earnings (accumulated deficit) 36,012 (5,166) (47) 5,213 (9) 36,012
----------------------------------------------------- --------
Total stockholders' equity 116,426 1,657 (47) (1,610) 116,426
----------------------------------------------------- --------
$397,341 $56,974 ($65) $21,193 $475,443
----------------------------------------------------- --------
----------------------------------------------------- --------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
4
<PAGE>
THE MULTICARE COMPANIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS
----------------------------------------------------
GLENMARK SABRATON LEASED
MULTICARE HISTORICAL PLAZA FACILITIES PRO FORMA MULTICARE
HISTORICAL (1a) (1b) (2) ADJUSTMENTS PRO FORMA
---------- ---------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $262,416 $40,032 ($242) $10,251 $312,457
Expenses:
Facility operating expenses 201,250 31,756 (157) 9,189 242,038
Corporate, general and administrative 11,446 2,086 13,532
Depreciation and amortization 9,358 1,730 (22) $482 (3) 11,548
-------- -------- -------- -------- -------- --------
Total expenses 222,054 35,572 (179) 9,189 482 267,118
-------- -------- -------- -------- -------- --------
Income from operations 40,362 4,460 (63) 1,062 (482) 45,339
Other income (expense) (12,866) (4,202) 62 (99) (4) (17,105)
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary item 27,496 258 (1) 1,062 (581) 28,235
Income tax expense (benefit) 10,454 (113) 597 (5) 10,938
-------- -------- -------- -------- -------- --------
Income before extraordinary item $17,042 $371 ($1) $1,062 ($1,178) $17,297
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Income before extraordinary item per share $1.07 $1.08
Weighted average shares outstanding 15,978 15,978
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
5
<PAGE>
THE MULTICARE COMPANIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS
----------------------------------------------------
GLENMARK SABRATON LEASED
MULTICARE HISTORICAL PLAZA FACILITIES PRO FORMA MULTICARE
HISTORICAL (1a) (1b) (2) ADJUSTMENTS PRO FORMA
---------- ---------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $258,253 $35,042 ($245) $8,358 $301,408
Expenses:
Facility operating expenses 197,230 28,110 (147) 7,580 232,773
Corporate, general and administrative 12,713 2,882 15,595
Depreciation and amortization 9,865 1,459 (30) $378 (3) 11,672
-------- -------- -------- -------- -------- --------
Total expenses 219,808 32,451 (177) 7,580 378 260,040
-------- -------- -------- -------- -------- --------
Income from operations 38,445 2,591 (68) 778 (378) 41,368
Other income (expense) (12,251) (3,326) 26 (922) (4) (16,473)
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary item 26,194 (735) (42) 778 (1,300) 24,895
Income tax expense (benefit) 10,056 (345) (5) 9,711
-------- -------- -------- -------- -------- --------
Income before extraordinary item $16,138 ($735) ($42) $778 ($955) $15,184
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Income before extraordinary item per share $0.91 $0.86
Weighted average shares outstanding 17,674 17,674
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
6
<PAGE>
THE MULTICARE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA BALANCE SHEET
On December 1, 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. The acquisition was financed through existing cash balances and the
Company's credit facility. The acquisition has been accounted for using the
purchase method of accounting.
The pro forma balance sheet has been presented assuming the acquisition of
Glenmark occurred on September 30, 1995. The pro forma adjustments are as
follows:
(1a) Reflects the historical balance sheet of Glenmark at December 31, 1994.
(1b) Reflects the elimination of certain assets and liabilities for a Glenmark
entity not acquired by the Company.
(2) The use of cash to complete the acquisition.
(3) The allocation of a portion of the purchase price to property, plant and
equipment, reflecting fair market value of facilities acquired based on
appraised values.
(4) Increase in goodwill resulting from purchase price in excess of fair market
value of net assets acquired.
(5) Elimination of assets and liabilities with no future value, record security
deposits and escrows arising from the acquisition, and to allocate a
portion of the purchase price to investments.
(6) Accrual for transaction costs related to the acquisition.
(7) Additional borrowings under the Company's revolving credit facility to
complete the acquisition and adjustment to reflect the fair market values
of assumed debt.
(8) Increase in deferred taxes to reflect the difference in fair values
assigned and tax basis of assets and liabilities acquired.
(9) Elimination of redeemable preferred stock and stockholders' equity of
Glenmark.
PRO FORMA STATEMENTS OF OPERATIONS
The pro forma adjustments to the statements of operations are as follows:
(1a) Reflects the historical results of operations of Glenmark for the year
ended December 31, 1994 and the nine months ended September 30, 1995.
(1b) Reflects the elimination of the results of operations for a Glenmark entity
not acquired by the Company.
7
<PAGE>
THE MULTICARE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(2) In November 1995 Glenmark entered into a lease agreement for four
facilities located in West Virginia. The historical results of operations
for these facilities for the year ended December 31, 1994 and the nine
months ended September 30, 1995 have been adjusted to:
- reflect the elimination of management fees of $604 and $452,
respectively,
- record rent expense relating to the lease agreements of $1,557
and $1,167, respectively,
- eliminate depreciation and amortization expense of $532 and $434,
respectively, and
- eliminate net interest expense of $734 and $461, respectively.
(3) Depreciation and amortization expense has been increased by amortization of
goodwill incurred in the acquisition, depreciation resulting from the
allocation of the Company's purchase price to Glenmark property, plant and
equipment, and adjustments to conform Glenmark's accounting policies to
those of the Company.
(4) For the year ended December 31, 1994, net interest expense has been
increased by $99 to reflect the elimination of investment income from the
utilization of cash to consummate the acquisition, the refinancing of
Glenmark debt with the Company's credit facility bearing interest at an
average rate of 6%, and the assumption of Glenmark debt at fair market
value of approximately 8%. For the nine months ended September 30, 1995,
net interest expense has been increased by $922 to reflect the elimination
of investment income from the utilization of cash to consummate the
acquisition, the refinancing of Glenmark debt with the Company's credit
facility bearing interest at an average rate of 7%, and the assumption of
Glenmark debt at fair market value of approximately 8%.
(5) Income tax expense has been adjusted to reflect an effective tax rate of
approximately 39% for federal and state taxes.
8
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
The Multicare Companies, Inc.
STEPHEN R. BAKER
_______________________________
Stephen R. Baker
Executive Vice President, Chief Financial Officer
June 7, 1996
9
<PAGE>
GLENMARK ASSOCIATES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $44
Accounts receivable, net 7,898
Prepaid expense and other current assets 3,408
-------
Total current assets 11,350
Property, plant, and equipment 44,387
Less accumulated depreciation 8,052
-------
36,335
Goodwill, net 4,548
Debt issuance costs, net 953
Other assets 3,788
-------
$56,974
-------
-------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 1,610
Accrued liabilities 3,719
Current portion of long-term debt 990
-------
Total current liabilities 6,319
Long-term debt 45,053
Other liabilities 595
Redeemable preferred stock 3,350
Stockholders' equity:
Preferred stock 5,791
Additional paid-in-capital 1,032
Retained earnings (accumulated deficit) (5,166)
-------
Total stockholders' equity 1,657
-------
$56,974
-------
-------
See accompanying Notes to Unaudited Consolidated Financial Statements.
1
<PAGE>
GLENMARK ASSOCIATES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues $35,042
Expenses:
Facility operating expenses 28,110
Corporate, general and administrative 2,882
Depreciation and amortization 1,459
--------
Total expenses 32,451
--------
Income from operations 2,591
Other income (expense) (3,326)
--------
Income (loss) before income taxes
and extraordinary item (735)
--------
Income tax expense (benefit)
Income before extraordinary item ($735)
Extraordinary item - loss on extinguishment of
debt, net of tax 281
--------
Net income ($1,016)
--------
--------
See accompanying Notes to Unaudited Consolidated Financial Statements.
2
<PAGE>
GLENMARK ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Glenmark Associates, Inc. and subsidiaries
("Glenmark") operates an integrated network of healthcare businesses
located primarily in West Virginia. The Company provides nursing,
rehabilitation, imaging, pharmaceutical and other healthcare services.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Glenmark and all controlled subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
The Company uses the equity method to account for its ownership interest in
several real estate and healthcare limited partnerships. The Company owns
a minority interest in these partnerships and does not have controlling
voting interest.
Payments received from third-party payors, such as Medicaid and Medicare,
are subject to audit by the respective payors or their agent. Audit
adjustments, if necessary, are accrued on an estimated basis. The ultimate
settlement is recorded in the year that final settlement is determined.
(2) SUBSEQUENT EVENTS
On October 18, 1995, Glenmark entered into an agreement whereby Glenmark
will merge with HRWV, Inc. (a wholly owned subsidiary of The Multicare
Companies, Inc.). The agreement provides that upon consummation of the
merger, the stockholders of Glenmark will receive $23,700 in cash proceeds
and the distribution of certain real estate valued at $1,200. Additional
payments to the former shareholders of Glenmark are possible based upon
operating profit performance. The merger was completed on December 1, 1995
in accordance with the merger agreement.
3
<PAGE>
[LETTERHEAD]
- --------------------------------------------------------------------------------
GLENMARK ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1994 AND 1993, AND
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Glenmark Associates, Inc.:
We have audited the accompanying consolidated balance sheets of Glenmark
Associates, Inc. and subsidiaries (a wholly owned subsidiary of Glenmark Holding
Company Limited Partnership) as of December 31, 1994 and 1993, and the
related consolidated statements of income, stockholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Glenmark Associates, Inc. and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 7 to the consolidated financial statements, effective
January 1, 1993 the Company changed its method of accounting for income taxes.
We have not audited any financial statements of the Company for any period
subsequent to December 31, 1994, nor have we performed a review of interim
financial statements in conformity with the standards set forth by the American
Institute of Certified Public Accountants.
/s/ DELOITTE & TOUCHE LLP
March 28, 1995
(December 1, 1995 as to the second paragraph of Note 13)
<PAGE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
- --------------------------------------------------------------------------------
ASSETS 1994 1993
CURRENT ASSETS:
Cash and cash equivalents $ 269,122 $ 512,105
Trade receivables, less allowance
for doubtful accounts:
1994 - $155,000; 1993 - $75,000 7,401,396 5,769,653
Accounts receivable, related parties 1,885,640 1,097,974
Inventories 340,331 207,688
Prepaid expenses and other current
assets 678,564 469,251
---------- ----------
Total current assets 10,575,053 8,056,671
ASSETS WHOSE USE IS LIMITED-
Under trust indentures 806,134 1,813,478
PROPERTY AND EQUIPMENT - Net 35,461,731 29,568,544
EXCESS OF PURCHASE PRICE OVER ESTIMATED
FAIR VALUE OF NET ASSETS ACQUIRED - Net
of accumulated amortization of $675,799
and $471,000 3,667,463 3,666,069
OTHER ASSETS 3,845,235 3,130,219
----------- -----------
$54,355,616 $46,234,981
----------- -----------
----------- -----------
See notes to consolidated financial statements.
-2-
<PAGE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
CURRENT LIABILITIES:
Accounts payable $ 1,453,716 $ 1,205,904
Accrued expenses and payroll withholdings 2,781,541 2,441,738
Accounts payable, related parties 198,381 281,965
Current maturities of long-term obligations 856,946 836,381
----------- ----------
Total current liabilities 5,290,584 4,765,988
----------- ----------
LONG-TERM OBLIGATIONS - Less current
maturities 43,304,153 39,031,237
----------- ----------
OTHER LIABILITIES 611,334 852,949
REDEEMABLE PREFERRED STOCK:
Series A Cumulative Preferred Stock,
$100 par value, authorized 6,000 shares;
issued and outstanding 5,828 shares 582,857 582,857
Series B Cumulative Preferred Stock, no
par value, authorized 600 shares;
issued and outstanding 570 shares 2,767,515 2,767,515
----------- ----------
3,350,372 3,350,372
----------- ----------
STOCKHOLDERS' EQUITY:
Series S-1 Senior Preferred Stock,
no par value, authorized 425,000
shares; issued and outstanding
289,094 shares 3,818,184 -
Common Stock, no par value,
authorized 13,071,895 shares; issued
and outstanding 1,000,000 shares - -
Additional paid-in capital 1,381,271 1,381,271
Accumulated deficit (3,400,282) (3,146,836)
----------- ----------
Total stockholders' equity 1,799,173 (1,765,565)
----------- ----------
$54,355,616 $46,234,981
----------- ----------
----------- ----------
See notes to consolidated financial statements.
-3-
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994 AND 1993
- --------------------------------------------------------------------------------
1994 1993
NET REVENUES $40,149,106 $31,483,627
EXPENSES:
Facility operating expenses:
Nursing services 11,903,758 9,639,282
Rental 676,851 1,243,146
Other operating 11,317,206 8,638,933
General and administrative 9,943,450 7,013,991
Depreciation and amortization 1,730,261 1,210,672
----------- -----------
Total expenses 35,571,526 27,746,024
----------- -----------
INCOME FROM OPERATIONS 4,577,580 3,737,603
INTEREST EXPENSE 4,319,480 3,435,257
----------- -----------
INCOME BEFORE INCOME TAXES, CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
AND EXTRAORDINARY LOSS 258,100 302,346
FEDERAL AND STATE INCOME TAXES (BENEFIT) (112,730) 177,000
----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE AND EXTRAORDINARY
LOSS 370,830 125,346
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR INCOME TAXES - 632,202
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT - Net of tax 306,737 -
----------- -----------
NET INCOME $ 64,093 $ 757,548
----------- -----------
----------- -----------
See notes to consolidated financial statements.
-4-
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SENIOR
PREFERRED STOCK COMMON
(SERIES S-1) STOCK ADDITIONAL
-------------------- --------------------- SUBSCRIBED PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT STOCK CAPITAL DEFICIT
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1992 - $ - 765 $ - 300,000 1,381,271 (3,693,630)
Net income - - - - - - 757,548
Dividends:
Series A Cumulative Preferred
Stock - - - - - - (52,105)
Series B Cumulative Preferred
Stock - - - - - - (158,649)
Issuance of Series B Cumulative
Preferred Stock - - - - (300,000) - -
------- ---------- --------- --------- --------- ---------- -----------
BALANCES, DECEMBER 31, 1993 - - 765 - - $1,381,271 $(3,146,836)
Net income - - - - - - 64,093
1,307 for 1 Common Stock Split 999,235 - -
Dividends:
Series A Cumulative Preferred
Stock - - - - - - (53,914)
Series B Cumulative Preferred
Stock - - - - - - (263,625)
Issuance of Series S-1 Senior
Preferred Stock 289,094 3,818,184 - - - - -
------- ---------- --------- --------- --------- ---------- -----------
BALANCES, DECEMBER 31, 1994 289,094 $3,818,184 1,000,000 $ - $ - $1,381,271 $(3,400,282)
------- ---------- --------- --------- --------- ---------- -----------
------- ---------- --------- --------- --------- ---------- -----------
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 64,093 $ 757,548
Adjustments to reconcile net income to net cash provided by operating activities:
Cumulative effect of change in accounting for income taxes - (632,202)
Noncash portion of loss on early extinguishment of debt 178,786 -
Depreciation and amortization 1,730,261 1,210,672
Provision for bad debts 208,173 293,108
Deferred income taxes (332,408) 177,000
Earnings of unconsolidated affiliates, net of distributions (78,704) 150,985
Changes in assets and liabilities, net of effects from acquisitions:
Increase in trade receivables (1,895,689) (1,733,521)
Increase in accounts payable 247,812 238,601
Other (increases) decreases in working capital (107,792) 115,606
----------- -----------
Net cash provided by operating activities 14,532 577,797
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,647,323) (2,184,433)
Acquisitions, net of cash received (846,632) 180,236
Decrease (increase) in assets whose use is limited 1,231,083 (65,317)
Increase in related party receivables (775,122) (265,613)
Increase in other assets (305,577) (385,118)
----------- -----------
Net cash used in investing activities (3,343,571) (2,720,245)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term obligations 5,704,895 1,864,706
Proceeds from issuance of preferred stock 4,210,572 1,501,500
Principal payments on long-term obligations (6,022,878) (668,359)
Payment of debt and stock issuance costs (488,994) (338,676)
Payment of dividends on preferred stock (317,539) (210,754)
----------- -----------
Net cash provided by financing activities 3,086,056 2,148,417
----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (242,983) 5,969
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 512,105 506,136
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 269,122 $ 512,105
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
-6-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1993
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Glenmark Associates, Inc. and subsidiaries (the
"Company") operates an integrated network of healthcare businesses
primarily in West Virginia. The company provides nursing, rehabilitation,
imaging, pharmaceutical and other healthcare services.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Glenmark Associates, Inc. and all controlled subsidiaries.
All significant intercompany accounts and transactions have been eliminated
in consolidation.
The Company uses the equity method to account for its ownership interest in
several real estate and healthcare limited partnerships. The Company owns
minority interests in these partnerships and does not have controlling
voting interest.
CASH AND CASH EQUIVALENTS - Cash on hand, cash in banks and certificates of
deposit which have original maturities of three months or less are included
in cash and cash equivalents.
INVENTORIES - Inventories consist primarily of supplies and are stated at
the lower-of-cost or market. Cost is determined on a first-in, first-out
basis.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation is computed principally by the straight-line method over
estimated useful lives ranging from 5 to 40 years.
DEBT ISSUANCE COSTS - Costs associated with the issuance of debt are
amortized on the straight-line basis over the terms of the related debt.
EXCESS OF PURCHASE PRICE OVER FAIR VALUE OF NET ASSETS ACQUIRED - The
excess of purchase price over the fair value of net assets acquired is
amortized on the straight-line method over 30 years.
REVENUE RECOGNITION - Nursing facility revenues, which consist primarily of
patient service revenues, are recorded net of contractual allowances.
Contractual allowances result because the payment received for services is
typically less than the standard billing rates.
Payments received from third-party payors, such as Medicaid and Medicare,
are subject to audit by the respective payors or their agent. Audit
adjustments, if necessary, are accrued on an estimated basis. The ultimate
settlement is recorded in the year that final settlement is determined.
Management and consulting fees are recorded at the time services are
rendered in accordance with contractual agreements.
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INCOME TAXES - Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes," which requires the use of the liability method of accounting for
deferred income taxes. The provision for income taxes includes deferred
federal and state income taxes recognized as a result of temporary
differences between the financial statement and tax bases of assets and
liabilities, and the effects of net operating loss carryforwards.
The Company files consolidated income tax returns with its incorporated
subsidiaries and includes its share of partnership profits or losses from
its ownership interests in limited partnerships.
FINANCIAL INSTRUMENTS - The Financial Accounting Standards Board has issued
SFAS No. 107, "Disclosures About Fair Values of Financial Instruments,"
which requires additional disclosures relative to fair value measurement of
all financial instruments. This statement is not effective for the Company
until the year ending December 31, 1995. The Company has not estimated the
effects of these disclosures in the accompanying financial statements.
RECLASSIFICATIONS - Certain items in the 1993 financial statements have
been reclassified to be consistent with the classifications used in the
1994 financial statements.
2. RELATED PARTY TRANSACTIONS
The Company is a wholly owned subsidiary of Glenmark Holding Company
Limited Partnership ("Holding"). Holding is also a majority shareholder of
Glenmark Corporation.
The Company leases office space from Holding under a cancelable lease
agreement. Rental expense under this lease was $228,000 for 1994 and 1993.
During the years ended December 31, 1994 and 1993, the Company incurred
approximately $1,300,000 and $1,100,000, respectively, in costs for
construction work and equipment purchases from Glenmark Corporation.
Construction costs include all related costs of construction plus a normal
profit.
The Company has pledged a certificate of deposit in the amount of $45,000
to collateralize borrowings of Glenmark Corporation at December 31, 1994.
The Company periodically advances funds to Holding and Glenmark
Corporation. Repayments are made to the Company on a periodic basis. The
advances to Holding are noninterest-bearing, and the advances to Glenmark
Corporation bear interest at 8%. Amounts advanced to Holding for 1994 and
1993, excluding rental payments, approximated $312,000 and $306,000, and
advances to Glenmark Corporation, excluding reimbursement for construction
costs, approximated $263,000 and $82,200.
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Amounts due to the Company from related parties consist of the following:
DECEMBER 31
1994 1993
Holding $ 867,282 $ 628,559
Glenmark Corporation 616,345 422,077
Other 402,013 47,338
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$1,885,640 $1,097,974
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The Company has management agreements with several estate partnerships in
which the Company owns a general and/or limited partnership interest. The
agreements provide for the Company to lease the facilities owned by these
related parties in exchange for monthly payments ranging from 95% to 96% of
each facility's net patient revenues, reduced by all reasonably incurred
operating costs. The Company's net earnings from these arrangements,
therefore, are 4% to 5% of each facility's net patient revenues. These
agreements are for 25-year terms and are cancelable by the partnerships.
Total rental expense under these agreements was $433,000 and $1,011,000 for
the years ended December 31, 1994 and 1993, respectively.
3. ACQUISITIONS
In April 1994, the Company purchased 100% of the stock of Automated
Professional Accounts, Inc. (APA). APA is a billing service operation with
clients predominantly in medically-related fields. APA also performs
billing functions for several of the Company's operating entities. The
purchase price consisted of $108,000 in cash and $30,000 in the form of a
promissory note. The transaction was accounted for as a purchase and,
accordingly, the operating results of the business have been included in
the accompanying financial statements from the acquisition date. The
assets and liabilities acquired were recorded at their estimated fair value
with the resulting purchase price exceeding the amount of net liabilities
of $165,900.
During 1994, the Company, which is a general and limited partner in
Glenmark Properties I Partnership and Carehaven Associates Limited
Partnership, purchased for cash of $384,500 and $168,850, the interests of
certain limited partners, increasing the Company's ownership interests to
74% and 63%, respectively. The partnerships' financial statements have
been included in the Company's consolidated financial statements from the
dates that it obtained majority ownership.
In October 1994, the Company acquired 50% of Berkeley Haven Limited
Partnership, owner of Carehaven of Berkeley, a 68 bed intermediate nursing
facility. The total consideration paid for the acquisition was $601,530,
consisting of $80,000 cash and the remainder in promissory notes payable
over fifteen years at an interest rate of 6.17% per annum. The partnership
is being accounted for using the equity method.
In July 1993, the Company purchased the assets of The Madison which
included long-term, personal care and leisure living accommodations. The
purchase price consisted of $200,000 cash and $3,500,000 of assumed long-
term debt, which was refinanced by the Company subsequent to the purchase.
The transaction, was accounted for as a purchase, and the net assets
purchased were recorded at their estimated fair value.
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In August 1993, the Company purchased the fixed assets and operations of
Brightwood, an intermediate care nursing and rehabilitation facility for
$4,825,000. The fixed assets of Brightwood were purchased for $4,575,000,
and other assets and liabilities (operations) were purchased for $100,000
cash and $150,000 of the Company's Series B Cumulative Preferred Stock.
The transaction was accounted for as a purchase, and the assets and
liabilities acquired were recorded at their estimated fair value with the
resulting purchase price exceeding the recorded amount of identified net
assets by $577,000.
4. PROPERTY AND EQUIPMENT
A summary of the components of property and equipment is as follows:
DECEMBER 31
1994 1993
Land $ 2,042,251 $ 1,691,327
Land improvements 646,477 566,124
Buildings 33,513,322 27,078,213
Equipment 5,451,425 4,497,500
Vehicles 649,621 354,072
Construction in progress 198,427 366,039
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42,501,523 34,553,275
Less accumulated depreciation and
amortization 7,039,792 4,984,731
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$35,461,731 $29,568,544
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Depreciation expense was $1,210,000 and $905,000 for 1994 and 1993,
respectively.
5. OTHER ASSETS
Other assets consist of the following:
DECEMBER 31
1994 1993
Debt issue costs, net of accumulated
amortization of $346,000 and $208,100 $1,135,985 $1,197,720
Investments in unconsolidated affiliates 1,135,832 793,492
Deferred income taxes 787,610 455,202
Land held for sale 307,198 307,198
Other 478,610 376,607
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$3,845,235 $3,130,219
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INVESTMENT IN UNCONSOLIDATED AFFILIATES - Summarized below is condensed,
unaudited, combined historical cost financial information of the Company's
ownership interests in limited partnerships. The Company's ownership
interests range from approximately 42% to 50%.
DECEMBER 31
1994 1993
Assets $ 7,343,800 $10,187,200
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Liabilities $ 6,946,500 $ 8,795,900
Partners' equity 397,300 1,391,300
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$ 7,343,800 $10,187,200
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Net income $ 47,200 $ 65,000
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6. ASSETS WHOSE USE IS LIMITED
Assets whose use is limited under the Meditrust and bond indenture
agreements are summarized as follows:
DECEMBER 31
1994 1993
Certificates of deposit $174,725 $169,290
Money market funds and U.S. government
securities 631,409 1,644,188
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$806,134 $1,813,478
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At December 31, 1993, $885,000 of these funds was held by one financial
institution and insured only to the extent covered by the current Federal
Deposit Insurance Corporation regulations. The 1994 funds and remaining
1993 funds are primarily insured by the Federal Deposit Insurance
Corporation or are obligations of the U.S. Treasury or its agencies. These
investments are carried at cost which approximates market.
7. INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS No. 109, which requires
the use of the liability method of accounting for deferred income taxes.
The cumulative effect as of January 1, 1993 of this accounting change was
to increase net income by $632,202. This accounting change also decreased
1993 net income by $177,000 as a result of eliminating an extraordinary
credit of the same amount, relating to the utilization of net operating
loss carryforwards, that would have been reported under the deferred method
of accounting for income taxes previously used.
The provision (benefit) for income taxes consists of the following:
DECEMBER 31
1994 1993
Current - state $ 5,000 $ -
Deferred - state and federal 557,270 177,000
Change in valuation allowance (675,000) -
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$(112,730) $177,000
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The difference between the Company's effective tax rate for 1994 and 1993
and the Federal statutory tax rate of 34% is primarily attributable to
state taxes and has permanent differences between book and taxable income,
primarily the amortization of the excess of purchase price over the fair
value of net assets acquired.
The deferred income tax assets and liabilities recorded on the balance
sheet are as follows:
DECEMBER 31
1994 1993
Assets:
Net operating loss carryforwards $ 880,000 $ 860,000
Deferred gain 88,000 335,000
Provisions for estimated expenses 287,000 142,000
Debt extinguishment 204,500 -
Other 52,413 217,913
Valuation allowance - (675,000)
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Total assets 1,511,913 879,913
Liability:
Property - Depreciation (724,303) (424,711)
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Net deferred asset $ 787,610 $ 455,202
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As of December 31, 1994, the Company had available net operating loss
carryforwards of approximately $2,200,000, expiring as follows: $120,000
in 2002, $1,050,000 in 2004, $230,000 in 2006 and $800,000 in 2007.
8. LONG-TERM OBLIGATIONS
A summary of long-term obligations is as follows:
DECEMBER 31
1994 1993
Meditrust mortgage obligation, 11.5%,
payable monthly, balloon payment due
2002, net of unamortized discount of
$906,700 and $930,900 $12,962,982 $13,056,189
Mortgage obligations, rates ranging from
8.5% to 9.25%, maturities from 1994
to 2002 14,017,846 12,072,529
West Virginia Hospital Finance Authority
and Commercial Development Revenue Bonds,
rates ranging from 6.0% to 12.5%, payable
semiannually with maturities ranging from
2000 to 2015, net of unamortized
discounts of $409,300 and $325,400 11,977,826 10,042,520
Line of credit borrowing from the bank,
prime plus 1%, effective rate 9.5% at
December 31, 1994, due January 1996 3,054,500 3,850,000
Other mortgage and installment
obligations, rates 6.17% to 11.5%,
maturities from 1995 to 2009 2,147,945 846,380
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44,161,099 39,867,618
Less current maturities 856,946 836,381
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Long-term obligations $43,304,153 $39,031,237
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During 1994 the Company issued $4,285,000 of taxable refunding revenue
bonds as part of an optional advance refunding of certain existing tax
exempt bonds. The proceeds of the 1994 bonds were placed in escrow to be
used to pay principal, interest and to refund $4,255,000 of Series 1985 Tax
Exempt Revenue Bonds. The 1985 bonds have been accounted for as
extinguished and the debt and related escrow funds have been removed from
the Company's financial statements. The debt extinguishment resulted in an
extraordinary loss of approximately $307,000, net of related tax benefits
of $204,000. In 1995, the 1994 bonds will be subject to mandatory
redemption and are expected to be replaced with Series 1995 Tax Exempt
Revenue Bonds.
Included in the Meditrust debt agreement are additional fees to be incurred
beginning October 1, 1993, contingent upon revenues exceeding a base
amount. Such additional fees paid in 1994 and 1993 were approximately
$53,600 and $2,600, respectively. In conjunction with the debt agreement,
the Company issued warrants to the lender entitling the lender to acquire a
specified portion of the Company's common stock. (See Note 11.)
The various bond indentures are collateralized by first mortgage rights on
the facilities and equipment of the respective facilities encumbered with
the bonds. Net revenues of the facilities are also pledged as collateral
on the related bonds. Certain of these obligations include provisions
which require that deposits be made into mandatory sinking funds to be used
for retirement of the bonds.
The bond indentures contain various restrictive covenants which include,
among others, provisions relating to minimum rates and charges to provide
adequate debt service coverage, establishment of repair and maintenance
funds, restrictions against activities affecting the tax exempt status of
the bonds and maintenance of adequate insurance coverage.
The Company has various letters of credit issued to bank creditors in
connection with certain debt service requirements. These letters of credit
are primarily collateralized by real estate and cash deposits. The amounts
of the letters of credit at December 31, 1994 and 1993 were $3,201,000 and
$190,000, respectively.
Aggregate maturities of long-term obligations are as follows:
MORTGAGES LINE
AND OF
BONDS CREDIT TOTAL
1995 $ 856,946 $ - $ 856,946
1996 1,091,583 3,054,500 4,146,083
1997 1,041,240 - 1,041,240
1998 5,535,893 - 5,535,893
1999 867,228 - 867,228
Thereafter 33,029,749 - 33,029,749
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42,422,639 3,054,500 45,477,139
Less unamortized discounts 1,316,040 - 1,316,040
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$41,106,599 $3,054,500 $44,161,099
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Cash payments of interest were $4,350,200 and $3,263,900 for 1994 and
1993, respectively.
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Substantially all of the Company's property and equipment, revenues and
receivables are pledged as collateral for the long-term obligations.
Certain of these obligations are also guaranteed by the individual partners
of Holding.
The Company has guaranteed loans of an affiliated nursing facility. The
balance guaranteed on these loans at December 31, 1994 is $1,098,900.
9. REDEEMABLE PREFERRED STOCK
Series A Cumulative Preferred Stock contains dividends which are payable
quarterly in arrears at an annual rate of $9.25 per share. The stock is
convertible on the last day of each quarterly dividend period, at the
option of the holder, at the rate of 7.7 shares of common for each share of
Series A Cumulative Preferred Stock. On October 1, 1997, the stock is
redeemable at the option of the Company or the holder at $150 per share,
plus any accrued and unpaid dividends.
Series B Cumulative Preferred Stock contains dividends which are payable
quarterly in arrears at an annual rate of $462.50 per share. The stock is
convertible on the last day of each quarterly dividend period, at the
option of the holder, at the rate of 455.17 shares of common for each share
of Series B Cumulative Preferred Stock. On December 31, 1994, the stock
was redeemable at the option of the Company for $6,750 per share, plus any
accrued and unpaid dividends and thereafter, at prices declining to $5,500
per share on or after December 31, 2001.
Changes in each of these classes of preferred stocks for the years ended
December 31, 1994 and 1993 were as follows:
SERIES A SERIES B
SHARES AMOUNT SHARES AMOUNT
Balances at December 31, 1992 5,828 $582,857 234 $1,116,015
Issuance of Series B Cumulative
preferred stock 336 1,651,500
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Balances at December 31, 1993
and 1994 5,828 $582,857 570 $2,767,515
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10. PREFERRED STOCK
In 1994, the Company issued 289,094 shares of Series S-1 Senior Preferred
Stock at a price of $14.57 per share. Subsequent to year end, the Company
issued an additional 129,569 shares at a per share price of $14.57.
Dividends are cumulative at an annual rate of 6% per share per annum for
the first six years after issuance. Subsequent to the sixth year, the
dividend will be reset to an indexed prime based rate. Each share of this
stock is convertible to one share of common stock.
The Series S-1 Senior Preferred Stock amended the anti-dilution and
conversion provisions of the previously issued Series A and B Cumulative
Preferred Stock. The anti-dilution provision protects the holders as to
subsequent issuances of stock at a price less than the price which the
Series A or Series B Cumulative Preferred Stock shares were issued. The
conversion rights were amended to a fixed number of common shares rather
than a percentage ownership of the Company. Series A and B stockholders
are entitled to voting rights only to the extent that a proposed amendment
to the Articles of Incorporation would affect their stock.
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11. STOCK WARRANTS
In connection with the Meditrust mortgage agreement, the Company has issued
stock warrants to the lender for the purchase of 15% of the Company's
common stock ownership based on a nominal warrant exercise price of $100.
The warrants expire on October 31, 2003 or the date at which the Company
issues publicly traded common stock in an interstate public offering.
The warrants have the characteristics of equity instruments; therefore, the
Company recorded the $955,000 value of warrants at the date of issue as a
long-term discount, with a corresponding credit recorded to additional
paid-in capital. This discount is being amortized over the term of the
debt using the interest method.
In March 1994, the Company executed an agreement with Meditrust which
entitles the Company to repurchase for $1,500,000, all of the stock
warrants granted as part of the Meditrust mortgage agreement. The Company,
at its option, may pay cash of $750,000 to retire 50% of the outstanding
warrants. The Company also has the option to retire the remaining 50% of
the warrants through three additional mortgage financings. This agreement
expires on June 5, 1995.
12. CONCENTRATION OF CREDIT RISK
The Company provides services to patients, many of whom are insured under
third-party payor programs. These programs are dependent upon their
respective federal and state sponsoring agencies' ability to obtain
adequate appropriations and sufficient tax revenues to fund such
appropriations. The mix of receivables from patients and third-party
payors is as follows:
DECEMBER 31
1994 1993
Medicaid 71% 69%
Medicare 19 18
Other, primarily self pay 10 13
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100% 100%
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13. SUBSEQUENT EVENTS
In January 1995, the Company acquired 100% of the stock of Tri-State Mobile
Medical Services, Inc., a West Virginia-based mobile imaging provider. The
total consideration paid for the acquisition was $800,000, consisting of
$450,000 in cash and the remainder in promissory notes payable over two
years at an interest rate of 10.5% per annum. In February 1995, the
Company also purchased the operating assets of a mobile imaging services
company. The purchase price was $388,000, with $128,000 in cash and the
remainder in a promissory note. These transactions will be accounted under
the purchase method of accounting.
On October 18, 1995 the Company entered into an agreement whereby the
Company will merge with HRWV, Inc. (a wholly owned subsidiary of The
Multicare Companies, Inc.). The agreement provides that upon consummation
of the merger, the stockholders of the Company will receive $23,700,000 in
cash proceeds and the distribution of certain real estate valued at
$1,200,000. Additional payments to the former shareholders of the Company
are possible based upon operating profit performance. The merger was
completed on December 1, 1995 in accordance with the merger agreement.
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