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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
CHECK ONE:
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSACTION PERIOD FROM _________ TO _________.
COMMISSION FILE NO.: 1-12996
ADVOCAT INC.
----------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 62-1559667
- ------------------------------- ---------------------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
277 MALLORY STATION ROAD, SUITE 130, FRANKLIN, TN 37067
-------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(615) 771-7575
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
--------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT.)
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
5,491,621
----------------
(OUTSTANDING SHARES OF THE ISSUER'S COMMON STOCK AS OF MAY 9, 2001)
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PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ADVOCAT INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS AND UNAUDITED)
MARCH 31, DECEMBER 31,
2001 2001
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 1,492 $ 4,496
Receivables, less allowance for doubtful
accounts of $5,037 and $5,035, respectively 15,021 15,111
Inventories 547 633
Prepaid expenses and other assets 1,748 2,100
----- -----
Total current assets 18,808 22,340
------ ------
PROPERTY AND EQUIPMENT, at cost 89,665 89,567
Less accumulated depreciation and amortization (25,693) (24,418)
------ ------
Net property and equipment 63,972 65,149
------ ------
OTHER ASSETS:
Deferred financing and other costs, net 593 572
Deferred lease costs, net 2,031 2,085
Assets held for sale or redevelopment 1,476 1,476
Investments in and receivables from joint ventures 8,724 8,333
Other 1,888 1,801
----- -----
Total other assets 14,712 14,267
------ ------
$ 97,492 $ 101,756
======= =======
(Continued)
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ADVOCAT INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS AND UNAUDITED)
(CONTINUED)
MARCH 31, DECEMBER 31,
2001 2000
---- ----
CURRENT LIABILITIES:
Current portion of long-term debt $ 57,234 $ 61,229
Trade accounts payable 8,047 6,875
Accrued expenses:
Payroll and employee benefits 4,714 5,241
Interest 229 232
Self-insurance reserves 4,674 4,445
Other 4,879 4,387
--------- ---------
Total current liabilities 79,777 82,409
--------- ---------
NONCURRENT LIABILITIES:
Long-term debt, less current portion 4,846 5,016
Self-insurance reserves, less current portion 3,975 3,586
Other 5,236 5,245
--------- ---------
Total noncurrent liabilities 14,057 13,847
--------- ---------
COMMITMENTS AND CONTINGENCIES
SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK authorized 600,000 shares, $.10
par value, 393,658 shares issued and outstanding at March 31, 2001 and
December 31, 2000, respectively, at redemption value 3,416 3,358
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock, authorized 1,000,000 shares, $.10 par value,
none issued and outstanding -- --
Common stock, authorized 20,000,000 shares, $.01 par value,
5,492,000 issued and outstanding at March 31, 2001 and
December 31, 2000, respectively 55 55
Paid-in capital 15,907 15,907
Accumulated deficit (15,720) (13,820)
--------- ---------
Total shareholders' equity 242 2,142
--------- ---------
$ 97,492 $ 101,756
========= =========
The accompanying notes are an integral part of these interim
consolidated balance sheets.
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ADVOCAT INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, AND UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2001 2000
---- ----
REVENUES:
Patient revenues $ 38,312 $35,972
Resident revenues 10,420 10,425
Management fees 911 901
Interest 46 40
-------- -------
Net revenues 49,689 47,338
-------- -------
EXPENSES:
Operating 39,735 36,425
Lease 5,175 5,276
General and administrative 3,235 2,817
Interest 1,516 1,454
Depreciation and amortization 1,411 1,234
-------- -------
Total expenses 51,072 47,206
-------- -------
INCOME (LOSS) BEFORE INCOME TAXES (1,383) 132
PROVISION FOR INCOME TAXES 90 47
-------- -------
NET INCOME (LOSS) $ (1,473) $ 85
======== =======
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
Basic $ (.27) $ .02
======== =======
Diluted $ (.27) $ .02
======== =======
WEIGHTED AVERAGE SHARES:
Basic 5,492 5,492
======== =======
Diluted 5,492 5,492
======== =======
The accompanying notes are an integral part of these interim
consolidated financial statements.
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ADVOCAT INC.
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS AND UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
---- ----
NET INCOME (LOSS) $(1,473) $ 85
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustments (676) 19
Income tax benefit (expense) 249 (7)
------- ----
(427) 12
------- ----
COMPREHENSIVE INCOME (LOSS) $(1,900) $ 97
======= ====
The accompanying notes are an integral part of these interim
consolidated financial statements.
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ADVOCAT INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS AND UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,473) $ 85
Items not involving cash:
Depreciation and amortization 1,411 1,234
Provision for doubtful accounts 760 819
Provision for self-insured professional liability 2,330 1,437
Equity earnings in joint ventures (33) (59)
Amortization of deferred balances 258 (150)
Amortization of discount on non-interest bearing
promissory note 67 -0-
Series B redeemable convertible preferred stock dividends 58 -0-
Provision for leases in excess of cash payments 406 -0-
Changes in other assets and liabilities:
Receivables (933) (1,036)
Inventories 86 (99)
Prepaid expenses and other assets 354 (1,026)
Trade accounts payable and accrued expenses (911) (240)
------- -------
Net cash provided by operating activities 2,380 965
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (727) (368)
Investment in TDLP (609) -0-
Mortgages receivable, net 155 273
Deposits and other deferred balances -0- (207)
Investment in and advances (to) from joint ventures, net 269 (322)
TDLP partnership distributions 136 53
------- -------
Net cash used in investing activities (776) (571)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayment of) bank line of credit (2,804) 750
Repayment of debt obligations (1,180) (384)
Advances from (to) TDLP, net (515) 182
Increase in lease obligations -0- 23
Financing costs (109) -0-
------- -------
Net cash provided by (used in) financing activities (4,608) 571
------- -------
(Continued)
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ADVOCAT INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS AND UNAUDITED)
(CONTINUED)
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
---- ----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $(3,004) $ 965
CASH AND CASH EQUIVALENTS, beginning of period 4,496 1,913
------- ------
CASH AND CASH EQUIVALENTS, end of period $ 1,492 $2,878
======= ======
SUPPLEMENTAL INFORMATION:
Cash payments of interest $ 1,388 $1,519
======= ======
Cash payments (refunds) of income taxes, net $ 0 $ 18
======= ======
The accompanying notes are an integral part of these interim
consolidated financial statements.
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ADVOCAT INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001 AND 2000
1. BUSINESS
Advocat Inc. (together with its subsidiaries, "Advocat" or the "Company")
provides long-term care services to nursing home patients and residents of
assisted living facilities in 12 states, primarily in the Southeast, and four
Canadian provinces. The Company's facilities provide a range of health care
services to their patients and residents. In addition to the nursing, personal
care and social services usually provided in long-term care facilities, the
Company offers a variety of comprehensive rehabilitation services as well as
medical supply and nutritional support services.
As of March 31, 2001, the Company operates 120 facilities consisting of 64
nursing homes with 7,230 licensed beds and 56 assisted living facilities with
5,245 units. The Company owns 7 nursing homes, leases 36 others, and manages 21
nursing homes. The Company owns 16 assisted living facilities, leases 25 others,
and manages the remaining 15 assisted living facilities. The Company holds a
minority interest in seven of these managed assisted living facilities. The
Company operates 51 nursing homes and 33 assisted living facilities in the
United States and 13 nursing homes and 23 assisted living facilities in Canada.
The Company operates facilities in Alabama, Arkansas, Florida, Georgia,
Kentucky, North Carolina, Ohio, South Carolina, Tennessee, Texas, Virginia, West
Virginia and the Canadian provinces of Alberta, British Columbia, Nova Scotia
and Ontario.
In recent periods, the long-term health care environment has undergone
substantial change with regards to reimbursement and other payor sources,
compliance regulations, competition among other health care providers and
relevant patient liability issues. The Company continually monitors these
industry developments as well as other factors that affect its business. See
Item 2 for further discussion of recent changes in the long-term health care
industry and the related impact on the operations of the Company.
2. BASIS OF FINANCIAL STATEMENTS
The interim consolidated financial statements for the three month periods ended
March 31, 2001 and 2000, included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management of the Company, the accompanying
interim consolidated financial statements reflect all adjustments necessary to
present fairly the financial position at March 31, 2001 and the results of
operations and the cash flows for the three month periods ended March 31, 2001
and 2000.
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The results of operations for the three month periods ended March 31, 2001 and
2000 are not necessarily indicative of the operating results for the entire
respective years. These interim financial statements should be read in
connection with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2000.
The accompanying consolidated financial statements have been prepared assuming
that Advocat will continue as a going concern. The Company has incurred
operating losses in the three months ended March 31, 2001 and the years ended
December 31, 2000, 1999 and 1998 and has limited resources available to meet its
operating, capital expenditure and debt service requirements during 2001. The
Company has a net working capital deficit of $61.0 million as of March 31, 2001.
Effective March 9, 2001, the Company has also obtained professional liability
insurance coverage that, based on historical claims experience, could be
substantially less than the claims to be incurred during 2001. The ultimate
payments on professional liability claims accrued as of March 31, 2001 and
claims that could be incurred during 2001 could require cash resources during
2001 that would be in excess of the Company's available cash or other resources.
The Company is also not in compliance with certain debt covenants that allow the
holders of substantially all of the Company's debt to demand immediate
repayment. Although the Company does not anticipate that such demand will be
made, the continued forbearance on the part of the Company's lenders cannot be
assured at this time. Accordingly, the Company has classified the related debt
principal amounts as current liabilities in the accompanying consolidated
financial statements as of March 31, 2001 and December 31, 2000. Given that
events of default exist under the Company's working capital line of credit,
there can be no assurance that the lender will continue to provide working
capital advances. An event of default under the Company's debt agreements could
lead to actions by the lenders that could result in an event of default under
the Company's lease agreements covering a majority of its United States nursing
facilities. Should such a default occur in the related lease agreements, the
lessor would have the right to terminate the lease agreements. At a minimum, the
Company's cash requirements during 2001 include funding operations (including
potential payments related to professional liability claims), capital
expenditures, scheduled debt service, and working capital requirements. No
assurance can be given that the Company will have sufficient cash to meet its
requirements during 2001.
The Company is currently discussing potential waiver, amendment and refinancing
alternatives with its lenders. If the Company's lenders force immediate
repayment, the Company would not be able to repay the related debt outstanding.
The Company's management has implemented a plan to enhance revenues related to
the operations of the Company's nursing homes and assisted living facilities.
Management believes that revenues in future periods will increase as a result of
increased occupancy rates resulting from an increased emphasis on attracting and
retaining patients and residents. On May 9, 2001, the Company received
confirmation that the Arkansas Department of Human Services was implementing a
new reimbursement methodology, with an effective date of January 12, 2001. This
new methodology has the effect of increasing the daily reimbursement in Arkansas
by approximately 24.7%, resulting in additional revenue to the Company of
approximately $755,000 in the first quarter. The Arkansas Department of Human
Services is partially funding this revenue increase by assessing a quality
assurance fee to all the Arkansas facilities, with an effective date of March 9,
2001. As a result, the Company recorded as additional operating expenses
$114,000 for the quality assurance fee in the first quarter.
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Management has implemented a plan to attempt to minimize future expense
increases through the elimination of excess operating costs. Management will
also attempt to minimize professional liability claims in future periods by
vigorously defending itself against all such claims and through the additional
supervision and training of staff employees. The Company is unable to predict if
it will be successful in reducing operating losses, in negotiating waivers,
amendments, or refinancings of outstanding debt, or if the Company will be able
to meet any amended financial covenants in the future. Any demands for repayment
by lenders or the inability to obtain waivers or refinance the related debt
would have a material adverse impact on the financial position, results of
operations and cash flows of the Company. If the Company is unable to generate
sufficient cash flow from its operations or successfully negotiate debt or lease
amendments, it will explore a variety of other options, including but not
limited to other sources of equity or debt financings, asset dispositions, or
relief under the United States Bankruptcy code. The accompanying consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset carrying amounts or the
amounts and classification of liabilities that might result should the Company
be unable to continue as a going concern.
3. INSURANCE MATTERS
The entire United States long-term care industry has seen a dramatic increase in
personal injury/wrongful death claims based on alleged negligence by nursing
homes and their employees in providing care to patients and residents. As a
result, the Company has numerous liability claims and disputes outstanding for
professional liability and other related issues. Professional liability
insurance up to certain limits is carried by the Company and its subsidiaries
for coverage of such claims. However, due to the increasing number of claims
against the Company and throughout the long-term care industry, the Company's
professional liability insurance premiums and deductible amounts have increased
substantially during 1999, 2000 and 2001.
As a result of the substantial premium increases for the 2001 policy year,
effective March 9, 2001, the Company has obtained professional liability
insurance coverage for its United States nursing homes that, based on historical
claims experience, could be substantially less than the claims to be incurred.
For claims made after March 9, 2001, the Company maintains general and
professional liability insurance with coverage limits of $2,000,000 per medical
incident and total aggregate policy coverage limits of $3,000,000 for its
long-term care services. The 2001 policy is on a claims made basis and the
Company is self-insured for the first $50,000 per occurrence.
For claims made during the period March 9, 2000 through March 9, 2001, the
Company is self-insured for the first $500,000 per occurrence with no aggregate
limit for the Company's United States nursing homes. The policy has coverage
limits of $1,000,000 per occurrence, $3,000,000 per location and $12,000,000 in
the aggregate. The Company also maintains umbrella coverage of $15,000,000 in
the aggregate for claims made during the period March 9, 2000 through March 9,
2001. The Company provides reserves on an actuarial basis for known and expected
claims incurred during the policy period. For all policy periods beginning on or
after March 9, 2000, all of the Company's professional liability policies are on
a claims made basis. Prior to March 9, 2000, all of these policies are on an
occurrence basis.
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For the policy periods January 1, 1998 through February 1, 1999, the Company is
self-insured for the first $250,000 per occurrence and $2,500,000 in the
aggregate per year with respect to the majority of its United States nursing
homes. Effective February 1, 1999, all United States nursing homes became part
of the $250,000/$2,500,000 deductible program.
The Company has recorded total liabilities for reported professional liability
claims and estimates for incurred but unreported claims of $7,515,000 and
$6,859,000 at March 31, 2001 and December 31, 2000, respectively. Based on its
assessment of claims currently outstanding against the Company and estimates for
claims incurred but not reported, management currently believes that there have
been no incurred claims that are in excess of established reserves and related
insurance coverage. However, the ultimate results of the Company's professional
liability claims and disputes are unknown at the present time. Any future
judgments or settlements above the Company's per occurrence, per location or
umbrella coverage could have a material adverse impact on the Company's
financial position, cash flows and results of operations. Based on historical
claims experience, the Company's professional liability insurance coverage for
the period beginning March 9, 2001 could be substantially less than the claims
to be incurred during 2001. The ultimate payments on professional liability
claims accrued as of March 31, 2001 and claims that could be incurred during
2001 could require cash resources during 2001 that would be in excess of the
Company's available cash or other resources. In addition, the ultimate payment
of professional liability claims accrued as of March 31, 2001 and claims that
could be incurred during 2001 could require cash resources during 2001 that
would be in excess of the Company's available cash or other resources. These
potential future payments could have a material adverse impact on the Company's
financial position and cash flows.
4. OTHER COMPREHENSIVE INCOME
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, Reporting Comprehensive Income. SFAS No. 130
requires the reporting of comprehensive income in addition to net income from
operations. Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net income.
Information with respect to the accumulated other comprehensive income balance
is presented below:
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
---- ----
Foreign currency items:
Beginning balance $(448,000) $(173,000)
Current-period change, net of income tax (427,000) 12,000
--------- ---------
Ending balance $(875,000) $(161,000)
========= =========
Positive amounts represent unrealized gains and negative amounts represent
unrealized losses.
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5. OPERATING SEGMENT INFORMATION
The Company has three reportable segments: U.S. nursing homes, U.S. assisted
living facilities, and Canadian operations, which consists of both nursing home
and assisted living services. Management evaluates each of these segments
independently due to the geographic, reimbursement, marketing, and regulatory
differences between the segments. Management evaluates performance based on
profit or loss from operations before income taxes not including nonrecurring
gains and losses and foreign exchange gains and losses. The following
information is derived from the Company's segments' internal financial
statements and includes information related to the Company's unallocated
corporate revenues and expenses:
THREE MONTHS ENDED MARCH 31,
----------------------------
(IN THOUSANDS)
2001 2000
---- ----
Net revenues:
U.S. nursing homes $ 37,658 $ 35,376
U.S. assisted living facilities 8,099 8,033
Canadian operations 3,929 3,930
Corporate 3 (1)
-------- --------
Total $ 49,689 $ 47,338
======== ========
Depreciation and amortization:
U.S. nursing homes $ 874 $ 696
U.S. assisted living facilities 424 423
Canadian operations 95 98
Corporate 18 17
-------- --------
Total $ 1,411 $ 1,234
======== ========
Operating income (loss):
U.S. nursing homes $ (997) $ 227
U.S. assisted living facilities 4 104
Canadian operations 422 388
Corporate (812) (587)
-------- --------
Total $ (1,383) $ 132
======== ========
MARCH 31, DECEMBER 31,
2001 2000
---- ----
Long-lived assets:
U.S. nursing homes $ 33,586 $ 33,178
U.S. assisted living facilities 32,837 33,216
Canadian operations 11,423 12,164
Corporate 838 858
-------- ---------
Total $ 78,684 $ 79,416
======== =========
Total assets:
U.S. nursing homes $ 55,206 $ 56,387
U.S. assisted living facilities 35,510 36,075
Canadian operations 15,778 17,154
Corporate 1,137 2,860
Eliminations (10,139) (10,720)
-------- ---------
Total $ 97,492 $ 101,756
======== =========
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6. RECLASSIFICATIONS
Certain amounts in the 2000 interim financial statements have been reclassified
to conform with the 2001 presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Advocat Inc. (together with its subsidiaries, "Advocat" or the "Company")
provides long-term care services to nursing home patients and residents of
assisted living facilities in 12 states, primarily in the Southeast, and four
Canadian provinces. The Company's facilities provide a range of health care
services to their patients and residents. In addition to the nursing, personal
care and social services usually provided in long-term care facilities, the
Company offers a variety of comprehensive rehabilitation services as well as
medical supply and nutritional support services. The Company completed its
initial public offering in May 1994; however, its operational history can be
traced to February 1980 through common senior management who were involved in
different organizational structures.
As of March 31, 2001, the Company operates 120 facilities, consisting of 64
nursing homes with 7,230 licensed beds and 56 assisted living facilities with
5,245 units. In comparison, at March 31, 2000, the Company operated 120
facilities composed of 65 nursing homes containing 7,307 licensed beds and 55
assisted living facilities containing 5,412 units. As of March 31, 2001, the
Company owns 16 nursing homes, leases 36 others and manages the remaining 21
nursing homes. Additionally, the Company owns 16 assisted living facilities,
leases 25 others and manages the remaining 15 assisted living facilities. The
Company holds a minority interest in seven of these managed assisted living
facilities. The Company operates 51 nursing homes and 33 assisted living
facilities in the United States and 13 nursing homes and 23 assisted living
facilities in Canada.
Basis of Financial Statements. The Company's patient and resident revenues
consist of the fees charged for the care of patients in the nursing homes and
residents of the assisted living facilities owned and leased by the Company.
Management fee revenues consist of the fees charged to the owners of the
facilities managed by the Company. The management fee revenues are based on the
respective contractual terms of the Company's management agreements, which
generally provide for management fees ranging from 3.5% to 6.0% of the net
revenues of the managed facilities. As a result, the level of management fees is
affected positively or negatively by the increase or decrease in the average
occupancy level rates of the managed facilities. The Company's operating
expenses include the costs, other than lease, depreciation and amortization
expenses, incurred in the operation of the nursing homes and assisted living
facilities owned and leased by the Company. The Company's general and
administrative expenses consist of the costs of the corporate office and
regional support functions, including the costs incurred in providing management
services to other owners. The Company's depreciation, amortization and interest
expenses include all such expenses across the range of the Company's operations.
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RESULTS OF OPERATIONS
The following tables present the unaudited interim statements of operations and
related data for the three months ended March 31, 2001 and 2000.
(IN THOUSANDS) THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000 CHANGE %
---- ---- ------ ---
REVENUES:
Patient revenues $ 38,312 $35,972 $ 2,340 6.5
Resident revenues 10,420 10,425 (5) 0.0
Management fees 911 901 10 1.1
Interest 46 40 6 15.0
-------- ------- ------- ----
Net revenues 49,689 47,338 2,351 5.0
-------- ------- ------- ----
EXPENSES:
Operating 39,735 36,425 3,310 9.1
Lease 5,175 5,276 (101) (1.9)
General and administrative 3,235 2,817 418 14.8
Interest 1,516 1,454 62 4.3
Depreciation and amortization 1,411 1,234 177 14.3
-------- ------- ------- ----
Total expenses 51,072 47,206 3,866 8.2
-------- ------- ------- ----
INCOME (LOSS) BEFORE INCOME TAXES (1,383) 132 (1,515)
PROVISION FOR INCOME TAXES 90 47 43
-------- ------- -------
NET INCOME (LOSS) $ (1,473) $ 85 $(1,558)
======== ======= =======
PERCENTAGE OF NET REVENUES THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
---- ----
REVENUES:
Patient revenues 77.1% 76.0%
Resident revenues 21.0 22.0
Management fees 1.8 1.9
Interest 0.1 0.1
------ ------
Net revenues 100.0% 100.0%
------ ------
OPERATING EXPENSES:
Operating 80.0 76.9
Lease 10.4 11.1
General and administrative 6.5 6.0
Interest 3.1 3.1
Depreciation and amortization 2.8 2.6
------ ------
Total expenses 102.8 99.7
------ ------
INCOME (LOSS) BEFORE INCOME TAXES (2.8) 0.3
PROVISION FOR INCOME TAXES 0.2 0.1
------ ------
NET INCOME (LOSS) (3.0)% 0.2%
====== ======
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THREE MONTHS ENDED MARCH 31, 2001 COMPARED WITH THREE MONTHS ENDED MARCH 31,
2000
Revenues. Net revenues increased to $49.7 million in 2001 from $47.3 million in
2000, an increase of $2,351,000, or 5.0%. Patient revenues increased to $38.3
million in 2001 from $36.0 million in 2000, an increase of $2,340,000, or 6.5%.
The increase in patient revenues is due to increased Medicare utilization and
PPS rate increases at several facilities which became effective in April 2000
and increased Medicaid rates in Arkansas, partially offset by a 2.7% decline in
occupancy in 2001 as compared to 2000. In addition, the Company closed a
facility in August 2000. On May 9, 2001, the Company received confirmation that
the Arkansas Department of Human Services was implementing a new reimbursement
methodology, with an effective date of January 12, 2001. This new methodology
has the effect of increasing the daily reimbursement in Arkansas by
approximately 24.7%, resulting in additional revenue to the Company of
approximately $755,000 in the first quarter. The Arkansas Department of Human
Services is partially funding this revenue increase by assessing a quality
assurance fee to all the Arkansas facilities, with an effective date of March 9,
2001. As a result, the Company recorded as additional operating expenses
$114,000 for the quality assurance fee in the first quarter. As a percent of
patient revenues, Medicare increased to 21.5% in 2001 from 20.4% in 2000 while
Medicaid and similar programs decreased to 65.1% from 66.8% in 2000. Resident
revenues total $10.4 million in both 2001 and 2000. The Company experienced
increased revenue rates, offset by a 5.7% decline in resident days.
Ancillary service revenues, prior to contractual allowances, decreased to $5.4
million in 2001 from $5.8 million in 2000, a decrease of $460,000 or 7.9%. The
decrease is primarily attributable to reductions in revenue availability under
Medicare and is consistent with the Company's expectations. Although the $1,500
per patient annual ceiling has now been lifted for a two year period on
physical, speech and occupational therapy services, the impact of the relief is
not expected to be sufficient to offset the substantial losses that have been
incurred by the Company and the long-term care industry from the provision of
therapy services. The ultimate effect on the Company's operations cannot be
predicted at this time because the extent and composition of the ancillary cost
limitations are subject to change.
Operating Expense. Operating expense increased to $39.7 million in 2001 from
$36.4 million in 2000, an increase of $3.3 million, or 9.1%. As a percent of
patient and resident revenues, operating expense increased to 81.5% in 2001 from
78.5% in 2000. The increase as a percent of patient and resident revenues is
primarily attributable to cost increases related to wages, professional
liability and utilities. The largest component of operating expenses is wages,
which increased to $21.1 million in 2001 from $19.9 million in 2000, an increase
of $1.2 million, or 6.1%. The increase in wages is due to tighter labor markets
in most of the areas in which the Company operates. The Company's professional
liability costs for United States nursing homes, including insurance premiums
and reserves for self-insured claims, increased to $2,494,000 in 2001 from
$1,431,000 in 2000, an increase of $1,063,000 or 74.3%.
Lease Expense. Lease expense decreased to $5.2 million in 2001 from $5.3 million
in 2000, a decrease of $101,000, or 1.9%. Effective October 1, 2000, the Company
entered into an amended lease agreement with the primary lessor of the Company's
United States nursing homes, which resulted in reduced lease costs. Partially
offsetting this decrease, the majority of the Company's lease agreements include
annual adjustments generally tied to inflation.
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General and Administrative Expense. General and administrative expense increased
to $3.2 million in 2001 from $2.8 million in 2000, an increase of $418,000, or
14.8%. As a percent of total net revenues, general and administrative expense
increased to 6.5% in 2001 from 6.0% in 2000. This increase is attributable to
various corporate expenses, including employee recruitment and relocation, legal
and accounting costs.
Interest Expense. Interest expense increased to $1.5 million in 2001 from $1.4
million in 2000, an increase of $62,000, or 4.3%. The Company's average
outstanding debt balance increased in 2001 as compared to 2000.
Depreciation and Amortization. Depreciation and amortization expenses increased
to $1.4 million in 2001 from $1.2 million in 2000, an increase of $177,000, or
14.3%. This increase includes depreciation on future capital expenditures
required as a result of certain provisions of the lease covering the majority of
the Company's United States nursing homes.
Income Before Income Taxes; Net Income (Loss); Earnings (Loss) Per Share. As a
result of the above, the income before income taxes and the cumulative effect of
the change in accounting principle was a loss of $1.4 million in 2001 as
compared to income of $132,000 in 2000, a decrease of $1.5 million. The income
tax provision in 2000 relates to provincial taxes in Canada. The effective
combined federal, state and provincial income tax rate was 36.0% in 2000. Net
income was a loss of $1.5 million in 2001 as compared to income of $85,000 in
2000, a decrease of $1.6 million. The basic and diluted earnings (loss) per
share were $(.27) each in 2001 as compared to $.02 each in 2000.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Company had negative working capital of $61.0 million and
a current ratio of 0.24, compared with negative working capital of $60.1 million
and a current ratio of 0.27 at December 31, 2000. The Company has incurred
losses during 2001, 2000, and 1999 and has limited resources available to meet
its operating, capital expenditure and debt service requirements during 2001.
Certain of the Company's debt agreements contain various financial covenants,
the most restrictive of which relate to current ratio requirements, tangible net
worth, cash flow, net income (loss), and limits on the payment of dividends to
shareholders. As of December 31, 2000 and March 31, 2001, the Company was not in
compliance with certain of these financial covenants. The Company has not
obtained waivers of the non-compliance. Cross-default or material adverse change
provisions contained in the debt agreements allow the holders of substantially
all of the Company's debt to demand immediate repayment. The Company would not
be able to repay this indebtedness if the applicable lenders demanded repayment.
Although the Company does not anticipate that such demand will be made, the
continued forbearance on the part of the Company's lenders cannot be assured at
this time. Given that events of default exist under the Company's working
capital line of credit, there can be no assurance that the lender will continue
to provide working capital advances.
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Based on regularly scheduled debt service requirements, the Company has a total
of $5.1 million of debt that must be repaid or refinanced during 2001 and an
additional $6.7 million that must be repaid or refinanced in January 2002. As a
result of the covenant non-compliance and other cross-default provisions, the
Company has classified a total of $57.2 million of debt as current liabilities
as of March 31, 2001.
An event of default under the Company's debt agreements could lead to actions by
the lenders that could result in an event of default under the Company's lease
agreements covering a majority of its United States nursing facilities. Should
such a default occur in the related lease agreements, the lessor would have the
right to terminate the lease agreements.
The Company is currently discussing potential waiver, amendment and refinancing
alternatives with its lenders. Of the total $5.1 million of scheduled debt
maturities during 2001, the Company plans to repay $2.1 million from cash
generated from operations and intends to refinance the remaining $3 million. The
Company's management has implemented a plan to enhance revenues related to the
operations of the Company's nursing homes and assisted living facilities.
Management believes that revenues in future periods will increase as a result of
increased occupancy rates resulting from an increased emphasis on attracting and
retaining patients and residents. On May 9, 2001, the Company received
confirmation that the Arkansas Department of Human Services was implementing a
new reimbursement methodology, with an effective date of January 12, 2001. This
new methodology has the effect of increasing the daily reimbursement in Arkansas
by approximately 24.7%, resulting in additional revenue to the Company of
approximately $755,000 in the first quarter. The Arkansas Department of Human
Services is partially funding this revenue increase by assessing a quality
assurance fee to all the Arkansas facilities, with an effective date of March 9,
2001. As a result, the Company recorded as additional operating expenses
$114,000 for the quality assurance fee in the first quarter. Management has
implemented a plan to attempt to minimize future expense increases through the
elimination of excess operating costs. The Company is unable to predict if it
will be successful in reducing operating losses, in negotiating waivers,
amendments, or refinancings of outstanding debt, or if the Company will be able
to meet any amended financial covenants in the future. Any demands for repayment
by lenders or the inability to obtain waivers or refinance the related debt
would have a material adverse impact on the financial position, results of
operations and cash flows of the Company.
As of March 31, 2001, the Company had drawn $762,000 under its working capital
line of credit. The total maximum outstanding balance of the working capital
line of credit, including letters of credit outstanding, is $4,500,000. Of the
total $4,500,000 of maximum availability, $1,000,000 is limited to certain
maximum time period restrictions. There are certain additional restrictions
based on certain borrowing base restrictions. As of March 31, 2001, the Company
had $587,000 of letters of credit outstanding with the same bank lender, which
further reduce the maximum available amount outstanding under the working
capital line of credit. As of March 31, 2001, the Company had total additional
borrowing availability of $3,158,000 under its working capital line of credit.
In conjunction with the Company's execution of the Settlement and Restructuring
Agreement with Omega Healthcare Investors, Inc., the Company amended the terms
of the working capital line of credit, extending the maturity through January
2004 and modifying the interest rate from LIBOR plus 2.50% to the bank's prime
rate plus .50% (up to a maximum of 9.50%) effective October 1, 2000.
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Effective March 9, 2001, the Company has obtained professional liability
insurance coverage that, based on historical claims experience, could be
substantially less than the claims that could be incurred during 2001. The
ultimate payments on professional liability claims accrued as of December 31,
2000 and claims that could be incurred during 2001 could require cash resources
during 2001 that would be in excess of the Company's available cash or other
resources.
Any future operating losses, demands for repayment by lenders, failure to
refinance debt maturing during 2001 or payments of professional liability claims
judgments in excess of insurance coverage would have a material adverse impact
on the financial position, results of operations and cash flows of the Company.
If the Company is unable to generate sufficient cash flows from its operations,
unable to refinance or repay debt maturities during 2001, or unable to minimize
the amount of future professional liability claims payments, it will explore a
variety of other options, including but not limited to other sources of equity
or debt financing, asset dispositions, or relief under the United States
Bankruptcy code.
Net cash provided by operating activities totaled $2.4 million and $1.0 million
for the three month periods ended March 31, 2001 and 2000, respectively. These
amounts primarily represent the cash flows from net operations plus changes in
non-cash components of operations and by working capital changes.
Net cash used in investing activities totaled $776,000 and $571,000 for the
three months periods ended March 31, 2001 and 2000, respectively. These amounts
primarily represent purchases of property plant and equipment, investments in
and advances to joint ventures and additional investments in TDLP, a limited
partnership for which the Company serves as the general partner. The Company has
used between $2.7 million and $5.2 million for capital expenditures in the three
calendar years ending December 31, 2000. Substantially all such expenditures
were for facility improvements and equipment, which were financed principally
through working capital. For the year ended December 31, 2001, the Company
anticipates that capital expenditures for improvements and equipment for its
existing facility operations will be approximately $4.2 million, including $1.0
million for non-routine projects.
Net cash provided by (used in) financing activities totaled $(4,608,000) and
$571,000 for the three month periods ended March 31, 2001 and 2000,
respectively. The net cash provided from (used in) financing activities
primarily represents net proceeds from issuance and repayment of debt.
RECEIVABLES
The Company's operations could be adversely affected if it experiences
significant delays in reimbursement of its labor and other costs from Medicare,
Medicaid and other third-party revenue sources. The Company's future liquidity
will continue to be dependent upon the relative amounts of current assets
(principally cash, accounts receivable and inventories) and current liabilities
(principally accounts payable and accrued expenses). In that regard, accounts
receivable can have a significant impact on the Company's liquidity. Continued
efforts by governmental and third-party payors to contain or reduce the
acceleration of costs by monitoring reimbursement rates, by increasing medical
review of bills for services, or by
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negotiating reduced contract rates, as well as any delay by the Company in the
processing of its invoices, could adversely affect the Company's liquidity and
results of operations.
Net accounts receivable attributable to the provision of patient and resident
services at March 31, 2001 and December 31, 2000, totaled $19.2 million and
$18.1 million, respectively, representing approximately 35 and 34 days in
accounts receivable, respectively. Included in receivables as of March 31, 2001
is $755,000 related to the increase in Arkansas reimbursement. This amount is
expected to be collected in the second quarter of 2001. Accounts receivable from
the provision of management services were $856,000 and $721,000 at March 31,
2001 and December 31, 2000, respectively representing approximately 85 and 67
days in accounts receivable, respectively. The allowance for bad debt was $5.0
million at both March 31, 2001 and December 31, 2000.
The Company continually evaluates the adequacy of its bad debt reserves based on
patient mix trends, agings of older balances, payment terms and delays with
regard to third-party payors, collateral and deposit resources, as well as other
factors. The Company continues to evaluate and implement additional procedures
to strengthen its collection efforts and reduce the incidence of uncollectible
accounts.
HEALTH CARE INDUSTRY
The health care industry is subject to numerous laws and regulations of federal,
state and local governments. These laws and regulations include, but are not
necessarily limited to, matters such as licensure, accreditation, government
health care program participation requirements, reimbursement for patient
services, quality of resident care and Medicare and Medicaid fraud and abuse.
Changes in these laws and regulations, such as reimbursement policies of
Medicare and Medicaid programs as a result of budget cuts by federal and state
governments or other legislative and regulatory actions, could have a material
adverse effect on the Company's financial position, results of operations, and
cash flows. Future federal budget legislation and federal and state regulatory
changes may negatively impact the Company.
All of the Company's facilities are required to obtain annual licensure renewal
and are subject to annual surveys and inspections in order to be certified for
participation in the Medicare and Medicaid programs. In order to maintain their
operator's license and their certification for participation in Medicare and
Medicaid programs, the nursing facilities must meet certain statutory and
administrative requirements. These requirements relate to the condition of the
facilities, the adequacy and condition of the equipment used therein, the
quality and adequacy of personnel, and the quality of resident care. Such
requirements are subjective and subject to change. There can be no assurance
that, in the future, the Company will be able to maintain such licenses for its
facilities or that the Company will not be required to expend significant sums
in order to do so.
Recently, government activity has increased with respect to investigations and
allegations concerning possible violations by health care providers of fraud and
abuse statutes and regulations. Violations of these laws and regulations could
result in exclusion from government health care programs together with the
imposition of significant fines and penalties, as well as significant repayments
for patient services previously billed. Management believes
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that the Company is in compliance with fraud and abuse laws and regulations as
well as other applicable government laws and regulations. Compliance with such
laws and regulations can be subject to future government review and
interpretation as well as regulatory actions unknown or unasserted at this time.
The Company is currently a defendant in two pending false claims actions as
described below.
On October 17, 2000, the Company was served with a civil complaint by the
Florida Attorney General's office, in the case of State of Florida ex rel. Mindy
Myers v. R. Brent Maggio, et al. In this case, the State of Florida has accused
multiple defendants of violating Florida's False Claims Act. The Company, in its
capacity as the manager of four nursing homes owned by Emerald Coast Healthcare,
Inc. ("Emerald"), is named in the complaint, which accuses the Company of making
illegal kickback payments to R. Brent Maggio, Emerald's sole shareholder, and
fraudulently concealing such payments in the Medicaid cost reports filed by the
nursing homes. At a hearing held April 25, 2001 in the Circuit Court of Leon
County, Florida, the Court dismissed the State of Florida's complaint in its
entirety based on the State's failure to plead false claims violations with
sufficient particularity as required by law. The State was, however, granted 60
days to file an amended complaint. To date, the State of Florida has not filed
an amended complaint, nor has it indicated whether the Company will be named as
a defendant in any amended complaint that may be filed subsequently.
Under the Federal False Claims Act, health care companies may be named as a
defendant in an action which is filed under court seal, without being informed
of this fact until the government has substantially completed its investigation.
In such cases, there sometimes occurs a provision for "partial lifting of the
seal," in which the trial court orders that the seal may be lifted for purposes
of giving the named defendant the opportunity to informally present its defenses
and discuss settlement prospects with the government. In cases in which the
judge orders such a "partial lifting of the seal," the defendant becomes aware
of the case but is precluded from discussing it publicly. Management is aware of
one such case being filed in federal court against the Company regarding billing
practices at one of its nursing homes. The Company has retained counsel to
defend it in the case and, while cooperating with the government in its
investigation of the matter, intends to vigorously pursue its defense of the
case. Based on all information currently known, the Company currently does not
believe that the claims being made in this case are material to the Company's
financial condition, cash flows or results of operations.
While the Company cannot currently predict with certainty the ultimate impact of
either of the above cases on the Company's financial condition, cash flows or
results of operations, an unfavorable outcome in any state or federal False
Claims Act case could subject the Company to fines, penalties and damages.
Moreover, the Company could be excluded from the Medicare, Medicaid or other
federally-funded health care programs, which could have a material adverse
impact on the Company's financial condition, cash flows or results of
operations.
During 1999, 2000 and 2001, the Company also experienced the increased
regulatory scrutiny that has been exerted on the industry in the form of
increased fines and penalties. During 2000, one of the Company's facilities in
Texas was decertified from the Medicaid and Medicare programs. The Company is
actively engaged in the application and appeal process for the recertification
of this facility.
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Medicare Reimbursement Changes. During 1997, the federal government enacted the
Balanced Budget Act of 1997 ("BBA"), which contains numerous Medicare and
Medicaid cost-saving measures. The BBA requires that nursing homes transition to
a prospective payment system ("PPS") under the Medicare program during a
three-year "transition period," commencing with the first cost reporting period
beginning on or after July 1, 1998. The BBA also contains certain measures that
have and could lead to further future reductions in Medicare therapy
reimbursement and Medicaid payment rates. Revenues and expenses have both been
reduced significantly from the levels prior to PPS. The BBA has negatively
impacted the entire long-term health care industry.
During 1999 and 2000, certain amendments to the BBA have been enacted, including
the Balanced Budget Reform Act of 1999 ("BBRA") and the Benefits Improvement and
Protection Act of 2000 ("BIPA"). The BBRA has provided legislative relief in the
form of increases in certain Medicare payment rates during 2000. The BIPA is
expected to continue to provide additional increases in certain Medicare payment
rates during 2001.
Although refinements resulting from the BBRA and the BIPA have been well
received by the United States nursing home industry, it is the Company's belief
that the resulting revenue enhancements are still significantly less than the
losses sustained by the industry due to the BBA. Current levels of or further
reductions in government spending for long-term health care would continue to
have an adverse effect on the operating results and cash flows of the Company.
The Company will attempt to maximize the revenues available from governmental
sources within the changes that have occurred and will continue to occur under
the BBA. In addition, the Company will attempt to increase revenues from
non-governmental sources, including expansion of its assisted living and
Canadian operations to the extent capital is available to do so, if at all.
FOREIGN CURRENCY TRANSLATION
The Company has obtained its financing primarily in U.S. dollars; however, it
incurs revenues and expenses in Canadian dollars with respect to Canadian
management activities and operations of the Company's eight Canadian retirement
facilities (three of which are owned) and two owned Canadian nursing homes.
Although not material to the Company as a whole, if the currency exchange rate
fluctuates, the Company may experience currency translation gains and losses
with respect to the operations of these activities and the capital resources
dedicated to their support. While such currency exchange rate fluctuations have
not been material to the Company in the past, there can be no assurance that the
Company will not be adversely affected by shifts in the currency exchange rates
in the future.
EXECUTIVE MANAGEMENT CHANGES
William R. Council, III, joined the Company effective March 5, 2001 as Executive
Vice President, Chief Financial Officer and Secretary. James F. Mills, Jr., the
former Senior Vice President, Chief Financial Officer and Assistant Secretary
left the Company effective March 31, 2001.
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STOCK EXCHANGE
On November 10, 1999, the Company's stock began being quoted on the NASD's OTC
Bulletin Board under the symbol AVCA. Previously, the Company's common stock was
traded on the New York Stock Exchange under the symbol AVC.
INFLATION
Management does not believe that the Company's operations have been materially
affected by inflation. The Company expects salary and wage increases for its
skilled staff to continue to be higher than average salary and wage increases,
as is common in the health care industry. To date, these increases as well as
normal inflationary increases in other operating expenses have been adequately
covered by revenue increases.
RECENT ACCOUNTING PRONOUNCEMENTS
From June 1998 through June 2000, the Financial Accounting Standards Board
("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133") and various amendments and interpretations. SFAS 133,
as amended, establishes accounting and reporting standards requiring that any
derivative instrument be recorded in the balance sheet as either in an asset or
liability measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company has adopted SFAS 133, as amended,
effective January 1, 2001. The impact of the adoption of SFAS 133 had no impact
on the Company's financial position, results of operations or cash flows.
FORWARD-LOOKING STATEMENTS
The foregoing discussion and analysis provides information deemed by Management
to be relevant to an assessment and understanding of the Company's consolidated
results of operations and its financial condition. It should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
December 31, 2000. Certain statements made by or on behalf of the Company,
including those contained in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere, are
forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. These statements involve risks and uncertainties including,
but not limited to, changes in governmental reimbursement, government regulation
and health care reforms, the increased cost of borrowing under the Company's
credit agreements, covenant waivers from the Company's lenders, possible
amendments to the Company's credit agreements, ability to control ultimate
professional liability costs, the impact of future licensing surveys, the
ability to execute on the Company's acquisition program, both in obtaining
suitable acquisitions and financing therefor, changing economic conditions as
well as others. Investors also should refer to the risks identified in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" as well as risks identified in the Company's Form 10-K for the year
ended December 31, 2000 for a discussion of various risk factors of the Company
and that are inherent in the health care industry. Given these risks and
uncertainties, the Company can give no assurances that these forward-looking
statements will, in fact, transpire and, therefore,
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cautions investors not to place undue reliance on them. Actual results may
differ materially from those described in such forward-looking statements. Such
cautionary statements identify important factors that could cause the Company's
actual results to materially differ from those projected in forward-looking
statements. In addition, the Company disclaims any intent or obligation to
update these forward-looking statements.
PART II -- OTHER INFORMATION
Item 3. Defaults Upon Senior Securities.
The Company is not currently in compliance with certain covenants of its loan
agreements and certain other indebtedness. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits filed as part of the report on Form 10-Q are listed in the
Exhibit Index immediately following the signature page.
(b) Reports on Form 8-K: None.
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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 thereunto duly authorized.
ADVOCAT INC.
May 15, 2001
By: /s/ William R. Council, III
-----------------------------------------
William R. Council, III
Executive Vice-President, Secretary,
Principal Financial Officer and Chief
Accounting Officer and An Officer Duly
Authorized to Sign on Behalf of the
Registrant
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Exhibit
Number Description of Exhibits
- ------- -----------------------
3.1 Certificate of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement No. 33-76150 on Form
S-1).
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement No. 33-76150 on Form S-1).
3.3 Amendment to Certificate of Incorporation dated March 23, 1995
(incorporated by reference to Exhibit A of Exhibit 1 to the Company's Form
8-A filed March 30, 1995).
3.4 Certificate of Designation of Registrant.
4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit 4 to
the Company's Registration Statement No. 33-76150 on Form S-1).
4.2 Rights Agreement dated March 13, 1995, between the Company and Third
National Bank in Nashville (incorporated by reference to Exhibit 1 to the
Company's Current Report on Form 8-K dated March 13, 1995).
4.3 Summary of Shareholder Rights Plan adopted March 13, 1995 (incorporated
by reference to Exhibit B of Exhibit 1 to Form 8-A filed March 30, 1995).
4.4 Rights Agreement of Advocat Inc. dated March 23, 1995 (incorporated by
reference to Exhibit 1 to Form 8-A filed March 30, 1995).
4.5 Amended and Restated Rights Agreement dated as of December 7, 1998
(incorporated by reference to Exhibit 1 to Form 8-A/A filed December 7,
1998).
10.1 Settlement and Restructuring Agreement dated as of October 1, 2000
among Registrant, Diversicare Leasing Corp., Sterling Health Care
Management, Inc., Diversicare Management Services Co., Advocat Finance,
Inc., Omega Healthcare Investors, Inc. and Sterling Acquisition Corp.
10.2 Consolidated Amended and Restated Master Lease dated November 8,
2000, effective October 1, 2000, between Sterling Acquisition Corp. (as
Lessor) and Diversicare Leasing Corp. (as Lessee)
10.3 Management Agreement effective October 1, 2000, between Diversicare
Leasing Corp. and Diversicare Management Services Co.
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10.4 Amended and Restated Security Agreement dated as of November 8, 2000
between Diversicare Leasing Corp and Sterling Acquisition Corp.
10.5 Security Agreement dated as of November 8, 2000 between Sterling Health
Care Management, Inc. and Sterling Acquisition Corp.
10.6 Guaranty given as of November 8, 2000 by Registrant, Advocat Finance,
Inc., Diversicare Management Services Co., in favor of Sterling Acquisition
Corp.
10.7 Reaffirmation of Obligations (Florida Managed Facilities) by Registrant and
Diversicare Management Services Co. to and for the benefit of Omega
Healthcare Investors.
10.8 Subordinated Note dated as of November 8, 2000 in the amount of
$1,700,000 to Omega Healthcare Investors, Inc. from Registrant.
10.9 Master Amendment to Loan Documents and Agreement dated as of
November 8, 2000, effective October 1, 2000, among Registrant, its
subsidiaries and AmSouth Bank.
10.10 Reimbursement Promissory Note dated October 1, 2000 in the amount of
$3,000,000 to AmSouth Bank from Registrant.
10.11 Second Amendment to Intercreditor Agreement among GMAC, AmSouth,
Registrant and its subsidiaries.
10.12 Renewal Promissory Note dated October 1, 2000 in the amount of
$3,500,000 to AmSouth Bank from Diversicare Management
Services Co.
10.13 Renewal Promissory Note dated October 1, 2000 in the amount of
$9,412,383.87 to AmSouth Bank from Diversicare Assisted Living Services
NC, LLC.
10.14 Renewal Promissory Note dated October 1, 2000 in the amount of
$4,500,000 made payable to AmSouth Bank from Diversicare Management
Services Co.