UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended March 31, 2000
------------------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
------------- -------------
Commission File Number: 1-12306
-----------------
INTEGRATED HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 23-2428312
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
THE HIGHLANDS
910 RIDGEBROOK ROAD
SPARKS, MARYLAND 21152
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 410-773-1000
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.
[ X ] Yes [ ] No
Number of shares of common stock of the registrant outstanding as of
May 10, 2000: 48,596,920 shares.
INTEGRATED HEALTH SERVICES, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. - Condensed Financial Statements -
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999 3
Consolidated Statements of Operations
for the three months ended March 31, 2000
and 1999 4
Consolidated Statement of Changes in
Stockholders' Equity for the three
months ended March 31, 2000 5
Consolidated Statements of Cash Flows
for the three months ended March 31, 2000
and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13
PART II: OTHER INFORMATION
Item 6 Exhibits and Report on Form 8-K 18
Page 2 of 19
INTEGRATED HEALTH SERVICES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31,
2000 1999
----------- -----------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 15,519 $ 21,627
Temporary investments 46,319 39,321
Patient accounts and third-party payor settlements
receivable, less allowance for doubtful receivables of $170,433
at March 31, 2000 and $164,449 at December 31, 1999 587,518 582,547
Inventories, prepaid expenses and other current assets 84,214 66,884
Income tax receivable 14,994 20,018
----------- -----------
Total current assets 748,564 730,397
----------- -----------
Property, plant and equipment, net 1,170,036 1,164,677
Intangible assets 1,341,007 1,353,920
Other assets 132,845 130,086
----------- -----------
Total assets $ 3,392,452 $ 3,379,080
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities not subject to compromise:
Current maturities of long-term debt $ 10,169 $ 3,369,244
Accounts payable and accrued expenses 151,187 416,582
----------- -----------
Total current liabilities 161,356 3,785,826
----------- -----------
Long-term debt not subject to compromise:
Mortgages and other long term debt, less current maturities 317,150 318,271
----------- -----------
Total long-term debt 317,150 318,271
----------- -----------
Other long-term liabilities 33,030 166,164
Liabilities subject to compromise 3,787,347 --
Deferred gain on sale-leaseback transactions 3,687 3,871
Deferred income tax payable 42,029 42,023
Stockholders' equity (deficit):
Preferred stock, authorized 15,000,000 shares; no shares issued
and outstanding -- --
Common stock, $0.001 par value. Authorized 150,000,000 shares;
issued 53,570,537 at March 31, 2000 and 53,175,598 shares at
December 31, 1999 (including 4,868,300 treasury shares at
March 31, 2000 and December 31, 1999) 53 53
Additional paid-in capital 1,387,698 1,374,546
Deficit (2,290,634) (2,262,410)
Treasury stock, at cost (4,868,300 shares at March 31, 2000 and
December 31, 1999) (49,264) (49,264)
----------- -----------
Net stockholders' equity (deficit) (952,147) (937,075)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 3,392,452 $ 3,379,080
=========== ===========
See accompanying Notes to Consolidated Financial Statements
Page 3 of 19
INTEGRATED HEALTH SERVICES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in Thousands, Except Per Share Data)
Three Months Ended
March 31,
2000 1999
--------- ---------
Total revenues $ 637,279 $ 620,235
--------- ---------
Costs and expenses:
Operating, general and administrative (including rent) 578,993 507,902
Depreciation and amortization 46,354 46,374
Interest, net (excluding post petition contractual interest of $46,989 in 2000) 33,145 70,492
--------- ---------
Total costs and expenses 658,492 624,768
--------- ---------
Loss before equity in earnings of affiliates, reorganization items
and income taxes (21,213) (4,533)
Equity in earnings of affiliates 215 147
--------- ----------
Loss before reorganization items and income taxes (20,998) (4,386)
Reorganization items 4,726 --
--------- ---------
Loss before income taxes (25,724) (4,386)
Federal and state income taxes 2,500 2,202
--------- ---------
Net loss $ (28,224) $ (6,588)
========= =========
Per Common Share - Basic:
Net loss $ (0.58) $ (0.13)
========= =========
Per Common Share - Diluted:
Net loss $ (0.58) $ (0.13)
========= =========
See accompanying Notes to Consolidated Financial Statements
Page 4 of 19
INTEGRATED HEALTH SERVICES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
(DOLLARS IN THOUSANDS)
ADDITIONAL
COMMON PAID-IN TREASURY
STOCK CAPITAL DEFICIT STOCK TOTAL
-------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 $ 53 1,374,546 (2,262,410) (49,264) (937,075)
Amortization of deferred employee stock compensation. -- 277 -- -- 277
Insuance of 394,939 shares of common stock
in connection with the conversion of
5 3/4% convertible subordinated debentures -- 12,875 -- -- 12,875
Net Loss -- -- (28,224) -- (28,224)
-------------------------------------------------------------------------
BALANCE AT MARCH 31, 2000 $ 53 1,387,698 (2,290,634) (49,264) (952,147)
=========================================================================
See accompanying Notes to Consolidated Financial Statements
Page 5 of 19
INTEGRATED HEALTH SERVICES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
THREE MONTHS ENDED
March 31,
------------------------------
2000 1999
--------- ---------
Cash flows from operating activities:
Net loss $ (28,224) $ (6,588)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Results from joint ventures (215) (147)
Depreciation and amortization 46,354 46,374
Deferred income taxes and other non-cash items 1,204 2,886
Amortization of gain on sale-leaseback transactions (184) (168)
Decrease (increase) in patient accounts and third-party
payor settlements receivable, net (4,971) 34,629
Increase in supplies, inventory, prepaid
expenses and other current assets (17,330) (2,227)
Increase (decrease) in accounts payable and accrued expenses 45,794 (55,158)
Increase (decrease) in income taxes receivable 5,024 (2,018)
--------- ---------
Net cash provided by operating activities of
continuing operations before reorganization items 47,452 17,583
--------- ---------
Net cash used by discontinued operations -- (8,283)
--------- ---------
Net cash used by reorganization items (4,726) --
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of capital stock, net -- 759
Proceeds from long-term borrowings -- 256,798
Repayment of long-term debt (491) (210,821)
Deferred financing costs (5,370) (9,027)
Purchase of treasury stock -- (24,041)
--------- ---------
Net cash provided (used) by financing activities (5,861) 13,668
--------- ---------
Cash flows from investing activities:
Sale of temporary investments 195,294 15,257
Purchase of temporary investments (202,292) (22,170)
Business acquisitions -- (25,216)
Purchase of property, plant and equipment (32,529) (42,987)
Disposition of assets (Notes 4 and 8) 1,525 126,812
Other assets (4,971) (31,457)
--------- ---------
Net cash provided (used) by investing activities (42,973) 20,239
--------- ---------
Increase (decrease) in cash and cash equivalents (6,108) 43,207
Cash and cash equivalents, beginning of period 21,627 31,391
--------- ---------
Cash and cash equivalents, end of period $ 15,519 $ 74,598
========= =========
See accompanying Notes to Consolidated Financial Statements
Page 6 of 19
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements included herein do not
contain all information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles. For further
information, such as the significant accounting policies
followed by Integrated Health Services, Inc. ("IHS" or the
"Company"), refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999. In the opinion
of management, the consolidated financial statements include
all necessary adjustments (consisting of normal recurring
accruals and all adjustments pursuant to the adoption of SOP
90-7, "Financial Reporting by Entities in Reorganization under
the Bankruptcy Code" ("SOP 90-7")) for a fair presentation of
the financial position and results of operations for the
interim periods presented. The results of operations for the
interim periods presented are not necessarily indicative of the
results that may be expected for the full year.
NOTE 2: PETITION FOR RELIEF UNDER CHAPTER 11
On February 2, 2000, the Company and substantially all of its
subsidiaries filed separate voluntary petitions for relief
under Chapter 11 of the U.S. Bankruptcy Code with the U.S.
Bankruptcy Court in the District of Delaware. These filings,
among other factors such as the Company's recurring losses
raise substantial doubt about the Company's ability to continue
as a going concern.
Except as may be otherwise determined by the Bankruptcy Court
overseeing the Chapter 11 filings, the automatic stay
protection afforded by the Chapter 11 filings prevents any
creditor or other third parties from taking any action in
connection with any defaults under prepetition obligations of
the Company and those of its subsidiaries which are debtors in
the Chapter 11 filings. In connection with the Chapter 11
filings, the Company must develop a plan of reorganization that
will be approved by its creditors and confirmed by the
Bankruptcy Court overseeing the Company's Chapter 11 filings.
In the event the plan of reorganization is accepted,
continuation of the business thereafter is dependent on the
Company's ability to achieve successful future operations.
In connection with the Chapter 11 filings, the Company obtained
a commitment for $300 million in debtor-in-possession financing
(the "DIP Facility") from a group of banks led by Citicorp
U.S.A., Inc. As of March 31, 2000, no amounts are outstanding
under the DIP Facility.
Since the Company filed for protection under the Bankruptcy
Code, the accompanying consolidated financial statements as of
and for the three months ended March 31, 2000 have been
prepared in accordance with SOP 90-7. Pursuant to SOP 90-7, the
Company has reported liabilities subject to compromise at March
31, 2000.
The Company has received approval from the Bankruptcy Court to
pay pre-petition and post-petition employee wages, salaries,
benefits and other employee obligations. The Bankruptcy Court
also approved orders granting authority, among other things, to
pay pre-petition claims of certain critical vendors, utilities
and patient obligations. All other unsecured pre-pretition
liabilities are classified in the consolidated balance sheet as
liabilities subject to compromise.
A summary of the principal categories of claims classified as
liabilities subject to compromise under the Chapter 11 cases
follows (in thousands):
Long-term debt:
Revolving credit and term loan $ 2,093,789
Senior subordinated notes 1,090,737
Convertible denbentures 131,763
Amounts due under HCFA Agreement 134,054
Promissory notes and other 30,541
-----------
3,480,884
-----------
Accounts payable 142,656
Accrued liabilities:
Interest 124,307
Other 39,500
-----------
163,807
-----------
$ 3,787,347
-----------
A summary of the principal categories of reorganization items
follows:
Reorganization Items:
Legal, accounting and consulting fees $ 5,054
Interest Income (328)
-----------
$ 4,726
===========
NOTE 3: EARNINGS PER SHARE
Basic EPS is calculated by dividing net earnings (loss) by the
weighted average number of common shares outstanding for the
applicable period. Diluted EPS is calculated after adjusting
the numerator and the denominator of the basic EPS calculation
for the effect of all potential dilutive common shares
outstanding during the period.
For the three months ended March 31, 1999 and 2000, no exercise
of options and warrants nor conversion of subordinated debt is
assumed since their effect is antidilutive. The weighted
average number of common shares is 52,105,164 and 48,656,488
for March 31, 1999 and 2000, respectively.
Page 7 of 19
NOTE 4: TRANSACTIONS WITH LYRIC HEALTH CARE LLC
In each of January and April 1998, (but effective March 31,
1998 in the case of the April 1998 sale) the Company sold five
long-term care facilities to Omega Healthcare Investors, Inc.
for $44.5 million and $50.5 million, respectively, which
facilities were leased back by Lyric Health Care LLC ("Lyric"),
a newly formed subsidiary of IHS, at an annual rent of
approximately $4.5 million and $4.9 million, respectively. IHS
also entered into management and franchise agreements with
Lyric. The management and franchise agreements' initial terms
are 13 years with two renewal options of 13 years each. The
base management fee was 4% of gross revenues in 1999 and 2000
pursuant to the management agreement. In addition, the
agreement provides for an incentive management fee equal to 70%
of annual net cash flow (as defined in the management
agreement). The duties of IHS as manager include the following:
accounting, legal, human resources, operations, materials and
facilities management and regulatory compliance. The annual
franchise fee is 1% of gross revenues, which grants Lyric the
authority to use the Company's trade names and proprietary
materials. In a related transaction, TFN Healthcare Investors,
Inc. ("TFN") purchased a 50% interest in Lyric for $1.0
million, an amount equal to the Company's initial investment in
Lyric and IHS' interest in Lyric was reduced to 50%. Lyric will
dissolve on December 31, 2047 unless extended for an additional
12 months. The transactions with Lyric were approved by the
disinterested members of the Board of Directors.
On February 1, 1998 Lyric also entered into a five-year
employment agreement with Timothy F. Nicholson, the principal
stockholder of TFN and a director of the Company. Pursuant to
Lyric's operating agreement, Mr. Nicholson serves as Managing
Director of Lyric and has the day-to-day authority for the
management and operation of Lyric and initiates policy
proposals for business plans, acquisitions, employment policy,
approval of budgets, adoption of insurance programs, additional
service offerings, financing strategy, ancillary service usage,
changes in material terms of any lease and adoption/amendment
of employee health, benefit and compensation plans. As a result
of the aforementioned transactions, IHS accounts for its
investment in Lyric using the equity method of accounting since
IHS no longer controls Lyric.
Effective January 1, 1999, the Company and various wholly owned
subsidiaries of the Company (the "Lyric Subsidiaries")
transferred 27 long-term care facilities and five specialty
hospitals to Monarch Properties L.P. ("Monarch L.P.") for $138
million plus contingent earn-out payments of up to maximum of
$67.6 million. Net proceeds from the transaction were
approximately $131.24 million. The contingent earn-out payments
will be paid to the Company by Monarch L.P. upon a sale,
transfer or refinancing of any or all of the facilities or upon
a sale, consolidation or merger of Monarch L.P., with the
amount of the earn-out payments determined in accordance with a
formula described in the Facilities Purchase Agreement among
the Company, the Lyric Subsidiaries and Monarch L.P. After the
transfer of the facilities to Monarch L.P., the Company
retained the working capital of the Lyric Subsidiaries and
transferred the stock of each of them to Lyric. Monarch L.P.
then leased all of the facilities back to the Lyric
Subsidiaries under the long-term master lease and the Company
is managing these facilities for Lyric. Dr. Robert N. Elkins,
Chairman of the Board, Chief Executive Officer and President of
the Company, beneficially owns 28.6% of Monarch L.P. and is the
Chairman of the Board of Managers of Monarch Properties, LLC,
the parent company of Monarch L.P. The Company has accounted
for this transaction as a financing.
In September 1999, the Company transferred its Jacksonville,
Florida nursing facility to Monarch LP for net proceeds of $3.7
million. Monarch LP then leased this facility to a subsidiary
of Lyric, which the Company is currently managing. The Company
has accounted for the transaction as a financing.
NOTE 5: CREDIT FACILITY AMENDMENT
In March 1999, the Company amended its Credit Facility, which
amendments loosened the financial convenants, increased
interest rates and accelerated the reduction in the
availability under the Credit Facility. As amended:
o The Term Facility bears interest at a rate equal to, at
the option of IHS, either (i) in the case of Eurodollar
loans, the sum of (x) between two and three quarters
percent and three and one quarter percent (depending on
the ratio of the Company's debt) (as defined in the
Credit Facility) to earnings before interest, taxes,
depreciation, amortization and rent pro forma for any
acquisitions or divestitures during the measurement
period (the "Debt/EBITDAR Ratio")) and (y) the interest
rate in the London interbank market for loans in an
amount substantially equal to the amount of borrowing
and for the period of borrowing selected by IHS or (ii)
the sum of (a) the higher of (1) Citibank, N.A.'s base
rate or (2) one percent plus the latest overnight
federal funds rate plus (b) a margin of between one and
one half percent and two percent (depending on the
Debt/EBITDAR Ratio).
o The Additional Term Facility bears interest at a rate
equal to, at the option of IHS, either (i) in the case
of Eurodollar loans, the sum of (x) between three
percent and three and one half percent (depending on
the Debt/EBITDAR Ratio) and (y) the interest rate in
the London interbank market for loans in an amount
substantially equal to the amount of borrowing and for
the period of borrowing selected by IHS or (ii) the sum
of (a) the higher of (1) Citibank, N.A.'s base rate or
(2) one percent plus the latest overnight federal funds
rate plus (b) a margin of
Page 8 of 19
between one and three quarters percent and two and one
quarter percent (depending on the Debt/EBITDAR Ratio).
The Term Facility and the Additional Term Facility can
be prepaid at any time in whole or in part without
penalty.
o The Revolving Facility was scheduled to reduce to
$800,000,000 on January 1, 2001, $600,000,000 on
January 1, 2002, $500,000,000 on September 30, 2002 and
$400,000,000 on January 1, 2003, with a final maturity
on September 15, 2003; however, the $100,000,000 letter
of credit subfacility and $10,000,000 swing line
subfacility were scheduled to remain at $100,000,000
and $10,000,000, respectively, until final maturity.
The Revolving Credit Facility bears interest at a rate
equal to, at the option of IHS, either (i) in the case
of Eurodollar loans, the sum of (x) between two percent
and two and three quarters percent (depending on the
Debt/EBITDAR Ratio) and (y) the interest rate in the
London interbank market for loans in an amount
substantially equal to the amount of borrowing and for
the period of borrowing selected by IHS or (ii) the sum
of (a) the higher of (1) Citibank, N.A.'s base rate or
(2) one percent plus the latest overnight federal funds
rate plus (b) a margin of between three quarters of one
percent and one and one-half percent (depending on the
Debt/EBITDAR Ratio).
o The Credit Facility prohibits IHS from purchasing or
redeeming IHS stock.
As a result of the Company's bankruptcy filing (see note 2
above) the Company is no longer able to make any borrowings
under the credit facility.
NOTE 6: DEBTOR-IN-POSSESSION FINANCING
On February 2, 2000, the Company and substantially all of its
subsidiaries, filed voluntary petitions in the United States
Bankruptcy Court for the District of Delaware under Title 11 of
the United States Code, 11 U.S.C. (S)(S) 101, et seq. (the
"Bankruptcy Code"). While this action constituted a default
under the Company's and such subsidiaries various financing
arrangements, Section 362 of the Bankruptcy Code imposes an
automatic stay that will generally preclude the creditors and
other interested parties under such arrangements from taking
any remedial action in response to any such resulting default
without prior Bankruptcy Court approval. The Company's need to
seek relief afforded by the Bankruptcy Code was due, in part,
to the significant financial pressure created by the Balanced
Budget Act of 1997 and its implementation.
In connection with the Chapter 11 Filings, the Company entered
into a secured super-priority debtor-in-possession revolving
credit agreement with a group of banks led by Citicorp USA,
Inc., N.A. to obtain up to $300 million of debtor-in-possession
financing (the "DIP Facility") to fund the Company's
operations. On March 6, 2000, the United States Bankruptcy
Court for the District of Delaware approved the full $300
million DIP Facility. The DIP Facility matures on March 6,
2002. The DIP Facility provides for maximum borrowings by the
Company equal to the sum of (i) up to 85% of the then
outstanding domestic eligible accounts receivable (other than
Medicaid accounts receivable), (ii) the lesser of $40 million
or 85% of eligible Medicaid accounts receivable, (iii) the
lesser of $25 million and 40% of the orderly liquidation value
of eligible real estate, (iv) 100% of cash and 95% of cash
equivalents on deposit or held in the Citibank collateral
account and (v) the adjusted earnings before interest, taxes,
depreciation and amortization ("EBITDA") of RoTech for the two
most recent fiscal quarters up to a maximum of $150 million
through May 3, 2000, $125 million from May 4, 2000 through
August 2, 2000 and $100 million thereafter. The DIP financing
agreement significantly limits IHS' ability to incur
indebtedness or contingent obligations, to make additional
acquisitions, to sell or dispose of assets, to create or incur
liens on assets, to pay dividends and to merge or consolidate
with any other person. Pursuant to the DIP Facility advances to
the Company are classified as either swing line or revolving
credit facility advances. Swing line advances are considered to
be Base Rate advances as defined by the agreement. Revolving
credit advances consist of either Base Rate or Eurodollar Rate
advances. As described below Base Rate and Eurodollar advances
bear interest at different rates.
The DIP Facility bears interest on Base Rate advances at a rate
per annum equal to the greater of (1) the rate of interest
announced publicly by Citibank in New York, New York from time
to time, as Citibank's base rate, (2) the sum of 0.5% per annum
plus a weighted average of the rates on overnight
Page 9 of 19
Federal funds transactions ("Federal Funds Rate") or (3) the
sum of 0.5% per annum plus (i) the rate per annum obtained by
dividing (a) the latest three-week moving average of secondary
market morning offering rates in the United States for
three-month certificates of deposit, by (b) a percentage equal
to 100% minus the average of the daily percentages specified
during such three-week period by the Federal Reserve Board for
determining the maximum reserve requirement for Citibank in
respect to liabilities consisting of or including three-month
U.S. dollar nonpersonal time deposits in the United States,
plus (ii) the average during such three-week period of the
maximum annual assessment payable by Citibank to the Federal
Deposit Insurance Corporation for insuring dollar deposits in
the United States.
The DIP Facility bears interest on Eurodollar Rate advances at
a rate per annum equal to the interest rate per annum equal to
the displayed rate at 11:00 am (London time) two business days
before the first day of such interest period on Telerate page
3750 for deposits in dollars in an amount substantially equal
to the Eurodollar Rate advance and for a period equal to such
interest period. To the extent that such interest rate is not
available on the Telerate Service, the Eurodollar Rate for any
interest period for each Eurodollar Rate advance shall be an
interest rate per annum equal to the rate per annum at which
deposits in dollars are offered by the principal office of
Citibank in London to prime banks in the interbank market for
dollar deposits at 11:00 am substantially equal to Citibank's
Eurodollar Rate Advance comprising part of such revolving
credit facility advance and for a period equal to such interest
period. As described in the DIP Facility agreement, Eurodollar
Rate advances are subject to additional interest at a rate per
annum equal to the remainder obtained by subtracting (1) the
Eurodollar Rate for such interest period from (2) the rate
determined by dividing such Eurodollar Rate by a percentage
equal to 100% minus the Eurodollar Rate Reserve for such
lenders.
The DIP Facility also provides for a letter of credit
subfacility ("LC Subfacility"). The LC Subfacility provides for
the issuance of one or more letters of credit subject to
certain conditions as set forth in the DIP Facility.
The obligations of the Company under the DIP Facility are
jointly and severally guaranteed by each of the Company's
filing subsidiaries (the "Filing Subsidiaries"). Pursuant to
the agreement, the Company and each of its Filing Subsidiaries
have granted to the lenders first priority liens and security
interests (subject to valid, perfected, enforceable and
nonavoidable liens of record existing immediately prior to the
petition date and other exceptions as described in the DIP
Facility) in all of the Company's assets including, but not
limited to, all accounts, chattel paper, contracts and
documents, equipment, inventory, intangibles, real property,
bank accounts and investment property.
The DIP Facility contains customary representations, warranties
and covenants of the Company, as well as certain financial
covenants relating to minimum EBITDA and capital expenditures.
The breach of such representations, warranties or covenants, to
the extent not waived or cured within any applicable grace or
cure periods, could result in the Company being unable to
obtain further advances under the DIP Facility and possibly the
exercise of remedies by the DIP Facility lenders, either of
which events could materially impair the ability of the Company
to successfully reorganize under Chapter 11.
NOTE 7: SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards 131, Disclosures
about Segments of an Enterprise and Related Information. SFAS
No. 131 establishes standards for the way public business
enterprises report information about operating segments in
annual and interm financial statements issued to shareholders.
It also establishes standards for related disclosures about
products and services, geographic areas and major customers.
IHS has four primary reportable segments: inpatient services,
home respiratory/infusion/DME, diagnostic services and
lithotripsy services. Inpatient services include: (a) inpatient
facilities which provide basic medical services primarily on an
inpatient basis at skilled nursing facilities, as well as
hospice services, (b) contract services that provide specialty
medical services (e.g., rehabilitation and respiratory
services), primarily on an inpatient basis at skilled nursing
facilities, (c) contracted services that provide specialty
medical services under contract to other healthcare providers,
and (d) management of skilled nursing
Page 10 of 19
facilities owned by third parties. Home
respiratory/infusion/DME provides respiratory and infusion
therapy, as well as the sale and/or rental of home medical
equipment. The Company sold its infusion business in October
1999. Diagnostic services provide mobile x-ray and
electrocardiogram services on an inpatient basis at skilled
nursing facilities. Lithotripsy services is a non-invasive
technique that uses shock waves to disintegrate kidney stones,
primarily on an outpatient basis. Certain services with similar
economic characteristics have been aggregated pursuant to SFAS
No. 131. No other individual business segment exceeds the 10%
quantitative thresholds of SFAS No. 131.
IHS management evaluates the performance of its operating
segments on the basis of earnings before interest, income
taxes, depreciation and amortization and non-recurring charges.
THREE MONTHS ENDED MARCH 31, 2000
HOME
INPATIENT RESPIRATORY/ DIAGNOSTIC LITHOTRIPSY
SERVICES INFUSION/DME SERVICES SERVICES CONSOLIDATED
-------- ------------ -------- -------- ------------
(DOLLARS IN THOUSANDS)
Revenues $ 453,554 $ 147,873 $ 22,052 $ 13,800 $ 637,279
Operating, general and administrative
expenses (including rent) 432,309 116,319 20,944 9,421 578,993
---------- ---------- ---------- ---------- ----------
Earnings from continuing operations
before non-recurring charges, reorganization items,
equity in earnings of affiliates, interest, taxes,
depreciation and amortization $ 21,245 $ 31,554 $ 1,108 $ 4,379 $ 58,286
========== ========== ========== ========== ==========
Total Assets $1,971,839 $1,283,247 $ 54,003 $ 83,363 $3,392,452
========== ========== ========== ========== ==========
THREE MONTHS ENDED MARCH 31, 1999
HOME
INPATIENT RESPIRATORY/ DIAGNOSTIC LITHOTRIPSY
SERVICES DME SERVICES SERVICES CONSOLIDATED
-------- ------------ -------- -------- ------------
(DOLLARS IN THOUSANDS)
Revenues $ 418,847 $ 159,120 $ 28,109 $ 14,159 $ 620,235
Operating, general and administrative
expenses (including rent) 364,274 114,863 21,332 7,433 507,902
---------- ---------- ---------- ---------- ----------
Earnings from continuing operations
before non-recurring charges, equity in
earnings of affiliates, interest, taxes,
depreciation and amortization $ 54,573 $ 44,257 $ 6,777 $ 6,726 $ 112,333
========== ========== ========== ========== ==========
Total Assets $3,251,925 $1,658,209 $ 219,942 $ 210,875 $5,340,951
========== ========== ========== ========== ==========
There are no material inter-segment revenues or receivables.
Revenues derived from private pay sources and various
government reimbursement programs represented 41% and 59%,
respectively, for the three months ended March 31, 2000 and 40%
and 60%, respectively, for the three months March 31, 1999. The
Company does not evaluate its operations on a geographic basis.
Page 11 of 19
NOTE 8: DISPOSITION OF ASSETS
During the first quarter of 2000, the Company terminated the
lease agreements of 4 long-term care facilities while retaining
the working capital. There was no gain or loss recorded on
these transactions. However, as a result of the transaction the
Company will lose control of the collection process for the
retained accounts receivable. The Company will continue to
evaluate the collectibility of the retained accounts
receivable. This evaluation may result in future losses from
termination of these leased facilities.
In addition, the Company sold the Corporate hangar for
$1,100,000 and other property and equipment for $421,000. No
gain or loss resulted from these transactions.
Page 12 of 19
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Statements in this Quarterly Report on Form 10-Q concerning the
Company's business outlook or future economic performance; reorganization under
the bankruptcy laws; anticipated profitability, revenues, expenses or other
financial items; and business segment growth, together with other statements
that are not historical facts, are "forward-looking statements" as that term is
defined under Federal Securities Laws. Forward-looking statements are subject to
risks, uncertainties and other factors which could cause actual results to
differ materially from those stated in such statements. Such risks,
uncertainties and factors include, but are not limited to, the Company's
bankruptcy filing, substantial indebtedness, growth strategy, capital
requirements and recent acquisitions as well as the Company's ability to operate
profitably under the newly implemented Medicare Prospective Payment System
("PPS"), competition, government regulation, general economic conditions and the
other risks detailed in the Company's filings with the Securities and Exchange
Commission, including the Annual Report on Form 10-K for the year ended December
31, 1999.
The Company's 1999 and 2000 results of operations have been
substantially affected by the implementation of the prospective payment system
("PPS") for Medicare skilled nursing facilities, which was completed for IHS'
facilities on June 1, 1999. The per diem reimbursement rates under PPS were
significantly lower than anticipated by the industry, and generally have been
less than the amount the Company's facilities received on a daily basis under
cost-based reimbursement. Moreover, since IHS treats a greater percentage of
higher acuity patients than many nursing facilities, IHS has also been adversely
affected because the federally established per diem rates do not adequately
compensate the Company for the additional expenses of caring for such patients.
In addition, the implementation of PPS has resulted in a greater than expected
decline in demand for the Company's contract therapy services.
On February 2, 2000, the Company and substantially all of its
subsidiaries filed voluntary petitions (the "Bankruptcy Filings") in the United
States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court")
under Chapter 11 of the United States Bankruptcy Code. The Company's need to
seek relief under the Bankruptcy Code was due, in part, to the significant
financial pressure created by the implementation of PPS. The changes in Medicare
reimbursement resulting from the implementation of a prospective payment system
have had a material adverse effect on the Company, rendering IHS unable to
service its debt obligations to its senior lenders and subordinated noteholders
while at the same time meeting its operating expenses. The Company hopes to use
the Bankruptcy Filings to restructure its capital structure to better position
the Company to address the changed economics resulting from the implementation
of PPS. PPS has also materially adversely affected the Company's competitors,
several of which have also filed voluntary petitions under Chapter 11 of the
United States Bankruptcy Code.
The accompanying financial statements have been prepared on a
going concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities in the ordinary course of business.
However, as a result of the Bankruptcy Filings and circumstances relating to
this event, including the Company's leveraged financial structure and losses
from operations, such realization of assets and liquidation of liabilities is
subject to significant uncertainty. While under the protection of Chapter 11,
the Company may sell or otherwise dispose of assets, and liquidate or settle
liabilities, for amounts other than those reflected in the financial statements.
Further, a plan of reorganization could materially change the amounts reported
in the financial statements, which do not give effect to all adjustments of the
carrying value of assets or liabilities that might be necessary as a consequence
of a plan of reorganization. The Company's ability to continue as a going
concern is dependent upon, among other things, confirmation of a plan of
reorganization, future profitable operations, the ability to comply with the
terms of the Company's debtor-in-possession financing agreement and the ability
to generate sufficient cash from operations and financing arrangements to meet
obligations.
IHS has four primary reportable segments: inpatient services,
home respiratory/infusion/DME, diagnostic services and lithotripsy services.
Inpatient services include: (a) inpatient facilities which provide basic medical
services primarily on an inpatient basis at skilled nursing facilities, as well
as hospice services, (b) contract services that provide specialty medical
services (e.g., rehabilitation and respiratory services), primarily on an
inpatient basis at skilled nursing facilities, (c) contracted services that
provide specialty medical services under contract to other healthcare providers,
and (d) management of skilled nursing facilities owned by third parties. Home
respiratory/infusion/DME provides respiratory and infusion therapy, as well as
the sale and/or rental of home medical equipment. The Company sold its infusion
business in October 1999. Diagnostic services provide mobile x-ray and
electrocardiogram services on an inpatient basis at skilled nursing facilities.
Lithotripsy services is a non-invasive technique that uses shock waves to
disintegrate kidney stones, primarily on an outpatient basis. Certain services
with similar economic characteristics have been aggregated pursuant to SFAS No.
131. No other individual business segment exceeds the 10% quantitative
thresholds of SFAS No. 131.
THREE MONTHS ENDED MARCH 31, 2000
COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Net revenues for the three months ended March 31, 2000
increased $17.04, million, or 2.7%, to $637.28 million from the comparable
period in 1999. Such increase was attributable to (i) acquisitions of inpatient
facilities subsequent to March 31, 1999 of $66.20 million, and (ii) an increase
of $7.0 million from home respiratory/infusion/DME companies, partially offset
by (i) a decrease of $31.4 million in inpatient service revenues from inpatient
services in operations in both periods due to a decrease in the Company's rates
and decreased demand for the Company's contract therapy services as a result of
PPS, (ii) a decrease of $18.3 million in home respitory/infusion DME revenues
attributable to the infusion business sold in October 1999, (iii) a decrease of
$6.1 million from diagnostic services in operations in both periods and a (iv) a
decrease of $359,000 from lithotripsy services in operations in both periods.
Customers of the Company's contract rehabilitation division are admitting fewer
Medicare patients and are reducing utilization of rehabilitation services to a
far greater degree than the Company had expected.
Operating, general and administrative expense (including rent)
increased $71.09 million, or 14.0%, in the three months ended March 31, 2000
compared to the three months ended March 31, 1999. Such increase was
attributable to (i) inpatient acquisitions subsequent to March 31, 1999 of
$55.82 million and an increase of $12.2 million from inpatient services in
operations in both periods, (ii) an $18.33 million increase from home
respiratory/infusion/DME services in operations in both periods, and (iii) an
increase of $2.0 million from lithotripsy services in operations in both
periods, partially offset by (i) a decrease of $16.87 million from the sale of
the infusion business subsequent to March 31, 1999 and (ii) a $388,000 decrease
from diagnostic services in operations in both periods.
Depreciation and amortization of $46.35 million is comparable
for the three months ended March 31, 2000 to $46.37 million in 1999.
Page 13 of 19
Net interest expense decreased $37.35 million, or 53.0%, during
the three months ended March 31, 2000. The decrease is due to the Company
reporting interest under SOP 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code", which allows interest expense to be
reported only to the extent that it will be paid during the proceeding or that
it is probable that it will be an allowed priority, secured or unsecured claim.
Of the $33.15 million interest expense reported at March 31, 2000, $27.40
million represents interest incurred up to February 2, 2000, the date of the
Chapter 11 filing.
The Company's effective tax rate in 1999 under generally
accepted accounting principles exceeded 100% due to the non-deductibility of
certain amortization and other costs. In the first quarter of 2000, the Company
recorded state income tax expense related to certain non-unitary subsidiaries of
$2.5 million.
Net loss and loss per share for 2000 were $28.22 million and
$0.58 per share, respectively, compared to net loss and loss per share for 1999
of $6.59 million and $0.13 per share. Weighted average shares decreased from
52,105,164 in 1999 to 48,656,488 in 2000. In 1999 and 2000 no exercise of
options and warrants nor conversion of subordinated debt is assumed since their
effect is antidilutive. Subsequent to March 31, 1999, the Company issued an
aggregate of 795,746 shares of Common Stock, including 38,273 shares for
acquisitions, 36,075 shares for payments to certain vendors, 326,459 shares in
connection with the Company's employee stock compensation plan and 394,939
shares in connection with a conversion of $12.88 million principal amount of 5
3/4% convertible subordinated debentures. Subsequent to March 31, 1999, the
Company cancelled the issuance of 658,824 shares of treasury stock.
During the first quarter of 2000 the Company recorded
reorganization items of $4.73 million consisting primarily of costs related to
the bankruptcy filing and financial reorganization. (See Note 2)
Page 14 of 19
LIQUIDITY AND CAPITAL RESOURCES
On February 2, 2000, the Company and substantially all its operating
subsidiaries filed voluntary petitions for reorganization under Chapter 11 of
the U.S. Bankruptcy Code with the U.S. Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court") (case nos. 00-00389 through 00-00825,
inclusive). The Company is currently operating its business as a
debtor-in-possession subject to the jurisdiction of the Bankruptcy Court.
On February 3, 2000, the Company entered into a revolving credit agreement
with Citicorp USA, Inc. and other lenders to provide the Company with up to $300
million in debtor-in-possession financing (the "DIP Financing Agreement"). The
DIP Financing Agreement provides for maximum borrowings by the Company equal to
the sum of (i) up to 85% of the then outstanding domestic eligible accounts
receivable (other than Medicaid accounts receivable), (ii) the lesser of $40
million or 85% of eligible Medicaid accounts receivable, (iii) the lesser of $25
million and 40% of the orderly liquidation value of eligible real estate, (iv)
100% of cash and 95% of cash equivalents on deposit or held in the Citibank
collateral account and (v) the adjusted earnings before interest, taxes,
amortization and depreciation ("EBITDA") of RoTech for the two most recent
fiscal quarters up to a maximum of $150 million through May 3, 2000, $125
million from May 4, 2000 through August 2, 2000 and $100 million thereafter. The
DIP Financing Agreement significantly limits IHS' ability to incur indebtedness
or contingent obligations, to make additional acquisitions, to sell or dispose
of assets, to create or incur liens on assets, to pay dividends, and to merge or
consolidate with any other person. The obligations of the Company under the DIP
Financing Agreement are jointly and severally guaranteed by each of the
Company's filing subsidiaries (the "Filing Subsidiaries"). Pursuant to the
agreement, the Company and each of its Filing Subsidiaries have granted to the
lenders first priority liens and security interests (subject to valid,
perfected, enforceable and nonavoidable liens of record existing immediately
prior to the petition date and other exceptions as described in the DIP
Financing Agreement) in all of the Company's assets including, but not limited
to, all accounts, chattel paper, contracts and documents, equipment, inventory,
intangibles, real property, bank accounts and investment property. On March 6,
2000, the Bankruptcy Court granted final approval of the DIP Financing
Agreement. As of March 31, 2000, no amounts were outstanding under the DIP
Financing Agreement. The DIP Financing Agreement matures on March 6, 2002.
Under the Bankruptcy Code, actions to collect pre-petition indebtedness
are enjoined and other contractual obligations may not be enforced against the
Company. In addition, the Company may reject executory contracts and lease
obligations. Parties affected by these rejections may file claims with the
Bankruptcy Court in accordance with the reorganization process. If the Company
is able to successfully reorganize, substantially all unsecured liabilities as
of the petition date would be subject to modification under a plan of
reorganization to be voted upon by all impaired classes of creditors and equity
security holders and approved by the Bankruptcy Court.
The Company has received approval from the Bankruptcy Court to pay
pre-petition and post-petition employee wages, salaries, benefits and other
employee obligations. The Bankruptcy Court also approved orders granting
authority, among other things, to pay pre-petition claims of certain critical
vendors, utilities and patient obligations. All other unsecured pre-pretition
liabilities are classified in the consolidated balance sheet as liabilities
subject to compromise.
A summary of the principal categories of claims classified as liabilities
subject to compromise under the Chapter 11 Cases follows (in thousands):
Long-term debt:
Revolving credit and term loan $ 2,093,789
Senior subordinated notes 1,090,737
Convertible denbentures 131,763
Amounts due under HCFA Agreement 134,054
Promissory notes and other 30,541
-----------
3,480,884
-----------
Accounts payable 142,656
Accrued liabilities:
Interest 124,307
Other 39,500
-----------
163,807
-----------
$ 3,787,347
-----------
At March 31, 2000, the Company had working capital of $587.21 million as
compared with a net working capital deficit of $3.06 million at December 31,
1999 primarily because most current liabilities at December 31, 1999 (which
included substantially all of the Company's debt obligations) are now classified
as liabilities subject to compromise. There are no material capital commitments
for capital expenditures as of the date of this filing. Patient accounts
receivable and third-party payor settlements receivable increased $4.97 million
to $587.52 million at March 31, 2000, as compared to $582.55 million at December
31, 1999. Gross
Page 15 of 19
patient accounts receivable were $693.07 million at March 31, 2000 as compared
with $693.61 million at December 31, 1999. Net third-party payor settlements
receivable from Federal and state governments (i.e., Medicare and Medicaid cost
reports) were $64.88 million at March 31, 2000 as compared to $53.39 million at
December 31, 1999.
The Company has outstanding $496.7 million aggregate principal amount of 9
1/4% Senior Subordinated Notes due 2008 (the "9 1/4% Senior Notes"), $450
million aggregate principal amount of 9 1/2% Senior Subordinated Notes due 2007
(the "9 1/2% Senior Notes"), $144.0 million aggregate principal amount of 10
1/4% Senior Subordinated Notes due 2006 (the "10 1/4% Senior Subordinated
Notes"), $132,000 aggregate principal amount of other senior subordinated notes
and $131.76 million aggregate principal amount of convertible subordinated
debentures. The indentures under which the 10 1/4% Senior Notes, the 9 1/2%
Senior Notes and the 9 1/4% Senior Notes were issued cotain certain covenants,
including, but not limited to, covenants with respect to the following matters:
(i) limitations on additional indebtedness unless certain ratios are met; (ii)
limitations on other subordinated debt; (iii) limitations on liens; (iv)
limitations on the issuance of preferred stock by IHS' subsidiaries; (v)
limitations on transactions with affiliates; (vi) limitations on certain
payments, including dividends; (vii) application of the proceeds of certain
asset sales; (viii) restrictions on mergers, consolidations and the transfer of
all or substantially all of the assets of IHS to another person; and (ix)
limitations on investments and loans. The Company is in default under these
indentures.
On September 15, 1997, the Company entered into a $1.75 billion revolving
credit and term loan facility with Citibank, N.A., as Administrative Agent, and
certain other lenders (the "New Credit Facility") to replace its existing $700
million revolving credit facility. The New Credit Facility consisted of a $750
million term loan facility (the "Term Facility") and a $1 billion revolving
credit facility, including a $100 million letter of credit subfacility and a $10
million swing line subfacility (the "Revolving Facility"). The Term Facility,
all of which was borrowed on September 17, 1997, was to mature on September 30,
2004. As of March 31, 2000, $736.9 million was outstanding and was to be
amortized as follows: each of 1999 (as to which three of the four payments were
made), 2000, 2001 and 2002 -- $7.5 million (payable in equal quarterly
installments); 2003 -- $337.5 million (payable in equal quarterly installments);
and 2004 -- $375.0 million (payable in equal quarterly installments). Any unpaid
balance will be due on the maturity date. The Term Facility bears interest at a
rate equal to, at the option of IHS, either (i) in the case of Eurodollar loans,
the sum of (x) between one and three-quarters percent or two percent (depending
on the ratio of the Company's Debt (as defined in the New Credit Facility) to
earnings before interest, taxes, depreciation, amortization and rent, pro forma
for any acquisitions or divestitures during the measurement period (the
"Debt/EBITDAR Ratio")) and (y) the interest rate in the London interbank market
for loans in an amount substantially equal to the amount of borrowing and for
the period of borrowing selected by IHS or (ii) the sum of (a) the higher of (1)
Citibank, N.A.'s base rate or (2) one percent plus the latest overnight federal
funds rate plus (b) a margin of one-half percent or three quarters percent
(depending on the Debt/EBITDAR Ratio). The Term Facility can be prepaid at any
time in whole or in part without penalty.
In connection with the acquisition of certain businesses from HEALTHSOUTH,
IHS and the lenders under the New Credit Facility amended the New Credit
Facility to provide for an additional $400 million term loan facility (the
"Additional Term Facility") to finance a portion of the purchase price for the
acquisition and to amend certain covenants to permit the consummation of the
acquisition. The Additional Term Facility, which was borrowed at the closing of
the acquisition, matures on December 31, 2005. As of March 31, 2000, $393
million was oustanding and was to be amortized as follows: each of 1999 (as to
which three of the four payments were made), 2000, 2001, 2002 and 2003 -- $4
million (payable in equal quarterly installment's); 2004 -- $176 million
(payable in equal quarterly installments); and 2005 -- $200 million (payable in
equal quarterly installments). The Additional Term Facility bears interest at a
rate equal to, at the option of IHS, either (i) in the case of Eurodollar loans,
the sum of (x) two and one quarter percent or two and one half percent
(depending on the Debt/EBITDAR Ratio) and (y) the interest rate in the London
interbank market for loans in an amount substantially equal to the amount of
borrowing and for the period of borrowing selected by IHS or (ii) the sum of (a)
the higher of (1) Citibank, N.A.'s base rate or (2) one percent plus the latest
overnight federal funds rate plus (b) a margin of one percent or one and
one-quarter
Page 16 of 19
percent (depending on the Debt/EBITDAR Ratio). The Additional Term Facility can
be prepaid at any time in whole or in part without penalty.
The Revolving Facility was scheduled to reduce to $800 million on January
1, 2001, $600 million on January 1, 2002, $500 million on September 30, 2002 and
$400 million on January 1, 2003, with a final maturity on September 15, 2003;
however, the $100 million letter of credit subfacility and $10 million swing
line subfacility were scheduled to remain at $100 million and $10 million,
respectively, until final maturity. The Revolving Facility bears interest at a
rate equal to, at the option of IHS, either (i) in the case of Eurodollar loans,
the sum of (x) between two percent and two and three-quarters percent (depending
on the Debt/ EBITDAR Ratio) and (y) the interest rate in the London interbank
market for loans in an amount substantially equal to the amount of borrowing and
for the period of borrowing selected by IHS or (ii) the sum of (a) the higher of
(1) Citibank, N.A.'s base rate or (2) one percent plus the latest overnight
federal funds rate plus (b) a margin of between three quarters of one percent
and one and one-half percent (depending on the Debt/EBITDAR Ratio). Amounts
repaid under the Revolving Facility may be reborrowed prior to the maturity
date.
The New Credit Facility limits IHS' ability to incur indebtedness or
contingent obligations, to make additional acquisitions, to sell or dispose of
assets, to create or incur liens on assets, to pay dividends, and to merge or
consolidate with any other person and prohibits the repurchase of Common Stock.
In addition, the New Credit Facility requires that IHS meet certain financial
ratios, and provides the banks with the right to require the payment of all
amounts outstanding under the facility, and to terminate all commitments under
the facility, if there is a change in control of IHS or if any person other
than Dr. Robert N. Elkins, IHS' Chairman and Chief Executive Officer, or a
group managed by Dr. Elkins, owns more than 40% of IHS' stock. The New Credit
Facility is guaranteed by all of IHS' subsidiaries (other than inactive
subsidiaries) and secured by a pledge of all of the stock of substantially all
of IHS' subsidiaries. The Company is in default under the New Credit Facility.
Net cash provided by operating activities before reorganization items for
the three months ended March 31, 2000, was $47.45 million as compared to $17.58
million for the comparable period in 1999. Cash provided by operating activities
in the first quarter of 2000 increased compared to the comparable period in 1999
primarily because of an increase in accounts payable and accrued expenses
partially offset by an increase in accounts receivable and supplies, inventory,
prepaid expenses and other current assets.
Net cash used by financing activities was $5.86 million for the three month
period in 2000 as compared to $13.67 million provided by financing activities
for the comparable period in 1999. In 2000, the Company incurred costs of
obtaining the DIP financing discussed above. In 1999, the Company received net
proceeds from long-term borrowings of $256.80 million and made repayments on
certain debt of $210.82 million. During the three months ended March 31, 1999,
the Company repurchased 3.6 million shares of its stock for approximately $24.04
million.
Net cash used by investing activities was $42.97 million for the three
month period ended March 31, 2000 as compared to $20.24 million provided by
investing activities for the three month period ended March 31, 1999. Cash used
for the acquisition of facilities and ancillary company acquisitions was $25.22
million for the first quarter of 1999; the Company made no acquisitions in the
first quarter of 2000. Cash used for the purchase of property, plant and
equipment was $32.53 million in 2000 and $42.99 million in 1999. In the first
quarter of 1999, the Company received $114.3 million related to the sale of 32
long-term care facilities to Monarch LP (See Note 4). Also during the first
quarter of 1999, the Company sold a portion of its discontinued home nursing
segment for approximately $12.5 million. The net proceeds from such sales were
used to repay debt outstanding under the revolving credit facility and other
corporate purposes, including acquisitions.
As a result of the implementation of a prospective payment system for home
nursing beginning with cost report periods beginning on or after October 1,
1999, contingent payments in respect of the acquisition of First American Health
Care of Georgia, Inc. in October 1996, aggregating $155 million, became payable
over five years beginning in 2000. The present value of such payments at March
31, 2000 is $134.1 million and is recorded on the balance sheet under the
caption liabilities subject to compromise. At December 31, 1999 the present
value of such payments was $131.65 million and was recorded on the balance sheet
under the caption other long term liabilities.
IHS' contingent liabilities (other than liabilities in respect
of litigation) aggregated approximately $103.4 million as of March 31, 2000. IHS
is required, upon certain defaults under the lease, to purchase its Orange Hills
facility at a purchase price equal to the greater of $7.1 million or the
facility's fair market value. IHS has established several irrevocable standby
letters of credit with the Bank of Nova Scotia totaling $22.94 million at March
31, 2000 to secure certain of the Company's workers' compensation obligations,
health benefits and other obligations. In addition, IHS has several surety bonds
in the amount of $69.7 million to secure certain of the Company's health
benefits, patient trust funds and other obligations. In addition, with respect
to certain acquired businesses IHS is obligated to make certain contingent
payments if earnings of the acquired business increase or earnings targets are
met. The Company is obligated to purchase the remaining interests in its
lithotripsy partnerships at a defined price in the event legislation is passed
or regulations adopted that would prevent the physician partners from owning an
interest in the partnership and using the partnership's lithotripsy equipment
for the treatment of his or her patients. In addition, IHS has obligations under
operating leases aggregating approximately $966.34 million at March 31, 2000.
Page 17 of 19
Item 6. - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K dated February 2,
2000 reporting the Company's and its
subsidiaries filing of voluntary petitions for
bankruptcy reorganization.
Page 18 of 19
- 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.
INTEGRATED HEALTH SERVICES, INC.
--------------------------------
By: /s/ Robert N. Elkins
------------------------------------
Robert N. Elkins
Chief Executive Officer
By: /s/ C. Taylor Pickett
------------------------------------
C. Taylor Pickett
Executive Vice President-Chief Financial
and Accounting Officer
Date: May 15, 2000
Page 19 of 19