UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File Number: 1-11666
GENESIS HEALTH VENTURES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 06-1132947
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
148 West State Street
Kennett Square, Pennsylvania 19348
(Address, including zip code, of principal executive offices)
(610) 444-6350
(Registrant's telephone number including area code)
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 the number of shares outstanding of each of the issuer's classes of
Common Stock, as of May 8, 1996: 24,509,545
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION........................................ 1
Item 1. Financial Statements.................................... 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 6
PART II. OTHER INFORMATION........................................... 11
Item 1. Legal Proceedings....................................... 11
Item 2. Changes in Securities................................... 11
Item 3. Defaults Upon Senior Securities......................... 11
Item 4. Submission of Matters to a Vote of Security Holders..... 11
Item 5. Other Information....................................... 11
Item 6. Exhibits and Reports on Form 8-K........................ 11
SIGNATURES............................................................ 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, September 30,
1996 1995
---- ----
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 7,798 $ 10,387
Accounts receivable, net of allowance for
doubtful accounts of $7,557 at March 31,
1996 and $6,179 at September 30, 1995 120,874 101,124
Cost report receivables 31,936 26,271
Inventory 11,828 9,601
Other current assets 33,856 43,674
--------- ---------
Total current assets 206,292 191,057
--------- ---------
Property, plant and equipment 360,604 294,769
Accumulated depreciation (56,594) (51,108)
--------- ---------
304,010 243,661
Goodwill and other intangibles, net 154,998 114,947
Other assets 68,776 50,724
--------- ---------
TOTAL ASSETS $ 734,076 $ 600,389
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 58,958 $ 52,522
Current installments of long-term debt 2,438 2,539
Income taxes payable 411 1,882
--------- ---------
Total current liabilities 61,807 56,943
--------- ---------
Long-term debt 392,210 308,052
Deferred income taxes 5,783 8,698
Deferred gain and other liabilities 4,671 5,149
Shareholders' Equity:
Common stock, par value $.02, authorized
60,000,000 shares, issued and outstanding,
24,494,572 and 24,448,971 at March 31, 1996;
22,081,267 and 22,035,666 at
September 30, 1995 331 294
Additional paid-in capital 190,280 155,927
Retained earnings 79,237 65,569
-------- --------
269,848 221,790
Less treasury stock, at cost ( 243) (243)
-------- --------
Total shareholders' equity 269,605 221,547
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $734,076 $600,389
======== ========
See accompanying notes to condensed consolidated financial statements.
-1-
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
-----------
Three Months Ended
March 31,
---------------------
1996 1995
---- ----
Net revenues:
Basic healthcare services $ 83,066 $ 69,058
Specialty medical services 61,811 41,469
Management services and other 9,862 6,426
----------- -----------
Total net revenues 154,739 116,953
Operating expenses:
Salaries, wages and benefits 77,283 57,546
Other operating expenses 41,798 33,201
General corporate expense 6,262 4,142
Depreciation and amortization 6,087 4,652
Lease expense 4,068 3,408
Interest expense, net 6,939 4,816
----------- -----------
Earnings before income taxes 12,302 9,188
Income taxes 4,492 3,375
----------- -----------
Net income $ 7,810 $ 5,813
=========== ===========
Per common share data:
Primary
Net income $ 0.31 $ 0.26
Weighted average shares of
Common Stock and equivalents 25,306,685 22,674,336
Fully diluted
Net income $ 0.30 $ 0.24
Weighted average shares of
Common Stock and equivalents 28,797,732 28,411,333
See accompanying notes to condensed consolidated financial statements.
-2-
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
-----------
Six Months Ended
March 31,
----------------------
1996 1995
---- ----
Net revenues:
Basic healthcare services $ 155,260 $ 136,372
Specialty medical services 115,001 80,145
Management services and other 17,256 11,989
----------- -----------
Total net revenues 287,517 228,506
Operating expenses:
Salaries, wages and benefits 142,325 113,603
Other operating expenses 79,394 64,800
General corporate expense 11,101 8,281
Debenture conversion expense 1,090 ---
Depreciation and amortization 11,235 8,984
Lease expense 7,861 6,730
Interest expense, net 12,979 9,393
----------- -----------
Earnings before income taxes 21,532 16,715
Income taxes 7,864 6,092
----------- -----------
Net income $ 13,668 $ 10,623
=========== ===========
Per common share data:
Primary
Earnings excluding debenture
conversion expense $ 0.58 $ 0.47
Debenture conversion expense (0.03)
Net income 0.55 0.47
Weighted average shares of Common
Stock and equivalents 24,730,819 22,618,641
Fully diluted
Earnings excluding debenture
conversion expense $ 0.55 $ 0.44
Debenture conversion expense (0.02)
Net income 0.53 0.44
Weighted average shares of Common
Stock and equivalents 28,816,719 28,369,497
See accompanying notes to condensed consolidated financial statements.
-3-
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
-----------
Six Months Ended
March 31,
---------------------
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 13,668 $ 10,623
Adjustments to reconcile net income to net cash
provided by operating activities:
Charges (credits) included in operations not
requiring funds:
Provision for deferred taxes 1,966 1,523
Depreciation and amortization 11,235 8,984
Amortization of deferred gain (230) (230)
Debenture conversion expense 1,090 ---
Changes in assets and liabilities excluding
effects of acquisitions:
Increase in accounts receivable (7,519) (8,843)
Increase in cost report receivables (6,941) (4,992)
Increase in inventory (1,548) (753)
(Increase) decrease in other current assets (10,932) (5,734)
Increase (decrease) in accounts payable and
accrued expenses 5,355 4,784
Increase in income taxes payable 1,508 636
--------- --------
Total adjustments (6,016) (4,625)
--------- --------
Net cash provided by operating activities 7,652 5,998
Cash flows from investing activities:
Capital expenditures (12,776) (9,723)
Cash paid net--acquisitions (93,316) (934)
Deferred and other long-term asset
additions, net (11,593) (5,225)
Increase in trustee-held funds (60) (168)
--------- --------
Net cash used in investing activities (117,745) (16,050)
--------- --------
Cash flows from financing activities:
Net borrowings (repayments) under bank
credit facility 107,200 9,800
Repayment of long-term debt (322) (382)
Debenture conversion expense (1,090) ---
Proceeds from exercise of common stock
options 1,716 681
--------- --------
Net cash provided by financing activities 107,504 10,099
--------- --------
Net increase (decrease) in cash and cash
equivalents (2,589) 47
--------- --------
Cash and cash equivalents:
Beginning of the period 10,387 3,817
--------- --------
End of the period $ 7,798 $ 3,864
========= ========
Supplemental disclosure of cash flow information:
Interest paid $ 11,876 $ 9,177
--------- --------
Income taxes paid $ 12,005 $ 5,072
========= ========
See accompanying notes to condensed consolidated financial statements.
-4-
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. General
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
the notes thereto included in the Company's annual report for the fiscal year
ended September 30, 1995. The information furnished is unaudited but reflects
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial information for the periods shown. Such
adjustments are of a normal recurring nature. Interim results are not
necessarily indicative of results expected for the full year.
2. Earnings Per Share
Primary and fully-diluted earnings per share are based on the weighted
average number of common shares outstanding and the dilutive effect of stock
options, convertible debentures and other common stock equivalents.
3. McKerley Acquisition Pro Forma Financial Information
On November 30, 1995, the Company acquired all of the issued and
outstanding stock and partnership interests of McKerley Health Care Centers,
Inc., McKerley Health Care Center - Concord, Inc., McKerley Health Facilities
and McKerley Health Care Center - Concord, L.P. (collectively, the "McKerley
Entities"). The Company acquired the outstanding stock and partnership
interests of the McKerley Entities for approximately $68.7 million, including
assumed debt and after giving effect to the funds placed in escrow by the
principals as described below. An additional $6.0 million of purchase price is
payable if certain financial objectives are achieved through October 1997. The
transaction was financed with borrowings under the Company's bank credit
facility.
Pursuant to certain agreements executed on November 30, 1995, the Company
directly or through one or more subsidiaries, agreed to provide certain
services to the principals during the period ending November 30, 1998, and the
principals agreed to make certain lease payments on behalf of the Company with
respect to certain lease obligations of the McKerley Entities. As security for
the principals' or their affiliates' obligation to make the required payments
as they become due, the principals placed approximately $6.5 million in an
account with a third party escrow agent.
The following unaudited pro forma statement of operations information gives
effect to the McKerley acquisition described above as though it had occurred
at the beginning of the periods presented, after giving effect to certain
adjustments, including amortization of goodwill, additional depreciation
expense, increased interest expense on debt related to the acquisition and
related income tax effects. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred had the
acquisition occurred at the beginning of the periods presented.
(In thousands, except per share data)
Six Months Ended
March 31, March 31,
1996 1995
--------- ---------
Pro Forma Statement of Operations Information:
Total net revenues $ 297,393 $ 256,576
Net income 13,950 10,918
Primary earnings per share 0.56 0.48
Fully diluted earnings per share $ 0.54 $ 0.45
See accompanying notes to condensed consolidated financial statements.
-5-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
Since the Company began operations in July 1985, it has focused its efforts
on providing an expanding array of specialty medical services to elderly
customers. The delivery of these services was originally concentrated in the
eldercare centers owned and leased by the Company, but now also includes
managed eldercare centers, independent healthcare facilities, outpatient
clinics and home health care.
The Company generates revenues from three sources: basic healthcare
services, specialty medical services and management services. The Company
includes in basic healthcare services revenues all room and board charges from
its elderly customers at its owned and leased eldercare centers. Specialty
medical services include all revenues from providing rehabilitation therapies,
institutional pharmacy and medical supply services, subacute care programs,
home health care, physician services, and other specialized services.
Management services include fees earned for management of eldercare centers
and development of life care communities.
Genesis delivers its services through three divisions. The largest, in
terms of revenues, is Genesis Health Centers, which at March 31, 1996 included
68 owned and leased eldercare centers. The second, Genesis Health Services,
provides specialty medical services to all centers owned, leased or managed by
Genesis as well as to over 500 independent healthcare providers. The third,
Genesis Management Resources, Inc., manages 39 eldercare centers.
Certain Transactions
In May 1996, the Company agreed to acquire the outstanding stock of
National Health Care Affiliates, Inc., Oak Hill Center, Inc., Derby Nursing
Center Corporation, EIDOS, Inc. and Versalink, Inc., and all of the
outstanding partnership interests of Delaware Avenue Partnership
(collectively, "National Health") for total consideration of approximately
$133,600,000, including assumed debt, subject to adjustment. The transaction
is expected to close in the second calendar quarter of 1996 and is subject to
normal regulatory approvals and certain third party consents. The
consideration will be comprised of approximately $79,400,000 in cash and the
assumption of approximately $54,200,000 of indebtedness. Genesis intends to
repay all but approximately $18,000,000 of the assumed indebtedness
concurrently with the closing of the transaction. The cash portion of the
purchase price and repayment of indebtedness will be financed by borrowings
under the Company's bank credit facilities. National Health owns six eldercare
centers in Florida with 863 beds, leases four eldercare centers in Florida
with 368 beds, owns six eldercare centers in Virginia with 1,168 beds, and
leases one eldercare center in Connecticut with 120 beds. National Health also
provides enteral nutrition and rehabilitation therapy services to the
eldercare centers which it owns and leases. In addition, National Health
manages four eldercare centers in Colorado with 283 beds pursuant to an
agreement which expires in October 1997. Certain businesses, including home
health care, infusion therapy and assisted living facilities in New York State,
-6-
which are currently owned by National Health, will not be acquired by Genesis
as part of the transaction.
In April 1996, the Company agreed to acquire the outstanding stock of
NeighborCare Pharmacies, Inc. and certain related entities (collectively,
"NeighborCare"), a privately held institutional pharmacy, infusion therapy and
retail pharmacy business based in Baltimore, Maryland for approximately
$57,250,000, including assumed debt. The transaction is expected to close in
the second calendar quarter of 1996 and is subject to normal regulatory
approvals. The consideration will be comprised of $29,250,000 in cash, the
issuance of $10,000,000 in Common Stock and the assumption of NeighborCare
debt of approximately $18,000,000. Genesis intends to repay substantially all
of the assumed bank indebtedness concurrently with the closing of the
transaction. The cash portion of the purchase price and repayment of debt will
be financed by borrowings under the Company's bank credit facilities. The
number of shares issued will be based on the average closing price of the
Common Stock for a period prior to the closing of the transaction.
In March 1996, the Company acquired for total consideration of
approximately $31,900,000, including assumed debt, the remaining approximately
71% joint venture interests of four eldercare centers in Maryland and the
remaining 50% joint venture interest of an eldercare center in Florida (the
"Partnership Interest Purchase") which had been acquired as part of the
acquisition of substantially all of the assets of Meridian, Inc., Meridian
HealthCare, Inc. and their affiliated entities (the "Meridian Transaction").
In March 1996, the Company entered into a strategic alliance with Doctors
Community Hospital, a 250-bed acute care hospital in Maryland, pursuant to
which the Company sold to an affiliate of the hospital a 51% interest in
Magnolia Gardens Center, a 104-bed eldercare center for approximately
$2,900,000 (the "Magnolia Gardens Transaction"). As part of this transaction,
the Company entered into a long-term agreement to manage the center.
In March 1996, the Company sold four eldercare centers and a pharmacy in
Indiana for approximately $22,250,000 (the "Indiana Transaction"). The
properties were acquired as part of the Meridian Transaction.
In January 1996, the Company acquired the speech therapy, occupational
therapy and physical therapy services businesses of Medical and Rehab Support
Services, Inc., Professional Rehabilitation Network, Inc. and Healthcare Rehab
Services, Inc. (collectively, "Therapy Companies") for approximately
$9,300,000. The Therapy Companies provide these services in the Company's
Baltimore, Maryland/ Washington, D.C. market. The acquisition was financed
with borrowings under the Company's bank credit facilities.
Prior to January 1, 1996, the Company provided management, development and
marketing services to life care communities operated by Adult Community Total
Services, Inc. ("ACTS"), a Pennsylvania non-profit corporation, pursuant to a
management agreement which was to expire in April 1998. Effective January 1,
1996, Genesis restructured its relationship with ACTS. Under the revised
arrangement, Genesis was paid a $2,000,000 restructuring fee and will no
longer manage the ACTS life care communities. Genesis will continue to provide
development services for a fee in an amount equal to five percent of the total
cost of developing and completing facilities developed by ACTS. The
development portion of the contract has been extended to December 2002 and
Genesis is guaranteed a minimum annual development fee of approximately
$1,500,000 per year. Genesis also continues to provide certain ancillary
services to the ACTS communities.
-7-
In November 1995, the Company acquired McKerley Health Care Centers, Inc.
and certain related entities (collectively, "McKerley") for total
consideration of approximately $68,700,000. The transaction also provides for
up to an additional $6,000,000 of contingent consideration payable upon the
achievement of certain financial objectives through October 1997. McKerley
owns or leases 15 eldercare centers in New Hampshire and Vermont with a total
of 1,535 beds and operates a home healthcare company. The acquisition was
financed with borrowings under the Company's bank credit facilities.
In September 1995, the Company sold, and simultaneously entered into a
three-year contract to manage, five eldercare centers totaling 606 beds to the
Age Institute of Massachusetts for $19,570,000 (the "AIMASS Transaction").
Results of Operations
Three months ended March 31, 1996 compared to three months ended March 31,
1995.
The Company's total net revenues for the quarter ended March 31, 1996 were
$154,739,000 compared to $116,953,000 for the quarter ended March 31, 1995, an
increase of $37,786,000, or 32%. Basic healthcare services increased
$14,008,000, or 20% due principally to the acquisition of the McKerley
Entities, the Partnership Interest Purchase, a shift in payor mix from
Medicaid to Medicare and rate increases; the increase was partially offset by
the Indiana Transaction. Specialty medical services increased $20,342,000, or
49%, of which approximately $10,728,000 is due to the acquisitions of
specialty medical business including the Therapy Companies, and approximately
$1,096,000 is due to the commencement of pharmacy, medical supply and
rehabilitation therapy business in the Florida market with the remainder due
to volume growth in the institutional pharmacy, medical supply and contract
therapy divisions. Specialty medical service revenue per patient day in the
health centers division increased 15% to $29.04 in the quarter ended March 31,
1996 as compared to $25.23 for the same quarter in the prior year due
primarily to treatment of higher acuity patients. Management services and
other income increased $3,436,000, or 53%, including a net gain of
approximately $2,700,000 recognized in connection with the sale of four
eldercare centers and a pharmacy in Indiana, with the remainder primarily due
to the sale of a majority interest in one eldercare center in Maryland and new
management contracts with six eldercare centers (primarily as a result of the
AIMASS Transaction) and an eldercare center and hospital-based subacute unit
in Maryland (as a result of the Magnolia Gardens Transaction).
The Company's operating expenses before depreciation, amortization and
lease expense were $125,343,000 in the quarter ended March 31, 1996 compared
to $94,889,000 in the comparable prior period, an increase of $30,454,000, or
32%, which was primarily due to the acquisition of the McKerley Entities, an
increase in cost of goods sold related to increased sales of specialty medical
services and inflationary wage and benefit increases.
-8-
Interest expense increased $2,123,000 or 44%. This increase reflects
increased debt levels used to fund acquisitions and operations and a higher
average prevailing interest rate due to the issuance of $120,000,000 of 9.75%
Senior Subordinated Debentures due 2005.
Six months ended March 31, 1996 compared to six months ended March 31,
1995.
The Company's total net revenues for the six months ended March 31, 1996
were $287,517,000 compared to $228,506,000 for the six months ended March 31,
1995, an increase of $59,011,000 or 26%. Basic healthcare services increased
$18,888,000 or 14%, which is primarily due to the acquisition of the McKerley
Entities, the Partnership Interest Purchase, a shift in payor mix from
Medicaid to Medicare and rate increases; the increase was partially offset by
the AIMASS Transaction and the Indiana Transaction. Specialty medical service
revenue increased $34,856,000 or 43%, of which approximately $14,520,000 is
due to acquisitions of special medical businesses, including the Therapy
Companies, approximately $2,199,000 is due to the commencement of pharmacy,
medical supply and rehabilitation therapy business in Florida, with the
remainder due to other volume growth in the institutional pharmacy, medical
supply and contract therapy divisions. Specialty medical service revenue per
patient day in the health centers division increased 23% to $28.51 in the six
months ended March 31, 1996 as compared to $23.18 for the same period in the
prior year due primarily to treatment of higher acuity patients. Management
services and other income increased $5,267,000 or 44% including a net gain of
approximately $2,700,000 recognized in connection with the sale of four
eldercare centers and a pharmacy in Indiana, the sale of a majority interest
in one eldercare center in Maryland, and new management contracts with six
eldercare centers in Massachusetts (primarily as a result of the AIMASS
Transaction) and an eldercare center and hospital-based subacute unit in
Maryland (as a result of the Magnolia Gardens Transactions).
The Company's operating expenses before debenture conversion expense,
depreciation, amortization and lease expense were $232,820,000 compared to
$186,684,000 in the comparable prior period, an increase of $46,136,000 or
25%, which was primarily due to the acquisition of the McKerley Entities, an
increase in cost of goods sold related to increased specialty medical service
revenues, and inflationary wage and benefit increases.
In the quarter ended December 31, 1995 the Company converted approximately
$33,500,000 of its 6% Convertible Senior Subordinated Debentures (the
"Debentures") due 2003. In connection with the early conversion of the
Debentures, the Company paid approximately $1,100,000 representing the
prepayment of interest to converting debenture holders. The non-recurring cash
payment is presented as debenture conversion expense in the results of
operations for the six months ended March 31, 1996.
Interest expense increased $3,586,000 or 38%. This increase reflects
increased debt levels used to fund acquisitions and operations and a higher
average prevailing interest rate due to the issuance of $120,000,000 of 9.75%
Senior Subordinated Debentures due 2005.
Liquidity and Capital Resources
Working capital increased to $144, 485 ,000 at March 31, 1996 from
$134,114,000 at September 30, 1995. Accounts receivable increased to
$120,874,000 at March 31, 1996 from $101,124,000 at September 30, 1995.
Approximately $4,800,000 of this increase relates to accounts receivables
purchased as part of the acquisition of the McKerley Entities, approximately
$3,000,000 relates to accounts receivables purchased as part of the
acquisition of three rehabilitation therapy companies in January 1996,
approximately $3,800,000 relates to the acquisition of the remaining interest
of four eldercare centers in Maryland and one eldercare center in Florida, and
the remaining $8,150,000 relates primarily to the continuing shift in business
mix to specialty medical services including the specialty medical businesses
acquired during fiscal 1995. Days of revenue in accounts receivable decreased
from 72 to 71 during this period.
-9-
In May 1996, the Company filed a registration statement with the Securities
and Exhange Commission to sell 6,000,000 shares of Common Stock. The Company
intends to use the net proceeds from the offering to repay amounts outstanding
under its bank credit facilities.
In March 1996, the Company sold four eldercare centers and a pharmacy in
Indiana for approximately $22,250,000. The Company used the net proceeds from
the sale to repay a portion of its revolving credit facility.
In November 1995, the Company received in cash approximately $18,000,000 in
connection with the September 1995 sale of five facilities in Massachusetts.
The Company used the proceeds from the sale to repay a portion of the
revolving credit facility.
The Company's cash flow from operations for the six months ended March 31,
1996 was $7,652,000 compared to $5,998,000 for the six months ended March 31,
1996.
In the quarter ended December 31, 1995, the Company converted approximately
$33,500,000 of Debentures. In connection with the early conversion of the
Debentures, the Company paid approximately $1,100,000 representing the
prepayment of interest to converting debenture holders. The conversion of a
portion of the outstanding Debentures improves the Company's leverage and
provides the Company with the ability to borrow under its revolving credit
facilities at lower rates.
In September 1995, the Company amended and restructured its credit facility
to provide for a $200,000,000 revolving credit facility and a $100,000,000
acquisition credit facility. Both credit facilities bear interest at a
floating rate equal, at the Company's option, to prime rate or LIBOR plus
1.25%. Amounts outstanding under the credit facilities in September 1998
convert to a term loan that provides for equal annual amortization payable
quarterly. At March 31, 1996, $73,700,000 was outstanding under the revolving
credit facility and $100,000,000 was outstanding under the acquisition credit
facility. The Company used the borrowings under the acquisition credit
facility to fund the acquisitions of the McKerley Entities, the Partnership
Interest Purchase, and the Therapy Companies. The credit facilities are
secured by the stock of the Company's subsidiaries and first priority liens on
the Company's accounts receivable, inventory and all other personal property.
In June 1995, the Company completed an offering of $120,000,000 of 9 3/4%
Senior Subordinated Notes due 2005 resulting in net proceeds of approximately
$115,800,000. The Company used $100,000,000 of the net proceeds from the
offering to repay in full the term loan component of the credit facility and
the remaining net proceeds to repay a part of the revolving portion of the
credit facility.
The Company believes that its liquidity needs can be met by expected
operating cash flow and availability of borrowings under its bank credit
facilities. At May 10, 1996, $169,900,000 was outstanding under the credit
facility, and $13,200,000 was outstanding under letters of credit issued under
the credit facilities.
Seasonality
The Company's earnings generally fluctuate from quarter to quarter. This
seasonality is related to a combination of factors which include the timing of
Medicaid rate increases, seasonal census cycles, and the number of calendar
days in a given quarter.
Impact of Inflation
The healthcare industry is labor intensive. Wages and other labor costs are
especially sensitive to inflation and resulting marketplace labor shortages.
To date, the Company has offset its increased operating costs by increasing
charges for its services and expanding its services. Genesis has also
implemented cost control measures to limit increases in operating costs and
expenses but cannot predict its ability to control such operating cost
increases in the future.
-10-
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
Effective March 29, 1996, the Company declared a partial
stock split of its Common Stock in the form of a
three-for-two stock dividend.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
On February 28, 1996, the Company held its Annual
Meeting of Shareholders (the "Annual Meeting"). Proxies
were solicited for the Annual Meeting pursuant to
Regulation 14 of the Securities Exchange Act of 1934.
At the Annual Meeting the following matters were voted
on: (i) Allen R. Freedman, Richard R. Howard and Samuel
H. Howard were all elected to serve on the Board of
Directors of the Company for three-year terms and until
their respective successors are duly elected and
qualified, each receiving 11,993,370 votes for their
election and 236,400 votes against their election (with
103,400 broker non-votes and abstentions); and (ii) an
amendment to the Company's 1985 Amended and Restated
Employee Stock Option Plan increasing the number of
shares which may be issued under the plan to 2,500,000
shares was approved by a vote of 7,605,568 votes for
the amendment and 4,540,442 votes against the amendment
(with 187,247 broker non-votes and abstentions).
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
2.1 Agreement to Purchase Partnership Interests,
made as of March 1, 1996, by and among
Meridian Health, Inc., Fairmont Associates, Inc.
and MHC Holding Company.
2.2 Purchase and Sale Agreement, dated January 16,
1996, by and among Genesis Health Ventures of
Indiana, Inc. and Hallmark Healthcare Limited
Partnership, as seller, and Hunter
Acquisitions, L.L.C., as purchaser.
3.1 Articles of Incorporation.
11 Earnings Per Share Calculation.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K, dated
April 21, 1996, reporting an agreement by the Company to
acquire the outstanding stock of NeighborCare for
consideration of approximately $57,250,000, including
assumed debt.
The Company filed a Current Report on Form 8-K dated May
3, 1996 reporting the agreement by the company to acquire
National Health Care Affiliates, Inc. and related
entities which included the following financial
statements:
Audited Combined Financial Statements as of and
for the year ended December 31, 1995.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereto duly authorized.
GENESIS HEALTH VENTURES, INC.
Date: May 15, 1996 /s/ George V. Hager, Jr.
-------------------------------------------------
George V. Hager, Jr.
Senior Vice President and Chief Financial Officer
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