<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: MARCH 31, 1999
------------------
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
----- -----
5,398,710
------------------------------------------------------------------
(OUTSTANDING SHARES OF THE ISSUER'S COMMON STOCK AS OF MAY 12, 1999)
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ADVOCAT INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,282 $ 2,347
Receivables, less allowance for doubtful
accounts of $1,856 and $2,650,
respectively 24,353 26,289
Income taxes receivable 155 800
Inventories 1,229 1,102
Prepaid expenses and other assets 1,164 1,528
Deferred income taxes 2,069 1,719
--------- ---------
Total current assets 30,252 33,785
--------- ---------
PROPERTY AND EQUIPMENT, at cost 83,375 82,140
Less accumulated depreciation
and amortization (16,214) (15,548)
--------- ---------
Net property and equipment 67,161 66,592
--------- ---------
OTHER ASSETS:
Deferred tax benefit 6,229 6,338
Deferred financing and other costs, net 755 1,150
Assets held for sale or redevelopment 3,465 3,465
Investments in and receivables from joint ventures 7,106 7,194
Other 3,640 2,770
--------- ---------
Total other assets 21,195 20,917
--------- ---------
$ 118,608 $ 121,294
========= =========
</TABLE>
(Continued)
-2-
<PAGE> 3
ADVOCAT INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 26,706 $ 30,126
Trade accounts payable 10,174 9,327
Accrued expenses:
Payroll and employee benefits 4,206 4,920
Interest 566 857
Self-insurance reserves 2,500 2,375
Other 2,491 2,413
--------- ---------
Total current liabilities 46,643 50,018
--------- ---------
NONCURRENT LIABILITIES:
Long-term debt, less current portion 33,865 33,514
Deferred gains with respect to leases, net 3,231 3,293
Self-insurance reserves, less current portion 1,990 1,665
Other 5,388 5,243
--------- ---------
Total noncurrent liabilities 44,474 43,715
--------- ---------
COMMITMENTS AND CONTINGENCIES
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, 5,399,000 issued and outstanding at
March 31, 1999 and December 31, 1998, respectively 54 54
Paid-in capital 15,765 15,765
Retained earnings 11,672 11,742
--------- ---------
Total shareholders' equity 27,491 27,561
--------- ---------
$ 118,608 $ 121,294
========= =========
</TABLE>
The accompanying notes are an integral part of these interim
consolidated balance sheets.
-3-
<PAGE> 4
ADVOCAT INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, AND UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
-------- -------
<S> <C> <C>
REVENUES:
Patient revenues $ 36,854 $41,839
Resident revenues 8,905 8,705
Management fees 919 906
Interest 34 43
-------- -------
Net revenues 46,712 51,493
-------- -------
EXPENSES:
Operating 36,499 41,252
Lease 4,855 4,754
General and administrative 2,735 2,726
Interest 1,307 1,245
Depreciation and amortization 1,067 962
-------- -------
Total expenses 46,463 50,939
-------- -------
INCOME BEFORE INCOME TAXES 249 554
PROVISION FOR INCOME TAXES 90 199
-------- -------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 159 355
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE, NET OF TAX (277) -0-
-------- -------
NET INCOME (LOSS) $ (118) $ 355
======== =======
BASIC EARNINGS PER SHARE:
Income before accounting change $ .03 $ .07
Cumulative effect of change in accounting principle, net of tax (.05) -0-
-------- -------
Net income (loss) $ (.02) $ .07
======== =======
DILUTED EARNINGS PER SHARE
Income before accounting change $ .03 $ .07
Cumulative effect of change in accounting principle, net of tax (.05) -0-
-------- -------
Net income (loss) $ (.02) $ .07
======== =======
WEIGHTED AVERAGE SHARES:
Basic 5,399 5,377
======== =======
Diluted 5,399 5,388
======== =======
</TABLE>
The accompanying notes are an integral part of these interim consolidated
financial statements.
-4-
<PAGE> 5
ADVOCAT INC.
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS AND UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
-------- -------
<S> <C> <C>
NET INCOME (LOSS) $ (118) $ 355
-------- -------
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustments 74 37
Income tax expense (27) (13)
-------- -------
47 24
-------- -------
COMPREHENSIVE INCOME (LOSS) $ (71) $ 379
======== =======
</TABLE>
The accompanying notes are an integral part of these interim consolidated
financial statements.
-5-
<PAGE> 6
ADVOCAT INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS AND UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (118) $ 355
Items not involving cash:
Depreciation and amortization 1,067 962
Provision for doubtful accounts 242 446
Equity (earnings) loss in joint ventures 56 (21)
Amortization of deferred credits (55) (170)
Deferred income taxes (268) (195)
Write off pursuant to change in accounting principle 433 -0-
Changes in other assets and liabilities:
Receivables, net 2,256 264
Inventories (127) (13)
Prepaid expenses and other assets 438 (301)
Trade accounts payable and accrued expenses 346 1,582
Other (28) (4)
------- -------
Net cash provided from operating activities 4,242 2,905
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (1,446) (1,098)
Investment in TDLP (157) (625)
Mortgages receivable, net (146) (305)
Deposits, pre-opening costs and other (361) (350)
Investment in joint ventures, net 10 (764)
TDLP partnership distributions 72 75
------- -------
Net cash used in investing activities (2,028) (3,067)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayment of) bank line of credit (3,490) 1,830
Proceeds from issuance of debt obligations 533 -0-
Repayment of debt obligations (187) (211)
Advances to TDLP, net (50) (746)
Financing costs (85) (9)
------- -------
Net cash provided from financing activities (3,279) 864
------- -------
</TABLE>
(Continued)
-6-
<PAGE> 7
ADVOCAT INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS AND UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
-------- -------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (1,065) $ 702
CASH AND CASH EQUIVALENTS, beginning of period 2,347 2,673
-------- -------
CASH AND CASH EQUIVALENTS, end of period $ 1,282 $ 3,365
======== =======
SUPPLEMENTAL INFORMATION:
Cash payments of interest $ 1,598 $ 1,365
======== =======
Cash payments (refunds) of income taxes, net $ (443) $ 278
======== =======
</TABLE>
Advocat received net benefit plan deposits and earnings and recorded net benefit
plan liabilities of $52,000 and $37,000 in the three month periods ended March
31, 1999 and 1998, respectively.
The accompanying notes are an integral part of these interim consolidated
financial statements.
-7-
<PAGE> 8
ADVOCAT INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
1. BUSINESS
Advocat Inc. (together with its subsidiaries, "Advocat" or the "Company") is a
leading provider of long-term care services to the elderly. The Company operates
nursing homes and assisted living facilities in 11 Southeastern states and two
Canadian provinces.
As of March 31, 1999, the Company operates 119 facilities consisting of 66
nursing homes with 7,458 licensed beds and 53 assisted living facilities with
4,793 units. The Company owns seven nursing homes, leases 37 others, and manages
22 nursing homes. The Company owns 17 assisted living facilities, leases 24
others, and manages 12 assisted living facilities. The Company holds a minority
equity interest in six of these managed assisted living facilities. The Company
operates 52 nursing homes and 33 assisted living facilities in the United States
and 14 nursing homes and 20 assisted living facilities in Canada. The Company's
facilities provide a range of health care services to their patients and
residents. In addition to the nursing and social services usually provided in
the long-term care facilities, the Company offers a variety of comprehensive
rehabilitative, nutritional, respiratory and other specialized ancillary
services. The Company operates facilities in Alabama, Arkansas, Florida,
Georgia, 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 month periods ended March 31,
1999 and 1998, 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 combined
financial statements reflect all adjustments (consisting of only normally
recurring accruals) necessary to present fairly the financial position at March
31, 1999 and the results of operations and the cash flows for the three month
periods ended March 31, 1999 and 1998.
The results of operations for the three month periods ended March 31, 1999 and
1998 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,
1998.
-8-
<PAGE> 9
3. CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1999, the Company adopted Statement of Position ("SOP")
98-5, Reporting on the Costs of Start-Up Activities. SOP 98-5, issued by the
Accounting Standards Executive Committee, requires that the cost of start-up
activities be expensed as these costs are incurred. Start-up activities include
one-time activities and organization costs. Upon adoption, the Company incurred
a pre-tax charge to income of $433,000 ($277,000 net of tax), representing the
write off of all previously deferred balances. This write off has been reported
as the cumulative effect of a change in accounting principle in the accompanying
interim consolidated statement of operations.
4. EARNINGS PER SHARE
Information with respect to the calculation of basic and diluted earnings per
share data follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
---------- ----------
<S> <C> <C>
NUMERATOR:
Income before cumulative effect of change
in accounting principle $ 159,000 $ 355,000
Cumulative effect of change in accounting
principle, net of tax (277,000) -0-
---------- ----------
Net income (loss) $ (118,000) $ 355,000
========== ==========
DENOMINATOR:
Basic average shares outstanding 5,399,000 5,377,000
Employee stock purchase plan -0- 10,000
Options -0- 1,000
---------- ----------
Diluted average shares outstanding 5,399,000 5,388,000
========== ==========
BASIC EARNINGS PER SHARE:
Income before accounting change $ .03 $ .07
Cumulative effect of change in accounting
principle, net of tax (.05) -0-
---------- ----------
Net income (loss) $ (.02) $ .07
========== ==========
DILUTED EARNINGS PER SHARE:
Income before accounting change $ .03 $ .07
Cumulative effect of change in accounting
principle, net of tax (.05) -0-
---------- ----------
Net income (loss) $ (.02) $ .07
========== ==========
</TABLE>
-9-
<PAGE> 10
5. OTHER COMPREHENSIVE INCOME
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, Reporting Comprehensive Income. SFAS No. 130
requires the reporting of comprehensive income in addition to net income
from operations. Comprehensive income is a more inclusive financial
reporting methodology that includes disclosure of certain financial
information that historically has not been recognized in the calculation of
net income.
Information with respect to the accumulated other comprehensive income
balance is presented below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
---------- ----------
<S> <C> <C>
Foreign currency items:
Beginning balance $ (412,000) $ (196,000)
Current-period change, net of income tax 47,000 24,000
---------- ----------
Ending balance $ (365,000) $ (172,000)
========== ==========
</TABLE>
Positive amounts represent unrealized gains and negative amounts represent
unrealized losses.
6. OPERATING SEGMENT INFORMATION
On January 1, 1998, the Company adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information." The Company has three
reportable segments: U.S. nursing homes, U.S. assisted living facilities,
and Canadian operations, which consists of both nursing home and assisted
living services. Management evaluates each of these segments independently
due to the geographic, reimbursement, marketing, and regulatory differences
between the segments. Management evaluates performance based on profit or
loss from operations before income taxes not including nonrecurring gains
and losses and foreign exchange gains and losses. The following information
is derived from the Company's segments' internal financial statements and
includes information related to the Company's unallocated corporate
revenues and expenses:
-10-
<PAGE> 11
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------
(IN THOUSANDS) 1999 1998
-------- --------
<S> <C> <C>
Net revenues:
U.S. nursing homes $ 36,516 $ 41,447
U.S. assisted living facilities 6,622 6,306
Canadian operations 3,627 3,738
Corporate 183 241
Eliminations (236) (239)
-------- --------
Total $ 46,712 $ 51,493
======== ========
Depreciation and amortization:
U.S. nursing homes $ 597 $ 541
U.S. assisted living facilities 361 306
Canadian operations 85 87
Corporate 24 28
Eliminations -0- -0-
-------- --------
Total $ 1,067 $ 962
======== ========
Operating income (loss):
U.S. nursing homes $ (100) $ 324
U.S. assisted living facilities 243 100
Canadian operations 396 473
Corporate (290) (343)
Eliminations -0- -0-
-------- --------
Total $ 249 $ 554
======== ========
<CAPTION>
MARCH 31,
---------------------------
(IN THOUSANDS) 1999 1998
-------- --------
<S> <C> <C>
Long-lived assets:
U.S. nursing homes $ 56,013 $ 55,024
U.S. assisted living facilities 33,753 34,313
Canadian operations 11,540 9,701
Corporate 22,074 22,027
Eliminations (35,024) (36,787)
-------- --------
Total $ 88,356 $ 84,278
======== ========
Total assets:
U.S. nursing homes $ 83,593 $ 85,327
U.S. assisted living facilities 36,794 36,233
Canadian operations 14,671 15,255
Corporate 24,602 23,707
Eliminations (41,052) (42,765)
-------- --------
Total $118,608 $117,757
======== ========
</TABLE>
-11-
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Advocat (together with its subsidiaries, "Advocat" or the "Company") provides
long-term care services to nursing home patients and residents of assisted
living facilities in 11 Southeastern states and two Canadian provinces. The
Company completed its initial public offering in May 1994; however, its
operational history can be traced to February 1980 through common senior
management who were involved in different organizational structures.
The Company's facilities provide a range of health care services to their
patients and residents. In addition to the nursing, personal care and social
services usually provided in long-term care facilities, the Company, through
arrangements with third parties, offers a variety of comprehensive
rehabilitation services as well as medical supply and nutritional support
services.
As of March 31, 1999, Advocat's portfolio includes 119 facilities composed of 66
nursing homes containing 7,458 licensed beds and 53 assisted living facilities
containing 4,793 units. In comparison, at March 31, 1998, the Company operated
115 facilities composed of 64 nursing homes containing 7,221 licensed beds and
51 assisted living facilities containing 4,880 units. As of March 31, 1999, the
Company owns seven nursing homes, leases 37 others, and manages the remaining 22
nursing homes. Additionally, the Company owns 17 assisted living facilities,
leases 24 others, and manages the remaining 12 assisted living facilities. The
Company holds a minority equity interest in six of these managed assisted living
facilities. In the United States, the Company operates 52 nursing homes and 33
assisted living facilities, and in Canada, the Company operates 14 nursing homes
and 20 assisted living facilities.
Basis of Financial Statements. The Company's patient and resident revenues
consist of the fees charged for the care of patients in the nursing homes and
residents of the assisted living facilities owned and leased by the Company.
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 of the Company's management agreements, which
generally provide for management fees ranging 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 average
occupancy level rates of the managed facilities. Management fees also include
consulting and development fee income. The Company's operating expenses include
the costs, other than lease, depreciation and amortization expenses, incurred in
the nursing homes and assisted living facilities owned and leased 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 other owners. The Company's
depreciation, amortization and interest expenses include all such expenses
across the range of the Company's operations.
-12-
<PAGE> 13
RESULTS OF OPERATIONS
The following tables present the unaudited interim statements of operations and
related data for the three months ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
(IN THOUSANDS) THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998 CHANGE %
------- ------- ------- ------
<S> <C> <C> <C> <C>
REVENUES:
Patient revenues $36,854 $41,839 $(4,985) (11.9)
Resident revenues 8,905 8,705 200 2.3
Management fees 919 906 13 1.5
Interest 34 43 (9) (21.1)
------- ------- -------
Net revenues 46,712 51,493 (4,781) (9.3)
------- ------- -------
EXPENSES:
Operating 36,499 41,252 (4,753) (11.5)
Lease 4,855 4,754 101 2.1
General and administrative 2,735 2,726 9 0.3
Interest 1,307 1,245 62 5.0
Depreciation and amortization 1,067 962 105 10.9
------- ------- -------
Total expenses 46,463 50,939 (4,476) (8.8)
------- ------- -------
INCOME BEFORE INCOME TAXES 249 554 (305) (55.0)
PROVISION FOR INCOME TAXES 90 199 (109) (55.0)
------- ------- -------
INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 159 355 (196) (55.0)
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE,
NET OF TAX (277) -0- (277) N/A
------- ------- -------
NET INCOME (LOSS) $ (118) $ 355 $ (473) (133.3)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUES THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
------- -------
<S> <C> <C>
REVENUES:
Patient revenues 78.9% 81.2%
Resident revenues 19.0 16.9
Management fees 2.0 1.8
Interest 0.1 0.1
----- -----
Net revenues 100.0% 100.0%
----- -----
OPERATING EXPENSES:
Operating 78.1 80.1
Lease 10.4 9.2
General and administrative 5.9 5.3
Interest 2.8 2.4
Depreciation and amortization 2.3 1.9
----- -----
Total expenses 99.5 98.9
----- -----
INCOME BEFORE INCOME TAXES 0.5 1.1
PROVISION FOR INCOME TAXES 0.2 0.4
----- -----
INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 0.3 0.7
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE,
NET OF TAX (0.6) -0-
----- -----
NET INCOME (LOSS) $(0.3)% $ 0.7%
===== =====
</TABLE>
-13-
<PAGE> 14
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1998
Medicare Reimbursement Changes. In 1999, the Company has continued to experience
the impact of Medicare cost limitations imposed by the Health Care Finance
Administration upon all providers of nursing home Medicare services. Beginning
in July 1998, a portion of the Company's facilities began the three-year
transition from the cost reimbursement system to the prospective payment system
("PPS"). In general, PPS provides a standard payment for Medicare Part A
services to all providers regardless of their costs. PPS creates an incentive
for providers to reduce their costs, and management has responded accordingly.
The phase-in of PPS begins for all providers at some point during the
twelve-month period ending June 30, 1999. Management estimates that the ultimate
impact of PPS on its revenues will be a reduction of $12.0 to $13.0 million per
year. Since PPS is still an evolving process, the ultimate impact cannot be
known with certainty. However, Management presently believes that it can reduce
its costs in response to PPS, as it is currently structured, such that there
will be little or no impact on net income. Management has also de-emphasized the
provision of Medicare services at certain locations.
Beginning in January 1998, the allowable costs for cost reimbursement components
of Medicare Part B services became subject to a limitation factor of 90% of
actual cost. For the Company, such revenues are primarily derived from
reimbursement of subcontracted therapy costs. In 1999, cost reimbursement of
Part B services has been replaced by a system of fee screens that effectively
limit the maximum fees that may be charged for therapy services. The Company is
certain that this will further negatively impact operations although the
ultimate effect cannot yet be reasonably estimated.
Revenues. Net revenues decreased to $46.7 million in 1999 from $51.5 million in
1998, a decrease of $4.8 million, or 9.3%. Resident revenues increased to $8.9
million in 1999 from $8.7 million in 1998, an increase of $200,000, or 2.3%.
Patient revenues decreased to $36.8 million in 1999 from $41.8 million in 1998,
a decrease of $5.0 million, or 11.9%. This decrease in patient revenues is due
primarily to the Medicare reimbursement changes and a decline in Medicare
census. In addition, recent increases in reimbursement rates received by the
Company have been disappointing and below expectations in certain states in
which the Company operates. The Company anticipates it is likely that federal
and state governments will continue to seek ways to retard the rate of growth in
Medicare and Medicaid program rates. There was a 2.4% decline in patient and
resident days, approximately 15,000 days, which was primarily due to a 35.1%
decline in Medicare days, approximately 12,000 days. This decline in Medicare
days accounts for approximately $3.9 million of the overall revenue reduction.
As a percent of patient and resident revenues, Medicare decreased to 15.8% in
1999 from 25.8% in 1998 while Medicaid and similar programs increased to 65.4%
in 1999 from 55.4% in 1998.
-14-
<PAGE> 15
Ancillary service revenues, prior to contractual allowances, decreased to $7.7
million in 1999 from $16.7 million in 1998, a decrease of $9.0 million or 53.9%.
The decrease is primarily attributable to reductions in revenue availability
under Medicare and is consistent with the Company's expectation. Cost limits are
continuing to be placed on ancillary services as part of the transition to PPS;
additionally, other cost limitation provisions could occur. Therefore, the
Company anticipates that ancillary service revenues will remain flat or continue
trending down during 1999. The ultimate effect on the Company's operations
cannot be predicted at this time because the extent and composition of the cost
limitations are subject to change.
Operating Expense. Operating expense decreased to $36.5 million in 1999 from
$41.3 million in 1998, a decrease of $4.8 million, or 11.5%. The decrease is
primarily attributable to cost reductions implemented in response to the
Medicare reimbursement changes (that is, reduced provision of therapy services
and in the contracted costs to provide them). As a percent of patient and
resident revenues, operating expense decreased to 79.8% in 1999 from 81.6% in
1998. The largest component of operating expense is wages, which increased to
$18.6 million in 1999 from $18.5 million in 1998, an increase of $115,000, or
0.6%. The Company's wage increases are generally in line with inflation. The
Company has been able to cut staffing at certain facilities that have
experienced occupancy declines. The Company recognized higher general insurance
expense in 1999 due to fully reserving the self-insurance portion of its general
liability insurance program with respect to its U.S. nursing homes operation.
The Company has a lower reserve for bad debts than in the prior year.
Lease Expense. Lease expense increased to $4.9 million in 1999 from $4.8 million
in 1998, an increase of $101,000, or 2.1%. Adjustments in the Company's lease
agreements are generally tied to inflation.
General and Administrative Expense. General and administrative expense remained
flat at $2.7 million in both 1999 and 1998. As a percent of total net revenues,
general and administrative expense increased to 5.9% in 1999 compared with 5.3%
in 1998. The percentage increase is attributable to the lower revenue base.
Interest Expense. Interest expense increased to $1.3 million in 1999 from $1.2
million in 1998, an increase of $62,000, or 5.0%.
Depreciation and Amortization. Depreciation and amortization expenses increased
to $1.0 million in 1999 from $1.0 million in 1998, an increase of $105,000, or
10.9%.
Change in Accounting Principle. Effective January 1, 1999, the Company adopted
Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-Up
Activities. SOP 98-5, issued by the Accounting Standards Executive Committee,
requires that the cost of start-up activities be expensed as these costs are
incurred. Start-up activities include one-time activities and organization
costs. Upon adoption, the Company incurred a pre-tax charge to income of
$433,000 ($277,000 net of tax), representing the write off of all previously
deferred balances. This write off has been reported as the cumulative effect of
a change in accounting principle in accordance with the provisions of SOP 98-5.
-15-
<PAGE> 16
Income Before Income Taxes; Net Income (Loss); Earnings (Loss) Per Share. As a
result of the above, income before income taxes and the cumulative effect of the
change in accounting principle was $249,000 in 1999 as compared with $554,000 in
1998, a decrease of $305,000, or (55.0)%. The effective combined federal, state
and provincial income tax rate was 36.0% in both 1999 and 1998. The net loss
after the cumulative effect of the change in accounting principle was $(118,000)
in 1999 as compared with net income of $355,000 in 1998, a decrease of $473,000,
and basic and diluted earnings per share were each a loss of $(.02) in 1999 as
compared with a gain of $.07 per share in 1998.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999 and December 31, 1998, the Company had negative working
capital of $(16.4) million and $(16.2) million, respectively, and the current
ratio was 0.6 and 0.7, respectively. The negative working capital results
primarily from the Company's current maturities of long-term debt.
Net cash provided by operating activities totaled $4.2 million and $2.9 million
in the three month periods ended March 31, 1999 and 1998, respectively. These
amounts primarily represent the cash flows from net income plus changes in
non-cash components of operations and by working capital changes.
Net cash used by investing activities totaled $2.0 million and $3.1 million the
three months periods ended March 31, 1999 and 1998, respectively. These amounts
primarily represent purchases of property plant and equipment, investments in
advances to joint ventures and additional investment in TDLP, a limited
partnership for which the Company serves as the general partner. The Company has
used between $2.4 million and $5.2 million for capital expenditures in each of
the last three calendar years ending December 31, 1998. Substantially all such
expenditures were for facility improvements and equipment, which were financed
principally through working capital. For the year ended December 31, 1999, the
Company anticipates that capital expenditures for improvements and equipment for
its existing facility operations will be approximately $5.4 million, including
$2.8 million for non-routine projects.
Net cash provided (used) by financing activities totaled $(3.3) million and
$864,000 the three month periods ended March 31, 1999 and 1998, respectively.
The net cash provided from financing activities primarily represents net
proceeds from issuance and repayment of debt and advances to or repayments from
related parties.
At March 31, 1999, the Company had total debt outstanding of $60.0 million, of
which $12.5 million was principally mortgage debt bearing interest at floating
rates ranging from 6.3% to 10.0%. The Company also had outstanding a promissory
note (the "Bridge Loan") in the amount of $34.1 million, which was used to fund
a 1997 acquisition. The Company's remaining debt of $15.7 million was drawn
under the Company's lines of credit. Most of the Company's debt is at floating
interest rates, generally at a spread above the London Interbank Offered Rate
("LIBOR").
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<PAGE> 17
The $34.1 million Bridge Loan is contractually due in July 1999. The Company has
a loan commitment of up to $25.25 million of three-year financing that
management plans to close in late May 1999 to refinance a portion of the $34.1
million maturity on a non-current basis; therefore, the $25.25 million (less
current portion of $167,000) has been classified as non-current in the
accompanying consolidated financial statements. The loan commitment of $25.25
million is for up to 80% of the value of the pledged assets, which fully
utilizes the entire commitment. In addition, the loan commitment and subsequent
loan is subject to certain financial covenants, which management believes can be
achieved. Management is negotiating with the lender of its working capital line
of credit to refinance the remaining $8.85 million balance under the Bridge Loan
in the refinancing of its working capital line of credit discussed below.
The Company has a working capital line of credit and an acquisition line of
credit. 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 the Company's option of either LIBOR plus 2.50% or the bank's Index
rate. The working capital line terminates and all outstanding borrowings are due
in December 1999. As of both March 31, 1999, the Company had drawn $4.35
million, had $5.65 million of letters of credit outstanding, and had no
remaining borrowing capability under the working capital line of credit. As of
May 12, 1999, the Company had drawn $2.9 million, had $5.65 million of letters
of credit outstanding, and had $1.4 million remaining borrowing capability under
the working capital line of credit. The Company has received an increase from
its lenders in the working capital line of credit availability of $4.0 million
(the "Overline"). The Overline is subject to the same terms and conditions as
the $10.0 million working capital line of credit, but it carries a stated
interest rate of 14.0%. The Overline terminates and all outstanding borrowings
are due July 1, 1999. As of March 31, 1999, the balance drawn under the Overline
totaled $273,000. As of May 12, 1999, the Company had drawn $4.0 million under
the Overline. Management is currently negotiating with this lender to refinance
the working capital line of credit, the Overline, and the expected remaining
balance of the Bridge Loan, $8.85 million, on a long-term basis with the
remainder to be repaid with cash generated from the sale of certain assets, from
the refinancing of certain mortgaged properties, which management believes may
be further leveraged, and from cash generated from operations.
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 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.
Individual advances made under the acquisition line are due three years from the
date of initial funding. As of both March 31, 1999, and May 12, 1999, the
Company has 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's loan agreements contain various financial covenants, the most
restrictive of which relate to net worth, cash flow, debt to equity ratio
requirements, and limits on the payment of dividends to shareholders. As of
March 31, 1999, the Company was in compliance with the covenants or was
negotiating with its lenders for a waiver in the event of non-compliance.
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<PAGE> 18
At December 31, 1999, $51.8 million of the Company's total debt of $60.0 million
was current, meaning that it must be repaid or refinanced during 1999. Because
the Company has a commitment for $25.2 million, which it expects to draw upon
prior to May 31, 1999, that will refinance a portion of the debt that is
currently due, only $26.7 million is classified as current in the Company's
balance sheet at March 31, 1999. These current maturities are as follows: $11.1
million under the GMAC acquisition line, secured by four nursing homes, due in
December 1999; $1.2 million mortgage payable to a Canadian bank, secured by one
nursing home, due in December 1999; $4.3 million under the working capital line
of credit, due in December 1999 and $273,000 under the Overline, due in April
1999; $9.0 million of the original $34.1 million Bridge Loan due in July 1999;
and miscellaneous current maturities of $796,000. The Company expects to
refinance the $11.1 million GMAC debt and the $1.2 million Canadian mortgage
with long-term fixed-rate debt with the existing mortgage holders during the
fall of 1999. The Company plans to utilize a $25.2 million commitment from GMAC
for long-term financing to significantly pay down the Bridge Loan prior to May
31, 1999, leaving a balance of $8.9 million still due to the lending banks. The
Company is currently negotiating with the existing lenders to restructure a
portion of this $8.9 million as longer-term debt and expects to repay a portion
of the debt during 1999 through various means such as the sale of certain
assets, refinancing mortgage debt, and through cash generated from operations.
The Company is also currently negotiating with the existing lender to extend the
maturities of the working capital line and the working capital overline. The
Company expects to repay the miscellaneous current maturities of $796,000 with
cash generated from operations. The Company believes that it will be successful
in restructuring its debt as described in 1999.
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 such as 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,
Medicaid 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 expenses). 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, by increasing medical
review of bills for services, or by negotiating reduced contract rates, as well
as
-18-
<PAGE> 19
any delay by the Company in the processing of its invoices, could adversely
affect the Company's liquidity and results of operations.
Gross accounts receivable attributable to the provision of patient and resident
services at March 31, 1999 and December 31, 1998, totaled $25.8 million and
$28.3 million, respectively, representing approximately 51 and 53 days in
accounts receivable, respectively. Accounts receivable from the provision of
management services was $509,000 and $387,000 respectively, at March 31, 1999
and December 31, 1998 representing approximately 50 and 39 days in accounts
receivable, respectively.
The Company is subject to accounting losses from uncollectible receivables in
excess of its reserves. 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 continues to evaluate and
implement additional procedures to strengthen its collection efforts and reduce
the incidence of uncollectible accounts.
HEALTH CARE INDUSTRY
The health care industry is subject to numerous laws and regulations of federal,
state and local governments. These laws and regulations include, but are not
necessarily limited to, matters such as licensure, accreditation, government
health care program participation requirements, reimbursement for patient
services, and Medicare and Medicaid fraud abuse. Recently, government activity
has increased with respect to investigations and allegations concerning possible
violations by health care providers of fraud and abuse statutes and regulations.
Violations of these laws and regulations could result in expulsion from
government health care programs together with the imposition of significant
fines and penalties, as well as significant repayments for patient services
previously billed. Management believes that the Company is in compliance with
fraud and abuse laws and regulations as well as other applicable government laws
and regulations. Compliance with such laws and regulations can be subject to
future government review and interpretation as well as regulatory actions
unknown or unasserted at this time.
During 1997, the Federal government enacted the Balanced Budget Act of 1997
("BBA"), which contains numerous Medicare and Medicaid cost-saving measures. The
BBA requires that nursing homes transition to a prospective payment system
("PPS") under the Medicare program during a three-year "transition period,"
commencing with the first cost reporting period beginning on or after July 1,
1998. Through March 31, 1999, all but nine of the Company's facilities had begun
the PPS transition. The BBA also contains certain measures that have and could
lead to further future reductions in Medicare therapy cost reimbursement and
Medicaid payment rates. As facts are now known, management believes there will
be little or no impact on net operations from PPS, although both revenues and
expenses are expected to be reduced from the levels prior to PPS. With respect
to Medicare therapy allowable cost and fee reductions, the Company estimates
that net operations was negatively impacted in 1998 and will be further
negatively impacted in 1999, but the ultimate negative impact on the Company's
operations cannot be reasonably estimated. Given the recent enactment of the
BBA, the Company is unable to predict the ultimate impact of the BBA on its
future operations. However, any reductions in government spending for long-term
health care could have an adverse effect on the operating results and cash flows
of the Company. The
-19-
<PAGE> 20
Company will attempt to maximize the revenues available to it from governmental
sources within the changes that will occur under the BBA. In addition, the
Company will attempt to increase revenues from nongovernmental sources,
including expansion of its assisted living and Canadian operations.
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 operations of the Company's six Canadian retirement
facilities (one of which is owned) and two owned Canadian nursing homes.
Although not material to the Company as a whole, 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 Company's operations 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.
IMPACT OF THE YEAR 2000
The Company has established a Year 2000 ("Y2K") compliance committee. The
committee is charged with identifying potential problems faced by the Company as
a result of Y2K and develop remedial or contingency plans in anticipation of
them. Working closely with the Company's insurance carrier, the Committee has
developed a formal, documented plan to address potential Y2K problems, which is
being implemented at this time. The plan requires assessment and preparatory
activity that is being addressed at the Company's facilities.
Management has completed the management information systems conversion with
respect to its United States nursing home operations. Included in the process of
selecting hardware and software, assurances were received from the various
vendors that their products are or will be Y2K compliant. The Company continues
to evaluate other information technology areas that may be affected including
existing hardware systems. To date, no issues of a material nature have been
identified, and the costs of ensuring compliance are not expected to have a
material impact on the Company's results of operations.
In addition, the Company has ongoing relationships with third-party payors,
suppliers, vendors, and others that may have computer systems with Y2K problems
that the Company does not control. The Company has received assurances from its
major vendors that they will not be adversely impacted by this issue. There can
be no assurance that the fiscal intermediaries and
-20-
<PAGE> 21
governmental agencies with which the Company transacts business and who are
responsible for payment to the Company under the Medicare and Medicaid programs,
as well as other payors, will not experience significant problems with Y2K
compliance. Congress' General Accounting Office ("GAO") has recently concluded
that it is highly unlikely that all Medicare systems will be compliant on time
to ensure the delivery of uninterrupted benefits and services into the year
2000. While the Company does not receive payments directly from Medicare, the
GAO statement could be interpreted as applying to intermediaries from whom the
Company does receive payment. The Company intends to actively confirm the Y2K
readiness status for each of its intermediaries and other payors. However, the
failure of the Company or third parties to be fully Y2K compliant for essential
systems and equipment by January 1, 2000 could result in interruptions of normal
business transactions.
Paying agencies are only one example of dependence of the Company on the Y2K
preparedness of other entities and vendors. Other examples include the normal
flow of patient care and nutritional supplies, utilities, communications,
banking services and therapy subcontractors. Just as with the Company's own
systems, the failure of third parties to remedy Y2K problems or the failure to
address unanticipated Y2K problems could have a material adverse effect on the
Company's business, financial condition and results of operations.
Management has reported to the Board of Directors on the Company's ability to
deal with Y2K issues. Management is mandated by the Board of Directors to
continue its evaluations of Y2K preparedness and to make periodic reports of its
assessments and plans. Contingency plans for the Company's Y2K related issues
continue to be developed, including identification of alternate suppliers and
vendors, alternate technologies, and manual systems. Management believes that it
is well-positioned to experience Y2K successfully. Management does not expect
the cost of its Y2K preparedness programs to be material. The Company is
fortunate in that the service it provides is generally custodial in nature and
lacking in a heavy dependance on highly technical biomedical equipment. However,
the worst case result of assumed non-compliance in any of several critical areas
would likely have a catastrophic impact on the Company's ability to deliver its
services to patients and residents in a safe manner and, consequently, on the
Company's results of operations. Should catastrophic events occur that are out
of the Company's control such as those described above, the magnitude of that
problem will affect not only the Company, but society as a whole.
The foregoing Y2K disclosure is intended to be a "Year 2000 statement" as the
term is defined in the Year 2000 Information and Readiness Disclosure Act of
1998 (the "Year 2000 Act"), and, to the extent such disclosure relates to Y2K
processing of the Company or to products or services offered by the Company, it
is also intended to be the "Year 2000 readiness disclosure," as that term is
defined in the Year 2000 Act.
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, 1998. Certain statements made by or on behalf of the Company,
including those contained in this "Management's Discussion and Analysis of
Financial
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<PAGE> 22
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
increased cost of borrowing under the Company's credit agreements, covenant
waivers from the Company's lenders, possible amendments to the Company's credit
agreements, the impact of future licensing surveys, 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 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) Reports on Form 8-K: None.
-22-
<PAGE> 23
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.
May 17, 1999
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
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<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C> <C>
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 INTERIM
CONSOLIDATED FINANCIAL STATEMENTS OF ADVOCAT INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q DATED FROM THE
QUARTERLY PERIOD ENDED MARCH 31, 1998
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,282
<SECURITIES> 0
<RECEIVABLES> 26,364
<ALLOWANCES> 1,856
<INVENTORY> 1,229
<CURRENT-ASSETS> 30,252
<PP&E> 83,375
<DEPRECIATION> 16,214
<TOTAL-ASSETS> 118,608
<CURRENT-LIABILITIES> 46,443
<BONDS> 0
0
0
<COMMON> 54
<OTHER-SE> 27,491
<TOTAL-LIABILITY-AND-EQUITY> 118,608
<SALES> 0
<TOTAL-REVENUES> 46,712
<CGS> 0
<TOTAL-COSTS> 46,463
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,307
<INCOME-PRETAX> 249
<INCOME-TAX> 90
<INCOME-CONTINUING> 159
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 277
<NET-INCOME> (118)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
