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SECURITIES AND EXCHANGE COMMISSION
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
Delaware | 33-0861263 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
Mission Viejo, CA 92691
Large accelerated filero | Accelerated filerþ | Non-accelerated filero | Smaller reporting companyo | |||
(Do not check if a smaller reporting company) |
QUARTERLY REPORT ON FORM 10-Q
FOR THE SIX MONTHS ENDED JUNE 30, 2010
Part I. Financial Information | ||||||||
3 | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
23 | ||||||||
43 | ||||||||
43 | ||||||||
Part II. Other Information | ||||||||
44 | ||||||||
44 | ||||||||
68 | ||||||||
68 | ||||||||
68 | ||||||||
69 | ||||||||
69 | ||||||||
70 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
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(In thousands, except par values)
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 26,353 | $ | 38,855 | ||||
Accounts receivable—less allowance for doubtful accounts of $8,095 and $7,575 at June 30, 2010 and December 31, 2009, respectively | 72,678 | 62,606 | ||||||
Prepaid income taxes | 1,245 | 1,242 | ||||||
Prepaid expenses and other current assets | 6,695 | 6,498 | ||||||
Deferred tax asset—current | 8,868 | 8,126 | ||||||
Total current assets | 115,839 | 117,327 | ||||||
Property and equipment, net | 251,320 | 230,774 | ||||||
Insurance subsidiary deposits and investments | 15,397 | 13,810 | ||||||
Escrow deposits | — | 7,595 | ||||||
Deferred tax asset | 6,659 | 4,262 | ||||||
Restricted and other assets | 6,036 | 5,650 | ||||||
Intangible assets, net | 4,288 | 4,498 | ||||||
Goodwill | 10,524 | 7,432 | ||||||
Other indefinite-lived intangibles | 672 | — | ||||||
Total assets | $ | 410,735 | $ | 391,348 | ||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 16,267 | $ | 15,498 | ||||
Accrued wages and related liabilities | 27,538 | 28,756 | ||||||
Accrued self-insurance liabilities—current | 10,500 | 10,074 | ||||||
Other accrued liabilities | 13,442 | 15,375 | ||||||
Current maturities of long-term debt | 2,125 | 2,065 | ||||||
Total current liabilities | 69,872 | 71,768 | ||||||
Long-term debt—less current maturities | 106,363 | 107,401 | ||||||
Accrued self-insurance liabilities—less current portion | 25,059 | 22,096 | ||||||
Deferred rent and other long-term liabilities | 2,897 | 2,524 | ||||||
Commitments and contingencies (Note 14) | ||||||||
Stockholders’ equity: | ||||||||
Common stock; $0.001 par value; 75,000 shares authorized; 21,360 and 20,748 shares issued and outstanding at June 30, 2010, respectively, and 21,280 and 20,642 shares issued and outstanding at December 31, 2009, respectively | 21 | 21 | ||||||
Additional paid-in capital | 68,699 | 66,765 | ||||||
Retained earnings | 141,802 | 124,910 | ||||||
Common stock in treasury, at cost, 612 and 638 shares at June 30, 2010 and December 31, 2009, respectively | (3,978 | ) | (4,137 | ) | ||||
Total stockholders’ equity | 206,544 | 187,559 | ||||||
Total liabilities and stockholders’ equity | $ | 410,735 | $ | 391,348 | ||||
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(In thousands, except per share data)
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenue | $ | 157,948 | $ | 132,178 | $ | 312,122 | $ | 262,463 | ||||||||
Expense: | ||||||||||||||||
Cost of services (exclusive of facility rent and depreciation and amortization shown separately below) | 125,808 | 105,290 | 248,991 | 209,489 | ||||||||||||
Facility rent—cost of services | 3,616 | 3,724 | 7,191 | 7,425 | ||||||||||||
General and administrative expense | 6,407 | 5,417 | 12,181 | 10,378 | ||||||||||||
Depreciation and amortization | 4,023 | 3,209 | 7,978 | 6,174 | ||||||||||||
Total expenses | 139,854 | 117,640 | 276,341 | 233,466 | ||||||||||||
Income from operations | 18,094 | 14,538 | 35,781 | 28,997 | ||||||||||||
Other income (expense): | ||||||||||||||||
Interest expense | (2,308 | ) | (1,141 | ) | (4,588 | ) | (2,469 | ) | ||||||||
Interest income | 63 | 69 | 130 | 139 | ||||||||||||
Other expense, net | (2,245 | ) | (1,072 | ) | (4,458 | ) | (2,330 | ) | ||||||||
Income before provision for income taxes | 15,849 | 13,466 | 31,323 | 26,667 | ||||||||||||
Provision for income taxes | 6,230 | 5,282 | 12,356 | 10,560 | ||||||||||||
Net income | $ | 9,619 | $ | 8,184 | $ | 18,967 | $ | 16,107 | ||||||||
Net income per share: | ||||||||||||||||
Basic | $ | 0.46 | $ | 0.40 | $ | 0.92 | $ | 0.78 | ||||||||
Diluted | $ | 0.46 | $ | 0.39 | $ | 0.90 | $ | 0.77 | ||||||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 20,741 | 20,586 | 20,713 | 20,579 | ||||||||||||
Diluted | 21,126 | 20,874 | 21,103 | 20,883 | ||||||||||||
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(In thousands)
(Unaudited)
Six Months Ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 18,967 | 16,107 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 7,978 | 6,174 | ||||||
Amortization of deferred financing fees and debt discount | 327 | 58 | ||||||
Deferred income taxes | (3,140 | ) | (1,242 | ) | ||||
Provision for doubtful accounts | 2,948 | 2,030 | ||||||
Stock-based compensation | 1,266 | 992 | ||||||
Excess tax benefit from share based compensation | (357 | ) | (65 | ) | ||||
Impairment of software development costs | 297 | — | ||||||
Loss on disposition of property and equipment | 22 | 64 | ||||||
Change in operating assets and liabilities | ||||||||
Accounts receivable | (13,020 | ) | (6,386 | ) | ||||
Prepaid expenses and other current assets | (200 | ) | (1,097 | ) | ||||
Insurance subsidiary deposits and investments | (1,587 | ) | (1,052 | ) | ||||
Accounts payable | 769 | 1,657 | ||||||
Accrued wages and related liabilities | (1,218 | ) | (1,758 | ) | ||||
Other accrued liabilities | (1,641 | ) | 597 | |||||
Accrued self-insurance | 3,389 | 2,788 | ||||||
Deferred rent liability | 103 | (167 | ) | |||||
Net cash provided by operating activities | 14,903 | 18,700 | ||||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (13,753 | ) | (11,671 | ) | ||||
Cash payment for business acquisitions | (18,809 | ) | (22,133 | ) | ||||
Escrow deposits used to fund business acquisitions | 7,595 | 10,090 | ||||||
Cash proceeds from the sale of fixed assets | 58 | — | ||||||
Restricted and other assets | (244 | ) | (358 | ) | ||||
Net cash used in investing activities | (25,153 | ) | (24,072 | ) | ||||
Cash flows from financing activities: | ||||||||
Payments on long term debt | (1,039 | ) | (534 | ) | ||||
Issuance of treasury stock upon exercise of options | 159 | 40 | ||||||
Issuance of common stock upon exercise of options | 348 | 104 | ||||||
Dividends paid | (2,069 | ) | (1,852 | ) | ||||
Principal payments on capital lease obligations | — | (13 | ) | |||||
Excess tax benefit from share based compensation | 357 | 65 | ||||||
Payments of deferred financing costs | (8 | ) | (77 | ) | ||||
Net cash used in financing activities | (2,252 | ) | (2,267 | ) | ||||
Net decrease in cash and cash equivalents | (12,502 | ) | (7,639 | ) | ||||
Cash and cash equivalents beginning of period | 38,855 | 41,326 | ||||||
Cash and cash equivalents end of period | $ | 26,353 | 33,687 | |||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 4,526 | 2,557 | |||||
Income taxes | $ | 14,050 | 12,200 | |||||
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(Dollars and shares in thousands, except per share data)
(Unaudited)
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Non-Medicare Revenue — Episodic Based Revenue.The Company recognizes revenue in a similar manner as it recognizes Medicare revenue for episodic-based rates that are paid by other insurance carriers, including Medicare Advantage programs; however, these rates can vary based upon the negotiated terms.
Non-Medicare Revenue — Non-episodic Based Revenue.Gross revenue is recorded on an accrual basis based upon the date of service at amounts equal to our established or estimated per-visit rates, as applicable. Contractual adjustments are recorded for the difference between the Company’s standard rates and the contracted rates to be realized from patients, third parties and others for services provided and are deducted from gross revenue to determine net service revenue and are also recorded as a reduction to our outstanding patient accounts receivable. In addition, the Company receives a minimal amount of its net service revenue from patients who are either self-insured or are obligated for an insurance co-payment.
Hospice Revenue Recognition
Hospice Medicare Revenue —Gross revenue is recorded on an accrual basis based upon the date of service at amounts equal to the estimated payment rates. The estimated payment rates are daily or hourly rates for each of the levels of care we deliver. The Company makes adjustments to Medicare revenue for an inability to obtain appropriate billing documentation or authorizations acceptable to the payor and other reasons unrelated to credit risk. The Company estimates the impact of these adjustments based on its historical experience, which primarily includes historical collection rates on Medicare claims, and records it during the period services are rendered as an estimated revenue adjustment and as a reduction to our outstanding patient accounts receivable. Additionally, as Medicare hospice revenue is subject to an inpatient cap limit and an overall payment cap, the Company monitors its provider numbers and estimate amounts due back to Medicare if a cap has been exceeded. The Company records these adjustments as a reduction to revenue and increases other accrued liabilities.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Hospice Non-Medicare Revenue —The Company records gross revenue on an accrual basis based upon the date of service at amounts equal to its established rates or estimated per visit rates, as applicable. Contractual adjustments are recorded for the difference between the Company’s established rates and the amounts estimated to be realizable from patients, third parties and others for services provided and are deducted from gross revenue to determine our net service revenue and patient accounts receivable.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Numerator: | ||||||||||||||||
Net income | $ | 9,619 | $ | 8,184 | $ | 18,967 | $ | 16,107 | ||||||||
Denominator: | ||||||||||||||||
Weighted average shares outstanding for basic net income per share | 20,741 | 20,586 | 20,713 | 20,579 | ||||||||||||
Basic net income per common share | $ | 0.46 | $ | 0.40 | $ | 0.92 | $ | 0.78 | ||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Numerator: | ||||||||||||||||
Net income | $ | 9,619 | $ | 8,184 | $ | 18,967 | $ | 16,107 | ||||||||
Denominator: | �� | |||||||||||||||
Weighted average common shares outstanding | 20,741 | 20,586 | 20,713 | 20,579 | ||||||||||||
Plus: incremental shares from assumed conversion (1) | 385 | 288 | 390 | 304 | ||||||||||||
Adjusted weighted average common shares outstanding | 21,126 | 20,874 | 21,103 | 20,883 | ||||||||||||
Diluted net income per common share | $ | 0.46 | $ | 0.39 | $ | 0.90 | $ | 0.77 | ||||||||
(1) | In addition, as of June 30, 2010 and 2009, the Company had 785 and 627, respectively, options outstanding which are anti-dilutive and therefore not factored into the weighted average common shares amount above. |
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Three Months Ended June 30, | ||||||||||||||||
2010 | 2009 | |||||||||||||||
% of | % of | |||||||||||||||
Revenue | Revenue | Revenue | Revenue | |||||||||||||
Medicaid | $ | 64,002 | 40.5 | % | $ | 53,603 | 40.6 | % | ||||||||
Medicare | 50,589 | 32.1 | 43,156 | 32.7 | ||||||||||||
Medicaid — skilled | 4,624 | 2.9 | 2,705 | 2.0 | ||||||||||||
Total Medicaid and Medicare | 119,215 | 75.5 | 99,464 | 75.3 | ||||||||||||
Managed care | 20,222 | 12.8 | 17,182 | 13.0 | ||||||||||||
Private and other payors | 18,511 | 11.7 | 15,532 | 11.7 | ||||||||||||
Revenue | $ | 157,948 | 100.0 | % | $ | 132,178 | 100.0 | % | ||||||||
Six Months Ended June 30, | ||||||||||||||||
2010 | 2009 | |||||||||||||||
% of | % of | |||||||||||||||
Revenue | Revenue | Revenue | Revenue | |||||||||||||
Medicaid | $ | 125,656 | 40.3 | % | $ | 105,839 | 40.3 | % | ||||||||
Medicare | 101,711 | 32.6 | 86,362 | 32.9 | ||||||||||||
Medicaid — skilled | 9,041 | 2.9 | 4,988 | 1.9 | ||||||||||||
Total Medicaid and Medicare | 236,408 | 75.8 | 197,189 | 75.1 | ||||||||||||
Managed care | 40,791 | 13.0 | 34,679 | 13.2 | ||||||||||||
Private and other payors | 34,923 | 11.2 | 30,595 | 11.7 | ||||||||||||
Revenue | $ | 312,122 | 100.0 | % | $ | 262,463 | 100.0 | % | ||||||||
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Medicaid | $ | 29,413 | $ | 23,902 | ||||
Managed care | 20,661 | 17,919 | ||||||
Medicare | 19,237 | 17,481 | ||||||
Private and other payors | 11,462 | 10,879 | ||||||
80,773 | 70,181 | |||||||
Less allowance for doubtful accounts | (8,095 | ) | (7,575 | ) | ||||
Accounts receivable | $ | 72,678 | $ | 62,606 | ||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
• | On January 1, 2010, the Company purchased two skilled nursing facilities in Idaho for $7,617, which was paid in cash. These acquisitions added 158 operational skilled nursing beds to the Company’s operations. The Company also entered into a separate operations transfer agreement with the prior owner as a part of this transaction. |
• | On May 1, 2010, the Company purchased two skilled nursing facilities in Texas for approximately $8,491, which was paid in cash. This acquisition added approximately 277 operational skilled nursing beds to the Company’s operations. The Company also entered into a separate operations transfer agreement with the prior owner as part of this transaction. Approximately $1,542 was recognized in goodwill as a part of this transaction. |
• | On May 1, 2010, the Company purchased a home health and hospice operation in Idaho for approximately $2,701, which was paid in cash. The acquisition did not have an impact on the Company’s operational bed count. The Company also entered into a separate operations transfer agreement with the prior owner as part of this transaction. Approximately $1,550 and $672 was recognized as goodwill and other indefinite lived intangibles, respectively, as a part of this transaction. |
June 30, | June 30, | |||||||
2010 | 2009 | |||||||
Land | $ | 2,709 | $ | 3,485 | ||||
Building and improvements | 11,029 | 13,101 | ||||||
Equipment, furniture, and fixtures | 1,003 | 675 | ||||||
Goodwill | 3,092 | 2,887 | ||||||
Other indefinite-lived intangible assets | 672 | — | ||||||
Other intangible assets | 304 | 1,985 | ||||||
$ | 18,809 | $ | 22,133 | |||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Land | $ | 46,330 | $ | 43,621 | ||||
Buildings and improvements | 173,068 | 158,803 | ||||||
Equipment | 41,991 | 35,136 | ||||||
Furniture and fixtures | 8,426 | 8,301 | ||||||
Leasehold improvements | 20,774 | 17,978 | ||||||
Construction in progress | 4,282 | 3,036 | ||||||
294,871 | 266,875 | |||||||
Less accumulated depreciation | (43,551 | ) | (36,101 | ) | ||||
Property and equipment, net | $ | 251,320 | $ | 230,774 | ||||
Weighted | June 30, 2010 | December 31, 2009 | ||||||||||||||||||||||||||
Average | Gross | Gross | ||||||||||||||||||||||||||
Life | Carrying | Accumulated | Carrying | Accumulated | ||||||||||||||||||||||||
Intangible Assets | (Years) | Amount | Amortization | Net | Amount | Amortization | Net | |||||||||||||||||||||
Lease acquisition costs | 15.5 | $ | 910 | $ | (562 | ) | $ | 348 | $ | 1,071 | $ | (694 | ) | $ | 377 | |||||||||||||
Favorable lease | 20.0 | 3,573 | (378 | ) | 3,195 | 3,573 | (274 | ) | 3,299 | |||||||||||||||||||
Patient base | 0.6 | 738 | (616 | ) | 122 | 1,202 | (1,015 | ) | 187 | |||||||||||||||||||
Trade name | 30.0 | 733 | (110 | ) | 623 | 733 | (98 | ) | 635 | |||||||||||||||||||
Total | $ | 5,954 | $ | (1,666 | ) | $ | 4,288 | $ | 6,579 | $ | (2,081 | ) | $ | 4,498 | ||||||||||||||
Year | Amount | |||
2010 (remainder) | $ | 252 | ||
2011 | 308 | |||
2012 | 291 | |||
2013 | 291 | |||
2014 | 291 | |||
2015 | 268 | |||
Thereafter | 2,587 | |||
$ | 4,288 | |||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Deposits with landlords | $ | 732 | $ | 725 | ||||
Capital improvement reserves with landlords and lenders | 3,078 | 2,840 | ||||||
Debt issuance costs, net | 2,226 | 2,085 | ||||||
Restricted and other assets | $ | 6,036 | $ | 5,650 | ||||
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Quality assurance fee | $ | 1,180 | $ | 5,071 | ||||
Resident refunds payable | 2,705 | 2,347 | ||||||
Deferred resident revenue | 1,161 | 1,073 | ||||||
Cash held in trust for residents | 1,492 | 1,748 | ||||||
Dividends payable | 1,040 | 1,032 | ||||||
Property taxes | 1,140 | 1,194 | ||||||
Income taxes payable | 1,203 | — | ||||||
Other | 3,521 | 2,910 | ||||||
Other accrued liabilities | $ | 13,442 | $ | 15,375 | ||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Current: | ||||||||||||||||
Federal | $ | 7,459 | $ | 6,267 | $ | 13,230 | $ | 9,702 | ||||||||
State | 1,196 | 1,161 | 2,266 | 2,030 | ||||||||||||
8,655 | 7,428 | 15,496 | 11,732 | |||||||||||||
Deferred: | ||||||||||||||||
Federal | (2,238 | ) | (1,786 | ) | (2,805 | ) | (795 | ) | ||||||||
State | (187 | ) | (430 | ) | (335 | ) | (447 | ) | ||||||||
(2,425 | ) | (2,216 | ) | (3,140 | ) | (1,242 | ) | |||||||||
Expense for uncertain tax positions | — | 70 | — | 70 | ||||||||||||
Total | $ | 6,230 | $ | 5,282 | $ | 12,356 | $ | 10,560 | ||||||||
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Deferred tax assets (liabilities): | ||||||||
Accrued expenses | $ | 15,723 | $ | 12,498 | ||||
Allowance for doubtful accounts | 3,383 | 3,166 | ||||||
State taxes | — | 324 | ||||||
Tax credits | 1,161 | 1,180 | ||||||
Total deferred tax assets | 20,267 | 17,168 | ||||||
State taxes | (276 | ) | — | |||||
Depreciation and amortization | (2,938 | ) | (3,293 | ) | ||||
Prepaid expenses | (1,525 | ) | (1,487 | ) | ||||
Total deferred tax liabilities | (4,739 | ) | (4,780 | ) | ||||
Net deferred tax assets | $ | 15,528 | $ | 12,388 | ||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Ten Project Note with the Lender, multiple-advance term loan, principal and interest payable monthly; interest is fixed at time of draw at 10-year treasury note rate plus 2.25% (rates in effect at June 30, 2010 range from 6.95% to 7.50%), balance due June 2016, collateralized by deeds of trust on real property, assignments of rents, security agreements and fixture financing statements. | $ | 52,718 | $ | 53,200 | ||||
Six Project Loan with the Lender, principal and interest payable monthly, interest defined above, balance due September 30, 2014, collateralized by deeds of trust on real property, assignments of rents, security agreements and fixture financing statements. | 39,733 | 39,970 | ||||||
Promissory notes, principal, and interest of $69 payable monthly and continuing through September 2019, interest at fixed rate of 6.0%, collateralized by deed of trust on real property, assignment of rents and security agreement. | 9,845 | 9,962 | ||||||
Bond, principal and interest of $20 payable monthly and continuing through July 2015, interest at a fixed rate of 60% of the Prime Rate (as defined by the agreement). | 1,137 | 1,232 | ||||||
Mortgage note, principal, and interest of $54 payable monthly and continuing through February 2027, interest at fixed rate of 7.5%, collateralized by deed of trust on real property, assignment of rents and security agreement. | 6,182 | 6,290 | ||||||
109,615 | 110,654 | |||||||
Less current maturities | (2,125 | ) | (2,065 | ) | ||||
Less debt discount | (1,127 | ) | (1,188 | ) | ||||
$ | 106,363 | $ | 107,401 | |||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Weighted | Weighted | |||||||||||||||||||||||
Average | Weighted | Average | ||||||||||||||||||||||
Options | Risk-Free | Expected | Average | Dividend | ||||||||||||||||||||
Grant Year | Plan | Granted | Rate | Life | Volatility | Yield | ||||||||||||||||||
2010 | 2007 | 113 | 2.36 – 2.82 | % | 6.5 years | 55 | % | 1.08 | % | |||||||||||||||
2009 | 2007 | 306 | 2.17 – 2.39 | % | 6.5 years | 55 | % | 1.08 | % |
Weighted | Weighted | |||||||||||||||||||||||
Average | Weighted | Average | ||||||||||||||||||||||
Options | Risk-Free | Expected | Average | Dividend | ||||||||||||||||||||
Grant Year | Plan | Granted | Rate | Life | Volatility | Yield | ||||||||||||||||||
2010 | 2007 | 7 | 2.36 | % | 6.5 years | 55 | % | 1.08 | % | |||||||||||||||
2009 | 2007 | 137 | 2.36 – 2.39 | % | 6.5 years | 55 | % | 1.08 | % |
Weighted Average | ||||||||||||
Exercise Price of | Weighted Average | |||||||||||
Grant Year | Granted | Common Stock | Fair Value of Options | |||||||||
2010 | 113 | $ | 17.51 | $ | 8.87 | |||||||
2009 | 306 | $ | 16.14 | $ | 8.05 |
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Number of | Weighted | Weighted Average | ||||||||||||||
Options | Average | Number of | Exercise Price of | |||||||||||||
Outstanding | Exercise Price | Options Vested | Options Vested | |||||||||||||
January 1, 2010 | 2,025 | $ | 10.68 | 709 | $ | 7.29 | ||||||||||
Granted | 113 | 17.51 | ||||||||||||||
Forfeited | (72 | ) | 10.57 | |||||||||||||
Exercised | (100 | ) | 5.07 | |||||||||||||
June 30, 2010 | 1,966 | $ | 11.36 | 739 | $ | 8.68 | ||||||||||
Stock Options | ||||||||||||||||||||
Stock Options Outstanding | Vested | |||||||||||||||||||
Remaining | ||||||||||||||||||||
Exercise | Number | Black-Scholes Fair | Contractual Life | Number Vested | ||||||||||||||||
Year of Grant | Price | Outstanding | Value | (Years) | and Exercisable | |||||||||||||||
2003 | $ | 0.67 – 0.81 | 9 | $ | * | 3 | 9 | |||||||||||||
2004 | $ | 1.96 – 2.46 | 38 | * | 4 | 38 | ||||||||||||||
2005 | $ | 4.99 – 5.75 | 199 | * | 5 | 155 | ||||||||||||||
2006 | $ | 7.05 – 7.50 | 444 | 4,256 | 6 | 254 | ||||||||||||||
2008 | $ | 9.38 – 14.87 | 685 | 3,682 | 8 | 228 | ||||||||||||||
2009 | $ | 14.92 – 16.70 | 478 | 3,779 | 9 | 55 | ||||||||||||||
2010 | $ | 17.47 – 18.03 | 113 | 1,004 | 10 | — | ||||||||||||||
Total | 1,966 | $ | 12,721 | 739 | ||||||||||||||||
* | The Company will not recognize the Black-Scholes fair value for awards granted prior to January 1, 2006 unless such awards are modified. |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Share-based compensation expense related to stock options | $ | 607 | $ | 476 | $ | 1,256 | $ | 992 | ||||||||
Share-based compensation expense related to restricted stock awards | 10 | — | 10 | — | ||||||||||||
Total | $ | 617 | $ | 476 | $ | 1,266 | $ | 992 | ||||||||
June 30, | December 31, | |||||||
Options | 2010 | 2009 | ||||||
Outstanding | $ | 10,273 | $ | 9,779 | ||||
Vested | 5,799 | 5,732 | ||||||
Expected to vest | 3,968 | 3,806 | ||||||
Exercised | 4,578 | 625 |
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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Leased | Leased | |||||||||||||||
(with a | (without a | |||||||||||||||
Purchase | Purchase | |||||||||||||||
Owned | Option) | Option) | Total | |||||||||||||
Number of facilities | 51 | 8 | 22 | 81 | ||||||||||||
Percent of total | 63.0 | % | 9.9 | % | 27.1 | % | 100 | % | ||||||||
Operational skilled nursing, assisted living and independent living beds | 5,686 | 1,042 | 2,616 | 9,344 | ||||||||||||
Percent of total | 60.9 | % | 11.1 | % | 28.0 | % | 100 | % |
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December 31, | June 30, | |||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||
Cumulative number of facilities | 46 | 57 | 61 | 63 | 77 | 81 | ||||||||||||||||||
Cumulative number of operational skilled nursing, assisted living and independent living beds | 5,585 | 6,667 | 7,105 | 7,324 | 8,948 | 9,344 |
CA | AZ | TX | UT | CO | WA | ID | Total | |||||||||||||||||||||||||
Number of facilities | 33 | 12 | 17 | 9 | 4 | 3 | 3 | 81 | ||||||||||||||||||||||||
Operational skilled nursing, assisted living and independent living beds | 3,702 | 1,815 | 2,088 | 967 | 248 | 278 | 246 | 9,344 |
• | Routine revenue:Routine revenue is generated by the contracted daily rate charged for all contractually inclusive services. The inclusion of therapy and other ancillary treatments varies by payor source and by contract. Services provided outside of the routine contractual agreement are recorded separately as ancillary revenue, including Medicare Part B therapy services, and are not included in the routine revenue definition. | ||
• | Skilled revenue:The amount of routine revenue generated from patients in our skilled nursing facilities who are receiving higher levels of care under Medicare, managed care, Medicaid, or other skilled reimbursement programs. The other skilled residents that are included in this population represent very high acuity residents who are receiving high levels of nursing and ancillary services which are reimbursed by payors other than Medicare or managed care. Skilled revenue excludes any revenue generated from our assisted living services. | ||
• | Skilled mix:The amount of our skilled revenue as a percentage of our total routine revenue. Skilled mix (in days) represents the number of days our Medicare, managed care, or other skilled patients are receiving services at our skilled nursing facilities divided by the total number of days patients (less days from assisted living services) from all payor sources are receiving services at our skilled nursing facilities for any given period (less days from assisted living services). |
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• | Quality mix:The amount of routine non-Medicaid revenue as a percentage of our total routine revenue. Quality mix (in days) represents the number of days our non-Medicaid patients are receiving services at our skilled nursing facilities divided by the total number of days patients from all payor sources are receiving services at our skilled nursing facilities for any given period (less days from assisted living services). | ||
• | Average daily rates:The routine revenue by payor source for a period at our skilled nursing facilities divided by actual patient days for that revenue source for that given period. | ||
• | Occupancy percentage (operational beds):The total number of residents occupying a bed in a skilled nursing, assisted living or independent living facility as a percentage of the beds in a facility which are available for occupancy during the measurement period. | ||
• | Number of facilities and operational beds:The total number of skilled nursing, assisted living and independent living facilities that we own or operate and the total number of operational beds associated with these facilities. |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Skilled Mix: | ||||||||||||||||
Days | 24.8 | % | 24.3 | % | 25.4 | % | 24.8 | % | ||||||||
Revenue | 48.2 | % | 48.0 | % | 49.0 | % | 48.3 | % | ||||||||
Quality Mix: | ||||||||||||||||
Days | 36.8 | % | 36.8 | % | 37.2 | % | 37.4 | % | ||||||||
Revenue | 57.3 | % | 57.5 | % | 57.8 | % | 57.8 | % |
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Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Occupancy: | ||||||||||||||||
Operational beds at end of period | 9,344 | 7,986 | 9,344 | 7,986 | ||||||||||||
Available patient days | 841,994 | 726,636 | 1,658,834 | 1,436,636 | ||||||||||||
Actual patient days | 667,858 | 576,738 | 1,316,942 | 1,143,357 | ||||||||||||
Occupancy percentage (based on operational beds) | 79.3 | % | 79.4 | % | 79.4 | % | 79.6 | % |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||||||
$ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||||||||
Medicaid | $ | 64,002 | 40.5 | % | $ | 53,603 | 40.6 | % | $ | 125,656 | 40.3 | % | $ | 105,839 | 40.3 | % | ||||||||||||||||
Medicare | 50,589 | 32.1 | 43,156 | 32.7 | 101,711 | 32.6 | 86,362 | 32.9 | ||||||||||||||||||||||||
Medicaid-skilled | 4,624 | 2.9 | 2,705 | 2.0 | 9,041 | 2.9 | 4,988 | 1.9 | ||||||||||||||||||||||||
Total | 119,215 | 75.5 | 99,464 | 75.3 | 236,408 | 75.8 | 197,189 | 75.1 | ||||||||||||||||||||||||
Managed Care | 20,222 | 12.8 | 17,182 | 13.0 | 40,791 | 13.0 | 34,679 | 13.2 | ||||||||||||||||||||||||
Private and Other(1) | 18,511 | 11.7 | 15,532 | 11.7 | 34,923 | 11.2 | 30,595 | 11.7 | ||||||||||||||||||||||||
Total revenue | $ | 157,948 | 100.0 | % | $ | 132,178 | 100.0 | % | $ | 312,122 | 100.0 | % | $ | 262,463 | 100.0 | % | ||||||||||||||||
(1) | Includes revenue from assisted living facilities and home health and hospice operations. |
• | Shift of Patient Care to Lower Cost Alternatives. The growth of the senior population in the United States continues to increase healthcare costs, often faster than the available funding from government-sponsored healthcare programs. In response, federal and state governments have adopted cost-containment measures that encourage the treatment of patients in more cost-effective settings such as skilled nursing facilities, for which the staffing requirements and associated costs are often significantly lower than acute care hospitals, inpatient rehabilitation facilities and other post-acute care settings. As a result, skilled nursing facilities are generally serving a larger population of higher-acuity patients than in the past. |
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• | Significant Acquisition and Consolidation Opportunities. The skilled nursing industry is large and highly fragmented, characterized predominantly by numerous local and regional providers. We believe this fragmentation provides significant acquisition and consolidation opportunities for us. | ||
• | Improving Supply and Demand Balance. The number of skilled nursing facilities has declined modestly over the past several years. We expect that the supply and demand balance in the skilled nursing industry will continue to improve due to the shift of patient care to lower cost settings, an aging population and increasing life expectancies. | ||
• | Increased Demand Driven by Aging Populations and Increased Life Expectancy. As life expectancy continues to increase in the United States and seniors account for a higher percentage of the total U.S. population, we believe the overall demand for skilled nursing services will increase. At present, the primary market demographic for skilled nursing services is primarily individuals age 75 and older. According to U.S. Census Bureau Interim Projections, there will be 46 million people in the United States in 2010 that are over 65 years old. The U.S. Census Bureau estimates this group is one of the fastest growing segments of the United States population and is expected to more than double between 2000 and 2030. |
• | Enhanced CMPs and Escrow Provisions —Effective March 23, 2010, the Affordable Care Act includes expanded civil monetary penalty (CMP) provisions applicable to all Medicare and Medicaid providers. The Affordable Care Act provides for the imposition of CMPs of up to $50,000 and, in some cases, treble damages, for actions relating to alleged false statements to the federal government. |
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• | Nursing Home Transparency Requirements —In addition to expanded CMP provisions, the Affordable Care Act imposes substantial new transparency requirements for Medicare-participating nursing facilities. Existing law requires Medicare providers to disclose to CMS: (1) any person or entity that owns directly or indirectly an ownership interest of five percent or more in a provider; (2) officers and directors (if a corporation) and partners (if a partnership); and (3) holders of a mortgage, deed of trust, note or other obligation secured by the entity or the property of the entity. The Affordable Care Act expands the information required to be disclosed to include: (4) the facility’s organizational structure; (5) additional information on officers, directors, trustees, and “managing employees” of the facility (including their names, titles, and start dates of services); and (6) information on any “additional disclosable party” of the facility. Beginning March 23, 2010, facilities must have this information available for submission to the Secretary of Health & Human Services, the OIG, the state in which the facility is located, and the state long-term care ombudsman upon request. | ||
• | Suspension of Payments During Pending Fraud Investigations —The Affordable Care Act also provides the federal government with expanded authority to suspend payment if a provider is investigated for allegations or issues of fraud. The Affordable Care Act provides that Medicare and Medicaid payments may be suspended pending a “credible investigation of fraud,” unless the Secretary of Health and Human Services determines that good cause exists not to suspend payments. This suspension authority creates a new mechanism for the federal government to suspend both Medicare and Medicaid payments for allegations of fraud, independent of whether a state exercises its authority to suspend Medicaid payments pending a fraud investigation. | ||
• | Overpayment Reporting and Repayment; Expanded False Claims Act Liability —The Affordable Care Act also enacted several important changes that expand potential liability under the federal False Claims Act. Effective March 23, 2010, the Affordable Care Act provides that overpayments related to services provided to both Medicare and Medicaid beneficiaries must be reported and returned to the applicable payor within the later of sixty days of identification of the overpayment, or the date the corresponding cost report (if applicable) is due. Any overpayment retained after the deadline is considered an “obligation” for purposes of the federal False Claims Act. |
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Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Expenses: | ||||||||||||||||
Cost of services (exclusive of facility rent and depreciation and amortization shown separately below) | 79.7 | 79.7 | 79.8 | 79.8 | ||||||||||||
Facility rent—cost of services | 2.3 | 2.8 | 2.3 | 2.8 | ||||||||||||
General and administrative expense | 4.0 | 4.1 | 3.9 | 4.0 | ||||||||||||
Depreciation and amortization | 2.5 | 2.4 | 2.5 | 2.4 | ||||||||||||
Total expenses | 88.5 | 89.0 | 88.5 | 89.0 | ||||||||||||
Income from operations | 11.5 | 11.0 | 11.5 | 11.0 | ||||||||||||
Other income (expense): | ||||||||||||||||
Interest expense | (1.5 | ) | (0.9 | ) | (1.5 | ) | (1.0 | ) | ||||||||
Interest income | 0.1 | 0.1 | 0.1 | 0.1 | ||||||||||||
Other expense, net | (1.4 | ) | (0.8 | ) | (1.4 | ) | (0.9 | ) | ||||||||
Income before provision for income taxes | 10.1 | 10.2 | 10.1 | 10.1 | ||||||||||||
Provision for income taxes | 4.0 | 4.0 | 4.0 | 4.0 | ||||||||||||
Net income | 6.1 | % | 6.2 | % | 6.1 | % | 6.1 | % | ||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Consolidated Statement of Income Data: | ||||||||||||||||
Net income | $ | 9,619 | $ | 8,184 | $ | 18,967 | $ | 16,107 | ||||||||
Interest expense, net | 2,245 | 1,072 | 4,458 | 2,330 | ||||||||||||
Provision for income taxes | 6,230 | 5,282 | 12,356 | 10,560 | ||||||||||||
Depreciation and amortization | 4,023 | 3,209 | 7,978 | 6,174 | ||||||||||||
EBITDA(1) | $ | 22,117 | $ | 17,747 | $ | 43,759 | $ | 35,171 | ||||||||
Facility rent—cost of services | 3,616 | 3,724 | 7,191 | 7,425 | ||||||||||||
EBITDAR(1) | $ | 25,733 | $ | 21,471 | $ | 50,950 | $ | 42,596 | ||||||||
(1) | EBITDA and EBITDAR are supplemental non-GAAP financial measures. Regulation G,Conditions for Use of Non-GAAP Financial Measures, and other provisions of the Securities Exchange Act of 1934, as amended, define and prescribe the conditions for use of certain non-GAAP financial information. We calculate EBITDA as net income before (a) interest expense, net, (b) provision for income taxes, and (c) depreciation and amortization. We calculate EBITDAR by adjusting EBITDA to exclude facility rent—cost of services. These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. These non-GAAP financial measures should not be relied upon to the exclusion of GAAP financial measures. These non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business. |
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• | they are widely used by investors and analysts in our industry as a supplemental measure to evaluate the overall operating performance of companies in our industry without regard to items such as interest expense, net and depreciation and amortization, which can vary substantially from company to company depending on the book value of assets, capital structure and the method by which assets were acquired; and | ||
• | they help investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure and asset base from our operating results. |
• | as measurements of our operating performance to assist us in comparing our operating performance on a consistent basis; | ||
• | to allocate resources to enhance the financial performance of our business; | ||
• | to evaluate the effectiveness of our operational strategies; and | ||
• | to compare our operating performance to that of our competitors. |
• | they do not reflect our current or future cash requirements for capital expenditures or contractual commitments; | ||
• | they do not reflect changes in, or cash requirements for, our working capital needs; | ||
• | they do not reflect the net interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; | ||
• | they do not reflect any income tax payments we may be required to make; | ||
• | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and EBITDAR do not reflect any cash requirements for such replacements; and | ||
• | other companies in our industry may calculate these measures differently than we do, which may limit their usefulness as comparative measures. |
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Three Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2010 | 2009 | Change | % Change | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Total Facility Results: | ||||||||||||||||
Revenue | $ | 157,948 | $ | 132,178 | $ | 25,770 | 19.5 | % | ||||||||
Number of facilities at period end | 81 | 70 | 11 | 15.7 | % | |||||||||||
Actual patient days | 667,858 | 576,738 | 91,120 | 15.8 | % | |||||||||||
Occupancy percentage — Operational beds | 79.3 | % | 79.4 | % | (0.1 | )% | ||||||||||
Skilled mix by nursing days | 24.8 | % | 24.3 | % | 0.5 | % | ||||||||||
Skilled mix by nursing revenue | 48.2 | % | 48.0 | % | 0.2 | % |
Three Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2010 | 2009 | Change | % Change | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Same Facility Results(1): | ||||||||||||||||
Revenue | $ | 120,899 | $ | 116,296 | $ | 4,603 | 4.0 | % | ||||||||
Number of facilities at period end | 56 | 56 | — | — | % | |||||||||||
Actual patient days | 488,508 | 495,981 | (7,473 | ) | (1.5 | )% | ||||||||||
Occupancy percentage — Operational beds | 82.5 | % | 81.6 | % | 0.9 | % | ||||||||||
Skilled mix by nursing days | 28.6 | % | 25.9 | % | 2.7 | % | ||||||||||
Skilled mix by nursing revenue | 52.9 | % | 50.1 | % | 2.8 | % |
Three Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2010 | 2009 | Change | % Change | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Transitioning Facility Results(2): | ||||||||||||||||
Revenue | $ | 8,753 | $ | 7,924 | $ | 829 | 10.5 | % | ||||||||
Number of facilities at period end | 6 | 6 | — | — | % | |||||||||||
Actual patient days | 40,901 | 39,249 | 1,652 | 4.2 | % | |||||||||||
Occupancy percentage — Operational beds | 70.6 | % | 67.7 | % | 2.9 | % | ||||||||||
Skilled mix by nursing days | 18.5 | % | 18.2 | % | 0.3 | % | ||||||||||
Skilled mix by nursing revenue | 39.7 | % | 41.7 | % | (2.0 | )% |
Three Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2010 | 2009 | Change | % Change | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Recently Acquired Facility Results(3): | ||||||||||||||||
Revenue | $ | 28,296 | $ | 7,958 | $ | 20,338 | NM | % | ||||||||
Number of facilities at period end | 19 | 7 | 12 | NM | % | |||||||||||
Actual patient days | 138,449 | 41,508 | 96,941 | NM | % | |||||||||||
Occupancy percentage — Operational beds | 72.2 | % | 68.1 | % | 4.1 | % | ||||||||||
Skilled mix by nursing days | 13.5 | % | 10.8 | % | 2.7 | % | ||||||||||
Skilled mix by nursing revenue | 29.5 | % | 23.3 | % | 6.2 | % |
(1) | Same Facility results represent all facilities purchased prior to January 1, 2007. Same Facility results for 2009 include the results of operations through June 30, 2009 of our assisted living facility in Arizona where we decided not to exercise our renewal option on the lease which expired on September 30, 2009. The reduction in the number of actual patient days primarily relates to the non-renewal of this lease. | |
(2) | Transitioning Facility results represents all facilities purchased from January 1, 2007 to December 31, 2008. | |
(3) | Recently Acquired Facility (or “Acquisitions”) results represent all facilities purchased on or subsequent to January 1, 2009. |
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Three Months Ended June 30, | ||||||||||||||||||||||||||||||||||||
Same Facility | Transitioning | Acquisitions | Total | % | ||||||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | Change | ||||||||||||||||||||||||||||
Skilled Nursing Average Daily Revenue Rates: | ||||||||||||||||||||||||||||||||||||
Medicare | $ | 551.53 | $ | 552.06 | $ | 473.28 | $ | 472.55 | $ | 429.87 | $ | 452.51 | $ | 527.95 | $ | 542.05 | (2.6 | )% | ||||||||||||||||||
Managed care | 343.52 | 340.15 | 387.44 | 402.17 | 403.17 | 393.82 | 348.56 | 342.94 | 1.6 | % | ||||||||||||||||||||||||||
Other skilled | 543.60 | 620.88 | — | — | 622.49 | — | 546.03 | 620.88 | (12.1 | )% | ||||||||||||||||||||||||||
Total skilled revenue | 469.43 | 470.83 | 443.46 | 457.40 | 428.44 | 440.92 | 463.57 | 469.18 | (1.2 | )% | ||||||||||||||||||||||||||
Medicaid | 163.44 | 160.44 | 155.73 | 142.87 | 155.92 | 166.29 | 161.22 | 159.60 | 1.0 | % | ||||||||||||||||||||||||||
Private and other payors | 189.80 | 185.21 | 147.24 | 138.37 | 174.66 | 194.98 | 180.74 | 180.64 | 0.1 | % | ||||||||||||||||||||||||||
Total skilled nursing revenue | $ | 253.53 | $ | 243.42 | $ | 207.19 | $ | 199.02 | $ | 195.48 | $ | 203.31 | $ | 238.54 | $ | 237.40 | 0.5 | % |
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Three Months Ended June 30, | ||||||||||||||||||||||||||||||||
Same Facility | Transitioning | Acquisitions | Total | |||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||
Percentage of Skilled Nursing Revenue: | ||||||||||||||||||||||||||||||||
Medicare | 33.8 | % | 33.3 | % | 27.6 | % | 33.8 | % | 24.3 | % | 19.2 | % | 31.8 | % | 32.5 | % | ||||||||||||||||
Managed care | 15.2 | 14.3 | 12.1 | 7.9 | 4.6 | 4.1 | 13.2 | 13.3 | ||||||||||||||||||||||||
Other skilled | 3.9 | 2.5 | — | — | 0.6 | — | 3.2 | 2.2 | ||||||||||||||||||||||||
Skilled mix | 52.9 | 50.1 | 39.7 | 41.7 | 29.5 | 23.3 | 48.2 | 48.0 | ||||||||||||||||||||||||
Private and other payors | 7.6 | 8.1 | 15.5 | 15.0 | 13.7 | 25.0 | 9.1 | 9.5 | ||||||||||||||||||||||||
Quality mix | 60.5 | 58.2 | 55.2 | 56.7 | 43.2 | 48.3 | 57.3 | 57.5 | ||||||||||||||||||||||||
Medicaid | 39.5 | 41.8 | 44.8 | 43.3 | 56.8 | 51.7 | 42.7 | 42.5 | ||||||||||||||||||||||||
Total skilled nursing | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||
Three Months Ended June 30, | ||||||||||||||||||||||||||||||||
Same Facility | Transitioning | Acquisitions | Total | |||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||
Percentage of Skilled Nursing Days: | ||||||||||||||||||||||||||||||||
Medicare | 15.5 | % | 14.7 | % | 12.1 | % | 14.3 | % | 11.1 | % | 8.7 | % | 14.4 | % | 14.2 | % | ||||||||||||||||
Managed care | 11.2 | 10.2 | 6.4 | 3.9 | 2.2 | 2.1 | 9.0 | 9.2 | ||||||||||||||||||||||||
Other skilled | 1.9 | 1.0 | — | — | 0.2 | — | 1.4 | 0.9 | ||||||||||||||||||||||||
Skilled mix | 28.6 | 25.9 | 18.5 | 18.2 | 13.5 | 10.8 | 24.8 | 24.3 | ||||||||||||||||||||||||
Private and other payors | 10.1 | 10.7 | 21.8 | 21.6 | 15.3 | 26.1 | 12.0 | 12.5 | ||||||||||||||||||||||||
Quality mix | 38.7 | 36.6 | 40.3 | 39.8 | 28.8 | 36.9 | 36.8 | 36.8 | ||||||||||||||||||||||||
Medicaid | 61.3 | 63.4 | 59.7 | 60.2 | 71.2 | 63.1 | 63.2 | 63.2 | ||||||||||||||||||||||||
Total skilled nursing | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||
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Six Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2010 | 2009 | Change | % Change | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Total Facility Results: | ||||||||||||||||
Revenue | $ | 312,122 | $ | 262,463 | $ | 49,659 | 18.9 | % | ||||||||
Number of facilities at period end | 81 | 70 | 11 | 15.7 | % | |||||||||||
Actual patient days | 1,316,942 | 1,143,357 | 173,585 | 15.2 | % | |||||||||||
Occupancy percentage — Operational beds | 79.4 | % | 79.6 | % | (0.2 | )% | ||||||||||
Skilled mix by nursing days | 25.4 | % | 24.8 | % | 0.6 | % | ||||||||||
Skilled mix by nursing revenue | 49.0 | % | 48.3 | % | 0.7 | % |
Six Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2010 | 2009 | Change | % Change | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Same Facility Results(1): | ||||||||||||||||
Revenue | $ | 242,049 | $ | 232,600 | $ | 9,449 | 4.1 | % | ||||||||
Number of facilities at period end | 56 | 56 | — | — | % | |||||||||||
Actual patient days | 974,009 | 992,838 | (18,829 | ) | (1.9 | )% | ||||||||||
Occupancy percentage — Operational beds | 82.6 | % | 82.0 | % | 0.6 | % | ||||||||||
Skilled mix by nursing days | 29.0 | % | 26.3 | % | 2.7 | % | ||||||||||
Skilled mix by nursing revenue | 53.5 | % | 50.2 | % | 3.3 | % |
Six Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2010 | 2009 | Change | % Change | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Transitioning Facility Results(2): | ||||||||||||||||
Revenue | $ | 16,917 | $ | 16,164 | $ | 753 | 4.7 | % | ||||||||
Number of facilities at period end | 6 | 6 | — | — | % | |||||||||||
Actual patient days | 80,878 | 78,041 | 2,837 | 3.6 | % | |||||||||||
Occupancy percentage — Operational beds | 70.2 | % | 67.7 | % | 2.5 | % | ||||||||||
Skilled mix by nursing days | 18.7 | % | 18.7 | % | — | % | ||||||||||
Skilled mix by nursing revenue | 40.0 | % | 43.2 | % | (3.2 | )% |
Six Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2010 | 2009 | Change | % Change | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Recently Acquired Facility Results(3): | ||||||||||||||||
Revenue | $ | 53,156 | $ | 13,699 | $ | 39,457 | NM | % | ||||||||
Number of facilities at period end | 19 | 7 | 12 | NM | % | |||||||||||
Actual patient days | 262,055 | 72,478 | 189,577 | NM | % | |||||||||||
Occupancy percentage — Operational beds | 71.8 | % | 65.9 | % | 5.9 | % | ||||||||||
Skilled mix by nursing days | 14.2 | % | 9.6 | % | 4.6 | % | ||||||||||
Skilled mix by nursing revenue | 30.6 | % | 20.8 | % | 9.8 | % |
(1) | Same Facility results represent all facilities purchased prior to January 1, 2007. Same Facility results for 2009 include the results of operations through June 30, 2009 of our assisted living facility in Arizona where we decided not to exercise our renewal option on the lease which expired on September 30, 2009. The reduction in the number of actual patient days primarily relates to the non-renewal of this lease. | |
(2) | Transitioning Facility results represents all facilities purchased from January 1, 2007 to December 31, 2008. | |
(3) | Recently Acquired Facility (or “Acquisitions”) results represent all facilities purchased on or subsequent to January 1, 2009. |
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Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||
Same Facility | Transitioning | Acquisitions | Total | % | ||||||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | Change | ||||||||||||||||||||||||||||
Skilled Nursing Average Daily Revenue Rates: | ||||||||||||||||||||||||||||||||||||
Medicare | $ | 553.30 | $ | 543.66 | $ | 469.03 | $ | 475.85 | $ | 431.42 | $ | 438.09 | $ | 529.91 | $ | 535.15 | (1.0 | )% | ||||||||||||||||||
Managed care | 341.68 | 334.46 | 380.60 | 448.10 | 403.16 | 387.98 | 346.62 | 338.73 | 2.3 | % | ||||||||||||||||||||||||||
Other skilled | 547.19 | 632.38 | — | — | 623.46 | — | 549.62 | 632.38 | (13.1 | )% | ||||||||||||||||||||||||||
Total skilled revenue | 469.74 | 463.42 | 435.11 | 469.71 | 429.84 | 428.99 | 463.68 | 462.96 | 0.2 | % | ||||||||||||||||||||||||||
Medicaid | 163.86 | 160.95 | 149.65 | 142.82 | 158.35 | 165.56 | 161.75 | 159.95 | 1.1 | % | ||||||||||||||||||||||||||
Private and other payors | 187.63 | 183.81 | 152.83 | 140.27 | 173.81 | 191.78 | 179.91 | 179.43 | 0.3 | % | ||||||||||||||||||||||||||
Total skilled nursing revenue | $ | 254.99 | $ | 243.14 | $ | 203.76 | $ | 203.40 | $ | 199.17 | $ | 197.68 | $ | 240.63 | $ | 237.43 | 1.3 | % |
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Six Months Ended June 30, | ||||||||||||||||||||||||||||||||
Same Facility | Transitioning | Acquisitions | Total | |||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||
Percentage of Skilled Nursing Revenue: | ||||||||||||||||||||||||||||||||
Medicare | 34.3 | % | 33.5 | % | 26.6 | % | 34.1 | % | 25.3 | % | 17.4 | % | 32.5 | % | 32.8 | % | ||||||||||||||||
Managed care | 15.3 | 14.4 | 13.4 | 9.1 | 4.6 | 3.4 | 13.4 | 13.5 | ||||||||||||||||||||||||
Other skilled | 3.9 | 2.3 | — | — | 0.7 | — | 3.1 | 2.0 | ||||||||||||||||||||||||
Skilled mix | 53.5 | 50.2 | 40.0 | 43.2 | 30.6 | 20.8 | 49.0 | 48.3 | ||||||||||||||||||||||||
Private and other payors | 7.4 | 8.3 | 16.5 | 14.6 | 13.1 | 25.4 | 8.8 | 9.5 | ||||||||||||||||||||||||
Quality mix | 60.9 | 58.5 | 56.5 | 57.8 | 43.7 | 46.2 | 57.8 | 57.8 | ||||||||||||||||||||||||
Medicaid | 39.1 | 41.5 | 43.5 | 42.2 | 56.3 | 53.8 | 42.2 | 42.2 | ||||||||||||||||||||||||
Total skilled nursing | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||
Six Months Ended June 30, | ||||||||||||||||||||||||||||||||
Same Facility | Transitioning | Acquisitions | Total | |||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||
Percentage of Skilled Nursing Days: | ||||||||||||||||||||||||||||||||
Medicare | 15.8 | % | 15.0 | % | 11.5 | % | 14.6 | % | 11.7 | % | 7.9 | % | 14.7 | % | 14.5 | % | ||||||||||||||||
Managed care | 11.4 | 10.5 | 7.2 | 4.1 | 2.3 | 1.7 | 9.3 | 9.5 | ||||||||||||||||||||||||
Other skilled | 1.8 | 0.8 | — | — | 0.2 | — | 1.4 | 0.8 | ||||||||||||||||||||||||
Skilled mix | 29.0 | 26.3 | 18.7 | 18.7 | 14.2 | 9.6 | 25.4 | 24.8 | ||||||||||||||||||||||||
Private and other payors | 10.1 | 11.0 | 22.0 | 21.2 | 15.0 | 26.1 | 11.8 | 12.6 | ||||||||||||||||||||||||
Quality mix | 39.1 | 37.3 | 40.7 | 39.9 | 29.2 | 35.7 | 37.2 | 37.4 | ||||||||||||||||||||||||
Medicaid | 60.9 | 62.7 | 59.3 | 60.1 | 70.8 | 64.3 | 62.8 | 62.6 | ||||||||||||||||||||||||
Total skilled nursing | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||
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Six months ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Net cash provided by operating activities | $ | 14,903 | $ | 18,700 | ||||
Net cash used in investing activities | (25,153 | ) | (24,072 | ) | ||||
Net cash used in financing activities | (2,252 | ) | (2,267 | ) | ||||
Net decrease in cash and cash equivalents | (12,502 | ) | (7,639 | ) | ||||
Cash and cash equivalents at beginning of period | 38,855 | 41,326 | ||||||
Cash and cash equivalents at end of period | $ | 26,353 | $ | 33,687 | ||||
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December 31, | June 30, | |||||||||||||||
2007 | 2008 | 2009 | 2010 | |||||||||||||
(in thousands) | ||||||||||||||||
Amended Term Loan with GE Capital | $ | 54,929 | $ | 54,102 | $ | 93,170 | $ | 92,451 | ||||||||
Mortgage Loan and Promissory Notes | 8,641 | 6,449 | 15,064 | 14,900 | ||||||||||||
Bond payable | — | — | 1,232 | 1,137 | ||||||||||||
Total | $ | 63,570 | $ | 60,551 | $ | 109,466 | $ | 108,488 | ||||||||
December 31, | June 30, | |||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||
Cumulative number of facilities | 57 | 61 | 63 | 77 | 81 |
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• | certain indebtedness; | ||
• | certain investments, loans, advances and acquisitions; | ||
• | certain sales or other dispositions of our assets; | ||
• | certain liens and negative pledges; | ||
• | financial covenants; | ||
• | changes of control (as defined in the loan agreement); | ||
• | certain mergers, consolidations, liquidations and dissolutions; | ||
• | certain sale and leaseback transactions without the Lender’s consent; | ||
• | dividends and distributions during the existence of an event of default; | ||
• | guarantees and other contingent liabilities; | ||
• | affiliate transactions that are not in the ordinary course of business; and | ||
• | certain changes in capital structure. |
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• | an obligation to refund amounts previously paid to us pursuant to the Medicare or Medicaid programs or from private payors, in amounts that could be material to our business; | ||
• | state or federal agencies imposing fines, penalties and other sanctions on us; | ||
• | loss of our right to participate in the Medicare or Medicaid programs or one or more private payor networks; | ||
• | an increase in private litigation against us; and | ||
• | damage to our reputation in various markets. |
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• | facility and professional licensure, certificates of need, permits and other government approvals; | ||
• | adequacy and quality of healthcare services; |
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• | qualifications of healthcare and support personnel; | ||
• | quality of medical equipment; | ||
• | confidentiality, maintenance and security issues associated with medical records and claims processing; | ||
• | relationships with physicians and other referral sources and recipients; | ||
• | constraints on protective contractual provisions with patients and third-party payors; | ||
• | operating policies and procedures; | ||
• | certification of additional facilities by the Medicare program; and | ||
• | payment for services. |
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• | cost reporting and billing practices; | ||
• | quality of care; | ||
• | financial relationships with referral sources; and | ||
• | medical necessity of services provided. |
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• | conviction related to fraud; | ||
• | conviction relating to obstruction of an investigation; | ||
• | conviction relating to a controlled substance; | ||
• | licensure revocation or suspension; | ||
• | exclusion or suspension from state or other federal healthcare programs; | ||
• | filing claims for excessive charges or unnecessary services or failure to furnish medically necessary services; | ||
• | ownership or control of an entity by an individual who has been excluded from the Medicaid or Medicare programs, against whom a civil monetary penalty related to the Medicaid or Medicare programs has been assessed or who has been convicted of a criminal offense under federal healthcare programs; and | ||
• | the transfer of ownership or control interest in an entity to an immediate family or household member in anticipation of, or following, a conviction, assessment or exclusion from the Medicare or Medicaid programs. |
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• | the purchase, construction or expansion of healthcare facilities; | ||
• | capital expenditures exceeding a prescribed amount; or | ||
• | changes in services or bed capacity. |
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• | our ability to attract and retain qualified facility leaders, nursing staff and other employees; | ||
• | the number of competitors in the local market; | ||
• | the types of services available; | ||
• | our local reputation for quality care of patients; | ||
• | the commitment and expertise of our staff; | ||
• | our local service offerings; and | ||
• | the cost of care in each locality and the physical appearance, location, age and condition of our facilities. |
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• | we experience higher-than-expected professional liability, property and casualty, or other types of claims or losses; | ||
• | we receive survey deficiencies or citations of higher-than-normal scope or severity; | ||
• | we acquire especially troubled operations or facilities that present unattractive risks to current or prospective insurers; | ||
• | insurers tighten underwriting standards applicable to us or our industry; or | ||
• | insurers or reinsurers are unable or unwilling to insure us or the industry at historical premiums and coverage levels. |
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• | our board of directors are authorized, without prior stockholder approval, to create and issue preferred stock, commonly referred to as “blank check” preferred stock, with rights senior to those of common stock; | ||
• | advance notice requirements for stockholders to nominate individuals to serve on our board of directors or to submit proposals that can be acted upon at stockholder meetings; | ||
• | our board of directors are classified so not all members of our board are elected at one time, which may make it more difficult for a person who acquires control of a majority of our outstanding voting stock to replace our directors; | ||
• | stockholder action by written consent is limited; | ||
• | special meetings of the stockholders are permitted to be called only by the chairman of our board of directors, our chief executive officer or by a majority of our board of directors; | ||
• | stockholders are not permitted to cumulate their votes for the election of directors; | ||
• | newly created directorships resulting from an increase in the authorized number of directors or vacancies on our board of directors are filled only by majority vote of the remaining directors; | ||
• | our board of directors is expressly authorized to make, alter or repeal our bylaws; and | ||
• | stockholders are permitted to amend our bylaws only upon receiving the affirmative vote of at least a majority of our outstanding common stock. |
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Exhibit | Description | |||
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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THE ENSIGN GROUP, INC. | ||||
August 6, 2010 | BY: | /s/ SUZANNE D. SNAPPER | ||
Suzanne D. Snapper | ||||
Chief Financial Officer and Duly Authorized Officer |
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Exhibit | Description | |||
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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