UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 June 30, 1998
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission File Number: 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 Identification No.)
incorporation or organization)
101 East State Street
Kennett Square, Pennsylvania 19348
(Address, including zip code, of principal executive offices)
(610) 444-6350
(Registrant's telephone number including area code)
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 August 13, 1998
Common Stock ($.01 Par Value) 100
<PAGE>
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Table of Contents
Page
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS................ 1
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1998 (Unaudited) and September 30, 1997............... 2
Consolidated Statements of Operations
Three and nine months ended
June 30, 1998 and 1997 (Unaudited)............................ 3
Consolidated Statements of Cash Flows
Nine months ended June 30, 1998 and 1997 (Unaudited)........... 4
Notes to Consolidated Financial Statements..................... 5-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ..................................... 10-16
Part II: OTHER INFORMATION.............................................. 17
SIGNATURES .................................................... 18
<PAGE>
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain oral statements made by management from time to time and certain
statements contained herein, including certain statements in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
such as statements concerning the Medicaid and Medicare program and 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 customers to pay for the Company's
services; the adoption of cost containment measures by private pay sources
such as commercial insurers and managed care organizations, as well as
efforts by governmental reimbursement sources to impose cost containment
measures; changes in the Unites States healthcare system, including changes
in reimbursement levels under Medicaid and Medicare, 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, thereby avoiding
a number of potentially adverse consequences, such as the imposition of
fines, temporary suspension of admission of patients, restrictions on the
ability to acquire new facilities, suspension or decertification from
Medicaid or Medicare programs, and, in extreme cases, revocation of a
facility's license or the closure of a facility, including as a result of
unauthorized activities by employees; 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 including, without limitation, increased competition
from acute care hospitals, providers of assisted and independent living and
providers of home health care and changes in the regulatory system, such as
changes in certificate of need laws in the states in which the Company
operates or anticipates operating in the future that facilitate such
competition; the continued availability of insurance for 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>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
<CAPTION>
June 30, September 30,
1998 1997
(Unaudited) (Predecessor
Company)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 10,119 $ 2,118
Accounts receivable, net 143,658 119,522
Prepaid expenses and other
current assets 25,685 21,808
Deferred taxes - current portion 22,118 2,806
Total current assets 201,580 146,254
Property, plant and
equipment, net 720,747 460,800
Goodwill, net 763,580 171,324
Other assets 58,362 44,755
1,744,269 823,133
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 29,802 $ 28,863
Accrued libilities 83,757 64,944
Current portion of long-term debt 29,642 625
Total current liabilities 143,201 94,432
Long-term debt 755,681 423,421
Deferred taxes 85,452 42,106
Other 10,699 ---
Stockholders' Equity:
Preferred stock, par value $.01, at
September 30, 1997, 7,000,000 shares
authorized, none issued --- ---
Common stock, par value $.01, 100
and 70,000,000 shares authorized at June 30,
1998 and September 30, 1997, respectively;
100 and 31,731,963 issued and outstanding
at June 30, 1998 and September 30,
1997, respectively --- 317
Additional paid-in-capital 745,000 170,858
Retained earnings 4,236 91,999
Total stockholders' equity 749,236 263,174
1,744,269 823,133
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 2
<TABLE>
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(In thousands)
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
(Predecessor (Predecessor
Company) Company)
<S> <C> <C> <C> <C>
Net revenues $ 170,703 $ 179,164 $ 526,645 $ 493,296
Expenses:
Operating expense 127,305 135,598 396,425 372,703
Corporate, general and
administrative expense --- 8,901 --- 23,872
Management fee 10,242 --- 32,097 ---
Depreciation and
amortization expense 10,960 7,213 33,834 20,379
Lease expense 3,452 4,207 10,141 11,594
Interest expense, net 15,610 6,984 45,322 20,385
Debenture conversion expense --- --- --- 785
Total expenses 167,569 162,903 517,819 449,718
Earnings before income taxes
and extraordinary item 3,134 16,261 8,826 43,578
Income taxes 1,623 6,080 4,590 16,295
Earnings before
extraordinary item 1,511 10,181 4,236 27,283
Extraordinary item - loss on
extinguishment of debt,
net of tax benefit --- --- --- 2,219
Net income 1,511 10,181 4,236 25,064
</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
June 30,
(Predecessor
Company)
<S> <C> <C>
1998 1997
Cash flows from operating activities:
Net cash provided by operating activities $ 7,352 $ 52,927
Cash flows from investing activities:
Assets and operations acquired --- (85,059)
Capital expenditures (25,036) (43,002)
Other assets (28,304) (8,191)
Proceeds from repayment of construction
advances --- 13,100
Net cash used in investing activities (53,340) (123,152)
Cash flows from financing activities:
Proceeds from issuance of common stock --- 51,942
Proceeds from exercise of stock options
and stock purchase plan --- 1,323
Equity contribution 745,000 ---
Proceeds from sale of pharmacy business 50,000 ---
Proceeds from sale of therapy business 24,000 ---
Purchase of shares in tender offer (921,326) ---
Proceeds from long-term debt 2,190,122 446,681
Repayments of long-term debt (1,450,628) (427,245)
Debt and other financing obligation
repayments in connection with merger (453,725) ---
Severance, option payouts and
transaction fees in connection with
merger (107,872) ---
Debt issuance costs (21,582) (1,076)
Net cash provided by financing activities 53,989 71,625
increase in cash and cash equivalents 8,001 1,400
Cash and cash equivalents at beginning of period 2,118 1,893
Cash and cash equivalents at end of period $ 10,119 $ 3,293
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 4
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1998
(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 assisted living facilities and other
ancillary healthcare businesses.
The financial information as of June 30, 1998, and for the three and
nine months ended June 30, 1998 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 June 30, 1998 and the operating results for the
three and nine months ended June 30, 1998 and 1997 and the cash flows
for the nine months ended June 30, 1998 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 nine month transition
period ended September 30, 1997.
All purchase accounting entries have been pushed down from Genesis
ElderCare Corp. and recorded on the consolidated financial statements of
Multicare. The operations of Multicare before the Merger (as defined
below) are referred to as the Predecessor Company.
(2) Tender Offer and Merger and Recent Acquisitions
On October 9, 1997, Genesis ElderCare Acquisition Corp. ("Acquisition
Corp."), a wholly-owned subsidiary of Genesis ElderCare Corp., a
Delaware corporation formed by Genesis Health Ventures, Inc.
("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"), acquired 99.65%
of the shares of common stock of Multicare, pursuant to a tender offer
commenced on June 20, 1997 (the "Tender Offer"). On October 10, 1997,
Genesis ElderCare Corp. completed the merger (the "Merger") of
Acquisition Corp. with and into Multicare in accordance with the
Agreement and Plan of Merger (the "Merger Agreement") dated as of June
16, 1997 by and among Genesis ElderCare Corp., Acquisition Corp.,
Genesis and Multicare. Upon consummation of the Merger, Multicare
became a wholly-owned subsidiary of Genesis ElderCare Corp.
In connection with the Merger, Multicare and Genesis entered into a
management agreement (the "Management Agreement") pursuant to which
Genesis manages 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.
<PAGE> 5
Genesis earns 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) $1,992 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 $23,900 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 are paid by Multicare. Genesis also entered into an asset
purchase agreement (the "Therapy Sale 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 $24,000 subject to adjustment (the "Therapy Sale")
and a stock purchase agreement (the "Pharmacy Sale Agreement") with
Multicare and certain subsidiaries pursuant to which Genesis acquired
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 $50,000
subject to adjustment (the "Pharmacy Sale"). The Company completed the
Pharmacy Sale effective January 1, 1998.
Genesis ElderCare Corp. (the "Multicare Parent") paid approximately
$1,492,000 to (i) purchase the shares pursuant to the Tender Offer and
the Merger, (ii) pay fees and expenses to be incurred in connection with
the completion of the Tender Offer, Merger and the financing
transactions in connection therewith, (iii) refinance certain
indebtedness of Multicare and (iv) make certain cash payments to
employees. Of the funds required to finance the foregoing,
approximately $745,000 were furnished to Acquisition Corp. as capital
contributions by the Multicare Parent from the sale by Genesis ElderCare
Corp. of its Common Stock ("Genesis ElderCare Corp. Common Stock") to
Cypress, TPG, Nazem and Genesis. Cypress, TPG and Nazem purchased
shares of Genesis ElderCare Corp. Common Stock for a purchase price of
$21,000, $199,500 and $10,500, respectively, and Genesis purchased
shares of Genesis ElderCare Corp. Common Stock for a purchase price of
$325,000 in consideration for approximately 44% of the Common Stock of
the Multicare Parent. The balance of the funds necessary to finance the
foregoing came from (i) the proceeds of loans from a syndicate of
lenders in the aggregate amount of $525,000 and (ii) $246,800 from the
sale of 9% Senior Subordinated Notes due 2007 (the "9% Notes") sold by
Acquisition Corp. on August 11, 1997.
In connection with the Merger, Genesis, Cypress, TPG and Nazem entered
into an agreement (the "Put/Call Agreement") pursuant to which, among
other things, Genesis will have the option, on the terms and conditions
set forth in the Put/Call Agreement, to purchase (the "Call") Genesis
ElderCare Corp. Common Stock held by Cypress, TPG and Nazem commencing
on October 9, 2001 and for a period of 270 days thereafter, at a price
determined pursuant to the terms of the Put/Call Agreement. Cypress,
TPG and Nazem will have the option, on the terms and conditions set
forth in the Put/Call Agreement, to require Genesis to purchase (the
"Put") such Genesis ElderCare Corp. Common Stock commencing on October
9, 2002 and for a period of one year thereafter, at a price determined
pursuant to the Put/Call Agreement.
The prices determined for the Put and Call are based on a formula that
calculates the equity value attributable to Cypress', TPG's and Nazem's
Genesis ElderCare Corp. Common Stock, plus a portion of the Genesis
pharmacy business (the "Calculated Equity Value"). The Calculated
Equity Value will be determined based upon a multiple of Genesis
ElderCare Corp.'s earnings before interest, taxes, depreciation,
amortization and rental expenses, as adjusted ("EBITDAR") after
deduction of certain liabilities, plus a portion of the EBITDAR related
to the Genesis pharmacy business. The multiple to be applied to EBITDAR
will depend on whether the Put or the Call is being exercised. Any
payment to Cypress, TPG or Nazem under the Call or the Put may be in the
form of cash or Genesis common stock at Genesis' option.
<PAGE> 6
Upon exercise of the Call, Cypress, TPG and Nazem will receive at a
minimum their original investment plus a 25% compound annual return
thereon regardless of the Calculated Equity Value. Any additional
Calculated Equity Value attributable to Cypress', TPG's or Nazem's
Genesis ElderCare Corp. Common Stock will be determined on the basis set
forth in the Put/Call Agreement which provides generally for additional
Calculated Equity Value of Genesis ElderCare Corp. to be divided based
upon the proportionate share of the capital contributions of the
stockholders to Genesis ElderCare Corp. Upon exercise of the Put by
Cypress, TPG or Nazem, there will be no minimum return to Cypress, TPG
or Nazem; any payment to Cypress, TPG or Nazem will be limited to
Cypress', TPG's or Nazem's share of the Calculated Equity Value based
upon a formula set forth in the terms of the Put/Call Agreement which
provides generally for the preferential return of the stockholders'
capital contributions (subject to certain priorities), a 25% compound
annual return on Cypress', TPG's and Nazem's capital contributions and
the remaining Calculated Equity Value to be divided based upon the
proportionate share of the capital contributions of the stockholders to
Genesis ElderCare Corp.
Cypress', TPG's and Nazem's rights to exercise the Put will be
accelerated upon an event of bankruptcy of Genesis, a change of control
of Genesis or an extraordinary dividend or distribution or the
occurrence of the leverage recapitalization of Genesis. Upon an event
of acceleration or the failure by Genesis to satisfy its obligations
upon exercise of the Put, Cypress, TPG and Nazem will have the right to
terminate the Stockholders' Agreement and Management Agreement and to
control the sale or liquidation of Genesis ElderCare Corp. In the event
of such sale, the proceeds from such sale will be distributed among the
parties as contemplated by the formula for the Put option exercise price
and Cypress, TPG and Nazem will retain a claim against Genesis for the
difference, if any, between the proceeds of such sale and the Put option
exercise price.
In December 1996, the Company completed the acquisition of The ADS Group
("ADS"). 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 ADS. Total
goodwill approximated $30,700.
The following 1997 pro forma financial information has been prepared as
if the ADS acquisition, the Merger, the Therapy Sale and the Pharmacy
Sale had been consummated on October 1, 1996. The following 1998 pro
forma financial information has been prepared as if the Pharmacy Sale
had been completed on October 1, 1997. The pro forma financial
information does not necessarily reflect the results of operations
that would have occurred had the transactions occurred at the beginning
of the respective periods presented and is based upon preliminary
allocations of the purchase prices to property, plant and equipment and
goodwill that are subject to change.
<TABLE>
<CAPTION>
Nine months ended
June 30,
1998 1997
<S> <C> <C>
Net revenues $ 509,601 $ 453,417
Earnings (loss) before extraordinary item 3,396 (12,125)
Net income (loss) 3,396 (14,344)
</TABLE>
<PAGE> 7
(3) Commitments and Contingencies
Legislative and regulatory action has resulted in continuing change in
the Medicare and Medicaid reimbursement programs which has adversely
impacted the Company. The changes have limited, and are expected to
continue to limit, payment increases under these programs. Also, the
timing of payments made under the Medicare and Medicaid programs is
subject to regulatory action and governmental budgetary constraints; in
recent years, the time period between submission of claims and payment
has increased. Implementation of the Company's strategy to expand
specialty medical services to independent providers should reduce the
impact of changes in the Medicare and Medicaid reimbursement programs on
the Company as a whole. Within the statutory framework of the Medicare
and Medicaid programs, there are substantial areas subject to
administrative rulings and interpretations which may further affect
payments made under those programs. Further, the federal and state
governments may reduce the funds available under those programs in the
future or require more stringent utilization and quality reviews of
eldercare centers.
Pursuant to the Balanced Budget Act of 1997 (the "Act"), beginning on or
after July 1, 1998, Medicare reimbursement for skilled nursing
facilities will be on a prospective payment system ("PPS"). Skilled
nursing facilities will be paid a per diem rate for all covered Part A
skilled nursing facility services as well as many services for which
payment may be made under Part B during a period when a beneficiary is
provided covered skilled nursing facility care. The per diem rate is
adjusted based upon the resource utilization group of a resident. This
payment will cover rehabilitation and non-rehabilitation ancillary
services; however, the per diem rate will not cover physician, nursing,
physician assistant and certain related services. For the first three
cost reporting periods beginning on or after July 1, 1998, the per diem
will be based on a blend of a facility specific rate and a federal per
diem rate. In subsequent periods, and for facilities first receiving
payments for Medicare services on or after October 1, 1995, the federal
per diem rate will be used without any facility specific blending.
The Act also required consolidated billing for skilled nursing
facilities. The skilled nursing facility must submit all Medicare
claims for Part A and Part B services received by its residents with the
exception of physician, nursing, physician assistant and certain related
services. Medicare will pay the skilled nursing facilities directly for
all services on the consolidated bill and outside suppliers of services
to residents of the skilled nursing facilities must collect payment from
the skilled nursing facility. Due to system related problems, the Health
Care Financing Administration announced publicly in July 1998 that this
requirement of the Act would be postponed indefinitely.
The Act also repealed the Boren Amendment which required Medicaid
payments to nursing facilities to be "reasonable and adequate" to cover
the costs of efficiently and economically operated facilities. Under
the Act, states must now use a public notice and comment process for
determining Medicaid rates and give interested parties a reasonable
opportunity to comment on proposed rates, rate methodology and
justifications. It is unclear what impact the Balanced Budget Act of
1997 will 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 consolidated financial statements.
(4) Financing Obligations
In February 1998, ElderTrust ("ETT"), a Maryland real estate investment
trust sponsored by Genesis, made term loans totaling $12,865 to
subsidiaries of the Company with respect to the lease-up of two assisted
living facilities. The loans have a fixed annual rate of interest of
10.5% and mature every three years from the date of the loans, subject
to the right of the Company to extend the term for up to three one-year
extension periods in the event the facility has not reached "stabilized
occupancy" (as defined) as of the third anniversary of the loan (or at
the end of any extension period, if applicable).
<PAGE> 8
In 1998, ETT also made construction loans in the amount of $6,000 to a
subsidiary of the Company to fund construction of an assisted living
facility being developed by the Company. The note bears interest at a
fixed annual rate of 10.5%, and will mature on the third anniversary of
the loan, subject to the right of the Company to extend the term for up
to three one-year extension periods in the event the facility has not
reached "stabilized occupancy" (as defined) as of such third anniversary
(or at the end of any extension period, if applicable).
ETT is obligated to purchase and leaseback the three facilities that
secure the term and construction loans being made to the Company upon
the earlier of the facility reaching stabilized occupancy or the
maturity of the loan secured by the facility provided, however, that the
Company will not be obligated to sell any facility if the purchase price
for the facility would be less than the applicable loan amount. The
purchase agreements provide for a cash purchase price in an amount which
will result in an annual yield of 10.5% to ETT. If acquired by ETT,
these facilities would be leased to the Company under minimum rent
leases. The initial term of any minimum rent lease will be ten years,
and the Company will have the option to extend the term for up to two
five-year extension periods upon 12 months notice to ETT. Minimum
rent for the first lease year under any minimum rent lease will be
established by multiplying the purchase price for the applicable
facility times 10.5%, and the increase each year by an amount equal to
the lesser of (i) 5% of the increase in the gross revenues for such
facility (excluding any revenues derived from ancillary healthcare
services provided by Genesis or its affiliates to residents of the
applicable facility) during the immediately preceding year or (ii)
one-half of the increase in the Consumer Price Index during the
immediately preceding year. During the last four years of the term
(as extended, if applicable), the Company is required to make minimum
capital expenditures equal to $3 per residential unit in each assisted
living facility covered by a minimum rent lease.
The Company enters into interest rate swap agreements to manage interest
costs and risks associated with changing interest rates. In November
1997, the Company entered into swap agreements with notional principal
amounts totaling $100,000. These agreements effectively convert
underlying variable-rate debt based on LIBOR into fixed-rate debt
whereby the Company makes quarterly payments at a weighted average fixed
rate of 5.64% and receives quarterly payments at a floating rated based
on three month LIBOR (approximately 5.69% at August 5, 1998).
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Prior to the Merger, Multicare had experienced significant growth, primarily
through acquisitions of long-term care facilities and ancillary businesses
and increased utilization of specialty medical services. It had been
Multicare's strategy to expand through construction and development of new
facilities and selective acquisitions with geographically concentrated
operations. In December 1996, the Company acquired The ADS Group, which
owns, operates or manages over 50 long-term care and assisted-living
facilities with over 4,200 licensed beds, principally in Massachusetts.
Under Genesis' management, the Company's strategy is to integrate the talents
of physicians with case management, comprehensive discharge planning and,
where necessary, home support services, to provide cost effective care
management to achieve superior outcomes and return the Company's customers to
the community. Genesis' management believes that achieving improved customer
outcomes will result in increased utilization of specialty medical services
and a broader base of repeat customers in the Company's network. Moreover,
the Company believes that this strategy will lead to continued high levels of
occupancy of available beds, high quality payor mix and same store growth in
net revenues and EBITDAR. Genesis' management will also focus on the revenue
and cost opportunities presented through the further integration of the
Company's recent acquisitions.
The Tender Offer and 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 the Shares that had been validly
tendered and not withdrawn. The Shares accepted pursuant to the Tender Offer
constituted 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.
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
manages 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 earns 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)
$1.9 million 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 are 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 entered into a stock purchase agreement with
Multicare and certain of its subsidiaries pursuant to which Genesis acquired
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 (the "Pharmacy Sale"). The Company completed the
Pharmacy Sale effective January 1, 1998.
<PAGE> 10
Results of Operations
Net revenues. Net revenues for the three months ended June 30, 1998
decreased $8.5 million from the same period last year to $170.7 million. Net
revenues for the nine months ended June 30, 1998 increased 6.8% or $33.3
million from the same period last year to $526.6 million.
The decrease in revenues in the third quarter of fiscal 1998 is comprised of
approximately $18.0 million relating to internal growth, offset by a decrease
of approximately $26.5 million relating to the prior year impact of the
results of the pharmacy and therapy businesses due to the Pharmacy Sale and
Therapy Sale. The increase in revenues for the nine months ended June 30,
1998 consisted of approximately $64.7 million of internal growth and $11.8
million for results of recent acquisitions, offset by a $43.2 million
decrease relating to the exclusion of results for the pharmacy and therapy
businesses due the Pharmacy Sale and the Therapy Sale. The internal growth
of revenues resulted mainly from increases in payor rates and changes in
census mix, and development and opening of additional beds.
The Company's quality mix of private, Medicare and insurance revenues was 60%
of net revenues for the three and nine months ended June 30, 1998 compared to
61% in the similar periods of last year. Occupancy rates were 91% and 92%
for the three and nine months ended June 30, 1998 compared to 92% and 91% in
the similar periods of last year.
Operating Expense. Operating expenses for the three months ended June 30,
1998 were $127.3 million compared to $135.6 million last year. This decrease
is comprised of approximately $13.9 million resulting primarily from higher
salaries, wages and benefits and expanded nursing staffing levels to support
higher acuity patients, offset by a decrease of $22.2 million relating to the
exclusion of results for the pharmacy and therapy businesses due to the
Pharmacy Sale and the Therapy Sale. Operating expenses for the nine months
ended June 30, 1998 increased 6.4% from the comparable period last year to
$396.4 million. The increase includes approximately $5.5 million relating to
results of recent acquisitions, offset by a decrease of $35.4 million
relating to the exclusion of results for the pharmacy and therapy businesses
due to the Pharmacy Sale and the Therapy Sale. The remainder of the increase
resulted primarily from higher salaries, wages and benefits and expanded
nursing staffing levels to support higher patient acuities and more complex
product lines such as subacute and Alzheimers care.
Management Fee and Corporate, General and Administrative Expense. In
connection with the Management Agreement, Genesis manages Multicare's
operations for a fee of approximately six percent of Multicare's revenues and
is responsible for Multicare's general and administrative expenses. The 1997
corporate, general and administrative expenses include resources devoted to
operations, finance, legal, risk management and information systems.
Lease Expense. Lease expense for the three months ended June 30, 1998
decreased 18% to $3.5 million. Lease expense for the nine months ended June
30, 1998 decreased 12.5% to $10.1 million. In connection with the Merger,
the Company paid off its synthetic lease facility with proceeds from the
Senior Facilities.
Depreciation and Amortization. Depreciation and amortization expense for the
three and nine months ended June 30, 1998 increased 52% and 66% from the same
periods last year to $11.0 million and $33.8 million, respectively. The
increase is due to depreciation on the allocation of the purchase price to
property, plant and equipment and to amortization of goodwill relating to the
Merger.
Interest Expense, Net. Net interest expense for the three and nine months
ended June 30, 1998 increased $8.6 million and $24.9 million from the same
periods in fiscal 1997 to $15.6 million and $45.3 million, respectively.
This is a result of incremental borrowings under the Company's Senior
Facilities and 9% Notes incurred to finance the Merger.
Income Tax Expense. The provision for income taxes increased to 52% of pre-
tax income in the nine months ended June 30, 1998 from 37% of pre-tax income
from the similar period last year. The increase relates to higher non-
deductible goodwill amortization resulting from the Merger.
<PAGE> 11
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 June 30, 1998, the Company had working capital of
$58.4 million, compared to $51.8 million at September 30, 1997.
Cash flow provided by operations was $7.4 million for the nine months ended
June 30, 1998 compared to cash flow from operations of $52.9 million in the
comparable period of 1997. The decrease in operating cash flows results
primarily from the decline in earnings which is attributable to increased
interest expense and the Genesis management fee and the timing of payments,
offset by the elimination of corporate, general and administrative expenses.
Net accounts receivable were $143.7 million at June 30, 1998 compared to
$119.5 million at September 30, 1997. The increase in net accounts
receivable is attributable to the timing of third-party interim and
settlement payments and the utilization of specialty medical services for
higher acuity level patients, offset by a decrease relating to the Pharmacy
Sale and Therapy Sale. 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.
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 (the "Long Term 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 sales of Multicare's rehabilitation therapy business and pharmacy
business to the extent that there are amounts outstanding under the Revolving
Credit Facility) and (ii) any sale of common stock or debt securities (other
than the 9% Notes and the Equity Contributions) 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 a margin up to 2.5% (currently
8.19%); loans under the Tranche B Term Facility bear interest at a rate equal
to LIBO Rate plus a margin up to 2.75% (currently 8.44%); loans under the
Tranche C Term Facility bear interest at a rate equal to LIBO Rate plus a
margin up to 3.0% (currently 8.69%); loans under the Revolving Credit
Facility bear interest at a rate equal to LIBO Rate plus a margin up to 2.5%
(currently (8.19%); and loans under the Swing Loan Facility bear interest at
the Prime Rate (currently 8.5%) unless otherwise agreed to by the parties.
Subject to meeting certain financial covenants, the above-referenced interest
rates may be reduced.
<PAGE> 12
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 well as comply with certain financial covenants.
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.
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.
In February 1998, ElderTrust ("ETT"), a Maryland real estate investment trust
sponsored by Genesis, made term loans to subsidiaries of the Company with
respect to the lease-up of two assisted living facilities. The loans have a
fixed annual rate of interest of 10.5% and mature three years from the date
of the loans, subject to the right of the Company to extend the term for up
to three one-year extension periods in the event the facility has not reached
"stabilized occupancy" (as defined) as of the third anniversary of the loan
(or at the end of any extension period, if applicable).
In February 1998, ETT also made one construction loan to a subsidiary of the
Company to fund construction of an assisted living facility being developed
by the Company. The note bears interest at a fixed annual rate of 10.5%, and
will mature on the third anniversary of the loan, subject to the right of the
Company to extend the term for up to three one-year extension periods in the
event the facility has not reached "stabilized occupancy" (as defined) as
of such third anniversary (or at the end of any extension period, if
applicable).
ETT is obligated to purchase and leaseback the three facilities that secure
the term and construction loans being made to the Company upon the earlier of
the facility reaching stabilized occupancy or the maturity of the loan
secured by the facility provided, however, that the Company will not be
obligated to sell any facility if the purchase price for the facility would
be less than the applicable loan amount. The purchase agreements provide
for a cash purchase price in an amount which will result in an annual yield
of 10.5% to ETT. If acquired by ETT, these facilities would be leased to
the Company under minimum rent leases. The initial term of any minimum
rent lease will be ten years, and the Company will have the option to
extend the term for up to two five-year extension periods upon 12 months
notice to ETT. Minimum rent for the first lease year under any
minimum rent lease will be established by multiplying the purchase price
for the applicable facility times 10.5%, and the increase each year by an
amount equal to the less of (i) 5% of the increase in the gross revenues
for such facility (excluding any revenues derived from ancillary healthcare
services provided by Genesis or its affiliates to residents of the
applicable facility) during the immediately preceding year or (ii)
one-half of the increase in the Consumer Price Index during the immediately
preceding year. During the last four years of the term (as extended, if
applicable), the Company is required to
<PAGE> 13
make minimum capital expenditures equal to $3,000 per residential unit in
each assisted living facility covered by a minimum rent lease.
Legislative and regulatory action has resulted in continuing change in the
Medicare and Medicaid reimbursement programs which has adversely impacted the
Company. The changes have limited, and are expected to continue to limit,
payment increases under these programs. Also, the timing of payments made
under the Medicare and Medicaid programs is subject to regulatory action and
governmental budgetary constraints; in recent years, the time period between
submission of claims and payment has increased. Implementation of the
Company's strategy to expand specialty medical services to independent
providers should reduce the impact of changes in the Medicare and Medicaid
reimbursement programs on the Company as a whole. Within the statutory
framework of the Medicare and Medicaid programs, there are substantial areas
subject to administrative rulings and interpretations which may further
affect payments made under those programs. Further, the federal and state
governments may reduce the funds available under those programs in the future
or require more stringent utilization and quality reviews of eldercare
centers.
Pursuant to the Balanced Budget Act of 1997 (the "Act"), beginning on or
after July 1, 1998, Medicare reimbursement for skilled nursing facilities
will be on a prospective payment system ("PPS"). Skilled nursing facilities
will be paid a per diem rate for all covered Part A skilled nursing facility
services as well as many services for which payment may be made under Part B
during a period when a beneficiary is provided covered skilled nursing
facility care. The per diem rate is adjusted based upon the resource
utilization group of a resident. This payment will cover rehabilitation and
non-rehabilitation ancillary services; however, the per diem rate will not
cover physician, nursing, physician assistant and certain related services.
For the first three cost reporting periods beginning on or after July 1,
1998, the per diem will be based on a blend of a facility specific rate and a
federal per diem rate. In subsequent periods, and for facilities first
receiving payments for Medicare services on or after October 1, 1995, the
federal per diem rate will be used without any facility specific blending.
The Act also required consolidated billing for skilled nursing facilities.
The skilled nursing facility must submit all Medicare claims for Part A and
Part B services received by its residents with the exception of physician,
nursing, physician assistant and certain related services. Medicare will pay
the skilled nursing facilities directly for all services on the consolidated
bill and outside suppliers of services to residents of the skilled nursing
facilities must collect payment from the skilled nursing facility. Due to
system related problems, the Health Care Financing Administration announced
publicly in July 1998 that this requirement of the Act would be postponed
indefinitely.
The Act also repealed the Boren Amendment which required Medicaid payments to
nursing facilities to be "reasonable and adequate" to cover the costs of
efficiently and economically operated facilities. Under the Act, states must
now use a public notice and comment process for determining Medicaid rates
and give interested parties a reasonable opportunity to comment on proposed
rates, rate methodology and justifications. It is unclear what impact the
Balanced Budget Act of 1997 will have on the Company.
The Company believes that its liquidity needs can be met by expected operating
cash flow and availability of borrowings under its credit facilities. At
July 31, 1998, there is approximately $465.3 million outstanding under the
Senior Facilities and approximately $37.0 million available under the Senior
Facilities after giving effect to approximately $3.1 million outstanding
letters of credit.
The Company anticipates its capital requirements for the construction of new
facilities and the expansion and renovation of existing facilities to
approximate $10 million over the next twelve months based on existing
construction commitments and plans.
Seasonality
The Company's earnings generally fluctuate from quarter to quarter. This
seasonality is related to a combination of factors which include the timing
of Medicaid rate increases, seasonal census cycles and the number of calendar
days in a given quarter.
<PAGE> 14
Impact of Inflation
The healthcare industry is labor intensive. Wages and other labor costs are
especially sensitive to inflation and marketplace labor shortages. To date,
the Company has offset its increased operating costs by increasing charges
for its services and expanding its services. Multicare has also implemented
cost control measures to limit increases in operating costs and expenses but
cannot predict its ability to control such operating cost increases in the
future.
Year 2000 Issues
The Company is aware of the issues associated with the programming code in
many existing computer systems (the "Year 2000" issue) as the millennium
approaches. The Company has conducted a review of its computer systems to
identify hardware and software affected by the Year 2000 issue. This issue
affects computer systems having date sensitive programs that may not properly
recognize the Year 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail resulting
in business interruption.
With respect to its existing computer systems, the Company is upgrading,
generally, in order to meet the demands of its expanding business. In the
process, the Company is taking steps to identify, correct and/or reprogram and
test its existing systems for Year 2000 compliance. It is anticipated that
all new system upgrades or reprogramming efforts will be completed by mid
calendar year 1999, allowing adequate time for testing. The Company
presently believes that with modification to existing software and
conversions to new software, the Year 2000 issue can be mitigated. However,
given the complexity of the Year 2000 issues, there can be no assurances that
the Company will be able to address the problem without costs and
uncertainties that might affect future financial results or cause reported
financial information not to be necessarily indicative of future operating
results or future financial condition.
The Company has incurred, and expects to incur additional, internal costs as
well as other expenses to address the necessary software upgrades, training,
data conversion, testing and implementation related to the Year 2000 issue.
Such costs are being expensed as incurred. The Company does not expect the
amounts required to be expensed to have a material effect on its financial
position or results of operations. The Year 2000 issue is expected to affect
the systems of various entities with which the Company interacts including
payors, suppliers and vendors. There can be no assurance that data produced
by systems of other entities on which the Company's systems rely will be
converted on a timely basis or that a failure by another entity's system to
be Year 2000 compliant will not have a material adverse effect on the
Company.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("Statement 130"). This Statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. This Statement is
effective for fiscal years beginning after December 15, 1997. The Company
plans to adopt this accounting standard as required. The adoption of this
standard will have no impact on the Company's earnings, financial condition
or liquidity, but will require the Company to classify items of other
comprehensive income in a financial statement and display the accumulated
balance of other comprehensive income separately in the equity section of the
balance sheet.
In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information ("Statement 131"). Statement 131 supersedes Statement of
Financial Standards No. 14, Financial Reporting for Segments of a Business
Enterprise, and establishes new standards for reporting information about
operation segments in annual financial statements and requires selected
information about operating segments in interim financial reports. Statement
131 also establishes standards for related disclosures about products and
services, geographic areas and major customers. Statement 131 is effective
for periods beginning after December 15, 1997, or the Company's fiscal year
end September 30, 1999. This Statement will have no impact on the Company's
financial statements, results of operations, financial condition or
liquidity.
<PAGE> 15
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-5, Reporting on the Costs of Start-up Activities
("the Statement"). This statement requires costs of start-up activities,
including organizational costs, to be expensed as incurred. Start-up
activities are defined as those one-time activities related to opening a new
facility, introducing a new product or service, conducting business in a new
territory, conducting business with a new process in an existing facility, or
commencing a new operation. This Statement is effective for fiscal years
beginning after December 15, 1998. The Company has not yet quantified the
impact the adoption may have on its consolidated financial statements.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities ("Statement
133"). Statement 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. Statement 133 requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure the instrument at fair value.
The accounting changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation. This Statement
is effective for all fiscal quarters beginning after June 15, 1999. The
Company intends to adopt this accounting standard as required. The adoption
of this standard is not expected to have a material impact on the Company's
earnings or financial position.
<PAGE> 16
PART II: OTHER INFORMATION
Item 1. Legal Proceedings. Not Applicable.
Item 2. Changes in Securities and Use of Proceeds. Not Applicable.
Item 3. Defaults Upon Senior Securities. Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders. Not
Applicable.
Item 5. Other Information. Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
27 Financial Data Schedule.
(b) Reports on Form 8-K. Not Applicable.
<PAGE> 17
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.
Date: August 13, 1998 /s/ George V. Hager, Jr.
George V. Hager, Jr. Senior Vice President and
Chief Financial Officer
<PAGE> 18
<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 JUNE
30, 1998 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> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 10,119
<SECURITIES> 0
<RECEIVABLES> 143,658
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 201,580
<PP&E> 720,747
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,744,269
<CURRENT-LIABILITIES> 143,201
<BONDS> 785,094
0
0
<COMMON> 0
<OTHER-SE> 749,236
<TOTAL-LIABILITY-AND-EQUITY> 1,744,269
<SALES> 0
<TOTAL-REVENUES> 526,645
<CGS> 0
<TOTAL-COSTS> 396,425
<OTHER-EXPENSES> 33,834
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,322
<INCOME-PRETAX> 8,826
<INCOME-TAX> 4,591
<INCOME-CONTINUING> 4,236
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