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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the period ended June 30, 2001
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 333-57279
FOUNTAIN VIEW, INC.
(Exact name of Registrant as specified in its charter)
Delaware 95-4644784
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2600 W. Magnolia Blvd., Burbank, CA 91505-3031
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 841-8750
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 [_]
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Not Applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of August 14, 2001, the number of shares of each class of the Issuer's common
stock outstanding was as follows: Series A Common Stock: 1,000,000; Series B
Common Stock: 114,202; and Series C Common Stock: 20,742.
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TABLE OF CONTENTS
FOUNTAIN VIEW, INC.
Pages
-----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations 1
Consolidated Balance Sheets 2-3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results 8 - 11
of Operations
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 11
PART II - OTHER INFORMATION
Item 3. Defaults Upon Senior Securities 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FOUNTAIN VIEW, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
-------------------------------------------------
Net revenues $78,554 $71,548 $155,417 $143,115
Expenses:
Salaries and benefits 42,988 37,534 84,533 74,110
Supplies 10,772 9,334 21,218 18,386
Purchased services 7,974 7,000 16,129 13,916
Provision for doubtful accounts 1,273 1,093 2,452 2,156
Other expenses 7,119 5,774 12,893 10,973
Charge related to decertification of facility - 1,715 - 3,413
Rent 1,382 1,331 2,762 2,635
Rent to related parties 474 462 948 924
Facility closing costs 4,123 - 4,123 -
Depreciation and amortization 4,099 3,996 8,113 7,934
Interest expense, net of interest income 6,238 6,237 12,473 12,379
-------------------------------------------------
Total expenses 86,442 74,476 165,644 146,826
-------------------------------------------------
Loss before income tax benefit (7,888) (2,928) (10,227) (3,711)
Income tax benefit - (990) (755) (1,123)
-------------------------------------------------
Net loss $(7,888) $(1,938) $ (9,472) $ (2,588)
=================================================
See accompanying notes.
1
FOUNTAIN VIEW, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
2001 2000
--------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 1,255 $ 346
Accounts receivable, less allowance for
doubtful accounts of $10,737 and
$9,961 at 2001 and 2000 55,075 53,668
Current portion of deferred income taxes 7,122 7,122
Other current assets 8,572 6,051
--------------------------
Total current assets 72,024 67,187
Property and equipment, at cost:
Land and land improvements 25,089 25,086
Buildings and leasehold improvements 216,844 218,328
Furniture and equipment 31,598 31,492
Construction in progress 1,541 618
--------------------------
275,072 275,524
Accumulated depreciation and amortization (41,012) (35,282)
--------------------------
234,060 240,242
Notes receivable, less allowance for
doubtful accounts of $710 and $697 at
2001 and 2000 4,434 5,507
Goodwill, net 54,088 55,014
Deferred financing costs, net 9,168 9,156
Deferred income taxes 3,922 3,922
Other assets 4,145 4,440
--------------------------
Total assets $381,841 $385,468
==========================
See accompanying notes.
2
FOUNTAIN VIEW, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands, except stock information)
June 30, December 31,
2001 2000
---------------------------------
(Unaudited)
Liabilities and Shareholders' Equity
Current liabilities:
Payable to banks $ 3,888 $ 3,128
Accounts payable and accrued liabilities 18,561 18,004
Employee compensation and benefits 8,466 7,959
Accrued interest payable 9,784 4,641
Current portion of deferred income taxes 332 332
Current maturities of long-term debt and
capital leases (Note 5) 223,111 223,871
---------------------------------
Total current liabilities 264,142 257,935
Long-term debt and capital leases, less
current maturities (Note 5) 17,047 17,409
Deferred income taxes 30,490 30,490
---------------------------------
Total liabilities 311,679 305,834
Preferred Stock Series A, mandatorily redeemable,
$0.01 par value: 1,000,000 shares authorized,
15,000 shares issued and outstanding at 2001
and 2000 (liquidation preference of $15 million) 15,000 15,000
Commitments and contingencies - -
Shareholders' equity:
Common Stock Series A, $0.01 par value:
1,500,000 shares authorized,
1,000,000 shares issued
and outstanding at 2001 and 2000 10 10
Common Stock Series B, $0.01 par value:
200,000 shares authorized, 114,202 shares
issued and outstanding at 2001 and 2000 1 1
Common Stock Series C, $0.01 par value:
1,300,000 shares authorized, 20,742
shares issued and outstanding at 2001 and 2000 - -
Additional paid-in capital 106,488 106,488
Accumulated deficit (48,797) (39,325)
Due from shareholder (2,540) (2,540)
---------------------------------
Total shareholders' equity 55,162 64,634
---------------------------------
Total liabilities and shareholders' equity $381,841 $385,468
=================================
See accompanying notes.
3
FOUNTAIN VIEW, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
June 30,
2001 2000
--------------------------------
Operating activities:
Net loss $(9,472) $(2,588)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 8,113 7,934
Write down of fixed assets related to facility closing 2,274 -
Changes in operating assets and liabilities:
Accounts receivable (1,407) (397)
Other current assets (877) 376
Accounts payable and accrued liabilities 590 1,469
Employee compensation and benefits 507 (430)
Accrued interest payable 5,143 742
Income taxes receivable (869) -
Deferred income taxes - (1,123)
--------------------------------
Total adjustments 13,474 8,571
--------------------------------
Net cash provided by operating activities 4,002 5,983
--------------------------------
Investing activities:
Principal payments on notes receivable 267 256
Additions to property and equipment (2,318) (1,744)
Changes in other assets 278 (211)
--------------------------------
Net cash used in investing activities (1,773) (1,699)
--------------------------------
Financing activities:
Increase in payable to bank 760 -
Additions to deferred financing costs (958) (416)
Decrease in capital lease obligations (495) (468)
Principal payments on long-term debt (2,500) (3,750)
Borrowing on revolving loan facility, net 1,873 350
--------------------------------
Net cash used in financing activities (1,320) (4,284)
--------------------------------
Increase in cash and cash equivalents 909 -
Cash and cash equivalents at beginning of period 346 -
--------------------------------
Cash and cash equivalents at end of period $ 1,255 $ -
================================
See accompanying notes.
4
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands)
1. Description of Business
Fountain View, Inc. ("Fountain View" or "Company") is a leading operator of
long-term care facilities and a leading provider of a full continuum of post-
acute care services, with a strategic emphasis on sub-acute specialty medical
care. Fountain View operates a network of facilities in California and Texas,
including 43 skilled nursing facilities ("SNFs") that offer sub-acute,
rehabilitative and specialty medical skilled nursing care, as well as six
assisted living facilities ("ALFs") that provide room and board and social
services in a secure environment. In addition, Fountain View provides a variety
of high-quality ancillary services such as physical, occupational and speech
therapy in Fountain View-operated facilities and unaffiliated facilities.
Fountain View also operates three institutional pharmacies (one of which is a
joint venture), which serve acute care hospitals as well as SNFs and ALFs, both
affiliated and unaffiliated with Fountain View, an outpatient therapy clinic and
a durable medical equipment ("DME") company.
2. Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. The balance sheet at December 31, 2000 has been
derived from the audited financial statements at that date. In the opinion of
management, the unaudited financial information reflects all adjustments (all of
which are of a normal recurring nature), which are considered necessary to
fairly state the Company's financial position, its cash flows and the results of
operations. These statements do not include all of the information and footnotes
required by accounting principles generally accepted in the United States for
complete financial statements and should be read in conjunction with the
Company's audited financial statements for the year ended December 31, 2000 as
filed on Form 10-K on April 16, 2001. The interim financial information herein
is not necessarily representative of that to be expected for a full year.
3. Business Segments
The Company has three reportable segments: nursing services, therapy services,
and pharmacy services. The Company's reportable segments are business units that
offer different services and products. The reportable segments are each managed
separately due to the nature of the services provided or the products sold.
The Company evaluates performance and allocates resources based on an efficient
and cost-effective operating model which maximizes profitability and the quality
of care provided across the Company's entire facility network. Certain of
Fountain View's facilities are leased, under operating leases, and not owned.
Accordingly, earnings before interest, taxes, depreciation, amortization and
rent is used to determine and evaluate segment profit or loss. Facility closing
costs are also not considered in evaluating the segment profit (loss) and are
thus excluded from the following table of selected financial data. Corporate
overhead is not allocated for purposes of determining segment profit or loss,
and is included, along with the Company's DME subsidiary in the "all other"
category in the selected segment financial data that follows. Intersegment
revenues are recorded at the Company's cost plus standard mark-up; intersegment
profit and loss has been eliminated in consolidation.
5
The following table sets forth selected financial data by business segment:
Selected Financial Data:
Nursing Therapy Pharmacy
Services Services Services All Other Totals
----------------------------------------------------------------------------
Six Months Ended June 30, 2001:
Revenues from external customers $133,531 $ 9,112 $12,708 $ 66 $155,417
Intersegment revenues - 12,234 3,089 4,461 19,784
----------------------------------------------------------------------------
Total revenues $133,531 $21,346 $15,797 $ 4,527 $175,201
============================================================================
Segment profit (loss) $ 22,056 $ 4,054 $ 671 $(8,589) $ 18,192
Six Months Ended June 30, 2000:
Revenues from external customers $125,341 $ 7,192 $10,485 $ 97 $143,115
Intersegment revenues - 12,153 2,992 4,057 19,202
----------------------------------------------------------------------------
Total revenues $125,341 $19,345 $13,477 $ 4,154 $162,317
============================================================================
Segment profit (loss) $ 22,120 $ 5,201 $ 1,281 $(8,441) $ 20,161
Six Months Ended
June 30,
2001 2000
---------------------
Revenues:
External revenues for reportable segments $155,417 $143,115
Intersegment revenues for reportable segments 19,784 19,202
Elimination of intersegment revenues (19,784) (19,202)
---------------------
Total consolidated revenues $155,417 $143,115
=====================
4. Income Taxes
The income tax benefit is calculated using a federal tax rate of 34% and a
blended state tax rate of 6%. The difference between the federal and blended
state tax rates and the effective rate is primarily due to the non-deductible
portion of goodwill. The Company has not recorded any increase to its deferred
tax asset in the second quarter of 2001 due to continuing losses and because the
Company has not met the more likely than not criteria under SFAS No. 109,
"Accounting for Income Taxes".
5. Debt
The Company is required to maintain certain financial covenants and to comply
with certain reporting requirements under its Term Loan and Revolving Credit
Facility Agreement. For the quarter ended June 30, 2001, the Company was not in
compliance with certain of these financial covenants. These covenant defaults
are in addition to the technical defaults more fully described in the Company's
December 31, 2000 financial statements. In addition, the Company was unable to
make the June 30, 2001 scheduled principal payment of $5,000 under the Term Loan
Facility. The Company has not yet obtained a waiver of any of these defaults
from its lenders under its Term Loan and Revolving Credit Facility Agreement and
such lenders may, as a result of these defaults, accelerate payment of the
amounts due under the credit facility. Also, the Company was unable to make a
required interest payment of $6,750 on its Senior Subordinated Notes, which was
due on May 15, 2001 (after giving effect to the Company's election to defer this
payment for 30 days). As a result, the holders of the Company's Senior
Subordinated Notes have the right, while this payment default continues, to
accelerate payment of the total outstanding amount under the notes. In July
2001, the Company received an acceleration notice from the holders of its Senior
Subordinated Notes, however, no additional steps have been taken by such holders
to collect the outstanding amounts under the notes in connection with this
acceleration.
6
The Company intends to continue discussions with its lenders and the holders of
its Senior Subordinated Notes, and consider all other options available to
resolve this situation and achieve a result that is favorable to all interested
parties. However, there can be no assurances that the Company will be able to
resolve this situation and achieve such a result. Since the holders of the
Company's Senior Subordinated Notes provided an acceleration notice to the
Company and since the Company's lenders under the Term Loan and Revolving Credit
Facility currently have the right to accelerate payment of the outstanding
amount of the loans, the Company has classified the obligations in respect of
the Senior Subordinated Notes and the loans under the Term Loan and Revolving
Credit Facility as current liabilities in the accompanying financial statements.
All of the events discussed above raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible outcome of these future events.
6. Deferred Financing Costs
The Company has been engaged in discussions with the holders of its Senior
Subordinated Notes and the lenders under its Term Loan and Revolving Credit
Facility to restructure its debt. As of June 30, 2001, the Company has incurred
costs related to these restructuring efforts of $958. These costs have been
deferred in the accompanying financial statements. Should the discussions result
in a restructuring of debt, these costs and any future costs that may be
incurred in connection with such restructuring will be amortized over the term
of the restructured debt. Should a restructuring of the debt of the Company not
occur, these costs will be expensed.
7. Facility Closing Costs
In June 2001, the Company closed a facility that it operated in Arizona
resulting in a second quarter charge of $4,123. These facility closing costs
include the write off of leasehold improvements and equipment of $2,274,
estimated future lease payments of $954, and other costs of $895.
8. Contingent Liability
In June 2001, a judge affirmed a verdict for a $5,800 judgment against the
Company in a professional liability case. Counsel for the Company has opined
that the verdict is fully covered by insurance. Consequently, the Company has
not accrued any amount related to this contingency as of June 30, 2001. The
Company has requested the insurance company post a bond to proceed with the
appeal. To date, the insurance company has declined to post the bond because
they are contesting their obligations in this matter. The Company does not have
the financial resources to post the appeal bond. The Company and plaintiffs
counsel have entered into a standstill agreement through August 14, 2001 under
which the plaintiffs have agreed not to attempt to exercise on the judgment.
Settlement discussions are in process, however, if this matter is not favorably
resolved and the plaintiffs lawyers attempt to exercise on the judgment, the
Company would have to consider other alternatives, including seeking bankruptcy
court protection in order to stay the judgment.
9. New Accounting Pronouncement
In June 2001, the Financial Accounting Standards Board voted to approve the
issuance of Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets". This statement significantly changes the
manner in which intangible assets are amortized. Among other provisions,
goodwill and other intangible assets with indefinite useful lives acquired prior
to June 30, 2001 will no longer be amortized, rather they will be reviewed
annually, or more frequently if impairment indicators arise, for impairment.
Calendar year-end companies are required to adopt SFAS No. 142 on January 1,
2002.
While the Company has not yet evaluated the effect that the adoption of SFAS No.
142 may have, there is the potential that it could have a significant negative
impact on the Company's financial position when adopted.
7
Item 2. Management's Discussion And Analysis of Financial Condition And Results
of Operations (Unaudited)
Quarter Ended June 30, 2001 Compared to Quarter Ended June 30, 2000 (Dollars in
Thousands)
Net revenues increased $7,006 or 9.8% from $71,548 for the quarter ended June
30, 2000 to $78,554 for the quarter ended June 30, 2001. Total average occupancy
was 81.8% for the quarter ended June 30, 2001 and 81.9% for the quarter ended
June 30, 2000. Although the total average occupancy declined slightly between
quarters, net revenues increased due to greater Medicare census in the current
quarter and rate increases experienced by us for both Medicare and Medicaid, and
increases in third party business at the therapy and pharmacy operations.
Expenses, consisting of salaries and benefits, supplies, purchased services,
provision for doubtful accounts, and other expenses, as a percent of net
revenues, increased from 84.9% of net revenues for the quarter ended June 30,
2000 to 89.3% for the quarter ended June 30, 2001. Expenses increased $9,391 or
15.5% from $60,735 for the quarter ended June 30, 2000 to $70,126 for the
quarter ended June 30, 2001. This increase was primarily due to increased
salaries and benefits which were 52.5% of net revenues for the quarter ended
June 30, 2000 compared to 54.7% for the quarter ended June 30, 2001. The
increase in salaries and benefits was due to additional personnel related to
expansion of our therapy operations, increases in staffing level and wages rates
at our nursing facilities, certain of which were mandated by the State of
California, and an increase in workers compensation costs.
Income before facility closing costs, charges related to the decertification of
a facility, rent, rent to related parties, depreciation and amortization and
interest expense decreased $2,385 or 22.1% from $10,813 for the quarter ended
June 30, 2000 to $8,428 for the quarter ended June 30, 2001 and was 10.7% of net
revenues for the quarter ended June 30, 2001 compared to 15.1% for the quarter
ended June 30, 2000. This decrease was largely a result of a decrease in
profitability at our nursing facilities and our therapy operation due to higher
operating expenses, including labor costs and professional liability and workers
compensation insurance costs.
In June 2001, we closed a facility that we operated in Arizona, which resulted
in a charge of $4,123 for the quarter ended June 30, 2001.
In December 2000, we obtained a new provider agreement from both the Medicare
and Medicaid Programs for our facility that had been decertified. As a result,
there is no charge related to the decertification of this facility for the
quarter ended June 30, 2001 compared to a charge of $1,715 for the quarter ended
June 30, 2000.
Rent, rent to related parties, depreciation and amortization and interest
expense increased $167 or 1.4% from $12,026 for the quarter ended June 30, 2000
to $12,193 for the quarter ended June 30, 2001.
Net loss was $7,888 for the quarter ended June 30, 2001 compared to a net loss
of $1,938 for the quarter ended June 30, 2000.
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000
(Dollars in Thousands)
Net revenues increased $12,302 or 8.6% from $143,115 for the six months ended
June 30, 2000 to $155,417 for the six months ended June 30, 2001. Total average
occupancy was 82.1% for the six months ended June 30, 2001 and 82.3% for the six
months ended June 30, 2000. Although the total average occupancy declined
slightly over this period, net revenues increased due to greater Medicare
census, rate increases in both Medicare and Medicaid, and increases in third
party business at our therapy and pharmacy operations.
Expenses, consisting of salaries and benefits, supplies, purchased services,
provision for doubtful accounts, and other expenses as a percent of net revenues
increased from 83.5% of net revenues for the six months ended June 30, 2000 to
88.3% for the six months ended June 30, 2001. Expenses increased $17,684 or
14.8% from $119,541 for the six months ended June 30, 2000 to $137,225 for the
six months ended June 30, 2001. This increase was primarily due to increased
salaries and benefits which were 51.8% of net revenues for the six months ended
June 30, 2000 compared to 54.4% for the six months ended June 30, 2001. The
increase in salaries and benefits was due to additional personnel related to
expansion of our therapy operations, increases in staffing level and wages rates
at our nursing facilities, certain of which were mandated by the State of
California, and an increase in workers compensation costs.
8
Income before facility closing costs, charges related to decertification of
facility, rent, rent to related parties, depreciation and amortization and
interest expense decreased $5,382 or 22.8% from $23,574 for the six months ended
June 30, 2000 to $18,192 for the six months ended June 30, 2001 and was 11.7% of
net revenues for the six months ended June 30, 2001 compared to 16.5% for the
six months ended June 30, 2000. This decrease was largely due to a decrease in
profitability at our nursing facilities and our therapy operation due to higher
operating expenses, including labor costs and professional liability and workers
compensation insurance costs.
In June 2001, we closed a facility that we operated in Arizona. As a result,
there is a charge of $4,123 for the six months ended June 30, 2001.
In December 2000, we obtained a new provider agreement from both the Medicare
and Medicaid Programs for our facility that had been decertified. As a result,
there is no charge related to the decertification of this facility for the six
months ended June 30, 2001 compared to a charge of $3,413 for the six months
ended June 30, 2000.
Rent, rent to related parties, depreciation and amortization and interest
expense increased $424 or 1.8% from $23,872 for the six months ended June 30,
2000 to $24,296 for the six months ended June 30, 2001.
Net loss was $9,472 for the six months ended June 30, 2001 compared to a net
loss of $2,588 for the six months ended June 30, 2000.
Selected statistics are shown below:
2001 2000 (Decrease)
--------------------------------------
Facilities in operation at:
March 31 50 50 -
June 30 49 50 (1)
Nursing center beds at:
March 31 6,032 6,032 -
June 30 5,882 6,032 (150)
Assisted living beds at:
March 31 700 700 -
June 30 700 700 -
Total beds at:
March 31 6,732 6,732 -
June 30 6,582 6,732 (150)
Total occupancy:
First quarter 82.5% 82.7% (0.2)%
Second quarter 81.8% 81.9% (0.1)%
Nursing center occupancy:
First quarter 84.3% 84.4% (0.1)%
Second quarter 83.5% 83.5% -
Assisted living center occupancy:
First quarter 66.2% 68.6% (2.4)%
Second quarter 66.6% 68.8% (2.2)%
9
Liquidity and Capital Resources (Dollars in Thousands)
Going Concern Issues
We are required to maintain certain financial covenants and to comply with
certain reporting requirements under our Term Loan and Revolving Credit Facility
Agreement. For the quarter ended June 30, 2001, we were not in compliance with
certain of these financial covenants. These covenant defaults are in addition
to the technical defaults more fully described in our December 31, 2000
financial statements. In addition, we were unable to make the June 30, 2001
scheduled principal payment of $5,000 under the Term Loan Facility. We have not
yet obtained a waiver of any of these defaults from our lenders under our Term
Loan and Revolving Credit Facility Agreement and such lenders may, as a result
of these defaults, accelerate payment of the amounts due under the credit
facility. Also, we were unable to make a required interest payment of $6,750 on
our Senior Subordinated Notes, which was due on May 15, 2001 (after giving the
effect to our election to defer this payment for 30 days). As a result, the
holders of our Senior Subordinated Notes have the right, while the payment
default continues, to accelerate payment of the total outstanding amount under
the notes. In July 2001, we received an acceleration notice from the holders of
our Senior Subordinated Notes, however, no additional steps have been taken by
such holders to collect the outstanding amounts under the notes in connection
with this acceleration.
We intend to continue discussions with our lenders and the holders of our Senior
Subordinated Notes, and consider all other options available to resolve this
situation and achieve a result that is favorable to all interested parties.
However, there can be no assurances that we will achieve such a result. Since
the holders of our Senior Subordinated Notes provided an acceleration notice to
us and since our lenders under the Term Loan and Revolving Credit Facility
currently have the right to accelerate payment on the outstanding amount of
these loan, we have classified the obligations in respect of the Senior
Subordinated Notes and the loans under the Term Loan and Revolving Credit
Facility as current liabilities in the accompanying financial statements.
We believe we will be able to generate sufficient cash flow from operations to
meet our normal ongoing operating needs exclusive of future principal payments
on the Term Loan Facility, and the principal and interest due on the Senior
Subordinated Notes. However, given our declining operating results and the
relatively small existing cash balances, there can be no assurance that we will
be able to meet such obligations.
All of the events discussed above raise substantial doubt about our ability to
continue as a going concern. The financial statements do not include any
adjustments to reflect the possible outcome of these events.
Other
At June 30, 2001, we had $1,255 in cash and cash equivalents and a working
capital deficiency of $192,118, after the reclassification of certain of our
debt to current as discussed above, compared to $346 in cash and cash
equivalents and working capital deficiency of $190,748 at December 31, 2000.
Net cash provided by operating activities decreased $1,981 from $5,983 for the
six months ended June 30, 2000 to $4,002 for the six months ended June 30, 2001.
This decrease was primarily due to an increase in net loss between quarters.
Long-term debt, including current maturities, totaling $240,158 at June 30,
2001, consisted of mortgage and capital lease obligations of $17,785, a Term
Loan Credit Facility of $75,000, Senior Subordinated Notes of $120,000, and
borrowings on our Revolving Loan Facility of $27,373.
We had $2,127 in available borrowings on our revolving loan facility at June 30,
2001 after giving effect to a $500 outstanding letter of credit relating to a
previous year's workers' compensation program. As a result of the defaults
mentioned in the preceding paragraphs, we do not have access to the unused
portion of the revolving loan facility until the defaults are cured or a waiver
is obtained from the Senior Bank Group.
10
Impact of Inflation
The health care industry is labor intensive. Wages and other expenses increase
more rapidly during periods of inflation and when shortages in the labor market
occur. In addition, suppliers pass along rising costs in the form of higher
prices. Increases in reimbursement rates under Medicaid generally lag behind
actual cost increases, so that we may have difficulty covering these cost
increases in a timely fashion. In addition, Medicare SNFs are now paid a per
diem rate under PPS, in lieu of the former cost-based reimbursement rate.
Increases in the federal portion of the per diem rates may also lag behind
actual cost increases.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 relating to
future events or our future financial performance including, but not limited to,
statements contained in "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations". These forward-looking statements
may include, among other things, the success of our business strategy, our
ability to develop and expand its business in regional markets, our ability to
increase the level of sub-acute and specialty medical care it provides, the
effects of government regulation and healthcare reform, litigation, our
anticipated future revenues and additional revenue opportunities, capital
spending and financial resources, our liquidity demands, our ability to meet our
liquidity needs, and other statements contained in this Quarterly Report on Form
10-Q that are not historical facts. Although we believe that the assumptions on
which these forward-looking statements are based are reasonable, any of those
assumptions could prove to be inaccurate and, as a result, the forward-looking
statements based on those assumptions also could be materially incorrect.
Readers are cautioned that such forward-looking statements, which may be
identified by words including "anticipates," "believes," "intends," "estimates,"
"plans," and other similar expressions, are only predictions or estimations and
are subject to known and unknown risks and uncertainties, over which we have
little or no control. In evaluating such statements, readers should consider the
various factors identified above which could cause actual events, performance or
results to differ materially from those indicated by such statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Certain of our debt obligations are sensitive to changes in interest rates. The
rates on the term loan credit and revolving loan facilities, which both bear
interest at LIBOR plus an applicable margin, are reset at various intervals,
thus limiting their risk. We have not experienced significant changes in market
risk due to the relative stability of interest rates during the six months ended
June 30, 2001.
PART II - OTHER INFORMATION
Item 3. Defaults Upon Senior Securities (Dollars in Thousands)
We are currently in default in the payment of interest on our Senior
Subordinated Notes in the amount of $6,750, which was due on April 16, 2001.
The total amount of interest on our Senior Subordinated Notes in arrears,
including any additional interest, penalties and charges, on the date of this
report is approximately $7,026. In addition, we are currently in default on
the payment of principal due under our Term Loan Facility. The total amount of
principal in arrears under our Term Loan Facility, including any additional
interest, penalties and charges, on the date of this report is $5,000.
Item 5. Other Information
Our Chief Financial Officer, Paul C. Rathbun, has resigned effective August 17,
2001. Richard Kam, our Senior Vice President of Finance and Administration,
will assume these responsibilities on an interim basis.
Item 6. Exhibits and Reports on Form 8-K
We did not file any reports on Form 8-K during the six months ended June 30,
2001.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FOUNTAIN VIEW, INC.
Date: August 14, 2001 By: /s/ PAUL C. RATHBUN
------------------------------------
Paul C. Rathbun
Executive Vice President - Finance,
Chief Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
Date: August 14, 2001 By: /s/ RICHARD KAM
-------------------------------
Richard Kam
Senior Vice President - Finance and
Assistant Secretary
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