<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
CHECK ONE:
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 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 [ ]
5,491,693
-----------------------------------------------------------------------
(OUTSTANDING SHARES OF THE ISSUER'S COMMON STOCK AS OF JANUARY 3, 2000)
<PAGE> 2
In connection with reporting its results for the nine months ended September 30,
1999, Advocat Inc. recorded certain adjustments to its previously reported
interim results for 1999. The adjustments, all of which reduce pre-tax
operations, that affect the three and six month periods ended June 30, 1999
total $4,225,000 and $5,576,000, respectively. These adjustments are summarized
as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1999
------------- -------------
<S> <C> <C>
Increase in allowance for bad debts $2,359,000 $2,897,000
Reversal of uncollectible revenue previously
accrued 670,000 670,000
Increase in self-insurance reserves for workers'
compensation claims 158,000 520,000
Accrual of fines, penalties, and taxes 432,000 432,000
Accrual of severance benefits 275,000 275,000
Increase in inventory valuation reserve 200,000 200,000
Write-off of certain assets 3,000 192,000
Increase in depreciation expense 81,000 162,000
Recognition of costs in association with the
termination of an operating lease 0 135,000
Increase in lease expense due to reallocation of
expense over the life of a long-term lease 47,000 93,000
</TABLE>
This Report on Form 10-Q/A reflects the effect of these adjustments and certain
other balance sheet reclassifications.
The following Items are amended hereby:
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II - OTHER INFORMATION:
Item 3. Defaults Upon Senior Securities.
Item 6. Exhibits and Reports on Form 8-K.
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ADVOCAT INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------- ------------
(As Restated;
See Note 3)
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 998 $ 2,347
Receivables, less allowance for doubtful
accounts of $4,157 and $2,650,
respectively 19,518 26,289
Income taxes receivable 760 800
Inventories 1,015 1,102
Prepaid expenses and other assets 1,121 1,528
Deferred income taxes 1,569 1,719
--------- ---------
Total current assets 24,981 33,785
--------- ---------
PROPERTY AND EQUIPMENT, at cost 83,741 82,140
Less accumulated depreciation
and amortization (16,415) (15,548)
--------- ---------
Net property and equipment 67,326 66,592
--------- ---------
OTHER ASSETS:
Deferred tax benefit 7,816 6,338
Deferred financing and other costs, net 1,132 1,150
Assets held for sale or redevelopment 3,465 3,465
Investments in and receivables from joint ventures 7,943 7,194
Other 1,944 2,770
--------- ---------
Total other assets 22,300 20,917
--------- ---------
$ 114,607 $ 121,294
========= =========
</TABLE>
(Continued)
-2-
<PAGE> 3
ADVOCAT INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(As Restated;
See Note 3)
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 57,432 $ 30,126
Trade accounts payable 6,344 9,327
Accrued expenses:
Payroll and employee benefits 5,010 4,920
Interest 382 857
Self-insurance reserves 2,779 2,375
Other 2,883 2,413
-------- --------
Total current liabilities 74,830 50,018
-------- --------
NONCURRENT LIABILITIES:
Long-term debt, less current portion 6,151 33,514
Deferred gains with respect to leases, net 3,170 3,293
Self-insurance reserves, less current portion 2,000 1,665
Other 4,294 5,243
-------- --------
Total noncurrent liabilities 15,615 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
June 30, 1999 and December 31, 1998, respectively 54 54
Paid-in capital 15,765 15,765
Retained earnings 8,343 11,742
-------- --------
Total shareholders' equity 24,162 27,561
-------- --------
$114,607 $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 JUNE 30,
---------------------------
1999 1998
------------ --------
(As Restated;
See Note 3)
<S> <C> <C>
REVENUES:
Patient revenues $34,352 $ 43,108
Resident revenues 9,323 8,629
Management fees 877 906
Interest 38 55
------- --------
Net revenues 44,590 52,698
------- --------
EXPENSES:
Operating 38,033 42,131
Lease 5,003 4,809
General and administrative 3,155 2,730
Interest 1,325 1,254
Depreciation and amortization 1,147 832
Non-recurring charges -0- 1,468
------- --------
Total expenses 48,663 53,224
------- --------
LOSS BEFORE INCOME TAXES (4,073) (526)
INCOME TAX BENEFIT (1,466) (189)
------- --------
NET LOSS $(2,607) $ (337)
======= ========
BASIC EARNINGS PER SHARE:
Net loss $ (.48) $ (.06)
======= ========
DILUTED EARNINGS PER SHARE
Net loss $ (.48) $ (.06)
======= ========
WEIGHTED AVERAGE SHARES:
Basic 5,399 5,377
======= ========
Diluted 5,399 5,377
======= ========
</TABLE>
The accompanying notes are an integral part of these
interim consolidated financial statements.
-4-
<PAGE> 5
ADVOCAT INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, AND UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 1998
------------- ---------
(As Restated;
See Note 3)
<S> <C> <C>
REVENUES:
Patient revenues $ 71,206 $ 84,946
Resident revenues 18,227 17,334
Management fees 1,796 1,812
Interest 73 99
-------- ---------
Net revenues 91,302 104,191
-------- ---------
EXPENSES:
Operating 75,756 83,383
Lease 9,904 9,563
General and administrative 5,890 5,456
Interest 2,632 2,499
Depreciation and amortization 2,295 1,794
Non-recurring charges -0- 1,468
-------- ---------
Total expenses 96,477 104,163
-------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (5,175) 28
PROVISION (BENEFIT) FOR INCOME TAXES (1,863) 10
-------- ---------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE (3,312) 18
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE, NET OF TAX (277) -0-
-------- ---------
NET INCOME (LOSS) $ (3,589) $ 18
======== =========
BASIC EARNINGS PER SHARE:
Income (loss) before accounting change $ (.61) $ .00
Cumulative effect of change in accounting principle, net of tax (.05) .00
-------- ---------
Net income (loss) $ (.66) $ .00
======== =========
DILUTED EARNINGS PER SHARE
Income (loss) before accounting change $ (.61) $ .00
Cumulative effect of change in accounting principle, net of tax (.05) $ .00
-------- ---------
Net income (loss) $ (.66) $ .00
======== =========
WEIGHTED AVERAGE SHARES:
Basic 5,399 5,377
======== =========
Diluted 5,399 5,391
======== =========
</TABLE>
The accompanying notes are an integral part of these
interim consolidated financial statements.
-5-
<PAGE> 6
ADVOCAT INC.
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS AND UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1999 1998 1999 1998
------------ ----- ------------ -----
(As Restated; (As Restated;
See Note 3) See Note 3)
<S> <C> <C> <C> <C>
NET INCOME (LOSS) $(2,607) $(337) $(3,589) $ 18
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustments 223 (162) 297 (125)
Income tax (expense) benefit (80) 58 (107) 45
------ ----- ------ -----
143 (104) 190 (80)
------ ----- ------ -----
COMPREHENSIVE INCOME (LOSS) $(2,464) $(441) $(3,399) $ (62)
====== ===== ====== =====
</TABLE>
The accompanying notes are an integral part of these
interim consolidated financial statements.
-6-
<PAGE> 7
ADVOCAT INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS AND UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 1998
------- ------
(As Restated,
See Note 3)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(3,589) $ 18
Items not involving cash:
Depreciation and amortization 2,295 1,795
Provision for doubtful accounts 3,307 786
Equity (earnings) loss in joint ventures 28 (42)
Amortization of deferred balances (62) (278)
Deferred income taxes (1,435) (360)
Write off pursuant to change in accounting principle 433 -0-
Non-recurring charge write-off -0- 1,028
Changes in other assets and liabilities:
Receivables, net 3,207 (2,332)
Inventories 86 34
Prepaid expenses and other assets 377 (478)
Trade accounts payable and accrued expenses (1,893) 2,446
Other (44) 47
------- ------
Net cash provided from operating activities 2,710 2,664
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (2,573) (2,737)
Investment in TDLP (160) (632)
Mortgages receivable, net 152 (305)
Deposits, pre-opening costs and other (360) (435)
Investment in and advances to joint ventures, net (449) (1,345)
TDLP partnership distributions 151 152
------- ------
Net cash used in investing activities (3,239) (5,302)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt obligations 26,183 -0-
Repayment of debt obligations (24,973) (411)
Net proceeds from (repayment of) bank line of credit (1,497) 2,908
Advances to TDLP, net (138) (815)
Increase in lease obligations 93 -0-
Financing costs (488) (68)
------- ------
Net cash provided from financing activities (820) $1,614
------- ------
</TABLE>
(Continued)
-7-
<PAGE> 8
ADVOCAT INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS AND UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 1998
-------------- -------
(As Restated,
See Note 3)
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $(1,349) $(1,024)
CASH AND CASH EQUIVALENTS, beginning of period 2,347 2,673
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 998 $ 1,649
======= =======
SUPPLEMENTAL INFORMATION:
Cash payments of interest $ 3,106 $ 2,362
======= =======
Cash payments (refunds) of income taxes, net $ (623) $ 637
======= =======
</TABLE>
During the second quarter of 1999, the Company's executive benefit plan was
terminated. In connection therewith, Advocat distributed net benefit plan
deposits and relieved net benefit plan liabilities of $1,163,000 in the six
months ended June 30, 1999. Advocat received net benefit plan deposits and
earnings and recorded net benefit plan liabilities of $286,000 in the six month
period ended June 30, 1998.
The accompanying notes are an integral part of these
interim consolidated financial statements.
-8-
<PAGE> 9
ADVOCAT INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
1. BUSINESS
Advocat Inc. (together with its subsidiaries, "Advocat" or the "Company") is a
provider of long-term care services to the elderly. The Company operates
nursing homes and assisted living facilities in 12 Southeastern states and three
Canadian provinces.
As of June 30, 1999, the Company operates 122 facilities consisting of 65
nursing homes with 7,307 licensed beds and 57 assisted living facilities with
5,295 units. The Company owns seven nursing homes, leases 36 others, and manages
22 nursing homes. The Company owns 17 assisted living facilities, leases 27
others, and manages 13 assisted living facilities. The Company holds a minority
equity interest in six of these managed assisted living facilities. The Company
operates 51 nursing homes and 36 assisted living facilities in the United States
and 14 nursing homes and 21 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,
Virginia, West Virginia and the Canadian provinces of Ontario, British Columbia,
and Alberta.
2. BASIS OF FINANCIAL STATEMENTS
The interim consolidated financial statements for the three and six month
periods ended June 30, 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 consolidated financial statements reflect all adjustments necessary to
present fairly the financial position at June 30, 1999 and the results of
operations for the three and six month periods ended June 30, 1999, and the cash
flows for the six month periods ended June 30, 1999 and 1998.
The results of operations for the three and six month periods ended June 30,
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 as well as those included in the Company's Report on Form 10-Q/A for the
three and nine months ended September 30, 1999.
3. RESTATEMENT
In connection with reporting its results for the nine months ended September 30,
1999, the Company recorded certain adjustments to its previously reported
interim results for 1999. The adjustments, all of which reduce pre-tax
operations, that affect the three and six month periods ended June 30, 1999
total $4,225,000 and $5,576,000, respectively. Certain financial information,
both before and after the effect of the adjustments and certain
reclassifications, is summarized as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 1999 June 30, 1999
------------- -------------
<S> <C> <C>
Income before income taxes and cumulative effect
of change in accounting principle
(as previously reported) $ 152,000 $ 401,000
Adjustments:
Increase in allowance for bad debts (2,359,000) (2,897,000)
Reversal of uncollectible revenue
previously accrued (670,000) (670,000)
Increase in self-insurance reserves for
workers' compensation claims (158,000) (520,000)
Accrual of fines, penalties, and taxes (432,000) (432,000)
Accrual of severance benefits (275,000) (275,000)
Increase in inventory valuation reserve (200,000) (200,000)
Write-off of certain assets (3,000) (192,000)
Increase in depreciation expense (81,000) (162,000)
Recognition of costs in association with
the termination of an operating lease 0 (135,000)
Increase in lease expense due to
reallocation of expense over the
life of a long-term lease (47,000) (93,000)
----------- -----------
Loss before income taxes and cumulative
effect of change in accounting
principle (as restated) ($ 4,073,000) ($5,175,000)
============ ===========
Net income (loss) (as previously reported) $ 97,000 ($ 21,000)
============ ===========
Net loss (as restated) ($ 2,607,000) ($3,589,000)
============ ===========
Income (loss) per common share (as previously
reported) $ .02 ($ .00)
============ ===========
Loss per common share (as restated) ($ .48) ($ .66)
============ ===========
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999
-------------
<S> <C>
Total shareholders' equity
(as previously reported) $ 27,731,000
=============
Total shareholders' equity (as restated) $ 24,162,000
=============
Total assets (as previously reported) $ 116,709,000
=============
Total assets (as restated) $ 114,607,000
=============
</TABLE>
-9-
<PAGE> 10
4. 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 statements of operations.
5. EARNINGS PER SHARE
Information with respect to the calculation of basic and diluted earnings per
share data follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------- -----------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
(As Restated; (As Restated;
See Note 3) See Note 3)
<S> <C> <C> <C> <C>
NUMERATOR:
Income (loss) before cumulative effect
of change in accounting principle $ (2,607,000) $ (337,000) $ (3,312,000) $ 18,000
Cumulative effect of change in
accounting principle, net of tax -0- -0- (277,000) -0-
------------- ------------- ------------- -------------
Net income (loss) $ (2,607,000) $ (337,000) $ (3,589,000) $ 18,000
============= ============= ============= =============
DENOMINATOR:
Basic average shares outstanding 5,399,000 5,377,000 5,399,000 5,377,000
Employee stock purchase plan N/A(1) N/A(1) N/A(1) 13,000
Options N/A(1) N/A(1) N/A(1) 1,000
------------- ------------- ------------- -------------
Diluted average shares outstanding 5,399,000 5,377,000 5,399,000 5,391,000
============= ============= ============= =============
BASIC EARNINGS (LOSS) PER SHARE:
Income (loss) before accounting change $ (.48) $ (.06) $ (.61) $ .00
Cumulative effect of change in
accounting principle, net of tax .00 .00 (.05) .00
------------- ------------- ------------- -------------
Net income (loss) $ (.48) $ (.06) $ (.66) $ .00
============= ============= ============= =============
DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) before accounting change $ (.48) $ (.06) $ (.61) $ .00
Cumulative effect of change in accounting
principle, net of tax .00 $ .00 (.05) .00
------------- ------------- ------------- -------------
Net income (loss) $ (.48) $ (.06) $ (.66) $ .00
============= ============= ============= =============
</TABLE>
- -----------------
(1) Not applicable since inclusion would be anti-dilutive.
-10-
<PAGE> 11
6. 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 JUNE 30, SIX MONTHS ENDED JUNE 30,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Foreign currency items:
Beginning balance $(365,000) $(172,000) $(412,000) $(196,000)
Current period change, net of income tax 143,000 (104,000) 190,000 (80,000)
--------- --------- --------- ---------
Ending balance $(222,000) $(276,000) $(222,000) $(276,000)
========= ========= ========= =========
</TABLE>
Positive amounts represent unrealized gains and negative amounts represent
unrealized losses.
7. NON-RECURRING CHARGES
During the quarter ended June 30, 1998, the Company recorded non-recurring
charges in the amount of $1.5 million. Of this amount, $1.0 million was a
restructuring charge related to the Company's management information system
conversion with respect to its U.S. nursing homes. Pursuant to this conversion,
the Company abandoned much of its existing software and dismantled much of its
regional infrastructure in favor of a centralized accounting organization. This
restructuring charge represented the costs associated with the closing of
certain regional offices, severance packages for affected personnel, the
write-off of capitalized software costs, and other costs related to the systems
being replaced. In addition to the restructuring charge, the Company also
recognized costs associated with the write-off of prospective financing
arrangements or acquisitions, each of which had been abandoned during the
quarter, and costs related to legal issues that were settled during the quarter.
-11-
<PAGE> 12
8. 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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
(IN THOUSANDS) 1999 1998 1999 1998
------ ------ ------ ------
(As Restated; (As Restated;
See Note 3 See Note 3
<S> <C> <C> <C> <C>
Net revenues:
U.S. nursing homes $ 33,820 $ 42,690 $ 70,336 $ 84,137
U.S. assisted living facilities 7,057 6,248 13,679 12,554
Canadian operations 3,710 3,759 7,337 7,497
Corporate 237 239 420 479
Eliminations (234) (238) (470) (476)
-------- -------- -------- --------
Total $ 44,590 $ 52,698 $ 91,302 $104,191
======== ======== ======== ========
Depreciation and amortization:
U.S. nursing homes $ 595 $ 405 $ 1,192 $ 946
U.S. assisted living facilities 443 311 885 617
Canadian operations 90 89 175 177
Corporate 19 27 43 54
Eliminations -0- -0- -0- -0-
-------- -------- -------- --------
Total $ 1,147 $ 832 $ 2,295 $ 1,794
======== ======== ======== ========
Operating income (loss):
U.S. nursing homes $ (3,798) $ 265 $ (5,059) $ 589
U.S. assisted living facilities (228) 154 (175) 254
Canadian operations 414 517 810 990
Corporate (461) (1,462) (751) (1,805)
Eliminations -0- -0- -0- -0-
-------- -------- -------- --------
Total $ (4,073) $ (526) $ (5,175) $ 28
======== ======== ======== ========
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
(As Restated;
See Note 3
Long-lived assets:
U.S. nursing homes $ 55,482 $ 56,396
U.S. assisted living facilities 33,764 33,987
Canadian operations 12,809 10,536
Corporate 22,537 21,725
Eliminations (34,965) (35,135)
-------- --------
Total $ 89,626 $ 87,509
======== ========
Total assets:
U.S. nursing homes $ 79,943 $ 88,473
U.S. assisted living facilities 37,084 36,926
Canadian operations 15,695 13,718
Corporate 25,025 24,909
Eliminations (43,140) (42,732)
-------- --------
Total $114,607 $121,294
======== ========
</TABLE>
9. SUBSEQUENT EVENT - DEBT COVENANT COMPLIANCE
Certain of 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 June 30, 1999, the Company was not in compliance with these covenants, but
received informal waivers from its lenders. However, as of both December 31,
1999 and through the date of the filing of this Report on form 10-Q/A, the
Company was not in compliance with the covenants. Cross-default or material
adverse change provisions contained in the agreements allow the holders of a
majority of the Company's debt to demand immediate repayment. Although the
noncompliance and resulting actions have not been formally or informally
declared by the lenders, the Company has not obtained waivers of the
noncompliance. Based on regularly scheduled debt service requirements and
reflective of certain refinancings and extensions that have taken place
subsequent to June 30, 1999, the Company has a total of $28.3 million of debt
that must be repaid or refinanced in the next 12 months from June 30, 1999.
However, as a result of the covenant noncompliance and other cross-default
provisions, the Company has classified a total of $57.4 million of debt as
current liabilities as of June 30, 1999. The company would not be able to repay
the total amount of its outstanding indebtedness if the applicable lenders
forced immediate repayment.
The accompanying interim consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. Although it is not
anticipated that the Company's lenders will demand immediate repayment, the
continued forbearance on the part of the Company's lenders cannot be assured at
this time. In addition, the Company is not in compliance at December 31, 1999
with the financial covenants applicable to the lease agreements covering a
majority of its United States nursing facilities. Under the agreements, the
lessor has the right to terminate the lease agreements and seek recovery of any
relate financial losses. At a minimum, the Company's cash requirements over the
next 12 months include funding operations, capital expenditures, scheduled debt
service, and other working capital requirements. No assurance can be given that
the Company will have sufficient cash to meet its cash requirements for the next
12 months. The Company is currently discussing potential restructuring and
refinancing alternatives with its lenders and primary lessor. No assurance can
be given that the Company will be successful in negotiating waivers, amendments,
or refinancings of outstanding debt or lease commitments, or that the Company
will be able to meet any amended financial covenants in the future. If the
Company is unable to generate sufficient cash flow from its operations or
successfully negotiate debt or lease amendments, it will explore a variety of
other options, including but not limited to other sources of financings, asset
dispositions, or relief under the United States Bankruptcy code. The
accompanying interim consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
carrying amounts or the amounts and classification of liabilities that might
result should the Company be unable to continue as a going concern.
-12-
<PAGE> 13
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")
provides long-term care services to nursing home patients and residents of
assisted living facilities in 12 Southeastern states and three 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 offers a
variety of comprehensive rehabilitation services as well as medical supply and
nutritional support services.
As of June 30, 1999, Advocat's portfolio includes 122 facilities composed of 65
nursing homes containing 7,307 licensed beds and 57 assisted living facilities
containing 5,295 units. In comparison, at June 30, 1998, the Company operated
116 facilities composed of 64 nursing homes containing 7,221 licensed beds and
52 assisted living facilities containing 4,980 units. As of June 30, 1999, the
Company owns seven nursing homes, leases 36 others, and manages the remaining 22
nursing homes. Additionally, the Company owns 17 assisted living facilities,
leases 27 others, and manages the remaining 13 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 51 nursing homes and 36
assisted living facilities, and in Canada, the Company operates 14 nursing homes
and 21 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.
-13-
<PAGE> 14
RESULTS OF OPERATIONS
The following tables present the unaudited interim statements of operations and
related data for the three and six months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
(IN THOUSANDS) THREE MONTHS ENDED JUNE 30,
---------------------------
1999 1998 CHANGE %
-------- --------- -------- ------
(As Restated)
<S> <C> <C> <C> <C>
REVENUES:
Patient revenues $ 34,352 $ 43,108 $ (8,756) (20.3)
Resident revenues 9,323 8,629 694 8.0
Management fees 877 906 (29) (3.2)
Interest 38 55 (17) (30.9)
-------- --------- --------
Net revenues 44,590 52,698 (8,108) (15.4)
-------- --------- --------
EXPENSES:
Operating 38,033 42,131 (4,098) (9.7)
Lease 5,003 4,809 194 4.0
General and administrative 3,155 2,730 425 15.6
Interest 1,325 1,254 71 5.6
Depreciation and amortization 1,147 832 315 37.8
Non-recurring charges -0- 1,468 (1,468) (100.0)
-------- --------- --------
Total expenses 48,663 53,224 (4,561) (8.6)
-------- --------- --------
LOSS BEFORE INCOME TAXES (4,073) (526) (3,547) N/A
INCOME TAX BENEFIT (1,466) (189) (1,277) N/A
-------- --------- --------
NET LOSS $ (2,607) $ (337) $ (2,270) N/A
======== ========= ========
<CAPTION>
(IN THOUSANDS) SIX MONTHS ENDED JUNE 30,
---------------------------
1999 1998 CHANGE %
-------- --------- -------- ------
(As Restated)
<S> <C> <C> <C> <C>
REVENUES:
Patient revenues $ 71,206 $ 84,946 $(13,740) (16.2)
Resident revenues 18,227 17,334 893 5.2
Management fees 1,796 1,812 (16) (0.8)
Interest 73 99 (26) (26.6)
-------- --------- --------
Net revenues 91,302 104,191 (12,889) (12.4)
-------- --------- --------
EXPENSES:
Operating 75,756 83,383 (7,627) (9.1)
Lease 9,904 9,563 341 3.6
General and administrative 5,890 5,456 434 8.0
Interest 2,632 2,499 133 5.3
Depreciation and amortization 2,295 1,794 501 27.9
Non-recurring charges -0- 1,468 (1,468) (100.0)
-------- --------- --------
Total expenses 96,477 104,163 (7,686) (7.1)
-------- --------- --------
INCOME (LOSS) BEFORE INCOME TAXES (5,175) 28 (5,203) N/A
PROVISION (BENEFIT) FOR INCOME TAXES (1,863) 10 (1,873) N/A
-------- --------- --------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (3,312) 18 (3,330) N/A
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE,
NET OF TAX (277) -0- (277) N/A
-------- --------- --------
NET INCOME (LOSS) $ (3,589) $ 18 $ (3,607) N/A
======== ========= ========
</TABLE>
-14-
<PAGE> 15
<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUES Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1999
(As Restated) 1998 (As Restated) 1998
----------- ----- ----------- -----
<S> <C> <C> <C> <C>
REVENUES:
Patient revenues 77.0% 81.8% 78.0% 81.5%
Resident revenues 20.9 16.4 19.9 16.7
Management fees 2.0 1.7 2.0 1.7
Interest 0.1 0.1 0.1 0.1
----- ----- ----- -----
Net revenues 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
OPERATING EXPENSES:
Operating 85.3 79.9 83.0 80.0
Lease 11.2 9.1 10.8 9.2
General and administrative 7.1 5.2 6.4 5.3
Interest 3.0 2.4 2.9 1.7
Depreciation and amortization 2.5 1.6 2.5 2.4
Non-recurring charges 0.0 2.8 0.0 1.4
----- ----- ----- -----
Total expenses 109.1 101.0 105.6 100.0
----- ----- ----- -----
INCOME (LOSS) BEFORE INCOME TAXES (9.1) (1.0) (5.6) 0.0
PROVISION (BENEFIT) FOR INCOME TAXES (3.3) (0.4) (2.0) 0.0
----- ----- ----- -----
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (5.8) (0.6) (3.6) 0.0
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE,
NET OF TAX 0.0 0.0 (0.3) 0.0
----- ----- ----- -----
NET INCOME (LOSS) (5.8)% 0.6% (3.9)% 0.0
===== ===== ===== =====
</TABLE>
GENERAL
Medicare and Other 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
four-year phase-in 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 reduced operating
expenses in 1999 in an effort to offset the revenue reductions resulting from
PPS. The phase-in of PPS began for all providers at some point during the
12 month period ending June 30, 1999. Management estimates that the ultimate
impact of PPS on Company revenues will be a reduction of $16.0 to $17.0 million
per year. Since the onset of PPS, management has reduced costs in response to
PPS such that there has been little direct impact on net operations. However,
the Company's Medicare census has declined significantly as an indirect result
of PPS and other reimbursement changes, which has resulted in a reduction in the
amount of the Company's overhead absorbed by the Company's Medicare operations.
Since PPS is still an evolving process, the ultimate impact cannot be known with
certainty at this time.
Cost restrictions placed on the provision of rehabilitation (ancillary)
services have been significant. 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. In 1999, the cost reimbursement
system for rehabilitation services has been replaced by a system of fee
screens that effectively limit reimbursement and place caps on the maximum fees
that may be charged for therapy services. Historically, the Company
subcontracted the provision of these therapy services. However, in response to
the deep cuts in fees for service, the Company's therapy subcontractor exited
the business. And in June 1999, the Company began providing such services in
house. The Company anticipates that this will further negatively impact
operations, although the ultimate effect cannot yet be reasonably estimated.
These changes with respect to Part B reimbursement have combined to cause a
dramatic decrease in the Company's ancillary revenues and expenses. In general,
the Company has been successful in reducing costs in tandem with the revenue
reductions from the provision of therapy services. However, the Company has
assumed more operating risk in electing to provide therapy services for its own
account. The Company also believes that it and the industry have experienced
occupancy declines as doctors have kept patients in hospitals rather than
allowing their admittance to nursing homes where therapy services are now
limited.
These changes are endemic upon the industry. They have resulted pursuant to the
administrative implementation of the guidelines contained in the Balanced
Budget Act of 1997 (the "BBA"). Under the BBA, Medicare expenditures by the
Federal government have been cut approximately 20%. This has been a sudden,
drastic blow to the industry. Other providers who relied more heavily on the
provision of services to higher acuity patients have been impacted more
severely than the Company. There have been several major bankruptcy filings.
Without remediation, the long-term effect on the industry is expected to be
catastrophic. As the impact of these changes upon both providers and
beneficiaries has become known, there has been growing political awareness of a
need to re-examine the drastic cuts that have been implemented. On November 29,
1999 President Clinton signed into law a budget agreement that restores over
three years $2.7 billion in Medicare funding. The bill contains several
components that become effective at various times over the three year period. As
a result of the legislation, individual nursing facilities will have the option,
for cost reporting years beginning after December 29, 1999, of continuing under
the current PPS transition formula or adopting the full federal PPS per diem. In
addition, the measure provides a two-year moratorium on the Part B therapy caps
beginning January 1, 2000, and it also provides increases in the per diems for
the care of certain groups of patients. The Company is continuing to evaluate
the impact of the legislation on its operations. There is also movement that may
result in the institution of administrative changes that would restore
additional revenues to the U.S. nursing home industry. While such activity is
positive, there is no expectation by management that the current round of
legislative and administrative relief under consideration is sufficient to
restore the economic viability the industry needs.
-15-
<PAGE> 16
Non-Recurring Charges. During the quarter ended June 30, 1998, the Company
recorded non-recurring charges in the amount of $1.5 million. Of this amount,
$1.0 million was a restructuring charge related to the Company's management
information system conversion with respect to its U.S. nursing homes. Pursuant
to this conversion, the Company abandoned much of its existing software and
dismantled much of its regional infrastructure in favor of a centralized
accounting organization. This restructuring charge represented the costs
associated with the closing of certain regional offices, severance packages for
affected personnel, the write-off of capitalized software costs, and other costs
related to the systems being replaced. In addition to the restructuring charge,
the Company also recognized costs associated with the write-off of prospective
financing arrangements or acquisitions, each of which had been abandoned during
the quarter, and costs related to legal issues that were settled during the
quarter.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1998
Revenues. Net revenues decreased to $44.6 million in 1999 from $52.7 million in
1998, a decrease of $8.1 million, or 15.4%. Resident revenues increased to $9.3
million in 1999 from $8.6 million in 1998, an increase of $694,000, or 8.0%.
Patient revenues decreased to $34.4 million in 1999 from $43.1 million in 1998,
a decrease of $8.7 million, or 20.3%. This decrease in patient revenues is due
primarily to the Medicare reimbursement changes and a decline in Medicare
census. In addition, effective April 1, 1999, the Company stopped operating a
facility it had previously leased; this facility provided $1.7 million in
comparable revenues that were not repeated in 1999. The Company recorded
$670,000 in negative revenue adjustments in connection with its West Virginia
operations. Certain claims had been denied in prior years by the third party
intermediary. In 1999, the Company abandoned its efforts to get these claims
approved. There was a 6.2% decline in patient and resident days, approximately
38,000 days, which was primarily due to decreases in the nursing home segment.
Approximately 12,000 of this decline in days related to the terminated lease.
There was a 34.0% decline in Medicare days, approximately 11,000 days, and
reductions of approximately 10,000 days each among Medicaid and private-pay
patients. This decline in Medicare days accounts for approximately $3.4 million
of the overall revenue reduction. As a percent of patient and resident revenues,
Medicare decreased to 13.5% in 1999 from 25.8% in 1998 while Medicaid and
similar programs increased to 67.8% in 1999 from 55.1% in 1998.
-16-
<PAGE> 17
Ancillary service revenues, prior to contractual allowances, decreased to $5.9
million in 1999 from $17.3 million in 1998, a decrease of $11.4 million or
65.9%. 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 $38.0 million in 1999 from
$42.1 million in 1998, a decrease of $4.1 million, or 9.7%. 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 costs to provide them). As a percent of patient and resident
revenues, operating expense increased to 87.1% in 1999 from 81.4% in 1998. The
largest component of operating expense is wages, which remained flat at about
$18.9 million in both the 1999 and 1998 periods. The Company's wage increases
are generally in line with inflation. The Company has been able to reduce
staffing at certain facilities that have experienced occupancy declines. The
Company's provision for bad debts increased to $2.6 million in 1999 from
$363,000 in 1998, an increase of $2.3 million, or 622.9% as the Company more
aggressively reserved against its older receivables. It is generally recognized
that the regulatory environment in which nursing homes operate has become more
restrictive. In 1999, the Company incurred approximately $350,000 in fines and
penalties as compared to approximately $25,000 in the prior period.
Lease Expense. Lease expense increased to $5.0 million in 1999 from $4.8 million
in 1998, an increase of $194,000, or 4.0%. Adjustments in the Company's lease
agreements are generally tied to inflation.
General and Administrative Expense. General and administrative expense increased
to $3.1 million in 1999 from $2.7 million in 1998, an increase of $425,000, or
15.6%. As a percent of total net revenues, general and administrative expense
increased to 7.1% in 1999 compared with 5.2% in 1998. The percentage increase is
primarily attributable to the lower revenue base, however, the 1999 period also
includes a provision of $275,000 for severance benefits for Mary Margaret
Hamlett.
Interest Expense. Interest expense increased to $1.3 million in 1999 from $1.2
million in 1998, an increase of $71,000, or 5.6%.
Depreciation and Amortization. Depreciation and amortization expenses increased
to $1.1 million in 1999 from $832,000 in 1998, an increase of $315,000, or
37.8%.
Non-Recurring Charges. The Company incurred $1.5 million in charges in 1998 that
were not repeated in 1999.
Income (Loss) Before Income Taxes; Net Income (Loss); Earnings (Loss) Per Share.
As a result of the above, the loss before income taxes was $(4.1) million in
1999 as compared with a loss of $(526,000) in 1998, a decrease of $3.5 million.
The effective combined federal, state and provincial income tax rate was 36.0%
in both 1999 and 1998. The net loss was $(2.6) million in 1999 as compared with
a net loss of $(337,000) in 1998, a decrease of $2.3 million, and basic and
diluted earnings per share were each, a loss of $(.48) in 1999 as compared with
a loss of $(.06) per share in 1998.
-17-
<PAGE> 18
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1998
Revenues. Net revenues decreased to $91.3 million in 1999 from $104.2 million in
1998, a decrease of $12.9 million, or 12.4%. Resident revenues increased to
$18.2 million in 1999 from $17.3 million in 1998, an increase of $893,000, or
5.2%. Patient revenues decreased to $71.2 million in 1999 from $85.0 million in
1998, a decrease of $13.8 million, or 16.2%. This decrease in patient revenues
is due primarily to the Medicare reimbursement changes and a decline in Medicare
census. In addition, effective April 1, 1999, the Company stopped operating a
facility it had previously leased; this facility provided $1.7 million in
comparable revenues that were not repeated in 1999. The Company recorded
$670,000 in negative revenue adjustments in connection with its West Virginia
operations. Certain claims had been denied in prior years by the third party
intermediary. In 1999, the Company abandoned its efforts to get these claims
approved. There was a 4.3% decline in patient and resident days, approximately
52,000 days, which was primarily due to decreases in the nursing home segment.
Approximately 12,000 of this decline in days related to the terminated lease.
There was a 35.6% decline in Medicare days, approximately 23,000 days, and
reductions of approximately 10,000 and 6,000 among private-pay and Medicaid
patients, respectively. This decline in Medicare days accounts for approximately
$7.6 million of the overall revenue reduction. As a percent of patient and
resident revenues, Medicare decreased to 14.7% in 1999 from 25.8% in 1998 while
Medicaid and similar programs increased to 66.6% in 1999 from 55.3% in 1998.
Ancillary service revenues, prior to contractual allowances, decreased to $13.6
million in 1999 from $34.0 million in 1998, a decrease of $20.4 million or
60.0%. 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 $75.8 million in 1999 from
$83.4 million in 1998, a decrease of $7.6 million, or 9.1%. 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 increased to 84.7% in 1999 from 81.5% in
1998. The largest component of operating expense is wages, which increased to
$37.6 million in 1999 from $37.4 million in 1998, an increase of $156,000, or
0.4%. The Company's wage increases are generally in line with inflation. The
Company has been able to reduce staffing at certain facilities that have
experienced occupancy declines. The Company's provision for bad debts increased
to $3.4 million in 1999 from $815,000 in 1998, an increase of $2.6 million or
317.9% as the Company more aggressively reserved against its older receivables.
It is generally recognized that the regulatory environment in which nursing
homes operate has become more restrictive. In 1999, the Company incurred
approximately $350,000 in fines and penalties as compared to approximately
$50,000 in the prior period. The Company is self-insured for certain workers'
compensation claims incurred prior to May 1997. Due to the continued development
of open claims beyond previous evaluations, the Company recognized a charge of
$520,000 to provide sufficient reserve to cover the expected liability for these
claims. The Company also wrote off $192,000 of miscellaneous assets.
Lease Expense. Lease expense increased to $9.9 million in 1999 from $9.6 million
in 1998, an increase of $341,000, or 3.6%. Adjustments in the Company's lease
agreements are generally tied to inflation.
General and Administrative Expense. General and administrative expense increased
to $5.9 million in 1999 from $5.5 million in 1998, an increase of $434,000, or
8.0%. As a percent of total net revenues, general and administrative expense
increased to 6.4% in 1999 compared with 5.3% in 1998. The percentage increase is
attributable to the lower revenue base. The 1999 period also includes $275,000
in severance benefits for Mary Margaret Hamlett.
Interest Expense. Interest expense increased to $2.6 million in 1999 from $2.5
million in 1998, an increase of $133,000, or 5.3%.
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<PAGE> 19
Depreciation and Amortization. Depreciation and amortization expenses increased
to $2.3 million in 1999 from $1.8 million in 1998, an increase of $501,000, or
27.9%.
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.
Non-Recurring Charges. The Company incurred $1.5 million in charges in 1998 that
were not repeated in 1999.
Income Before Income Taxes; Net Income (Loss); Earnings (Loss) Per Share. As a
result of the above, the loss before income taxes and the cumulative effect of
the change in accounting principle was $(5.2) million in 1999 as compared with
income of $28,000 in 1998, a decrease of $5.2 million. The effective combined
federal, state and provincial income tax rate was 36.0% in both 1999 and 1998.
The net loss after taxes and the cumulative effect of the change in accounting
principle was $(3.6) million in 1999 as compared with net income of $18,000 in
1998, a decrease of $3.6 million, and basic and diluted earnings (loss) per
share were each a loss of ($.66) in 1999 compared to each being .00 in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Certain of 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 June 30, 1999, the Company was not in compliance with these covenants, but
received informal waivers from its lenders. However, as of both December 31,
1999 and through the date of the filing of this Report on Form 10-Q/A, the
Company was not in compliance with the covenants. Cross-default or material
adverse change provisions contained in the agreements allow the holders of a
majority of the Company's debt to demand immediate repayment. Although the
noncompliance and resulting actions have not been formally or informally
declared by the lenders, the Company had not obtained waivers of the
noncompliance. Based on regularly scheduled debt service requirements and
reflective of certain refinancings and extensions that have taken place
subsequent to June 30, 1999, the Company has a total of $28.3 million of debt
that must be repaid or refinanced in the next 12 months from June 30, 1999.
However, as a result of the covenant noncompliance and other cross-default
provisions, the Company has classified a total of $57.4 million of debt as
current liabilities as of June 30, 1999. The Company would not be able to repay
the total amount of its outstanding indebtedness if the applicable lenders
forced immediate repayment.
At June 30, 1999 and December 31, 1998, the Company had negative working capital
of $(49.8) million and $(16.2) million, respectively, and the current ratio was
0.3 and 0.7, respectively. The negative working capital results primarily from
the Company's classification of a majority of its debt as current liabilities as
of June 30, 1999 and the Company's current maturities of long-term debt at
December 31, 1998.
Net cash provided by operating activities totaled $2.7 million in each of the
six month periods ended June 30, 1999 and 1998. 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 $3.2 million and $5.3 million in
the six months periods ended June 30, 1999 and 1998, respectively. These amounts
primarily represent purchases of property plant and equipment, investments in
and 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.
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<PAGE> 20
Net cash provided (used) by financing activities totaled $(820,000) and $1.6
million in the six month periods ended June 30, 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 June 30, 1999, the Company had total debt outstanding of $63.6 million, of
which $36.5 million was principally mortgage debt bearing interest, generally 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 $9.4 million. The Company's
remaining debt of $17.7 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").
On June 4, 1999, the Company closed two loans totaling $25.25 million (the "NC
Loans"). The NC Loans are secured by the 13 owned assisted living facilities the
Company operates in the state of North Carolina. The NC Loans mature in June
2002, bear interest at LIBOR plus 2.35%, and provide for principal amortization
under a 25-year amortization schedule. As of June 30, 1999 and January 3, 2000,
the outstanding balances under the NC Loans were approximately $25.2 million and
$25.1 million, respectively, and the interest rates were 7.6% and 8.2%,
respectively.
The Bridge Loan had an original indebtedness of $34.1 million. It was used to
fund the purchase of the Company's North Carolina assisted living operations,
which purchase closed on September 30, 1997. The net proceeds available upon
closing of the NC Loans, $24.7 million, was applied against the Company's
indebtedness under the Bridge Loan. With the application of the net proceeds
from the NC Loans, the balance of the Bridge Loan was reduced to $9.4 million.
Prior to the principal reduction, the Bridge Loan had a maturity date of July 1,
1999, carried interest at LIBOR plus 3.0%, and had a restriction against
pledging the North Carolina assets as collateral with any other lender. With the
reduction in the principal balance, the Company and its lenders agreed to modify
the terms of the Bridge Loan by extending the stated maturity date to October 1,
1999 (since extended to February 28, 2000), increasing the interest rate to
12.0% fixed, and providing certain security interests to the lenders. These
security interests include two non-operating properties in North Carolina and
the Company's limited partnership interests in TDLP. No further principal
reductions have been made or are scheduled at this time, but the Company has
agreed to apply against the Bridge Loan indebtedness any net proceeds realized
from the sale of the collateral comprising the additional security interests.
As of June 30, 1999, the Company had drawn $2.6 million, had $5.65 million of
letters of credit outstanding, and had $1.7 million remaining borrowing
capability under its working capital line of credit. As of January 3, 2000, the
Company had drawn $1.0 million, had $5.6 million of letters of credit
outstanding, and had $1.8 million remaining borrowing capability under its
working capital line of credit. The interest rates applicable at June 30, 1999
and January 3, 2000, were 7.6% and 9.0%, respectively. The working capital line
of credit matured December 1, 1999, but was not called, having been eventually
extended to February 28, 2000 by the lender. A further extension of the existing
agreement or a replacement working capital line of credit is currently being
negotiated with the existing bank lender.
Since early 1998, the Company's bank lender has provided additional line of
credit availability (the "Overline"). Availability under the Overline began at
$1.25 million and was increased over time to its maximum level of $4.0 million.
Subsequently, it was reduced to $3.75 million in the third quarter of 1999, and
has since been reduced to its current level of $3.5 million. Since April 14,
1999, the Overline has carried interest at 14.0% but was otherwise subject to
the same terms and conditions as the Company's working capital line of credit.
Maturity of the Overline had been scheduled for July 1, 1999. However,
coincident with the changes with respect to the Bridge Loan, the lender agreed
to revised terms with respect with the Overline. These revisions, including
availability reduction, extended the maturity date to December 1, 1999, (which
has since been extended to February 28, 2000) and provided for increased
reporting responsibility to the lender and cooperation with the lender in the
completion of an audit of the Company's accounts receivable. In addition, the
Company has provided, with respect to certain available assets, first and second
collateral positions in favor of the lender. Amounts drawn under the Overline
totaled $4.0 million and $3.5 million as of June 30, 1999 and January 3, 2000,
respectively, and carried interest rates of 14.0% at both dates.
The acquisition line of credit of $40.0 million, less outstanding borrowings,
was available to fund approval 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. As of
both June 30, 1999, and January 3, 2000, the Company had $11.1 million
outstanding under the acquisition line, which amount was secured by four nursing
homes. No further draws are available under the acquisition lien of credit.
Amounts outstanding under the acquisition line of credit had a scheduled
maturity on December 1, 1999, however, the Company has signed an agreement with
the existing lender that both extended the maturity to April 30, 2000, and is
expected to result in replacement long-term financing with such lender.
Based on regularly scheduled debt service requirements (i.e., excluding any
potential acceleration due to formal declaration of default by one or more of
the Company's lenders), at June 30, 1999, $28.3 million of the Company's total
debt of $63.6 million must be repaid or refinanced during the next 12 months.
These scheduled current maturities reflect certain refinancings or extensions
identified in the foregoing discussion that have occurred subsequent to June 30,
1999. These scheduled maturities are as follows: $2.6 million under the working
capital line of credit, $4.0 million under the Overline, and $9.4 million under
the Bridge Loan, all three of which are due February 28, 2000; $11.1 million
under the acquisition lien of credit, which has been extended to April 30, 2000
as described above; and miscellaneous scheduled maturities over the next 12
months of $1.2 million. With respect to the Bridge Loan, the working capital
line of credit, and the Overline, the Company is currently negotiating with the
existing lender to further restructure the terms, including further extension of
their maturity dates. The Company expects to repay a portion of this debt
through various means such as the sale of certain assets, refinancing mortgage
debt, and through cash generated from operations. The Company expects to repay
the miscellaneous current maturities of $1.2 million with cash generated from
operations. Management is hopeful that it will be successful in restructuring
the Company's debt as described. However, there can be no assurance that the
Company's restructuring efforts will be successful.
In addition, the Company is not in compliance at December 31, 1999 with the
financial covenants applicable to the lease agreements covering a majority of
its United States nursing facilities. Under the agreements, the lessor has the
right to terminate the lease agreements and seek recovery of any related
financial losses.
At a minimum, the Company's cash requirements over the next 12 months include
funding operations, capital expenditures, scheduled debt service, and other
working capital requirements. No assurance can be given that the Company will
have sufficient cash to meet its requirements for the next 12 months. As
previously described, the Company is currently discussing potential
restructuring and refinancing alternatives with its current lenders as well as
with its primary lessor. If the Company's lenders forced immediate repayment,
the Company would not be able to repay the total amount of its indebtedness
outstanding. Further, no assurance can be given that the Company will be
successful in negotiating waivers, amendments, or refinancings of outstanding
debt or lease commitments, or that the Company will be able to meet any amended
financial covenants in the future. If the Company is unable to generate
sufficient cash flow from its operations or successfully negotiate debt or
lease amendments, it will explore a variety of other options, including but not
limited to other sources of financing, asset dispositions, or relief under the
United States Bankruptcy code. The Company's interim consolidated financial
statements as of and for the three and six months periods ended June 30, 1999
do not include any adjustments relating to the recoverability and
classification of recorded asset carrying amounts or the amounts and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
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 sources. The Company's future liquidity will
continue to be dependent upon the relative amounts
-20-
<PAGE> 21
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 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 June 30, 1999 and December 31, 1998, totaled $22.9 million and $28.3
million, respectively, representing approximately 48 and 53 days in accounts
receivable, respectively. Accounts receivable from the provision of management
services was $522,000 and $387,000 at June 30, 1999 and December 31, 1998,
respectively, representing approximately 54 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 and abuse. Changes in these laws and
regulations, such as reimbursement policies of Medicare and Medicaid programs
as a result of budget cuts by federal and state governments or other
legislative and regulatory actions, could have a material adverse effect on the
Company's consolidated financial position, results of operations, and cash
flows. Future federal budget legislation and federal and state regulatory
changes may negatively impact the Company.
All of the Company's facilities are required to obtain annual licensure renewal
and are subject to annual surveys and inspections in order to be certified for
participation in the Medicare and Medicaid programs. In order to maintain their
operator's license and their certification for participation in Medicare and
Medicaid programs, the nursing facilities must meet certain statutory and
administrative requirements. These requirements relate to the condition of the
facilities, the adequacy and condition of the equipment used therein, the
quality and adequacy of personnel, and the quality of medical care. Such
requirements are subject to change. There can be no assurance that, in the
future, the Company will be able to maintain such licenses for its facilities or
that the Company will not be required to expend significant sums in order to do
so.
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 four-year "transition period,"
commencing with the first cost reporting period beginning on or after July 1,
1998. As of June 30, 1999, all 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.
-21-
<PAGE> 22
To date, the major impact on the Company from PPS and other reimbursement
changes has been systemic occupancy declines which have reduced the amount of
overhead absorbed under the Company's Medicare operations. Definitely, both
revenues and expenses have been reduced significantly 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 both 1998 and
1999 and will continue to be negatively impacted beyond 1999 as a result of the
changes brought about under the BBA. However, ultimate negative impact on the
Company's operations cannot be reasonably estimated. 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 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 to the extent capital is available to do
so, if at all.
While federal regulations do not provide states with grounds to curtail funding
of their Medicaid cost reimbursement programs due to state budget deficiencies,
states have nevertheless curtailed funding in such circumstances in the past. No
assurance can be given that states will not do so in the future or that the
future funding of Medicaid programs will remain at levels comparable to present
levels. The United States Supreme Court ruled in 1990 that health care
providers could use the Boren Amendment to require states to comply with their
legal obligation to adequately fund Medicaid programs. The BBA repeals the
Boren Amendment and authorizes states to develop their own standards for setting
payment rates. It requires each state to use a public process for establishing
proposed rates whereby the methodologies and justifications used for setting
such rates are available for public review and comment. This requires
facilities to become more involved in the rate setting process since failure to
do so may interfere with a facility's ability to challenge rates later.
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 eight Canadian retirement
facilities (three of which are 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.
EXECUTIVE MANAGEMENT CHANGES
Effective June 30, 1999, Mary Margaret Hamlett resigned as Executive Vice
President, Chief Financial Officer and Secretary of the Company. Mr. Richard B.
Vacek, Jr. replaced Ms. Hamlett in those capacities effective August 16, 1999.
Ms. Hamlett also resigned as a Director of the Company coincident with her
resignation as an employee of the Company.
In addition, Mr. Charles H. Rinne joined the Company effective June 28, 1999.
Mr. Rinne is President and Chief Operating Officer of the Company.
STOCK EXCHANGE
On November 10, 1999, the Company's stock began being quoted on the NASD's OTC
Bulletin Board under the symbol AVCA. Previously, the Company's common stock
was traded on the New York Stock Exchange under the symbol AVC. The Company's
common stock is also traded on the Toronto Stock Exchange under the symbol AVCU.
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 experienced the changeover to the year 2000 ("Y2K") without
difficulty. In preparation for the potential of Y2K related problems, the
Company established a Y2K compliance committee, which was responsible for
identifying such problems and developing remedial or contingency plans to
address them. Working closely with the Company's insurance carrier, the
committee developed a formal, documented plan that was put into place. The
costs of the Company's Y2K compliance program were not material.
Although the Company experienced no catastrophic interruptions in its business
in the changeover to the year 2000, it remains on alert for potential Y2K
problems. To date, no problems have been noted with any of the Company's
vendors. The greatest potential risk that remains is a delay in the liquidation
of receivables from intermediaries or other payors for services provided to
patients and residents. Such delays are not expected, but they could yet occur.
-22-
<PAGE> 23
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 as well as the Report on Form 10-Q/A for the quarterly period
ended September 30, 1999. 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 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. Investors also should refer to the risks identified in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" as well as risks identified in the Company's Form 10-K for the year
ended December 31, 1998 for a discussion of various risk factors of the Company
and that are inherent in the health care industry. Given these risks and
uncertainties, the Company can give no assurances that these forward-looking
statements will, in fact, transpire and, therefore, cautions investors not to
place undue reliance on them. Actual results may differ materially from those
described in such forward-looking statements. 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.
-23-
<PAGE> 24
PART II -- OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
The Company is not currently in compliance with certain covenants of its
loan agreements and certain other indebtedness. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders was held on May 14, 1999.
(c) Matters voted upon at the meeting:
- Election of Directors:
Mary Margaret Hamlett
---------------------
FOR 4,297,926
AGAINST -0-
WITHHELD 130,108
ABSTENTIONS -0-
NON-VOTING(1) 970,676
---------
ELIGIBLE SHARES 5,398,710
=========
J. Bransford Wallace
--------------------
FOR 4,296,676
AGAINST -0-
WITHHELD 131,358
ABSTENTIONS -0-
NON-VOTING(1) 970,676
---------
ELIGIBLE SHARES 5,398,710
=========
(Continuing directors include Charles W. Birkett, M.D.,
Paul Richardson, and Edward G. Nelson)
-----------
(1) Including broker non-votes.
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.
-24-
<PAGE> 25
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.
January 11, 2000
By: /s/ Richard B. Vacek Jr.
-----------------------------------------
Richard B. Vacek Jr.
Principal Financial Officer and Chief
Accounting Officer and An Officer Duly
Authorized to Sign on Behalf of the
Registrant
-25-
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBITS
NUMBER
<S> <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).
10.1- Separation Agreement dated June 30, 1999 between Mary Margaret Hamlett
and Advocat Inc. (incorporated by reference to Exhibit 10.1 to Report on
Form 10-Q dated June 30, 1999).
10.2- Employment Agreement dated June 28, 1999 between Advocat Inc. and Charles
H. Rinne (incorporated by reference to Exhibit 10.2 to Report on Form
10-Q dated June 30, 1999).
10.3- Employment Agreement dated August 16, 1999 between Advocat Inc. and
Richard Vacek (incorporated by reference to Exhibit 10.3 to Report on
Form 10-Q dated June 30, 1999).
10.4- Loan Agreement dated June 4, 1999 between Diversicare Assisted Living
Services NC II, LLC and GMAC Commercial Mortgage Corporation
(incorporated by reference to Exhibit 10.4 to Report on Form 10-Q dated
June 30, 1999).
10.5- Loan Agreement dated June 4, 1999 between Diversicare Assisted Living
Services NC I, LLC and GMAC Commercial Mortgage Corporation (incorporated
by reference to Exhibit 10.5 to Report on Form 10-Q dated June 30, 1999).
10.6- Fourth Amendment to Master Credit and Security Agreement dated April 14,
1999 between First American National Bank along with GMAC Commercial
Mortgage Corporation and Diversicare Management Services Co.
(incorporated by reference to Exhibit 10.6 to Report on Form 10-Q dated
June 30, 1999).
27.1- Financial Data Schedule (for SEC use only) (incorporated by reference to
Exhibit 27 to Report on Form 10-Q dated June 30, 1999).
27.2- Restated 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/A FOR THE QUARTERLY
PERIOD ENDED JUNE 30, 1999.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 998
<SECURITIES> 0
<RECEIVABLES> 23,675
<ALLOWANCES> 4,157
<INVENTORY> 1,015
<CURRENT-ASSETS> 24,981
<PP&E> 83,741
<DEPRECIATION> 16,415
<TOTAL-ASSETS> 114,607
<CURRENT-LIABILITIES> 74,830
<BONDS> 0
0
0
<COMMON> 54
<OTHER-SE> 24,108
<TOTAL-LIABILITY-AND-EQUITY> 114,607
<SALES> 0
<TOTAL-REVENUES> 44,590
<CGS> 0
<TOTAL-COSTS> 48,662
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,627
<INTEREST-EXPENSE> 1,325
<INCOME-PRETAX> (4,072)
<INCOME-TAX> (1,466)
<INCOME-CONTINUING> (2,606)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,606)
<EPS-BASIC> (.48)
<EPS-DILUTED> (.48)
</TABLE>
