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 September 30, 1997
_____________________ Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission File 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 #)
433 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 November 13, 1997
Common Stock ($.01 Par Value) 100
THE MULTICARE COMPANIES, INC.
Index
Page
Cautionary Statement regarding forward looking
statements 1
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
December 31, 1996 and September 30, 1997 2
Consolidated Statements of Operations
Three and nine months ended
September 30, 1996 and 1997 3
Consolidated Statements of Cash Flows
Nine months ended September 30, 1996
and 1997 4
Notes to Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
Part II. Other Information 12
Signatures 13
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
CAUTIONARY STATEMENT REGARDING
FORWARD LOOKING STATEMENTS
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" such as statements concerning
the Company's ability to meet its liquidity needs and control costs and
expected future capital expenditure requirements and other statements
contained herein regarding matters that are not historical facts are forward
looking statements within the meaning of the Securities Act of 1933. Because
such statements involve risks and uncertainties, actual results may differ
materially from those expressed or implied by such forward looking
statements. Factors that could cause actual results to differ materially
include, but are not limited to, those discussed herein and in the Company's
other periodic reports filed with the Securities and Exchange Commission,
including the following: the occurrence of changes in the mix of payment
sources utilized by the Company's patients to pay for the Company's services;
the adoption of cost containment measures by private pay sources and efforts
by governmental reimbursement sources to impose cost containment measures;
changes in the United States healthcare system and other changes in
applicable government regulations that might affect the Company's
profitability; the Company's continued ability to operate in a heavily
regulated environment and to satisfy regulatory authorities; the Company's
ability to staff its facilities appropriately with qualified healthcare
personnel and to maintain a satisfactory relationship with labor unions; the
level of competition in the Company's industry; the continued availability of
insurance for the inherent risks of liability in the healthcare industry; the
Company's reputation for delivering high-quality care and its ability to
attract and retain patients; and the Company's ability to secure capital and
the related cost of such capital.
<PAGE 1>
<TABLE>
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
<CAPTION>
December 31, September 30,
1996 1997
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,150 2,118
Accounts receivable, net 102,234 119,522
Prepaid expenses and other current assets 18,419 24,614
Total current assets 121,803 146,254
Property, plant and equipment, net 443,019 460,800
Goodwill, net 157,298 171,324
Other assets 39,547 44,755
$ 761,667 823,133
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 26,948 28,863
Accrued liabilities 54,707 64,944
Current portion of long-term debt 821 625
Total current liabilities 82,476 94,432
Long-term debt 428,347 423,421
Deferred taxes 42,909 42,106
Stockholders' equity:
Preferred stock, par value $.01, 7,000,000
shares authorized, none issued --- ---
Common stock, par value $.01, 70,000,000
shares authorized; 30,133,535 and
31,731,963 issued and outstanding in
1996 and 1997, respectively 301 317
Additional paid-in-capital 143,513 170,858
Retained earnings 64,121 91,999
Total stockholders' equity 207,935 263,174
$ 761,667 823,133
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE 2>
<TABLE>
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
<CAPTION>
Three Months ended Nine Months ended
September 30, September 30,
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Net revenues $ 134,944 185,996 386,890 533,952
Expenses:
Operating expense 101,025 142,873 291,494 406,173
Corporate, general and
administrative expense 6,214 8,112 18,627 25,203
Lease expense 3,105 4,335 8,874 12,693
Depreciation and amortization expense 5,841 7,537 16,048 21,620
Interest expense, net 6,863 7,472 18,947 21,640
Debenture conversion expense --- --- --- 785
Total expenses 123,048 170,329 353,990 488,114
Income before income taxes and
extraordinary item 11,896 15,667 32,900 45,838
Income tax expense 4,478 5,857 12,505 17,087
Income before extraordinary item 7,418 9,810 20,395 28,751
Extraordinary item - loss on
extinguishment of debt,
net of tax benefit --- --- 1,481 873
Net income $ 7,418 9,810 18,914 27,878
Income per common and common
equivalent share data:
Income before extraordinary item $ .27 .30 .74 .89
Net income $ .27 .30 .69 .87
Weighted average number of common and
common equivalent shares outstanding 27,606 32,823 27,506 32,172
Income per common share assuming
full dilution:
Income before extraordinary item $ .26 .28 .71 .85
Net income $ .26 .28 .67 .82
Weighted average number of common
shares outstanding assuming
full dilution 32,774 37,016 32,748 36,832
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE 3>
<TABLE>
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<CAPTION>
Nine months ended
September 30,
<S> <C> <C>
1996 1997
Cash flows from operating activities:
Net cash provided by operating activities $ 18,997 37,048
Cash flows from investing activities:
Assets and operations acquired (122,940) (22,568)
Capital expenditures (49,510) (39,301)
Other assets (2,005) (9,465)
Proceeds from repayment of construction advances --- 13,100
Net cash used in investing activities (174,455) (58,234)
Cash flows from financing activities:
Proceeds from exercise of stock options and
stock purchase plan 511 1,075
Proceeds from long-term debt 218,200 112,400
Payments of long-term debt (62,874) (91,310)
Debt issuance costs (2,407) (195)
Other, net --- 184
Net cash provided by financing activities 153,430 22,154
Increase (decrease) in cash and cash equivalents (2,028) 968
Cash and cash equivalents at beginning of period 3,921 1,150
Cash and cash equivalents at end of period $ 1,893 2,118
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE 4>
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
(In thousands, except share and per 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 assisted-living facilities, institutional
pharmacies, medical supply companies, outpatient rehabilitation centers
and other ancillary healthcare businesses.
The financial information as of September 30, 1997 and for the three and
nine months ended September 30, 1996 and 1997, 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 September 30, 1997 and the operating results
and cash flows for the three and nine months ended September 30, 1996
and 1997. 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,
1996.
(2) Completed Merger
On June 16, 1997, Multicare entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Genesis ElderCare Corp. (the "Parent"),
and Genesis ElderCare Acquisition Corp., a wholly owned subsidiary of
Parent (the "Acquisition Corp.") pursuant to which Acquisition Corp.
offered to acquire all outstanding shares of common stock (the
"Shares"), of Multicare at a purchase price of $28.00 per Share, net to
the seller in cash (the "Tender Offer"). The Tender Offer expired on
Wednesday, October 8, 1997 and Acquisition Corp. accepted for purchase
32,790,495 Shares that had been validly tendered and not withdrawn. The
Shares accepted pursuant to the Tender Offer constitute approximately
99.65% of Multicare's issued and outstanding Shares. On October 10,
1997, pursuant to the Merger Agreement, Acquisition Corp. was merged
with and into Multicare (the "Surviving Corporation") and the remaining
Shares not previously purchased in the Tender Offer were canceled,
extinguished and converted into the right to receive $28.00 in cash. As
a result of the Merger, Parent is the record and beneficial owner of all
Shares of the Surviving Corporation. Parent is owned by Genesis Health
Ventures, Inc., a Pennsylvania corporation ("Genesis"), The Cypress
Group L.L.C. (together with its affiliates, "Cypress"), TPG Partners II,
L.P. (together with its affiliates, "TPG") and Nazem, Inc. (together
with its affiliates, "Nazem") and their affiliates.
(3) Commitments and Contingencies
There are numerous legislative and executive initiatives at the federal
and state levels for comprehensive reforms affecting the payment for and
availability of healthcare services, including without limitation
discussions at the federal level concerning budget reductions and the
<PAGE 5>
implementation of prospective payment systems for the Medicare and
Medicaid programs. The Company is unable to predict the impact of
healthcare reform proposals on the Company; however, it is possible that
such proposals could have a material adverse effect on the Company. Any
changes in reimbursement levels under Medicaid and Medicare and any
changes in applicable government regulations could significantly affect
the profitability of the Company. Various cost containment measures
adopted by governmental pay sources have begun to limit the scope and
amount of reimbursable healthcare expenses. Additional measures,
including measures that have already been proposed in states in which
the Company operates, may be adopted in the future as federal and state
governments attempt to control escalating healthcare costs. There can
be no assurance that currently proposed or future healthcare legislation
or other changes in the administration or interpretation of governmental
healthcare programs will not have a material adverse effect on the
Company. In particular, changes to the Medicare reimbursement program
that have been proposed could materially adversely affect 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 consolidated financial statements.
(4) Capital Stock and Net Income Per Share
In May 1996, the Company effected a three-for-two stock split in the
form of a 50% stock dividend. All references to average number of
shares outstanding and per share amounts have been restated to reflect
the stock split. The computation of primary earnings per share is based
on the weighted average number of outstanding shares during the period
and includes when their effect is dilutive, common stock equivalents
consisting of certain shares subject to stock options. Fully diluted
earning per share additionally assumes the conversion of the Company's
Convertible Subordinated Debentures.
Net income used in the computation of fully diluted earnings per share
was determined on the assumption that the convertible debentures were
converted and net income was adjusted for the amounts representing
interest and amortization of debt issuance costs, net of tax effect.
In February 1997 the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," ("FASB 128") which is required
to be adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per
share and to restate all prior periods. The impact of FASB 128 on the
calculation of earnings per share amounts is not expected to be
material.
(5) Acquisitions
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 $61,000.
In December 1996, the Company completed the acquisition of The A.D.S
Group (A.D.S). The Company paid approximately $10,000, repaid or
assumed approximately $29,800 in debt, financed $51,000 through a lease
facility, and issued 554,973 shares of its common stock for A.D.S.
Total goodwill approximated $30,700.
<PAGE 6>
The following unaudited pro forma financial information gives effect to
the acquisitions of Concord and A.D.S as if such transactions occurred
on January 1, 1996:
<TABLE>
<CAPTION>
Pro forma for the
nine months ended
September 30, 1996
<S> <C>
Net revenues $ 438,137
Income before extraordinary item 22,170
Net income 20,689
Income before extraordinary item per
common and common equivalent share
assuming full dilution .75
Net income per common and common
equivalent share assuming full dilution $ .71
</TABLE>
<PAGE 7>
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 has been 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 1996:
-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.
-In December 1996, the Company acquired The A.D.S Group, which owns,
operates or manages over 50 long-term care and assisted-living
facilities with over 4,200 licensed beds, principally in Massachusetts.
Results of Operations
Net Revenues. Net revenues for the nine months ended September 30, 1997
increased 38% or $147.1 million from the same period last year to $534.0
million. Net revenues for the three months ended September 30, 1997
increased 38% or $51.1 million from the same period last year to $186.0
million.
Of the net revenues increase for the nine months ended September 30, 1997,
24% is attributable to the inclusion of results for the Company's recent
acquisitions. The internal growth rate of revenues amounted to 14% in the
nine months ended September 30, 1997, resulting mainly from increases in
payor rates and changes in census mix, development and opening of additional
beds, and growth in specialty medical service revenues. The revenue increase
for the quarter ended September 30, 1997 was due to results from recent
acquisitions of 23% and internal growth of 15%.
The Company's quality mix of private, Medicare and insurance revenues was 67%
of net revenues for the nine and three months ended September 30, 1997
compared to 64% in the similar periods of 1996. Occupancy rates were 90% for
the nine months ended September 30, 1997 compared to 92% in the similar
period of 1996. Occupancy rates were 92% for the three months ended
September 30, 1997 and 1996.
Operating Expense and Margins. Operating expenses for the nine months ended
September 30, 1997 increased 39% or $114.7 million from the comparable period
in 1996 to $406.2 million. Operating expenses for the three months ended
September 30, 1997 increased 41% or $41.8 million from the comparable period
in 1996 to $142.9 million. The increases in operating expenses for the nine
and three month periods ended September 30, 1997 reflect the inclusion of
results for the recent acquisitions of $69.6 million and $22.8 million,
respectively. The remainder of the increase resulted primarily from higher
salaries, wages and benefits and the expanded utilization of salaried
therapists and nursing staffing levels to support higher patient acuities and
more complex product lines such as subacute and Alzheimers care.
Operating margins before interest were 13% of net revenues for the nine
months ended September 30, 1997 and 1996, and 12% and 14% for the three month
periods ended September 30, 1997 and 1996, respectively. Income before
interest, taxes, depreciation, amortization and lease expense (EBITDAR)
before debenture conversion expense was 19% and 20% of net revenues for the
nine month periods ended September 30, 1997 and 1996 respectively.
Income before interest, taxes, depreciation, amortization and lease expense
(EBITDAR) was 19% and 21% of net revenues for the three months ended
September 30, 1997 and 1996, respectively.
Corporate, General and Administrative Expense. Corporate, general and
administrative expense remained consistent at approximately 5% of net
revenues for the nine month periods ended September 30, 1997 and 1996,
respectively and 4% and 5% of net revenues for the quarter ended September
30, 1997 and 1996, respectively. The expenses include resources devoted to
operations, finance, legal, risk management, and information systems in order
to support the Company's operations.
Lease Expense. Lease expense for the nine months ended September 30, 1997
increased 43% or $3.8 million from the same period last year to $12.7
million. In the third quarter of 1997 lease expense increased 40% or $1.2
million from the same period last year to $4.3 million. The increases were
<PAGE 8>
primarily due to the inclusion of lease expense relating to a recent
acquisition.
Depreciation and Amortization Expense. Depreciation and amortization expense
for the nine months ended September 30, 1997 increased 35% from the same
period in 1996 to $21.6 million, while depreciation and amortization expense
for the third quarter 1997 increased 29% to $7.5 million from the comparable
period in 1996. The increases were primarily due to the inclusion of
results for recent acquisitions.
Interest Expense, net. Net interest expense for the nine months ended
September 30, 1997 increased 14% from the same period in 1996 to $21.6
million, while net interest expense for the third quarter of 1997 increased
9% to $7.5 million from the same period a year ago. This is primarily a
result of increased borrowings under the Company's credit facility in
connection with the financing of recent acquisitions. These increases have
been offset by decreases relating to the conversion of the Company's
convertible debt and the purchase of the Company's senior notes.
Debenture Conversion Expense. Debenture conversion expense for the nine
months ended September 30, 1997 relates to the premium paid in January 1997
to convert $11 million of convertible debentures into common stock.
Liquidity and Capital Resources
The Company maintains adequate working capital from operating cash flows and
lines of credit for continuing operations, debt service, and anticipated
capital expenditures. At September 30, 1997, the Company had working capital
of $51.8 million, compared to $39.3 million at December 31, 1996.
In January 1997 the Company purchased $6.5 million of its 12.5% Senior
Subordinated Notes. In addition, in the nine month period ended September 30,
1997 $26.5 million of the Company's Convertible Debentures were converted
into common stock.
Cash flow from operations was $37.0 million for the nine months ended
September 30, 1997 compared to cash from operations of $19.0 million in the
comparable period of 1996. This increase is due, in part, to improved
collections of accounts receivable and the conclusion of recent acquisitions.
Net accounts receivable were $119.5 million at September 30, 1997
compared to $102.2 million at December 31, 1996. The increase in net
accounts receivable is 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.
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.
There are numerous legislative and executive initiatives at the federal and
state levels for comprehensive reforms affecting the payment for and
availability of healthcare services, including without limitation discussions
at the federal level concerning budget reductions and the implementation of
prospective payment systems for the Medicare and Medicaid programs. The
Company is unable to predict the impact of healthcare reform proposals on the
Company; however, it is possible that such proposals could have a material
adverse effect on the Company. Any changes in reimbursement levels under
Medicaid and Medicare and any changes in applicable government regulations
could significantly affect the profitability of the Company. Various cost
containment measures adopted by governmental pay sources have begun to limit
the scope and amount of reimbursable healthcare expenses. Additional
measures, including measures that have already been proposed in states in
which the Company operates, may be adopted in the future as federal and state
governments attempt to control escalating healthcare costs. There can be no
assurance that currently proposed or future healthcare legislation or other
changes in the administration or interpretation of governmental healthcare
programs will not have a material adverse effect on the Company. In
particular, changes to the Medicare reimbursement program that have been
proposed could materially adversely affect the Company.
The Company anticipates its capital requirements for the construction of new
facilities and the expansion and renovation of existing facilities to
approximate $40 million over the next twelve months based on existing
construction commitments and plans.
<PAGE 9>
On June 16, 1997, Multicare entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Genesis ElderCare Corp. (the "Parent"), and Genesis
ElderCare Acquisition Corp., a wholly owned subsidiary of Parent (the
"Acquisition Corp.") pursuant to which Acquisition Corp. offered to acquire
all outstanding shares of common stock (the "Shares"), of Multicare at a
purchase price of $28.00 per Share, net to the seller in cash (the "Tender
Offer"). The Tender Offer expired on Wednesday, October 8, 1997 and
Acquisition Corp. accepted for purchase 32,790,495 Shares that had been
validly tendered and not withdrawn. The Shares accepted pursuant to the
Tender Offer constitute approximately 99.65% of Multicare's issued and
outstanding Shares. On October 10, 1997, pursuant to the Merger Agreement,
Acquisition Corp. was merged with and into Multicare (the "Surviving
Corporation")and the remaining Shares not previously purchased in the Tender
Offer were canceled, extinguished and converted into the right to receive
$28.00 in cash. As a result of the Merger, Parent is the record and
beneficial owner of all Shares of the Surviving Corporation. Parent is owned
by Genesis Health Ventures, Inc., a Pennsylvania corporation ("Genesis"), The
Cypress Group L.L.C. (together with its affiliates, "Cypress"), TPG Partners
II, L.P. (together with its affiliates, "TPG") and Nazem, Inc. (together with
its affiliates, "Nazem") and their affiliates.
In connection with the Merger, Multicare entered into three term loans and a
revolving credit facility of up to $525 million, in the aggregate
(collectively, the "Senior Facilities"), provided by a syndicate of banks and
other financial institutions (collectively, the "Lenders") led by Mellon
Bank, N.A., as administrative agent (the "Administrative Agent"), pursuant to
a certain credit agreement dated as of October 14, 1997. The Senior
Facilities are being used for the purpose of (i) refinancing certain short
term facilities in the aggregate principal amount of $431.6 million which
were funded on October 9, 1997 to acquire the Shares in the Tender Offer,
refinance certain indebtedness of Multicare and pay fees and expenses related
to the transactions, (ii) funding interest and principal payments on such
facilities and on certain remaining indebtedness and (iii) funding working
capital and general corporate purposes.
The Senior Facilities consist of: (1) a $200 million six year term loan (the
"Tranche A Term Facility"); (2) a $150 million seven year term loan (the
"Tranche B Term Facility"); (3) a $50 million term loan maturing on June 1,
2005 (the "Tranche C Term Facility"); (4) a $125 million six year revolving
credit facility (the "Revolving Credit Facility"); and (5) one or more Swing
Loans (collectively, the "Swing Loan Facility") in integral principal
multiples of $500,000 up to an aggregate unpaid principal amount of $10
million. The Tranche A Term Facility, Tranche B Term Facility and Tranche C
Term Facility are subject to amortization in quarterly installments,
commencing at the end of the first calendar quarter after the date of the
consummation of the Merger (the "Closing Date"). The Revolving Credit
Facility will mature six years after the Closing Date. All net proceeds
received by Multicare from (i) the sale of assets of Multicare or its
subsidiaries other than sales in the ordinary course of business (and other
than the sale of Multicare's rehabilitation therapy business) and (ii) any
sale of common stock or debt securities of Multicare in respect of common
stock will be applied as a mandatory prepayment. Fifty percent of Excess Cash
Flow must be applied to the Senior Facilities and shall be payable annually.
The Senior Facilities are secured by a first priority security interest in
all of the (i) stock of Multicare, (ii) stock, partnership interests and
other equity of all of Multicare's present and future direct and indirect
subsidiaries and (iii) intercompany notes among Parent and any subsidiaries
or among any subsidiaries. Loans under the Senior Facilities bear, at
Multicare's option, interest at the per annum Prime Rate as announced by the
Administrative Agent, or the applicable Adjusted LIBO Rate. Loans under the
Tranche A Term Facility bear interest at a rate equal to LIBO Rate plus 2.5%;
loans under the Tranche B Term Facility bear interest at a rate equal to LIBO
Rate plus 2.75%; loans under the Tranche C Term Facility bear interest at a
rate equal to LIBO Rate plus 3.0%; loans under the Revolving Credit Facility
bear interest at a rate equal to LIBO Rate plus 2.5%; and loans under the
Swing Loan Facility bear interest at the Prime Rate unless otherwise agreed
to by the parties. Subject to meeting certain financial covenants, the
above-referenced interest rates will be reduced.
The Long Term Credit Agreement contains a number of covenants that, among
other things, restrict the ability of Multicare and its subsidiaries to
dispose of assets, incur additional indebtedness, make loans and investments,
pay dividends, engage in mergers or consolidations, engage in certain
transactions with affiliates and change control of capital stock, prepay
debt, make material changes in accounting and reporting practices, create
liens on assets, give a negative pledge on assets, make acquisitions and
amend or modify documents. In addition, the Long Term Credit Agreement
requires that Multicare and its affiliates maintain the Management Agreement
(as defined below) as well as comply with certain financial covenants.
<PAGE 10>
On August 11, 1997, Acquisition Corp. sold to Morgan Stanley & Co.
Incorporated, Montgomery Securities, L.P. and First Union Capital Markets
Corp. (collectively, the "Placement Agents") $250 million principal amount of
its 9% Senior Subordinated Notes due 2007 (the "9% Notes") which were issued
pursuant to an Indenture, dated as of August 7, 1997 (the "Indenture") by and
between Acquisition Corp, as issuer, and PNC Bank, National Association, as
trustee. The 9% Notes bear interest at 9% per annum from August 11, 1997,
payable semiannually on February 1 and August 1 of each year, commencing on
February 1, 1998.
Under the terms of the Indenture, the issuer of the 9% Notes is obligated to
consummate an exchange offer (the "Exchange Offer") pursuant to an effective
registration statement or to cause resales of the 9% Notes to be registered
under the Securities Act of 1933, as amended (the "Securities Act") pursuant
to an effective shelf registration statement. In the event that the Exchange
Offer is not consummated and a shelf registration statement is not declared
effective on or prior to the earlier of (i) the date that is six months after
the Closing Date and (ii) March 31, 1998, the per annum interest rate on the
9% Notes will be increased by .5% until the Exchange Offer is consummated or
the shelf registration statement is declared effective.
The 9% Notes are unsecured, general obligations of the issuer, subordinated
in right of payment to all existing and future Senior Indebtedness, as
defined in the Indenture, of the issuer, including indebtedness under the
Senior Facilities. The 9% Notes rank pari passu in right of payment with any
future senior subordinated indebtedness of the issuer and are senior in right
of payment to all future subordinated indebtedness of the issuer. The 9%
Notes are redeemable at the option of the issuer, in whole or in part, at any
time on or after August 1, 2002, initially at 104.5% of their principal
amount, plus accrued interest, declining ratably to 100% of their principal
amount, plus accrued interest, on or after August 1, 2004. The 9% Notes are
subject to mandatory redemption at 101%. Upon a Change in Control, as defined
in the Indenture, the issuer is required to make an offer to purchase the 9%
Notes at a purchase price equal to 101% of their principal amount, plus
accrued interest. The Indenture contains a number of covenants that, among
other things, restrict the ability of the issuer of the 9% Notes to incur
additional indebtedness, pay dividends, redeem capital stock, make certain
investments, issue the capital stock of its subsidiaries, engage in mergers
or consolidations or asset sales, engage in certain transactions with
affiliates, and create dividend and other restrictions affecting its
subsidiaries.
Upon the consummation of the Merger, Multicare assumed all obligations of
Acquisition Corp. with respect to and under the 9% Notes and the related
Indenture.
On October 9, 1997, Multicare, Genesis and Genesis ElderCare Network
Services, Inc., a wholly-owned subsidiary of Genesis, entered into a
management agreement (the "Management Agreement") pursuant to which Genesis
will manage Multicare's operations. The Management Agreement has a term of
five years with automatic renewals for two years unless either party
terminates the Management Agreement. Genesis will be paid a fee of six
percent of Multicare's net revenues for its services under the Management
Agreement provided that payment of such fee in respect of any month in excess
of the greater of (i) $1,991,666 and (ii) four percent of Multicare's
consolidated net revenues for such month, shall be subordinate to the
satisfaction of Multicare's senior and subordinate debt covenants; and
provided, further, that payment of such fee shall be no less than $23.9
million in any given year. Under the Management Agreement, Genesis is
responsible for Multicare's non-extraordinary sales, general and
administrative expenses (other than certain specified third-party expenses),
and all other expenses of Multicare will be paid by Multicare.
On October 10, 1997, Genesis entered into an asset purchase agreement with
Multicare and certain of its subsidiaries pursuant to which Genesis acquired
all of the assets used in Multicare's outpatient and inpatient rehabilitation
therapy business for $24 million, subject to adjustment (the "Therapy Sale").
On October 10, 1997, Genesis and one of its wholly-owned subsidiaries entered
into a stock purchase agreement with Multicare and certain of its
subsidiaries pursuant to which Genesis will acquire all of the outstanding
capital stock and limited partnership interests of certain subsidiaries of
Multicare that are engaged in the business of providing institutional
pharmacy services to third parties for $50 million, subject to adjustment.
<PAGE 11>
Part II-Other Information
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities.
As a result of the Merger each outstanding share of Common Stock of
Multicare was extinguished, cancelled and converted into the right
to receive $28.00 in cash. As of November 14, 1997 the Common
Stock of Multicare was delisted from the New York Stock Exchange.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No.
10.1 (1)Agreement and Plan of Merger dated June 16, 1997 by
and among Genesis ElderCare Corp., Genesis ElderCare
Acquisition Corp., Genesis Health Ventures, Inc. and
The Multicare Companies, Inc.
10.2(2)Credit Agreement dated October 14, 1997 to The
Multicare Companies, Inc. from Mellon Bank, N.A.,
Citicorp USA, Inc., First Union National Bank and
NationsBank, N.A.
10.3(3)Management Agreement dated October 9, 1997 among The
Multicare Companies, Inc., Genesis Health Ventures,
Inc. and Genesis ElderCare Network Services, Inc.
10.4(3)Stock Purchase Agreement dated October 10, 1997 among
Genesis Health Ventures,, Inc., The Multicare
Companies, Inc., Concord Health Group, Inc., Horizon
Associates, Inc., Institutional Health Care Services,
Inc., Care4, L.P., Concord Pharmacy Services, Inc.,
Compass Health Services, Inc. and Encare of
Massachusetts, Inc.
10.5(3)Asset Purchase Agreement dated October 10, 1997 among
Genesis Health Ventures, Inc., The Multicare Companies,
Inc., Health Care Rehab Systems, Inc., Horizon
Rehabilitation, Inc., Progressive Rehabilitation
Centers, Inc. and Total Rehabilitation Center, L.L.C.
11 Statement re computation of per share earnings
27 Financial Data Schedule
(b)Reports on Form 8-K. None.
___________________________
(1) Incorporated by reference to the Tender Offer Statement on Schedule 14D-1
filed by Genesis ElderCare Corp. and Genesis ElderCare Acquisition Corp. on
June 20, 1997.
(2) Incorporated by reference to Amendment No. 7 to the Tender Offer
Statement on Schedule 14D-1 filed by Genesis ElderCare Corp. and Genesis
ElderCare Acquisition Corp. on June 20, 1997.
(3) Incorporated by reference to Genesis Health Ventures, Inc.'s Current
Report on Form 8-K dated October 9, 1997.
<PAGE 12>
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.
GEORGE V. HAGER, JR.
By:
George V. Hager, Jr.
Senior Vice President
and Chief Financial Officer
November 13, 1997
<PAGE 13>
EXHIBIT 11
<TABLE>
THE MULTICARE COMPANIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
September 30, 1997
(Unaudited)
(In thousands, except per share data)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Income per common and
common equivalent share:
Income before extraordinary item $ 7,418 9,810 20,395 28,751
Net Income $ 7,418 9,810 18,914 27,878
Weighted average number of
common and common equivalent
shares outstanding 27,606 32,823 27,506 32,172
Income before extraordinary item
per common and common equivalent
share $ .27 .30 .74 .89
Net income per common and common
equivalent share $ .27 .30 .69 .87
Income per common and common
equivalent share assuming
full dilution:
Income before extraordinary item $ 7,418 9,810 20,395 28,751
Net income 7,418 9,810 18,914 27,878
Adjustments to income:
Interest expense and amortization
of debt issuance costs relating
to convertible debt, net of tax 982 687 2,973 2,427
Adjusted net income $ 8,400 10,497 21,887 30,305
Weighted average number of common
and common equivalent shares
outstanding 27,798 32,848 27,772 32,512
Convertible debt shares 4,976 4,168 4,976 4,320
Adjusted shares 32,774 37,016 32,748 36,832
Income before extraordinary item
per common share assuming full
dilution $ .26 .28 .71 .85
Net income per common share
assuming full dilution $ .26 .28 .67 .82
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MULTICARE
COMPANIES, INC. FORM 10-Q QUARTERLY REPORT FOR THE NINE-MONTH PERIOD ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,118
<SECURITIES> 0
<RECEIVABLES> 119,522
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 146,254
<PP&E> 460,800
<DEPRECIATION> 0
<TOTAL-ASSETS> 823,133
<CURRENT-LIABILITIES> 94,432
<BONDS> 423,421
0
0
<COMMON> 317
<OTHER-SE> 262,857
<TOTAL-LIABILITY-AND-EQUITY> 823,133
<SALES> 0
<TOTAL-REVENUES> 533,952
<CGS> 0
<TOTAL-COSTS> 406,173
<OTHER-EXPENSES> 21,620
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,640
<INCOME-PRETAX> 45,838
<INCOME-TAX> 17,087
<INCOME-CONTINUING> 27,878
<DISCONTINUED> 0
<EXTRAORDINARY> 873
<CHANGES> 0
<NET-INCOME> 27,878
<EPS-PRIMARY> .87
<EPS-DILUTED> .82
</TABLE>
