UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
Commission File Number 34-22090
THE MULTICARE COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3152527
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification no.)
411 Hackensack Avenue 07601
Hackensack, New Jersey (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (201) 488-8818
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $.01 share
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates of the
Registrant: At March 27, 1997 (based on the closing price of such stock as
reported by The New York Stock Exchange): $338,222,553.
Class Outstanding at March 27, 1997
Common Stock $.01 Par Value 30,781,459 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement for its Annual
Meeting of Stockholders to be held May 14, 1997 are incorporated by reference
into Part III of this report and portions of the Registrant's 1996 Annual
Report to stockholders are incorporated by reference into Part II of this
report.
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Part I
Special Note Regarding Forward-Looking Statements
Certain statements in this Form 10-K, including information set forth under
"Item 1. Business", "Item 3. Legal Proceedings", and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations",
constitute "Forward-Looking Statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). The Multicare
Companies, Inc. ("Multicare" or the "Company") desires to take advantage of
certain "safe harbor" provisions of the Reform Act and is including this
special note to enable the Company to do so. Forward-looking statements
included in this Form 10-K, or hereafter included in other publicly available
documents filed with the Securities and Exchange Commission, reports to the
Company's stockholders and other publicly available statements issued or
released by the Company involve known and unknown risks, uncertainties, and
other factors which could cause the Company's actual results, performance
(financial or operating) or achievements to differ materially from the future
results, performance (financial or operating) achievements expressed or
implied by such forward-looking statement. The Company believes the
following important factors could cause such a material difference to occur:
(1) The Company's ability to grow through the acquisition and development of
long-term care facilities or the acquisition of ancillary businesses.
(2) The Company's ability to identify suitable acquisition candidates, to
consummate or complete construction projects, or to profitably operate or
successfully integrate enterprises into the Company's other operations.
(3) The occurrence of changes in the mix of payment sources utilized by the
Company's patients to pay for the Company's services.
(4) The adoption of cost containment measures by private pay sources such as
commercial insurers and managed care organizations, as well as efforts by
governmental reimbursement sources to impose cost containment measures.
(5) Changes in the United States healthcare system, including changes in
reimbursement levels under Medicaid and Medicare, and other changes in
applicable government regulations that might affect the profitability of the
Company.
(6) The Company's continued ability to operate in a heavily regulated
environment and to satisfy regulatory authorities, thereby avoiding a number
of potentially adverse consequences, such as the imposition of fines,
temporary suspension of admission of patients, restrictions on the ability to
acquire new facilities, suspension or decertification from Medicaid or
Medicare programs, and, in extreme cases, revocation of a facility's license
or the closure of a facility, including as a result of unauthorized
activities by employees.
(7) The Company's ability to secure the capital and the related cost of such
capital necessary to fund its future growth through acquisition and
development, as well as internal growth.
(8) Changes in certificate of need laws that might increase competition in
the Company's industry, including, particularly, in the states in which the
Company currently operates or anticipates operating in the future.
(9) The Company's ability to staff its facilities appropriately with
qualified healthcare personnel, including in times of shortages of such
personnel and to maintain a satisfactory relationship with labor unions.
(10) The continued active involvement of the Company's key management
personnel, including particularly, Moshael J. Straus and Daniel E. Straus, co-
chief executive officers of the Company.
(11) The level of competition in the Company's industry, including without
limitation, increased competition from acute care hospitals, providers of
assisted and independent living and providers of home health care and changes
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in the regulatory system in the state in which the Company operates that
facilitate such competition.
(12) The continued availability of insurance for the inherent risks of
liability in the healthcare industry.
(13) Price increases in pharmaceuticals, durable medical equipment and other
items.
(14) The Company's reputation for delivering high-quality care and its
ability to attract and retain patients, including private pay patients and
patients with relatively high acuity levels.
(15) Changes in general economic conditions, including changes that pressure
governmental reimbursement sources to reduce the amount and scope of
healthcare coverage.
Item 1. Business
GENERAL
INTRODUCTION
Multicare is a leading provider of high quality long-term care, specialty
medical services and assisted living residences in selected geographic
regions. The Company's long-term care services include skilled nursing care,
Alzheimer's care and related support activities traditionally provided in
long-term care facilities. Multicare's specialty medical services consist of
(i) rehabilitation therapies such as occupational, physical and speech
therapy and stroke and orthopedic rehabilitation, (ii) subacute care such as
ventilator care, intravenous therapy, and various forms of coma, pain and
wound management, and (iii) institutional pharmacy services through which the
Company provides prescription drugs, infusion therapies and certain medical
supplies to the Company's patients and to patients at unaffiliated long-term
care facilities. The Company was organized as a Delaware corporation in March
1992.
As of December 31, 1996, the Company operated 151 long-term care facilities
(including 11 assisted living facilities) and two outpatient rehabilitation
centers (82 owned, 28 leased and 43 managed) in Connecticut, Illinois, New
Jersey, Ohio, Massachusetts, Pennsylvania, Rhode Island, Vermont, Virginia,
West Virginia and Wisconsin with 15,673 beds. In addition, the Company
provided consulting services to an additional 14 facilities with 1,688 beds.
The Company's institutional pharmacies serve over 24,000 beds at March 31,
1997.
Multicare has established a strong competitive position in the markets it
serves by providing high quality long-term care and specialty medical
services. As a result, the Company has achieved high occupancy rates, a
favorable payor mix and sustained growth in revenue and operating profits.
Multicare's overall occupancy rate was 91% for the year ended December 31,
1996. The Company achieved a quality mix (defined as revenues derived from
non-Medicaid patient sources) of 65% of net patient revenues for the year
ended December 31, 1996, as compared to 66% for the year ended December 31,
1995.
Multicare has maintained its strong operating performance through effective
managerial and financial control systems and geographic market concentration
of its facilities in selected markets. These factors permit the Company to
achieve operating efficiencies through economies of scale and reduced
corporate overhead. The Company's margins before interest, taxes,
depreciation, amortization and rent (EBITDAR) were 20% in 1996, 1995, and
1994.
SIGNIFICANT TRANSACTIONS
In December 1996, the Company acquired The A.D.S Group (A.D.S), an affiliated
group of long-term care companies operating 22 long-term care facilities with
2,930 beds, 20 hospital based subacute units with 514 beds and eight assisted
living facilities with 821 beds, all but one of which are located in
Massachusetts. A.D.S also provides consulting services to an additional 14
facilities with 1,668 beds and operates several ancillary businesses. In
3
December 1996, the Company completed the acquisition of the assets and
operations of three long-term care facilities in Rhode Island with 373 beds
which the Company had been managing since December 1995 when the Company
acquired the assets and operations of two related long-term care facilities
with 356 beds in Connecticut. In February 1996, the Company acquired the
outstanding capital stock of Concord Health Group, Inc., which operates 11
long term care facilities with approximately 1,600 beds, including assisted
living facilities, and several ancillary businesses in Pennsylvania. In
December 1995, the Company acquired the outstanding capital stock of Glenmark
Associates, Inc., a long-term care provider that operates 21 facilities and
several ancillary businesses with approximately 1,700 beds located
principally in West Virginia. In 1996, the Company completed the construction
of two new skilled nursing facilities which are currently managed by the
Company. Three additional facilities under construction are scheduled to open
in 1997. In addition, the Company opened its first newly constructed
assisted living facility during the fourth quarter of 1996 and has two
assisted living facilities under construction.
INDUSTRY BACKGROUND
The long-term care industry encompasses a broad range of healthcare services
provided to the elderly and to other patients with medically complex needs
who can be cared for outside of the acute care hospital environment. Long-
term care facilities offer skilled nursing care, routine rehabilitation
therapy and other support services, primarily to elderly patients. In
addition, long-term care facilities may provide a broad range of specialty
medical services. The Company believes that demand for the services provided
by long-term care facilities will increase substantially during the next
decade due primarily to demographic trends, advances in medical technology
and emphasis on healthcare cost containment. At the same time, government
restrictions and high construction and start-up costs are expected to limit
the supply of long-term care facilities. In addition, a trend toward
consolidation in the industry is expected to provide the Company with
opportunities for future growth.
COMPANY STRATEGY
Multicare has implemented an operating strategy and growth strategy designed
to sustain and enhance the Company's competitive position and to foster its
expansion into targeted geographic areas. The Company's operating strategy
focuses on providing high quality long-term care and specialty medical
services on a cost-effective basis. The Company seeks to maximize revenue and
operating profit by seeking to position itself as a premier provider in its
markets thereby achieving high occupancy rates and a favorable payor mix. The
Company employs rigorous managerial and financial controls which seek to
contain costs without compromising the quality of care provided. The Company
also attempts to acquire or develop facilities that are concentrated in
selected geographic regions to enable it to achieve operating efficiencies
through economies of scale and reduced corporate overhead.
The Company's growth strategy emphasizes (i) the expansion and
diversification of its operations by selectively acquiring and developing
long-term care facilities, assisted-living residences, pharmacies and
specialty medical service providers in targeted geographic areas and (ii)
further development of post-acute or non-acute services in selected
geographic areas to create a continuum of services through the expansion of
assisted living, home health care, hospital-based subacute care and other
related care. The Company has grown substantially through acquisitions and
through its ability to integrate newly acquired operations into its existing
operations and to increase their profitability by implementing revenue
enhancement and cost control programs. There can be no assurance, however,
that future suitable acquisition candidates will be located, that
acquisitions can be consummated or that added facilities can be operated
profitably or integrated successfully into the Company's operations. As a
result of acquisitions recently consummated and the Company's continued
expansion of its specialty medical services, the Company is now able to offer
directly to many of its patients, rather than relying on third party
providers, pharmacy, rehabilitation, therapy, subacute care and other
specialized services, which has enabled the Company to better respond to the
needs of its patients and to control the costs related to such services.
The following summarizes the key elements of the Company's strategy:
Provide High Quality Care. In order to provide quality care to its residents,
the Company seeks to employ highly qualified administrators and nurses, and
to retain the services of qualified medical directors. Regional quality
4
assurance professionals and committees at the facility level (composed of the
facility administrator and the facility's senior medical professionals)
continually monitor the quality of care provided to ensure compliance with
Company and governmental standards. The Company believes that its commitment
to providing high quality care and services has enhanced the reputation and
the competitive position of its facilities in the markets they serve.
Achieve Operating Efficiencies. Multicare has maintained its strong operating
performance through effective managerial and financial control systems and
geographic concentration. The Company believes that concentrating its long-
term care facilities within selected geographic regions enables the Company
to achieve operating efficiencies through economies of scale, reduced
corporate overhead and more effective management supervision and financial
controls. Geographic concentration also allows the Company to establish more
effective working relationships with referral sources and regulatory
authorities in the states in which it operates. The Company's management
philosophy stresses close oversight of facility operations by individuals in
three levels of management (facility, divisional and corporate). The
Company's centralized, automated financial reporting system enables corporate
financial personnel to monitor key operating and financial data and budget
variances on a timely basis.
Maintain High Occupancy Rates and Quality Mix. An important strategy in
expanding the revenues and profitability of the Company's facilities is to
maintain high occupancy and achieve a favorable payor mix. The Company seeks
to achieve this by: (i) expanding the breadth and quality of services
offered, including the addition of pharmacy and other specialty medical
services and (ii) maintaining marketing programs designed to increase
occupancy, improve quality mix and develop additional referral sources.
Expand Specialty Medical Services. Specialty medical services include
subacute care for medically complex patients, intensive rehabilitation
therapies and in-house pharmacy services. These services are usually provided
at higher profit margins than routine services and compete with significantly
higher cost hospital care. The Company operates units dedicated to subacute
care within certain of its long-term care facilities, in addition to
providing subacute services throughout the majority of its facilities. The
Company also operates two outpatient rehabilitation centers. The Company
provides therapies including physical, occupational and speech services at
all its skilled nursing facilities and respiratory services at selected
facilities. Multicare currently owns and operates institutional pharmacies
that service in excess of 24,000 patients.
Acquire Additional Facilities. In its existing regions, the Company seeks to
strengthen its operations base through acquiring or constructing individual
facilities. The Company believes that expansion into new geographic regions
can be achieved most economically through the acquisition of multi-facility
operations. In identifying and selecting acquisition candidates, the Company
takes into consideration opportunities for revenue expansion, either through
quality improvements or changes in the mix of services offered, and cost
control, as well as community demographics, historical occupancy rates,
existing payor mix, reputation, regulatory compliance history, state
reimbursement policies and the physical condition and appearance. The Company
believes it has been successful to date in improving the operating
performance of acquired facilities through increased occupancy rates,
expansion of the scope of specialty medical services offered, improved payor
mix, modernization and renovation and introduction of its buying power and
management and financial control systems.
Construct and Expand Facilities. The Company maintains a construction
division that is responsible for the supervision of new construction,
renovation and additions. The Company's construction capabilities enable it
to capitalize on new development opportunities in its markets and to
effectively expand and renovate its existing facilities when permitted by
law. The Company completed and is currently managing two newly constructed
skilled nursing facilities during 1996 and has three additional facilities
under construction scheduled to open in 1997. In addition, the Company opened
its first newly constructed assisted living facility during the fourth
quarter of 1996 and has two assisted living facilities under construction.
The Company does not act as a general contractor, but has in-house architects
and has developed a facility prototype for use at its new facilities. In
selecting development sites, the Company takes into account community
demographics, historical occupancy rates of facilities in the same area,
state reimbursement policies and site conditions.
5
PATIENT SERVICES
Basic Patient Services
Basic patient services are those traditionally provided to elderly patients
in long-term care facilities and assisted-living residences with respect to
daily living activities and general medical needs. The Company provides 24-
hour skilled nursing care by registered nurses, licensed practical nurses and
certified nursing aides in all of its skilled nursing facilities. Each long-
term care facility is managed by an on-site licensed administrator who is
responsible for the overall operations of the facility, including quality of
care. The medical needs of patients are supervised by a medical director who
is a licensed physician. While treatment of patients is the responsibility of
patients' attending physicians who are not employed by the Company, the
medical director monitors all aspects of patient treatment. The Company also
provides a broad range of support services including dietary services,
therapeutic recreational activities, social services, housekeeping and
laundry services, pharmaceutical and medical supplies, and routine
rehabilitation therapy. Each long-term care facility offers a number of
activities designed to enhance the quality of life for patients. These
activities include entertainment events, musical productions, arts and crafts
and programs encouraging community interaction with patients and visits to
the facility. The Company provides housing, personal care and support
services as well as certain routine nursing services in its assisted-living
residences.
The Company currently provides specialized care for Alzheimer's patients
under the supervision of specially trained skilled nursing, therapeutic
recreation and social services personnel. The Company's Alzheimer's programs
include music therapy, gross and fine motor activity, reality orientation and
cognitive stimulation designed to counter the hyperactivity, memory loss,
confusion and reduced learning ability experienced by Alzheimer's patients.
Specialty Medical Services
Specialty medical services are provided to patients with medically complex
needs who generally require more intensive treatment and a higher level of
skilled nursing care. These services typically generate higher profit margins
than basic patient services because the higher complexity of the patients'
medical conditions results in a need for increased levels of care and
ancillary services.
Institutional Pharmacy Services. The Company operates seven institutional
pharmacies which currently serve a total of approximately 24,000 patients.
The pharmacies provide long-term healthcare facilities and other institutions
a variety of products and services including prescription drugs, pharmacy
consulting, and enteral, urological and intravenous therapies. The Company's
concentration of facilities in certain targeted geographic regions enables it
to provide these services to its facilities in those regions as well as to
facilities not operated by the Company.
Subacute Care. Subacute care includes services provided to patients with
medically complex conditions who require ongoing nursing and medical
supervision and access to specialized equipment and services, but do not
require many of the other services provided by an acute care hospital.
Services in this category include ventilator care, intravenous therapy, wound
care management, traumatic brain injury care, post-stroke CVA (cardiovascular
accident) care, CAPD (continuous ambulatory peritoneal dialysis), pain
management, hospice care, and tracheotomy and other ostomy care. The Company
provides a range of subacute care services to patients at its facilities. The
Company plans to continue to expand its subacute care capabilities by
supplementing and expanding currently available services and by developing
expertise in additional services.
Rehabilitation Therapies. The Company provides rehabilitation therapy
programs at substantially all of its facilities. To complement the routine
rehabilitation therapy services provided to its long-term care patients, the
Company has developed specialized rehabilitation therapy programs to serve
patients with complex care needs, such as motor vehicle and other accident
victims, persons suffering from job-related injuries and disabilities, and
joint-replacement patients. The Company employs full time physical,
occupational, and speech therapists at a majority of its facilities. The
Company also offers respiratory services at selected facilities. In
addition, the Company operates two outpatient rehabilitation facilities in
New Jersey and Illinois.
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OPERATIONS
General. The day-to-day operations of each long-term care facility are
managed by an on-site state licensed administrator who is responsible for the
overall operation of the facility, including quality of care, marketing, and
financial performance. The administrator is assisted by an array of
professional and non-professional personnel (some of whom may be independent
providers), including a medical director, nurses and nursing assistants,
social workers, therapists, dietary personnel, therapeutic recreation staff,
and housekeeping, laundry and maintenance personnel. The business office
staff at each facility manage the day-to-day administrative functions,
including data processing, accounts payable, accounts receivable, billing and
payroll.
The facilities operated by the Company are currently divided into five
divisions, each of which is supervised by a team including a divisional
director, a divisional controller, a marketing director, an operations
performance director, and a clinical services director. The divisional and
facility personnel are supported by a corporate staff based at the Company's
New Jersey headquarters. Corporate personnel are responsible for the
establishment of policies and procedures, training, goals, and strategies;
quality assessment and assurance oversight; reimbursement, accounting,
information technology, cash management, and treasury functions; the
development of monitoring systems and operational procedures; construction
and development programs; human resources management; and the development and
implementation of new programs.
Management and Financial Controls. Consistent with its strategy of
maintaining strict control over costs, the Company has developed an
integrated structure of management and financial systems and controls
intended to maximize operating efficiency. The Company stresses frequent
communication among facility, divisional and corporate personnel and active
involvement by management in the day-to-day operations of the facilities. The
Company's integrated management and financial information systems enable
management to monitor key operations and financial data on a timely basis.
Key operating data, such as payables and billing data, cash collections and
admissions/discharge data, are entered into the system daily from
workstations located at each facility. This information forms the basis for a
variety of management and financial reports, including monthly financial
statements.
Quality Assurance. The Company has developed a comprehensive quality
assurance program involving personnel at all levels and designed to maintain
standards of care at each of the Company's facilities. Each facility
maintains a quality assurance committee comprised of facility management and
senior medical professionals. The committee is responsible for monitoring and
evaluating all aspects of the facility's operations, including patient care,
physical environment, staff appearance, patient rights, patient activities,
and dietary regimen. Facility administrators and divisional directors are
encouraged to play an active role in quality assurance by maintaining a high-
profile presence and closely monitoring all aspects of operations. The
Company believes its quality assurance process is unique in that the scored
internal assessment tools that measure quality and quantify standards are
used by both facility staff and corporate evaluators. The tools incorporate
federal guidelines, standards of practice, and corporate policies and
procedures. State guidelines are included as applicable during the evaluation
process. All medical and other consulting personnel are required to prepare
and submit reports at the end of each scheduled visit identifying any patient
care or other quality related issues. Patient satisfaction surveys are
conducted periodically and provide a confidential method for patients and
their families to comment on the Company's patient care services. Discharge
interviews allow the Company to assess patient satisfaction and to isolate
potential patient care issues.
Marketing. The Company engages in local and divisional marketing efforts to
promote and maintain occupancy rates, to improve its quality mix and to enter
into and maintain arrangements with managed care providers. The Company's
marketing activities are overseen by a corporate vice president of marketing
who oversees the marketing efforts of the Company's marketing directors and
facility admissions directors and administrators, who together seek to
establish relationships with referring physicians, hospital discharge
planners, managed care companies, social workers, community organizations,
local attorneys, bank trust officers, and senior citizens', Alzheimer's and
other support groups. The Company believes that many of the services and
programs provided by its facilities supplement formal marketing efforts by
promoting a facility's reputation in the community as the provider of choice
in the local markets. For example, the availability of specialty medical
services can be a key factor in the selection of a long-term care facility.
In addition, each facility offers a variety of community programs and
activities which are designed primarily as a service to the community and as
a means to enhance the quality of patient life. The Company believes these
7
programs also contribute to increased occupancy by making the facility a more
attractive choice to prospective residents.
SOURCES OF REVENUES
The Company derives its revenues principally by providing skilled nursing
services and specialty medical services which include institutional pharmacy
services, rehabilitation therapies, subacute care, sales of medical supplies,
home health care and other specialized services. The sources of the Company's
revenues are a combination of private payment sources, state Medicaid
programs for indigent patients and the Federal Medicare program for certain
elderly and disabled patients. The Company's skilled nursing revenues are
determined by a number of factors, including the licensed bed capacity of its
facilities; the occupancy rates at its facilities; the mix of patients and
the rates of reimbursement among payor categories (private, Medicaid and
Medicare); and the extent to which certain ancillary services the Company
provides to patients in its facilities are utilized by the patients and paid
for by the respective payment sources. The Company employs reimbursement
specialists to monitor applicable cost ceilings and other regulatory
developments, to comply with all reporting requirements and to assist the
Company in recovering reimbursement payments. While the Company believes that
it has been successful in meeting applicable cost ceilings and in obtaining
reimbursement, there can be no assurance that reimbursement rates will remain
at present levels. In particular, cost containment proposals at both the
Federal and state levels may have an adverse effect on the Company's ability
to recover its costs of providing services to Medicaid and Medicare patients.
See "--Governmental Regulation."
The following table identifies the Company's net revenues attributable to
each of its revenue sources for the periods indicated below.
Net Revenues
Year ended December 31,
1994 1995 1996
Private and other 39% 41% 40%
Medicaid 38% 34% 35%
Medicare 23% 25% 25%
Total 100% 100% 100%
Private Pay and Other. Private pay revenues include payments from individuals
who pay directly for services without governmental assistance and include
payments from commercial insurers, Blue Cross organizations, health
maintenance organizations, preferred provider organizations, workers'
compensation programs and other similar payment sources. The Company's rates
for private pay patients are typically higher than rates for patients
eligible for assistance under state-administered reimbursement programs. The
private pay rates charged by the Company are influenced primarily by the
rates charged by other providers in the local market and by Medicaid and
Medicare reimbursement rates. Competitor analyses are undertaken periodically
to discern local market pricing. Specialty medical services are usually
reimbursed under casualty and health insurance coverages. The acuity levels
for these insurance patients are generally higher and require additional
staff and increased utilization of facility resources, resulting in higher
payment rates. Individual cases are either negotiated on a case by case basis
with the insurer or the rates are prescribed through managed care contract
provisions. Also included are revenues derived from pharmacy services,
management fees, and certain other ancillary businesses.
Medicaid. Substantially all of the facilities operated by the Company
participate in the Medicaid program. Under the Federal Medicaid statute and
related regulations, state Medicaid programs must provide facility rates that
are reasonable and adequate to cover the costs of efficiently and
economically operated facilities providing services in conformity with state
and Federal standards. Furthermore, payments must be sufficient to enlist
enough providers so that service under the state's Medicaid plan are
available to recipients at least to the extent that those services are
available to the general population. The Medicaid programs in the states
within which the Company operates pay a per diem rate for providing services
to Medicaid patients based upon historical costs adjusted for inflation and
subject to restrictive limitations. The reimbursement methodologies upon
which reimbursement is based may be either prospective or retrospective in
nature. Reimbursement rates are determined by the state, while the Federal
government retains the right to approve or disapprove individual state plans.
Medicaid programs in certain states in which the Company operates currently
8
include incentive allowances for providers whose costs are less than certain
ceilings and who meet other requirements. See "--Governmental Regulation."
Medicare. Substantially all of the Company's facilities are certified
Medicare providers. Medicare is a federally funded and administered health
insurance program primarily designed for individuals who are age 65 or over
and are entitled to receive Social Security benefits. The Medicare program
consists of two parts. The first part (Part A) covers inpatient hospital
services and services furnished by other institutional healthcare providers,
such as long-term care facilities. The second part (Part B) covers the
services of doctors, suppliers of medical items and services, and various
types of outpatient services. Part B services include physical, speech and
occupational therapy, medical supplies, certain intensive rehabilitation and
psychiatric services, ancillary diagnostic services, and other services of
the type provided by long-term care or acute care facilities. Part A coverage
is limited to a specified term (generally 100 days in a long-term care
facility) and requires beneficiaries to share some of the cost of covered
services through the payment of a deductible and a co-insurance payment.
There are no limits on duration of coverage for Part B services, but there is
an annual deductible and a co-insurance requirement for most services covered
by Part B.
The Medicare program is a retrospective program. An interim rate based upon
historical cost factors is paid by Medicare during the cost reporting period
and a cost settlement is made based on actual costs for the period. Final
settlements are subject to an audit of the filed cost report whereby
adjustments may result in additional payments being made to the Company or in
recoupments from the Company. Under the Medicare program, the Company is
reimbursed for its direct costs plus an allocation of indirect costs up to a
regional limit. As the Company expands its specialty medical services, the
costs of care for these patients are expected to exceed the regional
reimbursement limits. As a result, the Company has submitted and will be
required to submit further exception requests to recover the excess costs
from Medicare. There is no assurance the Company will be able to recover
such excess costs under pending or any future requests. The failure to
recover these excess costs in the future would adversely affect the Company's
financial position and results of operations.
To date, adjustments from Medicare and Medicaid audits have not had a
material adverse effect on the Company. There can be no assurance that
future adjustments will not have a material adverse effect on the Company.
COMPETITION
The Company competes with other long-term care and assisted-living providers
on the basis of the breadth and quality of services, the quality, appearance
and reputation of its facilities and price. The Company also competes in the
recruitment of qualified healthcare personnel and the acquisition and
development of additional facilities or residences. The Company's current and
potential competitors include national, regional and local long-term care and
assisted-living providers as well as acute care hospitals and rehabilitation
hospitals, some of whom have significantly greater financial and other
resources than the Company. The Company also faces competition from other
local pharmaceutical distributors and providers of home healthcare. In
addition, certain competitors are operated by not-for-profit organizations
and similar businesses which can finance capital expenditures on a tax-exempt
basis or receive charitable contributions unavailable to the Company. There
can be no assurance that the Company will not encounter increased competition
in the future which could adversely affect the Company's operating results,
particularly if existing restrictive policies relating to the issuance of
Certificates of Need are relaxed.
The Company expects competition for the acquisition and development of long-
term care facilities to increase in the future as the demand for long-term
care increases. Construction of new (or the expansion of existing) long-term
care facilities near the Company's facilities could adversely affect the
Company's business. State regulations generally require a Certificate of Need
before a new long-term care facility can be constructed or additional
licensed beds can be added to existing facilities. Certificate of Need
legislation is currently in place in all states in which the Company operates
except in Pennsylvania where the existing certificate of need legislation
expired on December 18, 1996. A bill has been introduced in the Pennsylvania
legislature to re-establish Certificate of Need requirements; however, the
Company has been advised that there is little likelihood such bill will be
passed. In Ohio, the current Certificate of Need legislation for the long-
9
term care industry has a "sunset provision" which will result in the
legislation expiring as of July 1, 1997. A bill which would extend the
Certificate of Need legislation for two years until June 30, 1999 has been
passed by the Ohio House of Representatives and, as of the date of this
filing, is still under discussion in the Ohio Senate. The Company believes
that Certificate of Need regulations reduce the possibility of overbuilding
and promote higher utilization of existing facilities. However, a relaxation,
expiration or elimination of Certificate of Need requirements could lead to
an increase in competition. In addition, as cost containment measures have
reduced occupancy rates at acute care hospitals, a number of these hospitals
have converted portions of their facilities into subacute units. Competition
from acute care hospitals could adversely affect the Company and certain
states in which the Company operates have considered or are considering
action that could facilitate such competition.
GOVERNMENTAL REGULATION
The Federal government and all states in which the Company operates regulate
various aspects of the Company's business. In addition to the regulation of
rates by governmental payor sources, the development and operation of long-
term care facilities and the provision of long-term care services are subject
to Federal, state and local licensure and certification laws which regulate
with respect to a facility, among other matters, the number of beds, the
services provided, the distribution of pharmaceuticals, equipment, staffing
requirements, operating policies and procedures, fire prevention measures,
and compliance with building and safety codes and environmental laws. There
can be no assurance that Federal, state or local governments will not impose
additional restrictions which might adversely affect the Company's ability to
provide its services and receive reimbursement of its expenses.
All of the facilities operated by the Company are licensed under applicable
state laws and have the required Certificates of Need from responsible state
authorities.
Substantially all of the Company's facilities are certified or approved as
providers under the Medicaid and Medicare programs. Further, the Company has
no reason to believe that any individual providers of healthcare services at
the Company's facilities do not meet applicable licensing requirements. Both
initial and continuing qualification of a long-term care facility to
participate in such programs depend upon many factors, including
accommodations, equipment, services, non-discrimination policies against
indigent patients, patient care, quality of life, residents' rights, safety,
personnel, physical environment, and adequacy of policies, procedures and
controls. Licensing, certification and other applicable standards vary from
jurisdiction to jurisdiction and are revised periodically. State and/or
Federal agencies survey or inspect all long-term care facilities on a regular
basis to determine whether such facilities are in compliance with the
requirements for participation in government sponsored third party payor
programs. Failure to comply with these standards could result in the denial
of reimbursement, the imposition of fines, temporary suspension of admission
of new patients, the issuance of a provisional license for a facility,
suspension or decertification from the Medicaid or Medicare program,
restrictions on the ability to acquire new facilities or expand existing
facilities and, in extreme cases, the imposition of limitations on a
facility's license, the appointment of third-party temporary management for a
facility, revocation of the facility's license or closure of a facility.
There can be no assurance that the facilities owned, leased or managed by the
Company, or the provision of services and supplies by the Company, will
initially meet or continue to meet the requirements for participation in the
Medicaid or Medicare programs or state licensing authorities. Changes in the
Federal survey regulations which became effective July 1, 1995 allow for the
exercise of broad discretion by the Federal and state governments in the
survey process.
The Company believes that its facilities are in substantial compliance with
all statutes, regulations, standards and requirements applicable to its
business. However, the compliance history of a prior operator may be used by
state or Federal regulators in determining possible actions against a
successor operator, and in the ordinary course of business, the Company's
facilities receive notices of deficiencies following surveys for failure to
comply with various regulatory requirements. In most cases, the Company and
the reviewing agency will agree upon corrective measures to be taken to bring
the facility into compliance. From time to time, survey deficiencies have
resulted in various penalties against certain facilities and the Company.
These penalties have included monetary fines, temporary bans on the admission
of new patients and the placement of restrictions on the Company's ability to
obtain or transfer certificates of need in certain states. To date, no survey
deficiencies or any resulting penalties have had any material adverse affect
on the Company's operations, however, there can be no assurance that future
surveys will not result in penalties or sanctions which could have a material
adverse affect on the Company.
10
The Company is also subject to Federal and state laws which govern financial
and referral arrangements between healthcare providers. Federal laws, as well
as the law of certain states, prohibit direct or indirect payments, or fee-
splitting arrangements between healthcare providers, that are designed to
induce or encourage the referral of patients to, or the recommendation of, a
particular provider for medical products or services or the purchase, sale,
or lease of any service or product for which payment may be made under the
Medicare or Medicaid programs. These laws include the Federal "anti-kickback
law" which prohibits, among other things, the offer, payment, solicitation or
receipt of any form of remuneration in return for the referral of Medicare
and Medicaid patients. A wide array of relationships and arrangements,
including ownership interests in a company by persons who are in a position
to refer patients and personal service agreements have, under certain
circumstances, been alleged to violate these provisions. Certain discount
arrangements may also violate the law. A violation of the Federal anti-
kickback law could result in the loss of eligibility to participate in
Medicare or Medicaid, or in criminal and civil penalties.
In addition, the Federal government and some states restrict certain business
relationships between physicians and other providers of healthcare services.
Effective January 1, 1995, the Stark law prohibits any physician with a
financial relationship (defined as a direct or indirect ownership or
investment interest or compensation arrangement) with an entity from making a
referral for a "designated health service" to that entity, and prohibits that
entity from billing for such services. "Designated health services" do not
include skilled nursing services, but do include many services which nursing
facilities provide to their patients including clinical laboratory services,
therapy and enteral and parenteral nutrition.
All but one of the states in which the Company operates have adopted
Certificate of Need or similar laws which generally require that a state
agency approve certain acquisitions and changes in ownership and determine
that a need exists prior to the addition or reduction of beds or services,
the implementation of other changes, the incurrence of certain capital
expenditures or, in certain states, the closure of a facility. State
approvals are generally issued for a specified maximum expenditure and
require implementation of the proposal within a specified period of time.
Failure to obtain the necessary state approval can result in the inability of
the facility to provide the service, operate the facility, or complete the
acquisition, addition or other change, and may also result in the imposition
of sanctions or other adverse action on the facility's license and
reimbursement. See "_Competition" for a discussion of the status of
Certificate of Need legislation in certain states in which the Company
operates.
On August 21, 1996, President Clinton signed the Health Insurance Portability
and Accountability Act ("HR 3103"). HR 3103 contains a variety of significant
healthcare fraud and abuse provisions, including creation of a coordinated
federal healthcare fraud and abuse program; establishment of a Medicare
integrity program; expansion of current healthcare fraud and abuse sanctions;
creation of a healthcare fraud criminal sanction; creation of a criminal
penalty for fraudulent disposition of assets in order to obtain Medicaid
benefits; and expansion of the authority to impose, and increasing the amount
of, civil monetary penalties.
There are numerous legislative and executive initiatives at the Federal and
state levels for healthcare reform with a view toward, among other things,
slowing the overall rate of growth in healthcare expenditures. The Company is
unable to predict the impact of healthcare reforms on the Company; however it
is possible that such proposals could have a material adverse effect on the
Company.
The Company is also subject to a wide variety of Federal, state and local
environmental and occupational health and safety laws and regulations. Among
the types of regulatory requirements faced by health care providers are: air
and water quality control requirements; waste management requirements;
specific regulatory requirements applicable to asbestos, polychlorinated
biphenyls, and radioactive substances; requirements for providing notice to
employees and members of the public about hazardous materials and wastes; and
certain other requirements.
In its role as owner and/or operator of properties or facilities, the Company
may be subject to liability for investigating and remedying any hazardous
substances that have come to be located on the property, including such
substances that may have migrated off, or emitted, discharged, leaked,
escaped or been transported from, the property. Ancillary to the Company's
operations are, in various combinations, the handling, use, storage,
transportation, disposal and/or discharge of hazardous, infectious, toxic,
radioactive, flammable and other hazardous materials, wastes, pollutants or
contaminants. Such activities may result in damage to individuals, property
11
or the environment; may interrupt operations and/or increase their costs;
may result in legal liability, damages, injunctions or fines; may result in
investigations, administrative proceedings, penalties or other governmental
agency actions; and may not be covered by insurance. There can be no
assurance that the Company will not encounter such risks in the future, and
such risks may have a material adverse effect on the operations or financial
condition of the Company.
EMPLOYEES
As of December 31, 1996, the Company employed approximately 14,800 persons.
Approximately 2,100 employees at 28 of the Company's facilities are covered
by collective bargaining agreements. The Company believes that it has had
good relationships with its employees and with the unions that represent its
employees, but it cannot predict the effect of continued union representation
or organizational activities on its future operations.
The healthcare industry has at times experienced a shortage of qualified
healthcare personnel. While the Company has been able to retain the services
of an adequate number of qualified personnel to staff its facilities
appropriately and maintain its standards of quality care, there can be no
assurance that continued shortages will not in the future affect the ability
of the Company to attract and maintain an adequate staff of qualified
healthcare personnel. A lack of qualified personnel at a facility could
result in significant increases in labor costs at such facility or otherwise
adversely affect operations at such facility. Any of these developments could
adversely affect the Company's operating results or expansion plans. The
Company competes with other healthcare providers and with non-healthcare
providers for both professional and non-professional employees.
INSURANCE
The provision of healthcare services entails an inherent risk of liability.
The Company maintains liability insurance providing coverage which it
believes to be adequate. In addition, the Company maintains property,
business interruption, and workers' compensation insurance covering all
facilities in amounts deemed adequate by the Company. There can be no
assurance that any future claims will not exceed applicable insurance
coverage or that the Company will be able to continue its present insurance
coverage on satisfactory terms, if at all.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
Name Age Position
Moshael J. Straus 44 Chairman of the Board of Directors,
Co-Chief Executive Officer
Daniel E. Straus 40 President, Co-Chief Executive Officer and Director
Stephen R. Baker 41 Executive Vice President, Chief Operating Officer
and Director
Susan S. Bailis 51 Senior Vice President, A.D.S /Multicare
Bradford C. Burkett 36 Senior Vice President, General Counsel
and Secretary
Thomas P. Foy 46 Senior Vice President, Government Relations
and Business Development
Andrew Horowitz 35 Senior Vice President, Ancillary Services
Joel Jaffe 50 Senior Vice President, Treasurer
Mark R. Nesselroad 41 Senior Vice President, Acquisitions, Construction
and Development
Robert S. Anderson 35 Vice President, Finance
Kevin P. Breslin 30 Vice President, Acquisitions
Ronald G. Clarendon 53 Vice President, Employee Relations
Janice M. Greer 57 Vice President, Professional Services
Keith F. Helmer 41 Vice President, Operations
Kent R. Hugill 44 Vice President, Marketing
Barbara A. Marte 57 Vice President, Product Development
and Enhancement
12
Certain additional information concerning the above persons is set forth
below:
Moshael J. Straus, the brother of Daniel E. Straus, was a co-founder of the
Company in 1984 and since 1978, was involved in the business of the Company's
predecessors. Mr. Straus has been co-principal owner of the Company since
its establishment. He assumed the positions of Chairman of the Board of
Directors and Co-Chief Executive Officer of the Company in September 1992.
Mr. Straus has been a member of the Board of Directors since 1992.
Daniel E. Straus, the brother of Moshael J. Straus, was a co-founder of the
Company in 1984 and since 1978, was involved in the business of the
Company's predecessors. Mr. Straus has been co-principal owner of the
Company since its establishment. He assumed the positions of President and
Co-Chief Executive Officer of Multicare in September 1992. Mr. Straus has
served on the Board of Directors since 1992.
Stephen R. Baker has served as Executive Vice President responsible for
finance and operations of the Company since August 1994, and served as its
Senior Vice President and Chief Financial Officer of the Company since
December 1992. Prior to joining Multicare, he was a partner at the public
accounting firm of KPMG Peat Marwick LLP where he was employed for 16 years.
Mr. Baker is a Certified Public Accountant. Mr. Baker has been a member of
the Board of Directors since May 1994.
Susan S. Bailis has served as Senior Vice President, A.D.S/Multicare and as
President of the Company's subsidiaries that operate or manage the Company's
business in Massachusetts, Rhode Island, Vermont and Connecticut since
December 1996. Prior to joining Multicare, Ms. Bailis was since 1986 the
President of The A.D.S Group, a privately held long-term care company
headquartered in Newton, Massachusetts which was acquired by the Company in
December 1996.
Bradford C. Burkett was named a Senior Vice President in 1996, has served as
Vice President, General Counsel and Secretary of the Company since May 1995
and joined the Company as its Vice President and Deputy General Counsel in
June 1994. Mr. Burkett became Secretary of the Company in August 1994.
Prior to June 1994, Mr. Burkett was engaged in the private practice of law
with the New York City firm of Kaye Scholer Fierman Hays & Handler since
1985.
Thomas P. Foy joined the Company in July 1994 as Senior Vice President,
Government Relations and Business Development. Prior to such time, Mr. Foy
served as Senior Vice President at Hill International, a construction
consulting company since January 1990. Mr. Foy served as a New Jersey State
Senator from 1990 to 1992 and a New Jersey Assemblyman from 1984 to 1990.
Andrew Horowitz has served as Senior Vice President, Ancillary Services of
the Company since February 1997 and joined the Company as its Director of
Pharmacy Operations in January 1995. Prior to joining Multicare, Mr.
Horowitz was since 1988 the Executive Vice President and a principal owner of
Scotchwood Pharmacy, a New Jersey based institutional pharmacy business which
was acquired by the Company in January 1995.
Joel Jaffe has served as Senior Vice President, Treasurer of the Company
since May 1995. Prior to joining Multicare, he was a partner at the public
accounting firm of KPMG Peat Marwick LLP where he was employed for 27 years.
He is a Certified Public Accountant.
Mark R. Nesselroad has served as Senior Vice President, Acquisitions,
Construction and Development of the Company since February 1997 and as chief
executive officer of the Company's subsidiary that operates the Company's
business in West Virginia since joining the Company in December 1995. Prior
to joining Multicare, Mr. Nesselroad was a co-founder and since 1984 had been
the chief executive officer of Glenmark Associates, Inc., a privately held
long-term care operator in West Virginia which was acquired by the Company in
December 1995.
13
Robert S. Anderson served as Vice President, Finance of a predecessor of the
Company since October 1988 and assumed the same position of Vice President,
Finance of the Company in September 1992. He joined Multicare Management in
October 1986 as Corporate Controller. He is a Certified Public Accountant.
Kevin P. Breslin has served as Vice President, Acquisitions of the Company
since May 1995 and joined the Company as its Director of Financial Accounting
in April 1993. Prior to joining the Company, he was employed at KPMG Peat
Marwick LLP for 4 years. He is a Certified Public Accountant.
Ronald G. Clarendon served as Vice President, Employee Relations of a
predecessor of the Company since August 1991 and assumed the same position
with Multicare in September 1992. Prior to 1991, Mr. Clarendon specialized
in all facets of labor relations with Western Union Corporation.
Janice M. Greer has served as Vice President, Professional Services of the
Company since February 1997 and joined the Company as its Director of
Professional Services in September 1994. Prior to joining Multicare she was
the Corporate Director of Quality Assurance for Aaron Enterprises, a long-
term care assisted living and retirement living company in North Carolina,
from February 1993 through 1994. Previously she was employed at Beverly
Enterprises from 1982 until 1993 where she served in a variety of positions
relating to quality assurance.
Keith F. Helmer joined the Company in January 1997 as its Vice President,
Operations. Prior to joining Multicare, Mr. Helmer was employed at Arbor
Health Care Company where he served as Vice President of Operations from
September 1995 until December 1996, and as Regional Vice President of
Operations from September 1994 through September 1995. Previously, he was
the Vice President of Operations at Connecticut Subacute Corporation, a
subacute, rehabilitation and extended care management corporation, from
January 1993 until April 1994.
Kent R. Hugill has served as Vice President, Marketing of the Company since
February 1997 and joined the Company as its Corporate Director of Marketing
in December 1995. Prior to joining Multicare, Mr. Hugill was since 1995 the
Vice President, Sales and Marketing, at Assurqual, Inc., a Baltimore-based
information, technology and consulting company. From 1988 until 1995 he was
employed at Health Care and Retirement Corporation in Toledo, Ohio where he
served in a variety of positions including Director of Marketing and Regional
Operations Manager.
Barbara A. Marte has served as Vice President, Product Development and
Enhancement of the Company since January 1995. Prior to such time, she
served as Director of Subacute Services of the Company since January 1994.
Ms. Marte was previously a Director of Subacute Development for Beverly
Enterprises, Inc. from 1991 through 1993. Prior to 1991, for more than five
years, Ms. Marte served in various corporate and marketing positions with
Genesis Health Ventures, Inc.
ITEM 2. PROPERTIES
As of December 31, 1996, the Company operated 151 long-term care facilities
and two outpatient rehabilitation centers (82 owned, 28 leased and 43
managed). The Company has sought to retain ownership of a significant portion
of its real estate and it believes this provides the Company with substantial
financing flexibility.
The Company has granted security interests in substantially all of its
assets to secure its credit facilities. Twenty-five of the Company's
facilities are leased by the respective operating entities from third
parties. One of the Company's Connecticut facilities and one of the Company's
New Jersey facilities are leased from related parties owned by the principal
stockholders of the Company and one of the Company's New Jersey facilities is
leased from a related party 50% owned by certain principal stockholders of
the Company. The inability of the Company to make rental payments under
these leases could result in loss of the leased property through eviction or
other proceedings. Certain facility leases do not provide for non-disturbance
from the mortgagee of the fee interest in the property and consequently each
such lease is subject to termination in the event that the mortgage is
foreclosed following a default by the owner.
14
The Company considers its properties to be in good operating condition
and suitable for the purposes for which they are being used.
The following table summarizes by state certain information regarding
the Company's facilities and outpatient rehabilitation centers at December
31, 1996 (excluding 14 facilities with 1,668 beds at which the Company
provides quality assurance consulting services):
Owned (1) Leased Managed Total
Facilities Beds Facilities Beds Facilities Beds Facilities Beds
Massachusetts 6 876 5 742 38 2,557 49 4,175
New Jersey 13 1,425 8 1,294 --- --- 21 2,719
Pennsylvania 13 1,520 --- --- 3 654 16 2,174
West Virginia 16 1,464 4 331 1 62 21 1,857
Ohio 10 896 4 250 --- --- 14 1,146
Connecticut 5 766 2 250 1 90 8 1,106
Illinois 10 857 1 92 --- --- 11 949
Wisconsin 5 710 2 231 --- --- 7 941
Rhode Island 3 373 --- --- --- --- 3 373
Virginia --- --- 2 175 --- --- 2 175
Vermont 1 58 --- --- --- --- 1 58
82 8,945 28 3,365 43 3,363 153 15,673
(1) Includes 7 facilities with 889 beds which are not wholly owned.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to claims and legal actions arising in the ordinary
course of business. Management does not believe that any litigation to which
the Company is currently a party will have a material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEMS 5 THROUGH 8.
Information required by Items 5 through 8 of Form 10-K is included in the
Company's 1996 Annual Report to stockholders and is incorporated herein by
reference as indicated below:
Item No. Page
5 Market for Registrant's Common Equity
and Related Stockholder Matters 29, 31
6 Selected Financial Data 13
7 Management's Discussion and Analysis
of Financial Condition and
Results of Operations 14-17
8 Financial Statements and
Supplementary Data 18-30
15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOUSRE
None.
PART III
ITEMS 10 THROUGH 13.
Information required by Items 10 through 13 of Form 10-K, is included in
the definitive Proxy Statement to be filed on or before April 30, 1997, for
the Company's 1997 Annual Meeting of Stockholders and is incorporated herein
by reference.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Page
(a) 1.Financial Statements
All financial statements as set forth under
Item 8 are incorporated by reference from the
1996 Annual Report to stockholders.
2.Financial Statement Schedule
Independent Auditors' Report on Financial
Statement Schedule F-1
Schedule II - Valuation and Qualifying Accounts F-2
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are not applicable and, therefore, omitted.
3.Exhibits
Exhibit
No. Description
(1) 2 Reorganization and Subscription Agreement, dated as of
August 21, 1992, among The Multicare Companies, Inc.,
Daniel E. Straus, Moshael J. Straus, Adina S. Rubin
and Bethia S. Quintas
(2) 3.1 Restated Certificate of Incorporation of The Multicare
Companies, Inc.
3.2 Certificate of Amendment of Restated Certificate of
Incorporation of The Multicare Companies, Inc.
(2) 3.3 By-laws of The Multicare Companies, Inc.
(1) 4.1 Indenture for Senior Subordinated Notes
(5) 4.2 Fiscal Agency Agreement for Subordinated Convertible
Debentures
(1) 10.1 Lease, dated July 29, 1986, between Jackson Health Care
Associates and Health Resources of Jackson, Inc.
(2) 10.2 Amended and Restated Amendment of Lease, dated as of
November 18, 1992 between Straus Associates and Health
Resources of Colchester, Inc.
(2) 10.3 Amended and Restated 1993 Stock Option Plan
(3) 10.4 Amendments dated March 15 and April 4, 1994 to the
Amended and Restated 1993 Stock Option Plan
(3) 10.5 Non-Employee Directors' Stock Option Plan
(4) 10.6 First Amendment Agreement dated as of October 19, 1995
among The Multicare Companies, Inc., Subsidiary Co-
Borrowers, Subsidiary Guarantors, and The Chase
Manhattan Bank, N.A.
(5) 10.7 The Multicare Companies, Inc. Employee Stock Purchase Plan
(5) 10.8 The Multicare Companies, Inc. Directors Retainer and
Meeting Fee Plan
16
(5) 10.9 The Multicare Companies, Inc. Key Employee Incentive
Compensation Plan
(5) 10.10 Amended and Restated Credit Agreement dated as of March
31, 1995 among The Multicare Companies, Inc.,
Subsidiary Co-Borrowers, Subsidiary Guarantors and The
Chase Manhattan Bank, N.A.
(5) 10.11 Loan Agreement dated October 13, 1992 between Meditrust
Mortgage Investments, Inc. and various Glenmark entities
(5) 10.12 First Amendment to Loan Agreement dated as of November 30,
1995
(5) 10.13 Intercreditor Agreement dated December 1, 1995 between
The Chase Manhattan Bank, N.A. , Meditrust Mortgage
Investments, Inc. and Meditrust of West Virginia, Inc.
(5) 10.14 Second Amendment to Loan Agreement entered into
effective as of November 30, 1995
(5) 10.15 Agreement and Plan of Merger Among HRWV, Inc., Glenmark
Associates, Inc., Glenmark Holding Company Limited
Partnership, Mark R. Nesselroad and Glenn T. Adrian
(5) 10.16 Facility Lease Agreement dated as November 30, 1995
between Meditrust of West Virginia, Inc. and Glenmark
Limited Liability Company
(5) 10.17 Second Amendment Agreement dated as of February 22,
1996 among The Multicare Companies, Inc. Subsidiary Co-
Borrowers, Subsidiary Guarantors, The Banks Signatory
hereto, and The Chase Manhattan Bank, N.A., as Agent
(6) 10.18 Agreement and Plan of Merger, dated as of January 15,
1996, among The Multicare Companies, Inc., CHG
Acquisition Corp., and Concord Health Group, Inc.
(7) 10.19 Second Amended and Restated Credit Agreement, dated as
of May 22, 1996,among The Multicare Companies, Inc.,
the Subsidiary Co-Borrowers, the Subsidiary Guarantors,
the Banks Signatory thereto and The Chase Manhattan
Bank, N.A., as Agent
(7) 10.20 Acquisition Agreement, dated as of June 17, 1996, by
and among A.D.S/Multicare, Inc. and Alan D. Solomont,
David Solomont, Ahron M. Solomont, Jay H. Solomont,
David Solomont, Susan S. Bailis and the Seller Entities
signatory thereto (the "A.D.S Acquisition Agreement")
(7) 10.21 Amendment No. 1, dated August 12, 1996, to the A.D.S
Acquisition Agreement.
(8) 10.22 Amendment No. 2, dated as of September 25, 1996 to the
A.D.S Acquisition Agreement.
(8) 10.23 Amendment No. 3, dated as of October 29, 1996 to the
A.D.S Acquisition Agreement.
(8) 10.24 Amendment No. 4, dated as of December 11, 1996 to the
A.D.S Acquisition Agreement.
(8) 10.25 Third Amended and Restated Credit Agreement dated as of
December 11, 1996 among The Multicare Companies, Inc.
and certain of its Subsidiaries, and Nationsbank, N.A.
as Administrative Agent.
(8) 10.26 Master Lease, Open End Mortgage and Purchase Option
dated as of December 11, 1996 among Academy Nursing
Home, Inc., Nursing and Retirement Center of the
Andovers, Inc., Prescott Nursing Home, Inc., Willow
Manor Nursing Home, Inc., and A.D.S/Multicare, Inc.
(8) 10.27 Appendix A to Participation Agreement, Master Lease,
Supplements, LoanAgreement, and Lease Facility
Mortgages.
(8) 10.28 Participation Agreement, dated as of December 11, 1996
among The Multicare Companies, Inc., as Guarantor,
Various Subsidiaries of The Multicare Companies, Inc.
as Lessees, Selco Service Corporation, as Lessor,
Various Financial Institutions as Tranche B Lenders,
Nationsbank, N.A., as Lease Agent for the Lenders, and
Nationsbank, N.A., as Collateral Agent for the Secured
Parties.
10.29 The Multicare Companies, Inc. Non-qualified Stock
Purchase Plan.
17
10.30 Employment Agreement, dated as of January 1, 1995,
between The Multicare Companies, Inc. and Daniel E.
Straus.
10.31 Employment Agreement, dated as of January 1, 1995,
between The Multicare Companies, Inc. and Moshael J.
Straus.
10.32 Employment Agreement, dated as of January 1, 1995,
between The Multicare Companies, Inc. and Stephen R.
Baker.
10.33 Employment Agreement, dated as of January 1, 1995,
between The Multicare Companies, Inc. and Paul J.
Klausner.
10.34 Employment Agreement, dated as of January 1995, between
Care 4, L.P., and Andrew Horowitz.
10.35 Employment Agreement, dated as of December 1995,
between Glenmark Associates, Inc. and Mark R.
Nesselroad.
10.36 Amendment, dated July 19, 1996, to Agreement and
Plan of Merger among HRWV, Inc., Glenmark Associates,
Inc., Glenmark Holding Company Limited Partnership,
Mark R. Nesselroad and Glenn T. Adrian.
11 Computation of Earnings Per Share
13 1996 Annual Report to stockholders
21 Subsidiaries of the Registrant
23 Consent of KPMG Peat Marwick LLP, Independent Certified
Public Accountants
27 Financial Data Schedule
(1) Incorporated by reference from Registration Statement No. 33-51176 on
Form S-1 effective November 18, 1992.
(2) Incorporated by reference from Registration Statement No. 33-65444 on
Form S-1 effective August 18, 1993.
(3) Incorporated by reference from Registration Statement No. 33-79298
effective June 22, 1994.
(4) Incorporated by reference from Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1995.
(5) Incorporated by reference from Annual Report on Form 10-K for the year
ended December 31, 1995.
(6) Incorporated by reference from the Tender Offer Statement on Schedule 14D-
1 of CHG Acquisition Corp., and The Multicare Companies, Inc., dated January
22, 1996.
(7) Incorporated by Reference from Registration Statement No. 333-12819 on
Form S-3 effective October 24, 1996.
(8) Incorporated by reference from Current Report on Form 8-K, dated December
26, 1996.
(b) Reports on Form 8-K.
On October 22, 1996 the Company filed a current report on Form 8-K reporting
the Company announced in a press release its 1996 third quarter earnings.
On December 26, 1996, the Company filed a current report on Form 8-K
reporting that the Company (i) announced in a press release the Company had
completed the acquisition of The A.D.S Group; (ii) completed the acquisition
of three facilities in Rhode Island; and (iii)amended and restructured its
$350 credit facility and entered into a new lease facility
with Nationsbank, N.A., as agent.
18
Independent Auditors' Report
The Board of Directors
The Multicare Companies, Inc.:
Under date of February 4, 1997, we reported on the consolidated balance
sheets of The Multicare Companies, Inc. and subsidiaries as of December 31,
1995 and 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996, as contained in the 1996 annual report to
stockholders. These consolidated financial statements and our report thereon
are incorporated by reference in the annual report on Form 10-K for the year
1996. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related financial statement
schedule as listed in the accompanying index. This financial statement
schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Short Hills, New Jersey
February 4, 1997
SCHEDULE II
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
.
Valuation and Qualifying Accounts
Years ended December 31, 1994, 1995, 1996
(In thousands)
Classifications Balance Charged Charged Balance
at to costs to other at end
beginning of and accounts Deductions at
period expenses (1) (2) Period
Year ended December
31, 1996: Allowance
or doubtful accounts $ 5,241 4,760 2,502 97 11,531
Year ended December
31, 1995: Allowance
for doubtful accounts $ 2,726 3,483 --- 968 5,241
Year ended December
31, 1994: Allowance
for doubtful accounts $ 1,642 1,712 --- 628 2,726
(1) Represents amounts related to acquisitions
(2) Represents amounts written-off as uncollectible.
F-2
Pursuant to the requirements of Section 13 or 15(d) 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.
The Multicare Companies, Inc.
By: /S/ DANIEL E. STRAUS
Daniel E. Straus
President and Co-Chief Executive Officer
March 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
MOSHAEL J. STRAUS Chairman of the Board, March 27, 1997
Moshael J. Straus Co-Chief Executive Officer
and Director
(Principal Executive Officer)
DANIEL E. STRAUS President, Co-Chief Executive March 27, 1997
Daniel E. Straus Officer and Director
(Principal Executive Officer)
STEPHEN R. BAKER Executive Vice President, March 27, 1997
Stephen R. Baker Chief Financial Officer and
Director (Principal Accounting
Officer)
PAUL J. KLAUSNER Director March 27, 1997
Paul J. Klausner
STUART H. ALTMAN Director March 27, 1997
Stuart H. Altman
CONSTANCE B.
GIRARD-DICARLO Director March 27, 1997
Constance B.
Girard-diCarlo
MENACHEM ROSENBERG Director March 27, 1997
Menachem Rosenberg
GEORGE R. ZOFFINGER Director March 27, 1997
George R. Zoffinger