SECURITIES AND EXCHANGE COMMISSION 	Washington D.C. 20549 	FORM 10-Q X 		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 		For the period ended September 30, 1997 	OR 		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 		For the transition period from: 		Commission file number 0-19411 	SUMMIT CARE CORPORATION 	(Exact name of Registrant as specified in its charter) 	California	95-3656297 	 (State or other jurisdiction of	(I.R.S. Employer 	 incorporation or organization)	Identification No.) 	2600 W. Magnolia Blvd. 		 Burbank, California 91505-3031 	(address of principal executive offices) 	(818) 841-8750 	(Registrant's telephone number, including area code) Indicate by checkmark 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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No 	APPLICABLE ONLY TO ISSUERS INVOLVED IN 	 BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by checkmark whether the Registrant (1) has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No 	APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 	Shares of Registrant's common stock outstanding at September 30, 1997 -- 6,776,000 SUMMIT CARE CORPORATION 	FORM 10-Q 	Quarter Ended 	September 30, 1997 	TABLE OF CONTENTS 					Page of 			 		Form 10-Q --------- Part I - Financial Information 	Item 1.	Financial Statements 			Consolidated Statements of Income	 3 			Consolidated Balance Sheets	 4 			Consolidated Statements of Cash Flows	 6 			Notes to Consolidated Financial Statements	 7 	Item 2.	Management's Discussion and Analysis of Financial 			Condition and Results of Operations	 9 Part II - Other Information 	Item 6.	Exhibits and Reports on Form 8-K	 13 			Signatures	 14 PART I 	SUMMIT CARE CORPORATION 	CONSOLIDATED STATEMENTS OF INCOME 	(Unaudited) 	 (In thousands, except earnings per share) 	Three Months Ended 	 September 30, 	 1997 	 1996 ------------------ Net revenues	 $54,535	 $48,907	 Expenses: 	Salaries and benefits	 23,610	 21,077 	Supplies	 5,170	 5,044 	Purchased services	 13,367	 11,907 	Provision for doubtful accounts	 823	 246 	Other expenses 	3,746 	3,434 	Rental	 763 	697 	Depreciation and amortization	 2,084	 1,792 	Interest (net of interest income, $202 in 1997	and $214 in 1996)	 2,277	 2,123 ------ ------ 			 51,840	 46,320 Income before provision for income taxes	 2,695 	2,587 Provision for income taxes	 1,065	 1,022 ------ ------ Net income	 $ 1,630	 $ 1,565 ======= ======= Earnings per share		 $ 0.24 	 $ 0.23 ======= ======= Weighted average number of shares of 	common stock outstanding	 6,806	 6,878 ======= ======= 	 See accompanying notes 	 SUMMIT CARE CORPORATION 	CONSOLIDATED BALANCE SHEETS 	(In thousands) 	 Sept. 30, 1997	 June 30, 1997 -------------- ------------- 	(Unaudited) 	(Note) ASSETS Current assets: 	Cash and cash equivalents	 $ 7,816	 $ 3,994	 Accounts receivable, less allowance for 	 doubtful accounts: September 1997 - $2,139; June 1997 - $2,028	 33,330 	33,749 	Supplies inventory, at cost	 2,860	 2,690 	Other current assets	 13,452 	12,356 ------- ------- Total current assets	 57,458	 52,789 Property and equipment, at cost: 	Land and land improvements	 19,514 	19,513 	Buildings and leasehold improvements	 163,470	 161,080 	Furniture and equipment	 24,758	 23,978 	Construction in progress	 5,832	 5,947 ------- ------- 	 		213,574 	210,518 			 	Less accumulated depreciation and amortization	 30,610	 28,605 ------- ------- 			182,964	 181,913 Notes receivable, less allowance for 		 	doubtful accounts: September 1997 - $341;	June 1997 -$322	 6,646	 6,859 Other assets	 8,994	 8,955 ------- ------- 		 	$256,062 	$250,516 ======== ======== NOTE: The balance sheet at June 30, 1997 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. 	See accompanying notes 	 SUMMIT CARE CORPORATION 	CONSOLIDATED BALANCE SHEETS (Continued) 	(In thousands) 	 Sept. 30, 1997	 June 30, 1997 -------------- ------------- 	(Unaudited) 	(Note) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: 	Payable to bank	 $ 2,507	 $ 4,678 	Accounts payable	 35,702	 29,586 	Employee compensation and benefits	 4,916	 5,877 	Income taxes payable	 1,037	 -- 				 ------- ------- Total current liabilities	 44,162	 40,141	 Long-term debt 	 121,347	 121,452 Deferred income taxes	 7,511	 7,511 ------- ------- Total liabilities	 173,020	 169,104 Commitments and contingencies Shareholders' equity: 	Preferred stock, no par value; 2,000 authorized shares, none issued		 -- -- Common stock, no par value, 100,000 authorized shares; 6,776 issued 	and outstanding in both periods	 51,543	 51,543 	Retained earnings	 31,499 	 29,869 ------- ------- Total shareholders' equity 	 83,042	 81,412 ------- ------- 			$256,062	 $250,516 ======== ======== NOTE: The balance sheet at June 30, 1997 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. 	See accompanying notes 	 SUMMIT CARE CORPORATION 	 CONSOLIDATED STATEMENTS OF CASH FLOWS 	(Unaudited) 	(In thousands) 				 Three Months Ended 	 September 30, 	 1997 	 1996 ----------------- Operating activities: 	Net income	 $ 1,630 	 $ 1,565 	Adjustments to reconcile net income to net cash provided by operating activities: 			Depreciation and amortization	 2,084 	 1,792 			 Decrease (increase) in accounts receivable, net	 419 	 (3,230)			 (Increase) in supplies inventory	 (170) 	( 50)			 (Increase) increase in other current assets	 (1,120) 	1,187 			Increase in accounts payable 	6,116 	2,146 (Decrease) increase in employee compensation 			 and benefits	 (961) 	347 			Increase in income taxes payable	 1,037 	 606 ------ ------ 	Total adjustments	 7,405 	 2,798 ------ ------ 	Net cash provided by operating activities	 9,035 	 4,363 ------ ------ Investing activities: 	Issuance of notes receivable	 (1,790)	 (350) Principal payments of notes receivable	 2,028 	100 	Additions to property and equipment 	(3,056) 	 (6,566) 	(Increase) decrease in other assets 	( 119)	 93 ------ ------ 		Net cash used in investing activities	 (2,937) 	 (6,723) ------ ------ Financing activities: 	(Decrease) in payable to bank	 (2,171) 	(1,303) 	Principal payments on long-term debt	 (2,105)	 (8,208)	 Proceeds from long-term debt	 2,000 	 15,000 ----- ------ 	Net cash (used in) provided by financing activities 	 (2,276) 	 5,489 ----- ------ Increase in cash and cash equivalents	 3,822 	3,129 Cash and cash equivalents at beginning of period	 3,994 	 2,658 ------ ------ Cash and cash equivalents at end of period	 $ 7,816 	$ 5,787 ======= ======= Supplemental disclosures of cash flow information: 		Cash paid during the period for: 			Interest	 $ 575 	 $ 946 			Income taxes	 28 	416 	 SUMMIT CARE CORPORATION 	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 	(Unaudited) 	(In thousands) 1.		The unaudited financial information included herein, in the opinion of management, reflects all adjustments (all of which are of a normal recurring nature), which are considered necessary to fairly state the Company's financial position, its cash flows and the results of operations. These statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the Company's annual report on Form 10-K for the year ended June 30, 1997. The interim financial information herein is not necessarily representative of that to be expected for a full year. 2.		Certain amounts have been reclassified to conform with fiscal 1998 presentations. 3.		Earnings per share are based on the weighted average number of shares of common stock outstanding, which was 6,806 for the three months ended September 30, 1997 and 6,878 for the three months ended September 30, 1996. 4.		Other current assets consist of the following: 				September 30, 1997	 June 30, 1997 ------------------ ------------- 			Due from third party payors	 $ 3,158	 $ 2,491 			Deferred tax assets	 1,956 	1,956 			Notes receivable	 1,228 	1,253 			Prepaid expenses	 2,733 	1,004 			Income tax receivable 	3,000 	4,128 			Other receivables	 1,377	 1,524 ------ ------		 	$13,452	 $12,356 ======= ======= 5.	In July 1997, the Company opened its fifth assisted living center with 66 beds in Orange, California, at a total cost of construction of $3,924. In September 1997, the Company exercised a purchase option in its lease of a 111-bed skilled nursing care center in La Grange, Texas. The purchase price of $1,871 was financed with funds from the Company's bank line of credit. In November 1997, the Company opened 47 additional beds at one of its two skilled nursing care center in Lubbock, Texas, at an approximate cost of construction of $1,900. 	SUMMIT CARE CORPORATION 	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.) 	(Unaudited) 	(In thousands) 6.	Accounting for Stock-Based Compensation. In October 1995, Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), was issued which, if elected, would require companies to use a new fair value method of valuing stock-based compensation plans. The Company has elected to continue following present accounting rules under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" which uses an intrinsic value method and often results in no compensation expense. In accordance with SFAS 123, disclosures are not required for an interim quarterly report unless a complete set of financial statements is presented for that period. 7.	Recent Accounting Pronouncement: In February 1997, the Financial Accounting Standards Board issued the Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which is effective for fiscal years ending after December 15, 1997, including interim periods. An entity with a June 30, 1997 year end will have to implement SFAS 128 in its second quarter, the quarter ending December 31, 1997. Earlier adoption is not permitted. The Company plans to adopt SFAS 128 in the quarter ending December 31, 1997, and has not determined the impact, if any, of adoption. 8.	Recent Accounting Pronouncement: In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), which is effective for fiscal years ending after December 15, 1997. This Statement is not required to be applied to interim financial statements in the initial year of its application. SFAS 131 establishes standards for the way that public enterprises report information about operating segments in annual financial statements. It also requires that those enterprises report selected information about operating segments in interim financial reports issued to stockholders. Under existing accounting standards, the Company has reported its operations as one line of business because substantially all of its revenues have been derived from its skilled nursing care centers and assisted living centers and closely related ancillary services. The Company is presently evaluating the new standard in order to determine its effect, if any, on the way the Company might report its operations in the future. 	 SUMMIT CARE CORPORATION 	FORM 10-Q 	MANAGEMENT'S DISCUSSION AND ANALYSIS OF 	 FINANCIAL CONDITION AND RESULTS OF OPERATIONS 	(Dollars in thousands) Results of Operations - --------------------- Quarter Ended September 30, 1997 Compared to Quarter Ended September 30, 1996 	Net revenues increased $5,628 or 11.5% from $48,907 for the quarter ended September 30, 1996 to $54,535 for the quarter ended September 30, 1997. The increase occurred due to the following: 							 		Amount	 Percent ------ ------- 	1.	Increased census days and revenue rates		 $2,611 	 46.4%	 	2.	New beds opened in fiscal years 1997 and 1998	 1,956 	 34.7 	3.	Pharmacy operations					 889 	 15.8 	4.	Rehabilitative and other specialty services		 172 	 3.1 ----- ---- 								 	$5,628 	100.0% 	Average occupancy was 87.7% in the first quarter ended September 30, 1997 and 83.6% in the first quarter ended September 30, 1996. Excluding newly constructed beds, the average occupancy was 91.1% in the first quarter ended September 30, 1997 and 85.4% in the same quarter last year. The Company's quality mix (revenues from Medicare, managed care and private pay patients as a percentage of gross revenues excluding pharmacy revenues) was 69.1% in the first quarter ended September 30, 1997 and 69.9% in the first quarter ended September 30, 1996. 	Expenses, consisting of salaries and benefits, supplies, purchased services, provision for doubtful accounts and other expenses as a percent of net revenues increased from 85.3% of net revenues in the first quarter ended September 30, 1996 to 85.7% in the first quarter ended September 30, 1997. Total salaries and employee related benefits were 43.3% of net revenues in the first quarter ended September 30, 1997 compared to 43.1% of net revenues in the first quarter ended September 30, 1996. Expenses increased $5,008 or 12.0% from $41,708 in the first quarter ended September 30, 1996 to $46,716 in the first quarter ended September 30, 1997 for the following reasons: 						 Amount	 Percent ------ ------- 	1.	Salaries and benefits		 			 $1,766	 35.3%	 	2.	Expenses relating to new beds opened 		 in fiscal years 1997 and 1998			 1,558 	31.1 	3.	Rehabilitative and other specialty services		 908	 18.1 	4.	Other expenses					 776	 15.5 ----- ---- 					 				 $5,008	 100.0% 	 SUMMIT CARE CORPORATION 	FORM 10-Q 	MANAGEMENT'S DISCUSSION AND ANALYSIS OF 	 FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont.) 	Income before rental, depreciation and amortization and interest expense, net of interest income, increased $620 or 8.6% from $7,199 in the first quarter ended September 30, 1996 to $7,819 in the first quarter ended September 30, 1997 and was 14.3% of net revenues in the first quarter ended September 30, 1997 compared to 14.7% in the first quarter ended September 30, 1996. 	Rental, depreciation and amortization and interest expense, net of interest income, increased $512 or 11.1% from $4,612 in the first quarter ended September 30, 1996 to $5,124 in the first quarter ended September 30, 1997. Substantially all of this increase was due to depreciation expense related to capital additions and interest expense related to higher debt. 	The Company's effective tax rate was 39.5% of income in both periods. Net income after taxes increased $65 or 4.2% from $1,565 in the first quarter ended September 30, 1996 to $1,630 in the first quarter ended September 30, 1997. 	 SUMMIT CARE CORPORATION 	FORM 10-Q 	MANAGEMENT'S DISCUSSION AND ANALYSIS OF 	FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont.) Selected statistics are shown below: Fiscal 				Increase 	 1998 	 1997 	(Decrease) ---- ---- ---------- 	Facilities in operation at: 		September 30	 40	 39	 1 	 	Nursing center beds at: 		September 30	 4,631	 4,629	 2 	Assisted living beds at: 		September 30 	 475	 468	 7 	Total beds at: 		September 30		 5,106	 5,097	 9 	Total occupancy: 			First quarter	 87.7%	 83.6%	 4.1% 	Nursing center occupancy: 		First quarter	 88.6%	 84.1%	 4.5% 	Assisted living center occupancy: 			First quarter 	79.6%	 78.7%	 0.9% 	Percentage of revenues from 		private, managed care and 		Medicare (quality mix): 			First quarter	 69.1% 	69.9%	 (0.8)% 	Percentage of revenues from 		Medicaid: 			First quarter	 30.9%	 30.1%	 0.8% 	SUMMIT CARE CORPORATION 	FORM 10-Q 	MANAGEMENT'S DISCUSSION AND ANALYSIS OF 	FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont.) Liquidity and Capital Resources - ------------------------------- 	At September 30, 1997, the Company had $7,816 in cash and cash equivalents and working capital of $13,296. During the quarter ended September 30, 1997, the Company's cash and cash equivalents increased by $3,822. 	Net cash provided by operating activities increased $4,672 from $4,363 in the first quarter of 1996 to $9,035 in the first quarter of 1997. Net cash provided by operating activities during the first quarter ended September 30, 1997, was used principally for capital expenditures of $3,056 for existing centers, $2,105 in principal payments on long term debt and to increase cash and cash equivalents by $3,822. 	Accounts receivable, less allowance for doubtful accounts, decreased $419 during the quarter ended September 30, 1997, primarily due to increased collections. The Company's average accounts receivable days outstanding were 39 at September 30, 1997 and 1996, and 41 at June 30, 1997. 	Long-term debt consisted of mortgage indebtedness of $8,202 on three properties, $11,145 on four capitalized leases, $7,000 in borrowings on the Company's bank line of credit and $95,000 in senior secured debt totaling $121,347 at September 30, 1997. 	The Company believes that it has sufficient cash flow from its existing operations and from its bank line of credit to service long-term debt due within one year of $8,859 (the Company intends to borrow this amount against its bank line of credit which has a revolver extending to September 30, 1998 followed by a three year payment period), to make normal recurring capital replacements, additions and improvements of approximately $8,700 planned for the next 12 months, to develop properties over the next 12 months costing approximately $2,200 and to meet other long-term working capital needs and obligations. The Company expects, on a selective basis, to pursue expansion of its existing centers and the acquisition or development of additional centers in markets where demographics and competitive factors are favorable. Impact of Inflation 	The health care industry is labor intensive. Wages and other expenses increase more rapidly during periods of inflation and when shortages in the labor market occur. In addition, suppliers pass along rising costs in the form of higher prices. Increases in reimbursement rates under Medicaid generally lag behind actual cost increases, so that the Company may have difficulty covering them in a timely fashion. Recent Accounting Pronouncements 	See Notes 7 and 8 to Consolidated Financial Statements. 	 PART II 	SUMMIT CARE CORPORATION 	OTHER INFORMATION 	Quarter Ended 	 September 30, 1997 Item 6.	EXHIBITS AND REPORTS ON FORM 8-K 	(a)	Exhibits 			NONE 	(b)	Reports on Form 8-K 			NONE 	SUMMIT CARE CORPORATION 	SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 	SUMMIT CARE CORPORATION Date:	November 12, 1997 	By: \DERWIN L. WILLIAMS\ --------------------- 	 	 Derwin L. Williams 	 	 Sr. Vice President - Finance, Chief Financial Officer AND Treasurer (Principal Financial Officer) Date:	November 12, 1997	 By: \JOHN L. FARBER\ --------------------- 		 John L. Farber 	 Vice President - Controller and Secretary (Principal Accounting Officer)