<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
CHECK ONE:
[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
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSACTION PERIOD FROM _________ TO _________.
COMMISSION FILE NO.: 1-12996
---------
ADVOCAT INC.
------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 62-1559667
- ------------------------------- ---------------------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
277 MALLORY STATION ROAD, SUITE 130, FRANKLIN, TN 37067
-------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(615) 771-7575
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
- --------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT.)
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
--- ---
5,376,946
- --------------------------------------------------------------------------------
(OUTSTANDING SHARES OF THE ISSUER'S COMMON STOCK AS OF NOVEMBER 11, 1997)
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ADVOCAT INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,755 $ 1,942
Accounts receivable, less
allowance for doubtful
accounts of $2,524 at both dates 22,595 24,946
Income taxes receivable -0- -0-
Inventories 1,041 667
Prepaid expenses and other assets 1,817 1,470
Deferred income taxes 1,026 1,941
-------- --------
Total current assets 29,234 30,966
-------- --------
PROPERTY AND EQUIPMENT, at cost 43,475 41,445
Less accumulated depreciation
and amortization (11,442) (9,714)
-------- --------
Net property and equipment 32,033 31,731
-------- --------
OTHER ASSETS:
Deferred tax benefit 5,830 6,480
Deferred financing and other costs, net 1,016 1,021
Other 6,112 4,303
-------- --------
Total other assets 12,958 11,804
-------- --------
$ 74,225 $ 74,504
======== ========
</TABLE>
(Continued)
-2-
<PAGE> 3
ADVOCAT INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------- -------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 742 $ 713
Trade accounts payable 8,504 7,715
Income taxes payable 109 906
Accrued expenses:
Payroll and employee benefits 4,148 4,670
Worker's compensation 1,107 1,678
Other 1,835 1,744
------- -------
Total current liabilities 16,445 17,426
------- -------
NONCURRENT LIABILITIES:
Long-term debt, less current portion 21,409 23,254
Deferred gains with respect to leases, net 3,661 3,956
Other 1,960 2,517
------- -------
Total noncurrent liabilities 27,030 29,730
------- -------
COMMITMENTS, CONTINGENCIES, AND
GUARANTEE
SHAREHOLDERS' EQUITY:
Preferred stock, authorized 1,000,000 shares,
$.10 par value, none issued and outstanding -0- -0-
Common stock, authorized 20,000,000 shares,
$.01 par value, 5,373,000 and 5,316,000 shares
issued and outstanding at September 30, 1997
and December 31, 1996, respectively 54 53
Paid-in capital 15,597 15,083
Retained earnings 15,099 12,212
------- -------
Total shareholders' equity 30,750 27,348
------- -------
$74,225 $74,504
======= =======
</TABLE>
The accompanying notes are an integral part of these interim consolidated
balance sheets.
-3-
<PAGE> 4
ADVOCAT INC.
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, AND UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Patient revenues $ 42,663 $ 41,591 $128,394 118,688
Management fees 952 1,015 2,826 3,152
Interest 42 40 116 115
-------- -------- -------- --------
Net revenues 43,657 42,646 131,336 121,955
-------- -------- -------- --------
EXPENSES:
Operating 36,139 33,823 105,072 97,101
Lease 3,577 3,659 11,192 10,733
General and administrative 2,328 2,104 7,046 6,314
Depreciation and amortization 667 585 2,000 1,617
Interest 458 489 1,471 1,156
-------- -------- -------- --------
Total expenses 43,169 40,660 126,781 116,921
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 488 1,986 4,555 5,034
PROVISION FOR INCOME TAXES 176 715 1,640 1,812
-------- -------- -------- --------
NET INCOME $ 312 $ 1,271 $ 2,915 $ 3,222
======== ======== ======== ========
AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING (Note 3) 5,439 5,319 5,346 5,314
======== ======== ======== ========
EARNINGS PER SHARE (Note 3) $ .06 $ .24 $ .55 $ .61
======== ======== ======== ========
</TABLE>
The accompanying notes to interim financial statements are an integral part of
these interim consolidated financial statements.
-4-
<PAGE> 5
ADVOCAT INC.
INTERIM STATEMENTS OF CASH FLOWS
(IN THOUSANDS AND UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,915 $ 3,222
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 2,000 1,617
Provision for doubtful accounts 1,389 931
Equity earnings in joint ventures (39) (35)
Amortization of deferred credits (791) (844)
Deferred income taxes 1,565 800
Change in assets and liabilities:
Receivables, net 520 (2,672)
Inventories (374) (48)
Prepaid expenses and other assets (347) (32)
Trade accounts payable and accrued expenses (1,010) 764
Other (9) (156)
------- -------
Net cash provided from operating activities 5,819 3,547
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net -0- (5,381)
Purchases of property and equipment, net (2,042) (1,802)
Investment in TDLP (655) -0-
Issuance of mortgage receivable, net (30) -0-
Acquisition deposits, pre-opening costs and other (463) (193)
Proceeds from TDLP transaction 151 71
Investment in joint venture -0- (2)
Distributions from joint ventures 40 22
------- -------
Net cash used in investing activities (3,276) (7,285)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt obligations -0- 6,044
Repayment of debt obligations (408) (1,498)
Net proceeds (repayment) of bank line of credit (1,380) 1,245
Advances to TDLP, net (717) (939)
Advances (to) from lessor, net 442 (190)
Financing costs (181) (36)
Proceeds from sale of common stock 514 208
------- -------
Net cash provided from (used in) financing activities $(1,730) $ 4,834
------- -------
</TABLE>
(Continued)
-5-
<PAGE> 6
ADVOCAT INC.
INTERIM STATEMENTS OF CASH FLOWS
(IN THOUSANDS AND UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
---- ----
<S> <C> <C>
INCREASE IN CASH AND CASH EQUIVALENTS $ 813 $1,096
CASH AND CASH EQUIVALENTS, beginning of period 1,942 1,076
------ ------
CASH AND CASH EQUIVALENTS, end of period $2,755 $2,172
====== ======
SUPPLEMENTAL INFORMATION:
Cash payments of interest $1,472 $1,006
====== ======
Cash payments of income taxes $ 872 $ 461
====== ======
</TABLE>
The Company received net benefit plan deposits and recorded net benefit plan
liabilities of $64,000 and $132,000 in the nine month periods ended September
30, 1997 and 1996, respectively.
In the period ended September 30, 1996, the Company assumed debt of $1,592,000
in connection with an acquisition.
The accompanying notes to interim financial statements are an integral part of
these interim consolidated financial statements.
-6-
<PAGE> 7
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
1. ORGANIZATION AND BACKGROUND:
Advocat Inc. (together with its subsidiaries, "Advocat" or the "Company")
commenced operations with an initial public offering of its common stock on May
10, 1994. The Company is a provider of long-term care services operating nursing
homes and assisted living centers in the United States and Canada.
Advocat's operational history can be traced to February 1980 through common
senior management involved in different organizational structures. As of
September 30, 1997, the Company operated 86 facilities composed of 65 nursing
homes containing 7,341 licensed beds and 21 assisted living centers containing
2,406 units. Within this mix, the Company owned seven nursing homes, leased 37
nursing homes, and managed the remaining 21 nursing homes. The Company owned one
assisted living center, leased seven assisted living centers, and managed the
remaining 13 assisted living centers. In the United States, the Company operated
52 nursing homes and 3 assisted living centers, and in Canada, the Company
operated 13 nursing homes and 18 assisted living centers.
The Company's facilities provide a range of health care services to their
residents. In addition to the nursing and social services usually provided in
the long-term care facilities, the Company offers a variety of rehabilitative,
nutritional, respiratory and other specialized ancillary services. The Company
operates facilities in Alabama, Arkansas, Florida, Kentucky, North Carolina,
Ohio, South Carolina, Tennessee, Texas, West Virginia and the Canadian provinces
of Ontario and British Columbia.
2. BASIS OF FINANCIAL STATEMENTS
The interim financial statements for the three and nine month periods ended
September 30, 1997 and 1996, included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management of the Company, the accompanying
interim financial statements reflect all adjustments (consisting of only
normally recurring accruals) necessary to present fairly the financial position
at September 30, 1997 and the results of operations for the three and nine month
periods ended September 30, 1997 and 1996 and the cash flows for the nine month
periods ended September 30, 1997 and 1996. Certain items have been reclassified
in the 1996 financial statements to conform to the 1997 presentation.
-7-
<PAGE> 8
The results of operations for the three and nine month periods ended September
30, 1997 and 1996 are not necessarily indicative of the operating results for
the entire respective years. These interim financial statements should be read
in connection with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996.
3. EARNINGS PER SHARE
Earnings per share is based on the weighted average number of the Company's
common and common equivalent shares outstanding that pertain to the respective
operations included in each period and is calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares:
Average shares outstanding 5,333,000 5,316,000 5,324,000 5,299,000
Common stock equivalents --
Employee stock purchase plan 2,000 3,000 16,000 15,000
Options, conversion assumed
under the treasury stock method 104,000 -0- 6,000 -0-
---------- ---------- ---------- ----------
Common and common equivalent
shares outstanding 5,439,000 5,319,000 5,346,000 5,314,000
========== ========== ========== ==========
Net income $ 312,000 $1,271,000 $2,915,000 $3,222,000
========== ========== ========== ==========
Earnings per share $ .06 $ .24 $ .55 $ .61
========== ========== ========== ==========
</TABLE>
The Company is required to adopt the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128 for financial statements with respect to
all periods ending after December 15, 1997. Once adopted, all periods presented
will be subject to the provisions of SFAS No. 128. Under the Company's present
capital structure, the Company does not expect a material impact on its reported
earnings per share. Two levels of earnings per share will be reported: (1) basic
earnings per share (generally, average shares outstanding) and (2) diluted
earnings per share (generally, inclusive of common stock equivalents). On a pro
forma basis, both basic and diluted earnings per share for the periods currently
presented equal earnings per share as reported.
4. SUBSEQUENT EVENTS
Effective October 1, 1997, the Company completed the previously announced Pierce
acquisition. The purchase price was $32.4 million. Related capital needs
associated with the Pierce acquisition are expected to range up to $3.5 million
to cover deal costs, deposits, initial working capital, the integration of its
operations into the Company, and renovations to certain of the properties. Cash
required at closing of $34.3 million was funded via short-term bridge financing.
The bridge financing is due for repayment on December 30, 1997, and bears
interest at the London Interbank Offered Rate plus 2.0% (7.6% through October
31, 1997). So long as the bridge financing is in place, the Company has agreed
not to pledge or otherwise encumber the assets acquired in the Pierce
acquisition. The Company has a commitment for $30.0 million in longer-term
financing that is available to partially repay the bridge financing. However,
the Company is continuing to evaluate the financing sources available to it with
which to fund the repayment. Although the mix among various financing sources is
not yet certain, the Company anticipates that the primary source of funding will
be the issuance of new debt, which may bear interest at up to 1/2 percentage
point higher than the bridge financing plus amortization of associated financing
costs. The Pierce acquisition adds approximately 2,300 assisted living units to
the Company's portfolio, all within the state of North Carolina. The group is
anticipated to add in excess of $25.0 million in annualized revenues.
In addition, the Company acquired two Canadian assisted living facilities on
October 1, 1997. Immediately prior to the acquisitions, the Company had managed
these facilities, which total 125 units, during receivership proceedings. The
combined purchase price was $2.3 million, which was funded by $300,000 from
internal sources and the issuance by the Company's principal Canadian lender of
10-year term loans totaling $2.0 million at 6.3% interest.
-8-
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Advocat Inc. (together with its subsidiaries, "Advocat" or the "Company")
commenced operations with an initial public offering of its common stock on May
10, 1994. The Company is a provider of long-term care services operating nursing
homes and assisted living centers in the United States and Canada.
Advocat's operational history can be traced to February 1980 through common
senior management involved in different organizational structures. As of
September 30, 1997, the Company operated 86 facilities composed of 65 nursing
homes containing 7,341 licensed beds and 21 assisted living centers containing
2,406 units. Within this mix, the Company owned seven nursing homes, leased 37
nursing homes, and managed the remaining 21 nursing homes. The Company owned one
assisted living center, leased seven assisted living centers, and managed the
remaining 13 assisted living centers. In the United States, the Company operated
52 nursing homes and 3 assisted living centers, and in Canada, the Company
operated 13 nursing homes and 18 assisted living centers.
Effective October 1, 1997, the Company completed the acquisition of several
facilities. Most significant is the acquisition of 29 assisted living facilities
in North Carolina (the "Pierce Acquisition"). The Pierce Acquisition comprises
15 purchased facilities with 1,093 units and 14 additional facilities under
lease with 1,209 units, or 2,302 total units. The Company has the option to
purchase the leased facilities at fair market value after five years. In
addition, the Company acquired two Canadian assisted living facilities totaling
125 units that it had managed immediately prior to the purchase.
The Company's facilities provide a range of health care services to their
residents. In addition to the nursing and social services usually provided in
the long-term care facilities, the Company offers a variety of rehabilitative,
nutritional, respiratory and other specialized ancillary services. The Company
operates facilities in Alabama, Arkansas, Florida, Kentucky, North Carolina,
Ohio, South Carolina, Tennessee, Texas, West Virginia and the Canadian provinces
of Ontario and British Columbia.
Basis of Financial Statements. The Company's patient revenues consist of the
fees charged to the residents of the Company's leased and owned nursing homes
and assisted living centers. Management fee revenues consists of the fees
charged to the owners of the facilities managed by the Company. The management
fee revenues are based on the respective contractual terms, which generally
range from 3.5% to 6.0% of the net revenues of the managed facilities. As a
result, the level of management fees is affected positively or negatively by the
increase or decrease in the level of occupancy or rates per patient day of the
managed facilities. Management fees also include consulting and development fee
income. The Company's operating expenses include the costs incurred in the
nursing homes and assisted living centers leased and owned by the Company. The
Company's general and administrative expenses consist of the costs of the
corporate office and regional support functions, including the costs incurred in
providing management services to the nursing homes and assisted living centers
managed by the Company. The Company's financial statements reflect the
depreciation, amortization and interest expenses of the facilities owned by the
Company as well as the depreciation expense associated with leasehold
improvements and equipment owned by the Company and used in its leased
facilities.
-9-
<PAGE> 10
RESULTS OF OPERATIONS
The following tables present the unaudited interim statements of income and
related data for the three and nine months ended September 30, 1997 and 1996.
<TABLE>
<CAPTION>
(IN THOUSANDS) THREE MONTHS ENDED SEPTEMBER 30,
1997 1996 CHANGE %
-------- -------- -------- -----
<S> <C> <C> <C> <C>
REVENUES:
Patient revenues $ 42,663 $ 41,591 $ 1,072 2.6
Management fees 952 1,015 (63) (6.2)
Interest 42 40 2 4.1
-------- -------- --------
Net revenues 43,657 42,646 1,011 2.4
-------- -------- --------
EXPENSES:
Operating 36,139 33,823 2,316 6.8
Lease 3,577 3,659 (82) (2.3)
General and administrative 2,328 2,104 224 10.6
Depreciation and amortization 667 585 82 14.0
Interest 458 489 (31) (6.4)
-------- -------- --------
Total expenses 43,169 40,660 2,509 6.2
-------- -------- --------
INCOME BEFORE INCOME TAXES 488 1,986 (1,498) (75.4)
PROVISION FOR INCOME TAXES 176 715 (539) (75.4)
-------- -------- --------
NET INCOME $ 312 $ 1,271 $ (959) (75.4)
======== ======== ========
Net revenues less operating and general
and administrative expenses $ 5,189 $ 6,719 $ (1,530) (22.8)
======== ======== ========
(IN THOUSANDS) NINE MONTHS ENDED SEPTEMBER 30,
1997 1996 CHANGE %
-------- -------- --------- -----
<S> <C> <C> <C> <C>
REVENUES:
Patient revenues $128,394 $118,688 $ 9,706 8.2
Management fees 2,826 3,152 (326) (10.3)
Interest 116 115 1 0.9
-------- -------- --------
Net revenues 131,336 121,955 9,381 7.7
-------- -------- --------
EXPENSES:
Operating 105,072 97,101 7,971 8.2
Lease 11,192 10,733 459 4.3
General and administrative 7,046 6,314 732 11.6
Depreciation and amortization 2,000 1,617 383 23.6
Interest 1,471 1,156 315 27.3
-------- -------- --------
Total expenses 126,781 116,921 9,860 8.4
-------- -------- --------
INCOME BEFORE INCOME TAXES 4,555 5,034 (479) (9.5)
PROVISION FOR INCOME TAXES 1,640 1,812 (172) (9.5)
-------- -------- --------
NET INCOME $ 2,915 $ 3,222 $ (307) (9.5)
======== ======== ========
Net revenues less operating and
general and administrative expenses $ 19,218 $ 18,540 $ 678 3.7
======== ======== ========
</TABLE>
-10-
<PAGE> 11
PERCENTAGE OF NET REVENUES
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
(IN THOUSANDS) ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES:
Patient revenues 97.7% 97.5% 97.8% 97.3%
Management fees 2.2 2.4 2.1 2.6
Interest 0.1 0.1 0.1 0.1
----- ----- ----- -----
Net revenues 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
OPERATING EXPENSES:
Operating 82.8 79.3 80.0 79.6
Lease 8.2 8.6 8.5 8.8
General and administrative 5.3 4.9 5.4 5.2
Depreciation and amortization 1.5 1.4 1.5 1.3
Interest 1.1 1.1 1.1 1.0
----- ----- ----- -----
Total expenses 98.9 95.3 96.5 95.9
----- ----- ----- -----
INCOME BEFORE INCOME TAXES 1.1 4.7 3.5 4.1
PROVISION FOR INCOME TAXES 0.4 1.7 1.3 1.5
----- ----- ----- -----
NET INCOME 0.7% 3.0% 2.2% 2.6%
===== ===== ===== =====
Net revenues less operating and
general and administrative expenses 11.9% 15.8% 14.6% 15.2%
===== ===== ===== =====
</TABLE>
REGULATORY ISSUES
The Company's third quarter operating results were profoundly affected by
regulatory issues in the State of Alabama. In late June, the Company received
notification from the State that, as a result of certain deficiencies noted upon
periodic survey of one of its facilities in Mobile, the facility would be
decertified from participation in the Medicare and Medicaid programs and that
licensure revocation could be pursued. The Company appealed this decision,
noting that none of the deficiencies were life-threatening, and that the
deficiencies noted did not warrant the penalty imposed. This appeal was denied
by the State agency and, as a result, the facility was decertified for 38 days
before a resurvey found it to be in compliance. The facility was recertified for
participation in the Medicare and Medicaid programs in early September.
In August, the State of Alabama decertified and indicated an intent to pursue
license revocation at the Company's second facility in Mobile based on certain
deficiencies noted upon survey. Once again, the Company objected noting that
there were no life-threatening deficiencies, that this facility had been judged
deficiency-free on a previous annual survey and that it was JCAHO accredited.
The Company successfully passed a resurvey in early November; however, as a
result of inexplicable delays in the resurvey process, this facility could
suffer a total decertification period of 91 days (24 days in the third quarter
and 67 days in the fourth quarter). The Company is appealing the length of time
taken to resurvey the facility and, thus, the period of decertification.
-11-
<PAGE> 12
In both cases, the State has stayed its proceedings to license revocation,
agreeing that resolution of all issues is well under way. Management believes
that the aggressive measures taken by the State were not warranted, particularly
when the regulations prescribe a continuum of intermediate penalties to be
imposed before decertification. The Company has aggressively pursued improved
communications with the State and has reached agreement with the State on
methods of improved operations. The Company's remaining five Alabama facilities
have successfully passed their most recent annual licensure surveys.
The Company, in response to the regulatory problems at the two Mobile
facilities, entered into a reorganization of its regional and facility
management, conducted in-depth reviews of all seven of the Company's Alabama
facilities, engaged nationally recognized consultants to assist in achieving
compliance and engaged local legal counsel familiar with the Alabama regulations
and regulators. As a result of the expenditures associated with these actions,
fines and penalties associated with the survey issues, lost revenues from
Medicare and Medicaid programs, charity care provided to continuing patients who
had been admitted under those programs, and census declines, the Company
experienced an estimated negative impact on third quarter earnings of $1.0 to
$1.2 million after taxes, or $0.20 to $0.22 per share. The negative financial
impact of the prolonged period of decertification of the second facility on the
fourth quarter results is not yet known. The Company expects the Alabama
operations to return to normal levels during the first quarter of 1998.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1996
Revenues. Net revenues increased to $43.6 million in 1997 from $42.6 million in
1996, an increase of $1.0 million, or 2%. Patient revenues increased to $42.7
million in 1997 from $41.6 million in 1996, an increase of $1.1 million, or 3%.
Compared to the prior year period, the Company's average patient per diem
increased 6%, which accounted for an increase of approximately $2.5 million in
patient revenues. These increases were offset by foregone revenues with respect
to the decertified facilities and to one facility that was closed in April 1997.
Excluding these facilities, there was a 1.9% decline in patient days among homes
in operation for at least one year. While the recent increases in reimbursement
rates received by the Company have met or exceeded expectations, the Company
anticipates that it is likely states will continue to seek ways to retard the
rate of growth in Medicaid program rates. The Company's quality mix improved
compared to the prior year period. As a percent of net patient revenues,
Medicare increased to 25.0% in 1997 from 24.2% in 1996 while Medicaid decreased
to 53.9% in 1997 from 57.9% in 1996.
Ancillary service revenues, prior to contractual allowances, increased to $14.2
million in 1997 from $13.8 million in 1996, an increase of $391,000, or 3%.
Since 1994, the Company has emphasized the expansion of its ancillary service
revenues. Substantial increases in ancillary revenues were realized throughout
1995 and 1996. However, as noted in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, the trend of substantial increases diminished
throughout 1996. In the 1997 period, ancillary revenues have been retarded due
to the transition from multiple therapy providers to one primary therapy
provider in a majority of the Company's nursing homes. The Company continues to
emphasize the expansion of its ancillary revenues. Management's expectation is
that ancillary service revenues will trend flat or result in modest increases
over the foreseeable future.
-12-
<PAGE> 13
Management fee revenues remained essentially flat at approximately $1.0 million
in both periods. The 1996 amount included $100,000 in consulting fees earned
with respect to the development of homes opened in 1996. Management fees,
exclusive of the non-recurring consulting fees, increased 4% in 1997 over 1996
levels.
Operating Expense. Operating expense increased to $36.1 million in 1997 from
$33.8 million in 1996, an increase of $2.3 million, or 7%. As a percent of net
patient revenues, operating expense increased to 84.7% in 1997 from 81.3% in
1996. The percentage increase is primarily due to the decertification problems
in Alabama; exclusive of the Alabama region, the Company's operating expense
percentage was 81.2%. Wages increased to $16.6 million in 1997 from $15.5
million in 1996, an increase of $1.1 million, or 7%. Salaries and wages with
respect to facilities in operation for at least one year increased $929,000, or
6%. The Company's wage increases are generally in line with inflation; the
larger increase is due primarily to a 21% increase in Alabama that arose
principally from staffing responses to the decertification issues. The
percentage of net revenues less operating and general and administrative
expenses declined to 11.9% in 1997 from 15.8% in 1996. Exclusive of the Alabama
region, this percentage was 14.6% in the 1997 period. This percentage is
primarily impacted by the Company's ability to control operating expense in
relation to occupancy levels.
Lease Expense. Lease expense decreased to $3.6 million in 1997 from $3.7 million
in 1996, a decrease of $82,000, or 2%. This decline is partially attributable to
reduced profit-sharing lease accruals with respect to one of the decertified
facilities.
General and Administrative Expense. General and administrative expense increased
to $2.3 million in 1997 from $2.1 million in 1996, an increase of $223,000, or
11%. The increase is primarily attributable to the expense of new positions
added to service the Company's expanded operations. As a percent of total net
revenues, general and administrative expenses increased to 5.3% in 1997 from
4.9% in 1996.
Depreciation and Amortization. Depreciation and amortization expenses increased
to $667,000 in 1997 from $585,000 in 1996, an increase of $82,000, or 14%.
Interest Expense. Interest expense decreased to $458,000 in 1997 from $489,000
in 1996, a decrease of $31,000, or 6%.
Income Before Income Taxes; Net Income; Earnings Per Share. As a result of the
above, income before income taxes was $488,000 in 1997 as compared with $2.0
million in 1996, a decrease of $1.5 million, or 75%. The effective combined
federal, state and provincial income tax rate was 36% for both 1997 and 1996.
Net income was $312,000 in 1997 as compared with $1.3 million in 1996, a
decrease of $1.0 million, and earnings per share was $.06 in 1997 as compared
with $.24 in 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1996
In keeping with its goal to add attractive long-term care operations to its
portfolio, during 1996 the Company completed several acquisitions. Four
facilities were added via purchase and one via lease for a combined total of 410
beds. These facilities are hereafter referred to as the "New Homes." The
acquisition of the New Homes
-13-
<PAGE> 14
has added significantly to the Company's volume of business since 1996, and the
comparison of results between 1997 and 1996 is materially impacted by them. In
an effort to highlight this impact, the contribution to operations by facilities
operated by the Company for less than one year are attributed in the following
discussion to the New Homes. (Due to the timing of the acquisitions, their
impact on the comparability of the quarter alone is minimal.)
Revenues. Net revenues increased to $131.3 million in 1997 from $121.9 million
in 1996, an increase of $9.4 million, or 8%. Patient revenues increased to
$128.4 million in 1997 from $118.7 million in 1996, an increase of $9.7 million,
or 8%. Of this increase, $4.9 million is attributable to the New Homes. Compared
to the prior year period, the Company's average patient per diem increased 7%,
which accounted for an increase of approximately $7.6 million in patient
revenues. These increases were offset by foregone revenues with respect to the
decertified facilities and to one facility that was closed in April 1997.
Excluding these facilities, there was a 0.8% decline in patient days among homes
in operation for at least one year. While the recent increases in reimbursement
rates received by the Company have met or exceeded expectations, the Company
anticipates that it is likely states will continue to seek ways to retard the
rate of growth in Medicaid program rates. The Company's quality mix improved
compared to the prior year period. As a percent of net patient revenues,
Medicare increased to 26.3% in 1997 from 25.7% in 1996 while Medicaid decreased
to 54.4% in 1997 from 56.2% in 1996.
Ancillary service revenues, prior to contractual allowances, decreased slightly
to $42.9 million in 1997 from $43.0 million in 1996, a decrease of $77,000.
Since 1994, the Company has emphasized the expansion of its ancillary service
revenues. Substantial increases in ancillary revenues were realized throughout
1995 and 1996. However, as noted in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, the trend of substantial increases diminished
throughout 1996. In the 1997 period, ancillary revenues were retarded due to the
transition from multiple therapy providers to one primary therapy provider in a
majority of the Company's nursing homes. The Company continues to emphasize the
expansion of its ancillary revenues. Management's expectation is that ancillary
service revenues will trend flat or result in modest increases over the
foreseeable future.
Management fee revenues decreased by $326,000, or 10%. The decrease is primarily
due to $500,000 in consulting fees earned in 1996 with respect to the
development of three homes opened in 1996. Management fees, exclusive of the
non-recurring consulting fees, increased 7% in 1997 over 1996 levels.
Operating Expense. Operating expense increased to $105.1 million in 1997 from
$97.1 million in 1996, an increase of $8.0 million, or 8%. Of this increase,
$4.3 million is attributable to the New Homes. As a percent of net patient
revenues, operating expense remained at 81.8% in 1997 as it was in 1996. The
1997 percentage was larger than it otherwise would have been due to the
decertification problems in Alabama; exclusive of the Alabama region, the
Company's operating expense percentage was 81.0%. Wages increased to $47.8
million in 1997 from $43.6 million in 1996, an increase of $4.2 million, or 10%.
Of this increase, $2.1 million is attributable to the New Homes. Salaries and
wages with respect to facilities in operation for at least one year increased
$2.1 million, or 5%. The Company's wage increases are generally in line with
inflation; the larger increase is due in part to a 10% increase in Alabama that
arose principally from staffing responses to the decertification issues. The
percentage of net revenues less operating and general and administrative
expenses declined to 14.6% in 1997 from 15.2% in 1996. Exclusive of the Alabama
region, this percentage remained at 15.2% in the 1997 period. This percentage
was dampened due to exit costs associated with the facility closed in April
1997. This percentage is primarily impacted by the Company's ability to control
operating expense in relation to occupancy levels.
-14-
<PAGE> 15
Lease Expense. Lease expense increased to $11.2 million in 1997 from $10.7
million in 1996, an increase of $459,000, or 4%. Of this increase, $114,000 is
attributable to the New Homes and increased rent associated with the addition of
42 beds among four existing nursing homes. The remainder is primarily
attributable to inflationary increases included in the terms of a majority of
the Company's operating leases.
General and Administrative Expense. General and administrative expense increased
to $7.0 million in 1997 from $6.3 million in 1996, an increase of $732,000, or
12%. The increase is primarily attributable to the expense of new positions
added to service the Company's expanded operations. As a percent of total net
revenues, general and administrative expenses increased to 5.4% in 1997 from
5.2% in 1996.
Depreciation and Amortization. Depreciation and amortization expenses increased
to $2.0 million in 1997 from $1.6 million in 1996, an increase of $383,000, or
24%. Of this increase, $195,000 is attributable to the New Homes.
Interest Expense. Interest expense increased to $1.5 million in 1997 from $1.2
million in 1996, an increase of $315,000, or 27%. Of this increase, $331,000 is
attributable to indebtedness related to the New Homes.
Income Before Income Taxes; Net Income; Earnings Per Share. As a result of the
above, income before income taxes was $4.5 million in 1997 as compared with $5.0
million in 1996, a decrease of $479,000, or 10%. The effective combined federal,
state and provincial income tax rate was 36% for both 1997 and 1996. Net income
was $2.9 million in 1997 as compared with $3.2 million in 1996, a decrease of
$307,000, and earnings per share was $.55 in 1997 as compared with $.61 in 1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company's working capital was $12.8 million with a
current ratio of 1.8 as compared with $13.5 million with a current ratio of 1.8
at December 31, 1996.
Net cash provided from operating activities totaled $5.8 million and $3.5
million for the nine months ended September 30, 1997 and 1996, respectively.
These amounts primarily represent the cash flows from income plus depreciation
and amortization along with the changes in working capital components.
Net cash used in investing activities totaled $3.3 million and $7.3 million for
the nine months ended September 30, 1997 and 1996, respectively. These amounts
primarily represent capital expenditures for equipment for and improvements to
the Company's existing facilities, additional investment in TDLP in 1997 and
acquisitions in 1996. The Company and its predecessor business have used between
$1.7 million and $3.0 million for capital
-15-
<PAGE> 16
expenditures for facility improvements and equipment in each of the last three
calendar years. Such expenditures were financed through working capital
resources. For the year ended December 31, 1997, the Company anticipates that
such expenditures for its existing facility operations will be approximately
$3.0 million including approximately $1.0 million for non-routine projects.
Net cash provided from (used in) financing activities totaled ($1.7 million) and
$4.8 million for the nine months ended September 30, 1997 and 1996,
respectively. The 1997 amount primarily represents repayment of debt obligations
and advances to TDLP offset by proceeds from the sale of common stock and by
repayment of advances from a lessor. The 1996 amount primarily represents
proceeds from long-term debt and bank line of credit offset by advances and debt
repayments.
Effective October 1, 1997, the Company completed the previously announced Pierce
Acquisition. The purchase price was $32.4 million. Related capital needs
associated with the Pierce Acquisition are expected to range up to $3.5 million
to cover deal costs, deposits, initial working capital, the integration of its
operations into the Company, and renovations to certain of the properties. Cash
required at closing of $34.3 million was funded via short-term bridge financing.
The bridge financing is due for repayment on December 30, 1997, and bears
interest at the London Interbank Offered Rate ("LIBOR") plus 2.0% (7.6% through
October 31, 1997). So long as the bridge financing is in place, the Company has
agreed not to pledge or otherwise encumber the assets acquired in the Pierce
Acquisition. The Company has a commitment for $30.0 million in longer-term
financing that is available to partially repay the bridge financing. However,
the Company is continuing to evaluate the financing sources available to it with
which to fund the repayment. Although the mix among various financing sources is
not yet certain, the Company anticipates that the primary source of funding will
be the issuance of new debt, which may bear interest at up to 1/2 percentage
point higher than the bridge financing plus amortization of associated financing
costs. The Pierce Acquisition adds approximately 2,300 assisted living units to
the Company's portfolio, all within the state of North Carolina. The group is
anticipated to add in excess of $25.0 million in annualized revenues.
In addition, the Company acquired two Canadian assisted living facilities on
October 1, 1997. Immediately prior to the acquisitions, the Company had managed
these facilities, which total 125 units, during receivership proceedings. The
combined purchase price was $2.3 million, which was funded by $300,000 from
internal sources and the issuance by the Company's principal Canadian lender of
10-year term loans totaling $2.0 million at 6.3% interest.
At September 30, 1997, the Company had total debt outstanding of $22.2 million
of which $10.0 million was principally mortgage debt bearing interest at rates
currently ranging from 7.0% to 10.0%. The Company's remaining debt was drawn
under its credit lines. On December 31, 1996, the Company entered into two new
lines of credit including a $10.0 million working capital line and a $40.0
million acquisition line. The working capital line of credit provides for
working capital loans and letters of credit aggregating up to the lesser of
$10.0 million or the borrowing base, as defined. The Company's obligations under
the working capital line are secured by certain accounts receivable and
substantially all other Company assets. Advances under the working capital line
bear interest payable monthly at either LIBOR plus 2.50 % or the lending bank's
Index rate with the choice of rate being at the Company's option (8.2% based
upon LIBOR at September 30, 1997). The working capital line terminates and all
outstanding borrowings are due in December 1999. As of September 30, 1997, the
Company had drawn $1.1 million, had $5.4 million of letters of credit
outstanding, and had $3.5 million remaining borrowing capability under the
working capital line. As of November 11, 1997, the amount drawn under the
working capital line of credit had increased to $2.0 million leaving
approximately $2.5 million borrowing capacity available as of that date. The
acquisition line of credit of $40.0 million, less outstanding borrowings, is
available to fund approved acquisitions through October 1999. The Company's
obligations
-16-
<PAGE> 17
under the acquisition line are secured by the assets acquired with the draws
under the acquisition line. Advances under the acquisition line bear interest,
payable monthly, at LIBOR plus a defined spread with respect to each facility
based upon its loan-to-value ratio and debt service coverage (8.4% at September
30, 1997). Individual advances made under the acquisition line are due three
years from the date of initial funding. As of both September 30, 1997, and
November 11, 1997, the Company had drawn $11.1 million under the acquisition
line, which amount was secured by four nursing homes, and had $28.9 million
available for future acquisitions. The Company does not plan to draw on its
existing working capital or acquisition lines of credit to finance the repayment
of the bridge loan that funded the Pierce Acquisition.
During the first quarter of 1997, the Company paid approximately $900,000 in
income taxes related to 1996. With respect to 1997, the Company has adopted a
tax election that is anticipated to eliminate a significant portion of the
current tax payments that would otherwise be due.
Based upon the operations of the Company, management believes that available
cash and funds generated from operations, as well as amounts available through
its banking relationships, will be sufficient for the Company to satisfy its
capital expenditures, working capital, and debt requirements for the next twelve
months. The Company intends to satisfy the capital requirements for its
acquisition activities primarily through its acquisition line of credit
complemented as appropriate by various other possible means including borrowings
from commercial lenders, seller-financed debt, issuance of additional debt,
financing obtained from sale and leaseback transactions and internally generated
cash from operations. On a longer-term basis, management believes the Company
will be able to satisfy the principal repayment requirements on its indebtedness
with a combination of funds generated from operations and from refinancings with
the existing or new commercial lenders or by accessing capital markets.
Receivables
The Company's operations could be adversely affected if it experiences
significant delays in reimbursement of its labor and other costs from Medicare
and other third-party revenue sources. The Company's future liquidity will
continue to be dependent upon the relative amounts of current assets
(principally cash, accounts receivable, and inventories) and current liabilities
(principally accounts payable and accrued expense). In that regard, accounts
receivable can have a significant impact on the Company's liquidity. Continued
efforts by governmental and third-party payors to contain or reduce the
acceleration of costs by monitoring reimbursement rates, increasing medical
review of bills for services or negotiating reduced contract rates, any delay by
the Company in the processing of its invoices, as well as any significant
increase in the Company's proportion of Medicare and Medicaid patients, could
adversely affect the Company's liquidity and results of operations.
In addition, the Company's facilities must be certified for participation in the
Medicare and Medicaid programs in order to receive reimbursement from these
programs. In the ordinary course of its business, the Company receives notices
of deficiencies for failure to comply with various regulatory requirements. The
Company reviews such notices and takes appropriate corrective action. In most
cases, the Company and the reviewing agency will agree upon the measures to be
taken to bring the facility into compliance with regulatory requirements and
avoid or minimize costly decertification periods such as have been experienced
recently with the two Alabama facilities.
-17-
<PAGE> 18
Net accounts receivable attributable to the provision of patient and resident
services at September 30, 1997 and December 31, 1996, totaled $24.0 million and
$25.5 million, respectively, representing approximately 52 and 54 days,
respectively, in accounts receivable. Accounts receivable from the provision of
management services was $344,000 and $713,000, respectively, at September 30,
1997 and December 31, 1996, representing approximately 33 and 66 days in
accounts receivable, respectively. It is anticipated that the integration of the
operations acquired in the Pierce Acquisition will have a positive effect on the
Company's overall average days in accounts receivable.
The Company continually evaluates the adequacy of its bad debt reserves based on
patient mix trends, agings of older balances, payment terms and delays with
regard to third-party payors, collateral and deposit resources, as well as other
factors. The Company has implemented additional procedures to strengthen its
collection efforts and reduce the incidence of uncollectible accounts.
Foreign Currency Translation
The Company has obtained its financing primarily in U.S. dollars; however, it
incurs revenues and expenses in Canadian dollars with respect to Canadian
management activities and the operation of the Company's Canadian facilities.
Therefore, if the currency exchange rate fluctuates, the Company may experience
currency translation gains and losses with respect to the operations of these
activities and the capital resources dedicated to their support. While such
currency exchange rate fluctuations have not been material to the Company in the
past, there can be no assurance that the Company will not be adversely affected
by shifts in the currency exchange rates in the future.
Inflation
Management does not believe that the operations of the Company have been
materially affected by inflation. The Company expects salary and wage increases
for its skilled staff to continue to be higher than average salary and wage
increases, as is common in the health care industry. To date, these increases as
well as normal inflationary increases in other operating expenses have been
adequately covered by revenue increases. However, it is likely that states will
continue to seek ways to control the growth in Medicaid program rates.
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," and SFAS
No. 129, "Disclosure of Information About Capital Structure." Each is effective
for financial statement periods ending after December 15, 1997. SFAS No. 128
establishes standards for computing and presenting earnings per share. SFAS No.
129 establishes standards with respect to disclosure of information about an
entity's capital structure.
The FASB has also issued two other statements, SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." Each is effective for financial statement
periods beginning after December 15, 1997. SFAS No. 130 establishes standards
for reporting and display of comprehensive income and its components. SFAS No.
131 establishes standards for the way public companies report information about
operating segments in annual financial statements. SFAS
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<PAGE> 19
No. 131 also requires that public companies report selected information about
operating segments in interim financial reports issued to shareholders.
The Company will adopt the provisions of these statements in association with
its financial statements issued for the required periods. The Company does not
expect the adoption of these standards to have a material effect on the
Company's results of operations.
Forward-Looking Statements
The foregoing discussion and analysis provides information deemed by management
to be relevant to an assessment and understanding of the Company's consolidated
results of operations and its financial condition. It should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
December 31, 1996. Certain statements made by or on behalf of the Company,
including those contained in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere, are
forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. These statements involve risks and uncertainties including,
but not limited to, changes in governmental reimbursement or regulation, health
care reforms, the ability to execute on the Company's acquisition program, both
in obtaining suitable acquisitions and financing therefor, changing economic
conditions as well as others. Actual results may differ materially from those
expressed or implied in forward-looking statements. The Company hereby makes
reference to items set forth under the heading "Risk Factors" in the Company's
Registration Statement on Form S-1, as amended (Registration No. 33-76150). Such
cautionary statements identify important factors that could cause the Company's
actual results to materially differ from those projected in forward-looking
statements. In addition, the Company disclaims any intent or obligation to
update these forward-looking statements.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits filed as part of the Report on Form 10-Q are listed in the
Exhibit Index immediately following the signature page.
(b) The Registrant filed a Report on Form 8-K on October 16, 1997, with
respect to the acquisition of assets from Pierce Management Group, et
al.
-19-
<PAGE> 20
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.
ADVOCAT INC.
November 13, 1997
By: /s/ Mary Margaret Hamlett
-------------------------------------------------
Mary Margaret Hamlett
Principal Financial Officer and Chief Accounting
Officer and An Officer Duly Authorized to Sign on
Behalf of the Registrant
-20-
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C> <C>
2 - Asset Purchase Agreement among the Company, Pierce
Management Group First Partnership and others, dated
July 24, 1997 (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997).
2.1 - Amendment No. 1 to Asset Purchase Agreement dated
September 30, 1997 (incorporated by reference to
Exhibit 2.2 to the Company's Current Report on Form
8-K filed October 16, 1997).
3.1 - Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement No.33-76150 on Form
S-1).
3.2 - Bylaws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement
No. 33-76150 on Form S-1).
3.3 - Amendment to Certificate of Incorporation dated
March 23, 1995 (incorporated by reference to Exhibit
A of Exhibit 1 to Form 8-A filed March 30, 1995).
4.1 - Form of Common Stock Certificate (incorporated by
reference to Exhibit 4 to the Company's Registration
Statement No. 33-76150 on Form S-1).
4.2 - Rights Agreement dated March 13, 1995, between the
Company and Third National Bank in Nashville
(incorporated by reference to Exhibit 1 to the Company's
Current Report on Form 8-K dated March 13, 1995).
4.3 - Summary of Shareholder Rights Plan adopted March 13,
1995 (incorporated by reference to Exhibit B of
Exhibit 1 to Form 8-A filed March 30, 1995).
4.4 - Rights Agreement of Advocat Inc. dated March 23,
1995 (incorporated by reference to Exhibit 1 to
Form 8-A filed March 30, 1995).
27 - Financial Data Schedule (for SEC use only).
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ADVOCAT, INC. FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCLUDED IN THE FORM 10-Q OF ADVOCAT, INC. FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,755
<SECURITIES> 0
<RECEIVABLES> 25,119
<ALLOWANCES> 2,524
<INVENTORY> 1,041
<CURRENT-ASSETS> 29,234
<PP&E> 43,475
<DEPRECIATION> 11,442
<TOTAL-ASSETS> 74,225
<CURRENT-LIABILITIES> 16,445
<BONDS> 0
0
0
<COMMON> 54
<OTHER-SE> 30,696
<TOTAL-LIABILITY-AND-EQUITY> 74,225
<SALES> 0
<TOTAL-REVENUES> 131,336
<CGS> 0
<TOTAL-COSTS> 126,781
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,366
<INTEREST-EXPENSE> 1,471
<INCOME-PRETAX> 4,555
<INCOME-TAX> 1,640
<INCOME-CONTINUING> 2,915
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,915
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
