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 December 31, 1998
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: 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 Identification No.)
incorporation or organization)
101 East 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 the latest practicable date.
Class Outstanding at February 12, 1999
- ----------------------------- --------------------------------
Common Stock ($.01 Par Value) 100
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Table of Contents
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Page
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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS .............................1
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
December 31, 1998 (Unaudited) and September 30, 1998 ................2
Consolidated Statements of Operations
Three months ended December 31, 1998 and 1997 (Unaudited) ...........3
Consolidated Statements of Cash Flows
Three months ended December 31, 1998 and 1997 (Unaudited) ...........4
Notes to Consolidated Financial Statements ........................5-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................... 8-15
Item 3. Quantitative and Qualitative Disclosures about Market Risk ........16
Part II: OTHER INFORMATION ...........................................................17
SIGNATURES ..................................................................18
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Certain oral statements made by management from time to time and certain
statements contained herein, including certain statements in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" such
as statements concerning Medicaid and Medicare programs and the Company's
ability to meet its liquidity needs and control costs, certain statements in
"Qualitative and Quantitative Disclosures about Market Risk", certain statements
in Notes to Unaudited Condensed Consolidated Financial Statements, such as
certain Pro Forma Financial Information; and other statements contained herein
regarding matters which are not historical facts are forward looking statements
(as such term is defined in the Securities Act of 1933) and because such
statements involve risks and uncertainties, actual results may differ materially
from those expressed or implied by such forward looking statements. Factors that
could cause actual results to differ materially include, but are not limited to
those discussed below:
1. Changes in the United States healthcare system, including changes in
reimbursement levels under Medicaid and Medicare, implementation of the
Medicare prospective payment system and consolidated billing and other
changes in applicable government regulations that might affect the
profitability of the Company.
2. The Company's substantial indebtedness and significant debt service
obligations.
3. 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.
4. 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.
5. The occurrence of changes in the mix of payment sources utilized by the
Company's customers to pay for the Company's services.
6. 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.
7. 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 in the regulatory system, such as changes in certificate of need
laws in the states in which the Company operates or anticipates operating
in the future that facilitate such competition.
8. The Company's ability to identify suitable acquisition candidates, to
consummate or complete development projects, or to profitably operate or
successfully integrate enterprises into the Company's other operations.
9. The Company and its payors' and suppliers ability to implement a Year 2000
readiness program.
These and other factors have been discussed in more detail in the Company's
periodic reports, including its Annual Report on Form 10-K for the fiscal year
ended September 30, 1998
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
December 31, September 30,
1998 1998
------------ -------------
(Unaudited)
Assets
------
Current Assets:
Cash and cash equivalents $ 10,384 $ 11,344
Accounts receivable, net 123,388 114,210
Prepaid expenses and other current assets 19,148 16,208
Deferred taxes - current portion 1,702 2,117
---------- ----------
Total current assets 154,622 143,879
---------- ----------
Property, plant and equipment, net 718,920 719,112
Goodwill, net 779,766 778,231
Other assets 57,966 57,733
---------- ----------
$1,711,274 $1,698,955
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
Accounts payable $ 33,923 $ 30,188
Accrued liabilities 56,996 60,226
Current portion of long-term debt 31,673 30,647
---------- ----------
Total current liabilities 122,592 121,061
---------- ----------
Long-term debt 735,522 725,194
Deferred taxes 104,718 105,023
Due to Genesis Health Ventures, Inc. and other liabilities 17,782 14,439
Stockholders' Equity:
Common stock, par value $.01, 100 shares authorized
100 shares issued and outstanding --- ---
Additional paid-in-capital 733,000 733,000
Retained earnings (deficit) (2,340) 238
---------- ----------
Total stockholders' equity 730,660 733,238
---------- ----------
$1,711,274 $1,698,955
========== ==========
See accompanying notes to consolidated financial statements.
2
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(In thousands)
Three Months Ended
December 31,
--------------------
1998 1997
---- ----
Net revenues $168,484 $185,778
Expenses:
Operating expense 129,812 141,343
Management fee 10,051 11,645
Depreciation and amortization 11,281 11,784
Lease expense 3,124 3,443
Interest expense, net 16,185 14,718
-------- --------
Total expenses 170,453 182,933
-------- --------
Earnings (loss) before income taxes (1,969) 2,845
Income tax provision 609 1,487
-------- --------
Net income (loss) $(2,578) $ 1,358
======== ========
See accompanying notes to consolidated financial statements.
3
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three months ended
December 31,
---------------------
1998 1997
---- ----
Cash flows from operating activities:
Net cash provided by (used in) operating activities $ (9,339) $ 12,423
Cash flows from investing activities:
Capital expenditures (5,261) (11,391)
Other assets and liabilities 2,285 (11,981)
-------- ----------
Net cash used in investing activities (2,976) (23,372)
Cash flows from financing activities:
Proceeds from long-term debt 83,705 1,608,675
Repayments of long-term debt (72,350) (874,373)
Equity contribution -- 733,000
Proceeds from sale of therapy business -- 24,000
Purchase of shares in tender offer -- (921,326)
Debt and other financing obligation repayments in connection with merger -- (446,794)
Severance, option payouts and transaction fees in connection with merger -- (91,205)
Debt issuance costs -- (21,582)
-------- ----------
Net cash provided by financing activities 11,355 10,395
-------- ----------
Decrease in cash and cash equivalents (960) (554)
Cash and cash equivalents at beginning of period 11,344 2,118
-------- ----------
Cash and cash equivalents at end of period $ 10,384 $ 1,564
======== ==========
See accompanying notes to consolidated financial statements.
4
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
(Unaudited)
(In thousands, except share data)
(1) Organization and Basis of Presentation
The Multicare Companies, Inc. and Subsidiaries ("Multicare" or the
"Company") own, operate and manage skilled eldercare and assisted
living facilities which provide long-term care and specialty medical
services in selected geographic regions within the eastern and
midwestern United States. In addition, the Company operated
institutional pharmacies, medical supply companies, outpatient
rehabilitation centers and other ancillary healthcare businesses before
the Merger (as defined below). As a result of the Merger of Genesis
ElderCare Acquisition Corp. with the Company, Genesis Health Ventures,
Inc. ("Genesis") owns approximately 44% of Genesis ElderCare Corp.,
which owns 100% of the outstanding capital stock of the Company. The
Company and Genesis have entered into a management agreement pursuant
to which Genesis manages the Company's operations.
The financial information as of December 31, 1998, and for the three
months ended December 31, 1998 and 1997, is unaudited and has been
prepared in conformity with the accounting principles and practices as
reflected in the Company's audited annual financial statements. The
unaudited financial statements contain all adjustments, consisting only
of normal recurring adjustments, necessary to present fairly the
financial position as of December 31, 1998 and the operating results
for the three months ended December 31, 1998 and 1997 and the cash
flows for the three months ended December 31, 1998 and 1997. Results
for interim periods are not necessarily indicative of those to be
expected for the year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from these estimates.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these consolidated financial statements be read in conjunction
with the consolidated financial statements and notes thereto
incorporated in the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1998.
(2) Tender Offer and Merger and Recent Acquisitions
On October 9, 1997, Genesis ElderCare Acquisition Corp. ("Acquisition
Corp."), a wholly-owned subsidiary of Genesis ElderCare Corp., a
Delaware corporation formed by Genesis Health Ventures, Inc.
("Genesis"), The Cypress Group L.L.C. (together with its affiliates,
"Cypress"), TPG Partners II, L.P. (together with its affiliates,
"TPG"), and Nazem, Inc. (together with its affiliates, "Nazem"),
acquired 99.65% of the shares of common stock of Multicare, pursuant to
a tender offer commenced on June 20, 1997 (the "Tender Offer"). On
October 10, 1997, Genesis ElderCare Corp. completed the merger (the
"Merger") of Acquisition Corp. with and into Multicare in accordance
with the Agreement and Plan of Merger (the "Merger Agreement") dated as
of June 16, 1997 by and among Genesis ElderCare Corp., Acquisition
Corp., Genesis and Multicare. Upon consummation of the Merger,
Multicare became a wholly-owned subsidiary of Genesis ElderCare Corp.
In connection with the Merger, Multicare and Genesis entered into a
management agreement (the "Management Agreement") pursuant to which
Genesis manages Multicare's operations. The Management Agreement has a
term of five years with automatic renewals for two years unless either
party terminates the Management Agreement.
5
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued.
(2) Tender Offer and Merger and Recent Acquisitions, Continued
Genesis earns a fee of six percent of Multicare's net revenues for its
services under the Management Agreement provided that payment of such
fee in respect of any month in excess of the greater of (i) $1,992 and
(ii) four percent of Multicare's consolidated net revenues for such
month, shall be subordinate to the satisfaction of Multicare's senior
and subordinate debt covenants; and provided, further, that payment of
such fee shall be no less than $23,900 in any given year. Under the
Management Agreement, Genesis is responsible for Multicare's
non-extraordinary sales, general and administrative expenses (other
than certain specified third-party expenses), and all other expenses of
Multicare are paid by Multicare. Genesis also entered into an asset
purchase agreement (the "Therapy Sale Agreement") with Multicare and
certain of its subsidiaries pursuant to which Genesis acquired all of
the assets used in Multicare's outpatient and inpatient rehabilitation
therapy business for $24,000 subject to adjustment (the "Therapy Sale")
and a stock purchase agreement (the "Pharmacy Sale Agreement") with
Multicare and certain subsidiaries pursuant to which Genesis acquired
all of the outstanding capital stock and limited partnership interests
of certain subsidiaries of Multicare that are engaged in the business
of providing institutional pharmacy services to third parties for
$50,000 subject to adjustment (the "Pharmacy Sale"). The Company
completed the Pharmacy Sale effective January 1, 1998.
Genesis ElderCare Corp. (the "Multicare Parent") paid approximately
$1,492,000 to (i) purchase the shares pursuant to the Tender Offer and
the Merger, (ii) pay fees and expenses incurred in connection with the
completion of the Tender Offer, Merger and the financing transactions
in connection therewith, (iii) refinance certain indebtedness of
Multicare and (iv) make certain cash payments to employees. Of the
funds required to finance the foregoing, approximately $733,000 were
furnished to Acquisition Corp. as capital contributions by the
Multicare Parent from the sale by Genesis ElderCare Corp. of its Common
Stock ("Genesis ElderCare Corp. Common Stock") to Cypress, TPG, Nazem
and Genesis. Cypress, TPG and Nazem purchased shares of Genesis
ElderCare Corp. Common Stock for a purchase price of $210,000, $199,500
and $10,500, respectively, and Genesis purchased shares of Genesis
ElderCare Corp. Common Stock for a purchase price of $325,000 in
consideration for approximately 44% of the Common Stock of the
Multicare Parent. The balance of the funds necessary to finance the
foregoing came from (i) the proceeds of loans from a syndicate of
lenders in the aggregate amount of $525,000 and (ii) $246,800 from the
sale of 9% Senior Subordinated Notes due 2007 (the "9% Notes") sold by
Acquisition Corp. on August 11, 1997.
In connection with the Merger, Genesis, Cypress, TPG and Nazem entered
into an agreement (the "Put/Call Agreement") pursuant to which, among
other things, Genesis will have the option, on the terms and conditions
set forth in the Put/Call Agreement, to purchase (the "Call") Genesis
ElderCare Corp. Common Stock held by Cypress, TPG and Nazem commencing
on October 9, 2001 and for a period of 270 days thereafter, at a price
determined pursuant to the terms of the Put/Call Agreement. Cypress,
TPG and Nazem will have the option, on the terms and conditions set
forth in the Put/Call Agreement, to require Genesis to purchase (the
"Put") such Genesis ElderCare Corp. Common Stock commencing on October
9, 2002 and for a period of one year thereafter, at a price determined
pursuant to the Put/Call Agreement.
The prices determined for the Put and Call are based on a formula that
calculates the equity value attributable to Cypress', TPG's and Nazem's
Genesis ElderCare Corp. Common Stock, plus a portion of the Genesis
pharmacy business (the "Calculated Equity Value"). The Calculated
Equity Value will be determined based upon a multiple of Genesis
ElderCare Corp.'s earnings before interest, taxes, depreciation,
amortization and rental expenses, as adjusted ("EBITDAR") after
deduction of certain liabilities, plus a portion of the EBITDAR related
to the Genesis pharmacy business. The multiple to be applied to EBITDAR
will depend on whether the Put or the Call is being exercised. Any
payment to Cypress, TPG or Nazem under the Call or the Put may be in
the form of cash or Genesis common stock at Genesis' option.
6
(2) Tender Offer and Merger and Recent Acquisitions, Continued
Upon exercise of the Call, Cypress, TPG and Nazem will receive at a
minimum their original investment plus a 25% compound annual return
thereon regardless of the Calculated Equity Value. Any additional
Calculated Equity Value attributable to Cypress', TPG's or Nazem's
Genesis ElderCare Corp. Common Stock will be determined on the basis
set forth in the Put/Call Agreement which provides generally for
additional Calculated Equity Value of Genesis ElderCare Corp. to be
divided based upon the proportionate share of the capital contributions
of the stockholders to Genesis ElderCare Corp. Upon exercise of the Put
by Cypress, TPG or Nazem, there will be no minimum return to Cypress,
TPG or Nazem; any payment to Cypress, TPG or Nazem will be limited to
Cypress', TPG's or Nazem's share of the Calculated Equity Value based
upon a formula set forth in the terms of the Put/Call Agreement.
Cypress', TPG's and Nazem's rights to exercise the Put will be
accelerated upon an event of bankruptcy of Genesis, a change of control
of Genesis or an extraordinary dividend or distribution or the
occurrence of the leverage recapitalization of Genesis. Upon an event
of acceleration or the failure by Genesis to satisfy its obligations
upon exercise of the Put, Cypress, TPG and Nazem will have the right to
terminate the Stockholders' Agreement and Management Agreement and to
control the sale or liquidation of Genesis ElderCare Corp. In the event
of such sale, the proceeds from such sale will be distributed among the
parties as contemplated by the formula for the Put option exercise
price and Cypress, TPG and Nazem will retain a claim against Genesis
for the difference, if any, between the proceeds of such sale and the
Put option exercise price.
The following 1998 pro forma financial information has been prepared as
if the Pharmacy Sale had been completed on October 1, 1997. The pro
forma financial information does not necessarily reflect the results of
operations that would have occurred had the transactions occurred at
the beginning of the respective periods presented.
Three months ended
December 31,
1997
------------------
Net revenues $166,036
Income before income taxes 1,764
Net income $ 847
7
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Upon consummation of the Merger, the Company and Genesis entered into the
Management Agreement pursuant to which Genesis manages the Company's operations.
Under Genesis' management, the Company's strategy is to integrate the talents of
case managers, comprehensive discharge planning and, to provide cost effective
care management to achieve superior outcomes and return the Company's customers
to the community. Genesis' management believes that achieving improved customer
outcomes will result in increased utilization of specialty medical services and
a broader base of repeat customers in the Company's network. Moreover, the
Company believes that this strategy will lead to a high quality payor mix and
continued high levels of occupancy. Genesis' management also will focus on the
revenue and cost opportunities presented through the further integration of the
Company's acquisitions. It is contemplated that the Company will do little, if
any, new acquisitions or new construction after the Merger; accordingly, capital
expenditures after the Merger have decreased significantly from historical
levels.
The Tender Offer and Merger
On October 9, 1997 Acquisition Corp., Cypress, TPG and Nazem acquired 99.65% of
the shares of common stock of Multicare, pursuant to the Tender Offer commenced
on June 20, 1997. On October 10, 1997, Genesis ElderCare Corp. completed the
Merger of Acquisition Corp. with and into Multicare in accordance with the
Merger Agreement. Upon consummation of the Merger, Multicare became a
wholly-owned subsidiary of Genesis ElderCare Corp. Multicare is in the business
of providing eldercare and specialty medical services in selected geographic
regions.
In connection with the Merger, Multicare and Genesis entered into the Management
Agreement pursuant to which Genesis manages Multicare's operations. The
Management Agreement has a term of five years with automatic renewals for two
years unless either party terminates the Management Agreement. Genesis is paid
a fee of six percent of Multicare's net revenues for its services under the
Management Agreement provided that payment of such fee in respect of any month
in excess of the greater of (i) $1,991,666 and (ii) four percent of Multicare's
consolidated net revenues for such month, shall be subordinate to the
satisfaction of Multicare's senior and subordinate debt covenants; and provided,
further, that payment of such fee shall be no less than $23,900,000 million in
any given year. Under the Management Agreement, Genesis is responsible for
Multicare's non-extraordinary sales, general and administrative expenses (other
than certain specified third-party expenses), and all other expenses of
Multicare are paid by Multicare. Genesis also entered into the Therapy Sale
Agreement with Multicare and certain of its subsidiaries pursuant to which
Genesis acquired all of the assets used in Multicare's outpatient and inpatient
rehabilitation therapy business for $24,000,000 subject to adjustment and the
Pharmacy Sale Agreement with Multicare and certain subsidiaries pursuant to
which Genesis will acquire all of the outstanding capital stock and limited
partnership interest of certain subsidiaries of Multicare that are engaged in
the business of providing institutional pharmacy services to third parties for
$50,000,000, subject to adjustment. The Company completed the Therapy Sale and
the Pharmacy Sale effective October 1, 1997 and January 1, 1998, respectively.
Genesis ElderCare Corp. (the "Multicare Parent") paid approximately
$1,492,000,000 to (i) purchase the shares pursuant to the Tender Offer and the
Merger, (ii) pay fees and expenses incurred in connection with the completion of
the Tender Offer, Merger and the financing transactions in connection with
therewith, (iii) refinance certain indebtedness of Multicare and (iv) make
certain cash payments to employees. Of the funds required to finance the
foregoing, approximately $733,000,000 were furnished to Acquisition Corp. as
capital contributions by the Multicare Parent from the sale by Genesis ElderCare
Corp. of its Common Stock ("Genesis Eldercare Corp. Common Stock") to Cypress,
TPG, Nazem and Genesis. Cypress, TPG and Nazem purchased shares of Genesis
ElderCare Corp. common stock for a purchase price of $210,000,000, $199,500,000
and $10,500,000, respectively, and Genesis purchased shares of Genesis ElderCare
Corp. common stock for a purchase price of $325,000,000 in consideration for
approximately 44% of the common stock of the Multicare Parent. The balance of
the funds necessary to finance the foregoing came from (i) the proceeds of loans
from a syndicate of lenders in the aggregate amount of $525,000,000 and (ii)
$250,000,000 from the sale of 9% Senior Subordinated Notes due 2007 (the "9%
Notes") sold by Acquisition Corp. on August 11, 1997.
8
Results of Operations
Net revenues. Net revenues for the three months ended December 31, 1998
decreased $17.3 million or 9.3% from the same period last year to $168.5
million. The decrease in revenues in the first quarter of fiscal 1999 is
comprised of approximately $20.8 million relating to the exclusion of the
results of the pharmacy business due to the Pharmacy Sale offset by
approximately $3.5 million of internal growth. The internal growth of revenues
resulted mainly from increases in payor rates and development and opening of
additional beds.
The average rate per patient day increased $2 per day from the same period last
year. The Company's quality mix of private, Medicare and insurance patient days
was 41.4% of patient days for the three months ended December 31, 1998 compared
to 43.6% in the similar period of last year. Occupancy rates were 91.1% for the
three months ended December 31, 1998 compared to 92.0% in the similar period of
last year.
Operating Expense. Operating expenses for the three months ended December 31,
1998 decreased $11.5 million or 8.2% from the comparable period last year to
$129.8 million. A decrease of $16.3 million relates to the exclusion of results
for the pharmacy businesses due to the Pharmacy Sale. The offsetting increase
resulted primarily from higher salaries, wages and benefits and expanded nursing
staffing levels to support higher patient acuities and more complex product
lines such as subacute and Alzheimers care. Facility operating margins were
23.0% and 23.9% for the three months ended December 31, 1998 and 1997,
respectively.
Management Fee. In connection with the Management Agreement, Genesis manages
Multicare's operations for a fee of approximately six percent of Multicare's
non-extraordinary (as defined by the Management Agreement) sales and is
responsible for Multicare's corporate general and administrative expenses other
than certain specified third party expenses. Management fees decreased by $1.6
million or 14% to $10.1 million, due to the exclusion of the results of the
pharmacy business due to the Pharmacy Sale.
Lease Expense. Lease expense for the three months ended December 31, 1998
decreased 9.3% to $3.1 million. The decrease relates to the sale of certain
leased facilities in connection with the Pharmacy Sale.
Depreciation and Amortization. Depreciation and amortization expense for the
three months ended December 31, 1998 decreased $0.5 or 4.3% from the prior
period to $11.3 million. Depreciation decreased due to the sale of certain
plant, property, and equipment in connection with the Pharmacy Sale.
Interest Expense, net. Interest expense, net for the three months ended December
31, 1998 increased $1.5 million or 10% to $16.2 million from the same period in
the prior year. The increase is due to the increase in average debt balance of
approximately $58 million in the current year period over the prior period. This
is due in part to incremental borrowings incurred to finance the Merger which
was not outstanding for the entire prior quarter.
Income Tax Expense. The provision for income taxes decreased by $0.9 million to
$0.6 million due to lower anticipated pre-tax earnings in the current year. The
majority of the tax provision relates to non-deductible goodwill amortization
resulting from the Merger which is partially offset in the current year by a tax
benefit related to the loss before income taxes.
Liquidity and Capital Resources
The Company maintains adequate working capital from operating cash flows and
lines of credit for continuing operations, debt service, and anticipated capital
expenditures. At December 31, 1998 and September 30, 1998, the Company had
working capital of $32.0 and $22.8 million, respectively.
Cash flow used in operations was $9.3 million for the three months ended
December 31, 1998 compared to cash flow provided by operations of $12.4 million
in the prior period. Net accounts receivable at December 31, 1998 were $123.4
million compared to $114.2 million as of September 30, 1998. The increase in net
accounts receivable is attributable to the timing of third-party interim and
settlement payments and the utilization of specialty medical services for higher
acuity level patients. Legislative and regulatory action and government
budgetary constraints will change the timing of payments and reimbursement rates
of the Medicare and Medicaid programs in the future. These changes could have a
material adverse effect on the Company's future operating results and cash
flows.
9
In connection with the Merger, Multicare entered into three term loans and a
revolving credit facility of up to $525 million, in the aggregate (collectively,
the "Senior Facilities"), provided by a syndicate of banks and other financial
institutions (collectively, the "Lenders") led by Mellon Bank, N.A., as
administrative agent (the "Administrative Agent"), pursuant to a certain credit
agreement (the "Long Term Credit Agreement") dated as of October 14, 1997. The
Senior Facilities were provided for the purpose of (i) refinancing certain
short term facilities in the aggregate principal amount of $431.6 million which
were funded on October 9, 1997 to acquire the Shares in the Tender Offer,
refinance certain indebtedness of Multicare (including the Company's bank credit
and lease facilities with NationsBank, N.A. the Company's 7% Convertible
Subordinated Debentures and the Company's 12.5% Senior Subordinated Notes) and
pay fees and expenses related to the transactions, (ii) funding interest and
principal payments on such facilities and on certain remaining indebtedness and
(iii) funding working capital and general corporate purposes.
The Senior Facilities consist of: (1) a $169 million six year term loan (the
"Tranche A Term Facility"); (2) a $148.1 million seven year term loan (the
"Tranche B Term Facility"); (3) a $49.2 million term loan maturing on June 1,
2005 (the "Tranche C Term Facility"); (4) a $125 million six year revolving
credit facility (the "Revolving Credit Facility") which includes Swing Loans
(collectively, the "Swing Loan Facility") in integral principal multiples of
$500,000 up to an aggregate unpaid principal amount of $10 million. The Tranche
A Term Facility, Tranche B Term Facility and Tranche C Term Facility are subject
to amortization in quarterly installments, commencing at the end of the first
calendar quarter after the date of the consummation of the Merger. The Revolving
Credit Facility will mature on September 30, 2003. All net proceeds received by
Multicare from (i) the sale of assets of Multicare or its subsidiaries other
than sales in the ordinary course of business (and other than the sales of
Multicare's rehabilitation therapy business and pharmacy business to the extent
that there are amounts outstanding under the Revolving Credit Facility) and (ii)
any sale of common stock or debt securities of Multicare in respect of common
stock will be applied as a mandatory prepayment. Fifty percent of Excess Cash
Flow must be applied to the Senior Facilities and shall be payable annually.
The Long Term Credit Agreement contains a number of covenants that, among other
things, restrict the ability of Multicare and its subsidiaries to dispose of
assets, incur additional indebtedness, make loans and investments, pay
dividends, engage in mergers or consolidations, engage in certain transactions
with affiliates and change control of capital stock, prepay debt, make material
changes in accounting and reporting practices, create liens on assets, give a
negative pledge on assets, make acquisitions and amend or modify documents. In
addition, the Long Term Credit Agreement requires that Multicare and its
affiliates maintain the Management Agreement as well as comply with certain
financial covenants. The Third Amendment to the Credit Facility ("the
Amendment"), effective February 12, 1999, made the financial covenants for
certain periods less restrictive.
The Senior Facilities are secured by a first priority security interest in all
of the (i) stock of Multicare, (ii) stock, partnership interests and other
equity of all of Multicare's present and future direct and indirect subsidiaries
and (iii) intercompany notes among Genesis ElderCare Corp. and any subsidiaries
or among any subsidiaries. Loans under the Senior Facilities bear, at
Multicare's option, interest at the per annum Prime Rate as announced by the
Administrative Agent, or the applicable Adjusted LIBO Rate. Effective with the
Amendment on February 12, 1999 the loans under the Tranche A Term Facility bear
interest at a rate equal to the Prime Rate plus a margin of .75% or the LIBO
Rate plus a margin of 3.0%; loans under the Tranche B Term Facility bear
interest at a rate equal to Prime Rate plus 1.5% or LIBO Rate plus a margin of
3.25%; loans under the Tranche C Term Facility bear interest at a rate equal to
Prime Rate plus 1.25% or LIBO Rate plus a margin up to 3.5%; loans under the
Revolving Credit Facility bear interest at a rate equal to Prime Rate plus .75%
or LIBO Rate plus a margin up to 3.0%; and loans under the Swing Loan Facility
bear interest at the Prime Rate unless otherwise agreed to by the parties.
Subject to meeting certain financial covenants, the above-referenced interest
rates will be reduced.
On August 11, 1997, Acquisition Corp. sold $250 million principal amount of 9%
Senior Subordinated Notes due 2007 (the "9% Notes") which were issued pursuant
to the Indenture. Interest on the 9% Notes is payable semiannually on February 1
and August 1 of each year.
10
The 9% Notes are unsecured, general obligations of the issuer, subordinated in
right of payment to all existing and future Senior Indebtedness, as defined in
the Indenture, of the issuer, including indebtedness under the Senior
Facilities. The 9% Notes rank pari passu in right of payment with any future
senior subordinated indebtedness of the issuer and are senior in right of
payment to all future subordinated indebtedness of the issuer. The 9% Notes are
redeemable at the option of the issuer, in whole or in part, at any time on or
after August 1, 2002, initially at 104.5% of their principal amount, plus
accrued interest, declining ratably to 100% of their principal amount, plus
accrued interest, on or after August 1, 2004. The 9% Notes are subject to
mandatory redemption at 101%. Upon a Change in Control, as defined in the
Indenture, the issuer is required to make an offer to purchase the 9% Notes at a
purchase price equal to 101% of their principal amount, plus accrued interest.
The Indenture contains a number of covenants that, among other things, restrict
the ability of the issuer of the 9% Notes to incur additional indebtedness, pay
dividends, redeem capital stock, make certain investments, issue the capital
stock of its subsidiaries, engage in mergers or consolidations or asset sales,
engage in certain transactions with affiliates, and create dividend and other
restrictions affecting its subsidiaries.
Upon the consummation of the Merger, Multicare assumed all obligations of
Acquisition Corp. with respect to and under the 9% Notes and the related
Indenture.
On October 9, 1997, Multicare, Genesis and Genesis ElderCare Network Services,
Inc., a wholly-owned subsidiary of Genesis, entered into a management agreement
(the "Management Agreement") pursuant to which Genesis manages Multicare's
operations. The Management Agreement has a term of five years with automatic
renewals for two years unless either party terminates the Management Agreement.
Genesis is paid a fee of six percent of Multicare's net revenues for its
services under the Management Agreement provided that payment of such fee in
respect of any month in excess of the greater of (i) $1.992 million and (ii)
four percent of Multicare's consolidated net revenues for such month, is
subordinate to the satisfaction of Multicare's senior and subordinate debt
covenants; and provided, further, that payment of such fee shall be no less than
$23.9 million in any given year. At December 31, 1998 $17.4 million is
subordinated and due to Genesis. Under the Management Agreement, Genesis is
responsible for Multicare's non-extraordinary sales, general and administrative
expenses (other than certain specified third-party expenses), and all other
expenses of Multicare are paid by Multicare.
On October 10, 1997, Genesis entered into the Therapy Sale pursuant to which
Genesis acquired all of the assets used in Multicare's outpatient and inpatient
rehabilitation therapy business for $24 million, subject to adjustment.
On October 10, 1997, Genesis and one of its wholly-owned subsidiaries entered
into the Pharmacy Sale pursuant to which Genesis acquired all of the outstanding
capital stock and limited partnership interests of certain subsidiaries of
Multicare that were engaged in the business of providing institutional pharmacy
services to third parties for $50 million, subject to adjustment (the "Pharmacy
Sale"). The Company completed the Pharmacy Sale effective January 1, 1998.
In February 1998 ElderTrust ("ETT"), a Maryland real estate investment trust
sponsored by Genesis, made term loans to subsidiaries of the Company with
respect to the lease-up of three assisted living facilities. The loans have a
fixed annual rate of interest of 10.5% and mature three years from the date of
the loans, subject to the right of the Company to extend the term for up to
three one-year extension periods in the event the facility has not reached
"stabilized occupancy" (as defined) as of the third anniversary of the loan (or
at the end of any extension period, if applicable).
ETT is obligated to purchase and leaseback the three facilities that secure the
term and construction loans being made to the Company, upon the earlier of the
facility reaching stabilized occupancy or the maturity of the loan secured by
the facility provided, however, that the Company will not be obligated to sell
any facility if the purchase price for the facility would be less than the
applicable loan amount. The purchase agreements provide for a cash purchase
price in an amount which will result in an annual yield of 10.5% to ETT. If
acquired by ETT, these facilities would be leased to the Company under minimum
rent leases. The initial term of any minimum rent lease will be ten years, and
the Company will have the option to extend the term for up to two five-year
extension periods upon 12 months notice to ETT. Minimum rent for the first lease
year under any minimum rent lease will be established by multiplying the
purchase price for the applicable facility times 10.5%, and the increase each
year by an amount equal to the lesser of (i) 5% of the increase in the gross
revenues for such facility (excluding any revenues derived from ancillary
healthcare services provided by Genesis or its affiliates to residents of the
applicable facility) during the immediately preceding year or (ii) one-half of
the increase in the Consumer Price Index during the immediately preceding year.
During the last four years of the term (as extended, if applicable), the Company
is required to make minimum capital expenditures equal to $3,000 per residential
unit in each assisted living facility covered by a minimum rent lease.
11
Legislative and regulatory action has resulted in continuing change in the
Medicare and Medicaid reimbursement programs which has adversely impacted the
Company. The changes have limited, and are expected to continue to limit,
payment increases under these programs. Also, the timing of payments made under
the Medicare and Medicaid programs is subject to regulatory action and
governmental budgetary constraints; in recent years, the time period between
submission of claims and payment has increased. Within the statutory framework
of the Medicare and Medicaid programs, there are substantial areas subject to
administrative rulings and interpretations which may further affect payments
made under those programs. Further, the federal and state governments may reduce
the funds available under those programs in the future or require more stringent
utilization and quality reviews of eldercare centers or other providers. There
can be no assurances that adjustments from Medicare or Medicaid audits will not
have a material adverse effect on the Company.
Pursuant to the Balanced Budget Act of 1997 (the "Balanced Budget Act")
commencing with cost reporting periods beginning on July 1, 1998, PPS began to
be phased in for skilled nursing facilities at a per diem rate for all covered
Part A skilled nursing facility services as well as many services for which
payment may be made under Part B when a beneficiary who is a resident of a
skilled nursing facility receives covered skilled nursing facility care. The
consolidated per diem rate is adjusted based upon the Resource Utilization Group
("RUG"). In addition to covering skilled nursing facility services, this
consolidated payment will also cover rehabilitation and non-rehabilitation
ancillary services. Physician services, certain nurse practitioner and physician
assistant services, among others, are not included in the per diem rate. For the
first three cost reporting periods beginning on or after July 1, 1998, the per
diem rate will be based on a blend of a facility specific-rate and a federal per
diem rate. In subsequent periods, and for facilities first receiving payments
for Medicare services on or after October 1, 1995, the federal per diem rate
will be used without any facility specific blending.
The Balanced Budget Act also required consolidated billing for skilled nursing
facilities. Under the Balanced Budget Act, the skilled nursing facility must
submit all Medicare claims for Part A and Part B services received by its
residents with the exception of physician, nursing, physician assistant and
certain related services, even if such services were provided by outside
suppliers. Medicare will pay the skilled nursing facilities directly for all
services on the consolidated bill and outside suppliers of services to residents
of the skilled nursing facilities must collect payment from the skilled nursing
facility. Although consolidated billing was scheduled to begin July 1, 1998 for
all services, it has been delayed until further notice for beneficiaries in a
Medicare Part A stay in a skilled nursing facility not yet using PPS and for the
Medicare Part B stay. There can be no assurance that the Company will be able to
provide skilled nursing services at a cost below the established Medicare level.
Based upon the Company's recent experience with 7 eldercare centers that
transitioned to PPS effective July 1, 1998 and based upon the Company's ongoing
budget process for its fiscal year ending September 30, 1999, the Company
believes that the impact of PPS on the Company's future earnings is likely to be
greater than originally anticipated by management due to various factors,
including lower than anticipated Medicare per diem revenues, lower than
anticipated Medicare Part B revenues caused by a census shift to Medicare
patients having a greater length of stay, higher than expected ancillary costs
at the centers due to expanded services covered in the Medicare Part A rates,
lower than anticipated routine cost reductions and lower than expected revenues
for contract therapy services.
Based upon assumptions, the Company estimates that the adverse revenue impact of
PPS in Fiscal 1999 will be approximately $18 million. The Company estimates that
the adverse revenue impact of PPS will be approximately an additional $13
million in Fiscal 2000 and an additional $5 million in each of Fiscal 2001 and
2002. The majority of the Multicare eldercare centers began implementation of
PPS on January 1, 1999. The actual impact of PPS on the Company's earnings in
Fiscal 1999 will depend on many variables which can not be quantified at this
time, including regulatory changes, patient acuity, patient length of stay,
Medicare census, referral patterns, and ability to reduce costs.
12
Effective April 10, 1998, regulations were adopted by the Health Care Financing
Administration, which revise the methodology for determining the reasonable cost
for contract therapy services, including physical therapy, respiratory therapy,
occupational therapy and speech language pathology. Under the regulations, the
reasonable costs for contract therapy services are limited to
geographically-adjusted salary equivalency guidelines. However, the revised
salary equivalency guidelines will no longer apply when the PPS system
applicable to the particular setting for contract therapy services (e.g. skilled
nursing facilities, home health agencies, etc.) goes into effect.
The Balanced Budget Act also repealed the Boren Amendment federal payment
standard for Medicaid payments to Medicaid nursing facilities effective October
1, 1997. The Boren Amendment required Medicaid payments to certain health care
providers to be reasonable and adequate in order to cover the costs of
efficiently and economically operated health care facilities. States must now
use a public notice and comment period in order to determine rates and provide
interested parties a reasonable opportunity to comment on proposed rates and the
justification for and the methodology used in calculating such rates. There can
be no assurance that budget constraints or other factors will not cause states
to reduce Medicaid reimbursement to nursing facilities and pharmacies or that
payments to nursing facilities and pharmacies will be made on timely basis. The
law also grants greater flexibility to states to establish Medicaid managed care
projects without the need to obtain a federal waiver. Although these waiver
projects generally exempt institutional care, including nursing facilities and
institutional pharmacy services, no assurances can be given that these projects
ultimately will not change the reimbursement system for long-term care,
including pharmacy services from fee-for-service to managed care negotiated or
capitated rates. The Company anticipates that federal and state governments will
continue to review and assess alternative health care delivery systems and
payment methodologies.
In July 1998, the Clinton Administration issued a new initiative to promote the
quality of care in nursing homes. This initiative includes, but is not limited
to (i) increased enforcement of nursing home safety and quality regulations;
(ii) increased federal oversight of state inspections of nursing homes; (iii)
prosecution of egregious violations of regulations governing nursing homes; (iv)
the publication of nursing home survey results on the Internet; and (v)
continuation of the development of the Minimum Data Set ("MDS"), a national
automated clinical data system. Accordingly, with this new initiative, it may
become more difficult for eldercare facilities to maintain licensing and
certification. The Company may experience increased costs in connection with
maintaining its licenses and certifications as well as increased enforcement
actions. In addition, beginning January 1, 1999, outpatient therapy services
furnished by a skilled nursing facility to a resident not under a covered Part A
stay or to non-residents who receive outpatient rehabilitation services will be
paid according to the Medicare Physician Fee Schedule.
The Company believes that its liquidity needs can be met by expected operating
cash flow and availability of borrowings under its credit facilities. At January
31, 1999, approximately $97.3 million was outstanding under the Senior
facilities, and approximately $21.8 million was available under the credit
facilities after giving effect to approximately $5.8 million in outstanding
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 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.
13
Year 2000 Compliance
The Company has implemented a process to address its Year 2000 compliance
issues. The process includes (i) an inventory and assessment of the compliance
of essential systems and equipment of the Company and of year 2000 mission
critical suppliers and other third parties, (ii) the remediation of
non-compliant systems and equipment, and (iii) contingency planning.
The Company's Year 2000 compliance work is being performed and paid for by
Genesis, manager of the Company's operations under the terms of a long-term
management agreement. Genesis is in the process of conducting an inventory,
assessment and remediation of its information technology ("IT") systems,
equipment and non-IT systems and equipment (embedded technology). It has
completed approximately 70% of its internal inventory and approximately 30% of
its assessment of the systems and equipment of critical suppliers and other
third parties.
With respect to the Year 2000 compliance of critical third parties, the Company
derives a substantial portion of its revenues from the Medicare and Medicaid
programs. Congress' General Accounting Office recently concluded that it is
highly unlikely that all Medicare systems will be compliant on time to ensure
the delivery of uninterrupted benefits and services into the Year 2000. While
the Company does not receive payments directly from Medicare, but from
intermediaries, the GAO statement is interpreted to apply as well to these
intermediaries. The Company intends to actively confirm the Year 2000 readiness
status for each intermediary and to work cooperatively to ensure appropriate
continuing payments for services rendered to all government-insured patients.
The Company is remediating its critical IT and non-IT systems and equipment. The
Company has also begun contingency planning in the event that essential systems
and equipment fail to be year 2000 compliant. The Company is planning to be Year
2000 complaint for all its essential systems and equipment by September 30,
1999, although there can be no assurance that it will achieve its objective by
such date or by January 1, 2000, or that such potential non-compliance will not
have a material adverse effect on the Company's business, financial condition or
results of operations. In addition there can be no assurance that all of the
Company's critical suppliers, and other third parties will be Year 2000
complaint by January 1, 2000, or that such potential non-compliance will not
have a material adverse effect on the Company's business, financial condition or
results of operations. The Company's analysis of its Year 2000 issues is based
in part on information from third party suppliers; there can be no assurance
that such information is accurate or complete.
The failure of the Company or third parties to be fully Year 2000 compliant for
essential systems and equipment by January 1, 2000 could result in interruptions
of normal business work operations. The Company's potential risks include (i)
the inability to deliver patient care-related services in the Company's
facilities and/or in non-affiliated facilities, (ii) the delayed receipt of
reimbursement from the Federal or State governments, private payors, or
intermediaries, (iii) the failure of security systems, elevators, heating
systems or other operational systems and equipment and (iv) the inability to
receive equipment and supplies from vendors. Each of these events could have a
material adverse affect on the Company's care-related business, results of
operations and financial condition.
Contingency plans for the Company's Year 2000-related issues continue to be
developed and include, but are not limited to, identification of alternate
suppliers, alternate technologies and alternate manual systems. The Company is
planning to have contingency plans completed for essential systems and equipment
by June 30, 1999; however, there can be no assurance that it will meet this
objective by such date or by January 1, 2000.
The Year 2000 disclosure set forth above is intended to be a "Year 2000
statement" as such term is defined in the Year 2000 Information and Readiness
Disclosure Act of 1998 (the "Year 2000 Act") and, to the extent such disclosure
relates to year 2000 processing of the Company or to products or services
offered by the Company, is also intended to be "Year 2000 readiness disclosure"
as such term is defined in the Year 2000 Act.
14
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income
("Statement 130"). This Statement requires that all items that are required to
be recognized under accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with the same prominence
as other financial statements. This Statement is effective for fiscal years
beginning after December 15, 1997 or the Company's fiscal year ending September
30, 1999. The Company plans to adopt this accounting standard as required. The
adoption of this standard will have no impact on the Company's earnings,
financial condition or liquidity, but will require the Company to classify items
of other comprehensive income in a financial statement and display the
accumulated balance of other comprehensive income separately in the equity
section of the balance sheet.
In June 1997, the FASB also issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("Statement 131"). Statement 131 supersedes Statement of Financial Standards No.
14, Financial Reporting for Segments of a Business Enterprise, and establishes
new standards for reporting information about operation segments in annual
financial statements and requires selected information about operating segments
in interim financial reports. Statement 131 also establishes standards for
related disclosures about products and services, geographic areas and major
customers. Statement 131 is effective for periods beginning after December 15,
1997, or the Company's fiscal year end September 30, 1999. This Statement will
have no impact on the Company's financial statements, results of operations,
financial condition or liquidity.
In April 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-5, Reporting on the Costs of Start-up Activities ("SOP 98-5"). SOP
98-5 requires costs of start-up activities, including organizational costs, to
be expensed as incurred. Start-up activities are defined as those one-time
activities related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
process in an existing facility, or commencing a new operation. SOP 98-5 is
effective for fiscal years beginning after December 15, 1998 or the Company's
fiscal year ending September 30, 2000. The Company currently estimates the
adoption of SOP 98-5 will result in a change of approximately $2.1 million net
of tax which will be recorded as a cumulative effect of a change in accounting
principle.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities ("Statement
133"). Statement 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. Statement 133 requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure the instrument at fair value. The
accounting changes in the fair value of a derivative depends on the intended use
of the derivative and the resulting designation. This Statement is effective for
all fiscal quarters beginning after June 15, 1999. The Company intends to adopt
this accounting standard as required, in the fourth quarter of fiscal 1999. The
adoption of this standard is not expected to have a material impact on the
Company's earnings or financial position.
15
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to the impact of interest rate changes. In the normal
course of business, the Company employs established policies and procedures to
manage its exposure to changes in interest rates. The Company's objective in
managing its exposure to interest rate changes is to limit the impact of such
changes on earnings and cash flows and to lower its overall borrowing costs. To
achieve its objectives, the Company primarily uses interest rate swaps to manage
net exposure to interest rate changes related to its portfolio of borrowings.
Notional amounts of interest rate swap agreements are used to measure interest
to be paid or received relating to such agreements and do not represent an
amount of exposure to credit loss. The fair value of interest rate swap
agreements is the estimated amount the Company would receive or pay to terminate
the swap agreement at the reporting date, taking into account current interest
rates. The Libor rate as of December 31, 1998 was 5.4%. The estimated amount the
Company would pay to terminate its interest rate swap agreements outstanding at
December 31, 1998 is approximately $3,668,000. The fair value of the Company's
debt, based on quoted market prices or current rates for similar instruments
with same maturities was approximately $755,747,000 and $743,332,000 December
31, 1998 and September 30, 1998, respectively. The table below represents the
contractual or notional balances of the Company's fixed rate and market
sensitive instruments at expected maturity dates and the weighted average
interest rates.
Liabilities
- --------------------------------------------------------------------------------------------------------------------------
Expected Maturity
1999 2000 2001 2002 2003 Thereafter Total
- --------------------------------------------------------------------------------------------------------------------------
Long Term Debt:
Fixed Rate $673 $722 $20,278 $13,783 $250,771 $30,243 $316,470
Average Interest Rate 9.1% 9.1% 9.1% 9.0% 9.0% 9.4% 9.1%
Variable Rate $31,000 $35,000 $39,000 $42,000 $151,225 $152,500 $450,725
Average Interest Rate Libor +2.6% Libor +2.6% Libor +2.6% Libor +2.6% Libor +2.6% Libor +2.7% Libor + 2.6%
- --------------------------------------------------------------------------------------------------------------------------
Interest Rate Derivatives
- --------------------------------------------------------------------------------------------------------------------------
Expected Maturity
1999 2000 2001 2002 2003 Thereafter Total
- --------------------------------------------------------------------------------------------------------------------------
Interest Rate Swaps:
Variable to Fixed $100,000 $100,000
Average Fixed Pay Rate 5.6% 5.6%
Average Variable Rate Libor Libor
- --------------------------------------------------------------------------------------------------------------------------
16
PART II: OTHER INFORMATION
Item 1. Legal Proceedings. Not Applicable.
Item 2. Changes in Securities and Use of Proceeds. Not Applicable.
Item 3. Defaults Upon Senior Securities. Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable.
Item 5. Other Information. Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
----------- -----------
10.1 Amendment No. 1 to Credit Agreement,
October 14, 1997 Multicare Inc. from
Mellon Bank, N.A., Citicorp. USA Inc.,
First Union Bank and NationBank, N.A.
10.2 Amendment No. 2 to Credit Agreement,
October 14, 1997 Multicare Inc. from
Mellon Bank, N.A., Citicorp. USA Inc.,
First Union Bank and NationBank, N.A.
10.3 Amendment No. 3 to Credit Agreement,
October 14, 1997 Multicare Inc. from
Mellon Bank, N.A., Citicorp. USA Inc.,
First Union Bank and NationBank, N.A.
27 Financial Data Schedule.
(b) Reports on Form 8-K. Not Applicable.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE MULTICARE COMPANIES, INC.
Date: February 12, 1999 /S/ George V. Hager, Jr.
-------------------------------------------------
George V. Hager, Jr.
Senior Vice President and Chief Financial Officer